Kathmandu. Insurance companies in Australia and Japan are at the highest risk of weather-related losses in key Asia Pacific region markets. However, strong capital protection and favorable insurance policies will help mitigate the growing risks.
According to a Moody’s Ratings report titled ‘Capital Strength and Favorable Insurance Policies Mitigate Weather-Related Risks’, most insurers will have limited exposure to weather-related losses due to generally low property and damage insurance coverage rates in major Asia-Pacific markets other than Australia and Japan. “However, over time, more frequent and severe natural disasters, rising insured asset values due to urbanization and economic development, and increased demand for insurance will increase insurers’ exposure to physical climate risks,” the report said. ’
In addition, insurance companies in major Asia-Pacific markets maintain risk-based solvency ratios ‘well above minimum requirements’. The report also said that with rising insurance coverage rates, insurance companies are expected to maintain earnings and adopt disciplined capital management. However, they will also manage the risk of weather-related losses.
“Reinsurance is a key way to reduce income and capital volatility, especially for insurers in Australia, Japan and Taiwan,” the report said, adding that the ability of insurers in the Asia Pacific region to reassess risks will help them maintain profitability even as weather-related losses continue to rise. The increasing use of geospatial analysis, risk mapping and predictive modeling will strengthen risk selection. Investments in technology and data analysis will improve loss prevention. It will help reduce claims severity and income volatility. ’
Finally, the report cites policy support and regulatory developments as factors that can increase the insurability of catastrophe risks. “Governments are providing reinsurance capacity, premium subsidies, and public-private risk-sharing mechanisms to help insurance companies expand insurance coverage,” the report said. ’
Regulatory support for the issuance of insurance-related securities will also attract private capital into the catastrophe-risk market, the report said. “It will expand the risk-transfer capacity of insurers and diversify their reinsurance capital,” the report said.
