2018 Reinsurance Market Briefing - Zurich · 2018-06-07 · Agenda 2018 Reinsurance Market Briefing...
Transcript of 2018 Reinsurance Market Briefing - Zurich · 2018-06-07 · Agenda 2018 Reinsurance Market Briefing...
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 2
Welcome
Nick Charteris-BlackManaging Director Market Development ndash EMEA
Agenda
2018 Reinsurance Market Briefing - Zurich 6 June 2018 3
1010 Global Reinsurance OutlookGreg Carter Managing Director Analytics ndash EMEA
1040 Keynote Presentation ILS and the Alternative Capital MarketsDirk Lohmann Chairman amp CEO ndashSecquaero Advisors Ltd
1120
1140 Methodology Update Presentation An update on Bests Credit Rating Methodology (BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde Jakobsen Director Analytics
1220 European Primary Insurance trends including Market Outlooks and impact on reinsurance sector
Catherine Thomas Senior Director Analytics
1300
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 4
copy AM Best Company (AMB) andor its licensors and affiliates All rights reserved ALL INFORMATION CONTAINED HEREIN IS PROTECTED BYCOPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED REPACKAGED FURTHERTRANSMITTED TRANSFERRED DISSEMINATED REDISTRIBUTED OR RESOLD OR STORED FOR SUBSEQUENT USE FOR ANY SUCHPURPOSE IN WHOLE OR IN PART IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER BY ANY PERSON WITHOUT AMBrsquos PRIORWRITTEN CONSENT All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable Because of thepossibility of human or mechanical error as well as other factors however all information contained herein is provided ldquoAS ISrdquo without warranty of anykind Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by resulting fromor relating to any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors officersemployees or agents in connection with the procurement collection compilation analysis interpretation communication publication or delivery of anysuch information or (b) any direct indirect special consequential compensatory or incidental damages whatsoever (including without limitation lostprofits) even if AMB is advised in advance of the possibility of such damages resulting from the use of or inability to use any such information The creditratings financial reporting analysis projections and other observations if any constituting part of the information contained herein are and must beconstrued solely as statements of opinion and not statements of fact or recommendations to purchase sell or hold any securities insurance policiescontracts or any other financial obligations nor does it address the suitability of any particular financial obligation for a specific purpose or purchaserCredit risk is the risk that an entity may not meet its contractual financial obligations as they come due Credit ratings do not address any other riskincluding but not limited to liquidity risk market value risk or price volatility of rated securities NO WARRANTY EXPRESS OR IMPLIED AS TO THEACCURACY TIMELINESS COMPLETENESS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER Each credit rating or other opinionmust be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of andeach provider of credit support for each security or other financial obligation that it may consider purchasing holding or selling
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 5
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in thesales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating ordeveloping or approving procedures or methodologies used for determining the credit rating
No part of this presentation amounts to sales marketing activity and AM Bestrsquos Rating Division employeesare prohibited from participating in commercial discussions
Any queries of a commercial nature should be directed to AM Bestrsquos Market Development function
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 6
Global Reinsurance Outlook
Greg CarterManaging Director Analytics - EMEA
Reinsurance Market Dynamics
2018 Reinsurance Market Briefing - Zurich 6 June 2018 7
Outlook
Convergence Capital
Intense Competition
Earnings Strained
Excess Capital
Inflation Potential
Low Investment
Yields
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 2
Welcome
Nick Charteris-BlackManaging Director Market Development ndash EMEA
Agenda
2018 Reinsurance Market Briefing - Zurich 6 June 2018 3
1010 Global Reinsurance OutlookGreg Carter Managing Director Analytics ndash EMEA
1040 Keynote Presentation ILS and the Alternative Capital MarketsDirk Lohmann Chairman amp CEO ndashSecquaero Advisors Ltd
1120
1140 Methodology Update Presentation An update on Bests Credit Rating Methodology (BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde Jakobsen Director Analytics
1220 European Primary Insurance trends including Market Outlooks and impact on reinsurance sector
Catherine Thomas Senior Director Analytics
1300
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 4
copy AM Best Company (AMB) andor its licensors and affiliates All rights reserved ALL INFORMATION CONTAINED HEREIN IS PROTECTED BYCOPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED REPACKAGED FURTHERTRANSMITTED TRANSFERRED DISSEMINATED REDISTRIBUTED OR RESOLD OR STORED FOR SUBSEQUENT USE FOR ANY SUCHPURPOSE IN WHOLE OR IN PART IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER BY ANY PERSON WITHOUT AMBrsquos PRIORWRITTEN CONSENT All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable Because of thepossibility of human or mechanical error as well as other factors however all information contained herein is provided ldquoAS ISrdquo without warranty of anykind Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by resulting fromor relating to any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors officersemployees or agents in connection with the procurement collection compilation analysis interpretation communication publication or delivery of anysuch information or (b) any direct indirect special consequential compensatory or incidental damages whatsoever (including without limitation lostprofits) even if AMB is advised in advance of the possibility of such damages resulting from the use of or inability to use any such information The creditratings financial reporting analysis projections and other observations if any constituting part of the information contained herein are and must beconstrued solely as statements of opinion and not statements of fact or recommendations to purchase sell or hold any securities insurance policiescontracts or any other financial obligations nor does it address the suitability of any particular financial obligation for a specific purpose or purchaserCredit risk is the risk that an entity may not meet its contractual financial obligations as they come due Credit ratings do not address any other riskincluding but not limited to liquidity risk market value risk or price volatility of rated securities NO WARRANTY EXPRESS OR IMPLIED AS TO THEACCURACY TIMELINESS COMPLETENESS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER Each credit rating or other opinionmust be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of andeach provider of credit support for each security or other financial obligation that it may consider purchasing holding or selling
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 5
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in thesales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating ordeveloping or approving procedures or methodologies used for determining the credit rating
No part of this presentation amounts to sales marketing activity and AM Bestrsquos Rating Division employeesare prohibited from participating in commercial discussions
Any queries of a commercial nature should be directed to AM Bestrsquos Market Development function
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 6
Global Reinsurance Outlook
Greg CarterManaging Director Analytics - EMEA
Reinsurance Market Dynamics
2018 Reinsurance Market Briefing - Zurich 6 June 2018 7
Outlook
Convergence Capital
Intense Competition
Earnings Strained
Excess Capital
Inflation Potential
Low Investment
Yields
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Agenda
2018 Reinsurance Market Briefing - Zurich 6 June 2018 3
1010 Global Reinsurance OutlookGreg Carter Managing Director Analytics ndash EMEA
1040 Keynote Presentation ILS and the Alternative Capital MarketsDirk Lohmann Chairman amp CEO ndashSecquaero Advisors Ltd
1120
1140 Methodology Update Presentation An update on Bests Credit Rating Methodology (BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde Jakobsen Director Analytics
1220 European Primary Insurance trends including Market Outlooks and impact on reinsurance sector
Catherine Thomas Senior Director Analytics
1300
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 4
copy AM Best Company (AMB) andor its licensors and affiliates All rights reserved ALL INFORMATION CONTAINED HEREIN IS PROTECTED BYCOPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED REPACKAGED FURTHERTRANSMITTED TRANSFERRED DISSEMINATED REDISTRIBUTED OR RESOLD OR STORED FOR SUBSEQUENT USE FOR ANY SUCHPURPOSE IN WHOLE OR IN PART IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER BY ANY PERSON WITHOUT AMBrsquos PRIORWRITTEN CONSENT All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable Because of thepossibility of human or mechanical error as well as other factors however all information contained herein is provided ldquoAS ISrdquo without warranty of anykind Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by resulting fromor relating to any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors officersemployees or agents in connection with the procurement collection compilation analysis interpretation communication publication or delivery of anysuch information or (b) any direct indirect special consequential compensatory or incidental damages whatsoever (including without limitation lostprofits) even if AMB is advised in advance of the possibility of such damages resulting from the use of or inability to use any such information The creditratings financial reporting analysis projections and other observations if any constituting part of the information contained herein are and must beconstrued solely as statements of opinion and not statements of fact or recommendations to purchase sell or hold any securities insurance policiescontracts or any other financial obligations nor does it address the suitability of any particular financial obligation for a specific purpose or purchaserCredit risk is the risk that an entity may not meet its contractual financial obligations as they come due Credit ratings do not address any other riskincluding but not limited to liquidity risk market value risk or price volatility of rated securities NO WARRANTY EXPRESS OR IMPLIED AS TO THEACCURACY TIMELINESS COMPLETENESS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER Each credit rating or other opinionmust be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of andeach provider of credit support for each security or other financial obligation that it may consider purchasing holding or selling
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 5
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in thesales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating ordeveloping or approving procedures or methodologies used for determining the credit rating
No part of this presentation amounts to sales marketing activity and AM Bestrsquos Rating Division employeesare prohibited from participating in commercial discussions
Any queries of a commercial nature should be directed to AM Bestrsquos Market Development function
