Hannover Rueck SE · XETR:HNR1
Hannover Rueck — Hannover Re — 9th International Investors' Day 2006
33 slides from Hannover Rueck's conference presentation, Jun 23, 2006
Slide 1: U.S. Property/Casualty Reinsurance - Spotlight on 7/1 Renewals
U.S. Property/Casualty Reinsurance - Spotlight on 7/1 Renewals Hans Rohlf Managing Director North American Treaty Division 9th International Investors' Day ® London, 23 June 2006 hannover re
Slide 2: Overview
Overview Overview Effect on market Spotlight casualty Spotlight property Conclusions Outlook OVERVIEW Æ Effects of 2005 hurricanes (KRW) on the market Æ Spotlight on casualty Æ Spotlight on property Æ Observations and conclusions Æ Outlook ® hannover re
Slide 3: Insured U.S. property cat. losses: 2005 by far worst year ever
Overview Effect Effect on market market Spotlight casualty Spotlight property Conclusions Outlook Insured U.S. property cat. losses 2005 BY FAR WORST YEAR EVER 75 in bn. USD 57.7 50 26.5 27.5 25 22.9 16.9 12.9 10.1 7.5 8.3 7.4 8.3 4.7 5.5 4.6 5.9 2.7 2.6 0 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
Slide 4: Top most costly hurricanes in U.S. history
Overview Effect Effect on market market Spotlight casualty Spotlight property Conclusions Outlook Insured losses TOP 10 MOST COSTLY HURRICANES IN U.S. HISTORY 45 in bn. USD 40.0 40 35 30 25 21.6 20 15 10.5 10 7.4 7.7 6.6 4.8 5.0 5 3.5 3.8 0 Georges Jeanne Frances Rita Hugo Ivan Charley Wilma Andrew
Slide 5: Insured U.S. property cat. losses more than four times larger in 2005
Overview Effect Effect on market market Spotlight casualty Spotlight property Conclusions Outlook Insured U.S. property cat. losses MORE THAN FOUR TIMES LARGER IN 2005 THAN AVERAGE in %* 14% 12% 10% 8% 6% 4% 2% 0% 0 1 2 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 3 4 E '9 '0 '0 '0 '0 '0 '8 '8 '8 '8 '8 '8 '9 '9
Slide 6: KRW loss estimate: about half of losses outside the U.S.
Overview Effect Effect on market market Spotlight casualty Spotlight property Conclusions Outlook KRW loss estimate ABOUT HALF OF TOTAL LOSSES* PICKED UP OUTSIDE THE U.S. in bn. USD % of total Region Katrina Rita Wilma KRW KRW U.S. insurance 19.4 3.4 5.4 28.2 42% U.S. reinsurance 2.9 0.5 4.1 7.5 11%
Slide 7: Loss distribution Katrina
Overview Effect Effect on market market Spotlight casualty Spotlight property Conclusions Outlook Loss distribution "Katrina" ABOUT HALF OF THE LOSS IS PICKED UP BY REINSURERS Amount Markets Percentage (in bn. USD) Insurers 47% - 53% 18.8 - 28.9 Reinsurers 52% - 44% 20.7 - 24 Capital markets 1% - 3%
Slide 8: Katrina's impact on cat. programmes
Overview Effect Effect on market market Spotlight casualty Spotlight property Conclusions Outlook Katrina's impact on cat. programmes EXHAUSTION BY A 40-YEAR HURRICANE EVENT 5 of 10 largest U.S. catastrophe buyers exhausted their protection Æ Estimated percentage of cat. limit exhausted by Katrina:
Slide 9: Casualty: primary insurance
Overview Effect on market Spotlight casualty Spotlight property Spotlight casualty Conclusions Outlook Casualty PRIMARY INSURANCE Æ Initial market expectation after the hurricanes: Stabilising effect on casualty market Æ After a certain break in rate reductions for two quarters, competition increase
Slide 10: Casualty: reinsurance
Overview Effect on market Spotlight casualty Spotlight property Spotlight casualty Conclusions Outlook Casualty REINSURANCE Æ Overall, not much movement on reinsurance side: Prices stabilised at solid level, but some pressure starting now Æ Reinsurance market still generally stable due to • short se
