Cyber risk was conspicuous by its relative absence from discussions at Macau’s East Asian Insurance Congress (EAIC) event. Not because it is not a major risk for large cedants, but because in Asia the risk remains so under-reported, underinsured, and with little in the way of legislation or litigation pushing it up the risk list.
Beazley remains the biggest underwriter of cyber covers at Lloyd’s, but its cyber risk wares are absent in Asia. “You can’t just pick up a product and put it in Asia,” said Gavin Hayes, head of Asia Pacific at Beazley, who noted that while risk remains hidden from view in the region, the number of attacks has risen, particularly on Asian banks.
It is a similar story at Tokio Marine Kiln (TMK), which has likewise focused on other covers in the region. “Everything we offer in London we offer here – except cyber. For cyber, a lot of people are trying to sell it, but it’s still in its infancy,” said Alex Dugand, regional underwriting director for TMK based in Singapore.
Reputational harm – a product which TMK has taken a lead in – is, like cyber, Dugand suggested, dependent on the regulatory environment to play catch-up, in terms of subjecting clients to the risk of litigation, fines and enforcement action, before they will be compelled to buy such covers against intangible risk. “It’s difficult to sell those products. Convincing buyers in this region why they need that protection can be problematic,” continued Dugand.
Hayes at Beazley thinks cyber products would benefit from being redesigned with Asian markets in mind, with an emphasis on simplicity and turnaround time, rather than the level of specialty complexity offered as a selling point at Lloyd’s in London. “You have to be flexible to what the market wants, and that might be speed of services,” he added.
However, Hayes suggests that not all intangible risk products face a lack of demand in Asia. He singles out two such specialty products as priorities which Beazley wants to grow out in Singapore.
“One is warranty and indemnity cover for mergers and acquisitions transactions,” said Hayes. This protects against the risk of information in financial reports being false, during an acquirer’s due diligence checks.
The other product area is in loss of attraction products, he said, for example for a hotel business close to an area subjected to a terrorist attack seeking to claim lost revenues. Essentially this is a business interruption product, based on a terrorism and political violence trigger. “It’s something we’d like to do more of,” said Hayes, citing the Philippines, Thailand and Indonesia as good markets for such covers.
TMK’s Dugand noted that despite industry enthusiasm at the rapid growth of China’s market, mass market motor business still represents the bulk of it, rather than more lucrative property catastrophe or specialty risk commercial business.
Moreover, the market remains soft and ruthlessly competitive. “Pricing is spectacularly competitive. That’s highly unlikely to change. The concept of a hard market is very far away. The key thing for us is risk selection and client relationships. We’re focused on building long-term relationships,” he said.
His colleague Tom Yarrow, property underwriter at TMK in Singapore, agreed. Yarrow cited accelerated softness and lack of demand in property facultative business. “Some large cedants aren’t even buying reinsurance at all,” he suggested. “Eventually they’re going to get a whack. It’s a symptom of over-capacity and maybe naïve capacity,” said Yarrow.
Dugand gave a stark warning that business is already crossing the line to be technically unprofitable, while inadequate pricing means reserving positions will also deteriorate accordingly. “A lot of the results make for worrying reading. If you strip out reserve releases, which are already dwindling, on an accident year basis people aren’t making money,” said Dugand.
Protectionism remains a threat to re/insurance growth in the region, Dugand suggested. “There’s been a growth in protectionism, with Indonesia as the prime example,” he said. “They don’t want to see capital leaving the country, and that does rather undermine the premise of reinsurance, namely that of spreading the risk.”
He suggested TMK’s book was relatively stable, with the firm “not in growth or shrink mode” going into 2017 across its Singapore, Hong Kong and Lloyd’s China presences. “It’s business as usual as much as possible. We’re endeavouring to make money now, although it’s much more easily said than done,” he added.