PRESENTATION AT THE IIZ WINTER SCHOOL BY:- - PowerPoint Presentation

1. PRESENTATION AT THE IIZ WINTER SCHOOL BY:-FUTURE CHALLENGES, OPPORTUNITIES AND IMPERATIVES IN INSURANCE IN THE REINSURANCE SPACE

2. PRESENTATION OUTLINE

3. PART I PREVAILING ZIMBABWE INSURANCE INDUSTRY PERFORMANCE - AN OVERVIEW

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5. ZIMBABWE’S PAST 5 YEARS FINANCIAL PERFORMANCEProgressive Growth In GPW, post DollarisationProgressive, yet marginal increase in Retention RatiosNet Commissions Payable moved up in tandem with Risk Retention trendsClaims to Premium ratios have remained constant, at around 45%Continually increasing Management Expenses putting pressure on performanceAfter Tax Profits not getting help from Investment Income. A reflection of liquidity constraints and limited high yielding investment vehicles.

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7. ANALYSIS OF PER CLASS FINANCIAL PERFORMANCE FOR 2014/5Fire & Motor remain the market’s major sources of GPWRetention Ratios are following the class risk spreads and the propensity to front risk in classes of high claims variance (Accident & Agriculture)Favourable reinsurance commissions in a market where reinsurers are under pressure for GPW also encouraging risk transfer.Technical Results seemingly favourably, until one factors the Management Expenses associated with transacting that business

8. PART II LOCATING ZIMBABWE ON THE GLOBAL INSURANCE MAP

9. SWISS RE’S SIGMA REPORT ON GLOBAL INSURANCE Looks at the movements in the performance indicators for the Insurance Industry in the context of Global economic performance and the performance of the Global financial marketsLooks at the movements in Life & Non-Life premiums Looks at the movements in the Per Capita spending on insurance and Insurance penetration levels Gives a prediction of the direction which the industry is taking in a given outlook period.

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11. PART IIITHE PLACE OF REINSURANCE

12. WHY A DIRECT WRITER NEEDS REINSURANCE Reinsurance gives the Direct Writer capacity to underwrite risks which are too large, too complex or too risky for the Direct Writer to entirely retain to its own accountReinsurance offers the Direct Writer protection on risks which it will have retained to its own account from the possibility of single “large” losses and an accumulation of losses on a number of risks, resulting from the same loss event

13. PROPORTIONAL REINSURANCE – THE CAPACITY GIVERSQUOTA SHARE TREATYSURPLUS TREATYPROPORTIONAL FACULTATIVE

14. 6MFacultative(Above 4.2 Million)4.2M10%Treaty Capacity6 Line Surplus600K50%100%80%75%67%65%24%18%70%77%86%100%VALUE OF RISKRISKSPICTORIAL PRESENTATION – PROPORTIONAL REINSURANCE10%60%30%11%12%13%Your Retention (600,000)14%20%25%33%50%

15. TYPICAL PROPORTIONAL TREATY SUMMARYClassRetentionTreaty Treaty CapacityFire600,000Fire & Engineering 3,000,000 Engineering600,000Fire & Engineering 3,000,000 Quota Share15,000 Accident50,000Miscellaneous Accident Surplus250,000 45,000Motor

16. NON-PROPORTIONAL REINSURANCE – PROTECTING THE RETAINED RISKSEXCESS OF LOSS TREATYEXCESS OF LOSS FACULTATIVESTOP LOSS / AGGREGATE XL

17. PICTORIAL PRESENTATION - XL TREATYUS$5,000US$20,000US$30,000US$25,000123456Amount of lossNot covered By XLReinsurance coverUpper limit of cover Per Risk US$30,000Deductible US$5,000lossesUS$10,000US$15,000

18. 2016 Motor Treaties 2016 Accident Treaties TYPICAL PROP & XL TREATY SUMMARY Fire & Eng. TreatiesFAC OBLIG - UP TO $5,000,000FIRE/ENG.SURPLUS - $600,000 X 5 LINES = $3,000,000DEDUCTIBLE $20,000XL COVER - $580,000RETENTION $600,000Misc. Accident TreatiesMISC ACC SURPLUS - $50,000 X 5 LINES = $250,000DEDUCTIBLE $7,500XL COVER - $42,500RETENTION $50,000RETENTION $45,000MOTOR QUOTA SHARE - $15,000MOTOR FAC BEYOND $60,000Motor TreatiesXL COVER - $35,000XL DEDUCTIBLE - $10,000FAC BEYOND $300,000

19. PART IVWHAT ROLE HAS REINSURANCE PLAYED IN CURRENT ZIMBABWE?

20. WHY A DIRECT WRITER NEEDS REINSURANCE Reinsurance gives the Direct Writer capacity to underwrite risks which are too large, too complex or too risky for the Direct Writer to entirely retain to its own accountReinsurance offers the Direct Writer protection on risks which it will have retained to its own account from the possibility of single “large” losses and an accumulation of losses on a number of risks, resulting from the same loss event

21. ZIMBABWE, A PROTECTED INSURANCE MARKET Reinsurance treaties are only placed with locally licenced playersIn 2000, the country had 3 indigenous companies & 1 foreign branch. Currently, there are 7 local players & 1 Regional branch.Though localised, competition has become more intense and price driven.There are cases of lack of depth & compromises, in the absence of active international playersThere are cases of company shareholders and directors, being non-insurance people, may not be aware of the nature and cycles of reinsurance business.

22. WHAT ROLE HAS REINSURANCE BEEN ASSIGNED? There has been considerable risk transfer, for capital substitutionSkewed & Favourable Reinsurance commissions have persuaded Direct Writers to maintain proportional programmes on portfolios which could be retained.Reinsurance has been used a tool to accommodate / enable sub-standard pricing XL programmes have operated on considerably low deductiblesReinsurance costs have become thinner & thinner

23. REINSURANCE - ZIMBABWEREINSURANCE – GLOBAL TRENDS - Capacity Plays A Major Role In Capital Substitution - Capacity Used To Accept Sub-standard & Unfamiliar Risks - Direct Writers Not Too Wary Of Counter-Party Risk - Most XL Treaty Is On Exposure Rating - Most Fac Reinsurance Is ProportionalTHE ROLE OF REINSURANCE – ZIM VS GLOBAL TRENDS - Risk Is Largely Retained – Backed By Sound Capitalisation - Underwriting Is Only Done In Areas Of Expertise - Direct Writers Thoroughly Vet Counter-Parties - Exposure Rating Is On Prop; Motor/Acc Is On Burning Cost - Most Fac Reinsurance Is Proportional

24. PART VZIMBABWE – INSURANCE & REINSURANCE OUTLOOK

25. THE FUTURE OF INSURANCE & REINSURANCE . . . Regulation of Underwriters will move towards a stricter “Solvency II” type model. Regulation will be stricter on both asset quality & solvency marginsThis means shareholders will be dealing with true ROE figures & will require better performanceAs the country opens up to (more) international investments, Zimbabwe can not sustain a closed insurance marketA number of local players will consolidate into strong Global groups to operate in accordance with international standardsFor Insurance, it is back to the Future and for Reinsurance, the future is XL

26. THANK YOU, TATENDA, SIYABONGA