The 1 January 2024 treaty renewal proceeded relatively smoothly, as a rebound in profitability, rebuilding capital positions and greater availability of retrocession capacity encouraged many reinsurers to display increased appetites at the enhanced terms established in 2023, says Aon. In its latest Reinsurance Market Dynamics report, which reviews the 1 January reinsurance renewal period and evolving market dynamics, Aon adds that higher primary insurance pricing provided support in most areas, offset by continued uncertainty around the impact of climate change, inflation, litigation funding and geopolitical risk on ultimate loss costs. These unknowns are keeping potential new investors on the sidelines, despite the expectation that most reinsurers will easily cover their cost of capital in 2023. Demand for reinsurance capital was robust during the renewals period, due to an erosion in insurance capital as a result of natural catastrophe losses, which introduced more volatility into underwriting results and brought increased rating agency scrutiny for many insurers. The significant and historically-elevated global natural hazard events included severe convective storm activity in the US and Italy; windstorm Ciaran in France; flood losses in New Zealand; flood and wildfire losses in Greece; a major earthquake in Turkey, and Hurricane Otis in Mexico. Countering these losses was a strong reinsurance capital supply: Aon estimates that shareholders’ equity reported by global reinsurers increased by $35bn to $532bn over the nine months to 30 September 2023. With alternative capital having reached $103bn, total global reinsurance capital was estimated at $635bn at the nine-month point. Alternative capital Contributing to the increase in alternative capital, in 2023 the catastrophe bond market grew by over $7bn – a 21% increase over the outstanding issuance amount in 2022 – recording the largest-ever level of catastrophe bond issuance, at $15.4bn. The catastrophe bond market serviced 30 issuing insurers and 14 issuing reinsurers during the year, with a combined issuance of $10.1bn. Government entities were also very well supported, with $4.8bn of issuance. During the renewal period, casualty reinsurance capacity was seen to be ample against concerns over prior-year reserve deterioration and adverse litigation trends. Mr. Joe Monaghan, global growth leader, Reinsurance Solutions at Aon, said, “The January 2024 property reinsurance renewal sets the stage for an interesting year ahead. Demand for property catastrophe reinsurance remains strong at the start of 2024, supported by inflation and exposure trends. As capacity continues to build, there will be opportunities for insurers to buy additional limits at the top of programmes, and for reinsurers to work with brokers and clients to share the burden of secondary perils more equitably. “The increases in retentions a year ago have mitigated reinsurer losses and contributed to their positive returns in 2023. But this has come at the expense of increased retained losses for insurers many of whom are struggling to achieve the improvements in primary pricing and underwriting which are often slowed by the regulatory approval process quickly enough given their limited sources of capital to sustain increased catastrophes. “We must work collectively to create the solutions necessary to sustain re/insurance symbiosis.” Source: asiainsurancereview.com

By Herminia S. Jacinto TODAY's column is inspired by the recent Pilipinas Conference 2023 on the topic of "The Path Towards Economic Security: Turning Global Risks into Opportunities," organized by the Stratbase ADR Institute. Now in its eighth year, the conference tracked the most pressing issues facing the country and gathered some government and industry leaders for an interesting discussion of strategic solutions toward economic security. Among the speakers from government were Finance Secretary Benjamin Diokno, Trade and Industry Secretary Alfredo Pascual, Environment Secretary Maria Antonia Yulo-Loyzaga, Transport Secretary Jaime Bautista, Budget Secretary Amenah Pangandaman, and NEDA Undersecretary Joseph Puno. The business sector was represented by executives from the various industries. The mood was upbeat. The Marcos Jr. Cabinet members assured the audience that the government was confident that the priority measures to boost the economy would be pursued vigorously. Climate change, foreign investments, structural reforms, and ease of doing business through the use of technology were the more important topics mentioned by the speakers. I was happy to hear that the GDP growth estimate for this year is 5.9 percent, and the forecast is for the Philippines to reach a growth rate of 8 percent by 2028. This is music to our ears, insurance players. When the economy is doing well, there will be a strong demand for insurance coverage, which will result in a strong insurance industry. The non-life insurance industry is well-prepared to respond to the insurance requirements of both government and the business sector. Traditional lines like fire, marine, motor, surety and fidelity guarantee are available anytime clients need them. What they cannot fully cover are reinsured to global reinsurers who have a large capacity to write such risks. Over the years, our insurance companies have earned the trust and confidence of large reinsurers, and they have supported the industry