investors and media meeting - swiss ree1b2b58e-74a8-44c7... · 9/13/2010 · investors & media...

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Investors and Media meeting

Monte Carlo, 13 September 2010

Investors & Media meeting | Monte Carlo | 13 September 2010

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Today’s agenda

Introduction Stefan Lippe, CEO

Market outlook Brian Gray, CUO

Questions & answers

Solvency II Michel Liès, CMO


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IntroductionStefan Lippe, CEO

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Our vision

To be the leading player in the wholesale

re/insurance industry

The preferred partner

Clients

An excellent investment

Investors

The place to succeed

Employees

A serious challenge

Competitors

A credible partner

Society

Capital strength, expertise and continuing innovation position us well to support clients


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For Swiss Re clients

Be the preferred partner

For society

Be a credible partner

Socially responsible

A leader in public/private partnerships

For competitors

Be a serious challenge

A top competitor for every opportunity in

our defined risk pools

Recognised innovator and thought leader

For investors

Be an excellent investment

Redeem CPCI

Increase dividend to shareholders

Restore AA rating

Combining talent and technical expertise to provide excellence for our clients

Win trust and confidenceDeliver unmatched serviceand tailored solutions

For employees

Appropriate goals and incentives

Talent development

Be the place to succeed

Recruiting and retention

Defining leadership in wholesale re/insurance


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Market trends play to our strengthsExamples

How Swiss Re supports our clients

Portfolio transactions, structured solutions, Admin Re® solutions, P&C run-off

Trends

M&A activity will increase

Economic and risk-based regulation in Europe

Risk-driven solutions tailored to client need

Emerging markets outgrow developed

Well positioned to support with local market experience and expertise

Structurally low interest rates and excess capital

Reliable, high-quality, consistently-priced capacity

Ageing population, pension funding crisis

At the forefront of developing longevity funding solutions


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Market outlookBrian Gray, CUO

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Excess capital is back

– Non-life reinsurance capital has returned to pre-crisis levels

– Client capital and retention management is accelerating

Recovery in demand

– Demand picking up in line with moderately growing economies

– New regulation & solvency requirements increase demand for reinsurance

Very low interest rates

– Creates a fundamental shift in margins on UW activities

Economic conditions for reinsuranceA mixed picture

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P&C

– Companies relying on reserve releases (financial year loss ratio is 6 points better than accident year in H1 2010 for US/Bermuda players)

– Substantial business in the market is priced at levels that destroys value

– First half claims events increase pressure, however a further catalyst is needed to drive market 'turn'

L&H

– Modest recovery as GDP growth drives savings and protection demand

– Challenged by low yields

– M&A wave likely

P&C in classic late soft cycle; L&H recovering

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aLower investment yieldsSignificant drop since late 2008

Source: Datastream

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72-year treasury bonds

US Euro UK0

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75-year treasury bonds

US Euro UK

Continuing low yields are a significant dislocation for the industry

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0%

2%

4%

6%

8%

10%

12%

14%

85% 87% 89% 91% 93% 95% 97% 99% 101%

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Low yields pressure UW results Example: Germany

Combined Ratio

2008 insurance Germany:Asset leverage: 325%Tax rate 24%NPW/surplus 73%

ROE

4.7% yield (as in 2000)

2.7% yield (as in 2008)

A combined ratio near 90% is needed for a 10% ROE in some segments

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Motor

– Original German and Austrian markets weakening, with rate changes not covering loss trend, and combined ratios well above 100%

– UK and France slightly improving, from a weak starting point

Liability

– Typically flat conditions, except competition on large commercial continues to depress price levels

– Economics remain very weak in low interest rate environment

Credit & Surety

– Original trade credit market profitability has improved

– Vulnerability remains if the economy falters or double-dip materializes

Casualty, Credit & SuretyChallenging reinsurance conditions

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aEuropean natural catastropheThe recent past

Year EventInsured Loss

EUR bn

2007 Windstorm Kyrill 4.2Floods in UK 3.1

2008 Windstorm Emma 0.7Hailstorm Hilal 0.4

2009 Windstorm Klaus 2.3Windstorm Quinten 0.3Earthquake in Italy 0.4Hailstorm Felix 0.5Hailstorm Wolfgang 0.8Floods Istanbul 0.3

2010 Windstorm Xynthia 2.1Floods in France 0.7

The last four years have seen a high frequency of small and mid-sized insured losses

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aReinsurance renewal 2011European price trends

Mild softening, especially in short-

tailed lines

2010 2011

Key Cycle drivers

Continuation or reversal of extremely low interest rates

Nat cat events rest of 2010

A "broad brush" market movement is unlikely, absent a major cat or economic event

Client-specific underwriting and discussion will prevail

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aSwiss Re's cyclical approachReliable, consistently-priced capacity

