From crisis management to risk management: finding a new normal

The April 1 renewals across Asia-Pacific were “disciplined and orderly”, according to George Attard, Aon’s CEO for reinsurance solutions in the region. But they took place in a disordered world.

As the deadline approached in mid-March, a 7.4 magnitude earthquake struck off the coast of Fukushima in north east Japan, leaving four dead and reviving memories of the 2011 tragedy. That followed less than a month after Russia’s invasion of Ukraine.

To discuss the impact of these and other issues on the recent renewals, Intelligent Insurer was joined by Attard along with a range of other experts on the region: Deepika Mathur, CEO of Markel India; Robert Mazzuoli, head of EMEA reinsurance at Fitch Ratings; Mark Morley, managing director for the region at Gallagher Re; and Javier Sánchez Cea, Asia Pacific chief regional officer at Mapfre Re.

Priced in

Whatever the impact of such events in the lead up to renewals, the influence on rates was not profound. Property increases were relatively modest—low single digits, agreed the panellists.

Even in Japan, rates increased no more than about 5 percent, according to Sánchez Cea. “The quake that happened during the renewal has not really been considered during the negotiation,” he explained.

There were some “vertical movements” in reinsurers’ positions as they sought to avoid high-frequency layers of coverage. “The outcomes were nuanced, depending on the programme layer, exposure changes and clients’ loss experiences,” said Attard.

With regard to Russia, there were some “knee-jerk” reactions, according to Morley, particularly in the retro market.

“A number of retro placements have a flat exclusion for Russian/Ukraine,” he said. However, he expects this to be worked out in the coming months. “We’ve seen that before—a knee-jerk reaction with an immediate exclusion, but then you try to walk back to a sensible coverage.”

Elsewhere, reinsurance placements tended to see a more nuanced approach.

“We have sanction clauses, and we’ve had them for some time, so some of the issues playing out of Russia were already catered for under the current terms and conditions,” Morley pointed out.

Attard agreed: “There was a push late in the day from the small group to adopt broader exclusions of all risks in Russia, Belarus, Ukraine, but we ultimately settled on LMA 3100 [the Lloyd’s Market Association sanction limitation and exclusion clause].”

As Mathur put it: “Sanctions clauses have always been in place. It wasn’t really something new.”

Finding the new normal

Similar to Fukushima, there’s possibly another reason Russia’s invasion had a limited impact on renewals: timing.

“There is a question on whether the renewals were already too far advanced for it to be fully reflected in discussions on wording,” said Mazzuoli. That means some effects may have yet to be seen.

“We expect more to happen later this year and probably also next year, especially in specialty lines, to understand what is and is not covered,” he added.

Nor is it the only issue that’s unlikely to be fully resolved by the April renewals. Inflation, too, will be an ongoing issue—and one Fitch will be monitoring, said Mazzuoli. The question is whether there will be “knock-on effects”.

“Will it creep into claims inflation beyond repair costs for property or motor? Will there be labour cost rises in answer to inflation or not, for example? That is an area to watch carefully.”

“Inflation is very relevant and will remain relevant in the coming months and probably years,” agreed Sánchez Cea.

More generally, in the absence of new crises, insurers finally face addressing longer-term challenges put on hold due to the COVID-19 pandemic, according to Mathur. That should see them moving from a purely reactive to a proactive stance—with consequences for coverage, capacity, pricing, and terms and conditions.

“We expect to see more policy-level changes from our clients in the coming years, including how they handle things such as supply chain management, and how they respond to challenges such as ESG and threats such cyber,” she said.

“Possibly as the dust settles, they will move back from crisis management more towards risk management.”