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The specialty political violence (PV) and terrorism market is set to continue along its evolutionary path of substantive revision at 1.1 renewals, InsuranceAsia News understands.
In tandem with the wider specialty sector in Asia, both pricing and terms & conditions for PV and terrorism covers have shifted meaningfully over the past eighteen months, with an increase in attachment points and the raising of the ‘floor’ on minimum rates on line a key focus for reinsurers.
As former Gallagher Re global CEO James Kent said earlier this year, the gruelling renewals process was most marked in this specialty sector, with PV renewals “especially demanding” in terms of finding a market consensus.
As testing as the process was for both cedants and reinsurers alike, it would appear that the turbulent waters of negotiation have still not calmed down, and that the PV and terrorism market in Asia is still very much in the midst of a process of recalibration as it seeks to digest the continuing geopolitical instability caused by not only the Russia-Ukraine conflict, but also more recent developments with regard to the Israel-Hamas war.
“Reinsurance prices are going up and attachment points are changing,” said Mark Houghton, head of Specialty for Axa XL Asia.
“As people continue to go through the Russia/Ukraine fallout, reinsurers will continue to revisit terms & conditions. Last year was the first revision, and this year will be the second revision.”
Houghton said PV and terrorism covers at Axa XL in Singapore are written under the umbrella of Crisis Management, which also encompasses Kidnap & Ransom and contingency insurance.
He said that the insurer’s Crisis Management offering has the ability to grow, but stressed that any such growth is inextricably linked to Axa’s property coverage in the region, given that terrorism covers, for example, are customarily excluded from property policies and that such protection needs to be bought as additional coverage by clients.
“As people continue to go through the Russia/Ukraine fallout, reinsurers will continue to revisit terms & conditions. Last year was the first revision, and this year will be the second revision.”
Mark Houghton, AXA XL
When it comes to property cover, we try to limit our exposure to strikes, riots and civil commotion (SRCC) perils in high hazard areas,” he added, noting this has not dampened demand for such cover from major property owners. “If you’re constructing an iconic landmark building, you may be facing potential exposure to a terrorist event, so you are going to want to buy that product. And more often than not, those who finance these sorts of projects will insist on it, especially after 9/11.”
“The demand for cover is increasing; I think people are becoming more aware of it,” Houghton said, alluding to countries such as Thailand and the Philippines, where the climate for civil unrest and politically-motivated violence is noticeably marked in the region.
In the Philippines, there has been on an going insurgency between Maoist rebels and government forces which has been ongoing for decades.
Thailand has a long history of political unrest and protest, but a new wave began recently after a court ordered a fledgling pro-democracy opposition party to dissolve. The Future Forward Party (FFP) had proved particularly popular with young, first-time voters and garnered the third-largest share of parliamentary seats in recent elections, which were won by the incumbent military leadership.
Political risk and trade credit
Another specialty are which shows the potential for growth in Asia at present is the political risk and trade credit market, according to Houghton:
“For political risk and credit there is good growth potential because the market is still evolving, and we’re seeing more customers in the region coming forward to enquire about our business, in a time of both economic and geopolitical stress. We are based in Singapore, but this is a huge region which remains untapped with respect to customers who, to a large extent, don’t understand the products and don’t use them in the way that customers in Europe, the US or Australia would.”
“The key geographies at the moment are more around developed countries, so places such as Australia, Singapore, Hong Kong, Japan and Korea, which are the main areas where we see business. But we also have customers starting to approach us from places such as Indonesia and Thailand. India as well is a big opportunity and China… but China has a regulatory landscape that is difficult for us to engage with and be a part of, given the size of its population.”
Houghton added that demand is coming from a number of channels, including banks, export credit agencies, and government multilateral initiatives.
He said: “Corporate customers and foreign direct investors are also very prominent as economic stress increases. Banks are a large part of our business and the more banks from this region understand how the product works and see the utilisation for it, the more it helps the growth of the market.”
InsuranceAsia News (IAN) has recently sat down with Tay Boon Chuan, new head of Singapore at Aspen Re, before the Singapore International Reinsurance Conference (SIRC) 2023, to discuss the treaty market in Asia Pacific, the extent of continued hardening in the new year across the region and narrowing expectations gap between buyers and sellers.
Tay joined Aspen this June after 12 years at Tokio Marine Kiln as part of its property treaty reinsurance team, most recently as Asia treaty team lead.
