Www.guycarp.com Marine Reinsurance: Where do we go from here? Houston, TX 21 st September 2009.
-
Upload
gervais-rice -
Category
Documents
-
view
215 -
download
0
Transcript of Www.guycarp.com Marine Reinsurance: Where do we go from here? Houston, TX 21 st September 2009.
www.guycarp.com
Marine Reinsurance:Where do we go from here?
Houston, TX
21st September 2009
2
Guy Carpenter
Impact on Surplus of US Insurers in 2008$Billions
300
400
500
600
End 2007 Net Income andOther Changes
Catastrophes Capital Loss End 2008
$ B
illi
on
s
• Premium / Surplus Ratio: 0.95 X
• Actual Surplus / RBC: 6 X
$21.8 $72.7$32.2$517.9$455.6
3
Guy Carpenter
GC Global Reinsurance Composite – Change in Reported Shareholders' Funds in 2008
60
80
100
120
SHF YE05 SHF YE06 SHF YE07 Net Income Shares
Repurchased
Div idends
paid
Unrealized
Gains
(Losses)
Forex
Mov ements
Capital
Increase
Other SHF YE08
US
Db
n
4
Guy Carpenter
ROE: Global Reinsurance Composite
15.80%
3.50%
7.30%
End 2007 End 2008 End First Half 2009
5
Guy Carpenter
History of Insured Catastrophe Losses
Insured catastrophe losses 1970-2008
0
20
40
60
80
100
120
140
in USD bn,indexed to 2008
Earthquake/tsunami Man-made disasters
Weather-related Nat Cats Total
Hu
rric
an
e A
nd
rew
Win
ter
sto
rm L
oth
ar
Atta
ck o
n W
TC
No
rth
rid
ge
ea
rth
qu
ake
Hu
rric
an
e Ik
e,
Gu
sta
v
Hu
rric
an
e K
atr
ina
et a
l
Hu
rric
an
es
Iva
n, C
ha
rle
y e
t al
6
Guy Carpenter
0.0
50.0
100.0
150.0
200.0
250.0
300.0
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009P
United Kingdom Continental Europe United States
Reinsurance: ROL Index, Major Markets 1990 = 100
7
Guy Carpenter
United States ROLIndex 1990 = 100
0
100
200
300
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009 E
8
Guy Carpenter
Global Marine Premium USD Million
0.000
5.000
10.000
15.000
20.000
25.000
2000 2001 2002 2003 2004 2005 2006 2007
Accounting Year
Liability
Energy
Hull
Cargo
Total
IUMI Global Marine Insurance Reports
9
Guy Carpenter
Profitability: US Ocean Marine Combined Ratio
Calendar Year Ratio
2003: 89.85%
2004: 91.68%
2005: 99.23%
2006: 86.03%
2007: 85.91%
2008: 105.77%
“Charley”, “Frances”, “Ivan”, “Jeanne”
“Ike”
“Katrina”, “Rita”, “Wilma”
Source: AIMU
10
Guy Carpenter
AIMU Operating Ratios2004 – 2008
2004 2005 2006 2007 2008
Cargo (Incl. War Strikes Etc.)
64.69% 74.81% 77.22% 78.90% 90.74%
Ocean Hull (Incl. War Strikes Etc.)
108.55% 92.50% 98.42% 109.42% 126.47%
All other Hull (Incl. War Strikes Etc.)
94.13% 104.72% 84.38% 69.69% 97.14%
Commerical Primary P&I
145.05% 97.01% 112.63% 118.14% 112.73%
Yacht (Incl. P&I)
120.98% 111.23% 95.89% 89.20% 91.98%
Excess Liabilities 86.08% 88.14% 102.16% 120.77% 154.68%
Primary Liabilities 81.19% 78.78% 77.96% 87.96% 101.28%
Offshore & Energy Risks
102.15% 300.49% 60.22% 27.02% 217.18%
Total All Lines 91.68% 99.23% 86.03% 85.91% 105.77%
Source: AIMU
ReinsuranceWhere are we and where do we go from here?
Macro View
Economic outlook
US economic growth is expected to return to positive territory in the second half of 2009. Other economies are expected to recover moderately in 2010.
Inflation will remain very low or negative 2009 and 2010 (at least) due to large slack in the economy. The longer-term inflation outlook is more uncertain.
Government bond yields are expected to remain low this year and rise moderately next year.
Corporate bond and equity markets are likely to remain volatile.
Americas P&C Primary market overview –
Recession is reducing exposures and claims frequency in many lines of business (incl workers comp & engineering but ocean marine and energy?).
