2006 Worldwide Overview. The international reinsurance market

Transcription

1 2006 Worldwide Overview The international reinsurance market

2 2005 Premium volumes Premium in bn USD Insurance Reinsurance Source: Insurance Sigma 5/2006 update December 2006; Reinsurance: IAIS Global Reinsurance Market Report 2005, November 2006 Gross premiums 2 Source SCOR

3 Geographical insurance premium split 2005 Life : bn USD Non Life : bn USD in bn USD North America Western Europe * 797 * 489 Japan Rest of Asia Oceania Latin America Eastern Europe Africa * France Source: Sigma 5/2006 update December Source SCOR

4 Premium volumes 2005 Insurance USD bn Reinsurance USD 173 bn 42% 58% 73% 27% Life Non-Life Source: Sigma 5/2006 update December 2006 Reinsurance: IAIS Global Reinsurance Market Report 2005, November Source SCOR

5 Cession rates % of ceded premium / total premium Non Life 9% Life 2% Life is less cyclical & part of the life premium is saving. Total 5% Source: IAIS Global Reinsurance Market Report 2005, November Source SCOR

6 Geographical split of reinsurance premiums Gross Premiums ceded Gross reinsurance premiums accepted 6% 3% 1% 0% 34% 57% 46% 53% North America Europe Asia Rest of the world Source: International Association of Insurance Supervisors, Global Reinsurance Market Report 2005, November Source SCOR

7 Global Reinsurance Market (Estimates in bn USD) The premium volume doubled since ~ x Source: Figures are estimates of SCOR Strategic Marketing based on S&P Global Reinsurance Highlights, Annual Reports of the Reinsurers, and IAIS data 7 Source SCOR

8 1-Swiss Re* pro forma 2-Munich Re Swiss Re* 3-BH/GenRe 4-Hannover 5-SCOR + Converium 5-SCOR** 6-RGA 7-Everest Re 8-PartnerRe 9-Transatlantic Re 10-XL Re*** 11-Odyssey Re 12-Transamerica 13-Converium 14-Scottish Re 15-ACE Tempest Re*** Top 15 Reinsurers 2006 (based on NPW 2006) 6,7 4,9 4,3 3,9 3,7 3,6 3,0 2,2 2,0 1,8 1,8 1,8 NPW in bn USD 9,4 11,1 Does not include Reinsurers with closing date after December 31st (eg Korean Re and Japanese reinsurers) * Swiss Re 2006 realized incl. GE as of June 2006, pro forma (ie incl GE on full 12 months basis) is 2005 data shown by Swiss Re in Monte Carlo 2006 ** SCOR pro forma, ie incl. Revios on full 12 months basis *** Premium is the one shown in Group accounts under Reinsurance + Life 23,9 25,4 27,9 Source: SCOR Strategic Marketing based on Reinsurers Annual reports 8 Source SCOR

9 Life Reinsurers 2006 with GPW > $ 0.5 bn (based on GPW 2006) GPW in bn USD 1-Swiss Re 10,38 2-Munich Re 9,12 3-RGA 4,74 4-Hannover SCOR + Converium 5-SCOR 6-GenRe 7-Transamerica 8-Scottish Re 3,69 3,35 3,04 2,37 1,98 1,84 9-Manulife Re 10-XL Life 11-Partner Re 0,80 0,60 0,51 Source: SCOR Strategic Marketing based on Reinsurers Annual reports, 9 Source SCOR

10 Life Market Concentration 2006 Other 19% Market share Top % Top 3 51% Top % The life reinsurance market is is a very concentrated market, with the Top 3 reinsurers representing half of the market. Source: SCOR Strategic Marketing based on Reinsurers Annual reports 10 Source SCOR

11 Non-Life Reinsurers 2006 with NPW > $ 1.5 bn 1-Munich Re* 2-Swiss Re** 3-Berkshire*** 4-Hannover Re SCOR + Converium 5-TRC 6-Partner Re 7-Everest Re**** 8-XL Re 9-SCOR 10-Odyssey Re**** 11-ACE Tempest Re 12-Converium 13-Renaissance Re GPW in bn USD Axis Re Based on data avalable as of April 17th 2007, ie excl.companies with closing date after December 31st *After elimination of IntraGroup transactions across segments, reinsurance only **GE included as of June 2006 ***GenRe NPW, BHRG NPE **** excl.us Insurance Source: SCOR Strategic Marketing based on Reinsurers Annual reports Source SCOR

