Transcript Investors and Media meeting

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A viszontbiztosítók helyzete mi lesz a díjakkal?
Outlook reinsurance markets
Johannes Martin Hartmann
Swiss Re Europe, Head Market Underwriting CEE
MABISZ Conference - Budapest, 19 October 2011
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Today’s agenda
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P&C reinsurance global market outlook
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Swiss Re and the Hungarian insurance market
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(Re)insurance top topics

Questions & answers
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P&C reinsurance global market outlook
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Today – Global Outlook
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Plenty of challenges and opportunities for the industry
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Big challenges for re/insurers under current economic environment
– Extremely low interest rates
– Volatility in stock markets
– Impact of inflation or lack thereof
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Re/insurance markets up, with broad market turn still to come
– P&C terms improving, but pockets with soft conditions prevail
– L&H driven by economic growth, ageing, and financial markets
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Current environment requires diversification, size, and agility –
founded on firm underwriting and low-risk asset management
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The interest rate shock
5-year treasury bonds
Low yields pressure ROE
20%
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18%
6
16%
ROI: 5,9%
14%
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ROE 12%
10%
2
2000
8%
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
ROI: 3,5%
6%
2010
4%
90%
US
UK
Germany
Source: Swiss Re Economic Research and Consulting
92%
94%
96%
98%
100%
102%
104%
Combined ratio
Aggregate of eight major P&C markets
Source: Swiss Re Economic Research and Consulting
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The interest rate shock is far more significant than the 2010-11 natural
catastrophes
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Combined ratios need to keep adjusting to the low interest rate environment
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106%
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The P&C reinsurance cycle
Drivers of market turn
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P&L
–
Soft market pricing since 2008
–
Reserve releases not sustainable
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Record low interest rates pressure
technical results
–
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Solvency ratios still appear solid,
partly due to falling interest rates
20%
0%
-10%
2004
2005
2006
2007
2008
2009
2011
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Reinsurance capital
130
110
?
90
70
50
1999
2001
2003
2005
2007
Shareholders’ equity and premiums, 2005 = 100
Source: Swiss Re Economic Research and Consulting
MABISZ Conference | Budapest | 19 October 2011
2010
Source: Swiss Re Economic Research and Consulting
Decline driven by soft market
Capital
US P&C primary underwriting cash flows
10%
Natural catastrophe events of 2010-11
Cashflows
–
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6
2009
11H1
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Property
Peak risks continue long-term upwards trend
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Today
Insured losses
USD billions, at 2011 prices
125
–
–
Recent events have highlighted
earthquake risk potential
European winterstorm exposures have
lost visibility, but remain potent
100
75
50
25
0
1970
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Tomorrow
1979
1988
1997
Estimated
insured
market loss
Nat cat events 2011
– Global increase in frequency and severity USD billions
of weather events must be reflected
–
Annual aggregate protections will gain
further importance from ERM and
earnings volatility perspectives
2006 08.2011
Source: Swiss Re Economic Research and Consulting
Floods Australia
Dec / Jan
>2.8
Cyclone Yasi
Earthquake New
Zealand
Earthquake Japan
Tornado US
Tornado US
February
1.2
February
9-12
March
April
May
30
6.6
5.9
Source: Swiss Re Economic Research and Consulting
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Casualty
Underperformance
Motor: "improving"
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Today
Liability: "still soft"
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Today
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Price levels in primary market is
improving, but often not adequate
–
Reserve releases continue from
well-capitalised players
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Excess capacity remains in nonproportional market
–
Sufficient capacity has kept prices
flat
Tomorrow
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Tomorrow
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The reality of low interest rates
is reflected
–
The reality of low interest rates is
reflected
–
Greater divergence between
growth and developed economies
–
The bubble pops
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Reinsurance renewals 2012
European trends
2011 – Today
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Markets have slowly
started to turn, due to
2012 – Tomorrow
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Further improvements
expected, driven by
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Nat cat events
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Low investment returns
–
Model updates
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Nat cat experience
–
Low interest rates
–
Run-off
Swiss Re expects a modest, broad market turn over the next 3-15 months
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Swiss Re and The
