Swiss Re Ag · SIX:SREN
Swiss Re — Investor Presentation (September 2004)
34 slides from Swiss Re's investor presentation, Sep 13, 2004
Slide 1: Swiss Re Media Briefing
ab Swiss Re Media Briefing John Coomber, Chief Executive Officer Thomas Hess, Head Economic Research & Consulting Monte Carlo, 13 September 2004
Slide 2: Agenda
ab Agenda Welcome John Coomber Reinsurance is back to profitability Thomas Hess Underwriting for profit John Coomber Media Briefing Monte Carlo 13 September 2004 Page 2
Slide 3: Agenda
ab Agenda Lessons from 2001-2003 Situation of the industry in 2004 Media Briefing Monte Carlo 13 September 2004 Page 3
Slide 4: Lessons from 2001-2003
ab Lessons from 2001-2003 The combination of the soft market and a stock market crash is a dangerous mix for reinsurers Liability insurance has to respect the borders of insurability and price for high loss inflation and the risks of legal change Reinsurance is an attractive product, insurers
Slide 5: The soft cycle shows up in high reinsurance combined ratios
The soft cycle shows up in high reinsurance combined ab ratios* Combined ratios peaked in 2001, since then they are on a steady decline to profitable underwriting results 150% 140% 130% 120% 110% 100% 90% 80% 90 92 94 96 98 00 02 04 Media Briefing Monte Carlo Worldwide US [RAA] 13 September 2004 Pag
Slide 6: 2001-2003 was the worst period for US reinsurers since the liability crisis
2001-2003 was the worst period for US reinsurers since ab the liability crisis* ROE of US reinsurers 25% 20% 15% 10% 5% 0% -5% -10% -15% 80 82 84 86 88 90 92 94 96 98 00 02 US P&C Insurers US P&C Reinsurers Media Briefing Monte Carlo 13 September 2004 * calendar year view Page 6 Sources: A.M.Best, S
Slide 7: Liability business has to price for loss inflation and nasty surprises
Liability business has to price for loss inflation and ab nasty surprises Canada German US [1] UK [1] France Italy Japan [1] y 1955 - 1975 - 1983 - 1971 - 1971 - 1970 - 1970 - Period 03 02 02 02 02 02 02 Compound annual growth rate - Liability 10.6% 11.3% 8.8% 7.4% 9.4% 15.9% 13.8% claims - Nominal
Slide 8: Borders of insurability need to be respected
Borders of insurability need ab to be respected Exclusions of terror risk have been introduced (also very relevant for property) Unlimited liability in motor third party has been removed in many countries Shift to tighter conditions to limit the impacts of the risks of legal change in highly e
Slide 9: Reinsurance is back
ab Reinsurance is back Reinsurance premiums grew by more than 60% in USD terms between 2000 and 2004 USD bn 160 140 120 100 80 60 40 20 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Media Briefing Monte Carlo Industrialised Markets Emerging Markets 13 September 2004 Source: Swiss Re Economic Resear
Slide 10: Strong demand for reinsurance in Emerging markets
Strong demand for reinsurance in Emerging ab markets Share of Emerging Markets will grow from 14% in 2003 to 20% by 2014. 51.9 bn USD (20%) 211 bn USD (80%) Media Briefing Monte Carlo 13 September 2004 Page 10
Slide 11: Agenda
ab Agenda Lessons from 2001-2003 Situation of the industry in 2004 Media Briefing Monte Carlo 13 September 2004 Page 11
Slide 12: The situation of the industry in 2004
The situation of ab the industry in 2004 Reinsurance in a strongly improved state, but not all problems are solved Capital in the insurance and reinsurance industry is still tight, but starts growing again Reinsurance prices are attractive and will remain so Profitability is of high quality
Slide 13: Capacity in the Property & Casualty industry is still tight
Capacity in the Property & Casualty industry is ab still tight Capital and solvency of the 6 major insurance markets USD bn 900 120% 750 100% 600 80% 450 60% 300 40% 150 20% 0 0% 98 99 00 01 02 03 04 Media Briefing Monte Carlo Capital Premiums Solvency [RHS] 13 September 2004 Page 13 Source: Swiss R
Slide 14: Prices are at attractive levels
ab Prices are at attractive levels Base 1996 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 2000 2002 2004 1994 1996 Marine, Lloyds 1998 Non-Marine, Lloyds Aviation, Lloyds Property Fac, Swiss Re Media Briefing Monte Carlo 13 September 2004 Page 14 Sources: Lloyds, Swiss Re
Slide 15: The quality of profits is now based on solid underwriting
The quality of profits is now ab based on solid underwriting Profitability of major reinsurers 1999-2004* in % NPE 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 99 00 01 02 03 04** U/w result Investment result Operating margin Media Briefing Monte Carlo 13 September 2004 *calendar year view, excluding M
Slide 16: Recovery of underwriting cash-flow in the US P&C industry
Recovery of underwriting ab cash-flow in the US P&C industry u/w cash-flow in % of Net Premiums Written 20% 15% 9/11 10% 5% 0% -5% Liability crisis Andrew -10% Media Briefing Monte Carlo 68 73 78 83 88 93 98 '03 13 September 2004 Sources: Fox Pitt, Kelton, A.M.Best, Swiss Re Economic Research & Cons
Slide 17: 10-year government bond yields will rise
