2016 Insurance Market Briefing - France
Hôtel Napoléon
27 April 2016
2016 Insurance Market Briefing - France
2016 Insurance Market Briefing - France 27 April 2016 2
Welcome
Nick Charteris-Black Managing Director, Market Development – EMEA
William Mills
Director, Market Development
Agenda
2016 Insurance Market Briefing - France 27 April 2016 3
14:10 Guest Presentation: Risk Appetite & Strategy in (Re)insurance Philippe Trainar, Group Chief Economist, SCOR SE
14:50 Natural Catastrophe Schemes in Europe Charlotte Vigier, Senior Financial Analyst
15:20
15:40 Global Reinsurance Market Trends Ghislain Le Cam, Associate Director, Analytics
16:10 Mock Rating Committee & Vote Greg Carter, Managing Director, Analytics
Alex Rafferty, Financial Analyst
plus other Committee Members
17:00
Disclaimer
2016 Insurance Market Briefing - France 27 April 2016 4
© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB’s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.
Disclaimer
2016 Insurance Market Briefing - France 27 April 2016 5
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in the sales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating, or developing or approving procedures or methodologies used for determining the credit rating.
No part of this presentation amounts to sales / marketing activity and A.M. Best’s Rating Division employees are prohibited from participating in commercial discussions.
Any queries of a commercial nature should be directed to A.M. Best’s Market Development function.
Appétence au Risque et Stratégie en (Ré)Assurance
Philippe Trainar
Senior Global Advisor to the Chairman – SCOR group Conférence AM BEST 27 Avril 2016, Paris
7
On peut penser que l’Appétence au Risque est un sujet de régulateur plus que de managers, car les managers auraient une appétence au risque comme Monsieur Jourdain fait de la prose… Mais cela n’est que partiellement vrai car les managers ne peuvent faire un usage cohérent de leur appétence au risque s’ils n’en ont pas une conscience claire et c’est à cette clarification que vise la définition de l’Appétence au Risque et sa mise en œuvre cohérente.
1. Qu’est-ce que l’Appétence au Risque : définition de l’appétence au risque d’une compagnie de (ré)assurance
2. La mise en œuvre de l’appétence au risque : le protection du capital et le profil de risque
3. Le pilotage de long terme de l’Appétence au Risque
4. Le pilotage annuel de l’Appétence au Risque
5. Le pilotage infra-annuel de l’Appétence au Risque
6. La contribution de la discussion avec les régulateurs et les agences de notation à la définition de l’appétence au risque
INTRODUCTION
8
L’Appétence au Risque est à la base de la stratégie d’une compagnie et son ADN
L’Appétence au Risque se distingue de l’Enterprise Risk Management
Toute compagnie de (ré)assurance a une Appétence au Risque qui définit les risques qu’elle souhaite
souscrire ou investir
L’ERM définit les mécanismes de gestion qui assure l’alignement du profil de risque de la compagnie
avec son appétence au risque
L’Appétence au Risque définit l’équilibre recherché par la compagnie entre:
Les couvertures offertes aux clients avec quel niveau de sécurité, mesuré en termes de notation et
de niveau de capital
La protection offerte aux détenteurs du capital que ce soit des actionnaires, des investisseurs en
dette subordonnée ou des sociétaires, en termes d’immunisation du capital par rapport aux chocs et
de rendement du capital
Les garanties offertes aux « stakeholders », au premier rang desquels les superviseurs et leur(s)
exigence(s) de marge se solvabilité minimum
1. Qu’est-ce que l’Appétence au Risque : définition de l’appétence au risque d’une compagnie de (ré)assurance (1)
9
L’appétence au risque se décline à 3 niveaux :
…
1. Qu’est-ce que l’Appétence au Risque : définition de l’appétence au risque d’une compagnie de (ré)assurance (2)
Niveaux de l’appétence au
risque Définition de l’appétence au risque
• Quels risques recherche-t-on dans le spectre fréquence / sévérité ? Avec quelle niveau de diversité et diversification ? En fonction de quelle connaissance de ces risques ?
Appétit au risque
• Quelles sont les risques que l’on recherche pour eux-mêmes et pourquoi : B to B et / ou B to C ? Financiers et / ou Réels ? Non-vie et / ou vie ? Sélectifs et / ou diversifiés ?
