Swiss Re John R. Coomber Chief Executive Officer Agenda Introduction Swiss Re s four strategic priorities Natural catastrophes Conclusion Q&A Appendix Slide 2 1
Swiss Re at a glance Founded in 1863 and developed into one of the world s largest and globally active multi-line reinsurers Wholesale manager of capital and risk focused on reinsurance and related trading activities Strong financial position in the industry with AA rating Global leadership position with market share of 11% in property and casualty and 23% in life and health business Key statistics Premiums earned 2004: CHF 29.4bn Slide 3 Net income 2004: CHF 2.5bn Leading reinsurer with a truly global business Target matrix incl. 1H2005 results 13% RoE achieved while shareholders equity up strongly at 15% Split of total revenues 1H 2005 13% 41% 46% Avg target Business targets Key figures 1H 2005 2005/06 Property & Casualty Combined ratio 95.5% 96% Life & Health Return on operating revenues 9.5% 9% P&C BG L&H BG Financial Services Premium business, traditional: Combined ratio 94.9% 95% FS BG Fee business, excluding proprietary asset management Return on total revenues 12.5% 15% Asset management Return on investments 5.1% 5.3% Over the Group targets Key figures 1H 2005 cycle target Slide 4 Return on equity 13.0% 13% Earnings per share growth -6.2% 10% Due to the above normal large loss activity in nat cat, over the cycle targets are likely not to be met in 2005. 2
Agenda Introduction Swiss Re s four strategic priorities Natural catastrophes Conclusion Q&A Appendix Slide 5 Making strategy work Vision 2015 Swiss Re s view on the industry and consequences for Swiss Re in the next ten years Four strategic priorities I Actively manage the cycle for profits II Optimise organic and transactional growth III Extend leadership position in Asia IV Accelerate the balance sheet through risk securitisation Organisational alignment Products Corporate Centre Client Markets Financial Services Superior financial strength, risk management, people skills, product knowledge, client relationship Slide 6 3
Easy money; lazy underwriting 120% 110% 100% 90% US P&C combined ratio (CR) Average CR: 99.5% 10 yr US Gov Bond 16% Average CR: 108.3% 14% 12% 10% 8% 6% 4% 2% 80% 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 0% US P&C CR (left scale) Line 4 10 yr US Gov Bond yield (right scale) Slide 7 In a low interest rate environment combined ratios have to average below 100% Sources: A.M. Best, RAA, Swiss Re Economic Research & Consulting Active cycle management Swiss Re directs capital to attractive non-life opportunities Each line of business and geography show its own cycle and pattern Technical profitability Illustrative Nat cat Property Liability Special lines Industry sectors USA Europe Asia Slide 8 Time 4
Swiss Re s way to tackle non-life cycles Geographic split* 13% 35% 52% North America Europe Rest of world Product split* 37% 24% 20% 19% Property Casualty Other Life & Health Slide 9 *Gross premiums written Being optimally diversified to benefit from different product and geographic cycles allocate capital where business (life vs non-life) generates best returns for shareholders Having tools in place to measure real time pricing adequacy and steer capacity quickly to most attractive lines of business Being financially very strong to benefit from attractive business opportunities (e.g. size of programmes, layers to choose, Admin Re SM ) and to be able to underwrite business post-event Having a stable life business to mitigate volatility of non-life earnings L&H BG 1999 2000 2001 2002 2003 2004 1H 05 Return on op. revenues 9.3% 9.2% 9.5% 9.1% 8.7% 9.1% 9.5% Active cycle management Non-life underwriting quality substantially improved Over proportional growth in times of strong rate increases Volume decrease since 2004 to maintain rate adequacy at very attractive levels Even better picture if impacts from stricter terms and conditions taken into account Treaty years 2002 onwards developing favourably Slide 10 Swiss Re premium growth 1) and rate adequacy indexed 180 160 140 120 100 100 121 107 137 122 144 136 Superior business quality will positively impact results going forward 171 134 166 137 2000 2001 2002 2003 2004 2005 Premium growth total 1) P&C and FS premiums earned at constant fx 2) 1H 2005 figures annualised Rate adequacy index 2) 5
Risk is a growth business Reinsurance outpaced insurance and GDP growth Annual growth 1990-2004; nominal values 450 400 Swiss Re. Life reins. CAGR 91-04 11.3% 11.1% 350 300 250 200 150 Non-life reins. Life ins. Non-life ins. GDP 6.3% 6.3% 5.8% 4.8% 100 1990 1992 1994 1996 1998 2000 2002 2004 World RI-premium volume 2004: life: USD 33bn; non-life: USD 140bn Slide 11 * Source: Swiss Re, Economic Research and Consulting: estimated Asia as a growth market Slide 12 Step change in demand function. When GDP per capita gets close to USD 10 000, insurance penetration rises to a level above 4% with a steep slope We have a strong Asia-wide network: 8 branches and 3 representative offices Premiums per GDP, life and non-life, 2003 12% 10% 8% 6% 4% 2% 0% India China Malaysia Spain United States Germany 0.1 1 10 100 GDP per capita, 1 000 USD, 2003 Source: Swiss Re Economic Research & Consulting 6
