Hannover Re eyes solid growth in Asia despite competition
Hannover Re has a “fairly strong appetite” for Asian business and it wants to participate in the region’s potential significant growth despite the high competition in the market, Michael Marx, managing director Asia-Pacific, told SIRC Today.
“The events are likely to cause rate increases only for impacted portfolios.”
There is fierce competition on many lines of business in the region, but Hannover Re believes it can protect its bottom line on the primary and the reinsurance sides of the business as it expands its business in Asia.
The ability to find adequate returns is a real challenge in the Asia-Pacific market, Marx admitted. “In some markets you see quite substantial premium growth on the direct side of the business but that does not result in reinsurance profits in a satisfactory way,” he said.
“Many reinsurers in parts of Asia are not earning their capital cost. That is a concern. We need to keep working on that.”
At the same time, Asian countries, excluding Japan, are not buying enough cat cover overall, neither catastrophe excess of loss coverage nor any other solution such as cat bonds which would be necessary in order to close at least parts of the protection gap, he said.
Nevertheless, Hannover Re has been growing substantially in the Asia-Pacific region over the past five years focusing on working with strategic partners, Marx noted.
The Asian region contributed €2.54 billion in gross written premium to the group’s total of €17.79 billion in 2017, an increase from €2.42 billion in 2016, according to the company’s annual report.
In the Asia-Pacific region Hannover Re has been focusing on offering bespoke and tailored solutions which involves proportional business with a particular focus while offering capital management solutions and enabling more capacity for cat perils. “We plan to continue to grow in these areas,” Marx said.
Hannover Re is interested in writing cyber business in Asia-Pacific. “We are trying to further develop this area,” Marx said.
The reinsurer is looking into alternative distribution channels and how the firm can get involved earlier in the value chain for example by providing insurance products to the so-called affinity groups which can subsequently generate reinsurance business, Marx explained.
The move into the digital era has started in a big way in the product offering, he said. Reinsurers are offering the expertise built up over the years to insurtech firms to improve their business models.
Hannover Re is quite active in this field but it focuses on a few specific areas and on selected partners that are expected to provide a distribution channel for a new product and pair the insurtech firms with an insurance partner, Marx explained.
“Only in a few instances does Hannover Re invest directly into equity of insurtech firms.”
Recent natural catastrophe losses in Asia such as Typhoon Jebi in Japan are unlikely to result in a broad market hardening, Marx said.
“The events are likely to cause rate increases only for impacted portfolios but not for the market in general, a trend that can be observed globally as the cycles become less pronounced,” he said.
The market would need a completely different type of scenario before the rates harden in a big way, he explained.
Hannover Re expects losses from Typhoon Jebi to be particularly driven by property wind and flood excess of loss programmes. The proportional programmes will also have an impact from treaties, Marx noted. “There are quite a few aggregate excess of loss treaties in the market and these will face total losses,” he said.
“We have started to talk to our clients about the potential restructuring and additional covers but we have not started any pricing conversations yet as the loss numbers are still shaky.”
In addition to the cat losses, the Japanese market has seen a string of reasonably big liability losses recently, Marx said. Some Japanese insurers had product liability cover with US pharmaceutical producers through their subsidiaries.
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