2016 Insurance Market Briefing - France · 2016. 5. 6. · 2016 Insurance Market Briefing - France 27 April 2016 5 US Securities Laws explicitly prohibit the issuance or maintenance

2016 Insurance Market Briefing - France

Hôtel Napoléon

27 April 2016


2016 Insurance Market Briefing - France 27 April 2016 2

Welcome

Nick Charteris-Black Managing Director, Market Development – EMEA

William Mills

Director, Market Development

Agenda


14:10 Guest Presentation: Risk Appetite & Strategy in (Re)insurance Philippe Trainar, Group Chief Economist, SCOR SE

14:50 Natural Catastrophe Schemes in Europe Charlotte Vigier, Senior Financial Analyst

15:20

15:40 Global Reinsurance Market Trends Ghislain Le Cam, Associate Director, Analytics

16:10 Mock Rating Committee & Vote Greg Carter, Managing Director, Analytics

Alex Rafferty, Financial Analyst

plus other Committee Members

17:00

Disclaimer


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Disclaimer


US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in the sales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating, or developing or approving procedures or methodologies used for determining the credit rating.

No part of this presentation amounts to sales / marketing activity and A.M. Best’s Rating Division employees are prohibited from participating in commercial discussions.

Any queries of a commercial nature should be directed to A.M. Best’s Market Development function.

Appétence au Risque et Stratégie en (Ré)Assurance

Philippe Trainar

Senior Global Advisor to the Chairman – SCOR group Conférence AM BEST 27 Avril 2016, Paris

7

On peut penser que l’Appétence au Risque est un sujet de régulateur plus que de managers, car les managers auraient une appétence au risque comme Monsieur Jourdain fait de la prose… Mais cela n’est que partiellement vrai car les managers ne peuvent faire un usage cohérent de leur appétence au risque s’ils n’en ont pas une conscience claire et c’est à cette clarification que vise la définition de l’Appétence au Risque et sa mise en œuvre cohérente.

1. Qu’est-ce que l’Appétence au Risque : définition de l’appétence au risque d’une compagnie de (ré)assurance

2. La mise en œuvre de l’appétence au risque : le protection du capital et le profil de risque

3. Le pilotage de long terme de l’Appétence au Risque

4. Le pilotage annuel de l’Appétence au Risque

5. Le pilotage infra-annuel de l’Appétence au Risque

6. La contribution de la discussion avec les régulateurs et les agences de notation à la définition de l’appétence au risque

INTRODUCTION

8

L’Appétence au Risque est à la base de la stratégie d’une compagnie et son ADN

L’Appétence au Risque se distingue de l’Enterprise Risk Management

Toute compagnie de (ré)assurance a une Appétence au Risque qui définit les risques qu’elle souhaite

souscrire ou investir

L’ERM définit les mécanismes de gestion qui assure l’alignement du profil de risque de la compagnie

avec son appétence au risque

L’Appétence au Risque définit l’équilibre recherché par la compagnie entre:

Les couvertures offertes aux clients avec quel niveau de sécurité, mesuré en termes de notation et

de niveau de capital

La protection offerte aux détenteurs du capital que ce soit des actionnaires, des investisseurs en

dette subordonnée ou des sociétaires, en termes d’immunisation du capital par rapport aux chocs et

de rendement du capital

Les garanties offertes aux « stakeholders », au premier rang desquels les superviseurs et leur(s)

exigence(s) de marge se solvabilité minimum

1. Qu’est-ce que l’Appétence au Risque : définition de l’appétence au risque d’une compagnie de (ré)assurance (1)

9

L’appétence au risque se décline à 3 niveaux :

…

1. Qu’est-ce que l’Appétence au Risque : définition de l’appétence au risque d’une compagnie de (ré)assurance (2)

Niveaux de l’appétence au

risque Définition de l’appétence au risque

• Quels risques recherche-t-on dans le spectre fréquence / sévérité ? Avec quelle niveau de diversité et diversification ? En fonction de quelle connaissance de ces risques ?

Appétit au risque

• Quelles sont les risques que l’on recherche pour eux-mêmes et pourquoi : B to B et / ou B to C ? Financiers et / ou Réels ? Non-vie et / ou vie ? Sélectifs et / ou diversifiés ?

