etc.venues st.paul’s, londonagenda – criteria review seminar 2015 insurance market briefing -...

2015 Insurance Market Briefing - Europe

etc.venues St.Paul’s, London

04 November 2015


2015 Insurance Market Briefing - Europe 4 November 2015 2

Nick Charteris-Black

Managing Director, Market Development - EMEA

Welcome

Agenda – 2015 Insurance Market

Briefing - Europe


09:10 EMEA Market Overview

Stefan Holzberger,

Chief Rating Officer

09:30 Important Issues for the

Marketplace

Stephen Catlin,Executive Deputy

Chairman, XL Catlin

10:15

10:40 Investment Return Moves up the

Agenda for European Insurers

Tony Silverman,

Senior Financial Analyst, Analytics

11:15 Debt Trends in the Capital

Structure of European Insurers

Catherine Thomas,

Senior Director, Analytics

11:40 Reinsurance Panel:

Alternative Capital

Chair: Mark Geoghegan (Insurance

Insider), James Vickers (Willis Re),

Niklaus Hilti (Credit Suisse),

Matthew Mosher (A.M. Best)

12:25 European Insurers' Expansion

Strategies into Emerging Markets

Carlos Wong-Fupuy,


13:00

Agenda – Criteria Review

Seminar


14:15 Welcome

Greg Carter,

Managing Director, Analytics

14:30 Mock Rating Committee

and Vote

Mahesh Mistry,

Director, Analytics and members of

A.M. Best’s Analytical Team

15:15 Stochastic-based Best’s Capital

Adequacy Ratio (BCAR)

Mathilde Jakobsen,

Associate Director, Analytics

15:45 Enterprise Risk Management (ERM)

and Risk Impact Worksheets

Ghislain Le Cam


16:15 Close

Disclaimer


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profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit

ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be

construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies,

contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser.

Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk,

including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE

ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR

OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion

must be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, and

each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and

each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.

Disclaimer


US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in the

sales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating, or

developing or approving procedures or methodologies used for determining the credit rating.

No part of this presentation amounts to sales / marketing activity and A.M. Best’s Rating Division employees

are prohibited from participating in commercial discussions.

Any queries of a commercial nature should be directed to A.M. Best’s Market Development function.



Stefan Holzberger


A.M. Best Company

EMEA Market Overview

1%

5% 8%

20%

27%

10% 10% 14%

3% 1% 2% 1% 1% 0%

aa+ aa aa- a+ a a- bbb+ bbb bbb- bb+ bb bb- b+ b b-

Best's Issuer Credit Rating (ICR) distribution as at 31 July, 2015

MENA W Europe E Europe

0%

EMEA


Key Market Characteristics

• Global and local regulation adding pressure

• Search for yield

• Non-traditional risk transfer vehicles

• M&A activity

1% 3%

11%

17%

33%

29%

4% 3% 0%

3% 0%

10%

18%

34%

29%

3% 3% 0%

aa+ aa aa- a+ a a- bbb+ bbb bbb-

Rating distribution as at 31 July 2015 Rating distribution as at 31 July 2014

Western Europe



• Search for growth

• Low yields an issue for life companies especially

• Predictive analytics / big data

• London Market business mix shift

Western Europe


Preview

• Continued focus on capital management at group level

• Subsidiaries redomiciling

• Solvency II goes live

– Surplus relief deals

Review

• Favourable rating fundamentals • Companies managing down financial leverage • Life companies launching new products

81%

2% 1%

16%

Rating Actions

Affirm

Upgrade

Downgrade

Initial

87% 8%

5%

Outlook Summary

Stable

Positive

Negative

Middle East & North Africa


8%

28%

22% 22%

18%

0% 2%

12%

16%

24% 24% 22%

0% 2%

a a- bbb+ bbb bbb- bb+ b

Rating distribution as at 31 July, 2015 Rating distribution as at 31 July, 2014

• Fiscal budgets under pressure from low oil prices • Slowing growth from reduced gov. expenditure

