Willis Re press conference
Monte Carlo 2017
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John Cavanagh
Global CEO, Willis Re
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John Haley
CEO, Willis Towers Watson
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James Kent
Deputy Global CEO, Willis Re
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Landscape
Internal
Miller/SurePoint acquisitions
successfully bedded in
Towers Watson integration
a game changer
OIP work complete
Succession at CEO level
External
Prolonged soft markets but capital
at all time-high for reinsurers
M&A activity high
Evolution of alternative capital
Increased demand for strategic
advice
Low interest rates
Embryonic lines: Cyber, Mortgage,
Life, Insurtech
Specific NA Hurricane Commentary
6
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Hurricane Harvey
An unusually complex cat event due to sheer level of flooding from rain
Before landfall, ‘Live Cat’ was active at triggers between $7.5B and $15B
Post event modelling suggests actual wind loss <$2B; flood will be a much larger
component
Key contributors to flood loss will emerge from Auto, Commercial,
Cargo/Inland Marine
Early market commentary suggests NFIP could exceed Sandy
Combination of i) low insurance penetration for flood and ii) significant net
retention in Auto & Commercial will drive majority of loss away from reinsurance
Too early to forecast loss but we expect delegated underwriting authority
business to produce oversized loss relative to share of market premium
Some reinsurance accounts have been impacted (regional, super regional)
Business interruption and the tort system of TX market will add to complexity
Some Tor/Hail losses in prior years experienced extensive development due
to lawyers re-opening claims via courts favouring policyholders
Likely to be a ‘long-tail’ cat recovery with the potential to creep in the same way
EQ losses have done
7
Hurricane Irma
A very different storm to Harvey being faster moving and with much greater wind
speeds
Live cat trading prior to event has been limited
Devastating impact in the Leeward Islands
High take-up of insurance with insurers reliant on reinsurance
French government has declared the loss will be ceded to CCR
Major commercial areas in Puerto Rico and Dominican Republic largely
avoided the storm
Only making US landfall this morning (EST) so variance around loss estimates
likely to vary significantly for next few days
Point of landfall favourable from expected track 2 days ago
FL is most heavily reinsured region and reinsurers pick-up losses from a relatively
low base
If major loss happens, the reinsured loss will be inflated by aggregate
covers paying immediately after exhaustion of retention from prior events
ILS a major player in the FL reinsurance market but also largest PML for most
cat reinsurers
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Specific NA Hurricane Commentary, cont.
Specific NA Hurricane Commentary, cont.
8
Market dynamics in 2017 very different from 1986 and 2002
A highly regulated and disciplined reinsurance market with current capital at record
levels
Majority of cat business now placed with A+ reinsurers or collateral
ILS capital has the fluidity to move very quickly post-event
While reserves releases have slowed, we are not seeing broad reserve
strengthening as we did in aforementioned prior soft markets
Clients approach with reinsurers has been to establish comprehensive partnerships
seeking long-term stability
Expectations that long-term view provides continuity and longevity
Diversification across many reinsurance placements supports wider partnership
Key is how market reacts after a major event
Correction in 2006 led to higher attachments on many accounts as well as period
of ILS capital establishing strong foothold in US property cat
Reinsurance is a proven capital management tool
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An Evolving Intermediary
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Continue to broaden our fundamental value proposition utilising the
entirety of the WTW product offering
We aspire to be the professional services provider of choice across the
risk/capital spectrum
Diversity of portfolio (product & geography) increases probability of
significant profitable growth
Growing in a soft market
Investment in people, analytics, new regions, new business lines
A transforming business model enhanced by WTW joint offering
Particularly resonates with regional, specialty and life insurers
Accessing new forms of capital and sources of risk
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Alice Underwood
Global Leader, Insurance Consulting and technology
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Insurance Consulting
and Technology
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We live insurance
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Willis Towers Watson
Insurance Consulting and Technology
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Consulting …strategic and analytical expertise plus deep local
and global knowledge of the insurance industry
Technology …software and solutions that span the insurance
value chain
Insurance …our client focus
Together with our clients, innovating and transforming
the business of insurance
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Partnering with re/insurers on their business priorities
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Strategy & Growth
Assess relative benefits of
alternative strategies, e.g.
