The large catastrophe risk protection gap in Asia Pac means that insurers should maximise the use of non-traditional capital sources, according to Taiping Re’s CEO, who said that the firm is considering issuing a cat bond.
Xiaodong Yu was giving a presentation at the EAIC in Hong Kong yesterday when he said that cat risk highlighted the limitations of traditional insurance capital and the potential to expand the use of insurance linked securities (ILS)
“In recent years, the industry has increasingly used non-traditional capital, such as ILS, just as Hong Kong is promoting itself as a local ILS hub. These securities can narrow the protection gap and further transfer risk compared, and this is already happening in Europe.
Reinsurers in East Asia should work together to unlock the use of these non traditional tools. Taiping Re is also considering issuance of a catastrophe bond in the future to broaden our retrocession base,” Yu said.
Yu also pointed to the potential for parametric insurance products to provide coverage on secondary perils that are often not compensated by traditional property insurance.
“Parametric insurance is also important, especially when dealing with low frequency but extreme events,” he said.
In addition to Hong Kong authority’s plans to establish the city as an ILS issuance hub, there are also plans to expand the SAR’s captive insurance market. Yu said that the firm has already assisted captive insurers registered in Hong Kong and mainland China in their overseas projects.
Yu said there was also a significant protection gap in the commercial health insurance segment and that Taiping Re was involved in several initiatives to help expand primary insurers’ provision of low cost health products.
The CEO said these types of initiatives would reduce the mortality and health protection gap.
“Efforts have been made to introduce commercial health insurance and commercial pension insurance products that support the diversified needs of senior Citizens. We have also made breakthroughs in inclusive insurance for senior citizens, and designed preparatory medical insurance products in mainland China.
Taiping Re has worked with partners in mainland China to explore product design that meets market needs such as long term care, insurance, tax incentives, health insurance and other innovative products to meet the diversified and multi-layered health protection needs of the public,” he said.
Yu says that Taiping Re is also looking at risk mitigation with a particular focus on cat risk. He pointed to the issue that models lacked data granularity, particularly at a local level, and that Taiping was partnering with academics to improve model provision.
“The industry is capable of developing more localised catastrophe models, with improved levels of granularity and sophistication. For example, reinsurers in mainland China have developed China-specific earthquake catastrophe models. Currently, Taiping Ri is also partnering with local universities to establish a Hong Kong flood disaster model,” Yu said.
Taiping is also looking at the issue of disaster risk loss assessment as part of China’s Belt and Road initiative and he said that the firm has developed a disaster and risk platform for countries and regions which are part of the development.
