September marks the start of renewal season with the Monte Carlo Rendezvous, and like in recent years it remains a buyers’ market in reinsurance. We bring you a round-up of views of insurers and brokers on the expectations of reinsurance buyers in Asia, with the need for local market understanding and flexibility in customising solutions ranking high in the list of priorities.
The relationship between insurers and reinsurers is a symbiotic one though the former are in a more favourable bargaining position compared to reinsurers presently.
Despite the persistent soft market environment leading to low rates, insurers have been revising their capital management strategies resulting in higher retention and reduction in amount of reinsurance bought.
In a recent interview with Asia Insurance Review, Allianz Re’s Chief Executive Amer Ahmed said the Allianz Group, for instance, has reduced reinsurance buying by “a few billion euros” over the last eight years. Allianz is certainly not unique in doing so, with many global and regional insurers retaining more risk on their books reflecting greater sophistication in risk selection and risk management.
Slower reinsurance premium growth; higher profitability
Global reinsurance premiums have been expanding though the rate of growth has declined in recent years. Reinsurance premiums grew by a nominal 1.3% in 2013, after 2.6% in 2012, compared to an average 11.1% per year for the years 2000-13.
However, profitability has remained strong with combined ratio standing at 91.4% in 2013, compared to 93.9% in 2012. This can be attributed to benign catastrophe losses over the last two years, which have also provided relief from the pressure of declining investment yields.
Despite the pressures, reinsurance remains a very powerful tool for risk mitigation, providing capital relief as well as an attractive knowledge resource fuelling product innovation in the sector.
And while insurers are in a much stronger capital position, both through M&A synergies and regulatory demands, a positive effect for reinsurers has been a more sophisticated and holistic use of reinsurance – beyond mere capacity - which demands deeper local knowledge and the flexibility to customise solutions for clients, among other things.
Below are excerpts of the conversations with some insurers and brokers on their expectations and wishes for reinsurers in Asia going forward.
Deep knowledge for Asia’s risks
On the general side, there remains a strong need for deep local knowledge as Asia’s risk landscape evolves rapidly.
Zurich Group’s Chief Underwriting Officer Adrian Sweeney, said aside from stability, he values reinsurers who are able to view the risk intimately.
“Importantly, we also need reinsurers to understand the intricacies of the insurance market and risk landscape in Asia.”
Mr Sweeney also added that the need to be accommodating in coming up with solutions is an important factor – something which reinsurers have to take on board as one of the main value propositions in an ultra-competitive market.
“We work with partners who are able to make efficient decisions, be flexible and assist with the design and development of solutions that benefit our customers in each market,” he said.
Nat CAT solutions
For AXA Asia’s Regional Chief Technical Officer (General Insurance) Claude Seigne, the biggest need is with regard to natural catastrophe exposure in Asia. And he believes reinsurers have acquitted themselves well in this area thus far.
“Most P&C reinsurers are already very proactive in proposing solutions when it comes to new issues or new risks. Besides general reinsurance services, we are especially appreciative of the reinsurer’s assistance for the Nat CAT risks mapping.”
Increasing retention in Asia
Regulatory changes that have been introduced in the region will inevitably lead to stronger insurers and a more financially-sound industry – a plus point for AXA which operates across many Asian markets, said Mr Seigne.
But for the world’s largest insurer by net premiums, it remains business as usual for AXA in terms of reinsurance strategy regardless of the evolving regulatory environment in the region.
“We have already implemented solvency management, risk management and customer protection throughout our organisation. In terms of reinsurance strategy, considering our significant growth in the region and also our risk selectivity, we are continuing to retain more risk at regional level,” said Mr Seigne.
Data & Innovation
On the life side, AXA Asia’s Regional Chief Risk Officer Nicolas Fauvarque said reinsurers can be a valuable source in keeping with the sophisticated demands of consumers.
“One significant contribution we see from reinsurance is the local knowledge of consumer demands and data and product innovations to help us keep up to speed and stay at the forefront.”
Seeing the rapid growth of medical products in the region, Mr Fauvarque hoped reinsurers could assist in improving the granularity of health insurance data.
“The common problem across Asia is the lack of data and experience on disease incidence rates and pricing. The lack of granularity in tracking claims by disease types is also a key issue as this block is growing very fast.”
Mr Alex Chan, Broking Director at Ikatan Reinsurance Brokers in Singapore, said the choices available to cedents in today’s market mean that rates continue to be a decisive factor for many.
“Rate competition appears to be the key strategy for several markets in Asia and cedents who seek facultative reinsurance support have requested RI support at competitive rates with wider coverage scope and lower deductibles,” he said.
However, brokers said cedents react in various ways to the current soft market conditions.
Mr Vinod Krishnan, Chief Executive Officer, Aon Benfield Asia, said while insurers expect discounts on their reinsurance, some may choose to pocket the cost savings while others view it as a buying opportunity.
“There’s a big expectation on keeping prices down, that remains a big theme. Some may say ‘I’ll save on the discount’, while others think now is the time to get more cover for the same amount they’ve been paying.”
Regulatory driven demands
Mr Vinod added that changes in regulation may also shape the reinsurance needs of local insurers in various Asian markets.
For one, several markets will be faced with the challenges related to de-tariffing over the next one to two years – something which reinsurers are in a position to assist cedents with.
Secondly, ongoing discussions on solvency in various markets would also see a need for structured reinsurance solutions in order for insurers to reduce burden on capital.
“Solvency requirements which are being introduced in various countries are certainly influencing the thinking of insurers and they are evaluating capital relief solutions.”
“I see a certain will on the part of regulators in the region to enforce minimum requirements on solvency, and hence regulations will force insurers to make a decision one way or another,” he added.
Claims handling – Room for improvement
One key differentiator in the insurance market is the ability to settle claims promptly. In this regard, Mr Nigel Cross, Head of Singapore and Asian Facultative Reinsurance at Miller, said cedents in the region ought to expect “much more prompt and efficient claims handling and settling from facultative reinsurers.”
“Premium payments in the region have generally improved over the last 15 years; the region as a whole had a poor reputation for facultative premium payments which was largely addressed and corrected at the time of the last hard market in the early 2000’s. The same cannot always be said for claims payments to cedents by reinsurers,” said Mr Cross.
“Claims agreements (rather than actual settlements) by reinsurers are often very slow with some looking to routinely dispute claims or differ in opinion from one reinsurer to the next.”
He added cedents can assist with the process by taking a transparent approach and providing all claims data and information in a prompt manner. Further, it would also help to pre-agree a claims handling protocol that clearly defines the obligations of all parties in the transaction.
“The reality is that cedents and their reinsurance brokers now have more choice than ever when considering their facultative panel of reinsurers. There is an expectation that reinsurers will promptly and willingly settle valid claims.
“Those who do not follow this approach may be excluded from opportunities due to one poor claims payment experience or a general poor claims reputation.”
Being closer and nimble
In terms of the desire for in-depth knowledge of local markets, Mr Vinod said the Lloyd’s Asia platform in Singapore has expanded considerably in recent years, allowing for underwriters to be up-close to the risks residing in Asia. The Singapore market is now well-equipped to quote and take majority capacity positions for Asia and Greater China business – with underwriting authority no longer confined to London.
He also added that reinsurers have had to be nimble enough to tailor solutions for clients with specific needs.
“While some of the traditional players have been slow to react, I see the newer entrants and those who have recently merged to be especially nimble and progressive in their thinking.
“It’s easier today for buyers to find alternatives, so there’s a need for reinsurers to be innovative.”