Reinsurers guarding themselves to “not let loose” at 1.1 renewals, says Peak Re’s Hahn
November 1 2024 by InsuranceAsia News
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.”
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