• Ongoing political instability and conflict

• Sound capitalisation • Sufficient to absorb investment risk

• Market leaders exhibit strong technical performance

• New market entrants struggle to attract good business


Middle East & North Africa


Review

• Regulatory developments

• Concerns over reserve adequacy

• Insurers writing inward facultative reinsurance

• Dominance of DIFC as regional hub

Preview

• Technical performance diverges

• Remains a key rating driver

• Regulatory developments improve transparency

• Potential for market consolidation

84%

2%

5%

9%

Rating Actions

Affirm

Upgrade

Downgrade

Initial

86% 10%

4%

Outlook Summary

Stable

Positive

Negative

Eastern Europe


22%

6%

11%

33%

6%

0%

11%

6%

29%

7%

14%

36%

7% 7%

0% 0%

a- bbb+ bbb bbb- bb+ bb bb- b+

Rating distribution as at 31 July, 2015 Rating distribution as at 31 July, 2014


• Economic uncertainty and market volatility

• Small markets with low insurance penetration

• Government stake in ‘national champion’

• Investment opportunities generally weak

• Risk management a weakness

• Regulators seeking to enhance monitoring capabilities

Eastern Europe


Review

• Motor softening as insurers seek market share

• Severe cats in 2014 hurt several (re)insurers

• Heightened M&A activity

Preview

• Unease relating to sanctions on Russia

• MTPL producing losses in several markets

• Governments under fiscal pressure may be opportunity for insurers (e.g. pension reforms)

77%

5%

5%

13%

Rating Actions

Affirm

Upgrade

Downgrade

Initial

66%

6%

28%

Outlook Summary

Stable

Positive

Negative


Industry Capitalisation

4 November 2015 15

0

50

100

150

200

250

300

Western Europe MENA EasternEurope

sub-SaharanAfrica*

2012

2013

2014

2015

BCAR** (%)

Primary Insurers

* Primary Insurers & Reinsurers

** BCAR: Best’s Capital Adequacy Ratio


Industry Capitalisation

4 November 2015 16

0

50

100

150

200

250

300

Western Europe MENA Eastern Europe

2012

2013

2014

2015

Reinsurers

BCAR* (%)

* BCAR: Best’s Capital Adequacy Ratio

Q & A


Stefan Holzberger


A.M. Best Company

EMEA Market Overview

Important Issues for the Marketplace

A.M. Best Insurance Market Briefing

Stephen Catlin

Executive Deputy Chairman

XL Catlin

© 2015, XL Catlin companies. All rights reserved. I MAKE YOUR WORLD GO 18


Briefing - Europe



Stefan Holzberger,



Marketplace


Chairman,XL Catlin

10:15



Tony Silverman,




Catherine Thomas,



Alternative Capital







Carlos Wong-Fupuy,


13:00



Tony Silverman

Senior Financial Analyst, Analytics, A.M. Best

Investment Return Moves up the


Agenda


• Investment return – profit, failures

• Insurers’ current asset allocation

• Investment return - its place on the agenda

• What next?

Investment Return as Percentage of

Pre-tax Profits


• Fundamental to life business model

• Indispensable to non-life

A.M. Best top 50 European non-life A.M. Best top 50 European non-life average

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Lloyd's pro forma Lloyd's average

2005 loss making

2011 loss making

Notes: As Lloyd’s was loss making under annual accounting in 2005 and 2011, investment return as percentage of profit is not shown for these years

Based on 50 largest European non-life insurers rated by A.M. Best and Lloyd’s pro forma results, excluding inter-company items

Source: Best’s Statement File –Global, A.M. Best data and research

Non-Life failures


• Underwriting dominant

• Investment problems only a smaller factor

• But risks outside of current practice to some degree imponderable

Note: Exhibit percentages are based on companies where the cause of impairment was identified

