For George Attard, CEO Asia Pacific, reinsurance solutions at Aon, the coming renewal season contains challenges that are particular to Asia alongside the global dynamics.
“This year, the tone in the lead up to the renewals is different,” he explains. “We saw it at Monte Carlo rendezvous and the macroeconomic and geopolitical issues have had an effect.
“Reinsurers have been finding it hard to meet the cost of capital given the increased exposure to primary and secondary perils.”
For Attard, the issue is one of understanding the changing risk landscape.
“A lot of the perils we have seen, such as typhoon flood, bushfires and all can be placed under the term of climate change,” he explains. “But we need to articulate better. These risks have highlighted the short term climate vulnerability, but we are still finding it hard to quantify that vulnerability. As a company, we are working with academia across the world to understand the issues that we face.”
Looking to Asia, Attard says the region has seen losses and the impact of COVID coupled with the economic crisis all have an effect. “There is a very different tone and clients are recognising that.”
“We have been working on new areas of analysis that we can present to the reinsurers that will allow our clients to be individually recognised and rated,” he continues. “For us, it is a case of managing expectations on both sides of the programme.”
Attard says the market dynamics and uncertainty has been reflected in the recent attendance at the Singapore International Reinsurance Conference earlier this month.
“We have seen a record attendance for the event this year with over 2,000 delegates,” he explains. “We have seen Japanese and Australian clients at the event this year. For many they are keenly watching how the 1 January renewals will turn out in an effort to understand how 1 April and 1 July renewals will be approached.”
“When we look at the current market relationships and expertise are seen as key,” he adds. “The relationships between the reinsurers and clients are significant given the testing state of the market and the constraints in capacity in some areas and classes.”
He says that the key themes this year will be around sustainability of pricing, deployment of capacity and those relationships:
“The challenge is how does the market recognise a better relationship and manage a transition rather than a knee jerk reaction?”
For the primary markets, Attard says the pressure on reinsurance programmes has focused their minds on pricing adequacy and the management of exposures.
“Exposure management is being measured alongside the outlook for growth and what that means for premium volume.”
Attard says the primary market is now having to forecast where they feel inflation rates will head in the near to medium term, as failure to understand its impact carries significant risk:
“Insurers have to look to fully understand and ensure that the effects of inflation are factored into pricing and loss development models,” he explains. “What we are seeing is the development of new models which are driving high levels of exposure growth. There is also a great deal of discussion around reinsurers’ desire for higher attachment point on programmes. They have not been raised for some years and reinsurers are saying they have reached a point where programmes are being triggered for frequency events for which they were not designed.”
“For us as brokers, it is a case of asking how we can help out clients work thought he current market and its dynamics.”
Attard adds the market is also wrestling with its approach to new and emerging risks:
“Energy and the transition to renewables is an area where there is demand, particularly in some of the emerging markets in Asia. Renewable energies are using emerging technologies and as an industry we have a role to play in supporting the transition. We need to offer the support but have to be mindful of the risks that the technology under development can and could present.”
He adds: “The developed and developing markets in Asia do have a significant potential for growth given the low level of penetration in some markets.”
Times are also changing as the impact of COVID continues to be apparent. “At present, portfolios are dominated by property risks,” he says. “However we need to be mindful of new demands around cyber, food security and agriculture are set to see significant growth in a number of countries across Asia including China, Korea and Thailand. What it does do is create quite a bit of room for product innovation… technology is also supporting the industry and we see primary market looking to set their strategies for high levels of growth in Asia.”
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