Préférence en matière de risque
• La tolérance au risque définit les limites qui permettent d’aligner le profil de risque sur l’appétit et la préférence définis ci-dessus. 4 grands types de limites doivent être définies : • L’objectif de ratio de solvabilité qui est fonction de la
métrique du SCR (modèle interne ou formule standard) • Les limites par facteur de risque (couple fréquence sévérité) • Les limites par scénario extrême (sévérité acceptée) • Les limites par risque souscrit ou investi (guidelines)
Tolérance au risque
10
L’Appétit au Risque de SCOR (plan stratégique)
“Optimal Dynamics”
Risk appetite
A mid-level risk profile (after hedging) with a focus on the belly of the risk distribution, avoiding exposure to extreme tail events, but aligned with the increased size, diversification and capital base of the Group
Volatility is controlled through diversification and Capital Shield Strategy
Risk preferences
Business focus on selected reinsurance risks
Most mainstream insurance risks covered in Life and P&C, with a recalibration reflected in an increase in longevity risk and a slight increase in Nat Cat risk
Low appetite for interest rate risk (at least in the short term) and no appetite for operational risk, clients’ asset risk, financial D&O1), GMDB2) new business
Risk tolerances
Solvency target Capitalization level SCR, Buffer capital and flexible solvency target driving a process of gradual escalation and management responses
System of limits
Risk drivers (probabilistic) Post-tax net 1:200 annual aggregate loss for each risk driver ≤ 20% Available Capital
Extreme scenarios (probabilistic) Post-tax net 1:200 annual per-event loss for each risk ≤ 35% Buffer Capital
Limits per risk in the underwriting and investment guidelines
Footprint scenarios Impact assessment of past events (deterministic)
1) Directors and Officers liability insurance 2) Guaranteed Minimum Death Benefit
Source: Présentation Investor Day de SCOR (Septembre 2015)
11
Le système de limites de SCOR par rapport aux scénarios extrêmes et aux facteurs de risque
Overview of 2015 risk exposures 1)
Limits and exposures for a 1-in-200 year annual probability in € millions
Risk Exposure Limit
Extreme scenarios
Major fraud in largest C&S exposure ~190
720
US earthquake ~460 US/Caribbean wind ~650 EU wind ~300 Japan earthquake ~180 Terrorist attack ~160
Risk driver Extreme global pandemic(s) ~1 000 1 570 SCOR’s system of limits is designed to ensure that the Group’s annual exposure to each major risk is controlled and to avoid the Group’s
overexposure to one single event
All exposures above are net of current hedging / retrocession / mitigation instruments, with an allowance for tax credit
For extreme global pandemics, the exposure includes the P&C and asset exposures as well as the mitigation effects of the Atlas IX mortality bond and the contingent capital facility
1) The exposures are based on the GIM V-2014 model prior to changes for SII
Source: Présentation Investor Day de SCOR (Septembre 2015)
12
Les sociétaires, pas plus que les actionnaires, ne sont les réassureurs de la compagnie
Le capital ne constitue pas qu’une protection pour les assurés
La couverture des exigences en capital conditionne l’activité d’assurance
La levée de capital est difficile (actions), coûteuses (dette) et longue (profit accumulé)
La capital doit être protégé dans la perspective de continuité d’activité
Cette protection est rendue nécessaire par le fait que les sociétaires ne sont pas les réassureurs de
la compagnie et que le capital conditionne les opérations d’assurance
La stratégie de protection du capital repose sur 5 lignes potentielles de défense :
1. La sélection des risques, leur diversification et leur tarification
2. La réassurance traditionnelle
3. La réassurance non-traditionnelle et le transferts alternatif de risque
4. Les différentes formes de capital contingent (pas disponibles pour les mutuelles)
5. La capital sous toutes ses formes (profits accumulés, dette subordonnée, augmentation des tarifs
en cours de contrat…)
2. La mise en œuvre de l’appétence au risque : le protection du capital et le profil de risque (1)
Le profil de risque d’une compagnie se résume par la courbe fréquence / sévérité des gains et pertes potentielles de la compagnie
Cette courbe est aisée à tracer avec un modèle interne… elle doit être inférée par des méthodes plus synthétiques lorsque l’on utilise la formule standard
La stratégie de protection du capital (combinaison de la réassurance proportionnelle et non-proportionnelle) permet de piloter finement le profil de risque et son adéquation à l’appétence au risque
Cette adéquation doit être contrôlée à intervalles réguliers aussi rapprochés que possible
2. La mise en œuvre de l’appétence au risque : le protection du capital et le profil de risque (2) Le profil de risque : la courbe fréquence /
sévérité des gains et pertes
Un profil de risque élevé conduit à un écart accru de profitabilité (gains et pertes) entre les scenarios favorables et adverses
La courbe bleue correspond à un profil de risque plus élevé et la courbe rouge à un profil de risque, la courbe jaune étant intermédiaire
13
Optimal Range
SCOR’s GIM V-2015 solvency ratio at ~204% reflects the Group’s financial strength and risk distribution is largely unchanged
Economic sensitivities Solvency ratio with GIM V-2015
GIM V-2015
~204
GIM V-2015
Available capital (AC) €7.8 bn
Solvency Capital Requirement (SCR) €3.8 bn
220%
185%
