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1 MARKET NEWS, DATA AND INSIGHT ALL DAY, EVERY DAY SUNDAY 8 SEPTEMBER 20 ISSUE,95 Reinsurance maintains strong performance for now Major loss will not drive away new capital Guy Carpenter Companies House: Analysis of the first six months of 20 Reinsurance Industry, First Six Months Combined Ratio Table % Net Written Premium ($ millions) Ace Allianz Allied World Alterra (Markel) Amlin plc Arch Argo Group Aspen Axis Beazley PLC Catlin Endurance EMC Global Indemnity Greenlight Cap Re Hannover Re Hiscox Group Lancashire Montpelier Re Munich Re Odyssey Re Partner Re Platinum Polish Re QBE RSA SCOR Third Point Re Transatlantic (Alleghany) Validus Sirius (White Mountains) WR Berkley XL Ace Allianz Reinsurance Entity Allied World Group Company Alterra (Markel) Amlin Arch 4 Argo Group Aspen 202 Berkshire Hathaway Re GP $ 4405 million 202 $ 4688 million 20 Axis Berkshire Hathaway Re GP Net earned 2 Gross earned Gross Written 4 Gross premium for operations of Amlin London plus Amlin Re Europe and Amlin Bermuda 20 Beazley PLC Brit Catlin Endurance EMC Everest General Re Hannover Re Global indemnity $ 7787 million 202 $ 8459 million 20 Greenlight Cap Re Hannover Re HCC MILLIONS 0 $ 000 p4 guycarp.com ID_Banner ads_revised.indd 4 $ 9000 $ 2000 p Hiscox Group Lancashire Munich Re $ 678 million 202 $ 7445 million 20 Mapfre Montpelier Re Munich Re Odyssey Re Pakistan Re $m PartnerRe Platinum Polish Re QBE RSA $ 6675 million 202 $ 7076 million 20 Renaissance Re Swiss Re $ 2988 million 202 $ 224 million 20 RSA Scor Swiss Re 2 Third Point Re Transatlantic (Alleghany) Validus Sirius (White Mountains) WR Berkley XL MILLIONS Sophisticated investors drive collateralised market s growth Perils approaches saturation point for European windstorm CAN YOUR CAPITAL WORK MORE EFFICIENTLY? $ 6000 Net Written Premium (continued) $ 000 $ 6000 $ 9000 $ 2000 $ 5000 p7-9 $ 8000 Sharia-compliant Cobalt an exciting and important moment for Vision 2025 p p4 GUY CARPENTER KNOWS HOW Profitable ProfitableGrowth Growth Let s make Let s makeitithappen. happen. Profitable Growth Let s make it happen. 8/2/ 9: AM

2 2 Sunday 8 September 20 Learn about the Rohtang Tunnel project and more on our Touch Engineering Portal. 6 hours by road hour by tunnel Fresh vegetables If you can t move the mountain, go through it. Even for the most challenging projects, there s always a solution. As a leading engineering reinsurer, our experienced teams work with you to find risk solutions for every stage of your investment supporting your success from start to finish. Together we can find the light at the end of the tunnel. Learn more at Coverages are underwritten by individual member companies of Munich Re. Certain coverages are not available in all states. Some coverages may be written on a nonadmitted basis. Engineering_260x8_en_Ebenen.indd NOT IF, BUT HOW :0

3 Sunday 8 September 20 NEWS Sophisticated investors drive collateralised market s growth Richard Banks, Monte Carlo Editor I ncreasing sophistication of investors is driving the collateralised sector to grow at a faster rate than even the cat bond market, to the extent that they are almost identical sizes, according to new data unveiled by Guy Carpenter. At its annual press conference kicking off the Rendez-Vous de Septembre in Monte Carlo, Guy Carpenter reiterated its message from last year that the and capital markets are now successfully converged. Growth of convergence capital has been steady and sustained, David Priebe, vice-chairman of Guy Carpenter & Company, insisted. In 2008 it represented 8% of global catastrophe limit, but we expect penetration to continue to expand and expect it to be 5% by 20. Priebe said dedicated deployed capital had risen to $95bn at the end of the second quarter, up from $78bn at the same point of last year. So-called convergence capital represented 7% of that growth, according to Priebe, who added the total amount of capital is 2% in excess of historical capital for risk assumed. He explained: More than $0bn of new capital entered the global market through cat bonds,ilw[industrylosswarranty] contracts or collateralised. This segment accounted for $45bn or 4% of the global worldwide limits in 202. Priebe said more than one-third