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APAC reinsurers to log single digit growth, face decline in investment income

New Delhi, Oct 29: The reinsurers in the Asia Pacific (APAC) region face single digit growth rate, declining investment income, higher claims and others, said S&P Global Ratings on Friday.

India’s General Insurance Corporation is one of the major reinsurers in the region.

In its report titled “Asia-Pacific Reinsurance Sector Update: Volatility Ahead For Risks And Returns”, the credit rating agency said the Asia Pacific reinsurers are facing downside risks amid global headwinds.

Commenting that the reinsurers in the region have to do a better underwriting job, S&P Global said the APAC reinsurers are highly dependent on investment returns to cushion underwriting shortfalls compared with top 21 global reinsurers.

Global headwinds should reduce investment returns over the next 12- 24 months. For most APAC reinsurers, 2021 underwriting performances are closer to their five-year average levels. Claims are back to pre-pandemic levels following resumption in economic activities and reopening of borders, the report notes.

According to S&P Global, the APAC reinsurers are expected to evolve risk management to facilitate profitable underwriting. Still wide natural catastrophe protection gap in Asia-Pacific will facilitate growth amid rising demand on catastrophe cover.

Volatile capital markets, rising counterparty risks, and diverging interest rate trends will weigh on earnings and reduce capital cushions for regional reinsurers.

“We expect most of the rated regional reinsurers to revise asset allocations amid rate hikes in certain countries, capital market volatility, and inflationary pressures on hedging costs. Regional reinsurers continue to have relatively higher allocation to risky assets (e.g., equities, real estate) compared with global peers, to boost investment returns. Asset mix remains stable, largely comprises fixed-income securities and equities,” S&P Global said.

As regards, the premium growth rate for reinsurers in the APAC region, S&P Global predicts it will be in mid single digits benefitting from underinsurance within the region and hardening of global rates amid macroeconomic headwinds.

The reinsurers in a tactical move are now increasing their exposure to the life insurance segment, it has led to increased risky-asset allocation to meet yield pressures, and product revisions for some reinsurers to manage solvency capital requirements.

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