1) The 2015 solvency ratio is available capital at year-end 2014 divided by SCR as of that date, allowing for planned business in 2015
Shape of risk distribution is virtually stable
-8000
-6000
-4000
-2000
0
2000
4000
1 10 100 1000
Cha
nge
in e
cono
mic
val
ue,
in €
mill
ions
Return Period in Years (logarithmic)
GIM V-2014 GIM V-2015
1 in 200 year
€3.8bn
Example: 1:200 year change in economic value = 99.5 VaR = €3.8bn
The increased conservatism is reflected in the deformation of the curve, especially in the tail of the distribution
Le profil de risque de SCOR (plan stratégique)
Source: Présentation Investor Day de SCOR (Septembre 2015) 14
Ce pilotage prend corps dans la politique de gestion des risques
Cette politique relève de la compétence du conseil. Elle doit être : approuvée par lui
revue chaque année afin de vérifier son adéquation à l’exposition aux risques
revue à l’occasion du nouveau stratégique pour vérifier son adéquation à l’appétence au risque et
au nouveau profil de risque
Cette politique doit être suffisamment précise et doit définir : La métrique du ratio de solvabilité (Solvabilité 2 en Europe avec le choix entre le recours à un
modèle interne ou à la formule standard)
La liste des limites, par facteurs et par scénario extrême, à mettre en place ainsi que leur
métrique (couple fréquence / sévérité)
La répartition des responsabilité en matière de :
définition de l’appétence au risque
contrôle de sa mise en œuvre de cette appétence
reporting, notamment au comité de direction et au conseil
15
3. Le pilotage de long terme de l’Appétence au Risque
Contenu de la politique de gestion des risques de SCOR
16
17
Le pilotage annuel peut se faire dans le cadre du reporting prévu par Solvabilité 2
4. Le pilotage annuel de l’Appétence au Risque
Il s’inscrit alors dans le cadre du pilier 2 de solvabilité 2 qui semble suffisant par rapport aux besoins qui sont ceux d’un pilotage pertinent de l’appétence au risque
L’ORSA vise à apprécier l’exposition de la compagnie aux risques et l’adéquation de le couverture offerte par son capital à l’horizon du rapport. Il se confond normalement avec le rapport de la fonction gestion des risques, rédigé par le CRO. Il comporte : une appréciation prospective de la solvabilité de la compagnie et de la l’adéquation de
l’appétence au risque et du profil de risque qui en découle une appréciation de la pertinence des métriques retenues par rapport au profil de risque de la
compagnie, notamment de la pertinence de la formule standard une démonstration du respect des exigences règlementaire de solvabilité par le profil de risque
prospectif, avec une probabilité suffisante
Le rapport de la fonction actuarielle, rédigé par le chef-actuaire, doit contenir : une opinion sur la politique de souscription et son adéquation à l’Appétence au risque de
compagnie une opinion sur la pertinence des accords de réassurance… au regard de l’appétit au risque de la
compagnie
Le plan de souscription, d’investissement et de réassurance pour l’année suivante dont la pertinence au regard du profil de risque doit être systématiquement contrôlée
18
Contenu de l’ORSA 2014 de SCOR
19
Le pilotage de l’exposition nette oblige à un pilotage intra-annuel de la réassurance
Le suivi du respect de l’Appétence au Risque doit être régulier Tout dépassement de l’appétence au risque (limites) et toute modification imprévue du profil de
risque doit être immédiatement rapporté au comité de direction
Un « risk dashboard » trimestriel ou sinon semestriel doit si possible être présenté
Le suivi du respect de l’Appétence au risque est lié à la gestion de la solvabilité Tout dépassement de l’appétence au risque (limites) et toute modification imprévue du profil de
risque qui entraîne une déviation significative du SCR doit être rapporté au comité de direction puis
au conseil d’administration, surtout s’il persiste
Dans la stratégie de retour à la normale après une déviation significative de la solvabilité,
l’ajustement du profil de risque et de l’Appétence au Risque vient en premier, avant l’ajustement de la
réassurance
Il est souhaitable que cette stratégie de retour à la normale puisse s’inscrire dans un cadre préétabli
qui a clairement précisé les responsabilités et les moyens à mettre en œuvre pour restaurer
l’adéquation entre le profil de risque et l’Appétence au Risque
5. Le pilotage infra-annuel de l’Appétence au Risque
20
Le suivi infra-annuel du profil de risque et de son adéquation à l’Appétence au Risque : le GRM Dashboard de SCOR
21
La gestion des déviations : l’Echelle de Solvabilité de SCOR An escalation process is planned depending
on the level of available capital
The optimal capital range enables the Group to achieve maximum profitability and satisfy the level of solvency which SCOR targets to offer its clients
The probability of being in the optimal or comfort ranges is ~50.5% (53.8% - 3.3%)
The threshold capital (SCR + Buffer) is the threshold minimum amount of capital determined by management
SCOR aims to avoid over and under capitalization, bearing in mind that the upper part of the scale is easier to manage than the lower part
GR
OU
P SC
R
Ale
rt
Sub-
O
ptim
al C
omfo
rt
Ove
r ca
pita
lised
Su
b-O
ptim
al
Opt
imal
1.7 buffers ~185% SR2)
100% SR2)
1 buffer ~150% SR2)
4 buffers = Max buffer ~300% SR2)
2.4 buffers ~220% SR2)
Starting Point 2013
SR2)
=221%
Action Escalation level
Redeploy capital Board/ AGM
Fine-tune underwriting and investment strategy
Executive Committee
