Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
Presentation Slides
Canadian Life Insurance Industry Briefing………………………………………………….. 2
Property/Casualty: Worries in the Wind and Other Observations……………………… 34
September 13, 2019
AM Best Company’s 13th Annual Insurance Market Briefing Canada
Canadian Life Insurance Industry Briefing
Anthony McSwieney, SFA
Michael Adams, SFA
September 13, 2019
AM Best Company’s 13th Annual Insurance Market Briefing Canada
Agenda
• Rating Outlook
• Industry Financial Attributes
• Rating Topics/Issues
- IFRS 17
- Innovation
- DTC
- Libor
• Industry Survey Questions
• Benchmarking
2
Rating Outlook Continues at Stable
• Outlook is stable, with concerns over recent global rate movements and volatility in financial markets
• Strong regulatory capital
• Favorable earnings and underwriting performance
• Ratings for Canadian Insurers are strong
• Adequate levels of financial flexibility
• Outlook does not factor in company specific rating movements
• Clarity around regulatory capital in the near term (IFRS 17)
3
Pre-Tax Income
4
13
10
13
11
14
0
2
4
6
8
10
12
14
16
2014 2015 2016 2017 2018
(CA
D b
illi
on
s)
Canadian Life Segment – Pretax Income/Loss
Source: AM Best data and research
Direct Premium Trends
5
8.9 9.8 10.6 11.5 11.7
24.225.5 26.7 27.4 29.4
8.08.1
8.99.6
11.119.9
21.921.5
22.222.6
0
10
20
30
40
50
60
70
80
2014 2015 2016 2017 2018
(CA
D b
illi
on
s)
Life Annuity A&S Participating Other
Canadian Life Segment – Direct Premiums Written by Line of Business Canada and US only
Source: AM Best data and research
DPW – Geographic Diversification
6
49.0 50.8 53.8 57.0 60.4
11.514.5
13.913.7
14.3
3.1
4.4 3.44.8
6.0
10.7
15.220.1
19.0
20.7
0
10
20
30
40
50
60
70
80
90
100
2014 2015 2016 2017 2018
(CA
D b
illi
on
s)
Asia/Other Europe US Canada
Canadian Life Segment – DPW by Geographic Distribution
Source: AM Best data and research
Mutual Fund Deposits - Geographic Distribution
7
29.0
41.8 41.230.7
28.7
45.2
49.2 50.9
49.08.1
11.6
12.6 15.3
13.6
0
20
40
60
80
100
120
2014 2015 2016 2017 2018
(CA
D b
illi
on
s)
Canada US Other
Canadian Life Segment – Mutual Fund Deposits by Geographic Distribution
Source: AM Best data and research
Investment New Income
8
0
5
10
15
20
25
30
35
40
550
600
650
700
750
800
2014 2015 2016 2017 2018
Inte
res
t, Div
ide
nd
s, &
Inc
om
e
(CA
D b
illi
on
s)
Invested Assets Invest. Income Excluding Derivatives
Canadian Life Segment – Investment Income
Source: AM Best data and research
Bond Segmentation
9
151.8 163.4 170.7 174.8 174.4
20.522.8 27.8 29.9 31.3
175.5185.7
192.1207.4 221.3
59.7
67.268.5
75.884.4
0
100
200
300
400
500
600
2014 2015 2016 2017 2018
CA
D B
illio
ns
Bond Portfolio Distribution
Government Muni Corporate - Public Corporate - Private
Canadian Life Segment – Bond Portfolio (%)
Portfolio Components 2014 2015 2016 2017 2018
Government 37.2 37.2 37.2 35.8 34.1
Municipal, Public Authority, Schools 5.0 5.2 6.0 6.1 6.1
Corporate - Public 43.1 42.3 41.8 42.5 43.3
Corporate - Private 14.7 15.3 14.9 15.5 16.5
Total 100.0 100.0 100.0 100.0 100.0
Note: Percentages may not add due to rounding
Source: AM Best data and research
Canadian Insurers – Invested Assets
10
Canadian Life Segment – Invested Assets (%)