The Bermuda-headquartered reinsurer Aspen Re keeps prioritising XL treaty as it allows it to retain better control over prices, terms and capacity deployment, also actively quoting gross XL across all main lines of business across Asia while the market keeps hardening.
What are the major reinsurance and renewals trends you are seeing in the Asia Pacific – in terms of pricing and capacity?
Aspen Re believes the pro rata treaty has traditionally been the mainstay of cedents in much of Asia, particularly in classes of business that require huge capacities such as property and engineering. The hardening reinsurance market of 2023 saw some change to that. With stricter pro rata terms – e.g. reduced ceding commissions; increased co-reinsurance via loss participation clause – some cedents decided to forsake pro rata and went gross XL. This generally means cedents can partake more directly in the rewards of a good underwriting year, though the converse can also be true.
How do you see the market reacting to the elevated nat cat loss activity in the region? After we saw an exit from lower layers of property last year, how do you see the market evolving in the coming renewals? Are you seeing more appetite for non-property lines?
Another buying habit of many cedents in Asia is attaching too lowdown in their XL treaty such that any protection is likely minimal – after reinstatement premiums such working layers are little more than dollar swaps. Such layers are rightly the first to go when reinsurance costs are rising and budget is stretched. In that sense, the disappearing low layers aren’t merely a withdrawal of capacity owing to increased loss activity; they are also a prioritising of purchase given the hardening reinsurance market. This isn’t likely to change in the new year.
“With stricter pro rata terms – e.g. reduced ceding commissions; increased co-reinsurance via loss participation clause – some cedents decided to forsake pro rata and went gross XL.”
Tay Boon Chuan, Aspen Re
Are you seeing a continuing of hardening as we go into 1.1 2024 and what do you think would be its impact on the upcoming renewals?
On an exposure-adjusted basis, the Aspen Re team does not think there is any mood for discount heading into 2024 after the hard-fought price corrections of this past year – certainly not after consecutive years of discounts in the recent past. The extent of continued hardening in the new year, however, is likely to vary considerably across Asia – indeed also by cedent and programme. There is general expectation that renewals ahead will be more “orderly” – which is to say the expectations gap between buyer and seller will likely narrow, with less dislocations and last-minute placements sometimes on differential terms.
What are Aspen Re’s expansion plans in APAC? Which are the key areas for growth in the region both in terms of markets and lines of business?
Aspen Re is not a business which chases top line purely for the sake of growth, as tempting as that may be in a hardening market. Our appetite and forte remain XL Treaty – generally not huge premium producers, unlike pro rata, but a segment in which we feel we can retain better control over prices, terms and capacity deployment. The trend towards Gross XL as a consequence of the hardening market works to our strength – we are an active XL quoting market across all main lines of business across Asia.
What are the growth drivers and the main challenges you have in the region?
An ongoing challenge for the industry that Aspen Re sees is that, as of yet, there is little sign of the increased reinsurance costs of the past year having translated to improved terms on the direct side. Until that happens, the burden of increased costs is a mere shifting of pains between reinsurer and cedent, depending on the market cycle. As for growth opportunities, some territories that tended to favour local reinsurers are now more open to international markets, no doubt also a consequence of market hardening and dislocation. A case in point is Malaysia.
Malaysia’s national reinsurer Malaysian Re is focusing on improving the quality of business in the book as it looks to benefit from the market correction and improvements in structure since early 2022.
“We are cautiously optimistic that the hardening will continue though the rise may not be as drastic as what we have seen in the last renewal seasons,” Ahmad Noor Azhari Abdul Manaf, president & chief executive, Malaysian Re, told InsuranceAsia News (IAN) SIRC Today, speaking ahead of the Singapore International Reinsurance Conference 2023.
“Regardless, we foresee that cedents will have no trouble securing the reinsurance capacity they require for the upcoming renewals,” he said.
“Globally, the capital supply into the reinsurance sector has also not been as aggressive as a few years ago as investors are still wary of the natural catastrophe losses in recent years, and with the current high interest rate environment, the investors have other alternatives for their capital placement,” he explained.
The carrier expects reinsurance rates increase and tightening of terms to continue into the coming January 2024 renewals regardless of the treaty’s performance. Meanwhile, the prices will remain at current inflated level with sustained momentum to climb further in the next 12-18 months.
