In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for Asia Pacific.
Key developments in 2021
In a continuing hard market, insurance premium rates in Asia have increased through 2021, although at levels below the global average (and with increases across certain lines moderating). While rate rises have remained robust in the financial lines space, we have seen property rates moderate and, for casualty, achieving increases has proved more challenging.
Numerous large business interruption, event cancellation and trade credit claims arising out of the COVID-19 pandemic have been resolved during 2021. However, the road to recovery from COVID-19 has been far from smooth and the broader economic challenges are continuing to impact insurers. In September 2021, Evergrande, China's second largest property developer, which has been on the brink of collapse for several months, missed an US$83.5 million interest payment due on a dollar-denominated bond. Evergrande's debt problems pose a systemic risk to China's financial system and its default is having a domino effect, with other Chinese property developers now starting to follow suit. Insurers heavily invested in the Asian real estate market, particularly Chinese property bonds, risk significant losses from the crisis. China's insurance watchdog has since issued a draft guideline to enhance regulation over insurance companies, which is likely to mean added scrutiny and amplified reporting requirements for insurers operating in China.
Many construction projects delayed by COVID-19 are now back underway, although the outlook for the construction insurance market remains mixed. While many jurisdictions across Asia continuing to see high levels of investment in large scale projects, certain carriers have scaled back their appetite for construction risks, having experienced significant losses in recent years.
The cyber market has been volatile, with 25% of global cyber-attacks in 2021 occurring in Asia, but with capacity challenges and many insurers narrowing the terms of key cover, particularly in light of worsening claims experiences arising from ransomware attacks.
As always, however, it is not doom and gloom across the board. Despite trade credit insurers still working through some significant COVID-19 related losses, the anticipated rise in insolvencies moving into 2022, as governments are expected to turn off the support taps, has served to further drive up demand for trade credit insurance in Asia.
The same fear is also supporting the sustained growth of the D&O insurance market in the region. Increased demand for D&O products has also been driven by the marked increase in US securities class actions being brought against foreign issuers. Chinese companies have been the prime target, accounting for 55% of filings against non-US issuers in the third quarter of 2021 alone.
Insurance-linked securities ("ILS") in the form of catastrophe bonds also enjoyed a record first half in 2021 and the market is showing no signs of losing momentum. The liquidity of ILS and scope for diversification are appealing factors. In Singapore, the ILS grant scheme, developed by the Monetary Authority of Singapore to fund upfront costs in ILS bond issuances, has been extended to December 2022 and tax neutrality is being offered for ILS vehicles until December 2023.
What to expect in 2022
Continuing COVID-19 restrictions in most Asian jurisdictions, potential challenges in the property market (whether related to Evergrande or otherwise) in combination with global supply chain issues, rising energy prices, increasing inflation and the withdrawal in temporary pandemic relief measures suggest that 2022 will be a bumpy ride for the Asian insurance market, even without further resurgent COVID-19 outbreaks (which are, of course, inevitable).
The continued growth in cyber claims is expected to continue into 2022 as cyber criminals continue to become more sophisticated. Asia remains an attractive target, particularly given as it is set to overtake the US as the largest market for data centres by 2024.
The longer-term effects of COVID-19 are likely to continue in the form of insolvencies in 2022, potentially leading to a further increase in D&O and trade credit claims. On the back of the current hard market in both sectors, we should expect further rate increases for these high-demand products, in conjunction with increased focus by insurers on policy terms and pre-inception enquiries. In contrast, other lines of insurance business can expect to see diminishing rate increases as premiums stabilise.
Political violence (re)insurers are expected to remain cautious amid growing concerns as to the potential for international sanctions, the political uncertainty in Myanmar and broader potential for social and political unrest in various countries around the region as countries wrestle with the economic challenges of transiting to a post-COVID-19 era.
Further growth in renewables can be expected, particularly in the solar and onshore/offshore wind spheres. Consumer awareness is also feeding mounting consumer and regulatory pressure on insurers to perform in accordance with ESG principles, including being selective of the types of businesses they choose to insure, particularly within the oil and gas sector. Growing interest in the ESG agenda is also expected to further propel the ILS market's long-term growth into 2022 and beyond.
Written by Alex Derham.
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