2016 Reinsurance Market Briefing - A.M. Best Company · 2016 Reinsurance Market Briefing Greg Carter ... No part of this presentation amounts to sales / marketing activity and A.M

2016 Reinsurance Market BriefingGreg CarterManaging Director, Analytics

Greg Reisner Assistant Vice President

Robert DeRoseVice President, Reinsurance

Les Rendez-Vous de Septembre, Monte Carlo

11 September 2016

Welcome

2016 Reinsurance Market Briefing, Monte Carlo 11 September 2016 2

Nick Charteris-BlackManaging Director,Market Development

A.M. Best EMEA

Disclaimer


© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BYCOPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHERTRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCHPURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB’s PRIORWRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of thepossibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of anykind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from,or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers,employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of anysuch information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lostprofits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The creditratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must beconstrued solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies,contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser.Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk,including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THEACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OROTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinionmust be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, andeach provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.

Disclaimer


US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in thesales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating, ordeveloping 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 employeesare prohibited from participating in commercial discussions.

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

Discussion Outline


Commentary on the Global Economy

Global Reinsurance Results and Trends

Alternative Capital

Where does the Market go from Here?

Reinsurance Rating Outlook


Commentaryon the

Global Economy

The Global Backdrop


Negative interest rates

The United States, the world’s largest economy, has debt/GDP over 100%

The United Kingdom voted to leave the European Union

Terrorism seems to be rampant around the world

Housing bubbles in many parts of the world

Stock Markets are hovering near all‐time highs

This is far from normal

0

50

100

150

200

250

Japan Greece Italy Portugal Belgium UnitedStates

Spain Singapore France Ireland Canada UnitedKingdom

Austria

The Global Debt Situation


There is over USD 10 trillion (roughly 30%) of negative yielding sovereign debt

Sovereign Debtas a

Percentage of GDP

Source: International Monetary Fund

Housing


Real house prices increased in most countries over the past year

Real House Price

Percentage Increases (2015‐16)

‐30

‐25

‐20

‐15

‐10

‐5

0

5

10

15

20

Source: International Monetary Fund

70

80

90

100

110

120

130

Housing

11 September 20162016 Reinsurance Market Briefing, Monte Carlo 10

House prices have grown faster than income in a number of countries

Housing Price‐to‐Income ratio

(Indexed 2010 = 100)

Notes:Housing Price‐to‐Income ratio based on Q4 2015 or Q1 2016 data.Source: Organisation for Economic Co‐operation and Development

Terrorism


Source: START Global Terrorism Database

Brexit


Medium and Long‐Term IssuesShort‐Term Issues

• Market Volatility• Foreign Exchange Movements

• Growth implications• Inflation• Confidence• Landscape for UK insurers• Future of the European Union/Eurozone

Equity Markets


40

60

80

100

120

140

Aug‐07

Nov

‐07

Feb‐08

May‐08

Aug‐08

Nov

‐08

Feb‐09

May‐09

Aug‐09

Nov

‐09

Feb‐10

May‐10

Aug‐10

Nov

‐10

Feb‐11

May‐11

Aug‐11

Nov

‐11

Feb‐12

May‐12

Aug‐12

Nov

‐12

Feb‐13

May‐13

Aug‐13

Nov

‐13

Feb‐14

May‐14

Aug‐14

Nov

‐14

Feb‐15

May‐15

Aug‐15

Nov

‐ 15

Feb‐16

May‐16

G7 INDEX Standard (Large+Mid Cap)

NORTH AMERICA Standard (Large+Mid Cap)

WORLD Standard (Large+Mid Cap)

MSCI Global Indexes(indexed to 100)


