Peak Re ready to deploy fresh capacity at 1.1 but will stand firm on rate and terms

Peak Re is willing to deploy fresh capacity at the upcoming renewals but will remain steadfast in its determination not to cede ground on attachment points and terms and conditions at a time of heightened frequency of losses from so-called secondary perils.

Speaking to The Insurer, CEO Franz-Josef Hahn said the Hong Kong-domiciled reinsurer was now firmly positioned for growth following a period of focused remediation and portfolio pruning.

The firm “materially reduced its top line” at the January 2023 renewals as it trimmed its book of property cat business in Europe and the US and improved terms and conditions, in a series of remediation measures designed to lower earnings volatility and manage exposure and accumulation risk.

“In P&C, we've known for several years that we would have to work hard to turn this portfolio around,” Hahn said.

“The book of business was well-diversified, has generated positive returns and we saw demand for our capacity increase, but the impact of global warming has clearly moved the dial and we now have much clearer data on secondary losses. The portfolio had to change to reflect our changing view of risk.”

The portfolio pruning resulted in Peak Re reporting reinsurance revenue of $750mn for the first half of 2023, down 22.76 percent year on year. However, Peak Re recorded a 26.2 percentage point year-on-year improvement in its combined ratio to 82.2 percent.

Hahn – who has led the reinsurer since inception – noted that Peak Re exceeded all its pricing targets across all lines of business at 1.1 thanks in part to a strategy of restructuring the portfolio to higher layers and increased attachment points.

While the reinsurer is ready to grow at 1 January 2024, Hahn stressed that it will redeploy capacity only if conditions match its underwriting priorities. With this in mind, Hahn said the reinsurer will be particularly focused on ensuring cedants can show they are handling rising threats such as inflation, hyperinflation and climate change.

Commenting on the upcoming renewals, Hahn said higher frequency of secondary losses in Europe and Asia necessitate “further adjustments” in the structure of reinsurance programs, including pricing, attachment levels, and terms and conditions.

“We deployed capacity where we can achieve adequate returns on capital,” Hahn said.

“As an industry, we have lost seven years of genuine returns. One good half year doesn't bring the profit home and is not sufficient to really earn the trust of the capital markets into what reinsurers are doing. They earn much more in other industries so why should they go and back reinsurance? We need to maintain that focus on returns and risk management.”

He added: “We are not the market makers but our view is that there should be certain adjustments of retentions where they're too low, and to structures in the cases where they haven't changed adequately last year. That's what we are driving for at renewal.”

Hahn was speaking to The Insurer shortly after AM Best affirmed the A- financial strength ratings and “a-” long-term issuer credit ratings of Peak Re and its Swiss subsidiary, Peak Reinsurance AG.

While the rating agency was bullish on Peak Re’s track record of profitable underwriting and investment earnings, it maintained a negative outlook on the carrier, citing the potential for contagion risk associated with Peak Re’s ultimate parent, Fosun International Holdings Ltd.

Reports surfaced in October last year that Fosun – which holds a circa 87 percent shareholding in Peak Re – had appointed Deutsche Bank to consider strategic options for the reinsurer, including the potential sale of its majority stake or selling off a minority interest in the business.

And while Hahn would not be drawn to comment on the process, the executive was bullish on the future prospects for Peak Re and highlighted that the firm has always operated independently – and profitably – without the interference of any shareholder making decisions.

“The business has always been private and I’m proud of our commitment to ensuring Peak Re remains totally ring-fenced, even towards our major shareholders,” Hahn explained.

“In practice, that means that all key strategic and management decisions are being taken within Peak Re. We are strong enough in seniority as management and as underwriters to run this business by ourselves and our shareholders have trusted us to do so exactly for these reasons.

“Because we are still a privately owned company, our capital structure remains secure and the profits are being reinvested into the company for further growth – this is essential for us as we focus on 2024.”