Re-orient underwriting and investment strategy towards optimal area
Executive Committee
Restructure use of capital Board/ AGM
Restore capital position Board/ AGM
Below minimum range - submission of a recovery plan to the supervisor3)
Board/ AGM
Threshold capital
1/2 buffer = Min buffer ~125% SR2)
Probability of the 2014 SR1)
15.8%
53.8%
3.3%
0.5%
1.2%
99.6%
Source: Présentation Investor Day de SCOR (Septembre 2015)
22
6. La contribution de la discussion avec les régulateurs et les agences de notation à la définition de l’appétence au risque
L’appétit au risque s’inscrit dans la gestion des risques qui est un critère spécifique de l’évaluation du rating et de la solvabilité des compagnies de (ré)assurance
Les discussions avec les régulateurs s’inscrivent dans un cadre légal qui utilise une grille d’analyse bien connue et qui peut constituer une référence pour de nombreuses compagnies
La discussion avec les agences de notation est importante car elle permet au top management de bénéficier d’une vision extérieure et de marché de sa gestion du risque
Extrait de la nouvelle méthodologie AM BEST de notation des compagnies de (ré)assurance
(publiée pour un appel à commentaire le 10 mars 2016): L’Enterprise Risk Management est un critère pouvant influer de plusieurs crans
sur le rating final de la compagnie d’assurance
23
Par définition une compagnie de (ré)assurance souhaite prendre certains risques, sachant qu’il y a d’autres risques
qu’elle ne peut éviter mais qu’elle ne recherche pas
L’Appétence au Risque est au cœur de la vie d’une compagnie: toute compagnie de (ré)assurance a une Appétence
au Risque, qu’elle en soit consciente ou non, mais sa définition claire permet d’en assurer une mise en œuvre
cohérente
L’importance de l’Appétence au Risque vient de ce qu’elle se situe à l’articulation entre la stratégie et le risk
management, en fait à leur origine commune
La définition de l’Appétence au Risque vise à se conformer non à une appétence imposée, qui serait celle des
superviseurs, mais à l’appétence qui est celle de la compagnie elle-même
Une bonne organisation repose sur :
une Appétence au Risque claire et partagée par l’ensemble du management
un profil de risque qui s’établisse en conformité avec l’Appétence au Risque de la compagnie
un suivi régulier de l’adéquation entre profil de risque et Appétence au Risque
une prédéfinition des actions correctrices en cas de déviation, surtout si celle-ci induit une déviation significative
de la solvabilité
CONCLUSION
2016 Insurance Market Briefing - France
2016 Insurance Market Briefing - France 27 April 2016 24
Charlotte Vigier Senior Financial Analyst
The Value of Natural Catastrophe Schemes in Europe
Nat Cat up on the agenda
2016 Insurance Market Briefing - France 27 April 2016 25
Climate change (flood and
windstorm risks)
Pressures - fiscal budgets The State - shrinking role
Increased urbanisation Exposure concentration
The Insurance Gap
2016 Insurance Market Briefing - France 27 April 2016 26
Date Event Location Deaths
Economic Loss (USD bn)
Insured Loss (USD bn)
Dec. 22-31 Flooding United Kingdom N/A 2 .5 1 .3
Mar. 29-Apr. 1 Windstorms Mike and Niklas Western and Central Europe
9 1.4 1.0
Oct.3-4 Flooding France 19 1.3 0.7
Jul.-Dec. Drought South Africa N/A 2.0 0.3
Jan. 9-11 Windstorms Elon and Felix Western and Northern Europe N/A 0.7 0.4
Source: Aon Benfield, 2015 Annual Global Climate and Catastrophe Report
Need for public / private partnership
2016 Insurance Market Briefing - France 27 April 2016 27
Prevention Mitigation
Risk transfer Recovery
State Infrastructure
Education Assistance
Re-construction Compulsion
Subsidies Guarantees
Private Sector
Risk pricing Deductibles
Exclusion
Claims payment Technical assistance
Technical expertise Risk modelling
Operational support
Challenges that Nat Cat schemes face
2016 Insurance Market Briefing - France 27 April 2016 28
Anti-selection Competition
High penetration? Bundling
State Guarantee?
Private or Public
Flat Pricing? Coverage
Compulsion?
Preparedness in Europe
2016 Insurance Market Briefing - France 27 April 2016 29
Flood Earthquake • Nat Cat Schemes: NDCS/CCR (France), CCS (Spain), Flood Re (UK)
• Spain: high penetration, tempered by inclusion of motor lines (flood)
• Germany: low penetration household insurance (flood)
• Italy: low penetration in general, high exposure to earthquake 50
90
90 90
30
30 5 50
90
90 90
18
5 5
5 90
Source: European Union Commission
France – Natural Disasters Compensation Scheme / CCR
2016 Insurance Market Briefing - France 27 April 2016 30
Spain – Consorcio de Compensacion de Seguros
2016 Insurance Market Briefing - France 27 April 2016 31
UK – Flood Re
2016 Insurance Market Briefing - France 27 April 2016 32
Germany
2016 Insurance Market Briefing - France 27 April 2016 33
• Main perils flood and windstorms • Increased awareness due to flood and hailstorm losses
in 2013 • Availability vs affordability • High penetration on basic policies (excl nat cat) • 99% of nat cat risks insurable, but only 35%
penetration on flood for households • Key difference with other markets: optionality • Recent experience reliant on post-event assistance
from local governments
Overview
Italy
2016 Insurance Market Briefing - France 27 April 2016 34
• Main risks: earthquake and flood • Low penetration rates in household insurance (< 40%) • Earthquake losses:
• L’Aquila (2009): € 10bn economic losses vs € 250m insurance claims
• Emilia Romagna (2012): € 12bn economic losses vs € 1bn insurance claims
