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Exane BNP Paribas 15th European CEO Seminar: "Will the changing face of Europe offer promising opportunities? " Michel M. Liès, Group CEO
Paris, 14 June 2013
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
shrinking client loyalty
2
low interest rates, inflation, price
pressure
mature markets, high growth markets
changing risk landscape
weak growth
financial markets, sovereign debt
regulatory environment
Insurance Industry interest rates
mature markets, high growth markets
changing risk landscape
weak growth
financial markets, sovereign debt,
regulatory environment
low interest rates, inflation, price
pressure
Insurance Industry
A challenging environment, and not just for (re)insurers
weak growth
Insurance Industry
mature markets, high growth markets
changing risk landscape
financial markets, sovereign debt
regulatory environment
low interest rates, inflation, price pressure
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
July 1997 Asian financial crisis
2008 Economic and financial crisis
1990s U.S. Savings and Loan crisis
1980s U.S. Savings and Loan crisis
2000 Dot.com bubble
3
* German discount rate until 31 December1998 and ECB Refinancing Rate from that date onwards Source: Datastream data as of 15 November 2012
0
5
10
15
20
25
Central Banks Policy Rates (in %)
US Federal Fund Target Policy Rate Bank of England Policy Rate European Policy Rate Index (Composite*)
Historically low interest-rate environment
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013 4
Source: Swiss Re Economic Research & Consulting
Slow economic growth
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Advanced economies Emerging markets World
Real GDP growth
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013 5
United States NAIC solvency modernization Federal Insurance Office (FIO) Systemic risk regulation (FSOC) CDS regulation & clearing houses Financial tax initiatives Compensation regulation SEC roadmap to IFRS Rating agencies regulation
Europe Solvency II implementing measures New supervisory architecture (ESAs, ESRB) CRD IV for banks Banking Union Financial transaction taxes Insurance guarantee schemes Crisis management and resolution Rating agencies regulation Revisiting securitisation Hedge Funds regulation
International Financial Stability Board (FSB) agenda BCBS and Basel III IAIS on group supervision (ComFrame) G-SIFI policy measures IMF tax levies IASB & FASB project
Our industry now faces a mosaic of rules and regulations…
Latin America Brazil and Argentina restrictions
Asia Pacific Solvency reforms Investment rules Market access
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Swiss Re is broadly diversified by geography and product line
Net premiums earned1 2012 (USD 25.5 bn) by region (in USD bn) … and by business segment:
Swiss Re benefits from geographic and business mix diversification and has the ability to reallocate capital to achieve profitable growth
Europe Asia Americas (incl. Middle East /Africa)
38% 42% 20%
P&C Re 49%
L&H Re 35%
Corporate Solutions
8%
Admin Re® 8%
1 Includes fee income from policyholders
6
9.6 10.7
5.2
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Swiss Re's Group strategy
Current position
The leading player in the wholesale re/insurance industry
Strategic goal: Outperform our peers ▪ Reinsurance ▪ Admin Re® ▪ Asset Management
Smart expansion
▪ Corporate Solutions ▪ Longevity & Health ▪ High Growth Markets
7
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Swiss Re Group Overview
Reinsurance
To be a focused, lean, global player in large commercial business
To be a recognised force in the closed life book market
To be the world's leading reinsurer
The foundation of our strengths
A key opportunity for growth
Providing cash dividends
Corporate Solutions
Swiss Re Group
Admin Re®
Current position
Strategic goal
Current position
Strategic goal
Current position
Strategic goal
P&C L&H
8
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Life & Health Unparalleled mortality experience data
provides ability to better quantify the underlying risk
Casualty Forward-looking "Nat-Cat-like" model
being developed, based on systematic assessment of risk drivers
Property Own research team and models for
storm, earthquake and flood Ability to compare to commercial tools
and understand differences
Cornerstones of Swiss Re's underwriting R&D as a key differentiator
Reinsurance is a knowledge business
R&D provides a competitive advantage
Portfolio steering
R&D is a value driver in underwriting
Structuring
skills
Risk selection
Portfolio steering
Cycle management
R&D
9
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Swiss Re's approach to underwriting leads to outperformance … and growth at the right time
