“The market is at a very interesting point where we see inflation, post-COVID-19 pain and nat cat development, almost certainly being driven by global warming, and specifically what we used to call secondary perils.”

That was the view of Franz Hahn, chief executive officer of Peak Re, when he spoke to Monte Carlo Today at the 2022 Rendez-Vous.

He said secondary perils have reached a point where they are of medium to large size in severity and of a high frequency, and the industry needs to find solutions.

Inflation is also affecting the market, and Hahn commented that a year or two ago people said inflation was being caused by supply chain issues and that it would “go away again”, so nobody wanted to know at the time.

“The European Central Bank has only now adjusted the interest rate, which is certainly a bit late,” he said.

He highlighted geopolitics as another market driver that is “not going away”. In Europe people often talk about the war in Ukraine when they discuss geopolitical instability, he said, but with his Asian perspective Hahn pointed to geopolitical instability and uncertainties beyond that.

“I’m coming from Hong Kong where Peak Re is based, so I’m talking about China’s relationship with the US, China’s constant sabre-rattling with Taiwan, the instability that long COVID has brought—which has a different meaning in China than anywhere else—and that’s bringing instability to the economy,” he explained.

“China is an economy that was driven by a strategic will to be part of the world economy and suddenly it seems as if ideology plays a bigger role.”

Hahn said that all these issues are the backdrop to what the reinsurance industry is trying to achieve. “The major driver for the insurance industry is economic growth, which is certainly being challenged,” he added.

Another issue on Hahn’s mind was the low penetration ratio in Asian emerging markets.

“The middle classes in Asia have been growing. The emerging middle class in emerging markets in Asia is growing by 160 million people every year, that’s two times the rate of Germany.

“That’s why the penetration ratio of insurance is not growing that fast, specifically for P&C products.”

Reinsurance is needed more than ever, he added, saying that when there are economic uncertainties the funding for insurance products may not always be readily available “but the demand is there”.

He agreed that the Asia region is particularly vulnerable to global warming. “If you take cities such as Jakarta in Indonesia—they tried to change the capital by creating a new city elsewhere to avoid sea level rise, but still there are millions of people living in Jakarta in flood and earthquake zones.

“In Manila in the Philippines, there is volcano, flood, typhoon and earthquake risk. Then you have Bangkok, Thailand, with floods. You have all those large accumulation zones in Asia, and in China it’s the same.

“In the last 30 to 40 years the middle classes have been growing in those areas and the accumulation areas surrounding those big capitals have been becoming bigger,” he concluded.