– Organic vs. acquisition
– New regions or products
– Distribution channels
Deployment and execution of
selected strategy
Risk & Capital Management
Practical solutions to meet
regulatory and reporting
requirements and improve
performance
Industry-leading analytical
expertise
Operational Efficiency
Transform, streamline, and
automate operational processes
Connect legacy systems
Reduce cost
Enhance customer management
Create competitive advantage
Technology
Leading global provider of
insurance technology solutions
Software products and enterprise
platforms for distribution,
underwriting, pricing, claims,
reserving, reporting, and financial
and capital modeling workflows
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Europe, Middle East, and Africa Reducing expense ratios through
automation and industrialization
Enhancing analytics, data and systems
Americas Using technology to engage consumers
Developing and industrializing advanced
analytics solutions
Asia-Pacific Regulatory reform and detarification
Market share / profitability focus of local
players and MNCs
Global reach, local knowledge and presence
Current topics of interest by region include…
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Services as integrated or as modular as you desire
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Corporate Risk
and Broking
Insurance Consulting
and Technology
Willis Re
Reinsurance broking
Human Capital
and Benefits
Willis Towers Watson
Securities
Insurance Asset
Management Client
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Rafal Walkiewicz
CEO, Willis Towers Watson Securities (Re)insurance M&A Market Dynamics
© 2017 Willis Towers Watson Securities. All rights reserved.
(a) Ex. cat loss ratio excludes U.S. catastrophe losses (+$25 million per event).
Note: Public Market valuations for U.S. P&C companies only including commercial, specialty, personal, FL homeowners and Bermuda (re)insurers.
Source: SNL Financial and Insurance Information Institute.
Improving P&C Valuations are Not Supported by Fundamentals…
1.5x
17
0.8x
Price /
Book
Value
Invest.
Yield
Premium
Growth
1.5x
3.4%
3.9%
99.9%
94.1%
5.7%
4.6%
7.5%
5 Yr. Avg.
Prior to ‘07
1.5x
(3.1%)
Combined
Ratio (a)
2007 2008 2009 2010 2014 2015 2016 2011 2012 2013 YTD ‘17
Combined Ratio (ex. Cat)
Cat Load
94.9%
5.8%
100.7%
4.8%
3.3%
…and M&A Transactions Price with Meaningful Premium…
18 (a) Represents purchase price to earnings per share.
Source: SNL Financial and industry news sources.
Price / TBV
Deal Value
($mm)
Price to
EBITDA /
Earnings
Buyer /
Target
Buyer
Motivations
1.5x
$604
22.1x (a)
Scale
3.2x
$919
18.1x(a)
Modular
Economy
--
$4,200
12.2x
Capital Light
with Scale
--
$287
19.7x
Capital Light
with Growth
--
$490
50.0x
Technology
AWAC
OneBeacon
Amlin
Chubb
HCC
State National
(10%)
(5%)
0%
5%
10%
(35%) (30%) (25%) (20%) (15%) (10%) (5%) 0%
Axis
Catlin
PlatinumMontpelier
Western World
Cathedral
(10%)
(5%)
0%
5%
10%
(35%) (30%) (25%) (20%) (15%) (10%) (5%) 0%
… As Investors Support More Aggressive Deal-Making
19
Est. Immediate Acquiror TBV Accretion / (Dilution)
Source: SNL Financial, FactSet and Company filings.
Pre Q2 ‘15
After Q2 ‘15
0%
5%
10%
(5%)
Acquiro
r Sto
ck P
rice 1
-Week P
ost-A
nnouncem
ent
(35%) (30%) (25%) (20%) (15%) (5%) 0% (10%)
(10%)
Is Insurance Going to be Next Growth Driver of U.S. Economy?
8%
12%
19%
20
IRR
Valuation Drivers:
Entry Multiple: 20x
Debt Leverage: 7x
Interest Rate: 7%
Tax Rate: 35%
Premium Growth
Margin Expansion
5-Yr. EBITDA CAGR: 10% 25% 50%
Year 5 / Year 0 Ratio: 1.6x 3.0x 7.5x
Is Insurance Going to be Next Growth Driver of U.S. Economy?
5 Fastest Growing Industries in the U.S. Projected 5 Year Revenue Growth
Peer to Peer Lending +35%
Medical Marijuana Stores +38%
Cider Production +38%
Telehealth Services +50%
Motion Capture Software Developers +65%
21 Source: IBISWorld publications.
In Times of War Law Falls Silent
22
Distribution Underwriting Portfolio Management
Agent Wholesale
Agent Insurer Broker Reinsurer Broker
Retro
Provider
Technology Third Party Capital
Risk Origination Product Design Capital Pools
Skills
Current
Providers
Disruption
End
Game?
Over $7.1 billion spent on InsurTech funding since 2012 $75 billion of Alt. Capital in place – 25x increase from 2000
152
112
91
1,616 1,663
1,356
0
500
1,000
1,500
2,000
M&A Pressure will Further Increase due to Scarcity of Targets
23 Source: SNL Financial.
Public P&C Companies
Private P&C Companies
2000 2008 2016
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Questions?
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