• Discussions between ANIA and the government: • Increasing penetration rates. Compulsion (?) • Reduction or elimination of rates on premiums. • State guarantee
Overview
Conclusions
2016 Insurance Market Briefing - France 27 April 2016 35
• Prevalence of flood risks in most countries (earthquake in Italy)
• Increased awareness due to climate change
• No “one size fits all” solution • Need for public/private partnership
initiatives • High penetration as a requirement, not
a consequence
• Nat cat schemes are a complement, not a substitute to the private sector
• Incentives and restrictions to limit adverse selection are key
• Need for a solid technical framework that ensures the long term financial viability of the model
2016 Insurance Market Briefing - France
2016 Insurance Market Briefing - France 27 April 2016 36
Charlotte Vigier Senior Financial Analyst
Q&A
2016 Insurance Market Briefing - France
2016 Insurance Market Briefing - France 27 April 2016 37
Ghislain Le Cam Associate Director, Analytics
Global Reinsurance Market Trends
Discussion Outline
2016 Insurance Market Briefing - France 27 April 2016 38
Global Economic Conditions
Global Reinsurance Results and Trends
The Merger and Acquisition Phase
Challenges and Impact of Alternative Capital
2016 Outlook
Global Reinsurance
2016 Insurance Market Briefing - France 27 April 2016 39
Global Economic Conditions
Global GDP Growth
2016 Insurance Market Briefing - France 27 April 2016 40
-4
-2
0
2
4
6
8
10
1990 1995 2000 2005 2010 2015 2020
World GDP Growth Advanced Economies Emerging & Developing Economies
%
Source: International Monetary Fund
Interest Rate Environment
2016 Insurance Market Briefing - France 27 April 2016 41
0
1
2
3
4
5
6
7
2000 2005 2010 2015
%
US Japan
UK Germany
Source: OECD, Bank of Japan and Federal Reserve
Worldwide Market Share
2016 Insurance Market Briefing - France 27 April 2016 42
39%
31%
21%
5% 3% 1% North America
Western Europe
Asia/Oceania
Latin America andCaribbean
Central & EasternEurope
AfricaSource: Swiss Re sigma No4/2015
Total Global Non-Life
Premiums approximately USD 2.0 trillion
Global Reinsurance
2016 Insurance Market Briefing - France 27 April 2016 43
Global Reinsurance Results and
Trends
2015 Stock Price Change
2016 Insurance Market Briefing - France 27 April 2016 44
-55
-45
-35
-25
-15
-5
5
15
25
35
%
Through December 31, 2015 YTD Price Change Avg Chg Reinsurer YTD S&P 500 Chg
Source: Bloomberg, Yahoo, company websites
Underwriting Profitability
2016 Insurance Market Briefing - France 27 April 2016 45
63.8% 76.1%
60.7% 56.4% 56.4% 56.2% 62.7%
31.6%
31.3%
31.3% 32.2% 33.1% 34.2% 31.9%
95.4%
107.4%
92.0% 88.6% 89.5% 90.4% 94.6%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0%
20%
40%
60%
80%
100%
120%
2010 2011 2012 2013 2014 2015 5yr Avg
Loss Ratio Expense Ratio Fav. Loss Dev.
Operating Returns
2016 Insurance Market Briefing - France 27 April 2016 46
10.6%
2.5%
12.1%
13.1%
11.4%
9.5%
0%
2%
4%
6%
8%
10%
12%
14%
2010 2011 2012 2013 2014 2015
ROE 5yr Avg
Current Market Conditions
2016 Insurance Market Briefing - France 27 April 2016 47
It’s a “buyer’s market”
Primary companies retaining
more
Increased use of alternative
capacity
Terms and conditions broadened
Rate on line under
pressure – especially loss-free business
Industry consolidation is creating a ripple effect
Catastrophe Rates
2016 Insurance Market Briefing - France 27 April 2016 48
Global Reinsurance – Catastrophe Rate on Line Index
0%
50%
100%
150%
200%
250%
300%
350%
400% US Asia - Pacific UK Europe
9/11 Attacks KRW*
IKE Japan EQ
Andrew Sandy
Source: AM Best Research, Guy Carpenter & Co LLC * Hurricanes Katrina, Rita & Wilma
Reinsurance Capacity Utilization
2016 Insurance Market Briefing - France 27 April 2016 49
Source: A.M. Best research and data
81% 76%
73%
50
60
70
80
90
100
2012 2013 2014
%
Capacity Utilization Based on Aggregate Risk-Adjusted Capitalization of Rated Balance Sheets
2015 Capital Management
2016 Insurance Market Briefing - France 27 April 2016 50
0
500
1,000
1,500
2,000
2,500
3,000
3,500
(USD
mill
ions
)
2015 Share Repurchases & Dividends Paid
Dividends Share Repurchases
Source: Company reports
Global Reinsurance
2016 Insurance Market Briefing - France 27 April 2016 51
The M&A Phase
The Base Case for M&A
2016 Insurance Market Briefing - France 27 April 2016 52
Broader product capability
Broader geographic reach
Greater influence with brokers and
cedants
Greater attractiveness to
third-party capital
M&A
Most M&A deals in the current reinsurance market are focused on one, if not all, of these four categories
The Drive for Efficiency
2016 Insurance Market Briefing - France 27 April 2016 53
The market will continue to
become more efficient as
all players strive to become
closer to the client
Note: AOCI is defined as Accumulated Other Comprehensive Income Source: A.M. Best data and research, Bloomberg, company reports
Reinsurers Price-to-Book Value as of Year End 2015
2016 Insurance Market Briefing - France 27 April 2016 54
40
60
80
100
120
140
160
180
200
220
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Pric
e/Bo
ok V
alue
Average
Current P/BV: 1.10x Average 1993-Present: 1.16x
Low Reached March 2009 (0.75x BV)
Peak reached February 2002 (1.83x BV)
1.0x P/BV
Excluding accumulated other comprehensive income
Increase in M&A Deals
2016 Insurance Market Briefing - France 27 April 2016 55
Date Announced Acquirer Location Target Location Price
(USD million) Price to
Book Value