Hungarian Insurance
Market
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Swiss Re is broadly diversified by
geography and product line
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Premiums earned1 2010 (USD 20.6 billion)
by region (in USD bn)
… and by product line:
Life &
Health
47%
Americas
44%
Europe
Asia
41%
15%
(incl. Middle East /Africa)
Property
& Casualty
53%
 Swiss Re benefits from geographic and business mix diversification and has the ability
to reallocate capital to achieve profitable growth
 Combines accumulated expertise of over 147 years and continuing research with a
widely recognised strong track record of innovation
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Includes fee income from policyholders
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Tomorrow
Swiss Re well positioned to capture growth
opportunities thanks to new group structure
2010
2011
10 June 2010
April
May
June
1 October 2010
Clear strategic
priorities
Aligned mgmt
structure
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Further
strengthen
marketing
power
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Optimise
operations
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Better align
with client
needs
Exchange offer phase
July Q4 2011
2012
Expected court
approval for
invalidation of
remaining SRZ
shares held by
public; delisting
of SRZ
2012
Segmental reporting
under new structure
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Reinsurance
(P&C, L&H)
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Corporate
Solutions
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Admin Re®
Swiss Re
Holding
Reinsurance
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Corporate
Solutions
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Admin Re®
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Swiss Re Top Topics
Agricultural risk solutions
Publications
Client Events
Climate change
Country risk management
Insurance-linked securities
Longevity
Natural catastrophes
Centre for Global Dialogue Global platforms
Liability regimes
Solvency II
R/I Regulation
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Hungarian non-life insurance market
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Overcoming the crisis as of 2012?
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Swiss Re in Hungary, 2006–2010
Swiss Re’s P&C premium
in Hungary in m EUR*
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Swiss Re’s P&C premium 2010
Split into Lines of Business
40
35
30
Motor
25
Property
20
Liability
15
Accident
Marine
10
5
0
2006
2007
2008
2009
2010
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Premium drop due to market concentration and cycle management
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Motor still prevails
*On underwriting year basis
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(Re)insurance top topics
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(Re)insurance weathered the crisis well
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(Re)insurers’ losses were mainly related to investments due to the asset
meltdown in financial markets.
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(Re)insurers remained solvent. Cover was always provided both in
insurance and reinsurance, and claims were paid as usual throughout the
crisis. Prices remained stable.
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No run on insurers (except one isolated case involving a life insurer in Asia).
Lapse rates in life insurance remained stable.
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Problems arose from monoline insurers involved in financial guarantee
business and few insurers with important other quasi-banking businesses
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First crisis under fair value accounting revealed further issues:
– pro-cyclicality of accounting rules
– asymmetric treatment of assets and liabilities
Core (re)insurance was conducted in a “business as usual” manner
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Why (re)insurers’ core activities do not
present a systemic risk
“…there are no
examples of a major
insolvency within
the reinsurance
industry…”
Report: “Reinsurance and
International Financial
Markets”, G30, 2006
Size
 Diversification, not size, is key
Interconnectedness  Modest impact of reinsurer failure due to low cession
rates and conservative reinsurance recoverables held
on primary insurers’ balance sheets
Substitutability
Note: Criteria based on
Financial Stability Board
and IAIS
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Timing
Source: Geneva Assocation
Systemic Risk Report, 2010
 Reinsurance is highly substitutable as demonstrated
by net capital inflows into natural catastrophe
reinsurance during periods of rising prices
 Timing of transmission between insurers is
significantly slower than between banks, allowing
mitigation measures that dampen systemic risk
Size, interconnectedness, substitutability and timing of (re)insurers’ core activities
are no sources of systemic risk
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The crisis accelerated existing and
triggered new regulatory initiatives
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Europe
United States
Federal Insurance Office
NAIC solvency modernization
Systemic risk regulation
Financial tax initiatives
CDS regulation & clearing house
Compensation regulation
SEC roadmap to IFRS
Rating agencies regulation
Source: Swiss Re, Regulatory Affairs
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Solvency II implementation
Systemic risk regulation
New supervisory architecture
Compensation regulation
Insurance guarantee schemes
Rating agencies regulation
Revisiting securitisation
International
IAIS on group supervision
Financial Stability Board agenda
IMF new mandate
IASB & FASB project
Basel III
G 20 agenda
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The risk of excessive regulation!