of that capacity comes from cat bonds ($6bn), a figure that continues to grow, although collateralised is growing at a faster pace and stands at $5bn at present. Priebe said a natural evolution is occurring as investors that began with asset classes that were easy for them to get their heads around, such as cat bonds and ILW, which are based on indexes and do not require extensive underwriting. But as their sophistication increases and the ability to satisfy appetites in insurance-linked securities and index-based is not sufficient, they are moving into those classes that seeing significant growth, he said. Growth of convergence capital has been steady and sustained. In 2008 it represented 8% of global catastrophe limit, but we expect penetration to continue to expand and expect it to be 5% by 20 David Priebe Guy Carpenter & Company July 2009 Barbican increase number of boxes at Lloyd s to 6 November 2008 Barbican takes second box at Lloyd s February 2008 Barbican starts underwriting with stamp capacity of 75m November 2007 Barbican Syndicate 955 approved by Lloyd s January 200 Barbican increases stamp capacity to 80m January 2009 Barbican increases stamp capacity to 20m A major loss is unlikely to drive away the new sources of or convergence capital, many of which would want to reload and even increase their participation post-event, according to Guy Carpenter, writes Richard Banks, Monte Carlo. More than $0bn of new capital entered the global market through cat bonds, industry loss warranty (ILW) contracts or collateralised last year, the broking giant said as it kicked off the RendezVous de Septembre in Monte Carlo with its annual press conference. This segment accounted for $45bn or 4% of the global worldwide limits in 202. Describing the convergence capital as steady and sustained, Guy Carpenter & Company s vice-chairman, David Priebe, claimed in the absence of model-busting losses it is here to stay. The people investing in this class fully understand what they re getting into, he said. They recognise this is a binary investment: if there s a big loss there s a March 202 Barbican acquires Professional Indemnity Protect Ltd and opens office in Manchester October 2009 Barbican increases stamp capacity to 0m October 2008 Barbican Channel Islands and Barbican Re approved by Lloyd s and GFSC Major loss will not drive away new capital Guy Carpenter January 20 Barbican increases stamp capacity to 20m chance of losing that investment. But as long as any loss is within what they expected the investors would be content. We saw that post the Japanese earthquake when the Zenkoryen bond was a total loss. That came as no surprise, investors understood it. We were successful literally one month later in recommitting those investors not only the same but some new to supply the level of capital the client required. Superstorm Sandy showed further evidence of appetite of fresh capital coming in post-loss because again they saw a big event having no impact in terms of the overall results of the industry and prices were stabilised, Priebe said. Still, he warned: The piece that could unsettle things is when like they often happen in our industry the unexpected happens they thought they d modelled the outcome but something unexpected happened. Quite honestly it would have to be a very, very, very large loss to cause price increases to happen an event in excess of $50bn. April 20 Barbican increases stamp capacity to 227.5m November 202 Barbican Syndicate 6 approved by Lloyd s June 20 Barbican acquires Seacurus Ltd March 20 January 20 Barbican Underwriting Barbican Limited approved by Lloyd s Managing Agency Limited is approved by Lloyd s and the FSA Barbican Group Holdings Limited, which is incorporated under the laws of the Islands of Guernsey, is the parent company of a group that operates syndicate 955 at Lloyd s and Barbican Channel Islands (a trading name of Barbican Reinsurance Company Limited) Barbican Managing Agency Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority in the UK. Barbican Reinsurance Company Ltd and Barbican Channel Islands are regulated in Guernsey by the Guernsey Financial Services Commission. PI Protect and Seacurus are authorised and regulated by the Financial Conduct Authority in the UK.