23-Jun-14 Validus Bermuda Western World Insurance USA 690 1.33x
22-Aug-14 Allied World Bermuda Hong Kong operation of RSA Hong Kong 215 NA
24-Nov-14 RenRe Bermuda Platinum Underwriters Bermuda 1,900 1.12x¹ 09-Jan-15 XL Group Ireland Catlin Group Limited Bermuda 4,100 1.27x¹ 17-Feb-15 Fairfax Canada Brit London 1,880 1.73x 31-Mar-15 Endurance Bermuda Montpelier Re Bermuda 1,830 1.21x
03-May-15 Fosun International Ltd China Ironshore Bermuda 2,304 1.2x
01-Jul-15 ACE Switzerland Chubb US 28,300 1.83x
27-Jul-15 CM International Holding PTE Ltd China Sirius International Insurance
Group, Ltd Bermuda 2,235 NA
03-Aug-15 EXOR Italy PartnerRe Bermuda 6,900 1.19x 08-Sep-15 Mitsui Sumitomo Japan Amlin London 5,334 2.4x
Notes: ¹ Book Value = Assets - intangibles - liabilities Source: A.M. Best data and research, Bloomberg and company reports
Global Reinsurance
2016 Insurance Market Briefing - France 27 April 2016 56
Challenges and Impact of
Alternative Capital
Alternative Capital
2016 Insurance Market Briefing - France 27 April 2016 57
Market still heavily influenced
by global leaders –
that won’t change anytime soon
Cultural issues no longer
limiting M&A – it is happening
Alternative capacity is driving change
Alternative capital is driving a great deal of structural change in the market
However, do not lose sight of the fact that the market continues to be heavily influenced by the global reinsurance leaders
Dedicated Reinsurance Capacity
2016 Insurance Market Briefing - France 27 April 2016 58
Total Dedicated Reinsurance Capacity (USD billions)
292 320 340 332
19 48
60 68
0
50
100
150
200
250
300
350
400
450
2012 2013 2014 2015E*Traditional Capacity Convergence Capacity
Note: * Estimate by Guy Carpenter and A.M. Best Source: A.M. Best, Guy Carpenter
CAT Bond Issuances
2016 Insurance Market Briefing - France 27 April 2016 59
CAT Bonds Issued and Outstanding
0
4
8
12
16
20
24
28
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
(USD
bill
ions
)
CAT Bonds OutstandingSource: A.M. Best, Artemis
Convergence Products
2016 Insurance Market Briefing - France 27 April 2016 60
Basis Risk – The risk that a convergence instrument may not fully trigger when the sponsor suffers a loss
Tail Risk – The risk borne by a sponsor if an entity to which it cedes business is insufficiently capitalised
Credit, Default and Recovery Risk – Transactions that involve payment obligations from third parties
Investment Performance Risk – For transactions that rely on investment earnings and return on investments
Structuring Risk – Transactions involving securitizations where cash flows are an essential source of investor repayment
Modelling Risk – Transaction where modelling performed by third-party consulting firms
Risks associated with convergence products
Global Reinsurance
2016 Insurance Market Briefing - France 27 April 2016 61
Reinsurance Rating Outlook
Today’s Reinsurance Market…
2016 Insurance Market Briefing - France 27 April 2016 62
Negative Outlook
Increased client
retentions
Excess capacity
Convergence capital
Benign cat losses
Questionable underwriting
discipline
Declining reserve
redundancies
Low investment
yields
2016 Insurance Market Briefing - France
2016 Insurance Market Briefing - France 27 April 2016 63
Ghislain Le Cam Associate Director, Analytics
Q&A
Conférence d'A.M. Best sur le marché de l'assurance 2016
Conférence d'A.M. Best sur le marché de l'assurance 2016 27 April 2016 64
Mock Rating Committee & Vote Alex Rafferty
Financial Analyst
Carlos Wong-Fupuy Senior Director
Ghislain Le Cam Associate Director, Analytics
Charlotte Vigier Senior Financial Analyst
Greg Carter Managing Director, Analytics
• A.M. Best rating actions determined by a Rating Committee
• Rating actions include: – affirmations – upgrades and downgrades – initial ratings – placement of ratings under
review
• Responsible analyst produces rating package and proposes rating action
• Rating Committee deliberates on the proposed action and determines the rating action
Mock Rating Committee and Vote Introduction
Conférence d'A.M. Best sur le marché de l'assurance 2016 65 27 April 2016
• Voting quorum – minimum of six members, including at least two senior members
• Voting order: – Responsible analyst and team
leader – All other members in reverse
order of seniority
• Simple majority vote is acceptable for the approval of any rating action
• Chair of the Rating Committee can break a tie or refer the decision to a higher committee
• Voting members must have no conflicts of interest, but must have relevant experience and have passed compliance requirements
Mock Rating Committee and Vote Voting
Conférence d'A.M. Best sur le marché de l'assurance 2016 66 27 April 2016
Mock Rating Committee and Vote Rating Process
Strong Operating Performance Builds Balance Sheet Strength
Weak Operating Performance Erodes Balance Sheet Strength
Date of last balance sheet
Present Future
Operating Performance and Business Profile Leading Indicators of the Future Balance Sheet
Bal
ance
She
et S
tren
gth
Time
BCAR Guideline Business Profile Drives Strong and Sustainable Operating Performance
Conférence d'A.M. Best sur le marché de l'assurance 2016 67 27 April 2016
Introduction BMF Insurance Company
• New rating for a subsidiary of an already rated group
• Recommendation: stand-alone assessment of ‘a’, stable outlook
ERM
Adequate
Good Business Profile
Stable Operating Performance
Solid Risk-Adjusted Capitalisation and
Balance Sheet Strength
