The global reinsurance industry must seek sustainable market conditions suitable for everyone in the risk transfer ecosystem. The pendulum has again swung too far, and the focus needs to return to the nature of underlying risks, especially in fast-growing markets in Asia.

Those were some of the findings of a roundtable of leading global reinsurance executives at the Singapore International Reinsurance Conference (SIRC).

Chaired by James Vickers, chairman of Gallagher Re International, the roundtable comprised Renaud Guidée, chief executive, Reinsurance, AXA XL; Achim Kassow, member of the board of management, Munich Re; and Urs Baertschi, chief executive, P&C Reinsurance, Swiss Re.

According to Baertschi, over the last 12 to 18 months the market has seen a significant shift and rebalancing in the way risk is shared between insurers and reinsurers. This was needed, he said, stressing that for some six years the reinsurance industry did not earn its cost of capital.

As a result, especially in light of increasing levels of natural catastrophe activity, there was an understanding in the industry that the nature of risk sharing had to change, Baertschi said. This ethos has remained, despite there being adequate capacity now.

“Right now, there is enough capacity to cover the core programmes. But the reinsurance risk appetite has been redefined, it’s very disciplined,” said Baertschi. ”There’s clear attention being paid to appropriate terms and conditions and rate for the risks that are being taken.”

Kassow said the nature of the discussion varies by line of business, and by jurisdiction. But the end goal is the same: reinsurers must carefully assess the underlying profitability of the primary market. Equally, primary insurers need to look at their respective customers.

“I’m fully aware, having been in the primary insurance industry myself, that it’s not an easy thing. There is a lot of public debate around that as well,” Kassow elaborated.

“But if we want to have sustainable solutions, we cannot focus only on the risk sharing between insurers and reinsurers. There must be enough margin available.”

To some extent, education may be needed, he said, adding that if reinsurers feel that the underwriting profitability around core risks, with both insurers and reinsurers combined, is not sufficient, they may need to consider their communication. They will need to educate public opinion and policymakers that change is needed to achieve sustainable solutions.

A wider ecosystem

Guidée agreed, and developed that theme. He stressed that it’s not a zero-sum game with the onus only on reinsurers—they are part of a much wider ecosystem. He believes everyone in that ecosystem, from reinsurer to ultimate policyholder, understands the nature of the underlying risk—and the terms and conditions have to reflect the magnitude, the intensity and the frequency of that risk across the whole value chain.

Baertschi added that the markets are somewhat out of balance—the pendulum has swung, but perhaps too much the other way.

“For about six years, the reinsurance industry had so much capacity and a fairly loose risk appetite. As such, insurers were able to gear their balance sheets and pass on losses to reinsurers; that’s what the market gave.

“That is over, but now it’s gone the other way. It has been a very fast swing that our industry probably hasn’t found overly helpful. That’s why insurers are now feeling some pain,” Baertschi said.

The panel agreed that the Asia-Pacific region can offer many opportunities to reinsurers. A substantial protection gap still exists, further exacerbated by the many fast-growing cities and conurbations that have developed and are exposed to natural catastrophes.

In this vein, the importance of risk management and loss prevention was brought up by the panel. Once any risk is underwritten, the terms and conditions must be appropriate and the risk must be properly priced but also affordable to customers.

“Multiple stakeholders are in play when it comes to the affordability topic and probably all of us need to work together, the insurance industry as a whole, to shrink the protection gap,” said Baertschi.

“Availability and accessibility should also be improved, given we are in a digital age. This should aid more people to access insurance products. Awareness will increase with digitisation, but the availability of product is ultimately up to us.”

The question of uninsurability

Kassow said that it is important to be able to have an open discussion when things become uninsurable—even if that can risk a backlash from the public or governments. He said that affordability of products is one thing, but being uninsurable is something different that cannot be ignored since it sits at the heart of what the industry can and cannot do.

“Policymakers and politicians can be very critical about that,” he said. “It can mean telling people who have been living somewhere for 20 years, after their parents lived there, that they cannot continue to live there. It’s a difficult discussion but one that needs to take place.”

The merits of public-private partnerships were discussed and debated by the panel. There was some agreement that the viability of such schemes will depend on the risks covered and the local situation, in terms of the politics and the nature of the risk. More information is usually required, was the overall thrust of that part of the discussion.

Finally, the panel agreed on the importance of attracting and retaining the best talent. They concurred that it is a vitally important and ongoing issue that is essential for the reinsurance industry to grasp, especially as the wider jobs market is fixated on competing for that same talent.

The panel concluded on that note: shining a light on an important but often overlooked point about the nature of talent in the Asia-Pacific region’s re/insurance industry. They noted that many of the leading executives at conferences such as SIRC are visibly younger than their US and European counterparts.

There are many things the rest of the world can learn from the Asia-Pacific re/insurance market, one of those things being that youth and talent combined can make for a key business advantage, the leaders agreed.