2018 Insurance Market Briefing - Europe

etc.venues St.Paul’s, London

6 November 2018

Nick Charteris-BlackManaging Director, Market Development - EMEA

Welcome

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Agenda: 2018 Insurance Market Briefing - Europe09:10 EMEA Market Overview: Update

on Rating Activity and OutlooksGreg Carter, Managing Director, Analytics –EMEA

09:30 Guest Presentation: Risks and Issues for the European Insurance Sector: What's on the Regulator's Agenda?Dimitris Zafeiris, Head of Risks & Financial Stability Department, European Insurance and Occupational Pensions Authority (EIOPA)

10:15 Thematic Session: Reinsurance Market HighlightsStefan Holzberger, Senior Managing Director & Chief Rating Officer

10:30

10:55 Thematic Session: Analysis –Environmental, Social, and Governance (ESG) Principles in the Insurance IndustryCarlos Wong-Fupuy, Senior DirectorJessica Botelho, Financial Analyst

11:30 Guest Presentation: Future-Proofing the London MarketMalcolm Newman, Chairman, International Underwriting Association (IUA) & Managing Director, SCOR EMEA Hub

12:00 Innovation and Technology in Insurance – The PanelGuest Chair: Mark Geoghegan (Insurance Insider)Trevor Maynard (Lloyd’s)Matthew Mosher (A.M. Best)Andrew Rear (Munich Re Digital Partners)Christopher Sandilands (Oxbow Partners)

12:45 Closing Remarks13:00

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Agenda: 2018 Methodology Review Seminar

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14:25 Welcome & IntroductionGreg Carter, Managing Director, Analytics –EMEA

14:30 Best’s Credit Rating Methodology (BCRM) –Reviewing the Building Block ApproachMahesh Mistry, Senior Director, Analytics

15:00 Revised Best’s Credit Rating Methodology (BCRM) in Action: Mock Rating CommitteeCatherine Thomas, Committee Chair, Senior Director, AnalyticsMichael Dunckley, Lead Analyst, Associate Director, Analytics

15:45 Q&A: Interactive Discussion

16:15 Close

A.M. Best – Preparing for Brexit

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A.M. Best – Preparing for Brexit

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• A.M. Best currently registered with the European Securities and Markets Authority (ESMA)

• Allows market access across the current EU 28 to provide rating services

• New registered EU subsidiary being established in Amsterdam to maintain EU 27 access

• Operational by 29 March 2019

A.M. Best – Preparing for Brexit

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Disclaimer© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTEDBY COPYRIGHT 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 ANYSUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUTAMB’s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable.Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS”without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or inpart caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the controlof AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation,communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidentaldamages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resultingfrom the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any,constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact orrecommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address thesuitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet itscontractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, marketvalue risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION ORINFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must beweighed 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 andguarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.

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DisclaimerUS Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved inthe sales or marketing of a product or service of the CRA also participates in determining or monitoring the creditrating, 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 Divisionemployees are prohibited from participating in commercial discussions.

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

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EMEA Market Overview: Update on

Rating Activityand Outlooks

Greg CarterManaging Director, Analytics - EMEA

EMEA

• Low investment yields• Challenges to meet shareholder

expectations

• Abundance of reinsurance capacity• Limited growth opportunities

W Europe MENA E Europe and CIS

1%4% 4%

11%

23% 23%

5%9%

11%

4%2% 1% 1% 0% 1%

aa+ aa aa- a+ a a- bbb+ bbb bbb- bb+ bb bb- b+ b b-

Best's Issuer Credit Rating (ICR) distribution as at 30 September, 2018

11

Key Market Characteristics

Western Europe Key Market Characteristics

• Post Solvency II world• Modestly improving economic outlook for

Euro-area

• Political risks emerging from Brexit/ Italy• Abundance of reinsurance capacity • M&A trends continuing

