Growth and profit drivers in non-life R/I

Transcription

1 Accomplishing profitable growth in a challenging environment Jürgen Gräber, Member of the Executive Board/COO non-life 15th International Investors' Day 2012 London, 18 October 2012

2 Growth and profit drivers in non-life reinsurance Agenda 1. Introduction 2. Growth and profit drivers by non-life divisions a) Selected Target Market - North America Business b) Specialty Lines example - Agency Business c) Global Reinsurance examples Facultative, Agricultural and ReTakaful Business 3. Conclusion Recapturing Investors' Day 2010 and 2011: We remain on track F est. GWP growth of our Chinese business: 22% F est. GWP growth of our Specialty Lines: 12%

3 Introduction World real GDP growth expected to slow down from 4.0% (2011) to 3.5% (2012) Real GPD growth of emerging and developing economies expected to slow down from 6.2% (2011) to 5.6% (2012) Recession in Europe is likely to continue through 2013 Uncertainty about the economic situation in Europe remains global key risk Nonetheless, non-life insurance premium increased during 2011 by 1.9% Demand for top-rated reinsurance companies remains high Sources: Towers Watson Global Markets Overview, July 2012, International Monetary Fund - World Economic Outlook April 2012, International Monetary Fund World Economic Outlook Update July 2012, The World Bank Global Economic Prospects January 2012, McKinsey Global Institute Mapping global capital markets 2011 HR well positioned - high performance in a challenging economic environment 1

4 Non-life insurance market premium development Emerging markets lead the way Non-life insurance premium in bn. USD 2011 change vs North America % Latin America and Caribbean % Western Europe % Central and Eastern Europe % Japan and new advanced Asian economies % South and East Asia % Middle East and Central Asia % Africa % Oceania % World 1, % Advanced markets 1, % Emerging markets % Source: Swiss Re Sigma 3/2012 2

5 Reinsurer capital exceeds 2010 record high Reinsurer capital in bn. USD +3% CAGR Jun 2012 Source: Aon Benfield Reinsurance Market Outlook September 2012 ILS, collateral reinsurance, swaps and sidecars provide additional R/I capital 3

6 Hannover Re policyholders' surplus Hannover Re capital development exceeds reinsurer capital development Hannover Re policyholders' surplus in m. USD +8.5% CAGR 5,295 1, ,349 4,708 1, ,830 5,622 1, ,714 6,987 1, ,509 7,338 1, ,971 7,833 1, , Jun 12 Shareholders' equity Non-controlling interests Hybrid Currency conversion from EUR to USD at respective year-end rates / half-year-end rates 4

7 Development of premium and retention Profitable growth continues Non-life premium development (FY) in m. EUR 5, % 4,498 4, % 4, % 88.9% 6,339 5,747 5,230 5,394 6, % 5, Gross written premium Net premium earned Retention Gross written premium CAGR: 7% 5

8 Hannover Re non-life divisions Focused on sustainable growth Target markets North America 1) "Voted best overall reinsurer for four times in a row" 2) Germany 1) "No. 2 R/I in second-largest P/C market" Specialty lines Global R/I Marine (incl. energy) Aviation Credit, surety & political risks Structured R/I & ILS UK, London market & direct Global treaty 1) Global cat XL Global facultative "The leading XL reinsurer" "One of the market leaders" "No. 2 worldwide" (Neg. correlation to rest of P/C) "Innovative, tailormade R/I solutions" "A unique business model" "Diversification through global presence" "Dedicated cat writer" "Your specialised partner" 1) All lines of business except those stated separately 2) As voted in Flaspoehler survey brokers (in 2004, 2006, 2008, 2010) 6