2014 2015 2016 2017 2018
Bonds 62.2 62.7 63.5 65.1 65.3
Mortgage Loans 12.1 11.7 11.3 11.0 11.5
Stocks 6.5 5.7 6.2 6.5 5.7
Real Estate 3.5 3.9 3.5 3.5 3.2
Policy Loans 2.4 2.2 2.0 1.9 1.9
Cash & Short-term 5.5 5.1 4.5 4.5 4.3
Derivatives 3.4 3.8 3.6 2.4 2.0
Other Invested Assets 4.5 4.8 5.2 5.2 6.1
Total 100.0 100.0 100.0 100.0 100.0
Note: Percentages may not add due to rounding
Source: AM Best data and research
Corporate Segment
11
Canadian Life Segment – Corporate Investments (%)
Sector/Country 2014 2015 2016 2017 2018
Energy 10.1 10.1 11.2 10.7 10.4
Basic Materials 2.9 2.5 2.4 2.1 2.1
Industrial 9.6 10.9 10.3 10.4 10.8
Consumer Cyclical 6.0 6.1 4.5 4.9 4.8
Consumer Non-Cyclical 7.0 6.9 7.9 8.1 8.4
Diversified/Healthcare 2.0 2.0 2.3 2.2 2.4
Financial 27.0 25.9 21.7 21.7 21.9
Technology 1.4 1.5 1.8 1.9 1.8
Communications 3.9 3.7 3.8 3.7 4.2
Utilities 23.7 24.4 25.1 25.6 24.4
Other 6.4 6.0 9.0 8.7 8.8
Total All Sectors 100.0 100.0 100.0 100.0 100.0
Canada 39.3 36.6 36.3 36.2 34.4
United States 39.9 40.9 41.9 41.6 41.3
Other 20.8 22.5 21.8 22.2 24.3
Total 100.0 100.0 100.0 100.0 100.0
Note: Percentages may not add due to rounding
Source: AM Best data and research
Life Rating Topics
12
IFRS 17 LIBOR
Innovation Direct to Consumer
IFRS 17 – Industry Issues
• Potential significant impact to financial statements
- More policy level type information
• Tax and regulatory capital
- Closer to an economic capital view
• Potential implications to LICAT are not known
- Expectations are that it would be limited
• Non-life companies have a lesser impact
• Clearer view of insurance operations will emerge over time
13
IFRS 17 – Industry Issues
• Variation in implementation between companies are possible
• Three Approaches in the standard will likely produce different results
- Premium Allocation Approach (PAA), Variable Fee Approach (VFA), Building
Block Approach (BBA)
• IFRS 9 adoption coincides with IFRS 17
- Decisions around accounting for loans (amortized vs market value)
14
IFRS 17 – Illustrative Balance Sheet
15
Capital Capital
Assets
Deferred Acquisition Costs
Contractual Service Margin
Risk Adjustment
Claims Reserves
Best Estimate Liability
Unearned Premium Reserves (UPR)
UPR (Premium Allocation Approach)
Other Liabilities
Other Liabilities
Assets Liabilities(IFRS 4)
Liabilities(IFRS 17)
LIBOR 2021
• Increase in costs and risk (different rate calculation)
• Possible options – Ameribor (unsecured market driven) and Secure Overnight Financing Rate (SOFR) – risk free secured type of rate
• May have more than one rate index used in the marketplace ?
• Volume of potential/actual contract renegotiations (est. @ $200 trillion)
• Communication issues/legal
• Insurers should be working with regulators along with the banking industry
• Wait and see what the industry does may not be the best course
• Insurers so far are in the assessment stage
16
AM Best Life Insurance Survey Question – DTC
17
Direct To Consumer Models – Current State
18
Technology based applications and tools are only one aspect
Insurers rely heavily on the agent in the current process
Internal and external aspects (capital/resource considerations)
DTC for insurers vs. consumer products are much different
How does this evolve ?