even for the more complicated risks. There is continuous interaction with the regulator so they can help the companies in complying with the necessary regulations without stifling business activities. Secretary Yulo-Loyzaga enumerated the plans and programs for addressing the negative or disastrous effects of climate change. Well and good, but events like earthquakes, strong typhoons and floods cannot be prevented. They have happened just recently and may happen again. Government can install the required infrastructure and measures to mitigate the harmful effects of these events. But that is not enough. There is a need for protection. How do we protect properties and, more importantly, people from such catastrophes? How do we rebuild if there are not enough funds to spend on reconstruction? The insurance companies, with the support of their reinsurers, are ready to cover the risks. Technology makes it easier and faster to provide the right protection at rates that are commensurate to the risks covered. But why is there under-insurance or no insurance at all? Is it because of a lack of appreciation of the risk that may happen, so bahala na lang? Is it pricing? Insurance rates are computed with a lot of science and data involved. And rates are aligned with world prices of insurance. This is one business where prices are determined by engineers, accountants and actuaries. We can assure clients that prices are reasonable. However, the industry continues to be saddled with high taxes, which increase the cost of insurance covers. As of now, the non-life insurance premiums are subject to a 12.5 percent documentary stamp tax, 12 percent value-added tax and 2 percent fire tax. Local governments also charge their respective LGU taxes. The good news, however, is that these taxes are now being reviewed by Congress, which may result in some reductions as prayed for by the industry. The reduction will reduce the cost of insurance premiums and encourage the customers to insure their properties and, most importantly, insure to the correct value. Government should realize the role and importance of the industry and consider it as a significant partner in achieving its path towards economic security. Thank you to Stratbase ADR Institute for streaming the seminar on Facebook. Source: manilatimes.net

By Herminia S. Jacinto HAPPY New Year! It is my distinct pleasure to be on this page on the first day of the year! I hope everyone had a great but safe celebration with friends and family. There is much anticipation for the various countdowns that were announced by the malls and some big establishments. In Makati, the Ayala Group has revived the big countdowns that were usually held at the corner of Ayala Avenue and Makati Avenue many years ago. It promises to be a happy and rousing event, which I hope we will all enjoy. It is also at this time of the year, when we are crossing our fingers that we can finally say goodbye to the fires, typhoons, floods, earthquakes that happened in 2023 with some amazing frequency. The weather forecast for the next few days shows that no weather disturbance is expected within our area of responsibility. But fires and accidents cannot be predicted. These are the acts of man rather than acts of God. The Philippine National Police and local government units have issued directives to prohibit firecrackers in residential areas precisely to avoid accidents caused by explosions causing injury to property and persons. Statistics have shown that big fires have occurred during the long holidays, and there were some big typhoons and flooding that happened in the last few days of the year. It is with this mindset that we again remind everyone to be protected by insurance covers on themselves, their property, vehicles and other assets and valuables. This is the time of the year to review one's coverage and check if these are still in force. Leave their residences for several days to spend vacations elsewhere with no one who can check a loose connection that may spark and cause fire. Vehicles are very mobile nowadays, as families take advantage of the long holidays to visit family and friends. Several accidents have already been recorded in the last week, mostly on the highways. The insurance industry wants to provide protection to all, including farmers, fishermen and other small business owners through the insurance cover called microinsurance. These are sold by microlenders like banks, pawnshops, retail stores and cooperatives. The premium is limited to 7 percent of the minimum wage, and the maximum coverage can only amount to 500 times the current daily wage. Policy wordings are simple and easy to understand. The more popular products are life, accident, crop and property insurance. The coverages are designed for the minimum wage income wage earners, low-income households and informal workers like sidewalk vendors, tricycle drivers. This should destroy the myth that insurance is only for big business and for rich people. There is insurance for everybody and their properties, businesses and other activities. There are thousands of insurance agents, advisors, intermediaries who can very well explain the coverages and benefits of insurance. They are professionally trained and have taken government examinations, just like other professions. Insurance companies, both life and nonlife companies have performed very well during the last few years, including the "pandemic" years and are financially strong to respond to the losses that may happen no matter if unexpected like natural typhoons and earthquakes. So there should be no fear at all on the part of the insuring public that their claims will not be paid. We should trust our regulators, the Insurance Commission, who is doing an efficient job of monitoring the performance of the insurance industry. Let us update our insurance coverages, be they for life or property. Let us welcome 2024 with renewed trust and confidence in ourselves and in the insurance industry! Source: manilatimes.net