Besides treaties, the reinsurer has been growing its managing general agents (MGAs) portfolio to access specialty risks within international markets.
“We will continue to grow our international business as the portfolio allows us to diversify risks and mitigate potential systemic vulnerabilities arising from concentrated exposure in the domestic market,” said Noor Azhari.
“Europe will be the expansion market, complemented by strategic growth in Asia Pacific and the Middle East,” he added.
As more than 50% of Malaysian Re’s portfolio is now international business, it has been affected by the secondary perils such as European and Australian floods in the past few years. It also had a sizeable exposure to the Turkey earthquake with its gross loss exceeding RM100 million (US$21 million).
“Nevertheless, our diversified and well spread portfolios have enabled us to generate underwriting profits elsewhere to cover for the large losses. Our aggregates and exposure were also optimally managed with effective retro cover in place,” said Noor Azhari.
“We have seen the continuation of hardening of terms for 2023 January into April and July renewals. The main driver for the hardening of terms is due to the challenging performance resulted by the increase in natural perils losses worldwide, especially from secondary perils. Inflationary pressure is a factor, but not the primary driver,” he explained.
“We will continue to grow our international business as the portfolio allows us to diversify risks and mitigate potential systemic vulnerabilities arising from concentrated exposure in the domestic market.”
Ahmad Noor Azhari Abdul Manaf, Malaysian Re
Malaysian market
The 2021 Malaysian floods, which was the largest ever cat losses in the country, and various risk losses are the main drivers for the hardening in the Malaysian market.
For non-proportional treaties affected by Malaysian floods, the reinsurance cost has increased by high double-digit figures and for other non-fire treaties, by lower double-digit. For proportional treaties, the commission has been reduced.
Additionally, loss participation clause was imposed in most property treaties where insurers share a certain percentage of losses that affecting the treaties, Noor Azhari said.
While there were no major cat and risk losses in 2022/2023, the momentum of improvement in terms and conditions continues, which leads to the treaty changing from fire surplus to fire quota share and surplus, to further provide balance to reinsurers, he added.
In terms of lines of business, one of the important growth engines for the company is retakaful. For family retakaful, Malaysian Re secured new treaties and clientele through retro partnerships with international life reinsurers to access capacity, expertise, and technology transfer.
The reinsurer prefers to transcend price competition, focusing on value-added services such as underwriting engines, Shariah reviews/audits, and comprehensive underwriting and claims assessments for its clients, Noor Azhari explained to IAN.
The Singapore (re)insurance market has now reached a tipping point in terms of growth and is now well positioned for the move to the next level of operational efficiency through a broader digital transformation, according to the CEO of the International Underwriting Association Dave Matcham.
Speaking to InsuranceAsia News, Matcham outlined the current Singapore success story:
“Singapore is obviously now a global hub. Not as big as London, but there are many similarities, and in some ways business that would have been sent to London in the past now stays in Singapore, or a chunk of it does at least. The market in marine is much bigger than it used to be, and you can see that in the IUMI stats. And I was told today that a proportion of Japanese 1.4 renewals is done in Singapore now.”
However, as much as the market has matured it is still lagging behind London in certain respects, he added:
“Singapore doesn’t have a central clearing house like London has; it doesn’t have electronic trading; it doesn’t have even a lead-follower situation as much as London in terms of responsibilities. As the market is getting more sophisticated, which it clearly is, it strikes me and it similarly strikes the SRA that there is a way perhaps of using the new digital services that London is building under Blueprint Two, and to export them here.”
Blueprint Two is the latest stage in a series of major market reforms which are intended to drive the move to digitalise London market operations through solutions that – it is claimed – will make placement, accounting and claims settlement better, faster and cheaper.
Among the goals of the transformation plan is an £800 million aggregate reduction in operating costs for brokers, underwriters and business partners at Lloyd’s. Blueprint Two also sets out to achieve clear data standards to support the next generation of placement platforms in London, as well as automated claims recognition, routing and orchestration to facilitate faster claims payments.
“Singapore and London from my perspective have close connections,” said Matcham. “One of the reasons I’m here this time is to talk to the local association/market about opportunities to introduce digital efficiencies for their processing and their trading activity, along the same lines that London is doing on a much larger scale.”
“Singapore is obviously now a global hub. Not as big as London, but there are many similarities, and in some ways business that would have been sent to London in the past now stays in Singapore, or a chunk of it does at least.”
