Hannover Rueck SE · XETR:HNR1
Hannover Rueck — Hannover Re — Non-Deal Roadshow (July 2005)
38 slides from Hannover Rueck's roadshow presentation, Jul 1, 2005
Slide 1: US Cycle Management
US Cycle Management - Strategy through Hard and Soft Markets Hans Rohlf Managing Director and Chief Underwriting Officer North American Treaty Division Hannover, 1 July 2005
Slide 2: Overview
Overall book Property portfol. Casualty portfol. Outlook US Cycle Management OVERVIEW 1. Overall book 2. Property portfolio 3. Casualty portfolio 4. Outlook 1
Slide 3: Strong development in hard markets
Overall book Property portfol. Casualty portfol. Outlook US P/C premium STRONG DEVELOPMENT* IN HARD MARKETS 1.800 in m. USD 1,609 1.600 1,458 1,382 1.400 1,241 1.200 1.000 800 676 600 422 400 315 323 200 0 1998 1999 2000 2001 2002 2003 2004 2005 (E) Gross written premiums * Calendar year/excluding s
Slide 4: Emphasis on cycle management
Overall book Property portfol. Casualty portfol. Outlook US P/C premium EMPHASIS ON CYCLE MANAGEMENT in m. USD 1.200 1,200 1.000 1,000 800 600 400 200 0 Casualty Property/Multi Line/Misc. 1998 1999 2000 2001 2002 2003 2004 2005 (E) 3
Slide 5: Relatively stable number of treaties
Overall book Property portfol. Casualty portfol. Outlook Cycle management RELATIVELY STABLE NUMBER OF TREATIES While premium volume grows significantly Number of treaties 900 800 700 600 500 400 300 200 100 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Property Casualty 4
Slide 6: Emphasis on excess of loss
Overall book Property portfol. Casualty portfol. Outlook Cycle management EMPHASIS ON EXCESS OF LOSS U/W year 20052) U/W year 2004 U/W year 2003 Pro rata1) 6.5% 7.8% 8.2% Excess of loss 1) 93.5% 92.3% 91.8% 1) Measured by number of treaties 2) As of March 2005 5
Slide 7: Overall premium volume at this stage stable
Overall book Property portfol. Casualty portfol. Outlook Gross premiums OVERALL PREMIUM VOLUME AT THIS STAGE STABLE At first glance 550 in m. USD 505 507 492 500 471 450 400 350 300 255 250 200 160 152 150 132 100 50 0 1998 1999 2000 2001 2002 2003 2004 2005 (E) Gross written premiums 6
Slide 8: Influence of 2004 hurricanes
Overall book Property portfol. Casualty portfol. Outlook US property INFLUENCE OF 2004 HURRICANES On 2005 premium volume Æ Sum of 2004 hurricane losses*: USD 85 m. Æ Original premium forecast for u/w year 2005: USD 445 m. Æ Additional premium (due to hurricanes): • i.e. two new E&S homeowners Q/S •
Slide 9: Well diversified portfolio
Overall book Property portfol. Casualty portfol. Outlook Property premium volume WELL DIVERSIFIED PORTFOLIO 1998 2004 Other Terror & 15% Other 10% Pro rata Pro rata 30% 30% Multi line Multi line 12% 20% Per risk 16% Cat. (only Cat. 27% written in Hannover) Per risk 12% 28% USD 160 m. USD 471 m. 8
Slide 10: Fluctuating volumes with attractive original rates
Overall book Property portfol. Casualty portfol. Outlook Pro rata FLUCTUATING VOLUMES WITH ATTRACTIVE ORIGINAL RATES 180 in m. USD 161 160 155 155 150 140 120 108 100 80 73 60 50 52 43 43 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (E) U/W year premiums E&S HO Q/S 9
Slide 11: Example for specifically volatile business
Overall book Property portfol. Casualty portfol. Outlook Pro rata EXAMPLE FOR SPECIFICALLY VOLATILE BUSINESS Early reductions when needed in m. USD 1000 93.4 900 87.6 800 77.1 74.8 700 600 50.3 500 400 300 28.1 26.6 24.6 26.1 19.0 200 100 6.6 1.6 0 2000 2001 2002 2003 2004 2005 (E) Large commercial
Slide 12: Further diversified in 2005
Overall book Property portfol. Casualty portfol. Outlook Pro rata account FURTHER DIVERSIFIED IN 2005 2004 2005 CAR/EAR Small Com. Small Com. CAR/EAR 2% DIC Lines Lines 6% 5% 8% DIC Pers. Lines & 7% 4% Other 8% Energy Pers. Lines - 18% Energy E&S 22% 16% Fac. Fac. 5% 4% Pers. Lines & Other 7% Large
Slide 13: Volume increases with RoL attractiveness
Overall book Property portfol. Casualty portfol. Outlook Per risk XL VOLUME INCREASES WITH ROL ATTRACTIVENESS RoL development still favourable in m. USD in % 150,000 40 135,000 36 120,000 32 105,000 28 90,000 24 75,000 20 60,000 16 45,000 12 30,000 8 15,000 4 ,0 0 1996 1997 1998 1999 2000 2001 2002