4 4 Sunday 8 September 20 NEWS Market news, data and insight all day, everyday Insurance Day is the world s only daily newspaper for the international insurance and and risk industries. Its primary focus is on the London market and what affects it, concentrating on the key areas of catastrophe, property and marine, aviation and transportation. It is available in print, PDF, mobile and online versions and is read by more than 0,000 people in more than 70 countries worldwide. First published in 995, Insurance Day has become the favourite publication for the London market, which relies on its mix of news, analysis and data to keep in touch with this fast-moving and vitally important sector. Its experienced and highly skilled insurance writers are well known and respected in the market and their insight is both compelling and valuable. Insurance Day also produces a number of must-attend annual events to complement its daily output. The London and Bermuda summits are exclusive networking conferences for senior executives; meanwhile, the London Market Awards recognise and celebrate the very best in the industry. The new Insurance Technology Congress provides a unique focus on how IT is helping to transform the London market. Perils approaches usage saturation point for European windstorm Growth will come from new territories and new perils Richard Banks Editor For more detail on Insurance Day and how to subscribe or attend its events, go to subscribe.insuranceday.com Insurance Day, 9 Farringdon Road, London ECR DA Editor: Richard Banks +44 (0) richard.banks@informa.com Deputy editor: Scott Vincent +44 (0) scott.vincent@informa.com Senior reporter: Christopher Munro +44 (0) christopher.munro@informa.com Global markets editor: Graham Village +44 (0) graham.village@informa.com Global markets editor: Rasaad Jamie +44 (0) rasaad.jamie@informa.com Commercial director: Andréa Pratt +44 (0) Sales director: Andrew Stone +44 (0) Sponsorship manager: Benali Hamdache +44 (0) Marketing manager: Randeep Panesar +44 (0) Subscriptions account executive: Carl Josey +44 (0) A ward-winning Perils, the industry-owned aggregator of exposure and claims data, has proven itself increasingly valuable to the European industry, underpinning $4.bn of limits at risk at present, a year-on-year increase of more than $500m, but further growth is unlikely without an expansion into new territories or perils. Since Perils was established in 2009 by a group of the world s largest reinsurers and brokers, its data has supported the placing of more than $8bn of limits, steadily growing from just $58m in 200 to today s figure. On September 4 it was named Service Provider of the Year at the Worldwide Reinsurance Awards. Perils chief executive, Luzi Hitz, credited emergence of insurance/capital market convergence in recent years with playing a pivotal role in the growth in Perils-backed limits. The supply of capital has grown significantly over the time- European windstorm is a very large loss potential for the global marketplace but it s not as large as US wind. From that point of view we are around saturation and I would expect [Perilsbacked limits] for European windstorm would probably be similar to what it is now. Future growth will come from expanding into new territories and new perils Luzi Hitz Perils frame [of Perils existence] and it s exactly this kind of capital that uses our data to structure risk-transfer products, he said. However, he acknowledged the scope for growing that figure further within the existing parameters is limited. In terms of European windstorm I would not anticipate this growth would continue indefinitely. European windstorm is a very large loss potential for the global marketplace but it s not as large as US wind. From that point of view we are around saturation and I would expect [Perils-backed limits] for European windstorm would probably be similar to what it is now. Futuregrowth willcomefrom expanding into new territories and new perils. While Hitz insisted Perils is under no pressure to grow for the sake of growing and emphasised its principal imperative is increasing data availability