Hard talk but no hard market: Asia-Pacific 1/4 renewals

Sometimes you don’t want excitement. The key words for the April 1 renewals in the Asia-Pacific region were probably “orderly” and “stable”, according to Mark Morley, managing director for the region at broker Gallagher Re.

“A boring renewal isn’t necessarily a bad renewal,” he said. “It’s a good outcome for all parties.”

To discuss that outcome and to see where there was excitement, Intelligent Insurer brought together Morley and a diverse panel of other experts from the region: George Attard, Aon’s CEO for reinsurance solutions in Asia-Pacific; Deepika Mathur, CEO of Markel India; Robert Mazzuoli, head of EMEA reinsurance at Fitch Ratings, who covers the big European-based global reinsurers; and Javier Sánchez Cea, Asia-Pacific chief regional officer at Mapfre Re.

Steady as she goes

Few disagree with the central thesis. “It was generally a disciplined and orderly renewal,” said Attard.

That is, in itself, news given both current market conditions and historical context. In terms of the former, the renewals took place in a “dynamic market environment”, said Attard. Flooding in China last year, Malaysian floods, a typhoon in the Philippines, and—too late for many discussions—an earthquake on March 16 near Fukushima, provided the backdrop.

In terms of the historical context, the lack of huge swings in renewal rates wasn’t something that could always be relied on in Asia-Pacific, Morley pointed out.

“I don’t think it is in anyone’s interests to suffer the peaks and troughs I saw early in my career. My takeaway from this is that the markets mature,” he said.

What that means in practice is harder to define. It’s not just the various lines that defy generalisations, but the range of countries within a vast and diverse region.

“Asia-Pacific isn’t a single renewal but a concert of very different markets renewing at the same time,” said Morley.

At the same time, few are immune from the pressures affecting other markets worldwide. All the issues playing out elsewhere are present, said Sánchez Cea, such as the pricing adequacy for nat cat losses and secondary perils, and hardening in the retro market. Inflation, too, is an issue.

“It’s very relevant and will be in the coming months and probably years,” he said.

Mathur agreed: “It’s consistent with what’s happening elsewhere in the world. We did see a lot more discipline.”

In terms of pricing, what this meant varied. Climate change and secondary perils ensured prices in property continued to increase, albeit less than elsewhere, with single-digit price increases for property cat, according to Mazzuoli. However, casualty had already seen rises over the last couple of years.

“What we see now is a kind of stability taking hold on that side of the market,” said Mazzuoli. “Casualty is more or less flat to slightly down, depending on the country and lines of business.”

Even in property, the increases are less than elsewhere, said Sánchez Cea. “Our initial view is that rates have increased less than in other territories. It won’t be above the 5 percent range in Japan,” he said.

The devil in the detail

As ever, there is nuance within that—and outright exceptions. The most obvious of the latter is cyber.

“For classes such as cyber, we saw rates going up multifold, purely based on cyber exposures increasing globally,” said Mathur.

On the other side, even modest increases in property were far from universal. Japan, for instance, largely escaped, according to Attard, despite the recognition of factors driving rate increases elsewhere, such as climate change.

“Japan’s interesting because we have had a number of years of increases built in,” he said. “We did see some modelling changes this year with third-party vendors changing their views, but a lot has already been factored in.”

Reduced retro capacity, meanwhile, has had only a limited impact, according to Morley. “As far as retro is concerned, we found no greater pain relating to that at 1/4 than we would have done at 1/1,” he said. “We didn’t see the capacity impact in truth.”

More generally the nuance is in where capacity is being deployed. As Mathur said, “Underwriting with prudence is back as the mantra. Every risk may not necessarily get the kind of capacity they would want, but it’s definitely available. The issue is where capacity is getting deployed rather than its availability.”

The prospect of further hardening remains. If there’s not a shortage of capacity, neither is there a flood. “We’ve not found any significant shortages of capacity,” said Sánchez Cea. “But in terms of excess capacity, we didn’t detect any at all.”

As Morley puts it, talk has moved from there being “abundant” to “adequate” capacity. The market is looking carefully at where it’s deployed, with a skew away from frequency and towards severity, for example.

“The fundamental equation means that capacity will have to be withdrawn to turn this into a truly hard market. That hasn’t happened yet, but it’s going to be interesting to see the real impact of a significant withdrawal from the lower end of programmes and what that means for reinsurers prepared to engage in more structured discussions with their clients,” said Morley.

“These are hard market-type questions, but I don’t think they’re happening within a hard market.”

While such discussions continue, and with the possibility that that could change, future renewals will be anything but boring.