adapted from www.generallyawesome.com
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The (re)insurance industry
must raise its voice
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Key objectives for the industry
Emphasise (re)insurance
specificities
 Acknowledge differences in business models of (re)insurance
and banks - and therefore a differentiated regulatory approach
Promote sound risk and
capital management
 Implement economic and risk-based regulatory framework and
promote the approach internationally
Maintain market access
and level playing field
 Secure governments’ commitments to open markets and avoid
market distortions (e.g. unfair competition)
Global regulatory standards,  Support IAIS effort to establish global standards and achieve greater
Broad mutual recognition
recognition among regimes; e.g. obtain SST/S-II equivalence
Achieve accounting
convergence
 Enforce market-consistent valuation and avoid pro-cyclicality
under harmonised accounting standards
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Questions & answers
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Cautionary note on
forward-looking statements
Certain statements and illustrations contained herein are forward-looking. These statements and illustrations provide current expectations of future events based on certain
assumptions and include any statement that does not directly relate to a historical fact or current fact.
Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“,
“may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking
statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results, performance, achievements or prospects to be
materially different from any future results, performance, achievements or prospects expressed or implied by such statements. Such factors include, among others:
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further instability affecting the global financial system and developments related
thereto;
changes in global economic conditions;
Swiss Re’s ability to maintain sufficient liquidity and access to capital markets,
including sufficient liquidity to cover potential recapture of reinsurance
agreements, early calls of debt or debt-like arrangements and collateral calls under
derivative contracts due to actual or perceived deterioration of Swiss Re’s financial
strength;
the effect of market conditions, including the global equity and credit markets, and
the level and volatility of equity prices, interest rates, credit spreads, currency
values and other market indices, on Swiss Re’s investment assets;
changes in Swiss Re’s investment result as a result of changes in its investment
policy or the changed composition of its investment assets, and the impact of the
timing of any such changes relative to changes in market conditions;
uncertainties in valuing credit default swaps and other credit-related instruments;
possible inability to realise amounts on sales of securities on Swiss Re’s balance
sheet equivalent to its mark-to-market values recorded for accounting purposes;
the outcome of tax audits, the ability to realise tax loss carryforwards and the
ability to realise deferred tax assets (including by reason of the mix of earnings in a
jurisdiction or deemed change of control), which could negatively impact future
earnings;
the possibility that hedging arrangements may not be effective;
the lowering or loss of financial strength or other ratings of one or more of the
companies in the Swiss Re group or developments adversely affecting the ability to
achieve improved ratings;
the cyclicality of the reinsurance industry;
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uncertainties in estimating reserves;
uncertainties in estimating future claims for purposes of financial reporting,
particularly with respect to large natural catastrophes, as significant
uncertainties may be involved in estimating losses from such events and
preliminary estimates may be subject to change as new information becomes
available;
the frequency, severity and development of insured claim events;
acts of terrorism and acts of war;
mortality and morbidity experience;
policy renewal and lapse rates;
extraordinary events affecting Swiss Re’s clients and other counterparties, such
as bankruptcies, liquidations and other credit-related events;
current, pending and future legislation and regulation affecting Swiss Re or its
ceding companies, and regulatory or legal actions;
changes in accounting standards;
significant investments, acquisitions or dispositions, and any delays,
unexpected costs or other issues experienced in connection with any such
transactions, including, in the case of acquisitions, issues arising in connection
with integrating acquired operations;
changing levels of competition;
operational factors, including the efficacy of risk management and other internal
procedures in managing the foregoing risks; and
challenges in implementation, adverse responses of counterparties, regulators
or rating agencies, or other issues arising from, or otherwise relating to, the
changes in Swiss Re's corporate structure.
These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue
reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise.
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