Source: 1969-2013 U.S. P/C Impairment Review, June 2014

Inadequate pricing/Deficient

Loss Reserves, 44.3%

Rapid Growth, 12.3%

Alleged Fraud, 7.1%

Investment Problems, 6.6%

Miscellaneous, 8.4%

Change in Significant

Business, 3.4%

Reinsurance Failure, 3.0%

Catastrophe losses, 7.1%

Affiliate Problems, 7.8%

Life failures


• Investment problems not a predominant factor

• Though a feature for some

• Again, risks outside of current practice to some degree imponderable

Inadequate pricing/Deficient

Loss Reserves, 29.8%

Rapid Growth, 13.9%

Alleged Fraud, 8.7%

Investment Problems, 15.1%

Miscellaneous, 8.0%

Significant Change in

Business, 4.5%

Reinsurance Failure, 2.1%

Affiliate Problems, 17.9%

Note: Exhibit percentages are based on companies where the cause of impairment was identified

Source: 1969-2013 U.S. L/H Impairment Review, July 2014

Non-life - where we are now?


• Dominated by bonds

• Increases in bonds and (modestly) in loans matched by falls in cash and equities

• Reflects de-risking and very low cash returns 0%

10%

20%

30%

40%

50%

60%

70%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Note: Based on 50 largest European non-life insurers rated by A.M. Best and Lloyd’s pro forma results, excluding

inter-company items


Asset allocation – non-life

Life - where we are now?


• Less regular progression

• Increases in shares and, from a low base, a significant increase in other assets

• Reflects changes in individual product areas and growth in pension business

0%

10%

20%

30%

40%

50%

60%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Note: Based on 50 largest European life insurers rated by A.M. Best , excluding inter-company items and assets held

for unit linked


Asset allocation – Life

Investment - place on agenda


A period, until more recently, of diminished attention

• Declining interest rates focused management attention on technical profits

• Headroom for progress on underwriting profit and de-risking life products

• Investors were unlikely to reward increased investment risk

Investment - place on agenda


• External performance reporting de-emphasised earned investment return

• Solvency II, IFRS development focused on risk free rates

• Diminished profile for actual return – ‘What gets measured gets managed’

• Investment return seen as an externally imposed component of performance

Influence of reporting

Solvency II


• Asset capital charges derived from variation in market value over 12 month period

• Spread module used for required capital for bonds, in standard formula. Default and downgrade risk – “are addressed implicitly in …

movements in credit spreads”

• Spread module also used for some non-traded assets

• Capital charge for bonds can be 10 and 20+ times realised default costs – is this economic reality?

Some features

A.M. Best approach


• Objective is ‘economic’ approach

• Risk of default, illiquidity, market value decline determine investment risk factors across bonds, equities and other assets

• Interest rate risk dealt with separately – Illiquidity and market risk for bonds

mostly resides here

• Investment risk for bonds can be recognised as primarily default risk

A.M. Best 2015 BCAR model

A.M. Best approach (2)


• Ratings can be significantly influenced by Enterprise Risk Management (ERM), which will apply to credit, market, underwriting and other risks

• ERM for market risk closely linked to liquidity events

• Some analyst discretion possible re: adjustments to factors subject to oversight and committee approval

Other influences

• Pressure on underwriting and other profit sources

• Persistence of low rates

• Wide incorporation of ‘reference rates’ into EV reporting

• Solvency II moves away from pure risk free

• Illiquidity premium a part of IASB proposals

• Insurers courted as source of liquidity to markets

More recent changes


Management more interested in investment

function

One change, in biggest class


• Bail in to bank rescues

• ‘Capital’ securities deducted from insurers ‘own funds’

• Limited reward for supplying liquidity to banks

0%

10%

20%

30%

40%

50%

60%

Allianz AXA L&G Average

2008 2014

Note: AXA data relates to Banks and Other Financials Source: Company public presentations

Bank Debt as Percentage of Corporate Bond Portfolio

What next?


• Is holding vanilla securities good enough?

• Migrate up the risk curve, look for tactical successes – or seek structural advantage?

• If liquidity has been valuable to counterparties, has it been given away cheaply?

• Question, for some, of whether to dis-intermediate

Liquidity – seeking a reward


• In principle, a source of structural advantage

• Insurers have longstanding illiquid/real asset involvement – property, commercial real estate loans

• A slightly wider set of assets, and some different loan counterparties would be incremental rather than transformational change

• Infrastructure assets/loans are an option. Offer duration and investable in scale

Returns on alternative assets


• Infrastructure loans, commercial mortgages normally low margin to lenders

• Banks have been happy to withdraw from these segments

• Are these returns indicative of wider direct lending/real asset markets?

