Global Reinsurance Highlights 2020 Edition

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Global Reinsurance Highlights 2020 Edition

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Global Reinsurance Highlights | 2020 3 4 Global Reinsurance Peer Review Contributors

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Project Leaders Data Team Publisher Johannes Bender Patrice Mizeski, New York Nicholas Lipinski Taoufik Gharib Antun Zvonar, New York Tel: +44 (0) 203 301 8201 [email protected] Contributors Editorial Team Aishwarya Agarwal, Pune Heather Bayly, London Johannes Bender, Frankfurt Jennie Brookman, Frankfurt Managing editor Craig Bennett, Melbourne Jo Parker, Toronto Wyn Jenkins Rachit Chauhan, Mumbai Richard Smart, Tokyo Tel: +44 (0)203 301 8214 WenWen Chen, Hong Kong [email protected] Hoyt Crance, New York Charles-Marie Delpuech, London Sub editor Koshiro Emura, Tokyo Giulia Filocca, London Ros Bromwich Taoufik Gharib, New York Robert Greensted, London Design & Production Jean Paul Huby Klein, Frankfurt Garrett Fallon Maren Josefs, London Russell Cox Kalyani Joshi, Mumbai Marc-Philippe Juilliard, Paris Milan Kakkad, Mumbai Cover image: Ali Karakuyu, London Shutterstock / Ellerslie Olivier Karusisi, Paris Saurabh Khasnis, Centennial Eiji Kubo, Tokyo Volker Kudszus, Frankfurt Hardeep Manku, Toronto Mark Nicholson, London Dennis Sugrue, London Eunice Tan, Hong Kong Michael Zimmerman, Centennial

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Global Reinsurance Highlights | 2020 5 Contents

8 Soundbites

10 Reinsurance Outlook Black Swan Or Not, COVID-19 Is Disrupting Global Reinsurers’ Profitability

18 Catastrophe Risk Global Reinsurers Face Threat If COVID-19 Losses Are Followed By A Major Catastrophe

25 Lloyd’s Of London Turning The Supertanker: Underwriting At Lloyd’s Market Changes Course

32 Protection Gap COVID-19 Highlights Global Insurance Protection Gap On Climate Change

37 IFRS 17 Reinsurers And IFRS 17: Getting Balance Sheets Ready And On Time

40 APAC APAC’s Costly Catastrophes: Reinsurance And More Required

46 Investments Investment Caution Has So Far Paid Off For Global Reinsurers

52 North American Investment Stress Test COVID-19 Market Volatility Tests North American Reinsurers’ Resilience

59 Cat Bonds In A Correlated Market, Catastrophe Bonds Stand Out

64 Top 40 By Company

66 Global Reinsurers By Country

76 Ratings Definitions

78 Addresses

6 Global Reinsurance Highlights | 2020 Foreword

COVID-19 Pushes Global Reinsurers Further Out On Thin Ice By Johannes Bender and Taoufik Gharib