12 Non-Life Market Concentration 2006 Market share Top 3 34% Other 46% Top % Top 4-5 9% The Non-Life market is less concentrated than the life reinsurance market. Nonetheless the Top 3 reinsurers represent one third of the market. Source: SCOR Strategic Marketing based on Reinsurers Annual reports 12 Source SCOR

13 Top 10 reinsurers 1980 and 2006 NPW in bn USD Worldwide market Estimates bn USD bn USD bn USD bn USD 1-Munich Re Munich Re Munich Re Munich Re Swiss Re Swiss Re Swiss Re Sw iss Re Gerling Employers Re General & Col Re Berkshire Hathaw ay General Re General Re Employers Re Hannover Re Cologne Re 573 X 10,5 5-Cologne Re X 5,5 5-Generali X 6,7 5-SCOR X 8,9 6-M&G Hannover Hannover RGA Scor Scor Gerling Everest Re Frankona Generali Zurich Partner Re Hannover Re Gerling Scor Transatlantic American Re M & G M&G XL Re Source SCOR

14 Reinsurers results In % of premiums 100% 84% 29% 23% 8% 2% 6% Net earned premiums Losses Acquisition costs Investment income Result Other income / expenses Net income Source: IAIS, Global Reinsurance Market Report 2005, November Source SCOR

15 Net Combined Ratio of Global Non Life Reinsurance (%) % Source: S&P Global Reinsurance Hiighlights 15 Source SCOR

16 ROE selected reinsurers Munich Re Swiss Re Hannover Re SCOR RGA Everest Re Partner Re Transatlantic XL Odyssey Re Converium Renaissance Re Scottish Re -32% -16% -11% -6% -7% -2% 12% 14% 7% 16% 2% 19% 9% 17% 9% 11% 1% 18% 22% 16% 19% 4% 3% 12% 28% 0, Source: Reactions, SCOR Strategic Marketing 16 Source SCOR

17 Catastrophe losses Insured loss in bn USD (indexed to 2006) '05 natural man-made Source: Sigma 2/ Source SCOR

18 Evolution insured cat losses Evolution insured loss by decade since 1950 in bn USD Economic losses Insured losses Source: Munich Re TOPICSgeo Source SCOR

19 Insured Property Catastrophe Losses as % Net Premiums Earned, E 16% 14% 12% US Worldwide US average: US CAT losses were a record 13.8% of net premiums earned in 2005 and were 4.2 times the average of 3.3% 10% 8% 6% 4% 2% 0% *Insurance Information Institute figure of 13.8% for 2005 based estimated 2005 DPE of $417.7B and insured CAT losses of $57.7B. Source: Insurance Information Institute E 19 Source SCOR

20 Reinsurers share in cat losses France 1999 US 41% 57% 45% 20% 60% 25% 30% Lothar Martin Sept.11 Hurricanes* 2001 Andrew 1992 Hugo 1989 * Excluding losses paid by Florida Hurricane Cat Fund $ 3.9bn in 2004 and $ 4.5bn in 2005 Reinsurers participation in Martin higher than in Lothar as many insurers had to carry a second retention as losses exceeded amount of reinsurance bought. Source: Lothar & Martin: Benfield étude tempête 2003; Katrina: Insurance Information Institute, April Source SCOR

21 Natural events losses > 400 $ Mio insured in the world in 2006 Date Evénement Estimated cost $ million Economic Insured March Tornadoes (Midwest-USA) 920 March Tropical hurricane (Australia) April Tornadoes, hail (USA) 500 April Tornadoes (USA) 1,100 April Tornadoes, Storms (USA) 720 December Storms (USA) ,170 Total Nat Cat (estimation Munich Re)($ million) 2001: Source SCOR 41,455 15, : 65,145 13, : 62,776 15, : 120,222 41, : 201,356 89, : 4,170 21