Source: Gareth Mee et al, Institute and Faculty of Actuaries: Sessional Research Paper, Non-Traditional Investments,

January 2015.

0%

2%

4%

6%

8%

10%

12%

14%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Average default/loss cost circa 2.2%

Average total interest charges 9.3%

There is a wider universe


• Example - SME lending – a segment banks have, mostly, retained

• ‘Third-party’ SME lending shows very significant yield ‘pick up’

• Total charges: remain high in low interest post financial crisis period

• Expect variability between years, portfolios Source: CEPRES, A.M. Best data and research

SME Mezzanine Finance

Interest Charges and Default Experience

SME lending


• Returns include warrants held by non-bank lenders

• Returns derive from both supplying liquidity and from dis-intermediating pre-existing value chain

• Skills, diversification, only accessible by larger insurers or specialist providers

Note: Median of distribution 11.6%, mean 12.8%

Source: CEPRES, A.M. Best data and research

SME Mezzanine Finance

Portfolio Year Returns

-10% -5% 0% 5% 10% 15% 20% 25% 30%

Wrap up


• Investment return is moving up the agenda

• The objective of changes would be structural advantage

• A challenge is to be rewarded for supplying liquidity

• Strong insurers will proceed on an economic, rather than exclusively regulatory basis

• Insurers may need to be pro active in order to optimise returns

• Changes will be measured, closely managed and, for the most part, incremental

Q & A


Tony Silverman

Senior Financial Analyst, Analytics, A.M. Best

Investment Return Moves up the




Catherine Thomas

Senior Director, Analytics, A.M. Best

Debt Trends in the Capital


Insurance debt in Europe


• Analysis of over EUR 90 billion of debt issued by European insurers between 2005 and 2014

• Rated debt issued by A.M. Best clients

– representative of European insurance debt market

• Key trends:

– Drivers

– Debt characteristics

– Issuer characteristics

Total debt issued 2005-2014


EUR 4.7bn

EUR 10.7bn

EUR 10.6bn

EUR 2.9bn

EUR 6.5bn

EUR 4.4bn

EUR 8.5bn

EUR 17.4bn

EUR 10.8bn

EUR 16.3bn

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Issues mainly in stronger,

stable economies

Interest rates at historical

lows

Global financial crisis: liquidity

scarce

Source: Best’s Statement File – Global, A.M. Best data and research

ECB actions restore calm

Sovereign debt crisis: higher yields

Drivers of activity


• Tax efficient alternative to equity, no dilution

• Take advantage of favourable pricing

• Refinance to lower debt service costs

• Extend maturities amid economic uncertainty

• Qualify for grandfathering ahead of Solvency II

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Inte

rest

Rat

e (

%)

Issue Date

Senior Unsecured Subordinated Junior Subordinated Preferred Stock and Securities

Low number of issues – mostly

senior debt

Higher returns required from

issuers in peripheral countries

More favourable pricing


Coupon rate: little differentiation by

issuer credit quality

Pricing more favourable in

2014/15


Solvency II


• Grandfathering period of up to 10 years for tier 1 and tier 2 basic own funds

• Will only apply to:

– Instruments issued before 1 January 2016

– Instruments eligible under current regulatory regime

• Prudential Regulation Authority (PRA) discouraging issuance of non-conforming sub-debt