Slide 11: Large surplus lines nationwide writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight casualty Conclusions Outlook Large surplus lines nationwide writer MORE PREMIUM CEDED WHILE COMMISSION UNCHANGED 15 April renewal Limit in m. USD 55 50 Limit: 75m / ROL 47,0% 45 N Ced. prem.: 32 m. N 40 E Ced. prem.: 40.9 m. C
Slide 12: Major moving & storage business writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight casualty Conclusions Outlook Major moving & storage business writer 100% INCREASE IN RETENTION, DECREASE IN LIMIT 1 June renewal Limit in m. USD 20 18 16 14 12 10 Limit: 18 m. RoL 13.0% 8 Limit: 12 m. incl. 3 reinstatements Ro
Slide 13: Midwest agricultural business writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight casualty Conclusions Outlook Midwest agricultural business writer SLIGHT INCREASE IN RETENTION, BUT 10% PRICE INCREASE 1 April renewal 11 Limit in m. USD 10 9 8 Limit: 5 m./RoL 5.0% 7 6 Limit: 8 m./RoL 7.7% 5 4 Limit: 3 m./RoL
Slide 14: Large property (Fortune 2000): impact on primary insurance
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Large property (Fortune 2000) IMPACT ON PRIMARY INSURANCE Æ Rate increases: • 1st quarter 2006: 20% • Expectation over the year: 30% Æ Terms: • Most policies have now sub-limits on wind • Wind dedu
Slide 15: Property: impact on primary insurance (cont'd)
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Property IMPACT ON PRIMARY INSURANCE (CONT'D) Sequence of events following KRW: Æ Modelling companies increased exposure expectations (PMLs) Æ Rating agencies increased capital requirements Æ Need
Slide 16: Property: example for impact on exposure management
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Property IMPACT ON PRIMARY INSURANCE (CONT'D) Specific example for impact on exposure management Æ The company exhausted both its risk as well as its catastrophe protection in 2005 Æ Both programme
Slide 17: Property: impact on capacity reinsurance
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Property IMPACT ON CAPACITY REINSURANCE Æ Modelling companies Æ Rating agencies Æ Given the same amount of capital, aggregate reductions of up to 50% needed Æ Emphasis on exposure management: • Dra
Slide 18: Large industrial nationwide writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Large industrial nationwide writer RETENTION +USD 50 M., PRICES +30% FOR USD 100 M. LESS LIMIT 1 July renewal; Katrina loss: 80% of limit - placement still in progress Limit in m. USD 900 800 700 L
Slide 19: One state wind pool with coastal exposure
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook One state wind pool with coastal exposure LIMIT DECREASED BY 40%, PRICES INCREASED BY 60% 1 June renewal; no loss from Rita - layers only 83% placed 1.200 Limit in m. USD 1.000 Limit: 100 m./RoL 4.
Slide 20: Top personal lines writer, Florida only
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Top 5 personal lines writer, Florida only 50% HIGHER RETENTION, 60% HIGHER PRICES 1 July renewal; no loss from Wilma Limit in m. USD 8,000 7,000 6,000 Limit: 3,000 m./RoL 10.0% 5,000 Limit: 3,300 m
Slide 21: Major personal lines nationwide writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Major personal lines nationwide writer HIGHER RETENTION, +50% LIMIT, +60% INCREASE IN PRICING 1 June renewal; no Katrina loss to programme - no placing problems Limit in m. USD 2,500 2,000 Limit: 5
Slide 22: Major commercial and personal lines writer (Northeast)
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Major commercial and personal lines writer (Northeast) 67% PRICE INCREASE 1 July renewal; no Katrina losses - placement without difficulties Limit in m. USD 800 700 600 500 400 Limit: 500 m./RoL 4.
