The global insurance market & Covid19 – an event of ... · 6 0 20 40 60 80 100 120 D&P (Dowling)...
Transcript of The global insurance market & Covid19 – an event of ... · 6 0 20 40 60 80 100 120 D&P (Dowling)...
The global insurance market & Covid19 – an event of historic proportions
Juan Luis OrtegaExecutive Vice President, Chubb Group President, Chubb Overseas General
RIMS Australasia -
September 17th, 2020
Agenda
• Macro-economic and Insurance market
• Covid Claims and Business Interruption
• P&C industry trends US & Europe
• Chubb Financial Overview andKey Initiatives
• Q&A
2
The dark cloud
3
Selected Themes in P&C (Re)insurance
4Global Corporate Development
COVID Impact
6
0
20
40
60
80
100
120
D&P (Dowling)Apr 16
AutonomousApr 26
BarclaysApr 27
WTWMay 1
BofAMLMay 5
Lloyd'sMay 14
BerenbergJun 22
Source: Company disclosures, Dowling & Partners, Barclays Research, Autonoous Research, BofA Global Research, Berenberg Willis Towers Watson
40-80B
31-86B
30-80B 32-80B
30-97B
107B50-70B
Average 70B
COVID Market Loss Estimates
Company Total(in millions)
Company Total (in millions)
£2,500 – 3,500 $262
$2,o00 €248
€1,600 $247
€1,500 $200
$1,378 $195
€800 – 1,000 $185
$750 $170
$530 $152
$310 $49
COVID 1H 2020 Loss Estimates – (as of July, 28 2020)
7Total $17 - $18.3BSources – Company Reports, Dowling & Partners Analysis
Cat and COVID-19 Loss Impacts | Reinsurance Companies
Estimated loss impact on Equity and Net Premiums Earned
Source: SNL, Earnings Releases
7%
12%
6%
8%
4%
6%
8%
4%
2% 2%
3%
2%3%
2% 1% 1%2%
0.5%1%
1% 1% 1%0.4%
0%
2%
4%
6%
8%
10%
12%
14%
0%
2%
4%
6%
8%
10%
12%
2020 R
eport
ed E
vent
Losses /
YE
2019 N
PE
2020 R
eport
ed E
vent
Losses /
YE
2019 E
quity
2020 Reported Event Losses / YE2019 Equity 2020 Reported Event Losses / YE2019 NPE
2020 Total Reported Loss from Catastrophe and COVID-19
2020 Market Outlook
99.3
101.1
106.5
102.5
96.4 97.097.8
100.7
103.7
99.2 98.9
90
100
110
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
P/C Insurance Industry Combined Ratio*
*Excludes Mortgage & Financial Guaranty insurers before 2014.Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0.Sources: A.M. Best; ISO, a Verisk Analytics® business; I.I.I.
Joplin, Tuscaloosa Tornadoes
Sandy
3 Consecutive Years of U/W
Profits; 1st time since 1971-73
Hurricanes Harvey,
Irma, Maria
11
Key Sources of P/C Insurer Profits
Through third quarter.Data are before taxes and exclude extraordinary items.Source: NAIC data, sourced from S&P Global Market Intelligence.
$27.0$41.7 $42.5 $41.4
$48.7 $44.7 $45.0 $40.5$50.2 $51.5 $50.7
-$2.4 -$5.2-$33.7
-$6.1
$11.5$5.3 $8.4
-$0.4
-$19.8
$5.6 $6.4
-$50
-$30
-$10
$10
$30
$50
$70
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Net investment gains Underwriting gains/losses$ Billions
Strong capital gains, underwriting results lifted profits
12
10 Year Treasury Rates – July 2010 – July 2020
13
Combined Ratio Improvement Needed to Offset Decline in New Money Rates
14
Accident Year Combined Ratio
New Money
90% 92% 94% 96% 98% 100% 102% 104% 106%
1.0% 13.6% 11.8% 9.9% 8.1% 6.2% 4.4% 2.5% 0.7% -1.2%
1.5% 14.7% 12.9% 11.1% 9.2% 7.4% 5.6% 3.8% 1.9% 0.1%
2.0% 15.8% 14.0% 12.2% 10.4% 8.6% 6.8% 5.0% 3.2% 1.3%
2.5% 16.8% 15.1% 13.3% 11.5% 9.7% 7.9% 6.1% 4.4% 2.6%
3.0% 17.9% 16.1% 14.4% 12.6% 10.8% 9.1% 7.3% 5.6% 3.8%
3.5% 18.9% 17.2% 15.4% 13.7% 11.9% 10.2% 8.5% 6.7% 5.0%
4.0% 19.9% 18.2% 16.5% 14.8% 13.1% 11.3% 9.6% 7.9% 6.2%
4.5% 20.9% 19.2% 17.5% 15.8% 14.1% 12.4% 10.7% 9.0% 7.3%
5.0% 21.9% 20.3% 18.6% 16.9% 15.2% 13.5% 11.9% 10.2% 8.5%
Assumptions: Exp. 30%; Reserve duration 2.5yrs; P:S 120%; Surplus yield = new money +250bps.Source: D&P Analysis
-2.9
%
-0.1
%
0.9
%
2.7
%
4.4
%
4.3
%
3.9
% 5.0
%
5.2
%
4.3
%
3.4
%
2.1
%
1.5
%
-0.5
%
0.1
%
-0.7
%
-2.3
%
-3.3
%
-3.1
%
-2.8
%
-3.7
%
-3.9
%
-3.2
%
-3.3
%
-2.5
%
-2.8
% -1.3
%
0.3
% 1.7
%
1.5
%
1.6
% 2.4
