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The reinsurance hard market continues

By Michael F. Rellosa

IN previous columns, I mentioned that we are amid an unprecedented hard market as far as natural catastrophe (Nat Cat) risks are concerned. Both the January and April renewals were virtual bloodbaths for local insurers, where they experienced not only increased prices for reinsurance protection but were accompanied by a shrinking capacity as well. This was a double whammy, especially for the Philippines, which we all know is considered the most vulnerable country to Nat Cat events and therefore the one most in need of Nat Cat protection.

Indications show that the June renewals are experiencing the same fate, as no improvements have been experienced thus far. Historically, episodes of hard and soft markets are cyclical; some reinsurance market analysts, however, say that the current cycle (hard market) has not completed itself and will last probably beyond the next season, especially if the world experiences more or severe Nat Cat events. In addition, there are several concurrent constraints such as the elevated cost of capital, limited capacity and macro uncertainty that are not being resolved as fast as we would want them to be.

Other analysts, however, sense that there may be light at the end of the tunnel, with capital inflows from noninsurance players occurring. There is a caveat, however, as in the past, capital from these sources just as readily disappear when losses do happen, and insurers may again be left holding an empty bag.

Locally, new brokers from the Indian subcontinent and Arabian peninsula are starting to show interest in the local market as they got their feet wet with local risks being marketed in their area, proof of how far and wide local insurers have cast their nets due to the capacity crunch. This could become one of the developments that the regulators must keep a watch on.

It is true that it is not only the Philippines that is experiencing this but the whole world, but we are experiencing the raw end of it, and at the risk of sounding repetitive, we are the ones that need it (affordable reinsurance protection) most. How did we get into this quagmire? Obviously, it did not happen overnight, years of turning a blind eye to the need to review local rates and see if it was still adequate, years of unbridled competition, years of allowing the more profitable lines of business to subsidize the loss leaders, all added up, and we are now paying the cost.

It is true that many of us have woken up, but many still have their heads buried deep in the sand. It is now time to call for an all-of-society approach to fix what needs to be fixed. Regulators, insurers, intermediaries, solutions providers, adjusters and all those within the insurance ecosystem must work to be on the same page and find solutions for the greater good. It is never too late to do this, and we have only ourselves to rely on.


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