Re/insurers must find ways to manage accumulation risks

The rapid increase of insurable assets in areas prone to natural catastrophes creates accumulation risks that the ASEAN societies and economies must learn to manage better, Philippe Domart, chief underwriting officer of PartnerRe Asia, told EAIC Today. But this, in turn, he added, offers both challenges and opportunities for re/insurers in the region.

“Underwriting these risks with a level of profitability commensurate with their volatility is a challenge for re/insurers who want to build sustainable and resilient portfolios,” Domart said. “The issue of growing nat cat accumulation is broader than just underwriting, it is a societal problem that calls for deeper public-private initiatives and for a wide array of loss prevention measures, to save lives and improve the resilience of societies and economies altogether.”

He added that the evolving regulatory landscape in the region also brings further demands: portfolios have to be adapted and corporate structures have to be flexible enough to turn these challenges into opportunities, Domart said.

He added: “Data quality, accuracy and timeliness are also key to improving underwriting excellence: substantial progress has been observed in some parts of the Asia Pacific insurance market, while other parts or classes have some way to go.

“The drive is there, new technology and new talent join forces and add steam to this effort; the key here is continuous improvement—it is a never-ending journey.”

One of the pressures in the Asian markets, Domart said, is being created by new capital targeting the region and having a knock-on effect on pricing and underwriting discipline. But he stresses that not all capital is equal and the more sophisticated cedants understand this.

“Financial capital available to take on risks is abundant worldwide, and Asia is no exception. It does create downward pressure on rates, whether at the reinsurance level or at the insurance level.

“At the same time, financial capital is just one ingredient, albeit an important one, supporting various business and risk strategies, devised and executed by people,” Domart said.

“So not all capital is equal. What differentiates is the underlying strategies—the strategic intent and time horizon, the desire to build profitable and sustainable portfolios in order to be resilient to shocks and to help clients thrive in all circumstances.

“Capital providers with a different strategic intent, shorter time horizon or complacent about the risks that they take on the basis of ill-conceived diversification benefits, will not exhibit the same underwriting discipline as other capital providers.”

He added that in the end, the decision to cede risks to capital providers must balance the terms and conditions obtained with the necessity to safeguard the capital providers’ financial security, continuity of capacity and promise to pay in the future.

Another key aspect of capital, essential for success in an expanding yet soft market, is human capital: growing talent, building expertise, cultivating excellence, he said.

“Our clients can expect PartnerRe to bring in our deep expertise and proven track record of understanding and managing risks in all lines, particularly in specialty classes such as agriculture, engineering, credit and surety, aviation or marine.

“Sharing this expertise and helping our clients grow their human capital, is part of the value proposition that PartnerRe offers to clients looking for a true partnership.”

A bigger presence

PartnerRe has expanded its footprint in the Asia Pacific region recently.

“We are broadening and deepening our resources in the region, available for our clients and brokers,” Domart said.

This also means it is now better equipped to understand its clients’ goals and challenges and leverage its resources to find solutions.

“My role is to ensure a consistent underwriting approach to this client-centric strategy, drawing on all resources from PartnerRe Group, be they local in the region, or beyond if need be,” he added.

The reason it has invested in the region is because of the growth prospects it sees there. He said the opportunities come in many different forms, depending on the market.

“We see growth and opportunities in all markets—some countries are experiencing strong growth patterns overall while in some other markets, those deemed more mature, opportunities exist in various classes with new ways to do business, to access risks and to build portfolios,” Domart said.

“In general, growth is driven by the sheer power of demographics (with contrasted situations depending on the countries) and by the rapid accumulation and gradual spread of wealth in the economies, spurring dynamic economic development and fuelling the rise in insurable interests.

“Another driving factor for growth is, to some extent, the evolving regulatory landscape in several countries, with a general convergence towards improved risk management frameworks and risk-based capital approaches.”