% 3.5
%
5.2
% 6.2
% 7.5
% 9.3
%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1Q11
2Q
11
3Q
11
4Q
11
1Q12
2Q
12
3Q
12
4Q
12
1Q13
2Q
13
3Q
13
4Q
13
1Q14
2Q
14
3Q
14
4Q
14
1Q15
2Q
15
3Q
15
4Q
15
1Q16
2Q
16
3Q
16
4Q
16
1Q17
2Q
17
3Q
17
4Q
17
1Q18
2Q
18
3Q
18
4Q
18
1Q19
2Q
19
3Q
19
4Q
19
1Q2
0
Average Commercial Rate Change by Quarter All Lines Q1 2011 – 1Q2020
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.Source: Council of Insurance Agents & Brokers; Center for Risk and Uncertainty Management, Univ. of South Carolina.
3 Years 2 Years
Loss cost trend = 4.5%
3 Years
15
Historical Results & Rate ChangeGeneral Liability
Combined Ratio Rate Change
16
90%
95%
100%
105%
110%
115%
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
F
20
21F
20
22
F-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20
Prepared by Conning, Inc. Historical data source: ©2018 A.M. Best Company – used by permission. Forecast ©2019 Conning, Inc.
15% additional rate increase neededin 2020 to achieve a 95% C/R
Loss cost trend = 4.5%
Historical Results & Rate ChangeCommercial Property
Combined Ratio Rate Change
80.00%
90.00%
100.00%
110.00%
120.00%
130.00%
140.00%
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
F
20
21F
20
22
F-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20
Prepared by Conning, Inc. Historical data source: ©2018 A.M. Best Company – used by permission. Forecast ©2019 Conning, Inc.
Loss cost trend = 4.5%
17
174
242209 216
180224
192228
182
120 138 123 107 113 110 129 147 152 172 186214 218
246
112
4043
30
85
198 185158
62
0
50
100
150
200
250
300
350
400
450
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
All Other Filings Credit Crisis Filings M&A Filings Chinese Reverse Merger Filings
U.S. Securities Class Action Filings Since 1997
Source: Cornerstone Research, D&O Diary, D&P Analysis
Proliferation of SCAs at a time of strong performing equity markets andwhen there are fewer public companies (over 5600 in 2004 vs. 4400 today)
Likelihood of being sued= 9.1% vs. historical average of 2.9%
1997-2016 Average
403412
271
207
168165151
187175165
223
177
120
182
228
192
224
180
216209
242
174
404
174
18
D&O Pricing For US Public CompaniesContinues To Increase
19
23.3%18.8% 19.7% 19.7%
46.4%
30.4%
37.9%
31.9%
42.3%
73.0%
55.0%57.4%
14.6%11.9% 12.2%
9.1%
23.2%
13.8%
25.3%
17.5%20.6%
48.9%
30.9%
36.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20
Primary Layers Total Programs
Source: Marsh
20
EUROPEAN MARKET
• Pricing increases with growing momentum since the beginning of the year.
• The impact of COVID-19 is not an underlying cause. The market was already shifting before the pandemic, although it is likely to
contribute to further rate hardening and a lengthier cycle as capacity reduces even further.
• The rate acceleration is happening in both UK and across the Continent but to a lesser extend. Overall insurance pricing in the
second quarter of 2020 in the UK increased 31% (21% in Q1) compared to 15% (8% in Q1) on the Continent.
UK
• Market is hardening in major account property (+16% Q2) and energy. The sectors of waste, food, and mining are particularly
distressed. Clients in any sector with poor claims and/or risk management issues are also subject to important rate increases .
Access to capacity in the market is a challenge, resulting also in more split placements and more restrictive terms.
• Casualty pricing is increasing but to a lesser extend (+5% in Q2).
• We are seeing important rate increases for Commercial D&O (+64% in FL) where the combination of US security class action
lawsuits, group litigation orders, regulatory investigations and litigation funding have driven up loss severity and where results
have deteriorated significantly in the industry. COVID-19 and increased insolvency exposures drives expectations of increased
claims.
