Hannover Rueck Se · XETR:HNR1
Hannover Rueck — Hannover Re — Investor Presentation (May 2004)
57 slides from Hannover Rueck's investor presentation, May 2004
Slide 1: Longtail Reserves and Shorttail Cat. Exposures – Challenges and Chances
Longtail Reserves and Shorttail Cat. Exposures – Challenges and Chances Eberhard Müller Managing Director and Chief Actuary Underwriting & Actuarial Services ® hannover re
Slide 2: Managing Reinsurance Risks: Two major reinsurance risk categories
MANAGING REINSURANCE RISKS: Challenges & chances General remarks Two major reinsurance risk categories US Casualty - P/C reinsurer - Sufficiency test Æ Longtail reserves: - Loss ratio picks - HR casualty • Ultimate loss ratios? - L/R development • Speed of settlement? Independence ! - Proj. vs. real
Slide 3: Managing Reinsurance Risks: Types of independence
MANAGING REINSURANCE RISKS: Challenges & chances (cont'd) Types of independence General remarks US Casualty - P/C reinsurer Æ Between categories - Sufficiency test • No "liability crisis" will cause an earthquake - Loss ratio picks - HR casualty • No hurricane will "blow up" existing liability reser
Slide 4: US P/C Reinsurer 1997-2001: Quite optimistic start values
US P/C REINSURER 1997 - 2001: Quite "optimistic" start values Dowling figures accident years 1997 to 2001 gross loss ratio all lines – US reinsurance – Property/Casualty in % 130 128 General remarks 124 Average deterioration: 121 US Casualty 120 118 26 percentage points! 115 114 - P/C reinsurer 111
Slide 5: US P/C Reinsurer 1997-2001: XoL liability even worse
US P/C REINSURER 1997 - 2001: XoL liability even worse Dowling figures accident years 1997 to 2001 gross loss ratio all lines – US reinsurance – XoL liability in % 180 General remarks US Casualty Average deterioration: 160 154 - P/C reinsurer 147 37 percentage points! 143 143 142 - Sufficiency test
Slide 6: Hannover Re was already there
US P/C REINSURER 1997 - 2001: Hannover Re "was already there" Dowling figures accident years 1997 to 2001 gross loss ratio all lines – US reinsurance – XoL liability in % 180 General remarks US Casualty 160 - P/C reinsurer 147 143 143 142 - Sufficiency test 140 136 131 130 127 126 125 124 - Loss rat
Slide 7: Hannover Re was already there
US P/C REINSURER 1997 - 2001: Hannover Re "was already there" Dowling figures accident years 1997 to 2001 gross loss ratio all lines – US reinsurance – XoL liability in % 180 General remarks US Casualty 160 - P/C reinsurer 147 143 143 142 - Sufficiency test 140 136 131 130 127 126 125 - Loss ratio p
Slide 8: Hannover Re was already there
US P/C REINSURER 1997 - 2001: Hannover Re "was already there" Dowling figures accident years 1997 to 2001 gross loss ratio all lines – US reinsurance – XoL liability in % 180 General remarks US Casualty 160 - P/C reinsurer 147 143 143 142 - Sufficiency test 140 136 131 130 127 126 125 124 - Loss rat
Slide 9: Sufficiency Test: Annual development checks
SUFFICIENCY TEST: Annual development checks General remarks Incurred losses: Development triangles US Casualty - P/C reinsurer Ultimate loss ratio forecasts - Sufficiency test - Loss ratio picks Loss ratio picks for younger years - HR casualty "Prudent margin" - L/R development - Proj. vs. realized
Slide 10: Loss Ratio Picks: Realistic ultimate loss ratios as shown last year
