Benign Losses Point to Marine Reinsurance Rate Reductions in Asia

Abundant market capacity and a prolonged period of benign losses means Asia Pacific marine and energy insurers are set for material reinsurance price reductions at upcoming renewals, Gallagher Re’s Matt Laino told The Insurer.

Laino, who serves as senior broker, specialty marine and energy reinsurance, said rate reductions were likely despite inflation-driven increases in sums insured and underlying exposures across the region, as reinsurers remain attracted by the strong loss performance of many Asia Pacific portfolios.

“When we represent Asia Pacific cedants, whether to reinsurers in our region or in London, Bermuda and Europe, we seek to differentiate our clients on the basis of that benign loss environment,” he said.

“As such, we are anticipating soft market conditions and an abundance of capital will lead to material price reductions for our clients.”

While outcomes will vary according to individual loss records and programme structures, Laino said renewal negotiations in marine and energy are likely to focus more on pricing than coverage, particularly for traditional marine hull, cargo and upstream energy books.

“Marine hull, cargo, fine art and specie, upstream energy, this is quite vanilla business compared with some of the business that gets insured in London programmes,” he said. “In that sense it’s a lot more straightforward to talk about.”

However, he cautioned that renewable energy risks remain more complex, with each programme requiring a tailored approach based on the underlying projects and exposures.

The strength of the Asia Pacific marine and energy market reflects a markedly different set of underlying dynamics than those seen in other regions over the past decade, according to Laino.

“We’re in a very different market compared to some of the markets in Europe,” Laino said. “Over the last 10 years in London and Europe, negative results have led to markets pulling back, then hard market conditions returning because of performance.”

By contrast, he said Asia’s role as a manufacturing hub and centre for energy investment continues to generate growth across marine and energy classes, from offshore wind developments to oil and gas projects.

“Whether it’s offshore wind turbines or more oil and gas drilling, Asia is still a major manufacturing growth engine for the global economy,” he said.

That expansion is translating into higher insured values and greater premium volumes across the region, even as pricing comes under pressure from the broader soft market environment.

The region also benefits from a favourable loss record, which has spared many marine and energy portfolios from the large-scale claims that have periodically disrupted markets elsewhere.

“We just haven’t had losses,” Laino said. “It’s been at least five or six years since the frequency of large losses caused a dent in the market.”

“Korea had a run in 2019 and 2020, but not since then have we seen a big set of storms hit Japan or China that has caused a major marine or energy loss,” he said. As a result, the frequency of large losses is sitting at historically low levels, supporting reinsurers’ appetite to deploy capacity and intensifying competition at renewal.

However, Laino warned that emerging technologies may introduce new sources of loss in the future.

“The market five or six years ago wasn’t having to deal with these high-tech AI exposures,” he said. “With the AI technology revolution, we will see different types of large losses.”

Laino said the regional market benefits from strong participation by major treaty reinsurers including Swiss Re, Munich Re, Scor and Hannover Re, providing cedants with ample capacity across marine and energy lines.

Lloyd’s also remains an important source of capacity, despite a retrenchment by some syndicates over the past decade. “The ones who showed long-term commitment to Asia, we find them to be tremendous trading partners,” he said.

Looking ahead, Laino said recent geopolitical shocks have done little to derail growth across Asia’s marine insurance sector, underscoring the resilience of regional trade flows and supply chains.

As a result, he expects exposure growth and premium volumes across Asia’s marine and energy sectors to continue increasing, even as abundant reinsurance capacity and strong competition place downward pressure on rates.