With PMLs continuing to rise across numerous parts of emerging Asia, the need for insurance-linked securities (ILS) or alternative reinsurance capital is becoming increasingly vital, according to executives at Hong Kong domiciled reinsurer, Peak Re.
Speaking today during a keynote presentation and Q&A session for the Artemis ILS Asia 2020 online conference, Peak Re’s Chief Executive Officer (CEO), Franz Josef Hahn and Iain Reynolds, Director & Head of Analytics, highlighted rapidly increasing probable maximum losses (PMLs) across Asia.
CEO Hahn explained that when you’re operating in emerging markets, “the landscape is changing very fast,” meaning that in order to do a proper job, “you cannot take data from two years ago.”
In parts of Japan, China, India and elsewhere, Peak Re sees rapidly increasing PMLs and as explained by Reynolds, this represents an opportunity for third-party capital to play a role.
“Clearly, wherever there’s a large PML then ILS or alternative capital is essential in protecting that,” said Reynolds.
Expanding on this, CEO Hahn explained that the fact it was seeing rising PMLs across the region played a key role in its decision to acquire ILS asset manager, Lutece (now Peak Capital).
“For us it is very necessary to think about capital available and risk to capital. How do we want to structure this, how much can we put on our own balance sheet, and how much do we want to build alternative balance sheets up so that we can feed the various risk appetites of the various pots,” said Hahn.
Adding, “From the onset, Peak Capital has a very interesting notion about what they are looking at in the U.S., and we want them to be successful in this. But, Peak Capital, over a longer period of time, will be essential to our strategy because here we have the structuring capabilities, we have the go-to-markets capabilities, and we have the underwriting capabilities, and that combined with Peak Re, makes it much stronger.
“So, from a visionary perspective, I see that not only the risks and PMLs are becoming larger and we have an appetite for utilising ILS as one of our risk to capital models, but also, by looking at the growing interest in alternative investment possibilities by Asian investors.”
The firm established its headquarters in Hong Kong because it believes in the region and believes in the value that an Asian player with a global focus can bring to the table, continued Hahn.
“But, it can only come to fruition and to full fruition if we are playing on the entire possibilities which are there for us, and ILS is an essential part of modern reinsurance risk management,” said Hahn.
You can view the recorded keynote speech and subsequent Q&A session in full below:
We’re archiving every session from our online and virtual ILS Asia 2020 conference over on our YouTube Channel.
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