Siniša Lovrinčević, M.Sc.

Advisor to the Management Board

Reinsurance Company Sava Limited

The Reinsurance Market in the

Global Village of Changes

A Slovenian Perspective

Tashkent, April 2010

AGENDA

1. The position of Reinsurance Market in the Global Village of Changes

2. Slovenia – Macroeconomic Facts

3. Development of the Slovenian (Re)insurance Market

4. The future Challenges from our Slovenian Perspective  

                                     

2008 World GDP expanded by 2,3% in real terms

2008 2008 Worldwide Insurance Premium: Worldwide Insurance Premium: USD 4 270 bnUSD 4 270 bn Life Premium: USD 2 490 bnLife Premium: USD 2 490 bn Non - Life Premium: USD 1 779 bnNon - Life Premium: USD 1 779 bn

For the first time since 1980, For the first time since 1980, premium declinedpremium declined in real terms, slower demand in real terms, slower demand for cover, softening premium rates for cover, softening premium rates

The Insurance “industry’s” sharehold The Insurance “industry’s” sharehold capital shrank capital shrank by 15-20% in non life by 15-20% in non life and 30-40% in lifeand 30-40% in life

Very high losses from Very high losses from NAT CAT NAT CAT (frequency , severity?) CAT Scenarios: Wind, Flood, EQ, Hail(frequency , severity?) CAT Scenarios: Wind, Flood, EQ, Hail

Underwriting results Underwriting results in 2008 for non-life insurance remain in 2008 for non-life insurance remain positivepositive

We must recognised the changes and be

proactive

1. The position of Reinsurance Market in the Global Village of Changes

Source: Sigma No 3 /2009

Reinsurance Market Premium (est.10-12% of insurance premium)

Globale Financial Crisis? Crisis of Confidence? (Lehman Brothers, AIG)

Investment ? Loss of liquidity ? Cash is still the King!

Cycle Management: hard, soft, hard…, precision, prudence, UWR discipline

Underwriting Discipline (causes, drivers, consequences, monitoring), adequate technical price and reserves, tailor made solution for the client

Capital Allocation (risk culture is changing, cost of capital)

Profitability (profit oriented underwriting, Short and Long Tail Business)

Get back to basis (RISK)… risks carriers are under the pressure

1. The position of Reinsurance Market in the Global Village of Changes

Source: Sigma No 3 /2009

- Overall losses: USD 258 bn

- Insured losses: USD 44,7 bn (17%)

Swiss Re, Sigma No 2/2009

NAT CAT - YEAR 2008 IN FIGURES / WORLDWIDE

1. The position of Reinsurance Market in the Global Village of Changes

NAT CAT - YEAR 2008 IN FIGURES / WORLDWIDE THE 10 LARGEST NAT CAT IN 2008

Ranking by overall losses

Swiss Re, Sigma No 2/2009

Date Country/Region Event VictimsInsured loss in

USD m

6.9.2008 UA, Caribbean Hurricane Ike 136 20.00026.8.2008 US, Caribbean Hurricane Gustav 135 4.00022.5.2008 US Tornadoes, storms 7 1.32529.2.2008 Europe Winter storm Emma 15 1.32110.1.2008 China Snow storms 130 1.30029.5.2008 US Thunderstorms / 1.10029.5.2008 Europe Storm Hilal 4 9735.2.2008 US Tornadoes, storms 56 9559.4.2008 US Storms, hail / 8004.1.2008 US Winter storm 12 745

1. The position of Reinsurance Market in the Global Village of Changes

2. Slovenia – Macroeconomic Facts

MACROECONOMIC FACTS Estimate 2009

2008

GDP

GDP, real growth rate -4,0% 3,5%

GDP per capita (EUR) 18.015 18.204

UNEMPLOYMENT

Unemployment rate (standardized by ILO defin., average)

