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Hannover Re’s Sharon Ooi tells InsuranceAsia News that market dynamics are shifting due to unexpected losses and geopolitical uncertainties, emphasising the importance of aligning pricing with risk.
Demand for high-quality reinsurance protection remains strong in 2024, with reinsurance prices and conditions stabilising, said Sharon Ooi, member of the executive board – property & casualty for Hannover Re.
“What we expect is strong market demand still for high-quality reinsurance protection. Insurance and reinsurance is an important business, so the demand will be there,” she said.
Non-proportional remains attractive
Ooi noted that the terms and conditions continue to be attractive, especially in the non-proportional reinsurance market.
“We’re comfortable in both proportional and non-proportional reinsurance, although we do feel that on the proportional side, if we do give capacity, the underlying market rates need to be able to support that,” she said.
The non-proportional market terms and conditions are particularly attractive now due to higher deductibles and appropriate pricing for capacity, making the market sustainable.
“The deductibles are at a higher level at this point in time, and that’s really not shifting. The price for capacity is also at the right level. So I think that that level makes the market sustainable,” Ooi noted.
“As markets mature, there will be a shift towards non-proportional. Having said that, there’s still a number of mature markets such as Australia where you see proportional covers come about. It’s definitely market dependent,” she said.
Ooi attributed the shift in market dynamics to a number of unexpected losses, including events like Covid-19, secondary perils such as hail, floods, and droughts, and ongoing uncertainties from supply chain issues and geopolitical conflicts.
“For the past ten years, the reinsurance players didn’t really return their cost of capital on average. Things really had to change,” she said.
“The insurance and reinsurance markets have to be profitable, from an investor standpoint, that was a key driver in really ensuring that there was a shift, especially in the reinsurance sector,” Ooi emphasised.
Ooi does not expect significant price shifts in the retro market for the upcoming renewals, anticipating continued demand for Hannover Re’s capacity due to its strong ratings and capital base.
She highlighted Hannover Re’s long-term partnerships with retrocession partners, which have provided consistency in capacity.
Diverse APAC markets
Discussing the impact of recent events like typhoons and political violence, Ooi emphasised the diverse needs of clients in the APAC markets.
“I really love the APAC markets. Because it’s so diverse, there’s a lot of different countries and a lot of different needs of our clients,” she said.
“There has been an increase in frequency and severity of secondary peril type losses like floods, they’re becoming more and more frequent,” Ooi noted.
Managing renewals, pricing, and capacity in light of these challenges requires close collaboration with clients.
Political violence, including riots and strikes, remains a significant risk, and Hannover Re works with clients to understand and price these exposures correctly, Ooi said.
“As markets mature, there will be a shift towards non-proportional. Having said that, there’s still a number of mature markets such as Australia where you see proportional covers come about. It’s definitely market dependent. ”
Sharon Ooi, Hannover Re
Ooi addressed the perception of market softening, particularly in the insurance market. She explained that while some markets, like Australia, have seen price increases due to inflation and secondary perils, the reinsurance market remains competitive.
“In some aspects, pricing is still going up, because inflation is an issue,” she said.
“Reinsurance is a competitive market. There are lots of insurance players. Singapore has a lot of players anyway, for a very small market. Competition will always be kind of a price competition as well,” she added.
Deductibles have risen in large markets such as the US, Europe and big Asian markets like Australia, Japan and Korea, and Hannover Re supports clients in managing costs through tailored treaty structures, Ooi noted.
Regarding aggregate covers, Ooi noted that their viability depends on the structure and pricing.
“The previous type of aggregate covers was still too low. At a certain level, the structure in itself is quite useful, but the correct price for the structure then becomes the discussion,” she explained.
She stressed the importance of aligning the price with the risk, which can be challenging from both buyer and seller perspectives. “From an aggregate perspective, it’s getting the right price more than the actual ‘do you sell aggregate covers or not?’ So it is price-dependent,” Ooi added.
The company’s focus on being a pure-play reinsurer, supporting clients’ growth, and investing in areas of credibility, such as catastrophe bonds and cyber insurance, is central to its strategy.
“We tend to grow and invest in areas where we feel we have a credibility. Definitely, in the cat space, we’re going with our clients in the ILS space, we’re a leader there. Less so in Asia, ILS is still new. Having said that, we’ve partnered with a few clients in Asia and supported their cat bonds in China,” she said.
Hannover Re decentralised its operations in APAC in 2021, building local teams in Shanghai, Sydney, Kuala Lumpur, and India to be closer to clients.
The company has also invested in data capabilities, using modelling and actuarial reviews to provide insights to clients.
“We’re very happy to create a positive loop in providing clients more information about the businesses and our insights into the business as well,” Ooi said.
Ooi discussed the growing interest in cyber insurance, noting that while the market in APAC is still small, there is potential for significant growth.
“What we’ve done is that we realised that it’s important for us to really have an understanding of cyber, but also the entire digital ecosystem,” she said.
Hannover Re has created a cyber and digital division to focus on this area, developing innovative products like cloud outage coverage.
“What we’re trying to do is be a bit innovative on a very small scale to show proof of concept first and ensure that the solution can be scalable,” Ooi explained.