LOSS RATIO PICKS1): "Realistic“ ultimate loss ratios as shown last year C/Y U/Y 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1980 103.9 101.5 100.9 100.4 99.4 99.4 100.5 103.3 102.5 105.9 1981 136.4 135.6 135.1 142.7 150.7 149.4 146.7 153.4 149.8 154.8 1982 163.1 161.8 169.4 174.3 168.3 17
Slide 11: Loss Ratio Picks: Realistic ultimate loss ratio updates
LOSS RATIO PICKS1): "Realistic“ ultimate loss ratio updates C/Y U/Y 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1980 103.9 101.5 100.9 100.4 99.4 99.4 100.5 103.3 102.5 105.9 107.2 1981 136.4 135.6 135.1 142.7 150.7 149.4 146.7 153.4 149.8 154.8 155.7 1982 163.1 161.8 169.4 174.3 168.3 17
Slide 12: Loss Ratio Picks: Realistic ultimate loss ratios over time
LOSS RATIO PICKS1): „Realistic“ ultimate loss ratios over time (cont'd) C/Y U/Y 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1980 103.9 101.5 100.9 100.4 99.4 99.4 100.5 103.3 102.5 105.9 107.2 1981 136.4 135.6 135.1 142.7 150.7 149.4 146.7 153.4 149.8 154.8 155.7 1982 163.1 161.8 169.4 17
Slide 13: HR US Casualty: Riding the cycle
HR US CASUALTY1): Riding the cycle: 2002/2003 are looking very promising (2003 premium not yet matured)! 600% 571 550% General remarks 500% 541 US Casualty - P/C reinsurer 450% - Sufficiency test 400% 407 - Loss ratio picks 274% 350% - HR casualty 300% - L/R development 250% - Proj. vs. realized PL
Slide 14: L/R Development: U/Ys 1997-2001
L/R DEVELOPMENT: U/Ys 1997 – 2001: reserve improvements are balancing reserve deteriorations in % 150 142.5 General remarks 140 US Casualty 127.5 130 - P/C reinsurer 120 - Sufficiency test 115 110 107.5 110 112.5 107 - Loss ratio picks 110 - HR casualty 107.5 100 105 - L/R development 97.5 - Proj. v
Slide 15: L/R Development: U/Ys 1980-1984
L/R DEVELOPMENT: U/Ys 1980 – 1984: Old years are stabilizing in % 290 273 287 274 General remarks 270 276 US Casualty 250 249 255 - P/C reinsurer 230 - Sufficiency test 211 - Loss ratio picks 210 - HR casualty 183 191 190 176 - L/R development 168 170 - Proj. vs. realized PL 158 155 156 - Diversific
Slide 16: L/R Development: U/Ys 1985-1989
L/R DEVELOPMENT: U/Ys 1985 – 1989: Overall some improvements in % 80 80 General remarks US Casualty 70 - P/C reinsurer 70 - Sufficiency test 61 - Loss ratio picks 60 60 58 - HR casualty 54 57 57 - L/R development 51 - Proj. vs. realized PL 50 52 49 44 - Diversification 41 - Ratio development 40 43 3
Slide 17: L/R Development: U/Ys 1990-1996
L/R DEVELOPMENT: U/Ys 1990 – 1996: Substantial improvements in % 130 120 General remarks 120 US Casualty 110 107.5 - P/C reinsurer 112.5 - Sufficiency test 98 100 103 - Loss ratio picks 93 98 - HR casualty 90 84 - L/R development 81 80 85 - Proj. vs. realized PL 80 - Diversification 76 71 70 70 - Ra
Slide 18: Sufficiency Test: Annual development checks
SUFFICIENCY TEST: Annual development checks General remarks Incurred losses: Development triangles US Casualty - P/C reinsurer Ultimate loss ratio forecasts - Sufficiency test - Loss ratio picks Loss ratio picks for younger years - HR casualty "Prudent margin" - L/R development - Proj. vs. realized
Slide 19: Cumulative over time: Only roughly 1/3 of premium paid out
CUMULATIVE OVER TIME: Only roughly 1/3 of the premium paid out for losses so far in m. US$ 3,508 3,500 General remarks US Casualty 3,000 - P/C reinsurer 2,479 - Sufficiency test 2,500 - Loss ratio picks 2,077 2,000 - HR casualty 1,781 1,585 - L/R development 1,495 1,500 1,393 - Proj. vs. realized PL