to the benefit of the marketplace, he said there are plans to expand its coverage for the peril of flood in central and eastern Europe. Equally, he added: Europe will be the focus for the time being but we re always open to grow beyond Europe. It s not for us to say we ll do market X ; rather it s about market X telling us what we can do for its marketplace. Head of production: Maria Stewart +44 (0) Advertising production assistant: Emma Wix +44 (0) Production editor: Toby Huntington +44 (0) Subeditor: Jessica Hills +44 (0) Production executive: Claire Banks +44 (0) Events manager: Natalia Kay +44 (0) Editorial fax: +44 (0) Display/classified advertising fax: +44 (0) Subscriptions fax: +44 (0) All staff firstname.lastname@informa.com Insurance Day is an editorially independent newspaper and opinions expressed are not necessarily those of Informa UK Ltd. Informa UK Ltd does not guarantee the accuracy of the information contained in Insurance Day, nor does it accept responsibility for errors or omissions or their consequences. ISSN Registered as a newspaper at the Post Office. Published in London by Informa UK Ltd, Mortimer House, 7/4 Mortimer Street, London, WT JH Printed by St Clement s Press, Unit 6, Bow Industrial Park, Carpenters Road, London E5 2DZ Informa UK Ltd 20. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photographic, recorded or otherwise without the written permission of the publisher of Insurance Day. Sharia-compliant Cobalt an exciting and important moment for Vision 2025 The launch of sharia-compliant insurance agency Cobalt Underwriting is an exciting and important moment in the fulfilment of Lloyd s Vision 2025, with the market s deputy chairman full of praise for the new facility, which has now managed to secure further backing from another leading carrier, writes Christopher Munro. Vision 2025 aims to secure Lloyd s position as the world s foremost marketplace for insurance and risk with expansion into developing economies around the globe a major aspect of the project. Graham White, Lloyd s deputy chairman,saidthelaunchofcobaltwillhelpone Lime Street achieve its vision. [Vision 2025]isunderpinnedbyambitiousplansto grow our operations and premium income in the world s emerging markets. But to do so, London has to have the ability to provideproductsthatmeettheneedsofourclients not only in terms of the risks assumed, butalsostructuredtomeettheclients business,culturalandethicalrequirements. All of that clearly makes the launch of Cobalt an exciting and important moment, not only for London s future as a global risk hub but also for the Islamic business community, which now has access to sharia-compliant insurance products for the major risks they face. White s praise came as Cobalt announced further backing from another leading insurer, QBE. Launched with support from XL Group, which allowed Cobalt to offer $00m of property capacity, the additional backing from QBE now means it can offer property capacity of $425m and construction limits of $60m. While these are headline figures, these represent a significant needle mover for the Islamic insurance sector, Richard Bishop, Cobalt s chief executive, said. The involvement of QBE also means Cobalt will shortly be able to offer sharia-compliant casualty cover as well. Bishop, who was speaking at the official launch of Cobalt at Norton Rose Fulbright s office on London s South Bank, also announced the company will soon to be able to unveil further support from a third carrier. This additional backing will not only boost the capacity available for its property, construction and casualty covers, but also allow it to offer marine cargo, onshore and offshore energy insurance. The door is not closed to other interested parties, however, with White saying: We are looking to develop capacity from within the Lloyd s market. We firmly believe it is essential for Cobalt to give any carrier here in London the opportunity to participate in delivering solutions to Islamic customers. This will, in turn, ensure the expertise, knowledge and capacity of the London market is placed at the centre of a significant world market.

