Primary insurance companies from Central and West Asia have increased their attention to international reinsurance business as they seek to diversify their existing domestic books of business and establish a presence in foreign markets, according to a report by AM Best.
Economic sanctions on Russia in 2022 banned transactions with Russian carriers and reduced reinsurance capacity for certain risks. This loss, previously the main source of affordable reinsurance, has opened opportunities for local carriers to fill the gap.
Increasing weather-related losses have pressured regional insurers' profit margins and made these markets less attractive. As a result, some reinsurers have reduced their exposure, decreasing reinsurance capacity.
“At the same time, the operating environment in most Central and West Asia insurance markets remains highly competitive, given the small market size and increasing number of insurers chasing a small premium base. This limits insurers’ ability to achieve domestic organic growth,” said the report.
In Kazakhstan and Uzbekistan, for example, despite the consistent efforts of the authorities to develop new products and improve regulation, the population appears reluctant to buy insurance products, as individuals typically see insurance as a tax rather than a benefit to society.
In AM Best’s opinion, as carriers in Central and West Asia grow their inwards reinsurance books (both domestically and internationally), they face a number of risks.
AM Best recognised that insurers expanding their reinsurance portfolios have achieved good revenue growth, not only due to the volumes of new business but also thanks to higher premium rates for renewals in the recent hard market.
“Nonetheless, many of the regional carriers that are new to the reinsurance segment may lack sufficient understanding and appropriate underwriting capabilities, and may lack the ability to set rates, dictate policy language or dictate coverage terms and limits. This might impact price setting, policy language and cover terms and limits on foreign business,” the ratings agency said.
In the absence of robust risk management capabilities related to loss aggregation and accumulation management, the performance of the inwards reinsurance business is subject to uncertainty. For example, AM Best noted that not all regional reinsurers have sufficient retrocession cover due to its high cost. This may lead to an accumulation of loss exposures.
In respect of their international business, Central and West Asia carriers typically assume risks on a facultative basis or subscribe for a small share of risks in proportional and non-proportional treaties. Underwriting profitability is contingent on prudent risk selection, especially when carriers write risks on a follower basis and accept the cover terms of the lead underwriter.