Underwriting profit = GAAP premiums earned - claims and claims adjustment expenses - acquisition costs - other expenses Top 8 reinsurers include: Swiss Re, Munich Re, Hannover Re, PartnerRe, SCOR, General Re, Everest Re, Transatlantic Re Source: Swiss Re Economic Research and Consulting
Swiss Re’s P&C premium and underwriting profit share vs top 8 reinsurers
10
Swiss Re's underwriting outperformance in P&C
- 2006-2010: above average share in underwriting profits
- 2011: significantly below average share of underwriting loss
- 2012 volume and prices up
2006 – 2012 SR premium share of 23% SR U/W profit share of 38% SR U/W loss share of 9%
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011 2012Premiums U/W profit (red = loss)
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
YTD 2013 renewals (January – April)
Treaty portfolio
100% 110%
Up for renewalYTD 2013
Estimatedoutcome
USD 11.0bn USD 10.0bn
January 2013 renewals
January treaty portfolio1
100% 105%
Up for renewal1 April 2013
Estimatedoutcome
April 2013 renewals April treaty portfolio
April renewal prices 3% lower on a risk adjusted basis2 but remained strong
High growth markets grew by 18%, mainly in Africa, CEE and Emerging Asia
Measured move into Casualty and other strategic initiatives showing profitable growth
100% 111%
Up for renewal1 Jan 2013
Estimatedoutcome
USD 1.5bn USD 1.6bn
USD 8.5bn USD 9.4bn
11
1 January 2013 numbers have been restated with current fx rates 2 Swiss Re's risk adjusted price quality provides an economic view on price quality, i.e. includes rate and exposure changes, claims inflation and interest rates
P&C Reinsurance April 2013 renewals with moderate growth, high price quality maintained
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Low interest rates
Drivers of re-/ insurance prices
Regulatory changes Continuous reserve releases
Industry capitalisation
Factors leading to higher prices
12
Factors leading to lower prices
Low inflation Nat Cats
Factors driving P&C re-/insurance prices
High Low
Prices
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Swiss Re is well positioned
1 CHF 5bn stop-loss protection on Swiss Re's P&C reserves with Berkshire Hathaway 2 SST 1/2013, as filed with FINMA at the end of April, based on a projection for 2013
13
Lean casualty book L&H: focus on wholesale/reinsurance, avoiding primary business with
guarantees Prudent, ALM-matched asset portfolio with room for moderate re-risking
Low interest rates
SST has given us 5 years practical experience in implementing regulatory requirements similar to Solvency II
Clients need to put more focus on risk and economic capital; we can offer tailor made solutions
Regulatory changes
Unique protection against inflation through the Adverse Development Cover1
Low inflation
Quarterly actuarial reserving process Reserves estimated at best estimate
Reserve releases
Excellent capitalisation, allowing business growth Group Swiss Solvency Test (SST) ratio 245%2
Capitalisation
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
High Growth Markets (I) Tangible growth opportunities exist
Agriculture Nat Cat Infrastructure
Life Health
14
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013 15
High Growth Markets (II) A contributor to Swiss Re's targets
High growth rates allow emerging markets to "emerge" rather quickly
– High Growth Markets (including BRICs) now constitute ~15% of premiums…
– …expected to grow to 20-25% by 2015
– Profitability above our hurdle rates
Tangible opportunities in most lines
– Reinsurance: e.g. nat cat, solvency
– Corporate Solutions: infrastructure and engineering projects, commercial property
High Growth Markets not an "option", but a contributor towards our financial targets
-10%
0%
10%
20%Non-life insurance, real premium growth
-10%
0%
10%
20%
Emerging Asia Middle East Latin America Central &EasternEurope
Industrialisedmarkets
Life insurance, real premium growth
2008 2009 2010 2011 2012 2013
Source: Swiss Re Economic Research & Consulting
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013 16
We see plenty of promising opportunities Innovation and growth also in Europe
Natural catastrophe losses 1980-2012 in USD bn
% of people claiming to be financially "well positioned" in event of suffering a long-term illness or disability, or death
Note: Loss amounts indexed to 2012
Source: Swiss Re sigma catastrophe database
0
50
100
150
200
250
300
350
400
1980 1985 1990 1995 2000 2005 2010
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Outlook Perform and grow
Address low returns in L&H
L&H Reinsurance: in depth review to be carried out; detailed results at June Investors' Day
Admin Re®: continue to evaluate deals based on Group profitability requirements; strengthen operational efficiency; third-party capital
