INTERVIEW: FRANZ-JOSEF HAHN, PEAK RE
Tailwinds stronger than headwinds
Despite volatility and uncertainty on several fronts, the tailwinds driving the insurance and reinsurance industry are stronger than any headwinds, and the growing protection gap offers clear business opportunities, says Franz-Josef Hahn of Peak Re.
Despite challenges that include volatility in the financial markets and increasing industry-wide cat-based losses, which are increasingly linked to climate change, Peak Re’s chief executive officer is in a bullish mood as he considers the opportunities thanks to a large and growing protection gap, especially in its core markets across Asia.
“We see many tailwinds in demand, largely created by huge coverage gaps: in health insurance and natural catastrophes, and then you add into that the fact that economic development is much faster across Asia. This results in a significant coverage gap, which our industry is challenged to close,” Franz-Josef Hahn told Monte Carlo Today.
“The large protection gap in Asia is a major opportunity for Peak Re. The industry has not been dormant in finding solutions, but it is running behind the trend. There is clearly a huge tailwind that can be captured: on the cat side, in health, in cyber—which is something new in Asia. It’s a very diverse picture.
“Every country has different challenges, climate zones, and economic issues. But the broader point for the industry is that there are significant potential growth areas.”
He stresses that the protection gap is a theme not just for Asia-Pacific—it is global. “When you look at the widening gaps in pensions and health, it is a massive issue in the US and Europe. Asia is our home, so we look at that more. It is widening. The COVID-19 pandemic has aggravated the situation. That’s why it remains the key trend for us,” Hahn says.
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“The large protection gap in Asia is a major opportunity for Peak Re.”
Franz-Josef Hahn
“If you then overlay the property-cat side with the context of global warming, you have to consider this is a massive opportunity. Is there sufficient capital, given the available pricing?
“And how do we make the best use of capital, including alternative capital such as insurance-linked securities? That is a theme which we have been pondering for the last five years. We see an opportunity across Asia-Pacific as a whole.”
Hahn says Peak Re is well-positioned to consider this picture in a positive way. He notes that the industry as a whole has had to work through challenges and dislocations in recent years as a hardening market has followed a period of major loss events, many of which are linked to climate change.
“We are in a strong position. The entire industry has been hit pretty hard, but we have fared much better than the market average. We have taken swift action to turn things around, adjusting to a new normal of higher interest rates and the consequences of global warming.
“We have been continuously upgrading our portfolio and, as such, we are well-prepared going into the 1/1 renewal,” he explains.
“There was a lot of market dislocation last year, but there is now more clarity about the financial cycle and the continuous repricing by the entire industry. We welcome this. This is a positive movement.
“The primary market, the retro markets, and the capital markets are adjusting—but everything is moving in the same direction.”
“Underwriting discipline is more important than ever in such an environment.”
Strong customer alliance
Despite positive movements in rates, Hahn warns of ongoing uncertainty. He notes that insured and economic losses this year exceed the long-term industry average.
“We are factoring these higher loss trends in, and preparing our clients, ensuring we are working in partnership. We have maintained strong client relationships amid all the volatility as we continuously discuss and develop solutions in this kind of market situation.
“The entire industry is adjusting, but modelling these risks is increasingly difficult,” he says.
He adds that underwriting discipline is more important than ever in such an environment. He stresses that in the Asia-Pacific markets specifically, you cannot get away with low pricing or liberal terms and conditions. Peak Re is being strategic on where to deploy capacity, on this basis. It has reallocated some capacity towards property, because of its improving rates, while also eyeing the opportunities developing in some personal lines including motor and accident and health.
“We are cautiously underwriting it when it makes economic sense for our clients. We don’t run where the others are running but instead focus on the opportunities, especially considering the protection gap and the context of the growth of middle-class society in Asia. But every market in Asia is different, and you have to treat them differently,” he says.
“There are separate opportunities for your products in each market. That’s where we try to be: behind our clients, supporting them and helping them come up with new product ideas.”
Franz-Josef Hahn is the chief executive officer of Peak Re. He can be contacted at: comms@peak-re.com
Main image: Shutterstock / Pigprox