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2018 Insurance Market Briefing - Europe
etc.venues St.Paul’s, London
6 November 2018
Nick Charteris-BlackManaging Director, Market Development - EMEA
Welcome
2
Agenda: 2018 Insurance Market Briefing - Europe09:10 EMEA Market Overview: Update
on Rating Activity and OutlooksGreg Carter, Managing Director, Analytics –EMEA
09:30 Guest Presentation: Risks and Issues for the European Insurance Sector: What's on the Regulator's Agenda?Dimitris Zafeiris, Head of Risks & Financial Stability Department, European Insurance and Occupational Pensions Authority (EIOPA)
10:15 Thematic Session: Reinsurance Market HighlightsStefan Holzberger, Senior Managing Director & Chief Rating Officer
10:30
10:55 Thematic Session: Analysis –Environmental, Social, and Governance (ESG) Principles in the Insurance IndustryCarlos Wong-Fupuy, Senior DirectorJessica Botelho, Financial Analyst
11:30 Guest Presentation: Future-Proofing the London MarketMalcolm Newman, Chairman, International Underwriting Association (IUA) & Managing Director, SCOR EMEA Hub
12:00 Innovation and Technology in Insurance – The PanelGuest Chair: Mark Geoghegan (Insurance Insider)Trevor Maynard (Lloyd’s)Matthew Mosher (A.M. Best)Andrew Rear (Munich Re Digital Partners)Christopher Sandilands (Oxbow Partners)
12:45 Closing Remarks13:00
3
Agenda: 2018 Methodology Review Seminar
4
14:25 Welcome & IntroductionGreg Carter, Managing Director, Analytics –EMEA
14:30 Best’s Credit Rating Methodology (BCRM) –Reviewing the Building Block ApproachMahesh Mistry, Senior Director, Analytics
15:00 Revised Best’s Credit Rating Methodology (BCRM) in Action: Mock Rating CommitteeCatherine Thomas, Committee Chair, Senior Director, AnalyticsMichael Dunckley, Lead Analyst, Associate Director, Analytics
15:45 Q&A: Interactive Discussion
16:15 Close
A.M. Best – Preparing for Brexit
5
A.M. Best – Preparing for Brexit
6
• A.M. Best currently registered with the European Securities and Markets Authority (ESMA)
• Allows market access across the current EU 28 to provide rating services
• New registered EU subsidiary being established in Amsterdam to maintain EU 27 access
• Operational by 29 March 2019
A.M. Best – Preparing for Brexit
7
Disclaimer© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTEDBY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHERTRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANYSUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUTAMB’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 inpart caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the controlof 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 incidentaldamages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resultingfrom 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 orrecommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address thesuitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet itscontractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, marketvalue 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 ORINFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must beweighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer andguarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.
8
DisclaimerUS Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved inthe sales or marketing of a product or service of the CRA also participates in determining or monitoring the creditrating, 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 Divisionemployees are prohibited from participating in commercial discussions.
Any queries of a commercial nature should be directed to A.M. Best’s Market Development function.