The company aims to support clients globally with a comprehensive understanding of cyber risks.
As the who’s who of global reinsurance gather in the Lion City for the biggest renewals jamboree of the year in the region, here is a highlight of the topics that InsuranceAsia News believes are likely to dominate the discussions.
The hurricane effect
What a difference a track makes. At one point as it bore down on the Florida coast, it looked as if Hurricane Milton would barrel into Tampa, with reports that it could lead to industry-wide insured losses of US$100 billion. As it turned out, Milton made landfall on October 9 in Florida’s Sarasota County as a Category 3 hurricane, bringing damaging winds, tornadoes, life-threatening storm surge, and heavy rainfall. At this stage, predictions of insured losses remain variable, with Fitch Ratings suggesting they will range from US$30 billion-US$50 billion and will be a Q4 and 2024 earnings event for large-rated insurers with Florida exposure. The reality of the modern (re)insurance market, however, is that a loss in this range is not enough to be a capital event for the wider market, and is now unlikely to seriously impact rating discussions for APAC cedants and reinsurers: expect reinsurers to have to give up some recent rate gains.
Cyber
Cyber continues to be a growing class, especially outside of its core market of North America, which is great news for APAC insurers and reinsurers that want to grow their market share. Expect an evolving market, however, as reinsurers seek to continue the trend established at the 1.1 renewals to give themselves more room for manoeuvre by moving away from proportional to non-proportional covers- a key indication, by the way, that this is now a mature class of business.
Structured solutions
At SIRC last year, much of the talk was about the growth in so-called ‘structured solutions’ and we can expect this to be a continuing theme of this year’s conference. Bespoke, non-traditional (re)insurance programmes that help manage the volatility in ‘baskets’ of risks will be up for discussion again. Simply put, cedants who have been bruised by increased retentions, tighter conditions and some hefty rate rises in recent years are looking for alternative solutions spread over several years as the market looks to offer innovative deals.
Secondary perils
These small to midsize events that impact the loss ratio are becoming a serious issue for the Asia (re)insurance market, with a number of commentators now asking whether the label ‘secondary’ is even meaningful any more. What we can be certain of is that these events can come with a hefty price tag. Indeed, recent Japanese hail-related insured losses have been pegged at US$1 billion – a serious number by anyone’s reckoning.
Typhoons
The increasing frequency and severity of typhoons in the APAC region continue to be a serious cause of concern, as the ramifications of climate change continue to cause serious disruption. A wake-up call for the market, if one were needed, has been Super Typhoon Yagi, which has been called Asia’s most powerful storm this year, and made landfall on September 7, causing widespread damage to northern parts of Vietnam; in particular, in Hai Phong, which is home to industrial parks that host factories of major multinational and domestic companies, and in coastal regions near Hanoi. Insured losses have been estimated to exceed some US$500 million.
Regional earthquakes
Earthquake risk across the region continues to be a massive issue for the property catastrophe market, and 2024 has been no exception. In April Japan issued its first ‘Megaquake’ warning. Following the magnitude-7.1 earthquake in the Nankai Trough, Japanese authorities warned of an increased risk of a significant earthquake. Taiwan was also hit this year by its strongest earthquake in 25 years, with the island hit by a magnitude 7.2 quake. Given its importance as a global centre for semiconductor manufacturing, the nature of such risk cannot be understated.
Geopolitical uncertainty
In recent years, geopolitical uncertainty has been a key talking point at SIRC. Expect this year’s conference to be no different as the specialty markets continue to respond and evolve to the continuing geopolitical environment, as the war against Ukraine continues and the conflict in the Middle East shows no signs of abating, causing widespread ramifications in particular for the marine market, with supply chain disruption significant.
NZ quake fallout
As no-one will need reminding, claims settlements often move at a snail’s pace. So it surprises no-one that Vero Insurance New Zealand (part of Suncorp) recently won a court case relating to the Canterbury earthquakes 13 years ago, and described by one law firm as “a line in the sand on the obligation to prove what is the appropriate repair strategy for natural disaster damage.” Meanwhile, class action over recent quakes rumbles on.
MGAs
The unregulated elephant in the room for the APAC (re)insurance market. Over the past decade, there has been huge growth in managing general agents, who often are given considerable line sizes and a significant degree of underwriting autonomy. Yet noises are now being made by the regulatory authorities that they will take a closer look. Watch this space in 2025.
Well, the first thing to note on arrival in Singapore this year for the 20th annual Singapore International Reinsurance Conference at the Sands Expo and Convention Centre was the rather less than cheery weather. I didn’t travel some 7000 miles expecting to be greeted by the same grey skies and heavy rain I had left back in London! And the forecast is pretty much the same for the rest of the week, according to my app.
Actually, it would be insensitive to comment on what after all is no more than a minor inconvenience in a week in which Valencia in Spain has suffered appalling damage and loss of life from severe floods, with the death toll put at more than 200 as flash floods caused the worst natural disaster to hit the European nation in recent history.
Of course, Asia Pacific needs no reminding of how serious the threat from flooding is, with floods and landslides triggered by Typhoon Yagi in September ravaging Vietnam, Myanmar, Laos and Thailand, while Singapore itself issued a flood alert as recently as 14 October as the inter-monsoon period brought about perilous climatic conditions. While in April this year, extensive flooding also impacted several regions of Russia and Kazakhstan. And this list is far from extensive.