P&C Reinsurance: successful renewals expected to continue throughout 2013, expect net premium growth from expiry of QS
Corporate Solutions: on track to achieve profitable growth targets
Outperform our peers in P&C
Continue to deliver on our unchanged Group strategy
Special emphasis on high growth markets, in all business lines Group strategy
Delivering the 2011-2015 financial targets remains Swiss Re's top priority
Carry on active capital management in line with dividend policy
Measured asset re-balancing towards credit and equity continues Capital and asset management
17
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Investor Relations contacts Hotline E-mail +41 43 285 4444 [email protected] Eric Schuh Ross Walker Chris Menth +41 43 285 4708 +41 43 285 2243 +41 43 285 3878
Lorenz Fichter Simone Fessler +41 43 285 7129 +41 43 285 7299
Corporate calendar 24 June 2013 Investors' Day Zurich 08 August 2013 Second Quarter 2013 results Conference call 09 September 2013 Investors and Media meeting Monte Carlo 07 November 2013 Third Quarter 2013 results Conference call 20 February 2014 Annual Results Conference call
Corporate calendar & contacts
19
15th European CEO Seminar | Exane BNP Paribas | Paris, 14 June 2013
Cautionary note on forward-looking statements Certain statements and illustrations contained herein are forward-looking. These statements (including as to plans objectives, targets and trends) and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results of operations, financial condition, solvency ratios, liquidity position or prospects to be materially different from any future results of operations, financial condition, solvency ratios, liquidity position or prospects expressed or implied by such statements or cause Swiss Re to not achieve its published targets. Such factors include, among others:
further instability affecting the global financial system and developments related thereto, including as a result of concerns over, or adverse developments relating to, sovereign debt of euro area countries;
further deterioration in global economic conditions; Swiss Re’s ability to maintain sufficient liquidity and access to capital markets,
including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of Swiss Re’s financial strength or otherwise;
the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets;
changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions;
uncertainties in valuing credit default swaps and other credit-related instruments; possible inability to realise amounts on sales of securities on Swiss Re’s balance
sheet equivalent to their mark-to-market values recorded for accounting purposes; the outcome of tax audits, the ability to realise tax loss carryforwards and the
ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings;
the possibility that Swiss Re’s hedging arrangements may not be effective; the lowering or loss of one of the financial strength or other ratings of one or more
Swiss Re companies, and developments adversely affecting Swiss Re’s ability to achieve improved ratings;
the cyclicality of the reinsurance industry; uncertainties in estimating reserves; uncertainties in estimating future claims for purposes of financial reporting,
particularly with respect to large natural catastrophes, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available;
the frequency, severity and development of insured claim events; acts of terrorism and acts of war; mortality, morbidity and longevity experience; policy renewal and lapse rates; extraordinary events affecting Swiss Re’s clients and other counterparties, such
as bankruptcies, liquidations and other credit-related events; current, pending and future legislation and regulation affecting Swiss Re or its
ceding companies, and the interpretation of legislation or regulations by regulators;
legal actions or regulatory investigations or actions, including those in respect of industry requirements or business conduct rules of general applicability;
changes in accounting standards; significant investments, acquisitions or dispositions, and any delays,
unexpected costs or other issues experienced in connection with any such transactions;
changing levels of competition; and operational factors, including the efficacy of risk management and other internal
procedures in managing the foregoing risks.
These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. This communication is not intended to be a recommendation to buy, sell or hold securities and does not constitute an offer for the sale of, or the solicitation of an offer to buy, securities in any jurisdiction, including the United States. Any such offer will only be made by means of a prospectus or offering memorandum, and in compliance with applicable securities laws.
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