9
EMEA Market Overview: Update on
Rating Activityand Outlooks
Greg CarterManaging Director, Analytics - EMEA
EMEA
• Low investment yields• Challenges to meet shareholder
expectations
• Abundance of reinsurance capacity• Limited growth opportunities
W Europe MENA E Europe and CIS
1%4% 4%
11%
23% 23%
5%9%
11%
4%2% 1% 1% 0% 1%
aa+ aa aa- a+ a a- bbb+ bbb bbb- bb+ bb bb- b+ b b-
Best's Issuer Credit Rating (ICR) distribution as at 30 September, 2018
11
Key Market Characteristics
Western Europe Key Market Characteristics
• Post Solvency II world• Modestly improving economic outlook for
Euro-area
• Political risks emerging from Brexit/ Italy• Abundance of reinsurance capacity • M&A trends continuing
2%6% 6%
18%
33%
28%
2% 1%3%
1%2%4%
9%
14%
32% 31%
3% 2%4%
aa+ aa aa- a+ a a- bbb+ bbb bbb- bb+
Rating Distribution September 30, 2018 Rating Distribution September 30, 2017
12
Western Europe Upgrade drivers
• Methodological changes 3• Parental support (incl. via acquisition) 3• Improved balance sheets 2• Improved economic conditions 1• Improving business mix 1• Reinsurance support 1
• Change of ownership 1• Cessation of business 1
Downgrade drivers
74%
6%
6%
3%
11%
Rating Actions Affirm
Initial
Upgrade
Downgrade
UnderReview
87%
5%
3%
5%
Outlook Summary
Stable
Positive
Negative
UnderReview
13
Middle East & North Africa Key Market Characteristics
• Fiscal budgets under pressure from low oil prices• Slowing growth from reduced government
expenditure• On going political instability and conflict
• Sound capitalisation, despite significant investment risk
• Regulatory changes likely to put pressure on capital• Market leaders exhibit strong technical performance
10%
19%
11%
21% 21%
9%7%
2%0% 0%
8%
22%
10%
22%24%
7%5%
0%2%
aa- a+ a a- bbb+ bbb bbb- bb+ bb bb- b+
Rating Distribution September 30, 2018 Rating Distribution September 30, 2017
14
Middle East & North Africa Upgrade drivers
• Strong operating performance 2 • Improved Risk Based Capitalisation 2• Improved ERM 1• Growth/ critical mass 1• Business restructuring/strategic clarity 1
• Deficiencies in ERM 2• Volatile performance 1• Deteriorating RBC 1• Ownership & strategy changes 1• Business production risks 1• Methodology 1
Downgrade drivers
69%
6%5%
9%
11%
Rating Actions
Affirm
Initial
Upgrade
Downgrade
UnderReview
74%
10%
10%
6%
Outlook Summary Stable
Positive
Negative
UnderReview
15
Eastern Europe and CISKey Market Characteristics
• Economic uncertainty, sanctions leading to market volatility, including currency declines
• Small markets with low insurance penetration• Government influence still present
• Investment opportunities generally weak• Risk management a weakness• Regulators developments +ve and –ve• Consolidation
7%
15%
36%
7%
14%
7% 7% 7%6%
13%
31%
13%
25%
6% 6%
a- bbb+ bbb bbb- bb+ bb bb- b+ b- ccc+
Rating Distribution as at 30 September, 2018 Rating Distribution as at 30 September, 2017
16
Eastern Europe and CIS Upgrade drivers
• Improved Risk Based Capital 1
Downgrade drivers• Deteriorating Risk Based Capital 1
53%
6%6%
6%
23%
6%
Rating Actions Affirm
Initial
Upgrade
Downgrade
UnderReviewOther
54%
23%
23%
Outlook Summary
Stable
Negative
UnderReview
17
Under Review drivers• Acquisitions/Mergers 3• RBC concerns 1• Operating performance expectations 1
Q&AGreg Carter
Managing Director, Analytics - EMEA
18
A.M. Best‘s 2018 Insurance Market Briefing London, 6 November 2018
Risks and issues for the European insurance sector - What is in the regulators agenda?
A.M. Best's
20
Content
Main Risks
European Insurance Sector: Investment portfolio and developments Solvency position
Insurance Stress Test 2018
Reviews planned and future activities
21
Low yield environment
Repricing risk
Cyber, real estate and geopolitical risks
Main risks of the EU insurance sector
22
Low yield environment
EUR swap curve has increased since the beginning of the year Increases in the government bond yields especially for the US are observed
(above 300 basis points). Yields in the euro area remain very low.
EUR Swaps10-year government bond yields
Source: Bloomberg, latest observation – 05 November 2018
US EA UK31/12/2017 2.41 0.42 1.1905/11/2018 3.20 0.43 1.51
Change in bps 79 1.1 32
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Jan
17Fe
b 17
Mar
17
Apr 1
7M
ay 1
7Ju
n 17
Jul 1
7Au
g 17
Sep
17O
ct 1
7N
ov 1
7De
c 17
Jan
18Fe
b 18
Mar
18
Apr 1
8M
ay 1
8Ju
n 18
Jul 1
8Au
g 18
Sep
18O
ct 1
8N
ov 1
8
United States euro area (bund) United Kingdom
-0.6-0.4-0.20.00.20.40.60.81.01.21.41.61.8
1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
11Y
12Y
13Y
14Y
15Y
16Y
17Y
18Y
19Y
20Y
31/12/2015 30/12/201629/12/2017 05/11/2018
23
Repricing risk
Source: Bloomberg – FTSE Global Bond Index SeriesLast observation: 05 November 2018
Despite the recent increase in corporate bond yields - spreads are still at historical low levels.
