Sanford C. Bernstein Strategic Decisions Conference6aba04c6-9f11-4a89-b93c-e18fb0c… · of...

a

Sanford C. Bernstein Strategic Decisions Conference Christian Mumenthaler, CEO Reinsurance

London, 20 September 2012

a

Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012

a

Introduction to Swiss Re

Reinsurance market drivers – a three year view

Summary and outlook

2

Agenda


a

Introduction to Swiss Re

3


a Introduction to Swiss Re

Our financial strength is currently rated: Standard & Poor’s: AA-/stable; Moody’s A1/positive; A.M. Best: A+/stable

Swiss Re is a leading and highly diversified global re/insurance company

We deliver both traditional and innovative offerings in Property & Casualty and Life & Health that meet our clients’ needs

A pioneer in insurance-based capital market solutions, we combine financial strength and unparalleled expertise for the benefit of our clients

149 years of experience in providing wholesale re/insurance and risk management solutions

4


a

5

Swiss Re's Group strategy

Outperform our peers Reinsurance Admin Re® Asset Management

Smart expansion Corporate Solutions Longevity & Health

High Growth Markets

Current position

The leading player in the wholesale

re/insurance industry

Strategic goal:


a Swiss Re Group Overview

Reinsurance

To be a focused, lean, global player in large commercial business

To be a recognised force in the closed life book market

To be the world's leading reinsurer

The foundation of our strengths

A key opportunity for growth

Providing cash dividends

Corporate Solutions

Swiss Re Group

Admin Re®

Current position

Strategic goal

Current position

Strategic goal

Current position

Strategic goal

P&C L&H

6


a Swiss Re is broadly diversified by geography and product line

Premiums earned1 2011 (USD 22.2 billion) by region (in USD bn) … and by business segment:

Swiss Re benefits from geographic and business mix diversification and has the ability to reallocate capital to achieve profitable growth

Europe Asia Americas (incl. Middle East /Africa)

42% 39% 19%

P&C Re 45%

L&H Re 38%

Corporate Solutions

9%

Admin Re® 8%

1 Includes fee income from policyholders

7

9.3 8.6

4.3


a

Life & Health Unparalleled mortality experience data

provides ability to better quantify the underlying risk

Casualty Forward-looking "Nat-Cat-like" model

being developed, based on systematic assessment of risk drivers

Property Own research team and models for

storm, earthquake and flood Ability to compare to commercial tools

and understand differences

Swiss Re's R&D capabilities a key differentiator of our underwriting

Reinsurance is a knowledge business

R&D provides a competitive advantage

Portfolio steering

R&D is a value driver in underwriting

Structuring

skills

Risk selection

Portfolio steering

Cycle management

R&D

8


a Swiss Re's approach to underwriting leads to outperformance …

1 Underwriting profit = GAAP premiums earned - claims and claims adjustment expenses - acquisition costs - other expenses Top 8 reinsurers include: Swiss Re, Munich Re, Hannover Re, PartnerRe, SCOR, General Re, Everest Re, Transatlantic Re Source: Swiss Re Economic Research and Consulting

Swiss Re’s P&C premium and underwriting profit share vs top 8 reinsurers

9

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010 2011

Premiums U/W profit (red=loss)

2011 underwriting loss1: Top 8 reinsurers:

USD 6.0bn in u/w loss Swiss Re:

USD 0.2bn in u/w loss Swiss Re premium share

of 19%, share of u/w loss of 3%

Swiss Re's underwriting outperformance in P&C

- 2006-2010: above average share in underwriting profits

- 2011: significantly below average share of underwriting loss


a YTD 2012 renewals (January – July)

Treaty portfolio

USD 15.0bn

USD 12.1bn

100%

124%

RenewableYTD 2012

Estimatedoutcome

100% 127%

Renewable1 January 2012

Estimatedoutcome

100% 107%

Renewable1 July 2012

Estimatedoutcome

10

USD 8.6bn USD 10.9bn

April 2012 renewals1

USD 1.4bn USD 1.8bn

July 2012 renewals USD 2.3bn

Treaty portfolios

USD 2.1bn

January 2012 renewals1

100%

129%

Renewable1 April 2012

Estimatedoutcome

… and growth at the right time: P&C Reinsurance YTD 2012 renewals YTD volumes strong, volume and prices up

July renewals: 7% top line growth, 3%pts improvement in risk-adjusted price quality driven by property & specialty

