Asia-Pacific insurers will see a fall in underwriting profitability towards the end of the 2004 financial year, predicted Standard & Poor's (S&P).
“The prosperity seen over the past 12 months may be short lived,” said S&P credit analyst and Asia-Pacific ratings head Ian Thompson.
“Although profits are expected for the 2004 underwriting year, they will be below those reported in 2003.”
Behind the expected decline in underwriting profitability is easier and cheaper access to the reinsurance market throughout the region in what S&P said remained an overpopulated market.
“The industry's resolve will be tested as ready access to the insurance market coupled with a glut of domestic players vying for market share may result in the erosion of underwriting discipline and pricing adequacy in the region,” said Thompson.
The weakening of the markets' resilience to the poor operating conditions is a blow for the industry, said the company. The past two years have seen underwriting discipline improve due to increased reinsurance costs and reduced capacity.
Premium growth has also been boosted by the recovery of Asia's economy, as well as by improved pricing and insurance penetration in a number of markets, it said.
But despite the current weakening, the resilience of the market has nevertheless been noteworthy, with the industry remaining in a stronger position than prior to its upturn in 2003, Thompson said.
“The turbulence suffered by the Asia-Pacific insurance markets over the past six years as a result of the collapse in insurance growth across the region, SARS, investment volatility, the deregulation of insurance markets, undisciplined competition, uncommitted capacity, and domestic pressures, is unprecedented.
“Although the industry's profitability is again under pressure, the level of resilience displayed has been impressive.
”To maintain a vestige of resilience against market pressures, participants need to continue to rebuild their balance sheets, and strengthen both their reserving levels and capitalization after years of underpricing,” added Thompson.
