Peak Re defies soft market with lean cost structure

Hong Kong-based Peak Re is able to grow profitably in the current soft market because its lean cost structure allows it to be more competitive on pricing, head of underwriting Lawrence Cheng, told Intelligent Insurer.

“The fact that we have a lean structure, and the fact that we have a cost structure that we keep deliberately low, allows us to be better adapted to sustained soft market conditions,” Cheng explained.

Re/insurance rates have been under pressure in recent years as alternative capital entered the sector in search for yield in a historically low interest rate environment. The absence of large loss activity has contributed to lower prices.

“Pricing was tough at Jan 1, 2017 renewals in Europe, possibly a little tougher than we expected,” Cheng said.

But as Peak Re is a comparatively young player in the market without legacy issues and costly offices and staff around the world it can be more aggressive on pricing.

“If business margins are reducing, the expense structure of some reinsurers may limit their underwriting flexibility. But because we operate in a lean and efficient business model, we are able to see the opportunities and grow when it might be difficult for others,” Cheng noted.

“It will be harder for bigger companies with legacy issues and multiple offices to adjust to these circumstances than it is for us given that we had the chance to build appropriately for this environment.”

Hong Kong-based Peak Re received a license from the local regulator in December 2012. The company is majority-owned by China’s investment group Fosun International and underwrites both life/health and property/casualty reinsurance business. While most of its business is written in Asia-Pacific and particularly in China, the company has been growing its book in EMEA and North America in recent years.

At 2015-end, Asia Pacific represented 58.2 percent of its book, Americas was 28.7 percent and EMEA 13.1 percent. Gross written premiums doubled to $582.7 million in 2015 from $288.1 million in the previous year. Pre-tax profit grew to $58.3 million from $46.7 million over the period.

“The advantage that we have is that our [low] cost structure is applicable wherever we are and it helps us in any market,” Cheng noted.