A higher interest rate environment is in principle good news for the insurance industry, says Swiss Re Institute (SRI) in a new Economic Insights report. At the same time, higher yields and less central bank intervention in capital markets also suggest a return to an "old normal" regime that has potentially higher bond market volatility, which makes in turn insurers' balance sheet management more important. In the report titled “The old normal: interest rate rises signal relief for insurers' returns, but likely more volatility”, Mr. Patrick Saner, head of Macro Strategy within Group Economic Research and Strategy at Swiss Re, notes that last week, the US, European and UK central banks all raised their key policy interest rates again by at least 25 basis points (bps), reaching rates of 4% or above in the US and UK. This return to pre-global financial crisis interest rates is very welcome for the insurance industry, as investment-related income is a substantial driver of its earnings. He says that although higher yields are expected to support insurance industry profitability, an environment of less central bank intervention is also expected to mean higher bond market volatility in the future, which could make balance sheet management more challenging. While insurers' asset-liability management (ALM) frameworks can help to isolate interest rate risk across their balance sheets, investment income is nonetheless a key contributor to insurance companies' earnings. For example, investment income typically contributes about 30-70% of the earnings of European insurers. Market risks are also a substantial component of insurers' solvency capital requirement (SCR). The expected return on invested capital is now above 20% for fixed-income market risk, compared to medium or even negative single-digit returns in 2016. Higher interest volatility is likely A normalization of the yield environment, however, might also bring higher interest rate volatility in the future. Indeed, as is the case in the US, the volatility regimes before and since the US Federal Reserve (Fed) launched its bond-buying QE programme differ significantly. The Fed's intervention materially lowered volatility in the US sovereign debt market, as seen in the ICE BofAML MOVE Index, which measures the market-implied volatility of the Treasury yield curve. In contrast, the pre-QE period shows more extreme swings in yields. A monetary policy transition which means less invasive central banks in capital markets might therefore also mean higher bond market volatility in the future. Source: asiainsurancereview.com

Climate change driven natural disasters caused global economic losses of $313bn in 2022, according to a new report by insurance broker Aon. Less than half of these losses were insured. The insured losses amounted to $132bn, nearly 57% above the 21st-century average. This leaves a global protection gap of 58%. According to the Aon report while the number of catastrophic events rose to 421 individual events in 2022 compared to an average of 396 since 2000, the protection gap was one of the lowest on record. Aon head of catastrophic insight Michal Lorinc said, "It was relatively low due to the fact that many of the costliest disasters occurred in countries with mature insurance markets such as the US or Europe, whereas losses in less-covered regions such as Asia were well below average." The report said 75% of the global insured losses occurred in the US with hurricane Ian, which hit Florida in September 2022, causing insured damages in a range between $50bn and $55bn from total economic losses of $95bn. Hurricane Ian is the second most expensive natural disaster the insurance sector has ever faced. In 2022 natural catastrophes took a toll of about 31,300 people, of which about two thirds were linked to the severe heatwaves in Europe between June and July 2022. In Australia, insured losses linked to floods hit a record high of $4bn as a weather pattern associated with wet weather called La Niña extended its impacts into 2022 causing severe rainfall and flooding across the country. In Pakistan the monsoon season caused 175% above-average precipitation from July to September 2022. Source: asiainsurancereview.com

PIRA Officers exchange updates with the visiting Munich Re team on recent issues affecting the insurance and reinsurance markets. Photo from Left to Right Surbhi Goel, Managing Director & Head of Property & Casualty Southeast Asia Wilfrid Goh, Regional Manager Property Treaty Michael Roth, Senior Manager, Origination Capital Partners - Public Sector NyunMien Ku, Senior Client Manager Southeast Asia Srikanth Deevi, Underwriter, Property Treaty Southeast Asia Michael F. Rellosa, Executive Director Marie Louise A. Lorenzo, Communications Officer Rogelio J. Concepcion, General Manager Surendra Kumar Singupalli, Head of Treaty Underwriting, Southeast Asia Agnes L. Silaya, Finance, HR & Admin Head