Class of debt 2005-2014


EUR 1.3 bn EUR 1.1 bn

EUR 4.4 bn

EUR 0.5 bn

EUR 6.2 bn

EUR 5.6 bn

EUR 8.6 bn

EUR 3.2 bn

EUR 6.9 bn

Subordinated EUR 0.3 bn

EUR 8.5 bn

EUR 3.5 bn

EUR 1.3 bn

aa- a+ a a- bbb+ bbb bbb- bb+

A.M. Best Debt Rating

Senior UnsecuredSubordinatedJunior SubordinatedPreferred Stock


• Subordinated debt most popular

• Attractive cost of capital/ return characteristics

• Debt below investment grade minimal

Size of debt issue 2005-2014


EUR 0.1bn

EUR 3.9bn

EUR 14.9bn

EUR 38.9bn

EUR 35.0bn

Up toEUR 100 million

EUR 101 -250 million

EUR 251 -EUR 500 million

EUR 501 -EUR 1 billion

Greater ThanEUR 1 billion


• Fewer, larger issues reduce cost and management distraction

Domicile of issuer 2005-2014


Netherlands EUR 16.4bn

Germany EUR 10.4bn United

Kingdom EUR 9.5bn

Italy EUR 7.9bn

Switzerland EUR 6.1bn

Luxembourg EUR 2.4bn

France EUR 1.9bn

Sweden EUR 0.6bn • Companies in largest

economies are the most active issuers

• National champions often predominant participants


Type of issuer 2005-2014


Composite EUR 78.8bn

Non-Life EUR 7.9bn

Life EUR 6.2bn

Best's Statement File – Global, A.M. Best data & research

.

Source:

• Most highly rated, with stable, diversified businesses

• 85% of debt issued by composite insurers

• Most maintain extensive geographic diversification

• Most writing both primary and reinsurance business


Demand remains high


• Insurance debt attractive:

– Strong free cash flows to service interest payments

– Lack of other investment opportunities

– Long-tail nature of life and casualty insurance

– In spite of modest growth and pressure on returns

• Issues commonly several times over subscribed

• Strong order books

Looking forward….


• Insurance debt market likely to remain active

• Changes to central bank interest rate policies will be key influence

• Insurers focussing on managing operating and financing costs in a highly competitive, low growth environment

• Efforts aligned with group level ERM and strategic business initiatives

Q & A


Catherine Thomas


Debt Trends in the Capital




Mark Geoghegan

Editor-in-Chief

Insurance Insider

(Chair)

James Vickers

Chairman

Willis Re

International

Niklaus Hilti

Head of Insurance

Linked Strategies

(ILS)

Credit Suisse AG

Matthew Mosher

Senior Vice

President – Global

Rating Services

A.M. Best

Reinsurance Panel

Alternative Capital

Today’s Reinsurance

Market…


Negative Outlook

Increased client

retentions

Excess capacity

Capital convergence

Benign cat losses

Questionable underwriting

discipline

Declining reserve

redundancies

Low investment

yields

The Base Case for M&A


Broader product capability

Broader geographic reach

Greater influence with brokers and

cedants

Greater attractiveness to

third-party capital

M&A

Most M&A deals in the current reinsurance market are focused on one, if not all, of these four categories



James Vickers

Chairman,

Willis Re

International

Niklaus Hilti

Head of Insurance

Linked Strategies

(ILS)

Credit Suisse AG

Matthew Mosher

Senior Vice

President – Global

Rating Services,

A.M. Best

Chair: Mark

Geoghegan,

Editor-in-Chief,

Insurance Insider

Reinsurance Panel

Alternative Capital



Carlos Wong-Fupuy


European Insurers:

Pressures on Capital Efficiency and Expansion Into Emerging

Markets

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Inte

rest

Rat

e (

%)

Source: European Central Bank

Italy

Spain

France

Germany

Pressures on capital efficiency


Long-Term Interest Rates for Convergence

Purposes (2000 - September, 2015)



-8

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014

%

Source: International Monetary Fund, World Economic Outlook Database, April 2015

Western Europe - Percentage Change in GDP for

Selected Countries (2008-2014)

Italy

Spain

France

Germany

UK



• Mature markets: penetration

• Regulation

• Complexity / capital intensity

• Competition

• Long-term opportunities:

– Shrinking role of the State

– Ageing populations

– Investment / infrastructure projects



4 November 2015 62

Country

Gross Domestic

Product

(USD billions)

Real GDP

per Capita

(USD)

Change in

Real GDP

(%)

Insurance Market

Penetration

(%)

