Re market in flux, but Asia potential remains: Peak Re

February 14 2020 by Yvonne Lau

Illustrating the fluctuating dynamics of the global reinsurance landscape, Franz Josef Hahn, chief executive of Peak Re, has urged that changes are to be made to override consistent years of a difficult business environment.

Highlighting findings for January renewals on February 13 from India, Hahn (pictured) noted that the reinsurance business landscape has been challenging for a few years now – particularly in terms of adequate pricing and return on equity (ROE), which has been on the decline for seven to eight years; and the loss impact of natural catastrophes, which has impacted Asia on an outsized scale.

Hahn said: “Risk on a global and Asia Pacific basis is not adequately priced, for a reasonable return on equity. The costs of capital have been underperforming over the last 12 quarters – this is unprecedented and we must change this situation.”

Lawrence Cheng, managing director of underwriting and co-head of P&C at Peak Re, reiterated that the January renewals showed a new market dynamic. He restated that reinsurance ROE has been consistently below the cost of capital — which has strained reinsurers, specifically on pricing. However, reinsurance capital remains robust.

Commenting on retrocession markets, Cheng pointed to business under stress and a challenging renewal season. Though there is little new capital flowing into these markets, he said, the capital is still there for retrocession business but unable to be written for new business in 2020 — which led to a significant reduction for 2020 capital in this renewal season.

More changes and challenges will be coming, Hahn added, whether from regulatory changes such as IFRS 17, exposure-based impact and climate change risks and impacts. “There will be further stress on capital, liquidity and performance, which may not be seen immediately, but will impact all [market players],” noted Hahn.

He continued: “We’ve seen significant growth markets in Asia Pacific.”

With these new dynamics, Cheng noted that there must be more open and frequent dialogue between cedants and reinsurers. While market conditions may be changing and challenging, Peak Re and other market players, remain bullish on Asia’s potential.

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