Préférence en matière de risque

• La tolérance au risque définit les limites qui permettent d’aligner le profil de risque sur l’appétit et la préférence définis ci-dessus. 4 grands types de limites doivent être définies : • L’objectif de ratio de solvabilité qui est fonction de la

métrique du SCR (modèle interne ou formule standard) • Les limites par facteur de risque (couple fréquence sévérité) • Les limites par scénario extrême (sévérité acceptée) • Les limites par risque souscrit ou investi (guidelines)

Tolérance au risque

10

L’Appétit au Risque de SCOR (plan stratégique)

“Optimal Dynamics”

Risk appetite

A mid-level risk profile (after hedging) with a focus on the belly of the risk distribution, avoiding exposure to extreme tail events, but aligned with the increased size, diversification and capital base of the Group

Volatility is controlled through diversification and Capital Shield Strategy

Risk preferences

Business focus on selected reinsurance risks

Most mainstream insurance risks covered in Life and P&C, with a recalibration reflected in an increase in longevity risk and a slight increase in Nat Cat risk

Low appetite for interest rate risk (at least in the short term) and no appetite for operational risk, clients’ asset risk, financial D&O1), GMDB2) new business

Risk tolerances

Solvency target Capitalization level SCR, Buffer capital and flexible solvency target driving a process of gradual escalation and management responses

System of limits

Risk drivers (probabilistic) Post-tax net 1:200 annual aggregate loss for each risk driver ≤ 20% Available Capital

Extreme scenarios (probabilistic) Post-tax net 1:200 annual per-event loss for each risk ≤ 35% Buffer Capital

Limits per risk in the underwriting and investment guidelines

Footprint scenarios Impact assessment of past events (deterministic)

1) Directors and Officers liability insurance 2) Guaranteed Minimum Death Benefit

Source: Présentation Investor Day de SCOR (Septembre 2015)

11

Le système de limites de SCOR par rapport aux scénarios extrêmes et aux facteurs de risque

Overview of 2015 risk exposures 1)

Limits and exposures for a 1-in-200 year annual probability in € millions

Risk Exposure Limit

Extreme scenarios

Major fraud in largest C&S exposure ~190

720

US earthquake ~460 US/Caribbean wind ~650 EU wind ~300 Japan earthquake ~180 Terrorist attack ~160

Risk driver Extreme global pandemic(s) ~1 000 1 570 SCOR’s system of limits is designed to ensure that the Group’s annual exposure to each major risk is controlled and to avoid the Group’s

overexposure to one single event

All exposures above are net of current hedging / retrocession / mitigation instruments, with an allowance for tax credit

For extreme global pandemics, the exposure includes the P&C and asset exposures as well as the mitigation effects of the Atlas IX mortality bond and the contingent capital facility

1) The exposures are based on the GIM V-2014 model prior to changes for SII


12

Les sociétaires, pas plus que les actionnaires, ne sont les réassureurs de la compagnie

Le capital ne constitue pas qu’une protection pour les assurés

La couverture des exigences en capital conditionne l’activité d’assurance

La levée de capital est difficile (actions), coûteuses (dette) et longue (profit accumulé)

La capital doit être protégé dans la perspective de continuité d’activité

Cette protection est rendue nécessaire par le fait que les sociétaires ne sont pas les réassureurs de

la compagnie et que le capital conditionne les opérations d’assurance

La stratégie de protection du capital repose sur 5 lignes potentielles de défense :

1. La sélection des risques, leur diversification et leur tarification

2. La réassurance traditionnelle

3. La réassurance non-traditionnelle et le transferts alternatif de risque

4. Les différentes formes de capital contingent (pas disponibles pour les mutuelles)

5. La capital sous toutes ses formes (profits accumulés, dette subordonnée, augmentation des tarifs

en cours de contrat…)

2. La mise en œuvre de l’appétence au risque : le protection du capital et le profil de risque (1)

Le profil de risque d’une compagnie se résume par la courbe fréquence / sévérité des gains et pertes potentielles de la compagnie

Cette courbe est aisée à tracer avec un modèle interne… elle doit être inférée par des méthodes plus synthétiques lorsque l’on utilise la formule standard

La stratégie de protection du capital (combinaison de la réassurance proportionnelle et non-proportionnelle) permet de piloter finement le profil de risque et son adéquation à l’appétence au risque

Cette adéquation doit être contrôlée à intervalles réguliers aussi rapprochés que possible

2. La mise en œuvre de l’appétence au risque : le protection du capital et le profil de risque (2) Le profil de risque : la courbe fréquence /

sévérité des gains et pertes

Un profil de risque élevé conduit à un écart accru de profitabilité (gains et pertes) entre les scenarios favorables et adverses

La courbe bleue correspond à un profil de risque plus élevé et la courbe rouge à un profil de risque, la courbe jaune étant intermédiaire

13

Optimal Range

SCOR’s GIM V-2015 solvency ratio at ~204% reflects the Group’s financial strength and risk distribution is largely unchanged

Economic sensitivities Solvency ratio with GIM V-2015

GIM V-2015

~204

GIM V-2015

Available capital (AC) €7.8 bn

Solvency Capital Requirement (SCR) €3.8 bn

220%

185%

1) The 2015 solvency ratio is available capital at year-end 2014 divided by SCR as of that date, allowing for planned business in 2015