Flooding, of course, is nothing new, but even to the most casual observer, it would now appear unarguable that the severity and intensity of flood losses is a serious problem, not only for (re)insurers but also of course for the wider society. The devastation caused by severe flooding can destroy communities and take years to recover from.
I write this from Singapore, which is no stranger to floods, but is an interesting case study. During the 1950s-80s the island experienced frequent and widespread flooding. Some of these floods had water levels that reached 1m in height and some floods lasted days.
However, this island nation is in many ways a model for others to follow. In recent decades, Singapore has made significant strides in flood risk management. According to the national water agency PUB, flood-prone areas in Singapore have reduced from 3,200 hectares (ha) in the 1970s to less than 30 ha in 2023. This is due in no small part to decades of continued efforts and significant investments to expand the drainage network and infrastructure to mitigate flood risk. Reinsurers, insurers and risk managers- take note!
Insurers are exploring differentiated business models and creative reinsurance as they battle increased losses, higher retentions and operating model pressures.
Asia Pacific’s emerging risk landscape, regulatory regimes and companies’ efforts to balance growth and volatility are driving the need for capital optimisation and creative reinsurance, according to Justin Ward, head of capital advisory, Asia Pacific, Guy Carpenter.
“Demand for capital advisory remains strong, as clients continue to focus on better understanding the evolving risks—climate (including secondary perils such as hail, flood and wildfire), cyber, geopolitical, pandemic—and their impact on growth, volatility and capital,” he said.
Growth is a “clear mantra” for insurers, and the need for capital advisory solutions gains significance, particularly in the context of exploring solutions that fuel growth without inadvertently introducing more volatility to the organisation, he said.
“Volatility remains omnipresent for many of our clients as the nature of risk changes, insured values grow, retentions are raised and the cost of risk transfer escalates,” according to Ward.
As the operating environment becomes more complex and tensions arise across various stakeholders, advisory engagements and bespoke solutions will become more frequent.
Key considerations for companies in the region are prioritising carefully selected lines of business and distribution channels; ensuring prudent risk management practices; identifying segments for exit to align with growth strategy and optimising the capital structure for the challenges ahead.
“These discussions are prompting the senior management to explore differentiated business models, creative reinsurance and alternative capital solutions, often combining all three for a richer dialogue,” he said.
“Demand for capital advisory remains strong, as clients continue to focus on better understanding the evolving risks—climate (including secondary perils such as hail, flood and wildfire), cyber, geopolitical, pandemic—and their impact on growth, volatility and capital.”
Justin Ward, Guy Carpenter
Regional landscape
From a macro perspective, the capital needs and solutions vary little when adjusted for the regulatory environment, Ward said, adding: “At the end of the day, the execution of a capital solution is fairly standard.”
“Solution design needs to be a differentiator in collaboration with the client. Differentiation is driven by ideation and thinking outside the box with the client – understanding their needs from various perspectives and delivering strategic counsel that enables them to clarify their goals and outperform their peers in the market,” he said.
Within the region, balance sheets are strained due to increased losses, higher retentions and operating model pressures (i.e., IT investment, regulatory change). This is compounded by many jurisdictions that have transitioned or are transitioning to a risk-based capital environment and/or IFRS17.
However, regulatory changes afoot in the region naturally impact the immediate need for specific solutions.
Risk-based capital arrangements have recently been introduced in Hong Kong. Japan has come through a period of significant regulatory interventions from a consumer perspective. Indonesia will transition to IFRS17 in January 2025, with ongoing discussion about the development of the third-party motor vehicle market.
“This has occurred in Hong Kong, while capital is emerging as a “hot issue” in Indonesia, given proposals to increase minimum capital requirements and the potential to make some liability product compulsory (i.e., motor),” he said.
“We often view this variation as a catalyst for strategic conversations with clients regarding preparedness, how they create competitive advantages and the opportunities to build a strong balance sheet and enhance capital management capabilities upon transition,” Ward said.
“Notably, these conversations will always extend to the consumer sphere – something that, prima facie, you would not think could occur.
“Often, it will involve moving product offerings to run-off and exploring how reinsurance may assist with de-risking, as well as how clients might deploy excess capital given changes in shareholding structures to remove value chain or industry conflicts of interest, whether perceived or real. It is always varied but interlinked,” he said.
The challenge often arises in relation to industry inertia and agency risk across the value chain, said Ward, noting that the industry often receives feedback about being “fast followers” as opposed to “leading the change”.
“A key role of Guy Carpenter’s capital advisory function is to educate and inform, ensuring that decision-making becomes increasingly evidence-based and incorporates external perspectives –from an insurer, geographic, line of business or ownership perspective. This is key to addressing the challenges of a volatile market,” Ward said.
The Lloyd’s player, set to grow premiums by 40% in 2024, is seeing strong demand for the war, renewable energy, and casualty classes in the region, says Christian Stobbs.
Markel International’s “solid growth trajectory” in Asia Pacific has been underpinned by its strong performance in Australia and Dubai and driven by growing demand across specialty lines, according to Christian Stobbs, managing director for APAC.