Dave Matcham, International Underwriting Association
He suggested that there ground is fertile in Singapore for the transition to a more efficient digital trading environment:
“There are fairly antiquated accounting and settlement processes out here- and the same old errors in terms of unallocated cash, reserves that don’t move, static claims, unpaid partial claims – all those inefficiencies exist here as much as we are trying to correct them in London. But they don’t have a market legacy… it’s almost a greenfield site. They don’t have a trading platform, there’s no PPL here, it’s all done by email and face to face processing.”
His comments come in the same week that the Shanghai Insurance Exchange (SIE) officially launched its much anticipated international reinsurance business trading platform, as well as the first batch of market rules, marking the latest progress in developing the city as a reinsurance hub.
The platform can provide digital trading services, including business inquiry and quotation, contract deposit, account clearing, and cross-border settlement, while ensuring that the information of parties to a transaction is secure, encrypted and tamper-proof, the SIE claimed.
It added that the platform provides traders with an intelligent online trading tools and gives regulators a more effective tool for monitoring the entire process.
The new trading rules for the platform mainly focus on cross-border business. The SIE said that they aim to create a window for opening the Chinese reinsurance market to outside investors, providing them with a platform that is lower in trading risks, higher in information transparency, and converging all the necessary elements needed in making a successful trade.
SIE chairman Ren Chunsheng said the global reinsurance board will be divided into three sectors: a domestic market sector, a cross-border market sector that supplies overseas reinsurance products, and another cross-border market sector that offers domestic reinsurance products. Foreign organisations are welcome to participate in the latter two as sellers or buyers, Ren added.
InsuranceAsia News (IAN) SIRC Today recently talked to KY Maeng, chief executive of Lloyd’s broker Ramon International South Korea division, before the Singapore International Reinsurance Conference (SIRC) 2023, to discuss the reinsurance market in Korea, lack of capacity for special risks like cyber and the broker’s plans in the local space.
Ramon International has been in an expansion phase over the past 18-24 months and is now reviewing and consolidating its network in UK and overseas. In Korea, it is currently focusing on cementing its position in the market as a new “foreign-owned broker”.
How does the Korea’s market compare with other Asian markets, such as Hong Kong and Singapore, when it comes to reinsurance placements?
The Korean insurance market is very different to those of Hong Kong and Singapore in that it services one of the largest domestic economies in the world. Neither HK nor Singapore supports such a broad-ranging or large industrial base, and hence has largely emerged as regional reinsurance capacity provider.
As a reinsurance buyer, Korea accesses global capacity for a significant number of treaties and facultative accounts, utilising global capital, retaining risk/premium where possible and, interestingly, perhaps more so in the current harder reinsurance market trading conditions than before.
What are P&C insurers in Korea looking for from reinsurance partners in terms of lines of business, GWP growth, expertise, risk management, analytics and capacity?
Whilst there is plenty of domestic (re)insurance capacity for property, marine, aviation and engineering risks, the scale of some of the businesses, especially retro and energy-related, needs additional capacity from overseas, whilst some of the specialist risks, such as financial lines, specie and liability, require wider coverage, pricing leadership and capacity support.
For new classes of risk, like renewable energy, such as wind, solar and BESS (of which Korea has many and in which it is becoming a regional powerhouse) and parametrics, the market requires more thought leadership and guidance on wordings, rating and underwriting considerations.
Gross written premium increases annually by small gradations, as might be expected from a mature market, but as pricing increases over the coming year or two, driven by international pricing and pressures, so will GWP.
“As a reinsurance buyer, Korea accesses global capacity for a significant number of treaties and facultative accounts, utilising global capital, retaining risk/premium where possible and, interestingly, perhaps more so in the current harder reinsurance market trading conditions than before.”
KY Maeng, Ramon International
In terms of recent market trends, in which areas are P&C insurers trying to develop more expertise in and to hedge more risk?
Risks such as cyber are a major issue globally now, with the threat rising exponentially, an increasing number of events as threat actors become more active and smarter, and effective (re)insurance capacity lacking.
After initial enthusiasm, many reinsurance providers have recognised how little they know about the threats and potential losses and have withdrawn from the class. The few that remain are not able to provide adequate capacity for the risks out there, nor are there enough threat analysts and services to provide technical advice, threat mitigation and post-event intervention and support. The picture is the same in Korea, where global reinsurance support is paramount in cyber insurance.