Shape of risk distribution is virtually stable

-8000

-6000

-4000

-2000

0

2000

4000

1 10 100 1000

Cha

nge

in e

cono

mic

val

ue,

in €

mill

ions

Return Period in Years (logarithmic)

GIM V-2014 GIM V-2015

1 in 200 year

€3.8bn

Example: 1:200 year change in economic value = 99.5 VaR = €3.8bn

The increased conservatism is reflected in the deformation of the curve, especially in the tail of the distribution

Le profil de risque de SCOR (plan stratégique)

Source: Présentation Investor Day de SCOR (Septembre 2015) 14

Ce pilotage prend corps dans la politique de gestion des risques

Cette politique relève de la compétence du conseil. Elle doit être : approuvée par lui

revue chaque année afin de vérifier son adéquation à l’exposition aux risques

revue à l’occasion du nouveau stratégique pour vérifier son adéquation à l’appétence au risque et

au nouveau profil de risque

Cette politique doit être suffisamment précise et doit définir : La métrique du ratio de solvabilité (Solvabilité 2 en Europe avec le choix entre le recours à un

modèle interne ou à la formule standard)

La liste des limites, par facteurs et par scénario extrême, à mettre en place ainsi que leur

métrique (couple fréquence / sévérité)

La répartition des responsabilité en matière de :

définition de l’appétence au risque

contrôle de sa mise en œuvre de cette appétence

reporting, notamment au comité de direction et au conseil

15

3. Le pilotage de long terme de l’Appétence au Risque

Contenu de la politique de gestion des risques de SCOR

16

17

Le pilotage annuel peut se faire dans le cadre du reporting prévu par Solvabilité 2

4. Le pilotage annuel de l’Appétence au Risque

Il s’inscrit alors dans le cadre du pilier 2 de solvabilité 2 qui semble suffisant par rapport aux besoins qui sont ceux d’un pilotage pertinent de l’appétence au risque

L’ORSA vise à apprécier l’exposition de la compagnie aux risques et l’adéquation de le couverture offerte par son capital à l’horizon du rapport. Il se confond normalement avec le rapport de la fonction gestion des risques, rédigé par le CRO. Il comporte : une appréciation prospective de la solvabilité de la compagnie et de la l’adéquation de

l’appétence au risque et du profil de risque qui en découle une appréciation de la pertinence des métriques retenues par rapport au profil de risque de la

compagnie, notamment de la pertinence de la formule standard une démonstration du respect des exigences règlementaire de solvabilité par le profil de risque

prospectif, avec une probabilité suffisante

Le rapport de la fonction actuarielle, rédigé par le chef-actuaire, doit contenir : une opinion sur la politique de souscription et son adéquation à l’Appétence au risque de

compagnie une opinion sur la pertinence des accords de réassurance… au regard de l’appétit au risque de la

compagnie

Le plan de souscription, d’investissement et de réassurance pour l’année suivante dont la pertinence au regard du profil de risque doit être systématiquement contrôlée

18

Contenu de l’ORSA 2014 de SCOR

19

Le pilotage de l’exposition nette oblige à un pilotage intra-annuel de la réassurance

Le suivi du respect de l’Appétence au Risque doit être régulier Tout dépassement de l’appétence au risque (limites) et toute modification imprévue du profil de

risque doit être immédiatement rapporté au comité de direction

Un « risk dashboard » trimestriel ou sinon semestriel doit si possible être présenté

Le suivi du respect de l’Appétence au risque est lié à la gestion de la solvabilité Tout dépassement de l’appétence au risque (limites) et toute modification imprévue du profil de

risque qui entraîne une déviation significative du SCR doit être rapporté au comité de direction puis

au conseil d’administration, surtout s’il persiste

Dans la stratégie de retour à la normale après une déviation significative de la solvabilité,

l’ajustement du profil de risque et de l’Appétence au Risque vient en premier, avant l’ajustement de la

réassurance

Il est souhaitable que cette stratégie de retour à la normale puisse s’inscrire dans un cadre préétabli

qui a clairement précisé les responsabilités et les moyens à mettre en œuvre pour restaurer

l’adéquation entre le profil de risque et l’Appétence au Risque

5. Le pilotage infra-annuel de l’Appétence au Risque

20

Le suivi infra-annuel du profil de risque et de son adéquation à l’Appétence au Risque : le GRM Dashboard de SCOR

21

La gestion des déviations : l’Echelle de Solvabilité de SCOR An escalation process is planned depending

on the level of available capital

The optimal capital range enables the Group to achieve maximum profitability and satisfy the level of solvency which SCOR targets to offer its clients

The probability of being in the optimal or comfort ranges is ~50.5% (53.8% - 3.3%)

The threshold capital (SCR + Buffer) is the threshold minimum amount of capital determined by management

SCOR aims to avoid over and under capitalization, bearing in mind that the upper part of the scale is easier to manage than the lower part