2%6% 6%

18%

33%

28%

2% 1%3%

1%2%4%

9%

14%

32% 31%

3% 2%4%

aa+ aa aa- a+ a a- bbb+ bbb bbb- bb+

Rating Distribution September 30, 2018 Rating Distribution September 30, 2017

12

Western Europe Upgrade drivers

• Methodological changes 3• Parental support (incl. via acquisition) 3• Improved balance sheets 2• Improved economic conditions 1• Improving business mix 1• Reinsurance support 1

• Change of ownership 1• Cessation of business 1

Downgrade drivers

74%

6%

6%

3%

11%

Rating Actions Affirm

Initial

Upgrade

Downgrade

UnderReview

87%

5%

3%

5%

Outlook Summary

Stable

Positive

Negative

UnderReview

13

Middle East & North Africa Key Market Characteristics

• Fiscal budgets under pressure from low oil prices• Slowing growth from reduced government

expenditure• On going political instability and conflict

• Sound capitalisation, despite significant investment risk

• Regulatory changes likely to put pressure on capital• Market leaders exhibit strong technical performance

10%

19%

11%

21% 21%

9%7%

2%0% 0%

8%

22%

10%

22%24%

7%5%

0%2%

aa- a+ a a- bbb+ bbb bbb- bb+ bb bb- b+

Rating Distribution September 30, 2018 Rating Distribution September 30, 2017

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Middle East & North Africa Upgrade drivers

• Strong operating performance 2 • Improved Risk Based Capitalisation 2• Improved ERM 1• Growth/ critical mass 1• Business restructuring/strategic clarity 1

• Deficiencies in ERM 2• Volatile performance 1• Deteriorating RBC 1• Ownership & strategy changes 1• Business production risks 1• Methodology 1

Downgrade drivers

69%

6%5%

9%

11%

Rating Actions

Affirm

Initial

Upgrade

Downgrade

UnderReview

74%

10%

10%

6%

Outlook Summary Stable

Positive

Negative

UnderReview

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Eastern Europe and CISKey Market Characteristics

• Economic uncertainty, sanctions leading to market volatility, including currency declines

• Small markets with low insurance penetration• Government influence still present

• Investment opportunities generally weak• Risk management a weakness• Regulators developments +ve and –ve• Consolidation

7%

15%

36%

7%

14%

7% 7% 7%6%

13%

31%

13%

25%

6% 6%

a- bbb+ bbb bbb- bb+ bb bb- b+ b- ccc+

Rating Distribution as at 30 September, 2018 Rating Distribution as at 30 September, 2017

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Eastern Europe and CIS Upgrade drivers

• Improved Risk Based Capital 1

Downgrade drivers• Deteriorating Risk Based Capital 1

53%

6%6%

6%

23%

6%

Rating Actions Affirm

Initial

Upgrade

Downgrade

UnderReviewOther

54%

23%

23%

Outlook Summary

Stable

Negative

UnderReview

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Under Review drivers• Acquisitions/Mergers 3• RBC concerns 1• Operating performance expectations 1

Q&AGreg Carter

Managing Director, Analytics - EMEA

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A.M. Best‘s 2018 Insurance Market Briefing London, 6 November 2018

Risks and issues for the European insurance sector - What is in the regulators agenda?

A.M. Best's

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Content

Main Risks

European Insurance Sector: Investment portfolio and developments Solvency position

Insurance Stress Test 2018

Reviews planned and future activities

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Low yield environment

Repricing risk

Cyber, real estate and geopolitical risks

Main risks of the EU insurance sector

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Low yield environment

EUR swap curve has increased since the beginning of the year Increases in the government bond yields especially for the US are observed

(above 300 basis points). Yields in the euro area remain very low.

EUR Swaps10-year government bond yields

Source: Bloomberg, latest observation – 05 November 2018

US EA UK31/12/2017 2.41 0.42 1.1905/11/2018 3.20 0.43 1.51

Change in bps 79 1.1 32

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Jan

17Fe

b 17

Mar

17

Apr 1

7M

ay 1

7Ju

n 17

Jul 1

7Au

g 17

Sep

17O

ct 1

7N

ov 1

7De

c 17

Jan

18Fe

b 18

Mar

18

Apr 1

8M

ay 1

8Ju

n 18

Jul 1

8Au

g 18

Sep

18O

ct 1

8N

ov 1

8

United States euro area (bund) United Kingdom

-0.6-0.4-0.20.00.20.40.60.81.01.21.41.61.8

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

11Y

12Y

13Y

14Y

15Y

16Y

17Y

18Y

19Y

20Y

31/12/2015 30/12/201629/12/2017 05/11/2018

23

Repricing risk

Source: Bloomberg – FTSE Global Bond Index SeriesLast observation: 05 November 2018

Despite the recent increase in corporate bond yields - spreads are still at historical low levels.

