China’s Belt and Road Initiative offers opportunities for insurers, says Phoenix CRetro CEO

As investments into China’s Belt and Road Initiative (BRI) increase, Kirill Savrassov, CEO of Phoenix CRetro Reinsurance Company, told Baden-Baden Today that it represents big opportunities and challenges for the reinsurance industry, especially from a cat perspective.

He said the project, led by China and sometimes described as a multibillion dollar rebirth of the Silk Road, offers a key opportunity in exponential demand in additional cat capacity from local BRI transit markets.

However, he flagged potential challenges, saying: “I would note state ownership of critical infrastructure, low insurance penetration below 2 or even 1.5 percent with general underdevelopment of local markets in BRI transit countries, and existing and potential protectionism in re/insurance.”

With the Chinese’s government’s direct responsibility for BRI comes a lack of insurable interest, Savrassov said.

“One other challenge is contingent business interruption for the transport corridors. Do not forget that after leaving mainland China on the way to Europe several key transport corridors pass through one of the most earthquake-exposed areas of Eurasia, if not the world.

“Even a mid-sized event in say Kazakhstan or Uzbekistan would have devastating consequences for the entire BRI project. Fast and effective access to post-disaster relief funds is of strategic importance for all.”

Asked which insurance models would be viable for BRI he said: “Representing the insurance-linked securities (ILS) industry and having studied the needs and challenges in the BRI transit regions, I would say that the transfer of cat risks to private capital markets in the form of parametric sovereign or sub-sovereign cat bonds seems to be the best option.

“Learning lessons from other parts of the world with success stories in the Caribbean, Latin America and Africa and recent endeavours in Asia for the development of the ILS sector, in Singapore for example, such a solution can be achieved in a very effective manner.”

He added that some regional differences mean that other risk finance alternatives such as sovereign schemes or contingent credit arrangements look like a distant prospect at the moment.

“At the same time if any country issued say Eurobonds in the past, it is legally ready to replicate it with cat bonds straight away, with no major changes in legislation required.”