Hannover Re eyes solid growth in Asia despite competition
A dynamic time
for risk in Asia
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WEDNESDAY OCTOBER 31 2018
Hannover Re eyes
solid growth in Asia
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<< (continued from top of page 1) Asia-Pacific. “We
are trying to further develop this area,” Marx
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 socalled
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. l
Costly cat year will impact pricing in Asia-Pacific
<< (continued from bottom of page 1) and, given
the abundance of capital in the reinsurance
sector, governments should work with risk
carriers to ensure losses are transferred
away from taxpayers and into the private re/
insurance market,” he said.
He also expects demand for reinsurance to
grow elsewhere in the region, driven by strong
economic growth, healthcare needs, and
“On the healthcare front, governments are
under increasing pressure to address coverage
needs for large parts of their populations and
reinsurance can play an important role here,”
“Strong economic growth is another
important factor. Even as it steadies in the
single digits, China is likely to continue to see
significant growth in 2019/20 as corporations
and the growing middle class look to insure
more of their exposures.”
In certain Asia-Pacific countries, Reynolds
said, regulatory changes are encouraging greater
diversification, for example away from motor
insurance, which in turn has resulted in cedants
purchasing more vertical catastrophe cover.
Conservative solvency regulations, a
growing focus on risk management and
capital efficiency are also contributing to
demand for reinsurance.
“At a time of rising interest rates, more
cedants are recognising that reinsurance remains
a cheap and efficient source of capital, even after
the most expensive catastrophe year in 2017 and
the elevated activity of 2018,” said Reynolds,
adding that the growth potential for ILS in a
catastrophe-prone region like Asia-Pacific is clear.
There are obstacles that impede progress
such as cheap traditional reinsurance, a lack
of accepted parametric benchmarks, relatively
lightly modelled catastrophe risks and
inconsistent (or poor quality) exposure data.
“Working with governments and local
authorities to set up microinsurance schemes
would be a modest, but achievable, start.
While retail policyholders may not be optimal
risk bearers, this would be an improvement
on no coverage at all,” he said.
Costly cat year will impact pricing in Asia-Pacific
“Affordability is the root cause of the
protection gap problem in Asia, with up to 40
percent of the population in parts of the region
unable to afford insurance cover,” explained
Reynolds. “One crucial step in addressing this
issue is improving the quality of data in the
region so that parametric covers become viable.
“Governments and development banks
have a significant role to play here in
facilitating access to data that is required to
structure such schemes.” l
2018 IS SET TO BE THE MOST COSTLY
catastrophe year for Asia-Pacific since
2011, leading to potential rate hardening
at renewals, but the impact is likely to be
restricted to countries hit directly by losses,
Michael Reynolds, global chief executive
officer of JLT Re, told SIRC Today.
“It’s difficult to provide any granular
commentary on rates at this point as it is early
and a lot can still happen,” said Reynolds.
“As things stand, outcomes are likely to vary
significantly by territory, particularly for
Reynolds suggested there could be some
short-term rate hardening for wind and flood
at new year’s 1.4 renewals, given the series of
significant cat losses in Japan in Q3 such as
typhoons Jebi, Trami and Kong-rey.
Typhoon Jebi is considered to be the
strongest typhoon to strike Japan since Yancy
in 1993, and risk modelling firm RMS has
estimated that the insured loss for Japan will
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.
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,”
“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,
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
SIRC Today Day 2 Wednesday October 31 2018