Average corporate bond yields

0.0

1.0

2.0

3.0

4.0

5.0

6.0Ja

n-11

May

-11

Sep-

11

Jan-

12

May

-12

Sep-

12

Jan-

13

May

-13

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

FTSE Euro Corporate Bonds All FTSE Euro Corporate Bonds AA

FTSE Euro Corporate Bonds A FTSE Euro Corporate Bonds BBB

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BREXIT - EIOPA opinions

Opinion on supervisory convergence

Supervisory principles for Brexit relocations, in particular no empty shells

Opinion on service continuity in insurance

Insurers should make and timely implement contingency plans for a Brexit withoutwithdrawal agreement

Opinion on solvency

Insurers should manage risks of resulting from changes to solvency calculationsafter Brexit

Opinion on disclosure to customers

Insurers should inform customers about Brexit impact on contracts and services

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0% 5% 10% 15% 20%

Other

SE

NL

UK

BE

EU/EEA

Breakdown by asset class(in % of total assets)

Mortgages and loansPropertyCollective Investment UndertakingsEquityCorporate bondsOther assets

Real estate

Source: EIOPA Financial Stability Report published on December 2017 – Box 5: Insurers’ exposures to real estate - pages 51-54The report is available at: https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/EIOPA-Financial-Stability-Report---December-2017-.aspx

Life insurers most exposed to real estate-related assets EU/EEA exposures are mainly attributed to mortgages and loans as well as

property, which together account for 4.1% of European insurers total assets

Real estate-related assets in % of total assets and breakdown by type of undertaking

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

AT BE BG CY CZ DE DK EE ES FI FR GR HR HU IE IT LI LT LU LV MT NL

NO PL PT RO SE SI SK UK

Composite Non-Life Life

Breakdown of real estate-related assets by asset class and by RRE and CRE (in % of total assets)

26

Investment portfolio of insurers

Source: EIOPA Financial Stability Report published on June 2018 – Figure 5.13 - page 59Note: Red - above 90th percentile, Blue - below 10th percentile; look-through approach applied, Solo insurance undertakings – Reference period: 2017Q4The report is available at: https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/EIOPA-Financial-Stability-Report-June-2018.aspx

27

Investment portfolio developments (1) Based on the outcome of the investment behavior report published at the end

of 2017, the following trends indicating increased risk exposures across European insurance groups were observed:

Trend towards lower credit rating quality fixed income securities (partly due to the large number of sovereign and corporate downgrades – see next slide)

Increase in the average maturity of the bond portfolio

More illiquid investments such as non-listed equity, loans and mortgages

Tendency to invest into new asset classes (infrastructure, mortgages, loans, real estate), although the amounts are currently low compared to the size of the portfolios

Source: EIOPA. Investment behaviour report published on the 16th of November 2017 - page 3Note: The data used in this report is based on submissions from 87 large insurance groups and 4 solo undertakings across 16 European countries from 2011 to 2016. The report is available at: https://eiopa.europa.eu/publications/reports

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40%

24%

22%

18%

18%

28%

28%

28%

26%

19%

19%

19%

11%

25%

27%

27%

5%

5%

5%

8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2011

2013

2015

2016

Total insurance bond portfolio breakdown by rating (in %)AAA AA+ to AA- A+ to A- BBB+ to BBB- NIG

Source: EIOPA Investment behaviour report published on the 16th of November 2017 - figure from page 12Note: : The chart includes sovereign bonds, corporate bonds, structured notes and collateralised securities. The chart does not contain bond investments made through index linked and unit linked products. The report is available at: https://eiopa.europa.eu/publications/reports

