2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing -...

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2018 Insurance Market Briefing - France Hôtel Napoléon 3 April 2018

Transcript of 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing -...

Page 1: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

2018 Insurance Market Briefing -France

Hôtel Napoléon

3 April 2018

Page 2: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

2018 Insurance Market Briefing -France

2018 Insurance Market Briefing - France 3 April 2018 2

Welcome

Nick Charteris-BlackManaging Director, Market Development – EMEA

William MillsDirector, Market Development

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Agenda

2018 Insurance Market Briefing - France 3 April 2018 3

14:10 Keynote Speech: New Battles for InsurersXavier Ducurtil, Directeur Marketing Stratégique du groupe Covéa

14:50 Thematic Session: European Insurance Market Segment Outlooks: What to Expect in 2018Alex Rafferty, Senior Financial Analyst

15:20

15:40 Thematic Session: Stormy Year, Placid Market? A Review of the Reinsurance Sector

Ghislain Le Cam, Director, Analytics

16:10 Best’s Credit Rating Methodology (BCRM): Benchmark Analysis 6 Months On

Charlotte Vigier, Senior Financial Analyst

17:00

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Disclaimer

2018 Insurance Market Briefing - France 3 April 2018 4

© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BYCOPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHERTRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCHPURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB’s PRIORWRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of thepossibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of anykind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from,or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers,employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of anysuch information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lostprofits), 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 creditratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must beconstrued 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 THEACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinionmust 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, andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, andeach provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.

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Disclaimer

2018 Insurance Market Briefing - France 3 April 2018 5

US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in thesales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating, ordeveloping 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 employeesare prohibited from participating in commercial discussions.

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

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2018 Insurance Market Briefing -France

2018 Insurance Market Briefing - France 3 April 2018 6

Alex RaffertySenior Financial Analyst

Thematic Session: European Insurance Market

Segment Outlooks:What to Expect in 2018

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Discussion Outline

2018 Insurance Market Briefing - France 3 April 2018 7

What is a Segment Outlook?

A Challenging Operating Environment for European Insurers

European Segment Outlooks

Looking Forward

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2018 Insurance Market Briefing - France 3 April 2018 8

What is a Segment Outlook?

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Market Segment Outlooks

2018 Insurance Market Briefing - France 3 April 2018 9

Examine the current trends in particular segments of the insurance industry over the next 12 months

Typical factors considered include current and forecast economic conditions; the regulatory environment and potential changes; emerging product developments; and competitive issues that could impact the success of the companies operating in the segment

A Best’s Market Segment Outlook, like a Best’s Credit Rating Outlook for a company, can be positive, negative, or stable

Many segments covered internationally

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European Segment Outlooks

2018 Insurance Market Briefing - France 3 April 2018 10

A.M. Best has aStable Outlook

France – Non-Life

A.M. Best has aNegative Outlook

UK – Non-Life

A.M. Best has aStable Outlook

Spain – Non-Life

A.M. Best has aStable Outlook

Italy – Non-Life

A.M. Best has aStable Outlook

Germany – Non-Life

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2018 Insurance Market Briefing - France 3 April 2018 11

A Challenging Operating Environment for European

Insurers

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European Overview

2018 Insurance Market Briefing - France 3 April 2018 12

Operating environment has proved challenging with limited growth prospects and low investment returns

Insurers have maintained strong balance sheets, with resilient operating performance, and appropriate enterprise risk management (ERM)

Persisting headwinds… Regulatory risks Political risks Historically low interest rates

… and encouraging signs: Improving economic outlook Indications of modest interest rate rises

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A Context of Economic Recovery

2018 Insurance Market Briefing - France 3 April 2018 13

e = estimate p = projectionSource: International Monetary Fund

Period of economic recovery, expected to moderate

-3%

-2%

-1%

0%

1%

2%

3%

4%

2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p

GDP Growth 2010 - 2019FranceUKSpainItalyGermanyEurozone

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A Context of Economic Recovery

