Policymakers in Asia-Pacific will increasingly collaborate with reinsurers in an attempt to maintain affordability and necessary protection, as well as spread risk awareness, says S&P Global Ratings. Ever-rising catastrophe claims are changing reinsurance markets. Higher costs for reinsurance inflate the costs for primary insurers and, ultimately, the buyers of protection. One form of involvement is catastrophe insurance/reinsurance pools. This is according to a report published by S&P Global Ratings titled, "Asia-Pacific Reinsurers And Governments Fortify Natural Disaster Defenses." "We see reinsurance demand as accelerating in emerging Asia, supported by factors such as more natural catastrophes and growth prospects in agriculture insurance," said S&P Global Ratings credit analyst WenWen Chen. "For reinsurers, we expect enhanced collaboration with primary insurers to share and increase knowledge systems," Ms. Chen said. Increased risk awareness and preemptive risk management for weather events across the chain—from households and companies to insurers, reinsurers and government planners—are a more sustainable way to deal with more frequent weather-related cataclysms. Given the rise of weather-related disasters in recent years, reinsurers will likely more actively review their retained exposures and recalibrate their risk appetite. They will also test the efficacy of their retrocession programmes. Source: asiainsurancereview.com

Japanese property and casualty (P&C) insurers will increase fire insurance premiums, shorten policy durations and use location-specific pricing to reflect natural catastrophe risks, to account for the growing frequency and intensity of climate-related natural catastrophes. But policy changes will be gradual because of social pressure to keep insurance affordable, according to a new report by Moody’s Japan. “A reference rate that P&C insurers use to set fire premiums will likely continue to rise over coming years, which will allow insurers to gradually increase prices to better reflect heightened natural catastrophe risks,” said Tomoya Suzuki, a Moody’s vice president and senior analyst. Insurers will also gradually shorten policy durations to five years from 10 and switch to a location-specific pricing system. The changes will support insurers' efforts to make their fire lines profitable in an environment of rising claims stemming from natural catastrophes. Social pressure to keep insurance affordable and widely available will prevent insurers from sharply increasing prices over a short time. Likewise, the difficulty in striking a balance between well-priced premiums with affordability and availability to people in risky areas will mean a new location-specific pricing system will take time to evolve. Increasing fire insurance premiums to better account for climate-related natural catastrophe risks will give insurers greater flexibility to lower premiums for their other business lines. If insurers do lower premiums for other types of insurance, it will somewhat offset profitability gains from higher fire premiums, meaning that overall profitability gains will be modest. Insurers have more flexibility to adjust premiums in corporate lines than those in consumer lines. Source: asiainsurancereview.com

For the upcoming rounds of renewals in the APAC region on 1 January 2023 and 1 April 2023, Hannover Re expects that the global trend towards market hardening will also extend to the Chinese market, global reinsurance giant Hannover Re says in a statement. In recent months, APAC markets have faced numerous challenges, notes Hannover Re. Along with pandemic-related problems affecting global supply chains, these included devastating natural disasters such as floods in Australia, earthquakes in Japan and typhoons. The historic scale of the destruction in Australia, combined with the growing inflationary trend, reinforces the need for further price increases across multiple lines of business. The APAC region remains the world's largest growth market and thus offers significant business opportunities., Hannover Re adds. Given the comparatively low insurance density still seen in many markets, this is especially true for insurers and reinsurers. Hannover Re, therefore, continues to profitably grow its portfolio in the region. Global challenges Globally, against the backdrop of a trend towards more expensive large losses, Hannover Re expects further price increases and improved conditions in property and casualty reinsurance. The first half of 2022 proved challenging for primary insurers and reinsurers alike. Soaring inflation, major losses and an accumulation of mid-sized frequency losses were as much a factor in property and casualty reinsurance as pandemic-related expenditures were in life and health reinsurance. When it comes to new investments or reinvesting activities there will be a time delay before higher interest rates have a favourable impact. Yet all these challenges are dwarfed by the war in Ukraine and the associated human suffering. It is still too soon to make any reasonable estimate of the extent to which this may result in losses for the insurance