Error : System.NullReferenceException: Object reference not set to an instance of an object. at Philip.Modules.ViewNewsLetterArticleDetail.ViewViewNewsLetterArticleDetail.DisplayNews(Boolean _UserPermission) in d:\NEWAIR\DesktopModules\Philip.ViewNewsLetterArticleDetail\ViewViewNewsLetterArticleDetail.ascx.cs:line 986

AIR+23 May 2018

Reinsurance buying in Asia hints at mindset maturity

| 23 May 2018

The year 2017 was another record-breaking year of insured losses, but Asia managed to catch some respite with economic and insured losses substantially lower than previous years. Allianz Re regional CEO Kenrick Law takes stock of Asia's performance last year as he outlines the trends potentially set to dominate the industry in 2018.

Expectations of rate adjustments following hurricanes Harvey, Irma and Maria appeared not to have filtered through to Asian reinsurance markets as pricing during 1/1 and 1/4 renewals remained relatively stable. Apart from typhoon Hato in Macau and cyclone Debbie in Australia, Asia seemed to have gained some reprieve from the spate of major disaster occurrences in the last few years, which was largely why market hopes for price increases did not particularly materialise, said Mr Law.

Even in China, where the market experienced a series of floods, droughts and hailstorms during the course of the year – most notably severe flooding in June that impacted the agricultural sector – the events did not translate into major losses in the end. That being said, he noted there were exceptions for programmes in certain markets that were hit by significant CAT losses.

Shifting mentality over protection

More than rate increases, one trend the reinsurer has observed over the last couple of years is the willingness of cedants to pay for cover with better rated reinsurers. “We do see more and more cedants increasing focus on the quality and security of the reinsurers so sometimes, they’d rather pay more for a better-secured, better-rated reinsurer – that’s a mindset change we’re noticing and it’s good,” he said.

In terms of cover, Mr Law noted that cedants have turned to buying more protection for earnings, as opposed to in the past when insurers historically sought reinsurance for CAT events. The reason is that the increased frequency of events and losses – though not major – have begun to take a toll on companies’ earnings thus, “clients in Asia are now looking into buying reinsurance to protect their net earnings.”

Separately, RBC-regime requirements have also pushed insurers to look toward the reinsurance market for capital relief-type deals.

Rising awareness around cyber risks has also prompted the reinsurers’ clients to actively seek protection against potential cyber events as such exposure has historically either been excluded or silent. He added, “Branching out from cyber is demand for man-made CAT cover. In the past, CAT cover in Asia has mostly focused on natural disasters, but clients are now also looking into non-Nat CAT types of protection on stand-alone basis.”  

Mr Law acknowledged, however, the challenges when it comes to modelling cyber losses. “I doubt there’s any company that can say they have the best models, so we work closely with third-parties who specialise in assessing cyber exposure – especially accumulation risks. At the same time, we are building up on our internal expertise.” With current limitations, reinsurers are actively addressing the issue of non-affirmative cyber exposure in their portfolios,” so we know where the exposure is coming from and we have more certainty.”

Beware the bumps

While cedants in Asia are showing sprouts of maturity in their reinsurance buying, the reinsurance veteran highlighted a few developments that could derail the progress that the industry in Asia has made. Of these, the most significant concern is the observed inclination towards protectionism in a few markets in the region – in the form of local retention rules. Increased operational and capital costs aside, the more pressing and potential impact, he said, would be foreign players’ withdrawal from these markets.

“In a country with a huge Nat CAT exposure, and if reinsurers were to withdraw capacity, can you imagine what might happen if a massive earthquake were to occur there tomorrow?  Whether the local market/government will be able to fully fund the costs of such CAT events is something that needs to be considered carefully,” he said.   

A withdrawal of foreign capacity could also lead to subsequent stunted growth in the direct insurance market since insurers would only have their own capital base and capacity from the domestic reinsurer to rely on for growth support.

Then, there is the perennial protection gap challenge, along with the issue of insurance accessibility that the reinsurance industry must continue to help solve. But aside from seeking regulators’ help in promoting insurance – either by mandating cover for certain lines of business or raising awareness through public education – he asked, “In countries with large rural populations, how can we ensure these people will have proper access to insurance protection?”

For its part, Mr Law said, the reinsurer has an Allianz Climate Solutions team that serves several functions and one of which is to engage NGOs and government bodies in providing insurance protection cover to the public. However, due to the sheer cost and scale of such initiatives, he emphasised that these schemes will need to be a concerted industry effort since no one reinsurer is able to shoulder all the risks.

On a micro level, he noted Allianz X (the digital investment unit of Allianz Group), recent $35m investment in Indonesian ride-sharing start-up GO-JEK.   A collaboration like that is good, because GO-JEK is a robust digital unicorn in Indonesia, and has more than 1m registered drivers on the mobile app serving customers, which Allianz can easily reach out to and promote access to insurance. While it may not necessarily close the protection gap per se, such initiative would also enable both companies to offer unique financial products and services to the wider GO-JEK riders “whenever they need it, even if it’s for a short period of time,” he said.

| Print | Share

eWeekly China Newsletter is available to eChina subscribers only.

Please login to read the full news

Please Click here to subscribe eChina.
Enter the code shown above in the box below.

Note that your comment may be edited or removed in the future, and that your comment may appear alongside the original article on websites other than this one.

Error : Object reference not set to an instance of an object.

Recent Comments

Other News

Follow Asia Insurance Review