NU Online News Service, Nov. 11, 1:07 p.m. EST

Insurers and reinsurers should prepare for higher rating agency scrutiny of catastrophe risk in Asia, and many companies will have to make substantial investments to address this, according to Aon Benfield.

Aon Benfield said, "The recent Indonesian earthquake and the flooding in Pakistan are recent evidence of the region's exposure to natural disasters."

While Aon Benfield said these events, while causing extensive local devastation, have not severely impacted global insurers and reinsurers due to low insurance penetration, the reinsurance intermediary and capital advisor said concerns will mount as insurance penetration grows in developing Asia Pacific countries.

"This will increase rating agency scrutiny of [insurer and reinsurer] catastrophe risk, including the quality of data collected, the systems used to monitor exposures and the models used to determine probable maximum losses."

Aon Benfield noted that rating agencies have been restricted in their analyses up to now because of the lack of catastrophe models for many Asian perils. But data quality is improving as insurers invest in systems capable of capturing location and construction information of a global best practice standard, the company added.

Rade Musulin, chief operating officer of Aon Benfield Analytics in Asia Pacific, said, "While rating agencies have always considered catastrophe risk in rating companies in Asia Pacific, their focus on the issue will increase as the insurance system plays a greater role in funding natural disaster losses in the region. [Insurers and reinsurers] with significant catastrophe exposure wishing to earn strong ratings will have to make substantial investments in several areas such as technological solutions to capture data and human capital to evaluate, underwrite, price, and reinsure property exposures."

He said many of these tasks will take years to implement, so the industry should begin to make investments today to meet future requirements.

Special Reports /

Industry Must Prepare For Rating Agency Asian Catastrophe Focus

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