How is the reinsurance broking market adapting to the needs of cedents and where can it do more to help? Does the approach differ between the very large players and some of the smaller ones?
As the broking market has matured and consolidated in recent decades, it is the larger, more geographically represented, better resourced, and financed brokers who have been able to offer the range of ancillary services, such as critical analytics and the like, who have maintained their role as lead service provider to the majority of cedants, especially the larger cedants.
Smaller brokers tend to focus on the smaller cedants, long-standing relationships and historical territory and account positions. They tend not to assume “flag broker” status, but still have a very powerful role to play in terms of checks and balances over the larger scale multi-national brokers.
What are your growth plans in the region for the next two to three years and your first observations after Ramon’s one year in Korea?
The first year in Korea has been very challenging as the company re-structures, on-boards new management, adapts to new business administration architecture, seeks to attract new production and technical staff and fights the very competitive battle amongst brokers in the local market.
The aim is to expand our services, both in the retail and reinsurance segments, targeting a 50/50 split between direct insurance services and wholesale reinsurance. Within the reinsurance space, both treaty and facultative business are targeted, with fac business being focused on energy and power, technical property, engineering, marine, financial lines and liability.
“January 1, 2024, renewals are definitely going to be more orderly. I believe that all parties will come to the table more prepared for negotiations,” said Pierre Balthazard, head of APAC reinsurance for Sompo International.
“There’s been intense communication over the past year about positions. This year is clearer for everyone — question marks on retro markets and retrocession capacity have disappeared and we expect things to be smoother going into the next renewal cycle,” he added.
However, Balthazard, who is also the chief executive for the carrier’s Singapore reinsurance office, noted that the APAC market should see a reinforcement of reinsurance positions and the need to re-establish long-term financial sustainability for insurance.
“Lower retentions or rate decreases are off the table. Even though the year has been relatively good so far for APAC, the industry needs more than a good year to offset the under–average profitability of the last few years in the region.”
He added that reinsurers need to demonstrate that they can provide the capital and the associated required return, especially for property and property cat, which are high consumers of capital.
Among factors that push demand for reinsurance, Balthazard named low capitalisation of insurers in the market and regulatory pressure in markets like Australia.
“I think there is plenty of capacity for APAC. I would call the market harder, but not hard in the sense that most programs were successfully placed at the last renewal. There was no shortfall per se in the region, but there’s a price for it and we see a higher return requirement for this capital, pushed by higher interest rates. What is this price? It depends. I would say last year was a step in the right direction,” Pierre Balthazard, Sompo International
Meanwhile, demand is expected to be strong and is most likely to expand, driven by inflation, especially on the top end of cat programs. There is enough capacity in the region with very few problematic areas or crunch like what the global market has seen in Florida.
“I think there is plenty [of capacity] for APAC. I would call the market harder, but not hard in the sense that most programs were successfully placed at the last renewal. There was no shortfall per se in the region, but there’s a price for it and we see a higher return requirement for this capital, pushed by higher interest rates. What is this price? It depends. I would say last year was a step in the right direction,” Balthazard said.
While some programs have reached adequate price and terms, Balthazard noted that some risks still need further adjustment to reach a sustainable level.
Another key change this year, according to Balthazard, is that insurers had to rethink their structures.
“Lower layers have almost disappeared, and I don’t think they’re coming back this year. Insurers are in a better position to adjust for emerging risks and inflation as they can push rates and terms almost immediately, while reinsurers take a number of cycles to react to trends,” he said.
Meanwhile, the market is experiencing a level of higher uncertainty in the frequency and severity of emerging risks, with events like floods in China and New Zealand, which went beyond what was generally expected.
“It is the reinsurers’ job to cover uncertainty, but that comes at a certain price. Uncertainty is also going to push demand as it is a good reason to buy reinsurance,” Balthazard explained.
Shift to casualty and specialty
“From the reinsurance side, there has been a shift in capital allocation and weight to casualty and specialty, with some reinsurers deciding to move away from cats,” Balthazard said.
Meanwhile, among business lines with growth potential is marine, due to the current geopolitical tensions.
According to Balthazard: “Geopolitical tensions usually affect marine routes and trade, typically bringing a shift in demand and terms, which can be beneficial for the market.”
In the region, Sompo International is planning to grow it reinsurance casualty business beyond motor. This space offers significant opportunity, Balthazard notes, that needs to be filled, and that will come with the development of the region.