Innovation
19
Will not impact rating outcomes for life insurers
Discussions have started this year with companies
Preliminary testing had been done
After finalization of methodology this month a period of analysis will take place
Benchmarking
20
Benchmarking
21
Must be analyzed in the context of an appropriate peer group
Need to understand external factors affecting trends
Benchmarking results reviewed at Rating Committee
Balance Sheet Strength Assessment Distribution
22
Strongest, 15.8%
Very Strong, 68.4%
Strong , 10.5%
Adequate, 5.3%
Strongest Very Strong Strong Adequate
BCAR ≠ Balance Sheet Strength Assessment
23
Strongest, 42.1%
Strongest, 15.8%
Very Strong, 36.8%
Very Strong, 68.4%
Strong , 10.5%
Strong , 10.5%Adequate, 5.3%
Adequate, 5.3%Weak, 5.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
BCAR ASSESSMENT BSS ASSESSMENT
Strongest Very Strong Strong Adequate Weak
Other Balance Sheet Strength Factors
24
Strength of Reserves
Quality and Appropriateness of Reinsurance Program
Reinsurance Dependence
Quality and Diversification of Assets
Financial and Operating Leverage
Liquidity
Quality and Fungibility of Capital
Internal Capital Models
Asset Liability Matching
Financial Flexibility
Operating Performance Assessment Distribution
25
Strong +1, 57.9%
Adequate +0, 42.1%
Strong +1 Adequate +0
Operating Performance: Factors
26
Premium Growth Trends
Underwriting Performance
Financial Forecasts/Plans
Persistency
Net Yield
Pre-Tax Total Return
Pre-Tax Operating ROR
Operating ROE
Business Profile Assessment Distribution
27
Very Favorable +2, 5.3%
Favorable +1, 15.8%
Neutral +0, 68.4%
Limited -1, 10.5%
Very Favorable +2 Favorable +1 Neutral +0 Limited -1
Business Profile Factors
28
Market Position
Degree of Competition
Distribution Channels
Pricing Sophistication and Data Quality
Management Quality
Product/Geographic Concentration
Product Risk
Regulatory, Event and Market Risk
ERM Assessment Distribution
29
Very Strong +1, 5.3%
Appropriate +0, 94.7%
Very Strong +1 Appropriate +0
BCRM Overview
30
Framework
Evaluation
Risk
Evaluation
ERM
Assessment
Questions
31
© AM Best Company, Inc. (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. AMB does not audit or otherwise independently verify the accuracy or reliability of information received or otherwise used and therefore 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. AMB is not an investment advisor and does not offer consulting or advisory services,
nor does the company or its rating analysts offer any form of structuring or financial advice. 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.
32
Property/Casualty: Worries in the Wind and Other Observations
Raymond Thomson, CPCU, ARe, ARM, AIAF – Director
Gordon McLean – Senior Financial Analyst
Daniel Heitlinger, CFA, CAIA – Financial Analyst
September 13, 2019
AM Best Company’s 13th Annual Insurance Market Briefing Canada
Agenda
2
2018 Year in Review and Future Outlook
M&A, Insurtech, and Other Emerging Issues
Canadian Rating Benchmarking and Reinsurance
2018 in Review
3
Interactive Rating Distribution
4
100 100 100
109 108 108103
100 101 100
-
20.0
40.0
60.0
80.0
100.0
120.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Nu
mb
er
of
Rati
ng
s
Fair or worse Good Excellent Superior
Canada Property/Casualty – Interactive Ratings Distribution (2010-2019*)
*Through June 30, 2019. All other years, as of year end
Source: AM Best data and research
Market Share
Canadian P/C Market Share - Top 10 - 2018
C$ Billions% of
Industry TotalRank Group / Company DPW
1 Intact Group 8.6 14.4%
2 Aviva Group 5.3 8.9%
3 Desjardin Group 4.9 8.3%
4 Lloyds Underwriters CAB 3.5 5.9%
5 Co-operators Group 3.3 5.6%
6 Wawanesa Mutual Insurance Company 3.3 5.5%
7 TD Insurance Group 3.2 5.4%
8 RSA Group 3.0 5.1%
9 Economical Group 2.5 4.2%
10 Northbridge Group 1.7 2.9%
All Other 20.2 33.8%
Industry Total 59.6 100.0%
5
Source: AM Best data and research