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7 8 Sunday 8 September 20 Tuesday October 20 7 COMPANIES HOUSE Graham Village Global markets editor F irst-half results for most companies in the international community were good, reflecting the generally benign loss record and adequate rating levels in most lines of business, so the cautious stance most commentators have adopted towards the sector seems at first glance to be a harsh judgment. The main reason for the caution, of course, is the suspicion that the influx of alternative capital over the past few months is merely the tip of an iceberg that could potentially sink the traditional model. Figures posted by reinsurers for the first six months of 20 show little sign this alternative capital has had a fundamental impact on the sector s revenue or performance so far, at least. Combined ratios remain at historically low levels for almost all companies although the sector is still depending to an extent on releases from reserves for prioryear loss periods. Depressing net performance for some companies was the unfavourable wider financial climate, which produced realised investment losses, while unrealised losses cut into shareholders funds. Peak capital levels The sector has been operating at peak capital levels for some time and several companies have responded this year by handing back significant amounts to shareholders in the form of dividends and share repurchases. Rating agency Fitch estimates the sector s aggregate shareholders funds fell 2.6% during the first six months of the year as a result of share buybacks and changes to unrealised investment gain and loss positions. Broker Aon Benfield put a slightly different slant on the trend by estimating the shareholders funds of the companies in its aggregate index fell % during the six months to $bn but global reinsurer capital rose % to $50bn with the generally solid earnings of major insurers and reinsurers and a continuing influx of new funds from capital markets investors being partially offset by unrealised losses on bond portfolios. Insurance Day has previously covered the half-year figures of the international insurance and re- Reinsurance sector maintains strong performance for now Figures for the first half show little sign of potential threat from alternative capital to market insurance groups in some detail and for this article we provide -specific premium and profitability figures to show only figures where possible in our table ( entities are shown in lighter blue with the larger groups in darker blue). Documentation accompanying Third Point Re s recent partial flotation allows us to include that company in the table but public information on almost all the alternative capital providers is sadly lacking. One implication of the arrival of this new capital is a lack of public transparency there is scant generally available information about the finances of the new players and the scale of their involvement in the market. The collateralised nature of the capacity they typically bring provides reassurance for clients but does not help the market in gaining an overview of where risk is ending up. The list of reinsurers in the table is not complete, the most notable absence being Lloyd s, which typically does not produce specificfiguresatthehalf-yearmark and will not report its performance this year until September 26. For the full 2 months of 202, Lloyd s recorded net premiums of close to $0.9bn for business, putting the market inthe top five. The biggest five reinsurers On the figures for the first six months of 20, Munich Re remained the world s largest underwriter, recording net earned premiums of $7.45bn. Swiss Re, in second place, does not publish net only figures but its assumed on a gross earned basis totalled $.22bn. Hannover Re was third, with net written premium of $8.46bn. In fourth place, Berkshire Hathaway s net earned premium total of $7.66bn is the sum of business from Berkshire Hathaway Reinsurance Group and General Re. Scor was in fifth position, with net earned premium of $5.8bn. These five companies were well ahead of the rest of the market in terms of premium income. According to Aon Benfield, its -strong index added 5% to gross non-life premiums and 7% to net during the first half, although the increases include primary as well as business. Each of the top five companies recorded premium increases compared with the first half of 202. However, brokers and analysts expect rates to come under pressure for the rest of the year and into 204. Fitch noted property rates at January, 20 were flat and have deteriorated since then, with Florida property cat rates down by as much as 25% in June and July. Liability rates are showing flat to modestly softening rates, Fitch said. In sum, the agency expects lower premium growth next year accompanied by reduced reserve releases, leading to a worse underlyingaccident-yearcombined ratio (excluding catastrophes). Impact of alternative capital Premiums may not have fallen but many reinsurers half-year reports note the impact alternative or convergence capital has had on the property catastrophe segment of the market and companies are braced for further incursions. Broker Guy Carpenter