Note: ERM = Enterprise Risk Management
Conférence d'A.M. Best sur le marché de l'assurance 2016 68 27 April 2016
Business Profile - BMF Insurance Company Overview
• Domiciled in a small European country
• Country Risk Tier 1 – stable operating environment
• BMF Insurance Company (BMF) established 70 years ago and is owned 100% by Windermere Insurance Group (UK) plc
• Good competitive position: – third-largest insurer in its country of domicile – in-depth knowledge and experience of the local market
Conférence d'A.M. Best sur le marché de l'assurance 2016 69 27 April 2016
• Well diversified insurance portfolio by line of business
Business Profile - BMF Insurance Company Business split
6% 5% 6%
34% 36% 37%
40% 38% 40%
11% 15% 11% 9% 6% 6%
0%10%20%30%40%50%60%70%80%90%
100%
2013 2014 2015
PA and Health Motor and Third-Party LiabilityFire and Property MarineMisc
Conférence d'A.M. Best sur le marché de l'assurance 2016 70 27 April 2016
• GWP increased by 11% during 2015, driven by increase in motor and property business
• High competition in local market
• Planned growth driven by higher volume and moderate rate increases
Business Profile - BMF Insurance Company Gross Written Premium (GWP) development
050
100150200250300350400450500
2011 2012 2013 2014 2015 2016e 2017eEU
R m
illio
ns
Gross Written Premium Net Written Premium
Conférence d'A.M. Best sur le marché de l'assurance 2016 71 27 April 2016
• Geographically concentrated, only writing local business
• Plans to open a branch in a neighbouring country in 2017 to diversify geographically
• Growth of 10 - 15% expected over each of the next three years, includes growth via new branch
• New branch represents execution risk
Business Profile - BMF Insurance Company Business plans
Conférence d'A.M. Best sur le marché de l'assurance 2016 72 27 April 2016
• Business profile supports the recommendation:
– Good market position, competitive advantage – Strong brand recognition – Diverse product offering – Offset by geographical concentration – Diversification via branch comes with execution risk
Business Profile - BMF Insurance Company Summary
Conférence d'A.M. Best sur le marché de l'assurance 2016 73 27 April 2016
• Strong risk-adjusted capitalisation, as measured by the BCAR model
• Risk-adjusted capitalisation is supported through: – Good internal capital generation – Conservative investment profile – Good credit quality of reinsurers
• Comfortably meets local solvency requirements
BCAR 2014 2015 2016e 2017e 2018e
Standard 180% 204% 185% 183% 185%
CAT Stress 172% 197% 178% 178% 180%
Market average 160% 167%
Balance Sheet Strength - BMF Insurance Company Capitalisation
Conférence d'A.M. Best sur le marché de l'assurance 2016 74 27 April 2016
• Historically: significant exposure to Peripheral European Sovereign Debt
• De-risked portfolio in 2015, leading to improvement in risk-adjusted capitalisation
Balance Sheet Strength - BMF Insurance Company Investments
42% 41%
62%
30% 28%
7%
20% 23% 21%
6% 4% 5%
0%10%20%30%40%50%60%70%80%90%
100%
2013 2014 2015
Fixed income Peripheral European Sovereign DebtPublic Equity Mutual fundsProperty
Conférence d'A.M. Best sur le marché de l'assurance 2016 75 27 April 2016
• Reserves are reviewed by an internal actuary quarterly and by an external actuary annually
• Small margin in held reserves over external actuaries best estimate
• Loss triangles for the past 10 years indicate stability
• Modest reserve releases in each of the past three years
Balance Sheet Strength - BMF Insurance Company Reserving
Conférence d'A.M. Best sur le marché de l'assurance 2016 76 27 April 2016
• Reinsurance includes both proportional and non-proportional arrangements
• 92% of reinsurers are rated “A-” or above
• Limited cat risk in local market, earthquake risk is borne by state reinsurer
Balance Sheet Strength - BMF Insurance Company Reinsurance
Conférence d'A.M. Best sur le marché de l'assurance 2016 77 27 April 2016
• Balance sheet strength is supportive of the recommended rating
• Solid risk-adjusted capitalisation
• Good internal capital generation to support planned growth
• Investment risk has reduced
• Stable reserve development
• Limited CAT risk
• Comprehensive reinsurance with high quality panel
Balance Sheet Strength - BMF Insurance Company Summary
Conférence d'A.M. Best sur le marché de l'assurance 2016 78 27 April 2016
• Good return on equity, averaging 12% over the last five years
Operating Performance - BMF Insurance Company Overall performance
16
-11
19 20 21 22 23
7
7
7 6 3 5 6
-2
2
4 2
-3
1 1
-15
-10
-5
0
5
10
15
20
25
30
35
2011 2012 2013 2014 2015 2016e 2017e
EUR
mill
ions
Technical profit Investment Income Fair Value gains
Conférence d'A.M. Best sur le marché de l'assurance 2016 79 27 April 2016
• Diverse product range has supported stable underwriting performance
• Combined ratios average 93% over the past five years
Operating Performance - BMF Insurance Company Underwriting
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014 2015
Loss
ratio
PA and Health Motor and Third-Party LiabilityFire and Property MarineMisc
Conférence d'A.M. Best sur le marché de l'assurance 2016 80 27 April 2016
2011 2012 2013 2014 2015 2016e 2017e
BMF Combined ratio 91% 105% 93% 94% 92% 93% 96%
Market average 92% 103% 95% 95% 94%
Operating Performance - BMF Insurance Company Underwriting
• Combined ratio better than market in last three years
• Expected to increase in 2017 due to higher expenses of new branch
