The reinsurance market is now firmly back in the black. However, not wanting to repeat the mistakes of the past, reinsurers will be approaching the forthcoming renewals with a certain amount of caution, rewarding clients for good underwriting discipline while pushing up prices when things look too risky.
“We are expecting more of a buyer’s market in APAC in 2025 compared to what we have seen in recent times,” says Mark O’Brien, Head of Asia Pacific for Gallagher Re. “Returns and combined ratios have improved to such an extent that reinsurers have now pretty much fully recouped all the weaker profits they had in prior years.”
Mark O’Brien
Head of Asia Pacific at Gallagher ReAppetite for risk
This is not to say, however, that reinsurers will be throwing money around. O’Brien says that they are likely to be far more discerning in their approach to risk.
“Reinsurers are increasingly segmenting their client base,” says O’Brien. “To be able to enjoy more attractive pricing and improved coverage, clients need to be able to demonstrate their plans for the next 12 to 18 months, how they’re managing their exposure and how they’re looking at their risk selection.”
He adds that risk-adjusted returns started creeping in during the 1/4, 1/7 and 1/10 renewals that took place this year.
“I wouldn’t be surprised if we saw this continuing, specific to client performance and the ability of cedents to differentiate themselves,” he says.
Reinsurers echo these sentiments.
“We advocate for clients to implement robust risk management systems,” says Kenrick Law, Regional Chief Executive of Allianz Re. “Discussions regarding risk retention will be tailored to individual cases, taking into account each client’s risk management and accumulation controls before determining appropriate retention levels.”
Clarence Wong
Chief Economist at Peak ReWhile technical issues, such as attachment points and treaty structures, remain important, much of the pre-renewal negotiations in APAC over the next couple of months are likely to focus on risk appetite.
“Listening to cedents, there is a very clear need for reinsurers to provide them with more clarity about where risk appetite lies,” says Clarence Wong, Chief Economist for Peak Re. “Reinsurers obviously have more capital floating around, but in which areas are they willing to deploy this capital? The discussions leading up to the 1/1 renewals in APAC will be focused on risk appetite rather than the structure of reinsurance deals.”
Nat cat losses
As always the 1/1 in APAC will be influenced by the losses that have occurred over the past 12 months. With the typhoon season still underway, and some fairly significant hurricanes hitting the coast of the United States, it is still difficult to predict with total accuracy how things may turn out.
“Over the past 12 months, loss activity across the Asia Pacific region has been relatively low. Where typhoons have occurred, they have generally affected areas with limited insurance coverage, with the obvious exception of Taiwan.
While the damage from these events can be very significant, as they tend to strike regions with limited coverage take-up, the actual insured loss tends to be minimal overall,” says Tony Gallagher, Chief Executive Officer for Asia at Guy Carpenter.
This means that apart from Taiwan – where a 7.4 earthquake struck in April and a major typhoon hit in July – the claims environment has been relative benign in APAC.
Gallagher also underscores the strong reinsurance results coming through, with returns for many reinsurers in the mid-double digits. Many insurance companies have also fared well, achieving returns in the high single digits.
“With all this in mind, I anticipate a downward adjustment for portfolios that have performed well and are well underwritten,” he says.
Tony Gallagher
Chief Executive Officer, Asia at Guy CarpenterHowever, Allianz Re’s Law offers a reminder that there is still a lot that could happen before the end of the year.
“Typically in North Pacific, between 25 to 30 typhoons are formed on an annual basis,” says Law. “As we are currently only midway through the typhoon season, significant activity is still anticipated. Historically, typhoons tend to intensify later in the season, so it’s premature to say for certain the outcomes of insurance renewals will turn out.”
There is also the US hurricane season to consider.
The strongest hurricane of the year – Hurricane Milton – has just swept through Florida with devastating consequences. Although Hurricane Milton ended up not being the category 6 “superstorm” that many had feared, it still ended up causing significant losses: between $30 billion and $50 billion, according to Fitch.
Reinsurers and brokers who spoke to (Re)in Asia for this article said that they would prefer not to provide commentary on the impact of Hurricane Milton in Asia until the numbers became clearer.
Structural change
Structural changes have been taking place over the past couple of years in many APAC markets, although law says that the shift has not been uniform across the region.
“Certain structural adjustments such as higher cedant’s retention and limits have already been implemented during the 2023 and 2024 renewals, but some regions are still slightly lagging behind,” says Law.
Kenrick Law
Regional Chief Executive at Allianz ReTyphoon Yagi ravaged several countries in Southeast Asia, including Myanmar, Laos, Thailand and the Philippines. It reserved its greatest devastation for Vietnam, though, where it is estimated that the typhoon caused more than $3 billion of economic losses. This far outstrips the size of Vietnam’s property market, which according to Law accounted for $600 million this year, in terms of written premium.
“Typhoon Yagi may serve as a catalyst for further structural adjustments in some parts of Asia at upcoming renewal,” says Law.
Some contracts in China may also require structural change, says Wei Wang, Chief Executive Officer of Rare Earth Partners. He points to marine (especially hull) and agriculture as two areas where negotiations may be particularly challenging.
“Marine hull is always difficult, and some non-proportional treaties may struggle to get enough reinsurance capacity this year,” says Wang.
Many insurers in China have already switched over to proportional reinsurance treaties. However, one of the country’s largest insurance groups – People’s Insurance Company of China (PICC) – still arranges much of its reinsurance on a proportional basis. It may be forced to reconsider this in the forthcoming renewals.
On agriculture, Wang says: “China’s agricultural insurers have suffered some fairly significant losses over the past couple of years, so this may be a difficult area of the renewals, too. The size of China’s agricultural sector is huge and requires a very high limit, so I’m not sure that there is enough reinsurance capacity in the market.”
Over the past couple of years of global rate increases, corrections in the Chinese market have been noticeably smaller than elsewhere, largely because of the high level of domestic capacity available in the country. It remains to be seen whether the constraints now facing the marine and agriculture sectors will change this.
Wei Wang
Chief Executive Officer at Rare Earth PartnersA crowded market
Structural market changes can be painful, however. This is particularly the case in several Southeast Asian countries, where insurance markets are becoming increasingly crowded.
“Changes to the reinsurance terms and conditions have been so significant in some territories in the region that cedents are having to find ways of passing these pricing increases onto their original customers quicker than would normally be possible,” says O’Brien. “Passing on price increases has been challenging as many markets in Asia are highly over crowded and competitive.”
He says that the gap between insurance and reinsurance pricing in the region “has always been significant, possibly more significant than anywhere else in the world”.
That gap is widening further in places such as the Philippines, Indonesia and Thailand – driven in part by new regulations coming in, which will force the capital positions of insurers in many of these markets to increase. For example, by 2026, Indonesian insurers will be required to hold minimum equity of at last 250 billion rupiah ($16 million), 67% higher than the previous minimum level.
“Consolidation therefore is going to be inevitable,” predicts O’Brien.
