Where does the risk go?

Insurance Australia Group (IAG) senior reinsurance manager Marcus Taylor believes that the boards of large multinationals are demanding more and more from their reinsurance buyers.

“They have started to ask a lot more questions, and there’s more focus on understanding risk and modelling,” he says.

“Ignorance is no longer an excuse for the board; they’ve got to have their own view of risk.

“With an increasing number of catastrophic events, there is increasing focus from management, board and regulators on the counterparties with which you are partnering.”

One of our biggest challenges reinsurance professionals face in Asia is lack of modelling, which Taylor says is often driven by the lack of quality data for input into such models.

“Where vendor models do exist, they are often quite old, but then you have the brokers that are starting to build bespoke models or setting up their own modelling development teams,” he says.

For example, there are now a number of Thai flood models and various Malaysian flood models available in the market through the intermediary channels.

“As such there is somewhat more reliance on the brokers in terms of that,” Taylor says.

“The general lack of models across some of the territories in Asia is however still a big challenge, but there is certainly less need to rely on the old ‘rules of thumb’ than a few years ago.”

An increasing number of regulators across the region are concentrating on adequacy of cover, whether through cat modelling or other means, Taylor adds.

Indeed, regulatory change is having a large impact on the quantity and type of reinsurance being bought.

“In this part of the world, as people move more towards stricter solvency regimes and RBC2 environments there will be more focus on the quantity and types of reinsurance purchased,” Taylor says.

“For example, China is moving towards C-ROSS [China Risk Oriented Solvency System], which could generate some challenges for the foreign reinsurers in the market and potentially affect the ability for local insurers to trade reinsurance with established international partners.

“There has also been increasing noise over the last few years around non-traditional capital competing for capacity against the more traditional players – whilst this may be causing ripples in more established markets, it is yet to have a significant impact in Asia, with a large amount of traditional capacity recently deployed and available in the region.”

Taylor warns that there are a “number of players in the market that don’t necessarily differentiate themselves and all they’re doing is coming in and buying capacity through cheap pricing”.

“We have seen a few examples recently where these ‘partners’ have disappeared post loss, which is exactly when you need them,” he says.

So, in such an environment, what do you look for from an underwriting department?

Obviously, the quality of the people is key, and Taylor says that continuity in prior roles shows that they can dedicate themselves to a business and build key relationships.

“Too often in this market, in the CVs that you see when looking for candidates, the job history shows they were here for six months, they were there for six months, a year somewhere else, and then they moved on again,” he says.

“You’re not going to build relationships in this business if you’re hopping about every five minutes.”

Building trust is also important, Taylor adds, as is expertise: “People who’ve been through market changing events / the reinsurance cycle and understand the market add a huge amount of value”.

“Expertise levels across the Asian market have had a massive uptick recently, with regulators recognising the need to upskill, with some great work in attracting talent to the market through incentives and the like,” Taylor says.

“There have also been some fantastic training schemes, graduate programmes and executive management programmes aimed at developing talent.

“We have also seen a lot of the international market players setting up and bringing in significant expertise, which all helps to generate a base on which to build and drive a more sustainable local talent base in the market.”