Underwriting discipline underpins a client-centric approach

Mark O’Brien, managing director and head of Asia Pacific at Gallagher Re, looks at market conditions, client engagement and the landscape ahead of renewals

In 2023, the reinsurance market faced threats to its profitability and sustainability. Underwriting contracts tightened up as investors stayed away amid a spike in reinsurance rates.

“Traditionally, we had a hardening of reinsurance terms after a major event,” O’Brien said.

“In 2023, however, the market hardened following five to seven years of sustained poor performance. We had a situation where reinsurers’ annual capital costs exceeded the return on equity to their shareholders,” he added.

The market has significantly improved lately, with combined ratios and returns on equity improving. Reinsurers have recouped their losses. So, will the market start softening again?

“It’s clear that there is more appetite for risk now than 12 or 18 months ago. Reinsurers see the market turning a little, so they want to take advantage to grow in the healthiest market they can,” O’Brien said.

“At the same time, they want to retain some underwriting discipline, because memories aren’t that short. They don’t have to look far in the rear-view mirror to see what a disaster that period was.”

Approach to client engagement

O’Brien emphasised the importance of client-centric engagement, focusing on understanding client strategy and motivations before offering reinsurance solutions. Better use of data and analytics helps with client engagement and the segmentation of reinsurance markets.

“While reinsurers are going to try and hold some discipline in terms of how they underwrite, that doesn’t necessarily impact how we approach client engagement. Our proposition is client-centric, as opposed to contract- or product-centric,” he explained.

“Our first port of call is to understand clients’ strategy and their portfolio motivations; what’s driving their ambitions over the next 12 to 18 months. If we have clarity and alignment around the core underlying thematic opportunities our clients are facing, we can offer the most relevant solutions,” he added.

Finding the ‘sweet spot’ to align the best reinsurance solution for clients can be tricky, but there are common themes across the Asia Pacific region to help identify underlying opportunities and motivations.

“When we’re talking to clients, it’s generally one of four issues – capital, volatility, growth or profitability. Our job as a reinsurance broker is to try and understand what the drivers are,” he said.

Further growth in the life reinsurance market

O’Brien highlighted that life reinsurance is Gallagher Re’s fastest-growing class of business in the region.

While the life reinsurance market traditionally transacts directly, brokers are increasingly involved in this space, and Gallagher Re has a specialist team in Singapore and beyond.

“We still spend 70 percent of our time on the general property and casualty market. But life is an exciting growth engine for us, and our life reinsurance team spends a lot of time on portfolio management and asset-intensive deals,” he said.

A willingness to take on more risk

While the market is healthier now, it is not yet back to “where we were a few years ago”. Reinsurers are, however, showing a willingness to take on more risk.

While core drivers are universal, O’Brien added that “in every country, it’s critical that we understand the regulatory framework, and the specific perils driving underlying pricing”.

However, regardless of where the market is there will always be nuances, with “the different levels of scrutiny and oversight” regulators put onto those individual markets and the impact on capital requirements for insurance companies.

Ultimately, clients with good performance will have better outcomes in terms of reinsurance costs and capacity. “The rewards will come to those buyers who can really demonstrate and understand their portfolio,” O’Brien said.

Mark O’Brien, managing director and head of Asia Pacific at Gallagher Re