Slide 20: Projected vs. Realized
PROJECTED VS. REALIZED1): Still some concerns for 1997-2000; 2001-2003 look very promising in m. US$ 120 General remarks US Casualty 100 - P/C reinsurer - Sufficiency test 80 - Loss ratio picks - HR casualty 60 - L/R development - Proj. vs. realized PL 40 - Diversification - Ratio development - Casu
Slide 21: Diversification: some are better, some are worse
DIVERSIFICATION: . . . some are better, some are worse . . . General remarks Æ Payments are the most powerful indicator! US Casualty - P/C reinsurer Æ Projected vs. realized: Random or systematic? - Sufficiency test - Loss ratio picks Æ First preference: Full match! - HR casualty - L/R development Æ
Slide 22: Ratio Development: U/Y 1980 pretty mature
RATIO DEVELOPMENT: U/Y 1980 pretty mature in % 300 270 General remarks US Casualty 240 - P/C reinsurer 210 - Sufficiency test - Loss ratio picks 180 - HR casualty 150 - L/R development 120 107 - Proj. vs. realized PL 105 - Diversification 90 102 101 - Ratio development 79 60 - Casualty portfolio 30
Slide 23: Ratio Development: U/Y 1981 moderate activity
RATIO DEVELOPMENT: U/Y 1981 moderate activity in % 300 270 General remarks US Casualty 240 - P/C reinsurer 210 - Sufficiency test - Loss ratio picks 180 156 - HR casualty 150 150 150 - L/R development 143 120 136 129 - Proj. vs. realized PL 90 103 - Diversification - Ratio development 60 - Casualty
Slide 24: Ratio Development: U/Y 1982 some activity
RATIO DEVELOPMENT: U/Y 1982 some activity in % 300 270 General remarks US Casualty 240 - P/C reinsurer 210 - Sufficiency test 191 180 - Loss ratio picks 174 174 171 - HR casualty 150 162 165 - L/R development 139 120 134 - Proj. vs. realized PL 126 - Diversification 90 - Ratio development 60 - Casua
Slide 25: Ratio Development: U/Y 1983 some activity
RATIO DEVELOPMENT: U/Y 1983 some activity in % 300 270 255 General remarks 232 249 US Casualty 240 235 218 - P/C reinsurer 211 210 213 - Sufficiency test 180 189 205 - Loss ratio picks 180 192 185 - HR casualty 150 - L/R development 142 120 - Proj. vs. realized PL - Diversification 90 - Ratio develo
Slide 26: Ratio Development: U/Y 1984 stabilizing on high level
RATIO DEVELOPMENT: U/Y 1984 stabilizing on "high level" 306 in % 300 299 276 284 270 274 General remarks 269 240 227 US Casualty 225 - P/C reinsurer 210 - Sufficiency test 205 214 213 204 180 - Loss ratio picks - HR casualty 150 - L/R development 120 - Proj. vs. realized PL 90 - Diversification - Ra
Slide 27: Ratio Development: U/Y 1985 stable and profitable
RATIO DEVELOPMENT: U/Y 1985 stable and profitable in % 120 General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 - Loss ratio picks 63 60 - HR casualty 60 58 - L/R development 46 - Proj. vs. realized PL 40 - Diversification 40 - Ratio development 20 - Casualty portfolio Catastrophe -
Slide 28: Ratio Development: U/Y 1986 very stable very profitable
RATIO DEVELOPMENT: U/Y 1986 very stable very profitable in % 120 General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 - Loss ratio picks - HR casualty 60 - L/R development 43 42 - Proj. vs. realized PL 40 40 - Diversification 36 29 - Ratio development 29 20 26 - Casualty portfolio C
Slide 29: Ratio Development: U/Y 1987 outstandingly stable
