insurance roadshow 2014 · 2014. 1. 22. · 8 8 8 8 q09 q09 q09 q09 q10 q10 q10 q10 1 1 1 1 2 2 2 2...

Insurance Roadshow

2014

Paris, 22 January, 2014

2014 – The Year Ahead for Fitch’s Insurance Group

Chris Waterman, Head of EMEA Insurance

Paris, 22 January 2014

Agenda

Rating Trends in 2014

Key Risks Facing European Insurers

Fitch Initiatives for 2014

www.fitchratings.com

European Market Outlooks

Rating Outlook Sector Outlook

French Life

French Non-Life

Dec 13

Dec 13

Negative

Negative

Negative

Stable

German Life

German Non-Life

Dec 13

Dec 13

Stable

Stable

Negative

Stable

Italian Life

Italian Non-Life

Nov 13

Nov 13

Negative

Negative

Negative

Negative

Netherlands Life

Netherlands Non-Life

Dec 13

Dec 13

Negative

Negative

Stable

Stable

UK Life

UK Non-Life (London Market)

UK Non-Life (Regional Market)

Nov 13

Dec 13

Dec 13

Stable

Stable

Stable

Stable

Stable

Negative

Reinsurance Aug 13 Stable

Source: Fitch


Insurer Outlooks Mostly Stable

67%

29%

4%

Stable Negative Positive

Dec 2012

Source: Fitch

Dec 2013

4%

28%

68%


Rating Affirmations Dominate

-40

-30

-20

-10

0

10

20

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

(No.)

Source: Fitch

Credit Crunch

Eurozone Crisis

Rating Stability

Net Upgrades Less Downgrades


Financially Strong Industry

22

54

16

4 5

25

52

16

2 6

0

10

20

30

40

50

60

AAA AA A BBB BB B

(%) Dec 12 Dec 13

Insurer Financial Strength (IFS) Ratings

Source: Fitch

Agenda





European Insurance – Risk Radar

Source: Fitch

Equity and/ or Bond

Correction

Search for Yield

Regulatory risk

Steady Rebound in Interest

Rates

Weak Economy/

Low Int Rates

Eurozone Uncertainty

Sales Scandals

Large Int Rate Spike

Imp

act

Un

favo

rab

le

Imp

act

Fa

vo

rab

le

High Urgency

Imp

act U

nfa

vo

rab

le

Imp

act F

avo

rab

le

High Urgency Low Urgency


Peripheral Eurozone – Sentiment Improving

0

5

10

15

20

25

30

35

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

(%) Greece Ireland Italy Portugal Spain

Source: Fitch

Peripheral Eurozone – 10 Year Bond Yields


Search For Yield Continues

0

1

2

3

4

5

6

1Q

07

2Q

07

3Q

07

4Q

07

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

(%) France Germany Netherlands UK

Source: Fitch

Non-Peripheral – 10 Year Bond Yields

Agenda





Prism FBM – Timeline to Implementation

Source: Fitch

Finalise model

Q1 2014

Beta test open

1st Oct 2013

2013 2014

Implementation

Q2 2014

Beta test closed

31st Dec 2013

Initial validation

complete

EMEA testing

Model development


Prism FBM: Model Resources

Available to Issuers

• Model definition documenta

• Model engine

• User guide

Public

• Model definition documenta

a Exposure Draft

Source: Fitch


Prism FBM – A Significant Step Forward

• More sophisticated approach to capital assessment

• Main tool to assess capital adequacy in EMEA and APAC

• Single framework for different regions and accounting standards

• Rating agency model – not an economic capital model

• Simplicity and increased transparency

• Single spreadsheet

• No hidden calculations

• No macros

• Expect further communication from Fitch after model finalisation


Increased Transparency and Timeliness of Research

• Updated Insurance Rating Methodology

• Sector credit factors (SCFs)

• Clear communication of rating sensitivities

• Increased use of quantitative rating triggers

• 100% of rating reports less than 12 months old

• Publication of more topical special reports

• Increase in presentations and teleconferences

People in pursuit of answers


Disclaimer

Fitch Ratings’ credit ratings rely on factual information received from issuers and other sources.

Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings

are inherently forward-looking, embody assumptions and predictions that by their nature cannot be

verified as facts, and can be affected by future events or conditions that were not anticipated at the

time a rating was issued or affirmed.

The information in this presentation is provided “as is” without any representation or warranty.

A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does not

address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned.

A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its

agents in connection with a sale of securities.

Ratings may be changed or withdrawn at any time for any reason in the sole discretion of

Fitch Ratings. The agency does not provide investment advice of any sort. Ratings are not

a recommendation to buy, sell, or hold any security.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE

LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.

New York One State Street Plaza

New York, NY 10004

London 30 North Colonnade

Canary Wharf

London E14 5GN

Behind our Ratings: Fitch’s Rating Process & Insurance Methodology

Harish Gohil, Managing Director


Agenda

Rating Process

Insurance Ratings Methodology

• Criteria

• Key Rating Factors

• Peer Comparison

Summary

Q&A


Steps in the Rating Process

Rating

Initiated

Lead and

backup

analyst

assigned

Company sends accounts, other info

Dates for meeting

Review of

public and

non-public

information

Questions

sent to

issuer

Replies in advance of

management meeting

Management

meeting

Further

analysis

Rating

committee

presentation

Rating

committee

review and

decision

Preparation of

final rating

report and

press release

Ratings

published; full

rating report

available to

subscribers

Ongoing dialogue and surveillance

1

2

3

4

5

6

7

8

9

10

6

7

8

9

10

1

2

3

4

5


Fitch Rating Criteria

One-stop shop for

• Key credit factors

• Hybrid securities

• Group rating methodology

• Notching methodology

• Start-up and run-off companies

• Short-term ratings

• Recovery analysis

• Captive insurance companies

Separate ILS criteria

Criteria Updated & Enhanced


Fitch Sector Credit Factors

Increased Transparency

• Supplementary reports describing the key

credit factors used to analyse the

European life and non-life

insurance sectors

• Including various median financial ratios

by rating category, as well as charts that

demonstrate how key qualitative factors

can affect a typical rating range


Key Credit Factors for (Re)Insurance Ratings

Key Qualitative Factors

• Sovereign and country-related

constraints

• Industry profile and operating

environment

• Market position and size/scale

• Ownership

• Corporate governance and management

Key Quantitative Factors

• Capitalisation and leverage

• Debt service capabilities and

financial flexibility

• Financial performance and earnings

• Investment and asset risk

• Asset/Liability and liquidity management

• Reserve adequacy

• Reinsurance, risk mitigation,

catastrophe risk

Source: Fitch - Insurance Rating Methodology, 13th November 2013


Industry Profile & Operating Environment

IFS rating category AAA AA A BBB <BBB

Non-Life

Reinsurance Lines

Composite

Life/Annuity

Ratings Range Based on Industry Profile/Operating Environment

Source: Fitch


Market Position and Size/Scale


Large market position and size/scale

Medium market position and size/scale

Small market position and size/scale

Ratings Range Based on Market Position and Size/Scale

Source: Fitch

Size guidelines for Medium category:

• Non-Life: EUR3bn ≤ GWP ≥ EUR1bn

• Life: EUR40bn ≤ Assets ≥ EUR10bn

• Life: EUR4bn ≤ Equity ≥ EUR1bn


Median Capital Adequacy Ratio Guidelines

• Fitch Prism Factor Based Model Score

Capitalisation and Leverage

AAA AA A BBB

Net premiums written/equity (non-life) (x) 0.5 1.1 1.8 2.5

Net leverage (non-life) (x) 2.0 3.5 5.0 7.0

Gross leverage (non-life) (x) 2.5 4.0 6.2 8.5

EU solvency I ratio (%) 220 175 150 125

Financial leverage (%) 7 20 28 35


Debt Service Capabilities & Financial Flexibility

Median Fixed Charge Coverage Ratio Guidelines

AAA AA A BBB

IFRS/Local GAAP Fixed Charge Coverage Ratio (x) 18 12 7 3


Effective

Generally Effective, but

Some Weaknesses Noted

Weak

Financial Flexibility


Financial Performance and Earnings

Median Financial Performance Ratio Guidelines

AAA AA A BBB

Combined ratio (Non-life) 85% 95% 103% 110%

Operating ratio (Non-life) 75% 85% 93% 100%

Return on equity 16% 12% 8% 4%

Return on assets (Life) 1.4% 1.1% 0.9% 0.4%


Weighting of Key Credit Factors

• No formal quantitative

mechanism

• Rating committee judgement


Peer Group Comparison – Example

Company

IFS rating of

operating

entities

Total NPW

(USDm)

Combined

ratio 5-year

avg. RI (%)

Combined

ratio 5-year

avg. (%)

NPW/

equity

Shareholders’

equity

(USDm)

ACE Ltd AA/Stable 16,075 74.1 91.3 0.58 27,531

Berkshire Hathaway AA+/Stable 35,727 94.7 93.1 0.19 191,588

Everest Re AA-/Stable 4,081 97.5 99.9 0.61 6,733

Munich Re AA-/Stable 64,581 100.4 100.0 1.85 35,938

Partner Re AA-/Stable 4,567 96.8 96.8 0.76 6,933

Hannover Re A+/Positive 15,917 98.4 98.1 2.04 8,799

Lloyd’s of London A+/Positive 30,882 94.8 93.7 0.99 31,121

SCOR A+/Stable 10,990 99.7 98.4 1.77 6,300

Swiss Re A+/Stable 25,344 93.6 93.0 0.75 34,026

Source: Fitch


Key Rating Factors – Example

Rating factor Forward trend Score Relative weighting

Industry profile and operating environment AA/A Moderate

Market position and size/scale A High

Capitalisation and leverage Stable AA High

Debt service capabilities/financial flexibility Favourable BBB Moderate

Financial Performance and earnings Stable A Moderate

Investment and Asset risk Unfavourable A Moderate

Asset/liability and liquidity management Stable AA Low

Reserve adequacy Stable A Moderate

Reinsurance/risk mitigation/catastrophe Stable A Low

Corporate governance and management Effective

Ownership Neutral

Sovereign/country-related constraints n.a.

Final Implied Ratings Category A

35 www.fitchratings.com

Summary

• Rigorous rating process

• Key credit factors – qualitative and quantitative

• Ratings range tables – median guidelines by rating category

• No formal quantitative weightings – committee judgement

• Transparency in published research

36 www.fitchratings.com

Related Research

All relevant Fitch research can be found on the Insurance page via our website


Insurance Rating Methodology – Amended, November 2013

Non-Life Insurance (Europe) Sector Credit Factors – May 2013

Life Insurance (Europe) Sector Credit Factors – May 2013

Reinsurance (Global) Sector Credit Factors – August 2013

Prism Factor-Based Capital Model: Exposure Draft – Model definition document –

October 2013


Disclaimer

















New York, NY 10004


Canary Wharf

London E14 5GN

French Insurance Under Contrasted Trends

Marc-Philippe Juilliard, Senior Director


Agenda: Life Market

Retrospective Review

• Slowing Down of Growth

• Competition Landscape

• Market Trends

• Profitability

Prospective Review

• Business Outlook

• Evolution of Solvency

• Rating Outlook


Historic Growth

0

20

40

60

80

100

120

140

160

0

200

400

600

800

1 000

1 200

1 400

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Life technical reserves at 31 December (LHS) Life premium income (RHS)

Source: FFSA-GEMA

Life Insurance in France: A Mature Market

(EURbn)


Top 10 French Life Insurers

Premium written in 2012

(EURbn)

Total market

(%)

