Willis Re Reinsurance Market Updateinstitutebahamas.wildapricot.org/resources/Documents/A... ·...

The Insurance Institute of The Bahamas

Conference, 8 November 2018

Willis Re Reinsurance Market Update

Cameron Roe, EVP, Willis Re Latin America & Caribbean

© 2018 Willis Towers Watson. All rights reserved.

Willis Re

2 2 © 2018 Willis Towers Watson. All rights reserved.

$572M

FY17 Revenue

>180yrs History

>12BN

FY17 Global Premium

1,600+ Colleagues

750+ Re/insurance clients

Atlanta

Boston

Beijing

Chicago

Copenhagen

Dallas

Dubai

Hamilton

Hong Kong

Ipswich

Johannesburg

Kuala Lumpur

London

Madrid

Makati City

McLeansville

Miami

Milan

Minneapolis

Mumbai

Munich

Nashville

New York

Oslo

Paris

Philadelphia

Portland, ME

Rome

San Francisco

Seattle

Shanghai

Singapore

Stamford

Sydney

Taipei

Tampa

The Hague

Tokyo

Toronto

Warsaw

North America: 22%

UK: 37%

Mumbai: 23%

Rest of World: 18%

3

Business Units

North America

International

Specialty

N.America $227

International $198

Specialty $147

FY17 Revenue NA

40%

Intl 34%

Specs 26%

50+ Locations worldwide

2017 USA, Latin America & Caribbean Market Events

3 © 2017 Willis Towers Watson. All rights reserved.

Hurricane Harvey

Hurricane Irma

Hurricane Maria

Mexican Earthquakes


Mexico Earthquake

Sept 8, 2017 – M8.1

Mexican Earthquake

Sept 19, 2017 – M7.1

Hurricane Harvey

Aug 17 – Sep 3, 2017 – 134 mph winds

Hurricane Irma

Aug 30 – Sep 16, 2017 – 183 mph winds

Hurricane Maria

Sept 16 – Oct 3, 2017 – 175 mph winds

47 days in Q3 - 2017


Hurricane Harvey

Aug 17 – Sep 3, 2017

Key Facts

Harvey made landfall in Texas 3 separate

times in 6 days.

Parts of Houston received 51.88 inches of rain,

a record for the US from a single storm.

Reports of a 18 inches of standing water for

across 1,260 square miles.


Hurricane Irma

Aug 30 – Sep 16, 2017

Key Facts

185 mph lifetime max winds – tied with Gilbert

(1988) and Wilma (2005) for the second

strongest max winds of all time for an Atlantic

hurricane. Hurricane Allen had max winds of

190 mph in 1980

11 hurricane days – the most since Ivan (2004)

3 consecutive days as a Category 5 hurricane

– the longest in the satellite era (since 1966)

Generated the most Accumulated Cyclone

Energy in a 24-hour period on record, breaking

old record set by Allen (1980)


Hurricane Maria

Sept 16 – Oct 3, 2017

Key Facts

Strongest storm to hit Puerto Rico in 80 years

Maria developed from a Tropical Storm to a

Category 3 storm in 24 hours (doubling its

strength).

Maria developed then increase to a Category 5

storm in just 72 hours.

Losses Estimates Development


USD

20-65bn Original estimate

for the US & select

Caribbean islands

USD

32-60bn Revised estimate

for the US & select

Caribbean islands

USD


for the Caribbean

loss (85% in Puerto

Rico)

USD


for the Caribbean

loss (USD 25-43bn

in Puerto Rico)

USD


for the US & the

Caribbean

USD


for the US & the

Caribbean

USD


for the Caribbean

loss (85% in Puerto

Rico)

No revised estimate

Hurricane Irma Hurricane Maria

Irma and Maria Damage Ratios


Turks & Caicos

15%

USVI

30%

BVI

30%

Anguilla

30% Sint

Maarten

30%

Antigua

10%

Barbuda

60%

Montserrat

5%

St Kitts &

Nevis

10%

Sint

Eustatius

30%

Saba

30%

Puerto

Rico

6%

Hurricane Irma

Hurricane Maria

Dominica

30%

129.4

15.4 28.0

49.9

24.5 34.3

72.5 68.5

37.7 30.1 28.2

47.4

128.6

15.2

58.5

8.8

21.7

35.4

60.0

29.7

54.9

76.6

45.9 37.7 38.5

64.6

136.6 138.0 135.6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Swiss Re Economic Research & Consulting.