Over the past few years, the insurance industry has become more dynamic with digital-only insurers entering the market with new business models offering consumers and potential policyholders personalised insurance plans and dynamic pricing, according to Kissflow CPO Dinesh Varadharajan. Keeping a competitive edge To remain competitive, traditional insurance companies are now undergoing massive digital transformations. However, Mr Varadharajan does not think it is not enough. He said, “Insurance companies see this technology as a layer above the business model. However, just creating a layer of technology above the business model and not changing it is not good enough to compete against InsurTechs.” This is where low code/no code comes in. “What no code can offer is the path to transition,” he said. Low code/no code systems are able to create a layer which gives the same level of sophistication and flexibility insurers need to compete against digital native organisations without changing anything in the core system, he said. When integrating new systems, core systems need to closely integrate with different tools. In this respect, some low code/no code products differ with features such as a pre-built integration layer with native connectors that can directly configure with existing products, he said. Challenges insurers face in leveraging automation The biggest challenge insurers face when leveraging automation, according to Mr Varadharajan, is having part of the systems automated and the rest on manual processes. “If this is case, it will be extremely difficult to have a complete view of what is happening in the business. Unless every part of the business is automated and the data across all functions are interconnected, it is not possible to get insights over what is happening,” he said. Other challenges included the changes automation would bring, as well as the issue of cyber security, he said. “People are used to doing things in a certain way. When low code/no code tools are introduced, mindsets must be changed,” he said. Source: asiainsurancereview.com

By Michael F. Rellosa EVEN when I started my career in the early 1980s, extraordinarily few people wanted one in the insurance industry. I know; I was one of them. I and some friends — fresh graduates — pounded the length and breadth of Ayala Avenue at the time, knocking on the doors of banks hoping to snag a starting position, and this was scarce as the proverbial leprechaun's pot of gold. A friend employed at the time at FGU Insurance Corp. suggested we go for the vacancies at a management training program. We were totally against it, as we thought that a career in insurance meant door-to-door selling and dead-end. Forty years later, If I had to do it over, I would. The industry has been good to me. It honed my skills, taught me to interact with people, provided a decent package, and allowed me to see the world through training programs, conventions and missions. The same is true in other countries; insurance talent is in short supply all around the world. Research shows that up to a quarter of workers in the sector are expected to retire, and this is painfully true in the Philippines. There is a running joke that there is no such thing as retirement for Filipino insurance practitioners. You get repackaged. There is always a new role waiting around the corner, a trainer or coach, an intermediary, or they keep you on as a consultant doing the same stuff that you used to do. We are one of the industries where we have septuagenarians and octogenarians still able to contribute their talents and skills. Exacerbating the situation is the fact that millennials present a unique employee retention problem as they tend to stay in their jobs for just 12-18 months on average. Meanwhile, Generation Zers, the tech natives, need extra training in dealing with communication, empathy, team dynamics, collaboration and anything that has to do with interacting with people on an extended basis. A recent post-pandemic issue that cropped up is that work-from-home arrangements need to be part of the package. These are easier to deal with once these graduates know the life-changing value that the industry can offer. Not much has changed; graduates still do not realize that there could be an exciting and rewarding career in insurance. It matters not what course you have graduated from; there is a need for any major that you have acquired. The beauty of insurance is that it accommodates the varied skills and experience that one may have. The discipline of engineers would be useful in underwriting. Math majors and statisticians are in great demand as actuaries are in short supply. Communication majors are always needed to help bring a message across. Marketing majors are valuable in helping move an intangible product. Computer and