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“The region’s growing exposure base, coupled with rising insurance penetration and a more supportive regulatory environment, will underpin further development of the ILS market,” Palmer said.

Key considerations for issuers in Asia Pacific include diversification of reinsurance capacity, he added.

“ILS provides an additional, complementary source of protection alongside traditional reinsurance,” Palmer said.

“This also supports a strategic consideration to build, on the one hand, the IP and know-how, and on the other hand, relationships with ILS investors for a sustainable risk transfer framework in the future, and before such additional capacity needs become acute e.g. due to growth or a large nat cat event.”

Innovation and risk management is another consideration, according to Palmer.

“Regional insurers and reinsurers are increasingly viewing ILS as a strategic tool to manage capital efficiently under evolving solvency frameworks,” he added.

Meanwhile, policy initiatives in Singapore and Hong Kong are lowering barriers to entry and simplifying issuance, encouraging local players to explore the market.

“Both jurisdictions have seen strong take-up in recent years and the frameworks have been developed and improved based on live experience,” Palmer said.

Swiss Re Capital Markets has been active in working directly with both Hong Kong and Singapore in respect of developing their respective ILS jurisdictions to support the growing ILS market in Asia and beyond.

“The ILS market provides important capacity for Asia and the wider APAC region, and we anticipate that it will provide further capacity in future as insurance penetration grows and as risk transfer needs continue to increase,” he added.

Market development going forward will depend as much on increasing risk transfer needs alongside innovation and risk management decisions within evolving solvency frameworks.

Among the challenges, Palmer highlighted the limited availability of high-quality loss data and robust modelling capabilities, as many regions and perils do not have vendor models, which also links to ensuring there is sufficient investor comfort with the risks.

“The main limitation holding back cover for more regions and perils is generally the availability of widely accepted models. These are typically developed for region and perils where there is a sizeable insurance market, so there is usually an alignment between model availability and risk transfer needs,” he said.

As the insurance market develops and risk transfer needs grow, the availability of data helps to provide risk takers with the necessary insights to adequately understand and cost the risk, and therefore underpins the availability of capital.

Future product development

“Even today, there are many clients that could sponsor an indemnity cat bond if it made strategic sense to do so,” according to Palmer.

“In the meantime, we have seen parametric cat bonds successfully structured in the region, and the development of initiatives such as the PERILS Extended Industry Loss Database that provides industry loss estimates across the region can serve to support future product development.”

There are also other elements to consider part from regulatory complexity and cost of issuance relative to program size, Palmer added,

“As ILS products are fully collateralised, there is a minimum return requirement that means that pricing is often greater than that required by a well-diversified reinsurer with a strong balance sheet for risks in the region,” he said.

The investor base for ILS, however, remains predominantly concentrated in the US and Europe.

“As education of ILS as an asset class and its risk-return profile continues to develop, alongside aspects such as regulatory clarity around investment limits and capital treatment, we may see more ILS fund managers being created locally,” he added.

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“Overall, for property I expect the [market] will see some moderation depending on different factors. The moderation will come in the form of pricing and structures,” said Kuk.

He said that the clients would look at their structures and decide whether it is fit for purpose.

“When I say fit for purpose, it means look at volatility, capital positions, solvency, as well as profit generation,” Kuk added.

“Because things have stabilised a bit more for two years now, we will need to look at the structures that had become very tight during the hard market.”

He said that there is new reinsurance capacity coming into the Asian market, which will be a factor in terms of the eventual pricing.

“But ultimately, we look at how sustainable the primary market is. We look at how we deploy capacity and whether we’re getting sufficient margins,” Kuk added.

“In some of the markets, you can charge a bit more or you have strong conditions. But what’s important is whether they’re charging enough for the primary risk In a number of primary markets, we see increasing competition. We monitor them.”

Swiss Re strategy

For the global reinsurer, the factors that will determine the eventual outcomes include growing nat cat losses, which impact programs; sustainability, which is to do with a number of external factors including economic growth, trade tensions, etc., and how the individual clients manage underwriting.

Swiss Re is bottom-line-focused, he said: “We don’t measure the performance based on premium but based on underwriting performance.

“Because we recognise there are different cycles. In a hard cycle, we will deploy more capacity and grow more and in a competitive market, we will hold back a little bit.”

Swiss Re will look at offering protection in the lower layers, but that would depend on the motivations of the clients.

It will look at programs in the “totality in terms of why they want to buy the program”.

“Depending on the kind of business you talk about or volatility, capital management, solvency management, all those will be there as well, but the structure would be catered for what they need the programs for,” he added.

However, aggregate covers is not something Swiss Re will do.

“Our role is to be a shock absorber. Going into the working layer is not the objective of reinsurance,” he added.