66.3 63.2 65.6 63.9 69.6 71.4 70.1
31.732.2
32.5 33.231.9 32.0 34.4
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2014 2015 2016 2017 2018 Q2 2018 Q2 2019
Pe
rce
nta
ge
Loss Ratio Loss and Adjustment Expense Ratio
Combined Ratio Components
Canadian P/C Combined Ratios
6
Source: AM Best data and research
98.0 95.4 98.1 97.1101.5 103.4 104.5
Canadian P/C Private Auto Trends
7
7.2
10.4
3.63.8
5.3
6.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2013 2014 2015 2016 2017 2018
Net
Pre
miu
ms
Wri
tten
Auto - Liability Auto - Personal Accident Auto Other
Canada Property/Casualty – Private Auto Insurers NPW Trend (2013-2018)*, C$ Billions
Source: AM Best data and research
*Excludes Lloyd's CAB and ICBC
Canadian P/C Private Auto Trends
8
76.9
74.2
67.5
62.3
67.3
71.4
66.3
79.3
88.189.6
79.2
70.4
69.5
71.3
72.5
76.7
80.5
83.8
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
90.0
95.0
2013 2014 2015 2016 2017 2018
Lo
ss
Rati
o (
%)
Auto - Liability Auto - Personal Accident Auto Other
Canada Property/Casualty – Private Auto Insurers Loss Ratio Trend (2013-2018)*
Source: AM Best data and research
*Excludes Lloyd's CAB and ICBC
Canadian P/C Property Trends
9
78.1
66.7
60.0
74.6
66.3
82.7
72.8
64.1
54.8
60.559.3
62.4
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
2013 2014 2015 2016 2017 2018
Lo
ss
Rati
o (
%)
Commercial Property Personal Property
Canada Property/Casualty – Property Insurers Loss Ratio Trend (2013-2018)*
Source: AM Best data and research
*Excludes Lloyd's CAB and ICBC
Largest CAT Losses
10
Canadian P/C - Catastrophe Losses Greater than CAD 400 Million (1991-2018)
Year Date Location Event Loss & LAE Current Dollar
Incurred Losses (C$ Million)
2016 May Fort McMurray, Alberta Fire 3,753 3,910
1998 January Quebec, Ontario, New Brunswick Ice Storm 1,574 2,313
2013 June Alberta Flooding 1,599 1,745
2013 July Toronto Flooding 924 1,008
2005 August Ontario Tornado/Hail 625 784
2018 May Ontario and Quebec Hail/Windstorm 680 680
2014 August Alberta Hail/Windstorm 546 583
2011 May Slave Lake, Alberta Fire 528 591
2012 August Calgary and Southern Alberta Hail/Windstorm 521 576
2010 July Calgary and Southern Alberta Hail/Windstorm 487 560
1991 September Calgary and Southern Alberta Hail/Windstorm 343 554
2016 July Alberta, Manitoba, Ontario, Saskatchewan Hail/Windstorm 462 481
2009 July Calgary and Southern Alberta Hail/Windstorm 376 440
Source: AM Best data and research, IBC
Net Investment Income vs. Yield
11
2.3
2.9
2.22.5
1.92.1
2.7
3.2
2.2
2.5
2.1
2.6
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2013 2014 2015 2016 2017 2018
Net In
ve
stm
en
t Yie
ld (%
)
Net
Inve
stm
en
t In
co
me
(C$
Bil
lio
ns)
Net Investment Income(C$ Billions)
Net Investment Yield(%)
Net Investments Income Vs. Yield
Source: AM Best data and research
*Excludes Lloyd's CAB and ICBC
Segment Outlook – Canadian Property/Casualty
12
Headwinds Tailwinds
Catastrophes – increasing frequency and severity Solid balance sheet positions
Deterioration in underwriting results due to weather and auto Sustained profitable operating performance
Challenges remain within the auto lines, Ontario and Alberta
specificallyOngoing advancements in underwriting and distribution
Market competition remains strong despite rate increases Continuing top line premium growth
Continued investment pressures – places pressure on the need
for underwriting profitFavorable reserve development patterns
High quality investment holdings
Strong and deep reinsurance programs
Solid capitalization has been achieved through retained earnings, but underwriting performance now faces pressure from
challenges associated with an increased frequency of natural catastrophe losses and inflation concerns in the auto lines. Many
carriers are employing more sophisticated underwriting mechanisms and expanding distribution platforms. AM Best continues
to maintain Stable market outlook.
