One of the biggest challenges currently facing the Asian re/insurance market is the substantial protection gaps, particularly for natural catastrophes, according to Franz-Josef Hahn, Chief Executive Officer of Peak Re.

Reinsurance News spoke to Hahn around this year’s Rendez-Vous de Septembre (RVS) in Monte Carlo about a range of topics, such as the biggest opportunities and challenges currently facing the Asian re/insurance market.

Hahn explained that over the past decade Asia (excluding Australia and New Zealand) has experienced an average natural catastrophe (property) protection gap of 85%, the largest among major regions.

He said: “This gap is even more pronounced in emerging and less developed Asian markets compared to their developed counterparts. The significant property protection gap reflects both under-insurance and the challenge posed by the increasing frequency and severity of extreme weather events, which dampens insurers’ and reinsurers’ appetite for so-called “secondary perils”.

“Additionally, the shifting economic landscape and escalating geopolitical tensions are major concerns. While global inflation has moderated, it remains persistently high in certain areas, leading to increased claims inflation. Moreover, the economic slowdown in China, the world’s second-largest insurance market, could negatively impact re/insurance demand.

“Lastly, the evolving risk landscape presents new challenges for re/insurers in the region. An example is the rapid digitalization of Asia bringing with it heightened cybersecurity threats. A consumer survey conducted by Peak Re last year in India, Indonesia, Malaysia, the Philippines, and Thailand revealed that 65% of respondents had encountered cybersecurity issues such as hacking, malware, or identity theft. Re/insurers must adapt to these changing risk landscapes, which include both technological and societal shifts.”

In terms of opportunities for Asian re/insurers, Hahn explained that responding aptly to climate change and the rise in extreme weather events could become a significant opportunity for re/insurers across the market, which is likely to necessitate improved modelling of extreme weather patterns and increased collaboration among key stakeholders, including the public sector and academia.

“While the property catastrophe protection gap in Asia is substantial, it pales in comparison to other protection gaps, such as those in pensions, cyber, and health. Offering innovative risk solutions to bridge these gaps will remain a key opportunity for Asian re/insurers in the coming years,” he said.

“The drivers behind each protection gap vary. For instance, the widening pension protection gap is primarily due to demographic shifts and public finance constraints, whereas the health protection gap is largely driven by medical inflation and advancements in medical technology,” added Hahn.

Moving forward, we then asked Hahn if he expects to see demand for reinsurance to increase in Asia in light of sustained economic losses from natural catastrophes.

“As Asia continues to experience an increase in economic losses from natural catastrophes, there’s a corresponding rise in the demand for insurance and reinsurance. However, the approach of simply incorporating higher expected losses into premiums year after year is not sustainable. If premiums continue to escalate, we risk reaching a point where insurance becomes unaffordable for many.

“To address this, we need a more sustainable solution that involves a deeper understanding of the underlying risks. This includes not only improving our predictive models and risk assessments but also investing in climate risk mitigation and adaptation measures. By doing so, we can develop strategies that not only protect against current risks but also reduce future vulnerabilities, ensuring that insurance remains accessible and affordable in the long term,” he said.

With the January reinsurance renewals fast approaching, Hahn discussed Peak Re’s outlook for reinsurance rates across the Asia Pacific region in 2025.

“In early 2024, we observed a recovery in global reinsurance capital, bolstered primarily by reinsurers’ retained earnings and appreciating asset values. Concurrently, the issuance of Insurance-Linked Securities (ILS) reached a record high in the first half of the year, driven in part by insurers seeking additional capacity in anticipation of an active Atlantic hurricane season.

“However, the market has noted a marked absence of new classes of reinsurers, indicating a cautious approach from reinsurance capital providers. Also, despite the influx of reinsurance capacity through mid-year renewals, the market has successfully upheld strong underwriting discipline,” said Hahn.

Additionally, Hahn stated that the robust growth prospects of emerging Asia and the emergence of new risks is expected to bolster demand for both primary insurance and reinsurance.

He explained: “Taking into account these factors, it appears that the global reinsurance market is poised to maintain a delicate equilibrium in the near term. The outlook for 2025 is contingent upon loss developments in the latter half of the year and the trajectory of monetary policy easing, particularly in the United States.”

Lastly, Hahn explained how Peak Re manages to work around the difficulties of the inflationary environment, climate change, as well as other factors too.

“Reinsurers are well-versed in navigating a multitude of challenges, and climate change, while not a new threat, has become a chronic concern that requires constant attention. Every function in Peak Re, from underwriting to risk analytics and risk management, plays a crucial role in supporting efforts to tackle these challenges,” he said.

“The key to success lies in further deepening our understanding of the underlying risks and a forward-looking approach that anticipates how these risks will evolve. By doing so, we can ensure we are well-prepared for the future, maintaining resilience in the face of inflationary pressures, climate change, and other evolving factors.

“Another key ingredient to successfully navigating these challenges is to maintain regular, open and timely conversations with our clients. We cannot tackle all these challenges ourselves but have to work collaboratively with our business partners. Ensuring that we share information with them and engage them in regular discussions is key to a successful outcome,” he concluded.

The article was first published on Reinsurance News on 17 September, 2024. Please refer to the full article here.