22 Large man made insured losses 2006 January Brazil steelworks (fire) $ 350 m February Launch failure Arabsat (Space) $ 180 m February UK: Ramsburg Manor Art Theft (Burglary) ~ $ 150 m March Yemen: Hyundai Fire on container ship(marine) $ 370 m April US: Texas Explosion at chemical plant (fire) $ 420 m April Italy: Fire at oil refinery $ 157 m May In orbit failure Astra 1KR (space) $ 220 m June Germany: Fire at steel plant ~ $ 350 m June Germany: Fire at meat processing plant ~ $ 170 m August Lexington: Aviation (Comair) $ 216 m Source: SCOR research 22

23 2006 Losses «grands risques» > 150 Mio $ Losses estimated in $ Mio As a reminder : Total estimated ,162 Total estimated ,752 Total estimated ,167 Total estimated ,563 Total estimated ,421 Source SCOR 23

24 Risk environment Rating agencies Financial Analysts Legislation Insureds Insurers Reinsurer Financial authorities Alternative products Brokers Competitors New entrants Source: SCOR Strategic Marketing 24

25 Risk environment Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer Brokers Competitors New entrants Legislation Financial authorities Alternative products Increased hurricane activity New risks (terrorism, toxic mold, software attacks) Changes in jurisdiction and increased legal costs 25 Source SCOR

26 Risk environment: increased hurricane activity 66,3 12 largest insured losses* 32,5 23,0 19,0 13,7 13,0 10,4 8,6 8,4 7,4 7,2 7,0 Katrina 2005 Sept Andrew 1992 Northridge 1994 Ivan 2004 Wilma 2005 Rita 2005 Charley 2004 Mireille 1991 Hugo 1989 Daria 1990 Lothar 1999 => 5 of the 12 largest insured losses incurred in 2004 and 2005 => 9 of the 12 largest Cat losses affected the US => Only 1 of the 12 largest cat events is a man made loss * indexed to 2006 costs Source: III, Swiss Re, 26

27 Risk environment: terrorism WTC Insured Loss $ 35.6bn* Aviation Liability ($ 3.85) 11% Other Liability ($ 4.4) 12% Life ($ 1.1) 3% Property WTC 1&2 ($ 3.96) 11% Property Other ($ 6.6) 19% Event Cancellation ($ 1.1) 3% Aviation Hull ($ 0.55) 2% Workers Comp ($ 1.98) 6% Biz Interruption ($ 12.1) 33% Approximately 60% of the insured losses were paid by reinsurers. *indexed to 2005 price level; estimated September 11 industry loss at 2001 price level is $ 32.5bn Source: Insurance Information Institute, September

28 Risk environment: terrorism 778 Large CNBR Terrorist Attack Insured Loss Estimates (in bn USD) New York Washington San Francisco Des Moines Insured Loss Scenarios by far exceed previous largest losses. Source: Insurance Information Institute, May

29 Risk environment: malicious software attacks ( ) Worldwide Financial Impact (bn USD) 17,1 17,5 13,0 13,2 11,1 13,0 14,2 x 30 6,1 0,5 1,8 3, '00 '01 '02 '03 '04 '05 Source: Insurance Information Institute, Malware Report, Computer Economics 29

30 Risk environment: changes in jurisdiction, ex. US jury awards Average Jury award ('000 USD) x '00 '01 '02 '03 '04 Source: Insurance Information Institute April 2007, Current Award Trends, Jury Verdict Research 30

31 Insureds Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer Brokers Competitors Legislation Financial authorities Alternative products New entrants Mergers of large companies to ever bigger conglomerates Auto-insurance via captives Large entities try to develop their own solutions to avoid rate increases New needs: less material loss covers, more contingency loss covers 31 Source SCOR

32 Insurers Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Concentration 5-6 large insurers can absorb and manage a large insurance program Achieve less volatile portfolio => reduce cessions to reinsurers Increase retentions Centralisation of reinsurance purchase Shareholder and financial markets pressure Select reinsurers depending on financial security / rating 32

33 Brokers Risk environment Insureds Insurers Rating agencies Financial Analysts Brokers Reinsurer Competitors New entrants Legislation Financial authorities Alternative products Increased concentration Two largest Marsh and Aon Necessary for certain type of risks Provide technical expertise 33 Source SCOR