Slide 14: Profitability after WTC
Overall book Property portfol. Casualty portfol. Outlook Per risk XL PROFITABILITY AFTER WTC Full recovery after only 3 years Æ WTC loss for US property per-risk XLs: USD 240 m. Æ Premiums and results in subsequent years as follows: in m. USD Earned premiums Result 2000 42 (8.5) 2001 96 (163) 2002 1
Slide 15: Strategic expansion
Overall book Property portfol. Casualty portfol. Outlook Cat. XL STRATEGIC EXPANSION 10-year history in m. USD 170 150 130 110 108 90 34 54 70 50 30 64 66 60 58 48 50 41 31 10 19 17 -10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 US cat. - Hannover US cat. - Bermuda 14
Slide 16: Profitability over the last 20 years: +55%
Overall book Property portfol. Casualty portfol. Outlook Cat. XL PROFITABILITY OVER THE LAST 20 YEARS: +55% RoL development in m. USD in % 180,000 10 144,000 8 108,000 6 72,000 4 36,000 2 ,0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 US cat. Hannover US cat. Bermuda Rate on Line 15
Slide 17: Peak in 2003
Overall book Property portfol. Casualty portfol. Outlook Gross premiums PEAK IN 2003 1.200 in m. USD 1,104 1.050 951 911 900 749 750 600 450 421 300 270 191 155 150 0 1998 1999 2000 2001 2002 2003 2004 2005 (E) Gross written premiums Special effect Calendar year 16
Slide 18: Changing diversification over the cycle
Overall book Property portfol. Casualty portfol. Outlook Casualty premium volume CHANGING DIVERSIFICATION OVER THE CYCLE U/W year 1998 U/W year 2004 Primary casualty Clash Clash Trans- 5% 2% Primary casualty 5% portation 2% Umbrella 4% Umbrella 18% Lawyer/E&O 25% Trans- 7% portation 19% E&S/ Program
Slide 19: Premiums and ultimate loss ratios
Overall book Property portfol. Casualty portfol. Outlook Casualty U/W approach PREMIUMS* AND ULTIMATE LOSS RATIOS in m. USD in % 1000,000 1,000,000 400 800,000 320 600,000 240 400,000 160 200,000 80 70% 58.0% 63.4% ,0 0 2002 (E) 2003 (E) 2004 (E) 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 198
Slide 20: Hannover Re vs. Converium
Overall book Property portfol. Casualty portfol. Outlook Cycle management HANNOVER RE VS. CONVERIUM Long-tail business performance - US casualty business (excl. WCA) in bn. USD 800 180% 700 160% 140% Ultimate written premiums 600 Ultimate loss ratio 120% 500 100% 400 80% 300 60% 200 40% 100 20% 0 0%
Slide 21: Very different development by line of business
Overall book Property portfol. Casualty portfol. Outlook Gross premiums VERY DIFFERENT DEVELOPMENT BY LINE OF BUSINESS in m. USD 500 450 400 350 300 250 200 150 100 50 0 Professional liability General casualty/Workers' comp Special casualty 1998 1999 2000 2001 2002 2003 2004 2005 (E) 20
Slide 22: Per line analysis of the casualty portfolio
Overall book Property portfol. Casualty portfol. Outlook Assumed profitability development per u/w year PER LINE ANALYSIS OF THE CASUALTY PORTFOLIO Target: Æ To achieve a differentiated profitability perspective per line of business Tools: Æ Cumulative rate and loss cost development Sources: Æ Rates
Slide 23: Parameters of analysis and caveats
Overall book Property portfol. Casualty portfol. Outlook Assumed profitability development per u/w year PARAMETERS OF ANALYSIS AND CAVEATS Æ Base year is 1996 Rate index and loss cost set at 100% for 1996 since this marked the end of the hard market Æ Increase of deductibles and more stringent exclu
Slide 24: Umbrella
Overall book Property portfol. Casualty portfol. Outlook UMBRELLA in m. USD in % 250,000 250 200,000 216 150,000 182 100,000 148 50,000 114 ,0 80 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Earned premiums per u/wyear Rate index Loss cost index Premium development partly distorted by multi-yea
Slide 25: Excess and surplus lines
Overall book Property portfol. Casualty portfol. Outlook EXCESS AND SURPLUS LINES in m. USD in % 150,000 220 120,000 192 90,000 164 60,000 136 30,000 108 ,0 80 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Earned premiums per u/w year Rate index Loss cost index 24