“In 2024, we expect to have grown over 40% in premium terms and are set to deliver the fourth consecutive year of profitability,” said Stobbs.
“Each of our offices has contributed to this growth; however, this has been most pronounced in Australia, where we were a new market entrant in Q4 2023, and in Dubai, where regional economic strength has provided favourable tailwinds,” he noted.
Markel provides a wide range of products across most specialty classes, including energy, marine, professional and financial risk, casualty, terrorism and political violence and trade credit.
“We’ve seen growth across all these specialty lines in 2024 and this has been most pronounced in the war, renewable energy, and casualty classes,” Stobbs said.
The growth in war premiums was a result of the continued geopolitical events in Ukraine and the Middle East. The Red Sea is one of the world’s major shipping channels and providing certainty to vessel and cargo owners during this period has contributed to this growth.
“Markel has been a leader across this insurance class and our team of underwriters in Asia Pacific continues to collaborate daily with our teams across the globe to provide dynamic insights to clients and brokers,” he said.
“Elsewhere, the exponential investment growth we’ve witnessed in the transition to renewable energy across the Asia Pacific has led to a significant increase in demand for protection in both the construction and the operational phases of this transition,” he said.
Market trends
“At the headline level, we’re expecting pricing levels to continue to transition in 2025 with a growing level of capacity in the region leading to increased competition,” according to Stobbs.
A secondary challenge is for the insurance industry to continue its focus on improving the efficiency of our processes and client experience, he said.
“Over the past five years we have quadrupled our headcount in the region, reflecting Markel’s firmly held belief that to be successful as a specialty insurer, clients are best served by empowered underwriting and claims colleagues, located in close proximity to the underlying risks of a business.”
Christian Stobbs, Markel
“We’ve seen a shift in some markets, namely London, where there are increased levels of digital trading and data exchange. This has largely been led by Lloyd’s, which whilst growing in Asia Pacific, does not have the comparable scale to drive those changes here in the same way.
“It’s therefore important that major industry participants, on both the carrier and broking sides, collaborate to find solutions that drive positive outcomes for policyholders,” Stobbs noted.
Talent strategy
“Over the past five years we have quadrupled our headcount in the region, reflecting Markel’s firmly held belief that to be successful as a specialty insurer, clients are best served by empowered underwriting and claims colleagues, located in close proximity to the underlying risks of a business,” Stobbs said.
Markel has been growing its headcount in the region and is prioritising the recruitment of local talent across the Asia Pacific.
Our experience suggests that clients favour accessing decision makers on the day and in the time zone.
As such, we have been scaling up our capability in each of the nine offices we have in the Asia Pacific and will end 2024 with a headcount of more than 120 people in this region, Stobbs aid, claiming that this is a large footprint and is unique for a Lloyd’s syndicate operating in Asia Pacific.
“Specialty insurance requires high levels of expertise, and our hiring has reflected this with several senior recruits – who are market leaders in their respective fields – joining the business,” he added.
Gallagher Re’s Mark O’Brien says negotiations around retentions, and terms and conditions to be a little easier in the coming renewals.
The market’s willingness to deploy capacity is certainly back but it’s probably too early to say we’ve reached a sustained position, according to Mark O’Brien, head of Asia Pacific, Gallagher Re.
“As a result of the corrections imposed by reinsurers around pricing and cover during 2023 and 2024, reinsurers’ balance sheets have improved dramatically. The market is far healthier now, and a healthy market tends to favour cedents,” said O’Brien, who took charge of the reinsurance broker’s APAC operations in July this year.
However, he said the market has yet to lose sight of the need for disciplined underwriting.
“Underwriting discipline is still something reinsurers keep referring to. The capital providers to the reinsurance industry are certainly looking for a sustained period of improvement, which means that reinsurers are not in a position yet to compete with one another like they did a few years ago,” said O’Brien. “Memories aren’t that short.”
However, during the 1.4. and 1.7. renewals this year there were some signs of softening, albeit small risk-adjusted reductions.
“Unless anything dramatic happens in Asia between now and 1.1, we expect that to continue.
“On the whole, I can’t see there being capacity shortages. Whilst we haven’t really seen new capacity come into the market, the current level of capacity is sufficient, and we are seeing reinsurers wanting to grow,” he said.
O’Brien said that he expects negotiations around retentions, and terms and conditions to be a little easier in the coming renewals.
“That said, I’m not convinced that we’ve yet reached the time in the market cycle where reinsurers are lining up to compete on aggregate deals,” he added.
Evolving dynamics
Structured solutions have been a major theme in recent years in the region, especially at the lower level of the reinsurance programs, a trend that is expected to continue, according to O’Brien.
“We’ve completed around 70 structured deals, most of which are focused on the bottom end of clients’ excess of loss programmes, so we don’t see any change to that.”
“On the whole, I can’t see there being capacity shortages. Whilst we haven’t really seen new capacity come into the market, the current level of capacity is sufficient, and we are seeing reinsurers wanting to grow.”
Mark O’Brien, Gallagher Re
“The appetite to deploy capacity [for structured deals] by the market has certainly increased during the hard market, so clients have more choice now, and I expect that to continue.