Average corporate bond yields
0.0
1.0
2.0
3.0
4.0
5.0
6.0Ja
n-11
May
-11
Sep-
11
Jan-
12
May
-12
Sep-
12
Jan-
13
May
-13
Sep-
13
Jan-
14
May
-14
Sep-
14
Jan-
15
May
-15
Sep-
15
Jan-
16
May
-16
Sep-
16
Jan-
17
May
-17
Sep-
17
Jan-
18
May
-18
Sep-
18
FTSE Euro Corporate Bonds All FTSE Euro Corporate Bonds AA
FTSE Euro Corporate Bonds A FTSE Euro Corporate Bonds BBB
24
BREXIT - EIOPA opinions
Opinion on supervisory convergence
Supervisory principles for Brexit relocations, in particular no empty shells
Opinion on service continuity in insurance
Insurers should make and timely implement contingency plans for a Brexit withoutwithdrawal agreement
Opinion on solvency
Insurers should manage risks of resulting from changes to solvency calculationsafter Brexit
Opinion on disclosure to customers
Insurers should inform customers about Brexit impact on contracts and services
25
0% 5% 10% 15% 20%
Other
SE
NL
UK
BE
EU/EEA
Breakdown by asset class(in % of total assets)
Mortgages and loansPropertyCollective Investment UndertakingsEquityCorporate bondsOther assets
Real estate
Source: EIOPA Financial Stability Report published on December 2017 – Box 5: Insurers’ exposures to real estate - pages 51-54The report is available at: https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/EIOPA-Financial-Stability-Report---December-2017-.aspx
Life insurers most exposed to real estate-related assets EU/EEA exposures are mainly attributed to mortgages and loans as well as
property, which together account for 4.1% of European insurers total assets
Real estate-related assets in % of total assets and breakdown by type of undertaking
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
AT BE BG CY CZ DE DK EE ES FI FR GR HR HU IE IT LI LT LU LV MT NL
NO PL PT RO SE SI SK UK
Composite Non-Life Life
Breakdown of real estate-related assets by asset class and by RRE and CRE (in % of total assets)
26
Investment portfolio of insurers
Source: EIOPA Financial Stability Report published on June 2018 – Figure 5.13 - page 59Note: Red - above 90th percentile, Blue - below 10th percentile; look-through approach applied, Solo insurance undertakings – Reference period: 2017Q4The report is available at: https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/EIOPA-Financial-Stability-Report-June-2018.aspx
27
Investment portfolio developments (1) Based on the outcome of the investment behavior report published at the end
of 2017, the following trends indicating increased risk exposures across European insurance groups were observed:
Trend towards lower credit rating quality fixed income securities (partly due to the large number of sovereign and corporate downgrades – see next slide)
Increase in the average maturity of the bond portfolio
More illiquid investments such as non-listed equity, loans and mortgages
Tendency to invest into new asset classes (infrastructure, mortgages, loans, real estate), although the amounts are currently low compared to the size of the portfolios
Source: EIOPA. Investment behaviour report published on the 16th of November 2017 - page 3Note: The data used in this report is based on submissions from 87 large insurance groups and 4 solo undertakings across 16 European countries from 2011 to 2016. The report is available at: https://eiopa.europa.eu/publications/reports
28
40%
24%
22%
18%
18%
28%
28%
28%
26%
19%
19%
19%
11%
25%
27%
27%
5%
5%
5%
8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2011
2013
2015
2016
Total insurance bond portfolio breakdown by rating (in %)AAA AA+ to AA- A+ to A- BBB+ to BBB- NIG
