Evolution of Insurance - AFP Online
Transcript of Evolution of Insurance - AFP Online
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June 18, 2009
The Evolution of Insurance
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Executive Summary
• Insurers:• Insurance Markets – Operating Normally• Risk Transfer: from Insured to Insurer - Uninterrupted
– Insurers Continue to:� Pay claims� Renew existing policies� Write new policies
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� Write new policies� Develop new products
• Insureds:• Increased expectations• Cost sensitive or high expectations?
• “total cost of risk” vs. premium comparison
• Brokers:• Continued consolidation• Margin challenges
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Industry Issues – Back to Basics?
1. Reduced (No) Insurer Profit• Poor combined loss ratios• Reduced investment income• Zero interest rates• Inadequate rates / premiums
2. Economy! (No) Insured Profit
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2. Economy! (No) Insured Profit• Reduced policyholder sales and payroll• Soaring and fraudulent claims activity
3. Regulatory / Political• Ontario Auto• Credit scoring• More oversight
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Canadian Premiums
$9.8 B Ontario Auto
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Insurer - Summary Ratios
2008 2007
Combined Ratio 101.3% 93.8%
Loss Ratio 71.1% 64.1%
Expense Ratio 30.2% 29.7%
ROI 3.7% 5.9%
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ROI 3.7% 5.9%
ROE 6.1% 15.3%
Change in Equity -2.8% 11.1%
MCT 219.4% 234.1%
GAAP Reporting, Primary Insurers Only
Source: IBC with data from MSA
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Personal vs. Commercial Lines Insurers
Personal Lines Insurers
Commercial Lines Insurers
Combined Ratio 104.5% 95.4%
Loss Ratio 74.9% 66.6%
ROI 3.3% 3.9%
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ROI 3.3% 3.9%
ROE 2.8% 8.4%
Change in Equity -8.0% 1.2%
Companies with more than 50% DWP in each grouping
Source: IBC with data from MSA
GAAP Reporting, Primary Insurers Only
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1975 – Q3/2008 Canadian P&C Industry ROE
10%
20% Average ROE 11.2%
Average ROE 9.9%
Average ROE 10.6%
Average ROE 8.3%
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0%
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75
19
76
19
77
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78
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79
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84
19
85
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86
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99
20
00
20
01
20
02
20
03
20
04
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05
20
06
20
07
20
08
Source: IBC Data
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P&C ROI Follows Interest Rates
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Source: IBC, Fact Book, MSA; Bank of Canada, RBC
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1st Underwriting Loss since 2002
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GAAP Reporting, Primary Insurers Only
Source: IBC with data from MSA
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Underwriting PerformanceAdjusted for Reserves
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Source: IBC with data from MSA
GAAP Reporting, Primary Insurers Only
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Catastrophe Losses in CanadaInsured Loss
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2008* Based on preliminary data
Source:, IBC. With data from Swiss Re and Munic Re
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Top 12 Most Costly Disasters in U.S. History, (Insured Losses, $2007)
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Worldwide Disasters
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Source: Swiss Re
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U.S. Insured Catastrophe Losses
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Canadian Premiums
$9.8 B Ontario Auto
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Insurance by Line
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GAAP Reporting, Primary Insurers Only
Source: IBC with data from MSA
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Importance of Ontario Auto
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GAAP Reporting, Primary Insurers Only
Source: IBC with data from MSA
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Auto Accident Benefit Financial Loss Ratios
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GAAP Reporting, Primary Insurers Only
Source: IBC with data from MSA
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Hardening Market Expected in 2009-10
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2008 * Based on preliminary data
Source: IBC FactBook
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What’s Different this Time?
TRAVELERS
SWISS RE
HARTFORD
CHUBB
ACE
L&G
OLD MUTUAL
STANDARD LIFE
MAPFRE
AEGON
TRA VELERS
SWISS RE
A EGON
HA RTFORD
CHUB B
A CE
L&G
OLD M UTUA L
STA NDA RD LIFE
M A P FRE 22
21
20
19
18
17
1615
14
13
As of June 1st, 2007 (in mCHF) As of October 31, 2008
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AIG
ALLIANZ
ING
AXA
GENERALI
MANULIFE
ZURICH
MUENCHENER
AVIVA
ALLSTATE
PRUDENTIAL
TRAVELERS
PRUDENTIAL FIN.
0 15000 30000 45000 60000 75000
A LLIA NZ
ING
A XA
M A NULIFE
ZURICH
M UENCHENER
A VIVA
A LLSTA TE
P RUDENTIA L
TRA VELERS
GENERA LI
P RUDENTIA L FIN.
0 15000 30000 45000 60000 75000 90000 105000 120000
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12
11
10
98
7
6
5
4
3
2
1 AIG
232,002
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What’s Different this Time?
Allstate
Chubb
Swiss Re
AIG
Muenchener
ING
Tokio F&M
Travelers
MetLife
Generali
Allianz SE
Zurich
Manulife
AXA
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0 5 10 15 20 25 30 35 40 45 50
XL
Old Mutual
Hartford
L&G
MAP FRE
Standard
AEGON
Progressive
Prudential
Pru PLC
Aviva
ACE
Allstate
Market Capitalization (in USD) as of January 7, 2009
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What’s Different this Time?
0.1
0.12
0.14
0.16
0.18
0.2
Ind
ust
ry R
OE
0.01
0.02
0.03
0.04
0.05
0.06
0.07
Can
adia
n G
DP
Canadian P&C Industry ROE vs. Canadian GDP Growth
22
0
0.02
0.04
0.06
0.08
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Ind
ust
ry R
OE
-0.04
-0.03
-0.02
-0.01
0
0.01
Can
adia
n G
DP
ROE GDP Growth
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Open Discussion
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Financial Crisis – Issues & Threats2009 - 2015
1. Erosion of Capital2. Reloading Capital3. Long-term Loss of Investment Return4. Economic Collapse5. Regulatory Overreach
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5. Regulatory Overreach6. Creeping Restrictions on Indemnity7. Catastrophic Losses8. Emerging Tort Threat
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Reasons Why P/C Insurers have Fewer Problems than Banks
• Superior Risk Management Model� Insurers overall approach to risk focuses on underwriting discipline: implies pricing
accuracy and management of potential loss exposure� Banks eventually sought to maximize volume, disregarded risk
• Low Leverage� Insurers do not rely on borrowed money to underwrite insurance or pay claims
• Conservative Investment Philosophy� High quality portfolio that is relatively less volatile and more liquid
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� High quality portfolio that is relatively less volatile and more liquid• Strong Relationship Between Underwriting and Risk Bearing
� Insurers always maintain a stake in the business they underwrite, keeping “skin in the game” at all times
� Banks and investment banks package up and securitize, severing the link between risk underwriting and risk bearing, with (predictably) disastrous consequences
• Tight Regulation� Insurers are more stringently regulated than banks, investment banks & hedge funds
• Greater Transparency� Insurer companies are an open book to regulators and the public
Source: Insurance Information Institute
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Better, not Bigger (but big enough)
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