2018 Insurance Market Briefing - France 3 April 2018 14

Increased economic activity with lower unemployment

Note: *Data as at January 2018, **Data as at November 2017Source: Europa.eu

5.2%7.6%

12.0% 10.3%12.1%

26.1%

3.6% 4.3%

8.6% 9.0%11.1%

16.3%

Germany* UK** Eurozone* France* Italy* Spain*

Unemployment, Selected Countries2013 2018

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Challenging Interest Rate Environment

2018 Insurance Market Briefing - France 3 April 2018 15

Notes: Percentages per annum; period averages Source: European Central Bank – Long Term Interest Rate for Convergence Purposes

Historical low interest rate environment persists

-1

0

1

2

3

4

5

6

7

8

2010

Jan

2010

Jul

2011

Jan

2011

Jul

2012

Jan

2012

Jul

2013

Jan

2013

Jul

2014

Jan

2014

Jul

2015

Jan

2015

Jul

2016

Jan

2016

Jul

2017

Jan

2017

Jul

2018

Jan

%

European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)

France UK Spain Italy Germany

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Rising Political Uncertainty

2018 Insurance Market Briefing - France 3 April 2018 16

Catalonia Referendum

Brexit

Italian Elections

German Elections

French Elections

Populist Rise

US Elections

Increased uncertainty in political landscape

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2018 Insurance Market Briefing - France 3 April 2018 17

European Segment Outlooks

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European Segment Outlooks

2018 Insurance Market Briefing - France 3 April 2018 18

A.M. Best has aStable Outlook

France – Non-Life

A.M. Best has aNegative Outlook

UK – Non-Life

A.M. Best has aStable Outlook

Spain – Non-Life

A.M. Best has aStable Outlook

Italy – Non-Life

A.M. Best has aStable Outlook

Germany – Non-Life

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France Non-Life Outlook

2018 Insurance Market Briefing - France 3 April 2018 19

A.M. Best Has A Stable Outlook

Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions

Headwinds

Ongoing intense competition

Weak technical equilibrium

Inflationary claims trends in motor

Tailwinds

Favourable pricing indicators

Business mix generally well balanced

Source: FFA; Les Echos

99% 98%

90%

95%

100%

105%

110%

2012 2013 2014 2015 2016

Non-Life Combined Ratio

Non-lifemarketProperty -IndividualProperty -CommercialMotor

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Germany Non-Life Outlook

2018 Insurance Market Briefing - France 3 April 2018 20

A.M. Best Has A Stable Outlook

Sector exhibits solid technical profitability, underpinned by good underwriting discipline and sustainable rate adjustments, and very strong balance sheets

Headwinds

Increasingly competitive market conditions

Protectionist tendencies could adversely impact Germany’s export driven economy

TailwindsSolid technical profitability, with good underwriting discipline

Solid economic fundamentals

Sustainable rate increasesSource: Best’s Statement File – Global, A.M. Best data and research; GDV.

97% 95%90%95%

100%105%110%115%120%

2012 2013 2014 2015 2016

Non-Life Combined Ratio

Non-lifemarketProperty

Motor

Liablity

286%

287%

2016

2015

SCR

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Spain Non-Life Outlook

2018 Insurance Market Briefing - France 3 April 2018 21

A.M. Best Has A Stable Outlook

Insurers demonstrate solid technical fundamentals, with good performance and strong balance sheets, although sustained political instability could test the sector

Headwinds

Political instability following Catalonia independence referendum

Adapting to regulatory reforms

TailwindsSustained strong technical performance

Economic recovery to support premium growth

Strengthened ERMSource: El Mundo; FFA; GDV; A.M. Best calculations on ANIA data; ANIA; DGSFP

94% 93%

90%92%94%96%98%

100%102%104%

2012 2013 2014 2015 2016

Selected Countries –Non-Life Combined Ratio

France

Spain

Italy

Germany

Page 22: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Italy Non-Life Outlook

2018 Insurance Market Briefing - France 3 April 2018 22

A.M. Best Has A Stable Outlook

The stable outlook reflects the sector’s ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty

Headwinds

Strong competition putting pressure on rates for motor (50% of non-life market)