Source: EIOPA Investment behaviour report published on the 16th of November 2017 - figure from page 12Note: : The chart includes sovereign bonds, corporate bonds, structured notes and collateralised securities. The chart does not contain bond investments made through index linked and unit linked products. The report is available at: https://eiopa.europa.eu/publications/reports
Investment portfolio developments (2)
29
SCR per country
Source: EIOPA Statistics 2018Q1 - Own funds - Solo quarterlyAvailable at: https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/Insurance-Statistics.aspx
0%
100%
200%
300%
400%
500%
600%
700%
AT BE BG CY CZ DE DK EE ES FI FR GR HR HU IE IS IT LI LT LU LV MT NL NO PL PT RO SE SI SK UK
Interquantile range 10-90 percentile range Median
30
Impact of LTG measures to SCR ratio
Average impact of removing measures MA, VA, TRFR and TTP on the SCR ratio of the whole EEA market
Source: EIOPA. Report on long-term guarantees measures and measures on equity risk 2017 published on the 20th December 2017: page 26; Last observation: 31/12/2016 (annual data)Available at: https://eiopa.europa.eu/publications/reports
31
Insurance Stress Test 2018: Key Elements
The 2018 Insurance Stress Test is based on a sample of 42 large insurance groups (the top 30 groups plus 12 additional groups supervised by different NCAs) representative of the European insurance sector
The stress scenarios encompass a sufficiently wide range of risks, including a combination of market and insurance specific risks including natural catastrophe scenario and the exposure to cyber risk
As the previous Stress Test exercise in 2016, also the 2018 exercise does not represent a “pass or fail exercise” for the institutions involved, so the outcome is not intended to impose capital requirements
32
Insurance Stress Test 2018: Scenarios
Yield curve up shock combined with lapse and provisions deficiency stress The scenario represents a sudden increase in interest rates caused by both an
upward shift in risk free rates and inflationary pressures. Due to rise in the market volatility and economic uncertainty, lapse rate for life insurers is going to raise
Low yield shock combined with longevity stress The scenario represents the period of extremely low interest rates caused by change
in risk free rates and adjustment in the ultimate forward rate (UFR). Improvements in healthcare industry increase life expectancy for which insurers have to adjust best estimate mortality assumptions
Natural-Catastrophe (Nat-Cat) scenario The scenario’s aims is to assess the vulnerability of the largest insurers to natural
catastrophe risk across Europe, through a set of catastrophe events (four European windstorms, two floods and two earthquakes) which in total represent the aggregate insured loss of EUR 48 billion for the insurance industry over the course of the year
Cyber Questionnaire The aim of the questionnaire is to collect information on the current situation, existing
approaches and best practices to deal with cyber risk
33
Reviews planned from the beginning of SII
Two reviews at two different levels
Review of the Solvency Capital Requirements Focused on Delegated Acts By end 2018
Review of the long-term guarantee measures Focused on the Directive During 2020
34
Regulatory activities
LTG review
SCR review2018
Sustainable finance
Macro-prudential tools
Recovery & Resolution frameworkFintech –
Insurtech –Cyber Risk
Long term investments
Thank you for your attention!