The cost of capital has risen: equity markets are depressed and hybrid capital is expensive. Reinsurance is currently the most efficient source of capital.
Capital management has shifted from returning capital to preserving / raising capital. Primary and reinsurers are de-risking their balance sheets.
Rates have begun to harden. Reinsurance will lead the rate dynamics; primary markets will follow with a lag. Property prices are firming first; casualty is still soft. There will be a moderately hard market through 2011.
Deterioration of combined ratios(excl cat)…different business lines but clear trends….
70%
75%
80%
85%
90%
95%
100%
105%
110%
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
Large cap Auto Regional Specialty Reinsurance
Source: Dowling & Partners
0%
2%
4%
6%
8%
10%
97% 98% 99% 100% 101% 102% 103% 104% 105% 106% 107%
Combined Ratio
2008 industry assumptions:Asset leverage: 291%Tax rate [1] 25.4%NPW/surplus 96%Inv yield [2] 4.0%
ROE
5%
4%
3%
Sources: A.M. Best, estimates by Economic Research & Consulting. [1] based on 1H08 effective statutory tax rates. [2] 9M08 total investment yield was 3.0% and CR was 105
Low yield environment reduces the profit potential
A 100 bps reduction in yield can imply a 2.9 point combined ratio move to achieve the same ROE
Renewal: January 2010 Expected European price trends REINSURANCE
Property non-proportional
Property Nat Cat
Motor
Casualty
Property proportional
Marine, Energy and Engineering
Aviation
Property prices are improving while Casualty levels do not yet reflect loss trends and reduced yields
The low interest rate environment, soft industry underwriting results and depletion of industry capital all point towards further price increases
Renewal: January 2010 European Property & Specialty trends
Property Peak nat cat capacity remains scarce and valuable
No strong global trends: price increases in some loss-affected regions and industries
Industrial risks remain competitive and threaten to underperfom
Marine and Energy Marine results are fragile in light of economic downturn
Energy will continue to seek opportunities outside of Gulf
Gulf Product sustainability questions
ReinsuranceWhere are we and where do we go from here?
Micro View
Capacity changesEntrants
Rumoured some Lloyd’s start ups projected for 2010
Novae Re already announced
Exits
Axis Re
Endurance Re
Some Reinsurers expanding into primary business
Flagstone creates Mosaic
Montpelier Re writing insurance
Mergers and Acquisitions
Partner Re and Paris Re
Validus and IPC
Recent Losses ACL barge collided with a boat on the Mississippi
River near New Orleans with more than 400,000 gallons of fuel oil spilled into the Mississippi River.
Cosco Busan Left the Port of Oakland on November 7, 2007, and hit the Bay Bridge
Ike
Sempra October 2007, 3 wildfires in San Diego county California broke out and resulted in extensive property damage and disruption to business.
Rates terms and conditions for 2009 Excl GOM 7.5% increase
GOM re underwritten extensively
Limits and retentions constant with GOM again an exception
Amended Liability exclusion clause introduced
Review of wind related property claims in the XS liability market discussed
Projected Rates terms and conditions for 2010
Constant pricing.
– Adverse claims experience will see higher rates
Overall upward pressure on reinsurance pricing caused by:
– Increasing Cost of Capital
– Low interest rate environment
– Investors demanding improved ROE
Potential further disconnect between clients and reinsurers:
– Particularly in Gulf of Mexico
– Further discussion and review of wind related property claims in the XS liability market
www.guycarp.com
24
Guy Carpenter
Yachts and Cargo Risk Accumulations
– Personal Yachts
Risk identification and evaluation
- Management tools
- Hazard simulation modeling
– Cargo Accumulation
Risk identification and evaluation
Making the latest technology productive
The Future Lies with Analytics?Opportunities to Understand and Protect Your Portfolio
25
Guy Carpenter
Marine risks are often associated with geographical concentration
Geographically co-located insureds increase concentration
The accumulation of risk in one place escalates potential losses
For marine writers, personal yacht and cargo accumulations are risks that can be mitigated through simulation modeling. The technology exists, and in many cases data is available.
For marine writers, personal yacht and cargo accumulations are risks that can be mitigated through simulation modeling. The technology exists, and in many cases data is available.
Understanding Exposure Accumulation
26
Guy Carpenter
Today, we have the technology to improve (not replace) traditional marine risk management concepts
– but, it is not being widely used
The models and techniques used for other property catastrophe lines can be applied to Marine– and reinsurers are requiring more quantitative input
Manage marine risk more effectively with modeling technology
Advancing Marine Modeling