APAC re/insurance market faces unprecedented challenges: MS Amlin

Parts of the Asia-Pacific re/insurance market are harder than they have been for decades, William Ho, chief executive of  MS Amlin Asia Pacific/head of Reinsurance (Asia), told Intelligent Insurer.

Ho said that 2023 has been a challenging year for all parties as the Asia-Pacific region was not able to escape global market hardening conditions. But, he stressed, what the region has experienced is very much part of a global picture.

He believes that reinsurers, brokers and cedants in Asia-Pacific alike acknowledge that this hard market was generated not because of localised losses or regional events, but more because of global market conditions impacting the region.

According to Ho, the reinsurance capacity normally needed in the region has generally been fulfilled easily by supply into the region. This year, there wasn’t enough capacity available in some lines. In turn, that meant cedants had little room for manoeuvre. Some lines saw the most hardening they’ve seen for at least the last couple of decades—or in living memory, he said.

This made long-term relationships more important than ever. “We are predominantly a catastrophe player in the region, navigating our position through different markets. While we are disciplined in what we do, our priority is to look for alignment with our cedants.

“We need to understand and agree the motivation and sentiment behind their reinsurance purchasing and protection strategy,” Ho said.

“Where we are aligned, we try to offer optimal support for those cedants. That allows for a more developed approach to the reinsurance protection. In this instance, they generally needed more reinsurance capacity; demand had increased but the supply did not follow suit. It became a bit of a perfect storm.

“We spent time explaining why the capacity pricing has changed and what changes we would need to see to the structures. We tried to inform cedants fully of the reasons behind our actions.”

Clear messaging needed

Ho explained that before last year’s renewal period there was uncertainty in the messaging, driven by many forces. The cost of capital had increased, and reinsurers sought to increase retention levels to avoid attritional level losses. Limits were being changed, as were relevant return periods. It was uncomfortable territory involving prolonged discussions, he said.

“All these added together created a very challenging renewal period going into 2023, and it did not relent during the mid-year discussions,” he said.

“Throughout the year it became more orderly, but it definitely didn’t get any easier. The challenges remain in the current environment—and the majority of the conversations for renewals start this week. However, we are optimistic expectations are much better managed this time around.”

Committed to the region

Ho stated that MS Amlin is committed to the region and to the catastrophe line of business. It has successfully negotiated third-party capital to support its strategy in the region through the Phoenix Re ILS transactions.

He added that MS Amlin remains committed to Lloyd’s Asia and sees its value and its place in the Asia-Pacific market.

“Along with our well-capitalised support from our parent company, we feel we are properly equipped to support our core clients in this current environment and beyond.

“This market is not changing any time soon; it remains very challenging. The dynamics haven’t changed in the course of the year, especially given the high levels of catastrophe activity in the region to remind people of what companies are re/insuring.”

As a result, Ho thinks, expectations have been much better managed this year between cedants, brokers and reinsurers, to create a more orderly renewal. Last year, he said, expectations were often quite far apart, with no-one willing to make the first move to try and meet in the middle.

Ho sees the hard market continuing into the new year and well into 2024. He pointed out that there is an added dynamic in Asia-Pacific: markets are always growing. The biggest reason is that insurance penetration remains at a low level for a number of countries and that reinsurance purchasing is going to lag behind that.

“We are dealing with a number of markets that are going to need more and more reinsurance capacity in the years to come. That demand is not going to stagnate or come back down. It’s going to increase year on year.

“The faster our cedants align their reinsurance strategies to accommodate this growth and uncertainty, the better equipped they will be for the future,” he concluded.

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