industry. "The inflation rates in many regions are higher than they have been in decades. Combined with the war in Ukraine and given that the pandemic has still not been overcome, this is fuelling the long-standing trend towards ever-higher loss burdens for insurers and reinsurers," said Mr. Jean-Jacques Henchoz, CEO of Hannover Re. "Further risk-adjusted rate increases in property and casualty reinsurance are therefore unavoidable. This is the only way for us, as a reinsurer, to continue to offer our clients reliable risk protection in an increasingly challenging market. In this context, an underwriting policy that emphasizes quality is more important than ever if we are to preserve the profitability of our business." Hannover Re continuously updates its inflation assumptions and includes these in its risk-adjusted pricing. Given that the inflationary environment is persisting longer than originally anticipated, due mainly to the war in Ukraine, additional adjustments will have to be made for future renewals. While the effects of inflation could already be felt in the previous year in connection with natural catastrophe losses, appreciable impacts are likely to be seen in other lines too going forward. When it comes to business interruption insurance, disruptions in supply chains are adversely affecting the availability of raw materials and construction materials, leading to longer repair times. Jan 2023 renewals For the treaty renewals as at 1 January 2023, Hannover Re expects further price increases and improvements in conditions, not only in loss-affected lines and regions. Hannover Re sees a number of reasons for rising primary insurance rates including inflation and loss experiences and proportional reinsurance should benefit from that. There is considerably more ground to catch up in non-proportional reinsurance, and corresponding improvements of prices and conditions are therefore needed. Mr. Sven Althoff, member of Hannover Re's executive board with responsibility for property and casualty reinsurance, said, "Hannover Re is optimally positioned for the current market phase. Now as before, the redundancy level of our reserves is very robust. In order to ensure that this remains the case going forward and in light of the increasingly challenging conditions, we shall continue to put great emphasis on the quality of the business written." The capital adequacy ratio of Hannover Re in accordance with Solvency II amounted to 235.1% as at 30 June. Furthermore, the rating agencies attest to Hannover Re's very good financial strength. The company is rated "AA-" by Standard & Poor's and "A+" by A.M. Best. Both ratings have a stable outlook. Source: asiainsurancereview.com

A unique confluence of market uncertainties is set to play out at renewals in 2023, says Aon, a global professional services company and risk solution provider. In Aon's report, "Ultimate Guide to the Reinsurance Renewal Market Outlook for January 1, 2023", Mr. Joe Monaghan, global growth leader of reinsurance solutions of the company, says that macroeconomic and geopolitical volatility has coincided with an increased frequency of extreme weather events in recent years, causing investors and reinsurers to reassess their view of risk and appetite for natural catastrophe exposures. The mismatch in supply and demand will continue through the January 2023 renewal. Inflation will be the number one topic at renewal, driving increased demand for catastrophe reinsurance at a time of tightening supply. A number of reinsurers have withdrawn or scaled-back participation in the property catastrophe market, while most are seeking to maintain existing capacity levels. Industry capital is under pressure Global reinsurer capital declined by 11%, or $75bn, to $600bn in the first half of 2022, principally driven by substantial unrealized losses on investment portfolios. Additionally, the strengthening of the dollar against the euro has particularly impacted European reinsurers. Reinsurers will prioritize cedents that provide detailed exposure data and demonstrate underwriting actions that mitigate areas of uncertainty, especially around the impact of inflation on total insured values. Reinsurers must also be mindful that cedents are equally impacted by the trends that have negatively impacted property catastrophe results. Attracting new sources of capital to the market, combined with data-led portfolio differentiation, will be essential to meeting insurers’ reinsurance needs going forward. Aon is working hard to create capacity by attracting new capital to the market and expanding innovative risk transfer vehicles. Opportunities Among these challenges, there remain opportunities for diversification and growth. The emerging market for intellectual property insurance could one day prove an even bigger opportunity than the now nearly ten-year old mortgage reinsurance market which, to date, has generated more than $8bn of expected ceded premium with less than $20m of ceded losses. The casualty reinsurance market is proving robust, and along with specialty lines, should remain attractive to reinsurers looking to diversify from Nat CAT