Attendees at the Singapore International Reinsurance Conference can expect a market in transition ahead of January renewals. Guy Carpenter’s Tony Gallagher discusses whether a possible softening of rates is on the horizon.
Strong underwriting and investment earnings have contributed to the best return on equity for the sector since the global financial crisis.
Reinsurers are flush with dry powder to deploy, represented by some USD 620 billion in committed capital, and an ability to tap into more, including from he burgeoning ILS market, where the issuance of a record 46 catastrophe bonds this year has already raised USD 12 billion.
Buyers, however, are less confident about the situation, considering surging reinsurance expenses in recent years. Forced to retain more risk to curb costs, insurers are rightly questioning when reinsurers will put some of their capital to work and offer a much-needed reduction in premiums.
To borrow a Chinese expression, too much is as bad as too little (Guo You Bu Ji). Now there are signs that the tide is turning. The Guy Carpenter Asia Pacific rate-on-line index fell by 0.5% in July, the first drop since 2018.
Could this be an indication that reinsurers are finally deploying their capital by competing on rates more robustly? While Asian buyers may read this as a sign that rates may soften in 2025, we recommend caution around this interpretation.
Embracing a growth mindset
We recognize that high retentions pose challenges for insurers aiming to reduce claim volatility, enhance earnings outlooks and underwrite new business—particularly for those tasked with addressing Asia’s insurance protection needs.
However, we would argue that, overall, buyers should brace for a “higher for longer” outlook on rates as we approach January renewals, especially with global catastrophes on the rise. Hurricane Milton was the second major storm to hit Florida in a matter of weeks, while Typhoon Yagi, which struck Vietnam last month, was one of the strongest to hit the country in decades. Against this backdrop, we advocate for growth through innovation to outpace expenses. Structured solutions are another avenue carriers may consider. Insurance CEOs who achieve growth will be better placed to manage risk exposures, even if softer rates ultimately fail to materialize.
Avenues for growth: cyber, MGAs, parametric solutions
Asian insurers must embrace product innovation and explore new verticals such as cyber, which has already gained widespread acceptance among European and North American peers and is one of many promising avenues for future income.
MGAs, capital-light vehicles for specific lines of risk, are another growth option to be explored, and they are willing to work with enterprising partners. Elsewhere, insurers are exploring parametric solutions, especially for climate-change-induced events, thereby transferring risk in a novel way. Specific sub-category risks, such as floods, also deserve their own products.
With this innovation in mind, Guy Carpenter has already been in advanced capital and catastrophe advisory discussions with insurance leaders, outlining a range of product and market opportunities.
Correlation of risks
The other argument for growth through innovation is to help insurers tackle the increasing correlation of risks around the world as the global economy becomes increasingly intertwined.
Consider how a system-wide recall affecting a popular electric vehicle model could affect business activity across different continents. Integrated supply chains mean a flood in one country could bring operations at a factory in another to a standstill. Correlations could also be intangible, as cybersecurity threats link industries together.
In these challenging times, insurers must delve into the analytics, insights, distribution networks and technologies at their disposal. Guy Carpenter’s powerful combination of broking expertise, trusted strategic advisory services and industry-leading analytics helps clients understand risk drivers and provides them with a view of risk in order to choose the right capital and corporate strategies.