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 6
Global Reinsurance Outlook
Greg CarterManaging Director Analytics - EMEA
Reinsurance Market Dynamics
2018 Reinsurance Market Briefing - Zurich 6 June 2018 7
Outlook
Convergence Capital
Intense Competition
Earnings Strained
Excess Capital
Inflation Potential
Low Investment
Yields
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 4
copy AM Best Company (AMB) andor its licensors and affiliates All rights reserved ALL INFORMATION CONTAINED HEREIN IS PROTECTED BYCOPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED REPACKAGED FURTHERTRANSMITTED TRANSFERRED DISSEMINATED REDISTRIBUTED OR RESOLD OR STORED FOR SUBSEQUENT USE FOR ANY SUCHPURPOSE IN WHOLE OR IN PART IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER BY ANY PERSON WITHOUT AMBrsquos PRIORWRITTEN CONSENT All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable Because of thepossibility of human or mechanical error as well as other factors however all information contained herein is provided ldquoAS ISrdquo without warranty of anykind Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by resulting fromor relating to any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors officersemployees or agents in connection with the procurement collection compilation analysis interpretation communication publication or delivery of anysuch information or (b) any direct indirect special consequential compensatory or incidental damages whatsoever (including without limitation lostprofits) even if AMB is advised in advance of the possibility of such damages resulting from the use of or inability to use any such information The creditratings financial reporting analysis projections and other observations if any constituting part of the information contained herein are and must beconstrued solely as statements of opinion and not statements of fact or recommendations to purchase sell or hold any securities insurance policiescontracts or any other financial obligations nor does it address the suitability of any particular financial obligation for a specific purpose or purchaserCredit risk is the risk that an entity may not meet its contractual financial obligations as they come due Credit ratings do not address any other riskincluding but not limited to liquidity risk market value risk or price volatility of rated securities NO WARRANTY EXPRESS OR IMPLIED AS TO THEACCURACY TIMELINESS COMPLETENESS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER Each credit rating or other opinionmust be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of andeach provider of credit support for each security or other financial obligation that it may consider purchasing holding or selling
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 5
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in thesales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating ordeveloping or approving procedures or methodologies used for determining the credit rating
No part of this presentation amounts to sales marketing activity and AM Bestrsquos Rating Division employeesare prohibited from participating in commercial discussions
Any queries of a commercial nature should be directed to AM Bestrsquos Market Development function
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 6
Global Reinsurance Outlook
Greg CarterManaging Director Analytics - EMEA
Reinsurance Market Dynamics
2018 Reinsurance Market Briefing - Zurich 6 June 2018 7
Outlook
Convergence Capital
Intense Competition
Earnings Strained
Excess Capital
Inflation Potential
Low Investment
Yields
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Disclaimer
2018 Reinsurance Market Briefing - Zurich 6 June 2018 5
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in thesales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating ordeveloping or approving procedures or methodologies used for determining the credit rating
No part of this presentation amounts to sales marketing activity and AM Bestrsquos Rating Division employeesare prohibited from participating in commercial discussions
Any queries of a commercial nature should be directed to AM Bestrsquos Market Development function
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 6
Global Reinsurance Outlook
Greg CarterManaging Director Analytics - EMEA
Reinsurance Market Dynamics
2018 Reinsurance Market Briefing - Zurich 6 June 2018 7
Outlook
Convergence Capital
Intense Competition
Earnings Strained
Excess Capital
Inflation Potential
Low Investment
Yields
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 6
Global Reinsurance Outlook
Greg CarterManaging Director Analytics - EMEA
Reinsurance Market Dynamics
2018 Reinsurance Market Briefing - Zurich 6 June 2018 7
Outlook
Convergence Capital
Intense Competition
Earnings Strained
Excess Capital
Inflation Potential
Low Investment
Yields
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Reinsurance Market Dynamics
2018 Reinsurance Market Briefing - Zurich 6 June 2018 7
Outlook
Convergence Capital
Intense Competition
Earnings Strained
Excess Capital
Inflation Potential
Low Investment
Yields
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
2018 Reinsurance Market Briefing - Zurich 6 June 2018 8
Global Reinsurance Performance Results amp Trends
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Total Economic and Insured Losses
2018 Reinsurance Market Briefing - Zurich 6 June 2018 9
2017 2016 Annual Change ()
10-Year Average
Economic LossesUSD
BillionsUSD
BillionsUSD
Billions
Nat Cat 300 178 69 178Man-made 6 10 -42 12
Total 306 188 63 190
Insured LossesNat Cat 131 56 133 51Man-made 5 8 -45 7
Total 136 65 110 58
Source Swiss Re Institute
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Global Combined Ratio
2018 Reinsurance Market Briefing - Zurich 6 June 2018 10
Source AM Best data and research
559 562 560 605
761
610
319 336 343347
337
336
57 54 60 5842
54
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
1098
898 952952
878946
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Global Return on Equity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 11
Source AM Best data and research
130
116
98
84
-01
-2
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Return on Equity Five-Year Average
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Global Return on Equity ndash Five Year Average
2018 Reinsurance Market Briefing - Zurich 6 June 2018 12
Source AM Best data and research
85
47
0
1
2
3
4
5
6
7
8
9
Five -Year Average Return on Equity Five -Year Average Return on EquityExcluding Loss Reserve Development
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
2018 Reinsurance Market Briefing - Zurich 6 June 2018 13
Market Capacity
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Top 10 Largest Reinsurance Groups
2018 Reinsurance Market Briefing - Zurich 6 June 2018 14
Reinsurance WP TotalLife amp Non-Life (USD m) ShareholdersrsquoGross Net Funds
Swiss Re 35622 33570 35716 Munich Re 33154 31891 33493 Hannover Ruck 17232 15192 10264 SCOR 14569 13238 7055 Berkshire Hathaway 12709 12709 286359 Lloyds 11576 8694 34101 RGA 10107 9249 7093 China Re 7857 7517 10384 Great West Lifeco 6195 6112 13857 Korean Re 5554 3903 1755
Source AM Best data and research Ranked by unaffiliated gross premium written in 2016
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Estimate for Dedicated Reinsurance Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 15
320 340 332 345 345
48 60 68
75 82
0
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016 2017
Convergence Capacity
Traditional Capacity
ForecastSource AM Best and Guy Carpenter
(USD
Bill
ions
)
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Convergence Capacity
2018 Reinsurance Market Briefing - Zurich 6 June 2018 16Source Forecast by Guy Carpenter and AM Best data and research
4 3 4 5 5
2534
4149 52
19
23
23
2225
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017EILW Collateralized Re Catastrophe Bonds
Source AM Best and Artemis
USD
Bill
ions
Convergence Capacity
0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
1997 2002 2007 2012 2017
Num
ber of Deals
CAT Bonds Issued Number of Deals
CAT Bonds
USD
Bill
ions
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
2018 Reinsurance Market Briefing - Zurich 6 June 2018 17
Market Strategies amp Opportunities
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Global Market Strategies
2018 Reinsurance Market Briefing - Zurich 6 June 2018 18
Client Agent amp Broker
Primary Insurance Company Reinsurance Broker
Reinsurance Company Convergence Capital
In AM Bestrsquos opinionhellip
The market will continue to become more efficient as all players strive to become closer to the client
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Opportunities for the Reinsurance Sector
2018 Reinsurance Market Briefing - Zurich 6 June 2018 19
Cyber Insurance Flood Mortgage Terrorism InsurTech
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Global Reinsurance Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 20
HeadwindsIntense competition
Unabated interest from third-party capital
Excess capacity hinders improvement
Potential for increased inflation
Reserve release declines
Earnings under pressure
Although capitalisation remains strong and rate deterioration halted pressure on margins continues Over the intermediate term returns for some reinsurers will fall short on a risk-adjusted basis
Maintain negative outlook
TailwindsCession rates increasing
Cat losses temporarily stabilise rates
Favourable reserve development
Strong risk-adjusted capital
Increase in interest rates
MampA
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
ILS and Alternative MarketsZurich
AM Best 2018 Reinsurance Market Briefing
June 6 2018Dirk Lohmann ndash Secquaero Advisors Ltd
Insurance-Linked Securities from
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Agenda
Source Secquaero Advisors Ltd
01 Introduction
02 History of ILS and Alternative Capital in the Reinsurance Market
03 2017 ndash What happened
04 2018 ndash Expectations and Reality
05 Outlook ndash Prospects for Growth
22
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
23
Personal IntroductionDirk Lohmann
ndash 38 years management underwriting experiencendash 17 Years with Hannover Rendash 4 Years with Zurich Financial Servicesndash 35 Years with Converiumndash CEO of Secquaero Advisors Ltd since 2007
ndash Extensive experience and innovation in the field of insurance securitizationndash KOVER (1994 Hannover Re)
ndash First securitization of non-life catastrophe risk into capital markets ndash K2 Portfolio Swap (1996 Hannover Re)
ndash First securitization to include aviation risk in addition to catastrophe risk First Portfolio based transaction to use an ISDA as documentation ndash Trinom (2001 Zurich Re)
ndash First multi-event multi-peril securitization (US Wind amp EQ Euro Nat Cat perils)ndash Helix 04 (2004 Converium)
ndash First second event only multi-peril 144A securitization (US Wind amp Quake Euro wind Japan Quake)ndash Award winning transaction SQ ReVita (2011 Secquaero)
ndash First Value in Force Life Securitization in note format with active transaction management transparent reporting and specific risk mitigantsndash SQ ReVita II (2016 Secquaero)
ndash Winner of Trading Risk Life ILS Transaction of the Year Award
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
ndash Founded in 2007ndash Launched first ILS fund in June 2008ndash Affiliated with Schroders since June 2013 Now a consolidated subsidiary of the Schroders Plc Groupndash Exclusive advisors to Schroders on insurance-linked investmentsndash Jointly manage with Schroders over $3 billion on ILS Assetsndash Active investor in all classes of insurance risk (not just catastrophe)ndash Total team of 22 investment professionals with in excess of 200 years industry experience