Political instability

Economic fundamentals

Tailwinds

Strong technical profitability

Underwriting discipline supported by increased use of telematics

Source: A.M. Best calculations on ANIA data; ANIA; GDV, FFA; DGSFP

96%94%

90%92%94%96%98%

100%102%104%

2012 2013 2014 2015 2016

Selected Countries –Non-Life Combined Ratio

France

Spain

Italy

Germany

20,224 18,676 17,598 16,674 16,160

85%

90%

95%

100%

- 5,000

10,000 15,000 20,000 25,000

2012 2013 2014 2015 2016

Motor Gross Written Premium and Combined Ratio

Motor GWP Motor Combined Ratio

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UK Non-Life Outlook

2018 Insurance Market Briefing - France 3 April 2018 23

A.M. Best Has A Negative Outlook

Competitive conditions, legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment

HeadwindsEconomic uncertainty

Intense competition; weak technical margins

Volatility in prior year reserve development

Legislative uncertainty

Tailwinds

Implementation of Civil Liability Bill, with potential whiplash and personal injury claims reform

Note: Accident Year Combined RatiosSource: Best’s Statement File – Global, A.M. Best Data and Research; Insurance Times

102%98%

110% 112%113%

104%

95%

105%

115%

125%

135%

2012 2013 2014 2015 2016

Accident Year Combined Ratio (Selected Lines)

Property Motor Liability

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2018 Insurance Market Briefing - France 3 April 2018 24

Looking Forward

Page 25: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Key things to watch…

2018 Insurance Market Briefing - France 3 April 2018 25

Competition to continue to strain technical margins, pricing

Ongoing focus on cost management, as insurers aim to preserve bottom lines in highly competitive markets and low investment return environment

Economic environment will present some opportunities for insurers, although dramatic growth not anticipated

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Key things to watch…

2018 Insurance Market Briefing - France 3 April 2018 26

Increasing focus on, and investment in, innovation and customer experience

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Key things to watch…

2018 Insurance Market Briefing - France 3 April 2018 27

Political Uncertainty

GDPR

IFRS17Legislative Reforms

Distribution Directive

External challenges persist

Brexit

Page 28: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

2018 Insurance Market Briefing -France

2018 Insurance Market Briefing - France 3 April 2018 28

Thematic Session: Stormy Year, Placid Market?

A Review of the Reinsurance Sector

Ghislain Le CamDirector, Analytics

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Discussion Outline

2018 Insurance Market Briefing - France 3 April 2018 29

Global Reinsurance Results and Trends

Market Capacity

Global Market Developments & Evolution

Reinsurance Sector Outlook

Page 30: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Plus ça change…

2018 Insurance Market Briefing - France 3 April 2018 30

Negative interest rates

The United States, the world’s largest economy, has debt/GDP over 100%

The United Kingdom voted to leave the European Union

Terrorism seems to be rampant around the world

Housing bubbles in many parts of the world

Stock Markets are hovering near all-time highs

…plus c’est la même chose

Page 31: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

2018 Insurance Market Briefing - France 3 April 2018 31

Global ReinsuranceResults and Trends

Page 32: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Global Combined Ratio

2018 Insurance Market Briefing - France 3 April 2018 32

60.1% 55.9% 56.2% 56.0% 60.5%

76.1%

61.0%

31.6% 31.9% 33.6% 34.3%34.7%

33.7%

33.6%

6.3% 5.7% 5.4% 6.0% 5.8%4.2% 5.4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017 5yr Avg

Expense Ratio

Loss Ratio

Loss ReserveDevelopment

Source: A.M. Best data and research, preliminary numbers

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Combined Ratio by Reinsurance Sector

2018 Insurance Market Briefing - France 3 April 2018 33

Source: A.M. Best data and research, preliminary numbers

91% 87% 88% 90%98%

114%

2012 2013 2014 2015 2016 2017

European “Big Four” U.S. & Bermuda Lloyd’s

93%87% 87% 91% 92%

108%

2012 2013 2014 2015 2016 2017

91% 89% 92% 92% 96%109%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017

Loss Ratio Expense Ratio

Page 34: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Global Return on Equity