Conférence d'A.M. Best sur le marché de l'assurance 2016 81 27 April 2016
• Investment yield reduced due to sale of high-risk assets
• Reinvestment rate reducing year on year – currently 2.5%
Operating Performance - BMF Insurance Company Investment income
2011
2012 2013
2014
2015 2016e
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
3.6%
3.8%Investment Yield
Conférence d'A.M. Best sur le marché de l'assurance 2016 82 27 April 2016
• Operating performance is supportive of the recommended rating
– Stable underwriting performance – Modest investment income reflective of low-risk strategy – Generally outperforms peers
Operating Performance - BMF Insurance Company Summary
Conférence d'A.M. Best sur le marché de l'assurance 2016 83 27 April 2016
Enterprise Risk Management BMF Insurance Company
Conférence d'A.M. Best sur le marché de l'assurance 2016 84 27 April 2016
Principal areas of focus – Risk Categories
• Product & Underwriting Risk
• Reserving Risk
• Concentration Risk
• Reinsurance Risk
• Financial Flexibility Risk
• Investment Risk
• Legislative/Regulatory/ Judicial/Economic Risk
• Management Risk
• Operational Risk
• Risk Appetite/Stress Testing
Enterprise Risk Management BMF Insurance Company
Conférence d'A.M. Best sur le marché de l'assurance 2016 85 27 April 2016
• Product & Underwriting Risk
• Reserving Risk
• Concentration Risk
• Reinsurance Risk
• Financial Flexibility Risk
• Investment Risk
• Legislative/Regulatory/ Judicial/Economic Risk
• Management Risk
• Operational Risk
• Risk Appetite/Stress Testing
Recommendation: a standalone assessment of ‘a’, stable outlook
Summary BMF Insurance Company
Supporting factors Offsetting factors Good business profile in local market Geographically concentrated
Well diversified by line of business Execution risk associated with planned expansion
Solid risk-adjusted capitalisation
Stable underwriting performance
Conférence d'A.M. Best sur le marché de l'assurance 2016 86 27 April 2016
• GWP increased by 11% during 2015, driven by increase in motor and property business
• High competition in local market
• Planned growth driven by higher volume and moderate rate increases
Business Profile - BMF Insurance Company Gross Written Premium (GWP) development
050
100150200250300350400450500
2011 2012 2013 2014 2015 2016e 2017eEU
R m
illio
ns
Gross Written Premium Net Written Premium
Conférence d'A.M. Best sur le marché de l'assurance 2016 87 27 April 2016
2011 2012 2013 2014 2015 2016e 2017e
BMF Combined ratio 91% 105% 93% 94% 92% 93% 96%
Market average 92% 103% 95% 95% 94%
Operating Performance - BMF Insurance Company Underwriting
• Combined ratio better than market in last three years
• Expected to increase in 2017 due to higher expenses of new branch
Conférence d'A.M. Best sur le marché de l'assurance 2016 88 27 April 2016
• Strong risk-adjusted capitalisation, as measured by the BCAR model
• Risk-adjusted capitalisation is supported through: – Good internal capital generation – Conservative investment profile – Good credit quality of reinsurers
• Comfortably meets local solvency requirements
BCAR 2014 2015 2016e 2017e 2018e
Standard 180% 204% 185% 183% 185%
CAT Stress 172% 197% 178% 178% 180%
Market average 160% 167%
Balance Sheet Strength - BMF Insurance Company Capitalisation
Conférence d'A.M. Best sur le marché de l'assurance 2016 89 27 April 2016
Considerations for rating enhancement BMF Insurance Company
Implicit support • Level of integration • Brand name • Contribution to earnings • Contribution to growth
Explicit support • Financial guarantee • Reinsurance support
Conférence d'A.M. Best sur le marché de l'assurance 2016 90 27 April 2016
Rating Enhancement Ownership - BMF Insurance Company
• BMF is owned 100% by Windermere Insurance Limited (UK) Plc (Windermere)
• Windermere acquired BMF in 2004
• Windermere has operations in the UK and Continental Europe
• Windermere is rated as ‘aa-’ with a stable outlook by A.M. Best
Conférence d'A.M. Best sur le marché de l'assurance 2016 91 27 April 2016
Windermere Insurance Group (UK) Plc
Windermere Insurance Limited (UK)
BMF Insurance Company (Europe)
Windermere Insurance (Poland)
Rating Enhancement Structure - BMF Insurance Company
Rated ‘aa-’ stable
Recommended ‘a+’ stable
Rated ‘aa-’ stable
Conférence d'A.M. Best sur le marché de l'assurance 2016 92 27 April 2016
Recommendation of one-notch of rating enhancement Published rating of ‘a+’ with a stable outlook
Rating Enhancement Summary - BMF Insurance Company
Support factors Offsetting factors Shared IT and HR systems Does not carry the Windermere brand name
Shared pricing tools No financial guarantee or net worth maintenance agreement from Group
Good level of oversight and monitoring controls from Windermere
No reinsurance support from Group
Group earnings: contributes 15% and will be the driver of Group’s growth in Europe
Conférence d'A.M. Best sur le marché de l'assurance 2016 93 27 April 2016
Windermere Insurance Group (UK) Plc
Windermere Insurance Limited (UK)
BMF Insurance Company (Europe)
Windermere Insurance (Poland)
Rating Enhancement Structure - BMF Insurance Company
Rated ‘aa-’ stable
Recommended ‘a+’ stable
Rated ‘aa-’ stable
Conférence d'A.M. Best sur le marché de l'assurance 2016 94 27 April 2016
Conférence d'A.M. Best sur le marché de l'assurance 2016
Conférence d'A.M. Best sur le marché de l'assurance 2016 27 April 2016 95
Alex Rafferty Financial Analyst
Q&A
2016 Insurance Market Briefing - France
Hôtel Napoléon
27 April 2016