Investment portfolio developments (2)

29

SCR per country

Source: EIOPA Statistics 2018Q1 - Own funds - Solo quarterlyAvailable at: https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/Insurance-Statistics.aspx

0%

100%

200%

300%

400%

500%

600%

700%

AT BE BG CY CZ DE DK EE ES FI FR GR HR HU IE IS IT LI LT LU LV MT NL NO PL PT RO SE SI SK UK

Interquantile range 10-90 percentile range Median

30

Impact of LTG measures to SCR ratio

Average impact of removing measures MA, VA, TRFR and TTP on the SCR ratio of the whole EEA market

Source: EIOPA. Report on long-term guarantees measures and measures on equity risk 2017 published on the 20th December 2017: page 26; Last observation: 31/12/2016 (annual data)Available at: https://eiopa.europa.eu/publications/reports

31

Insurance Stress Test 2018: Key Elements

The 2018 Insurance Stress Test is based on a sample of 42 large insurance groups (the top 30 groups plus 12 additional groups supervised by different NCAs) representative of the European insurance sector

The stress scenarios encompass a sufficiently wide range of risks, including a combination of market and insurance specific risks including natural catastrophe scenario and the exposure to cyber risk

As the previous Stress Test exercise in 2016, also the 2018 exercise does not represent a “pass or fail exercise” for the institutions involved, so the outcome is not intended to impose capital requirements

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Insurance Stress Test 2018: Scenarios

Yield curve up shock combined with lapse and provisions deficiency stress The scenario represents a sudden increase in interest rates caused by both an

upward shift in risk free rates and inflationary pressures. Due to rise in the market volatility and economic uncertainty, lapse rate for life insurers is going to raise

Low yield shock combined with longevity stress The scenario represents the period of extremely low interest rates caused by change

in risk free rates and adjustment in the ultimate forward rate (UFR). Improvements in healthcare industry increase life expectancy for which insurers have to adjust best estimate mortality assumptions

Natural-Catastrophe (Nat-Cat) scenario The scenario’s aims is to assess the vulnerability of the largest insurers to natural

catastrophe risk across Europe, through a set of catastrophe events (four European windstorms, two floods and two earthquakes) which in total represent the aggregate insured loss of EUR 48 billion for the insurance industry over the course of the year

Cyber Questionnaire The aim of the questionnaire is to collect information on the current situation, existing

approaches and best practices to deal with cyber risk

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Reviews planned from the beginning of SII

Two reviews at two different levels

Review of the Solvency Capital Requirements Focused on Delegated Acts By end 2018

Review of the long-term guarantee measures Focused on the Directive During 2020

34

Regulatory activities

LTG review

SCR review2018

Sustainable finance

Macro-prudential tools

Recovery & Resolution frameworkFintech –

Insurtech –Cyber Risk

Long term investments

Thank you for your attention!

Dimitris ZafeirisHead of Risks and Financial Stability DepartmentEuropean Insurance and Occupational Pensions Authorityhttps://eiopa.europa.eu

ReinsuranceMarket Highlights

Stefan HolzbergerChief Rating Officer

Global Reinsurance Market Trends

55.9% 56.2% 56.2% 60.6%76.5%

60.6%

61.1%

31.9%33.5%

34.2% 34.7%

33.6%

33.9% 33.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

20%

40%

60%

80%

100%

120%

2013 2014 2015 2016 2017 1H 2018 5yr Avg

Expense Ratio

Loss Ratio

Loss ReserveDevelopment

Source: A.M. Best data and research

Global Reinsurance Sector – Combined Ratio

87.9% 89.7% 90.4%95.2%

110.1%

94.5% 94.7%

Global Reinsurance Market Trends

13.0%11.6%

9.5%8.3%

-0.3%

7.0%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2013 2014 2015 2016 2017 1H 2018

Return on Equity Five-Year Average

Source: A.M. Best data and research

Return on Equity (2013 to present) and Five-Year Average

Global Reinsurance Market Trends

Global Reinsurance Market 5 Year Average Return on Equity Less Reserve Development