Emerging Issues
13
P/C Mergers & Acquisitions Activity
• 2018: Significant M&A activity among independent agents / brokers
- 550+ deals recorded
• Interest from private investors, insurers, and non-insurers
• Mixed by size, geography, and by specialties
14
Distribution profitabilityLow interest rate
environment
Solid recurring cash flows Diversification
Potential Drivers
P/C Mergers & Acquisitions Activity: Market Implications
15
• Reduction in the number of a brokers
• Impact on commissions?
- Strengthening bargaining power
- Greater efficiencies
• M&A activity begets more M&A activity
• Shakeout of key talent
P/C Mergers & Acquisitions Activity: 2019 and Beyond
16
• Activity in 2019
- Appetite for M&A activity remains robust – as indicated by the announced acquisition of Guarantee Companies by Intact
• Expectations for the future
- Expected to remain above historical norms
• Additional market driver
- Limited international exposure
Insurtech Trends and Observations
17
• Big data, IoT, blockchain, automation, etc. remains relevant
• Investment in distribution is driving innovation
- Improved consumer experiences
- Quicker time to market
• Growth of usage-based insurance (UBI) products and platforms
- Supported by plethora of data now available
- Addresses “when” one is insured
• Shift towards more customized insurance products
Cyber Coverage, Risk, Regulation, and Other Trends
18
• Data privacy and changing regulations
- Additional stress from regulatory burdens (implementation cost, fines, etc.)
- Driving adoption
• Impact from (silent) cyber
- Loss of revenue, loss of costumers, loss of suppliers
- SME’s disproportionately benefit (vs. larger entities)
• Cyber coverage still has room to penetrate
- Opportunities amongst SMEs (revenue < $1 billion/year) is prevalent
- SMEs remain a target / alternative route to larger targets for hackers
Emerging Risks: Canadian Cannabis Market
19
• $6 billion cannabis industry
- Less than a quarter of sales from legal entities
• Legalization of edible and topical products
- Product approval process beginning October, available by December
• Allows cannabis-derived products seed into other industries
- Medical supplies, confectionery goods, beverages, cosmetics, etc.
• Opportunity for canna-businesses to expand product lines
- Opportunity for insurers to capitalize on risks
• Appropriate regulatory oversight
- Production, labeling, packaging standards mitigate risks
Emerging Risks: Cannabis Insurance Market
20
• Material number of larger entities remain hesitant
- “Unknown unknowns”, reputational risks, and limited legal precedent
- Market is dominated by opportunistic SMEs
• Product demand outpaces available capacity
- Product liability, BOP policies, other related insurance products
• Cannabis consumers and business owners becoming more sophisticated
- Maturing user demograpics
- Demanding higher limits and greater customization
• Larger Canna-businesses struggle to find D&O coverage
- Growing concern as talks of international activity escalate
Emerging Risks: Micro-mobility
• What is micro-mobility? (Example: mopeds, e-Scooters, Citi-bikes, etc.)