Extreme weather events induce psychological trauma which can have long-term impact on survivors' cognitive functioning according to a new study. The study conducted by University of California associate professor of psychiatry Jyoti Mishra and her team and published in January 2023 revealed that people directly or indirectly exposed to a wildfire dealt with distractions less accurately than the control group. The study also found that mindfulness, regular physical activity and maintaining strong social connections can help with the trauma of such events. Dr. Mishra said climate change is increasingly affecting people around the world, including through extreme heat, storm damage and life-threatening events like wildfires. She said, in her previous research studies her team showed that in the aftermath of the 2018 fire that destroyed the town of Paradise in California, chronic symptoms of post-traumatic stress disorder, anxiety and depression were highly prevalent in the affected communities more than six months after the disaster. The present study found a graded effect - people whose homes or families were directly affected by fire showed greater mental health harm than those where who were indirectly affected, meaning people who witnessed the event in their community but did not have a personal loss. The new study was conducted to understand whether the symptoms of climate change-related trauma translate to changes in cognitive functioning – the mental processes involved in memory, learning, thinking and reasoning. The research found that subjects’ cognitive functioning across a range of abilities, including attention; response inhibition – the ability to not respond impulsively; working memory – the ability to maintain information in mind for short periods of time; and interference processing – the ability to ignore distractions does get impacted. The study included three groups of individuals: people who were directly exposed to the fire, people who were indirectly exposed, and a control group with no exposure. The groups were well matched for age and gender. Dr. Mishra said with climate change fuelling more disasters, it is important to understand its impacts on human health, including mental health. Resilient mental health is what allows us to recover from traumatic experiences. How humans experience and mentally deal with climate catastrophes sets the stage for our future lives. Source: asiainsurancereview.com

Specific drivers will prevail in the insurance industry during 2023 and these will include ESG risks, geopolitics, technology change and claims inflation according to Kennedys, the global law firm in its annual forecast report for the insurance sector. The 25-page report Insurance forecast 2023 Claims trends and future risks released in January 2023 says insurance market is no stranger to significant unanticipated events, including the catastrophic effects of natural disasters. Alongside the natural disasters, the industry will continue to navigate the aftershocks of the COVID-19 pandemic as well as Russia president Vladimir Putin’s invasion of Ukraine and the current economic climate. It says the losses sustained as a result of such events means that the sector has to adapt, by reviewing the scope of cover it provides, the manner in which it approaches risk assessment and how it prices its products in order to continue to remain relevant and thrive in a global marketplace. The potential threats of today mean that insurers need to understand and prepare for the risks of tomorrow. The experiences of recent years suggest that unexpected events are becoming increasingly widespread. Consequently, understanding the major trends driving claims activity across different lines of business is vitally important. Gaining insight from recent claims experience and embracing innovative technology should afford insurers and reinsurers the opportunity to identify and implement more effective loss prevention measures. According to the report the major trends for 2023 include ESG How effectively all businesses, including insurers, are perceived to address ESG requirements, such as their corporate disclosures, will increasingly impact the competitive position and reputation of those businesses in the marketplace. Geopolitics The impact of geopolitical risks – those risks associated with conflict or tension between countries or states - can be felt across almost all lines of business. There is also a clear interrelation between the geopolitical landscape and other priority topics for insurers, including rising inflation, ESG considerations and reputational risk. Technology Innovation through the use of technology is poised to continue transforming the insurance industry and the businesses that it serves, facilitating growth and furthering broader ESG-related objectives. Claims inflation World is currently experiencing the highest rate of global inflation for decades. While there are signs that prices are expected to ease in 2023, additional factors will mean that the impact of claims inflation will continue to be felt across all insurance lines in the year ahead. Source: asiainsurancereview.com