Source: A.M. Best data and research

10.9%

8.3%6.8%

4.5%

Composite at YE2016 Composite at YE2017

5 Year Average Return on Equity

5 Year Average Return on Equity excluding Loss ReserveDevelopment

Global Reinsurance Market Capital

292 320 340 332 345 345 362

19 48

60 68 75 87 100

2012 2013 2014 2015 2016 2017 2018E

ConvergenceCapital

TraditionalCapital

Estimate for Total Dedicated Reinsurance Capital (USD billions)

Notes and Sources: Estimates by Guy Carpenter and A.M. Best

Global Reinsurance Market Trends

41

Global Reinsurance – Price/Book Value(Excluding accumulated other comprehensive income)

40

60

80

100

120

140

160

180

200

220

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Pric

e/B

ook

Valu

e

Average

Current P/BV: 1.17x Average 1994-Present: 1.16x

Low Reached March 2009 (0.75x BV)

Peak reached February 2002 (1.83x BV)

1.0x P/BV

Source: Company reports, Bloomberg, A.M. Best research

Announced Acquirer Acquiree Price (USD mm)

Price to Tangible BV

9-Jan-15 XL Group Catlin Group Ltd $4,100 1.27x3-Aug-15 EXOR PartnerRe $6,900 1.19x5-Oct-16 Sompo Endurance $6,304 1.36x6-Jul-17 AXIS Novae $604 1.50x

22-Jan-18 AIG Validus $5,560 1.53x4-Mar-18 AXA XL Group $15,300 1.96x

Global Reinsurance Market Capital

42

Notes and Sources: Estimates by Guy Carpenter and A.M. Best

80%74% 71% 70% 73% 72% 70%

129 174 205 216 223 228 244

2012 2013 2014 2015 2016 2017 2018ECapital Depletion Needed To Trigger a Hard Market @ 99.6 (USD billions) Capital Utilization (%)

Capital Utilisation(USD billions)

Segment Outlook – Global Reinsurance

43

Headwinds TailwindsIntense competition Cession rates increasingIncreasing interest from third-party capital

Cat losses temporarily stabilise rates

Earnings stabilise but remain under pressure

Favourable reserve development,but waning

Excess capacity hinders further improvement

Strong risk-adjusted capital

Potential for increased inflation Increase in interest ratesM&A

Pressure on margins continues. Returns for some reinsurers will fall short on a risk-adjusted basis. Maintain negative market outlook.

Q&AStefan Holzberger

Chief Rating Officer

44

Agenda: 2018 Insurance Market Briefing - Europe09:10 EMEA Market Overview: Update

on Rating Activity and OutlooksGreg Carter, Managing Director, Analytics –EMEA, A.M. Best

09:30 Guest Presentation: Risks and Issues for the European Insurance Sector: What's on the Regulator's Agenda?Dimitris Zafeiris, Head of Risks & Financial Stability Department, European Insurance and Occupational Pensions Authority (EIOPA)

10:15 Thematic Session: Reinsurance Market HighlightsStefan Holzberger, Senior Managing Director & Chief Rating Officer, A.M. Best

10:30

10:55 Thematic Session: Analysis –Environmental, Social, and Governance (ESG) Principles in the Insurance IndustryCarlos Wong-Fupuy, Senior DirectorJessica Botelho, Financial Analyst, A.M. Best

11:30 Guest Presentation: Future-Proofing the London MarketMalcolm Newman, Chairman, International Underwriting Association (IUA) & Managing Director, SCOR EMEA Hub

12:00 Innovation and Technology in Insurance – The PanelGuest Chair: Mark Geoghegan (Insurance Insider)Trevor Maynard (Lloyd’s)Matthew Mosher (A.M. Best)Andrew Rear (Munich Re Digital Partners)Christopher Sandilands (Oxbow Partners)

12:45 Closing Remarks13:00

45

Environmental, Social, and Governance (ESG) Principles

in the Insurance Industry

Carlos Wong FupuySenior Director

Jessica BotelhoFinancial Analyst

Defining ESG

47

ESG in the news…

48

Defining ESG

• A set of metrics used by investors to assess a company’s risks which may not be captured by conventional financial metrics with the intention of enhancing long-term returns.– Environmental criteria look at how a company performs as a

steward of the natural environment.– Social criteria examine how a company manages relationships

with its employees, suppliers, customers, and the communities where it operates.