Slide 26: Transportation
Overall book Property portfol. Casualty portfol. Outlook TRANSPORTATION in m. USD in % 100,000 200 80,000 176 60,000 152 40,000 128 20,000 104 ,0 80 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Earned premiums per u/w year Rate index Loss cost index 25
Slide 27: Directors and officers
Overall book Property portfol. Casualty portfol. Outlook DIRECTORS AND OFFICERS in m. USD in % 200,000 260 150,000 210 100,000 160 50,000 110 ,0 60 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Earned premiums per u/w year Rate index Loss cost index 26
Slide 28: Errors and omissions (E&O)
Overall book Property portfol. Casualty portfol. Outlook ERRORS AND OMISSIONS (E&O) in m. USD in % 100,000 220 80,000 192 60,000 164 40,000 136 20,000 108 ,0 80 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Earned premiums per u/w year Rate index Loss cost index 27
Slide 29: Profitability over the last 20 years: +28%
Overall book Property portfol. Casualty portfol. Outlook Casualty clash (RoL development) PROFITABILITY OVER THE LAST 20 YEARS: +28% (INCL. IBNR) in m. USD in % 30,000 10 24,000 8 18,000 6 12,000 4 6,000 2 ,0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Earned premiums per u/w year Rate on Li
Slide 30: Continued improvement of terms: special casualty
Overall book Property portfol. Casualty portfol. Outlook Special casualty (exemplarily) CONTINUED IMPROVEMENT OF TERMS Exposure limitation 100% Æ Limitation of 80% • Fortune 1000 exposure 60% 40% • Pharma exposure 20% • Auto exposure 0% 96 97 98 99 00 01 02 03 04 05 Deterioration Same Improvement Æ
Slide 31: Continued improvement of terms: professional liability
Overall book Property portfol. Casualty portfol. Outlook Professional liability (exemplarily) CONTINUED IMPROVEMENT OF TERMS Exposure limitation 100% Æ Limitation of downside 80% • Loss ratio caps 60% 40% • Reinstatements 20% 0% Æ Limit mgmt. at cedants 96 97 98 99 00 01 02 03 04 05 Deterioration Sa
Slide 32: Changing diversification over the cycle
Overall book Property portfol. Casualty portfol. Outlook US property CHANGING DIVERSIFICATION OVER THE CYCLE Hard market Soft market Terror & other 10% Terror & other 15% Pro rata 20% Pro Rata 30% Multi line 20% Multi line Cat. 20% 15% Cat. 12% Per risk Per risk 28% 30% 31
Slide 33: Sustainable volume in soft market significantly down
Overall book Property portfol. Casualty portfol. Outlook US property SUSTAINABLE VOLUME IN SOFT MARKET SIGNIFICANTLY DOWN (60%) opt. real. pess. Current Soft market 32
Slide 34: Outlook 2005/2006
Overall book Property portfol. Casualty portfol. Outlook US property OUTLOOK 2005/2006 Æ Reductions on segments under pressure (Fortune 1,000; Energy, etc.) have already begun and will be continued Æ Commercial pro rata needs to be further de-emphasized in line with original rate reductions Æ Demand
Slide 35: Hard market vs. soft market
Overall book Property portfol. Casualty portfol. Outlook US casualty diversification HARD MARKET VS. SOFT MARKET Hard market Soft market Clash Pers. Light Prim.Cas. 2% Umbrella Clash Pers. Light 5% Prim.Cas. Transport. 3% 5% Umbrella E&S/ 9% 4% 5% Programs Transport. E&O E&S/ 16% 4% 7% Programs 17%
Slide 36: Sustainable volume in soft market significantly down
Overall book Property portfol. Casualty portfol. Outlook US casualty SUSTAINABLE VOLUME IN SOFT MARKET SIGNIFICANTLY DOWN opt. (60%) real. pess. Current Soft market 35
Slide 37: Outlook 2005/2006 Review
Overall book Property portfol. Casualty portfol. Outlook US casualty OUTLOOK 2005/2006 Review Æ Significant reduction of portfolio is necessary Æ Avoid concentration on individual large treaties Æ Continued post-mortem analysis to sensitize underwriters (worst 20 treaties of soft market years analyz
Slide 38: Outlook 2005/2006 Preview
Overall book Property portfol. Casualty portfol. Outlook US casualty OUTLOOK 2005/2006 Preview Æ More diversified portfolio (over 700 treaties) Æ Better spread of clients (over 300 clients) Æ Clear concentration on XoLs (about 92% of treaties) Æ Improved actuarial analyses (loss cost trends) Æ Red f