Growth markets

“India, Southeast Asia, we expect the growth to be higher, which means then the premium should go up,” Kuk said.

In terms of lines of business, nat cats will continue to drive the need for property cat, while Kuk identified cyber and specialty lines as opportunities for growth in the region.

“Cyber is a small line of business, but in terms of growth, this will be quite significant in the next few years,” he said.

“If you look at specialty lines, engineering is likely to grow in countries where there’s still a large infrastructure budge.”

In other specialty lines, marine, which remains a function of global trade, was also highlighted.

“Marine is a function of global trade and this will depend on how trade uncertainty is eventually sorted out. But in general, the marine market has improved this year,” Kuk said.

“Casualty, we believe, will be relatively sticky. While casualty in general is growing in most of markets, it’s still a small line of business compared to property.

“Another line of business that will drive the growth is medical, but then it’s not part of the P&C world.”

Market consolidation

Kuk noted that given the regulatory changes and the “fragmentation” in many of the region’s markets would drive consolidation in the region.

And Swiss Re sees opportunities in advising clients on their transactions.

“M&A-related structured solutions is one of our core focuses,” he said.

“We see that to be attractive for us and we are well placed to manage them because we have a lot of experience in Asia when it comes to loss portfolio transfer, adverse development cover, runoff, legal finality, economic finality-type deals.”

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The industry is increasingly focused on proactive resilience – leveraging scenario modelling, visualising exposure and underlying risks at macro and micro levels and advocating for greater insurance penetration to narrow the protection gap, Dodo added.

“In Japan, demand for natural catastrophe insurance continues to grow, driven by heightened risk awareness following recent quakes, and by inflation which has pushed up wages, repair and reinstatement costs, and consequently the valuation of property assets,” Dodo said.

The growing risk of secondary perils such as hail, flash floods and localised windstorms are becoming a larger share of Japan’s natural catastrophe losses. In 2024, severe convective storms (SCS) drove record insured losses of around US$1.3 billion, the highest ever recorded for Japan, he noted.

“These events highlight how rising urbanisation and the accumulation of valuable assets in hail-prone and flood-exposed areas are amplifying risks,” he said.

“These trends have prompted a more granular approach to underwriting, with a focus on location-specific risk selection and refined accumulation controls, for instance by sub-perils.”

Swiss Re, Dodo noted, “regularly updates its proprietary models to ensure the view adequately reflects our current risk landscape, while also developing data/tech-driven innovations that support proactive risk mitigation with location intelligence data”.

Looking beyond cat

Japan has been successful in offering and developing one of the most advanced and data-driven cyber insurance markets in Asia Pacific, he noted, adding that it has been fast growing over a decade and still has high potential – particularly among SMEs.

“We are part of this growth journey. We support fulfilling customer’s increased risk awareness in cyber and offering technical exchanges for the sustainable growth of the market,” Dodo added.

“Future success will hinge on the industry’s ability to close the SME protection gap.”

Outside of cyber, Dodo said: “We observe clients taking a more prudent approach to line size management and risk selection both in domestic and international markets.”

While the initial driver was to address the underperforming domestic property market, he said: “This approach has since expanded to interests abroad exposures, following the industry’s recent experiences with large-scale events such as the floods in South Africa and wildfires in Hawaii and LA.

“Japanese manufacturing companies, which have steadily increased their foreign direct investments since 2000, now have significant overseas exposures.
he added.

“Clients also pay a close attention to terms and line size in liability business, particularly given the impact observed from liability claims inflation in the US. They anticipate potential future impacts from rising litigation costs.”

Japan’s global ambitions

Japanese insurers remain active acquirers, being highly capitalised and liquid while under regulatory pressure to unwind cross-shareholdings.

This coupled with limited domestic growth opportunities, has fuelled strong inorganic expansion overseas, particularly in the US and in specialty insurance lines.

Excluding one-off profits from selling off cross-shareholdings, 60-70% of underwriting profits for the three mega insurance groups in the last fiscal year came from overseas entities.

“This is a transformational change over a decade which has implications on many aspects including retention strategy and reinsurance purchase. We listen to clients and keep pace with their moves and aspirations,” Dodo said.

“Reinsurance can also be considered as an alternative to own capital and a strategic enabler for M&A.

“It frees up regulatory capital, while legacy deals such as portfolio transfers can release trapped capital. Retrospective reinsurance such as adverse development covers help carriers divest or ring-fence old and long-tail portfolios, accelerating capital release that can be redeployed into acquisitions.

“We are addressing reinsurance integrated into the transaction process, which helps increase alignment between buyers and sellers and mitigate the risk of adverse post-acquisition outcomes.”

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