Slide 23: Major commercial lines nationwide writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Major commercial lines nationwide writer HIGHER ATTACHMENT POINT, PRICES UP BY MORE THAN 100% 1 July renewal; total loss to programme by Katrina - likely not entirely placed Limit in m. USD 2,500 2
Slide 24: Major personal lines nationwide writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Major personal lines nationwide writer PRICE FOR PROGRAMME MORE THAN DOUBLED 1 June renewal; Katrina impacted 1st layer - programme probably 85% placed Limit in m. USD 2,500 2,000 Limit: 785 m./RoL
Slide 25: Specialty lines nationwide writer
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Specialty lines nationwide writer +100% IN LIMIT BOUGHT, +200% PRICING INCREASE 1 July renewal; 100% up by Katrina - still in placement/desperate broker Limit in m. USD 500 400 300 Limit: 200 m./Ro
Slide 26: One state wind pool with coastal exposure
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook One state wind pool with coastal exposure DOUBLE LIMIT, DOUBLE ATTACHMENT, DOUBLE RATE 1 June renewal; progr. "3 times" exhausted by Katrina - not placed 100% Limit in m. USD 800 700 600 Limit: 300
Slide 27: Specialty lines writer with regional focus
Overview Effect on market Spotlight casualty Spotlight property Spotlight property Conclusions Outlook Specialty lines writer with regional focus DOUBLE LIMIT AND ATTACHMENT POINT, TRIPLE RATE 1 June renewal; almost total loss to programme by Katrina - only 75% placed Limit in m. USD 400 Limit: 60 m
Slide 28: Observations
Overview Effect on market Spotlight casualty Spotlight property Conclusions Conclusions Outlook OBSERVATIONS Æ Much higher retentions with many first layers dropped by cedents Æ 25% increase in cat. cover purchased at 1 Jan 2006; more limits are tried to be bought towards 1 July 2006 Æ Rate increase
Slide 29: Conclusions: insurance market
Overview Effect on market Spotlight casualty Spotlight property Conclusions Conclusions Outlook CONCLUSIONS: INSURANCE MARKET Æ Clients have to take more net Æ Insurers are struggling to become active in exposure management by significantly reducing their catastrophe aggregates Æ Property catastroph
Slide 30: Conclusions: reinsurance market
Overview Effect on market Spotlight casualty Spotlight property Conclusions Conclusions Outlook CONCLUSIONS: REINSURANCE MARKET Æ Berkshire is not anymore always there to help (even at exorbitant prices) as they pick their spots Æ More securitisations in the market (Example: Liberty Mutual North-Eas
Slide 31: Outlook: Hurricane season 2006
Overview Effect on market Spotlight casualty Spotlight property Conclusions Outlook Outlook Hurricane season 2006 SOME REDUCTION IN THE FORECASTS Named tropical Intense Institute Date Hurricanes storms hurricanes Tropical storm risk forecast June 2006 13.9 7.6 3.4 May 2006 14.6 7.9 3.6 April 2006 15
Slide 32: Hurricanes 2006: What if the industry faces a normal to tough season?
Overview Effect on market Spotlight casualty Spotlight property Conclusions Outlook Outlook Hurricanes 2006: What if. . . . . .THE INDUSTRY FACES A NORMAL TO TOUGH SEASON? Æ One "Wilma-like" landfall; market loss of USD 10 bn. Æ No dramatic event for reinsurance industry due to higher attachment poi
Slide 33: Hurricanes 2006: What if the industry faces an abnormal season?
Overview Effect on market Spotlight casualty Spotlight property Conclusions Outlook Outlook Hurricanes 2006: What if. . . . . .THE INDUSTRY FACES AN ABNORMAL SEASON ? Æ Repeat of Katrina; market loss of USD 40 bn. ++ Æ 30% - 40% less impact to the reinsurance industry compared to Katrina; in particu