Insight and Intelligence on the International (Re)insurance Markets 29 October – 1 November 2018 SIRC 2018 Reinsurers eyeing rate rises in Asia after cat-struck 2018 combination of heavy cat loss the most common loss figure alighted on due to excess global and regional capital, A experience in Asia and poor by the market is $7bn, although isolated but because reinsurers were willing to take a underlying profitability looks likely voices are suggesting it could move well differentiated view of their return hurdles. to push reinsurance rates higher at beyond that. The Asian book was not only business that 1 January and 1 April across much of the Owing to the proliferation of aggregate global players could write with relatively region. reinsurance covers, a significant proportion little additional incremental capital, but Asian reinsurance markets at the turn of of the loss will be ceded to reinsurers, with business they were writing as a strategic bet the year were relatively evenly balanced Swiss Re, in particular, very heavily exposed. on the region’s growth potential. with relatively modest firming in some areas However, there have been signs over and signs of softness in certain markets, There is a sense that a the last two renewal periods of a loss of such as China. significant“ portion of the patience with this approach, with the But the balance of power between buyers Singapore reinsurance continental reinsurers drawing back from and reinsurers looks set to move following large amounts of proportional business a succession of major catastrophe and risk market will be in a loss as they insist that Asian carriers begin to losses that have hit Asia since June. position for the year absorb more risk. However, with global reinsurance capital ” One underwriting source said: “This region levels at an all-time high, and a past Typhoon Trami, which hit three weeks is no longer seen as a diversifier for Western tendency for reinsurers to privilege growth later, has exacerbated the situation, carriers, so you might see a reduction in over margin in Asia, it remains to be seen impacting back-up underlying aggregate participation from them next year.” whether this early perspective on the covers and taking reinsured losses from renewal season withstands the passage of Japan comfortably into the billions. Size of reaction time. Alongside the impact of Typhoon A range of market sources surveyed by this Mangkhut, the Kerala floods and the impact publication suggested a range of possible Cat loss cluster of risk claims including the Laos Dam loss, outcomes for rate changes at renewal, Asia has had a remarkable period for there is a sense that a meaningful portion of emphasising the lack of clarity at this stage, catastrophe losses, with Japan – the biggest the Singapore reinsurance market will be in but most agreed that rates would overall be mature market in the region – particularly a loss position for the year. in positive territory. severely impacted. The underlying profitability of the market With rates for Japanese wind business After losses from severe flooding in June is also a significant issue, with years of already at depressed levels, there is likely and July that ran into the billions, Japan compound rate reductions that broadly to be a significant response for wind-only was struck by two serious typhoons in came to an end this year taking their toll occurrence layers and aggregate deals, and succession in September. and a significant share of the total premium some uplift on all-peril layers. Typhoon Jebi, the first to hit, and the pot made up of low-margin proportional It remains to be seen if this can be most severe, has surprised on the upside business. leveraged into rate rises on quake excess-of- in terms of claims. After initial expectations For many years, the Asian reinsurance loss and proportional deals given that rates of a low-single-digit billion insured loss, market had a softening dynamic not just CONTINUED ON PAGE 03 04 Criterion targets D&O for MGA 09 Asia prepares for rate rises In association with 05 Lloyd’s regional director search 10 Interview: Heerasing, ACR 07 Typhoons to cause 1.4 13 Singapore reinsurance INSIDE Japan pricing inflection margins recover in 2017 www.insuranceinsider.com 1_SIRC cover.indd 1 24/10/2018 16:19 The POWER of PARTNERSHIP When you seek new paths to success, you need a partner that has a firm grasp of your business. Aon builds and maintains the close relationships required to propel your firm forward and gain a foothold in profitable environments. Find out more at aon.com Risk. Reinsurance. Human Resources. 