Early consensus around low single-digit rate increases as market steps up sovereign risk focus

Early projections suggest 1.1 property cat renewals across the majority of Asia Pacific markets will likely see risk-adjusted rate increases in the low single-digit range, amid expectations that most of the “heavy lifting” has been done at 2023 renewals.

Sources canvassed by The Insurer have all pointed towards a more stable renewal at 1 January, with only modest increases for property covers.

Gallagher Re Asia Pacific managing director Mark Morley told this publication there was nothing currently to suggest any shortfall in capacity for the region’s 1.1 renewals, which largely focus on Asia’s emerging markets with most mature market treaties renewing at 1.4.

“From a supply perspective we are in good shape,” he said. “We are hopeful of a more rational, predictable renewal this time round. The conversations we have had so far suggest this will be the case.”

This is largely in line with the sentiment from reinsurers that have spoken to The Insurer at the Singapore International Reinsurance Conference, with the outliers being markets that have incurred losses in recent years. As reported in yesterday’s edition, reinsurers have at recent renewals placed increased scrutiny on markets such as Malaysia and the Philippines following elevated cat losses.

Among more mature markets in the region, South Korea’s P&C market posted an aggregate 103 percent combined ratio in 2022, also on the back of elevated losses, according to Gallagher Re analysis.

One recurring theme throughout the conference so far has been the desire to increase the provision of solutions for sovereign risk pools. This comes as the existing sovereign pools are considering the creation of a joint reinsurance facility to enable more effective use of capital.

“In sovereign space, there is a greater interest in reinsurance solutions,” Morley said. “Sovereign clients in broader terms have become more comfortable with basis risk, and there is an uptick in demand and interest in how reinsurers can provide solutions to those challenges.

“My sense is there is a greater determination than there has ever been in my career for this to happen. Progress for me is where state funds are made available from a budgeting standpoint. We are now seeing that – that’s a definite step forward.”

Ravi Menon, managing director of the Monetary Authority of Singapore, highlighted sovereign risk pools as one of three forms of alternative risk transfer the regulator was looking to encourage in Singapore, alongside ILS and captive solutions.

“Sovereign-focused risk-financing solutions are sometimes the most viable solution for countries to manage natural catastrophe risks, particularly countries with vulnerable communities which are unable to afford privately funded insurance,” he said.