RATIO DEVELOPMENT: U/Y 1987 outstandingly stable and profitable 120in % General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 - Loss ratio picks - HR casualty 60 - L/R development - Proj. vs. realized PL 40 40 37 - Diversification 32 - Ratio development 25 20 25 - Casualty portfolio
Slide 30: Ratio Development: U/Y 1988 again stable and profitable
RATIO DEVELOPMENT: U/Y 1988 again stable and profitable in % 120 General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 - Loss ratio picks 64 - HR casualty 60 55 57 - L/R development 49 - Proj. vs. realized PL 40 38 - Diversification 37 - Ratio development 32 20 - Casualty portfolio C
Slide 31: Ratio Development: U/Y 1989 again stable and profitable
RATIO DEVELOPMENT: U/Y 1989 again stable and profitable in % 120 General remarks 100 US Casualty - P/C reinsurer 80 78 - Sufficiency test 68 - Loss ratio picks 61 60 - HR casualty 60 56 - L/R development 52 - Proj. vs. realized PL 40 39 - Diversification 37 - Ratio development 28 20 - Casualty portf
Slide 32: Ratio Development: U/Y 1990 again stable and profitable
RATIO DEVELOPMENT: U/Y 1990 again stable and profitable in % 120 General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 72 - Loss ratio picks 65 57 60 - HR casualty 60 - L/R development 52 - Proj. vs. realized PL 40 39 - Diversification 35 - Ratio development 20 21 - Casualty portfoli
Slide 33: Ratio Development: U/Y 1991 still stable and profitable
RATIO DEVELOPMENT: U/Y 1991 still stable and profitable in % 120 107.5 General remarks 100 US Casualty - P/C reinsurer 82 80 76 - Sufficiency test - Loss ratio picks 67 - HR casualty 60 - L/R development 49 - Proj. vs. realized PL 49 40 - Diversification 41 - Ratio development 20 - Casualty portfoli
Slide 34: Ratio Development: U/Y 1992 still stable and profitable
RATIO DEVELOPMENT: U/Y 1992 still stable and profitable in % 120 General remarks 102.5 100 US Casualty - P/C reinsurer 84 77 - Sufficiency test 80 82 - Loss ratio picks - HR casualty 63 60 - L/R development - Proj. vs. realized PL 45 40 - Diversification 38 - Ratio development 30 20 21 - Casualty po
Slide 35: Ratio Development: U/Y 1993 quite stable and profitable
RATIO DEVELOPMENT: U/Y 1993 quite stable and profitable in % 120 115 General remarks 100 107.5 US Casualty 95 - P/C reinsurer 80 78 - Sufficiency test 74 - Loss ratio picks 70 - HR casualty 60 - L/R development 49 - Proj. vs. realized PL 40 46 - Diversification 35 - Ratio development 20 - Casualty p
Slide 36: Ratio Development: U/Y 1994 still stable and profitable
RATIO DEVELOPMENT: U/Y 1994 still stable and profitable in % 120 113 General remarks 100 107.5 US Casualty 100 94 - P/C reinsurer 82 80 79 - Sufficiency test - Loss ratio picks - HR casualty 63 60 - L/R development - Proj. vs. realized PL 44 40 42 - Diversification 38 32 - Ratio development 20 24 -
Slide 37: Ratio Development: U/Y 1995 quite stable and profitable
RATIO DEVELOPMENT: U/Y 1995 quite stable and profitable in % 120 120 107.5 110 General remarks 100 105 US Casualty 88 - P/C reinsurer - Sufficiency test 80 80 - Loss ratio picks - HR casualty 60 - L/R development 53 - Proj. vs. realized PL 46 40 - Diversification - Ratio development 25 20 - Casualty
Slide 38: Ratio Development: U/Y 1996 stabilizing activity
RATIO DEVELOPMENT: U/Y 1996 stabilizing activity in % 120 112.5 General remarks 102 107.5 100 98 US Casualty - P/C reinsurer 93 - Sufficiency test 80 - Loss ratio picks 69 - HR casualty 60 - L/R development 56 - Proj. vs. realized PL 40 - Diversification - Ratio development 28 20 - Casualty portfoli
