Hong Kong domiciled reinsurer Peak Re recently reported an impressive set of half-year results, and while the outlook for the future is positive, Chief Executive Officer (CEO) Franz-Josef Hahn isn’t celebrating just yet.
After efforts to rebalance its portfolio to capitalise on hard market opportunities, Peak Re announced record profits and improved margins for the first half of 2023.
“For us, it’s the result of very hard work of turning over the entire portfolio. Basically, turning every stone around and really seeing how we can maintain a good partnership with our clients in the challenging situation,” said CEO Hahn, in a recent interview with Reinsurance news.
Hahn further explained that the aim for Peak Re was to optimise its underwriting by adopting necessary changes across the portfolio.
“Thanks to the recent actions in turning the portfolio around, we can also look positively to the future,” said Hahn.
As well as an improved underwriting performance on the property and casualty (P&C), and a growing, less volatile life and health (L&H) book which remains an important contributor, the asset side of the business also buoyed the first half result.
“Our investment book is relatively short-term, given the majority of Peak Re’s portfolio is P&C. Our Life and Health book is growing very fast, although it’s still a good bit below 20%. And so, the major investment horizons are about two to three years.
“So, we have been pushing the book into quality, that’s US Treasuries, and coming in with nice yield. It’s a temporary task, we want to take advantage of the inflation and of the interest rate hike. And, at the same time, secure the portfolio and make it safer. And part of the portfolio has already turned over, and it has certainly also participated in the good result,” explained Hahn.
All in all, said Hahn, Peak Re is very happy with the performance of P&C, L&H, and the investment book, but noted that it’s important to remain cautious.
“I’m too long in the industry to be joyous about it, to celebrate. After seven years of high volatility on the P&C book, and last year’s added high volatility on the investment side, I don’t want to celebrate yet,” said Hahn.
“The biggest problem which is arising next to the inflationary impact, and hyperinflation on various areas of insurance and claims handling and the positive impact I have already mentioned, the biggest factor that we have to watch out for is climate change,” he added.
Expanding on the threat of climate change, Hahn alluded to recent analysis by CRESTA, which shows a clear rise in the frequency and severity of billion-dollar industry losses from severe convective storms, a so-called secondary peril, since the start of the millennium.
“It tells me that we have to take the noticeable increase in billion-dollar industry losses into consideration when we underwrite property cat. I think specifically in US, we have the casualty colleagues also being alerted to, specifically industrial casualty business, where we see that there’s also the danger of this leaping over from the property side into the casualty side. So, I’m cautious of all of this,” said Hahn.
While mindful of the challenges, Hahn said that Peak Re is looking forward to the rest of the year and has a positive forecast, so long as there’s no surprises.
“So far, the natural catastrophes have been less exposing to the reinsurance market, but the so-called secondary losses they are still moving on, they’re still lingering.
“So, I’m positive, and see that we are preparing very well for the renewal at 1/1, and that we stick to our guns in terms of pricing and underwriting quality and also conditions,” said Hahn.