Aon Benfield announced that it is “advising re/insurers that rating agencies are likely to increase their scrutiny of catastrophe risk in Asia and that many companies will have to make substantial investments to address this.”
The bulletin noted that the methods the rating agencies use to analyze insurers and reinsurers are undergoing changes. They’re being reconsidered in the light of the recent Indonesian earthquake and the flooding in Pakistan, which Aon said is “evidence of the region’s exposure to natural disasters.” However, it also indicated that the events in Indonesia and Pakistan, while causing extensive local devastation, have not severely impacted global re/insurers due to low insurance penetration in these countries.”
The problems could increase, however, as “insurance penetration grows and economies develop in Asia Pacific.” Aon explained that “re/insurers will play an increasingly important role in funding the recovery from such disasters. This will increase rating agency scrutiny of re/insurer catastrophe risk, including the quality of data collected, the systems used to monitor exposures and the models used to determine Probable Maximum Losses.”
Up to now the rating agencies have been “restricted in their analyses due to the lack of catastrophe models for many Asian perils, in particular flood and tsunami,” Aon said. “Also, many insurers historically relied on CRESTA level aggregates with little detail. Data quality is improving as insurers invest in systems capable of capturing location and construction information of a global best practice standard.”
Rade Musulin, COO of Aon Benfield Analytics in Asia Pacific, commented: “While rating agencies have always considered catastrophe risk in rating companies in Asia Pacific, their focus on the issue will increase as the insurance system plays a greater role in funding natural disaster losses in the region.
“Re/insurers with significant catastrophe exposure wishing to earn strong ratings will have to make substantial investments in several areas such as technological solutions to capture data and human capital to evaluate, underwrite, price, and reinsure property exposures. Many of these tasks will take years to implement, meaning re/insurers in Asia Pacific must make investments today to meet requirements likely to be imposed in coming years.”
Kelly Superczynski, global head of Aon Benfield Analytics’ Rating Agency Advisory group, added: “Rating agencies are focused on catastrophe risks for re/insurers that are underwriting property exposure in regions subject to natural disasters, which has been standard practice for quite some time now.
“Globally what differs is the sophistication and ability for companies to measure this with some degree of accuracy, and the rating agencies’ expectation is that this will improve in many of the ’emerging markets’ in the near future. With catastrophe risk playing an important role in deciding the insurer’s capital adequacy, rated companies must demonstrate how they monitor their exposures, how they measure the possible financial impact of natural disasters, and how they plan to fund losses through reinsurance or other sources of capital.”
Source: Aon Benfield
Topics Catastrophe Carriers Agencies Reinsurance Aon
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