Weather-related events that are upending historical patterns, amid climate change and urbanisation, are likely to contribute to greater balance sheet volatility for Asia Pacific reinsurers, S&P Global says in a report.

S&P says some of the data for pricing risk is becoming obsolete as risk markets rapidly evolve and reinsurers in the region are likely to increasingly price on scenarios that have limited history.

“The result will be higher volatility in claims and earnings,” it says in a report.

Newly emerging catastrophic risk is putting the onus on Asia-Pacific's reinsurers to ramp up risk selection, control, and mitigation. At the same time, looking to investment returns to compensate for underwriting pressures presents problems.

Given reinvestment challenges, low interest rates and fluctuating capital markets, increased investment risk appetite could further heighten Asia-Pacific reinsurers' sensitivity to earnings volatility, S&P says.

The region’s exposure to COVID-19 insurance risks has been manageable, with fewer exposures to business interruption and event cancellation claims. The SARS crisis in 2003 also brought lessons around pandemic exclusions in some markets.

“We believe reinsurers will remain vigilant in a bid to manage terms and conditions around areas such as communicable disease exclusions,” S&P says.

The report says alternative capital sources and policymaker efforts to narrow protection gaps will lift demand for reinsurance in the region.