Reinsurance workshop Eric Dal Moro Eberhard Müller PampC Reinsurance market 2 Insurance has become more global particularly driven by Europeans PampC premium mix top 40 global carriers by premium written ID: 813554
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Slide1
ASTIN/AFIR ColloquiumPanama 2017
Reinsurance workshop
Eric Dal Moro / Eberhard Müller
Slide2P&C Reinsurance market2
Slide3Insurance
has
become
more global,
particularly
driven
by
Europeans
P&C premium mix, top 40 global carriers by premium written
Source: McKinsey
3
1950s
2013
Americas
Europe Asia
Slide4Three markets, three different strategies among
insurers
Source
:
Swiss
Re
Sigma, McKinsey Global
Insurance Insights. Central Asia not included in Asia figures. FX rates
movements can impact the results 1) based on 2013 data
4
US
Europe
Asia
2015 P&C Insurance market size
(overall: $2
trillion)
38% of global total
30% of global total
22% of global total
Growth rate
(2011-2015,
in USD)3%3% (Western)-15*% (Central & Eastern)-2% (Mature)13% (Emerging)% premium written outside home market1)12%65%11%Typical strategy of large insurersGrow at home, consolidate in-marketExpand globally: home markets matureBuild high market share in growing home markets
*
Heavily
impacted
by
currency
movements
, in
particular
Russian
rouble
Slide5Over 600 notable buyers of reinsurance in the US – many of them being large, strong clients: 37 clients cede ~45% of total accessible ceded premium 1)
Who cedes reinsurance by segment - 2015
5
Source
:
SNL – 2015
statutory
filings
. Note: 1)
Acessible
ceded
premium: premium
ceded to main
reinsurers (see next slide); 2) Regional insurers include Super-regional, medium, and small regional
insurers; 3) Others include Farm Bureaus, MedMal, Captive, Credit & Surety Insurer, Front, Lawyers Liability, Reinsurer, Workers Comp Insurer, RRG, Motor focus, Liability Insurer; 3) Segment classification is based on ultimate parent view, e.g. State Farm Florida Insurance company would be considered as a Florida Cat Specialist on a standalone basis, but is classified as “Large national group” based on its ultimate parent State Farm
$
22
b
Niche
$
9
b
AFG
18%
CGB
7%
Brown &
Brown
7%
$
4
b
Others
28%
Others
79%
Multi-national Group
$
24
b
AIG
21%
Liberty
18%
Zurich
18%
Home State
7%
$
10
b
Progressive
6%
Alleghany
6%
American Agricultural
5%
Others
64%
$
4
b
Others
64%
Chubb
17%
QBE
6%
Others
19%
Loews (CNA)
16%
WolvAdv
6%
Assurant
13%
Farmers
9%
Travelers
7%
State
Farm
6%
Others
49%
$
7
b
Farmers Mutual
Hail
6%
Others
56%
Large national group
NGHC 6%
State National
11%
E&S
Regional
2)
Others
3)
Selective 5%
Auto Club 4%
NBIC 3%
White
Mountains 3%
Starr
20%
Tokio
20%
Fosun
12%
IAT Re
10%
Markel
9%
Florida
Shively
10%
Federated National 7%
Universal Insurance7%
St. James6%
Universal Group6%
10 cedants
17 cedants
79 cedants
220 cedants
12 cedants
30 cedants
312 cedants
Total
:
$79b
Slide6Leading reinsurers of US cedants have strong balance sheets
Who
assumes
reinsurance
by segment - 2015
Source
:
SNL
Note; 1)
Others
include
Farm
Bureaus, MedMal, Captive, Credit
& Surety Insurer, Front, Lawyers Liability, Reinsurer, Workers Comp Insurer, RRG, Motor focus, Liability Insurer; Market analysis on this slide doesn’t include any
reinsurance premium from affiliates and out-of-scope cedants6
Chubb
4%
Partner Re
11%
Swiss Re
3%
31%
32%
$4
b
Lloyd’s
9%
Everest
8%
Allianz
8%
Tokio
6%
XL Group
4%
41%
24%
$
4b
Lloyd’s
10%
Swiss Re
10%
Munich
8%
Trans
6%
Everest
5%
36%
25%
$7
b
Lloyd’s
9%
Swiss Re
9%
Munich
7%
50%
Large national group
$
22b
Swiss Re
9%
Munich
Re
4%
$
10b
Trans Re
4%
Berkshire
2%
15%
62%
Multi-national Group
$24
b
Swiss
Re
5%
Hannover Re
5%
Munich Re
4%
Chubb
4%
Lloyd’s
3%
Other large reinsurers
13%
Others
66%
(includes certain foreign entities,
pools – both mandatory and voluntary,
capital markets products,
multi-parent
captives)
Lloyd’s
4%
Trans Re
11%
Lloyd’s
7%
Hannover
5%
Everest
4%
31%
36%
Niche
$
9b
Munich Re
9%
Lloyd’s
8%
Swiss
5%
Partner
3%
Trans Re
2%
24%
Florida
Others
Regional
E&S
1)
Total
:
$79b, $38b for top 38
Slide7US insurers buy mostly Property Cat and « Heavy » Casualty
The $79bn US reinsurance
market
split by line
7
Source
:
Stat
filings via SNL, Guy Carpenter estimate of Cat premium. Specialty and Financial Lines LRs not
availableFinancial
lines include
Mortgage, Fidelity
, etc..