France 2,847 44,538 0.36% 9.5%

Germany 3,860 47,590 1.61% 6.6%

Italy 2,148 35,823 -0.42% 9.1%

Spain 1,407 30,278 1.39% 5.1%

United Kingdom 2,945 45,653 2.55% 11.9%

Sources: International Monetary Fund, World Economic Outlook Database, April 2015; Swiss Re, sigma; A.M. Best data and research



Country

Total

Premium

2014

(USD billions)

Global

Ranking

Total

Premium

2014

Total

Premium

Growth 2014

(%)

Life Premium

Growth 2014

(%)

Non-Life

Premium

Growth 2014

(%)

Total

Premium

Growth 2013

(%)

France 271 5 5.1% 7.2% 1.6% 6.7%

Germany 255 6 2.8% 3.3% 2.3% 6.6%

Italy 195 7 15.3% 23.1% -2.7% 17.3%

Spain 71 14 -0.7% -2.5% 0.9% 0.7%

United Kingdom 351 3 7.9% 7.4% 8.7% -1.1%


Strategic actions


• Returning capital to shareholders, e.g. re-insurers

• Partnering with alternative capital providers

• Mergers and acquisitions

• Groups’ legal re-structuring

• Re-insurance centralisation

• Cost management

• Gradually riskier investment portfolios: real assets

and/or

• International expansion


BRICS challenges

4 November 2015 65

• Decoupled from

advanced

economies?

• Sliding currencies

• Sudden capital

flight?

• Globalised capital

markets

Brazil

Russia

India

China

South Africa

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014

%

Percentage Change in GDP (2008-2014)

Source: International Monetary Fund, World Economic Outlook Database, April 2015

BRICS challenges


• Fiscal imbalances

• Heavy commodity reliance

Credit ratings downgrades

• High unemployment

• Economic recession

• Unstable government

• Low oil prices

• High inflation / devaluation

• International sanctions

• Foreign investment flight

• Geopolitical tensions

• Stock market turmoil

• Yuan devaluation

• Decrease in exports

• Shift from infrastructure

investments to domestic

consumption

• Less dependence on

China

• Oil importer

• Fragile banking system /

bad debts

• Rigid labour laws

• State level legislation • Smallest of all BRICS

• Lagged behind during

commodity boom

• High unemployment

• Poor energy infrastructure

• Underinvestment in state

owned utilities

Selective growth


• Key territories: Asia Pacific, Lat Am, Eastern Europe, Turkey

• Exit or downsizing in particular areas:

– Russia: Allianz, Zurich - GI retail

– India: RSA - GI, ING – Life

• Development costs or corrective actions in place:

– Turkey: Ergo, AXA – Motor

– Brazil: Allianz, Zurich

• Regulatory changes (ownership) / political sanctions

Volatile emerging markets



Country

Gross Domestic

Product

(USD billions)

Real GDP

per Capita

(USD)

Change in

Real GDP

(%)

Insurance Market

Penetration

(%)

Brazil 2,353 11,604 0.15% 3.6%

Chile 258 14,477 1.84% 4.2%

China 10,380 7,589 7.36% 3.2%

Colombia 385 8,076 4.55% 2.5%

India 2,050 1,627 7.17% 3.4%

Mexico 1,283 10,715 2.13% 2.1%

Poland 547 14,379 3.30% 3.2%

Russia 1,857 12,926 0.62% 1.4%

Turkey 806 10,482 2.90% 1.4%

Volatile emerging markets



Country

Total

Premium

2014

(USD billions)

Global

Ranking

Total

Premium

2014

Total

Premium

Growth 2014

(%)

Life Premium

Growth 2014

(%)

Non-Life

Premium

Growth 2014

(%)

Total

Premium

Growth 2013

(%)

Brazil 85 13 3.3% 2.8% 3.8% 0.5%

Chile 11 40 -6.8% -8.4% -4.5% 4.2%

China 328 4 17.3% 15.4% 19.5% 14.1%

Colombia 10 41 -5.6% -21.2% 3.2% 13.4%

India 70 15 7.2% 6.4% 10.4% -1.0%

Mexico 27 25 -0.4% 1.0% -1.7% 13.9%

Poland 17 33 -4.7% -11.0% 0.7% -6.0%

Russia 26 27 -9.4% 6.1% -11.0% 9.2%

Turkey 12 39 -6.9% -16.2% -5.4% 14.6%

Significant growth in emerging markets (examples)