9 Non-life reinsurance divisions Very well diversified portfolio GWP split by divisions Regional split Global facultative 10% Global cat XL 5% North America 13% Latin America 10% Africa 4% Australia 3% North America 22% Global treaty 20% Global R/I Target markets Germany 14% Asia 12% Marine 3% Aviation 6% UK, London market & direct 9% Specialty lines Credit, surety & pol. risks 9% Structured R/I & ILS 11% Other European countries 23% 2011 gross written premium: EUR 6,826 m. (2010: EUR 6,339 m.) Germany 12% Great Britain 14% 7

10 Introduction Target markets Specialty lines Global R/I Conclusion North America Business Promising trend in our target markets division GWP split by non-life divisions 2011: EUR 6,826 m Global facultative 10% Global cat XL 5% North America 13% Global treaty 20% Global R/I Target markets Germany 14% Marine 3% Aviation 6% Specialty lines UK, London market & direct 9% Structured R/I & ILS 11% Credit, surety & political risks 9% Cycle management: the 2004 North America share was 20% 8

11 Introduction Target markets Specialty lines Global R/I Conclusion North America Business Primary insurance market moving in the right direction Trend for (composite) commercial line rate changes has been positive for the past quarters (in autumn 2012 increases on increases are taking place) 2011 high industry combined ratio served as catalyst to push rate increases Price increases were initially led by workers compensation & commercial property, but have meanwhile gained momentum on all lines of business Price increases were observed across all account sizes for standard commercial lines with the largest increase observed in mid-market accounts Not only the high combined ratios but also gradually recovering economy are the main reasons for the improving market trends 9

12 Introduction Target markets Specialty lines Global R/I Conclusion North America Business Industry analysts see promising turn-around Commercial lines rate changes in % 20% 10% 0% 2% 5% -10% -20% Q3/2003 Q4/2003 Q1/2004 Q2/2004 Q3/2004 Q4/2004 Q1/2005 Q2/2005 Q3/2005 Q4/2005 Q1/2006 Q2/2006 Q3/2006 Q4/2006 Q1/2007 Q2/2007 Q3/2007 Q4/2007 Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009 Q3/2009 Q4/2009 Q1/2010 Q2/2010 Q3/2010 Q4/2010 Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012 CIAB: Council of Insurance Agents and Brokers Advisen ADVx MarketScout CLIPS: Commercial Lines Insurance Pricing Survey 10

13 Introduction Target markets Specialty lines Global R/I Conclusion North America Business Further indications of the positive trend Even without hurricane losses during the first half of 2012, there was a large number of NatCat events that kept rates on the primary- and re-insurance property markets at high levels The expected change of trend on the liability market is finally taking place but is highly differentiated on the primary insurance market Main drivers are constantly lower investment results, reduced gains from prior year reserve releases and thus single digit RoEs 11

14 Introduction Target markets Specialty lines Global R/I Conclusion North America Business The Hannover Re perspective US casualty total inforce premium development in m. USD 947 1,029 1, Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Hardening market: +140% Transition years: -30% Softening market: -18% Inforce premium as at 1 January U/Y perspective! 12

15 Introduction Target markets Specialty lines Global R/I Conclusion North America Business The reinsurance perspective The US non-life insurance market seems to be slowly hardening and will continue to maintain this gradual momentum, barring the occurrence of any catastrophes (we noticed a shift of business from the admitted to the surplus lines market) Although there is no firm hardening in the reinsurance market yet, the reinsurance market is technically oriented and unwilling to compromise on technical prices Selected, individual opportunities are presenting themselves offering the chance to grow Strong brand awareness and efficient CRM further important drivers of growth 13

16 Agency business One of our ways to develop profitable opportunities GWP split by non-life divisions 2011 : EUR 6,826 m. Global facultative 10% Global cat XL 5% North America 13% Global treaty 20% Global R/I Target markets Germany 14% Marine 3% Aviation 6% Specialty lines UK, London market & direct 9% Structured R/I & ILS 11% Credit, surety & political risks 9% 14

