Franz-Josef Hahn, CEO at ICMIF Supporting Member Peak Re was recently interviewed by AM Best and said that he believes the insurance industry should partner with government and academia to fast-track responses to global warming.
Peak Re recently became the first reinsurer to issue public hybrid securities in Hong Kong. The USD 250 million move, which was driven by growth opportunities around the world, was wildly popular, said Hahn. “But it’s just a typical step in the way to develop the company to where we want to have it,” he said during the recent conversation with Best’s Review from another of ICMIF’s Supporting Members, AM Best.
Following is an edited transcript of that interview which is reproduced with permission from both organisations.
Can you tell us about the hybrid securities and how you intend to use the proceeds?
It is the first capital raised since the beginning of the organisation. We are excited to have it as public hybrid, which is listed at the Hong Kong Stock Exchange. It’s trading actively, which is very good. The intention to base a hybrid structure, basically capital structure, is driven by the growth opportunities which we see in the market—not only in Asia, but around the globe.
It’s always good to diversify your shareholder base. This is diversified capital coming in, which is highly welcomed by us as well.
We were happy when we launched it to see that it was highly oversubscribed by four times, and we could convince a lot of international investors to subscribe to the hybrid.
It’s the first issuance in Asia since 2017 of a G3-denominated US dollar, yen or euro hybrid, and the first time [by] a financial service organisation in Hong Kong. That’s quite unique, and it’s good, but it’s just a typical step in the way to develop the company to where we want to have it.
What is the potential for ILS growth in Asia?
ILS helps us in various areas. We have had two issues, [our] sidecar, called Lion Rock—Lion Rock I and Lion Rock II—which was [increased to USD 77 million] this year. We have a strong following on this.
It’s supporting some of our natural catastrophe underwriting, and it’s offering a very nicely diversified portfolio to the capital investors.
We also have invested in a fund in Bermuda called Lutece. We renamed it Peak Capital, as we see huge opportunities coming our way.
The natural catastrophe exposure aggregates are growing very strongly, specifically in China and in India, and they are rising very fast from a property catastrophe business perspective. We see this as a huge opportunity for Peak Re, being located right in the centre of Asia-Pacific.
On the other hand, we also see a rising interest of Asian capital, specifically northern Asian capital from Japan, South Korea and China, with interest in alternative investments, and specifically alternative investments which are related to ILS. Both things are coming together, and we are strongly interested to make use of it.
Then there are other risks which have a potential to be ready for ILS structures. The agriculture aggregates in India are growing very fast. It’s government-sponsored, but the risks need to find their way to capital. ILS is a possibility for this.
Everything would not be possible if we [didn’t] have a first-class analytical team around Iain Reynolds, who is running it, to adequately calculate and model the various risks, because some of the risks which we bring to the international capital market are quite new to the capital market. That speaks to the diversification we bring.
It’s a good opportunity for who we are—an Asia-based, international reinsurer.
Can you tell us a little about the advantage of being based in Hong Kong, and where you’re seeing growth in Asia-Pacific today?
On a short-term basis I look at COVID-19, which started possibly in Asia and China. China had a good means of getting over it, and the rest of Asia as well. I think it is because we are in a place that has had a couple of epidemics in this century already.
There is a matter-of-fact [attitude] about it. Whenever there is flu time, when there is winter time, you see many people very naturally wearing masks. The advantage it brings is that after a short blip in March and in April, the economy is back. It’s back on growth.
Hong Kong is in the centre of Asia-Pacific. From here, you can reach any points within Asia-Pacific in relatively short time. The new trade deal between ASEAN and China is very exciting, and it shows the growth momentum this area is offering to the insurance and reinsurance industry.
I’m very much aware whilst I’m saying that, that under-penetration is still a big issue in emerging Asia. It not only has to do with the sluggish demand and the sluggish supply, but it also has to do with the growth momentum of a middle-class society in Asia-Pacific, which makes already 60% of the world population. The insurance and reinsurance industry, we need to spend efforts to get them covered over time. Basically, we are running behind the target.