With APAC's exposure to extreme weather events leading to unsustainable natural hazard losses and high inflation worsening them, reinsurers in the region will face challenges in their growth in 2023. According to GlobalData’s insight report, ‘Reinsurance Market Size and Trends Analysis by Region, Business Lines, Top Markets, Regulatory Overview and Competitive Landscape, 2021-2026’ reveals that APAC’s reinsurance sector is set to grow at a compound annual growth rate of 7.6% from $171.4bn in 2021 to $246.8bn in 2026 in terms of ceded premiums. APAC’s top five reinsurance markets in terms of ceded premiums are – Japan, China, Australia, Hong Kong and South Korea. In 2021 these five collectively held 84% share of APAC’s market. GlobalData senior insurance analyst Deblina Mitra said, “Increase in cost of claims due to the high inflation is adding pressure on reinsurers’ profitability. To reduce this, reinsurers are limiting coverage on loss-making lines, raising premiums and pushing for higher deductibles by insurers. Ms. Mitra said, “This in turn will prompt insurers to increase premium prices and retention levels to make a reserve for higher deductibles. Australian insurer IAG, in its January 2023 renewal of catastrophe reinsurance programs increased retention by 75% compared to July 2022.” Aviation, marine, cyber, political violence and trade credit insurance lines are anticipated to remain vulnerable to the ongoing Russia-Ukraine war losses in 2023. Insurers in the APAC region are also struggling to find suitable coverage for war risks for shipment of goods and natural gas supplies around the conflict zone as traditional reinsurers are exiting this line of business. Ms. Mitra said, “Regulatory developments across the APAC region would, however, have positive impact on reinsurance growth over the coming years.” Reinsurance in Japan will benefit from the planned implementation of higher capital standards for insurers in 2025. Japan accounted for 35.2% of Asia’s ceded premiums in 2021 and is forecast to grow at a CAGR of 4.1% over 2021-26. In China, reinsurers will benefit from the new regulation on reduced entry barriers. The regulation gives preferential treatment to foreign reinsurers if their solvency regulatory system is recognized in China. China held a 25.6% share of the APAC’s ceded premiums in 2021. Ms. Mitra said, “In 2023, reinsurers in APAC will focus on risk management and limit their loss exposure due to the ongoing Russia Ukraine conflict and high inflation. The long-term growth, however, will remain stable due to favourable regulatory developments.” Source: asiainsurancereview.com

Insurance pricing in the fourth quarter in Asia increased by 2%, the same as in the prior quarter, according to the 4Q2022 "Global Insurance Market Index" report released yesterday by leading global insurance broker Marsh. The growth rate for the last two quarters was the lowest for the year, with rates of increases in Asia composite insurance pricing standing at 3% in both 1Q and 2Q. The rates of increase in prices in Asia in 2022 lagged behind those of commercial insurance prices globally. Worldwide, the increases were 11% in 1Q; 9% in 2Q; 6% in 3Q and 4% in 4Q. For 2022 as a whole, Asia exhibited the lowest increase in insurance pricing compared to other regions in the world. The pricing situation in Asia in 4Q2022 is summarized as follows: Property insurance pricing rose 2%, the same as in the third quarter. Due to continued concerns regarding inflation, insurers maintained focus on updated and validated valuations of assets and business interruption calculations. Underwriters continued to focus on CAT and secondary CAT perils. Renewal results again favoured clients with exemplary claims performance and strong risk management practices. Casualty insurance pricing declined by 1% in the fourth quarter. Casualty pricing in Asia decreased in the fourth quarter for most industry segments; however, some experienced tightening of terms and conditions. The market remained challenging for product recall and US-exposed product liability, with capacity being secured from London subject to its pricing and conditions requirements. Auto liability and workers’ compensation renewals experienced decreased pricing in a number of territories and held stable in others. Insurers continued to demonstrate caution due to claims inflation resulting from litigation trends and material cost increases. Insurers continued to focus on updating policy wordings, ensuring the application of updated sanctions clauses and exclusions associated with per- and poly-fluoroalkyl substances (PFAS), cyber, terrorism, punitive damages, and contractual liability. Financial and professional lines pricing increased by 2%, compared to 5% in the prior quarter. D&O rates began to stabilize, with non-US-exposed businesses experiencing decreases of up to 10%. Additional capacity entered the market; combined with 2022’s low level of IPOs, SPACs, and deSPACs, this generated strong competition on traditional risks. Pricing began to moderate for FIs and was considered stable for large and complex accounts. Cyber insurance pricing increased by 22%, an improvement from recent quarters. Conditions in the cyber market continued to improve as new entrants drove an increase in capacity, markets actively indicated a desire to grow their portfolios, and many clients were able to eliminate sub-limit and coinsurance requirements around ransomware (usually for an additional premium). Clients in specific industries remained vulnerable to wholesale insurer appetite changes to their industry. Due to claims activity, telecommunication clients experienced a pullback in appetite for cyber and tech E&O risk, resulting in pricing increases above average. The "Global Insurance Market Index" is a proprietary measure of global commercial insurance premium pricing change at renewal, representing the world’s major insurance markets and comprising nearly 90% of Marsh’s premium. Source: asiainsurancereview.com

