Multi-country pools and catastrophe bonds can lower costs, attract alternative capital and deliver rapid liquidity when disasters strike, according to the results of modelling by the OECD. Crucially, they reduce the capital drag of tail risks, freeing insurers to expand underwriting in their domestic markets.
The findings are detailed in the OECD’s 2025 study titled “Disaster risk-sharing pools and multi-country catastrophe bonds in Southeast Asia”and cited in “ASEAN Insurance Pulse 2025—Retaining large, complex risks in ASEAN insurance markets”, published in December 2025 by Malaysian Reinsurance and prepared by Faber Consulting.
The ASEAN Pulse report said, “To increase domestic and regional premium retention, ASEAN’s insurance community must combine stronger capital tools (ILS, CAT bonds), regional pooling and a concerted push to build catastrophe modelling capability.”
The report cautioned, “But progress is not automatic. The momentum to strengthen retention and resilience is hindered by obstacles that impede collective action. It is essential to understand these obstacles, because only by addressing them can ASEAN fully realise the potential of regional insurance and reinsurance capacity.”
Despite ASEAN’s exposure to Nat CAT risk, local insurers and reinsurers still retain only a fraction of the risk embedded in property and engineering portfolios. “The reason is simple: domestic capacity remains too small, too thinly capitalised and too constrained by solvency requirements to shoulder large catastrophe exposures. The result is heavy reliance on international reinsurance markets and, increasingly, innovative pooling solutions,” said the ASEAN Pulse report.
Constraints
It added, “For many local players, the capital required to retain meaningful shares of catastrophe risk would simply exceed available resources. This structural mismatch between exposure and capacity explains the persistent cession of premiums abroad and the difficulty of building strong regional retention. Risk appetite reflects these constraints.
“Even where demand for property and engineering cover is rising, local insurers remain cautious. Conservative underwriting is less about culture than about necessity: the potential for correlated losses across markets, coupled with limited surplus capital, curbs the willingness to keep risks in-house. Without mechanisms to diversify exposures or tap new capital, the economics of retention simply do not stack up.”
Another barrier is the lack of know-how in the region. Sophisticated catastrophe modelling, exposure data and actuarial expertise are still unevenly developed across ASEAN markets. Without credible, standardised models, insurers cannot confidently price, capitalise or argue for the lighter solvency treatment of retained catastrophe portfolios. In practice, this knowledge gap further depresses regional retention and reinforces reliance on global players.
The ASEAN Pulse report said that the good news is that solutions, like multi-country pools and catastrophe bonds, exist. M