into the eye of the future - swiss re group | swiss re031d2f83-0915-4b0f... · 9/10/2012 · more...

Into the eye of the future Investors and Media meeting

Monte Carlo, 10 September 2012

Investors & Media meeting | Monte Carlo | 10 September 2012

Today's agenda

Introduction Michel M. Liès, Group CEO

Driving market forces – Christian Mumenthaler, CEO Reinsurance a three year view

Swiss Re's underwriting and Matthias Weber, Group CUO P&C reinsurance market outlook

Outlook Michel M. Liès, Group CEO

Questions & answers

2


Introduction Michel M. Liès, Group Chief Executive Officer

3

Investors & Media meeting | Monte Carlo | 10 September 2012 4


Swiss Re's Group strategy…

Current position

The leading player in the wholesale re/insurance industry

Strategic goal: Outperform our peers ▪ Reinsurance ▪ Admin Re® ▪ Asset Management

Smart expansion

▪ Corporate Solutions ▪ Longevity & Health ▪ High Growth Markets

5


High Growth Markets Tangible growth opportunities exist

Agriculture Nat Cat Infrastructure

Life Health

6


Driving market forces – a three year view Christian Mumenthaler, CEO Reinsurance

7


Low interest rates

Drivers of re-/ insurance prices

Regulatory changes Continuous reserve releases

Industry capitalisation

Factors leading to higher prices

8

Factors leading to lower prices

Low inflation Nat Cats

Factors driving re-/insurance prices

High Low

Prices


Record low interest rates Expected to stay low… …increasing pressure on running yield

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Gap between interest rates and running yield expected to narrow further

Pressure on net income and ROE to increase further

Sources: Swiss Re Economic Research & Consulting

0%

2%

4%

6%

8%

Germany

Running yield (P&C insurers) 10 yr gov bond yields, average of year


Regulatory changes New rules come into play within next three years… …none of them will likely require less capital

United States NAIC solvency modernisation,

but rather qualitative (ORSA)

Latin America Mexico: moving towards risk-

based solvency Brazil/Argentina: market

access restrictions for reinsurers

Asia Pacific Australia: higher P&C charges China, Japan, India, NZ: move

towards risk-based solvency regimes

Europe Challenging finalisation

of Solvency II

Convergence trends in solvency frameworks, increased focus on supervisory cooperation and coordination on global basis, eg intensified use of supervisory colleges

IAIS international frameworks: global SIFI designation and ComFrame

Solvency rules are expected to tighten on a global basis

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Low inflation

Assuming claims inflation follows general inflation, we can expect some continuation of positive reserve releases on the longer tail lines

Continued expected low economic growth, low interest rates and inflation

Outlook is asymmetrical however, with higher probability of inflation shock than even lower inflation

Sources: Swiss Re Economic Research & Consulting

0%1%1%2%2%3%3%4%4%

Germany

Inflation 5y break-even inflation

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Continuous reserve releases Reserve levels are declining

US core reserve releases as a % of NPE

Sources: A.M. Best, Swiss Re Economic Research & Consulting

Reserve releases expected to end within the next three years

Global P&C industry has enjoyed substantial reserve releases since 2004

Pace of releases is winding down

US: data shows net releases of comparatively unseasoned years in 2011

US: only small reserve buffers remain; will be depleted within the next 12 months if releases continue at the same level

Europe: reserve releases are slowing. Reserving trends are somewhat more stable than in the US, but also declining

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-6%

-4%

-2%

0%

2%

4%

6%

8%

?


Equity, excl unrealised gains on bonds

30

50

70

90

110

130

150

02 03 04 05 06 07 08 09 10 11 12H1Net premiumsShareholders' equity

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Industry capitalisation Is there any excess capital?

Falling interest rates have significantly inflated GAAP capital – relevant capital adequacy has probably rather decreased recently

Sources: Swiss Re Economic Research & Consulting; aggregate of leading reinsurers

2005 = 100

Relevant capital adequacy ratios are not public

Very rough approximation is to use premiums as measure for risk and GAAP/IFRS capital as measure for available capital

Taking out artificial effect of unrealised gains due to lowered interest rates indicates that capital is getting tighter than before

?

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Low interest rates

Continuous reserve releases

Industry capitalisation

14

Factors leading to lower prices

Factors leading to higher prices

? Low inflation

Regulatory changes

?

