Martyn Street

Harish Gohil

23 September 2016

Global Reinsurance

A Rating Agency Perspective

1

Contents

1 Key Issues

2 Observations & Expectations

3 Solvency II developments

4 What Could Change the Rating Outlook?

2

Sector Outlook Negative, Rating Outlook Stable

Profit deterioration

1. Quality of earnings expected to deteriorate as underwriting margins and investment returns continue to fall

2. Smaller companies with limited diversification are at greatest risk of negative rating action

Pricing

1. Pricing conditions to remain challenging during 2017

2. Surplus of reinsurance capacity will create further downward pressure on premium prices

3. Slowing rate of price reductions will have limited significance in improving near-term profitability

Alternative capital

1. Growth of alternative reinsurance market has slowed

2. If this trend continues, it could signify reduced appetite for reinsurance risk

M&A

1. Consolidation among reinsurers has waned as companies digest recent deals

2. M&A likely to resume in the near term as companies consider strategic options to combat market stress

Key Issues

3

(USDm)

2017

forecast

2016

forecast

2015

actual

Net premiums written 102,060 101,050 99,067

Catastrophe losses 10,135 7,065 2,500

Net favourable prior year reserve development 2,990 3,945 4,833

Calendar year combined ratio (%) 99.2 94.2 86.8

Accident year combined ratio (%) 102.2 98.2 91.8

Accident year combined ratio ex catastrophes (%) 92.0 91.1 89.2

Shareholders’ equity (excluding Berkshire) 271,500 268,810 266,146

Net income ROE 8.0 8.5 9.8

2017/2016 Projections

Source: Fitch monitored universe of reinsurers

4

Date Event Location

Economic Loss

(USDbn)

Insured Loss

(USDbn)

April Earthquakes Japan 22-48 5.6

April Storm/hail US 3.5 3.1

May/June Storms/floods Europe 4.0 2.8

April Storms US 3.5 2.7

May Wildfires Canada 3.6 2.5

March Storms/hail US 2.0 1.5

1H16 total 68.0 28.0

1H15 total 46.0 16.0

10-year avg. 1H 102.0 26.0

30-year avg. 1H 63.0 15.0

Natural Catastrophe Events, 1H16

Source: Swiss Re – except 30-year average 1H, which is attributed to Munich Re NatCatService

5

Reported vs. Normalised Combined Ratio: 2011-2015 Average

106.0 90.4 91.1 90.6 90.3

95.0 94.3

95.2 96.6

98.5

70

80

90

100

110

2011 2012 2013 2014 2015

(%)

Major European Reinsurers Reported vs. normalised combined ratio

Average reported Average normalised

Note: Average for Hannover Re, Munich Re, SCOR and Swiss Re

Source: Company reports, Fitch

6

Normalised vs. Reported Combined Ratio: 2011-2015 by Co.

102 81 83 84 86 114 91 92 93 90 104 96 95 95 94 105 94 94 91 91

93 90

94 94

100

93 94 94

99 99 99

99 99 99 100

95 95 94 94 96

80

90

100

110

120

80

90

100

110

120

201

1

201

2

201

3

201

4

201

5

201

1

201

2

201

3

201

4

201

5

201

1

201

2

201

3

201

4

201

5

201

1

201

2

201

3

201

4

201

5

Swiss Re Munich Re Hannover Re SCOR

Major European Reinsurance Reported vs. Fitch normalised combined ratio

Swiss Re reported (LHS) Munich Re reported (LHS) Hannover Re reported (LHS)SCOR reported (LHS) Swiss Re normalised (RHS) Munich Re normalised (RHS)Hannover Re normalised (RHS) SCOR normalised (RHS)

Note: Reserve and natural catastrophe budgets vary annually for each company, figures rounded

Source: Company reports, Fitch

(%)

