Swiss Re AG · SIX:SREN
Swiss Re — Product & Knowledge Fair 2007
12 slides from Swiss Re's conference presentation, Mar 30, 2007
Slide 1: Annuities: a private solution to longevity risk
ab Annuities: a private solution to longevity risk Product & Knowledge Fair 2007 Rüschlikon 30 March 2007 Thomas Hess Head of Economic Research & Consulting Veronica Scotti Client Solutions
Slide 2: Need for private solution is growing
ab Need for private solution is growing Life expectancy at birth in different regions Old-age dependency ratio* in selected countries % % 80 100 90 60 80 70 40 60 20 50 40 0 1950- 1960- 1970- 1980- 1990- 2000- 2010- 2020- 2030- 2040- 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1955 1965 1
Slide 3: The role of the insurance sector
ab The role of the insurance sector In the accumulation phase In the decumulation phase By helping individuals build up a By allowing individuals to run desirable level of savings throughout their asset pool down smoothly their working years: while offering protection against longevity and infla
Slide 4: Size of annuity markets
ab Size of annuity markets Total assets Annuity assets % Switzerland 75'896 15'567 21% Netherlands 50'014 8‘107 16% United States 45'876 6‘912 15% United Kingdom 41'336 21’141 51% Australia 29'229 3‘896 13% Japan 17'596 250 1% Germany 10'646 1‘507 14% Italy 6'392 83 1% 0 20'000 40'000 60'000 80'000
Slide 5: Total pension expenditure in % of GDP
ab Total pension expenditure in % of GDP 14% 12% 10% 8% 6% 4% 2% 0% UK USA France Ireland Canada Germany Australia Netherlands New Zealand Spain Public Private Source: Report of the Pensions (Turner Commission), 2005; OECD, 2004, Social Expenditure Database (1980-2001) Slide 5 Note: Data was not ava
Slide 6: Pension funds and life insurance assets penetration
Slide 6 Voluntary Mandatory (year of introduction) 0% 20% 40% 60% 80% 100% 120% 140% 160% % of GDP Switzerland 1985 Iceland 1986 Netherlands United United States Denmark 1964/1985 Australia 1992 Ireland Canada Sweden 2000 Finland 1956/1985 Role of pension system: France Japan Belgium Norway 2006 Ger
Slide 7: Main risks and costs affecting annuity profitability
Main risks and costs affecting ab annuity profitability Insurance risks Financial-market Costs risks - Longevity risk - Interest-rate risk/ - Administration costs - Persistency risk - Investment risk - Distribution costs - Unhedged inflation - Capital costs risk Underwriting activity Investment acti
Slide 8: Longevity risk: Rectangularisation of the mortality curve
Longevity risk: ab Rectangularisation of the mortality curve Probability of surviving from one year to the 100% 80% 60% other 40% 20% 0% 0 7 14 21 28 35 42 49 56 63 70 77 84 91 98 Age 1980-1982 GAD UK male table 2002-2004 GAD UK male table Source: UK GAD Slide 8
Slide 9: Longevity risk: Uncertainty in demographic projections
Longevity risk: ab Uncertainty in demographic projections Share of population > 65 years (%) North America actuall Latin America projected Africa Southern Europe Western Europe South-East Asia China Japan World Projection Actual Slide 9 1963 2000 0 5 10 15 20 Source: IMF, World Economic Outlook (200
Slide 10: Longevity risk: Projections errors grow with time span
Longevity risk: ab Projections errors grow with time span Absolute projection error (mean values) 0.20% 0.15% 0.10% 0.05% 0.00% 5 10 15 20 25 30 Projection length (years) Source: IMF, World Economic Outlook (2004) Slide 10
Slide 11: Interest rate risk: Guaranteed rates vs. market yields
Interest rate risk: ab Guaranteed rates vs. market yields % 16 8000 14 7000 12 6000 10 5000 8 4000 6 3000 4 2000 2 1000 0 0 Jan 90 Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 LT Govt bond yield Guaranteed Rate DAX (rhs) Slide 11
Slide 12: Managing longevity risk: The role of different players
Managing longevity risk: ab The role of different players Insured longevity risk Diversification • Pricing/ product design • Education / distribution Insurers State • Risk absorption Diversification • Risk absorption Reinsurers • U/w support • Capital management • Risk transfer Capital Markets • Hed