020 will be remembered for many reasons. The global The Asia-Pacific region’s insurance and reinsurance sector outbreak of the COVID-19 pandemic, greater investor focus has seen its fair share of weather-induced woes over the past 2on environmental, social, and governance issues, the U.S. two years. In APAC’s Costly Catastrophes: Reinsurance And More election, and a record number of natural catastrophes will all make Required, we discuss regional and global reinsurer’s appetite for their way into the history books. For the global reinsurance sector, the region, and its main challenges and opportunities. 2020 was another tough year. Given that reinsurers exist to take on insurance risks, it is not Because of significant pandemic-related losses, elevated surprising that they are more exposed to underwriting, reserving, natural catastrophe claims, and lower investment returns, the and catastrophe risks than to investment risks. However, their sector will again fail to meet its cost of capital. This follows three investment risk has never been negligible, and a decade of low years in which the sector has struggled to meet its cost of capital interest rates and tough underwriting conditions forced reinsurers due to large natural catastrophe losses, adverse loss trends to increase their appetite for investment risk. In Investment in certain U.S. casualty lines, and fierce competition among Caution Has So Far Paid Off For Global Reinsurers, we take a reinsurers. Consequently, in May 2020, S&P Global Ratings revised look at reinsurers’ asset risk appetite over time and how the sector its outlook on the global reinsurance sector to negative from stable, would be affected by several stress scenarios. as we believe business conditions are difficult. In COVID-19 Market Volatility Tests North American In our lead article Black Swan Or Not, COVID-19 Is Disrupting Reinsurers’ Resilience, we conduct an investment asset stress Global Reinsurers’ Profitability, we discuss why we revised the test for the region’s reinsurers, and outline the impact of the results sector outlook to negative after the pandemic started and highlight on capital adequacy. the sector’s main challenges and opportunities with regard to Financial markets have recently proved to be highly correlated, pricing, growth, capital adequacy, and earnings potential. as the COVID-19 pandemic cut a swath through various different Reinsurers have suffered significant natural catastrophe industries. S&P Global Ratings’ article In A Correlated Market, losses in recent years. In Global Reinsurers Face Threat If COVID- Catastrophe Bonds Stand Out answers questions from market 19 Losses Are Followed By A Major Catastrophe, we examine participants about how the insurance-linked securities market has how reinsurers’ risk appetite has changed, and how the sector been faring and what could happen as the pandemic continues. has equipped itself to face future natural catastrophes and rising This year’s Global Reinsurance Highlights captures the key COVID-19-related claims. issues facing reinsurance management, investors, and other In Turning The Supertanker: Underwriting At Lloyd’s Market stakeholders. We hope you enjoy the 2020 edition and welcome Changes Course, we take a closer look at Lloyds’s actions to your feedback on possible enhancements for future years. improve underwriting performance, the prospects for individual syndicates, and the market’s ambitious “Future of Lloyd’s” project. Johannes Bender As the COVID-19 pandemic spread from region to region, it Frankfurt, (49) 69-33-999-196 has drawn attention to a hitherto unnoticed protection gap in [email protected] insured and noninsured property/casualty risks. Although the pandemic’s protection gap had not previously been recognized, Taoufik Gharib other protection gaps have been raising concerns for some time. In New York, (1) 212-438-7253 COVID-19 Highlights Global Insurance Protection Gap On Climate [email protected] Change, we analyze how reinsurers can help to close protection gaps in life, health, cyber, and natural catastrophe insurance. The implementation of International Financial Reporting Standards (IFRS) 17 requires insurers and reinsurers—globally, but excluding those based in the U.S.—to restate their balance- sheet comparatives with new key metrics. In Reinsurers And IFRS 17: Getting Balance Sheets Ready And On Time, we discuss the main challenges for reinsurers and users of financial statements resulting from IFRS 17.

Global Reinsurance Highlights | 2020 7 Soundbites

Reinsurance Outlook Taoufik Gharib, Johannes Bender, Hardeep S Manku, and Ali Karakuyu • Once again, the global reinsurance sector won’t earn its cost of capital in 2020, just as it has struggled to do so in the past three years. Hence, our sector outlook remains negative. • The top 20 global reinsurers reported about $12 billion in COVID-19 losses year-to-date. We now forecast that this cohort will generate a combined ratio of 103%–108% in 2020 and 97%–101% in 2021, and a return on equity of 0%–3% and 5%–8%, respectively. • Sector capitalization remains robust with no material capital destruction so far, benefiting from capital raises in 2020 and market recovery from March lows. • Property and casualty reinsurance pricing has been hardening during the past 18 months in reaction to natural catastrophe and pandemic losses, as well as alternative capital and retrocession capacity constraints. We expect the reinsurance pricing positive momentum will carry into 2021. • Life reinsurers are facing higher mortality losses caused by the pandemic, but the impact is manageable.

