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					Overview of global trends in reinsurance
(International reinsurance point of view)


     Thomas Hess
     Group Chief Economist
     Head of Economic Research &
     Consulting, Swiss Re


     14th African Reinsurance Forum
     Tunis, 20 October 2008
                             Key resinsurance questions to be
                             adressed

                                The economic situation and the banking crisis

                                Where do we stand in reinsurance?

                                Demand/ supply situation

                                Is reinsurance still safe?

                                Prospects for reinsurance




14th African Reinsurance
Forum, Tunis, 20 Oct. 2008
Page 2
                             Current situation in global
                             financial markets

                                Interbank markets dried up; large parts of financial markets face
                                 liquidity issues. There is high uncertainty about extent and duration of
                                 the crisis.

                                IMF sees half of subprime related losses (estimated at USD 1’405 bn)
                                 borne by banks, the other half absorbed by hedge funds, pension funds
                                 and insurers.

                                Additonal losses arise from the default of financials (Lehman,
                                 Washington Mutual, AIG).

                                The effects of the real economy are now becoming visible. US and
                                 Europe face recessions.

                                The economic slowdown will have further negative consequences for
                                 credit and stock markets.

14th African Reinsurance        The bank recapitalisation plans and other measures announced recently
Forum, Tunis, 20 Oct. 2008
Page 3                           should avert a complete financial meltdown, but outlook is still grim.
                             The indirect impact of the credit
                             crisis on insurers

                                 Lower investment income due to weak equity markets, rising
                                  credit spreads and defaults on corporate bonds

                                 Slower premium growth in P&C due to growth slowdown but
                                  problems with investments speed up hardening of insurance
                                  prices

                                 Individual US life insurers investment losses required them to
                                  raise capital from financial markets

                                 Lower demand for index-linked products (life insurers)

                                 Rise in inflation may lead to higher claims inflation (long-tail
                                  casualty)
14th African Reinsurance
Forum, Tunis, 20 Oct. 2008       Higher costs of capital: both equity and credit have become
Page 4
                                  more expensive
                              Insurance business is fundamentally
                              different from banking

Assets                                Liabilities

   Fixed-income              Unearned
                                                       Insurance business is funded primarily by premiums
   securities                premiums                   received for providing insurance protection
                                                         both premium flow and pay-outs are reasonably
                             Unpaid claims                 predictable
                                                       Pay-outs are triggered by hazardous events,
   Equity securities                                    and not by policyholders’ will
                                                         there can be no ‘run’ on an insurance company
   Alternative               Other liabilities         Insurance hazards are typically uncorrelated
   invest.                                               the failure of one insurer does not necessarily
                                                           predict failures of other companies*
   Cash and other            Equity
   assets
                                                       Premiums received for providing insurance are
 * see G30 and FSF studies
                                                        invested in diversified classes with currency and cash
                                                        flow matching
                                                         Insurers invest assets mostly to maturity and
                                                            therefore immunise against short-term value
14th African Reinsurance                                    fluctuation
Forum, Tunis, 20 Oct. 2008
Page 5
                             Where do we stand in
                             reinsurance?

                                The reinsurance price cycle turned in 2004, we are now
                                 reaching the bottom

                                Higher combined ratios, and less positve run-off of prior
                                 years cause lower underwriting results

                                Selective upward trends from low price levels in
                                 aviation, motor insurance, D&O already visible

                                Losses on the investment side put additonal pressure on
                                 profitability


14th African Reinsurance
Forum, Tunis, 20 Oct. 2008
Page 6
                             How are catastrophe losses
                             developing

                             Large insurance losses 2008 (> USD 1bn)

                             Date                    Insured loss         Event
                             Feb 08                        1.0            Tornadoes, winter storms, floods (United States)
                             Feb 08                        1.5            Winter storm Emma (Central & Eastern Europe)
                             May 08                        1.0            Sichuan Earthquake (China)
                             May 08                        1.2            Tornadoes (United States)
                             Aug 08                      2.5-4.0          Hurricane Gustav
                             Sep 08                       8-10            Hurricane Ike

