Into the eye of the future. Investors and Media meeting Monte Carlo, 10 September 2012

Transcription

1 Into the eye of the future Investors and Media meeting Monte Carlo, 10 September 2012

2 Today's agenda Introduction Driving market forces a three year view Swiss Re's underwriting and P&C reinsurance market outlook Outlook Michel M. Liès, Group CEO Christian Mumenthaler, CEO Reinsurance Matthias Weber, Group CUO Michel M. Liès, Group CEO Questions & answers 2

3 Introduction Michel M. Liès, Group Chief Executive Officer 3

4 4

5 Swiss Re's Group strategy Current position Outperform our peers Reinsurance Admin Re Asset Management Smart expansion Corporate Solutions Longevity & Health High Growth Markets Strategic goal: The leading player in the wholesale re/insurance industry 5

6 High Growth Markets Tangible growth opportunities exist Agriculture Nat Cat Infrastructure Life Health 6

7 Driving market forces a three year view Christian Mumenthaler, CEO Reinsurance 7

8 Factors driving re-/insurance prices Prices High Low Nat Cats Low inflation Low interest rates Regulatory changes Factors leading to higher prices Continuous reserve releases Industry capitalisation Factors leading to lower prices Drivers of re-/ insurance prices 8

9 Germany 8% Record low interest rates Expected to stay low increasing pressure on running yield 6% 4% 2% 0% Running yield (P&C insurers) 10 yr gov bond yields, average of year Gap between interest rates and running yield expected to narrow further Pressure on net income and ROE to increase further Sources: Swiss Re Economic Research & Consulting 9

10 Regulatory changes New rules come into play within next three years none of them will likely require less capital United States NAIC solvency modernisation, but rather qualitative (ORSA) Europe Challenging finalisation of Solvency II Latin America Mexico: moving towards riskbased solvency Brazil/Argentina: market access restrictions for reinsurers Asia Pacific Australia: higher P&C charges China, Japan, India, NZ: move towards risk-based solvency regimes Convergence trends in solvency frameworks, increased focus on supervisory cooperation and coordination on global basis, eg intensified use of supervisory colleges IAIS international frameworks: global SIFI designation and ComFrame Solvency rules are expected to tighten on a global basis 10

11 Low inflation Germany 4% 4% 3% 3% 2% 2% 1% 1% 0% Continued expected low economic growth, low interest rates and inflation Outlook is asymmetrical however, with higher probability of inflation shock than even lower inflation Inflation 5y break-even inflation Assuming claims inflation follows general inflation, we can expect some continuation of positive reserve releases on the longer tail lines Sources: Swiss Re Economic Research & Consulting 11

12 Continuous reserve releases Reserve levels are declining US core reserve releases as a % of NPE 8% 6% 4% 2% 0% -2% -4% -6% Sources: A.M. Best, Swiss Re Economic Research & Consulting? Global P&C industry has enjoyed substantial reserve releases since 2004 Pace of releases is winding down US: data shows net releases of comparatively unseasoned years in 2011 US: only small reserve buffers remain; will be depleted within the next 12 months if releases continue at the same level Europe: reserve releases are slowing. Reserving trends are somewhat more stable than in the US, but also declining Reserve releases expected to end within the next three years 12

13 Industry capitalisation Is there any excess capital? = H1 Net premiums Shareholders' equity Equity, excl unrealised gains on bonds Falling interest rates have significantly inflated GAAP capital relevant capital adequacy has probably rather decreased recently Sources: Swiss Re Economic Research & Consulting; aggregate of leading reinsurers? 15 Relevant capital adequacy ratios are not public Very rough approximation is to use premiums as measure for risk and GAAP/IFRS capital as measure for available capital Taking out artificial effect of unrealised gains due to lowered interest rates indicates that capital is getting tighter than before 13

14 Three year outlook indicates upwards pressure on pricing Prices High Low Nat Cats? Continuous reserve releases? Low inflation Industry capitalisation Factors leading to lower prices Low interest rates Regulatory changes Factors leading to higher prices Drivers of re-/ insurance prices 14

