Emerging Trends in the Insurance Market

Presentation to Dublin Chamber of Commerce – 27th September 2011

Matt Rafferty – General Manager, IrelandQBE European Operations


Emerging Trends in the Insurance Market

European Operations

Insurance – The Journey

Page 32011-09-27 Presentation to Dublin Chamber of Commerce

• ‘As it was in the beginning and ever shall be...’.

• It is now interweaved into the very fabric of our society.

• It is now interweaved into the fabric of our economy.

• Resilience to global catastrophes.

• How is it reacting to global trends?

• How is it reacting to domestic trends?

European Operations

• Lloyds’ – formed to transfer simple individual risks to a pool arrangement – ‘The losses of the few...’


‘As it was in the beginning...’

European Operations

• Property

• Business Interruption

• Theft, Glass, Money

• Credit

• Third Party liability insurances.

Soon moved on to broader range of business cover


European Operations

A broad range of Personal Insurances

• Motor

• Home

• Travel

• Personal Accident

• Health

• Even our beloved pets....


Personal Insurances followed....

European Operations

• Space

• Pharma/Chemicals

• Rich & Famous

• Reinsurance

• And even more clever ones...

Specialist markets emerge...


European Operations

Clever....but maybe too clever?


Complex/diverse financial instruments

• Finite Risk

• CDS’s

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Insurance – what is it today?


• No longer just a piece of paper

• Decision for the buyer is more complex

• Trend to providing services, many of which give something back to the customer

European Operations

Insurance – the emergence of embedded services and ‘Add-Ons’


Support services are now standard for:

• Vehicle Replacement/Breakdown/Towing/Delivery

• Risk Management/Loss Control

• Legal Advice

• Repatriation

• Counselling and Rehabilitation

• Crisis Management

European Operations

Insurance within the social fabric


Instrumental in transforming attitudes globally and domestically for:

• Building Standards

• Health & Safety in the workplace

• Road Safety

• Employer/Employee relationships

• In Ireland as a leading lobbyist to government for having PIAB, Penalty Points, improved road infrastructure, ANPR/NFD and greater enforcement of laws.

European Operations

Insurance within the economic fabric


• Protection against the routine and catastrophic events.

• Allows business to do business.

• Protects and promotes entrepreneurship.

• Invests in business.

• Provides and protects employment.

• Contributes to GDP and balance of payments.

European Operations

Insurance - within the domestic economic fabric (2009 data)


• Contributes 7.5% of our GDP (up on 2008).

• Holds capital values of assets in excess of €78bn (up on 2008).

• Employs nearly 15,000 people.

• Sponsors an array of interests – particularly in the Leisure and Sports sectors.

European Operations

Reactions/resilience to global catastrophes


1989: Hurricane Hugo devastated Charleston• The city outpaced growth predictions in 7 of the following 10 Quarters.

1994: Southern California Earthquake• SC economy grew faster than it had before the disaster.

1995: Kobe Earthquake + 6,400 fatalities – Manufacturing hub of Japan & 6th largest trading port in the world.• 12 months later – virtually business as usual.• 15 months later - @ 98% of manufacturing output.

European Operations

Reactions/resilience to global catastrophes


• View of many economists that countries who suffered climatic disasters – grow faster and are now more productive.

• ‘Broken Windows’ scenario – upgrade/more productive industries.

• Finance is redistributed from Insurance Companies to construction workers and to homeowners.

• Smooth and quick recoveries but the real tragedy is that they are getting too much practice.

European Operations

Insurance – Recent Global Issues


2010• February – Chile Earthquake - $8bn to $10bn insured loss.• March – Europe Wind/Flood - $4bn insured loss.• September – NZ Earthquake - $4bn to $6bn insured loss.• December – Australia Floods - $1bn to $2bn insured loss.

2011• January – Australia Floods - $4bn to $6bn insured loss.• February – NZ Earthquake - $6bn to $10bn Insured loss.• March – Japan Earthquake - $25bn to $40bn insured loss.

15 month period – 4 of the top 5 most costly earthquakes in the history of the insurance industry.

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Insurance – Reaction to recent Global Issues


• Reinsurers have generally absorbed these losses

• Financial strength remains generally unimpaired

• Likely to affect M&A activity

• Some mono-line and smaller players may be under greatest pressure

• But there is talk that at a global level, Property premiums/rates will need to move – but which direction and at what pace?

European Operations

• Premium density remains relatively stable

• Growth in claims activity

• Erosion/fall in the premium base

• Increased claims frequency

• Reduced average premiums

So what is the trend in the domestic Commercial Lines (P&C) market?


European Operations

2008 2009

Country Cost Per Capita Country Cost Per Capita

UK 6,858 Switzerland 6,258

Switzerland 6,379 Denmark 5,529

Denmark 5,419 UK 4,579

Ireland 4,915 Ireland 4,516

Belgium 4,299 France 4,269

France 4,131 Japan 3,979

USA 4,078 USA 3,710

Sweden 3,996 Sweden 3,540

Japan 3,699 Belgium 3,494

Australia 3,386 Germany 2,878

Germany 2,919 Australia 2,833

Italy 2,264 Italy 2,729

Spain 1,909 Spain 1,802

Insurance Density – Global Comparisons


Insurance Data Source : Irish Insurance Federation

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Commercial Property Employers & Public Liability

YearNos. In

Employment GWP in EuroNo. of Claims

Reported GWP in EuroNo. of Claims

Reported

2003 1,852,200 574,700,000 17,330 859,900,000 18,589

2004 1,944,600 530,500,000 19,629 851,300,000 20,261

2005 2,034,900 498,400,000 19,695 794,400,000 19,828

2006 2,113,900 480,500,000 28,765 822,500,000 20,365

2007 2,112,800 460,700,000 32,267 691,400,000 22,037

2008 1,938,500 434,300,000 42,011 597,400,000 24,698

2009 1,859,100 384,000,000 44,076 532,200,000 25,184

Domestic Trends – the raw data



European Operations

Frequency per Employee Property Liability2003 0.94% 1.00%

2004 1.01% 1.04%

2005 0.97% 0.97%

2006 1.36% 0.96%

2007 1.53% 1.04%

2008 2.17% 1.27%

2009 2.37% 1.35%

Domestic Trends – A perfect storm?


Premium Per Employee Property Liability2003 310.28 464.26

2004 272.81 437.78

2005 244.93 390.39

2006 227.30 389.09

2007 218.05 327.24

2008 224.04 308.18

2009 206.55 286.27

2003 2004 2005 2006 2007 2008 20090.00%

0.50%

1.00%

1.50%

2.00%

2.50%

PropertyLiability

2003 2004 2005 2006 2007 2008 20090.00

50.00100.00150.00200.00250.00300.00350.00400.00450.00500.00

PropertyLiability


European Operations

Global:

• Depletion in reserves caused by recent catastrophic events both natural and financial

• Challenging investment portfolios

• ‘Property capacity is likely to be diminished and rates will harden’

Domestic:

• Frequency up and spending down – the perfect storm?

• Difficult economic and investment conditions

• ‘We need to look at the patterns and get back to our knitting’

The trend and outlook in summary



Thank you