ndash What does the name Secquaero mean ndash Quaero I seek look for strive for endeavour seek to obtain (Latin)ndash Sec + Quaero = seeking solutions in securitization
Introduction to Secquaero
24
Source Secquaero Advisors Ltd
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
History of ILS and Alternative Capital in the Reinsurance Market
25
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
History of US PampC IndustryCapital inflows after major dislocations in the market
26
Source AM Best Insurance Information Institute
Cas
ualty
Cris
is
Hur
rican
e An
drew
911
and
Res
erve
Stre
ngth
enin
g
Katri
na R
ita amp
Wilm
a
Class of 1985
ACE
XL
Class of 1993
Cat Ltd
Global Capital Re
IPC Re
La Salle Re
Mid Ocean Re
Partner Re
Renaissance Re
Tempest Re
Class of 2001
Arch
Aspen
Axis
AWAC
Da Vinci Re
Endurance
Goshawk Re
Montpelier Re
Olympus Re
Class of 2005
Aeolous Re
Ariel Re
Flagstone
Harbor Point
Lancashire
New Castle Re
Validus
Amlin Bermuda
Hiscox Bermuda
amp
Sidecars
Hard Market
Catastrophe Event
US
Torn
ados
Jap
an amp
NZ
EQ
Class of 2011
ILS Managers
amp
Sidecars
LegendPartner Re ndash Start-up backed by Venture Capital and still tradingCat Ltd- - Start-up that has since been acquired consolidatedAelous Re Side Cars ILS Managers ndash Alternative capital market vehicles
____
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Why is ILS attractive to Investors
27
Source Schroders
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
The case for ILS
28
Attractive returns excellent diversification
Source Bloomberg Swiss Re Data from January 2002 to 29 December 2017 Cat Bonds Swiss Re Global Cat Bond Index Equities SampP500 Total Return Index IG bonds JP Morgan IG Corporate Total Return Index Commodities SampP Goldman Sachs Commodity Index Hedge Funds HFRX Equally Weighted Index High Yield Bonds Merrill Lynch Global HY Index Cat bonds positive if index negative refers to monthly performance of Swiss Re Global Cat Bond Index vs other indices Worst month figure refers to the Swiss Re Cat Bond Index which suffered the biggest draw-down over all cat bond indices in March 2011
Cat Bonds Equities IG Bonds Hedge Funds Commodities High Yield Bonds
Annual return (USD) 76 76 56 20 62 85
Volatility annual 32 140 61 45 226 100
Positive months 92 67 70 66 58 71
Cat bonds positive if index negative ndash 86 84 85 91 86
Worst month -65 -168 -149 -99 -278 -173
Date of worst month Sept lsquo17 Oct rsquo08 Oct rsquo08 Oct lsquo08 Oct lsquo08 Oct lsquo08
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
ILS ndash How it all began From a modest start to a major force in the insurance industry in 20 years
1992 ndashHurricane Andrew
1994 ndash KOVER1st Transfer of
Cat risk to Captial Markets
hannover reKover Ltd
$100000000Insurance Linked Notes
January 1994
1997 ndashGeorgetown Re
1st 144a Cat Bond
2005 ndash Katrina Rita amp Wilma
Most expensive Cat year in history
2014 ndashILS $60 to $75
bn 20 of Cat Market
Source Wikipedia Secquaero Advisors Ltd AON Benfield
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
ILS Market
30
Alternative capacity in the global property catastrophe reinsurance (on limit)
ILS continues to take share record issuance of cat bonds in 2017
Source Chart left Aon Benfield Analytics July 2017 chart right Artemiscom March 2018
Annual issuance volume of cat bonds (1997ndash2018 YTD)
17 22 19 22 24
2844 50 64 72 81
86
368 388321
378447 428
461490
511 493514 519
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
alternative capital traditional capital
800 150
01
800
280
03
000
400
05
000
500
06
500 9
000
160
0014
500
140
0014
000
145
00 170
0021
000
252
0025
960
268
20 302
40 330
25
0m
5000m
10000m
15000m
20000m
25000m
30000m
35000m
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issued Outstanding
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
2017 ndash What happened
31
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
ndash Very active event year in 2017 3rd most expensive year in terms of insured losses after 2011 and 2005
ndash 3 major land fall hurricanes 2 strong Mexico earthquakes and California wildfires for total insured losses which could exceed USD 125 billion
ndash Results were in line with expectations based on modelled losses of events
ndash Frequency was more of an issue than the severity of individual events As a consequence collateralized re covers and cat bonds with aggregate triggers were more exposed than per occurrence triggered instruments
2017 in reviewEventful year
32
Source Schroders AON Benfield Anaylitics January 2018
Insured losses by year by type
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Hurricane IrmaA near miss for the industry
33
Source Bloomberg Swiss Re Lane Financial LLC Left hand chart Swiss Re Global Cat Bond TR index BofA Merrill Lynch Global High Yield Index BofA Merrill Lynch Global Broad Market Corporate Index as of September 29 2017 Right hand chart Lane Financial LLC All Cat ILS market spreads BofA Merrill Lynch Global High Yield OAS BofA Merrill Lynch Global Broad Market Corporate OAS as of September 29 2017 Past performance is no guarantee of future results Investors cannot invest directly in any index
bps
Total return (Jan 2002 = 100 August and September 2017)
Wed 692017Modelled insured loss gt USD120 bn
Fri 892017Modelled insured loss gt USD 20-80 bn
Sun 1092017Modelled insured loss gt USD 20-40 bn
180
200
220
240
260
280
300
320
340
360
380
040
820
17
060
820
17
080
820
17
100
820
17
120
820
17
140
820
17
160
820
17
180
820
17
200
820
17
220
820
17
240
820
17
260
820
17
280
820
17
300
820
17
010
920
17
030
920
17
050
920
17
070
920
17
090
920
17
110
920
17
130
920
17
150
920
17
170
920
17
190
920
17
210
920
17
230
920
17
250
920
17
270
920
17
290
920
17
Swiss Re Global Cat Bond
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
(Re-)Insurer View on rates Source
Hiscox GroupReinsurance
Submitted revised business plan to Lloyds increasing stamp capacity by pound450mn (+40) The increase in capacity is driven by an anticipated improvement in market conditions and a desire to have sufficient capacity available to participate in a widespread market turn
Hiscox 2018 Syndicate 33 Business Forecast
Published 11102017
Hannover ReReinsurance
+40 to 50 on loss impacted layers Seeking +5 across the entire portfolio on all lines
Ulrich Wallin CEO Hannover Re Investor Day Frankfurt 191017
Munich ReReinsurance
ldquoUnsustainablerdquo rates of the past five years will not continue We expect to see positive pricing changes certainly in the property classes on a worldwide basis
Herman Pohlchristoph CFOBaden-Baden 231017 as reported in wwwreinsurancemagazinecom
Swiss ReReinsurance
ldquoHow would I describe the market In one word ndash unsustainablerdquo ldquoI also believe this yearrsquos losses could be sufficiently significant to make the case for a change in market dynamics in Europerdquo
Jean-Jacques Henchoz CEO EMEAInsurance Insider Baden-Baden Reporter Day 1October 23 2017
Partner ReReinsurance
ldquoexpectations are for a pronounced correction in the US and a trajectory back to technically adequate levels in other parts of the worldrdquo ldquoInternational diversified capital will have been hit hard this year and we expect the global cat market to reactrdquo
Emmanuel Clarke CEOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
ChubbPrimary Insurance
I believe we are at the beginning of a firming price environment driven by years of soft pricing that has resulted in inadequate rates in many classes The magnitude of this years CAT losses which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event simply adds to the pressure to return to pricing that produces an adequate risk-adjusted returnrdquo
Evan Greenberg CEOChubb Ltd Earnings press release October 26 2017
HDI GlobalPrimary Insurance
Seeking 5 to 25 increases on accounts with loss ratios gt50 Interview Christian Hinsch CEO HDI Global Herbert Frommes Versicherungsmonitor 271017
Munich Re Syndicate LtdMarine
Has entered into the Marine XL Market ldquoThis is a dislocated market right now ndash wersquove been in the market buying replacement cover and we know its not easy therersquos not a lot of capacity right nowrdquo
Domink Hoare CUOInsurance Insider Baden-Baden Reporter Day 2October 23 2017
Outlook for Renewal Pricing 2018 in October 2017Expectations that market turn will not be limited to US reinsurance
34
Source Various see corresponding columns and Schroders October 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Broker View on rates Source
Arthur J GallagherPrimary Insurance
ldquohellipto see something on the order of five to 15 to 20 [rate increases] wouldnrsquot be unreasonablerdquo
AJ Gallagher 3rd Quarter earnings call as reported in Bestrsquos News Service via BestwireOctober 27 2017
Guy CarpenterReinsurance
ldquoEach customer should be treated differently ndash there shouldnrsquot be a broad brush approachrdquo
ldquoWe are in a business of relationships We hope that reinsurers will behave rational at the renewalrdquo
James Nash President InternationalGuy Carpenter Baden-Baden ReinsuranceSymposium as reported in Insurance Insider Baden-Baden Reporter Day 2October 23 2017 and in wwwreinsurancemagazinecom October 23 2017
Willis ReReinsurance
ldquoWe would anticipate that reinsurers would want to spread the burden of rate adjustments at 1 January as far as possible but expect that the impact on rates will be focused on loss affected regions and accountsrdquo
Dirk Spenner Managing Director Head of EMEA NorthEast Willis Re as reported in Insurance Insider Baden-Baden Reporter Day 1October 22 2017
JLT ReReinsurance
As things currently stand any rate increase is more likely to resemble201112 than 200506 or 200102 As a result pricing increases should take place in loss-affected regions whilst loss-free property-catastrophe programmes in areas outside of hurricane-ravaged regions can expect to see more moderate price rises The retrocession market is likely to be hit hard as elevated losses and increased demand for cover coalesce to drive rates up
JLT Re Viewpoint ndash Winds of Change ReportOctober 2017 ndash wwwjltrecom
Outlook for Renewal Pricing 2018 in October 2017Brokers no longer arguing whether rates will increase but rather by how much
35
Source Various see corresponding columns and Schroders October 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Why should rates increaseIndustry fundamentals were weakening already before the 3rd Qtr events
36
Source Special report ndash Global Reinsurance Segment Review ndash September 2017 and sources therein AM Best
Industry ROE has been steadily eroding
Reported ROE supported by prior yearrsquos reserve releases and below average catastrophe losses
Accident Year results for Global Reinsurers (excluding prior year releases) generated an underwriting loss in 2016 with an accident year combined ratio of 1010 (AM Best Global Reinsurance Segment Review ndashSeptember 2017)
Standard amp Poorrsquos cohort of global reinsurers generated an average return on capital for the 1st Half Year 2017 of 82 versus an estimated cost of capital of 72
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Why should rates increasePast market corrections were driven by a combination of large events and reserve adjustments
37
Source Schroders and JLT Re Viewpoint ndash The Winds of Change Report and references therein October 2017
Sharp correction in Natural Catastrophe rates between 2001 ndash 2004 was driven more by reserve deficiencies in the reinsurance sectorrsquos balance sheet than by large events