Dimitris ZafeirisHead of Risks and Financial Stability DepartmentEuropean Insurance and Occupational Pensions Authorityhttps://eiopa.europa.eu
ReinsuranceMarket Highlights
Stefan HolzbergerChief Rating Officer
Global Reinsurance Market Trends
55.9% 56.2% 56.2% 60.6%76.5%
60.6%
61.1%
31.9%33.5%
34.2% 34.7%
33.6%
33.9% 33.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
20%
40%
60%
80%
100%
120%
2013 2014 2015 2016 2017 1H 2018 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
Source: A.M. Best data and research
Global Reinsurance Sector – Combined Ratio
87.9% 89.7% 90.4%95.2%
110.1%
94.5% 94.7%
Global Reinsurance Market Trends
13.0%11.6%
9.5%8.3%
-0.3%
7.0%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2013 2014 2015 2016 2017 1H 2018
Return on Equity Five-Year Average
Source: A.M. Best data and research
Return on Equity (2013 to present) and Five-Year Average
Global Reinsurance Market Trends
Global Reinsurance Market 5 Year Average Return on Equity Less Reserve Development
Source: A.M. Best data and research
10.9%
8.3%6.8%
4.5%
Composite at YE2016 Composite at YE2017
5 Year Average Return on Equity
5 Year Average Return on Equity excluding Loss ReserveDevelopment
Global Reinsurance Market Capital
292 320 340 332 345 345 362
19 48
60 68 75 87 100
2012 2013 2014 2015 2016 2017 2018E
ConvergenceCapital
TraditionalCapital
Estimate for Total Dedicated Reinsurance Capital (USD billions)
Notes and Sources: Estimates by Guy Carpenter and A.M. Best
Global Reinsurance Market Trends
41
Global Reinsurance – Price/Book Value(Excluding accumulated other comprehensive income)
40
60
80
100
120
140
160
180
200
220
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Pric
e/B
ook
Valu
e
Average
Current P/BV: 1.17x Average 1994-Present: 1.16x
Low Reached March 2009 (0.75x BV)
Peak reached February 2002 (1.83x BV)
1.0x P/BV
Source: Company reports, Bloomberg, A.M. Best research
Announced Acquirer Acquiree Price (USD mm)
Price to Tangible BV
9-Jan-15 XL Group Catlin Group Ltd $4,100 1.27x3-Aug-15 EXOR PartnerRe $6,900 1.19x5-Oct-16 Sompo Endurance $6,304 1.36x6-Jul-17 AXIS Novae $604 1.50x
22-Jan-18 AIG Validus $5,560 1.53x4-Mar-18 AXA XL Group $15,300 1.96x
Global Reinsurance Market Capital
42
Notes and Sources: Estimates by Guy Carpenter and A.M. Best
80%74% 71% 70% 73% 72% 70%
129 174 205 216 223 228 244
2012 2013 2014 2015 2016 2017 2018ECapital Depletion Needed To Trigger a Hard Market @ 99.6 (USD billions) Capital Utilization (%)
Capital Utilisation(USD billions)
Segment Outlook – Global Reinsurance
43
Headwinds TailwindsIntense competition Cession rates increasingIncreasing interest from third-party capital
Cat losses temporarily stabilise rates
Earnings stabilise but remain under pressure
Favourable reserve development,but waning
Excess capacity hinders further improvement
Strong risk-adjusted capital
Potential for increased inflation Increase in interest ratesM&A
Pressure on margins continues. Returns for some reinsurers will fall short on a risk-adjusted basis. Maintain negative market outlook.
Q&AStefan Holzberger
Chief Rating Officer
44
Agenda: 2018 Insurance Market Briefing - Europe09:10 EMEA Market Overview: Update
on Rating Activity and OutlooksGreg Carter, Managing Director, Analytics –EMEA, A.M. Best
09:30 Guest Presentation: Risks and Issues for the European Insurance Sector: What's on the Regulator's Agenda?Dimitris Zafeiris, Head of Risks & Financial Stability Department, European Insurance and Occupational Pensions Authority (EIOPA)
10:15 Thematic Session: Reinsurance Market HighlightsStefan Holzberger, Senior Managing Director & Chief Rating Officer, A.M. Best
10:30
10:55 Thematic Session: Analysis –Environmental, Social, and Governance (ESG) Principles in the Insurance IndustryCarlos Wong-Fupuy, Senior DirectorJessica Botelho, Financial Analyst, A.M. Best
11:30 Guest Presentation: Future-Proofing the London MarketMalcolm Newman, Chairman, International Underwriting Association (IUA) & Managing Director, SCOR EMEA Hub
12:00 Innovation and Technology in Insurance – The PanelGuest Chair: Mark Geoghegan (Insurance Insider)Trevor Maynard (Lloyd’s)Matthew Mosher (A.M. Best)Andrew Rear (Munich Re Digital Partners)Christopher Sandilands (Oxbow Partners)
12:45 Closing Remarks13:00
45
Environmental, Social, and Governance (ESG) Principles
in the Insurance Industry
Carlos Wong FupuySenior Director
Jessica BotelhoFinancial Analyst
Defining ESG
47
ESG in the news…
48
Defining ESG
• A set of metrics used by investors to assess a company’s risks which may not be captured by conventional financial metrics with the intention of enhancing long-term returns.– Environmental criteria look at how a company performs as a
steward of the natural environment.– Social criteria examine how a company manages relationships
with its employees, suppliers, customers, and the communities where it operates.
