Best’s Briefing: Typhoon Hato Shows Macau’s Insurance and Reinsurance Models to be Robust

HONG KONG--(BUSINESS WIRE)-- The Macau non-life insurance industry ability to withstand 2017’s Typhoon Hato (Hato) shows that despite the market’s small size, it remains a healthy one, with well-capitalized companies that have strong earning capabilities to help withstand losses, according to a new A.M. Best briefing.

The new Best’s Briefing, titled “Typhoon Hato Shows Macau’s (Re)insurance Models to be Robust,” states that Macau’s insurance regulator takes a conservative approach by requiring a minimum solvency margin for non-life business based on gross premiums written. Under these high capital requirements, local insurance companies tend to focus on the bottom line in order to deliver their shareholders an expected return-on-equity (ROE). As a result, the earning capabilities of the top three non-life insurers in Macau, which represent 70% of the market share, are considered strong, with five-year ROEs ranging from 9% to 24%.

The vast majority of insured losses associated with Hato were ceded to the international reinsurance market, with only a very small portion retained in the local market. As a result, the net retained losses from Hato, which made landfall in August 2007 as the strongest typhoon to hit Macau in more than half a century, are manageable for local insurers. Although Macau is an affluent city, risk awareness is relatively low. Because of this, personal lines penetration is low, with fairly simple product offerings that meet only basic needs.

Overall, A.M. Best believes the net retained typhoon loss is an earnings event rather than a capital event, as the market is well-capitalized and well-protected by reinsurance. Non-life insurers have experienced stable and profitable performance in the past, and A.M. Best expects these companies will recover their losses from Hato in a couple of years.

For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=269978.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Source: A.M. Best