Sanford C. Bernstein Strategic Decisions Conference6aba04c6-9f11-4a89-b93c-e18fb0c… · of...
Transcript of Sanford C. Bernstein Strategic Decisions Conference6aba04c6-9f11-4a89-b93c-e18fb0c… · of...
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Sanford C. Bernstein Strategic Decisions Conference Christian Mumenthaler, CEO Reinsurance
London, 20 September 2012
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Introduction to Swiss Re
Reinsurance market drivers – a three year view
Summary and outlook
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Agenda
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Introduction to Swiss Re
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Introduction to Swiss Re
Our financial strength is currently rated: Standard & Poor’s: AA-/stable; Moody’s A1/positive; A.M. Best: A+/stable
Swiss Re is a leading and highly diversified global re/insurance company
We deliver both traditional and innovative offerings in Property & Casualty and Life & Health that meet our clients’ needs
A pioneer in insurance-based capital market solutions, we combine financial strength and unparalleled expertise for the benefit of our clients
149 years of experience in providing wholesale re/insurance and risk management solutions
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Swiss Re's Group strategy
Outperform our peers Reinsurance Admin Re® Asset Management
Smart expansion Corporate Solutions Longevity & Health
High Growth Markets
Current position
The leading player in the wholesale
re/insurance industry
Strategic goal:
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a 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
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Swiss Re is broadly diversified by geography and product line
Premiums earned1 2011 (USD 22.2 billion) 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)
42% 39% 19%
P&C Re 45%
L&H Re 38%
Corporate Solutions
9%
Admin Re® 8%
1 Includes fee income from policyholders
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9.3 8.6
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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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
Swiss Re's R&D capabilities a key differentiator of our underwriting
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
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Swiss Re's approach to underwriting leads to outperformance …
1 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
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0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011
Premiums U/W profit (red=loss)
2011 underwriting loss1: Top 8 reinsurers:
USD 6.0bn in u/w loss Swiss Re:
USD 0.2bn in u/w loss Swiss Re premium share
of 19%, share of u/w loss of 3%
Swiss Re's underwriting outperformance in P&C
- 2006-2010: above average share in underwriting profits
- 2011: significantly below average share of underwriting loss
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a YTD 2012 renewals (January – July)
Treaty portfolio
USD 15.0bn
USD 12.1bn
100%
124%
RenewableYTD 2012
Estimatedoutcome
100% 127%
Renewable1 January 2012
Estimatedoutcome
100% 107%
Renewable1 July 2012
Estimatedoutcome
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USD 8.6bn USD 10.9bn
April 2012 renewals1
USD 1.4bn USD 1.8bn
July 2012 renewals USD 2.3bn
Treaty portfolios
USD 2.1bn
January 2012 renewals1
100%
129%
Renewable1 April 2012
Estimatedoutcome
… and growth at the right time: P&C Reinsurance YTD 2012 renewals YTD volumes strong, volume and prices up
July renewals: 7% top line growth, 3%pts improvement in risk-adjusted price quality driven by property & specialty
January and April renewal volumes increased by updates after Q1 reporting Markedly stronger overall treaty volumes than anticipated in the beginning of 2012
1 January and April 2012 numbers have been restated with current fx rates
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a High Growth Markets Tangible growth opportunities exist
Agriculture Nat Cat Infrastructure
Life Health
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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EPS growth 10% average annual growth rate over 5 years
ROE 700 bps above risk free average over 5 years
Group financial targets Our top priority
1 Assumes constant foreign exchange rate 2 Dividend has been translated from CHF using the fx rate of the dividend payment date
ENW per share growth plus dividend 10% average annual growth rate over 5 years
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Reinsurance market forces – a three year view
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Low interest rates
Drivers of re-/ insurance prices
Regulatory changes Continuous reserve releases
Industry capitalisation
Factors leading to higher prices
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Factors leading to lower prices
Low inflation Nat Cats
Factors driving re-/insurance prices
High Low
Prices
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Record low interest rates Expected to stay low… …increasing pressure on running yield
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Gap between interest rates and running yield expected to narrow further
Pressure on net income and ROE to increase further
Sources: Swiss Re Economic Research & Consulting
0%
2%
4%
6%
8%
Germany
Running yield (P&C insurers) 10 yr gov bond yields, average of year
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Regulatory changes New rules come into play within next three years… …none of them will likely require less capital
United States NAIC solvency modernisation,
but rather qualitative (ORSA)
Latin America Mexico: moving towards risk-
based solvency Brazil/Argentina: market
access restrictions for reinsurers
Asia Pacific Australia: higher P&C charges China, Japan, India, NZ: move