Other Liab Claims-made (Professional Indemnity)Med MalWarranty/ Product
Liab Ceded at 42% incurred loss ratio, AY 2011-2015
Often not ceded stand-alone –
bundled with Cat and Casualty
Standalone
treaties are
small. Often
requires writing the Cat 60%75%Showing the market’s total loss ratio of ceded business (including affiliate ceded), AY 2011-201561%65%72%86%57%1)
Slide8Europe’s top insurers, having strong shares in mature markets, have been driven
to globalize
2015 main
European
insurers
P&C GWP (€
bn
)
8Companies
shown: ~50% of the
European market
Source: SNL, Bain &
Company. Market
shares assessed using
Swiss Re sigma’s 2015 insurance premium estimates for EuropeSCOR, Swiss Re, Munich
Re, Hanover Re, Lloyd’s excluded from analysis. ROE average include all Global insurers worldwide
Global
insurer
Slide9National champions dominate high-growth emerging marketsMarket
share of foreign vs.
domestic
players
(Total business) In %
9
Source
: McKinsey
1) Shift from
Foreign to Joint-Venture due to move from
Mapfre to
create a JV with
Banco do Brasil2) Data for earlier
historical years not
available
Foreign
Joint-Venture
Local
China
India
Brazil
1)Russia 2)
Slide10A handful of large insurers are dominating China, which by far Asia’s largest
insurance market
2015 main emerging Asia insurers – P&C GWP (€
bn
)
10
Source
: SNL.
Market
shares
assessed
using Swiss
Re
sigma’s insurance premium
estimates for Emerging Asia and China & India
for 2015. China Re & GIC Re excluded
Companies shown = 60% of the Emerging Asia market and 66% of China & India
Slide11In developed Asian markets (as with Europe), large carriers are seeking growth abroad
11
Note
:
Tokio
Marine pure life acquisitions and
branch
launches
excluded
.