17 Agency business Gaining access to profitable niche business Based on our strategy we underwrite direct insurance in selected markets in addition to our core reinsurance business Emphasis lies on underwriting profitable business which we cannot access as reinsurer On the one hand this refers to large risks that are underwritten on a co-insurance basis similar to our facultative reinsurance business. By using our primary insurance companies we can be independent of the proportion of facultative risks our reinsurance customers are willing to cede On the other hand we conduct business via agents. In general, this would be niche business such as mining or medical liability Especially in our non-life segment we expect our direct insurance business to grow faster than our core reinsurance business 15

18 Agency business Characteristics of our direct insurance activities In general, we select partners who can conduct the main tasks of the direct insurance administration themselves i.e. issuing policies, claims handling or sales Partners are direct insurance companies or in the case of co-insurance, agents or brokers We underwrite exclusively to retain the business net within the Hannover Re group (contrary to fee-income-model) 16

19 Agency business Gross written premium development Gross written premium* FY in m. EUR * Agency business of Hannover Re's primary carriers 17

20 Agency Business Inter Hannover: actively driving profitable growth Inter Hannover is mandated to enable Hannover Re to access selected direct markets with the business sustainable only via direct insurance licenses Especially in agency business, a trustful business-relationship between agents and Inter Hannover is emphasized to ensure alignment of interest Partners are existing agencies as well as start-ups and insurance companies that are in transition to an MGA Mainly niche business is written Providing an access to large single risk business particularly London market 2012 strategy updated to maintain growth and profitability Further development of lineslip and binder business Improving access to specialty lines 18

21 Facultative business, agricultural business and ReTakaful Examples from our global reinsurance division GWP split by non-life divisions 2011: EUR 6,826 m. Global facultative 10% Global cat XL 5% North America 13% Global treaty 20% Global R/I Target markets Germany 14% Marine 3% Aviation 6% Specialty lines UK, London market & direct 9% Credit, surety & political risks 9% Structured R/I & ILS 11% 19

22 Facultative business Double digit five year CAGR Gross written premium FY in m. EUR

23 Facultative business Well diversified by line of business and region Facultative split by lob Facultative split by region Motor 7% Personal Accident 3% Other fin. losses 2% Other Property 0% Others 16% Engineering 8% Liability 36% Australasia 12% United Kingdom 32% Marine 10% Fire Property 34% North America 19% Europe (ex UK) 21% 2011 gross written premium: EUR 683 m. 21

24 Facultative business Global expert knowledge ensures sustainable competitive advantage CAGR of 14% over the past 5 years Positive technical results of EUR 52 m. on average in the last ten years Low costs with max. 7.5 % on gross premium (ca. 5% during hard market and ca. 10% during soft market, market average between 12% and 15%) Further growth for 2013 expected in the low double digit percentage range 120 experienced underwriters worldwide and 6 centres of competence i.e. one of the leaders in IDI (inherent defect insurance) and one of the leaders in sports & entertainment reinsurance Organic growth is taking place in Asia / CIS and for engineering single risk business in Europe Special expertise & presence worldwide i.e. leading R/I for the mining industry 22

25 Agricultural business Increasing our share in the growing market in China Market premium development FY in bn. RMB Agricultural insurance under public private partnership 17,4 Constantly growing market 11,1 13,4 13,6 Hannover Re market share is currently below average Our market share will be increased by development of new products 5,3 0,4 1,3 2,0 2, Premium R/I premium Sources: Introduction to Agricultural Insurance in China, April 2012, Aon Benfield; China Statistical Yearbook ; China Insurance Regulatory Commission 2,6 provision of high quality service to Hannover Re customers AIR MPCI model launched for China which will drive awareness for NatCat risks throughout the agricultural insurance market 23

26 Agricultural business Over-proportional growth due to high market presence Turkey market premium FY in m. TL Brazil market premium FY in m. BRL Premium RI Premium Sources: Turkish Agriculture Insurance Pool (TARSIM); Ses-Susep, Our agricultural insurance market share in these countries is significant 24