34 Brokers: Top 10 Reinsurance Brokers 2005 Top 10 Reinsurance brokers ranked by reinsurance gross revenues in m $ 1-Aon Re Guy Carpenter Benfield 4-Willis Jardine Lloyd Thompson 6-Towers Perrin Cooper Gay 8-BMS Group 9-Gallagher Re 10-John B.Collins Associates Source: Business Insurance, October

35 Competitors Risk environment Insureds Insurers Rating agencies Financial Analysts Financial Reinsurer authorities Alternative New products Brokers entrants Competitors Legislation Mergers and Acquisition => change of competitors size and influence Influence terms, conditions and rate (=> reinsurance cycle) Capacity 35 Source SCOR

36 Competitors: Mergers and acquisitions 1994 / / / / / / General Re Cologne Re Employers Re Frankona Re Aachener Re Munich Re American Re Swiss Re M&G Re Scor Allstate Re PartnerRe SAFR Berkshire Gen Re PartnerRe Winterthur Re Swiss Re Life Re Gerling Constitution Re Hannover Re Skandia Re Fairfax CTR XL Nac Re Folksamerica Re Risk Capital Re Scor PartnerRe Life Swiss Re Underwriters Re Swiss Re Lincoln Re Trenwick LaSalle Re Scor Sorema XL Capital Le Mans Re Globale Management GmbH Gerling Global Re VHV Gerling Life Re White Mountains Sirius No mergers in 2004 and 2005 but portfolio acquisitions, ex.: Scottish Re / ING US life business, Endurance / XL America Surety business Swiss Re GE Insurance Solutions Paris Re AXA Re SCOR Revios Argonaut Group PX Re SCOR Converium Legend Buyer Target Hannover Re Clarendon GE Frankona Eagle Star Re Source : SCOR Strategic Marketing 36

37 Competitors: Terms and conditions World ROL Index ROL = Rate on Line Source: Guy Carpenter: The World Cat Reinsurance Market

38 New entrants Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products 1986: ACE, XL 1993: Partner Re 2001: Arch, Axis, Endurance, Montpelier 2005: Ariel Re, Harbor Point, Flagstone Re, Lancashire, Validus 38 Source SCOR

39 New entrants: capital raising activity following major disasters (loss date until year end) in bn USD 80 50% Capital raise in % of loss % 20 0 WTC Capital raise K+R+W Capital raised* WTC K+R+W existing reinsurers new reinsurers 0% WTC K+R+W Capital raises do not replace funds lost due to the cat events. * Excluding loan agreements and capital injections by holding companies Source: SCOR Strategic Marketing 39

40 New entrants Sidecars Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Special purpose vehicles funded by institutional investors and hedge funds assume underwriting risks from a ceding (re)insurer Approx. $ 6.4bn raised within 15 months of KRW *Source: III, May 9th

41 New entrants Sidecars Sponsor (Re-Insurer) Eligible portfolio lines Quota Share retention Quota Share Cession Payment of losses Quota Share Premium Distributions Sidecar Special Purpose Reinsurer Participation in results Collateral Trust Cash contribution Capital Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Capital Market Investors Source: Lehman Bros, Benfield 41

42 New entrants Sidecars Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Advantages: Sponsor: capital management Investor: easy access to reinsurance market 42

43 New entrants Sidecars Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Examples: White Mountains Re / Olympus Arch Re / Flatiron : 45% QS of certain property and marine lines Harbor Point Re / Bay Point Re : 30% QS of certain shorttail lines Validus / Petrel Re : 75% QS of marine and energy risks XL / Cyrus : QS of certain property cat and retrocessional lines 43

44 Alternative products Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products To complete existing products Capital markets Reinsurers offer them too 44 Source SCOR

45 Alternative Products Annual Cat Bond Transaction Volume Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Source: Guy Carpenter: The Catastrophe Bond Market at Year-End

46 Alternative Products Cat Bonds Cat Bond Structure Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Source: Guy Carpenter: The Cat Bond Market at Year End