The large losses of 2011 did not result in a sharp correction for two reasonsbull Losses were not in the USbull Industry had significant reserve redundancies
that helped absorb the 2011 event losses
In 2017 18 the situation is somewhat different bull Reserve redundancies are not as abundant
as they have been used in the last 5 years to support earnings
bull While the market may have had excess capital before the events much has been eliminated through the losses
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Investor reactionndash Impact on Cat Bond market was relatively limited This surprised most investors who expected a higher drawdown after such large storms
What many did not initially appreciate was that most bonds only covered named perils of which flood was not one Also territorial scope of most bonds (with the exception of Atlas and Kilimanjaro) excluded US territories and possessions
ndash Most investors were conditioned to expect the need for a top up post event and many did so in anticipation of higher rates at the upcoming renewal
ndash Many new investors who had been sitting on the sidelines came into the market in anticipation of a market hardening
Manager reaction ndash Initially a large concern that much 2017 collateral would be trapped and not available for renewal at January 1 2018ndash Some higher demand for protection was anticipatedndash Clear expectation that rates would be increasing after prolonged softening of pricing particularly in the retrocessional marketndash Significant fund raising efforts aimed a ldquore-loadingrdquo existing capacity to cover eroded or trapped collateralndash Some aggressive fund raising targeting strategies with higher octane returns
How did ILS Investors and Managers React
38
Source Secquaero Advisors Ltd
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
2018 Renewals - Expectations and Reality
39
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
ndash Despite what turned out to be among the most expensive catastrophe years in the reinsurance industry (after 2005 and 2011) with insured market loss in excess of USD 125 billion the renewal was largely orderly with no distressed buyers in the market
ndash The renewal season was very late with many contracts not being firm ordered until the week before Christmas There were a couple of reasons for this
1 Uncertainty over loss estimates for Harvey Irma and Maria Harvey seems to have remained flat Irma surprisingly came down and Maria is a potential source for surprises due to the very slow recovery of local infrastructure and associated business interruption claims
2 Retrocessional programs were only completed relatively late in the renewal season As a consequence many reinsurers held back on quoting the primary reinsurance programs
3 Significant uncertainty as to how much collateral would be trapped and how much new money would be raised by the ILS managers This was only finalized in mid-to late November
ndash There was a strong reliance on modeled outputs which we found disappointing seeing as events like the California wildfires are not even captured by some models (RMS does not cover this peril AIRrsquos model resulted in loss estimates that were well below the actual incurred figures for northern California)
ndash Inflows into the cat bond market (following its relatively strong performance through Harvey Irma and Maria) resulted in Cat Bond pricing for new issuance coming in with risk-adjusted rate increases at the lower end of what was initially anticipated
January 1 RenewalsGeneral Observations
40
Source Swiss Re httpwwwsigma-explorercomindexhtml Schroders January 2018
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Our projections end of October 2017
January 1 RenewalsIncreased rates but below expectations
41
Source Schroders
Type of Business Projected Increase
Loss impacted Retro +35 - 50
Loss free Retro +10 - 20
Florida take-out companies (Loss impacted layers)
+35 - 50
Florida take-out companies (Loss free layers)
+30 - 35
US Loss impacted ex Florida +30 - 50
US Loss free ex Florida +10 ndash 20
European Loss Free + 5 - 10
Australia New Zealand + 10 - 25
Type of Business Achieved Increase
Loss impacted Retro +15 - 30
Loss free Retro +5 - 15
Florida take-out companies (Loss impacted layers)
NA - June 1 Renewal
Florida take-out companies (Loss free layers)
NA - June 1 Renewal
US Loss impacted ex Florida +15 - 35
US Loss free ex Florida +5 - 10
European Loss Free + 0 - 10
Australia New Zealand + 25 - 20
Our observations end of December 2017
Positives for price dynamics Negatives for price dynamics
January 1 RenewalWhat influenced the market
42
Source Schroders January 2018
ndash Uncertainty on level of capacity available particularly in the retrocessional market led to higher prices being paid for renewals that secured capacity first In particular for the first part of the renewal
ndash California Wildfire losses added pressure on aggregate covers
ndash Cedents were essentially primed to anticipate rate increases
ndash Generally less competition on more remote attachment points carrying lower coupons rate on line (ie those below 10)
ndash European and international business (ex USA) saw a stop in erosion of pricing
ndash New RMS version 18 model release ndash resulted in lower modeled expected losses for certain US perils offsetting upwards price pressure
ndash Harvey and Irma loss estimates for many companies declined during the renewal season This resulted in less trapped collateral than originally anticipated with reduced squeeze on retrocessional pricing
ndash Strong demand chasing yields on the ldquohigher yieldingrdquo transactions (coupons rates on line in the 12 to 15+ area)
ndash Regional aggregate tornado hail protection renewals disappointed Technical pricing offered was weaker than we had expected despite the reinsurance market having been hit relatively hard
ndash Capital base of the market has remained solid ILS market able to ldquore-loadrdquo
ndash Strong bond market in late 1st quarter signaled capacity overhang Spreads on new issuance largely came inside of initial guidance despite some losses emerging in the bond market (Caelus Residential Re Citrus)
ndash Set the stage for challenging renewal of June 1 Florida coversndash For many Florida writers 2017 was the first time that their
programs experienced a significant loss For ldquoolderrdquo Florida companies first major loss since 2005 Cedents and brokers successfully used the ldquobankrdquo argument to avoid material repricing ignoring the capital relief provided by reinsurance market over the last 10 years Some reinsurance panels were changed
ndash Terms generally set early and cover bound before latest news on loss development emerged
ndash Loss Adjustment Expenses and Closed File reopening leading to further adverse development has been largely discounted in the renewal negotiations
June 1 Renewal (Florida Market)Essentially Flat despite some surprises
43
Source Secquaero Advisors Ltd Chart JLT Re httpswwwjltrecommedia-centrepress-releases2018june1-june-2018-renewals
JLT Re Risk-Adjusted Florida Property-Catastrophe ROL Index ndash 1992 to 2018
- JLT Re Florida Index +12 in 2018 versus 2017
ndash Spreads have recently improved but careful risk selection and portfolio construction is still required to offer investors fairly priced risks
ndash Price increase range has been function of region and peril anywhere between 0-35
ndash Peak risks (US wind and earthquake) still offer attractive margins
ndash Only 20ndash30 of the times are hard markets ndash peaks last even shorter ndash steady state is a soft market
ILS MarketILS still fairly priced Attractiveness depends upon peril and region
44
Source Guy Carpenter (2018) Schroders (2018) Preliminary Rate-on-Line is the re-insurance premium paid in percentage of insurance coverage amount
0
50
100
150
200
250
300
350
400
450
Period over which cat bond market data is available
Guy Carpenter Property Catastrophe Rate-on-Line Indices
ndash 2017 was more of an ldquoearningsrdquo event than a ldquocapitalrdquo event for the global reinsurance market Also true for a good portion of ILS market although there are a few outliers Lloyds clearly challenged by the 2017 results
ndash Alternative capital market is clearly a factor but not the sole culprit responsible for current market conditions ndash Frequency rather than severity was the problem for 2017 Had Irma moved along the earlier forecast track then the impact ndash on traditional
as well as collateralized alternative reinsurance markets ndash would have been more profound particularly with respect towards trapped collateral
ndash Ultimate cost of 2017 events ndash particularly with respect to Irma and Maria ndash will only be known later this year Loss creep or adverse development is beginning to show up in the results of certain ILS managers and could also be a factor for the 2nd quarter results for reinsurers with significant Florida books
ndash Investors may not be as accommodating with regards towards ldquoreloadingrdquo should 2018 hurricane experience prove to be a repeat of 2017 Investors were conditioned to expect to reload but also bought into the concept of ldquopaybackrdquo post event Actual pricing experience could lead to some skepticism about whether the market can actually deliver on this
ndash Swings in the price cycle are not simply a function of a large loss 2017 losses (with the exception perhaps of the northern California wildfires) were all within modeled expectations Overall health of the industryrsquos balance sheet at the time of the event and the degree to which the trigger event catches the industry off guard are important components to a shift in the marketrsquos psychology
Has ILS and Alternative Capital killed the ldquoCyclerdquoJury is still out on this question
45
Source Secquaero Advisors Ltd
Outlook ndash Prospects for Growth
46
ndash The Alternative Capital market is often cited as the potential ldquosolutionrdquo to capacity constrained marketsndash Our view Risks entertained by capital market investors must have the following characteristics
ndash The risk entertained should not correlate with financial markets for other assets (ie it must remain a diversifying asset)ndash There must be a clear description of the risk being entertained What are we insuring against ndash There must be sufficient data (exposure information claims information) available to properly price the riskndash Whether a covered event has occurred and the quantum of loss recoverable for an insured event must be quantifiable within a
reasonably short time frame ndash One must remember that Alternative Capital Specialist ILS managers generally do not have permanent capital Our capital can usually
redeem within specified time frames which constrains our ability to assume certain risksndash Collateralized nature of the coverage provided also is a constraint
Can Alternative Capital provide solutions to new emerging risks
47
Source Secquaero Advisors Ltd
Risk Non-correlating to Market risk and valuation of other financial assets
Clarity on what is covered
Sufficient data to assess and price the risk
Is the occurrence of an event and its amount quantifiable within a reasonable time frame
Terror No Maybe No Yes for property damage No for other lines of insurance
Political Risk Depends Not always Not for all exposures No
Cyber No No No No
Supply Chain Depends probably low correlation to individual names but not broad market risk
Not always Question of product design and willingness of insured to assume basis risk
Limited for all risk indemnity Possible for parametric coverage against catastrophe events
Indemnity trigger ndash noParametric trigger - yes
Weather Yes Possible Yes in most cases Yes
