Ab Swiss Re Media Briefing John Coomber, Chief Executive Officer Thomas Hess, Head Economic Research...

abSwiss Re Media Briefing

John Coomber, Chief Executive Officer

Thomas Hess, Head Economic Research & Consulting

Monte Carlo, 13 September 2004

ab

Agenda

Welcome John Coomber

Reinsurance is back to profitability Thomas Hess

Underwriting for profit John Coomber

Media Briefing Monte Carlo13 September 2004

ab

Agenda

Lessons from 2001-2003

Situation of the industry in 2004


abLessons from 2001-2003

The combination of the soft market and a stock market crash is a dangerous mix for reinsurers

Liability insurance has to respect the borders of insurability and price for high loss inflation and the risks of legal change

Reinsurance is an attractive product, insurers are willing to pay for


abThe soft cycle shows up in high reinsurance combined ratios*

Combined ratios peaked in 2001, since then they are on a steady decline to profitable underwriting results

80%

90%

100%

110%

120%

130%

140%

150%

90 92 94 96 98 00 02 04

Worldwide US [RAA]

* calendar year view

Source: Swiss Re Economic Research & Consulting, Reinsurance Association of America (US)


ab

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

80 82 84 86 88 90 92 94 96 98 00 02

US P&C Insurers US P&C Reinsurers

2001-2003 was the worst period for US reinsurers since the liability crisis*

ROE of US reinsurers

* calendar year view

Sources: A.M.Best, Swiss Re Economic Research & Consulting


abLiability business has to price for loss inflation and nasty surprises

US [1]Canada

[1]UK [1]

Germany

France Italy Japan

Period1955 -

031975 -

021983 -

021971 -

021971 -

021970 -

021970 -

02

Compound annual growth rate

- Liability claims

10.6% 11.3% 8.8% 7.4% 9.4% 15.9% 13.8%

- Nominal GDP 7.1% 7.3% 6.7% 5.2% 8.0% 11.6% 6.1%

- Health expenditures

10.2% 9.4% 8.7% 7.4% 10.2% n.a. 8.3%

Elasticity [2] of liability claims versus

- Nominal GDP 1.51 1.55 1.31 1.43 1.17 1.38 2.24

- Health expenditures

1.04 1.19 1.02 1.01 0.93 n.a. 1.66

[1] net of reinsurance [2] The GDP elasticity of liability claims measures how many percent claims grow for each percent of GDP or health expenditure growth.Source: Swiss Re Economic Research and Consulting

abBorders of insurability need to be respected

Exclusions of terror risk have been introduced (also very relevant for property)

Unlimited liability in motor third party has been removed in many countries

Shift to tighter conditions to limit the impacts of the risks of legal change in highly exposed buiness lines (product liability, D&O, E&O, and medical malpractice)


abReinsurance is back

Reinsurance premiums grew by more than 60% in USD terms between 2000 and 2004

020406080

100120140160

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

USD bn

Industrialised Markets Emerging Markets

Source: Swiss Re Economic Research & Consulting


abStrong demand for reinsurance in Emerging markets

Share of Emerging Markets will grow from 14% in 2003 to 20% by 2014.

211 bn USD (80%)

51.9 bn USD(20%)


abAgenda

Lessons from 2001-2003

Situation of the industry in 2004


abThe situation of the industry in 2004

Reinsurance in a strongly improved state, but not all problems are solved

Capital in the insurance and reinsurance industry is still tight, but starts growing again

Reinsurance prices are attractive and will remain so

Profitability is of high quality

A better capitalisation and reserving of reinsurers together with higher interest rates will lead to improved investment results


abCapacity in the Property & Casualty industry is still tight

Capital and solvency of the 6 major insurance marketsUSD bn

0

150

300

450

600

750

900

98 99 00 01 02 03 04

0%

20%

40%

60%

80%

100%

120%

Capital Premiums Solvency [RHS]



abPrices are at attractive levels

Sources: Lloyds, Swiss Re

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

19

94

19

96

19

98

20

00

20

02

20

04

Base 1996

Marine, Lloyds Non-Marine, LloydsAviation, Lloyds Property Fac, Swiss Re


abThe quality of profits is now based on solid underwriting

Profitability of major reinsurers 1999-2004*

-25%

-20%-15%

-10%

-5%0%

5%

10%15%

20%

99 00 01 02 03 04**

U/w result Investment result Operating margin

in % NPE

*calendar year view, excluding Munich Re and Berkshire Hathaway, ** estimate



abRecovery of underwriting cash-flow in the US P&C industry

u/w cash-flow in % of Net Premiums Written

-10%

-5%

0%

5%

10%

15%

20%

68 73 78 83 88 93 98 '03

Sources: Fox Pitt, Kelton, A.M.Best, Swiss Re Economic Research & Consulting

Liability crisisAndrew

9/11


ab10-year government bond yields will rise from currently 4-4.5% to 5.5% in 2006

Forecast

Source: Datastream Advance

ALM is the instrument to deal with rising interest rates

Higher interest rates will increase investment results

Media Briefing Monte Carlo 13 September 2004

02468

10121416

1979

1982

1985

1988

1991

1994

1997

2000

2003

2005

US Germany

abSummary

Liability business needs to respect borders of insurability and price for the high risks involved