Insured loss: Weather-related catastrophes Insured loss: Earthquake/tsunami Insured loss: Man-made disasters

Hurricanes, Katrina, Rita, Wilma

Hurricane Sandy

Japan, NZ earthquakes, Thailand flood

Hurricanes Harvey,

Irma, Maria

10

Losses hit Q3 2017 2017 Insured Catastrophe Losses – Sigma quote “Third highest on record”

Total 2017 Insured Cat Losses: USD 136bn (versus total economic losses USD 306bn)

Average losses past 10 years: USD 58bn

Approx. global property reinsurance premium: USD 100bn

Largest impact from 3 hurricanes – Harvey, Irma and Maria (HIM)


2018 Major Renewal Dates

11

Willis Re 1st View Headlines & Highlights


Reducing annual RoE’s and Q3 events wiped out 2017 reinsurer earnings

Capital impacted to a modest extent on average in the range of 5% - 7.5%

Capacity oversupply remains: Insurance-linked Securities remaining robust

Organic growth and increased demand

Modest price increases across all classes

The trend set at 1 January continued at 1 April

Insurance-linked securities (ILS) maintains its advance

Overall reinsurer results impacted by major natural catastrophe losses

Transparent, well-managed reinsurers proving attractive for M&A

The trend set at 1 January discontinues for 1 June/July

Other reinsurance lines see mixed results

Traditional risk carriers scrutinise their own book

Lloyds are focusing their attention to underperforming LoBs

Overpriced M&A?

1/1: Extreme Weather – Calm Market

1/4: Subdued Markets – Lively M&A

1/6 & 1/7: New Normal Emerges

Caribbean Reinsurance Market Conditions


Non Loss Affected

Southern Caribbean

Territories

Loss Affected Territories

(St Maarten, BVI, USVI,

Puerto Rico) 20-60%

0-10%

Non Loss Affected

Northern Caribbean

Territories 10-25%

Rate Changes Market Dynamics

Pro-rata ceding

commissions 0-2.5%

Hurricane Maria loss continues to increase but still below

the original modelled estimates

Additional capacity continues to be available from certain

reinsurers looking to increase participations and from new

entrants to the market attracted by higher rates

Caribbean Property Catastrophe Pricing

Shareholder Funds likely to be eroded by approximately 5% since end of year 2016

returning to 2015 levels

AM Best November 2017: “Global Reinsurance Composite expected to deliver

combined ratio of approximately 110%”

Combined Ratio 2017 – 105.5% - combined ratios were overestimated and in reality

were less that what was expected

Capital back to

2015 Level

Rising

combined ratios

Reinsurance Market – 2017 Full Year

13

Market dynamics entering a new phase


Source: Willis Analytics

14

ILS capacity growth means that it contributes an increasing percentage of overall reinsurance capacity

Source: Willis Towers Watson Securities, Willis Re Global Reinsurance Market Reports


370 357 374 398

65 70 75

88 435 427

449

486

0

100

200

300

400

500

600

2014 2015 2016 2017

Total Reinsurance Capacity (USDbn)

Alternative

Traditional

2014

14.9% 2017

18.1% 2015

16.4% 2016

16.7%

Significant growth in alternative capital

entering the reinsurance sector

Accelerated growth in Collateralised Re

and Sidecars in the past 5 years

The ILS sector has established itself as

one important segment of the reinsurance

industry

ILS grows as proportion of overall

reinsurance capital

Both in terms of direct capacity and

through its impact to reinsurers’

access to capacity

Another year of growth: USD 88 billion by the end of 2017

Alternative Capacity Development

The Story up to September 2018

15

RoE Analysis for Willis Re Reinsurer Subset (HY 2018)


8.2%

3.3%

1.4%

3.8%

8.5%

3.4%

+2.6% -4.0% +9.3% -4.0%

+0.9% -4.0%

-3.5% -2.9%

-2.0%

0%

2%

4%

6%

8%

10%

12%

Re

porte

d R

oE

(ne

t of C

at lo

sses)