GR

OU

P SC

R

Ale

rt

Sub-

O

ptim

al C

omfo

rt

Ove

r ca

pita

lised

Su

b-O

ptim

al

Opt

imal

1.7 buffers ~185% SR2)

100% SR2)

1 buffer ~150% SR2)

4 buffers = Max buffer ~300% SR2)

2.4 buffers ~220% SR2)

Starting Point 2013

SR2)

=221%

Action Escalation level

Redeploy capital Board/ AGM

Fine-tune underwriting and investment strategy

Executive Committee

Re-orient underwriting and investment strategy towards optimal area

Executive Committee

Restructure use of capital Board/ AGM

Restore capital position Board/ AGM

Below minimum range - submission of a recovery plan to the supervisor3)

Board/ AGM

Threshold capital

1/2 buffer = Min buffer ~125% SR2)

Probability of the 2014 SR1)

15.8%

53.8%

3.3%

0.5%

1.2%

99.6%


22

6. La contribution de la discussion avec les régulateurs et les agences de notation à la définition de l’appétence au risque

L’appétit au risque s’inscrit dans la gestion des risques qui est un critère spécifique de l’évaluation du rating et de la solvabilité des compagnies de (ré)assurance

Les discussions avec les régulateurs s’inscrivent dans un cadre légal qui utilise une grille d’analyse bien connue et qui peut constituer une référence pour de nombreuses compagnies

La discussion avec les agences de notation est importante car elle permet au top management de bénéficier d’une vision extérieure et de marché de sa gestion du risque

Extrait de la nouvelle méthodologie AM BEST de notation des compagnies de (ré)assurance

(publiée pour un appel à commentaire le 10 mars 2016): L’Enterprise Risk Management est un critère pouvant influer de plusieurs crans

sur le rating final de la compagnie d’assurance

23

Par définition une compagnie de (ré)assurance souhaite prendre certains risques, sachant qu’il y a d’autres risques

qu’elle ne peut éviter mais qu’elle ne recherche pas

L’Appétence au Risque est au cœur de la vie d’une compagnie: toute compagnie de (ré)assurance a une Appétence

au Risque, qu’elle en soit consciente ou non, mais sa définition claire permet d’en assurer une mise en œuvre

cohérente

L’importance de l’Appétence au Risque vient de ce qu’elle se situe à l’articulation entre la stratégie et le risk

management, en fait à leur origine commune

La définition de l’Appétence au Risque vise à se conformer non à une appétence imposée, qui serait celle des

superviseurs, mais à l’appétence qui est celle de la compagnie elle-même

Une bonne organisation repose sur :

une Appétence au Risque claire et partagée par l’ensemble du management

un profil de risque qui s’établisse en conformité avec l’Appétence au Risque de la compagnie

un suivi régulier de l’adéquation entre profil de risque et Appétence au Risque

une prédéfinition des actions correctrices en cas de déviation, surtout si celle-ci induit une déviation significative

de la solvabilité

CONCLUSION



Charlotte Vigier Senior Financial Analyst

The Value of Natural Catastrophe Schemes in Europe

Nat Cat up on the agenda


Climate change (flood and

windstorm risks)

Pressures - fiscal budgets The State - shrinking role

Increased urbanisation Exposure concentration

The Insurance Gap


Date Event Location Deaths

Economic Loss (USD bn)

Insured Loss (USD bn)

Dec. 22-31 Flooding United Kingdom N/A 2 .5 1 .3

Mar. 29-Apr. 1 Windstorms Mike and Niklas Western and Central Europe

9 1.4 1.0

Oct.3-4 Flooding France 19 1.3 0.7

Jul.-Dec. Drought South Africa N/A 2.0 0.3

Jan. 9-11 Windstorms Elon and Felix Western and Northern Europe N/A 0.7 0.4

Source: Aon Benfield, 2015 Annual Global Climate and Catastrophe Report

Need for public / private partnership


Prevention Mitigation

Risk transfer Recovery

State Infrastructure

Education Assistance

Re-construction Compulsion

Subsidies Guarantees

Private Sector

Risk pricing Deductibles

Exclusion

Claims payment Technical assistance

Technical expertise Risk modelling

Operational support

Challenges that Nat Cat schemes face


Anti-selection Competition

High penetration? Bundling

State Guarantee?

Private or Public

Flat Pricing? Coverage

Compulsion?

