GC: Cat bonds and parametrics gaining traction in Asia Pacific

Climate change, capital management and the changing nature of risk are set to be the dominant trends across Asia’s insurance landscape in 2024, according to Guy Carpenter’s regional CEO Tony Gallagher.

In an interview with The Insurer, Gallagher highlighted that catastrophe bonds and parametric solutions are gaining traction in the region in response to these challenges.

“With ever-changing reinsurer and insurer risk appetites and the dynamic risk landscape, we observe that the catastrophe bond market is gaining traction in the region. I think Asia will see more catastrophe bonds coming in, as there is increased awareness of the benefits of transferring catastrophe risk to capital markets,” he said.

“Renewables, parametrics and cyber products are becoming increasingly relevant to the region, as growing risks from climate and cyber threats have created a demand for these specialised insurance products.

“In terms of countries, we are eyeing China and India, both of which we believe hold significant growth potential and new opportunities.”

Gallagher said there was considerable work to be done in closing the protection gap in Asia, but acknowledged there is no one-size-fits-all solution.

“When you look at products such as parametric insurance and catastrophe bonds, these risk transfer solutions are indeed playing an integral part in building resilience to natural catastrophe,” he said. “Yet affordability and availability of capacity will be crucial in narrowing the gap, both regionally and globally.”

Given the alarming pace of climate change and the increasing frequency of severe events around the world, he added that it is crucial to incorporate climate issues into risk management and capital decisions.

“The availability of data and physical risk analytics will be key in responding to these challenges,” Gallagher said.

The need to manage capital against all relevant volatility drivers – coupled with higher pricing and more restrictive terms and conditions – will also remain a top priority for the industry in the year ahead, Gallagher said, alongside the need to improve investment returns and build new growth opportunities.

He said the changing nature of risk would also be high on the industry agenda for the year ahead.

“We are now in a state of flux, with scenarios such as macroeconomic and financial market instability, together with a shifting geopolitical landscape, presenting both challenges and opportunities,” he said.

“At Guy Carpenter, we are working with other Marsh McLennan businesses to develop innovative products and services that foster resilience in the face of escalating systemic risk from macroeconomic, environmental and societal factors.”

Gallagher said macroeconomic and geopolitical uncertainties can impact the availability and return on capital for (re)insurers.

“Such volatilities could make it challenging for reinsurers to assess risk accurately, given the constantly evolving environment,” he said.

“Unmodelled exposures could also have indirect impacts on Asia. Global economic shifts, natural disasters and geopolitical conflicts in other regions could also have cascading effects in Asia, forcing reinsurers to reassess their risk management strategies and potentially adjust their underwriting practices to adapt to these dynamic conditions