Embed Size (px)
Citation preview
Global financial crisis and the impact on the Insurance Industry
1212thth Global Global Conference of Conference of ActuariesActuaries
Mumbai, IndiaMumbai, India
18/19 February 18/19 February 20102010
David AlexanderDavid Alexander
DirectorDirector
Swiss ReSwiss Re
Slide 2
Risk Perception is Changing
Managing the pricing cycle
Climate change
Management quality
Natural catastrophes
Too much regulation
All Insurers 2007
Too much regulation
5
Macro-economic trends
4
Capital availability3
Equity markets2
Investment performance
1
All Insurers 2009Top Fears of Insurance Co Execs
Source: CSFI and PwC
CSFI asked 403 insurance executives
from around the world about their top
fears
Slide 3
State of the Global Financial Market
Insurance Trends and Opportunities
Asia
Conclusions
Today’s topics
Slide 4
1825 - 1947
1948 - 1957
1958 - 1967
1968 - 1977
1978 - 1987
1988 - 1997
1998 - 2007
2008
Slide 4
The world has not seen many crises like the recent one
Source: AxaUS stock market, total returns in %, 1825 - 2008
Normal distribution fit
We are here
2008
Slide 5
Global economy: unemployment will rise further in the West; inflation remains under control for now
Unemployment
Unemployment rose substantially in the US, much less in UK
In Continental Europe unemployment is expected to rise when short term labour programs expire
Unemployment rates
Sources: Swiss Re ER&C, Bloomberg
0%
2%
4%
6%
8%
10%
12%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08United States United Kingdom Germany
Break-even inflation, 10yr Bonds(percentage points)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
00 01 02 03 04 05 06 07 08 09
US UK
Inflation
Inflation will remain very low or negative next year in most markets due to large economic slack
Market inflation expectations shifted away from a deflationary scenario to a low inflation scenario
Slide 6
Despite many differences in the underlying economies, the BRIC stock markets have been correlated
Emerging Market Indices Return Including Russia Emerging Market Indices Return Excluding Russia
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
De
c-9
9
Ju
n-0
0
De
c-0
0
Ju
n-0
1
De
c-0
1
Ju
n-0
2
De
c-0
2
Ju
n-0
3
De
c-0
3
Ju
n-0
4
De
c-0
4
Ju
n-0
5
De
c-0
5
Ju
n-0
6
De
c-0
6
Ju
n-0
7
De
c-0
7
Ju
n-0
8
De
c-0
8
Ju
n-0
9
De
c-0
9
Bovespa Index (Brazil) NIFTY Index (India) MICEX Index - Russia
Shanghai Composite Index Shenzhen Composite Index MSCI World Index
0
50
100
150
200
250
300
350
400
450
De
c-9
9
Ju
n-0
0
De
c-0
0
Ju
n-0
1
De
c-0
1
Ju
n-0
2
De
c-0
2
Ju
n-0
3
De
c-0
3
Ju
n-0
4
De
c-0
4
Ju
n-0
5
De
c-0
5
Ju
n-0
6
De
c-0
6
Ju
n-0
7
De
c-0
7
Ju
n-0
8
De
c-0
8
Ju
n-0
9
De
c-0
9
Bovespa Index (Brazil) NIFTY Index (India) Shanghai Composite Index
Shenzhen Composite Index MSCI World Index
11.6%9.1%24.6%13.4%14.9%-1.9%10-Year CAGR
ShenzhenShanghaiRussiaIndiaBrazilMSCI
Note: indices have been rebased to 100 at 31/12/1999
Slide 7
State of the Global Financial Market
Insurance Trends and Opportunities
Asia
Conclusions
Today’s topics
Slide 8
The insurance industry has beenaffected by the crisis but was not the cause
0
20
40
60
80
100
120
140
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09
MSCI World Index S&P 500 S&P US Life insurance S&P US Non-Life insurance
Source: Bloomberg, Swiss Re Economic Research & Consulting
Equity indices, rebased: 01.01.2007 = 100
-21%
HSBC boostloan
provisions
Bear Stearnshedge fund loss
Banks announcesignificant losses
Fed and ECBrespond to
liquidity squeeze
Bear Stearnsmerged into JP Morgan
Lehman default, AIG saved
subprime crisis banking crisis recessionasset crisis+ + +
-15%
Slide 9
Premiums contract in both the life and non-life sector
Global life and non-life real premium growth, %
-6%
-2%
2%
6%
10%
14%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Non-life Life
Source: Swiss Re Economic Research & Consulting
Premium income in life insurance declined in 2008-09, mainly due to falling demand for unit-linked products