Preparedness in Europe


Flood Earthquake • Nat Cat Schemes: NDCS/CCR (France), CCS (Spain), Flood Re (UK)

• Spain: high penetration, tempered by inclusion of motor lines (flood)

• Germany: low penetration household insurance (flood)

• Italy: low penetration in general, high exposure to earthquake 50

90

90 90

30

30 5 50

90

90 90

18

5 5

5 90

Source: European Union Commission

France – Natural Disasters Compensation Scheme / CCR


Spain – Consorcio de Compensacion de Seguros


UK – Flood Re


Germany


• Main perils flood and windstorms • Increased awareness due to flood and hailstorm losses

in 2013 • Availability vs affordability • High penetration on basic policies (excl nat cat) • 99% of nat cat risks insurable, but only 35%

penetration on flood for households • Key difference with other markets: optionality • Recent experience reliant on post-event assistance

from local governments

Overview

Italy


• Main risks: earthquake and flood • Low penetration rates in household insurance (< 40%) • Earthquake losses:

• L’Aquila (2009): € 10bn economic losses vs € 250m insurance claims

• Emilia Romagna (2012): € 12bn economic losses vs € 1bn insurance claims

• Discussions between ANIA and the government: • Increasing penetration rates. Compulsion (?) • Reduction or elimination of rates on premiums. • State guarantee

Overview

Conclusions


• Prevalence of flood risks in most countries (earthquake in Italy)

• Increased awareness due to climate change

• No “one size fits all” solution • Need for public/private partnership

initiatives • High penetration as a requirement, not

a consequence

• Nat cat schemes are a complement, not a substitute to the private sector

• Incentives and restrictions to limit adverse selection are key

• Need for a solid technical framework that ensures the long term financial viability of the model




Q&A



Ghislain Le Cam Associate Director, Analytics

Global Reinsurance Market Trends

Discussion Outline


Global Economic Conditions

Global Reinsurance Results and Trends

The Merger and Acquisition Phase

Challenges and Impact of Alternative Capital

2016 Outlook

Global Reinsurance


Global Economic Conditions

Global GDP Growth


-4

-2

0

2

4

6

8

10

1990 1995 2000 2005 2010 2015 2020

World GDP Growth Advanced Economies Emerging & Developing Economies

%

Source: International Monetary Fund

Interest Rate Environment


0

1

2

3

4

5

6

7

2000 2005 2010 2015

%

US Japan

UK Germany

Source: OECD, Bank of Japan and Federal Reserve

Worldwide Market Share


39%

31%

21%

5% 3% 1% North America

Western Europe

Asia/Oceania

Latin America andCaribbean

Central & EasternEurope

AfricaSource: Swiss Re sigma No4/2015

Total Global Non-Life

Premiums approximately USD 2.0 trillion

Global Reinsurance


Global Reinsurance Results and

Trends

2015 Stock Price Change


-55

-45

-35

-25

-15

-5

5

15

25

35

%

Through December 31, 2015 YTD Price Change Avg Chg Reinsurer YTD S&P 500 Chg

Source: Bloomberg, Yahoo, company websites

Underwriting Profitability


63.8% 76.1%

60.7% 56.4% 56.4% 56.2% 62.7%

31.6%

31.3%

31.3% 32.2% 33.1% 34.2% 31.9%

95.4%

107.4%

92.0% 88.6% 89.5% 90.4% 94.6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0%

20%

40%

60%

80%

100%

120%

2010 2011 2012 2013 2014 2015 5yr Avg

Loss Ratio Expense Ratio Fav. Loss Dev.

Operating Returns


10.6%

2.5%

12.1%

13.1%

11.4%

9.5%

0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012 2013 2014 2015

ROE 5yr Avg

Current Market Conditions


It’s a “buyer’s market”

Primary companies retaining

more

Increased use of alternative

capacity

Terms and conditions broadened

Rate on line under

pressure – especially loss-free business

Industry consolidation is creating a ripple effect

Catastrophe Rates


Global Reinsurance – Catastrophe Rate on Line Index

0%

50%

100%

150%

200%

250%

300%

350%

400% US Asia - Pacific UK Europe

9/11 Attacks KRW*

IKE Japan EQ

Andrew Sandy

Source: AM Best Research, Guy Carpenter & Co LLC * Hurricanes Katrina, Rita & Wilma

Reinsurance Capacity Utilization


Source: A.M. Best research and data

81% 76%

73%

50

60

70

80

90

100

2012 2013 2014

%

Capacity Utilization Based on Aggregate Risk-Adjusted Capitalization of Rated Balance Sheets

2015 Capital Management


0

500

1,000

1,500

2,000

2,500

3,000

3,500

(USD

mill

ions

)

2015 Share Repurchases & Dividends Paid

Dividends Share Repurchases

Source: Company reports

Global Reinsurance


The M&A Phase

The Base Case for M&A


Broader product capability

Broader geographic reach

Greater influence with brokers and

cedants

Greater attractiveness to

third-party capital

M&A

Most M&A deals in the current reinsurance market are focused on one, if not all, of these four categories

The Drive for Efficiency


The market will continue to

become more efficient as

all players strive to become

closer to the client

Note: AOCI is defined as Accumulated Other Comprehensive Income Source: A.M. Best data and research, Bloomberg, company reports