January and April renewal volumes increased by updates after Q1 reporting Markedly stronger overall treaty volumes than anticipated in the beginning of 2012

1 January and April 2012 numbers have been restated with current fx rates


a High Growth Markets Tangible growth opportunities exist

Agriculture Nat Cat Infrastructure

Life Health

11


a

EPS growth 10% average annual growth rate over 5 years

ROE 700 bps above risk free average over 5 years

Group financial targets Our top priority

1 Assumes constant foreign exchange rate 2 Dividend has been translated from CHF using the fx rate of the dividend payment date

ENW per share growth plus dividend 10% average annual growth rate over 5 years

12

Presenter

Presentation Notes


a

Reinsurance market forces – a three year view

13


a

Low interest rates

Drivers of re-/ insurance prices

Regulatory changes Continuous reserve releases

Industry capitalisation

Factors leading to higher prices

14

Factors leading to lower prices

Low inflation Nat Cats

Factors driving re-/insurance prices

High Low

Prices


a Record low interest rates Expected to stay low… …increasing pressure on running yield

15

Gap between interest rates and running yield expected to narrow further

Pressure on net income and ROE to increase further

Sources: Swiss Re Economic Research & Consulting

0%

2%

4%

6%

8%

Germany

Running yield (P&C insurers) 10 yr gov bond yields, average of year


a Regulatory changes New rules come into play within next three years… …none of them will likely require less capital

United States NAIC solvency modernisation,

but rather qualitative (ORSA)

Latin America Mexico: moving towards risk-

based solvency Brazil/Argentina: market

access restrictions for reinsurers

Asia Pacific Australia: higher P&C charges China, Japan, India, NZ: move

towards risk-based solvency regimes

Europe Challenging finalisation

of Solvency II

Convergence trends in solvency frameworks, increased focus on supervisory cooperation and coordination on global basis, eg intensified use of supervisory colleges

IAIS international frameworks: global SIFI designation and ComFrame

Solvency rules are expected to tighten on a global basis

16


a Low inflation

Assuming claims inflation follows general inflation, we can expect some continuation of positive reserve releases on the longer tail lines

Continued expected low economic growth, low interest rates and inflation

Outlook is asymmetrical however, with higher probability of inflation shock than even lower inflation

Sources: Swiss Re Economic Research & Consulting

0%1%1%2%2%3%3%4%4%

Germany

Inflation 5y break-even inflation

17


a Continuous reserve releases Reserve levels are declining

US core reserve releases as a % of NPE

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

Reserve releases expected to end within the next three years

Global P&C industry has enjoyed substantial reserve releases since 2004

Pace of releases is winding down

US: data shows net releases of comparatively unseasoned years in 2011

US: only small reserve buffers remain; will be depleted within the next 12 months if releases continue at the same level

Europe: reserve releases are slowing. Reserving trends are somewhat more stable than in the US, but also declining

18

-6%

-4%

-2%

0%

2%

4%

6%

8%

?


a

Equity, excl unrealised gains on bonds

30

50

70

90

110

130

150

02 03 04 05 06 07 08 09 10 11 12H1Net premiumsShareholders' equity

19

Industry capitalisation Is there any excess capital?

Falling interest rates have significantly inflated GAAP capital – relevant capital adequacy has probably rather decreased recently

Sources: Swiss Re Economic Research & Consulting; aggregate of leading reinsurers

2005 = 100

Relevant capital adequacy ratios are not public

Very rough approximation is to use premiums as measure for risk and GAAP/IFRS capital as measure for available capital

Taking out artificial effect of unrealised gains due to lowered interest rates indicates that capital is getting tighter than before

?

15


a

Low interest rates

Continuous reserve releases

Industry capitalisation

20

Factors leading to lower prices

Factors leading to higher prices

? Low inflation

Regulatory changes

?

