Swiss Re Ag · SIX:SREN
Swiss Re — AIFA Conference 2004
28 slides from Swiss Re's conference presentation, Mar 2, 2004
Slide 1: An International Perspective on Life Reinsurance
ab An International Perspective on Life Reinsurance AIFA Conference March 2, 2004 Stephen R. McArthur President Swiss Re Life & Health America Inc.
Slide 2: Agenda
ab Agenda Global Life Insurance Market Direct Life Insurance Market Life Reinsurance Market Outlook Questions & Answers AIFA Conference March 2004 2
Slide 3: Agenda
ab Agenda Global Life Insurance Market Direct Life Insurance Market Life Reinsurance Market Outlook Questions & Answers AIFA Conference March 2004 3
Slide 4: What is Life Reinsurance?
ab What is Life Reinsurance ? • Swiss Re focused on life protection The Transfer or Indemnification of Risk Between business Insurance Companies. 3 Basic Types: Life Reinsurance Block New Business Transactions/ Risk Transfer Sale of Business AIFA Conference Financial March 2004 Relief 4
Slide 5: Growth in Global Premium Volume
ab Growth in Global Premium Volume • Industrialized countries accounted Real growth rate in % 25 for 90% of growth in 2002. • 2003 continued the 20 upward trend in premium growth. 15 • Driven by N.A., UK, Germany & France. 10 • Emerging markets (incl. Asia) show strong growth. 5 0 -5 1980 1982 1984
Slide 6: Global Life & Disability Reinsurance Markets
ab Global Life & Disability Reinsurance Markets • Slower Growth in North American Reinsurance Market Premiums - Development Markets 2013 - 10 Yr. CAGR USD bn • Higher Growth in Total = 6.8% 60 2003 - 10 Yr. CAGR EU & Emerging ROW = 9.2% Markets Total = 10.9% 52.5 E.U. = 6.9% 50 N.A.= 14.6% N.A. = 6.
Slide 7: Cession Rates: US Ordinary Life New Business
ab Cession Rates: US Ordinary Life New Business • Cession rates have peaked in 1800 70% 2002 • Canadian trends 1600 60% are similar to 1400 U.S. 1200 50% 1000 $ bn 40% 800 600 30% 400 20% 200 0 92 93 94 95 96 97 98 99 '00 '01 '02 10% Amount retained 893 934 914 883 824 835 779 755 784 648 684 Amount
Slide 8: Cession Rates: Free Ceded Business
ab Cession Rates: Free Ceded Business As Percent of Risk Business (In-Force) 25% 20% 15% 10% 5% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 AIFA Conference North America Latin America United Kingdom Western Europe (excl. UK) March 2004 Eastern Europe Japan Asia (excl. Japan)
Slide 9: Life Insurance Penetration
ab Life Insurance Penetration • US - Opportunities to expand penetration Premiums as % of GDP rates to EU levels 16% • EU - High penetration 15% South Africa rates & low cession 14% rates 13% 12% • India & China 11% United Kingdom increasing appetite for 10% insurance products 9% Japan 8% France Swi
Slide 10: Stock Indices
ab Stock Indices 1980=100 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 AIFA Conference US (DJ Industrials) Japan (Nikkei 225) UK (FTSE 100) March 2004 Germany (DAX 30) France (MSCI France) Source: Datastream 10
Slide 11: Interest Rates Have Reached Historic Lows
ab Interest Rates Have Reached Historic Lows • Low investment yields highlight the 10 Year Government Bond need for strong technical results 18% • Low rates continue 16% into 2004 14% 12% 10% 8% 6% 4% 2% 0% 1970 1975 1980 1985 1990 1995 2000 AIFA Conference March 2004 US Japan UK Germany Sources: Da
Slide 12: Capital Depletion of Life Insurers
ab Capital Depletion of Life Insurers Causes: USD bn • Credit losses & impairments 300 • Slow economy 250 • Realized gains and fresh capital offset losses in U.S. 200 150 100 50 0 UK Germany France US AIFA Conference 1997 1998 1999 2000 2001 2002 2003F March 2004 *2002 figures are partly based on pr
Slide 13: Allocation of Life Insurers' Investments in 2002
ab Allocation of Life Insurers’ Investments in 2002 • A shift towards fixed Share in % income 100% • Greater capital destruction in E.U. vs. U.S. 80% 60% 40% 20% 0% US UK Germany* France AIFA Conference * Book values March 2004 Stocks Fixed-interest securities/loans Real estate Other investments Sou
Slide 14: Development of Life Insurers' Investments in 2002
