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Ab Swiss Re Media Briefing John Coomber, Chief Executive Officer Thomas Hess, Head Economic Research & Consulting Monte Carlo, 13 September 2004.

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Presentation on theme: "Ab Swiss Re Media Briefing John Coomber, Chief Executive Officer Thomas Hess, Head Economic Research & Consulting Monte Carlo, 13 September 2004."— Presentation transcript:

1 ab Swiss Re Media Briefing John Coomber, Chief Executive Officer Thomas Hess, Head Economic Research & Consulting Monte Carlo, 13 September 2004

2 ab Page 2 Agenda WelcomeJohn Coomber Reinsurance is back to profitabilityThomas Hess Underwriting for profitJohn Coomber Media Briefing Monte Carlo 13 September 2004

3 ab Page 3 Agenda Lessons from Situation of the industry in 2004 Media Briefing Monte Carlo 13 September 2004

4 ab Page 4 Lessons from 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 Media Briefing Monte Carlo 13 September 2004

5 ab Page 5 The 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% WorldwideUS [RAA] * calendar year view Source: Swiss Re Economic Research & Consulting, Reinsurance Association of America (US) Media Briefing Monte Carlo 13 September 2004

6 ab Page 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 Media Briefing Monte Carlo 13 September 2004

7 ab Page 7 Liability business has to price for loss inflation and nasty surprises US [1] Canada [1] UK [1]GermanyFranceItalyJapan Period Compound annual growth rate - Liability claims10.6%11.3%8.8%7.4%9.4%15.9%13.8% - Nominal GDP7.1%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 Health expenditures 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

8 ab Page 8 Borders 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) Media Briefing Monte Carlo 13 September 2004

9 ab Page 9 Reinsurance is back Reinsurance premiums grew by more than 60% in USD terms between 2000 and USD bn Industrialised MarketsEmerging Markets Source: Swiss Re Economic Research & Consulting Media Briefing Monte Carlo 13 September 2004

10 ab Page 10 Strong demand for reinsurance in Emerging markets Share of Emerging Markets will grow from 14% in 2003 to 20% by bn USD (80%) 51.9 bn USD (20%) Media Briefing Monte Carlo 13 September 2004

11 ab Page 11 Agenda Lessons from Situation of the industry in 2004 Media Briefing Monte Carlo 13 September 2004

12 ab Page 12 The 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 Media Briefing Monte Carlo 13 September 2004

13 ab Page 13 Capacity in the Property & Casualty industry is still tight Capital and solvency of the 6 major insurance markets USD bn % 20% 40% 60% 80% 100% 120% CapitalPremiumsSolvency [RHS] Source: Swiss Re Economic Research & Consulting Media Briefing Monte Carlo 13 September 2004

14 ab Page 14 Prices are at attractive levels Sources: Lloyds, Swiss Re Base 1996 Marine, LloydsNon-Marine, Lloyds Aviation, LloydsProperty Fac, Swiss Re Media Briefing Monte Carlo 13 September 2004

15 ab Page 15 The quality of profits is now based on solid underwriting Profitability of major reinsurers * -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% ** U/w resultInvestment resultOperating margin in % NPE *calendar year view, excluding Munich Re and Berkshire Hathaway, ** estimate Source: Swiss Re Economic Research & Consulting Media Briefing Monte Carlo 13 September 2004

16 ab Page 16 Recovery of underwriting cash- flow in the US P&C industry Sources: Fox Pitt, Kelton, A.M.Best, Swiss Re Economic Research & Consulting Liability crisis Andrew 9/11 Media Briefing Monte Carlo 13 September 2004

17 ab Page 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 USGermany

18 ab Page 18 Summary 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 Media Briefing Monte Carlo 13 September 2004

19 ab Underwriting for profit Managing the cycle at its peak John Coomber Chief Executive Officer

20 ab Page 20 Agenda Risk is a growth business Steering capacity to aim for attractive returns Summary Media Briefing Monte Carlo 13 September 2004

21 ab Page 21 Risk is a growth business: Long-term growth assured 1990 = 100 Growth of the property & casualty industry will continue to surpass global GDP growth Direct premiumsFree ceded premiumsGDP Forecast Source: Swiss Re Economic Research & Consulting Media Briefing Monte Carlo 13 September 2004

22 ab Page 22 Swiss Re can accelerate growth by effective cycle management and consolidation gains illustrative 7% growth P&C and L&H P&C only 12% growth Time Premium Industry growth 7% Market outperformance Transactions 5% Business extension Swiss Re 12% Media Briefing Monte Carlo 13 September 2004

23 ab Page 23 Agenda Risk is a growth business Steering capacity to aim for attractive returns Summary Media Briefing Monte Carlo 13 September 2004

24 ab Page 24 Swiss 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 Technical profitability USA Europe Asia Illustrative Media Briefing Monte Carlo 13 September 2004

25 ab Page 25 Capacity (re)allocation during the cycle Premiums earned by line of business 33% 34% 33% 34% 25%27% 32% 22% 21% 18% 17% 15% 13% 8% 7% 4% 20% 21% 17% 16% 8% 0% 20% 40% 60% 80% 100% HY 2004 PropertyLiabilityMotorOtherAccident Media Briefing Monte Carlo 13 September 2004

26 ab Page 26 Capacity (re)allocation during the cycle Premiums earned by division 9% 11% 10% 13% 57% 53% 45% 48% 49% 34% 38% 44% 42% 38% 0% 20% 40% 60% 80% 100% HY 2004 AsiaEuropeAmericas Media Briefing Monte Carlo 13 September 2004

27 ab Page 27 Control pricing over the cycle Premiums 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% 19% 15% 17% 18% 0% 20% 40% 60% 80% 100% HY 2004 Proportional Non-ProportionalFacultative Media Briefing Monte Carlo 13 September 2004

28 ab Page 28 Steer 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 Media Briefing Monte Carlo 13 September 2004

29 ab Page 29 Reinsurance 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 Media Briefing Monte Carlo 13 September 2004

30 ab Page 30 Underwriting Steering Values Definition of price targets Internal Costs Capital Costs Econ. Profit U/W Costs Production Costs Cycle Reference Premium Renewal Target 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

31 ab Page 31 Underwriting tracking tool Basis 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 profit Media Briefing Monte Carlo 13 September 2004

32 ab Page 32 Agenda Risk is a growth business Steering capacity to aim for attractive returns Summary Media Briefing Monte Carlo 13 September 2004

33 ab Page 33 Summary 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 Media Briefing Monte Carlo 13 September 2004

34 ab Page 34 Questions & Answers Media Briefing Monte Carlo 13 September 2004


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