a a viszontbiztosítók helyzete - mi lesz a díjakkal? outlook reinsurance markets johannes martin...

aA viszontbiztosítók helyzete - mi lesz a díjakkal?Outlook reinsurance marketsJohannes Martin HartmannSwiss Re Europe, Head Market Underwriting CEEMABISZ Conference - Budapest, 19 October 2011

MABISZ Conference | Budapest | 19 October 2011

aToday’s agenda

P&C reinsurance global market outlook

Swiss Re and the Hungarian insurance market

(Re)insurance top topics

Questions & answers

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aP&C reinsurance - global market outlook

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aToday – Global OutlookPlenty of challenges and opportunities for the industry

Big challenges for re/insurers under current economic environment– Extremely low interest rates

– Volatility in stock markets

– Impact of inflation or lack thereof

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

Current environment requires diversification, size, and agility – founded on firm underwriting and low-risk asset management

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Johannes Martin Hartmann


aLow yields pressure ROE

The interest rate shock

5-year treasury bonds

Source: Swiss Re Economic Research and Consulting The interest rate shock is far more significant than the 2010-11 natural

catastrophes Combined ratios need to keep adjusting to the low interest rate

environment

Aggregate of eight major P&C markets Source: Swiss Re Economic Research and Consulting

2000

2010

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a P&L

– Soft market pricing since 2008

– Reserve releases not sustainable

– Record low interest rates pressure technical results

– Natural catastrophe events of 2010-11

Cashflows

– Decline driven by soft market

Capital

– Solvency ratios still appear solid, partly due to falling interest rates

The P&C reinsurance cycleDrivers of market turn

?

Source: Swiss Re Economic Research and Consulting

Reinsurance capital

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Shareholders’ equity and premiums, 2005 = 100Source: Swiss Re Economic Research and Consulting

US P&C primary underwriting cash flows


a Today

– Recent events have highlighted earthquake risk potential

– European winterstorm exposures have lost visibility, but remain potent

Tomorrow

– Global increase in frequency and severity of weather events must be reflected

– Annual aggregate protections will gain further importance from ERM and earnings volatility perspectives

PropertyPeak risks continue long-term upwards trend

Nat cat events 2011USD billions

Estimatedinsured

market lossFloods Australia Dec / Jan >2.8

Cyclone Yasi February 1.2

Earthquake New Zealand February 9-12

Earthquake Japan March 30Tornado US April 6.6Tornado US May 5.9


08.2011


Insured lossesUSD billions, at 2011 prices

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aMotor: "improving"

Today

– Price levels in primary market is improving, but often not adequate

– Excess capacity remains in non-proportional market

Tomorrow

– The reality of low interest rates is reflected

– Greater divergence between growth and developed economies

CasualtyUnderperformance

Liability: "still soft"

Today

– Reserve releases continue from well-capitalised players

– Sufficient capacity has kept prices flat

Tomorrow

– The reality of low interest rates is reflected

– The bubble pops

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aReinsurance renewals 2012European trends

2011 – Today

Swiss Re expects a modest, broad market turn over the next 3-15 months

Markets have slowly started to turn, due to

– Nat cat events

– Model updates

– Low interest rates

2012 – Tomorrow

Further improvements expected, driven by

– Low investment returns

– Nat cat experience

– Run-off

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aSwiss Re and The Hungarian Insurance Market

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Swiss Re is broadly diversified by geography and product line

Premiums earned1 2010 (USD 20.6 billion) by region (in USD bn)

… and by product line:

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

Europe Asia Americas(incl. Middle East /Africa)

44% 41% 15% Property

& Casualty53%

Life & Health

47%

1 Includes fee income from policyholders


a2010 2011 2012

1 October 2010Aligned mgmtstructure

Further strengthen marketing power

Optimise operations

Better align with client needs

April May June July Q4 2011

10 June 2010Clear strategic priorities

TomorrowSwiss Re well positioned to capture growth opportunities thanks to new group structure

2012Segmental reporting under new structure

Reinsurance (P&C, L&H)

Corporate Solutions

Admin Re®

Admin Re®ReinsuranceCorporate Solutions

Swiss Re Holding

Exchange offer phase

Expected court approval for invalidation of remaining SRZ shares held by public; delisting of SRZ

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Swiss Re Top Topics

Agricultural risk

solutions

Climate change

Country risk

management

Insurance-linked

securities

Longevity

Natural catastrophes

Liability regimes

Solvency II

R/I Regulation

Centre for Global Dialogue

Global platforms

Publications Client Events


aHungarian non-life insurance market

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Overcoming the crisis as of 2012?


aSwiss Re in Hungary, 2006–2010

Swiss Re’s P&C premium in Hungary in m EUR*

Premium drop due to market concentration and cycle management Motor still prevails

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Swiss Re’s P&C premium 2010Split into Lines of Business

*On underwriting year basis


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(Re)insurance top topics

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(Re)insurance weathered the crisis well (Re)insurers’ losses were mainly related to investments due to the

asset meltdown in financial markets.

(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.

No run on insurers (except one isolated case involving a life insurer in Asia). Lapse rates in life insurance remained stable.

Problems arose from monoline insurers involved in financial guarantee business and few insurers with important other quasi-banking businesses

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

Size Diversification, not size, is key

Interconnectedness

Substitutability

Timing

Modest impact of reinsurer failure due to low cession rates and conservative reinsurance recoverables held on primary insurers’ balance sheets

Timing of transmission between insurers is significantly slower than between banks, allowing mitigation measures that dampen systemic risk

Reinsurance is highly substitutable as demonstrated by net capital inflows into natural catastrophe reinsurance during periods of rising prices

Note: Criteria based on Financial Stability Board and IAIS

“…there are no examples of a major insolvency within the reinsurance industry…”Report: “Reinsurance and International Financial Markets”, G30, 2006

Size, interconnectedness, substitutability and timing of (re)insurers’ core activities are no sources of systemic risk

Source: Geneva Assocation Systemic Risk Report, 2010


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The crisis accelerated existing and triggered new regulatory initiatives

United States Federal Insurance Office NAIC solvency modernizationSystemic risk regulationFinancial tax initiativesCDS regulation & clearing houseCompensation regulationSEC roadmap to IFRSRating agencies regulation

Europe Solvency II implementationSystemic risk regulationNew supervisory architectureCompensation regulationInsurance guarantee schemesRating agencies regulationRevisiting securitisation

InternationalIAIS on group supervisionFinancial Stability Board agenda IMF new mandateIASB & FASB projectBasel IIIG 20 agenda

Source: Swiss Re, Regulatory Affairs


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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

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

Maintain market access and level playing field

Global regulatory standards, Broad mutual recognition

Implement economic and risk-based regulatory framework and promote the approach internationally

Support IAIS effort to establish global standards and achieve greater recognition among regimes; e.g. obtain SST/S-II equivalence

Secure governments’ commitments to open markets and avoid market distortions (e.g. unfair competition)

Achieve accounting convergence

Enforce market-consistent valuation and avoid pro-cyclicality under harmonised accounting standards

Key objectives for the industry


aQuestions & answers

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aCautionary 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: 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;

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.

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.

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a a viszontbiztosítók helyzete - mi lesz a díjakkal? outlook reinsurance markets johannes martin...

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