07336_2_Aon_AD.indd Insurance 2 Insider - 2018 Aon Adverts_Letter_R1.indd 5 8/16/1824/10/2018 10:42 12:19 AM 2015/16 1.7 COMMENT EVENTS analysis ANALYSIS Mind the gap ou, like me, are probably sick to the General Insurance Association of on the road to recovery. But anyone Ythe back teeth of reading about the Japan. assuming this would translate to a insurance gap. As we know, when repair and rebuild significant narrowing of the insurance gap When calculating insurance spend in costs aren’t picked up by the (re)insurance would be mistaken – the gap has shrunk basis points of GDP, it’s easy for your eyes markets, the burden falls on governments, by just $5bn globally. to glaze over and to park this problem in private businesses and individuals. That’s at a time of rising frequency the “too difficult to solve” box. You don’t have to look back very far and severity in risk events. Last year was A recent report by Lloyd’s and the to see how painful this can be for the one of the costliest on record for natural Centre for Economics and Business country’s economy. disasters. Research on the subject warrants a more In 2016, total economic losses from the (Re)insurers can’t solve the problem detailed look, however, as among its Kumamoto earthquake came to $22bn – alone – policymakers have their part to findings is the fact that Japan is now but only $5bn of that was picked up by play. considered to be underinsured, compared commercial insurers, with the rest taken But it’s imperative that carriers with five years ago. by the government or uninsured. help governments to understand While Japan’s insurance penetration the impact of underinsurance, and rate between 2012 and 2017 has actually Japan is now work with them to develop useful ticked up by 10 basis points to 2.3 percent, underinsured“ by $1.9bn, products. the country is now underinsured by That might mean greater collaboration $1.9bn, or 0.3 percent of gross domestic or 0.3 percent of gross between carriers, more public-private product (GDP), thanks to rising levels of domestic premium initiatives, and an increase in adopting forecast catastrophe risk. ” and underwriting emerging risks – all This statistic is particularly stark given That’s tough to stomach for a country of which come with their own risks to the level of natural disasters in Japan this that has consistently seen its GDP shrink companies’ P&Ls. year. for years. But doing nothing isn’t an option. Typhoons Jebi look set to generate Between 2012 and 2017, Japan’s GDP As Lloyd’s concludes, underinsurance more than $10bn in insured losses, while has fallen from $6.2trn to $4.9trn. At helps no-one and harms pretty much floods in June and July were the deadliest $38,430 per capita last year, that still puts everyone. to hit Japan since 1982, generating the company comfortably into the high another $4bn in insured losses, according income bracket, but marks a 20 percent to AIR Worldwide. decline. And then there were the earthquakes – The Lloyd’s report has a more worrying while the Hokkaido quake in September global outlook however. As it noted, caused little insured damage, the in 2012 when it first conducted the Osaka quake on 18 June damaged underinsurance study with CEBR, the Charlie Thomas, hundreds of buildings and was reported world was in recovery from the financial Managing Editor, The Insurance Insider to have caused $770mn in insured crisis. losses by September, according to Since then, most economies are at least [email protected] …Reinsurers eyeing rate rises in Asia after prospects for any price rises in the Middle cat-struck 2018 Kingdom. Upward pressure CONTINUED FROM PAGE 01 One of the material uncertainties around c Elevated Asian cat loss experience the way that the renewal season will play c Little margin in many areas, loss- here have held up following sharp rises after out is the impact of the burgeoning regional making in some the 2011 Tohoku quake. reinsurance market. c Mentality shift underway with The stance taken by Swiss Re – which While global reinsurers, Bermudians and western reinsurers questioning top absorbed $500mn of Jebi losses – and Lloyd’s writers may be looking to trim books, line focus Munich Re will play a major part in there are a cohort of writers including c Lloyd’s risk appetite may reduce determining the renewals dynamic given Korean Re, GIC Re, China Re, Asia Capital Re the strength of their positions in the market. and Peak Re that are focused on the region. Downward pressure The pricing environment in the Chinese As such, there is a danger that a more c Traditional capital at all-time highs market, where buyers are incredibly cost- disciplined approach from Western carriers c Average to below average global conscious, is another big uncertainty for the will lead not to rate rises but to panel shifts cats forthcoming Asian renewals.