Catastrophe Risk Charles-Marie Delpuech and Johannes Bender • If 2020 sees insured catastrophe losses of $60 billion–$70 billion—an average level—at least eight of the top 20 reinsurers could suffer a capital event. • The investment impact of COVID-19, combined with pandemic-linked losses, have eroded the top 20 global reinsurers’ combined catastrophe budget and earnings buffer for a severe catastrophe event in 2020 to about $14 billion, from about $32 billion. • We expect those reinsurers less affected by COVID-19, which can afford to deploy capital, are likely to take a more offensive stand at the next renewals, while others take a more defensive tack.

Lloyd’s Of London Robert J Greensted and Ali Karakuyu • The Lloyd’s market’s underlying underwriting performance is continuing to improve after 10 consecutive quarters of re/insurance rate improvement. • Syndicates have struggled to break even following several years of above-average natural catastrophe losses. Mature syndicates have significantly outperformed less-established syndicates. • We consider “The Future at Lloyd’s” blueprint to be ambitious, with a high degree of execution risk. That said, success will ensure the market’s relevance.

Protection Gap Olivier J Karusisi and Dennis P Sugrue • The pandemic has highlighted the need for governments to improve their economies’ resilience to big financial shocks, like those associated with natural catastrophes and epidemic diseases. Government-backed insurance solutions, supported by the (re)insurance industry, could protect government budgets, mitigating the potential for economic instability. • The insurance sector, especially reinsurers, has a wealth of data and experience in assessing evolving risks such as climate change. This could enable governments, companies, and individuals to make better decisions. • For reinsurers, helping to close the protection gap—the difference between insured and total losses—may provide diversification of risk exposure and help to attract, educate, and develop new insurance markets that can provide growth potential. Ultimately, it could reinforce reinsurers’ relevance for potential new clients.

IFRS 17 Volker Kudszus, Eiji Kubo, Robert J Greensted, Eunice Tan, and Mark D Nicholson • Recent amendments to IFRS 17 eliminated significant accounting mismatches for primary insurers that would have created risks for reinsurers. • Despite this improvement, we believe the transition to IFRS 17, including the adoption of new metrics, is a major challenge for reinsurers and users of their financial reporting. • We expect pending updates to GAAP to somewhat improve the comparability between those standards and IFRS 17, but differences will remain. • The new metrics could affect reinsurers’ risk appetite and bring about shifts in business and financial strategies that could, in the long term, have a ratings impact.

8 Global Reinsurance Highlights | 2020 Soundbites

APAC Eunice Tan, Koshiro Emura, Craig A Bennett, WenWen Chen, and Charles-Marie Delpuech • Reinsurance protection is becoming essential, and more costly, for insurers as extreme weather events rise. • Costlier protection in markets such as Japan and Australia will eat into the underwriting margins of direct insurers, prompting a relook at catastrophe appetites. • China’s wide gap between economic and insurance losses shows the need to raise catastrophe reinsurance awareness and demand. • Catastrophe models are growing in importance as Asia-Pacific insurers enhance oversight of weather-induced losses amid global warming concerns.

Investments Marc-Philippe Juilliard, Johannes Bender, Ali Karakuyu, Dennis P Sugrue, and Charles-Marie Delpuech • The stress test S&P Global Ratings performed to see how reinsurers’ capital adequacy has been affected by the economic impact of the COVID-19 pandemic shows most of the top 20 global reinsurers would retain a smaller, but positive buffer. • Reinsurers’ underwriting activity is, by definition, more volatile, representing about two-thirds of their capital needs, compared with an average of less than half for primary insurers. • Although reinsurers’ appetite for asset risk is therefore smaller than that of primary insurers, persistent low interest rates prompted a shift to riskier and more illiquid assets over the past decade.

North American Investment Stress Test Taoufik Gharib, Hardeep S Manku, and Saurabh B Khasnis • COVID-19 has brought the global economy to a screeching halt, spurring unprecedented financial market volatility and policy responses. • S&P Global Ratings’ investment stress tests have shown that almost all of its rated North American reinsurers are able to maintain capital adequacy in line with the ratings for now. • North American reinsurers are carrying thinner capital buffers than in the past. Therefore, those with riskier investment strategies and outsize natural catastrophe exposure are at risk if market losses intensify and 2020 ends up being an above-average catastrophe year. • We will likely take negative rating actions if COVID-19 becomes a capital event and reinsurers aren’t able to rebuild their capitalization over the next 12 to 24 months.

