A DECADE’S JOURNEYTHROUGH THE INSURANCE INDUSTRY(AND WHAT THE NEXT DECADE HOLDS…)
Joe PlumeriChairman and CEO, Willis Group Holdings plcIISA/SAIA/FIA Conference Sun City, South Africa – June 11, 2012
IT WASN’T EASY IN A DECADE OF UPHEAVAL…
Lessons Learned: Contract Certainty & stick to your knitting
Lessons Learned:The importance of
transparency & ERM
Lessons Learned:The importance of
resiliency & analytics
Man-Made Disasters:
2001: 9/11 - Largest single property, aviation & WC loss.
2008: Global financial crisis – 389 banks failed; how many insurers?
Natural Catastrophes:
2011: Costliest year ever for nat cat losses -- $105 bn insured losses.
2005: 2nd costliest year with insured losses of $101 bn.
Regulatory Upheaval:
2004-2005: Age of Spitzer brings $3 bn in fines.
Today: Solvency II implementation cost €2-3 bn over 5 years.
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…ALL IN THE DECADE OFTHE BLACK SWAN8 of the top 10 costliest insurance losses in the past 30 years occurred in the last decade!Event Year Total Insured Losses
1. Hurricane Katrina 2005 $74.7 billion
2. Tōhoku quake and tsunami 2011 $35 billion
3. Hurricane Andrew 1992 $25.6 billion
4. September 11 Attacks 2001 $23.8 billion
5. Northridge Earthquake 1994 $21.2 billion
6. Hurricane Ike 2005 $21.5 billion
7. Hurricane Ivan 2004 $15.3 billion
8. Hurricane Wilma 2005 $14.5 billion
9. Thailand Flooding 2011 $12 billion
10. Christchurch Earthquake 2011 $12 billionSource: Swiss Re
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2010 Eyjafjallajökull Volcano: Cost airlines €150m a day for 6 days
PLUMERI’S TOP 10 RISKS:
6
10Reputation
9 Piracy
8 Cyber
Security
7
Globalization
6 Cost and
Availability of Credit
4Market
CapRisk
3Pandemics
2Terrorism
1Climate Change
5Regulation
and Compliance
NEW TYPES OF RISK PROLIFERATE
“The top 5 risks on the minds of business leaders today aren’t easily solved by purchasing insurance. Traditional risks… wind, earthquake, flood – aren’t even in the top 30 anymore.”
-- Hank Watkins, Lloyd’sDecember 19, 2011
Lloyds Risk Index 2011 – Top 5 Risks
1. Loss of customers
2. Talent and skills shortages
3. Reputational risk
4. Currency fluctuation
5. Changing legislation
All difficult or impossible to insure
Demanding resiliency
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TODAY’S GLOBAL INSURANCE INDUSTRY
Today our industry is facing aperfect storm of:
Heavy regulatory demands on capital and solvency vs need to run a profitable business
Continuing global macro economic uncertainty
Low interest rates impacting investment performance
A continued soft market – excess capacity and stiff competition; surge in mega catastrophe claims
Top 10 Risks Facing Global Insurance Industry (2011):
1. Regulation
2. Capital
3. Macro-economic trends
4. Investment performance
5. Natural catastrophes
6. Talent
7. Long tail liabilities
8. Corporate governance
9. Distribution channels
10. Interest rates
Source: PwC/CSFI
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THE INSURANCE INDUSTRY: WE OWN RESILIENCE Insurance industry proven its own
resilience throughout the decades.
Focus on extreme 1:200 year events – made us more resilient to catastrophe and shocks from mother nature and markets.
Transforming the scale, depth and quality of insight about the risks facing our clients and how to manage and transfer them.
Our market is fully operational – testament to the strength and resilience of this capital market.
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FOR OUR INDUSTRY: A ONCE IN A LIFETIME OPPORTUNITY Our responsibility as an industry:
– To “own” resilience…– To lead using our expertise and
resources to address long term risks…– To be an industry building sustainable
and predictable growth in the face of new risks…
– To bring knowledge, expertise, products and services as risk and uncertainty grows…
– To establish resilience as an aspirational purchase
Insurance is the vehicle for delivering resilience rather than a transaction; to bring risk management and analytical services to our clients.
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THE EMERGING GLOBAL MIDDLE CLASS
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The big story of the 21st Century is the rise of a new global middle class, most of it in Asia.
Two billion more people will join the middle class by 2030.
They will accumulate property and income, and rival the U.S. consumer in spending. A business opportunity this large is unprecedented.
They will want to protect their lives, property and income, too – the insurance opportunities are huge.
Greatest need will be in cities.
Relentless riseMiddle class population as % of world total
60
50
40
30
20
10
050 2000
Source: Surjit Bhalla, “The Middle Class Kingdomsof India and China”
1913 60 803890 90 061820
THE NEXT DECADE:AFRICA’S ERA?Over the past decade, the number of middle-class consumers in Africa has grown 60% to 313 million
34% of Africans are firmly entrenched in the new middle class, spending between $2 and $20 a day.By 2060, African middle class will be 1.1 bn strong On par with Chinese and Indian middle classes.2nd fastest-growing economy in the world.Huge potential for global investors.Africa now has more mobile-phone subscribers than entire U.S. population
Source: WSJ, The Economist
The emerging African Middle Class will contribute to an emerging Golden Age for Insurance!
50 15 20 25 3010
Number of companies
China
Asia
Europe and USA
Rest of Africa
South America
Offshore expansion strategies South African insurers are
focusing on: e.g. Mozambique & Angola
Source: PwC
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SOUTH AFRICA: GATEWAY TO THE CONTINENT Global brands using South Africa as a “foothold for continental expansion”:
Wal-Mart paid $2.4 billion to buy 51% of South Africa's Massmart Holdings Ltd
U.S. Yum Brands Inc. to invest $74 million in 100 new KFC outlets in Africa in 2012, and will double the number of stores to 1,200 by 2014
Ford Motor invested $500 million in its SA operations in 2011
British Vodafone now owns 65% of Vodacom, SA's largest mobile phone operator
Source: WSJ
South African insurance market will lead the way as the dominant market in Africa, accounting for 90% of regional life premium volume and half of the regional non-life premium volume.
"Yes, there are risks to doing business in Africa. However, here in Africa, right now the rewards could be as vast as the continent itself."
Donald H. GipsU.S. Ambassador to South Africa
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