P&C premium growth is subdued due to the economic crisis, though supported by front-loading of infrastructure construction projects
Slide 10
Globally, life insurers reported sharp drops in capital and solvency
Solvency in life insurance drops sharply, .. … new business temporarily down
Source: Swiss Re, Economic Research & Consulting
0
200
400
600
800
1'000
1'200
1'400
1'600
1'800
2002 2003 2004 2005 2006 2007 2008 2009 2010
US
D b
n
0%
10%
20%
30%
40%
50%
60%
70%
80%
Capital available (LHS) Solvency (RHS) Sample: US, UK, Canada, Germany, France, Italy, Australia, Sweden, Norway
31%
11%
8% 8%
13%
7%
-8%-1%
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 2007 2008
USD
bn
(20
08
exc
hang
e ra
te)
-10%
0%
10%
20%
30%
40%
Growth rate (RHS) Premiums
~ USD400 bn
Slide 11
Insurance capital and profitability in non-life insurance suffered less
Non-life market performanceCapital and solvency
Insurance capital and solvency
Rebound happened more quickly than expected
It will need time to restore the capital base
Insurers profit from better investment results
ROEs 2009 and 2010 improve compared to 2008 due to better investment results
0
50
100
150
200
250
300
99 00 01 02 03 04 05 06 07 08 09 10
0
30
60
90
120
150
180
Primary insurers' capital Reinsurers' capital
Primaries' solvency [RHS] Reins' solvency [RHS]
Source: Swiss Re economic Research & Consulting ; Primary insurers: based on 8 large markets (US, CA, JP, AUS, UK, DE, FR, IT); Reinsurers: sample of 25 leading P&C reinsurers
-15
-10
-5
0
5
10
15
20
99 00 01 02 03 04 05 06 07 08 09 10
Underwriting result Investment result
Operating result ROE after tax
Slide 12
Capital raising became extremely expensive at a time when companies needed it most
SeniorAA+150.826 Jun 20155.161539.9Manulife Financial19 Jun 2008
SeniorA / A2+291.215 Aug 20186.8171,030.0Metlife12 Aug 2008
SeniorA+ / A3+153.29 Oct 20376.300370.0Lincoln National4 Oct 2007
SeniorA / A3+250.915 Jan 20186.400150.0Protective Life4 Dec 2007
SeniorA- / Baa2+525.01 May 20198.750500.0Lincoln National17 Jun 2009
SeniorNA / NA+295.04 Jun 20145.450500.0Prudential4 Jun 2009
SeniorA- / Baa2+525.01 Jul 20198.750500.0Lincoln National 17 Jun 2009
SeniorNA / NA+160.017 Sep 20122.8751,000.0Metlife10 Sep 2009
SeniorA / Baa2+250.017 Sept 20154.750900.0Prudential 10 Sep 2009
SeniorA / Baa2+225.017 Sept 20123.625600.0Prudential10 Sep 2009
SeniorA- / Baa2+437.515 Oct 20398.450300.0Protective Life9 Oct 2009
SeniorA- / A2+375.028 May 20096.7501,250.0Metlife28 May 2009
SeniorA / Baa2+370.02 Jun 20197.375750.0Prudential2 Jun 2009
SeniorAA / Aa2+280.03 Jun 20112.550400.0Metlife3 Jun 2009
SeniorNA / NA+295.04 Jun 20145.450500.0Prudential4 Jun 2009
SeniorAA-+511.08 Apr 20197.768600.0Manulife Financial1 Apr 2009
SeniorNA / NA+287.515 Feb 20206.250300.0Lincoln National8 Dec 2009
DescriptionIssue Rating S&P / Moody’s
Issue SpreadMaturity DateCoupon Rate (%)Amount ($m)
IssuerDate
Source: SNL Financial1) Financial data in CAD2) Over quarterly LIBOR
Selected Debt Issuance by North American Insurers 2007 - 2009
Slide 13
Recent Insurance M&A/ IPO Activity
NA
1.10x
NA
NA
NA
NA
0.49x
NA
P/EV
M&A
Romania Jun 20090.08x0.34xComplete USD 15mAEGON NVBT Aegon
ItalyApr 20092.39x11.02xCompleteNAFondiaria Sai Spa Sistemi
Sanitari Spa
S.Korea Dec 20081.20x24.9xComplete USD 259.5mING Groep N.V.ING Life Insurance
Korea Co.
Australia Jun 2009NA16.0x CompleteAUD 734mNational
Australia Bank Aviva Australia
ThailandMar 20091.07x13.1xComplete NANipponkoa
Insurance Co Ltd.Navakij Insurance
Public Co. Ltd.
TaiwanOct 20080.71xNACompleteUSD 600mFubon FHCING Life Taiwan
AsiaNov 20092.70x20.0xUnder
negotiationAUD 7.7bnAXA SAAXA China Region
Jul 2009
Announced
RSA Insurance PLC
Target Name
Riyadh Bank
Acquirer Name
NA
Value
Complete
Status
7.18x
P/E
1.11x
P/B
Great Britain
Country
Recent Asian deals have been at over 1 times book value and could be at a very substantial premium to that
The range is wide –what makes the difference between high and low multiples?
