AM Best urges caution as Central and Western Asian insurers expand

A reduction in the provision of globally sourced reinsurance capacity to markets in Central and West Asia following recent losses and the loss of Russian reinsurance capacity has prompted some domestic insurers to step up to try to fill the gap by seeking expansion in foreign markets, says AM Best. This strategy could be beneficial for the carriers’ overall market profiles should they successfully achieve profitable growth, but also poses substantial risks for those insurers that lack appropriate expertise or knowledge in the segment or market into which they are expanding, notes the ratings agency. “The operating environment in most Central and West Asian insurance markets remains highly competitive, limiting insurers’ ability to achieve domestic organic growth. The insurers’ risk management capabilities vary significantly, with many of the carriers that are new to the reinsurance segment lacking sufficient experience and underwriting expertise,” states AM Best in its new report on the region. “Primary insurance companies from Central and West Asia are increasingly turning to international reinsurance business as they seek to diversify their existing domestic books of business and establish a presence in foreign markets. The international economic sanctions imposed on Russia in 2022 effectively banned counterparties from transacting with Russian carriers and led to the withdrawal of rated capacity for particular risks. The withdrawal of Russian capacity – previously the main source of affordable reinsurance in the region – created a gap in the market upon which other local carriers have been looking to capitalise,” it adds. At the same time, an increase in the frequency and severity of weather-related losses in the region has placed additional pressure on regional insurers’ profit margins and reduced the attractiveness of these markets. This has led some reinsurers to scale back their exposure in the region, further reducing the supply of reinsurance capacity. Added to this, the operating environment in most Central and West Asia insurance markets remains highly competitive, given the small market size and increasing number of insurers chasing a small premium base. This limits insurers’ ability to achieve domestic organic growth, says the ratings agency. “In Kazakhstan and Uzbekistan, for example, despite the consistent efforts of the authorities to develop new products and improve regulation, the population appears reluctant to buy insurance products, as individuals typically see insurance as a tax rather than a benefit to society,” it explains. The agency urges caution with expansion into reinsurance markets despite relatively hard conditions in recent times. “In AM Best’s opinion, as carriers in Central and West Asia grow their inwards reinsurance books (both domestically and internationally), they face a number of risks. AM Best recognises that insurers expanding their reinsurance portfolios have achieved good revenue growth, not only due to the volumes of new business but also thanks to higher premium rates for renewals in the recent hard market. Nonetheless, many of the regional carriers that are new to the reinsurance segment may lack sufficient understanding and appropriate underwriting capabilities, and may lack the ability to set rates, dictate policy language or dictate coverage terms and limits. This might impact price setting, policy language and cover terms, and limits on foreign business,” concludes AM Best.

AM Best urges caution as Central and Western Asian insurers expand

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