NEWS
A RESET but no 2023 class of reinsurers
Investors are still wary of investing in the market, says Hannover Re CEO.
Reinsurance RESET, the main title and theme of the 2023 Singapore International Reinsurance Conference, is very accurate in the wake of what has been an eventful couple of years for the industry, Jean-Jacques Henchoz, chief executive of Hannover Re, acknowledged.
However, he added, the current hard market will not lead to a new class of reinsurance companies, due to many investors feeling the fatigue of many years of losses.
Speaking at a fireside chat format on the opening afternoon of the meeting, interviewed by Rico Hizon, senior news anchor of CNN Philippines, Henchoz said that investors are now cautious on the reinsurance industry. He said many investors have lost their patience.
“Through meetings with investors, I could feel the fatigue of losing money, basically limitless money,” he said.
“The average profitability of the industry in the past five years was poor, yet the industry was not burning down. That’s how investors viewed the market. Last year, they were clearly hoping for a reset, but they are not yet convinced that the reinsurance industry can deliver. They are waiting in the sidelines.”
“A lot of mid-sized cat events made it a tough year.”
Jean-Jacques Henchoz, Hannover Re
Henchoz said that $15 to $17 billion of fresh capital has come into the market, through equity raise or hybrid capital. But he cautioned that when compared to hard markets of the past, such as in the aftermath of Hurricane Andrew or 9/11, this was not a meaningful influx of capital—by any stretch of the imagination.
He thinks that investors want to see a successful 2023 before they look at potentially investing in 2024. However, he believes the mechanisms by which they might invest will be very different and that the market will not see a new class of reinsurance companies emerging as it has before.
An overdue reset
In some ways, investors are seeing their wishes come true. Henchoz agrees, as the SIRC theme suggests, that there had indeed been an overdue reset in the market. After a number of years of losses for the industry, exacerbated by the COVID-19 pandemic—which was another huge event—it was needed, he said.
The 1/1 2023 renewal had seen a big reset, especially in the pricing of short tail business, including property-catastrophe business.
“This has certainly driven an expectation of profitability for the industry for 2023, which is much improved so far. So the outcome is relatively good,” Henchoz told attendees.
“Our clients around the world are certainly getting more proficient in terms of risk management.”
“That said, last year we saw a lot of mid-sized nat cat events and many losses from secondary perils. The primary perils would be the big hurricanes in the US or an earthquake in Japan, but there were a lot of medium-sized events: floods in Europe, and wildfires like the horrific ones in Hawaii.
“A lot of mid-sized cat events made it a tough year nevertheless—for the industry, but also for our clients.”
Asked about regulation, Henchoz said that regulators around the world need to have two main drivers. The first is to have strong, good, fair and harmonised regulation. The second is to think about ease of doing business and making sure that the countries they are responsible for have a certain level of competitiveness.
“There is a growing focus in the industry around the mitigation of risks, which is increasingly important to the reinsurance industry—preventing claims rather than paying them,” he said.
Henchoz described cyber as both a threat and an opportunity. “Cyber is a market where we are in a better place today. Our clients around the world are certainly getting more proficient in terms of risk management, risk assessment, making sure the cyber defence tools are in place, and pricing risk.
“The reinsurance industry is making progress in modelling the risk,” he added.
Main image: Shutterstock / Zane Vergara