15 Swiss Re is well positioned Low interest rates Regulatory changes Low inflation Lean casualty book L&H: focus on wholesale/reinsurance, avoiding primary business with guarantees Prudent, ALM-matched asset portfolio with room for moderate re-risking SST has given us 5 years practical experience in implementing regulatory requirements similar to Solvency II Clients need to put more focus on risk and economic capital; we can offer tailor made solutions Unique protection against inflation through the Adverse Development Cover 1 Reserve releases Quarterly actuarial reserving process Reserves estimated at best estimate Capitalisation Excellent capitalisation, allowing business growth Group SST 1/2012 ratio 213% 2 1 CHF 5bn stop-loss protection on Swiss Re's P&C reserves with Berkshire Hathaway 2 SST 1/2012, as filed with FINMA at the end of April, based on a projection for

16 Swiss Re's underwriting and P&C reinsurance market outlook Matthias Weber, Group Chief Underwriting Officer 16

17 Cornerstones of Swiss Re's underwriting R&D as a key differentiator Portfolio steering Cycle management R&D Structuring skills Risk selection Portfolio steering R&D is a value driver in underwriting Property Own research team and models for storm, earthquake and flood Ability to compare to commercial tools and understand differences Casualty Forward-looking "Nat-Cat-like" model being developed, based on systematic assessment of risk drivers Life & Health Unparalleled mortality experience data provides ability to better quantify the underlying risk Reinsurance is a knowledge business R&D provides a competitive advantage 17

18 Nat Cat risks continue long-term upwards trend Nat Cat events USD billions at 2012 prices 2011 Est. insured market loss Earthquake Japan March 35.7 Flood Thailand Jul-Nov 12.2 Earthquake New Zealand February 12.2 Severe storms, tornadoes US April 7.4 Severe storms, tornadoes US May 7.2 Hurricane Irene August 5.9 Flood Australia January 2.3 Earthquake New Zealand June 2.0 Severe storms, tornadoes US April 2.0 Severe storms, tornadoes US April Severe storms, tornadoes US March 2.5 Severe storms, tornadoes US April 1.9 Severe storms, tornadoes US May 1.4 Derecho storm US Jun-Jul 1.1 Earthquake Italy May 1.0 Floods UK June 0.8 Hurricane Isaac 1 August Insured Nat Cat losses in USD billions at 2012 prices Aug Preliminary loss estimates Source: Swiss Re Economic Research and Consulting 18

19 R&D in practice: Swiss Re Global Flood Zones TM Flood losses are on the rise; are expected to become worse in the future Lack of consistent flood hazard information in many countries has led to surprises in the insurance industry about the size of flood losses Swiss Re Global Flood Zones TM Helps identify flood hot spots Allows risk adequate pricing and portfolio steering Click on window to find out more, and play video on Swiss Re Global Flood Zones 19

20 R&D in practice: Understanding flood risk globally Insured loss from 2011 Thailand floods was higher than expected. To minimise future flood surprises, we identified countries with similar economic characteristics to Thailand high exposure accumulations industries heavily embedded in the international supply chain Top flood hot spots are in High Growth Markets with China as number one 20

21 R&D in practice: Learning from recent earthquakes Nat Cat models (ie vendor tools, Swiss Re models) generally performed well describing impact of primary loss driver ( material damage due to shock) Secondary loss drivers ( contingent business interruption, liquefaction, tsunami) are more difficult to incorporate in models Differential settlement of Chancellor Hotel in Christchurch due to liquefaction Tsunami following earthquake Japan Proprietary Nat Cat model allows Swiss Re to quickly incorporate new learnings Picture reference: EERI Special Earthquake Report 21

22 Renewal Line of business trends Drivers of change Property: Recent Nat Cat events Regulatory changes (Solvency II) Exposure will grow faster than GDP Price expectation Nat Cat rates experience further moderate increases or stabilise on current level Opportunity for Swiss Re Increased demand for Nat Cat capacity Capital relief transactions More demand for frequency protection Special Lines: Uncertain economic outlook in Europe Wealth, economic power and insurable risk will shift towards High Growth Markets Some markets / lines lack clear direction Rates likely to rise in Energy and Marine Hull Increased demand for innovative and tailored solutions Increased demand in High Growth Markets 22