2018 Insurance Market Briefing - France 3 April 2018 34

Source: A.M. Best data and research, preliminary numbers

12.4% 13.0%11.6%

9.8%8.4%

-0.1%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2012 2013 2014 2015 2016 2017

Return on Equity Five-Year Average

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Return on Equity by Reinsurance Sector

2018 Insurance Market Briefing - France 3 April 2018 35

Source: A.M. Best data and research, preliminary numbers

European “Big Four” U.S. & Bermuda Lloyd’s

13.0% 13.1%11.0% 11.5%

9.7%

2.7%

0%

5%

10%

15%

20%

2012 2013 2014 2015 2016 2017

10.4%11.4%

10.8%8.0% 7.0%

0.2%

2012 2013 2014 2015 2016 2017

15.1% 16.2%14.7%

8.9% 8.1%

-7.3%

2012 2013 2014 2015 2016 2017

Five-Year Average

2017

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Global Return on Equity – Five Year Average at Year End 2017

2018 Insurance Market Briefing - France 3 April 2018 36

Source: A.M. Best data and research, preliminary numbers

8.5%

4.7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Five -Year Average Returnon Equity

Five -Year Average Returnon Equity Excluding Loss

Reserve Development

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Global Operating Cash Flow (% of equity)

2018 Insurance Market Briefing - France 3 April 2018 37

Source: A.M. Best data and research, preliminary numbers

14.9%

10.1%

13.4%12.5% 12.6%

5.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014 2015 2016 2017

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2018 Insurance Market Briefing - France 3 April 2018 38

Market Capacity

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Top Reinsurance Groups

2018 Insurance Market Briefing - France 3 April 2018 39

Swiss Re Ltd. Munich Reinsurance Company Lloyd's Hannover Ruck SE Berkshire Hathaway Inc. SCOR S.E.Transatlantic Holdings, IncEverest Re Group Ltd. PartnerRe Ltd.XL Group plc

Top 10 Global Reinsurance Groups – Non-Life

Top 10 Global Reinsurance Groups – Life

Munich Reinsurance CompanySwiss Re Ltd. Reinsurance Group of America Inc.SCOR S.E.Hannover Ruck SEGreat West LifecoBerkshire Hathaway Inc.Pacific LifeCorpPartnerRe Ltd.Assicurazioni Generali SpA

Source: A.M. Best data and research. Ranked by unaffiliated gross premium written in 2016

Page 40: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Life and Non-Life Reinsurance GPW Distribution by Ranking

2018 Insurance Market Briefing - France 3 April 2018 40

Rank 1-1068.6%

Rank 11-2016.0%

Rank 21-307.6%

Rank 31-405.0%

Rank 41-502.8%

Source: A.M. Best data and research. Ranked by unaffiliated gross premium written in 2016

Page 41: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Estimate for Total Dedicated Reinsurance Capacity (USD billions)

2018 Insurance Market Briefing - France 3 April 2018 41

Source: A.M. Best data and research and Guy Carpenter

292 320 340 332 345 345

19 48

60 68 75 82

2012 2013 2014 2015 2016 2017

ConvergenceCapacity

TraditionalCapacity

Page 42: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Convergence Capacity

2018 Insurance Market Briefing - France 3 April 2018 42

Source: A.M. Best data and research and Guy Carpenter

4 3 4 5 5

25 3441

49 5219

2323

2225

2013 2014 2015 2016 2017E*ILW Collateralized Re Catastrophe Bonds

Source: A.M. Best data and research and Artemis

0

10

20

30

40

50

60

70

0

2

4

6

8

10

12

14

Num

ber of Deals

USD

bill

ions

CAT Bonds Issued Number of Deals

Convergence Capacity (USD billions) Catastrophe Bonds Issued

Page 43: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Total Economic and Insured Losses

2018 Insurance Market Briefing - France 3 April 2018 43

Source: Swiss Re Institute

2017 2016

AnnualChange

(%)10-Year Average

% of 10-Year Average

Economic LossesEconomic Losses(USD billions)

