Insurance Megatrends for the Decade Aheadthe Decade AheadDr. Robert Hartwig, President and Economist for the Insurance g,Information InstituteJay Ralph, Allianz SE Board Member for Insurance NAFTA Markets

Catastrophic Loss Catastrophe Losses Will Trend p

Adversely in the 2010s

anz

SE

200

9

Alli

a

22

US Insured Catastrophe Losses

100.

0$120

US Insured Catastrophe Losses$100 Billion CAT Year is

Coming Eventually($ Billions)

MEGATREND2000s: A Decade of Disaster

$61.

9

$

$80

$1002000s: A Decade of Disaster

2000s: $193B (up 117%)1990s: $89B

US losses will almost certainly3 4 0.

1

3

$26.

5

2.9 $2

7.5

$

2

$26.

0

1.1

5 $22

.9

16.9

$40

$60 US losses will almost certainly rise in decade(s) ahead$8

.3

$7.4

$2.6 $1

0

$8.3

$4.6

$5.9 $1 $9. 2

$6.7 $1

1

$7.5

$2.7

$4.7

$5.5 $

$0

$20

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09*20??

anz

SE

200

9Losses in the Decade of the 2000s Were More than Double the 1990s, But the Worst Has Yet to Come

A

llia

33

* 2009 figure is Munich Re estimate.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.

Global Natural Catastrophes 1980 2009300

Global Natural Catastrophes 19802009Overall and insured losses with trend

MEGATREND

200

250 Global natural catastrophe loss trends are ominous and

portend an even more disastrous decade ahead.

150US$

bn Terrorism and other man-made disasters could exacerbate the trend.

50

100

anz

SE

200

9

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Overall losses (in 2009 values) Insured losses (in 2009 values)

A

llia

4

Overall losses (in 2009 values) Insured losses (in 2009 values)

Trend insured lossesTrend overall losses

Source: Munich Re NatCatSERVICE; Insurance Information Institute.

Global natural catastrophes 2009Global natural catastrophes 2009 Percentage distribution per continent

7%60% 28%

Natural catastrophes 2009 2010Natural catastrophes 2009-2010Worldmap

China is also exposed to many large-

l t lscale natural catastrophes, but still has

relatively low levels of

i

Fast growing India is

insurance penetration

anz

SE

200

9

exposed to many large-scale natural catastrophes, though still a

ll

MEGATRENDAn increasing share of insured

catastrophe losses will come from the

A

llia

6

small insurance

marketSource: Munich Re NatCatSERVICE; Insurance Information Institute.

catastrophe losses will come from the developing world, especially China, India

Total Value of Insured Coastal ExposureTotal Value of Insured Coastal Exposure(2007, $ Billions)

$2,458.6Florida

$635.5$772.8

$895.1$2,378.9

$2,458.6FloridaNew York

TexasMassachusetts

New Jersey

$224.4$191.9

$158.8$146 9

$479.9ConnecticutLouisiana

S. CarolinaVirginia

M i $146.9$132.8

$92.5$85.6$60 6

MaineNorth Carolina

AlabamaGeorgia

Delaware

MEGATRENDDevelopment in vulnerable areas will increase

globally, contributing to high economic and insured losses as well as deaths

anz

SE

200

9

$60.6$55.7$51.8$54.1

$14.9

DelawareNew Hampshire

MississippiRhode Island

Maryland

The Insured Value of All Coastal Property Was $8.9 Trillion in 2007, Up 24% from $7.2 Trillion in 2004

A

llia

77Source: AIR Worldwide

$

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

y

Catastrophe Bonds: Risk Capital IssuanceCatastrophe Bonds: Risk Capital Issuance

$6 996$8,000

($ Millions)

$4 693

$6,996

$

$6,000

$7,000 MEGATRENDMore catastrophe capacity will be accessed through capital markets

(p/c and life) $4,693

$2,686$3,392

$3,000

$4,000

$5,000 (p/c and life)

$633 $846$985 $1,139 $1,143

$1,991$1,730$1,220$967

$1,000

$2,000

$ ,

anz

SE

200

9

$097 98 99 00 01 02 03 04 05 06 07 08* 09*

Catastrophe bond risk capital issuance plunged by 62% when credit market

A

llia

88Source: Guy Carpenter; Insurance Information Institute.