– Governance deals with the company’s leadership, executive pay, audits, internal controls, and shareholder rights.

49

Defining ESG

Environmental

• Climate change

• Carbon emissions

• Natural resources

• Pollution and waste

• Environmental opportunities

Social

• Human capital• Product liability• Stakeholder

opposition• Health and

safety• Social

opportunities

Governance

• Corporate governance

• Corporate behavior

• Transparency• Board

composition• Business

ethics

50

United Nations, Industry, and Regulatory Initiatives

51

ESG timeline

2000: UN Global Compact

2006: UN Principles for Responsible Investment

2012: UN Principles of Sustainable Insurance

2015: UN 2030 Agenda

2017: Task Force on Climate Related Financial Disclosure report publication

2015: Mark Carney’s “Breaking the tragedy of the horizon – climate change and financial stability” speech to the Lloyd’s Market

2018: EU Commission press release on Sustainable Finance Action Plan

1999: Launch of the Dow Jones Sustainability Indices

2018: Directive 2014/95/EU requires large public-interest companies to report on social and environmental impacts of their activities

52

Development of private, UN, and regulatory initiatives

Asset managers & institutional investors developing:

- Socially responsible investing- Investment screening- ESG ratings

UN backed initiative with involvement of private sector:

- Sustainability Development Goals (SDGs)- Global Compact- Principles of Responsible Investing- Principles of Sustainable Insurance

Developing diverse approaches to ethical investing:

- Sustainability indices- UN’s SDGs used as common

framework to assess ESG performance

Regulatory initiatives with a focus on climate change:

- Task Force on Climate Related Financial Disclosure

- Sustainable Insurance Forum- EU Commission: Sustainable Finance

Action Plan

53

ESG Integration in the Underwriting Process

54

ESG integration in the underwriting process

ChallengesClimate change

Minding the protection gap

Absence of global guidance for the insurance industry

OpportunitiesDevelopment of new products that incorporate social and environmental factors

Principles of Sustainable Insurance

Approaches• Embed ESG into policy framework

• Exclusion criteria within their underwriting guidelines

• Integrated into core underwriting framework rather than standalone assessment

55

ESG Integration within Investing Activities

56

ESG integration within investing activities

Challenges

Competition for limited pool of sustainable investments

Assets with strong ESG ratings ≠ better credit quality (necessarily)

OpportunitiesAchievement of combination of return, risk mitigation, and sustainability objectives

Principles of Responsible Investing

Approaches• Negative screening (i.e. exclusions)

• Norms-based screening

• Engagement and voting

57

Credit Rating Implications

58

Best’s Credit Rating Methodology

59

Credit rating implicationsBC

RMBu

ildin

g Bl

ocks

ESG FactorsEnvironmental Social Governance

Balance Sheet Strength

Natural catastrophe impact (e.g. stress tests)Asset portfolio changes (e.g. ESG integration)

Changes in underwriting risk charges due to changes in business mix

Limited / non-material impact

OperatingPerformance

Changes in business mix and investment returns

Changes in business mix (e.g. impact from demographic and lifestyle changes, “green” products)

Limited / non-material impact

Business Profile Changes in business mix(e.g. impact from exiting or entering new products – fossil fuels, renewables)Reputational risks

Changes in business mix (e.g. impact from demographic changes and products promoting healthy lifestyle)Reputational risks

Reputational risks

Enterprise Risk Management

Stress testing and treatment of un-modelled risks

Reputational and operational risks

Risk management framework evaluation: Governance and Risk Culture

60

Credit rating implicationsBC

RMBu

ildin

g Bl

ocks

ESG FactorsEnvironmental Social Governance

Balance Sheet Strength

Natural catastrophe impact (e.g. stress tests)Asset portfolio changes (e.g. ESG integration)

