Insurers in the Commonwealth of Independent States (CIS) may expand their reinsurance operations to boost profitability against better prices from international reinsurers, Moody's analysts said. However, this could also bring new risks.
The agency's report said CIS insurers, led by Uzbek and Kazakh companies, have seen global reinsurers partially withdraw from some markets in response to rising catastrophe claims. The company has leveraged this to significantly expand its presence in the international reinsurance market.
They have also benefited from the withdrawal of Russian reinsurers since the outbreak of the Ukraine conflict. The Russian player previously generated $400 million in annual reinsurance premiums.
Moody's expects international reinsurance to further increase its exposure over the next year or so, as international reinsurance offers better risk-adjusted prices than the major insurance markets in the CIS region.
Analysts said: “We expect CIS insurers to continue expanding their international reinsurance operations over the next 12 to 18 months as global real estate reinsurance prices remain strong. Companies in Uzbekistan and Kazakhstan will expand the fastest, with international reinsurance premium growth expected to be between 20% and 40% in 2024.
“Limited opportunities for profitable growth in the major insurance markets of the CIS region are a further motivation. Insurance penetration in the CIS region, excluding Russia and Belarus, is low and total annual premiums are 4 billion, while poor data quality hinders proper pricing and risk management. The legal and regulatory framework is also relatively undeveloped.”
According to the report, these new reinsurance activities will support CIS's profitability and strengthen its diversification.
International reinsurance prices are expected to rise significantly in 2022-2023 and remain significantly higher than the domestic CIS market, giving domestic players strong incentives to diversify into reinsurance.
International insurance premiums in Uzbekistan and Kazakhstan will rise by about 40% in 2023, and analysts expect them to increase faster than original premiums over the next 12 to 18 months.
Moody's expects that insurers' geographic and business diversification will improve and have a positive impact on profitability if they carefully manage their international expansion and avoid large catastrophe claims. “I am doing so,” he said.
As CIS insurers expand their reinsurance footprint, they will also be exposed to new and unknown risks, including frequent and severe natural catastrophes, climate change-related losses, geopolitical risks and currency fluctuations, analysts say. I'm warning you.
Analysts say this increased exposure will put risk management expertise to the test. Moody's said: “We believe the rapid growth of our international reinsurance business poses a significant challenge to our risk profile, as it is likely to be exposed to larger single losses and more catastrophe-related claims than our domestic operations.'' “I see it as such,” he said.
“This may offset the diversification benefits provided by increased reinsurance exposure. The growth of long-tail businesses, such as property and casualty reinsurance, is due to the fact that loss risk remains These risks are particularly difficult because they may not materialize. Companies with better risk management are better able to understand, manage, and mitigate these risks, ensuring financial stability. can do.”
Moody's also noted that the rapid increase in reinsurance volume will also put pressure on the regulatory capital ratios of CIS insurers. This will come under pressure as companies take on more risks as local financial markets are underdeveloped.
Analysts added that the relatively low transparency of CIS insurance companies also limits their access to foreign investors. As a result, the agency concluded that the company is likely to continue to rely heavily on the ability of existing shareholders to inject capital.