risk. Clients that listen to reinsurer concerns and tell a granular story will secure capacity at the best available terms and conditions. The report suggests that insurers: Articulate clearly how they underwrite for inflation and its impacts on their risk profile Leverage data and analytics to differentiate their portfolio at renewals Develop a custom view of risk to de-risk and reduce exposure concentrations, as well as to improve understanding of secondary perils and emerging risks Understand the true cost of capital, including volatility of returns, which is critical to optimizing the long-term return on capital Understand and consider exploring alternative structures for optimal placement results Partner with an advocate to leverage long-standing relationships with traditional reinsurers, alternative capital investors, and new sources of capital Source: asiainsurancereview.com

Global reinsurance dedicated capital totalled $647bn during the first half of the current year, down 11% from the restated 2021 base, with the reduction primarily driven by investment losses according to a new report by the global reinsurance division of Gallagher. The report released in September 2022 provides in-depth analysis of the size and performance of the global reinsurance industry, based on the Gallagher Reinsurance Index group of companies. The report found that although capital has reduced on an accounting basis, rating agency and regulatory measures of capital adequacy have been less impacted. The report said, however, the decline in equity could become an issue for companies’ ratings if there is any strain on liquidity that forces them to recognize significant losses. Gallagher Re’s in-depth analysis of a subset of 17 reinsurers shows the reported combined ratio improved to 93.0% (HY 21: 94.1%), the lowest seen since 2015. Despite this continued strong underwriting performance, the reported ROE reduced to 0.4% (HY 21: 13.9%), driven by an investment gains yield of -3.5% (HY 21: +1.7%) – itself driven by the sell-off in bond and equity markets in the first half of the year. The underlying ROE nevertheless improved, from 6.3% in HY 21 to 7.5%. This still stands below the industry’s cost of capital but is the best underlying ROE we have measured since 2014. The report focusses on the INDEX companies, which contribute over 80% of the industry’s capital. The salient observations of the report include: INDEX capital reduced by 14%. The main driver of this reduction was significant unrealized investment losses, almost half of which was attributable to National Indemnity. Capital return through buybacks and dividends exceeded a modest contribution from net earnings. Source: asiainsurancereview.com

The insurance protection gap is generally defined as the difference between total and insured loss costs. Globally, 2021 total losses from natural disasters were estimated to equal approximately USD 280 billion, of which approximately USD 120 billion, or 43%, were covered by (re)insurance.(1) This gap was smaller than many previous years because a higher proportion of losses occurred in the US, which has one of the most developed insurance markets in the world, with high penetration. The protection gap varies significantly among high-, medium- and low-income countries. In Asia, on average, the protection gap is estimated to be approximately 90%, using historical records as well as analytical analysis. The Lloyd’s report(2) on the protection gap placed several Asian countries in the top ranks, based on estimates of the relative insurance gap cost, with Bangladesh, Indonesia and Philippines holding the top 3 places, respectively. The figure below depicts insurance penetration by displaying the property-casualty premium as a percentage of gross domestic product (GDP) measured against premium per capita. The plot shows the differential level of protection gap in Asia Pacific—South Korea was excluded, as its insurance penetration is the highest (almost at 5%), an outlier within the Asia context. With the changing climate, natural catastrophes are becoming more frequent, and the intensity for certain perils is likely to increase, severely affecting several countries in Asia. Urbanization and subsequent unplanned urban development and expansion are escalating in several Asian cities. These dynamics are expected to accentuate the challenges associated with the protection gap. To measure this protection gap, the most appropriate approach is to use the uninsured portion of the economic losses, due to the lack of data and details. However, it is worth noting that this gap may be smaller in actuality, because a portion of these economic losses is neither desirable nor economically credible to be considered for insurance coverage. Hence, these losses would be excluded. These portions of losses may include risk retentions, deductibles and coverage limits associated with the insurance policies. Additional components of these losses are unmeasurable risk, moral hazard and adverse selection, as well as the more suitable self-funding approach by individuals for the high-frequency/low-severity losses. The size of the insurance