estimates convergence capital now accounts for $45bn of the global property cat limit, equating to about 4% of the market. The new capital has become more comfortable in its involvement in and in some cases has started to undercut the traditional market, which has been forced to reduce prices to remain competitive. A particular issue for the traditional market is capital sourced from pension funds and hedge funds may be prepared to accept a lower return from assuming risk than the traditional market can because of the significant diversification benefit this risk brings the funds. Reinsurers have not been slow to respond. At the forefront have been those companies closest to the front line with the new capital: namely the specialist Bermudian companies writing property cat business. They have made good use of the new capital to boost their own underwriting capability through the formation of sidecars and have also set up as underwriting managers, writing on behalf of third-party capital. Opinions vary on how much of a threat the new capital poses to the traditional market. Longstanding reinsurers can be relieved the new capital has so far made inroads almost entirely in the property catastrophe sector and with a heavy bias towards US risks. Most business around the world has felt little or no impact from the new capital. Even in the property cat area, conventional reinsurers can make their understanding and experience of risk pay dividends, which is precisely why the new capital is so keen to strike underwriting deals with the market experts. Huge cat loss: the effect What happens when a huge catastrophic loss strikes the US, perhaps entailing a full loss of principal to most of the cat bond structures in place? Cat bonds have suffered reduced dividend payments and a few have even lost principal entirely but the cat bond market has yet to face an acrossthe-board loss that really tests risk appetite and commitment. The conventional industry has a history of successful recapitalisation following major losses but it remains uncertain how the alternative sector will take to these financial instruments when it has first-hand experience they can produce a total loss. Some expect much of the new capital will withdraw and look elsewhere for returns. Of course, a counter-theory holds a major loss will accelerate the role of the convergence capital as those interested in retaining a presence in the market will choose to put their money in cat bonds and alternative vehicles rather than conventional-style reinsurers, as has happened in the past. Inthemeantime,manyreinsurers with large property cat books have moved to broaden their accounts, branching out into agricultural and other lines. Fitch highlighted the drought affecting the US last year produced overall losses of $5bn to $7bn and although most of the burden fell to the federal government, insurersand faced a bill of close to $2bn. However, the scale ofthedamageencouragedmanyprimary crop insurers to reduce retentions, creating an opportunity for reinsurers to take advantage of increased pricing and improved marketconditions, Fitchsaid. Pessimistic view The most pessimistic view of where the traditional market now stands comes from analyst Goldman Sachs. In a recent report on eight changes that have the power to disruptandreshapebusinesssectors,it includes alternative capital, saying: Webelieveifpensionsstepuptheir participation by allocating a fraction of their portfolios to this area [], reinsurers ability to generate attractive risk-adjusted returns alongside this new capital could be permanently impaired. It has a sell recommendation on two stocks it follows. Goldman Sachs paints a bleak picture of how things will develop for the conventional reinsurer. It expectsalternativecapitaltoextend its position in the property cat market, forcing reinsurers to look elsewhere to deploy capital that has been crowded out, probably in less profitable areas. If investors are satisfied with their investments against a rising rate backdrop and the non-correlated nature of the investments are still attractive, we expect alternative capital could permeate other aspects of the market, Goldman Sachs said. Such an extreme scenario is some way off for now but reinsurers have already taken steps to reposition themselves to counter and co-operate with this new threat. n

8 8 Sunday 8 September 20 COMPANIES HOUSE Reinsurance Industry, First Six Months Ace Combined Ratio Table % Net Written Premium ($ millions) Ace Allianz Allied World Alterra (Markel) Amlin plc Arch Argo Group Aspen Axis Beazley PLC Catlin Endurance EMC Global Indemnity Greenlight Cap Re Hannover Re Hiscox Group Lancashire Montpelier Re Munich Re Odyssey Re Partner Re Platinum Polish Re QBE RSA SCOR Third Point Re Transatlantic (Alleghany) Validus Sirius (White Mountains) WR Berkley XL Allianz Allied World Reinsurance Entity Group Company Alterra (Markel) Amlin Arch 4 Argo Group Aspen Axis 202 Berkshire Hathaway Re GP $ 4405 million 202 $ 4688 million 20 Berkshire Hathaway Re GP Net earned 2 Gross earned Gross Written 4 Gross premium for operations of Amlin London plus Amlin Re Europe and Amlin Bermuda 20 Beazley PLC Brit Catlin Endurance EMC Everest General Re Hannover Re Global indemnity $ 7787 million 202 $ 8459 million 20 Greenlight Cap Re Hannover Re HCC MILLIONS 0 $ 000 $ 6000 $ 9000 $ 2000 Intelligent perspective Focused broking advice Are your brokers helping you see the full picture? Whether you are concerned about capital-threatening events or everyday losses, Towers Watson (Re)insurance brokerage can provide leadership for practical capital solutions. Towers Watson. A global company with a singular focus on our clients. Benefits Risk and Financial Services Talent and Rewards towerswatson.com Copyright 20 Towers Watson. All rights reserved. TW-EU a. September 20. Towers Watson is represented in the UK by Towers Watson Limited and Towers Watson Capital Markets Limited