Global ReinsuranceResults and Trends

Global Reinsurance


Global Market Trends

77.3%60.2% 56.5% 56.2% 56.2%

63.3%

61.3%

31.5%31.6%

32.3% 33.5% 34.2% 32.2% 32.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

20%

40%

60%

80%

100%

120%

2011 2012 2013 2014 2015 2016 Q2 5yr Avg

Expense Ratio

Loss Ratio

Loss ReserveDevelopment

Source: A.M. Best data & research

Global Reinsurance


Combined Ratios by Reinsurance Sector

107%91% 91% 92% 92% 97%

0%

20%

40%

60%

80%

100%

120%

2011 2012 2013 2014 2015 2016Q2

Loss Ratio Expense Ratio

112%93%

87% 87% 89% 94%

2011 2012 2013 2014 2015 2016Q2

108%

91% 87% 88% 90%

2011 2012 2013 2014 2015 2016Q2

European “Big Four” U.S. & Bermuda Lloyd’s


Global Reinsurance


Global Market TrendsReturn on Equity and Five‐Year Average

1.9%

12.4%13.0%

11.6%

9.5%

7.7%

0%

2%

4%

6%

8%

10%

12%

14%

2011 2012 2013 2014 2015 2016 Q2Source: A.M. Best data & research

Global Reinsurance


Return on Equity by Reinsurance Sector

‐3%

15% 16%15%

9%

2011 2012 2013 2014 2015 2016Q2

European “Big Four” U.S. & Bermuda Lloyd’s

6.6%

13.0% 13.1%

11.0%

11.5%

9.9%

0%

5%

10%

15%

20%

2011 2012 2013 2014 2015 2016Q2 ‐0.9%

10.6%

11.4%

10.9%

7.5% 6.9%

2011 2012 2013 2014 2015 2016Q2

2011



AlternativeCapital

Alternative Capital


Market is still largely

influenced by global leaders

M&A will continue

Alternative capacity is driving change

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

However, the market continues to be heavily influenced by the global reinsurance leaders

Top 50 Global Reinsurers

2016 Reinsurance Market Briefing, Monte Carlo 21

The Top 10 global reinsurance companies continue to strongly influence the landscape

Reinsurance Premiums Written

2016 Life & Non‐Life (USD m)

Ranking Company Name Gross Net

1 Munich Reinsurance Co. 36,976 35,279 2 Swiss Reinsurance Co. Ltd. 32,249 30,442 3 Hannover Rueck SE 18,651 15,945 4 SCOR S.E. 14,665 13,228 5 Lloyd’s 12,740 10,237 6 Berkshire Hathaway Inc. 12,236 12,236 7 Reinsurance Group of America Inc. 9,371 N/A 8 China Reinsurance (Group) Corp. 8,283 7,546 9 Everest Re Group Ltd. 5,876 5,378 10 PartnerRe Ltd. 5,548 5,230

Life and Non‐Life GPW Distribution by Ranking

11 September 2016Source: A.M. Best data and research

Rank 1‐1072%

Rank 11‐2013%

Rank 21‐307%

Rank 31‐405%

Rank 41‐503%

Dedicated ReinsuranceCapacity


Total Dedicated Reinsurance Capacity (USD billions)

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

292 320 340 332 340

19

48 60 68 71

0

50

100

150

200

250

300

350

400

450

2012 2013 2014 2015 6M 2016E

ConvergenceCapacity

TraditionalCapacity

Alternative Capital


Capacity by Market Segment

Totalapprox.USD 71bn

Catastrophe Bondsapprox.

USD 23bn

Collateralized Reinsurance

approx.USD 40bn

Sidecarsapprox.

USD 5bn

Industry Loss Warranties

approx.USD 3bn

Alternative Capital – Top 10


Vast majority of alternative capital is influenced by the Top 10 players(USD billions)

Nephila 10.0Credit Suisse Asset Management 7.0LGT Insurance‐Linked Partners 5.8Fermat Capital Management 4.8Stone Ridge Capital Management 4.8Securis Investment Partners 3.7Catco 3.7Leadenhall Capital Management 2.9Elementum Advisors 2.9Aeolus 2.5

Catastrophe Bond Issuance


Property and Casualty Industry – Year to Date 2016

0

50

100

150

200

250

300

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Size of A

verage Deal (USD

millions)

Total Catastrop

he Bon

ds (U

SD m

illions)

Capital Distribution


Total Capital Distribution Managed by Traditional Companies

Shareholders' Equity79%

Third party capital3%

Prefered Stock2% Debt

16%

Hedge Fund Reinsurance


2‐Year Average 2015 2014

Net Premiums Written(P&C only)