Bank Operational Risk No Not entirely No No
Mortgage Indemnity No Yes Yes for US market Depends upon the structure
Some emerging risksDo they meet the criteria for Alternative Capital
48
Source Secquaero Advisors Ltd
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ndash Strong bond market in late 1st quarter signaled capacity overhang Spreads on new issuance largely came inside of initial guidance despite some losses emerging in the bond market (Caelus Residential Re Citrus)
ndash Set the stage for challenging renewal of June 1 Florida coversndash For many Florida writers 2017 was the first time that their
programs experienced a significant loss For ldquoolderrdquo Florida companies first major loss since 2005 Cedents and brokers successfully used the ldquobankrdquo argument to avoid material repricing ignoring the capital relief provided by reinsurance market over the last 10 years Some reinsurance panels were changed
ndash Terms generally set early and cover bound before latest news on loss development emerged
ndash Loss Adjustment Expenses and Closed File reopening leading to further adverse development has been largely discounted in the renewal negotiations
June 1 Renewal (Florida Market)Essentially Flat despite some surprises
43
Source Secquaero Advisors Ltd Chart JLT Re httpswwwjltrecommedia-centrepress-releases2018june1-june-2018-renewals
JLT Re Risk-Adjusted Florida Property-Catastrophe ROL Index ndash 1992 to 2018
- JLT Re Florida Index +12 in 2018 versus 2017
ndash Spreads have recently improved but careful risk selection and portfolio construction is still required to offer investors fairly priced risks
ndash Price increase range has been function of region and peril anywhere between 0-35
ndash Peak risks (US wind and earthquake) still offer attractive margins
ndash Only 20ndash30 of the times are hard markets ndash peaks last even shorter ndash steady state is a soft market
ILS MarketILS still fairly priced Attractiveness depends upon peril and region
44
Source Guy Carpenter (2018) Schroders (2018) Preliminary Rate-on-Line is the re-insurance premium paid in percentage of insurance coverage amount
0
50
100
150
200
250
300
350
400
450
Period over which cat bond market data is available
Guy Carpenter Property Catastrophe Rate-on-Line Indices
ndash 2017 was more of an ldquoearningsrdquo event than a ldquocapitalrdquo event for the global reinsurance market Also true for a good portion of ILS market although there are a few outliers Lloyds clearly challenged by the 2017 results
ndash Alternative capital market is clearly a factor but not the sole culprit responsible for current market conditions ndash Frequency rather than severity was the problem for 2017 Had Irma moved along the earlier forecast track then the impact ndash on traditional
as well as collateralized alternative reinsurance markets ndash would have been more profound particularly with respect towards trapped collateral
ndash Ultimate cost of 2017 events ndash particularly with respect to Irma and Maria ndash will only be known later this year Loss creep or adverse development is beginning to show up in the results of certain ILS managers and could also be a factor for the 2nd quarter results for reinsurers with significant Florida books
ndash Investors may not be as accommodating with regards towards ldquoreloadingrdquo should 2018 hurricane experience prove to be a repeat of 2017 Investors were conditioned to expect to reload but also bought into the concept of ldquopaybackrdquo post event Actual pricing experience could lead to some skepticism about whether the market can actually deliver on this
ndash Swings in the price cycle are not simply a function of a large loss 2017 losses (with the exception perhaps of the northern California wildfires) were all within modeled expectations Overall health of the industryrsquos balance sheet at the time of the event and the degree to which the trigger event catches the industry off guard are important components to a shift in the marketrsquos psychology
Has ILS and Alternative Capital killed the ldquoCyclerdquoJury is still out on this question
45
Source Secquaero Advisors Ltd
Outlook ndash Prospects for Growth
46
ndash The Alternative Capital market is often cited as the potential ldquosolutionrdquo to capacity constrained marketsndash Our view Risks entertained by capital market investors must have the following characteristics
ndash The risk entertained should not correlate with financial markets for other assets (ie it must remain a diversifying asset)ndash There must be a clear description of the risk being entertained What are we insuring against ndash There must be sufficient data (exposure information claims information) available to properly price the riskndash Whether a covered event has occurred and the quantum of loss recoverable for an insured event must be quantifiable within a
reasonably short time frame ndash One must remember that Alternative Capital Specialist ILS managers generally do not have permanent capital Our capital can usually
redeem within specified time frames which constrains our ability to assume certain risksndash Collateralized nature of the coverage provided also is a constraint
Can Alternative Capital provide solutions to new emerging risks
47
Source Secquaero Advisors Ltd
Risk Non-correlating to Market risk and valuation of other financial assets
Clarity on what is covered
Sufficient data to assess and price the risk
Is the occurrence of an event and its amount quantifiable within a reasonable time frame
Terror No Maybe No Yes for property damage No for other lines of insurance
Political Risk Depends Not always Not for all exposures No
Cyber No No No No
Supply Chain Depends probably low correlation to individual names but not broad market risk
Not always Question of product design and willingness of insured to assume basis risk
Limited for all risk indemnity Possible for parametric coverage against catastrophe events
Indemnity trigger ndash noParametric trigger - yes
Weather Yes Possible Yes in most cases Yes
Bank Operational Risk No Not entirely No No
Mortgage Indemnity No Yes Yes for US market Depends upon the structure
Some emerging risksDo they meet the criteria for Alternative Capital
48
Source Secquaero Advisors Ltd
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ndash Spreads have recently improved but careful risk selection and portfolio construction is still required to offer investors fairly priced risks
ndash Price increase range has been function of region and peril anywhere between 0-35
ndash Peak risks (US wind and earthquake) still offer attractive margins
ndash Only 20ndash30 of the times are hard markets ndash peaks last even shorter ndash steady state is a soft market
ILS MarketILS still fairly priced Attractiveness depends upon peril and region
44
Source Guy Carpenter (2018) Schroders (2018) Preliminary Rate-on-Line is the re-insurance premium paid in percentage of insurance coverage amount
0
50
100
150
200
250
300
350
400
450
Period over which cat bond market data is available
Guy Carpenter Property Catastrophe Rate-on-Line Indices
ndash 2017 was more of an ldquoearningsrdquo event than a ldquocapitalrdquo event for the global reinsurance market Also true for a good portion of ILS market although there are a few outliers Lloyds clearly challenged by the 2017 results
ndash Alternative capital market is clearly a factor but not the sole culprit responsible for current market conditions ndash Frequency rather than severity was the problem for 2017 Had Irma moved along the earlier forecast track then the impact ndash on traditional
as well as collateralized alternative reinsurance markets ndash would have been more profound particularly with respect towards trapped collateral
ndash Ultimate cost of 2017 events ndash particularly with respect to Irma and Maria ndash will only be known later this year Loss creep or adverse development is beginning to show up in the results of certain ILS managers and could also be a factor for the 2nd quarter results for reinsurers with significant Florida books
ndash Investors may not be as accommodating with regards towards ldquoreloadingrdquo should 2018 hurricane experience prove to be a repeat of 2017 Investors were conditioned to expect to reload but also bought into the concept of ldquopaybackrdquo post event Actual pricing experience could lead to some skepticism about whether the market can actually deliver on this
ndash Swings in the price cycle are not simply a function of a large loss 2017 losses (with the exception perhaps of the northern California wildfires) were all within modeled expectations Overall health of the industryrsquos balance sheet at the time of the event and the degree to which the trigger event catches the industry off guard are important components to a shift in the marketrsquos psychology
Has ILS and Alternative Capital killed the ldquoCyclerdquoJury is still out on this question
45
Source Secquaero Advisors Ltd
Outlook ndash Prospects for Growth
46
ndash The Alternative Capital market is often cited as the potential ldquosolutionrdquo to capacity constrained marketsndash Our view Risks entertained by capital market investors must have the following characteristics
ndash The risk entertained should not correlate with financial markets for other assets (ie it must remain a diversifying asset)ndash There must be a clear description of the risk being entertained What are we insuring against ndash There must be sufficient data (exposure information claims information) available to properly price the riskndash Whether a covered event has occurred and the quantum of loss recoverable for an insured event must be quantifiable within a
reasonably short time frame ndash One must remember that Alternative Capital Specialist ILS managers generally do not have permanent capital Our capital can usually
redeem within specified time frames which constrains our ability to assume certain risksndash Collateralized nature of the coverage provided also is a constraint
Can Alternative Capital provide solutions to new emerging risks
47
Source Secquaero Advisors Ltd
Risk Non-correlating to Market risk and valuation of other financial assets
Clarity on what is covered
Sufficient data to assess and price the risk
Is the occurrence of an event and its amount quantifiable within a reasonable time frame
Terror No Maybe No Yes for property damage No for other lines of insurance
Political Risk Depends Not always Not for all exposures No
Cyber No No No No
Supply Chain Depends probably low correlation to individual names but not broad market risk
Not always Question of product design and willingness of insured to assume basis risk
Limited for all risk indemnity Possible for parametric coverage against catastrophe events
Indemnity trigger ndash noParametric trigger - yes
Weather Yes Possible Yes in most cases Yes
Bank Operational Risk No Not entirely No No
Mortgage Indemnity No Yes Yes for US market Depends upon the structure
Some emerging risksDo they meet the criteria for Alternative Capital
48
Source Secquaero Advisors Ltd
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ndash 2017 was more of an ldquoearningsrdquo event than a ldquocapitalrdquo event for the global reinsurance market Also true for a good portion of ILS market although there are a few outliers Lloyds clearly challenged by the 2017 results
ndash Alternative capital market is clearly a factor but not the sole culprit responsible for current market conditions ndash Frequency rather than severity was the problem for 2017 Had Irma moved along the earlier forecast track then the impact ndash on traditional
as well as collateralized alternative reinsurance markets ndash would have been more profound particularly with respect towards trapped collateral
