An Eye into the Future - PwC...Michel M. Liès, Group CEO Swiss Re | PwC Breakfast Briefing | Monte...

Into the eye of the future Michel M. Liès, Group CEO Swiss Re PwC Breakfast Briefing Monte Carlo, 10 September 2012

Michel M. Liès, Group CEO Swiss Re | PwC Breakfast Briefing | Monte Carlo, 10 September 2012 2

Today's agenda

Setting the stage: Challenging environment

On stage: What this means for the insurance industry

Backstage: Looking into the future

Michel M. Liès, Group CEO Swiss Re | PwC Breakfast Briefing | Monte Carlo, 10 September 2012

Setting the stage: Challenging environment

3


shrinking client loyalty

mature markets, high growth markets

4

Challenging environment – not just for insurers

changing risk landscape

weak growth

financial markets, sovereign debt

regulatory environment

low interest rates, inflation, price

pressure

Insurance Industry


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

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*)

5

Historically low interest rate environment

Source: Bloomberg data as of 20 March 2012 * Including German Repo Rate until 31.12.1998 and ECB Refinancing Rate from that date onwards


How do low interest rates affect non-life insurance?

Combined ratio

ROE

5.1%

4.1%

3.1%

Investment yield

0%

2%

4%

6%

8%

10%

12%

14%

95% 97% 99% 101% 103% 105% 107%

Based on US industry data for 2011

Source: Swiss Re Economic Research & Consulting


Slowdown of economic growth

-4%

-2%

0%

2%

4%

6%

8%

10%

2005 2006 2007 2008 2009 2010 2011

Real GDP growth

Advanced markets Emerging markets World

Source: Economic Research & Consulting

7


2011: Annus horribilis in terms of natural catastrophes


The insurance and financial services industry has entered a new phase in terms of regulatory reforms

Speed and number of reforms is alarming

The insurance sector has limited time to engage and assess the impact of the regulatory reforms…

Many regulators and policymakers are also overwhelmed…

The regulatory clock is ticking...


On stage: What this means for the insurance industry

10


Premium growth was only negative twice before the financial crisis of 2008

-10%

-5%

0%

5%

10%

15%

20%

25%

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

Real growth rates

Total Non-life Life

2008: Great recession & after 1980: Global recession 1973: Oil crisis

Source: Economic Research & Consulting

11


Economic recovery, interest rates and regulatory developments impact profitability

Profitability of global non-life insurance industry (% of premiums, shareholder capital)

Source: Economic Research & Consulting; Aggregation based on eight major insurance markets

12

-15

-10

-5

0

5

10

15

20

1999 2001 2003 2005 2007 2009 2011 2013 2015Underwriting result Investment result Operating result ROE after tax

?


Backstage: Looking into the future

13


Insurance penetration remains low – huge potential

0

50

100

150

200

250

300

80 85 90 95 00 05 10

Economic Loss…Insured Loss…

Natural catastrophe losses 1980-2011* 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 2010 Source: Swiss Re sigma catastrophe database


Risk landscape is changing


Smart expansion

Product-oriented

Client-oriented

Relevant to society


The re/insurance industry absorbs shocks…

2001: World Trade Centre 47% of the total losses were paid by insurance sector. Reinsurers assumed 50%~60% of insured losses1. 2005: Hurricane Katrina, Rita and Wilma 50% of the total losses were paid by the insurance sector. Reinsurers assumed 35% of insured losses 2010: Earthquake in Chile 27% of the total losses were paid by the insurance sector. Reinsurers assumed 95% of insured losses 2011: Earthquake in New Zealand 80% of the total losses were paid by the insurance sector. Reinsurers assumed 70% of insured losses 2011: Earthquake in Japan 17% of the total losses were paid by the insurance sector. Reinsurers assumed 40% of insured losses

1Based on Holborn, 2009 catastrophe losses


…and provides capital for the real economy

Sources: Pension funds – CityUK; Insurers – Swiss Re Economic Research & Consulting; Mutual funds – Investment Company Institute; Sovereign wealth funds – Sovereign Wealth Funds Institute; Private equity – Deutsche Bank; Hedge funds – Hedge Fund Research, Inc.

30.9

25.0

23.8

4.8

2.6

2.0

0 10 20 30 40

Pension funds

Insurance companies

Mutual funds

Sovereign wealth funds

Private equity

Hedge funds

Year-end 2011, USD trillion


Re/insurers absorb shocks, provide capital for the real economy and support risk prevention

this becomes ever more important in a challenging environment

Thank you


Legal notice

©2012 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivatives of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.

Although all the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial and/or consequential loss relating to this presentation.

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