Three year outlook indicates upwards pressure on pricing

High

Prices

Drivers of re-/ insurance prices

Nat Cats

Low


a Swiss Re is well positioned

1 CHF 5bn stop-loss protection on Swiss Re's P&C reserves with Berkshire Hathaway 2 SST 1/2012, as filed with FINMA at the end of April, based on a projection for 2012

21

Lean casualty book L&H: focus on wholesale/reinsurance, avoiding primary business with

guarantees Prudent, ALM-matched asset portfolio with room for moderate re-risking

Low interest rates

SST has given us 5 years practical experience in implementing regulatory requirements similar to Solvency II

Clients need to put more focus on risk and economic capital; we can offer tailor made solutions

Regulatory changes

Unique protection against inflation through the Adverse Development Cover1

Low inflation

Quarterly actuarial reserving process Reserves estimated at best estimate

Reserve releases

Excellent capitalisation, allowing business growth Group SST 1/2012 ratio 213%2

Capitalisation


a

Summary and outlook

22


a Summary and outlook

Six key factors drive reinsurance market prices

– Low interest rates, regulatory changes, low inflation, reserve releases, industry capitalisation, and natural catastrophes

Three year outlook indicates upwards pressure on P&C reinsurance pricing

– For the upcoming renewals, Swiss Re expects moderately increasing prices

Swiss Re well positioned to capture the reinsurance market opportunities

– R&D-driven underwriting approach a key differentiator

– Excellent capitalisation allows for both business and dividend growth

– High Growth Markets are not an option, but a contributor towards delivering on our financial targets

23

Achieving our 2011-2015 financial targets remains the top priority

a

Thank you

a


a

Investor Relations contacts Hotline E-mail +41 43 285 4444 [email protected] Eric Schuh Ross Walker Chris Menth +41 43 285 4708 +41 43 285 2243 +41 43 285 3878

Simone Lieberherr Simone Fessler +41 43 285 4190 +41 43 285 7299

Corporate calendar 08 November 2012 Third Quarter 2012 results Conference call 21 February 2013 Annual Results Zurich 10 April 2013 149th Annual General Meeting Zurich

Corporate calendar & contacts

25


a Cautionary note on forward-looking statements Certain statements and illustrations contained herein are forward-looking. These statements and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results of operations, financial condition, solvency ratios, liquidity position or prospects to be materially different from any future results of operations, financial condition, solvency ratios, liquidity position or prospects expressed or implied by such statements. Such factors include, among others: further instability affecting the global financial system and developments related

thereto, including as a result of concerns over, or adverse developments relating to, sovereign debt of euro area countries;

further deterioration in global economic conditions; Swiss Re’s ability to maintain sufficient liquidity and access to capital markets,

including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of Swiss Re’s financial strength or otherwise;

the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets;

changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions;

uncertainties in valuing credit default swaps and other credit-related instruments; possible inability to realise amounts on sales of securities on Swiss Re’s balance

sheet equivalent to their mark-to-market values recorded for accounting purposes; the outcome of tax audits, the ability to realise tax loss carryforwards and the

ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings;

the possibility that Swiss Re’s hedging arrangements may not be effective; the lowering or loss of financial strength or other ratings of Swiss Re companies,

and developments adversely affecting Swiss Re’s ability to achieve improved ratings;

the cyclicality of the reinsurance industry;

uncertainties in estimating reserves; uncertainties in estimating future claims for purposes of financial reporting,

particularly with respect to large natural catastrophes, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available;

the frequency, severity and development of insured claim events; acts of terrorism and acts of war; mortality, morbidity and longevity experience; policy renewal and lapse rates; extraordinary events affecting Swiss Re’s clients and other counterparties, such

as bankruptcies, liquidations and other credit-related events; current, pending and future legislation and regulation affecting Swiss Re or its

ceding companies; legal actions or regulatory investigations or actions, including those in respect

of industry requirements or business conduct rules of general applicability; changes in economic theory or principles; significant investments, acquisitions or dispositions, and any delays,

unexpected costs or other issues experienced in connection with any such transactions;

changing levels of competition; operational factors, including the efficacy of risk management and other internal

procedures in managing the foregoing risks; and challenges in implementation, adverse responses from counterparties,

regulators or rating agencies, or other issues arising from, or otherwise relating to, the changes in Swiss Re's corporate structure. These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue

reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. This communication is not intended to be a recommendation to buy, sell or hold securities and does not constitute an offer for the sale of, or the solicitation of an offer to buy, securities in any jurisdiction, including the United States. Any such offer will only be made by means of a prospectus or offering memorandum, and in compliance with applicable securities laws.

26

Sanford C. Bernstein Strategic Decisions Conference6aba04c6-9f11-4a89-b93c-e18fb0c… · of...

Documents

Transcript of Sanford C. Bernstein Strategic Decisions Conference6aba04c6-9f11-4a89-b93c-e18fb0c… · of...