Magazine

Read the latest edition of AIR and MEIR as an Interactive e-book

Feb 2024

The reinsurance environment is still very fragile

Source: Asia Insurance Review | Oct 2023

The disorganised 1/1 renewals at the start of the year have seen the major reinsurers approach the 2024 season with a sense of caution tempered with determination. Asia Insurance Review was there in Monte Carlo to witness round one in the fight to see how pricing might develop in January.
By Paul McNamara
 
 
Les Rendez-vous de Septembre 2022 had appeared to be a great success – until hurricane Ian arrived on 23 September, just nine days after the end of the conference and upended everything.
 
There seemed to be a consensus amongst the big global reinsurers that the disorderly, disorganised renewals at the start of 2023 must not be repeated at the start of 2024.
 
The other core message seemed to be that more rate increases should be expected – although perhaps not at the same level as this year. The big reinsurers seemed both bullish and determined that risk be priced efficiently and fairly.
 
Munich Re
Munich Re was the first of the big reinsurers giving the media a sneak peek at its intentions for the upcoming renewal season.
 
The reinsurer shared a series of observations which led to the simple conclusion that there is still a growing need for future investment in reinsurance. Munich Re CEO reinsurance group Thomas Blunck was blunt when he acknowledged that, “The reinsurance environment is still very fragile.”
 
He went on to say, “Inflation will ease but will remain above recent historical averages.” Losses from non-peak perils are on the rise and the reinsurer believes climate change is having an effect. “This is very important for investment for the industry – in things like modelling,” he said.
 
Mr Blunck had a very singular focus. “For decades, natural catastrophe has been our core business and we have intended to show that it is, over time, also profitable. You might have some hits in a year, but we can digest the volatility.
 
“We can also digest the volatility because the Munich Re group as a whole has more income streams that are quite stable - and that includes agri, life and health reinsurance and also the less volatile specialty business. That also helps with diversification. That is core business for us, and we will grow, but always a diversified way.”
 
For Munich Re member of the board of management Stefan Golling, “Underwriting matters again.” For many years the focus was on other areas of the business – like technology – but now underwriting has come back to the fore.
 
Munich Re’s Nat CAT business shows profitable growth, according to Mr Golling. “We are ready to offer high capacity – but we need to know what we’re covering,” he said.
 
On the subject of cyber cover, he said “If we don’t understand the accumulation risk, then the cyber market is dead before it even begins.”
 
The picture for cyber war is even more stark. “Nobody in the industry would question that we can write war on a large scale for property, for physical risks. If you have a war or warlike situation, very often this is restricted to a certain geographical area.
 
“No one should question whether we can write cyber war where you don’t have this restriction but where, due to the digital nature of the risk, you can even have a global scenario. If that means that we have to give up business to avoid that uncontrollable exposure, then no doubt we are prepared to give up business,” he said.
 
“These are not only uncertain times from a macroeconomic perspective and there are also many insurance challenges, but also opportunities. And in my view, underwriting matters to master both these challenges and also to leverage these opportunities to take advantage of those opportunities. Underwriting capabilities are key. Underwriting discipline is key.”
 
Mr Blunck said, “Uncertainties caused by inflation, potential impacts from geopolitical risks, deglobalisation and dynamic risks such as climate change and cyber risks are some examples as to why the market environment remains complex … With the right rates and conditions, we’re ready to further increase our capacity.”
 
SCOR
SCOR group CEO Thierry Léger kicked off the reinsurer’s media briefing with an acknowledgement that, “The world needs reinsurance more than ever before.”
 
The Morocco earthquake provided a recent example of this.
 
“The earthquake has impacted the population of Marrakesh and the surroundings,” said Mr Léger. “Our deepest sympathy is with the population there and it really shows how society can be impacted very, very suddenly. And then it is all about getting back on their feet and for this you need help in different ways, but also money. And there will be money from insurers and reinsurers certainly. SCOR will stand by its partners and support the partners in Morocco to help the population there.”
 
SCOR global P&C CEO Jean Paul Conoscente addressed the issue of pricing at the upcoming 1/1 renewals. “Prices need to go up further,” he said. “Yes, we have been profitable – but probably not profitable enough. It takes more than one semester of good results.”
 
He went onto say, “The situation we had before 2023 was not sustainable for reinsurers,” and so insurance costs will have to go up.
 
“Price increases will continue at a rate very similar to last year,” he said. “But capacity will be available at the right price at the right level … We expect price increases across all business lines across all geographies. We will allocate capital to those lines that give us best returns.”
 
In summary, he said, “I see that risk becomes an affordability question – not insurability, but affordability. My hope is that this will lead to more sustainable markets.”
 
SCOR expects reinsurance rate increases to continue across all main lines of business. Economic and claims inflation will be important elements in profitability assessment. Attractive capital returns will depend on rate increases in excess of claims inflation.
 
Hannover Re
Hannover Re chairman Jean-Jacques Henchoz opened the reinsurer’s media conference with a dash of reality. “Last year it was hard to find any positives. Since then, the negative pointers have been confirmed by reality,” he said.
 
