Partner JLT RE 44 7767 880691 guyhudsonjltrecom ICAR 2014 ICAR 2014 2 Agenda Recent European Floods What should Insurers think about these floods Reinsurance capital The supplydriven ID: 385146
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Slide1
Guy Hudson
Partner JLT RE+44 7767 880691guy.hudson@jltre.com
ICAR
2014Slide2
ICAR 2014
2AgendaRecent European Floods
What should Insurers think about these floods?
Reinsurance capital – The
supply-driven
inflow
The paradox of lower pricing amid heightening risk
So what might happen with Reinsurance rates for European flood exposed catastrophe programs?
Claims handling in light of increased losses Slide3
ROMANIA
27th of July and 1st of August:
99 homes were destroyed, 1,163 damaged and another 2,377 flooded.
2,475 wells have been plugged, 13 bridges were destroyed, 83 partially damaged, 60 culverts destroyed and 23 346 hectares of land were flooded.
PAID
Insured losses to residential buildings, as at 5
th August - 22 claims advised to PAID until yesterday - 116.622 lei (approx. 26.000 euro) related loss reserve
ICAR 2014
3
Recent European Flood losses Slide4
ICAR 2014
4Recent European Flood & HAIL losses 2014
Total
damage
Insured
part
Floods in Germany $890mFloods in Serbia
€
1.7bn
€
3bn ($4.08bn)
‘
Insured losses were small’
Floods
in
Bosnia
€
1.3bn
Hail
in Sofia, Bulgaria (9th July)
BGN
100M (Bulgarian press) = €51mSlide5
Demonstrates very low insurance penetration in many countries of Central and South east Europe
Losses often from unpredictable Flash floods not Riverine Floods
Lack of third party proprietary models for flood in the region
Models are no good for flash floods
Evidence of Increasing
exposure?
Evidence of Increasing
hazard?Is the portfolio of risks geo-coded? Quality of Information?Is the Insurer adequately reinsured?ICAR 20145What does it mean to INSURERS?Slide6
Reinsurance Capacity for floodSlide7
THE EXTRAODINARY INCREASE IN REINSURANCE SECTOR CAPITAL
THE LARGEST REINSURANCE SECTOR CAPITAL STRUCTURE SHIFT IN MEMORY?Slide8
ICAR 2014
JLT Re Global RE Market Composite Capital*
8
The Upward March of Reinsurance
Capital Increased
Each Year Except 2008 (Financial Crisis)
Note: Capital levels represent composite total adjusted shareholders’ funds. This is different from dedicated reinsurance capital and different still from reinsurance capacity. Excludes capital markets, catastrophe funds and internal reinsurance capital.
*Represents a
JLT
Re proprietary list of leading global reinsurers.
Sources: SNL Financial, JLT
Re
.Slide9
ICAR 2014
9Evolution of Third Party Capital: A Brief History
9
Source:
JLT Towers Re
‘
Non traditional’ % of Property-Cat Limit Since 2000Slide10
ICAR 2014
Pension Funds vs Insurance vs Reinsurance vs RetroPutting it in Perspective
10
Pension Fund Capital Under Management
$30
trillion
Global reinsurance market dedicated sector
capital ca. $300
billion
Global retrocession
capital
<$30 billion
Global insurance sector capital (including life) $2.5 - $3 trillion
Source:
JP Morgan, JLT Re estimatesSlide11
ICAR 2014
11$30 Trillion? $900 Billion? $675? $300?How Much Capital Could Really Come In?
Pension Fund Capital Under Management
$30
trillion
Global reinsurance market dedicated sector capital
ca. $300
billion
Global retrocession
capital
<$30 billion
Global insurance sector capital (including life) $2.5 - $3 trillion
$300 billion ($30 trillion x .1 x .1)?
Source:
JP Morgan, JLT Towers Re estimatesSlide12
ICAR 2014
12Don’t Be Fooled By the Sterile Language!And What Do Rating Agencies Think of All This?
