Launch of Nine Merchants Re shows ambition of investors

A key theme for discussions at this year’s EAIC is the increasingly outward-looking attitude of the Asian re/insurance industry, Aon Benfield’s Asia-Pacific CEO Malcolm Steingold told EAIC Today.

“Globalisation is a theme, and related to that is the latest potential reinsurer on the horizon, Nine Merchants Re, the founders of which have had their capital confirmed at half a billion dollars,” he said.

Nine Merchants Re was recently formed in Hong Kong by investment management company First Seafront Financial with initial capital of $500 million. The company has said it will operate a total return model with a focus on delivering efficient risk capital to clients by leveraging its shareholders’ asset management capabilities.

It will initially underwrite treaty reinsurance emanating from Asia-Pacific with a focus on China and other developed markets such as Korea, Japan and Australia/New Zealand. It will also underwrite business emanating from the rest of the world for selected clients but it expects more than 60 percent of its portfolio to come from Asia-Pacific.

“I expect there will be quite a bit of discussion around not only what its agenda will be but also about this as a reflection of what is happening in this part of world, where if people have the necessary expertise, they have the ability to raise half a billion dollars in China to support a global reinsurance strategy,” Steingold said.

“Like Peak Re, Nine Merchants Re from day one will be looking to write a global reinsurance book. This part of the world is no longer inwardly focused but is looking beyond the opportunities within the Asia-Pacific region.”

He also expects to see discussion around the related topic of M&A activity, in the light of Sompo Canopius’ recent acquisition of Endurance.

In terms of reinsurance business in the region, Steingold sees all geographical areas as offering growth opportunities, and warns against ignoring the potential still present in mature markets.

“The region comprises both mature and developing markets and some of our biggest growth comes from mature markets—so don’t assume that just because a market in the region is mature there is no growth opportunity. I think sometimes that is a misguided approach to strategy.”

From a reinsurance perspective he believes companies are reaping the benefits of an increasingly client-focused approach.

“There is a lot more listening to clients and understanding what they need rather than trying to impose vanilla reinsurance products on them. This is important because the region sometimes has very different needs from the rest of the globe, in terms of perils and the pace of development,” Steingold said.

Aon Benfield has seen growth in certain key areas in the region, especially agriculture in China, India, Thailand and Vietnam.
Others are credit and surety, and life reinsurance—a market that is starting to become dynamic as more reinsurers show an interest, said Steingold.

“In the past there was a very small club of the large reinsurers dealing directly with life companies; that dynamic is changing quite considerably. There is a lot of opportunity within life companies that have embedded liability in the form of long term liabilities that may cause them solvency issues in future.”

One of the biggest areas of growth for Aon Benfield has been the development of its new software, PathWise, which enables life companies to assess these embedded liabilities.

“Prior to PathWise this was quite difficult for them: you had a huge amount of data, and you could use this to understand your embedded liability only on a quarterly or yearly or half-yearly basis,” Steingold explained.

“With PathWise, life insurers are able to understand this on a real-time basis. That’s a huge change.”

Growth also comes from taking a broader view of the opportunities available within the market, said Steingold.

“Reinsurers and reinsurance brokers are used to annuity business—treaties renewing every year. We are finding a lot of potential in non-recurring opportunities, such as advising on capital management or M&A; we have a very successful M&A practice based in Hong Kong.”

Looking to the future, Steingold is proud of the talent Aon Benfield has brought into the industry and nurtured. He sees this talent as a vital ingredient for future growth.

“My focus is very much on our talent—developing young people within the group to be future leaders.”