SIRC: Renewables, underinsurance, nat cats and cyber risks are reinsurance’s APAC focal point — CEOs

November 1 2023 by

While there is still uncertainty, the APAC market is moving towards adequacy in the price, terms and conditions, say chief executives from Swiss Re, Munich Re and Axa XL

In a CEO Roundtable on the morning of October 31, senior reinsurance market executives met to discuss the state of the reinsurance market in Asia Pacific.

The panellists were: Renaud Guidée, chief executive – reinsurance, Axa XL, Achim Kassow, member of the board of management, Munich Re and Urs Baertschi, chief executive, P&C Reinsurance at Swiss Re. The panel was chaired by James Vickers, international chairman at Gallagher Re.

Munich Re’s Kassow said: “We’re operating in a complex space. There is social inflation, geopolitical uncertainties, changing trends at the local level. There are visible and significant uncertainties. It is very important for reinsurance to be accurate at their estimates of inflation.”

He continued: “Many risks are changing. A case in point is natural hazards such as this year’s Cyclone Gabrielle, Typhoon Saola, Typhoon Doksuri, earthquakes in Turkey and Morocco. Meanwhile, and so called ‘secondary perils’ such as wildfires and floods that are far from being secondary when it comes to loss magnitudes. Losses are also on the rise in cyber insurance with the key challenge in cyber being accumulation control. There is also a need for sustainable and profitable cyber insurance market. One thing in common between cyber and nat cats is that you need the expertise to understand the risk.”

“The (re)insurance industries are tasked with two big trends: We need renewable energies on a large scale, efficient storage systems, environmentally friendly engines, interconnectedness and AI. The second problem is underinsurance, the gap is wide, on an aggregate level with a low insurance penetration needs time to recover to solve or reduce this problem,” Kassow added.

Possible solutions include arranging public private partnerships, introducing products that are easy to understand, parametric products and mobile ready ones.

Swiss Re’s Baertschi said: “Over the last 12 or 18 months or so, we saw a very significant shift in rebalancing the risk sharing between insurers and reinsurers. Demand is up, while the supply side remains disciplined. The industry functions with the global reinsurance pool, otherwise the rates would be much higher. The APAC region is not immune to nat cats, e.g. Cyclone Gabrielle, tragedies in India and I was personally in Beijing when Typhoon Doksuri was there – and it was wet!”

Kassow added: “If the underlying profitability of the risk we are taking is not sufficient, we cannot only share risks between ourselves.”

When Vickers asked about the state of the Asian market, AXA XL’s Guidée said: “The market is promising – it is moving towards adequacy in the price, terms and conditions. It’s also about rebalancing the value and risk sharing with our business partners with a long-term perspective. As we step out of low interest rates, the market will become much more selective.”

Kassow said: “The starting point is different in different markets. If you’re working with reinsurers, a lot of the volatilities translates into their business strategy. The reaction of the markets has been normal. It’s more about how do your capital base and your return to capital look like. The most important thing is to understand each other’s perspective in our business model and what our behaviour is driven by – e.g. retro and split of risk across business lines.”

Baertschi said: “The APAC region is a high-growth region with a large protection gap. There is a massive need for the industry as a whole to address these megacities and urban clusters from Mumbai to Tokyo to Shanghai.”

Kassow added: “The growth markets typically attract a lot of naïve capital, then they send some people and money. Then something happens that wasn’t planned, it draws back. The volatility in growth markets is not helpful for long-term growth. We need to have people understanding the markets. You would like to commit to a long-term perspective that is sustainable. Sometimes, it brings difficult discussions on what’s sustainable.”

Guidée added: “Some things are complementing and not competing with the reinsurance industry – for example the Australia cyclone pool closes the protection gap, while parametric products add an additional layer. If a place is not (re)insurable, it’s not liveable and we have to diffuse the risks with regulators and governments — for example the concentration of people in local areas. Governments have to get their act together in terms of land zoning.”

On communication, Kassow commented: “I would be critical about our role in talking to the public. We need to communicate more and better about how we price and assess risk.”

For more InsuranceAsia News (IAN) coverage of SIRC 2023 click here.

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