47 Major Cat Bonds 2006 (risks covered) Reinsurance environment Alternative Products Cat Bonds Swiss Re $ 950 m (North Atlantic hurricanes, European windstorm, Japan and California earthquake) Endurance $ 235m (US hurricanes and earthquakes) Swiss Re $ 160 m (Earthquake in Mexico) Hannover Re $ 150 m (European windstorm) Swiss Re $ 100 m (Australian hurricanes and earthquakes) Munich Re $ 85 m (US hurricanes) Scottish Re $ 155 m (mortality) Risk environment Insureds Insurers SCOR $ 157m (European storm and Japanese earthquake) Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Source : Company press releases 47

48 Alternative Products - ILW ILW Industry Loss Warranty Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Reinsurance contract in which payout depends on 2 triggers Insured loss to buyer Original insured industry loss Demand increased by 35% since Katrina Source : John B.Collins in Best s Review April

49 Alternative Products - ILW Advantages Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Easy to understand and to administer No underwriting information needed Source : John B.Collins in Best s Review April

50 Financial authorities Analyze alternative products Risk environment Rating agencies Financial Analysts Insureds Reinsurer Insurers New Brokers entrants Competitors Legislation Financial authorities Alternative products No longer hesitate to launch investigations Created a movement causing the departure of some well-known insurance personalities: (Hank Greenberg, AIG; James Stanard, Renaissance Re) Demand greater transparency Instaure new rules SOX IFRS Solvency II 50 Source SCOR

51 Financial authorities : new regulation Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer Brokers New entrants Competitors Legislation Financial authorities Alternative products SOX Raises standards for auditing, internal controls transparency and board oversight Applies to all companies listed on US exchanges In 2005 European parliament passed the 8th Company Law Directive, similar to SOX but less stringent Solvency II 51

52 Financial authorities : new regulation Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products IFRS EU standard to harmonize national accounting standards Applies to consolidated financial statements of listed companies Phase I implemented Phase II : 2007 project of directive, 2010 adoption? 52

53 Financial authorities : new regulation Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Solvency II Improve calculation of capital requirements as set out in Solvency I (based on volume only) to include Assessment of technical liabilities Risk management 53

54 Risk environment Insureds Insurers Rating agencies Financial Analysts Reinsurer New Brokers entrants Competitors Legislation Financial authorities Alternative products Legislation Liberalization of markets (example: China, Brazil) Introduction or increase of state backed reinsurance (Florida) 54 Source SCOR

55 Rating agencies Risk environment Insureds Insurers Rating agencies Financial Analysts Legislation Financial Reinsurer authorities Alternative Brokers New products entrants Competitors Increasing importance for selection of reinsurers 2006 renewals: security/rating ranked second after cost in importance as element of choice for reinsurer Many reinsurers downgraded since WTC Reinsurers without ratings specializing in collaterized reinsurance products (ex. Aeolus Re launched in July 2006 specializing in collaterized property cat coverage). Revised capital models affect exposure reinsurers can accept. 55 Source SCOR

56 Reinsurer downgrades since WTC S&P 2001 May 2007 evolution in notches AM Best 2001 May 2007 evolution in notches Munich Re AAA AA- -3 A++ A+ -1 Swiss Re AAA AA- -3 A++ A+ -1 BH/GCRe AAA AAA 0 A++ A++ 0 Hannover Re AA AA- -1 A+ A -1 SCOR AA- A- -3 A+ A- -2 RGA AA AA- -1 A+ A+ 0 Everest Re AA- AA- 0 A A+ 0 Partner Re AA AA- -1 A+ A+ 0 Transatlantic Re AA AA- -1 A++ A+ -1 XL Re AA AA- -2 A+ A+ 0 Converium A+ A- -2 A B++ -2 Source : Company press releases et websites 56

57 Rating evolution since September 2001: ex.s&p As at May 15th 2007 Top 15 reinsurers A+ AA- AA BB+ A- A+ AA+ AAA AA- AA AAA August 2001 May 2007 => In 2001 only one reinsurer was not in the AA or AAA category. In 2007 just a bit more than half of the reinsurers are rated AA- or better. Source: Strategic Marketing based on S&P ratings 57

58 As at May 15th 2007 Reinsurance environment Financial Strength of the Major Reinsurers Source: Ratings agencies and reinsurers websites 58

59 Rating agencies: rating scales Source: Ratings agencies websites 59