Transcript Reinsurance training

FJF/FÖRSÄKRINGSRÄTTSDAGEN: ÅTERFÖRSÄKRING
Göteborg, den 10:e oktober 2013
Fredrik Strömberg
Agenda
1. Why reinsurance
2. To buy and sell reinsurance
3. The reinsurance market
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Part 1
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Why reinsurance
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Reinsurance in traditional sense = Spreading the risk
Reinsurer
Insured
R/I
Company
R/I
Company
Insurance
company
R/I
Company
R/I
Company
R/I
Company
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Reinsurance today = Source of capital
• There are only four sources of capital for an insurance company
Equity
Dept
Retained
earnings
• Reinsurance will stabilise results
– More stable result = Less capital need
– Reinsurance is substitute for own capital
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Reinsurance
How do we measure the results?
Downside Risk Capital – One in 200 year
Effect of Reinsurance - CAT XL
0M
1 in 2
1 in 4
1 in 2
1 in 20
1 in 100
1 in 200
Gross
-1 000 M
1 in 20
Net
Large Losses Result
-2 000 M
-3 000 M
-4 000 M
1 in 100
Gross
-5 000 M
1 in 200
Change
Downside risk
- 5 462
- 1 120
+ 4 432
Average result
- 299
- 341
- 42
-6 000 M
Reinsurance Alternative
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Net after R/I
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Risk & Reward trade-off
“Optimal strategy”
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Part 2
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To buy and sell reinsurance
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How to buy reinsurance
Main ways of reinsurance
• Proportional
– Quota Share, Surplus Lines
• Non-proportional
– Excess of Loss, Stop Loss
Types of reinsurance
• Treaty reinsurance
– Kontraktsbunden/obligatorisk
• Facultative reinsurance
– Fakultativ eller frivillig
• Pooling
– Exempelvis nationella
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How to buy reinsurance
Reinsurance contracts
Treaty
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Facultative
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Entities that buy and sell reinsurance
Buyers of reinsurance
Sellers of reinsurance
• Insurance companies
• Insurance companies
– Stock companies
– Mutual companies
– Stock companies
– Mutual companies
• Reinsurance companies
• Reinsurance companies
• Captive companies
• Captive companies
– Direct or reinsurance
– Direct or reinsurance
• Lloyd’s syndicates
• Lloyd’s syndicates
• Pools
• Pools
• Hedge Funds
• Hedge Funds
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Largest reinsurers 2011 by premium
Munich Re
Swiss Re
Hannover Re
Berkshire Hathaway
Lloyd's
SCOR
RGA
China Re Group
Partner Re
Korean Re
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Gross Written Premium (million US $)
Source: A.M. Best
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Three distinct marketplaces
Continental Europe
• Dominated by a few mega
– Munich Re
– Swiss Re
– Hannover Re
• Zurich is the new hot spot
– Infrastructure
– Regulation
– Financial stability
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London
• Lloyd’s is centre of gravity
– Infrastructure
– Regulation
– Access to business
– Rating
Bermuda
• US market main driver
• Zero corporate tax rate
• Portfolio theory very important
– Highly model driven
– Primarily a cat market
• Financial & political stability (?)
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Part 3
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The reinsurance market
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Long term trend for catastrophe losses
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Source: Guy Carpenter, Swiss Re
40000000
Guy Carpenter Global Property Cat Price Index
35000000
40000000
30000000
40000000 40000000
$35 bn
35000000 35000000
35000000
25000000
30000000
30000000 30000000
20000000
25000000
20000000
25000000 25000000
20000000 20000000
15000000
15000000
15000000 15000000
5000000
0
10000000 10000000
5000000 5000000
0
1993
Start-ups
2002
0
Recapitalisation
Cat Bonds
0
2006 1993
2002
1993
2002
2006
2006
Start-ups Start-ups
Recapitalisation
Cat Bonds CatSidecars
Sidecars
Recapitalisation
Bonds Sidecars
1993
Start-ups
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Katrina
Andrew
10000000
9/11
$10 bn
10000000
5000000
$16 bn
2002
Recapitalisation
07 July 2015
2006
Cat Bonds
Sidecars
Division of current market place
Property market
Property Cat
Property Risk
Natural perils only
Highly model driven
Strong portfolio theory
High severity
Low probability
Exposure rating
Main peril is fire
Less model driven
High frequency
Less portfolio theory
Experience rating
PA & WC
Few players
High uw capacity
Bodily injury only
Multiple perils
Highly commoditised
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Marine/Aviation GTPL & Motor
Highly specialised
London centric
Very cyclical
Experience rating
Highly specialised
CE centric
Few player
Longer term
Wording based
Highly specialised
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Reinsurers can build a diversified portfolio and offer lower
capital charge
Overall ROE
16.4%
UK 6%
Other US 8%
Europe
6%
CA EQ 8.5%
Japan Typhoon 4.1%
Florida 10%
Japan EQ 2% - 8%
Other Regions 6%
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Reinsurance pricing of natural perils
Capital charge depends on risk and territorial scope
High
Don’t know
Reinsurers cost of capital
World-wide
All Perils
Low
US Nationwide
All Perils
Peak zones
Japanese EQ
Cal EQ / US Wind
Regional
Europe
Limited territory
Nordic area
Single country
Sweden
Breath of coverage
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Market Drivers
Dedicated Reinsurance Capital
• Reinsurer Capital is at a record high
– Reinsurance sector capital totalled USD190 billion ending third quarter 2012
– Excess capital is currently 12% over long term trend
– Sandy impact very limited
– USD8 billion of new capital is estimated to have entered the market post-2011
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