Source
:
Swiss re Sigma,
company reports
Lloyd’s insurance groupUS P&C
insurer
US Life & P&C
insurer
US
specialty
insurerTakaful insurerLife & P&C - Singapore & MalaysiaAsia General Holdings Ltd.Hong Leong TM TakafulTokio Marine ChinaChina subsidiaryTokio Marine Global LtdUK reinsurance companyEXAMPLEHome market growth rate: 5% (2011-15, JPY)Acquired (since 2006)Launched (since 2005)
Slide12Life Reinsurance market12
Slide13Life insurance needs are typically triggered by key “life events”Source: SCOR Global Life analyses
1) BCG
Insurance Survey 2013—LI = Life insurance
33%
Wealth
First Job
Retirement
Wealth accumulation
Wealth
decumulation
Critical illness insurance
Disability insurance
Medical insurance
Deferred annuities
Payout annuities
Age
Marriage
Birth of a child
Children’s education
Change of job
Daughter’s marriage
Purchase of a home
Sam, 31, single“Felt the need for insurance when I started working”David, 33, married“Wanted to give a wedding gift to wife”Robert, 53, married“A friend died of a heart attack at age 40. I did not have an extended family to support my family”29%24%14%9%16%12%
Credit-linked mortality insurance
Long term care
Mortality insurance (e.g. Term)
Mortality insurance (e.g. Term)
Wealth
%
% of customers
1)
Illustrative
10%
Loss of a loved one
Slide14Drivers of reinsurance purchase remain focused on access to reinsurer support & services, but vary widely among geographies
Source
: NMG; individual market
1) Mortality
, Long-term care, Disability and Personal accident; Medical only included for Middle East
US
UK & Ireland
Middle
East
France
Access to
reinsurance services
Product partnering
Solvency/Capital
Motivated
Price below Insurer cost
2015
55%
11%
31%
3%
2013
42%
18%
33%
7%
2013
26%
11%
29%
34%
Price below
insurer cost
2015
30%
12%
27%
31%
Slide15Risk Solutions: very often, life reinsurance is a way to trade risk transfer against various value-adding servicesSource: SCOR Global Life
Volatility management
Risk management
Mostly
high
proportional
structures
Risk
assessment
UW manual
Claims handling
Product development
Experience analysis
Seminars & Training
Risk transferServices & solutions
Life
Insurer
Life
Reinsurer
Risk Solutions
Slide16Reinsurance products16
Slide17Proportional Reinsurance – Quota Share
Characteristics
The reinsurer assumes an agreed percentage of all insurance policies by the reinsured as defined by the treaty. This percentage determines how the liability, premium, costs and losses are shared between reinsured and reinsurer.
Benefits
Comparably
simple and cost efficient and provides attractive capital relief to the reinsured
Protection against high frequency
L
imitations
Protection against severity (e.g. very large loss) is limited
Slide18Proportional Reinsurance – Quota Share
Slide19Proportional Reinsurance – Quota Share
Example
A ceding company writes a QS contract for a total premium of EUR 1,000,000 with a 70% cession rate to the reinsurer.
During this duration, there is a loss and the ceding company has to indemnify the beneficiary with EUR 600,000.
The ceding company manages to recover EUR 200,000 and pays EUR 20,000 for the claims handling. The ultimate loss results in EUR 420,000 which is shared between the ceding company with EUR 126,000 and the reinsurer with 294,000.
Slide20Proportional Reinsurance – Quota Share
Example of Cession and Loss Allocation
Gross
Cedent
Reinsurer
Retention and Cession
100%
30%
70%
Premium
1'000'000
300'000
700'000
Ceding Commission (Rate of 32%)
224‘000
Initial Loss
600'000
180'000
420'000
Claims Handling Costs20'0006'00014'000Recovery200'00060'000140'000Ultimate Loss (excl. Premium and Commission)420'000126'000294'000
Slide21Agenda
1
Proportional Reinsurance
2
Non-Proportional Reinsurance
4
Structural Features
- Reinstatement
- Annual Aggregate Deductible
- Interlocking Clause
Slide22Non-Proportional Reinsurance – Per Risk Excess of Loss
Characteristics
The Per Risk Excess of Loss is a common protection to supplement the Quota Share treaty.
The reinsurer indemnifies the reinsured by paying the portion of a loss which exceeds a threshold. This threshold is defined as the reinsured’s deductible. The reinsurance premium is usually expressed as a percentage of the GNPI
1)
.
Benefits
Protection against severity
The reinsured receives protection while retaining a comparably high portion of premium.
L
imitations
Depending on the structure, the reinsured retains the risk of misestimating the PML.
1) Gross Net Premium Income, i.e. premium retained by the ceding company after the proportional reinsurance cession; Subject Premium is used as a synonym.
Slide23Deductible
Cover 1
st
Layer
e.g. EUR 1m xs EUR
1m
Cover 2
nd
Layer
e.g. EUR 1m xs EUR 2m
Non-Proportional Reinsurance – Per Risk Excess of Loss
Attachment Point
Cover Ceiling
Loss 1
Loss 4
Loss 3
Reinsurer’s Loss
Reinsured’s Loss
Loss 2
Slide24Non-Proportional Reinsurance – Per Risk Excess of Loss
Example 1 (linked to Proportional Example)
As illustrated in the proportional example, the ultimate loss results in EUR 420,000 which is shared proportionally between the ceding company with EUR 126,000 and the reinsurer with 294,000.