Natural Catastrophe 300 178 69 178Man-made 6 10 -42 12

Economic Losses - Total 306 188 63 190Insured Losses(USD billions)

Natural Catastrophe 131 56 133 51 29Man-made 5 8 -45 7 58

Insured Losses - Total 136 65 110 58 31

Page 44: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Rate increases have remained moderate and account specific

2018 Insurance Market Briefing - France 3 April 2018 44

0%

50%

100%

150%

200%

250%

300%

350%

400%

US Asia - Pacific UK Europe Global

9/11 Attacks (01)

KRW* (05)

IKE (08)Japan EQ (11)

Andrew (92)

Sandy (12)

HIM** (17)

* Katrina, Rita, Wilma ** Harvey, Irma, MariaSource: A.M. Best data and research, Guy Carpenter & Co LLC

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2018 Insurance Market Briefing - France 3 April 2018 45

GlobalMarket

Developments

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London Market

2018 Insurance Market Briefing - France 3 April 2018 46

UK ILS Reform

Mergers & Acquisitions

Brexit Plans

Page 47: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Main M&A Deals

2018 Insurance Market Briefing - France 3 April 2018 47

Date Announced Acquirer Acquiree Price ($Mil) Price to BV Premium to last close

Jun-14 Validus Western World Insurance $690 1.33x N/A

Aug-14 Allied World Hong Kong operation of RSA $215 N/A N/ANov-14 RenRe Platinum Underwriters $1,900 1.13x 24%

Jan-15 XL Group Catlin Group Limited $4,100 1.61x 24%

Feb-15 Fairfax Brit $1,880 1.59x 11%

Mar-15 Endurance Montpelier Re $1,830 1.21x 19%

May-15 Fosun International Ltd Ironshore $2,304 N/A N/A

Aug-15 EXOR PartnerRe $6,900 1.10x 20%

Sep-15 Mitsui Sumitomo Amlin $5,300 2.40x 36%

Oct-16 Sompo Endurance $6,300 1.36x 43%

Dec-16 Fairfax Allied World $4,900 1.34x 18%

Dec-16 Liberty Mutual Ironshore $3,000 1.45x N/A

Jan-18 AIG Validus $5,560 1.53x 46%Mar-18 Axa XL Catlin $15,300 1.51x 33%

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Brexit Plans

2018 Insurance Market Briefing - France 3 April 2018 48

Insurers Unveil Choices for European Offices

Source: A.M. Best data and research

Page 49: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Regulatory Changes

2018 Insurance Market Briefing - France 3 April 2018 49

Covered agreement

U.S. tax reform

Has regulation peaked?

Page 50: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Market Evolution

2018 Insurance Market Briefing - France 3 April 2018 50

Client Agent & Broker

Primary Insurance Company

Reinsurance Broker

Reinsurance Company

Convergence Capital

In A.M. Best’s opinion…

The market will continue to become more efficient as all players strive to become closer to the client

Page 51: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Evolving strategies

2018 Insurance Market Briefing - France 3 April 2018 51

Traditional Dual Platform

Controlthe client

Build primary business

Alternative Capital Platform

Manage or have a relationship with

alternative capital

Build fee income stream

Mergers &Acquisitions

Relevanceand size

Ability to be small and nimble with

parental protection

Page 52: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Potential Opportunities

2018 Insurance Market Briefing - France 3 April 2018 52

Cyber Insurance Flood Mortgage Terrorism InsurTech

Page 53: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

2018 Insurance Market Briefing - France 3 April 2018 53

ReinsuranceOutlook

Page 54: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Negative Outlook Remains

2018 Insurance Market Briefing - France 3 April 2018 54

Although capitalisation remains strong and rate deterioration halted, pressure on margins continues

Over the intermediate term, returns for some reinsurers will fall short on a risk-adjusted basis

A.M. Best Maintains Negative Outlook

Headwinds

Intense competitionIncreasing interest from third party capital Earnings under pressureExcess capacity hinders improvementPotential for increased inflation