penetration gap may differ by sector, subject to the exposures that are affected, as shown in the figure below. For example, corporates and manufacturing industries usually tend to insure their physical properties and production sites as part of their risk management framework. However, residential homeowners may consider insurance to be an additional expense or simply may not be able to afford adequate protection, so the size of the protection gap is usually much larger. Nevertheless, a large component of losses that is not covered by insurance ultimately may need to be assumed by governments and taxpayers. The public sector assumes an increasing share of climate costs around the world, particularly in developing countries, where private insurance for both businesses and individuals is less prevalent. Financing gaps, if not rectified, often may create long-term fiscal instability for governments. It is imperative to understand the key challenges associated with the prevailing protection gap in Asia and put forth innovative solutions to bridge it. Challenges There are multifaceted challenges associated with the protection gap. Broadly, these can be segregated into political, economic, technical and social disciplines. The political challenges include the limited will and incentives to implement the necessary policies to reduce the protection gap. In the economic context, affordability, whether it is the individual or the state, remains one of the biggest barriers to using insurance. There are also technical hurdles, due to the lack of data and tailored products with the ability to address the affordability issues, win the confidence of buyers and eventually increase insurance penetration. The lack of trust in insurance, societal and cultural beliefs such as, “the next disaster will not happen to us,” or the assumption that the government will step in to assist, limits the usage of insurance. Additionally, most of these challenges intersect each other, adding to the complexity. For example, investments in mitigation measures may not earn the same goodwill for public officials as the provision of post-disaster relief. Pandemic Revealed Substantial Protections Gap, Helped Spur Creative Solutions The outbreak of the COVID-19 pandemic and associated lockdowns highlighted significant vulnerabilities in the health and financial security of many economies. Businesses of all sizes and sectors were impacted by the crisis resulting from the substantial protection gap. There were no instruments in place for future pandemics. With recognition that the risks were too large to be assumed by the private insurance sector alone or governments alone, several public-private initiatives were begun, such as the introduction of the Pandemic Risk Reinsurance Program in the US or Chubb’s Pandemic Business Interruption Program. Marsh McLennan quickly established over 30 national “Pandemic Re” teams to support discussions at national levels around the design and delivery of pandemic risk insurance solutions. All these initiatives are at different stages, but more significant is the effort put in place to develop solutions for one of the largest economic losses ever seen, using public-private partnerships. Solutions From sovereign nations to individuals, there is a wide range of protection gap financing needs. Government needs may include access to immediate payments for emergency relief measures or forgone tax revenues, while for individuals they may include loss of property or income. The available solutions to bridge the insurance protection gap need to be expansive and extend from the micro level (individuals) to the macro level (sovereign states). A collaborative approach between the public sector and private-sector insurance industry is crucial, especially in regions where the insurance protection gap is wide. The insurance industry is capable and well-resourced to develop the technology and products needed to cover the protection gap. Industry innovators must meet people’s needs and balance affordability. Bespoke micro-insurance products are one example that can provide much-needed relief after a disaster. Parametric-based products and solutions are evolving, with a focus on reducing the basis risk. They provide immediate relief after a severe event, and they can be developed for and employed at any level—macro to micro. An important role of the industry is to build trust in insurance by advising and educating the public. Risk mitigation remains among the most essential tasks for governments. It helps to reduce losses, and aids in the availability and affordability of insurance. Government schemes, such as mandatory insurance for specific sectors and perils, and public insurance initiatives are also effective in reducing the protection gap. However, it is the cooperation between the private and public sectors, through public-private partnerships, that may be the most-effective solution. Government distribution networks and infrastructure can be used by private institutions to channel their products and solutions. The government, in partnership with the private sector, may develop subsidized schemes, helping