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Asian reinsurance markets: long-term opportunities prevail over current challenges

The 1st Asia Reinsurance Barometer, published by the Qatar Financial Centre (QFC) Authority, finds that the region’s reinsurance markets are still bustling with confidence, although the outlook on pricing and profitability for the next twelve months is slightly waning. Asia’s strong economic growth is seen as the market’s key attraction. Reinsurance exposure and premium growth is expected to outpace regional Gross Domestic Product (GDP) growth.

Based on in-depth interviews with senior reinsurance executives and intermediaries operating in the region, the Asia Reinsurance Barometer examines the current and near-term market opportunities, challenges and key trends in the $30bn Asian non-life reinsurance market. The executives polled see the region’s economic and insurance growth momentum as its most relevant strength. Reinsurance exposure and premium growth are expected to continue to outpace regional GDP growth, driven by the accumulation of insurable assets in catastrophe exposed areas and low penetration rates.

In light of Asia’s growths dynamics, 96% of respondents expect a further increase in reinsurance capacity (supply) over the next 12 months. This trend is a concern for most reinsurers as margins will come under additional pressure. However, it is also welcome by brokers and cedants as it broadens their choice of providers. 69% of polled executives expect retention levels, the amount of risk retained by primary insurers, to increase over the next 12 months, mainly due to mounting pressure from shareholders and ratings agencies to retain a higher portion of profitable business. 62% of survey participants believe that reinsurance prices will decline over the next year. The high catastrophe losses in 2011 only had a limited and short-lived impact on prices as capacity was quickly replenished. Terms and conditions will remain stable, as expected by 54% of respondents.

The overall reinsurance business sentiment in Asia is positive. (Re)insurance markets are set to expand further on the back of population growth, low average insurance penetration and an accelerating pace of product innovation. Measured on a scale from -5 to +5 (very bearish to very bullish) average sentiment stood at 1.9. The trend, however, is negative: about 12 months ago business confidence stood at 2.3. Over the next 12 months it is expected to deteriorate to 1.7, mainly as a result of an expected economic slowdown and a negative outlook on reinsurance prices.

Shashank Srivastava, Chief Executive Officer and Board Member of the QFC Authority, said, “Asia is one of the fastest growing reinsurance markets in the world and a strategic priority for any aspiring international reinsurer. Given the ever-closer economic ties between Qatar and Asia, it was only natural for the QFC Authority to extend its proven Barometer survey to the Asian reinsurance marketplace.”