Interpoma – InfoPAC 2014 The view of reinsurers

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Interpoma – InfoPAC 2014 The view of reinsurers

Ernst Urech, Senior Underwriter Agriculture, Swiss Re Zurich Bolzano, 21.11.2014


Ernst Urech | Senior Underwriter Agriculture, Swiss Re | Interpoma: Risikomanagement, 21.11.2014 2

Table of Contents / Agenda

• Who we are - Swiss Re at a glance

• Extreme weather events on the rise

• Agriculture large losses, selection 2010-13

• Italy – agricultural seasons since 2012

• The role of Reinsurer in agriculture

• Sustainable reinsurance can only work if …

• Italy Results, based on ISMEA data

• Common Agriculture Policy, CAP 2014

• Where are the "issues" in Italy?


Ernst Urech | Senior Underwriter Agriculture, Swiss Re | Interpoma: Risikomanagement, 21.11.2014

• Swiss Re is a leading and highly diversified global reinsurer, founded in Zurich (Switzerland) in 1863.

• We have 150 years of experience in providing re/insurance and risk management solutions, both traditional and innovative offerings, combining financial strength and expertise for the benefit of our clients.

• We have more than 11'000 employees and offices in 28 countries.

• Premium income 2013 USD 29 billion, of that 800 mio from agriculture.

• In Agriculture, Swiss Re has a dedicated team of about 24 people, based in Zurich, Sao Paulo, Mexico City, Singapore, Mumbai & Beijing.

• We do all: Crop, livestock, bloodstock, aquaculture, forestry, greenhouses.

Who we are - Swiss Re at a glance

The “Gherkin”, London Headquarters, Zurich Armonk, New York

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Extreme weather events on the rise

Insured catastrophe losses

Extreme weather events are on the rise, both in terms of frequency and severity Agriculture systems vulnerable to weather anomalies as global production is bound to keep up

with population growth, changing dietary preferences and rising biofuel demand Effects of climate change is likely to result in more weather extremes and changing precipitation

and temperature patterns in key production countries

5

http://media.swissre.com/documents/sigma1_2014_en.pdf

Swiss Re's Sigma study 1970-2013



Agriculture large losses, selection 2010-13

5

Russia: 2012 summer drought; LR 140%. 2010 LR around 300%

South Africa: 2012 LR125%

Ukraine: 2012 winter losses. LR

around 200%

Poland: 2011 and 2012 winter kill,

hail. LR 150% - 250%

Italy: 2012 frost, drought, other

perils. LR around 95%

South Korea: 2012 typhoon Bolaven. LR 200%

US: 2012 Midwest drought. LR 150%. 1/30 year event?

Mexico: 2012 drought. 2011 frost (February), drought

(summer). LR 400%

Thailand: 2011 flood. LR 500%

Argentina: UWY 2012 LR 160%

France: 2013 LR > 100%

Germany: 2013 summer hail storms

Reinsurers provide stability in case of large losses



Italy – agricultural seasons since 2012

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In recent years, every season was bad !!

2012: "una estate pazza"…. • April frost damages fruits in TR. Hot temps and no rain since mid May • worst drought since 10 years, hitting maize, sugar beet, tomatoes, etc • excess of rain end of August caused losses on tomatoes.

2013: altra "estate pazza"?

2014: ??

0%

50%

100%

150%

4%

9%

14%

19%

1990 1994 1998 2002 2006 2010 2014

Loss

Rat

io

Rat

e crop insurance Italy



Have enough capital to absorb "volatility"

• provide cover against catastrophic events / years

• build-up capital during good years

need to have good years!

in other words

Absorb shocks in turn for an economic return

The role of Reinsurer in agriculture

and in general



o Risk management is appropriate • Avoidance > Prevention > Minimisation of risk/loss > Insurance • Insurance is only one cornerstone to agricultural risk management!

o Alignment of interest • "pulling together in the same direction", from farmer to reinsurer • include government → subsidy level limited to 65% is helpful.

o Transparency on risk taking and loss settlement • prevent antiselection e.g. • deductible buy-backs (integrativi) with adequate rates Swiss Re paid 10% more losses than the subsidized policies! transparency in Bolzano and Trento with mutualistic funds

o Stability and continuity of the portfolio • multi-year policies • no 'moving targets' with every year changing perils composition and conditions

o Sustainable rates …

Sustainable reinsurance can only work if …



Loss development considerations: o Loss history long enough, representative and at the right level of detail?

• Todays cover include perils with long return period • The more perils, the trickier every year a peril with heavy losses "pops up" History since 2004 is short for pluri/multirischio!

o Trend to higher frequency and severity of extreme events considered • Volatility is increasing, with heavier weather events • More sensitive crops planted (eg rape seed + frost PL; late harvest wheat FR) • Climate Change

o Rate adequate to local exposure Bonus / malus for farmer

o Loss adjustment/payout schemes been stable and reliable over time?

all this leads to a careful "as if analysis"

Actuarially sound technical rates



Italy Results, based on ISMEA data

• Hail only to MPCI (pluri/multi)

• 'true' rates increase is just very slight

• Still serious doubts that rate level is adequate overall

• additional loss burden to reinsurer due to Integrativi. 0%

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

100%

2002 2004 2006 2008 2010 2012 2014

Insu

red

valu

es

MultirischioPluririschioMonorischio

2%

4%

6%

8%

10%

12%

2002 2004 2006 2008 2010 2012 2014

prem

ium

rate

MonorischioPluririschioMultirischioAll



EU 1305/2013

oArt 37: Insurance • insurance products 'as usual' • subsidy limit at 65% of premium also in Italy

oArt 38: Mutual Funds • opportunities for new insurance products • Mutual Funds like in Bolzano and Trento

oArt 39: Income stability tool • just Italy and 1,2 other countries 'activated' it • Feasible insurance products not yet in sight.

Swiss Re is ready to advice and reinsure

Common Agriculture Policy, CAP 2014

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o Crop insurance selling is volume-driven, not enough by UW quality

o Premium rates are under constant pressure since years, and also in 2014

o Multi/pluri rates most probably still too low. Loss adjustment still learning

o Franchigia 10% per parcel is too low today (France normally 25%)

o 2014 into right direction with tightening of conditions, rate increases • to be analysed how much 'true' rate increase • mid season competition was intensified again • Deadlines for signing need further tightening (annual crops)

o 2015 • stability on premium subsidy side for the next years • competition amongst insurers and management agencies continues • rates under pressure again, also because of reduced subsidy percentage. • 'cheaper' policies possible with lower indemnification.

Where are the "issues" in Italy?



(Re)Insurance crucial for agriculture risk management

Increasing loss trends and shrinking margins are worrying Reinsurers

Sustained efforts needed to maintain the (re)insurance industry's ability to support the agriculture sector in the long term

Alignments of insurance terms and conditions with exposure trends and proper market set-up are essential

Swiss Re is regularly reviewing its risk appetite and may pull out of unprofitable, intransparent markets

Pro-active approach is key to master the challenges ahead Swiss Re expects to see improved terms and conditions


Ernst Urech | Senior Underwriter Agriculture, Swiss Re | Interpoma: Risikomanagement, 21.11.2014 14



Legal notice

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©2014 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.

The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although 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 or loss 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 or consequential loss relating to this presentation.

Interpoma – InfoPAC 2014 The view of reinsurers

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