Reinsurers Price-to-Book Value as of Year End 2015


40

60

80

100

120

140

160

180

200

220

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Pric

e/Bo

ok V

alue

Average

Current P/BV: 1.10x Average 1993-Present: 1.16x

Low Reached March 2009 (0.75x BV)

Peak reached February 2002 (1.83x BV)

1.0x P/BV

Excluding accumulated other comprehensive income

Increase in M&A Deals


Date Announced Acquirer Location Target Location Price

(USD million) Price to

Book Value

23-Jun-14 Validus Bermuda Western World Insurance USA 690 1.33x

22-Aug-14 Allied World Bermuda Hong Kong operation of RSA Hong Kong 215 NA

24-Nov-14 RenRe Bermuda Platinum Underwriters Bermuda 1,900 1.12x¹ 09-Jan-15 XL Group Ireland Catlin Group Limited Bermuda 4,100 1.27x¹ 17-Feb-15 Fairfax Canada Brit London 1,880 1.73x 31-Mar-15 Endurance Bermuda Montpelier Re Bermuda 1,830 1.21x

03-May-15 Fosun International Ltd China Ironshore Bermuda 2,304 1.2x

01-Jul-15 ACE Switzerland Chubb US 28,300 1.83x

27-Jul-15 CM International Holding PTE Ltd China Sirius International Insurance

Group, Ltd Bermuda 2,235 NA

03-Aug-15 EXOR Italy PartnerRe Bermuda 6,900 1.19x 08-Sep-15 Mitsui Sumitomo Japan Amlin London 5,334 2.4x

Notes: ¹ Book Value = Assets - intangibles - liabilities Source: A.M. Best data and research, Bloomberg and company reports

Global Reinsurance


Challenges and Impact of

Alternative Capital

Alternative Capital


Market still heavily influenced

by global leaders –

that won’t change anytime soon

Cultural issues no longer

limiting M&A – it is happening

Alternative capacity is driving change

Alternative capital is driving a great deal of structural change in the market

However, do not lose sight of the fact that the market continues to be heavily influenced by the global reinsurance leaders

Dedicated Reinsurance Capacity


Total Dedicated Reinsurance Capacity (USD billions)

292 320 340 332

19 48

60 68

0

50

100

150

200

250

300

350

400

450

2012 2013 2014 2015E*Traditional Capacity Convergence Capacity

Note: * Estimate by Guy Carpenter and A.M. Best Source: A.M. Best, Guy Carpenter

CAT Bond Issuances


CAT Bonds Issued and Outstanding

0

4

8

12

16

20

24

28

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

(USD

bill

ions

)

CAT Bonds OutstandingSource: A.M. Best, Artemis

Convergence Products


Basis Risk – The risk that a convergence instrument may not fully trigger when the sponsor suffers a loss

Tail Risk – The risk borne by a sponsor if an entity to which it cedes business is insufficiently capitalised

Credit, Default and Recovery Risk – Transactions that involve payment obligations from third parties

Investment Performance Risk – For transactions that rely on investment earnings and return on investments

Structuring Risk – Transactions involving securitizations where cash flows are an essential source of investor repayment

Modelling Risk – Transaction where modelling performed by third-party consulting firms

Risks associated with convergence products

Global Reinsurance


Reinsurance Rating Outlook

Today’s Reinsurance Market…


Negative Outlook

Increased client

retentions

Excess capacity

Convergence capital

Benign cat losses

Questionable underwriting

discipline

Declining reserve

redundancies

Low investment

yields




Q&A

Conférence d'A.M. Best sur le marché de l'assurance 2016

Conférence d'A.M. Best sur le marché de l'assurance 2016 27 April 2016 64

Mock Rating Committee & Vote Alex Rafferty

Financial Analyst

Carlos Wong-Fupuy Senior Director



Greg Carter Managing Director, Analytics

• A.M. Best rating actions determined by a Rating Committee

• Rating actions include: – affirmations – upgrades and downgrades – initial ratings – placement of ratings under

review

• Responsible analyst produces rating package and proposes rating action

• Rating Committee deliberates on the proposed action and determines the rating action

Mock Rating Committee and Vote Introduction

Conférence d'A.M. Best sur le marché de l'assurance 2016 65 27 April 2016

• Voting quorum – minimum of six members, including at least two senior members

• Voting order: – Responsible analyst and team

leader – All other members in reverse

order of seniority

• Simple majority vote is acceptable for the approval of any rating action

• Chair of the Rating Committee can break a tie or refer the decision to a higher committee

• Voting members must have no conflicts of interest, but must have relevant experience and have passed compliance requirements