6,0% 4,4%

INTERNATIONAL TRADE

Exports of goods and services, real growth rate -8,6% 3,3%

Imports of goods and services, real growth rate -10,3% 3,5%

INFLATION

Consumer prices annual average growth rate 0,4% 5,7%

Member of the EU

since 2004

Eurozone Currency

since 2007

Sovereign Credit Rating AA

Source: Statistical Insurance Bulletin, UMAR, Ekonomsko ogledalo, May 2009

3. Development of the Slovenian (Re)insurance Market

2008 2007

Number of companies 18 18

Number of reinsurance companies 2 2

Number of insurance companies 16 16

Gross insurance premium (000 EUR) 2.018.960 1.893.980

Non-life insurance premium (000 EUR) 1.376.307 1.284.714

Life insurance premium (000 EUR) 642.653 609.266

Gross reinsurance premium (000 EUR) 241.738 206.165

Slovenian Reinsurance Market

(000 EUR) Premiums Claims Loss ratios

Total Life Non-life Total Life Non-life Total Life Non-life

2002 126.451 1.047 125.404 64.657 728 63.929 51,1% 69,6% 51,0%

2003 140.894 1.007 139.887 73.459 567 72.892 52,1% 56,6% 52,1%

2004 148.905 953 147.952 81.805 241 81.564 54,9% 25,4% 55,1%

2005 161.361 1.007 160.354 78.671 222 78.449 48,8% 22,0% 48,9%

2006 180.619 642 179.977 101.767 252 101.515 56,3% 39,3% 56,4%

2007 206.165 704 205.461 115.181 302 114.879 55,9% 42,9% 55,9%

2008 241.738 724 241.014 200.375 162 200.213 82,9% 22,4% 83,1%

Market Shares Sava Re Triglav Re

2002 58,63% 41,37%

2003 55,65% 44,35%

2004 59,82% 40,18%

2005 57,07% 42,93%

2006 57,53% 42,47%

2007 57,50% 42,50%

2008 55,74% 44,26%

00

0 E

UR

Source: Statistical Insurance Bulletin

3. Development of the Slovenian (Re)insurance Market

Solvency IIAppropriate Governance Structure

Measure the Performance and Financial Security

Balance Liabilities with Assets

Emerging Risks – evaluation

E.R.M. – Enterprise Risk Management is learning process…

Mission – Vision – Goals – Strategy – Operation in Mission – Vision – Goals – Strategy – Operation in PracticePractice

KEY words: KEY words: transparency, clear communication, discipline, transparency, clear communication, discipline, controlcontrol

4. The future challenges from our Slovenian Perspective

Rating Agencies

Dynamic Financial Analysis Internal models

Diversification

Global Warming and Climate Change

WHY?WHO?

WHERE?WHAT?HOW?

WHY?WHO?

WHERE?WHAT?HOW?

- To be RISK Aware we must question the ANSWERS - Understanding and managing RISKS on the Global and Local Level

4. The future challenges from our Slovenian Perspective

TheoryTheory PracticePractice

Knowledge and Experience

INSURANCE RISKS

MARKET RISKS

Risk Management Culture?OPERATIONAL RISKS

4. The future challenges from our Slovenian Perspective

CREDIT RISKS

“WIND, HAIL, FLOOD” EVENTS IN SLOVENIA IN 2008

Frequency + Severity + Lines of Business = COMBINATION?Frequency + Severity + Lines of Business = COMBINATION?

• Dates of first event: 13.-14. July 2008• Insured market loss: EUR 48m (motor casco: EUR 15m, property : EUR 24m, crops: EUR 9m)

• Dates of second event: 8.-9. August 2008

• Insured market loss: EUR 18m (motor casco: EUR 13m, property: EUR 5m)

• Dates of third event: 15.-16. August 2008• Insured market loss: EUR 86m (motor casco: EUR 14m, property: EUR 67m, crops: EUR 5m)

• Total insured market loss (est.): EUR 152m

(motor casco: EUR 42m, property : EUR 96m, crops EUR 14m)

16. Dnevi Slovenskega zavarovalništva,

4. in 5 junij, 2008, Portorož

4. The future challenges from our Slovenian Perspective

HAIL, AGAIN? WHEN AND HOW STRONG?

KEY WORDS: BE CLOSE TO RISKS

Risk

The combination of the likelihood and impact of an event, which has an influence on achieving

organization's objectives

Assessment

Determining the likelihood and potential

severity of identified risks.

Determining the validity of established controls

Regulation

Binding or non-binding restrictions enforced by governments or other

regulatory bodies

E.R.M.

Integrated framework for managing organization-

wide risks in order to maximize organization’s

value

Compliance

Systems to ensure that organizations are aware and comply with relevant

laws and regulationsControls

Specific set of policies, procedures and activities designed to monitor and

mitigate risks

Audit

An independent, objective assurance and

consulting activity designed to help

organizations accomplish objectives

by bringing a systematic, disciplined approach to evaluate

and improve the effectiveness of risk

management, control, and governance

processes.

4. The future challenges from our Slovenian Perspective

“WHAT IF” SCENARIOS – be ready to pay the future claims

“REALITY IS ALWAYS WIDER THAN ANY DOCTRINE”

Source:Bakouinine

Tashkent, April 2010

THANK YOU FOR YOUR TIME!