2 November 2014 News

Too much competition pushes rates down in Asia

Reinsurance rates in the Asia-Pacific region are now extremely soft with too many players competing for business—but the region will still represent the biggest driver of growth for the industry globally.

That is the view of Michael Marx, managing director at Hannover Re, responsible for the Asia-Pacific region. He told EAIC Today that a lack of big losses in the region has exacerbated the situation.

“It is an extremely soft environment with too many reinsurers (and reinsurance brokers) looking for business in this growing and dynamic region. There were not too many big losses throughout the year and additionally alternative capital is finding its way into the region,” Marx said.

His optimism around growth is partly fuelled by the changing needs of insurers in the region. He said a number of factors mean that they increasingly need sophisticated reinsurance solutions and partners to manage their risk profiles.

“There are growing needs due to increasing insurance penetration and concentration of values,” Marx said. “Also, regulators are pushing local markets to take more risk and capitalise accordingly.

“Risk management is getting more sophisticated and lines such as microinsurance and agricultural are gaining more importance. Overall the Asia-Pacific region will continue to push world market growth.”

Reinsurers in the region face substantial challenges, however, he said. They face very competitive market conditions and there a number of different stakeholders they must try to keep happy.

“The main challenges are to support their key clients in a very competitive market environment, still produce a profit for their own shareholders and keep their good rating,” he said.

“Reinsurers need to offer specialised services and know-how along with pure capacity. In more mature markets of this region reinsurers will have to offer new products such as cyber risk coverage.”

But, he added, the industry’s response to these challenges has not always been ideal. More must be done to close the gap between economic and insured losses.

“Reinsurers have not responded perfectly well to all challenges since the insured losses in many cases are too far away from the economic losses,” he said.

It has been a benign period for the region in terms of catastrophe losses but he said that players in the region also understand the reality of the risks.

“This region will always be affected by catastrophes—it is just a matter of how many and how severe. This year so far the typhoon/cyclone season was rather active but the severity in terms of insured market losses was limited,” he said.

But there remains great potential for growth in the Asia-Pacific region. He believes the intense interest in the region by reinsurers is justified.

“This region will surely be one of the main drivers for world growth, albeit very different from one market to the next in this heterogeneous region,” Marx said.

“The lines of business mentioned, together with the development of health insurance schemes for the poorer people of this region, all show opportunities for those who offer the best and widest range of products and services. So far reinsurers have not ideally exploited all the potentials.”

For Hannover Re, Marx said the company is keen to work closely with its clients and look to set itself apart.

“We will develop with our growing clients and differentiate ourselves from many competitors by offering a much wider range of products instead of cat capacity only.

“Fresh concepts will be available for those clients who want to cooperate sincerely with us,” he said.

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