A.M. Best Market Briefing at the EAIC 2018

Transcription

1 A.M. Best Market Briefing at the EAIC 2018

2 Agenda 2

3 Perspectives on the Global Reinsurance Market Stefan Holzberger Chief Rating Officer 7 May 2018

4 AM Best Company, Inc. (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. AMB does not audit or otherwise independently verify the accuracy or reliability of information received or otherwise used and therefore all information contained herein is provided AS IS without warranty of any kind. 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 from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), 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 credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. Credit 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 risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. AMB is not an investment advisor and does not offer consulting or advisory services, nor does the company or its rating analysts offer any form of structuring or financial advice. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must 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, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling. 4

5 Reinsurance Market Dynamics Convergence Capital Low Investment Yields Intense Competition Outlook? Inflation Potential Earnings Strained Excess Capital 4

6 Global Reinsurance Performance Results & Trends 6

7 Total Economic and Insured Losses Annual Change (%) 10-Year Average USD Billions USD Billions USD Billions Economic Losses Nat Cat % 178 Man-made % 12 Total * 87% 190 Insured Losses Nat Cat % 50 Man-made % 7 Total % 58* *Due to rounding, numbers do not sum Source: Swiss Re Institute 7 6

8 Global Combined Ratio Expense Ratio Loss Ratio Loss Reserve Development 120% 110.1% 50% 45% 100% 87.9% 89.7% 90.4% 95.2% 33.6% 94.7% 40% 80% 31.9% 33.5% 34.2% 34.7% 33.6% 35% 30% 60% 25% 40% 20% 55.9% 56.2% 56.2% 60.6% 76.5% 61.1% 20% 15% 10% 5.8% 5.4% 6.0% 5.8% 4.0% 5.4% 5% 0% yr Avg 0% Source: A.M. Best data and research 8 7

9 Global Return on Equity Return on Equity Five-Year Average 14% 12% 13.0% 11.6% 10% 8% 6% 4% 9.5% 8.3% 2% 0% -2% -0.3% Source: A.M. Best data and research 9

10 Global Return on Equity Five-Year Average 9% 8% 8.4% 7% 6% 5% 4.5% 4% 3% 2% 1% 0% Five -Year Average Return on Equity Five -Year Average Return on Equity Excluding Loss Reserve Development Source: A.M. Best data and research 2018 Insurance 3 April

11 Market Capacity 11

12 Top 10 Largest Reinsurance Groups Reinsurance WP Total Life & Non-Life Shareholders (USD Millions) Gross Net Funds Swiss Re 35,622 33,570 35,716 Munich Re 33,154 31,891 33,493 Hannover Ruck 17,232 15,192 10,264 SCOR 14,569 13,238 7,055 Berkshire Hathaway 12,709 12, ,359 Lloyd's 11,576 8,694 34,101 RGA 10,107 9,249 7,093 China Re 7,857 7,517 10,384 Great West Lifeco 6,195 6,112 13,857 Korean Re 5,554 3,903 1,755 Source: A.M. Best data and research. Ranked by unaffiliated gross premium written in September

13 (USD Billions) Estimate for Dedicated Reinsurance Capacity Convergence Capacity Traditional Capacity * Forecast Source: A.M. Best and Guy Carpenter 13

14 Convergence Capacity 90 Convergence Capacity 14 CAT Bonds Number of Deals E* 0 0 ILW Collateralized Re Catastrophe Bonds *Forecasted CAT Bonds Issued Number of Deals Source: A.M. Best and Guy Carpenter Source: A.M. Best and Artemis 14

15 Market Strategies & Opportunities 15

16 Global Market Strategies In A.M. Best s opinion The market will continue to become more efficient as all players strive to become closer to the client Client Primary Insurance Company Agent & Broker Reinsurance Broker Reinsurance Company Convergence Capital 16

17 17 Opportunities for the Reinsurance Sector Cyber Insurance Flood Mortgage Terrorism InsurTech

18 Global Reinsurance Outlook Headwinds Intense competition Incr. interest from 3rd party capital Earnings under pressure Excess capacity hinders improvement Potential for increased inflation Tailwinds Cession rates increasing Cat losses temporarily stabilize rates Favorable reserve development Strong risk-adjusted capital Increase in interest rates M&A Although capitalization 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. 17

19 Credit Ratings and Market Update in China Christie Lee Head of Analytics, Northeast Asia 7 May 2018

20 Northeast Asia Rating Distribution Key Market Characteristics China High growth Heavily weighted to Motor line Marginal underwriting results Japan/ Korea Japan: Slow domestic growth and overseas expansion Korea: Raising capital to get prepared for IFRS 17 and K-ICS in % 44% 34% 33% 16% 15% 4% 4% 4% 2% 2% 0% A + + A+ A A - B + + B+ FSR at Mar 30, 2017 FSR at Mar 30,