individuals obtain necessary protections. With the support of the insurance industry, governments can introduce ex ante solutions at sovereign and sub-sovereign levels. Another example of a public-private partnership is the establishment of a (re)insurance pool with a government guarantee. Guy Carpenter’s Public Sector Center of Excellence is a global unit focused on helping governments and other public entities find innovative solutions to unfunded liabilities. The practice delivers reinsurance and capital market solutions and supporting risk analytics that focus on this gap, quantifying and helping to predict the magnitudes of risk taken by different parties. Selected Regional Examples from Emerging Economies in Asia Southeast Asia Disaster Risk Insurance Facility (SEADRIF) The Southeast Asia Disaster Risk Insurance Facility (SEADRIF) is the first regional program in the Association of Southeast Asian Nations (ASEAN) to address disaster risk financing comprehensively. It brings risk identification, reduction and preparedness, as well as insurance, and aids in creating resilient event recoveries. While ASEAN countries are heavily exposed to a variety of natural catastrophe risks arising from earthquakes, floods and tropical cyclones, as well as secondary perils such as tsunami and volcanoes, regional catastrophe risk insurance markets are still underdeveloped in terms of non-life catastrophe insurance penetration. Developed as an initiative by the ministers of finance and central bank governors from ASEAN+3 countries, SEADRIF was established in July 2019 as a multi-functional regional platform for ASEAN nations to access financial, analytical, advisory and knowledge services. The platform also provides products to strengthen financial resilience against disasters and climate shocks. The first financial product offered by SEADRIF Insurance Company, a licensed direct general insurer in Singapore, is a catastrophe risk pool for Lao People’s Democratic Republic and Myanmar. The pool leverages joint reserves and offers market-based finite and parametric catastrophe risk insurance solutions to provide liquidity in the aftermath of disasters such as severe floods. At the request of member countries, SEADRIF is also exploring the development of other disaster-risk financing solutions, such as a joint risk pool for public assets and infrastructure of ASEAN countries. Philippines Catastrophe Bond for Earthquake and Typhoon Issued by the World Bank, the first-ever sovereign catastrophe bond in Southeast Asia provides the government of the Philippines with USD 225 million in protection against earthquake and tropical cyclone risk over 3 years.(3) The Philippines’ disaster-risk financing and insurance strategy follows a multi-tiered and multi-layered approach by addressing disaster-risk financing needs on national, local and individual levels. It also combines different financial instruments, including dedicated disaster funds, contingent credit lines and risk transfer to the international reinsurance and capital markets. The Philippines’ catastrophe bond, which was listed at the Singapore Exchange in November 2019, has been another milestone for the Philippines government in executing its disaster-risk financing and insurance strategy. It constitutes a landmark transaction marking a number of firsts, such as being the first catastrophe bond ever directly sponsored by an Asian sovereign, the first catastrophe bond listed on an Asian exchange and the first World Bank bond ever listed in Singapore. This World Bank-issued catastrophe bond recently triggered a payout of USD 52.5 million to the government of the Philippines after AIR Worldwide determined that super typhoon Rai (locally known as Odette) breached the trigger for wind. Indonesia State Asset Insurance Program (ABMN) As a part of the Indonesian government’s strategy to build resiliency against natural disaster, the vice president of the Republic of Indonesia launched the Disaster Risk Financing and Insurance (DRFI) Strategy for Indonesia in 2018. The strategy aims to obtain timely, targeted, sustainable and transparent disaster-risk funding schemes. One of the government's priorities is to protect state and regional assets. To facilitate this, a legal framework was established to provide insurance covering state assets. To ensure the proper insurance coverage and premium, a state asset management information system is in development to capture data around risk and claims. The state insurance pilot project started with a disaster insurance program for the buildings of the Ministry of Finance, which were insured with a total value of IDR 10.84 trillion. A consortium of 50 general insurance companies and 6 reinsurance companies will provide insurance at a premium of IDR 21.3 billion. 1) Munich Re's 2021 Nat Cat report. 2) Lloyd’s report: A World at Risk—Closing the Insurance Gap. 3) World Bank. Source: asiainsurancereview.com

