Fierce competition among reinsurers in the Asia-Pacific region continues to stymie attempts to increase rates on catastrophe-exposed business, and is leading some to move capital to other markets such as life insurance, according to S&P Global Ratings.

In a regional report, the ratings agency says shrinking margins, regulatory and accounting changes and technological disruption will be among major strategic considerations for reinsurers over the next few years.

An emphasis on performance management is seen in reinsurers’ increasingly selective underwriting, multi-year contracts, sliding-scale structures, expense control and digitisation.

Some have tried to mitigate declining rates by offering multi-year contracts and even structuring contracts so the cedant receives a rebate if their loss experience is low.

S&P believes the region may experience capital and earnings volatility as reinsurers’ expansion strategies and return budgets expose them to international catastrophe hazards and risky assets.

“Asia-Pacific reinsurers’ earnings are likely to remain insipid [this year] amid weak underwriting performance and low investment returns,” the report says. “We anticipate that US hurricane losses will have a moderate impact on most regional reinsurers.”

Nonetheless, it believes the industry has focused on improving underwriting standards and managing expenses, and consequently expects the average combined operating ratio to improve moderately this year.

Regional reinsurers’ average combined operating ratio last year, at about 100%, was 5-7% worse than among global players.

Chinese reinsurers absorbed foreign reinsurers’ accounts in domestic markets, as those reinsurers reduced exposure due to regulatory change, while government-backed agriculture insurance schemes in India significantly boosted premium growth, S&P says.

“Our view on credit trends in the Asia-Pacific reinsurance sector remains negative.

“We expect the competitive market dynamics to continue to put pressure on the margins of reinsurance companies.”

However, S&P expects rated reinsurers to maintain underwriting prudence as they explore growth opportunities.