Time

Price

Swiss Re

Market

Swiss Re will continue to offer high-quality, consistently-priced capacity, as the market fluctuates

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Illustrative


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Solvency IIMichel Liès, CMO

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Solvency II will

– impact decision making and capital management for European based companies

– influence internal business processes supporting risk reporting and disclosure

The current test run of the implementation measures, Quantitative Impact Study (QIS) 5, is key to obtain clarity on the possible impact of Solvency II

The industry is at a critical juncture: the debate on implementation measures is vital and could have implications for the competitiveness of the entire EEA market

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Solvency II – our appraisal

QIS 5 is key for insurers to understand possible impact of Solvency II


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Solvency II – the opportunities

… creates new capital drivers for regulatory capital requirements

Under Solvency I many fundamentals of the insurance business model have been neglected in the regulatory regime

Under Solvency II the real risk landscape of an insurance company is considered in the calculation of the solvency capital requirements

Economic valuation of Solvency II balance sheets will improve transparency

Solvency capital requirements under Solvency II are influenced by more economic-based capital drivers compared to Solvency I

The change from Solvency I to Solvency II …

Underwriting (UW) risk Insufficient diversification Peak risks Volatility of reserve run-off Frequency risk

Swiss Re can support clients in fulfilling their capital requirements

Market risk Embedded options & guarantees Duration mismatch (ALM) Equity & property price risk Exchange rate mismatch Unexpected widening of bond spreads


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Solvency II – our value proposition

Volatility of reserve run-off

Insufficient diversification

Stan

dard

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Part

ial i

nter

nal m

odel

Inte

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Loss Portfolio Transfer & Adverse Development Cover

Transfer of peak risks

Insurance Linked Securities

Large exposure to increasing life spans Longevity swap

Identify the individual capital drivers …

Examples:

… find the most efficient reinsurance solution …

Examples:

… value the capital benefit based on the model used

Reinsurance is a powerful capital management tool under Solvency II

Natural catastrophe risk


a We have many years of practical experience with economic

models and the Swiss Solvency Test

We benefit from our strong expertise in risk and capital management

We provide essential reinsurance capacity to the insurance market

We can assist our clients in pricing and product design

We have unparalleled experience in the acquisition of closed blocks of insurance business

Swiss Re is a leader in

– structured and tailor-made reinsurance solutions

– Insurance Linked Securities (ILS) products

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Solvency II – Swiss Re as a partner

Swiss Re has the experience and products to assist clients with their Solvency II needs


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Questions & answers

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Corporate calendar & contacts

Corporate calendar

04 November 2010 Third Quarter 2010 results Conference call 17 February 2011 Annual Results 2010 Zurich15 April 2011 147th Annual General Meeting Zurich

Investor Relations contacts

Hotline E-mail+41 43 285 4444 [email protected]

Susan Holliday Ross Walker Chris Menth +44 20 7933 3890 +41 43 285 2243 +41 43 285 3878

John Piper Simone Fessler+44 20 7933 4287 +41 43 285 7299


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Cautionary note on forward-looking statements

Certain statements and illustrations contained herein are forward-looking. These statements and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed or implied by such statements. Such factors include, among others: further instability affecting the global financial system and

developments related thereto; changes in global economic conditions; Swiss Re’s ability to maintain sufficient liquidity and access to capital

markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls under derivative contracts due to actual or perceived deterioration of Swiss Re’s financial strength;

the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets;

changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions;

uncertainties in valuing credit default swaps and other credit-related instruments;

possible inability to realise amounts on sales of securities on Swiss Re’s balance sheet equivalent to its mark-to-market values recorded for accounting purposes;

the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings;

These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

the possibility that hedging arrangements may not be effective; the lowering or loss of financial strength or other ratings of one or

more of the companies in the Group or developments adversely affecting the ability to achieve improved ratings;

the cyclicality of the reinsurance industry; uncertainties in estimating reserves; the frequency, severity and development of insured claim events; acts of terrorism and acts of war; mortality and morbidity experience; policy renewal and lapse rates; extraordinary events affecting Swiss Re’s clients and other

counterparties, such as bankruptcies, liquidations and other credit-related events;

current, pending and future legislation and regulation affecting Swiss Re or its ceding companies, and regulatory or legal actions;

changes in accounting standards; significant investments, acquisitions or dispositions, and any delays,

unexpected costs or other issues experienced in connection with any such transactions, including, in the case of acquisitions, issues arising in connection with integrating acquired operations;

changing levels of competition; and operational factors, including the efficacy of risk management and

other internal procedures in managing the foregoing risks.

investors and media meeting - swiss ree1b2b58e-74a8-44c7... · 9/13/2010 · investors & media...

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