“Given the adjustments on the past renewals, APAC is a strategic focus for us. The intention is to expand on the basis that we’ve seen at the last renewal,” he said.
“For casualty and specialty, the idea is to grow with the market and find the opportunities where they are. As previously mentioned, specialty and marine have a lot to offer in the region, given the dynamics we see in return,” he added.
“On the casualty side, demand is growing, the maturity of the products is evolving, and we see a lot of innovations from markets like China,” he said.
One of the biggest markets for Sompo International’s reinsurance business is still Japan. China, Australia and New Zealand are other key markets with India developing its potential.
“[In India], the economy is expanding quickly and the insurance market has been doing tremendously well recently, presenting a lot of opportunities for the reinsurance market,” Balthazard said.
Talking about South-East Asia, Balthazard said that although it is fragmented and many carriers are undercapitalised, it presents strong opportunities given the population size and the dynamic of economies in the region.
Peak Re’s South and South-East Asia director, Jasmine Miow, on growing specialty and casualty opportunities in the region.
Non-property lines, especially in specialty areas such as professional liability, directors and officers (D&O) liability, and cyber insurance, may have significant growth potential in South-East Asia, said Jasmine Miow, director of South Asia and South-East Asia for Peak Re.
Reinsurers may find these lines attractive due to their potential for expansion and profitability in the region as South-East Asia is home to diverse and growing economies, which presents opportunities for insurers and reinsurers, she said.
“However, the market share of casualty and specialty lines in South-East Asia is relatively small compared to more traditional lines of insurance, such as property and motor insurance due to limited awareness and understanding and cost considerations,” Miow said.
“These lines often require a deeper understanding of specific risks and coverage needs. Many businesses and individuals may not be fully aware of the potential liabilities they face or the insurance solutions available to address them,” she added.
Specialty lines, such as professional liability or cyber insurance, can be relatively more expensive compared to standard property or motor insurance, Miow noted adding that cost considerations impact the uptake of these coverages, especially for smaller businesses or individuals with limited budgets.
However, there are drivers for the growth of casualty and specialty lines in South-East Asia.
“As businesses become more globally connected, regulatory requirements become more stringent, and awareness of specialised risks increases. Also, insurers and reinsurers are also actively developing and offering more tailored products to meet the evolving needs of businesses and individuals in the region,” she said.
“These lines often require a deeper understanding of specific risks and coverage needs.”
Jasmine Miow, Peak Re
Tapping the middle class
The rise of middle class in Asean offers opportunities in the market, driving economic growth, and increasing consumer spending, Miow said but pointed out that in-depth understanding of the regional difference is required in the region.
Miow said, citing a recent study by Peak Re, “While around a third of the middle class in Malaysia, Thailand, and Vietnam expect themselves to move upwards within the socioeconomic hierarchy over the next five years, the ratio was significantly higher at two-thirds in Indonesia. In the Philippines, half of the middle-class in aspire to become an entrepreneur or own a business, the ratio was closer to 20% in Malaysia and Vietnam.”
Increasing digitalisation and a higher readiness for emerging consumers to shop online is giving rise to new and innovative ways to distribute insurance in South-East Asia, she said.
“The rapid growth of digital ecosystems, which are increasingly tailored to the needs of consumers, growing internet penetration driven by improved infrastructure, affordability of smartphones, and availability of data plans. The booming of e-commerce markets and the rise of digital financial services” are some of the drivers in the region, according to Miow.
However, the region needs to streamline regulations and promote digitization that make it more viable to bundle insurance within the digital ecosystems’ channels.
“Regulatory sandboxes provide a conducive environment for insurance companies to experiment with innovative insurance products and distribution models. This enables insurers to partner with ecosystem players, such as ride-hailing platforms or e-commerce marketplaces, to offer insurance coverage directly within those platforms,” she noted.
Reinsurers, insurers and brokers need to help clients monitor and adapt as the climate in APAC changes fast and losses add up.
Melissa Hyak, a broadcast journalist, moderated an expert panel discussion on how APAC’s reinsurance sector can respond to the growing challenge of climate change in region which is causing growing underwriting losses and causing pain for both personal and business customers.