technology geeks are likewise valued as most, if not all, companies are in the process of digitalization. Graduates from a medical background are needed as there is a whole wide field of health and accident insurance. I could go on and on, and believe me, there is a need for someone with even a specialized background. The common ground is analytical thinking, a basic curiosity, and the ability to communicate. With these, you can go far in the industry. Aware of the need for novel approaches to talent acquisition and retention strategies, the industry educational institution, otherwise known as the Insurance Institute for Asia and the Pacific, in collaboration with the industry's trade association, otherwise known as the Philippine Insurer's and Reinsurer's Association, have embarked on various programs to reach entrants to the industry. Campus tours and job fairs have been organized for 2024; MoUs with select universities have been inked to allow the industry to suggest changes in the curriculum that would afford a deeper dive into risk management and insurance; new programs such as the Asean Insurance Professional Diploma, which would provide a graduate with the knowledge and acumen to practice the trade in any Asean country, especially upon the establishment of the Asean Economic Community; and the continuing SUIT's program (Select University's Insurance Program), a compressed management training program that would allow fresh grads to enter supervisory positions. There are many others planned soon. To know more about these, visit the IIAP's as well as PIRA's web pages at insuranceinstituteasiapacific.com and pirainc.com. Source: manilatimes.net

In Asia, embedded insurance has developed into an integral part of many product life cycles, according to InsureMO chief revenue officer Rajat Sharma. For instance, he said, health technology companies offer telehealth services, which include embedded insurance products. “There are even cyber fraud embedded insurance products,” he said. This integration means that embedded insurance has adapted to both types of insurance carriers – which are going in separate directions. “One type is the purely digital insurance carrier born in cloud-native infrastructure such as Aegon Life. The other consists of large traditional carriers such as Income,” Mr Sharma said. Digital carriers that sell policies and service claims work on partnership models, he said, which offer embedded insurance companies many collaboration opportunities. Among traditional carriers, digitalisation of the bancassurance distribution channel has led to an opportunity for embedded insurance companies. “When the sale of a policy is being processed over the bancassurance distribution channel, an embedded insurance product would be included in the process,” he said. Embedded insurance is now also a standard offering on ride hailing applications such as Grab in Singapore, he said. “It costs approximately S$1 ($0.75) on these applications and are considered bite-sized products that are growing massively,” he said. Fraud detection would have the potential to be better in terms of managing claims due to technology know-how as well, Mr Sharma said. “After all, it is the technology companies that are doing the embedding of the insurance products,” he said. The industry would continue moving towards embedded insurance products in the future, according to Mr Sharma. “Whether it is life or health insurance, or even P&C, it will likely be embedded to some extent,” he said. One of the biggest benefits would be the opportunity to use recorded data to better understand consumers, buying patterns and even risk profiles. “Moreover, moving in this direction would lower the cost of distribution,” he said. Source: asiainsurancereview.com

The surge in inflation influenced much of 2022, resulting in a tightening of monetary policy - and in turn - capital market volatility and a depreciation of currencies in some emerging markets, according to a recent report by Malaysian Re. For insurers, inflation caused challenges on the underwriting and on the investment sides, in operations and also contributed to a tightening of reinsurance capacity. Inflation did not affect all ASEAN insurers equally across the ASEAN markets, and in fact varied greatly according to their business model. Those with a high share of personal lines as motor, property and medical insurance were the most affected than those focused on commercial lines or in reinsurance. These were the main findings in the seventh edition of Malaysian Re’s annual regional thought leadership publication, ASEAN Insurance Pulse. The latest edition was launched by Insurance Supervisory Authority of Vietnam commissioner Ngo Viet Trung, and was witnessed by ASEAN Insurance Council chairman Shahrildin Jaya, secretary-general Christian Wanandi and Malaysian Re president and CEO Ahmad Noor Azhari Abdul Manaf during the 5th ASEAN Insurance Summit in Ha Long, Vietnam. “The ASEAN region, which consists partly of emerging and partly of mature markets, is no stranger to inflation. Nevertheless, complexity, speed and the altitude to which inflation surged within just a few months, present a novelty to most of us in this industry. As Malaysian Re, we were thus interested to know how the ASEAN insurers dealt with this phenomenon, where they saw key challenges, how well they were prepared and what they heard from their policyholders in