“We are also seeing more appetite for capital-related solvency deals – both from the buyer and seller side, so we’re expecting a bigger focus there going forward,” he noted.
Softening primary markets
While a large portion of the region’s reinsurance treaties are proportional structures, the primary market softening is likely to have an impact in the coming renewals.
“The appetite for proportional business in Asia has been challenged for some time now. That said, reinsurers are looking for margin, and if they can achieve that margin through writing pro-rata they will continue,” O’Brien said.
However, the issue, according to O’Brien is that the structure of pro-rata treaties in Asia “is some way off from what it was originally designed to be – with the inclusion of event limits, sliding scale commissions, loss corridors or loss participation clauses”.
They’ve moved away from the original ‘follow the fortunes’ structures to operate more like non-proportional covers.
“In some of the heavier cat territories in the region, reinsurers have actually moved to strip cat out completely, so there is certainly a limited marketplace for this,” he added.
The major themes in the region remain capital management, earnings volatility and growth and diversification, said O’Brien.
“We formulate solutions around these themes. Specifically in terms of classes of business, P&C remains dominant of course, but life & health is one of our fastest lines of growth in APAC and we see that continuing. In addition, cyber and renewables are being increasingly discussed, and we have teams working.
To thrive amid climate change and regulatory shifts, reinsurers are adopting advanced data analytics for better risk management and pricing, says Andrew Hare from Moody’s.
What’s your outlook for premium growth and the underwriting losses of reinsurers in the region in 2024?
Rising demand for insurance products in emerging regions such as South-East Asia is propelled by factors such as expanding middle class and an increased knowledge of insurance coverage. These factors continue to drive premium growth for reinsurers and contribute to an increase in premiums.
The ability of reinsurers to adapt to changing market dynamics has also led to a positive outlook for premium growth in 2024, as technology and data analytics advancements help reinsurers assess risks and price policies accurately, potentially reducing underwriting losses.
However, natural disasters, regulatory changes, and industry competitive pressures continue to impact underwriting performance. Trends such as the growing impact of climate change and increasing frequency of cyberattacks present significant challenges for (re)insurers.
Reinsurers can leverage technology and data analytics to improve risk management strategies and mitigate future losses.
How can reinsurers overcome the burden of retro costs in terms of underwriting quality and risk selection?
By utilising granular exposure data and advanced risk analytics technology, reinsurers can gain insights into specific risks within a portfolio, leading to more informed underwriting decisions and refined risk selection processes. This enhances risk understanding which is vital when mitigating retrocession costs that cannot be transferred to direct insurers.
Embracing a data-driven approach enables reinsurers to effectively address challenges associated with retrocession costs. This can lead to improved competitiveness and sustainable growth in the market, with cloud platforms facilitating efficient communication and collaboration around a view of risk, streamlining processes, and improving profitability.
What are your observations and outlook regarding the pricing strategies, terms, and conditions in APAC, and how are they aligned with the global trends?
Global trends are increasingly influencing pricing strategies, terms, and conditions in the (re)insurance market in the APAC region. Insurers are looking to optimise their retrocession costs and are seeking more cost-effective solutions to remain competitive.
The adoption of data analytics and technology is becoming more prevalent in the region, mirroring the global trend towards a more data-driven approach. Overall, the outlook for pricing strategies and conditions in APAC is one of adaptation and alignment with global industry standards to ensure sustainability and profitability.
Which strategies can reinsurers use to diversify their books and reduce volatility in their underwriting?
Reinsurers in the region can consider diversifying their portfolios by exploring new lines of business such as cyber insurance, or entering emerging markets, to help spread risk and reduce volatility in their underwriting portfolios. Additionally, focusing on specialty and casualty lines may offer higher margins and more stable returns than aggregate covers, which are typically more susceptible to large losses.
By aligning strategies with global industry peers and leveraging data analytics, reinsurers in APAC can position themselves for long-term success in a competitive market.
How can reinsurers optimise their portfolio risks?
Effective risk management relies on a deep understanding of risks, facilitated by enhanced analytics and data capabilities that enable thorough investigation and mitigation of natural peril risks, which is a common challenge faced by reinsurers globally. This ensures that a business can manage in a world of more frequent, more severe events. Reinsurers now possess a variety of instruments to evaluate and select risks and develop new strategies.
A combination of headwinds, including continuing unstable interest rates, geopolitical uncertainty and the continuing pressure caused by more severe and frequent secondary perils mean that reinsurers remain in a difficult position and should not be expected to cede significant ground on rate at the forthcoming 1.1 renewals, according to Franz Josef-Hahn, CEO, Peak Re.
Speaking to InsuranceAsia News at this year’s Singapore International Reinsurance Conference (SIRC) Hahn set the context for this renewal season: “I think that we are returning to a more orderly round of discussions. There is less heat in the market, because everybody is used to stronger renewals and a stronger reinsurance market, at least since last year. And I think that there are good reasons that it prevails and will be less stressful. I would like to point out that from Peak Re’s point of view we have always been speaking early with our clients, have prepared them well and explained why the action we are taking is necessary, and tried to find solutions together with them.”
