© Oliver Wyman CONSULTING ACTUARIES

WHAT’S TRENDING IN REINSURANCE?2014 Valuation Actuary Symposium

August 25, 2014

Alberto Abalo FSA, MAAA, CERAPrincipal

2© Oliver Wyman 2

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

% Reinsured 0.615 0.597 0.562 0.47 0.399 0.361 0.352 0.342 0.302 0.275 0.261 0.272

Amt. Reinsured 1078 1043 1037 844 724 683 658 596 505 461 446 443

Amt. Retained 674.84552845528

5

705 809 952 1089 1207 1212 1148 1168 1218 1260 1185.6764705882

4

100

300

500

700

900

1,100

1,300

1,500

1,700

1,900

Cession rates have been on the decline…

U.S

. Bill

ion

sU.S. ordinary individual life insurance sales

Source: Society of Actuaries Life Reinsurance surveys, conducted by Munich American Re

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2011 2012 2013

% Reinsured 0.275 0.261 0.272

Amt. Reinsured 461 446 443

Amt. Retained 1218 1260 1185.67647058824

100

300

500

700

900

1,100

1,300

1,500

1,700

…but the market appears to have reached equilibriumConsistent level of new business 2011 - 2013

U.S

. Bill

ion

sU.S. ordinary individual life insurance sales

Source: Society of Actuaries Life Reinsurance surveys, conducted by Munich American Re

Year-over-year increase in

cession rates for the first time in

11 years

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What’s trending in reinsuranceTweets from the streets

1 #M&AReinsurance market consolidation continues

M&A activity is strong

2 #PE #AnnuityRe Private equity / alternative buyers getting into the insurance game, reinsuring annuities

3 #ShadowInsurance Captives under scrutiny

4#Longevity #BigData #Analytics #Pandemic

Other trends include: Automated UW, pension de-risking, emerging markets, pandemic reinsurance, …

#M&AMarket consolidation and M&A

1

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Rest of Market4% General Re Life

3%

Hannover Life Re11%

Munich American Re15%

RGA Re19%

Swiss Re20%

SCOR Life Re28%

Rest of Market5%

General Re Life3%

Transamerica Re15%

Munich American Re12%

RGA Re22%

Swiss Re12%

SCOR Life Re3%

Generali USA Life Re7%

Scottish Re (US)16%

Canada Life5%

US Individual Life reinsurance market shareThen and now

2005 market share 2013 market share

Source: Society of Actuaries Life Reinsurance surveys, conducted by Munich American Re

Top 5 as % of total20132005

77% 93%

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Acquisition activity by primary insurers and reinsurersAcquirer/Seller (Date)

1 2 3 4

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Forces driving M&A activitySuccessful deals have been driven by asymmetries of views and/or exposures

Motivations to Invest / Divest

Regulatory requirements and accounting standards

Risk and capital issues

Products

Low interest rates

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#PEPrivate equity / new market entrants

2

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Private equity firms and alternative buyers are driving annuity M&A activityAcquirer/Seller (Date)

1 2 3 4

#ShadowInsuranceCaptives under scrutiny

3

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Use of captives to blame for dropping cession rates?

Source: A.M. Best; Koijen & YogoAvailable at http://www.economist.com/news/finance-and-economics/21589917-american-life-insurers-are-less-robust-they-seem-life-shadows

1 2 3 4

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“Shadow Insurance”Captives under scrutiny

Use of term shadow insurance, echoed in the popular press, conflates use of captives with the banking practices that led to the 2008 financial crisis

DFS report attacks “regulatory race to the bottom” leading to artificially rosy capital buffers for insurers and putting policyholders at greater risk

• Conditional letters of credit• Two-step transaction• Hollow assets• Naked parental guarantees

“State insurance commissioners should consider an immediate national moratorium on approving additional shadow insurance transactions.”

– NY State Dept of Financial Services (June 2013)

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Other trends4

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Automated underwriting

Problem: Middle market

• Convenience

• Faster turnaround

Solution: Rules engines

• Automated underwriting

• Straight-through processing

Byproduct: Predictive Analytics

• Big data

• Predictive underwriting

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Longevity reinsurance

Size Cedant Insurer / swap provider Reinsurer

Jul 2014 £16bn BT BT Pension Scheme Prudential

Mar 2014 £5bn Aviva Aviva Life & Pensions Munich Re, Swiss Re, Scor

Dec 2013 £3bn AstraZeneca Deutsche Bank

Feb 2013 £3bn BAE Systems Legal & General Hannover Re

Nov 2011 £3bn Rolls-Royce Deutsche Bank Prudential, Scor, Pacific Life Re

Feb 2010 £3bn BMW Abbey Life Consortium including Hannover Re, Pacific Life Re and Partner Re

Source: Trading Risk, RGA

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Source: National Institute for Allergy and Infectious Diseases (NIAID)

Pandemic reinsurance

33%of deaths worldwide are caused by infectious diseases

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Other trends on our radar

2020+ 2020+2015 201520102010

Growth in Asia & Latin

America

Large inforce deals

Financial reinsurance

Combo Products

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1919© Oliver Wyman

Reports of my death have been greatly exaggerated.

Mark Twain