ndash Ultimate cost of 2017 events ndash particularly with respect to Irma and Maria ndash will only be known later this year Loss creep or adverse development is beginning to show up in the results of certain ILS managers and could also be a factor for the 2nd quarter results for reinsurers with significant Florida books
ndash Investors may not be as accommodating with regards towards ldquoreloadingrdquo should 2018 hurricane experience prove to be a repeat of 2017 Investors were conditioned to expect to reload but also bought into the concept of ldquopaybackrdquo post event Actual pricing experience could lead to some skepticism about whether the market can actually deliver on this
ndash Swings in the price cycle are not simply a function of a large loss 2017 losses (with the exception perhaps of the northern California wildfires) were all within modeled expectations Overall health of the industryrsquos balance sheet at the time of the event and the degree to which the trigger event catches the industry off guard are important components to a shift in the marketrsquos psychology
Has ILS and Alternative Capital killed the ldquoCyclerdquoJury is still out on this question
45
Source Secquaero Advisors Ltd
Outlook ndash Prospects for Growth
46
ndash The Alternative Capital market is often cited as the potential ldquosolutionrdquo to capacity constrained marketsndash Our view Risks entertained by capital market investors must have the following characteristics
ndash The risk entertained should not correlate with financial markets for other assets (ie it must remain a diversifying asset)ndash There must be a clear description of the risk being entertained What are we insuring against ndash There must be sufficient data (exposure information claims information) available to properly price the riskndash Whether a covered event has occurred and the quantum of loss recoverable for an insured event must be quantifiable within a
reasonably short time frame ndash One must remember that Alternative Capital Specialist ILS managers generally do not have permanent capital Our capital can usually
redeem within specified time frames which constrains our ability to assume certain risksndash Collateralized nature of the coverage provided also is a constraint
Can Alternative Capital provide solutions to new emerging risks
47
Source Secquaero Advisors Ltd
Risk Non-correlating to Market risk and valuation of other financial assets
Clarity on what is covered
Sufficient data to assess and price the risk
Is the occurrence of an event and its amount quantifiable within a reasonable time frame
Terror No Maybe No Yes for property damage No for other lines of insurance
Political Risk Depends Not always Not for all exposures No
Cyber No No No No
Supply Chain Depends probably low correlation to individual names but not broad market risk
Not always Question of product design and willingness of insured to assume basis risk
Limited for all risk indemnity Possible for parametric coverage against catastrophe events
Indemnity trigger ndash noParametric trigger - yes
Weather Yes Possible Yes in most cases Yes
Bank Operational Risk No Not entirely No No
Mortgage Indemnity No Yes Yes for US market Depends upon the structure
Some emerging risksDo they meet the criteria for Alternative Capital
48
Source Secquaero Advisors Ltd
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Outlook ndash Prospects for Growth
46
ndash The Alternative Capital market is often cited as the potential ldquosolutionrdquo to capacity constrained marketsndash Our view Risks entertained by capital market investors must have the following characteristics
ndash The risk entertained should not correlate with financial markets for other assets (ie it must remain a diversifying asset)ndash There must be a clear description of the risk being entertained What are we insuring against ndash There must be sufficient data (exposure information claims information) available to properly price the riskndash Whether a covered event has occurred and the quantum of loss recoverable for an insured event must be quantifiable within a
reasonably short time frame ndash One must remember that Alternative Capital Specialist ILS managers generally do not have permanent capital Our capital can usually
redeem within specified time frames which constrains our ability to assume certain risksndash Collateralized nature of the coverage provided also is a constraint
Can Alternative Capital provide solutions to new emerging risks
47
Source Secquaero Advisors Ltd
Risk Non-correlating to Market risk and valuation of other financial assets
Clarity on what is covered
Sufficient data to assess and price the risk
Is the occurrence of an event and its amount quantifiable within a reasonable time frame
Terror No Maybe No Yes for property damage No for other lines of insurance
Political Risk Depends Not always Not for all exposures No
Cyber No No No No
Supply Chain Depends probably low correlation to individual names but not broad market risk
Not always Question of product design and willingness of insured to assume basis risk
Limited for all risk indemnity Possible for parametric coverage against catastrophe events
Indemnity trigger ndash noParametric trigger - yes
Weather Yes Possible Yes in most cases Yes
Bank Operational Risk No Not entirely No No
Mortgage Indemnity No Yes Yes for US market Depends upon the structure
Some emerging risksDo they meet the criteria for Alternative Capital
48
Source Secquaero Advisors Ltd
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ndash The Alternative Capital market is often cited as the potential ldquosolutionrdquo to capacity constrained marketsndash Our view Risks entertained by capital market investors must have the following characteristics
ndash The risk entertained should not correlate with financial markets for other assets (ie it must remain a diversifying asset)ndash There must be a clear description of the risk being entertained What are we insuring against ndash There must be sufficient data (exposure information claims information) available to properly price the riskndash Whether a covered event has occurred and the quantum of loss recoverable for an insured event must be quantifiable within a
reasonably short time frame ndash One must remember that Alternative Capital Specialist ILS managers generally do not have permanent capital Our capital can usually
redeem within specified time frames which constrains our ability to assume certain risksndash Collateralized nature of the coverage provided also is a constraint
Can Alternative Capital provide solutions to new emerging risks
47
Source Secquaero Advisors Ltd
Risk Non-correlating to Market risk and valuation of other financial assets
Clarity on what is covered
Sufficient data to assess and price the risk
Is the occurrence of an event and its amount quantifiable within a reasonable time frame
Terror No Maybe No Yes for property damage No for other lines of insurance
Political Risk Depends Not always Not for all exposures No
Cyber No No No No
Supply Chain Depends probably low correlation to individual names but not broad market risk
Not always Question of product design and willingness of insured to assume basis risk
Limited for all risk indemnity Possible for parametric coverage against catastrophe events
Indemnity trigger ndash noParametric trigger - yes
Weather Yes Possible Yes in most cases Yes
Bank Operational Risk No Not entirely No No
Mortgage Indemnity No Yes Yes for US market Depends upon the structure
Some emerging risksDo they meet the criteria for Alternative Capital
48
Source Secquaero Advisors Ltd
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Risk Non-correlating to Market risk and valuation of other financial assets
Clarity on what is covered
Sufficient data to assess and price the risk
Is the occurrence of an event and its amount quantifiable within a reasonable time frame
Terror No Maybe No Yes for property damage No for other lines of insurance
Political Risk Depends Not always Not for all exposures No
Cyber No No No No
Supply Chain Depends probably low correlation to individual names but not broad market risk
Not always Question of product design and willingness of insured to assume basis risk
Limited for all risk indemnity Possible for parametric coverage against catastrophe events
Indemnity trigger ndash noParametric trigger - yes
Weather Yes Possible Yes in most cases Yes
Bank Operational Risk No Not entirely No No
Mortgage Indemnity No Yes Yes for US market Depends upon the structure
Some emerging risksDo they meet the criteria for Alternative Capital
48
Source Secquaero Advisors Ltd
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Where do we see additional growth opportunities
49
Source Secquaero Advisors Ltd
Alternative capital will continue to gain market share but probably not at the same rate as in recent years
In developed markets aggregate demand for catastrophe coverage continues to grow by 3ndash5 pa
Growth drivers arebull Solvency II requirements and rating agency model changes further increase demand for capital optimizationbull Closing gap between insured and uninsured losses Currently estimated by Swiss Re at $153bn ndash largest contributors being US Japan and Chinabull Government and multinational disaster relief efforts ndash parametric re-insurancebull Economic and population growth in risk-prone areas
Potential growth segmentsbull Life insurance bull Marine amp Energybull Motorbull Balance sheet driven protections
(Exposure is not to a single occurrence of (natural) catastrophes but more aligned to an (unlikely) ldquoextreme shiftrdquo of an expected result of a subject portfolio over a certain time horizon typically one yearrdquo eg Casualty risk or Reserve risk)
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 50
Methodology Update Presentation An update on Bests Credit Rating Methodology
(BCRM) for (Re)Insurance Companies ndash Overview of outcomes for Global Reinsurance segment
Mathilde JakobsenDirector Analytics
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Agenda
2018 Reinsurance Market Briefing - Zurich 51
bull Update on Bests Credit Rating Methodology
bull Focus on reinsurers
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 526 June 2018
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
AM Bestrsquos Rating Translation Table
bbb-
A++aaaaa+
A+aaaa-
Aa+a
A-a-
B++bbb+bbb
B+
FSRICR
ICR = Issuer Credit RatingFSR = Financial Strength Rating
The rating symbols A++ A+ A A- B++ B+ are registered certification marks of AM Best Rating Services Inc
Note Scales E to NR not shown
B-
C++
C+
C
C-
D
FSRICR
B
bb-
b-
c
bb+bb
b+b
ccc+cccccc-cc
2018 Reinsurance Market Briefing - Zurich 536 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 546 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Application of BCAR ModelBestrsquos Capital Adequacy Ratio (BCAR)
ndash Comprehensive quantitative tool that evaluates many of the risks to the balance sheet simultaneously
ndash BCAR model calculates four scores corresponding to a 95 99 995 and 996 confidence level
ndash Generates an overall estimate of the required level of capital to support those risks and compares it with available capital
2018 Reinsurance Market Briefing - Zurich 556 June 2018
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
BCAR Scores - Example
2018 Reinsurance Market Briefing - Zurich 56
Reinsurer ABC is a fictional company The graph shows its BCAR scores on a standard and catstressed basis (after a large loss)
6 June 2018
0
10
20
30
40
50
60
70
80
VAR 950 VAR 990 VAR 995 VAR 996
Reinsurer ABCs BCAR scores
Standard Cat stressed
