1. Overview of global trends in reinsurance (International reinsurance point of view) Thomas Hess Group Chief Economist Head of Economic Research & Consulting, Swiss Re 14th African Reinsurance Forum Tunis, 20 October 2008

2. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 2 Key resinsurance questions to be adressed The economic situation and the banking crisis Where do we stand in reinsurance? Demand/ supply situation Is reinsurance still safe? Prospects for reinsurance

3. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 3 Current situation in global financial markets Interbank markets dried up; large parts of financial markets face liquidity issues. There is high uncertainty about extent and duration of the crisis. IMF sees half of subprime related losses (estimated at USD 1’405 bn) borne by banks, the other half absorbed by hedge funds, pension funds and insurers. Additonal losses arise from the default of financials (Lehman, Washington Mutual, AIG). The effects of the real economy are now becoming visible. US and Europe face recessions. The economic slowdown will have further negative consequences for credit and stock markets. The bank recapitalisation plans and other measures announced recently should avert a complete financial meltdown, but outlook is still grim.

4. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 4 The indirect impact of the credit crisis on insurers Lower investment income due to weak equity markets, rising credit spreads and defaults on corporate bonds Slower premium growth in P&C due to growth slowdown but problems with investments speed up hardening of insurance prices Individual US life insurers investment losses required them to raise capital from financial markets Lower demand for index-linked products (life insurers) Rise in inflation may lead to higher claims inflation (long-tail casualty) Higher costs of capital: both equity and credit have become more expensive

5. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 5 Insurance business is funded primarily by premiums received for providing insurance protection  both premium flow and pay-outs are reasonably predictable Pay-outs are triggered by hazardous events, and not by policyholders’ will  there can be no ‘run’ on an insurance company Insurance hazards are typically uncorrelated  the failure of one insurer does not necessarily predict failures of other companies* Insurance business is fundamentally different from banking * see G30 and FSF studies Premiums received for providing insurance are invested in diversified classes with currency and cash flow matching  Insurers invest assets mostly to maturity and therefore immunise against short-term value fluctuation Unpaid claims Equity Fixed-income securities Equity securities Alternative invest. Cash and other assets Unearned premiums Other liabilities AssetsLiabilities

6. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 6 Where do we stand in reinsurance? The reinsurance price cycle turned in 2004, we are now reaching the bottom Higher combined ratios, and less positve run-off of prior years cause lower underwriting results Selective upward trends from low price levels in aviation, motor insurance, D&O already visible Losses on the investment side put additonal pressure on profitability

7. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 7 How are catastrophe losses developing Large insurance losses 2008 (> USD 1bn)  Insured losses up to 1 September 2008 increased by more than 25% relative to the same period in 2007  2008 figures confirm long-term trend towards higher nat cat claims Source: Swiss Re Economic Research & Consulting

8. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 8 Demand/ supply situation is favouring higher reisurance rates Demand - Insurers combined ratio increases - Insurers lose 5-20% of equity capital - Higher cost of capital Supply - Reinsurers combined ratios increase - Reinsurers lose on investments - Higher cost of capital - Less alternative capacity available (securitisation, side cars, reinsurance start ups) Insurers will retain less and reinsure more Reinsurers will provide more capacity only at higher price

9. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 9 Stable ratings for reinsurers with few exceptions Source: Swiss Re Economic Research & Consulting

10. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 10 Solvency ratios expected to decline as capital growth slows down Capital and solvency of the P&C industry, 1999-2011 USD index, 1999 = 100. % new scenarios Source: Swiss Re Economic Research & Consulting

11. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 11 Worldwide P&C growth P&C insurance and reinsurance real premium growth in %, 1991–2011. The cycle may turn earlier and more forcelully! Source: Swiss Re Economic Research & Consulting

12. 14th African Reinsurance Forum, Tunis, 20 Oct. 2008 Page 12 Profitability prospect non-life insurance 2008 and 2009 investment results and overall profits results will be worse! Reinsurance looks similar but is more cyclical Source: Swiss Re Economic Research & Consulting