“Now, going into the next round I think there is not much reason for any movement,” he added, noting that “interest rates are still unstable, geopolitical uncertainties are still the same or even worse than before, and global warming is hitting very strongly. Hurricanes are now stronger and carry more water in the main, while so-called non-modelled losses, or secondary losses, are becoming stronger and higher in frequency, and there is a lot of uncertainty on the cat side, especially for reinsurers, who are well cautioned not to lose their grip on terms and conditions.”
Secondary perils
“I think that for the up-coming renewals, on a risk-adjusted basis, that reinsurers are still guarding themselves to not let loose,” he added. “There has to be a calculation on those secondary losses. Look at Spain, look at Italy, look at China with the super floods. Or the strong floods in Thailand which were partially manmade, and the floods in Malaysia a few years back. Those things don’t go away, and reinsurers and insurers need to guard themselves. They are not in different boats, they are in the same boat, and they need to work together to solve these issues. I think that the last two years have shown that it is possible to do this.”
Asked whether the renewal discussion is likely to focus less on rate than changes to terms and conditions, Hahn was circumspect.
“The only problem here for insurers, reinsurers and regulators is the tail-risk, because you don’t have a one-to-one coverage of all the losses, and there is always a residual amount of losses which are hanging in the air, and could be hitting the buyer, the insurer or the reinsurer.”
Franz Josef-Hahn, Peak Re
“I think there is more talk about changes to terms and conditions than there is reality about it,” said. “When I think back to Monte Carlo, things have not changed since then, where there was an agreement that where we are sitting, reinsurers have a chance to see profits coming through. And bear in mind that we only had year of nice profits in the industry versus seven preceding years of terrible losses.”
Alternative solutions
At SIRC last year a lot of the talk concerned the growing importance of so-called structured solutions, which he defined as offering lower volatility, lower capital consumption, remote risk cover and a lower price range – “basically, protection of their capitalisation needs, both for life & health and P&C.”
Hahn also confirmed the continuing interest from clients: “Structured solutions are still very much in vogue, of course. The need for capital solutions is very strong at the moment. I would say even beyond Asia Pacific, but specifically here in Asia Pacific, whether emerging or developed markets driven by the regulatory changes. There are requirements by direct or primary companies to find alternatives to equity investments and structured solutions are definitely the right way.
He was not so enthusiastic about the parametric solutions, though he accepted they would be a good way of assessing losses from natural catastrophes.
“The only problem here for insurers, reinsurers and regulators is the tail-risk, because you don’t have a one-to-one coverage of all the losses, and there is always a residual amount of losses which are hanging in the air, and could be hitting the buyer, the insurer or the reinsurer,” he said. “And I think that uncertainty has not gone away.”
While carriers are developing a better understanding of cyber risk, there is a need for further education to address the protection gap, especially in emerging markets.
The cyber market has been the buzzword for the insurance and reinsurance market in 2024. Carriers and intermediaries have been building cyber capabilities in the region as evident from the frenetic hiring activity.
While softer pricing and ample capacity have led to higher demand for expanded cyber insurance offerings, particularly for SMEs, from both multinational and domestic insurers, lack of cybersecurity awareness and advanced data modelling in the region means the uptake is not as high as it could be, industry experts told InsuranceAsia News (IAN).
“Market pricing is softening, and capacity has increased substantially in the region,” Sie Liang Lau, head of cyber at Gallagher Re, told IAN.
Consequently, there is a growing demand not only from multinational insurers’ perspective but also from domestic insurers looking to expand their offerings.
However, while there is plenty of capacity, uptake remains low as the value of cyber insurance is not recognised by all potential buyers, said Natalie Miladinski, cyber underwriting manager, Asia Pacific, HDI Global,
She highlighted the necessity for better risk awareness and understanding of the product as “cyber insurance offers more than just policy wording; it also provides access to expert vendors and services to assist insureds in managing cyber incidents.”
This lack of understanding among buyers was mentioned as a significant challenge during the APAC Cyber Risk & Insurance Summit 2024 on October 24, organised by InsuranceAsia News.
During a fireside chat at the event, Gallagher Re’s Sie stressed the importance of cyber insurance in providing immediate response services in the event of a breach.
Real-time monitoring tools can help underwriters assess clients’ risk profiles, he said.
He also pointed out that education is essential, as a significant cyber protection gap persists, particularly in emerging markets where awareness of cyber risks remains low.
Asia is a very risk averse market and companies are not willing to discuss or talk about company risks, according to a spokesperson for a Singapore-based cyber insurtech Protos Labs.
Speaking at the summit, he stressed the importance of changing this mindset as having clear transparency and visibility of risks can help companies identify pain points and provide better solutions for cyber risks.
Samuel Bye, head of cyber for Asia and the Middle East at Axa XL, speaking at the same event, emphasised the critical need to promptly contact experts during a cyber incident to mitigate damage.
“We’ve learned from clients who didn’t contact the hotline and tried to manage the crisis themselves. Within two weeks, they realised they were overwhelmed and needed us to retroactively fix the problem,” Bye said.
Post-Crowdstrike landscape
Despite the softening prices, Sie stressed that risk selection remains crucial.
“Collaborating with reinsurers can leverage traditional markets to underwrite larger and more complex policies,” he said.
