Asia to see continued rate increases in 2022, says Aon’s Asia Market Review

The volatility of the last two years has brought the interconnectivity of risk into sharper focus in Asia, and this year will see continued rate increases across most lines in the region, according to Aon’s 2022 Asia Market Review: Managing Risk In Connected Asia.

The report provides Aon’s predictions for a number of classes, from property and casualty, through to cargo, cyber and D&O. In the foreword, Anne Corona, Aon’s chief executive officer, Asia-Pacific, states: “Businesses are now more open than ever before to map current and underrated risks against their risk appetite early on, embracing better strategies to protect their organisations from volatility.”

On the property side, the report notes that there were no significant catastrophic events hitting Asia in 2021, resulting in a healthy claims margin overall in the property space. Aon expects rates for nat cat-exposed risks to be +5% to +15%, and for non-nat cat exposed risks to be flat to +10%. It says market differentiation in rate increases will start to widen between heavy and light industries, while market capacities are expected to stabilise.

For casualty business, the report says the market is expected to be slow throughout the year, with rates flattening, assuming no large losses occur in 2022. Aon expects rates to be flat to +5%, adding that demand for clients with good risk management in benign industries is set to increase. However, existing relationships in ‘difficult’ industries need to be maintained and built upon as no new insurer capacity seems to be on the horizon, it warns.

The report states: “Insurers are wary of new technology with unknown potential losses, evolving best practices and possible sharp rises in demand/sales. In most cases involving new technology, insurers need to be taken along the client journey to fully understand the exposures before they can be comfortable with the risk and support the full product cycle.”

The report points out that 2021 was the most challenging year yet for the cyber insurance market. Looking ahead, Aon believes market conditions will remain challenging with no immediate or significant softening due to persisting global threats, although adjustments look set to be less severe than 2021, with rate movements in the range +15% to +75%. However, demand is expected to increase irrespective of challenging market conditions, as customers across various industries recognise key risks and view their policies as essential.

The D&O marketplace experienced another year of extreme volatility, the report says, with special-purpose acquisition company (SPAC) transactions proving to be the most challenging of risks, alongside Chinese-US-listed entities.

“A greater underwriting acceptance of SPAC D&O risk is difficult to contemplate, but non-Chinese-US risks will balance it out as domestic D&O risk looks set to benefit from less hubris and rational underwriting. As capacity continues to increase, a much-needed balance will be added to pricing models, particularly where increased limit factor curves are challenged,” the report states, adding that rates for US risks will be flat to +20%, and for non-US flat to +15%.

For other classes, pricing is predicted to level out. For cargo, Aon predicts that although pricing is expected to plateau, insurers will continue to ensure that their book remains profitable. Overall capacity will remain relatively unchanged but competition is expected to increase as insurers get back to growing their top line after cleaning up their portfolio, the report says.

Civil/political unrest was a top threat to businesses, driven largely by socioeconomic fallouts from the pandemic, though this is expected to abate with vaccine rollouts. Market conditions look set to begin levelling out, with rates predicted to be flat to +10% in 2022. And for M&A transaction liability, Aon predicts rates to be flat to +5%, as hard market conditions are expected to persist, although premium rates are expected to stabilise somewhat in the new financial year.

Finally, on the captive sector, Aon says last year saw clients utilising captives to complete D&O placements, especially Side-B and Side-C, and more clients considered including employee benefits by self-insuring through captives. Aon says live enquiries from organisations about forming a captive or protected cell are projected to increase.

According to Aon: “Captive owners will reassess their programmes to optimise risk retention and return on investment. The general upward M&A trend will lead to risk finance optimisation reviews for risk retention and captives. Based on current activity, more captives will be formed in 2022 to help organisations manage their total cost of insured risk. Asia is an immature captive market and we expect it to grow.”