9 Sunday 8 September 20 9 Net Written Premium (continued) Hiscox Group Lancashire Mapfre Munich Re $ 678 million 202 $ 7445 million 20 Montpelier Re Munich Re Odyssey Re Pakistan Re $m PartnerRe Platinum Polish Re QBE RSA $ 6675 million 202 $ 7076 million 20 Renaissance Re Swiss Re $ 2988 million 202 $ 224 million 20 RSA Scor Swiss Re 2 Third Point Re Transatlantic Validus (Alleghany) Sirius (White Mountains) WR Berkley XL MILLIONS 0 publi_mapfrere_260x70_nov.ai $ 000 :06 2//2 Bogota [Colombia] Brussels (Belgium) Buenos Aires (Argentina) Caracas (Venezuela) Lisbon (Portugal) London (United Kingdom) C Madrid (Spain) M Y CM MY CY Manila (Philippines) pin in Mexico D.F. (Mexico) xic i Milan (Italy) Munich (Germany) CMY K New Jersey (USA) Paris (France) Santiago de Chile [Chile] São Paulo [Brazil] Toronto [Canada] $ 6000 $ 9000 $ 2000 $ 5000 $ 8000

10 0 Sunday 8 September 20 REINSURANCE AWARDS Worldwide Reinsurance Awards: the winners (clockwise from top) All the award-winners take their place on the Worldwide Reinsurance Awards stage; the 20 Lifetime Achievement award winner, former Swiss Re chief executive Stefan Lippe; tables at The Dorchester ; the awards evening s host, BBC Radio 4 presenter and former Communards keyboard player Reverend Richard Coles, holds court; Swiss Re s Thierry Léger Worldwide Reinsurance Awards: Roll of honour Reinsurance Broking Team of the Year Aon Benfield Resolutions ILS Transaction of the Year Swiss Re Capital Markets Mythen Re Re/Insurance Initiative of the Year Asta Managing Agency for launch of syndicate 257 Technological Initiative of the Year Xchanging for Netsett Professional Service Provider of the Year Perils Life Reinsurance Company of the Year RGA Reinsurance Company of the Year Swiss Re Industry Personality of the Year Toby Esser, Cooper Gay Swett & Crawford Lifetime Achievement Stefan Lippe Photographs by Philippa Gedge Richard Banks Editor S wiss Re has described its delight at picking up the Reinsurance Company of the Year award at the Worldwide Reinsurance Awards. Thierry Léger, head of life and health products, said: To receive this award is an honour. What makes it even more special is we receive it during our 50th anniversary. We would like to thank all our clients, colleagues and other stakeholders who made this possible. The independent panel of expert judges were impressed with both the recent performance of Swiss Re and its resilience as it has striven to re-establish itself stronger and more influential than ever. It was a triple celebration for the industry icon, which also picked up the ILS Transaction of the Year award for Mythen Re, while its former chief executive Stefan Lippe picked up the Lifetime Achievement award in recognition of his transformative efforts at the Swiss Re helm, as well as his contribution to the industry as a whole. n

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12 2 Sunday 8 September 20 Capital stewardship Reinsurance sector capital-management strategies include maintaining the status quo, returning capital to shareholders and investing in growth/diversification Growing/diversifying by territory: with growth opportunities limited in mature markets, many insurers are looking to emerging markets for future expansion, in particular China, southeast Asia and Central and Latin America. This is a longerterm strategic play with the potential scarcity of viable targets in these emerging markets continuing to drive premium valuations. Increasingly, the focus for growth and competitiveness in an evolving market is moving towards more M&A activity, particularly strategic bolt-on transactions as the need to adapt business models to achieve scale, global reach and a diversified product suite increases. Guy Carpenter is committed to assisting carriers in plotting their path to sustainable profitable growth and becoming their trusted strategicadviser.gcsecurities*provides industry-leading M&A advice withdeepindustryexperienceanda successful track record. The team is committed to advising and assisting Guy Carpenter clients with their M&A strategies to exploit growth opportunitiesasthey opportunities asthey arise. n l Graph: Guy Carpenter Global Reinsurance Composite versus return of capital over the cycle (rate on line and valuation), 2004 to 20 Guy Carpenter & Company LLC 0 F aced with an abundance of excess capital, negligible growth in global spend and the pricing outlook continuing to soften, one of the biggest challenges for reinsurers is deciding how to deploy excess capital to generate a return that meets or exceeds the expectations of shareholders. The options under consideration in the sector will include maintaining the status quo, returning capital to shareholders and investing in a growth/diversification strategy, either organically or by seeking mergers and acquisitions (M&A) opportunities.