Greetings from ARISE Philippines! The ARISE Global Network is happy to announce that their new ARISE website: www.ariseglobalnetwork.org is now live and will replace the current ARISE website with new additional features. This new fresh interface was redesigned to globally enhance the visibility of ARISE, promote the networks’ work, and enable new members to join via an online application process. Prospective members can now fill out the ARISE registration form online and submit the required documentation with their online application. This new platform is user-friendly and provides the private sector access to relevant information, news, and tools. ARISE members can also submit their own best practices and case studies under the “Learn” section. The Global Network also wishes to thank the ARISE community for providing feedback last year through surveys and interviews, especially to Cemex who supported the Global Network by generating the social media assets in promoting the website. Click here to explore their new website!

The Philippine Insurers and Reinsurers Association (PIRA Inc.), an association of the non-life insurance and reinsurance companies in the Philippines is a member of the ARISE Network under the Asia Pacific Region. About ARISE ARISE is a network of private sector companies committed to risk-informed development, disaster risk reduction, and preparedness action. ARISE was started by UNDRR in 2015 to support the private sector to become a key partner in reducing disaster risk. It has grown to over 350 members and over 20 networks across the world. There is incredible energy and appetite to grow ARISE and to equip it to effect change in how the private sector invests in a risk-informed sustainable future. Insurance The (re-)insurance industry has a critical role to play in DRR. With risk at the core of its business, the industry has an opportunity to lead both from an insurance/lability side as well as asset management to change the current single hazard, short-term business approach of the sector and encourage risk-informed business management strategies and practice. Member list ARISE is a network of more than 300 members committed to strengthening their communities across all five of the UNDRR regions. The Philippine Insurers and Reinsurers Association (PIRA Inc.) is a member of the ARISE Network under the Asia Pacific Region. The Complete membership list is available on the ARISE website. Learn more about ARISE by browsing its’ 2020 Annual Report.

A United Nations-backed network that promotes sustainable development and disaster resilience has declared insurance as a priority area and tapped the Executive Director of Philippine Insurers and Reinsurers Association (PIRA) to take the lead in efforts to promote insurance for disaster risk reduction. ARISE Philippines, a local version of the Private Sector Alliance for Disaster Resilient Societies (ARISE), appointed in its latest Board of Directors meeting PIRA Executive Director Michael Rellosa as the priority area lead for insurance. Mr. Rellosa joins three other luminaries who have been named Priority Area Leads in their respective fields. Mr. Rene Meily, President of the Philippine Disaster Resilience Foundation (PDRF) has been tapped to take charge of Small and Medium Enterprises (SMEs) while Ms. Maribeth Marasigan, President and Chief Operating Officer of Aboitiz Foundation will take charge of investors and investments. Meanwhile, Dr. Erdsan Suero, the National President of the Philippine Institute for Civil Engineers, has been appointed to oversee the promotion of resilient infrastructure. In his report to the ARISE Philippines Board, Mr. Rellosa shared the latest PIRA initiatives related to disaster risk insurance, namely the Philippine Catastrophe Insurance Facility, the Private-Public Partnership Arrangement on Agricultural insurance, the Parametric Insurance for Heavy Rainfall and Typhoon, and the effort to Catalyze Insurance Leadership for Nature-Based Solutions in the country. On top of these initiatives, Mr. Rellosa said PIRA continues its efforts to deepen Filipinos' understanding and appreciation of insurance as an instrument for disaster resilience. "We also would like to increase our countrymen's awareness on available insurance products for disaster resilience, promote PIRA and ARISE collaboration, and, together, lobby for policy changes to improve public access to insurance products," Mr. Rellosa said. The PIRA Executive Director expressed his gratitude to ARISE Philippines for recognizing PIRA's important role as the voice of the non-life insurance industry. "We are truly thankful to the leaders of ARISE Philippines for their trust in PIRA. We are excited to raise our collaboration with all of them to the next level and hopefully achieve meaningful changes for our country," he said. ARISE Philippines, at present, is composed of 144 member companies and private sector institutions that share the vision of a resilien and prosperous future where fewer lives are lost to disasters. The network has grown by more than double since its launch six years ago through the initiative of SM Prime Holdings with the support of the United Nations Office for Disaster Risk Reduction (UNDRR).