Mock Rating Committee and Vote Voting


Mock Rating Committee and Vote Rating Process

Strong Operating Performance Builds Balance Sheet Strength

Weak Operating Performance Erodes Balance Sheet Strength

Date of last balance sheet

Present Future

Operating Performance and Business Profile Leading Indicators of the Future Balance Sheet

Bal

ance

She

et S

tren

gth

Time

BCAR Guideline Business Profile Drives Strong and Sustainable Operating Performance


Introduction BMF Insurance Company

• New rating for a subsidiary of an already rated group

• Recommendation: stand-alone assessment of ‘a’, stable outlook

ERM

Adequate

Good Business Profile

Stable Operating Performance

Solid Risk-Adjusted Capitalisation and

Balance Sheet Strength

Note: ERM = Enterprise Risk Management


Business Profile - BMF Insurance Company Overview

• Domiciled in a small European country

• Country Risk Tier 1 – stable operating environment

• BMF Insurance Company (BMF) established 70 years ago and is owned 100% by Windermere Insurance Group (UK) plc

• Good competitive position: – third-largest insurer in its country of domicile – in-depth knowledge and experience of the local market


• Well diversified insurance portfolio by line of business

Business Profile - BMF Insurance Company Business split

6% 5% 6%

34% 36% 37%

40% 38% 40%

11% 15% 11% 9% 6% 6%

0%10%20%30%40%50%60%70%80%90%

100%

2013 2014 2015

PA and Health Motor and Third-Party LiabilityFire and Property MarineMisc


• GWP increased by 11% during 2015, driven by increase in motor and property business

• High competition in local market

• Planned growth driven by higher volume and moderate rate increases

Business Profile - BMF Insurance Company Gross Written Premium (GWP) development

050

100150200250300350400450500

2011 2012 2013 2014 2015 2016e 2017eEU

R m

illio

ns

Gross Written Premium Net Written Premium


• Geographically concentrated, only writing local business

• Plans to open a branch in a neighbouring country in 2017 to diversify geographically

• Growth of 10 - 15% expected over each of the next three years, includes growth via new branch

• New branch represents execution risk

Business Profile - BMF Insurance Company Business plans


• Business profile supports the recommendation:

– Good market position, competitive advantage – Strong brand recognition – Diverse product offering – Offset by geographical concentration – Diversification via branch comes with execution risk

Business Profile - BMF Insurance Company Summary


• Strong risk-adjusted capitalisation, as measured by the BCAR model

• Risk-adjusted capitalisation is supported through: – Good internal capital generation – Conservative investment profile – Good credit quality of reinsurers

• Comfortably meets local solvency requirements

BCAR 2014 2015 2016e 2017e 2018e

Standard 180% 204% 185% 183% 185%

CAT Stress 172% 197% 178% 178% 180%

Market average 160% 167%

Balance Sheet Strength - BMF Insurance Company Capitalisation


• Historically: significant exposure to Peripheral European Sovereign Debt

• De-risked portfolio in 2015, leading to improvement in risk-adjusted capitalisation

Balance Sheet Strength - BMF Insurance Company Investments

42% 41%

62%

30% 28%

7%

20% 23% 21%

6% 4% 5%

0%10%20%30%40%50%60%70%80%90%

100%

2013 2014 2015

Fixed income Peripheral European Sovereign DebtPublic Equity Mutual fundsProperty


• Reserves are reviewed by an internal actuary quarterly and by an external actuary annually

• Small margin in held reserves over external actuaries best estimate

• Loss triangles for the past 10 years indicate stability

• Modest reserve releases in each of the past three years

Balance Sheet Strength - BMF Insurance Company Reserving


• Reinsurance includes both proportional and non-proportional arrangements

• 92% of reinsurers are rated “A-” or above

• Limited cat risk in local market, earthquake risk is borne by state reinsurer

Balance Sheet Strength - BMF Insurance Company Reinsurance


• Balance sheet strength is supportive of the recommended rating

• Solid risk-adjusted capitalisation

• Good internal capital generation to support planned growth

• Investment risk has reduced

• Stable reserve development

• Limited CAT risk

• Comprehensive reinsurance with high quality panel

Balance Sheet Strength - BMF Insurance Company Summary


• Good return on equity, averaging 12% over the last five years

Operating Performance - BMF Insurance Company Overall performance

16

-11

19 20 21 22 23

7

7

7 6 3 5 6

-2

2

4 2

-3

1 1

-15

-10

-5

0

5

10

15

20

25

30

35

2011 2012 2013 2014 2015 2016e 2017e

EUR

mill

ions

Technical profit Investment Income Fair Value gains


• Diverse product range has supported stable underwriting performance

• Combined ratios average 93% over the past five years

Operating Performance - BMF Insurance Company Underwriting

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015

Loss

ratio

PA and Health Motor and Third-Party LiabilityFire and Property MarineMisc


2011 2012 2013 2014 2015 2016e 2017e

BMF Combined ratio 91% 105% 93% 94% 92% 93% 96%

Market average 92% 103% 95% 95% 94%


• Combined ratio better than market in last three years

• Expected to increase in 2017 due to higher expenses of new branch


• Investment yield reduced due to sale of high-risk assets

• Reinvestment rate reducing year on year – currently 2.5%

Operating Performance - BMF Insurance Company Investment income

2011

2012 2013

2014

2015 2016e

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%

3.6%

3.8%Investment Yield


• Operating performance is supportive of the recommended rating

– Stable underwriting performance – Modest investment income reflective of low-risk strategy – Generally outperforms peers