- Small, single-passenger, “last-mile” mode of transportation
- Often rely on clean or biokinetic sources of energy
• Not a new exposure… But could become more prevalent
• New commercial products
21
Urbanization Ridership preferences
Environmental awareness Big data and the IoT
Growth Factors
Emerging Risks: Micro-mobility, Roadblocks and Regulations
22
• Exponential growth in the US, emergent foothold in Canada
- Time to key milestones outpaced ridesharing companies
• Inconsistent and inadequate regulations
- Spectrum of regulatory solutions implemented
- Rider adoption outpacing regulatory adoption
• Rider etiquettes and safety hazards
- Where, when, and how to ride?
- Safe docking practices after usage
Benchmarking
23
Review – BCRM Building Block Approach
24
Baseline
Balance
Sheet
Strength
Baseline
Operating
Performance
(+2/-3)
Business
Profile
(+2/-2)
Enterprise
Risk
Management
(+1/-4)
Comprehensive
Adjustment
(+1/-1)
Rating
Lift/Drag
Issuer
Credit
Rating
Country Risk
Maximum + 2
Balance Sheet Strength
25
Canada P/C – Assessments US P/C – Assessments
Notch Distribution (%) Notch Distribution (%)
Assessment Starting point % Assessment Starting point %
Strongest a+ or a 33.3% Strongest a+ or a 32.0%
Very Strong a or a- 62.5% Very Strong a or a- 51.9%
Strong a- or bbb+ 0.0% Strong a- or bbb+ 9.6%
Adequate bbb+, bbb or bbb- 4.2% Adequate bbb+, bbb or bbb- 4.9%
Weak bb+, bb or bb- 0.0% Weak bb+, bb or bb- 1.4%
Very Weak b+ and below 0.0% Very Weak b+ and below 0.2%
Operating Performance
26
Canada P/C – Operating Performance US P/C – Operating Performance
Notch Distribution (%) Notch Distribution (%)
Assessment Notch % Assessment Notch %
Very Strong +2 0.0% Very Strong +2 2.5%
Strong +1 12.5% Strong +1 29.3%
Adequate 0 66.7% Adequate 0 52.5%
Marginal -1 20.8% Marginal -1 14.9%
Weak -2 0.0% Weak -2 0.8%
Very Weak -3 0.0% Very Weak -3 0.0%
Business Profile
27
Canada P/C – Business Profile US P/C – Business Profile
Notch Distribution (%) Notch Distribution (%)
Assessment Notch % Assessment Notch %
Very Favorable +2 0.0% Very Favorable +2 1.3%
Favorable +1 4.2% Favorable +1 8.5%
Neutral 0 66.7% Neutral 0 33.2%
Limited -1 29.1% Limited -1 54.8%
Very Limited -2 0.0% Very Limited -2 2.2%
Enterprise Risk Management Notch Distribution
Appropriate 100%
Canada P/C
Very Strong1.6%
Appropriate92.4%
Marginal6.0%
US P/C
28
Reinsurance
29
Global Reinsurance Market Trends
Combined
30
89.7% 90.4%95.2%
110.1%
102.3%97.6%
2014 2015 2016 2017 2018 Five Year Average
Source: AM Best data and research
11.6%
9.5%
8.3%
-0.3% 1.0%
2014 2015 2016 2017 2018
Five Year Average 6.0%
Global Reinsurance Market Trends
Return on Equity
31
Source: AM Best data and research
Global Reinsurance – Market Capital
32
Estimate – Total Dedicated Reinsurance Capital (USD billions)
292 320 340 332 345 345 341 346
19
48 60 68
75 87 95 92
311
368
400 400420
432 436 438
2012 2013 2014 2015 2016 2017 2018 2019E
Traditional Third-Party Third-Party -Trapped Portion(Low Estimate)
Third-Party -Trapped Portion(High Estimate)
Notes and Sources: Estimates by Guy Carpenter and AM Best
Global Reinsurance – Market Capital
33
2017 Reinsurance Market Briefing, Monte Carlo10 September 2017
Third-Party Capital (USD billions)
41 45 49
6256 53
1418
21
20
34345
5
5
5
56
60
68
75
87
95 92
2014 2015 2016 2017 2018 2019E
Dedicated ILS Managers Reinsurance Sponsored Managers (including sidecars) Direct Institutional Investors
Notes and Sources: Estimates by Guy Carpenter and AM Best
Global Reinsurance – Market Capital
34
Top 10 Global Reinsurance Groups – Non-Life Top 10 Global Reinsurance Groups – Life
Munich Reinsurance Company Swiss Re Ltd.