The ceding company’s portion of EUR 126,000 is within the deductible of the XoL programme and hence is retained by the ceding company:
Gross
Cedent
XoL-Reinsurer
Deductible
1'000'000
Ultimate Loss
420'000
126'000
Loss Allocation
126'000
0
Slide25Non-Proportional Reinsurance – Per Risk Excess of Loss
Example 2
The ceding company is confronted with a gross loss of EUR 6,000,000. After ceding 70% proportionally, its ultimate net loss (i.e. after QS cession) amounts to EUR 1,800,000.
The ceding company’s retains the deductible of the XoL programme and receives indemnification
for the loss exceeding EUR
1,000,000 from the XoL-Reinsurer :
Gross
Cedent
XoL-Reinsurer
Deductible
1'000'000
Ultimate Loss
6'000'000
1'800'000
Loss Allocation
1'000'000
800'000
Slide26Agenda
1
Proportional Reinsurance
2
Non-Proportional Reinsurance
4
Structural Features
- Reinstatement
- Annual Aggregate Deductible
- Interlocking Clause
Slide27Structural Features
Reinstatement
Contractual
agreement
whereby
provision is
made
to
reinstate
limit
of
reinsurance
cover
to
its
original
level when cover is eroded by a loss.Reinstated amount is typically
based on Paid Losses (i.e. notIncurred Losses).
The number of reinstatements
is defined (e.g. two).
An additional premium is
typically payable, pro-rata for
the reinstatement cover.DeductibleCover1st LayerCover2nd LayerLoss LossRein-statementReinstatementReinstatement
Slide28Structural Features
Reinstatement – Example 1
Gross Loss: EUR 1,500,000
Deductible: EUR 1,000,000
Cover 1
st
Layer: EUR 1,000,000
Loss in 1
st
Layer: EUR 500,000
Pro-Rata Reinstatement:
50% of Cover
Basic Premium: EUR 100,000
Additional
Premium (at 100%):
50% of EUR 100,000 =
EUR 50,000Deductible
Cover
1
st
Layer
Cover
2nd LayerLoss LossRein-statementReinstatementReinstatement
Slide29Structural Features
Reinstatement – Example 2
Gross Loss: EUR 2,900,000
Deductible: EUR 1,000,000
Cover 1
st
Layer: EUR 1,000,000
Cover 2
nd
Layer: EUR
1,000,000
Loss in 1
st
Layer: EUR 1,000,000
Loss in 2
nd
Layer: EUR 900,000Pro-Rata Reinstatement:100% of Cover 1st Layer90% of Cover 2nd
LayerBasic Premium 1
st
Layer:
EUR 100,000
Basic Premium 2
nd Layer:EUR 50,000Additional Premium (at 100%):1st Layer 100% of EUR 100,000 =EUR 100,0002nd Layer 90% of EUR 50,000 =EUR 45,000DeductibleCover1st LayerCover2nd LayerLoss LossRein-statementReinstatementReinstatement
Slide30Structural Features
Annual Aggregate Deductible (AAD)
Contractual agreement
whereby the Ceding
C
ompany
retains
a defined amount of
aggregate
losses impacting
the
defined reinsurance cover
before
the reinsurer becomes
liable.
This type of retention
on
losses
otherwise attributable
to the cover is usually
expressed
as a fixed amount or rarely as a percentage of the Ceding Company’s SubjectPremium. DeductibleCover1st LayerCover2nd LayerLoss LossLoss AAD
Slide31Structural Features
Annual Aggregate Deductible (AAD) – Example
AAD: EUR 1,000,000
Loss 1:
EUR
1,500,000
Deductible:
EUR
1,000,000
AAD 1
st
Layer: EUR 500,000
Remaining AAD: EUR 500,000
Loss
2:
EUR
1,200,000Deductible: EUR 1,000,000AAD 1st Layer: EUR 200,000Remaining AAD
: EUR 300,000
Loss
3:
EUR
1,300,000
Deductible: EUR 1,000,000AAD 1st Layer: EUR 300,000Remaining AAD: EUR 0The next loss in the 1st Layeris paid by the reinsurer.DeductibleCover1st LayerCover2nd LayerLoss LossLoss AAD
Slide32Thank you
www.actuaries.org
Moving the profession forward internationally
32