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					Reinsurance: A necessity or something
that the cat dragged in?

Simon Pearson
Reinsurance : Something the cat dragged in?


             An introduction : Something the cat
        1
             dragged in
             The role reinsurance can play … the client
        2
             viewpoint
        3   Capital & Risk Management : Solvency II
        4   Innovative solutions : Longevity
        5   Expertise and value-added services
  What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Reinsurance : Something the cat dragged in?




                                                        OR




                                                                                                                           3
Reinsurance : Something the cat dragged in?


             An introduction : Something the cat dragged
        1
             in
             The role reinsurance can play … the client
        2
             viewpoint
        3   Capital & Risk Management : Solvency II
        4   Innovative solutions : Longevity
        5   Expertise and value-added services
     What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




  Reinsurance Client Needs
What are clients looking for?

           Risk management
           Capital management
           Access to reinsurance service
           Access to reinsurance expertise
           Access to product development
And why ?
           Limits individual large claims
           Limits total risk and/or increases capacity
           Eliminates portfolio volatility
           Provides protection to the insurer’s P&L
           Improves solvency
           Market advantage through product development & innovation



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  What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Factors to consider in selecting a reinsurer
Independent 2010 Flaspöhler European Survey of Life Reinsurers



  Criterion to assess reinsurers :


             Financial Value
             Financial Security
             Client Orientation
             Expertise & Market Knowledge
             Actuarial Expertise
             Risk Management Service
             Medical Underwriting
             Claims Handling
             Timely Service


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  What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Factors to consider in selecting a reinsurer
Independent 2010 Flaspöhler European Survey of Life Reinsurers

                                                                   Reaching the top quartiles – Strong improvements
                                                                   in all areas for SCOR Global Life from 2008-2010

             Financial Value
                                                                                                                          2008            2010
             Financial Security                                                                                          Overall         Overall
                                                                                                                        (Europe)        (Europe)
             Client Orientation                                    Financial Value                                         6.46          6.80
                                                                   Financial Security                                      6.34          6.82
             Expertise & Market                                    Client Orientation                                      6.92          7.20
             Knowledge                                             Expertise and Market Knowledge                          6.69          7.18
                                                                   Actuarial Expertise                                     6.82          7.16
             Actuarial Expertise                                   Risk Management Service                                 6.52          6.92
                                                                   Medical Underwriting Capabilities                       6.97          7.32
             Risk Management Service                               Claims Handling                                         6.64          7.12
                                                                   Timely Service                                          6.85          7.17
             Medical Underwriting
             Claims Handling                                      Rating given on a scale form 1 to 9, with « top quartile > 7 »

             Timely Service                                                    Top Quartile         Average Half
                                                                                                                             Bottom
                                                                                                                             Quartile




                                                                                                                                                7
Reinsurance : Something the cat dragged in?


             An introduction : Something the cat dragged
        1
             in
             The role reinsurance can play … the client
        2
             viewpoint
        3   Capital & Risk Management : Solvency II
        4   Innovative solutions : Longevity
        5   Expertise and value-added services
  What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Solvency II : 3 pillar stucture



                        Risk                      Risk                      Risk
                    Quantifications            Management               Transparency

                          Pillar 1                  Pillar 2                  Pillar 3
                       Quantitative               Supervisory             Supervisory
                         Capital                   activities             Reporting &
                      Requirements                                      public disclosure



                     Solvency Capital                Risk                  Transparency
                      Requirements                Governance                & Disclosure