Insurance and economic developments are linked Young population Emergence of a middle-income class Increasing home/car ownership Economic development / increasing income Ageing population New start-ups Large conglomerates United States FDI/capital outflow Reform of old (stateowned) companies Increasing role of services Singapore Slide 13 Rapid industrialisation China FDI/capital inflow Vietnam Focus on commercial lines Brazil Poland Motor/property takes off Protection of start-ups Corporate (re)insurance Growth of personal lines Credit & Surety Increasing liability business Savings products Protection products Wealth management (with capital guarantee) Insurance market development / increasing penetration Accelerate the balance sheet Business model and benefits In the Queensgate transaction in January 2005, Swiss Re sold expected future life profits (PVFP) of USD 153m to the capital market and received USD 210m in cash Ambition: «Accelerate the balance sheet» Portfolios Buy Reinsurance Swiss Re BS Risk Solvency Basis risk Margin Risks Capital Capital requirements Capital markets Slide 14 Manage the cash flow Transform Sell Intangibles Volatility RoE Growth (other transactions) 7
Align organisation to strategy Assurance Governance, Compliance, Risk management Strategy Cycle mgmt Growth Accelerate the balance sheet Asia Enablers Slide 15 IT HR Finance Agenda Introduction Swiss Re s four strategic priorities Natural catastrophes Conclusion Q&A Appendix Slide 16 8
Rising weather related natural catastrophe loss trends Weather related* nat cat insured losses 1970 2004 (property and business interruption) USD bn, at 2004 prices 40 35 30 25 20 15 ø USD 16.7bn 10 5 ø USD 2.3bn ø USD 4.7bn Slide 17 0 1970 1975 1980 1985 1990 1995 2000 2004 Source: Swiss Re sigma Catastrophe database * Incl. floods, storms, droughts, forest fires, cold waves & frost, Long-term average hail, and other Growing values in exposed areas are a major driver of higher losses Ocean Drive, FL, 1926. Ocean Drive, FL, 2000. Slide 18 The number of Floridians increased by 70% from 1980 to 2001, while state GDP soared by 130% Calculated loss amounts for 'more active' periods are noticeably higher than for 'less active' periods 9
Severe weather events increased from 1970-2004 Weather related* nat cat events 1970 2004 140 120 ø 114 100 80 60 ø 55 40 20 ø 29 0 1970 1972 1974 1976 1978 1981 1983 1985 1987 1989 1990 1992 1994 1996 1998 2000 2002 2004 Slide 19 Source: Swiss Re sigma Catastrophe database * Incl. floods, storms, droughts, forest fires, cold waves & frost, hail, and other Global frequency of events will impact reinsurance rates Countries affected by floods Countries affected by storms Slide 20 6 of the 20 costliest nat cat events ever occurred in 2004: Hurricanes Ivan, Charley, Frances, Jeanne Seaquake/Tsunamis Indian Ocean Typhoon Songda Major events in 2005: Hurricanes Katrina, Dennis European Storms Erwin, Gero Floods across Europe Typhoons Nabi, Talim, Matsa, Haitang 10
Swiss Re s approach to natural catastrophe risk Event management is an important part of Swiss Re s value proposition 30 years ago, Swiss Re created the Cat Perils team to develop models for pricing and controlling of risk accumulation (proprietary know-how) Natural catastrophes do not correlate with other risk classes (except in extreme tail events ) and add to risk diversification Experience has been successful with positive economic outcome within expected tolerances Peak risk can now be securitised directly to capital markets benefiting real business economics Slide 21 Strong diversified balance sheet ensures Swiss Re s capability to benefit from post event shortages in capacity Agenda Introduction Swiss Re s four strategic priorities Natural catastrophes Conclusion Q&A Appendix Slide 22 11
Conclusion Nat cat events, mortality and other insurance risks not correlated with financial markets, Swiss Re - as a pure reinsurer provides diversification to investors Business sector has a long track record of GDP+ growth; Asia creates new momentum Swiss Re focuses on delivering above average returns through cycle management Current business model is today being improved by securitising risk to capital markets, thereby reducing regulatory capital requirements raises return on equity and reduces volatility Slide 23 Q & A Slide 24 12
Appendix Slide 25 Swiss Re s history Slide 26 1863 Foundation of the company 1864 Business relations in 7 countries (Germany, Italy, France, Austria, England, Belgium and Russia) 1906 San Francisco Earthquake, Swiss Re establishes its reputation 1910 First branch office (New York) 1950 1956 Opening of offices in South Africa, Canada, Australia, Hong Kong 1968 1976 Creation of several advisory and service companies in Asia and South America 1985 Strategy to diversify 1994 Refocus on core business - selling majority shares in several insurance companies from 1995 Development of financial services offerings, including securitisation of insurance risks 1996 2001 Strengthening of life and health business through several acquisitions 2003 2004 Strengthening market position in Asia 13