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Applying BCAR scores
bull BCAR is the starting point in the assessment of balance sheet strength
VaR Confidence Level () BCAR BCAR Assessment
996 gt 25 at 996 Strongest996 gt 10 at 996 amp le 25 at 996 Very Strong995 gt 0 at 995 amp le 10 at 996 Strong99 gt 0 at 99 amp le 0 at 995 Adequate95 gt 0 at 95 amp le 0 at 99 Weak95 le 0 at 95 Very Weak
Companies with lt 20 million USD in capital amp surplus cannot score in strongest category
2018 Reinsurance Market Briefing - Zurich 576 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 586 June 2018
Risk-Adjusted Capitalisation as measured by Bestrsquos Capital Adequacy Ratio (BCAR)
bull level trend volatility slope
Holding Company
bull Consolidated risk-adjusted capitalisation financial flexibility leverage amp coverage etc
Qualitative and Quantitative Analytical Factorsbull Stress test quality and fungibility
of capital ALM quality of assets reserving quality dependence and appropriateness of reinsurance
Country Risk
Balance Sheet
Strength Rating Drivers
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 596 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 60
Overall Balance Sheet Strength Assessment
Com
bine
d Ba
lanc
e Sh
eet A
sses
smen
t (R
atin
g U
nit
Hol
ding
Com
pany
)
Country Risk TierCRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+a a+a aa- a-bbb+ bbb+bbb
Very Strong aa- aa- a-bbb+ bbb+bbb bbbbbb-
Strong a-bbb+ a-bbb+ bbb+bbbbbb- bbbbbb-bb+ bbb-bb+bb
Adequate bbb+bbbbbb- bbb+bbbbbb- bbb-bb+bb bb+bbbb- bb-b+b
Weak bb+bbbb- bb+bbbb- bb-b+b b+bb- bb-ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
6 June 2018
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Balance Sheet Strength
2018 Reinsurance Market Briefing - Zurich 61
667
292
42
AM Best-rated Global Reinsurers ndashBalance Sheet Strength Distribution
Strongest
Very Strong
Strong
6 June 2018
2514 2040
75100
86 8060
0
25
50
75
100
aa aa- a+ a a-Strongest Very Strong Strong
Global Reinsurers ndashBalance Sheet Strength by Long-Term Issuer
Credit Rating
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Balance Sheet Strength - Example
2018 Reinsurance Market Briefing - Zurich 626 June 2018
Strongest BCARbull Standard and Cat stressed
Ability to raise equity and access debt markets
Moderate Dependence on Retrocessionbull Quality of assets ALM
reserving raise no concerns
Country Risk
bull CRT-1
Balance Sheet
Strength Rating Drivers
Reinsurer ABC is a fictional company with a balance sheet strength assessment of very strong and a baseline starting point of ICR lsquoarsquo
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 63
Profitable insurance operations are essential for a rating unit to operate as a going concern AM Best analysis focuses on
In general more diversity in earnings streams leads to greater stability in operating performanceAnalysis reflects a variety of quantitative and qualitative measures to evaluate operating performance
Stability Diversity SustainabilityThe interplay between earnings
and liabilities retained by the rating unit
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Operating Performance Assessment
2018 Reinsurance Market Briefing - Zurich 646 June 2018
Operating performance assessed against appropriate benchmarks
Total Operating Earnings
Underwriting Performance Operating Performance
Rating Drivers
OtherConsiderations
Financial Performance
Investment Performance
EarningsVolatility
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Operating Performance Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 65
Assessment Notches Key Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent Trends are positive and prospective operating performance is expected to be exceptionally strong Volatility of key metrics is low
Strong +1 Historical operating performance is strong and consistent Trends are neutralslightly positive and prospective operating performance is expected to be strong Volatility of key metrics is low to moderate
Adequate 0 Historical operating performance and trends are neutral Prospective operating performance is expected to be neutral Volatility of key metrics is moderate
Marginal -1 Historical operating trends have been inconsistent Trends are neutralslightly negative with some uncertainty in prospective operating performance Volatility of key metrics is moderate to high
Weak -2 Historical operating performance is poor Trends are slightly negative and prospective operating performance is expected to be poor Volatility of key metrics is high
Very Weak -3 Historical operating performance is very poor Trends are negative and prospective operating performance is expected to be very poor Volatility of key metrics is very high
6 June 2018
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Operating Performance
2018 Reinsurance Market Briefing - Zurich 666 June 2018
417
500
83
Global Reinsurers -Operating Performance Notch
Distribution
Strong (+1) Adequate (0) Marginal (-1)
100
4360
20
5740
80
50
50
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers -Operating Performance Notch by Long-Term Issuer
Credit Rating
Strong (+1) Adequate (0) Marginal (-1)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Operating Performance - Example
2018 Reinsurance Market Briefing - Zurich 676 June 2018
Reinsurer ABC is a fictional company with an operating performance assessment of adequate (0)
Five-Year Average Return on Equity= 10
Five-Year Average Combined Ratio= 95
Operating Performance
Rating Drivers
Performance Forecast to Deteriorate
Five-Year Investment Return=2
Earnings Volatility due to Catastrophe Exposure
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Business Profile Assessment
2018 Reinsurance Market Briefing - Zurich 686 June 2018
Business profile is a qualitative component that directly affects the quantitative measures
ProductGeographic Concentration
Market Position
Business Profile Rating Drivers
Pricing Sophistication and
Data Quality
Product Risk
Degree of Competition
ManagementQuality
Regulatory Event andMarket Risks
DistributionChannels
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Business Profile Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 69
Assessment Adjustment (Notches)
Key Business Profile Characteristics
Very Favorable +2 The companys market leadership position is unquestionable demonstrated and defensible with high brand recognition Distribution is seen as a competitive advantage business lines are non-correlated and generally lower risk Its management capabilities and data management are very strong
Favorable +1 The company is a market leader with strong business trends and good control over distribution It has diversified operations in key markets that have high to moderate barriers to entry with low competition It has a strong management team that is able to meet projections and utilize data effectively
Neutral 0 The company is not a market leader but is viewed as competitive in chosen markets It has some concentration andor limited control of distribution It has moderate product risk but limited severity and frequency of loss Its use of technology is evolving and its business spread of risk is adequate
Limited -1 The company has a lack of diversification in geographic andor product lines its control over distribution is limited and undifferentiated It faces highincreasing competition with low barriers to entry and elevated product risk Management is unable to utilize data effectively or consistently in business decisions
Very Limited -2 The company faces high competition and low barriers to entry It has high concentration in commodity or higher-risk products with very limited geographic diversity It has weak data management Country risk may factor into its elevated business profile risks
The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive
6 June 2018
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Business Profile
2018 Reinsurance Market Briefing - Zurich 70
100
4320
43
40
1440
100 100
0
25
50
75
100
aa aa- a+ a a-
Global Reinsurers ndashBusiness Profile Notch by Long-Term Issuer Credit
Rating
Very Favorable (+2) Favorable (+1) Neutral (0)
6 June 2018
292
208
500
Global Reinsurers -Business Profile Notch Distribution
Very Favorable (+2) Favorable (+1) Neutral (0)
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Business Profile Assessment - Example
2018 Reinsurance Market Briefing - Zurich 716 June 2018
Reinsurer ABC is a fictional company with a business profile assessment of neutral (0)
Concentration to US Catastrophe Property (50 of portfolio)
Top 10 in Selected MarketsOutside Top 50 Global Reinsurers
Business Profile Rating Drivers
Good Underwriting and Data Expertise
High Product Risk (property catastrophe and casualty reinsurance)
HighCompetition
ExperiencedManagement
Stable RegulatoryRegime
BrokerDistribution
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Enterprise Risk Management (ERM) Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 72
bull Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
bull Part I Framework Evaluationbull Part II Risk Evaluationbull Part III Overall ERM Assessment
Risk Impact Worksheet (RIW)
6 June 2018
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ERM AssessmentERM assessment considers risk management framework risk management capabilities in light of risk profile and overall ERM
2018 Reinsurance Market Briefing - Zurich 73
Framework Assessment Components
Risk Identification and Reporting
Risk Appetite and Tolerances
Stress Testing
Risk Management and Controls
Governance and Risk Culture
Assessment of Capabilities Relative to Profile
Product and Underwriting Risk
Reserving Risk
Concentration Risk
Reinsurance Risk
Investment Risk
LegislativeRegulatoryJudicialEconomic Risk
Operational Risk
Liquidity and Capital Management Risk
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 74
Assessment Notches Key Characteristics
Very Strong +1 The insurerrsquos ERM framework is sophisticated timestress-tested and embedded across the enterprise Risk management capabilities are superior and are suitable for the risk profile of the company
Appropriate 0 The insurerrsquos ERM framework is well-developed andor adequate given the size and complexity of its operations Risk management capabilities are very good and are well aligned with the risk profile of the company
Marginal -1 The insurerrsquos ERM framework is developing however certain key elements of the framework are not yet in place or have proven inadequate given the complexity of its operations Some risk management capabilities are not aligned with the risk profile of the company
Weak -2 The insurerrsquos ERM framework is emerging and management is exploring the development of formal risk protocols Risk management capabilities are insufficient given the risk profile of the company
Very Weak -34 There is limited evidence of a formal ERM framework in place Severe deficiencies in risk management capabilities relative to the risk profile of the company are evident
6 June 2018
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ERM Assessment
6 June 20182018 Reinsurance Market Briefing - Zurich 75
250
708
42
Very Strong +1 Appropriate 0 Marginal -1
Global Reinsurers ndash Enterprise Risk Management Notch Distribution
Source AM Best Special Report ldquoGlobal Reinsurers ndash Building Block Approach Confirms the Strength of the Market Despite Challenging Conditionsrdquo
6 June 2018
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
ERM - Example
Reinsurer ABC is a fictional company with an ERM assessment of appropriate (0)
2018 Reinsurance Market Briefing - Zurich 76
Framework Assessment Components
Framework is developed and is appropriate for the size and complexity of
the organisation
