Q&A: Gallagher Re’s Mark Morley on renewals, inflation and pricing
November 3 2022 by Andrew Tjaardstra
InsuranceAsia News (IAN) recently caught up with Mark Morley, Asia Pacific managing director at Gallagher Re. Singapore-based Morley gave his views on the upcoming renewals, inflationary pressures and pricing.
IAN: What is your take on Asia’s reinsurance market in 2022 so far? Any surprises?
Morley: No surprises so far. Regional loss events tended to dominate renewal discussions to date with pricing adjustments reflecting actual experience and portfolio balance. The region reflected the global trend of reinsurers diverting capacity from frequency covers to severity covers and there was a noticeable reduction in excess capacity for Excess of Loss contracts attaching at the lower end and an oversupply at the higher end. Supply of capacity to proportional contracts remained tight as original rates continue to lag reinsurers pricing expectations. Overall risk adjusted pricing remained subdued in the low to mid-single digits which reflects the perceived diversification benefits from regional exposures and a lower inflationary environment than Europe or the US.
IAN: What is the outlook for the Asia 1.1 2023 renewals?
Morley: Setting aside the additional uncertainties in the geo-political sphere, our expectation is that renewal discussions in Asia are likely to centre around the same areas of focus raised in and around Monte Carlo; namely inflation, climate change (in particular the impact on model outputs from secondary peril losses) and the earnings environment. Our view around inflation is that whilst recognising its impact, we want to ensure that reinsurer perceptions of inflation risk match the reality in the region and individual portfolios. Headline inflation across the region remains well below that of Europe and the US which economists agree is largely attributed to lower fiscal stimulus during Covid-19, a robust and tightening labour market and regions proximity to manufacturing hubs.
Nevertheless, Asia is not immune to the impact of inflation, and we continue to work with clients to understand local macroeconomic and inflation statistics, to evaluate both actual and “as-if” claims data, and to be able to articulate original policy conditions (e.g. average clauses) as well as providing insight on claims management processes. Model uncertainty stemming (largely but not solely) from secondary perils is another area of expected engagement and here we expect to see a recognition that whilst climate change is a factor, the rate of annual change needs to be held in context in pricing.
Lastly the overall earnings picture for reinsurers has started to improve with the subset of reinsurers evaluated by Gallagher Re producing public results showing the best earnings result in the first half year 2022 for almost a decade, although there may be some challenges from Hurricane Ian and other nat cat events in the second half year which could impact reinsurers’ full year 2022 results. In summary, while we expect to see an increase in pricing pressure and a continued tightening (but adequate supply) of capacity across property proportional placements, property risk covers and the lower end of property cat programmes; reinsurers still see Asia as a diversifying growth opportunity, and we would expect to see this reflected in their continued engagement.
IAN: How are reinsurance brokers improving their data and analytics in APAC to help cedants?
Morley: We engage with our clients on data and analytics not just in the context of reinsurance, but across their entire organisations and portfolios. We are continually working with clients on improving data capture and geocoding as the foundation of portfolio management and informed underwriting, utilising technology and platforms for geo-visualisation, accumulation management and event response. The breadth and depth of our catastrophe analytics and line of business expertise means we often support our clients on original rating and underwriting / risk-scoring projects through our proprietary analysis, datasets, and models.
Reinsurance optimisation and analytics almost always involves gross portfolio modelling and at Gallagher Re this is using our proprietary platform (ifm), linking our clients’ business propositions and corporate objectives to reinsurance solutions that are optimal for their individual risk tolerance and appetite. On the catastrophe side, whilst we have global licences for all the main commercial vendor catastrophe models, we take a model-agnostic approach in first evaluating and validating models in search of the most robust for any one territory / peril, making adjustments and enhancements where we see fit to better reflect our Gallagher Re view of risk. We also engage in building proprietary models where there is a gap in the vendor marketplace – this being the case for secondary perils like flood.
We also have an active and established infrastructure for event response that supports our clients individually as and when significant events occur. Our commitment to science and innovation is perhaps best reflected by our new Gallagher Research Centre – a dedicated network we invest in to bring the best global academic research into the commercial marketplace and thereby encouraging the continued development, sustainability, and relevance of the re/insurance industry.
IAN: How has the merger gone in Asia Pacific between Gallagher Re and Willis Re?
Morley: Extremely smoothly. Gallagher Re had a limited footprint in the region pre-merger and the combination with the incoming teams has been largely without event.
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