Three year outlook indicates upwards pressure on pricing

High

Prices

Drivers of re-/ insurance prices

Nat Cats

Low


Swiss Re is well positioned

1 CHF 5bn stop-loss protection on Swiss Re's P&C reserves with Berkshire Hathaway 2 SST 1/2012, as filed with FINMA at the end of April, based on a projection for 2012

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Lean casualty book L&H: focus on wholesale/reinsurance, avoiding primary business with

guarantees Prudent, ALM-matched asset portfolio with room for moderate re-risking

Low interest rates

SST has given us 5 years practical experience in implementing regulatory requirements similar to Solvency II

Clients need to put more focus on risk and economic capital; we can offer tailor made solutions

Regulatory changes

Unique protection against inflation through the Adverse Development Cover1

Low inflation

Quarterly actuarial reserving process Reserves estimated at best estimate

Reserve releases

Excellent capitalisation, allowing business growth Group SST 1/2012 ratio 213%2

Capitalisation


Swiss Re's underwriting and P&C reinsurance market outlook Matthias Weber, Group Chief Underwriting Officer

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Life & Health Unparalleled mortality experience data

provides ability to better quantify the underlying risk

Casualty Forward-looking "Nat-Cat-like" model

being developed, based on systematic assessment of risk drivers

Property Own research team and models for

storm, earthquake and flood Ability to compare to commercial tools

and understand differences

Cornerstones of Swiss Re's underwriting R&D as a key differentiator

Reinsurance is a knowledge business

R&D provides a competitive advantage

Portfolio steering

R&D is a value driver in underwriting

Structuring

skills

Risk selection

Portfolio steering

Cycle management

R&D

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Nat Cat risks continue long-term upwards trend

Nat Cat events USD billions at 2012 prices 2011

Est. insured market loss

Earthquake Japan March 35.7 Flood Thailand Jul-Nov 12.2 Earthquake New Zealand February 12.2 Severe storms, tornadoes US April 7.4 Severe storms, tornadoes US May 7.2 Hurricane Irene August 5.9 Flood Australia January 2.3 Earthquake New Zealand June 2.0 Severe storms, tornadoes US April 2.0 Severe storms, tornadoes US April 1.5

2012 Severe storms, tornadoes US March 2.5 Severe storms, tornadoes US April 1.9 Severe storms, tornadoes US May 1.4 Derecho storm US Jun-Jul 1.1 Earthquake Italy May 1.0 Floods UK June 0.8 Hurricane Isaac1 August 1.5-3

1 Preliminary loss estimates Source: Swiss Re Economic Research and Consulting

0

20

40

60

80

100

120

140

1970 1976 1982 1988 1994 2000 2006 2012

Insured Nat Cat losses in USD billions at 2012 prices

Aug 2012

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Flood losses are on the rise; are expected to become worse in the future

Lack of consistent flood hazard information in many countries has led to surprises in the insurance industry about the size of flood losses

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R&D in practice: Swiss Re Global Flood ZonesTM

Swiss Re Global Flood ZonesTM

Helps identify flood hot spots

Allows risk adequate pricing and portfolio steering

Click on window to find out more, and play video on Swiss Re Global Flood Zones™

http://www.swissre.com/reinsurance/insurers/property_casualty/Swiss_Re_Global_Flood_Zones_inspect_inform_insure.html


R&D in practice: Understanding flood risk globally

Insured loss from 2011 Thailand floods was higher than expected.

To minimise future flood surprises, we identified countries with

similar economic characteristics to Thailand

high exposure accumulations

industries heavily embedded in the international supply chain

Top flood hot spots are in High Growth Markets with China as number one

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Nat Cat models (ie vendor tools, Swiss Re models) generally performed well describing impact of primary loss driver ( material damage due to shock)

Secondary loss drivers ( contingent business interruption, liquefaction, tsunami) are more difficult to incorporate in models

R&D in practice: Learning from recent earthquakes

Proprietary Nat Cat model allows Swiss Re to quickly incorporate new learnings

21

Tsunami following earthquake Japan Differential settlement of Chancellor Hotel in Christchurch due to liquefaction

Picture reference: EERI Special Earthquake Report


Property:

Renewal 2012 – 2013 Line of business trends

Special Lines:

Drivers of change

Recent Nat Cat events Regulatory changes

(Solvency II) Exposure will grow faster

than GDP

Price expectation Opportunity for Swiss Re

Nat Cat rates experience further moderate increases or stabilise on current level

Increased demand for Nat Cat capacity

Capital relief transactions More demand for frequency

protection

Uncertain economic outlook in Europe

Wealth, economic power and insurable risk will shift towards High Growth Markets

Some markets / lines lack clear direction

Rates likely to rise in Energy and Marine Hull

Increased demand for innovative and tailored solutions

Increased demand in High Growth Markets

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Liability:

Renewal 2012 – 2013 Line of business trends

Motor:

Drivers of change

Low interest rate environment

Reserve releases slowing down

Regulatory changes (Solvency II)

Price expectation Opportunity for Swiss Re

Price correction likely in low interest rate environment

Swiss Re currently underweight; well positioned to increase support for selected clients through reinsurance

Weak economy, especially in Europe

Regulatory changes (Solvency II, China)

Rates in Germany, Italy and UK have improved

Other markets flat to slightly improving

Swiss Re is looking to expand in selected markets

Capital relief transactions and external run-off solutions

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Swiss Re is well positioned

Cycle management, risk selection, structuring skills and portfolio steering are our cornerstones of underwriting

Our research based underwriting approach is a key differentiator

Swiss Re is prepared to deploy more capital in P&C to support clients on a sustainable basis

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Price levels: expect moderately increasing prices


Outlook Michel M. Liès, Group Chief Executive Officer

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Outlook

Deliver on unchanged Group strategy

Swiss Re's excellent capitalisation allows for business and dividend growth

Able to write large capital relief transactions

High Growth Markets are not an option, but a contributor towards delivering on our financial targets

Three year outlook indicates upwards pressure on pricing

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Achieving our 2011-2015 financial targets remains the top priority


Questions & answers

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Media Relations contacts Hotline E-mail +41 43 285 7171 [email protected] Rolf Tanner Tom Armitage Michael Gawthorne Brigitte Meier +41 43 285 4904 +41 43 285 3564 +41 43 285 9707 +41 43 285 3035

Corporate calendar 08 November 2012 Third Quarter 2012 results Conference call 21 February 2013 Annual Results Zurich 10 April 2013 149th Annual General Meeting Zurich

Investor Relations contacts Hotline E-mail +41 43 285 4444 [email protected] Eric Schuh Ross Walker Chris Menth Simone Lieberherr Simone Fessler +41 43 285 4708 +41 43 285 2243 +41 43 285 3878 +41 43 285 4190 +41 43 285 7299

Corporate calendar & contacts

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Cautionary note on forward-looking statements Certain statements and illustrations contained herein are forward-looking. These statements and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results of operations, financial condition, solvency ratios, liquidity position or prospects to be materially different from any future results of operations, financial condition, solvency ratios, liquidity position or prospects expressed or implied by such statements. Such factors include, among others: further instability affecting the global financial system and developments related

thereto, including as a result of concerns over, or adverse developments relating to, sovereign debt of euro area countries;

further deterioration in global economic conditions; Swiss Re’s ability to maintain sufficient liquidity and access to capital markets,

including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of Swiss Re’s financial strength or otherwise;

the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets;

changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions;

uncertainties in valuing credit default swaps and other credit-related instruments; possible inability to realise amounts on sales of securities on Swiss Re’s balance

sheet equivalent to their mark-to-market values recorded for accounting purposes; the outcome of tax audits, the ability to realise tax loss carryforwards and the

ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings;

the possibility that Swiss Re’s hedging arrangements may not be effective; the lowering or loss of financial strength or other ratings of Swiss Re companies,

and developments adversely affecting Swiss Re’s ability to achieve improved ratings;

the cyclicality of the reinsurance industry; uncertainties in estimating reserves; uncertainties in estimating future claims for purposes of financial reporting,

particularly with respect to large natural catastrophes, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available;

the frequency, severity and development of insured claim events; acts of terrorism and acts of war; mortality, morbidity and longevity experience; policy renewal and lapse rates; extraordinary events affecting Swiss Re’s clients and other counterparties, such

as bankruptcies, liquidations and other credit-related events; current, pending and future legislation and regulation affecting Swiss Re or its

ceding companies; legal actions or regulatory investigations or actions, including those in respect

of industry requirements or business conduct rules of general applicability; changes in economic theory or principles; significant investments, acquisitions or dispositions, and any delays,

unexpected costs or other issues experienced in connection with any such transactions;

changing levels of competition; and operational factors, including the efficacy of risk management and other internal

procedures in managing the foregoing risks. These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue

reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. This communication is not intended to be a recommendation to buy, sell or hold securities and does not constitute an offer for the sale of, or the solicitation of an offer to buy, securities in any jurisdiction, including the United States. Any such offer will only be made by means of a prospectus or offering memorandum, and in compliance with applicable securities laws.

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into the eye of the future - swiss re group | swiss re031d2f83-0915-4b0f... · 9/10/2012 · more...

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