* Evaluating the merits of each option and the interplay between themisnotaneasyassessment,with the best capital stewards employing an all-encompassing strategy. Maintaining the status quo There has often been reluctance among reinsurers to return excess capital to shareholders. Once capital is returned, it is not certain it will be provided again, in a timely fashion or on acceptable economic terms, when the balance sheet needs repair or an interesting investment opportunity arises. Excess capital acts as a buffer against future losses, particularly relevant in today s world of low investment returns, volatility in fixed-income asset valuations and diminishing reserve releases. While recent catastrophe activity has been relatively light, we only need to look back to the series of international catastrophe losses in 200 and 20 and the subsequent distressed acquisitions or recapitalisations of badly hit companies to observe the ramifications of exhausting this capital buffer. Following such events, (re)insurers want to be well placed to take advantage of a hardening rate environment. Increasing retentions and cutting spend is another way to deploy excess capital. However, given current capacity and competitive rates available in the and retrocession mar- 4% 2% 20 0% 0 8% 6% 00 4% 90 2% 0% *20 figures are Guy Carpenter estimates kets, it is debateable whether this is the right time to be retaining more risk and potentially increasing earnings volatility. Return to shareholders During the past eight years, reinsurers have been relatively disciplined in returning capital to shareholders when the pricing environment has softened. This was clearly evident during the softening market of 2008, when%oftangiblenetassetvalue (TNAV) globally () was returned to shareholders. Conversely, only % of TNAV was returned to shareholders when the market hardened in Given present market conditions, we expect the level of capital returned to shareholders to accelerate in 20. Invest in growth or diversification A combination of both organic and acquisitive growth is likely to feature in most successful strategies, with decisions made on an opportunity-by-opportunity basis after considering factors such as strategic alignment, accretive earnings and book value potential, timetable for execution, integration and achievement of critical mass, together with an assessment of the political and regulatory risks. The need to adapt the reinsur- Monte Carlo Dailies in association with Capital returned during year/year-end tangible net assets Des Potter, head of GC Securities (EMEA) * Guy Carpenter rate on line index Capital returned/tnav Excess capital acts as a buffer against future losses, particularly relevant in today s world of low investment returns, volatility in fixed-income asset valuations and diminishing reserve releases. While recent catastrophe activity has been relatively light, we only need to look back to the series of international catastrophe losses in 200 and 20 and the subsequent distressed acquisitions or recapitalisations of badly hit companies to observe the ramifications of exhausting this capital buffer ance business model in the current marketisfocusingexecutivesonthe need for economies of scale, product specialism and global reach: l Achieving meaningful scale: in a market with abundant excess capital and where most programmes are oversubscribed, the need for ameaningfullinesizeordifferentiated underwriting contribution hasneverbeenmorerelevant.an obvious tool for the management of expense ratios is achieving economies of scale and diffusing the semi-variable expense base over a larger portfolio of premiums. Equally, capital efficiencies are more obvious for larger entities, with greater diversification credit, better access to financing and an implied reduction in the cost of equity. l Growing/diversifying by product line: specialty insurance is one of the few market sectors where underwriting and claims management expertise and client/broker relationships are still the predominant differentiators for a successful business. The specialty pricing environment has recently improved, though there are signs this pricing momentum may diminish with increased competition and competitively priced. PROFITABLE GROWTH ) Based on an analysis of Guy Carpenter s Global Reinsurance Composite. *Securities or investments, as applicable, are offered in the US through GC Securities, a division of MMC Securities Corp, a US-registered broker-dealer and member FINRA/ NFA/SIPC. Main Office: 66 Avenue of the Americas, New York, NY 006. Phone: (22) Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorised and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E4 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, or insurance product. **GC Analytics is a registered mark with the US Patent and Trademark Office. Let s make it happen