                     Minimum Capital
                      Requirements

                                        A risk oriented framework



                                                                                                                           9
   What the cat dragged in …    | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




 Pillar 1 : Possible role of the Reinsurer

                                                                                                 Pillar 1

    Risk                  Risk                        Risk                         • Tailor Reinsurance
Quantifications        Management                 Transparency
                                                                                     solutions to improve the
                                                                                     solvency margin
   Pillar 1                    Pillar 2                Pillar 3
                                                                                   • Assist to improve data
  Quantitative            Supervisory               Supervisory
    Capital                activities               Reporting &
                                                                                     quality & provide modelling
 Requirements                                     public disclosure                  support
                                                                                   • Assist in setting and
                                                                                     justifying the appropriate
Solvency Capital             Risk                   Transparency
 Requirements             Governance                 & Disclosure                    parameters
                                                                                   • Provide calculation support
Minimum Capital
 Requirements                                                                      • Compare standard results
                                                                                     model with internal model
                A risk oriented framework



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 What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up

Pillar 1: Risk Quantification
Tailor Reinsurance solutions : Impact on SII B/S




                      Free assets
                                                                         Lower the SCR through
                      Solvency                                           appropriate risk transfer
                       Capital
                     Requirement                                        Lower the SCR through
                       (SCR)                                            improvement of diversification
     Assets           Risk Margin                                       Lower the risk margin by reducing
                                                                        the SCR required for a specific
                                                                        block of business
                          Best
                                                                        Increase surplus by reducing Best
                        Estimate                                        Estimate Liability through more
                        Liability                                       exact parametrisation



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                         What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up

                      Solvency II Considerations: Impact on Balance Sheet from
                      use of Reinsurance
                               Balance Sheet before Reinsurance
                      300
Capital Requirement




                      100

                      -100 0     1       2   3   4      5     6      7   8     9    10

                      -300

                      -500

                      -700
                                                     Years

                                BEL_B4       RM_B4          SCR_B4       TP_B4




                                                                                                                                                  12
 What the cat dragged in …                | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up

Solvency II Considerations: Impact on P&L from use of
Reinsurance
                        Profit Profile before Reinsurance
             600
             400
 Cashflows




             200
               0
                    0      1     2    3       4    5      6   7       8    9       10
             -200
             -400
             -600
                                                  Years

                    Net Profit       Income        Outgo          Release in Res




                                                                                                                                       13
       What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




    Pillar 2 : Possible Role of the Reinsurer
                                                                                                Pillar 2

                                                                            • Assist clients’ own risk and
    Risk                 Risk                       Risk                      solvency assessment
Quantifications       Management                Transparency                • Assist in the determination of an
                                                                              appropriate reinsurance strategy
   Pillar 1                Pillar 2                  Pillar 3               • Review reinsurance wording
  Quantitative           Supervisory              Supervisory               • Provide appropriate controls for
    Capital               activities              Reporting &
 Requirements                                   public disclosure             reinsured business
                                                                            • Provide appropriate training for
                                                                              clients on the relevant functions
Solvency Capital            Risk                  Transparency              • Provide support in the risk control
 Requirements            Governance                & Disclosure
                                                                              process & internal guidelines
Minimum Capital                                                             • Process audits for clients
 Requirements
                                                                            • Assist product development
               A risk oriented framework                                      process



                                                                                                                                14
    What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




 Pillar 3: Possible Role of the Reinsurer



    Risk                   Risk                      Risk                                       Pillar 3
Quantifications         Management               Transparency
                                                                                   • Provide appropriate
   Pillar 1                 Pillar 2                   Pillar 3
                                                                                     information for reports
  Quantitative            Supervisory              Supervisory                       on portfolio
    Capital                activities              Reporting &
 Requirements                                    public disclosure                   development

                                                                                   • Provide market
Solvency Capital             Risk                  Transparency                      comparison for
 Requirements             Governance                & Disclosure
                                                                                     reporting
Minimum Capital
 Requirements
                                                                                   • Provide industry data &
                 A risk oriented framework                                           benchmarks of
                                                                                     published information

                                                                                                                             15
Reinsurance : Something the cat dragged in?


             An introduction : Something the cat dragged
        1
             in
             The role reinsurance can play … the client
        2
             viewpoint
        3   Capital & Risk Management : Solvency II
        4   Innovative solutions : Longevity
        5   Expertise and value-added services
      What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




