The spate of Asia-Pacific catastrophes in the past two years has encouraged reinsurers to take stock of their existing portfolio and re-evaluate their underwriting approach and risk appetite, according to ratings agency Fitch.

It says reinsurers are becoming more risk-averse and bracing themselves for the next catastrophe in the region.

This follows the impact on their financial performance after major loss events in New Zealand, Japan, Thailand and China.

Fitch says reinsurers are tightening their underwriting practices, reducing their participation in proportional reinsurance business and increasing their non-proportional business. This means reinsurers pay if insurers’ losses exceed a predetermined level, rather than taking a proportional share of losses that cedants incur.

The level of deductibles, or amount of losses borne by cedants before claiming reinsurance, has also increased, the agency says.

The change may result in lower premium revenue but it could improve overall profitability.

Reinsurers are now monitoring their risk exposure more proactively, Fitch says. It believes many reinsurers began imposing event limits in the last renewals period to cap their losses in case of a catastrophe.

For example, reinsurers in the Thai market are likely to limit the level of flood coverage to less than 100% of total loss. Business renewals are also being screened more carefully, the agency says.

Direct cedants are increasingly seeking two or three reinstatement premiums for catastrophe cover from reinsurers, meaning they still have cover if incurred losses exhaust the initial policy capacity, Fitch says.

But there is a bright side, with the agency saying the Asian catastrophes have created business opportunities by capitalising on increasing rates and underwriting more and higher-quality business from Asian markets.

In Japan, rates have increased 30-50% for earthquake cover and 15% for wind and flood cover, while New Zealand property rates have doubled.

Some insurers are issuing bonds in capital markets to cover catastrophe exposure rather than solely relying on their reinsurance program, Fitch says.

Growth in Asian reinsurance markets will continue to be strong with continued market demand – China’s non-life market grew 15% in the first six months of 2012, Fitch says.

The agency has also noticed a stronger emphasis on reinsurers’ credit quality and regulators’ increased efforts to monitor the adequacy of capital resources.

Limited data availability is a continuing challenge in accurately modelling and managing catastrophe risks in the region but this should improve over time, Fitch says.