Sie added that “insurers and cybersecurity companies working together to reduce overall rates can create mutual benefits, leading to more stable and lower costs.”
“Baseline standardised coverage can help reduce uncertainty around product offerings, making policies more accessible to businesses of all sizes,” he explained.
The breadth of coverage available in the market is relatively consistent across the APAC region, with a shared understanding among insurers regarding the cyber risk gap their clients face, Miladinski noted.
“Organisations across various sectors are recognising that cyber risks extend beyond mere IT issues. They can affect a company's reputation, financial stability, and operational continuity.”
Sie Liang Lau, Gallagher Re
“I believe this consistency is driven by the presence of major insurers in key countries across the region, which supports brokers in educating their clients,” she said.
There is an increasing demand for modular and affordable policies tailored to SMEs and personal cyber needs in the APAC region, according to Sie.
“Even with standardisation, flexibility and scalability are vital to support smaller SMEs and personal cyber policies with modular coverage options that address their budget constraints,” Sie said.
SMEs and personal cyber clients in the APAC region are seeking customisable solutions that fit their specific needs and budgets, Sie explained, contrasting this trend to the western markers where insurance products tend to be less modular and often focus more on larger enterprises.
Evolving threats such as ransomware, phishing attacks, and advanced persistent threats (APTs) are on the rise in the Asia Pacific market.
The increased interconnectivity among businesses also heightens vulnerability in supply chains, making them more susceptible to cyber attacks.
Incidents involving systemic failures, like CrowdStrike, illustrate the widespread impact these threats can have.
“Organisations across various sectors are recognising that cyber risks extend beyond mere IT issues. They can affect a company’s reputation, financial stability, and operational continuity,” Sie explained.
This realisation may lead companies to seek coverage for both first- and third-party risks.
“Some insurers currently do not provide coverage for non-malicious attacks, indicating a need to consider offering optional covers,” Sie told IAN.
“The Crowdstrike incident not only underscored our reliance on technology but also highlighted how interconnected our systems are, reinforcing the importance of IT literacy for restoring business operations,” said HDI’s Miladinski.
“I believe this incident has been a wake up call for companies to ensure they have appropriate risk management procedures in place to handle cyber incidents and outages,” she added.
Regional challenges
The cyber insurance industry is hindered by limited extensive data due to its relatively short history, Sie said.
“That has led to simplified models being adopted by organisations and therefore the output data becomes highly directed,” said the Protos Labs’s spokesperson. The threat landscape is evolving and threat actors are leveraging new technology such as deepfakes to gain access to organisations.
“However, there are really no tools currently or data that can be used to calculate this type of threats,” he said.
It is crucial that insurance companies should take into consideration on how to get access to more relevant data that can be used for analysing and risk modelling, he said.
Privacy laws in the APAC region have expanded significantly, with new regulations being introduced in several countries, aiming to align with international standards.
By the end of 2023, privacy laws in the Asia-Pacific (APAC) region have expanded by over 25% compared to 2021.
“China is implementing comprehensive policy laws for the first time, while India and Vietnam are set to introduce new regulations in 2024,” Sie said.
Countries like Australia, Japan, South Korea, New Zealand, and Singapore have established cyber privacy frameworks that aim to align with European standards, such as the General Data Protection Regulation (GDPR), Sie added.
In a keynote speech for Hong Kong FinTech Week, Raymond Cheung, chief executive officer of Insurance Authority, Hong Kong, highlighted the serious consequences of ignoring cybersecurity threats and introduced a cyber resilience assessment framework under the cybersecurity guidelines.
Asian reinsurers have restructured their retro programs, leading to adjustments in cat capacity and a reduction in cat exposure accumulation, says AM Best’s Christie Lee.
Reinsurers in the Asia Pacific are expected to see slower premium growth in 2024 than in previous years due to a shift in strategy, emphasising a more profit-oriented underwriting approach, said Christie Lee, senior director and head of analytics at AM Best.
This change includes proactive portfolio reviews and the downsizing of unprofitable business lines.
“Underwriting results and net income generally have improved noticeably, partially attributed to benign catastrophe events in the region,” Lee added.
The net combined ratio under IFRS17 of AM Best’s Asia-Pacific reinsurance composite improved to 91.6% in 2023 from 94.5% in 2022, with the reported return on equity rising significantly to 9.2% from 0.1% in during the same period.
“The positive trend extends in first-half 2024 results, attributed to the recovery of realised and unrealised investment losses, higher investment income in a higher interest rate environment – excluding China – and improved underwriting results.”
The positive operating performance is also aided by the benign natural catastrophe activities in major Asian insurance markets, she added.
In response to the challenging retrocession market conditions in the past two years, many Asian reinsurers have restructured their retrocession programs, leading to adjustments in catastrophe capacity offerings to cedents and a reduction in catastrophe exposure accumulation, particularly in peak zones, often their home markets, or markets where retro costs are not economical.
“Maintaining a balanced portfolio between life and non-life, as well as property and casualty, can help reinsurers mitigate losses during a catastrophe-active year by benefiting from profits generated by other uncorrelated lines.”
Christie Lee, AM Best
“Those who have secured retro capacity from past good experiences have greater flexibility to implement growth strategies and capture business opportunities,” she said.