27 Hannover ReTakaful Low insurance penetration and demographic factors are fuelling growth In Islamic jurisprudence, Sharia has certain points that oppose the deployment of conventional insurance Several cultural and religious barriers were lifted with the introduction of a Shariacompliant alternative: takaful and by extension: retakaful Key takaful markets: Middle East and South East Asia (specifically Malaysia, Indonesia and Brunei). Relatively young population at the beginning of work lives with increased awareness of risk and the benefits of insurance Saudi Arabia is key Sharia-compliant market (a third of world takaful volumes) Between 2011 and 2014 it is planned to spend about USD 400 bn., the largest proportion of which on infrastructure development The Arab Spring brought more Islamic-leaning cabinets in Tunisia and Egypt. This change is likely to enable further promotion and development of Islamic finance 25

28 Hannover ReTakaful Increasing our market share in an environment of solid market growth Market premium FY in m. USD 1,945 1,662 1,428 1, Source: Ernst & Young The World Takaful report

29 Hannover ReTakaful Pooling: a unique business model During August 2009, the Sharia supervisory board of Hannover ReTakaful gave its approval to the pooling system of Hannover ReTakaful Hannover ReTakaful maintains four separate sub-pools namely Proportional Treaty, Non-proportional Treaty, Facultative and Family/Health Retakaful Hannover ReTakaful charges certain level of wakalah fee for managing and a mudarabaha fee for investing the retakaful pools assets. These fees are agreed with the Sharia advisory board at regular intervals Surplus of the pools may be distributed to participants of retakaful pools, after consideration of previous deficits (if any) and all appropriate provisions and reserves Investment return is credited to the pools for invested assets Hannover ReTakaful will support the pool financially through Qard Hassan (interest free loan), should the combined pool result in a deficit 27

30 Conclusion Strategically well positioned to meet a dynamic market environment Hannover Re has continuously grown above market average as a result of selective underwriting Hannover Re is strategically very well positioned, particularly with regard to Critical resources (actuaries, doctors, engineers) Maintaining substantial expert knowledge for facultative underwriting Opportunities arising out of emerging markets (CRM approach) Utilising a unique franchise model in the Sharia-compliant market 28

31 Conclusion (cont'd) Strategically well positioned to meet a dynamic market environment Hannover Re has introduced a new growth target 2011 Target matrix 2012 Target matrix Non-life key figures 2011 Strategic targets Non-life key figures 2012 Strategic targets Combined ratio <100% 1) Net major loss expectancy 2) (in m. EUR) 530 EBIT margin 3) 10% IVC margin 4) 2% Gross-premium growth 5) 3% - 5% Combined ratio 6) 98% EBIT margin 3) 10% xroca 7) 2% 1) Max. tolerable combined ratio = net premium earned + [(invested non-life assets x sustainable yield) - pre-tax cost of capital] 2) Incl. expected net NatCat loss and 2.5% long-term average of man-made losses 3) EBIT / Net premium earned 4) IVC / Net premium earned 5) In average throughout the cycle 6) Incl. expected net major losses of EUR 560 m 7) Excess return on the allocated economic capital. 29

32 Disclaimer This presentation does not address the investment objectives or financial situation of any particular person or legal entity. Investors should seek independent professional advice and perform their own analysis regarding the appropriateness of investing in any of our securities. While Hannover Re has endeavoured to include in this presentation information it believes to be reliable, complete and up-to-date, the company does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such information. Some of the statements in this presentation may be forward-looking statements or statements of future expectations based on currently available information. Such statements naturally are subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. This presentation serves information purposes only and does not constitute or form part of an offer or solicitation to acquire, subscribe to or dispose of, any of the securities of Hannover Re. Hannover Rückversicherung AG. All rights reserved. Hannover Re is the registered service mark of Hannover Rückversicherung AG.