Changes in underwriting risk charges due to changes in business mix

Limited / non-material impact

OperatingPerformance

Changes in business mix and investment returns

Changes in business mix (e.g. impact from demographic and lifestyle changes, “green” products)

Limited / non-material impact

Business Profile Changes in business mix(e.g. impact from exiting or entering new products – fossil fuels, renewables)Reputational risks

Changes in business mix (e.g. impact from demographic changes and products promoting healthy lifestyle)Reputational risks

Reputational risks

Enterprise Risk Management

Stress testing and treatment of un-modelled risks

Reputational and operational risks

Risk management frameworkevaluation: Governance and Risk Culture

61

Credit rating implicationsConsidering the distinct roles of credit and ESG ratings

Credit Ratings

ESG Ratings

Relevant and material ESG factors

ESG Ratings

Credit Ratings

62

Credit rating implications

• A.M. Best continues to study how (re)insurers are considering, incorporating, and managing these relevant ESG risks and opportunities.

• If and when there are rating implications derived from ESG considerations that may impact our future Best’s Credit Rating Methodology (BCRM) updates, stakeholders will be advised accordingly.

63

Q&ACarlos Wong Fupuy

Senior DirectorJessica BotelhoFinancial Analyst

64

2018 Insurance Market Briefing - Europe6th November 2018

Future-Proofing the London MarketCurrent Issues & Perspectives in pre- and post-Brexit

contexts for London.

Malcolm NewmanManaging Director – EMEA Hub

66

London Market – relative size and growth

67

London Market workforce

Some key facts

52,000 people work for the London Market, of which 17,000 are in other UK locations than London.

An estimated 3,000 EU nationals work in the London Market.

The London Market is:26% of the City’s GDP10% of London’s GDP2% of the UK’s GDP

Employment has grown from 48,000 in 2013 to 52,000 in 2015.

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Telling the London Market story

Making London an easier place to do

business

Creating a better business

environment

Building a diverse, dynamic workforce

Providing our buyers with a clear case for coming to London to

purchase our products and

services

Making the London Market highly

accessible, efficient and relevant to the

needs of our customers

Working with government,

parliamentary parties and the civil service to ensure they better

understand the position of the market

and its place in the UK economy

Developing a better understanding of where the skills

shortages are and helping the market

address them

London Market Group Representing the insurance and reinsurance market in London

Driving growth and modernisation across the London Market London Market Group response

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London Market Group response – Placing Platform Ltd (PPL)

Moving risk more easily through the market

• Single model - common standards• Better data • Workload prioritisation

• The platform is now able to handle all lines of business• 48 brokers and 113 carrier firms have signed up to PPL and over 9,000 users have

been set up on the platform• 66,847 firm orders have been bound in the year to end of September 2018• 51,833 endorsements have been agreed on the platform in the same period• Lloyd’s set a target of 20% of all risks to be placed electronically by Q3 2018, the

actual result is 28%• The target rises by increments to reach 50% by end Q2 2019• Lloyd’s is contemplating mandating the use of electronic placing from 2020• The London company market currently exceeds Lloyd’s target

Risks are negotiated and placed both face-to-face and electronically, removing paper from the process and creating a digital information flow and audit trail

• Faster response time• Ease of access • Improved efficiency Benefits

Progress

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London Market Group response – Central Services Refresh Programme (CSRP)

Moving money through the system more efficiently

• Better data• Simplified and standardised broker submissions• Reduced costs

• Release 1.2 went live in December 2017 and includes the Query Portal. Further enhancements are underway alongside onboarding tests for new brokers

• Brokers can process premiums and claims in the same way they can in other global markets

• 90% of existing transactions being processed through legacy channels can now be submitted through the new CSRP Post-bind Submission channel

Transaction accounting is simplified and standardised, meaning brokers can use the same systems for London as other markets

• Faster payment• Improved efficiency• Common standardsBenefits

Progress

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London Market Group response – Delegated Authority (DA)

Making London capacity more attractive

• LM TOM selected Charles Taylor InsureTech Ltd (CTI) as the preferred bidder to provide Data Submission, Access, Transformation (DA SATS) service. The risk data standards are being developed in order of binder volume. This will enable the quick and convenient submission of risk, premium and claims data

