Global reinsurers’ ‘measured response’

Available reinsurance capacity in Asia-Pacific is unlikely to be affected by the recent catastrophe losses in North America; as such, reinsurers will offer a “measured” response in the region, George Attard, ‎head of Aon Benfield Analytics, Asia Pacific, told SIRC Today.

He said that recent events would actually reinforce the value of reinsurance and some cedants may be encouraged to review their programmes with this in mind.

“Recent loss activity highlights the value of reinsurance as an accretive form of capital and will reinforce the importance of reinsurance partnerships. It is also an opportunity to highlight the importance of leveraging exposure management tools to quantify and manage portfolio risk,” Attard said.

“Renewal dynamics will evolve as the final cost of recent events become clearer and while there has been discussion on broad-based market hardening, we do not expect a material reduction in available capacity to the region and foresee a measured response from reinsurers.

“This also provides an opportunity to evaluate current reinsurance strategies to ensure optimal programme design and will be working to attain sustainable outcomes on a client-by-client basis.”

Attard also said that there has been great change in Asia-Pacific in recent years in the number and sophistication of risk models available. These now cover more risk and allow insurers and reinsurers to better manage their exposures in a way that was not possible before.

“The catastrophe modelling landscape in the region is dynamic with the major vendor modelling companies now having local offices in the region and releasing new or updated models across the region,” he said.

“In addition, the models have addressed non-modelled components, for example storm surge, tsunami, demand surge or post loss amplification, fire following earthquake etc.

“Data quality continues to improve as a result of increased appreciation of the importance of better exposure management practices.” and understanding of the impact on modelling results reinforced by an increased focus on ERM including from the regulatory and rating agency perspective.”

Attard said that while better risk models have the potential to close the protection gap, there are also bigger, more fundamental, issues that must be addressed.

“The protection gap continues to receive significant attention, but many uninsured economic losses are ultimately absorbed by government potentially impacting the wider economy, thus any discussion on protection gap also needs to consider whether these losses are being absorbed in the most capital efficient way,” Attard said.

“Modelling and analytics are important in assessing risk in order to structure appropriate risk transfer solutions. There is a significant opportunity for the industry to develop capital-efficient solutions to bridge the catastrophe protection gap.”

Numerous industry initiatives are underway, many in collaboration with governments, including the Singapore NatCatDAX Alliance led by the Institute of Catastrophe Risk Management (ICRM) at Nanyang Technological University (NTU Singapore) in partnership with Aon Benfield, Mitsui Sumitomo Insurance Group, RenaissanceRe, Risk Management Solutions and PERILS AG, with support from the Monetary Authority of Singapore.

The NatCatDAX initiative seeks improve data standards and the availability of data to enhance traditional reinsurance support for Asia-Pacific risk, and expand the market to alternative capital providers. NatCatDAX will initially focus on Indonesia, the Philippines, Taiwan and Thailand, but will expand to cover other countries in Asia.

Attard added that regulatory changes are reshaping many markets in the region. He said the trend is towards the implementation of more sophisticated solvency regimes. This is mainly to comply with the ICP 17 (Insurance Core Principle) adopted by International Association of Insurance Supervisors.

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