• MARKET SIZE
104.5
299.1
P&C GWP 2018 €Billion
UK CE
70.6
62.1
30.325.9
15.2
95
P&C GWP 2018 €Billion
Germany
France
Italy
Spain
Switzerland
Others
21
EUROPE – MARKET CONDITIONS
• CONTINENT
• Property market is also hardening. driven by complex property placements and CAT-exposed programs. Pressure
on rate, retentions, and capacity drove an increase in the use of traditional wholesale markets in London as well as
demand for alternative structures.
• We also experienced increase rates in financial lines (+22% in Q2) albeit less profound than in the UK (+64%).
Pricing increases accelerated particularly for major D&O programs in distressed sectors or with US exposure.
• LONDON WHOLESALE MARKET
• Following years of underperformance by market participants, Lloyd’s has had to make some difficult adjustments to
address the deterioration in underlying performance exposed by the major losses in 2017 and 2018. Lloyd’s it
continues to execute its decile 10 approach (remediation plan to bring back profitability). As a result we see
continued dislocation in the market with a number of withdrawals of capacity from lines such as property , cargo ,
marine hull and aviation.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
CommercialProperty…
European Cat** Global Reinsurance** US Cat XL** RetroOccurrence***
RetroAggregate***
Cum
ula
tive R
ate
Chang r
ela
tive t
o 2
017
Pricin
g
(2018 -
Q2-2
020)
U-shaped recovery – how will the landscape look in 2021? Rate change by product line relative to 2017 pricing (2018 – 2020)
“We see ROE as a key driver of pricing over the long term and that a "capital event" isn't required to boost pricing” – Morgan Stanley, July 20
Property Rate Change SummaryCumulative rate since 2018 has varied through the insurance chain
*Marsh Insurance Global ROL Index: Global Property Insurance Renewal Rate
** Guy Carpenter 2020 Regional Reinsurance Property Cat ROL index
*** Guy Carpenter Retro Cat ROL index
2020 Chubb Overview
Chubb Limited 2Q
2020 Results
2Q 2020 Change vs 2019
$10.0BGROSS WRITTEN
PREMIUM- 3.0%
$8.4BNET WRITTEN
PREMIUM0.1%
($331M) NET INCOME NM
85.2%LOSS & LOSS
EXPENSE RATIO23.5 pts
27.1% EXPENSE RATIO (1.3 pts)
112.3% COMBINED RATIO 22.2 pts
24
Exceptional Balance
Sheet Strength2Q 2020
Chubb’s total capital position is $70 billion
Net loss reserves, which back our policyholdercommitments, of $65.7 billion6/30/20
Balance Sheet Highlights
Total Assets $181.5 B
Total Investments 110.9 B
Net Loss Reserves 65.7 B
Total Debt 15.3 B
Shareholders’ Equity 54.8 B
Total Capital 70.0 B
Ratings: AA from Standard & Poor’s and A++ from A.M. Best
25
CHUBB Key Initiatives and 2H Priorities
COVID Response Highlights
― Operating seamlessly from home
― $10M Pandemic Relief Fund
― Supporting Client Exposure Adjustments
― Supporting Client Pandemic Response
― No Layoff Pledge during health crisis
― Diversity & inclusion effort revamped
― Leadership for private/public partnership
2H Priorities & Investments
― Get back to office, back to meetings
― Digital Investments - Marketplace, @chubb, chubb.com, Worldview, Chubb Studio
―Maintain and Strengthen the Chubb Culture
― Chubb Associate Program
― Diversity and Inclusion Commitment execution
26
Small Businesses (<500 employees) Medium and Large Businesses (> 500 employees)
Purchase Strong opt out; ~90% take up expected Open market (~30% take up expected)
PremiumRisk appropriate premium for insurers’ share; no governmentpremium
Risk appropriate premium for insurers’ and government’s share
Claim AdjustmentSimple parametric structure provides for an accelerated claims payment process
Indemnity–based program with traditional claims handling
Policy LimitThree months payroll (plus operating costs for certainclasses)
Up to three months of expense, with a maximum of $50 million
Program Limit $750 billion limit $400 billion limit
Government Share $735 billion limit $385 billion limit
Industry Share Year 1 $15 billion limit $15 billion limit
Carrier Share
Carrier pays 6% of first–dollar claims up to carrier’s market share of industry limit, growing to 12% by year 20. Government pays remaining share of first–dollar claims
Carrier pays 5% of first–dollar claims until industry limit is reached, growing to 10% by year 10. Government pays remaining share of first–dollar claims
Chubb Pandemic Business Interruption Framework
• Affordable for small businesses with strong incentives to purchase while maintaining choice
• Provides effective incentives for broad participation by the insurance industry
• Fiscally responsible
• Addresses different needs of small, medium–sized and large businesses
• Envisions a meaningful role for the industry to share pandemic risk with the government
27
Chubb. Insured.