INTERVIEW: SASCHA BRUNS, PEAK RE
Tight Asian retro capacity means new opportunities for ILS
Retrocession markets are staying firm and capacity is harder to find for Asian firms, but revived cat bonds present an opportunity in the region.
Reinsurers looking for retrocession cover in Asia will not expect a further hardening but also no major concessions on terms and conditions, after the dislocation in the retro market has widened between their portfolios and the coverage available, according to Sascha Bruns, director, head of global retrocession, at Peak Re.
He thinks that the situation presents opportunities for international capacity providers and may spark renewed interest in insurance-linked securities (ILS).
“Overall, the retro market remained very disciplined in 2023 and Asia was absolutely no exception—in fact you could say it further hardened,” Bruns told SIRC Today. “There have been adjusted retentions, higher attachment levels, and also much tighter terms and conditions, for example, named perils and named territories.”
That has squeezed capacity for retrocession, especially for proportional and aggregate excess of loss (XL) cover, which Bruns says has been mainly driven by “fatigue” in ILS markets and international providers of capacity focusing on what they see as higher-return areas, chiefly the US, rather than Asia.
“We see less comprehensive covers on the cat XL side, for example, than we see on the inward side. That, combined with higher net retentions, means that we have to retain more losses ourselves, and we have to accept higher earnings volatility.” As a result, Peak Re re-underwrote its portfolio this year to move away from frequency risk, he says.
“The biggest challenge is probably that retro, as usual, hardens first, and then comes reinsurance. The limited capacity that we see in retro has caused some divergence between the reinsurance and the retrocession side,” says Bruns.
“The high retro pricing and coverage gaps we have been facing are a challenge we think needs to be addressed, and I’m convinced that it can’t be stretched any further.”
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“The biggest challenge is probably that retro, as usual, hardens first.”
Sascha Bruns, Peak Re
A good source of income for retrocessionaires
The fact that some loss events in Asia don’t make the global news may contribute to a lack of understanding of the region, and mean it can be harder to attract international investors to provide capacity, Bruns says.
“It’s a bit difficult for us, with a predominantly Asian book, to get support on the proportional front from ILS-backed capacity right now.”
“That presents an opportunity for traditional markets, eg, regional or domestic re/insurance companies, to become a retrocessionaire of ours and diversify their portfolios with Asia-specific risk.
“We can basically offer them an attractive income source that is diversified to their book, and maybe they could even look for reciprocity in this hard market,” he explains.
“As the leading dedicated reinsurance specialist in the Asia-Pacific region we have a unique selling point.”
The scarcity of traditional cover means interest in ILS is growing again in Asia, he adds. “Cat bond markets have become more attractive. People are trying to use the efficiency of ILS, especially when it comes to top-end coverage for selected territories and perils.”
Peak Re last year sponsored a $150 million cat bond issued by Black Kite Re, the first 144A cat bond issued in Hong Kong. The firm may return to that arena.
“We need to access this capital. It helps us diversify the products that we are using for all our retrocessions. It makes a lot of sense,” Bruns says, adding that Hong Kong has extended its ILS subsidy scheme, which was launched in May 2021, for another two years to promote the development of ILS in Asia, making the region more attractive.
“As the leading dedicated reinsurance specialist in the Asia-Pacific region we have a unique selling point.”
Renewals thoughts
If this year marked a second year of hardening rates, Bruns sees no meaningful change in the upcoming 1/1 renewal season. “We haven’t seen any additional players coming into the space, despite these quite significant improvements, and I don’t really see anything on the horizon there either for the coming renewal.”
There are trips and conferences still to come in the remainder of this year, but so far Bruns sees no sign of negative news.
“I would think that there is no reduction in the retro capacity expected, on neither the proportional side nor XL. I don’t see any signs for price reductions or major concessions on the scope of coverage.”
For this year’s SIRC meeting, Bruns says, a main topic of conversation will be China’s recent launch of the Shanghai International Reinsurance Trading Centre.
“That helps to transform the city into an international reinsurance centre, which should also provide some appetite for retro,” he concludes.
Sascha Bruns is director, head of global retrocession, at Peak Re. He can be contacted at: [email protected]
Main image: Shutterstock / Richard Brew