Operating Performance - BMF Insurance Company Summary


Enterprise Risk Management BMF Insurance Company


Principal areas of focus – Risk Categories

• Product & Underwriting Risk

• Reserving Risk

• Concentration Risk

• Reinsurance Risk

• Financial Flexibility Risk

• Investment Risk

• Legislative/Regulatory/ Judicial/Economic Risk

• Management Risk

• Operational Risk

• Risk Appetite/Stress Testing

Enterprise Risk Management BMF Insurance Company


• Product & Underwriting Risk

• Reserving Risk

• Concentration Risk

• Reinsurance Risk

• Financial Flexibility Risk

• Investment Risk

• Legislative/Regulatory/ Judicial/Economic Risk

• Management Risk

• Operational Risk

• Risk Appetite/Stress Testing

Recommendation: a standalone assessment of ‘a’, stable outlook

Summary BMF Insurance Company

Supporting factors Offsetting factors Good business profile in local market Geographically concentrated

Well diversified by line of business Execution risk associated with planned expansion

Solid risk-adjusted capitalisation

Stable underwriting performance


• GWP increased by 11% during 2015, driven by increase in motor and property business

• High competition in local market

• Planned growth driven by higher volume and moderate rate increases

Business Profile - BMF Insurance Company Gross Written Premium (GWP) development

050

100150200250300350400450500

2011 2012 2013 2014 2015 2016e 2017eEU

R m

illio

ns

Gross Written Premium Net Written Premium


2011 2012 2013 2014 2015 2016e 2017e

BMF Combined ratio 91% 105% 93% 94% 92% 93% 96%

Market average 92% 103% 95% 95% 94%


• Combined ratio better than market in last three years

• Expected to increase in 2017 due to higher expenses of new branch


• Strong risk-adjusted capitalisation, as measured by the BCAR model

• Risk-adjusted capitalisation is supported through: – Good internal capital generation – Conservative investment profile – Good credit quality of reinsurers

• Comfortably meets local solvency requirements

BCAR 2014 2015 2016e 2017e 2018e

Standard 180% 204% 185% 183% 185%

CAT Stress 172% 197% 178% 178% 180%

Market average 160% 167%

Balance Sheet Strength - BMF Insurance Company Capitalisation


Considerations for rating enhancement BMF Insurance Company

Implicit support • Level of integration • Brand name • Contribution to earnings • Contribution to growth

Explicit support • Financial guarantee • Reinsurance support


Rating Enhancement Ownership - BMF Insurance Company

• BMF is owned 100% by Windermere Insurance Limited (UK) Plc (Windermere)

• Windermere acquired BMF in 2004

• Windermere has operations in the UK and Continental Europe

• Windermere is rated as ‘aa-’ with a stable outlook by A.M. Best


Windermere Insurance Group (UK) Plc

Windermere Insurance Limited (UK)

BMF Insurance Company (Europe)

Windermere Insurance (Poland)

Rating Enhancement Structure - BMF Insurance Company

Rated ‘aa-’ stable

Recommended ‘a+’ stable



Recommendation of one-notch of rating enhancement Published rating of ‘a+’ with a stable outlook

Rating Enhancement Summary - BMF Insurance Company

Support factors Offsetting factors Shared IT and HR systems Does not carry the Windermere brand name

Shared pricing tools No financial guarantee or net worth maintenance agreement from Group

Good level of oversight and monitoring controls from Windermere

No reinsurance support from Group

Group earnings: contributes 15% and will be the driver of Group’s growth in Europe


Windermere Insurance Group (UK) Plc

Windermere Insurance Limited (UK)

BMF Insurance Company (Europe)

Windermere Insurance (Poland)

Rating Enhancement Structure - BMF Insurance Company


Recommended ‘a+’ stable



Conférence d'A.M. Best sur le marché de l'assurance 2016

Conférence d'A.M. Best sur le marché de l'assurance 2016 27 April 2016 95

Alex Rafferty Financial Analyst

Q&A


Hôtel Napoléon

27 April 2016

Documents

2016 Insurance Market Briefing - France · 2016. 5. 6. · 2016 Insurance Market Briefing - France 27 April 2016 5 US Securities Laws explicitly prohibit the issuance or maintenance