ab Development of Life Insurers’ Investments in 2002 • More bonds and in percentage points less equities • Similar investment France management pattern in 2003 • Questionable timing Germany* UK US -10 -8 -6 -4 -2 0 2 4 6 8 10 * Book values AIFA Conference Stocks Fixed-interest securities/loans Real
Slide 15: Agenda
ab Agenda Global Life Insurance Market Direct Life Insurance Market Life Reinsurance Market Outlook Questions & Answers AIFA Conference March 2004 15
Slide 16: U.S. Life Insurance Sales
ab U.S. Life Insurance Sales 2003 vs. 2002: VUL: (33.3)% Annualized Premiums in $ Billions UL 29.4% WL: 6.9% Term: 0% 5 14 Total: 2.6% 12 4 • Strong 4Q2003 10 Total Industry Sales Product Sales • CA trends are similar 3 8 2 6 4 1 2 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 AIFA Conference VUL
Slide 17: Our Clients' Environment
ab Our Clients’ Environment Capital pressures – Declines in economic and financial market conditions – Credit cycle - Speed of deterioration and magnitude of losses -- impairment charges – Rating agencies – Direct companies need for reinsurance products and services Low investment returns and st
Slide 18: Life Industry Transformation
ab Life Industry Transformation Three market themes – North America: Primary cos. require reinsurance solutions due to transformation into asset accumulators. Reinsurance capacity is the key in most Anglo-Saxon countries (US, CA, UK, AUS) – Europe: Primary cos. still considered risk takers. Sluggi
Slide 19: New reporting standards will entail sweeping changes in Europe
ab Challenges Under New Accounting Standards Accounting and Insurance company results New reporting standards will entail corporate scandals to become more volatile sweeping changes in Europe have deeply under fair value accounting affected public confidence Insurers may need to change investm
Slide 20: Agenda
ab Agenda Global Life Insurance Market Direct Life Insurance Market Life Reinsurance Market Outlook Questions & Answers AIFA Conference March 2004 20
Slide 21: Swiss Re Has Clear Leadership in Life & Health Reinsurance
ab Swiss Re Has Clear Leadership in Life & Health Reinsurance • 10 years later there are 10 World-wide Market U.S. Market shares, 2002 different names shares, 2002 (based on in-force sums) (based on premium income) 1 Swiss Re 24.1% Swiss Re Others 2 Munich Re 19.6% 19% 29% 3 GE ERC 7.2% 4 Hannover R
Slide 22: Life Reinsurance Has High Credit Quality Characteristics
ab Life Reinsurance Has High Credit Quality Characteristics Quality of earnings: – Mortality trends favorable over time – Catastrophes not normally a serious threat to profitability Attractive medium term and longer-term growth prospects for the market, particularly in emerging economies: – Glob
Slide 23: Life Reinsurance Has High Credit Quality Characteristics (continued)
ab Life Reinsurance Has High Credit Quality Characteristics (continued) Rating agency pressures – Moody’s concerns: Rating triggers and the hidden risks of regulation XXX/ Guideline AXXX reinsurance programs Changing retention rates and a shift from coinsurance to YRT Capital markets interest
Slide 24: LOC's vs. Structured Securities Market
ab LOC’s vs. Structured Securities Market • Ample capacity in capital markets to absorb industry LOC needs LOC - 2002 9 Moody’s • Multiple capital Proj. LOC - 2007 45 market solutions available. Bank LOC Supply ? CDO 2003 102 Supply ABS - 2003 455 ABCP - 2003 806 AIFA Conference 0 300 600 900 March
Slide 25: Agenda
ab Agenda Global Life Insurance Market Direct Life Insurance Market Life Reinsurance Market Outlook Questions & Answers AIFA Conference March 2004 25
Slide 26: Outlook
ab Outlook Growth – Reinsurance Cession Rates - Short-term disruptions in market share - Price hardening may change structure to excess of retention and YRT – U.S. Direct Markets - Penetration lower than EU countries - substantial untapped market – E.U. Direct Markets - Changing capital & regulato
Slide 27: Agenda
ab Agenda Global Life Insurance Market Direct Life Insurance Market Life Reinsurance Market Outlook Questions & Answers AIFA Conference March 2004 27
Slide 28: Q&A
ab Q&A Notes: AIFA Conference March 2004 28