Slide 39: Ratio Development: U/Y 1997 quite normal activity
RATIO DEVELOPMENT: U/Y 1997 quite normal activity 120 in % 115 112.5 110 General remarks 107 100 US Casualty - P/C reinsurer - Sufficiency test 80 75 - Loss ratio picks - HR casualty 60 - L/R development 55 - Proj. vs. realized PL 40 - Diversification 28 - Ratio development 20 - Casualty portfolio C
Slide 40: Ratio Development: U/Y 1998 substantial activity - cash is gone
RATIO DEVELOPMENT: U/Y 1998 substantial activity - cash is gone in % 142.5 140 General remarks US Casualty 120 115 - P/C reinsurer - Sufficiency test 100 105 95 - Loss ratio picks 77 - HR casualty 80 - L/R development 60 53 - Proj. vs. realized PL - Diversification 40 - Ratio development 28 - Casual
Slide 41: Ratio Development: U/Y 1999 active but better than 1998
RATIO DEVELOPMENT: U/Y 1999 active but better than 1998 in % 120 110 110 General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 - Loss ratio picks - HR casualty 60 62 - L/R development - Proj. vs. realized PL 44 40 - Diversification - Ratio development 23 20 - Casualty portfolio Catas
Slide 42: Ratio Development: U/Y 2000 activity similar to 1999
RATIO DEVELOPMENT: U/Y 2000 activity similar to 1999 in % 120 107.5 General remarks 100 105 US Casualty 100 - P/C reinsurer - Sufficiency test 80 - Loss ratio picks - HR casualty 60 - L/R development - Proj. vs. realized PL 40 42 - Diversification - Ratio development 20 21 - Casualty portfolio Catas
Slide 43: Ratio Development: U/Y 2001 so far better than expected
RATIO DEVELOPMENT: U/Y 2001 so far better than expected in % 120 107.5 General remarks 100 US Casualty 97.5 97.5 - P/C reinsurer - Sufficiency test 80 - Loss ratio picks - HR casualty 60 - L/R development - Proj. vs. realized PL 40 - Diversification - Ratio development 20 - Casualty portfolio 17 Cat
Slide 44: Ratio Development: U/Y 2002 very promising start
RATIO DEVELOPMENT: U/Y 2002 very promising start in % 120 General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 75 75 - Loss ratio picks - HR casualty 60 - L/R development - Proj. vs. realized PL 40 - Diversification - Ratio development 20 - Casualty portfolio 3 Catastrophe 1 - Expos
Slide 45: Ratio Development: U/Y 2003 too good to be true?
RATIO DEVELOPMENT: U/Y 2003 too good to be true . . ? in % 120 General remarks 100 US Casualty - P/C reinsurer - Sufficiency test 80 - Loss ratio picks 70 - HR casualty 60 - L/R development - Proj. vs. realized PL 40 - Diversification - Ratio development 20 - Casualty portfolio Catastrophe 1 0,3 - E
Slide 46: US Casualty 2003: Our portfolio is well balanced
US CASUALTY 2003: Our portfolio is well balanced Primary casualty General remarks 4% WCA US Casualty 8% Med. Mal. Clash 16% - P/C reinsurer 3% - Sufficiency test Lawyers/Errors & Omissions - Loss ratio picks Excess & Surplus/ 7% - HR casualty Programs 15% - L/R development - Proj. vs. realized PL -
Slide 47: Cat. Exposures: Independent perils in independent regions
CAT. EXPOSURES: Independent perils in independent regions General remarks Æ Casualty portfolios are correlated (legal environment) US Casualty - P/C reinsurer Æ Superimposed inflation may hit all liability claims - Sufficiency test - Loss ratio picks Æ Earthquakes and storms are really independent!