How has COVID-19 impacted the Asia-Pacific market?
In comparison to Europe, for instance, very little. As I mentioned before, it’s the fifth epidemic—and the last epidemic has turned into a pandemic, which is COVID-19. Here in Asia, it started in 2002 with SARS, which was a huge impact to the society and left very deep scars. A lot of lawsuits were filed after SARS.
By now, the language about original policies and reinsurance policies is very clear, so COVID-19 didn’t hit us as a surprise. Asia has an advantage because it was better prepared, and it can concentrate much more on getting back to growth, getting back to the original agenda, and follow-through.
In the middle of this is the trade pact, which is the largest we have ever seen in the world. It’s a tremendous opportunity, and it will bind the entire continent much closer together than we ever have seen before.
As to Peak Re, the impact was limited. We never closed our office. When the various waves of COVID-19 came through Hong Kong, we left it to our staff and their managers to decide whether to work from home. We have the technology to do so.
We even acquired a company in Bermuda, so we were not stopped in our operation. Before the third wave hit Hong Kong, we were back to 95%, 98% in the office. Now we are back again to the same amount.
We have not delayed any processes, unless processes were slowed down by clients because they were harder hit.
What can the insurance market in the rest of the world learn from Asia-Pacific’s handling of those past epidemics?
I think it is the language; it is the forms. Now we see … various forms are out there, the various exclusion clauses. I think already now, the European market is learning and the world market is learning from [what] we had to go through, because SARS has been hitting us stronger than anybody else.
The other part, which is a general comment, is the agility of this region. It’s to a large extent, young societies. They are forward-looking. They are not negative. They are not pessimistic. They are optimistic. There is a can-do attitude. That’s why we built Peak Re in Hong Kong, because this place has this “can-do” attitude, and people are naturally entrepreneurial and try to overcome challenges.
When I go back to my home from Europe, I sometimes think it would be good to learn from each other a bit more.
Where are you seeing challenges in the market today?
Long term, the biggest challenge is global warming. Unfortunately, COVID-19 has taken much attention away. We need to think about what is happening where this global warming goes on, why diversity has been shrinking like never before. It is to a very dramatic extent already.
The industry is really taking the brunt of this over time. I think the integration of insurance with general politics, with academia, is absolutely necessary. Certainly, we all know that our generation, my generation, has been a bit sleepy about it and perhaps in denial for all too long, but now it’s time to get started. It is the biggest problem.
Another challenge is to embrace technology change. I’m sure this will happen automatically, the moment organisations see how technology can help. Now we are talking via video call. We are using it because we know we need it.
The moment you see and you understand that you need technology—let’s say automation in business processes between insurance companies, brokers and the reinsurance industry —then we start adopting it. It’s much less of a challenge.
The biggest challenge remains global warming. It’s for the livelihood of human beings and all living things on this planet.
Is there more the insurance industry could be doing about global warming?
Certainly. The insurance/reinsurance industry is doing a lot, where the ESG [environmental, social and governance] strategy is being rolled out. I think we should adopt it faster. We should be more courageous. I have a big mouth now representing a young company, but even the older companies, we should be much faster to adopt our aims in ESG—much faster than saying, “In 10 years, we will be coal free,” or “In 10 years, we will be modern slavery free.”
I think we need to be much more energetic about it. We have so many think tanks as an industry. Perhaps we should have one specialized think tank on a global insurance basis to really push matters forward.
In a separate conversation, Hahn spoke with Meg Green, Senior Associate Editor, AM BestTV, about how European insurers could look to their Asia-Pacific colleagues for advice on policy wording around pandemic risk Watch this episode of AMBestTV here.
Meg Green also produced the above interview which is reproduced here for ICMIF member with the kind permission of AM Best.