In 2023, several record US$1 billion plus loss nat cat events occurred in New Zealand, including Cyclone Gabrielle and the Auckland Anniversary floods in January and February, have been followed by huge rainfall losses in China, with Beijing seeing its highest rain total on record, and Typhoon Doksuri causing over a US$1 billion in insured losses. And Special Administrative Region Hong Kong issued its longest black rainstorm signal on record causing hundreds of millions of dollars of damage – although the tally has yet to be formally added up.
As the planet warms the atmosphere is holding more vapour meaning larger downpours and helping is helping to create potentially larger and more powerful typhoons.
Heat records have also been shattered across the region, including in Japan and China, as the world turns from three years of La Niña – which brings wetter conditions – to the drier and usually hotter El Niño weather system.
Providing an introduction to the panel, Gianfranco Lot, chief underwriting officer, P&C reinsurance, Swiss Re, said: “The reinsurance sector sees climate risk as a key threat. The APAC region is most frequently affected by nat cats, accounts for almost half of global protection gap. The industry is also set to be not responsive enough.” Lot added: “It’s important to maintain discipline to create data standards and understand that data definitions. We will be able to protect more people, businesses, the public sector and societies.”
Warmer than ever
Professor Benjamin Horton, director of the Earth Observatory of Singapore (EOS), which is based at Singapore’s Nanyang Technological University (NTU), returned to SIRC for the first time since 2018 with spome worrying observations. The EOS was founded in 2008 to better understand geohazards and climate change.
Horton said that land and, in particular, ocean temperatures, are above previous records this year and spoke about a summer 2023 marine heatwave in the Caribbean which has seen every coral bleached. Also, he talked about the wildfires in Canada, when over 6,500 fires burned the largest amount of land in the country’s history and saw smoke blow all the way to New York City causing a pollution emergency. He described humanity’s impact on the climate as “staggering”.
Horton added: “Climate scientists are increasingly worried that that climate is getting away from us. Int the last 15 years it seems we are on an exponential curve in terms of the planet warming.”
2023 has seen the return of El Niño after three years of La Niña. If El Niño keeps going, 2024 will be “off the charts” for the climate, Horton noted.
Winnie Tan, senior vice president for sustainability at Great Eastern Holdings, posed the following questions to the market: “Is your company doing less harm and do you have your own green path? What more good can you do? Are you helping really fragile clients to transition? What risk mitigation behaviour can you help your clients take on?”
Modelling
Dr Jayanta Guin, executive vice president & chief research officer, Verisk Extreme Event Solutions, said: “We’re not big fans of using the term secondary perils as they’re causing billions of dollars of losses. We started modelling floods in 2007, hurricanes in 1987. Look at the amount of flash flooding that happened just this year”.
Guin added: “From a risk modelling point of view, we have to develop solutions from an engineering point of you, where scaling is a problem. When we build a model, we look into five to 10 years when we cannot have a single weather event that have not been looked into. This is the view of risk with or without climate adjustment – this is the direction we’re targeting but it’s not available everywhere.”
Vipul Shetty, head of energy transition, APAC, at Howden Specialty, said: “We have spent decades doing specialty, marine insurance etc. We have to absorb knowledge about climate change and pass it to actions.”
Shetty added: “It’s not a competition – as in your premium against mine – everyone can benefit.”
Dr Sibylle Steimen, managing director, advisory & services at Allianz Re, said: “We have to come up with much more models. We need to have a model-based reflection. We need the models, and to trust those models. Some perils were just not modelled.”
Steimen said: “We price for the risk in the current climate, not what it will be in 2050. The models used for pricing have to reflect today’s climate. In future, we will have to give an outlook for the climate, if they want to stay in operations for 30 years, the risk profile will change. Climate change is here to stay, and we have to act and take it into decision-making processes. Nag your clients every time you see them and make them do it.”
Meanwhile many eyes in APAC’s reinsurance market will be turning to Australia to follow what is expected to be the worst wildfire season since the Black Summer of 2019/20. States at threat include New South Wales and Queensland. And in an increasing environment of climate uncertainty around the world, there are still around eight weeks left in 2023 to cause a few surprises to the market and to possibly impact the 1.1.2024 renewals. And as we have seen in recent years, the event may not even need to happen in APAC.
As ever there is plenty of work ahead to grapple with the growing issue of climate change.
The climate change panel discussion took place in the morning on Wednesday, November 1 at the SIRC 2023 in the Marina Bay Sands. InsuranceAsia News (IAN) provides regular coverage of nat cats across the region. For more see here.