CNP 19.3 17.1

Crédit Agricole Assurance (Predica) 15.6 13.8

BNP Paribas Assurance 10.3 9.1

AXA France 9.3 8.2

Groupe des Assurances du Crédit Mutuel 8.7 7.7

Société Générale Insurance 7.7 6.8

Generali France 6.2 5.5

Allianz France 5.2 4.6

AG2R La Mondiale 4.4 3.9

Aviva France 3.6 3.2

Total 90.3 80.0

Source: FFSA/Fitch estimates


Market Trends

• Moderate demand for euro-denominated products due to low return

• Both short-term and long-term interest rates remain lower than life insurance expected return

offered in 2013

• Recycling is resuming but not to the same extent as during the past decade

• Banks still need on balance-sheet savings products

• Bancassurers are impacted

• Moderate appetite for unit-linked policies due to market volatility

• Rising premiums amid recovering equity markets

• Offensive marketing campaigns and product innovation hardly compensate for volatility risk

• Sales of variable annuities remain symbolic

• Increase in lapses

• Lapse rate durably at high level – volatile net collections

• General trend due to ageing population and poor economic environment


Profitability

0

2

4

6

8

10

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

Average rate of return on traditional policies

Investment income/actuarial reserves

Return for Livret A(%)

Source: FFSA-GEMA, Fitch

Yield Offered by Euro-Denominated Life Insurance Policies and Livret A

Agenda: Life Market


• Slowing Down of Growth


• Market Trends

• Profitability

Prospective Review

• Business Outlook

• Evolution of Solvency

• Rating Outlook


Business Outlook

• Volatile growth in new business volume forecast for life insurance

• Less free cash flow to be invested due to economic challenges

• Low bonus rates make the euro product less attractive

• Banks push for liquidity

• Change in risk-free perception – fly to tangibility

• Unit-linked products unlikely to escape their vicious circle

• Volatile impact on both life insurer’s solvency and profitability

• Benefits payments expected to remain at high level

• 40% of total life premiums during the 1990s

• >60% every year since 2007 (93% in 2011, >100% in 2012, ~ 90% in 2013)


Business Outlook (cont.)

• After two decades of strong growth, the life insurance market gradually reaches

maturity

• More than two thirds of life technical reserves related to old contracts (more than 8 years)

in 2013

• Management of lapses is a challenge for traditional insurers

• Some developments would likely accelerate the distrust for life insurance in the

coming years:

• Any further government project to reduce tax advantages, especially if implementation involves

existing policies

• Although unlikely in the short term, sharp increase in interest rates could have a negative impact,

even more than in 2008, as both premiums and lapses could be affected at the same time

• Reduced incentive granted to policyholders to buy protection and pension products sold by

private insurance organisations


Evolution of Solvency

0

4

8

12

16

20

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Shareholder's equity/actuarial reserves

Shareholder's equity and unrealised capital gains or losses/actuarial reserves(%)

Source: FFSA-GEMA

Changes in Solvency Margins


Rating Outlook

• Fitch rating and sector outlooks for the French life industry remain negative

• Unfavourable trends could lead to further rating downgrades

• Pressure on profitability expected to be strong due to:

• Low interest rate environment

• More conservative asset allocation with very little equities and no reinvestment in Southern

European sovereign debt

• Competition on bonus rates

• Volatile impact from unit-linked product sales

• Capital adequacy is unlikely to recover promptly

• Solvency 1 ratios artificially boosted by low interest rates on government bonds

• But profitability is increasingly under pressure

• Capital intensive business mix

Agenda: Non-Life Market


• Historic Growth


• Bancassurance

• Profitability

Prospective Review

• New Sources of Growth

• Tariffs

• Solvency

• Rating Outlook


Historic Growth

Source: FFSA-GEMA

The Slow Growth of Non-Life Insurance in France

0

10

20

30

40

50

60

70

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

(EURbn) Non-life premiums Acccident & health premiums


Top 10 French Non-Life Insurers

Premium written in 2012

(EURm)

Total market

(%)

