Image: used under license from shutterstock.com Reinsurance and other forms of risk transfer Seminario Regional Supervisores de Seguros de Latinoamérica ASSAL- IAIS

Global environment becoming increasingly challenging Military conflicts Sovereign debt crisis Brexit/Grexit Refugees New “cold war” Low interest rates Low commodity prices Economic cooldown in China High capital-market volatility Political risks Economic risks Cumulative uncertainties Digitalisation Cyber Terror Climate change Solvency II ComFrame IFRS 17 Changing risks Regulatory risks Proactive risk management builds up resilience in an unpredictable and unstable environment

Examples of critical underwriting risks New risk related products Complex accumulation events Satellite life-time insurance Cyber insurance Earthquakes Hurricanes Floods Terrorism Image: Ashley Cooper / Corbis Image: Warren Faidley / Corbis Longevity risk Regulatory Risk IFRS 17 ComFrame Solvency II Image: Warren Faidley / Corbis Image: Vittoriano Rastelli / Corbis

Examples of critical underwriting risks New risk related products Complex accumulation events Satellite life-time insurance Cyber insurance Earthquakes Hurricanes Floods Terrorism Image: Ashley Cooper / Corbis Image: Warren Faidley / Corbis Longevity risk Regulatory Risk IFRS 17 ComFrame Solvency II Image: Warren Faidley / Corbis Image: Vittoriano Rastelli / Corbis

Complex accumulation events (I) Extreme challenge for insurers Example of terrorism “WTC” losses Example of natural catastrophes Hurricane “Katrina” losses Property – WTC 11% Personal lines insurance Commercial/industrial insurance Motor insurance Energy on/offshore Marine Flood insurance 28.7% Property – Other 19% 33.9% Business interruption 33% 3.5% Total US$ 39.4bn Total US$ 62.2bn Workers' compensation 6% 8.0% Aviation hull 2% 25.9% Cancellation of events 3% Aircraft liability 11% Other liability classes 12% Life insurance 3% Source left: Insurance Information Institute – Terrorism risk: a reemergent threat Source right: Munich Re NatCatSERVICE – Status: September 2009

Complex accumulation events (II) Extreme challenge for insurers 2017 EEUU Hurricanes losses* ¨The largest natural catastrophe losses in the third quarter were caused by Hurricanes Harvey, Irma and Maria, which together accounted for losses totalling €2.7bn¨ Munich Re Quarterly Statement (as at 30 September 2017) Personal lines insurance Commercial/industrial insurance Motor insurance Energy on/offshore Marine Flood insurance n.a. n.a. n.a. n.a. * forecast n.a.

Alternative Risk Transfer – Cat Bond Accumulative Risk – Natural Catastrophes and Terrorism By a cat bond, a set of risks (generally catastrophe and natural disaster risks) is transferred from an issuer or sponsor to investors. In this way investors take on the risks of a specified catastrophe or event occurring in return for rates of investment. Should a qualifying catastrophe or event occur the investors will lose the principal they invested and the issuer (often insurance or reinsurance companies) will receive that money to cover their losses.

Alternative Risk Transfer - Cat Bond Accumulative Risk – Natural Catastrophes and Terrorism

Alternative Risk Transfer - Cat Bond Accumulative Risk – Natural Catastrophes and Terrorism

Alternative Risk Transfer - Cat Bond Accumulative Risk – Natural Catastrophes and Terrorism

Examples of critical underwriting risks New risk related products Complex accumulation events satellite life-time insurance Cyber insurance Earthquakes Hurricanes Floods Terrorism Image: Ashley Cooper / Corbis Image: Warren Faidley / Corbis Longevity risk Regulatory Risk IFRS 17 ComFrame Solvency II Image: Warren Faidley / Corbis Image: Vittoriano Rastelli / Corbis

Alternative Risk Transfer – Longevity Swap Longevity Risk In a longevity swap one party pays a fixed amount of premium in exchange for variable payments by the other party The fixed payer is usually the insurance company / pension scheme The variable payer is usually a reinsurance company

Alternative Risk Transfer – Longevity Swap Longevity Risk

Examples of critical underwriting risks New risk related products Complex accumulation events satellite life-time insurance Cyber insurance Earthquakes Hurricanes Floods Terrorism Image: Ashley Cooper / Corbis Image: Warren Faidley / Corbis Longevity risk Regulatory Risk IFRS 17 ComFrame Solvency II Image: Warren Faidley / Corbis Image: Vittoriano Rastelli / Corbis

Regulatory Risk Current topics in European Union 1. IFRS 17 ¨Insurance contracts¨ 2.ComFrame The International Accounting Standards Board, is concerned about a lack of comparability between insurance and reinsurance companies and other players in the financial industry, such as banks. ComFrame is primarily intended to be a framework for supervisors to efficiently and effectively cooperate and coordinate by providing a basis for comparability of IAIG* regulation and supervisory processes. Insurance premiums sometimes contain a deposit component, because policyholders pay level premiums while the insured risk increases with attained age. Currently the entire premium is recognized as revenue from the insurance contract. In contrast, a bank or asset management company would not recognize the deposit component as revenue. Under the future IFRS 17 revenue will be recognized as earned in order to align revenue from insurance and reinsurance contracts with revenue in other industries. Consequently, premiums that relate to Develop methods of operating group- wide supervision of IAIG´s Establish a comprehensive framework for supervisors to address group-wide activities and risks and also set grounds for better supervisory cooperation Foster global convergence of regulatory and supervisory measures/approaches To be implemented 2019 3. Solvency II To start by Global Systemically Important Insurers: Allianz, AIG, Assicurazioni Generali, Aviva, Axa, MetLife, Ping An, Prudential Financial, Prudential plc deposit components are excluded from revenue.

Capital Management Regulatory Risk - Solvency II

Capital Management Regulatory Risk - Solvency II

Capital Management Regulatory Risk - Solvency II Solvency Quota Share on part or the entire book of Life insurance business Realizing future profits on a part of the Life portfolio (Monetization of VIF) Financing of Acquisition Costs of all or parts of the Life Portfolio

Capital Management Regulatory Risk - Solvency II Source : Towers Watson

Dampening of volatility Proactive risk management builds up resilience in an unpredictable and unstable environment Current environment Risk management measures Political risks High volatility Diversified investment portfolio Group-wide trigger system for ALM risks Hedging strategy Limits for sovereigns High quality of counterparties Forward-looking scenario analysis Dampening of volatility Economic risks Insurance risks Limits and budgets Management of accumulations Strict underwriting guidelines Retrocession for peak nat cat scenarios Munich Re well prepared to help its clients for turbulent market conditions

Proactive risk management builds up resilience in an unpredictable and unstable environment

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