In Focus: Peak Re

Not a month seems to go by at the moment without another announcement about one of the big reinsurers forming a sidecar or similar vehicle to allow capital markets investors to gain exposure to reinsurance. The appetite of the investors is healthy and reinsurers are keen to get in on the act or risk getting left behind in what some believe represents a new model for the industry.

It was not always like this. The traditional hard-soft cycle of reinsurance rates had historically been uniquely characterised by batches of new reinsurers being formed—almost always on Bermuda. As each was staffed with experienced industry veterans with their own impressive list of contacts it always made for an interesting renewals season. And these companies grew—gradually changing the very landscape of the industry they had entered.

Although at present the industry is far from in a hard market, substantial levels of new capital have entered the industry, but through new vehicles and mechanisms such as sidecars instead. It is, therefore, worth looking more closely at the one start-up we have seen come into being—not in Bermuda but in Hong Kong.

Chinese investment company Fosun International and International Finance Corporation (IFC), a member of the World Bank Group focused on private sector development, jointly backed the launch of Peak Reinsurance Company at the end of December 2012.

With initial capital of $550 million, Peak Re has secured a rating of A- from AM Best. Initially focusing on property and casualty treaty reinsurance, it hopes to capture what it sees as the growing demand for reinsurance solutions in the Asia-Pacific region. Fosun International owns 85.1 percent of the company and IFC 14.9 percent.

Its co-founders are two experienced reinsurance professionals. Chief executive Franz Josef Hahn was formerly the managing partner of consultancy FJ Hahn & Associates and, before that, the managing director of the Great China region for Swiss Re. Eckart Roth, the company’s chief underwriting officer, was most recently a consultant but was previously the managing director of White Mountains Re. Before that, he was the head of outward reinsurance at Gerling Konzern Allgemeine Versicherungs-AG and held a number of positions at Munich Re.

The circumstances surrounding the formation of Peak Re differ from those of other start-ups the industry has seen historically. Its major investors are rooted in Asia and are intent on creating a sustainable reinsurer to support and benefit from economic growth in the region. That is a very different approach from that of most capital markets investors seeking the best return with almost no long-term loyalties.

“The strong financial and technical backing of Fosun and IFC has been vital in making Peak Re a reality. As top-quality founding shareholders, they provide a superb blend of support that we believe will enable Peak Re to develop in a competitive and sustainable manner,” said Hahn.

They have also focused on a part of the world predicted to undergo substantial expansion in the future. Many Asian markets also highly value long-term personal business relationships. The notion of sidecars and short-term capacity would not work as well where more traditional business values reign.

Peak Re’s founders also believe the Asia-Pacific region has been underinsured historically. For instance, in the aftermath of a series of natural catastrophes in Asia-Pacific in 2011, less than 22 percent of the total economic loss registered was insured. This was significantly below the ratio of insured loss to economic loss seen in the US and Europe in the same period, which stood at approximately 63 percent and 50 percent, respectively. In 2010, China suffered its most devastating floods in a decade causing around $50 billion of economic losses, of which only $1 billion was covered by insurance.

“Peak Re enters the market at a time when Asia-Pacific is the focus and, increasingly, the driver of the global economy. In light of the strong underlying growth, increasing value concentration and rapid accumulation of wealth, we wish to help the Asia-Pacific community achieve a more reasonable level of financial protection against risks, notably the natural catastrophe exposure,” said Hahn.

“To that end, we have started engaging in close dialogue with the private and public sectors, including national insurance industries, governments and supranational organisations. We also intend to grow Peak Re both organically and strategically via the acquisition of portfolios of profitable underwriting business.”

In uncertain times when even a new batch of reinsurers on Bermuda being formed cannot be relied on, it is refreshing to see one proper new company enter the market. Given its investors, the experience of its executives and the values of its main market, it could be set to thrive in the long term.