IMUA Outlook for the Property and Casualty Insurance Industry

Transcription

1 IMUA 2015 Outlook for the Property and Casualty Insurance Industry Bryon Ehrhart CEO Americas Chairman, Securities and Analytics Prepared by

2 U.S. Industry P&C Premium 600 $563B

3 Macro Premium Trends Premium to GDP Ratio 4.25% 4.00% 3.75% 3.50% Historical ratio of NPW to GDP provides a macro-level summary of the underwriting cycle of hard and soft markets 3.25% 3.00% 2.75% 2014: 2.8% 2.50% Sources: A.M. Best s Aggregates and Averages, IMF World Economic Outlook Database ( SNL Financial, Analytics, World Bank Databank ( US GDP based on revised July 31, 2014 methodology by US Bureau of Economic Analysis 3

4 Continuing Relevance Insured Risk Innovation Deficit 3.50% Calendar Year Incurred Loss % of GDP 3.25% 3.00% 2.75% y = 0. 05%x R 2 = Andrew 2.50% 2.25% 2008 Crisis 2.00% 1.75% y = %x R 2 = % Sources: A.M. Best s Aggregates and Averages, IMF World Economic Outlook Database ( SNL Financial, Analytics, World Bank Databank ( US GDP based on revised July 31, 2014 methodology by US Bureau of Economic Analysis 4

5 Macro Trends Property vs. Casualty 2.5% Calendar Year Incurred Loss % of GDP 2.0% -.03% per Year 1.5% 1.0% 0.5% Property Casualty 0.0% Sources: A.M. Best s Aggregates and Averages, IMF World Economic Outlook Database ( SNL Financial, Analytics, World Bank Databank ( US GDP based on revised July 31, 2014 methodology by US Bureau of Economic Analysis 5

6 Trends Impacting our Outlook for Insurers Auto Safety Declining Frequency Urbanization Increasing Aggregations Increasing Severity Asia Becomes Reinsurance Peak Low Interest Rates & Longevity Energy Independence Challenging Retirement Plan Math / Lower Cost Catastrophe Reinsurance Net Importer to Net Exporter Big Data Less Privacy / But Individualization Healthcare Costs Increasing Needs / Increasing Problems Catastrophic Corporate Liability Realization of Worst Corporate Liability Fears Private Infrastructure Governments Turn to Private Financing 6

7 Autonomous Cars 38% of U.S. P&C Premium Is Related to Automobile Insurance 7

8 Autonomous Cars Disruptive Consumer Legislation Regulation Courts Uncertainty Individual Liability to Product Liability 8

9 Urbanization Shanghai Pudong 1990 Shanghai Pudong

10 Urbanization 10

11 Urbanization 11

12 Urbanization 12

13 Urbanization - People on The Move 13

14 Managing Healthcare Costs Healthcare Costs are Rising 3 Average Cost per Employee for Large Companies ($k) $30k +166% $25k $20k $15k $10k +123% $28,530 $5k $0k $4, $10, Source: (3) Aon Hewitt, 2011 Health Care Survey: New Paths. New Approaches. 14

15 Insuring Rather than Retaining Healthcare Risks $350B Of New Individual Insurance Moving From Self Insured Plans Dearth of Insurers Ready to Join HIX Ecosystem Administers SIR Competitive Individual Pricing Manages Risk Has Capital and Earnings Risk Tolerance Buys Reinsurance Multivariate Underwriting Models Distinguished Results 15

16 Relevant Limits for Corporate Liability Catastrophes Risks are Bigger $575 Billion in Reinsurance Capital The Industry has structured more Relevant Limits 16

17 Relevant Cost - Capital Asset Pricing Model CAPM Company Cost of Capital = Risk Free Rate of Return + Company Share Price Beta X Equity Market Excess Return Over Risk Free Rate of Return 7% = 2% X 5% Relevant Insurance < 7% = Premium - Expected Losses = Margin / Capital Relief 17

18 Excess Equity Market Return 18

19 Low Interest Rate and Longevity Impact on the Reinsurance Market 19

20 quarters of 2014 with healthy retained earnings, below average catastrophe losses and unrealized investment gains offsetting continued capital redistribution. In addition, nontraditional capital continues to show growth, increasing by approximately 25 percent in the first 9 months of the year. Global Reinsurer Capital Exhibit 1: Change in global reinsurer capital 18% -3% 11% 7% 6% -17% 18% $410B $340B $400B $470B $455B $505B $540B $575B Q Source: Individual company reports, Analytics Another new normal? Historical context on market supply pricing activity, especially for U.S. severe weather. The past two years generated record high numbers of severe weather outbreaks, and insurers were braced for continued poor performance in property and homeowners lines. Since then, however, we have seen a regression to the 20

21 Alternative Capital Collateralized Reinsurance Collateralized ILW Sidecars Cat Bonds $64B

22 Alternative Capital Doubles Reinsurance Market Cat Capacity Alternative Capital has Doubled the Catastrophe Capacity of the Reinsurance Market 22

23 Continued Alternative Capital Growth $150 Billion $64 Billion

24 Pension & Other Investors v. Insurance Capital Pension & Other Investors Insurers & Reinsurers Pension Funds $32T Easy to fully collateralize limits Rated and Leveraged Model Life Insurers $10T Sovereign Wealth Funds & Endow. $6.5T Insurance & Reins. Capital $4.2T Reinsurance Capital $.58T 24

25 New Underwriting Styles Emerging Underwriter Partnerships Fund Manager Start-ups?? 25

26 Insurer Capital How Has the Cost of Underwriting Capital Moved? Frequency / Severity Cost of Capital Next Cost of Capital Working Layer Reinsurance High Low 5-10% 0-2% Catastrophe Reinsurance Low High 3-6% 1-3% Debt High Low 4-8% 3-5% Surplus or Equity All All 12-16% 9-12% 26

27 Q&A Questions & Answers 问答 27