Covéa (MAAF, MMA, GMF) 9,600 14.2

Groupama 8,000 11.8

Sferen (MACIF, MAIF, MATMUT) 7,800 11.5

AXA France 6,800 10.0

Allianz France 5,700 8.4

Generali France 4,300 6.3

Crédit Agricole Assurances 2,500 3.7

Groupe des Assurances du Crédit Mutuel 2,300 3.4

CNP 1,900 2.8

Aviva France 1,300 1.9

Total 40.2 74.0

Source: FFSA and Fitch estimates


Bancassurance

• Increasing success of bancassurance in non-life

• 4% market share in 1994

• 12% market share in 2012

• Privileged position to distribute simple non-life insurance policies packaged with

financial products or on a standalone basis

• Still below average retention rate but improving gradually

• Two market leaders: Credit Agricole Assurance and Groupe des Assurances du Crédit

Mutuel – two thirds of non-life premiums collected by subsidiaries of banks in 2012

• Most players posted above market average growth in 2012-2013

• JV between La Banque Postale and Groupama has successfully started to operate

• All non-life bancassurers display very ambitious goal for the coming years in

individual lines


Profitability

90

95

100

105

110

115

120

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

(%)

Source: FFSA-GEMA, Fitch estimates

Evolution of Net Combined Ratio:

Close to 100%, limited room for improvement

Agenda: Non-Life Market


• Historic Growth


• Bancassurance

• Profitability

Prospective Review

• New Sources of Growth

• Tariffs

• Solvency

• Rating Outlook


New Sources of Growth Difficult to Tap

• Increase in the number and severity of natural disasters

• Cost of natural perils in France exceeded EUR34bn over the past 20 years

for non-life insurers

• Fast growing risk adversity = rising demand for insurance, but…

• Not all risks can be priced using actuarial methods

• Cost of insurance must be acceptable to policyholders

• Lower flexibility for tariff increases

• Long-term care insurance market:

• Government’s proposals again expected in 2014

• Involvement of private insurers is unclear


The Particular Case of Healthcare Insurance

-3

0

3

6

9

12

0

40 000

80 000

120 000

160 000

200 000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(EURm) Health expenses (LHS) Growth rate (RHS) (%)

Source: FFSA-GEMA, Fitch estimates

Changes in Health Expenses


Impact of Tariffs Increases Is Visible

• Tariffs increased further on all lines in 2012-2013

• No material natural catastrophe event since H1 2010

• Yet, attritional claims remain at high level, supported by challenging economic

environment and mid-size climatic events

• Drop in asset returns expected due to low interest rate environment and more

conservative asset allocation

• Further increases in tariffs increasingly difficult to implement due to poor

economic environment

• Stabilization in tariffs likely occur as of 2014 unless material natural

catastrophes occur


Solvency Evolution

• Compared to life insurers, non-life insurers tend to have:

• Absence of investment guarantees offered

• Still higher allocation to investments in equities

• Solvency in 2014 should be:

• Positively impacted by the satisfactory profitability and the still low interest rates

environment leading to high unrealised capital gains on bonds

• Negatively impacted if equity markets were to deteriorate by year-end or if any

significant winter period natural catastrophe was to occur

• The prospect of Solvency II has encouraged insurers to gradually de-risk their

investment portfolios as new rules should penalise insurers who take risks on

their asset side


Rating Outlook

• Fitch Ratings sector outlook for the French non-life industry remains stable

• Operating profitability should plateau in 2013-2014

• Impact of tariff increases

• Moderately benign claims environment so far

• However, pressure remains on top line and attritional claims

• Operational performance not expected to be materially boosted by investment

results in the near future

• Credit quality of French non-life insurers reflects the limited growth and profit

improvement potential of the market


Related Research

All relevant Fitch research can be found on the Insurance page via our website


2014 Outlook: French Life Insurance

Low Interest Rates Dragging Down Profitability - 12 December 2013

2014 Outlook: French Non-Life Insurance

Weak Growth but Resilient Performance - 12 December 2013


Disclaimer

















New York, NY 10004


Canary Wharf

London E14 5GN

Coffee Break

Global Reinsurance Bond Yields and Softening Prices Set to Test Management Strategy

