SIRC: Low-level aggregate covers will not be in our appetite — Hannover Re’s Sharon Ooi

October 31 2023 by

“Low-level aggregate covers will not be in our appetite,” Sharon Ooi, member of the executive board – property & casualty for Hannover Re, told InsuranceAsia News (IAN).

“There is a need to understand what the underlying exposures are and be able to have an adult conversation to say what’s within our appetite and what’s not within our appetite,” said Ooi, who has regional responsibility for Asia Pacific for the reinsurer.

“If there is a program with losses that is not in line with our view of the exposures, then we would look to reduce that or not continue to provide capacity for that coverage, unless we’re getting an adequate return.”

“There will be markets that may struggle if they don’t want to address any pricing disconnects that have occurred,” she added.

There’s a clear view among insurers and reinsurers that you need to take inflation and increased loss expectations into account as we go to the upcoming renewals, according to Ooi.

In terms of pricing, the focus at Hannover Re is the need to ensure sustainable returns on capital. That along with loss drivers such as inflation, growth in exposure, and increasing frequency and severity of cat losses means that, where necessary, prices will go up on a nominal level and a risk-adjusted level, she pointed out.

“I think with hardening everyone expects that reinsurers’ profit margins increase, but that’s not really the case because price increases are actually related to factors like inflation, exposure growth and high frequency and severity of nat cat losses,” she said.

While costs will always be a discussion point in terms of ensuring that there is the right price that the client is willing to pay and the reinsurer is willing to give.

“I think it just means that different structures will be talked about – increased deductibles will definitely be part of the conversation,” Ooi said.

There are perils that need to be considered, but it’s beyond just the perils that are normally talked about.

“As an example, strikes, riots and civil commotion is something that needs to be addressed if there is exposure there,” she said.

“In terms of capacity, I do think that everyone’s coming to terms with it. I would expect capacity to be available and it would be quite disciplined. But there will always be surprises. Unfortunately, there are upheavals in the Middle East, the Ukraine war is still ongoing, but I do believe that at the renewals you’d get capacity at the right price,” she pointed out.

“If there is a program with losses that is not in line with our view of the exposur es, then we would look to reduce that or not continue to provide capacity for that coverage, unless we're getting an adequate return.”

Sharon Ooi, Hannover Re

APAC markets
Asia Pacific is incredibly diverse as a marketplace, so there will be various different responses to loss activity.

“We have teams on the ground in Asia and they are always in dialogue with clients and it’s not always about renewals. There are opportunities to look at, for example, capital fungibility solutions and the like, which can be enacted at any time. So that dialogue with clients is beyond just the treaty renewals,” she said.

“What’s important is just the recognition that there is a new normal in terms of that loss activity,” Ooi said, pointing out that there is a need for mitigation and to build resilience and everyone has to play a part.

Some responses are actually government-intervention-driven in terms of focusing on mitigation, which could help ease pressures for the insureds and (re)insurers will benefit, she added.

While proposals like insurance pools, such as the cyclone pool in Australia, Ooi said: “Pooling is a concept that can help, but the key is ensuring the affordability and the availability of insurance.”

“I guess the recent example of Tasmania, where they removed the fire services levy will help ensure that there is more affordability and access to cover.”

“Having different types of products like parametric products, which is something that we also support at Hannover Re, could help as well,” Ooi said.

Non-property lines
“I expect non-property lines to continue to grow and this is driven by demand and the growing maturity of the Asia Pacific markets. You see growth across all the different lines of business – infrastructure, credit, engineering, cyber, renewables. However, it is a smaller risk pool from a direct insurance perspective,” Ooi added.

She continued: “We also see growth in specialty lines like agriculture and again partly driven by government support like in India and China.”

On cyber, Ooi said: “We absolutely have the appetite to do cyber reinsurance. We see some activity in cyber lines in Asia Pacific, but it’s small at this point in time and the growth rates continue to be double digits. We continue to discuss with clients as to how we can support them. We do expect it to be a growing line of business.”

For more IAN coverage of SIRC 2023 click here

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