Coming very shortly after the Morocco earthquake, he said, “We are all with the people of Morocco. This is a tragedy. We want to express our solidarity with the people of Morocco. Our core societal mandate is to help people rebuild after disasters. Each natural disaster is a reminder that the protection gap remains significant. We need to push the boundaries of insurability – and it is a very complex mandate.”
 
He went on to say, “So-called secondary perils are becoming part of the reality of managing our portfolio.”
 
Mr Henchoz echoed the same warning he gave at last year’s Monte Carlo event. “Rate adequacy must fit our appetite for business. If the terms and conditions don’t meet our requirements, then the alternative is to give the capital back to our shareholders in the form of dividends.”
 
Mr Henchoz said, “We have a keen focus on underwriting in 2024 on a win-win basis.” And he concluded by saying, “Society needs to come out of the political denial of the price of risk.”
 
Hannover Re member of the executive board Sharon Ooi, talking about inflation in APAC said, “We have seen it rising, though the recent cooling is quite pleasing to see. However, it must be known that the core inflation is currently at significantly higher than the normal averages that we saw at pre-pandemic levels.
 
“What we look to do is to partner with our clients in Asia Pacific because of their growing recent exposures.
 
And this is across all lines of business including specialty. If you look at the mature markets of Japan, Australia and New Zealand, they’ve been really very disciplined in pricing increases as well as changes in terms and conditions. We expect that to be the case still in 2024 for the very large markets of India and China.
 
“Our presence on the ground is actually very positive for us because we can really partner with our clients and look to create parametric products for them, but also look to support their own product development with our capacity. And this sits very nicely alongside the renewable portfolio that we have.
 
“I think, overall, Asia Pacific continues to be a key component of Hannover Re’s strategy and our clients in Asia value consistency very much,” she said.
 
Swiss Re
Swiss Re was in no doubt that P&C reinsurance is expected to continue to grow in the year ahead in line with GDP and driven by new risk pools. According to the reinsurer, until 2032 the market should see an annual growth rate of 5.2% to reach $402bn from $243bn in 2022.
 
This growth will be driven by new risk pools catalysed by digitalisation, higher risk awareness and increasing insurance penetration in emerging markets. A case in point is Asia Pacific, where a lot of work still needs to be done by both primary carriers and reinsurers.
 
Swiss Re CEO property and casualty reinsurance Urs Baertschi said, “Cyclone Saola just hit Hong Kong and the Guangdong region and clearly we’re looking at that very carefully, but with a high probability, unfortunately, we’ll find out that the protection gap is very, very large there.
 
“We have a scheme with the Guangdong government, which we reinsure on a parametric basis,” he said. “That’s a very innovative product that we’ve launched there and it’s likely to pay out. We don’t know yet exactly, but it’s one of those examples where parametric insurance is designed to reduce that protection gap.
 
“And we have others in other parts of the world that have a similar structure. So clearly, Asia for us is a necessity to address that protection gap. And sometimes you do it with governments and sometimes with innovative products that are designed to address some of the exposures that are existing there. There’s a lot of work ahead of us and clearly a lot of potential.”
 
There is little doubt that APAC remains very important for the reinsurer.
 
Swiss Re CEO global clients and solutions Moses Ojeisekhoba said, “In terms of the expectations for growth, if you look at the last five years, Asia has powered the growth rate of the entire world. If you take out China and Asia, then you actually end up with almost negative growth everywhere else.
 
“The forecast over the next 10 years, the fastest growth growing region will remain Asia as a consequence of that. The protection gap is still significant, but premiums will also grow materially. It’s a super relevant region. It will power growth. But there is a massive protection gap. There’s a lot of work that has to be done,” he said.
 
The reinsurer’s view is that pricing has reacted to years of heavy losses – and is now returning to more sustainable levels since its low point in 2017. According to Mr Baertschi, contracts have also been restructured to reduce volatility through moving to higher layers and enforcing exclusions.
 
The pricing reversion is being driven by multiple factors including claims uncertainty, economic and social inflation, social and demographic changes, politics and economics, technology and nature, the (re)insurance market and the underwriting profitability of new business.
 
In common with other major reinsurers, Swiss Re was not keen to be drawn on specifics in terms of what the upcoming 1/1 renewals might look like.
 
Mr Baertschi said, “It’s still too early to talk about the specifics that we’re seeing in the marketplace. This process is just starting here during Monte Carlo and then will pick up speed over the next few weeks.
 
“In general, our expectation is that what we’ve seen over the last 12 to 18 months around the rebalancing of risk sharing and price adequacy, we expect that to continue. We’ll have to talk about this after we actually do the renewals. What I can say right now is we’re comfortable with our risk appetite.”
 
Swiss Re chief underwriting officer property reinsurance Gianfranco Lot said, “Adequate returns have not been reached yet,” in reference to P&C pricing. In casualty, he said, “Alignment of interests is needed to address the challenging market. What is important it rate adequacy for the business being undertaken.” A 
 

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.

 

Recent Comments

There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.