asian re insurance update - catastrophes lead to price increases 8sep11

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  • 8/4/2019 Asian Re Insurance Update - Catastrophes Lead to Price Increases 8Sep11

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    INSURA

    SEPTEMBER 8, 2011

    Analyst Contacts:

    SYDNEY 61.2.9270.81114

    Wing Chew 61.2.9270.8176

    Vice President-Senior Analyst

    [email protected]

    HONG KONG 852.3758.1300

    Sally Yim 852.3.758.1450

    Vice President-Senior Credit Officer

    [email protected]

    SECTOR COMMENT Asian Reinsurance Update: CatastrophesLead to Price IncreasesExtracted from "Moody's Reinsurance Monitor", dated September 7, 2011

    A year of major natural disasters, including the Japanese earthquake, leadsto significant price increases

    The recent floods, earthquakes and tsunamis which have struck Asia are a constant reminderthat countries in the region are highly exposed to natural disasters. However, due to limitedinsurance penetration in the emerging markets, insured losses have so far been limited. Incontrast, insured losses from natural disasters in Australia, New Zealand and Japan during2011 have been substantial, and the cost of property catastrophe reinsurance protection hassignificantly increased.

    In the case of Japan where earthquake coverage for dwellings is substantially reinsured by agovernment-sponsored reinsurance pool-- the share of international reinsurers of insuredlosses is much lower relative to the amounts retained by domestic insurers. However,international reinsurers will still bear a meaningful share of the claims from the March 11earthquake, because of their exposure to Japans insurance cooperatives (mutuals). They alsohave exposure to the Big 3 non-life insurance groups (Tokio Marine, KKSJ and MS&AD)for commercial and industrial earthquake insurance.

    After some delay on the part of Tokio Marine, all the Japanese insurers have completed theirreinsurance program renewals. The March earthquake and tsunami complicated the renewalprocess, and each insurer dealt with the hike in reinsurance pricing in their own way. Someaccepted the rate increases without amending their programs, and others increased theirretentions to reduce the financial impact.

    Even though Japans non-life business is dominated by the Big 3, the P&C insurance entitieswithin the groups are still operating as separate entities and continue to arrange reinsuranceprotection for their own accounts. As there are no immediate plans to merge the P&Coperating entities, we are not expecting any significant contraction in the demand forreinsurance.

    mailto:[email protected]://www.moodys.com/viewresearchdoc.aspx?docid=PBC_135618http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_135618http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_135618http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_135618mailto:[email protected]
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    INSURANCE

    2 SEPTEMBER 8, 2011 SECTOR COMMENT: ASIAN REINSURANCE UPDATE: CATASTROPHES LEAD TO PRICE INCREASE

    Asia (ex-Japan): Demand for reinsurance to continue to grow

    With strong growth forecasts for most of the Asian economies, the demand for insurance will continueto grow and, given the often smaller capital bases of the domestic insurers, they will need reinsurance

    support for major infrastructure projects and property catastrophe cover. Even though the nationalreinsurers are tasked by their sponsoring governments to play greater roles, there will still be a need forforeign reinsurance capacity and technical expertise in the areas of risk management, as well asengineering and product development.

    Although national reinsurers in Asia have competed with international players to write the businessoriginating within their domestic markets, there is a limit as to how much domestic business they canprudently underwrite. For example, in response to higher claims, Indias state-owned GeneralInsurance Corporation ( GIC) has tightened underwriting conditions and reduced reinsurancecapacity. Furthermore, a number of national reinsurers -- like Indias GIC and Korean Re -- haverecognized their concentration risks and have sought to diversify by accepting cessions from othercountries in the region. China Reinsurance ( Group ) Co, Chinas biggest reinsurer, has likewise

    announced plans to expand its global footprint. Therefore, established international reinsurers, whilecompeting against these national reinsurers to write business in Asia, may also soon face challengesfrom some of these same entities in their respective home markets.

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    INSURANCE

    3 SEPTEMBER 8, 2011 SECTOR COMMENT: ASIAN REINSURANCE UPDATE: CATASTROPHES LEAD TO PRICE INCREASE

    Report Number: 135700

    AuthorsWing ChewSally Yim

    Production AssociateJoaquin Jimenez

    2011 Moodys Investors Service, Inc. and/or its licensors and affiliates (collectively, MOODYS). All rights reserved.

    CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (MIS) CURRENT OPINIONS OF THE RELATIVE FUTURECREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS TH

    RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANYESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK,INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOSTATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIALADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES.CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MISISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWSTUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

    ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NOOF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERREDDISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR INPART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODYS PRIOR WRITTENCONSENT. All information contained herein is obtained by MOODYS from sources believed by it to be accurate and reliable. Becausof the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS ISwithout warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is osufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources.However, MOODYS is not an auditor and cannot in every instance independently verify or validate information received in the ratingprocess. Under no circumstances shall MOODYS have any liability to any person or entity for (a) any loss or damage in whole or in pcaused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside th

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    MIS, a wholly-owned credit rating agency subsidiary of Moodys Corporation (MCO), hereby discloses that most issuers of debtsecurities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS haveprior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 toapproximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MISs ratings andrating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and betweenentities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posannually atwww.moodys.comunder the heading Shareholder Relations Corporate Governance Director and ShareholderAffiliation Policy.

    Any publication into Australia of this document is by MOODYS affiliate, Moodys Investors Service Pty Limited ABN 61 003 399 657which holds Australian Financial Services License no. 336969. This document is intended to be provided only to wholesale clientswithin the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, yourepresent to MOODYS that you are, or are accessing the document as a representative of, a wholesale client and that neither you the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning ofsection 761G of the Corporations Act 2001.

    Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moodys Japan K.K. (MJKK) are MJKKs curreopinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. In such a case, MIS in theforegoing statements shall be deemed to be replaced with MJKK.

    MJKK is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moodys OverseasHoldings Inc., a wholly-owned subsidiary of MCO.

    This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer oany form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decisionbased on this credit rating. If in doubt you should contact your financial or other professional adviser.

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