  Longevity Risk

Definition:

Longevity Risk is the widening                             23


financing gap that may arise as a result
of unprovided-for extended longevity of                    21


individuals and of populations as a
whole.                                                     19




                                                           17


                                                                                                                      Netherlands
                                                                                                                      France
                                                           15                                                         Japan
                                                                                                                      USA




                                                           13
                                                            1950           1960            1970            1980             1990            2000




                                                                   Female life expectancy at age 65, 1950-2004
                                                                   France, Japan, Netherlands & USA

                                                                   Source : Human Mortality Database.
                                                                   University of California, Berkeley (USA), and Max Planck Institute for
                                                                   Demographic Research (Germany).




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  What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Longevity trend

                Education                                                          New diseases

                                                                                Climate changes
         Anti-tobacco & alcohol                                                 food supplies
               campaigns                                                        disease spreading

                                                                                   Sedentary life
              Healthy diets
                                                                        Prevalence of smoking in some
                                                                             emerging countries
            Medical research
                                                                       Public debt - difficulty in financing
                                                                            the health care system

             New molecules                                                     Obesity & diabetes II



    The pace of mortality improvement has peaked and will decelerate?

                                                                                                                           18
                       What the cat dragged in …          | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




2 SGL initiative 2: entry into the longevity market (II)
 SGL writes longevity business with minimal                                                            Focus on lower duration “in payment” annuities 1)
 impact on total capital position

                     100%
                                                                                                                                                                            In




                                                                                                        Annuity payments
                     90%
                                                                                                                                                                        deferment
  Economic capital




                     80%

                     70%

                     60%
                                                                                                                               In payment
                     50%
                                                                                                                                                                                      Higher
                                2010          2011           2012          2013                                                                                                     uncertainty
                       Capital for Life Underwriting risks (before longevity, assuming
                       remainder of portfolio constant)
                                                                                                                           0    10          20          30        40   50      60
                       Incremental capital for Longevity risks                                                                                   Duration (Years)


 Controlled Entry leads to Focus on UK pensions in payment
  Established market with significant potential over 2010-2013
  Large pension schemes provide opportunities with credible experience to assist pricing & risk management
  Pensions in payment help to manage duration of liabilities which are much shorter than portfolios of deferreds 1)

 Longevity risks are well diversified by existing portfolio: entry into new business initiative
   with only incremental impact on capital required, further validating the diversification
                      rationale of the “twin-engine business” strategy
                                     1) Solid lines: indicates best estimate of future annuity cashflows; dotted lines: indicate scenarios of lower mortality than expected
                                        “In payment” shows cashflows from pensions portfolio, typically aged 65-70 with expected duration around 30-35 yrs; “In deferment” shows
                                        cashflows from a pension portfolio, typically aged 45-50 where payments do not commence until retirement (around 15 years).

                                                                                                                                                                                            19
  What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Programs to Cover Longevity Risk

Basic structure
  Inforce portfolio of pensioners or insured; typically aged 65-70;
  Longevity « swap » : Exchange of cashflows
  Client pays fixed set of premiums on monthly, quarterly basis
  This schedule agreed at outset to represent schedule of expected annuities
  SCOR pays « claims » equal to actual annuities due

                                            Actual annuities



                                                                                            Cedent


                                           Expected annuities
                                               + margin




                                                                                                                           20
Reinsurance : Something the cat dragged in?


             An introduction : Something the cat dragged
        1
             in
             The role reinsurance can play … the client
        2
             viewpoint
        3   Capital & Risk Management : Solvency II
        4   Innovative solutions : Longevity
        5   Expertise and value-added services
    What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up


Providing excellent added value services and state-of-the-art
expertise in key fields for a top-class client service



Strong product development & actuarial support                       Top research and development centres




                         SCOR Global Life:
                          Offers full product development and actuarial
                          support from traditional to more technically complex or
                          specific risks
                          Provides financial solutions that best suit your needs
                          (capital relief or product development)




