Peak Re is far from at its peak, but warns on a new risk landscape

Hong Kong-based Peak Re is going strong. The reinsurer, launched a decade ago to help close the Asian reinsurance gap and tap into the opportunities from an expanding middle class, has posted robust results of late. But it is under no illusion of some of the challenges posed by a changing risk landscape. 

The reinsurer’s gross written premiums increased to $847.9 million in the first half of 2024, up from $832.9 million in the same period of 2023. Its profits for the first half were $124.2 million.

It is facing challenges, one of which is from climate change, but the outlook is good, according to Iain Reynolds, head of catastrophe analytics and research.

“The market looks pretty healthy,” he told Monte Carlo Today. That’s mainly due to 2023 proving, with one or two exceptions, quiet on the nat cat front. 

“Relatively speaking, a benign period of natural catastrophes has helped the performance of reinsurers and insurance-linked securities (ILS) funds.”

The company has long been a pioneer in ILS in the region. It sponsored Hong Kong’s first 144A cat bond through a special purpose insurer in 2022 (covering Japan typhoon risks), was the first Hong Kong-based reinsurer to issue public hybrid securities in 2020 and launched Asia’s first reinsurance sidecar in 2018.

“You have to decide whether climate is a frequency issue or severity issue, or both.”

There is, however, little denying the longer-term challenge from changing weather and losses. Reynolds is not fond of the term, but like others, he notes that “secondary” perils—flash floods, hail, tornados, drought and wildfires—have increasingly been felt on balance sheets. As to their precise effect, there’s yet to be consensus. 

“It’s very difficult to come up with a consistent view. Everyone has a different take on the impact of climate,” he said. “You have to decide whether climate is a frequency issue or severity issue, or both.”

As yet, the jury is out on that question. However, the reaction of capital providers has been relatively clear.

“Everybody in Asia has a vested interest in helping ILS to develop.”

“We’re seeing a broader trend in third party capital aligning with the wider rated capacity market. Investors are shifting focus from frequency and earnings protection to tail risks, prioritising capacity that safeguards capital,” he said. “The subscription market has experienced a clear shift in capacity from sidecars to catastrophe bonds.”

The great unknowns

In Asia specifically, there’s still plenty of scope for growth, according to Reynolds. The market continues to be under-served as well as under-developed. 

“We haven’t seen as much interest as we would like from Asian investors in ILS,” he noted. “Everybody in Asia has a vested interest in helping ILS to develop.” 

Peak Re, with its Hong Kong base and focus on the region, is well placed to participate in that, he added. “This industry is very much supply-driven, and there is an opportunity for continued growth in support from third party capital providers.”

There will be ongoing collaboration between insurers, reinsurers and investors in developing ILS. “There’s room for everybody,” said Reynolds. 

Two key issues remain. The first is broader questions about insurability around climate change. On that score, the interested parties include governments. 

“There’s more scope for collaboration between all forms of capital or risk transfer providers and governments,” he said.  

“We would like to see a mature discussion between all industry stakeholders as to what is and what is not insurable, as some of the frequency losses being seen in this market driven by atmospheric perils are making that discussion all the more urgent.”

The second big question is how resilient the ILS market would prove to major losses. 

“If we look at broader trends of the ILS market moving towards protecting more tail risks with capital protection and less earnings protection, the market hasn’t been tested to the extent it could have been. We’ve seen occasional losses but no market-changing event.

“Of course, we hope that doesn’t happen,” he added, “but it remains untested.”

While it does, at least, the opportunities for third party capital in the market and the region remain exciting.

Iain Reynolds is head of catastrophe analytics and research at Peak Re. He can be contacted at: iain@peak-re.com

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