towards risk-based solvency regimes
Europe Challenging finalisation
of Solvency II
Convergence trends in solvency frameworks, increased focus on supervisory cooperation and coordination on global basis, eg intensified use of supervisory colleges
IAIS international frameworks: global SIFI designation and ComFrame
Solvency rules are expected to tighten on a global basis
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Low inflation
Assuming claims inflation follows general inflation, we can expect some continuation of positive reserve releases on the longer tail lines
Continued expected low economic growth, low interest rates and inflation
Outlook is asymmetrical however, with higher probability of inflation shock than even lower inflation
Sources: Swiss Re Economic Research & Consulting
0%1%1%2%2%3%3%4%4%
Germany
Inflation 5y break-even inflation
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Continuous reserve releases Reserve levels are declining
US core reserve releases as a % of NPE
Sources: A.M. Best, Swiss Re Economic Research & Consulting
Reserve releases expected to end within the next three years
Global P&C industry has enjoyed substantial reserve releases since 2004
Pace of releases is winding down
US: data shows net releases of comparatively unseasoned years in 2011
US: only small reserve buffers remain; will be depleted within the next 12 months if releases continue at the same level
Europe: reserve releases are slowing. Reserving trends are somewhat more stable than in the US, but also declining
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-6%
-4%
-2%
0%
2%
4%
6%
8%
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Equity, excl unrealised gains on bonds
30
50
70
90
110
130
150
02 03 04 05 06 07 08 09 10 11 12H1Net premiumsShareholders' equity
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Industry capitalisation Is there any excess capital?
Falling interest rates have significantly inflated GAAP capital – relevant capital adequacy has probably rather decreased recently
Sources: Swiss Re Economic Research & Consulting; aggregate of leading reinsurers
2005 = 100
Relevant capital adequacy ratios are not public
Very rough approximation is to use premiums as measure for risk and GAAP/IFRS capital as measure for available capital
Taking out artificial effect of unrealised gains due to lowered interest rates indicates that capital is getting tighter than before
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Low interest rates
Continuous reserve releases
Industry capitalisation
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Factors leading to lower prices
Factors leading to higher prices
? Low inflation
Regulatory changes
?
Three year outlook indicates upwards pressure on pricing
High
Prices
Drivers of re-/ insurance prices
Nat Cats
Low
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Swiss Re is well positioned
1 CHF 5bn stop-loss protection on Swiss Re's P&C reserves with Berkshire Hathaway 2 SST 1/2012, as filed with FINMA at the end of April, based on a projection for 2012
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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 SST 1/2012 ratio 213%2
Capitalisation
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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Summary and outlook
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Summary and outlook
Six key factors drive reinsurance market prices
– Low interest rates, regulatory changes, low inflation, reserve releases, industry capitalisation, and natural catastrophes
Three year outlook indicates upwards pressure on P&C reinsurance pricing
– For the upcoming renewals, Swiss Re expects moderately increasing prices
Swiss Re well positioned to capture the reinsurance market opportunities
– R&D-driven underwriting approach a key differentiator
– Excellent capitalisation allows for both business and dividend growth
– High Growth Markets are not an option, but a contributor towards delivering on our financial targets
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Achieving our 2011-2015 financial targets remains the top priority
Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
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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
Simone Lieberherr Simone Fessler +41 43 285 4190 +41 43 285 7299
Corporate calendar 08 November 2012 Third Quarter 2012 results Conference call 21 February 2013 Annual Results Zurich 10 April 2013 149th Annual General Meeting Zurich
Corporate calendar & contacts
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Strategic Decisions Conference | Sanford C. Bernstein | London, 20 September 2012
a Cautionary note on forward-looking statements Certain statements and illustrations contained herein are forward-looking. These statements 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. 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 financial strength or other ratings of 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; legal actions or regulatory investigations or actions, including those in respect
of industry requirements or business conduct rules of general applicability; changes in economic theory or principles; significant investments, acquisitions or dispositions, and any delays,
unexpected costs or other issues experienced in connection with any such transactions;
changing levels of competition; operational factors, including the efficacy of risk management and other internal
procedures in managing the foregoing risks; and challenges in implementation, adverse responses from counterparties,
regulators or rating agencies, or other issues arising from, or otherwise relating to, the changes in Swiss Re's corporate structure. 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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