– Governance deals with the company’s leadership, executive pay, audits, internal controls, and shareholder rights.
49
Defining ESG
Environmental
• Climate change
• Carbon emissions
• Natural resources
• Pollution and waste
• Environmental opportunities
Social
• Human capital• Product liability• Stakeholder
opposition• Health and
safety• Social
opportunities
Governance
• Corporate governance
• Corporate behavior
• Transparency• Board
composition• Business
ethics
50
United Nations, Industry, and Regulatory Initiatives
51
ESG timeline
2000: UN Global Compact
2006: UN Principles for Responsible Investment
2012: UN Principles of Sustainable Insurance
2015: UN 2030 Agenda
2017: Task Force on Climate Related Financial Disclosure report publication
2015: Mark Carney’s “Breaking the tragedy of the horizon – climate change and financial stability” speech to the Lloyd’s Market
2018: EU Commission press release on Sustainable Finance Action Plan
1999: Launch of the Dow Jones Sustainability Indices
2018: Directive 2014/95/EU requires large public-interest companies to report on social and environmental impacts of their activities
52
Development of private, UN, and regulatory initiatives
Asset managers & institutional investors developing:
- Socially responsible investing- Investment screening- ESG ratings
UN backed initiative with involvement of private sector:
- Sustainability Development Goals (SDGs)- Global Compact- Principles of Responsible Investing- Principles of Sustainable Insurance
Developing diverse approaches to ethical investing:
- Sustainability indices- UN’s SDGs used as common
framework to assess ESG performance
Regulatory initiatives with a focus on climate change:
- Task Force on Climate Related Financial Disclosure
- Sustainable Insurance Forum- EU Commission: Sustainable Finance
Action Plan
53
ESG Integration in the Underwriting Process
54
ESG integration in the underwriting process
ChallengesClimate change
Minding the protection gap
Absence of global guidance for the insurance industry
OpportunitiesDevelopment of new products that incorporate social and environmental factors
Principles of Sustainable Insurance
Approaches• Embed ESG into policy framework
• Exclusion criteria within their underwriting guidelines
• Integrated into core underwriting framework rather than standalone assessment
55
ESG Integration within Investing Activities
56
ESG integration within investing activities
Challenges
Competition for limited pool of sustainable investments
Assets with strong ESG ratings ≠ better credit quality (necessarily)
OpportunitiesAchievement of combination of return, risk mitigation, and sustainability objectives
Principles of Responsible Investing
Approaches• Negative screening (i.e. exclusions)
• Norms-based screening
• Engagement and voting
57
Credit Rating Implications
58
Best’s Credit Rating Methodology
59
Credit rating implicationsBC
RMBu
ildin
g Bl
ocks
ESG FactorsEnvironmental Social Governance
Balance Sheet Strength
Natural catastrophe impact (e.g. stress tests)Asset portfolio changes (e.g. ESG integration)
Changes in underwriting risk charges due to changes in business mix
Limited / non-material impact
OperatingPerformance
Changes in business mix and investment returns
Changes in business mix (e.g. impact from demographic and lifestyle changes, “green” products)
Limited / non-material impact
Business Profile Changes in business mix(e.g. impact from exiting or entering new products – fossil fuels, renewables)Reputational risks
Changes in business mix (e.g. impact from demographic changes and products promoting healthy lifestyle)Reputational risks
Reputational risks
Enterprise Risk Management
Stress testing and treatment of un-modelled risks
Reputational and operational risks
Risk management framework evaluation: Governance and Risk Culture
60
Credit rating implicationsBC
RMBu
ildin
g Bl
ocks
ESG FactorsEnvironmental Social Governance
Balance Sheet Strength
Natural catastrophe impact (e.g. stress tests)Asset portfolio changes (e.g. ESG integration)
Changes in underwriting risk charges due to changes in business mix
Limited / non-material impact
OperatingPerformance
Changes in business mix and investment returns
Changes in business mix (e.g. impact from demographic and lifestyle changes, “green” products)
Limited / non-material impact
Business Profile Changes in business mix(e.g. impact from exiting or entering new products – fossil fuels, renewables)Reputational risks
Changes in business mix (e.g. impact from demographic changes and products promoting healthy lifestyle)Reputational risks
Reputational risks
Enterprise Risk Management
Stress testing and treatment of un-modelled risks
Reputational and operational risks
Risk management frameworkevaluation: Governance and Risk Culture
61
Credit rating implicationsConsidering the distinct roles of credit and ESG ratings
Credit Ratings
ESG Ratings
Relevant and material ESG factors
ESG Ratings
Credit Ratings
62
Credit rating implications
• A.M. Best continues to study how (re)insurers are considering, incorporating, and managing these relevant ESG risks and opportunities.