• 1,500 fewer audits will take place annually • The online audit management system is live with full functionality, with

42 Managing Agents signed up for the service• A Compliance Services Solution is also live. This is part of Lloyd’s

ongoing compliance oversight

• Ease of access• Greater productivity

• Better data quality and consistency• Common standards

Audit and compliance will be streamlined and standardised, and data collected onlyonce – creating the consistency and simplicity for all parties

Benefits

Progress

72

Telling the London Market story

Making London an easier place to do

business

Creating a better business

environment

Building a diverse, dynamic workforce

Providing our buyers with a clear case for coming to London to

purchase our products and

services

Making the London Market highly

accessible, efficient and relevant to the

needs of our customers

Working with government,

parliamentary parties and the civil service to ensure they better

understand the position of the market

and its place in the UK economy

Developing a better understanding of where the skills

shortages are and helping the market

address them

London Market Group Representing the insurance and reinsurance market in London

Creating a better business environmentLondon Market Group response

73

Joint government / industry task force formed April 2015 LMG chaired (M. Newman) Government: HM Treasury, PRA, FCA, HMRC, Cabinet Office Practitioners: SCOR, Guy Carpenter/Marsh, Leadenhall Capital, Horseshoe Re, Securis, Swiss Re, Hiscox Advisors: Clifford Chance, PwC Associations: IUA, LMA, LIIBA, Corporation of Lloyd’s

Regulations published December 2017

London Market Group response – Insurance Linked Securities (ILS)Creating a better business environment

DespiteBrexit referendumGeneral electionArticle 50 triggered

74

London Market Group response – Insurance Linked Securities (ILS)Creating a better business environment

75

London Market Group response – BrexitCreating a better business environment

76

Some key facts

Reinsurance is 30.7% of London’s GWP.

Marine and aviation is 16.5%. These classes may have access to some EU countries after a hard Brexit.

London carriers have 60% of the global aviation market.

London carriers have 52% of the global energy market.

London carriers have 33% of the global marine market.

London Market Group response – Class of business analysisCreating a better business environment

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Some key facts

EU non-life GWP (ex UK) is $432bn of which London carriers write $9.6bn, a 2.2% market share.

The Company Market’s $25.9bn of non life GWP includes $7.8bn written by branches of EU carriers in London of which there are more than 80 registered with the FCA.

PRA estimate that there are up to 30 million EU policyholders with a UK policy (life and non-life) and up to 6 million UK policyholders with an EU policy (life and non-life).

European premium is 14.4% of London’s non-life GWP

London Market Group response – London market and EuropeCreating a better business environment

78

London Market Group response – Brexit taskforceCreating a better business environment

LMG Brexit Roadmap – published 8th March 2017

Joint government / industry advisory group formed May 2017 LMG chaired (M. Newman) Government: HM Treasury, DExEU, Cabinet Office Industry: SCOR, Marsh, Willis, Swiss Re, AIG, Aegis Advisors: Clifford Chance, PwC, EY, RPC Associations: IUA, LIIBA, LMA, ABI, Corporation of Lloyd’s

LMG Proposals for a future trading relationship between the EU and the UK – published 29th November 2017

Case studies to highlight market disruption

Response to the white paper1 on the UK’s future relationship with the EU

LMG prioritising Solvency II equivalence for reinsurance and proposing cross border access for large risk insurance. Highlighting the need for a solution to contract continuity and data transfer regulations.

1) The future relationship between the United Kingdom and the European Union – published 12 July 2018

Panel:Innovation and Technology in

Insurance

80

Panel

Innovation and Technologyin Insurance

Matthew MosherExecutive Vice President& Chief Operating Officer,

A.M. Best

Trevor MaynardHead of Innovations,

Lloyd’s of London

Mark GeogheganManaging Director,

The Insurance Insider Andrew RearCEO, Munich ReDigital Partners

Christopher SandilandsPartner,

Oxbow Partners

2018 Insurance Market Briefing - Europe

etc.venues St.Paul’s, London

6 November 2018