Despite being well capitalized the P&C (Re) Insurance Industry faces ongoing pressure, particularly in the commercial lines sector
Record low investment returns continue to weigh on earnings
Alternative capacity starting to creep into casualty lines of business
Underwriting accuracy/discipline becoming even more important (cycle management)
Sector
S&P A.M. BestMoody’sFitchU.S. Personal LinesStable
Stable
Stable
Stable
U.S. Commercial Lines
Negative
Negative
Stable
Stable
Global Reinsurance
Negative
Stable
Negative
Negative
Rating Outlooks by AgencySlide13
LOSS TRENDS AND LOWER REINSURANCE PRICING – A PARADOX OF SORTS?
ARE PRICES DECREASING JUST AS RISK IS INCREASING? IT WOULDN’T BE THE FIRST TIMESlide14
ICAR 2014
14Underwriting Gains Every Year Except 2011How Has The Reinsurance Industry Fared?
JLT
Re
Global RE Market Index*: Combined Ratio Trends
Combined Ratio
84
86
86
110
93
86
94
84
*Represents a JLT Towers Re proprietary list of leading global reinsurers. Sources: SNL Financial, JLT Towers Re
100Slide15
ICAR 2014
15Property-Cat Losses Are Not DecreasingDon’t Be Fooled by 2013
Deepwater oil rig, Washington hanger collapse
Air France 447
KRW
Tohoku, Thailand, Christchurch
Sandy
Potential to affect capital
Potential to affect earnings
Cyber
Sector specialty loss range
Sector natural catastrophe loss range
Next time?Slide16
ICAR 2014
16Insured Catastrophe Losses 1980 - 2010$20.7 Bn Annual Avge – Geographic Distribution
Insured
cat losses are traditionally determined by North American hurricane losses
Source: Swiss
ReSlide17
ICAR 2014
17Insured Catastrophe Losses 2011>$125 Bn – Geographic Distribution
Shift in perils and regions
Source: Swiss
Re
2011: earthquake losses were the highest ever
2011: flood losses were the highest ever
2011: Other weather-related natural catastrophes were the 3rd highest ever (after 2005 and 2004) Slide18
REINSURANCE RENEWAL PRICING
RECENT LOW LOSSES + EXCESS SUPPLY = NEAR UNIVERSALLY LOWER PRICINGSlide19
The major driver for 2013 was lack of catastrophes coupled with continued
favorable loss reserve development from prior accident yearsFour issues are now placing pressure on traditional reinsurersAlternative capacity (capital market transactions, alternative/hedge fund backed Re)
Continued low interest rate environment
Primaries holding more retention
Favorable reserve development has to come to an end at some point
Potential reinsurer reactions
Additional M&A pressure?
Formation of alternative side car type vehicles to compete (e.g., Watford Re - PaCRe)Use of the alternative market to reinsurers’ advantage for example, lowering PML’s by buying retro in the alternative marketsICAR 201419RECENT RENEWALS SUMMARYSlide20
ICAR 2014
20So what might happen to reinsurance rates FOR THE REGION?Increase loss activity in 2014Lack of Historical statistics
Lack of Geo-coding or partial Geo-
C
oding
Increasing Exposures
Increasing Hazards
Lack of Independent Cat ModelsSome losses Flash Floods not Riverine
Increased Capital
Effect of Alternative Capacity
Need for diversification
Income requirements
Single territory covers
Pressures
Downwards
Pressures
UpwardsSlide21
Lodgement and recording of claims
- worked well at CHCH - contracted to firm operating from a broad (Australia) , and untouched by the disasterGive claimants information about progress. Very bad, with both EQC and companies. EQC processes not at all transparent - see Ombudsman's report with link on page http://www.ombudsman.parliament.nz/resources-and-publications/latest-reports
Claim settlement hindered at first by lack of clarity
as to boundaries between EQC and companies covers
Claim adjustment made hard by multiple events
The decisions of EQC and companies not clear
throughout as to what sort of claims would be settled in cash and which repaired
Technical skills such as builders in short supplyShortage of skilled adjusters a problem. Shortage of qualified engineers - structural and geotechCompanies were reluctant to put enough resources in from abroad to expedite adjustment ICAR 201421
CHRISTCHURCH EQ 2010 2011Claims handling AFTER MAJOR EVENTSlide22
Thank you