Scenarios 2015: Growth Insurance industry Retail and wholesale risk transfer markets continue to show growth above GDP, say 6% pa nominal World insurance to grow from 8% to 9% of GDP Accelerated process of industry consolidation/business exits Emerging markets grow from 12% to 17% of world cessions The future for services and products will not be a straight line projection of today Sustainability will become a main stream concept Consequences for Swiss Re Business focus continues to be on wholesale financial services Grow market share 1% over the cycle (peak to peak) Swiss Re achieved 1.8% growth over the last cycle Active corporate development policy adding to revenue growth Swiss Re establishes market share above its global average Swiss Re to be a leader in developing new risk solutions (e.g. emissions trading, wind farms underwriting etc) Slide 27 Target over cycle: 10% EPS growth Scenarios 2015: Margin Insurance industry Continuation of business cycles Low investment return environment Securitisation of insurance risk increasingly established. Annual issuances reaching 5% of worldwide insurance premium (0.1% in 2003) Consequences for Swiss Re Active management of capacity and capital allocated to cyclical business Underwriting quality is key to profitability Outperformance of risk free benchmarks supports RoE Securitisation used to risk manage/yield enhance 30% of Swiss Re revenues Earnings origination from trading and increased fee income Target over cycle: 13% RoE Slide 28 14
Scenarios 2015: Enabling strategy Insurance industry Distribution channels for reinsurance continue to be a mix of direct and broker as today Advances in data collection and management systems Industry cost structure improves Regulation will continue to converge towards a global best practice with a move to economic methodologies Scarcity of high quality underwriting and financial talent Consequences for Swiss Re Swiss Re to develop multi-channel access to risk Continue to strengthen direct client franchise, e-solutions and broker relations Fingertip information systems, supported by global low-cost admin systems Swiss Re to be a leader in promoting transparent and well-informed dialogue with regulators. Continuous monitoring of the way the regulatory agenda is moving Create mobile highly skilled teams and attract the best talent Slide 29 ILS transaction history: Catastrophic events (nat cat and mortality) Investors' day 15.09.2005 Slide 30 Swiss Re has the clear leadership position in the insurance-linked security (ILS) sector USD millions 714m Parametric SR Earthquake Res Re 1997 PIONEER B Oak Capital PIONEER E Sakura PIONEER C 2 132m Formosa Sequoia Capital PIONEER A Vita II 1,122m PIONEER F Redwood IV 1 143m Oak Capital Seismic 967m 990m Redwood III Gi Capital SR Wind A1 PIONEER B 825m Prime PIONEER D PIONEER E Hurricane Western Palm Capital Redwood V Avalon Re 724m Fujiyama Namazu Res Re 2000 Redwood I PIONEER C Res Re 2003 Redwood VI Pacific Re Concentric Sequoia Capital Trinity 99 Redwood II Arbor II Domestic NeHi Res Re 2001 Arbor I Foundation Re A Alpha Wind Cascadia Ltd Juno Re SR Wind A2 Studio Re Phoenix Quake Med Re Wind II Foundation Re B Res Re Res Re 1999 Golden Eagle Helix04 Prime Cal Quake PIONEER D Phoenix Quake KAMP Re Eurowind Atlas Re II PIONEER A Golden Eagle Res Re 04 Res Re 2002 Res Re 05 Trinity Re Atlas Re Trinom Phoenix Quake Halyard Re Mosaic Re PIONEER F Mosaic Re II St Agatha Wind Arbor I Arbor I 1998 1999 2000 2001 2002 2003 2004 2005 Transformed by Swiss Re and/or underwritten by Swiss Re Capital Markets (lead or co-lead) Sponsored by Swiss Re and underwritten through Swiss Re Capital Markets (sole) Vita Pylon B Pylon A 1 478m 15
World-wide ILS outstanding: Life and catastrophic events 18 000 USD millions 16 000 15 363 14 000 12 000 10 850 12 781 10 000 12 145 8 000 7 178 6 408 9 724 6 000 5 857 Investors' day 15.09.2005 Slide 31 4 000 2 000 0 3 080 5 408 3 552 2 166 1 921 1 648 4 442 879 319 951 2 795 3 057 3 219 879 1 330 1 216 1 632 1 771 1997 1998 1999 2000 2001 2002 2003 2004 2005 Issued Outstanding Strategic priorities to be addressed by the new organisation Cycle management Growth Asia Accelerate the balance sheet Products (S. Lippe) Optimise capital allocation based on uniform pricing Build engine for product development Attract and build best talent in the industry Client Markets (M. Liès) Link client segmentation to cycle position Increase share of wallet with most attractive clients through various channels Penetrate (emerging) markets with clear action plans Leverage cost efficiencies Financial Services (J. Fitzpatrick) Continuous emphasis on asset management Fast-track ILS development Slide 32 16