P:\PowerPoint\2016 PPT from

DPC\887416\887416a_Charts.xlsx, Slide

10 Chart 2

7

Reported vs. Normalised Combined Ratio: 2015 Bridge

86.0 89.7

94.4 91.1

8.7 5.8 1.4 4.8 5.1

3.2 3.9 99.8 98.7 99.7

95.9

0

20

40

60

80

100

120

Reported Nat cat from expected Prior-year Normalised

Source: Fitch

2015

Swiss Re

2015

Munich Re

2015

Hannover

Re

2015

SCOR

8

Bermuda (Re)insurers Financial Performance

-4

-2

0

2

4

6

8

10

12

14

80

85

90

95

100

105

110

115

120

125

2010 2011 2012 2013 2014 2015 1H16

ROE (RHS) CY combined ratio (LHS) AY combined ratio (LHS) AY combined ratio ex. cats (LHS)

Source: SNL Financial, company reports

(%) (%)

9

Bermuda vs. North American (Re)insurers

-4

-2

0

2

4

6

8

10

12

14

16

18

20

2009 2010 2011 2012 2013 2014 2015 1H16

Bermuda ROE Advantage Shrinking

Bermuda North American

Source: SNL Financial, company reports

(%)

10

Bermuda vs. North American (Re)insurers (Cont.)

80

85

90

95

100

105

110

115

2009 2010 2011 2012 2013 2014 2015 1H16

CY Combined Ratios Converging

Bermuda North American

Source: SNL Financial, company reports

(%)

11

Reinsurance Renewal Pricing Trends

-30 -20 -10 0 10 20 30

US cat no loss

Cat loss hit

Cat no loss

Loss hit

No loss

(%)

Property (2016)

Source: Company and broker reports

-30 -20 -10 0 10 20 30

US general TPL

US motor (NL)

US motor (L)

XL loss hit

XL no loss

(%)

Casualty (2016)

Source: Company and broker reports

12

Portfolio Price Movements: Major European

-6

-4

-2

0

2

4

6

8

Hannover Munich SCOR Swiss

Overall Portfolio Price Movements Softening trend continues but viewed as manageable

2012 2013 2014 2015 2016

Source: Company disclosure

(%)

13

Alternative Reinsurance Capacity

0

2

4

6

8

10

12

14

16

18

20

YE08 YE09 YE10 YE11 YE12 YE13 YE14 YE15

(%)

Alternative Market Capacity Growth Slows

Alternative capacity as a % of global property catastrophe reinsurance limit

Source: Guy Carpenter Estimates

14

Catastrophe Bond Issuance

3.7 5.0

8.4

14.1

11.8 12.3 12.4 12.7

15.2

19.1

23.8 24.2 22.8

1.1 2.1

4.6

7.2

2.7 3.4

4.8 4.3 5.9

7.3 8.3

6.8

3.5

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1H16

(USDbn)

Issuance Slipping

Catastrophe Bonds (Non-Life)

Outstanding Issued

Source: Willis Capital Markets & Advisory

15

Tough sledding ahead

What goes up, must come down – significant maturities coming due ($7 B in 2017)

Unless there is a paradigm shift, we believe not much more growth

ILS Growth – needs a catalyst

0

5,000

10,000

15,000

20,000

25,000

YE2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152016 - 1st halfNext 15 mos2017 - proj.

(USDbn) Outstanding Balance Maturities Issuance

Source: ???

Title

2015 / 2016: AIG – Bellemeade Re (mortgage

insurance)

Zurich / Credit Suisse – Operational Re

P:\PowerPoint\2016 PPT from

DPC\887549\887549a_Charts.xlsx,

Sheet1 Chart 1

16

Basic Hurdles Still Exist for Cat Bonds – though changes are in the air

Niche market

Expensive to structure

Lack of robust secondary market

Seasonality

Peak perils

Lack of standardization

Private placements

Peak Multi-peril

47%

US Wind 24%

US Quake 13%

Euro Wind 5%

Japan Quake

7%

Other 4%

Source: Willis Capital Markets (June, 2016)

Outstanding Perils P:\PowerPoint\2016 PPT from

DPC\887549\887549a_Charts.xlsx, Slide

18 Chart 1

17

0

5,000

10,000

15,000

20,000

25,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016(2ndQtr)

(Axis Title)