MANILA, Philippines — A tropical depression outside the Philippine Area of Responsibility (PAR) is expected to gain strength and be upgraded into a tropical storm on Wednesday, according to the state weather bureau. The Philippine Atmospheric, Geophysical and Astronomical Services Administration (Pagasa) said that the cyclone is located 1,525 kilometers east of extreme northern Luzon and is moving southward at 20 kilometers per hour. It is expected to enter PAR either Wednesday night or Thursday morning. As of Pagasa’s latest advisory, the tropical depression has maximum sustained winds of 55 kilometers per hour and a gustiness of up to 70 kilometers per hour. “Within 36 hours ay posible itong mag-intensify pa into a tropical storm category at habang binabaybay nga nito itong karagatan, ay mayroong posibilidad na mag-intensify pa, or magpatuloy na mag-intensify, at maging typhoon, posible yan by Sunday,” said Pagasa weather specialist Grace Castañeda in the bureau’s public weather forecast. (It is possible that it will intensify into a tropical storm within 36 hours. While it travels along the sea, it may even further intensify into a typhoon, possibly by Sunday). According to Castañeda, the tropical depression will not have a direct effect on the country for Wednesday and it is not expected to make landfall during its stay within PAR. The overcast weather that Palawan, Western Visayas, Zamboanga Peninsula, Basilan, Sulu and Tawi-Tawi will experience is due to the intertropical convergence zone (ITCZ), resulting in cloudy skies with scattered rainshowers and thunderstorms, said Pagasa. Metro Manila and the rest of the country can expect partly cloudy to cloudy skies with isolated rainshowers or due to either effects of the ITCZ in or localized thunderstorms, said the state weather bureau. Pagasa listed these temperature ranges in the following cities and areas: Metro Manila — 25 to 34 degrees Celsius Baguio — 17 to 24 degrees Celsius Laoag — 24 to 32 degrees Celsius Tuguegarao — 25 to 34 degrees Celsius Legazpi — 25 to 33 degrees Celsius Puerto Princesa — 25 to 31 degrees Celsius Tagaytay — 23 to 31 degrees Celsius Kalayaan Islands — 26 to 31 degrees Celsius Iloilo — 25 to 31 degrees Celsius Cebu — 24 to 33 degrees Celsius Tacloban — 25 to 33 degrees Celsius Cagayan de Oro — 24 to 31 degrees Celsius Zamboanga — 24 to 33 degrees Celsius Davao — 25 to 33 degrees Celsius Source: newsinfo.inquirer.net

Reinsurance earnings will be bolstered by rising prices and gradually higher investment income amid rising interest rates, Moody's Investors Service said in a report released yesterday maintaining its stable outlook for the sector. Recent catastrophe losses and an increased perception of risk following the pandemic have fuelled strong demand for both primary commercial and reinsurance property and casualty (P&C) protection. At the same time, these losses and climate change concerns have prompted a sector-wide reassessment of catastrophe risk, with many reinsurers beginning to pull back capacity. “We expect continued price increases, and higher investment yields on the back of rising interest rates to improve earnings,” said Ms. Helena Kingsley-Tomkins, a vice president at Moody’s. Reinsurers' earnings had been deteriorating for more than a decade and over the last five years became weak and volatile as a result of COVID-19 and catastrophe claims. The vast majority of reinsurance buyers surveyed by Moody's foresee an increase in prices, with 40% expecting price rises of more than 7.5% in property lines. This marks the third consecutive survey where respondents expected no overall price decline in P&C reinsurance. Inflation is a key threat Rising material and labour costs, exacerbated by the impact of post-pandemic supply chain disruption, are already holding back earnings improvements in home, commercial property and motor (re)insurance lines. Sustained high inflation could also increase long-term care and medical costs, elevating claims and reserving risk in long-tail liability lines. Source: asiainsurancereview.com

The global reinsurance sector could finally be facing a turnaround, with pricing improvements persisting for most lines while property catastrophe lines are experiencing a full-on hard market environment, according to a new report by S&P Global Ratings. In the report titled "Is The Global Reinsurance Sector About To Turn A Corner?", the global credit rating agency asks the question that is on everyone's mind: will these pricing improvements be enough to combat the endless barrage of headwinds against the reinsurance sector that have muted returns for years? The combined impact of higher frequency and more severe natural catastrophes, untamed inflation across the world, mark-to-market investment losses eroding capitalization, and the Russia-Ukraine conflict all threaten the reinsurance sector. As a result, S&P Global Ratings' view on the global reinsurance sector remains negative, reflecting its expectations of credit trends over the next 12 months, including the distribution of rating outlooks, existing sector-wide risks, and emerging risks. As of 31 August 2022, 19% of ratings on the top 21 global reinsurers were on CreditWatch with negative implications or had negative outlooks, 76% were assigned stable outlooks, and 5% were on CreditWatch positive. Source: asiainsurancereview.com