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Typhoon Hato, which caused massive damage to Hong Kong and nearby areas in August 2017, reached typhoon signal 10, the highest grade in Hong Kong’s storm warning system.
According to one industry figure, the extraordinarily powerful storm brought to the forefront the importance of insurance, especially reinsurance, in ensuring communities’ resilience in the face of major natural disasters and other risks.
Insurance Business spoke with David Alexander (pictured), Swiss Re’s head of P&C reinsurance for Hong Kong and Taiwan, at the sidelines of the East Asia Insurance Congress in Manila in order to learn more about Hato’s impact on the market, as well as the prospects for the reinsurance industry.
“Hato was quite a big event in Hong Kong, Macau, and southern China,” Alexander said. “[The typhoon] hitting Macau was a bit of a surprise. Across those three markets, around US$5 billion in economic losses, with only a fifth of that amount insured.”
According to Alexander, many properties in Macau were insured, mostly casinos and newer office and residential buildings. However, losses were still great and these extended beyond finances.
“Twenty-six people lost their life in Macau due to the storm,” he said. “We can only wonder about the ability of their families to recover and the ability of their businesses to get back on track. A lot of people lost their cars in the flood, as well.”
Here, Alexander noted an insurance gap, as most car owners in Asia buy mandatory third-party liability cover but not comprehensive insurance covering catastrophic events such as typhoons, which is more common for developed markets.
“We see a bit of a gap there, and this is one area where insurers and reinsurers could expand their business,” he said.
Alexander said that Hato demonstrated the value of the global insurance and reinsurance markets, especially the latter. He said that Macau primary insurance market is quite small and can’t handle the required level of coverage and the capacity. With the reinsurance sector’s support, Macau’s insurers can cover high-value businesses such as casinos against different risks such as fire and floods, with the risks ceded all around the world and split into small parcels.
“It’s also quite important to maintain the global ability of risk transfer, especially for developing markets such as Cambodia or Laos,” he added. “They can’t develop their economy without insurance and reinsurance, as their local insurance market isn’t big enough to cover losses, so they rely on external capital.”
With regard to the reinsurance sector’s prospects in Asia, Alexander thinks that the region’s conditions are ripe for growth in both insurance and reinsurance.
“Asia is still very much in a growth phase for insurance business due to growing populations, economic growth, and low penetration of insurance,” he said. “This means there are a lot of opportunities for direct insurance companies – which look to reinsurers to support them in terms of their growth and to protect their balance sheets. If there’s growth in the direct market, there should be growth in the reinsurance market as well.”
He also cited Swiss Re’s chairman, Walter Bruno Kielholz, who sees half of the global reinsurer’s growth coming from Asia in the future. Other reinsurers are also focusing on Asia, he said.
Alexander believes that Swiss Re’s opportunities to grow in Asia include coming up with new products to expand the market, helping companies with financial management, and helping customers fill protection gaps.
“We see insurance companies having to deal with new regulations such as risk-based capital and IFRS 17,” he said. “What’s important is how they will change their strategy as a result of these developments, such as investment, corporate and product strategies. That’s where Swiss Re can help those companies – by helping make the best of the changes in regulatory situations.”
Differentiation, Alexander said, is the key to success in the reinsurance arena.
“That’s where Swiss Re likes to play, by trying to find something a little bit different in what we’re doing such as helping insurance companies expand their business,” he said. “Whereas, we see that merely providing reinsurance capacity to cover risks will just be a price game. We’ll play in those markets but we’ll be efficient in doing it and we’ll spend more time in finding ways to grow the market and fill protection gaps.”