terms of their needs,” said Mr Ahmad Noor Azhari. “We had anticipated the impact of inflation on claims on our books in 2022. The large losses from the Eastern Australian floods in 2021 had served as an eye-opener for the impact of inflation on claims payments, as we could see its effects on the cost for replacement materials as well as triggering a shortage in construction workers and thus causing further costs,” he said. Thus, inflation did not catch the region´s insurers off guard. It had already started to rebound before the end of the pandemic and in some ASEAN markets, had been part of their reality for quite some time. In addition, insurers had risk management measures in place to stress-test the impact of inflation on their book and reserves. However, a major concern was with policyholders, namely consumers, who often underestimate the risk of underinsurance. “We hope that this year’s report will be a valuable reference as our qualitative interviews and familiarity with the industry and its drivers had allowed us to identify how the ASEAN insurers dealt with this phenomenon, where they saw key challenges and how well they were prepared,” he said. The findings of this report are based on 24 structured interviews with executives representing regional and international (re)insurance companies, intermediaries, policy makers and trade associations. Source: asiainsurancereview.com

—but will it reach vulnerable people? Vulnerable countries and communities are already facing loss and damage from a variety of climate change impacts, including floods, drought, and sea level rise. They urgently need financial support to enable recovery from trauma and lost homes, lives, and livelihoods. Responding to this need, the on-going 28th UN Climate Change Conference (or COP28) in the United Arab Emirates has approved a breakthrough decision, setting up a new fund specifically to address loss and damage after a year of negotiations and compromise regarding the fund’s structure, mechanisms, and governance. Rich countries have pledged $655.9 million into the fund so far, although hundreds of billions of dollars are needed per year. Civil society groups, particularly those from the global south, have long advocated for climate finance to directly reach the vulnerable and marginalized people and communities that are most in need, and for locally led action: to give affected people autonomy and decision-making power over how funds are used. The adopted decision on the new loss and damage fund offers some room for this autonomy and mentions the potential for “small grant funding for communities.” Here are our recommendations for how the new fund can best address local needs, drawing on findings from our latest report, which gathers lessons from the first 1 million pounds of Scottish government funding pledged for loss and damage finance. Include mechanisms for locally led grants. The Scottish government provided its loss and damage funding through the Climate Justice Resilience Fund, a Washington, D.C.-based nonprofit. The funding was used for grants for locally led action by non-governmental organizations in Bangladesh, Malawi, and the Pacific region. The Scottish government also provided funding for loss and damage grants around the world through the Loss and Damage Youth Coalition Grantmaking Council. We find that despite limitations relating to scope and scale, smaller grants that directly reach local organizations can play a critical role in offering immediate assistance, building local capacity, and raising awareness. For instance, many of the grants supported the relocation and reconstruction efforts of families hit by climate disasters. In Bangladesh, one project offered support to “trapped” populations who had lost their homes but could not afford to migrate away from their unsafe temporary shelters. Consultation processes also identified wider structural gaps that are the responsibility of public authorities, like the marginalization of displaced people, or the lack of public infrastructures on relocation grounds. We see a lot of potential in a bottom-up design process for large-scale response strategies that build on locally led projects funded through smaller grants. Importantly, the fund should include mechanisms for locally led small grants to complement larger-scale, programmatic finance to governments. This could be accomplished by including a dedicated small grants window directly accessible to local organizations in the design of the new loss and damage fund. Recipient countries of loss and damage finance should also aim to disseminate a share to the local level as part of national recovery plans. Enable participatory and collaborative approaches. When disseminating the Scottish government funding, the Climate Justice Resilience Fund asked grant partners to employ participatory and inclusive processes that empower affected communities, including marginalized community members, to identify loss and damage priorities and make decisions on how to utilize the funding on the ground. The recipient communities decided how the grants would be spent according to local consultations with affected households, women, the elderly, young people, disabled people, and indigenous people. We observed strong alignment with principles of fairness and equity in the resulting projects and the promotion of human rights among participating communities. Local young people