• If and when there are rating implications derived from ESG considerations that may impact our future Best’s Credit Rating Methodology (BCRM) updates, stakeholders will be advised accordingly.
63
Q&ACarlos Wong Fupuy
Senior DirectorJessica BotelhoFinancial Analyst
64
2018 Insurance Market Briefing - Europe6th November 2018
Future-Proofing the London MarketCurrent Issues & Perspectives in pre- and post-Brexit
contexts for London.
Malcolm NewmanManaging Director – EMEA Hub
66
London Market – relative size and growth
67
London Market workforce
Some key facts
52,000 people work for the London Market, of which 17,000 are in other UK locations than London.
An estimated 3,000 EU nationals work in the London Market.
The London Market is:26% of the City’s GDP10% of London’s GDP2% of the UK’s GDP
Employment has grown from 48,000 in 2013 to 52,000 in 2015.
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Telling the London Market story
Making London an easier place to do
business
Creating a better business
environment
Building a diverse, dynamic workforce
Providing our buyers with a clear case for coming to London to
purchase our products and
services
Making the London Market highly
accessible, efficient and relevant to the
needs of our customers
Working with government,
parliamentary parties and the civil service to ensure they better
understand the position of the market
and its place in the UK economy
Developing a better understanding of where the skills
shortages are and helping the market
address them
London Market Group Representing the insurance and reinsurance market in London
Driving growth and modernisation across the London Market London Market Group response
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London Market Group response – Placing Platform Ltd (PPL)
Moving risk more easily through the market
• Single model - common standards• Better data • Workload prioritisation
• The platform is now able to handle all lines of business• 48 brokers and 113 carrier firms have signed up to PPL and over 9,000 users have
been set up on the platform• 66,847 firm orders have been bound in the year to end of September 2018• 51,833 endorsements have been agreed on the platform in the same period• Lloyd’s set a target of 20% of all risks to be placed electronically by Q3 2018, the
actual result is 28%• The target rises by increments to reach 50% by end Q2 2019• Lloyd’s is contemplating mandating the use of electronic placing from 2020• The London company market currently exceeds Lloyd’s target
Risks are negotiated and placed both face-to-face and electronically, removing paper from the process and creating a digital information flow and audit trail
• Faster response time• Ease of access • Improved efficiency Benefits
Progress
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London Market Group response – Central Services Refresh Programme (CSRP)
Moving money through the system more efficiently
• Better data• Simplified and standardised broker submissions• Reduced costs
• Release 1.2 went live in December 2017 and includes the Query Portal. Further enhancements are underway alongside onboarding tests for new brokers
• Brokers can process premiums and claims in the same way they can in other global markets
• 90% of existing transactions being processed through legacy channels can now be submitted through the new CSRP Post-bind Submission channel
Transaction accounting is simplified and standardised, meaning brokers can use the same systems for London as other markets
• Faster payment• Improved efficiency• Common standardsBenefits
Progress
71
London Market Group response – Delegated Authority (DA)
Making London capacity more attractive
• LM TOM selected Charles Taylor InsureTech Ltd (CTI) as the preferred bidder to provide Data Submission, Access, Transformation (DA SATS) service. The risk data standards are being developed in order of binder volume. This will enable the quick and convenient submission of risk, premium and claims data
• 1,500 fewer audits will take place annually • The online audit management system is live with full functionality, with
42 Managing Agents signed up for the service• A Compliance Services Solution is also live. This is part of Lloyd’s
