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Market Anticipates Low Single-Digit Rate Increases Amid Sovereign Risk Concerns

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As market participants shift their attention towards sovereign risk, an early consensus is emerging, suggesting that low single-digit rate increases may be on the horizon.

Early projections suggest that property cat renewals in the Asia Pacific markets will see risk-adjusted rate increases in the low single-digit range. This comes as most of the “heavy lifting” has been done at the 2023 renewals. According to sources, the renewal at 1 January is expected to be more stable, with only modest increases for property covers.

Gallagher Re Asia Pacific managing director, Mark Morley, stated that there is currently no indication of any capacity shortfall for the region’s 1.1 renewals. He expressed hope for a more rational and predictable renewal this time, based on the conversations they have had so far.

Reinsurers at the Singapore International Reinsurance Conference also share a similar sentiment, except for markets that have experienced losses in recent years. Markets such as Malaysia and the Philippines have faced increased scrutiny from reinsurers due to elevated cat losses.

In terms of more mature markets in the region, South Korea’s P&C market had an aggregate 103 percent combined ratio in 2022, mainly due to elevated losses.

One recurring theme at the conference is the desire to increase the provision of solutions for sovereign risk pools. Existing sovereign pools are considering the creation of a joint reinsurance facility to optimize the use of capital. Sovereign clients have become more comfortable with basis risk, leading to an uptick in demand for reinsurance solutions.

Ravi Menon, managing director of the Monetary Authority of Singapore, highlighted sovereign risk pools as one of three forms of alternative risk transfer that the regulator is looking to encourage in Singapore, alongside ILS and captive solutions. Sovereign-focused risk-financing solutions are seen as the most viable option for countries to manage natural catastrophe risks, especially for vulnerable communities that cannot afford privately funded insurance.

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