    Sharing SCOR experience with customers                                      Partnership-oriented




                                                                                                                             22
    What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Reinsurer Support through the life cycle of your business



                                         Product Design



          Risk                                                                 Medical
        monitoring                                                           Underwriting




                                   Product                Product                        Pricing
    Reserving                     Monitoring              Creation



                                                                               Statistical
         Claims                                                                  Tools
       Management


                                            Marketing
                                           distribution




                                                                                                                             23
Reinsurance : Something the cat dragged in?


             An introduction : Something the cat dragged
        1
             in
             The role reinsurance can play … the client
        2
             viewpoint
        3   Capital & Risk Management : Solvency II
        4   Innovative solutions : Longevity

        5   Expertise and value-added services

             Wrap up
   What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up


Excellent competitive position underpinned
in external view studies (I)
Stunning upgrade in client perception in the 2010 Flaspöhler European Survey
Dramatic move to eye-level with the big 3                            Reaching the top quartiles – Strong improvements
Category best overall reinsurer                                      in all areas for SCOR Global Life from 2008-2010
                                                       66%
      Munich Re                                       63%
                                                                                                                            2008            2010
         Gen Re
                                               54%                                                                         Overall         Overall
                                                57%                                                                       (Europe)        (Europe)
                                              52%                    Financial Value                                         6.46          6.80
       Swiss Re                                      61%             Financial Security                                      6.34          6.82
                                             49%                     Client Orientation                                      6.92          7.20
          SCOR                   30%
                                                                     Expertise and Market Knowledge                          6.69          7.18

Hannover Life Re               26%                                   Actuarial Expertise                                     6.82          7.16
                                 29%
                                                                     Risk Management Service                                 6.52          6.92
                                                                     Medical Underwriting Capabilities                       6.97          7.32
Highest increase of reinsurance use: paving
                                                                     Claims Handling                                         6.64          7.12
the way for future value generation
                                                                     Timely Service                                          6.85          7.17
                                                      64%           Rating given on a scale form 1 to 9, with « top quartile > 7 »
      Munich Re                                       64%

                                                   56%
                                                                                                                               Bottom
        Gen Re                                                                   Top Quartile         Average Half
                                                    58%                                                                        Quartile

                                               53%
       Swiss Re                                      61%
                                                                                        49% of all respondents
                                             51%
          SCOR                         41%                                             to questionnaire named
                                  33%                                                      SGL as the best
Hannover Life Re                    37%
                                                                                           reinsurer overall
                                             2010            2008
                                                                                                                                                  25
  What the cat dragged in …   | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




Reinsurance : Something the cat dragged in?




                                                                                                                           26
           What the cat dragged in …      | Role of Reinsurance | Solvency II | Longevity solutions | Reinsurance services | Wrap up




      SCOR Global Life: A leading international Life reinsurer

          Winner of prestigious Life                                                                        5th largest Life
          re-insurance awards                                                                               reinsurer in the
                                                                                                                 world

                                                Gross written premium             Operating margin
                                                 in €m                              in %                                  € 1.9 billion
                                                                                                                           Life European
                                                            +15.4%                                                       Embedded Value 09
                                                                                                                      (€ 10.8 per share)
A multi-cultural Group with                                  +14.9%
                                                                        3 118
30 offices serving 80                              2 701        (at                  6.0%             5.8%
        countries                                           constant
                                                            exchange
A new office in Israel since                                  rates)                                                           Strong global
      March 2010                   6 Hubs
                                                  2008                 2009          2008            2009                  franchise with around
                                   30 Offices
                                                                                                                               1900 clients


                     6.0%Over 500
                       experienced and                                                                        € 113 million of
                  highly-skilled employees(1)                                                                   Value of New
                                                                                                               Business in 2009
                                                            A strong   contributor to SCOR
                                                           Group’s portfolio and earnings
                                                                    diversification
                                                                                                                                          27
                                                 (1) As of Jan 2010

				
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