Reinsurance Capacity and Climate Risk: What Singapore Boards Miss

The most expensive reinsurance decision I have seen a board make was taken in a soft market. Capacity was abundant, prices had fallen two years running, and management came to the board with a renewal that bought more cover for less money. The board approved it in fifteen minutes. Nobody asked what had happened to the wording. Two years later a flood event landed in exactly the gap the new exclusions had opened, and the company retained a loss it believed it had ceded. [CONFIRM with Raymond: replace with a real episode if possible]

I raise it because the 1 January 2027 renewal is shaping up to be another soft one. Moody's reports property catastrophe reinsurance prices have already fallen by more than 20% over the 18 months since 2024, and 86% of buyers in its latest survey expect further declines into 2027. KBW expects property catastrophe excess-of-loss rates to fall by at least 10% at 1 January. Reinsurance capital is at record levels. For Singapore insurance boards, this looks like good news. On price, it is. On governance, it is the moment to be most careful.

Capacity is not the same as protection

The standard story about climate change and reinsurance is that capacity will tighten as losses rise. It may, over the long run. But the near-term reality in this market is the opposite: there is plenty of capacity for peak perils at falling prices, while reinsurers quietly protect themselves through terms. Higher attachment points, narrower definitions of an event, tighter hours clauses, sub-limits or exclusions for flood and other secondary perils. The headline rate falls. The cover underneath it changes shape.

That is the trap. A board that judges the renewal on price and limit will see an improvement. A board that judges it on what the company would actually recover from a realistic climate event in its own footprint may see something different. In Southeast Asia, that footprint is dominated by the perils models handle least well: flash flood, monsoon flood, typhoon-driven rainfall. These are precisely the secondary perils where wording tends to tighten first.

“In a soft market the price tells you what the reinsurer is charging. Only the wording tells you what the reinsurer is actually taking.”

Why this is a climate governance question, not a procurement one

Most boards still treat the reinsurance renewal as an annual purchase that management and the broker negotiate. I have argued before that reinsurance strategy is a capital decision, and the climate dimension makes that sharper. MAS's environmental risk management guidelines expect the board to oversee how climate risk is identified and mitigated. Reinsurance is one of the main mitigants an insurer has. If the board cannot say how much physical climate risk is being ceded, and on what terms, it cannot say it is overseeing the mitigation.

The same issue shows up in the stress testing. MAS's industry-wide stress tests have included climate physical risk scenarios, and I wrote recently about what the climate stress test actually tests about your board. Every one of those results is calculated net of reinsurance. If the stress test assumes this year's programme responds as designed, and the wording has narrowed, the board is looking at a number that is better than reality.

Asia's protection gap is the other half of the problem

Singapore wants to be the region's hub for catastrophe risk transfer, and it has made progress. Figures cited at the Singapore International Reinsurance Conference put Singapore at 28 catastrophe bond issuances over five years, 13 of them covering Asian perils, about US$1.6 billion of cover. MAS has refreshed its insurance-linked securities grant scheme to support more. Yet Asia is still under 5% of the global catastrophe bond market, and much of the region's climate risk remains uninsured or thinly reinsured.

For a board, that matters in two ways. First, a soft market for peak perils does not mean deep capacity for the specific regional exposures a Singapore-based insurer writes. Second, the soft market will end. Howden Re has warned that another price decline of the same size could push large parts of the reinsurance industry below its cost of capital. When that turns, the capacity for Asian secondary perils is the first to be withdrawn and the slowest to come back.

What I would want the board to see before the 1 January renewal

• ◆A wording comparison, not just a price comparison: every change in event definition, hours clause, exclusion and sub-limit versus last year, with the broker's view of which ones matter for flood and typhoon.
• ◆Net retained loss from two or three realistic climate scenarios in the company's own footprint, run on this year's terms and last year's terms side by side.
• ◆The retention as a share of capital, and whether it still sits inside the board-approved risk appetite after the new terms are applied.
• ◆A view on what this programme would cost and look like if the market hardened by 30% next year, and whether the board would want to lock in multi-year cover now while prices are low.
• ◆Counterparty concentration: how much of the climate-exposed layers sit with a small number of reinsurers, and their ratings.

None of these requires the board to negotiate the treaty. They require the board to treat the renewal as the point where its climate risk appetite meets the real world. That analysis also belongs in the ORSA, not in a separate broker pack that the board sees once.

Use the soft market, do not be used by it

A soft market is an opportunity. It is the cheapest time to buy protection for the physical climate risks a Singapore insurer cannot diversify away, to extend the term of key covers, or to fill gaps in secondary perils that were unaffordable two years ago. The boards that use it well will ask what the saving is being spent on. The boards that do not will bank the saving and keep a risk they did not notice they had taken back.

If your board wants an independent view of its reinsurance programme against its climate exposure before the 1 January renewal is signed, that is the kind of work I do through my board advisory practice.

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About the author

Raymond Cheung is a Chartered Actuary, C-suite executive and board adviser with more than 20 years of experience across Asia in risk management, insurance, ESG and corporate governance. He is the CEO of CER Consultancy and an accredited trainer at SMU Academy and the Singapore College of Insurance.