ongoing compliance oversight
• Ease of access• Greater productivity
• Better data quality and consistency• Common standards
Audit and compliance will be streamlined and standardised, and data collected onlyonce – creating the consistency and simplicity for all parties
Benefits
Progress
72
Telling the London Market story
Making London an easier place to do
business
Creating a better business
environment
Building a diverse, dynamic workforce
Providing our buyers with a clear case for coming to London to
purchase our products and
services
Making the London Market highly
accessible, efficient and relevant to the
needs of our customers
Working with government,
parliamentary parties and the civil service to ensure they better
understand the position of the market
and its place in the UK economy
Developing a better understanding of where the skills
shortages are and helping the market
address them
London Market Group Representing the insurance and reinsurance market in London
Creating a better business environmentLondon Market Group response
73
Joint government / industry task force formed April 2015 LMG chaired (M. Newman) Government: HM Treasury, PRA, FCA, HMRC, Cabinet Office Practitioners: SCOR, Guy Carpenter/Marsh, Leadenhall Capital, Horseshoe Re, Securis, Swiss Re, Hiscox Advisors: Clifford Chance, PwC Associations: IUA, LMA, LIIBA, Corporation of Lloyd’s
Regulations published December 2017
London Market Group response – Insurance Linked Securities (ILS)Creating a better business environment
DespiteBrexit referendumGeneral electionArticle 50 triggered
74
London Market Group response – Insurance Linked Securities (ILS)Creating a better business environment
75
London Market Group response – BrexitCreating a better business environment
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Some key facts
Reinsurance is 30.7% of London’s GWP.
Marine and aviation is 16.5%. These classes may have access to some EU countries after a hard Brexit.
London carriers have 60% of the global aviation market.
London carriers have 52% of the global energy market.
London carriers have 33% of the global marine market.
London Market Group response – Class of business analysisCreating a better business environment
77
Some key facts
EU non-life GWP (ex UK) is $432bn of which London carriers write $9.6bn, a 2.2% market share.
The Company Market’s $25.9bn of non life GWP includes $7.8bn written by branches of EU carriers in London of which there are more than 80 registered with the FCA.
PRA estimate that there are up to 30 million EU policyholders with a UK policy (life and non-life) and up to 6 million UK policyholders with an EU policy (life and non-life).
European premium is 14.4% of London’s non-life GWP
London Market Group response – London market and EuropeCreating a better business environment
78
London Market Group response – Brexit taskforceCreating a better business environment
LMG Brexit Roadmap – published 8th March 2017
Joint government / industry advisory group formed May 2017 LMG chaired (M. Newman) Government: HM Treasury, DExEU, Cabinet Office Industry: SCOR, Marsh, Willis, Swiss Re, AIG, Aegis Advisors: Clifford Chance, PwC, EY, RPC Associations: IUA, LIIBA, LMA, ABI, Corporation of Lloyd’s
LMG Proposals for a future trading relationship between the EU and the UK – published 29th November 2017
Case studies to highlight market disruption
Response to the white paper1 on the UK’s future relationship with the EU
LMG prioritising Solvency II equivalence for reinsurance and proposing cross border access for large risk insurance. Highlighting the need for a solution to contract continuity and data transfer regulations.
1) The future relationship between the United Kingdom and the European Union – published 12 July 2018
Panel:Innovation and Technology in
Insurance
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Panel
Innovation and Technologyin Insurance
Matthew MosherExecutive Vice President& Chief Operating Officer,
A.M. Best
Trevor MaynardHead of Innovations,
Lloyd’s of London
Mark GeogheganManaging Director,
The Insurance Insider Andrew RearCEO, Munich ReDigital Partners
Christopher SandilandsPartner,
Oxbow Partners
2018 Insurance Market Briefing - Europe
etc.venues St.Paul’s, London
6 November 2018