In a region as diverse as Asia-Pacific the challenges and opportunities are equally diverse, and that’s before you add global market influences into the mix. Aon’s Reinsurance Solutions APAC leaders detail the biggest challenges and discuss solutions, with a view to helping their clients make better business decisions.

Robert De Souza: CEO, Australia and New Zealand

Market pricing and appetite towards programme retentions remain challenged as we head towards 2023. Following two consecutive years of sustained La Niña conditions, confirmed to continue in 2023, the renewal of retention buydowns and aggregate programmes are also facing significant capacity and pricing challenges.

Inflation is impacting exposure levels across programmes, and July renewals showed that provision of transparent underlying assumptions helped mitigate wholesale assumptions in reinsurer pricing. We encourage further transparency, together with evidence of claims-handling initiatives to manage claims inflation levels, particularly following the March 2022 floods, to manage expectations in 2023.

The introduction of the Cyclone Reinsurance Pool poses a challenge in 2023, as cedants look to balance the potential benefits of the pool against opposing market forces. The recent departure of many from the property catastrophe reinsurance market will heavily affect Australia and New Zealand programmes.

A lack of new market entrants together with retracting collateralised capacity means we are encouraging clients to rethink their access to capital, and creates greater opportunity for Aon’s Marilla Re facility to provide stability of capacity.

Richard Jones: CEO Reinsurance, Asia

The key challenge is property catastrophe, and the Asian renewals this year will be affected both by the global reinsurance environment and local conditions.

Proportional capacity continues to be constrained, and renewals will be subject to more underwriting scrutiny by reinsurers. Specific local conditions have added a layer of complexity to renewal discussions. Korea has continued to suffer large risk losses, while in Malaysia the consequences of the market flood loss of late 2021 are still being felt, and COVID-19 related losses—albeit non-property—have put pressure on the Indonesian and Thai markets, with the Philippines affected by typhoon losses.

There are also inflationary pressures, which are not all being felt to the same degree across Asia due to the varying economic dynamics of each territory, but our Capital Advisory and Analytics teams are working closely with our clients to ensure that this topic is clearly addressed and receives a rational response from reinsurers.

Qin Lu: CEO, Greater China

The direct P&C markets in Greater China have witnessed vigorous competition in the past few years, having been relatively free of major risk and catastrophe losses in mainland China and Hong Kong. This has generated pressure on premium rates as well as pressure on profit in these markets. The Taiwan market is still recovering from several mid-sized fire events and asset-eroding losses from COVID-19 policies in the first half of 2022.

These challenges impact both underwriting performance and solvency and mean that our clients are more vulnerable to risk fluctuations. We advise careful assessment of their reinsurance protection adequacy, balancing cost and benefit.

The impacts of global uncertainties, caused by rampant inflation, secondary perils and events such as Hurricane Ian, are likely to cascade down to the Greater China region via changes in reinsurance appetite and capacity constraints.

A recent Aon study showed that inflation in our three hubs was between 1.8 and 3.4 percent, and all of them have been well below global averages.

Our solutions for clients include bridging the protection gap with access to initiatives such as Marilla Re and insurance-linked securities (ILS) products; helping them to engage with new and underserved markets; supporting them to better understand changes in appetites and renewal expectations; and helping them to achieve differentiated renewal strategies

Philippe Sommer: CEO, Japan

The Japanese catastrophe market has seen substantial price increases following the 2018/19 typhoons.

A number of reinsurers have already adjusted their risk appetite in the recent two renewals. When you add in a benign loss environment year to date, and cedants projecting stable limits to be purchased, there is an expectation of a stable and orderly April 1, 2023 renewal. Aon is supporting clients with portfolio-specific insights and customised models, via its Impact Forecasting team, to articulate unique business features and differentiate in the market.

We have made additional resource investment in inflation research this year, as Japan shows significantly lower price increases than other mature markets, which needs to be explained with relevant data and business impact analysis. Aon encourages product and portfolio transparency, together with evidence of claims-handling practices designed to manage claims inflation levels.

Japan’s local market is facing a property challenge due to a number of risk losses. Cedants have started to implement substantial underwriting, price, and terms and conditions corrections over recent years.