21 Northeast Asia Rating Distribution Review Rating Actions Most rated companies have robust balance sheet strength. Upgrades and downgrades of individual companies are based on different criteria, including capitalization, performance and business profile. 83% 4% 4% 7% Affirmed Upgraded Downgraded Assigned Under Review 2% Preview Outlook Summary Most companies fundamentals are expected to be stable in the short to medium term. The negative outlooks are not concentrated in any country or market sector, but reflect the individual companies merits. 0% 9% 0% Stable Negative 91% 21

22 China Market Outlook: Negative Headwinds Tailwinds Intense Competition High Growth Increasing Investment Risks Cost of Regulatory Compliance Increase in Interest Rates Improving ERM, C-ROSS Phase 2 22

23 China Non-Life Real Premium Growth (2016) Growth Opportunities Results in Intense Competition: China non-life market s growth is almost equal to that of North America and Western Europe combined. In 2017, China s non-life gross premium written grew to RMB 1 trillion (USD 160 billion), a 13.8% increase over Combined Ratio: China Non-Life Insurers Large Insurers (Motor Focus) 97.8% 98.0% 97.6% S/M Insurers (Motor Focus) 106.4% 108.3% 108.8% Motor still accounts for over 70% of the market portfolio. Motor detariffication has intensified competition

24 RMB (Brillion) China Net Profit before Tax (Top 5) Underwriting Investment Overall operating results are highly reliant on investment returns. Investment returns are subject to domestic market volatility. Insurers have been increasing their allocations to other investments. Investment Allocation (Top 5) 9.9% 11.7% 15.6% 18.3% 24.7% 27.4% Cash & cash equivalents Bonds Equities and funds Long-term equities Other Investments 2018 EAIC 7 May

25 China Market Outlook: Negative Headwinds Tailwinds Intense Competition High Growth Increasing Investment Risks Cost of Regulatory Compliance Increase in Interest Rates Improving ERM, C-ROSS Phase 2 25

26 China - Opportunities High growth and profitable lines - Liabilities, Credit & Surety, Personal Accident Inward Reinsurance - Diversified the portfolio Belt and Road Collaborations between domestic and foreign insurers Technology - Distribution, operational efficiencies, innovative products 26

27 Credit Ratings and Market Update in Southeast Asia Chi-Yeung Lok Head of Analytics, Southeast Asia and Australasia 7 May 2018

28 Overview Introduction Rating Distribution and Actions Trends Headwinds & Tailwinds 28

29 South East Asia A.M. Best Rated Markets 29

30 South East Asia Rating Distribution Key Market Characteristics Mature Markets Slowdown in growth Less commercial fire Small markets Growth Markets Still growing More commercial, fire Small markets other than India 38% 39% 33% 32% 15% 16% 10% 11% 3% 3% A+ A A- B++ B+ FSR as at Mar 17 FSR as at Mar 18 Source: A.M. Best 30

31 South East Asia Rating Actions and Outlooks Review Rating Actions Most companies have solid risk-adjusted capitalization Downgrades / outlook changes Performance issues Reserving issues 87% 2% 8% 3% Affirmed Upgraded Downgraded Initial Preview Underwriting margins still positive in most South East Asian markets but becoming slimmer Ability to adapt to low growth environment and shift to personal lines Relevance of technology in terms of channels, efficiency, risk management? 79% Outlooks 5% 16% Stable Positive Negative Source: A.M. Best 31

32 Premium Growth Trends Malaysia 15% Singapore 15% Thailand 15% 10% 10% 10% 5% 5% 5% 0% 0% 0% -5% % % Indonesia 20% Philippines 20% Vietnam 20% 15% 15% 15% 10% 10% 10% 5% 5% 5% 0% % % Growth in mature markets slowing more significantly Shift to retail in growth markets Slow rollout of government initiatives fire and commercial growing slower than expected Source: A.M. Best and regulatory statistics 32

33 Combined Ratio Trends Malaysia 100% Singapore 100% Thailand 100% 90% 90% 90% 80% % % Indonesia 100% Philippines 110% Vietnam 100% 90% 100% 90% 80% % % Underwriting margins positive but declining As premiums are increasing in growth markets, so are combined ratios Need to manage quality of growth and expense ratios Source: A.M. Best and regulatory statistics 33

34 UW Margins South East Asia (2016) 49% 40% 43% 51% 41% 33% 48% 55% 51% 43% 52% 54% Vietnam Thailand Indonesia Philippines Singapore Malaysia Loss Ratio Expense Ratio Source: A.M. Best and regulatory statistics 34

35 Combined Ratio Breakdown Other Markets India - Non Life United Kingdom - Motor Insurance 32% 32% 29% 32% 31% 31% 82% 85% 90% 81% 84% 89% India Nonlife L/R India Nonlife E/R UK Motor L/R UK Motor E/R Australia - Personal Lines 26% 26% 24% 56% 63% 60% L/R: Loss Ratio E/R: Expense Ratio Australia - Personal Lines E/R Australia - Personal Lines L/R Source: A.M. Best and regulatory statistics 35

36 Conclusion Headwinds Tailwinds Stagnant growth Quality of growth Technical expertise Technology Low penetration Solid risk-adjusted capitalization 36

37 Questions & Answers