Martyn Street, Director


Agenda

1.1.14 Renewal

Expectations and Observations

Alternative Reinsurance

Rating Outlook


Recent Reinsurance Renewal Pricing Trends

Renewal Season Pricing Developments

January 2014 US wind loss-hit: -10% to +5%

US loss-free: -10% to -20%

International property loss-hit: Flat to +5%

Casualty no loss emergence: Flat to -20%

June/July 2013 US property loss-hit: -5% to +5%

US property loss-free: -10% to -20%

Florida property loss-free: -15% to -25%

Casualty no loss emergence: Flat to declining

April 2013 Japanese property loss-hit: Flat to +10%

Japan wind and flood loss-free: Flat to down 2.5%

US property loss-free: -5% to -10%

Source: Company and broker reports


Month Event Location

Economic Loss

(USDbn)

Insured Loss

(USDbn)

July Hailstorms Germany 4.8 3.7

May / June Floods Central Europe 15.2 3.0

May Tornadoes US 3.1 1.8

March Severe storms US 2.2 1.6

June Floods Canada 5.7 1.6

Overall 2013 Total 125.0 31.0

Total 2012 173.0 65.0

Total 2011 400.0 119.0

2013 Sees Reduced Natural Catastrophe Losses

Source: Munich Re NatCatService


Uneven Capital Development

-15

-10

-5

0

5

10

15

Pla

tin

um

(N

/R)

Fa

irfa

x (

A-)

Asp

en

(N

/R)

Sw

iss R

e (

A+

)

XL

(A

p)

Pa

rtn

erR

e (

AA

-)

Mu

nic

h R

e (

AA

-)

Va

lidu

s (

A)

Ha

nn

ove

r R

e (

A+

p)

Eve

rest (A

A-)

Axis

(A

+)

Wh

ite

Mo

un

t. (

A)

Ace

(A

A)

SC

OR

(A

+)

Alli

ed

Wo

rld

(A

+)

Mo

ntp

elie

r (A

)

En

du

ran

ce

(N

/R)

Alle

gh

an

y (

A+

)

Arc

h (

A+

)

Re

nR

e (

A+

)

Be

rksh

ire

(A

A+

)

(%)

Change Q313 Equity – Reinsurers

Note: IFS Ratings, N/R - Not Rated, p - Positive Outlook

Source: Fitch


Invested Asset Allocation

Major Asset Classes – 2012

Note: Combined composition for Hannover Re, Lloyd’s of London, Munich Re, SCOR & Swiss Re

Source: Fitch

• Fixed-income remains major class

• Conservative risk appetite

• Key focus for 2014

• Duration management

• Increasing risk appetite

Real

estate

1%

Cash & bank

deposits

11%

Bonds

57%

Loans

11%

Deposits

with

cedents

9%

Other

invested

assets

5%

Shares

4%

Mortgages

2%


Operating ROE Declines in Recent Years

Average Operating ROE

Source: Fitch

-5

0

5

10

15

20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(%)


Significant Variation in ROE

Group Operating ROE 2008-2012 Average

Source: Fitch

-5

0

5

10

15

20

Ha

nnove

r R

e

Mu

nic

h R

e

Ace

Lim

ited

Alli

ed W

orld

W.R

. B

erk

ley

Arc

h C

ap

ital

Llo

yd's

Re

nR

e

Va

lidus

Axis

Sw

iss R

e

SC

OR

Eve

rest R

e

En

dura

nce

XL

Asp

en

Pla

tinum

Be

rkshire

Hath

aw

ay

Pa

rtnerR

e

Mo

ntp

elie

r R

e

Alle

ghan

y

Wh

ite M

ounta

ins

Fair

fax

(%)

Median = 8.5%


Reinsurance Combined Ratio Volatility

2008-2012

Size of bubble denotes NWP

Source: Fitch, companies

55

65

75

85

95

105

115

0 5 10 15 20 25 30 35 40

(Average combined ratio, 2008-12)

(Standard deviation, 2008-12)

