Rising accumulations & demand an opportunity for cat bonds in Asia: Peak Re CEO

Despite being home to a high frequency of natural catastrophes, re/insurance penetration remains low across much of Asia, but as risk accumulation and demand for protection rises, there’s an opportunity for the catastrophe bond market, according to Peak Re’s CEO, Franz-Josef Hahn.

Hong Kong-based reinsurer Peak Re entered the cat bond market for the first time in 2022, sponsoring a $150 million Japan typhoon transaction, Black Kite Re Limited.

It was only the second cat bond structure to have been located in Hong Kong since the special administrative region of China enacted its special purpose reinsurance vehicle and insurance-linked securities (ILS) regulations.

In an interview with Artemis, the company’s CEO, Hahn, explained that the deal shouldn’t be a one-off and that Peak Re is certainly interested in leveraging the sector.

“It depends on where we have the opportunities, but we see it as part of our retro buying. We are practical about this and openly agree that it’s part of our strategy,” said Hahn.

He explained that within the property catastrophe space, where Peak Re sees various opportunities, it is eager to work on products and explore how to make them attractive to institutional buyers.

Asia is well known as the region with a higher frequency of natural catastrophe events than anywhere else in the world, but it also has low payouts as a result of very low re/insurance penetration rates in many markets.

Slowly, the tide is starting to turn, though, and insurance and reinsurance growth is occurring across the region, which means increased accumulations will flow to re/insurance books.

“That certainly gives future opportunities for raising cat bonds, on basically most perils where you can really satisfy the capital markets with transparent information,” said Hahn.

“Certainly, we keep our eyes and ears open as to how we can structure it. We are very eager to do this. We always want to be at the forefront in Asia in being agile and utilising international standards,” he added.

While the need for protection and demand is growing on the one hand, on the other hand, interest in ILS and cat bonds from the Asian investment community is lagging, especially when compared with the US and other markets.

“Of course, the Asian markets have fantastic capital markets which have been growing over the past 30 years, but would they invest into cat bonds? I think that’s partially due to education and making it attractive.

“Asian investors, typically, want to test the waters first. They prefer to observe and gather information before taking action. This approach requires some time before they decide to get involved,” explained Hahn.

In fact, only a small minority of the investors in Peak Re’s debut cat bond derived from Asia.

“But that’s also why we are here in Hong Kong. We keep on with these discussions with regulators, we keep discussions with capital markets, and with the banks who could be supportive in this method. And also, the broker community, just to try to increase the availability from the cat markets in Asia.

“That’s part of our ambition. We would like to see, perhaps in 10 or 20 years’ time, a much greater participation from Asian markets. But launching a cat bond in Hong Kong or Singapore today, and the majority of the capital comes from the US or other markets, it doesn’t make a difference, at least not much,” said Hahn.

Perhaps a sign of things to come, not too long after Peak Re’s cat bond issuance, the World Bank launched a $350 million Chile earthquake, IBRD – Chile 2023, in Hong Kong, which was the first cat bond to be listed on the Hong Kong Stock Exchange.

“So, that keeps us busy, that keeps us thinking about it, which is great. But it’s certainly an attractive place to do so, and it certainly helps the investors to start thinking about it,” concluded Hahn.

Read all of our interviews with ILS market and reinsurance sector professionals here.