Asia holds huge potential for reinsurers thanks to its robust development of insurance and strong economic growth, according to ratings agency Fitch.

Many Asian countries have low insurance penetration, particularly the untapped Chinese and Indonesian markets, it says.

Fitch predicts new reinsurers will be created to fulfil the region’s “extensive reinsurance business potential”.

Asia accounts for 33% of global GDP and 59.2% of the world’s population, but its insurance penetration rate was only 5.73% last year, according to the agency.

Penetration in China, India and Indonesia, which hold two-thirds of Asia’s population, ranged from 1.77% to 3.96%.

Asia and Australia are estimated to contribute about 10-15% of global reinsurance premiums. “The contribution of Asian reinsurance premiums globally is low and not in line with population size and economic growth, suggesting huge growth potential,” Fitch said.

It says the gap between economic and insured losses following Asian catastrophes suggests underinsurance is an issue.

Economic losses from an earthquake in China that killed 193 people in April are estimated at $US27 billion ($29.64 billion). About 895 claims were reported, with the aggregate payment about $US23 million ($25.25 million).

Floods in Jakarta in January caused economic losses of $US3.3 billion ($3.6 billion) but insured losses of just $US291 million ($391 million). Floods are not automatically covered in many Indonesian motor and property policies.

By contrast, ex-Tropical Cyclone Oswald in Australia in January cost insurers $1.2 billion.

Fitch says Asian growth should be aided by increased risk awareness and continued demand for reinsurance from direct insurers, especially following a spate of natural catastrophes in recent years.

Severe natural disasters have declined since 2011, leading to a plateau in premium rates for insurance policies renewed last financial year.

However, there have been marginal rises on selected policies written on catastrophe-prone areas in the region. Fitch “expects premium pricing rates in the region to remain largely flat or soften slightly” this year.

In Australia, the agency predicts flat to slightly lower rates in catastrophe-free areas and flat to slightly higher rates in catastrophe-affected areas.

“Reinsurers are tightening their underwriting conditions to stop offering free catastrophe coverage as part of their policies, and impose loss/event limits on policies written for catastrophe-prone areas, if need be.”

Insurers may transfer more risk to reinsurers as they review their risk appetites and management strategies in line with tighter regulatory regimes, Fitch says. 

The agency has also given an update on the Thai floods of 2011, which caused economic losses of $US45 billion ($49.39 billion). Total claims, excluding business interruption, have reached $US13.6 billion ($14.92 billion), of which 79% were paid by last December 31. Business interruption claims have not been finalised.