Tailwinds

Cession rates increasingCat losses temporarily stabilise ratesFavourable reserve developmentStrong risk-adjusted capitalIncrease in interest ratesM&A

Page 55: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

2018 Insurance Market Briefing -France

2018 Insurance Market Briefing - France 3 April 2018 55

Charlotte VigierSenior Financial Analyst

Best’s Credit Rating Methodology (BCRM): Benchmark Analysis Six Months On

Page 56: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Interactive Rating Process

2018 Insurance Market Briefing - France 3 April 2018 56

Source: Best’s Credit Rating Methodology

Page 57: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

BCRM Building Blocks

2018 Insurance Market Briefing - France 3 April 2018 57

Source: Best’s Credit Rating Methodology

Page 58: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

BCRM Building Blocks

2018 Insurance Market Briefing - France 3 April 2018 58

Assessment

Strongest

Very Strong

Strong

Adequate

Weak

Very Weak

Assessment

Very Strong +2

Strong +1

Adequate 0

Marginal -1

Weak -2

Very Weak -3

Assessment

Very Favorable +2

Favorable +1

Neutral 0

Limited -1

Very Limited -2

Assessment

Very Strong +1

Appropriate 0

Marginal -1

Weak -2

Very Weak -3/4

Page 59: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

BCRM Building Blocks – Balance sheet Strength

2018 Insurance Market Briefing - France 3 April 2018 59

Assessment

Strongest

Very Strong

Strong

Adequate

Weak

Very Weak

Page 60: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies –Balance Sheet Strength

2018 Insurance Market Briefing - France 3 April 2018 60

-20-10

01020304050607080

VaR 95% VaR 99% VaR 99.5% VaR 99.6% VaR 99.8%M

edia

n B

CAR

Sco

re

Strongest Very Strong Strong Adequate

Mature European Companies – Median BCAR Score by Balance Sheet Strength as at Oct 2017

Notes:Data comprise testing conducted on lead rating units before the introduction of the new BCRM on Oct. 13, 2017.

Best’s Capital Adequacy Ratio (BCAR) is one of the elements considered in the balance sheet strength assessment

VaR Confidence Level(%)

BCAR BCAR Assessment

99.6 >25 at 99.6 Strongest99.6 > 10 at 99.6 & ≤ 25 at 99.6 Very Strong99.5 > 0 at 99.5 & ≤ 10 at 99.6 Strong99 > 0 at 99 & ≤ 0 at 99.5 Adequate95 > 0 at 95 & ≤ 0 at 99 Weak95 ≤ 0 at 95 Very Weak

Page 61: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies –Balance Sheet Strength

2018 Insurance Market Briefing - France 3 April 2018 61

Strongest10%

Very Strong71%

Strong14%

Adequate5%

European Companies – Balance Sheet Strength Distribution

Notes:Data comprise both preliminary testing conducted on lead rating units before introduction of the new BCRM (Oct. 13, 2017) and actual rating committee outcomes to mid-March, 2018. Source: A.M. Best data and research

173 4

50

100

913 13

100 100

50

100

33

6773

7783

67

17 187

0

10

20

30

40

50

60

70

80

90

100

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

(%)

Strongest Very Strong Strong Adequate

European Companies – Balance Sheet Strength by Long-Term Issuer Credit Rating

Page 62: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

BCRM Building Blocks – Operating performance

2018 Insurance Market Briefing - France 3 April 2018 62

Assessment

Very Strong +2

Strong +1

Adequate 0

Marginal -1

Weak -2

Very Weak -3

Page 63: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies –Operating Performance

2018 Insurance Market Briefing - France 3 April 2018 63

Strong +137%

Adequate 057%

Marginal -16%

European Companies – Operating Performance Notch Distribution

186 4

1733

36 5872

100 100 100 10010083

67

4536

24

0

10

20

30

40

50

60

70

80

90

100

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

(%)

Strong +1 Adequate 0 Marginal -1

European Companies – Operating Performance Notch by Long-Term Issuer Credit Rating