Value of an extra 0.1 on the P/B, P/E, P/EV ratio is material
Hong KongDec 23rd, 20092.00x*2.9x*N/ACompletedUSD 3.1bnn/a
China Pacific Insurance Co.
1.30x
P/EV CountryListing DateP/BP/EStatusValueAcquirer NameTarget Name
KoreaOct 8th, 20092.0xNACompletedUSD 272mn/aTong Yang Life
IPO
Slide 14
State of the Global Financial Market
Insurance Trends and Opportunities
Asia
Conclusions
Today’s topics
Slide 15
Global P&C
Asia P&C
Global L&H
Asia L&H
A snapshot of Asian markets – at different stages of insurance development
Sources: Oxford Economics; Swiss Re Economic Research & Consulting.
-2%
0%
2%
4%
6%
8%
10%
12%
14%
-10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
Average real premium growth (1995-2007)
South Korea
Hong Kong
PhilippinesIndonesia
Taiwan
S Korea
Hong Kong
AustraliaAustralia
Japan
Japan
India
Taiwan
Singapore
Malaysia
PhilippinesIndonesia
India
Singapore
Malaysia
Thailand
Life premiums, 2007 (USD10 bn)
Non-life premiums, 2007 (USD10 bn)
Insurance penetration 2007
China
China
Thailand
VietnamVietnam
Slide 16
Risk Perception: Asian insurers have similar worries to other insurers
Managing the pricing cycle
Climate change
Management quality
Natural catastrophes
Too much regulation
All Insurers 2007
Managing costsToo much regulation
5
Macro-economic trends
Macro-economic trends
4
Capital availabilityCapital availability3
Investment performance
Equity markets2
Equity marketsInvestment performance
1
Middle East & Asia Insurers 2009
All Insurers 2009Top Fears of Insurance Co Execs
Source: CSFI and PwC
CSFI asked 403 insurance executives
from around the world about their “top fears”
Slide 17
BRIC comparison – India has catch-up potential in non-life insurance
GDP 2009 USD bn
Premiums USD bn
2008
Global Ranking,
2008
Real growth
2009
Real Growth
2010
Premiums USD bn
2008
Global Ranking,
2008
Real growth
2009
Real Growth
2010
Brazil 1483 19.07 14 5.1% 4.1% 17.99 20 9.7% 14.4%
Russia 1332 37.53 11 -6.9% 0.5% 0.64 50 -40.0% 8.1%
India 1197 7.54 28 2.5% 6.3% 51.11 10 7.5% 11.0%
China 4687 35.87 10 20.0% 7.8% 97.63 6 7.0% 8.9%
Non-life insurance Life insurance
Slide 18
The sub-market of High Net Worth also deserves attention
Asia-Pacific High Net Worth Individuals by Markets, 2005-2007
**Others category is comprised of eight markets: Kazakhstan, Malaysia, Myanmar, New Zealand, Pakistan, Philippines, Sri Lanka and Thailand. Some historical figures have been restated as the result of additional country-level data becoming available in 2007. Chart numbers are rounded
Source: Cap Gemini Lorenz curve analysis, 2008
Slide 19
State of the Global Financial Market
Insurance Trends and Opportunities
Asia
Conclusions
Today’s topics
Slide 20
Conclusions:
Asia’s insurance market outlook
Recessions in some Asian economies and slowing growth in China and India have dampened insurance business growth
– The fall in equity markets has reduced consumer interest in investment-linked products
– Bancassurance is particularly affected due to reduced single-premium sales
– Some insurers are shifting their focus to protection products
Insurance capital declined in most markets particularly in Japan. Together with a trend of regulators looking to strengthen solvency supervision, this will put pressure on balance sheets and will favour the use of reinsurance
Government sponsored infrastructure construction projects in a number of emerging Asian markets could add to P&C insurance demand.
Past experiences suggest possible strong rebound alongside economic recovery pressure on capital from business growth
Medium to long term growth outlook remains favourable
Capital management is a
key issue
Slide 21
©2010 Swiss Re. All rights reserved. All rights, including copyright, in this presentation are owned or controlled by Swiss Re. You may download or print out a hard copy for your private or internal use. You are not permitted to reproduce, create modifications or derivatives, transmit, publish, distribute, disclose, convey or make accessible this work or parts of it to any other party, or use it for any other than the by Swiss Re designated purpose, without the prior written permission of Swiss Re.
This presentation is for information purposes only and contains non-binding indications as well as personal judgment. It does not contain any recommendation, advice, solicitation, offer or commitment to effect any transaction or to conclude any legal act. Any opinions or views expressed are of the author and do not necessarily represent those of Swiss Re. Swiss Re makes no warranties or representations as to this presentation’s accuracy, completeness, comprehensiveness, timeliness or suitability for a particular purpose. In no event shall Swiss Re be liable for any loss or damages of any kind, including any direct, indirect or consequential damages, arising out of or in connection with the use of this presentation.
