Regional dynamics temper renewal impact for APAC

Asia Pacific continues to present reinsurers with diversification and growth opportunities, writes George Attard, Aon’s Reinsurance Solutions CEO for the region.

The 1 January renewal marks a turning point for the global reinsurance sector, and one that should put the market on a more sustainable footing going forward. We are optimistic that capacity constraints will ease, and we see opportunities for APAC clients to optimise capital and grow their businesses in a renewed partnership with reinsurers.

The 1.1 renewal is notable for APAC, in particular Greater China, Southeast Asia and South Korea, with renewals in the catastrophe-exposed markets of Japan and Australia and New Zealand concentrated on 1 April and 1 July, respectively.

Historically, Asian cedants have been somewhat insulated from movements in the global reinsurance market. However, the demand-supply imbalance in property catastrophe, changes in retrocession covers and elevated loss activity in the region resulted in later-than-usual renewal negotiations.

Demand for reinsurance at the January renewals in APAC remained stable, supported by continued underlying exposure and portfolio growth, rather than inflation. While a feature of renewal negotiations, inflation has been relatively contained in Asia, and insurers were able to successfully build this into their narrative. Moderate exposure growth in Asia has yet, however, to translate to significant demand for additional limit.

While capacity came under pressure at the January renewal, particularly in China, South Korea and Indonesia, it was available at a price. Rates in APAC varied by market as reinsurers pushed for significant increases in response to risk and catastrophe loss activity across the region, as well as global constraints on property catastrophe capacity.

In addition to rate, retention levels came under pressure on larger programs as reinsurers sought to move away from frequency losses, and as some buyers looked to mitigate price increases. Reinsurers also pushed structural changes to proportional reinsurance contracts, including event limits and expanded loss participation clauses, as well as reduced ceding commissions. With respect to coverage, sanctioned territories and cyber exclusions were reinforced.

The same pressures the region observed during the January renewals are likely to play out at key regional renewals in April and mid-year as well. However, we expect the placement process going forward to be significantly more orderly following lessons learnt and now established risk appetite from reinsurance carriers. The January renewals have shown that clear messaging and client differentiation resulted in favourable outcomes and that having a partner with strong market relationships and global access to all types of capacity was key to success.

We continue to build capacity in APAC by attracting new capital to the market and expanding innovative risk transfer vehicles, as well as creating global capacity via access to Asian-domiciled reinsurers. APAC offers reinsurers diversified growth opportunities in expanding markets of size and scale, while ongoing advances in catastrophe modelling, including the development of new earthquake models for low and challenging seismic settings such as Singapore and Korea, help to support the allocation of reinsurance capacity to the region.

These new model developments, along with local detailed flood solutions for Southeast Asia and a customisable modelling platform, facilitate the development of new risk transfer solutions and help clients to own their view of risk and incorporate this across their risk management framework from underwriting through to reinsurance.

For insurers, capital and reinsurance optimisation is more important than ever. However, clients have a number of levers at their disposal, including integrated placements across property and casualty, legacy and structured reinsurance solutions, strategic consulting and data analytics.