Median = 93.8%

Me

dia

n =

10

.9%

Everest

Montpellier Lloyd's Swiss Re

PartnerRe

Endurance

Validus

Hannover

Munich Re

Ace

Aspen

AXIS Berkshire

White

Mount

Fairfax SCOR

Platinum

XL

Arch

RenRe


Continued Favourable Reserve Development

-10

-6

-2

2

6

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q313

(%)

Source: Fitch analysis of reserving data of 17 North American reinsurers

Actual Expected


Prior Year Development Remains in Surplus

50

60

70

80

90

100

110

Endura

nce

Fa

irfa

x

W.R

. B

erk

ley

XL

Axis

Hann

over

Re

Arc

h C

ap

ital

Alli

ed W

orld

Aspen

White M

ounta

ins

Alle

ghan

y

SC

OR

Ace

Evere

st

Re

Berk

shire

Llo

yd

's

Mun

ich R

e

Part

nerR

e

Valid

us

Sw

iss R

e

Mon

tpelie

r R

e

Pla

tinum

RenR

e

(%) Calendar Accident

2012 – Calendar and Accident Year Combined Ratio

Source: Fitch


Valuation Multiples Remain Below Pre-Financial Crisis

Reinsurer Market Price/Tangible Book Value

Source: SNL Financial

0,5

0,6

0,7

0,8

0,9

1,0

1,1

1,2

2007 2008 2009 2010 2011 2012 Q313

(x)


Alternative Capital: Threat or Opportunity?

• ″We may well be seeing a fundamental shift in the way risk is capitalised″, John

Nelson, Chairman Lloyd’s of London

• ″How sustainable is it (ILS)? It hasn’t been tested so we don’t know″, Torsten

Jeworrek, Chairman of Reinsurance Committee, Munich Re

• ″Reinsurers will have to adapt″, Alex Moczarski, CEO Guy Carpenter

• ″It will go from being a competitive threat to being part of traditional reinsurers’

business plans″, Bryon Ehrhart, Chief Strategy Officer, Aon Benfield


Alternative Market Capacity Continues to Grow

Alternative Capacity as a % of Global Property Catastrophe Reinsurance Limit

Source: Guy Carpenter Estimates

0

2

4

6

8

10

12

14

16

YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 YE2013(Projected)

(%)


Catastrophe Bond Market Reaches Record Size

3,1 3,6 3,7 5

8,4

14,1

11,8 12,3 12,4 12,7

15,2

20,3

0,8 1,4 1,1 2.1

4,6

7,2

2,7 3,4

4,8 4,3 5,9

7,5

0

2

4

6

8

10

12

14

16

18

20

22

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(USDbn) Outstanding Issued

Source: Willis Capital Markets & Advisory, Aon Benfield Securities Inc.

Catastrophe Bonds (Non-Life)


ILS – Capacity Providers

Investor by Category – 2013

Note: Year ending June 30

Source: Aon Benfield Securities

• Institutional and mutual fund

provision grows

• Majority of capital continues to

come from U.S.

• Opinion divided on what is driving

growth

CAT

fund

43%

Institutional

41%

Hedge fund

2%

Mutual fund

12%

Reinsurer

2%


Rating Outlook Stable

• Last revised from Negative in November 2009

• Majority of ratings expected to be affirmed in next 12-24 months

• Supporting factors: Strong capitalisation and continued profitability

• Challenges: Price softening and continued low investment yield


Related Research

Fitch research can be accessed via www.fitchratings.com/insurance

• Bermuda 2014 Market Update (January 2014)

• Global Reinsurance Guide 2014 (September 2013)

• Alternative Reinsurance 2013 Market Update (September 2013)

• 2014 Outlook: Global Reinsurance (August 2013)

• Global Reinsurers’ Mid-Year 2013 Financial Results (August 2013)

• Reinsurance (Global) Sector Credit Factors (August 2013)


Disclaimer

















New York, NY 10004


Canary Wharf

London E14 5GN

Bernard Spitz

Président de la Fédération Française

des Sociétés d’Assurance


Disclaimer

















New York, NY 10004


Canary Wharf

London E14 5GN

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