23 Renewal Line of business trends Drivers of change Price expectation Opportunity for Swiss Re Liability: Low interest rate environment Reserve releases slowing down Regulatory changes (Solvency II) Price correction likely in low interest rate environment Swiss Re currently underweight; well positioned to increase support for selected clients through reinsurance Motor: Weak economy, especially in Europe Regulatory changes (Solvency II, China) Rates in Germany, Italy and UK have improved Other markets flat to slightly improving Swiss Re is looking to expand in selected markets Capital relief transactions and external run-off solutions 23

24 Swiss Re is well positioned Cycle management, risk selection, structuring skills and portfolio steering are our cornerstones of underwriting Our research based underwriting approach is a key differentiator Swiss Re is prepared to deploy more capital in P&C to support clients on a sustainable basis Price levels: expect moderately increasing prices 24

25 Outlook Michel M. Liès, Group Chief Executive Officer 25

26 Outlook Deliver on unchanged Group strategy Swiss Re's excellent capitalisation allows for business and dividend growth Able to write large capital relief transactions High Growth Markets are not an option, but a contributor towards delivering on our financial targets Three year outlook indicates upwards pressure on pricing Achieving our financial targets remains the top priority 26

27 Questions & answers 27

28 Corporate calendar & contacts Corporate calendar 08 November 2012 Third Quarter 2012 results Conference call 21 February 2013 Annual Results Zurich 10 April th Annual General Meeting Zurich Investor Relations contacts Hotline Eric Schuh Ross Walker Chris Menth Simone Lieberherr Simone Fessler Media Relations contacts Hotline Rolf Tanner Tom Armitage Michael Gawthorne Brigitte Meier

29 Cautionary note on forward-looking statements Certain statements and illustrations contained herein are forward-looking. These statements and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as anticipate, assume, believe, continue, estimate, expect, foresee, intend, may increase and may fluctuate and similar expressions or by future or conditional verbs such as will, should, would and could. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re s actual results of operations, financial condition, solvency ratios, liquidity position or prospects to be materially different from any future results of operations, financial condition, solvency ratios, liquidity position or prospects expressed or implied by such statements. Such factors include, among others: further instability affecting the global financial system and developments related thereto, including as a result of concerns over, or adverse developments relating to, sovereign debt of euro area countries; further deterioration in global economic conditions; Swiss Re s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of Swiss Re s financial strength or otherwise; the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re s investment assets; changes in Swiss Re s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions; uncertainties in valuing credit default swaps and other credit-related instruments; possible inability to realise amounts on sales of securities on Swiss Re s balance sheet equivalent to their mark-to-market values recorded for accounting purposes; the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings; the possibility that Swiss Re s hedging arrangements may not be effective; the lowering or loss of financial strength or other ratings of Swiss Re companies, and developments adversely affecting Swiss Re s ability to achieve improved ratings; the cyclicality of the reinsurance industry; uncertainties in estimating reserves; uncertainties in estimating future claims for purposes of financial reporting, particularly with respect to large natural catastrophes, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available; the frequency, severity and development of insured claim events; acts of terrorism and acts of war; mortality, morbidity and longevity experience; policy renewal and lapse rates; extraordinary events affecting Swiss Re s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events; current, pending and future legislation and regulation affecting Swiss Re or its ceding companies; legal actions or regulatory investigations or actions, including those in respect of industry requirements or business conduct rules of general applicability; changes in economic theory or principles; significant investments, acquisitions or dispositions, and any delays, unexpected costs or other issues experienced in connection with any such transactions; changing levels of competition; and operational factors, including the efficacy of risk management and other internal procedures in managing the foregoing risks. These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. This communication is not intended to be a recommendation to buy, sell or hold securities and does not constitute an offer for the sale of, or the solicitation of an offer to buy, securities in any jurisdiction, including the United States. Any such offer will only be made by means of a prospectus or offering memorandum, and in compliance with applicable securities laws. 29