Ca

t Lo

ss

No

rmalis

ing fo

r a 4

% C

at L

oss

Prio

r year d

evelo

pm

ent

Ro

E, n

et o

f 4%

(not 2

.6%

) Ca

tlo

sse

s a

nd e

xclu

din

g P

YD

Re

porte

d R

oE

(ne

t of C

at lo

sses)

Ca

t Lo

ss

No

rmalis

ing fo

r a 4

% C

at L

oss

Prio

r year d

evelo

pm

ent

Ro

E, n

et o

f 4%

(not 9

.3%

) Ca

tlo

sse

s a

nd e

xclu

din

g P

YD

Re

porte

d R

oE

(ne

t of C

at lo

sses)

Ca

t Lo

ss

No

rmalis

ing fo

r a 4

% C

at L

oss

Prio

r year d

evelo

pm

ent

Ro

E, n

et o

f 4%

(not 0

.9%

) Ca

tlo

sse

s a

nd e

xclu

din

g P

YD

FY 2016 FY 2017 HY 2018

The Story at year-end 2017

16

8.4% - Average return on capital (compared to 10.2% in 2015)

7.2% - Average cost of capital (compared to 6.6% in 2015)

1.2% - Spread prior to major events in Q3

FY 2017 RoC dipped to 1.4% then bounced back to 8.4% HY 2018

*S&P Global Ratings report – Insurance Markets - “Reinsurers approach a tipping point as profitability threatens to sustainably fall below the cost of capital”

“Reinsurers will barely cover their costs of capital over the next 2 years” – S&P early 2017

* RoC for half-year 2018 is estimated based on the 8.4% RoE reported by the subset of reinsurers in Willis Re’s Reinsurance Market Report

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

WACC (Weighted Average Cost of Capital) Return on capital


M&A Activity

Consolodation continues

17

Buyer

Target

Continuation in 2018...

2016

2017


Rumour Mill: What Next?

Lloyd’s Syndicate Performance Review

18

‘Closing the Performance Gap’

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Lloyd's classes of business

Ten worst performers Ten best performers

1 Non-US open market property D&F 1 US property cat XoL

2 Cargo 2 Terrorism

3 Non-US binder property D&F 3 Energy offshore property

4 Yacht 4 Non-US property cat XoL

5 Aviation war 5 US binder property D&F

6 US open market property D&F 6 Marine XoL

7 Pro-rata property 7 Difference in conditions

8 Overseas motor 8 Energy offshore liability

9 Professional indemnity 9 Marine war

10 General aviation 10 Non-marine general liability

Lloyd’s announces crack down on syndicates’ underperforming LOBs

83% of Lloyd’s syndicate reported a loss for 2017

Non-US open market property D&F worst performer in 2017 with a combined

ratio of 150%+

Syndicates required to submit 10 least profitable lines of business for review

and focus on improving or discontinuing these

Underperforming syndicates under review

Business plans due October 2019, feedback expected in November

Number of syndicates have already announced LOB closures including

Markel, CNA Hardy, Aspen, Barbican and AmTrust

Puerto Rico


Puerto Rico/ Bahamas Market Comparison


Country Puerto Rico Bahamas

Key Country Stats

Population 3.56m 0.40m

GDP 108,282m 12,755m

Real GDP growth 0.99% 2.10%

Inflation 1.73% 1.47%

Key Insurance Market Stats

Non-Life Premium 1,736m 320.46m

Number of companies writing local business 80 17

Non-Life market premium as % of GDP 1.69% 2.63%

Non-Life market premium expentidure per capita 487.57 810.54

Before and After: Puerto Rico 6 Months On


24 September 2017 17 March 2018

22 September 2017 18 March 2018

Puerto Rico Insurance Market


Government intervention in Real

Legacy (6% market share by GWP,

15% for property)

Majority of insurance companies

have exhausted reinsurance

protections

Increased regulation enacted

Claims creep

- Contingent BI

- Re-opening of claims

- Assignment of Benefit


Thank You

Contact us

Cameron Roe, Executive Vice President

Willis Re Latin America & Caribbean

1450 Brickell Avenue, Suite 1600

Miami FL, 33131, United States

Direct +305 373 8766

Mobile +305 926 6619

[email protected]

Willis Re disclaimers

24

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