Catastrophe bond risk capital issuance plunged by 62% when credit market turmoil spread in 2008 but was up 26% in 2009 as markets improved

US Residual Market Exposure to LossUS es dua a e posu e o oss

$900

Katrina, Rita, and Wilma

($ Billions)MEGATREND

There will be increased

$656.7

$771.9$696.4

$600

$700

$800

$900

4 Florida Hurricanes

pressure for governments to provide subsidized insurance

in catastrophe prone areas

$372.3$430.5 $419.5

$292.0$281 8$400

$500

$600Hurricane Andrew

$292.0$244.2$221.3

$281.8

$150.0

$54.7$100

$200

$300

anz

SE

200

9

$01990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

In the 19-year Period Between 1990 and 2008, Total Exposure to Loss in the Resid al Market (FAIR & Beach/Windstorm) Plans Has S rged from

A

llia

99Source: PIPSO; Insurance Information Institute

the Residual Market (FAIR & Beach/Windstorm) Plans Has Surged from $54.7B in 1990 to $696.4B in 2008

Catastrophe LossesCatastrophe LossesBig picture: Insurers face both insured and capital market CATs

Risks Response / OpportunityInsured CATs Insured CATsInsured CATs

Nat cat wind, hail, earthquake, flood, fire

Man-made terrorism

Life pandemic

Insured CATs

Reinsurance optimization (retention, pooling)

Alternative risk transfer

Underwriting / Product Innovation / Limits & p gDeductibles

Risk Management

- Know and understand risk (geo-coding, modeling)

- Mitigation (risk advice, land use, planning, building t gat o ( s ad ce, a d use, p a g, bu d gcodes)

Capital Market CATs

Equity crash 2000 b ti f th d t b bbl

Capital Market CATs

No loss-leading underwriting: CR < 100%

anz

SE

200

9

bursting of the dot-com bubble

Financial crisis 2008 / 2009 bursting of the housing bubble

De-risking portfolios

- Low on equities

- Increased hedging

- Intelligent diversification

A

llia

10

Intelligent diversification

Catastrophe Losses ExampleCatastrophe Losses Example CAT Bonds: The atomization of risk via the capital marketExperience of Allianz in the 2000s Potential Trends for the 2010s

Sponsored four cat bonds between 2007 and 2009 (Blue Coast, Blue Fin 1, Blue Fin 2, Blue Wings)Focus on significant nat cat exposures, such as

- European windstorm

New cat bond issuances in 2010 are likely to exceed the volume of nearly $3.5 billion in 2009Innovative structural solutions reducing the collateral risk are expected to consolidateC t b d t ill ti t tt t i t- US hurricane and earthquake

Key experience / learnings- Cat bonds complement traditional reinsurance

and provide access to new capacity providersCollateralization with high quality assets allows

Cat bond segment will continue to attract investors given the recent performance of this asset class and low correlation to other market segments

- Collateralization with high-quality assets allows sponsors to manage counterparty credit risk

Risk ManagementPotential Trends for the 2010s

anz

SE

200

9

Potential Trends for the 2010sKnow your risks betterUnderstand your risks betterManage your risks betterPartner with government for mitigation

A

llia

11

Partner with government for mitigation

Cli t ChClimate Change:Insurers Must Play Offense and yDefense in the Decade Ahead

anz

SE

200

9

Alli

a

1212

fPrevalence of InsurerClimate-Related Activities: 2008

Promoting Loss Prevention9%Carbon Risk Disclosure**

Understanding CC Problem6% 9%

Aligning Terms & Conditions w/ Risk-reducing Behavior

6%

14%

MEGATRENDInsurers will continue to

Crafting Innovative Insurance Products

22%

Insurers will continue to accelerate innovation in the

area of climate-change activities

Offering Carbon

Leading by Example17%

anz

SE

200

9

RM & Offsets5%

Financing Customer Improvements

Building Awareness & Participating in Public Policy*

14%

A

llia

13

p2%Investment in CC Solutions

5%

14%

*A maximum of 1 is tallied, as there is too much subjectivity in assigning weights to each individual activity**Multi-year responses to a given disclosure initiative are counted once.Source: Ceres: From Risk to Opportunity: 2008 Insurer Responses to Climate Change

Green Insurance: Key Innovations and TrendsGreen Insurance: Key Innovations and Trends Many more insurers offering green-buildings products and services

Almost