Assessment of Capabilities Relative to Profile
Risk capabilities are aligned with the organisationrsquos moderate risk profile across all
categories
6 June 2018
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Building Block Approach
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk Management
Comprehensive Adjustment1
RatingLiftDrag2
Issuer Credit Rating
Country Risk
+2
+1 +1 +1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes1 A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2 Applies to assessment of non-lead rating units in relation to the broader organisation leading to liftdrag +4 to -4
2018 Reinsurance Market Briefing - Zurich 776 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 78
bull Strongest BCAR
bull Moderate reinsurance dependence
bull Developed framework
bull Risk capabilities aligned with risk profile
bull Mid-sized reinsurer
bull Some concentration
bull High product risk
bull High competition
bull 5-yr avg ROE of 10 combined ratio of 95 but not sustainable
ABC is a fictional reinsurer rated a
6 June 2018
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Building Blocks - Example
2018 Reinsurance Market Briefing - Zurich 79
bull Strongest BCAR
bull Low reinsurance dependence
bull Strong financial flexibility
bull Embedded framework
bull Risk capabilities aligned with risk profile
bull Global reinsurer
bull Diversified geographically and by product
bull High product risk
bull 5-yr avg ROE of 10 combined ratio of 96
bull Results are sustainable
DEF group is a fictional reinsurance group rated aa
6 June 2018
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
2018 Reinsurance Market Briefing -Zurich
2018 Reinsurance Market Briefing - Zurich 6 June 2018 80
Catherine ThomasSenior Director Analytics
European Primary Insurance trends including Market Outlooks and impact on
reinsurance sector
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Market Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 81
Examine the current trends in particular segments of the insurance industry over the next 12 months
Typical factors considered include current and forecast economic conditions the regulatory environment and potential changes emerging product developments and competitive issues that could impact the success of the companies operating in the segment
A Bestrsquos Market Segment Outlook like a Bestrsquos Credit Rating Outlook for a company can be positive negative or stable
Many segments covered internationally
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
European Overview
2018 Reinsurance Market Briefing - Zurich 6 June 2018 82
Operating environment challenging with limited growth prospects and low investment returns
Strong balance sheets maintained supported by resilient operating performance and appropriate enterprise risk management (ERM)
Persisting headwindshellip Regulatory risks Political risks Low interest rates
hellip but encouraging signs Improving economic outlook Indications of modest interest rate rises
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
A Context of Economic Recovery
2018 Reinsurance Market Briefing - Zurich 6 June 2018 83
e = estimate p = projectionSource International Monetary Fund
Period of economic recovery expected to moderate
-3
-2
-1
0
1
2
3
4
2010 2011 2012 2013 2014 2015 2016e 2017e 2018p 2019p
GDP Growth 2010 - 2019 Italy
Spain
France
Germany
UK
Eurozone
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Challenging Interest Rate Environment
2018 Reinsurance Market Briefing - Zurich 6 June 2018 84
Low interest rate environment persists
-1
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017 2018
Inte
rest
Rat
e (
)
NoteData from January 2010 to April 2018Source European Central Bank
Italy
Spain
France
Germany
UK
European Union - Yields of Government Bonds With Maturities Close to 10 Years (2010-18)
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
2018 Reinsurance Market Briefing - Zurich 6 June 2018 85
European Segment Outlooks
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
European Segment Outlooks
2018 Reinsurance Market Briefing - Zurich 6 June 2018 86
Stable Outlook
France ndash Non-Life
Stable Outlook
Spain ndash Non-Life
Negative Outlook
UK ndash Non-Life
Stable Outlook
Italy ndash Non-Life
Stable Outlook
Germany ndash Non-Life
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
France Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 87
AM Best Has A Stable Outlook
Resilient performance driven by generally good diversification of business profiles in the face of intense competition and challenging market conditions
Headwinds
Ongoing intense competition
Weak technical equilibrium
Inflationary claims trends in motor
Tailwinds
Favourable pricing indicators
Business mix generally well balanced
Source FFA Les Echos
99 98
9092949698
100102104106
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-life market
Property -Individual
Property -Commercial
Motor
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Germany Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 88
AM Best Has A Stable Outlook
Sector has very strong balance sheets and solid technical profitability underpinned by good underwriting discipline and sustainable rate adjustments
Headwinds
Increasingly competitive market conditions
Protectionist tendencies could adversely impact Germanyrsquos export driven economy
TailwindsSolid technical profitability with good underwriting discipline
Solid economic fundamentals
Sustainable rate increasesSource Bestrsquos Statement File ndash Global AM Best data and research GDV
9795
90
95
100
105
110
115
120
2012 2013 2014 2015 2016
Non-Life Combined Ratio
Non-lifemarket
Property
Motor
Liablity
286
287
2016
2015
SCR
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Italy Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 89
AM Best Has A Stable Outlook
The stable outlook reflects the sectorrsquos ability to maintain strong technical profitability in spite of competitive pressures and political uncertainty
Headwinds
Strong competition putting pressure on rates for motor (50 of non-life market)
Political instability
Economic fundamentals
Tailwinds
Strong technical profitability
Underwriting discipline supported by increased use of telematics
Source AM Best calculations on ANIA data ANIA GDV FFA DGSFP
9694
9092949698
100102104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
20224 18676 17598 16674 16160
8587899193959799
-
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Motor Gross Written Premium (eurom) and Combined Ratio
Motor GWP Motor Combined Ratio
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Spain Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 90
AM Best Has A Stable Outlook
Insurers demonstrate solid technical fundamentals with good performance and strong balance sheets although sustained political instability could test the sector
Headwinds
Political instability following Catalonia independence referendum
Adapting to regulatory reforms (including Baremo)
TailwindsSustained strong technical performance
Economic recovery to support premium growth
Strengthened ERMSource El Mundo FFA GDV AM Best calculations on ANIA data ANIA DGSFP
9493
90
92
94
96
98
100
102
104
2012 2013 2014 2015 2016
Selected Countries ndashNon-Life Combined Ratio
France
Spain
Italy
Germany
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
UK Non-Life Outlook
2018 Reinsurance Market Briefing - Zurich 6 June 2018 91
AM Best Has A Negative Outlook
Competitive conditions legislative uncertainty and the potential impact of Brexit on the UK economy weigh on the segment
HeadwindsEconomic uncertainty
Intense competition weak technical margins
Volatility in prior year reserve development
Legislative uncertainty
Tailwinds
Implementation of Civil Liability Bill with potential whiplash and personal injury claims reform
Note Accident Year Combined RatiosSource Bestrsquos Statement File ndash Global AM Best Data and Research Insurance Times
10298
110112
113
104
95
105
115
125
135
2012 2013 2014 2015 2016
Accident Year Combined Ratio (Selected Lines)
Property Motor Liability
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
2018 Reinsurance Market Briefing - Zurich 6 June 2018 92
Looking Forward
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 93
Competition continues to put technical margins under pressure
Ongoing focus on cost management as insurers aim to preserve profitability in a highly competitive market and low investment return environment
Economic environment to present some opportunities for insurers although dramatic growth not expected
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 94
Increasing focus on and investment in innovation and customer experience
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
Key things to watchhellip
2018 Reinsurance Market Briefing - Zurich 6 June 2018 95
Political Uncertainty
GDPR
IFRS17Legislative Reforms
Distribution Directive
External challenges persist
Brexit
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-
2018 Reinsurance Market Briefing -Zurich
FIFA Museum AG
6 June 2018
- Slide Number 1
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Disclaimer
- Disclaimer
- 2018 Reinsurance Market Briefing - Zurich
- Reinsurance Market Dynamics
- Slide Number 8
- Total Economic and Insured Losses
- Global Combined Ratio
- Global Return on Equity
- Global Return on Equity ndash Five Year Average
- Slide Number 13
- Top 10 Largest Reinsurance Groups
- Estimate for Dedicated Reinsurance Capacity
- Convergence Capacity
- Slide Number 17
- Global Market Strategies
- Opportunities for the Reinsurance Sector
- Global Reinsurance Outlook
- Slide Number 21
- Agenda
- Personal IntroductionDirk Lohmann
- Introduction to Secquaero
- Slide Number 25
- History of US PampC Industry
- Why is ILS attractive to Investors
- The case for ILS
- ILS ndash How it all began
- ILS Market
- Slide Number 31
- 2017 in review
- Hurricane Irma
- Outlook for Renewal Pricing 2018 in October 2017
- Outlook for Renewal Pricing 2018 in October 2017
- Why should rates increase
- Why should rates increase
- How did ILS Investors and Managers React
- Slide Number 39
- January 1 Renewals
- January 1 Renewals
- January 1 Renewal
- June 1 Renewal (Florida Market)
- ILS Market
- Has ILS and Alternative Capital killed the ldquoCyclerdquo
- Slide Number 46
- Can Alternative Capital provide solutions to new emerging risks
- Some emerging risksDo they meet the criteria for Alternative Capital
- Where do we see additional growth opportunities
- 2018 Reinsurance Market Briefing - Zurich
- Agenda
- Building Block Approach
- AM Bestrsquos Rating Translation Table
- Balance Sheet Strength
- Application of BCAR Model
- BCAR Scores - Example
- Applying BCAR scores
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength
- Balance Sheet Strength - Example
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance Assessment
- Operating Performance
- Operating Performance - Example
- Business Profile Assessment
- Business Profile Assessment
- Business Profile
- Business Profile Assessment - Example
- Enterprise Risk Management (ERM) Assessment
- ERM Assessment
- ERM Assessment
- ERM Assessment
- ERM - Example
- Building Block Approach
- Building Blocks - Example
- Building Blocks - Example
- 2018 Reinsurance Market Briefing - Zurich
- Market Segment Outlooks
- European Overview
- A Context of Economic Recovery
- Challenging Interest Rate Environment
- Slide Number 85
- European Segment Outlooks
- France Non-Life Outlook
- Germany Non-Life Outlook
- Italy Non-Life Outlook
- Spain Non-Life Outlook
- UK Non-Life Outlook
- Slide Number 92
- Key things to watchhellip
- Key things to watchhellip
- Key things to watchhellip
- Slide Number 96
-