Slide 48: Cat. Exposures: Worldwide leading scenarios
CAT. EXPOSURES: Worldwide leading scenarios General remarks US Casualty Æ 1. Florida hurricane - P/C reinsurer - Sufficiency test Æ 2. New Madrid earthquake - Loss ratio picks Æ 3. Californian earthquake - HR casualty - L/R development Æ 4. North Europe wind - Proj. vs. realized PL Æ 5. Australia ca
Slide 49: Cat. Exposures: Controlled by sophisticated simulation models
CAT. EXPOSURES: Controlled by sophisticated simulation models General remarks Æ First part: Simulation of natural events (mainly storms, quakes) US Casualty - P/C reinsurer Æ Second part: Simulating/estimating economic losses - Sufficiency test - Loss ratio picks Æ Third part: Converting economic lo
Slide 50: Cat. Simulation: AIR (CATRADER) probability distribution for US hurricanes and earthquakes
CAT. SIMULATION: AIR (CATRADER) probability distribution for US hurricanes and earthquakes Non-exceedance probability General remarks in bn. USD 100% US Casualty - P/C reinsurer 98% - Sufficiency test 96% - Loss ratio picks 94% - HR casualty Every 10 Every 100 Every 1000 92% - L/R development years
Slide 51: Cat. Simulation: AIR (CATRADER) probability distribution for US hurricanes and earthquakes
CAT. SIMULATION: AIR (CATRADER) probability distribution for US hurricanes and earthquakes Non-exceedance probability General remarks in bn. USD 100% US Casualty 98% - P/C reinsurer - Sufficiency test 96% - Loss ratio picks 94% Every 15 - HR casualty 92% years - L/R development - Proj. vs. realized
Slide 52: Perfect Example: Hannover Re Bermuda (HRB)
PERFECT EXAMPLE: Hannover Re Bermuda (HRB) General remarks Æ Dedicated cat. writer since 1 April 2001 US Casualty - P/C reinsurer Æ Net premiums earned 2003: € 142 m. - Sufficiency test Æ Stockholders' equity 2003: € 650 m. - Loss ratio picks - HR casualty Æ Net income 2003: € 142 m. - L/R developme
Slide 53: HRB Cat. Portfolio is globally diversified
HRB CAT. PORTFOLIO is globally diversified Japan General remarks 10.3% US Casualty Australia 12.1% - P/C reinsurer Rest of World - Sufficiency test 2.4% - Loss ratio picks Netherlands - HR casualty 4.3% USA 34.4% Germany - L/R development 4.3% - Proj. vs. realized PL Great Britain - Diversification
Slide 54: Modeled HRB Exposures: Europe dominates 100-year event
MODELED HRB EXPOSURES: Europe dominates 100-year event in m. US$ 350 General remarks 300 US Casualty - P/C reinsurer 250 - Sufficiency test 202 - Loss ratio picks 200 178 - HR casualty 150 - L/R development - Proj. vs. realized PL 109 100 85 - Diversification 74 69 - Ratio development 44 50 - Casual
Slide 55: Modeled HRB Exposures: Australia steps up at 250 years
MODELED HRB EXPOSURES: Australia steps up at 250 years in m. US$ 350 General remarks 300 US Casualty - P/C reinsurer 250 Combined occurrences: 221 - Sufficiency test 199 Only minor increase ! 202 - Loss ratio picks 200 178 - HR casualty 150 138 142 - L/R development 134 109 - Proj. vs. realized PL 1
Slide 56: Modeled HRB Exposures: Europe determines 1000 year total
MODELED HRB EXPOSURES: Europe determines 1000 year total in m. US$ 345 345 350 General remarks 300 US Casualty 1,000 year US quake: - P/C reinsurer 250 New Madrid seismic zone 221 - Sufficiency test 199 202 - Loss ratio picks 200 178 179 - HR casualty 156 154 147 142 144 150 138 134 - L/R developmen
Slide 57: The Power of Diversification
THE POWER OF DIVERSIFICATION Æ The 100-year cat. occurrence is nearly covered by premiums! General remarks Æ The 1,000-year cat. occurrence only needs 1/3 of existing capital! US Casualty - P/C reinsurer Æ Further protections are limiting net risk on a groupwide basis: - Sufficiency test - Loss rati