2015 Insurance Market Briefing - Europe 70 4 November 2015

0%

50%

100%

150%

200%

250%

300%

350%

Mapfre Talanx Pru

0%

20%

40%

60%

80%

2004 2009 2014

Mapfre (Intl) Talanx (Int) Pru (Asia)

Growth in key areas (percentage of total premiums)

Total assets 2014 / 2004 (percentage)

Expansion becoming more selective


1: Out of EUR 30bn, international business was EUR 4bn from six countries (namely European countries and Japan). Source: Company accounts, A.M.Best data and research

Rank Company

Country of

Domicile

Gross Premium

Written (2014)

(EUR millions)

Asia

Pacific

Central

Eastern

Europe

Latin

America Turkey

1 AXA S.A. France 86,267

2 Allianz SE Germany 73,883

3 Assicurazioni Generali S.p.A. Italy 66,236

4 Zurich Insurance Group Ltd. Switzerland 45,068

5 Prudential plc UK 41,959

6 CNP Assurances France 30,643

7 Credit Agricole Assurances1 France 29,377

8 Talanx AG Germany 27,903

9 Aviva plc UK 27,694

10 MAPFRE S.A. Spain 22,401

Potentially higher margins but not without some challenges


HGM: High Growth Markets. Based on 2014 year figures Source: Company accounts, A.M.Best data and research

Company

P/C

Share

HGM (%)

Combined

Ratio

HGM (%)

Combined

Ratio

Total (%)

Life

Share

HGM (%)

Life

Margin

HGM (%)

Life

Margin

Total (%)

AXA S.A. 16.0% 98.7% 97.6% 17.5% 49.0% 34.0%

Allianz SE 9.0% 111.3% 94.3% 15.1% 3.6% 2.4%

Generali S.p.A. 14.8% 96.9% 93.8% 5.9% 21.9% 24.0%

Zurich Insurance Group Ltd. 12.3% 104.6% 97.3% 33.2% 26.5% 22.1%

Prudential plc n/a n/a n/a 48.1% 52.0% 46.0%

CNP Assurances n/a n/a n/a 14.7% 32.1% 11.9%

Credit Agricole Assurances n/a n/a n/a n/a n/a n/a

Talanx AG 34.4% 96.4% 101.7% 18.6% 6.9% 1.9%

Aviva plc 10.2% 7.6% 4.1%

MAPFRE S.A. 48.8% 95.3% 95.7% 47.7% 17.7% 12.0%

Emerging Markets Challenges


• Lack of scale/ fragmented regions

• Dominance of compulsory lines

• Dependence on regulation

• Ownership and investment restrictions

• Loss leader behaviour/ focus on market share

• Underperformance/ management and integration issues

• Difficult target company valuations/ private ownership

Conclusions


• Focus on efficient re-deploying of capital

• Expansion is becoming more selective

• Increased efforts in turning around existing businesses

• Groups have moved to a more centralised approach to manage their risks.

Q & A


Carlos Wong-Fupuy


European Insurers:

Pressures on Capital Efficiency and Expansion Into Emerging

Markets


Briefing - Europe



Stefan Holzberger,



Marketplace


Chairman,XL Catlin

10:15



Tony Silverman,




Catherine Thomas,



Alternative Capital







Carlos Wong-Fupuy,


13:00

Agenda – Criteria Review

Seminar


14:15 Welcome

Greg Carter,

Managing Director, Analytics

14:30 Mock Rating Committee

and Vote

Mahesh Mistry,

Director, Analytics and members of

A.M. Best’s Analytical Team

15:15 Stochastic-based Best’s Capital

Adequacy Ratio (BCAR)

Mathilde Jakobsen,


15:45 Enterprise Risk Management (ERM)

and Risk Impact Worksheets

Ghislain Le Cam


16:15 Close


etc.venues St.Paul’s, London

04 November 2015

etc.venues st.paul’s, londonagenda – criteria review seminar 2015 insurance market briefing -...

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