Today premiums reflect the exposures. Industry earns higher premiums for reduced risks

Increasing interest rates and increase of reserves will trigger improved investment returns

Focus in reinsurance has to remain on underwriting


abUnderwriting for profitManaging the cycle at its peak

John Coomber

Chief Executive Officer

abAgenda

Risk is a growth business

Steering capacity to aim for attractive returns

Summary


abRisk is a growth business:Long-term growth assured

1990 = 100

Growth of the property & casualty industry will continue to surpass global GDP growth

100

110

120

130

140

150

160

170

180

190

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Direct premiums Free ceded premiums GDP

Forecast



abSwiss Re can accelerate growth by effective cycle management and consolidation gains

illustrative

7% growth

P&C and L&HP&C only

12% growth

Time

Premium

Industry growth 7%

Market outperformance

Transactions 5%Business extension

Swiss Re 12%

1994 - 2004


abAgenda



Summary


abSwiss Re directs capital to attractive non-life opportunities

Nat cat Property Liability Special lines Industry sectors

Each line of business and geography show its own cycle and pattern

Time

Tech

nic

al p

rofita

bili

ty USA

Europe

Asia

Illustrative


abCapacity (re)allocation during the cycle Premiums earned by line of business

33% 34% 34% 33% 34%

25% 27%32%

22% 21% 18% 18%17%

15% 15%13%

8% 7% 4%

20% 21%

17% 16%

8%8%

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 1HY 2004

Property Liability Motor Other AccidentMedia Briefing Monte Carlo13 September 2004

abCapacity (re)allocation during the cyclePremiums earned by division

9% 9% 11% 10% 13%

57% 53% 45% 48%49%

34% 38%44% 42% 38%

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 1 HY 2004

Asia Europe AmericasMedia Briefing Monte Carlo13 September 2004

abControl pricing over the cyclePremiums earned by type of business

Based on premiums in calendar years at historic exchange rates Traditional business only

53% 54% 48% 47% 46%

28% 31%35% 36% 36%

19% 15% 17% 17% 18%

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 1HY 2004

Proportional Non-Proportional FacultativeMedia Briefing Monte Carlo13 September 2004

abSteer capacity where it generates attractive returns

Underwriting Steering Values

Quarterly reinsurance survey

Underwriting Tracking Tool

Capacity steering for product prioritization

Use steering tools to direct capital to attractive business sectors and clients


abReinsurance Survey:Clear understanding of market trends

Qualitative surveys on recent and expected developments in the re/insurance market

Provides market intelligence as a basis for upcoming market opportunities

Structured quarterly questionnaire collected from 250 client managers, underwriters to gather information regarding:

– Key reinsurance variables

– Lines of Business

– Key competitors

In addition, more frequent qualitative market reports by market units


abUnderwriting Steering ValuesDefinition of price targets

Internal Costs

Capital Costs

Econ. Profit

U/W Costs

ProductionCosts

CycleReferencePremium

RenewalTarget

Premium

Underwriting costs:Is the sum of present value of claims and expenses

Production costs:Will produce minimum return on capital

Cycle Reference Premium: Will produce the RoE target over the cycle

Renewal Target Premium:Set to produce the economic profit margins planned for the next year

Expected Claims

External Costs Note: All measures on expected cash flow, risk based capital requirements and risk free investment return

abUnderwriting tracking toolBasis for effective capital allocation

Data base capturing contract specific information from all clients

Allows real time monitoring throughout the renewals driving transparency and discipline

Quarterly validation of estimates against actual

Provides information per contract or portfolio:

– Price adequacy

– Expected Combined Ratio

– Expected economic profitMedia Briefing Monte Carlo13 September 2004

abAgenda



Summary


abSummary

Cycle will be less pronounced:

– Low interest rate environment

– Greater internal and external transparency

– Capital equilibrium

Pricing levels today are very attractive

Rates will continue above cycle reference levels at next renewal


abQuestions & Answers


Ab Swiss Re Media Briefing John Coomber, Chief Executive Officer Thomas Hess, Head Economic Research...

Documents

Transcript of Ab Swiss Re Media Briefing John Coomber, Chief Executive Officer Thomas Hess, Head Economic Research...