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

2. 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

3. 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

4. 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

5. 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

6. 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.

7. 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.

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

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

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

11. 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

12. 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

13. Alternative Risk Transfer – Longevity Swap Longevity Risk

14. 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

15. 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.

16. Capital Management Regulatory Risk - Solvency II

17. Capital Management Regulatory Risk - Solvency II

18. 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

19. Capital Management Regulatory Risk - Solvency II
Source : Towers Watson

20. 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

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

22. Thank you for your attention
Image: used under license from shutterstock.com
Thank you for your attention
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