Notes:Data comprise both preliminary testing conducted on lead rating units before introduction of the new BCRM (Oct. 13, 2017) and actual rating committee outcomes to mid-March, 2018.Source: A.M. Best data and research

Page 64: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies –Operating Performance

2018 Insurance Market Briefing - France 3 April 2018 64

88

97

107

60

65

70

75

80

85

90

95

100

105

110

+1 0 -1

Strong Adequate Marginal

Med

ian

5-Yr

. Avg

. Com

bine

d R

atio

(%)

European Companies – 5-Year Average Combined Ratio by Operating Performance Notch

13

7

3

0

2

4

6

8

10

12

14

+1 0 -1

Strong Adequate Marginal

Med

ian

5-Yr

. Avg

. RO

E (%

)

European Companies – 5-Year Average ROE by Operating Performance Notch

Notes:Data comprise testing conducted on lead rating units before introduction of new BCRM (Oct. 13, 2017).Source: A.M. Best data and research

Page 65: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

BCRM Building Blocks – Business Profile

2018 Insurance Market Briefing - France 3 April 2018 65

Assessment

Very Favorable +2

Favorable +1

Neutral 0

Limited -1

Very Limited -2

Page 66: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies –Business Profile

2018 Insurance Market Briefing - France 3 April 2018 66

Very Favorable +2

11%

Favorable +119%

Neutral 050%

Limited -120%

European Companies – Business Profile Notch Distribution

27

9

30 33

100

50

100

1733

3664

5967

100

17

17

2721

11

5067

50

0

10

20

30

40

50

60

70

80

90

100

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

(%)

Very Favorable +2 Favorable +1 Neutral 0 Limited -1 Very Limited -2

European Companies – Business Profile Notch by Long-Term Issuer Credit Rating

Notes:Data comprise both preliminary testing conducted on lead rating units before introduction of the new BCRM (Oct. 13, 2017) and actual rating committee outcomes to mid-March, 2018.Source: A.M. Best data and research

Page 67: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies –Business Profile

2018 Insurance Market Briefing - France 3 April 2018 67

Page 68: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

BCRM Building Blocks – Enterprise Risk Management

2018 Insurance Market Briefing - France 3 April 2018 68

Assessment

Very Strong +1

Appropriate 0

Marginal -1

Weak -2

Very Weak -3/4

Page 69: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies –Enterprise Risk Management

2018 Insurance Market Briefing - France 3 April 2018 69

Very Strong +1

10%

Appropriate 089%

Marginal -11%

European Companies – Enterprise Risk Management Notch Distribution

8

100

3350

9186 100 100 100 100 100

6750

9 6

0

10

20

30

40

50

60

70

80

90

100

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

(%)

Very Strong +1 Appropriate 0 Marginal -1

European Companies – Enterprise Risk Management Notch by Long-Term Issuer Credit Rating

Notes:Data comprise both preliminary testing conducted on lead rating units before introduction of the new BCRM (Oct. 13, 2017) and actual rating committee outcomes to mid-March, 2018.Source: A.M. Best data and research

Page 70: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European CompaniesICR Distribution (%)

2018 Insurance Market Briefing - France 3 April 2018 70

Source: Best’s Credit Rating Monitor

1

3

5

17

23

29

21

1 1 11

3

11 11

22

28

21

1 1 1

aaa aa+ aa aa- a+ a a- bbb+ bbb bbb-Rating distribution as at 30 September, 2017 Rating distribution as at 28 February, 2018

Page 71: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

Mature European Companies Rating Outlook Distribution (28 February, 2018)

2018 Insurance Market Briefing - France 3 April 2018 71

Rating Actions

Outlook Summary

Source: Best’s Credit Rating Monitor March 2018

2%

7%

7%84%

Developing Negative Positive Stable

94%6%

Affirm Upgrade

Page 72: 2018 Insurance Market Briefing - France · UK Non-Life Outlook. 2018 Insurance Market Briefing - France 3 April 2018 23. A.M. Best Has A Negative Outlook. Competitive conditions,

2018 Insurance Market Briefing -France

Hôtel Napoléon

3 April 2018