Market’s willingness to deploy capacity is certainly back: Gallagher Re
November 1 2024 by InsuranceAsia News
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.
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