reinsurance challenges & expectations for 2014 · the information in this presentation is...

10/14/2013

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Reinsurance Challenges & Expectations for 2014

A Rating Agency Perspective

Martyn Street, Director

Harish Gohil, Managing Director

10 October 2013

Agenda

Rating Outlook

Expectations and Observations

Reinsurance Risk Radar

Alternative Reinsurance

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www.fitchratings.com

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

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(USDm)

2014

Forecast

2013

Forecast

2012

Actual

Net premiums written 102,300 100,300 97,339

Catastrophe losses 11,600 7,500 7,100

Net favourable prior year reserve

development

4,050 5,950 6,586

Calendar year combined ratio (%) 96.8 90.5 89.3

Accident year combined ratio (%) 100.9 96.5 96.1

Accident year combined ratio ex

catastrophes (%)

89.3 88.9 88.8

Source: Fitch monitored universe of reinsurers

2014 / 2013 Projections

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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% M

ed

ian

= 1

0.9

%

Everest

Montpellier

Lloyd's

Swiss Re

PartnerRe

Endurance

Validus

Hannover

Munich Re

Ace

Aspen AXIS Berkshire White Mount

Fairfax SCOR

Platinum

XL

Arch

RenRe


Invested Asset Allocation

Real estate

1.0%

Loans

10.9%

Bonds

57.8%

Cash & bank

deposits

11.0%

Deposits with

cedents

8.6%

Other

4.6%

Shares

4.2%

Mortgages

1.6%

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

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Uneven Capital Development

-15

-10

-5

0

5

10

Sw

iss R

e (

A+

)

Pla

tin

um

(A

)

Va

lidu

s (

A)

Pa

rtn

erR

e (

AA

-)

Asp

en

(N

/R)

Ha

nn

ove

r R

e (

A+

)

Mu

nic

h R

e (

AA

-)

XL

(A

p)

AX

IS (

A+

)

Fa

irfa

x (

A-)

Eve

rest (A

A-)

SC

OR

(A

+)

Wh

ite

Mo

un

t. (

A)

Ace

(A

A)

En

du

ran

ce

(A

)

Arc

h (

A+

)

Alli

ed

Wo

rld

(A

+)

Alle

gh

an

y (

A+

)

Re

nR

e (

A+

)

Mo

ntp

elie

r (A

)

Be

rksh

ire

(A

A+

)

(%)

Change H113 Equity – Reinsurers

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

Source: Fitch


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

(%)

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Significant Variation in ROE

Group Operating ROE 2008-2012 Average

Source: Fitch

-5

0

5

10

15

20

Hannover

Re

Munic

h R

e

Ace L

imited

Alli

ed W

orl

d

W.R

. B

erk

ley

Arc

h C

apital

Llo

yd's

RenR

e

Valid

us

Axis

Sw

iss R

e

SC

OR

Evere

st

Re

Endura

nce

XL

Aspen

Pla

tinum

Berk

shir

e H

ath

aw

ay

Part

nerR

e

Montp

elie

r R

e

Alle

ghany

Alterr

a

White M

ounta

ins

Fair

fax

(%)

Median = 8.5%


Reduced CAT Loss Burden in 2012 vs. 2011

Source: Fitch

0

10

20

30

40

50

60

70

80

Re

na

issa

nce

Re

Pla

tin

um

Mo

ntp

elie

r R

e

Pa

rtn

erR

e

Va

lid

us

Eve

rest

Re

Sw

iss R

e

Mu

nic

h R

e

Axis

Ca

pita

l

Llo

yd

's

Asp

en

En

du

ran

ce

Allie

d W

orl

d

SC

OR

Fa

irfa

x

Alte

rra

Ca

pita

l

Ha

nn

ove

r R

e

Arc

h C

ap

ita

l

XL

Gro

up

Wh

ite

Mo

un

t.

Alle

gh

an

y

Be

rksh

ire

Ace

Lim

ite

d

W.R

. B

erk

ley

(%) 2012 2011Cat Losses / Premiums Earned

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Continued Favourable Reserve Development

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

-10

-6

-2

2

6

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 H113

(%) Actual Expected


Prior Year Development Remains in Surplus

50

60

70

80

90

100

110

En

du

ran

ce

Fa

irfa

x

Alte

rra

W.R

. B

erk

ley

XL

Axis

Ha

nn

ove

r R

e

Arc

h C

ap

ita

l

Alli

ed

Wo

rld

Asp

en

Wh

ite

Mo

un

tain

s

Alle

gh

an

y

SC

OR

Ace

Eve

rest R

e

Be

rksh

ire

Llo

yd

's

Mu

nic

h R

e

Pa

rtn

erR

e

Va

lidu

s

Sw

iss R

e

Mo

ntp

elie

r R

e

Pla

tin

um

Re

nR

e

(%) Calendar Accident

2012 – Calendar and Accident Year Combined Ratio

Source: Fitch

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Recent Reinsurance Renewal Pricing Trends

Renewal Season Pricing Developments

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%

January 2013 US wind programmes loss-hit: +10%

US loss-free: Flat to -5%

Marine: Up to +30%

International property: Flat to -5%

Source: Company and broker reports


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 Q113 Q213

(x)

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Global Reinsurance Risk Radar July 2013

Note: Size of bubble indicates number of ratings that could be changed by that risk.

Source: Fitch Insurance risk Reinsurance risk Macro risk


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

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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%


Alternative Reinsurance 2013 Market Update

Alternative Capacity as a % of Global Property Catastrophe Reinsurance Limit

Source: Guy Carpenter Estimates

• Alternative market capacity continues to grow

0

2

4

6

8

10

12

14

16

YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 YE2013

(Projected)

(%)

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Alternative Reinsurance 2013 Market Update (cont.)

3.1 3.6 3.75

8.4

14.1

11.8 12.3 12.4 12.7

15.216.2

3.8

5.94.34.8

3.42.7

7.2

4.6

2.11.11.40.8

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 13-Jun

(USDbn) Outstanding Issued

Source: Willis Capital Markets & Advisory

Catastrophe Bonds (Non-Life)

• Catastrophe Bond Market Nears Record Size


Summary of Expectations

• Sector Outlook remains Stable

• Price softening set to continue

• Low yield environment set to continue

• Earnings sustainability to be more challenging in 2014

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Related Research

Fitch research can be accessed via our website www.fitchratings.com

• 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)

• Hurricane Season 2013 – A Desk Reference for Insurance Investors

(May 2013)

• Bermuda 2013 Market Update (January 2013)


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.

10/14/2013

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reinsurance challenges & expectations for 2014 · the information in this presentation is...

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