Reinsurers design tailored deals in search of higher returns

In this Dec. 10, 2015 file photo, live lobsters are packed and weighed for overseas shipment at the Maine Lobster Outlet in York, Maine. (AP)
Updated 19 March 2017
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Reinsurers design tailored deals in search of higher returns

ZURICH: Reinsurer Swiss Re, usually involved in mega-deals on natural disaster coverage, is branching out on its own to do individually tailored schemes to boost returns, such as one in China to protect farmers against floods or drought.
This tailor-made approach is part of Swiss Re’s response to fierce competition in the reinsurance industry, where companies are being forced to find new ways to make money as their traditional model of clubbing together to backstop risks generates increasingly slim returns.
“We feel very strongly that our ability to figure out solutions to the problems that our clients have means they will give us opportunities,” the head of Swiss Re’s core reinsurance business, Moses Ojeisekhoba, told Reuters in an interview. Reinsurers usually pool resources in syndicates to underwrite the risk taken on by front-line insurers. But low interest rates and competition from a host of so-called “alternative providers” such as pension funds has eaten into their profits.
Up to 20 percent of the reinsurance market is now occupied by alternative providers, insurance industry experts estimate, a trend that began to take off in the years following the 2008 financial crisis.
Insurance rating agency A.M. Best has estimated $75 billion in alternative — or so-called “convergence” — capital entered the business in 2016.
This has put pressure on the market. Industry prices for the traditional property and casualty (P&C) business, for example, fell again in January, the important policy renewals season, albeit at a slower rate than in the past few years. To combat the difficult climate, Swiss Re, the industry’s No. 2, has pioneered the concept of tailor-made reinsurance, negotiating on its own with insurers to offer bespoke deals.
Last year, for example, it set up deals with local Chinese insurers and provincial government to reinsure parts of two provinces against natural disaster risks. The schemes — which included China’s first anti-poverty insurance deal to protect farmers against flooding and drought — use a combination of satellite and weather data to trigger payouts of up to roughly $350 million in each province.
Swiss Re devised the pilot schemes and acted as sole reinsurer, rather than working in a syndicate to spread the risks. But this specialized business is facing competition from rivals such as Munich Re, Hannover Re and Scor.
“There are more people coming into this space,” Ojeisekhoba said.
Munich Re has emphasized tailor-made products in niche areas such as aerospace and cyber risk. It has also said it would step up investment into so-called “insurtech” start-ups like app provider Wrisk, which offers insurance via smart phones. Munich Re said this would help it to offer more customized products.


Abu Dhabi, Shanghai plan exchange focusing on China trade

Updated 24 April 2018
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Abu Dhabi, Shanghai plan exchange focusing on China trade

DUBAI: The emirate’s international financial center, has agreed in principle with the Shanghai Stock Exchange to cooperate in establishing an exchange focusing on China’s foreign trade and investment, ADGM said on Monday.
The partners signed a memorandum of understanding to develop the exchange in Abu Dhabi. It would cater to companies and investors involved in China’s Belt and Road initiative, a Beijing-backed drive to win trade and investment deals along routes linking China to Europe.
“At ADGM, we have the international platform to serve different kinds of enterprises and investors — global, regional and local — seeking exposure to the Middle East and North Africa and Belt and Road projects,” said Richard Teng, chief executive of ADGM’s Financial Services Regulatory Authority.
Teng said he could not give specifics of which instruments the new exchange would trade or when it might open, saying this would depend on demand among stakeholders in both ADGM and Shanghai.
Chinese financial institutions have approached ADGM to discuss the financial environment in Abu Dhabi and their development needs in the six-nation Gulf Cooperation Council (GCC), he added.
Trade and investment ties between China and the GCC have been growing rapidly. The region is a big oil supplier to China, and Sino-United Arab Emirates trade exceeded $46 billion in 2016, according to Beijing’s official Xinhua news agency.
Ultimately, the new exchange will support not only the Belt and Road initiative but also the internationalization of the Chinese yuan in the region, Teng said.
Abu Dhabi is trying to build up ADGM, which opened in October 2015 and is smaller than the international financial center in neighboring Dubai, as part of a drive to develop its economy beyond oil exports.