10-year government bond yields will rise from currently ab 4-4.5% to 5.5% in 2006 ALM is the instrument to deal with rising interest rates Higher interest rates will increase investment results 16 14 Forecast 12 10 8 6 4 2 0 79 82 85 88 91 94 97 00 03 05 19 19 19 19 19 19 19 20 20 20 Media Brief
Slide 18: Summary
ab Summary Liability business needs to respect borders of insurability and price for the high risks involved Today premiums reflect the exposures. Industry earns higher premiums for reduced risks Increasing interest rates and increase of reserves will trigger improved investment returns Focu
Slide 19: Underwriting for profit
ab Underwriting for profit Managing the cycle at its peak John Coomber Chief Executive Officer
Slide 20: Agenda
ab Agenda Risk is a growth business Steering capacity to aim for attractive returns Summary Media Briefing Monte Carlo 13 September 2004 Page 20
Slide 21: Risk is a growth business: Long-term growth assured
Risk is a growth business: ab Long-term growth assured Growth of the property & casualty industry will continue to surpass global GDP growth 190 180 170 160 150 140 130 120 110 Forecast 100 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 19 19 19 19 19 19 19 19 19 19 20 20 20 2
Slide 22: Swiss Re can accelerate growth by effective cycle management and consolidation gains
Swiss Re can accelerate growth by effective cycle management ab and consolidation gains illustrative Premium 12% growth 7% growth 1994 - 2004 Industry growth 7% Market outperformance Transactions 5% Business extension Time Swiss Re 12% Media Briefing Monte Carlo P&C only 13 September 2004 P&C and L&
Slide 23: Agenda
ab Agenda Risk is a growth business Steering capacity to aim for attractive returns Summary Media Briefing Monte Carlo 13 September 2004 Page 23
Slide 24: Swiss Re directs capital to attractive non-life opportunities
Swiss Re directs capital to ab attractive non-life opportunities Each line of business and geography show its own cycle and pattern Illustrative USA Nat cat Property Europe Technical profitability Liability Special lines Asia Industry sectors Media Briefing Monte Carlo 13 September 2
Slide 25: Capacity (re)allocation during the cycle: premiums by line of business
ab Capacity (re)allocation during the cycle Premiums earned by line of business 100% 4% 8% 8% 8% 7% 13% 17% 16% 15% 15% 80% 17% 18% 18% 22% 21% 60% 32% 21% 25% 27% 20% 40% 20% 34% 34% 34% 33% 33% 0% 2000 2001 2002 2003 1HY 2004 Media Briefing Monte Carlo Property Liability Motor Other Accident 13 Se
Slide 26: Capacity (re)allocation during the cycle: premiums by division
ab Capacity (re)allocation during the cycle Premiums earned by division 100% 34% 38% 38% 80% 44% 42% 60% 40% 57% 49% 53% 45% 48% 20% 9% 9% 11% 10% 13% 0% Media Briefing Monte Carlo 2000 2001 2002 2003 1 HY 2004 13 September 2004 Asia Europe Americas Page 26
Slide 27: Control pricing over the cycle
Control pricing over the cycle ab Premiums earned by type of business 100% 19% 15% 17% 17% 18% 80% 28% 31% 35% 36% 36% 60% 40% 53% 54% 48% 47% 46% 20% 0% 2000 2001 2002 2003 1HY 2004 Proportional Non-Proportional Facultative Media Briefing Monte Carlo 13 September 2004 Based on premiums in calenda
Slide 28: Steer capacity where it generates attractive returns
Steer capacity where it ab generates attractive returns Use steering tools to direct capital to attractive business sectors and clients Quarterly reinsurance survey Underwriting Steering Capacity steering Values for product prioritization Underwriting Tracking Tool Media Briefing Monte Carlo 13 Se
Slide 29: Reinsurance Survey: Clear understanding of market trends
Reinsurance Survey: ab Clear understanding of market trends Qualitative surveys on recent and expected developments in the re/insurance market Provides market intelligence as a basis for upcoming market opportunities Structured quarterly questionnaire collected from 250 client managers, underw
Slide 30: Underwriting Steering Values
ab Underwriting Steering Values Definition of price targets Underwriting costs: Is the sum of present value of claims and expenses Production costs: Will produce minimum return on capital Cycle Reference Premium: Will produce the RoE target over the cycle Renewal Target Premium: Set to produ
Slide 31: Underwriting tracking tool
Underwriting tracking tool ab Basis for effective capital allocation Data base capturing contract specific information from all clients Allows real time monitoring throughout the renewals driving transparency and discipline Quarterly validation of estimates against actual Provides informatio
Slide 32: Agenda
ab Agenda Risk is a growth business Steering capacity to aim for attractive returns Summary Media Briefing Monte Carlo 13 September 2004 Page 32
Slide 33: Summary
ab Summary Cycle will be less pronounced: – Low interest rate environment – Greater internal and external transparency – Capital equilibrium Pricing levels today are very attractive Rates will continue above cycle reference levels at next renewal Media Briefing Monte Carlo 13 September 2004 Pa
Slide 34: Questions & Answers
ab Questions & Answers Media Briefing Monte Carlo 13 September 2004 Page 34