Compared to global renewal rates, which are unlikely to see decline due to hurricanes Helene and Milton, Asian rates are expected to remain stable thanks to increasing capital size and capacity from onshore and Asia-Pacific regional reinsurers, driven by the formation of new reinsurers and the conversion of branches into subsidiaries.
“As local and regional reinsurers are not heavily impacted by US catastrophe losses, their strong support for small to medium-sized cedents provides a relatively stable rate environment.”
In order to reduce underwriting volatility and optimise operating performance, reinsurers are advised to have diversification across business classes and geographic regions.
“Maintaining a balanced portfolio between life and non-life, as well as property and casualty, can help reinsurers mitigate losses during a catastrophe-active year by benefiting from profits generated by other uncorrelated lines.
“However, expanding underwriting to less-familiar lines or geographic locations requires good underwriting expertise to ensure prudent risk selection,” said Lee.
Lastly, in light of higher weather-related losses, reinsurers are exercising increased caution in assessing their risk appetites for catastrophe risk and closely monitoring their risk accumulation. The rising cost of retrocession is prompting reinsurers to increase their retro retention levels and eliminate aggregate covers.
“Consequently, this also motivates reinsurers to reduce their exposure to frequency risks from their cedents to manage their own retention level effectively.”
The priority for Canopius is to maintain disciplined growth in the specialty lines where it has a differentiated offering, like energy, marine, agriculture treaty, and structured credit, says regional chief executive SK Lee.
Global specialty (re)insurer Canopius will continue to expand its Asia Pacific (APAC) footprint, enhancing its capabilities and empowering local teams to make decisions best serving their markets, said Soon Keen Lee, CEO for APAC, Middle East & North Africa (MENA) of Canopius.
The company’s strategy focuses on leveraging and scaling up its existing franchise and increasing market penetration as it aims to accelerate growth for reinsurance, expand in Australia and enhance product offerings across the region.
“Our goal is to achieve a balanced portfolio split between insurance and reinsurance and between both Singapore and Australia.”
In 2023, Canopius’ insurance contract written premium increased by 35% reaching US$300 million with record underwriting results and a net combined ratio of below 85%. The company aims to continue this positive trajectory this year.
Notably, its Australian accident and health business saw significant improvement off the back of increased travel volumes during 2023.
“We also benefited from the first year of production from a newly hired team of treaty underwriters in Australia, as well as favourable market conditions in Singapore on the reinsurance portfolio,” Lee added.
The priority for Canopius is to maintain disciplined growth in the specialty lines where it has a differentiated offering, like energy, marine, agriculture treaty, and structured credit, which cater to the region’s need for tailored risk solutions, said Lee.
“For example, our agriculture reinsurance line addresses the growing demand for climate-related risk coverage, such as crop-yield shortfalls and animal mortality, areas where Canopius has established a strong presence.
“We are the only syndicate in the Lloyd’s Asia hub with a global desk focused on agriculture treaty, giving us a unique perspective and competitive edge.”
Rising specialty demands
While property insurance continues to be a fundamental part of the market in APAC, there is a growing demand for capacity and expertise in specialty lines, according to Lee.
“This is driven by the need for more tailored solutions to address increasingly complex risks, particularly in areas such as renewable energy and structured credit.
“These specialty lines are becoming the key growth drivers as businesses across the region look for more sophisticated and flexible risk management solutions,” she said.
The marine insurance sector, for example, is seeing increased demand for customised coverage, driven by the complexity of marine risks in a region that includes highly active shipping lanes, geopolitical tensions and natural catastrophe exposures, she added.
“As the largest syndicate in the Lloyd’s Asia hub, we are well-positioned, but staying ahead requires constant innovation and a deep understanding of regional risks. This competitive landscape necessitates a strong focus on maintaining underwriting discipline while ensuring we provide differentiated, client-centric solutions.”
Soon Keen Lee, Canopius
Another area of growth is structured credit and political risk, which has become increasingly important for businesses operating in the region. As companies engage in cross-border trade and investment, particularly in emerging markets, they face heightened risks from non-payment and political instability.
“We aim to continue building on our expertise in these areas and providing solutions that help businesses navigate the complexities of the evolving risk environment,” she said, adding that the (re)insurer will strive to offer a complete product suit for our core clients by promoting a cross-class approach and enhance our engagement for our brokers and cedents.
Regional headwinds
The company, however, faces several challenges, including regulatory complexity across different jurisdictions, increasing competition within the specialty (re)insurance space, and macroeconomic factors, such as inflation and rising interest rates affecting cost of claims, investment return and overall business profitability.
“As the largest syndicate in the Lloyd’s Asia hub, we are well-positioned, but staying ahead requires constant innovation and a deep understanding of regional risks. This competitive landscape necessitates a strong focus on maintaining underwriting discipline while ensuring we provide differentiated, client-centric solutions,” Lee said.
Climate change and talent retention are other headwinds.
In terms of talent retention, Lee said that there is high demand for specialised skills and the specialty insurance market is always at ‘war’ with other sectors to attract the best talent.
“We know we offer a lot of development opportunities to people looking for the best roles, we just need to do more to tell the world that specialty (re)insurance is a rewarding and dynamic place to work,” she said.