were also frequently part of the projects’ implementation teams. Such participatory processes of self-determination tend to promote local ownership and the sustainability of projects long after funding has ended. The fund should ensure that those most affected have autonomy and agency to define what loss and damage means to them and how to address it according to their own needs and priorities. This could be through having representatives of affected communities on the governance structure of the fund, and by shifting decision-making power to lower levels. Move away from strict boundaries between streams of finance at the local level. Funders can be preoccupied with separating what activities falls in the realm of adaptation (anticipating and reducing future impacts of climate change) vs responses to losses and damages. When implementing the Scottish government funding, grant partners identified loss and damage as “what goes beyond” adaptation to climate change. In practice, however, many of the activities they implemented could have been labeled as adaptation action. We find that addressing loss and damage inevitably overlaps with adaptation measures on the ground, and it can be counterproductive to try to draw a clear boundary between the two. For example, recovery and reconstruction cannot be successful without future impact risk assessments, and it is important to build the resilience of communities to future impacts as they are recovering from loss and damage. The fund should find ways to ensure that adaptation and response to loss and damage can be funded jointly without creating burdens for the recipient countries and communities. Instead of tying funding to a strict list of activities, funders could let the affected populations spend it as they see fit, as long as it aligns with the objective of ensuring human and environmental well-being, dignity, and the agency of individuals and communities that are suffering from climate impacts. Labeling of the funding as contributing to adaptation, loss and damage response or other objectives could be done at the end of the project, based on its actual allocation and the results of the project. Include provisions for non-economic loss and damage. Many of the projects funded by the Scottish government wanted to address non-economic aspects of loss and damage, especially mental health struggles associated with experiences of climate trauma. However, limited funds and timescale meant that affected communities had to prioritize economic dimensions of loss and damage in a context of survival. Funders must also consider that cultural and spiritual ties to land play an important role in vulnerable populations’ decision to migrate. For instance, a grant partner in Malawi reported that some families refused to leave their land for fear of abandoning their burial grounds and ancestors who, in their culture, protect them—despite the destruction caused by cyclones Ana and Gombe. The fund should thus embed provisions for non-economic loss and damage and psychological support at all scales, in combination with addressing economic loss and damage. The success of loss and damage finance will depend not only on how much funding is raised, but also on how this funding is disseminated and to whom. The final purpose of the new loss and damage fund is to provide much-needed support to the most vulnerable people and communities. COP28 should ensure that local needs and priorities are at the heart of how the loss and damage fund is operationalized. Source: thebulletin.org

Members of the ASEAN Reinsurance Working Committee (ARWC) have signed a Memorandum of Understanding (MoU) to support underwriting capacity and set up the terms for the establishment of the ASEAN Renewable Energy Pool (AREP) under the supervision of ASEAN Insurance Council (AIC). “Given the potential challenges in respect of the capacity and expertise in ESG/Renewable Energy and the complexity of the solar, wind, and other renewable energy resources, the inherent financial risk associated with these ventures can be potentially overwhelming for one insurance company to manage effectively. Therefore, there is a need for a group of companies to pool their resources and band together to form an insurance pool to underwrite the risks associated with these renewable energy sources” said Mr Ahmad Noor Azhari Abdul Manaf, president & CEO of Malaysian Re. The MOU, signed on 8 December 2023 at the 26th ASEAN Insurance Regulators’ Meeting & 49th ASEAN Insurance Council Meeting, indicates joint commitment from the participating ARWC Members under the supervision of AIC, to collaborate, work together and lead the ASEAN (re)insurance industry to support member countries’ efforts to achieve the net zero emission target and deal effectively with climate change. The participating ARWC Members for this collaboration are Malaysian Re (as Pool Manager), PT Reasuransi Indonesia Utama (Persero) (Indonesia Re), Vietnam National Reinsurance Corporation (VINARE), Cambodian Reinsurance Company (Cambodia Re), Thai Reinsurance Public Company Limited(Thai Re) and National Reinsurance Corporation of the Philippines (Nat Re). The formation of AREP was initially proposed by Malaysian Re, chair of the ARWC for the 2021-2022 term, during the 4th ARWC meeting on 15 October 2021 as a Facility or Pool to support the ASEAN governments’ renewable energy policies. Source: asiainsurancereview.com