                             Source: Swiss Re Economic Research & Consulting




                              Insured losses up to 1 September 2008 increased by more than
                             25% relative to the same period in 2007
14th African Reinsurance
                              2008 figures confirm long-term trend towards higher nat cat
Forum, Tunis, 20 Oct. 2008   claims
Page 7
                             Demand/ supply situation is
                             favouring higher reisurance rates

                                Demand
                                 - Insurers combined ratio increases
                                 - Insurers lose 5-20% of equity capital
                                 - Higher cost of capital

                                         Insurers will retain less and reinsure more
                                Supply
                                 - Reinsurers combined ratios increase
                                 - Reinsurers lose on investments
                                 - Higher cost of capital
                                 - Less alternative capacity available (securitisation, side
                                 cars, reinsurance start ups)

14th African Reinsurance
                                         Reinsurers will provide more capacity only at
Forum, Tunis, 20 Oct. 2008
Page 8
                                         higher price
                                  Stable ratings for reinsurers with
                                  few exceptions
                Financial Strength Rating/ Outlook                     S&P         Moody’s       A.M. Best
                ACE                                                 A+/ stable     Aa3/ stable   A+/ stable

                Berkshire Hathaway                                 AAA/ stable        Aaa        A++/ stable

                Everest Re                                          AA-/ stable    Aa3/ stable   A+/ stable

                Hannover Re                                         AA-/ stable         *         A/ stable
                Munich Re                                           AA-/ stable    Aa3/ stable   A+/ stable

                Paris Re                                            A-/ stable      Not rated     A-/ stable

                Partner Re                                          AA-/ stable    Aa3/ stable   A+/ stable

                Renaissance Re                                      AA-/ stable        A2        A+/ stable
                RGA                                                 AA-/ stable        A1        A+/ stable

                SCOR                                                A-/ stable     A3 / stable   A- / stable

                Transatlantic Re                                  AA-/ Watch Neg   Aa3/ stable   A/ negative

                XL Re                                               A+/ stable     A1/ stable     A/ stable

                Swiss Re                                            AA-/ stable    Aa2/ stable   A+/ stable


                Source: Swiss Re Economic Research & Consulting

14th African Reinsurance
Forum, Tunis, 20 Oct. 2008
Page 9
                             Solvency ratios expected to decline
                             as capital growth slows down

                                   Capital and solvency of the P&C industry, 1999-2011
                                   USD index, 1999 = 100.

                                                                                                                           %
                             200                                                                                           120



                             150                                                                                           90




                                                                                                             new scenarios
                             100                                                                                           60



                              50                                                                                           30



                               0                                                                                           0
                                     99    00     01      02     03     04      05     06     07     08     09   10   11

                                           Primary insurers' capital            Primaries' solvency [RHS]

14th African Reinsurance
Forum, Tunis, 20 Oct. 2008    Source: Swiss Re Economic Research & Consulting
Page 10
                             Worldwide P&C growth

                              P&C insurance and reinsurance real premium growth in %, 1991–2011.


                             12
                                                                                        The cycle may
                             10                                                         turn earlier and
                                                                                        more forcelully!
                              8

                              6

                              4

                              2

                              0

                              -2
                                   91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

14th African Reinsurance       Source: Swiss Re Economic Research & Consulting
Forum, Tunis, 20 Oct. 2008
Page 11
                             Profitability prospect non-life
                             insurance

                                         Profitability of 6 major primary markets, 1999-2011*,
                                         as a % of net premium earned                          2008 and 2009
                                 30                                                                     investment results
                                                                                                        and overall profits
Reinsurance                                                                                             results will be worse!
looks similar                    20

but is more                      10
cyclical
                                  0


                                -10


                                -20


                                -30
                                      99     00    01     02    03     04     05    06   07   08   09      10   11
                                           Underwriting result                      Investment result
                                           Operating result                         ROE after tax
14th African Reinsurance
Forum, Tunis, 20 Oct. 2008
Page 12                               Source: Swiss Re Economic Research & Consulting

				
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