1,606.9 1,946.4 1,267.3

Net Earned Premiums(P&C only)

1,305.5 1,585.3 1,025.6

Net Investment Income 423.0 176.0 670.0

Realized Investment Gains / (Losses)

‐ ‐

Total Revenue 1,703.1 1,760.0 1,646.2

Net Income (81.4) (278.9) 116.1

Shareholders' Equity (End of Period)

5,510.3 5,982.7 5,037.9

(USD millions)

2‐Year Average 2015 2014

Loss Ratio 67.2% 70.3% 64.1%Expense Ratio 41.0% 41.1% 40.8%Combined Ratio 108.2% 111.5% 104.9%Favourable Loss Reserve Development

2.0% 3.2% 0.8%

Net Investment Ratio1 38.2% 11.1% 65.3%Operating Ratio 70.0% 100.4% 39.6%Return on Equity ‐1.2% ‐4.7% 2.4%Return on Revenue ‐4.4% ‐15.8% 7.1%Net Premiums Written (P&C only) to Equity (End of Period)

28.8% 33% 25%

Net Reserves to Equity(End of Period)

13.6% 20% 8%

Gross Reserves to Equity(End of Period)

18.4% 22% 15%

1 Net Investment Ratio based on PC NPE


Wheredoes the Marketgo from here?

Capacity Utilisation


Capacity Utilisation Based on Aggregate Risk‐Adjusted Capitalisation of Rated Balance Sheets

81%76% 73% 72%

0

25

50

75

100

2012 2013 2014 2015

%

The Case for Mergers andAcquisitions


Broader product capability

Broader geographic reach

Greater influence

Greater attractiveness Greater attractiveness to alternative capital

Opportunity for growth

AlternativelyMergers and Acquisitions are

the result of strategic opportunities

Price to Book Value


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 16

Price‐to‐Boo

k Va

lue

AVERAGE

Low Reached March 2009 (0.75x BV)

1.0x P/BV

Peak reached February 2002 (1.83x BV) Current P/BV: 1.03x Average 1994‐Present: 1.16x

Note: Excluding accumulated other comprehensive income.Sources: A.M. Best data and research, Bloomberg, company reports


ReinsuranceRating Outlook

Global Reinsurance


Negative Outlook

Increased client

retentions

Excess capacity

Capital convergence

Benign catastrophe

losses

Questionable underwriting discipline

Declining reserve

development

Low yields

Questions about the Future


Who will be the market leaders in 10 years?

Which companies will weather the storm better?

How will alternative capital continue to fit in?

Will ultra-low interest rates pressure financial strength?

Can the market be disrupted by players outside the industry?


Q&A

2016 Insurance Market Briefing –Europe and Methodology Review Seminar


Wednesday 16 November 2016:

2016 Insurance Market Briefing – Europe08:30 – 13:00 GMT, followed by lunch

Methodology Review Seminar14:15 – 16:15 GMT

Wednesday 16 November 2016:

2016 Insurance Market Briefing – Europe08:30 – 13:00 GMT, followed by lunch

Methodology Review Seminar14:15 – 16:15 GMT

ETC Venues St Paul's, London200 Aldersgate, London, EC1A 4HDETC Venues St Paul's, London200 Aldersgate, London, EC1A 4HD

EMEA Market Overview ● Natural Catastrophe Schemes in Europe ●Major Challenges Facing the Industry and the Potential Impact on Credit Quality ● Reinsurance Panel

Overview ‐ Structural Changes to Best's Credit Rating Methodology ● Ongoing Restructuring and Revised Presentation ● The New Universal BCAR and its Application ● Sector Specific RevisionsThere is no charge to attend this event, but registration is required as space is limited.

2016 Reinsurance Market BriefingGreg CarterManaging Director, Analytics

Greg Reisner Assistant Vice President

Robert DeRoseVice President, Reinsurance

Les Rendez-Vous de Septembre, Monte Carlo

11 September 2016

Documents

2016 Reinsurance Market Briefing - A.M. Best Company · 2016 Reinsurance Market Briefing Greg Carter ... No part of this presentation amounts to sales / marketing activity and A.M