Swiss Re Ltd. Munich Reinsurance Company
Lloyd's Reinsurance Group of America Inc.
Hannover Rück SE SCOR S.E.
Berkshire Hathaway Inc. Hannover Rück SE
SCOR S.E. Great West Lifeco
Everest Re Group Ltd. Berkshire Hathaway Inc.
PartnerRe Ltd. Pacific LifeCorp
XL Bermuda Ltd. Assicurazioni Generali SpA
Transatlantic Holdings, Inc. PartnerRe Ltd.
Ranked by unaffiliated gross premium written in 2018
Source: AM Best data and research
Global Reinsurance – Market Developments
35
2017 Reinsurance Market Briefing, Monte Carlo10 September 2017
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
1980-1989 1990-1999 2000-2009 2010-2018
Wildfire Insured Losses Since 1980, at 2018 Prices (USD Billion)
2018
2017
2016
2010-2015
Source: Swiss Re Sigma
What to Expect in the Near to Mid-Term Future?
Capital markets continue to be the key to sustained rate increases at the mid-year renewals
An abundance of capital waiting on the sideline
Evolving interest rate environment is a new variable the pricing equation
36
Segment Outlook – Global Reinsurance
37
Headwinds Tailwinds
Intense competitionIncreasing alignment between traditional and third-
party capital
Excess capacity limits the potential for improvementImproving pricing discipline for property cat and retro
in particular
Potential for increased inflationAccelerating pricing momentum at the primary
insurance level
Less cushion in carried loss reserves US economic growth slows, but continues
Continued interest from third-party capital, even
beyond prop-cat lines
Use of third-party capital in retrocession programs
reducing earnings volatility
AM Best revised the outlook on the Global Reinsurance sector to Stable at December 31, 2018
Appendix: Building
Block Factors
38
Balance Sheet Strength- BCAR and Other Elements
• Reinsurance dependence
• Financial flexibility
• Quality of assets
Very Strong
• Financial flexibility
• Reinsurance dependence
• Strength of reserves/fungibility of capital
Strong
• Financial flexibility
• Reinsurance dependence
• Impact of holding company
Adequate
• Financial leverage & fungibility of capitalWeak
39
• BCAR
• Stress Tests
• Liquidity
• ALM
• Quality of Capital
• Quality of Reinsurance
• Appropriateness of
Reinsurance Program
• Fungibility of Capital
• Internal Capital Models
Operating Performance – Canada P/C
40
Operating Performance Metrics
• Operating and Combined Ratios – Including Loss, LAE, and Expense Components
• Return Measures – On Investments, Revenues and Equity
• Financial Forecasts – Adherence to Past Forecasts and Prospective Views
• Reserve Development Trends Over Time
• Premium Growth (or Contraction) Trends – Based on Company Strategy
Predominant Business Profile
• Not a market leader, but competitive
• Moderate concentration may be offset by an advantage in a chosen market or niche
• Risks are moderate and stable
• Evolving technology for pricing and modeling capabilities
Neutral (0)
• Lack of diversification in product and/or geographic spread
• Higher-risk product offerings
• Management performance may be inconsistent
• Highly competitive market with minimal barriers to entry
Limited (-1)
41
Appropriate ERM Assessment
Appropriate(0)
The insurer’s ERM framework is well-
developed.
Appropriate given the size and
complexity of its operations.
Risk management capabilities are very good and continually
evolving.
Risk management capabilities align
with the risk profile.
42
Questions
43
© AM Best Company, Inc. (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. AMB does not audit or otherwise independently verify the accuracy or reliability of information received or otherwise used and therefore 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. AMB is not an investment advisor and does not offer consulting or advisory services,
nor does the company or its rating analysts offer any form of structuring or financial advice. 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.
44