Source: Fitch

Par Outstanding

Lehman Bros Default (2008): Ajax Carillon Newton Re Willow Re

Katrina (2005): Kamp Re Avalon Re

Over $1.8 B of new

issuance has JP EQ

(between 2013 and 2015)

2011: Tohuku: Muteki Tornados: Mariah Re

Superstorm: Sandy (2012)

Will Investors Leave When Claims Happen? – doesn’t seem so based on past events

P:\PowerPoint\2016 PPT from

DPC\887549\887549a_Charts.xlsx, Slide

19 Chart 2

18

Evolution of Reinsurers’ Market Position

19

Major European Reinsurers’ Solvency

302

221 211

223

312

0

40

80

120

160

200

240

280

320

Munich Re Hannover Re SCOR Swiss Reª

Strong Level of Coverage

a 223% represents coverage under Swiss Solvency Test, the regime that Swiss Re operates under

Source: Fitch

Target range (%)

20

Three elements separately assessed to determine whether equivalent

Reinsurance supervision

Solvency assessment

Group supervision

Types of equivalence

Full (unlimited), temporary (end-2020, extendable by one year) and provisional (10 years, renewable for

10 year period)

Third country effects

Non-EEA reinsurers when involved in EEA reinsurer contracts

Non-EEA subsidiaries of EEA (re)insurers

Non-EEA (re)insurers with EEA subsidiaries without EEA sub-group with EEA parent

Equivalence

21

Global Progress for Equivalence

Bermuda and Switzerland

a Excludes captives and SPVs b Reinsurance supervision granted temporary equivalence for 5 years

Source: Fitch

Bermudaa

Switzerland

Full equivalence

Brazil

USA

Australia

Japanb

Canada

Mexico

Provisional

– Solvency assessment only

22

“..it would be unacceptable to us if firms were to use this

market (reinsurance) primarily as a tool to achieve

regulatory arbitrage..”

(Andrew Bulley, Prudential Regulation Authority 28 April 2016)

23

Longevity Continues to Develop GWP

0

200

400

600

800

1,000

1,200

1,400

1,600

2011 2012 2013 2014 2015

Hannover Re

Source: Fitch

(EURm)

0

100

200

300

400

500

600

2011 2012 2013 2014 2015

SCOR

(EURm)

0

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014 2015

Munich Re

(EURm)

24

1. Deterioration in sector profitability, even if capital remains strong

Run-rate combined ratio stay closer to 100% (2017 forecast is 99.2%)

Return on equity dropped below 10% (2017: 8.0%)

What has changed since sensitivities were first assigned?

Since first assigning these sensitivities in September 2014, interest rates and the risk profile of many

reinsurers have reduced

Where are Negative rating actions most likely?

Individual negative rating actions are possible if a raised combined ratio or sub-10% ROE indicated a

significant impairment in a company’s financial condition

2. Catastrophic loss with interest rate spike

Catastrophic loss in excess of USD70bn coupled with a sudden spike in interest rates of 300bps or more

What Could Lead to a Negative Rating Outlook?

25

Fitch research can be accessed via our website www.fitchratings.com

1. Global Reinsurance Guide 2017 (September 2016)

2. 2017 Outlook: Global Reinsurance (September 2016)

3. Bermuda (Re)Insurers’ Financial Performance (August 2016)

4. Insurance Peer Review: Major European Reinsurers (August 2016)

5. Global Reinsurers’ Mid-Year 2016 Financial Results (August 2016)

6. Asian Reinsurance Markets (August 2016)

7. Latin American Reinsurance (August 2016)

8. Reinsurance in a Solvency II World (June 2016)

Related Research

26

Fitch Ratings’ credit ratings rely on factual information received from issuers and other sources.

Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-

looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future

events or conditions that were not anticipated at the time a rating was issued or affirmed.

The information in this presentation is provided “as is” without any representation or warranty. A Fitch Ratings credit rating is

an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than credit risk,

unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute for information provided to investors by the

issuer and its agents in connection with a sale of securities.

Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The agency does not

provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE

LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.

New York London 33 Whitehall Street

New York

NY 1004

30 North Colonnade

Canary Wharf

London, E14 5GN