Cat Bonds Maren Josefs, Ali Karakuyu, and Johannes Bender • Financial markets have recently proved to be highly correlated, as the COVID-19 pandemic cut a swath through various different industries. However, catastrophe bonds usually protect against specific perils across different regions and cover predominantly residential risks, with limited exposure to commercial business. Hence, S&P Global Ratings does not expect investors in cat bonds to suffer significant losses as a result of COVID-19 and hence future new issuance to continue.

Global Reinsurance Highlights | 2020 9 Reinsurance Outlook

Black Swan Or Not, COVID-19 Is Disrupting Global Reinsurers’ Profitability

By Taoufik Gharib, Johannes Bender, Hardeep S Manku, and Ali Karakuyu

When analyzing the global reinsurance sector, S&P Global Ratings reviews operating performance on a multiyear basis rather than a single year’s results because of the nature of the business, which can result in elevated losses for any given year. The industry struggled to earn its cost of capital (COC) in 2017 and 2018, and barely did so in 2019. Reinsurance pricing reacted in 2019 leading up to the January 2020 renewals, but price increases were mostly in the U.S. and Japan, confirming the regionalization of pricing trends. Shutterstock / Ellerslie / Shutterstock

10 Global Reinsurance Highlights | 2020 Reinsurance Outlook

Chart 1: Top 40 global reinsurers rating distribution* ntering 2020, the expectations Chart 1: Top 40 global reinsurers rating distribution*16 were that this year the reinsurance 16 Ecaravan was set on the right route and reinsurers would improve their results. However, COVID-19 losses and the ensuing market volatility became the 8 straw that broke the camel’s back. 8 Once again, the sector will not earn 6 6 6 6 its COC this year, bearing in mind it has 3 struggled in the past three years to do 3 so due to large natural catastrophe 1 1 losses, adverse loss trends in certain U.S. casualty lines, and fierce competition AA+ AA AA- A+ A A- among reinsurers exacerbated by AA+ AA AA- A+ A A- *Financial strength ratings on core operating subsidiaries as of Aug. 31, 2020. alternative capital. Therefore, on May 18, *FinancialSource: S&P strength Global ratingsRatings. on core operating subsidiaries as of Aug. 31, 2020. 2020, we revised our outlook on the global Source:Copyright S&P © Global2020 by Ratings. Standard & Poor's Financial Services LLC. All rights reserved. reinsurance sector to negative from Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. stable, as we believe business conditions are difficult. Our negative outlook is an overall Chart 2: Top 40 global reinsurers outlook distribution* indicator of credit trends over the next 12 Chart 2: Top 40 global reinsurers outlook distribution* months including distribution of outlooks Positive (0%) on ratings, existing sector-wide risks, and Positive (0%) emerging risks. Therefore, our negative Negative (17%) outlook indicates that we expect to take Negative (17%) additional negative rating actions on reinsurers over the next 12 months. As of August 31, 2020, 17% of ratings on the top 40 reinsurers carry a negative outlook (Charts 1 and 2). In his 2007 book, “The Black Swan”, Nassim Nicholas Taleb coined the term “a black swan event” for an unpredictable catastrophic event. Whether the Stable (83%) pandemic is a black swan event or not, Stable (83%) in the first six months of 2020, the top 20 global reinsurers reported COVID- 19 losses of about $12 billion, which *As of Aug. 31, 2020. Source: S&P Global Ratings. are an earnings event for the industry *As of Aug. 31, 2020. Source: S&P Global Ratings. on a stand-alone basis. Combined with Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. other insurance losses, notably natural catastrophes and capital market volatility including investment losses, the sector global reinsurers’ capital adequacy Alternative capital capacity, could swing to a loss for the year. Thus, stillChart redundant 3: Deaths at the from ‘AA’ pandemics, confidence from especially antiquity collateralized to the modern reinsurance, era Chart 3: Deaths from pandemics, from antiquity to the modern era DETAIL the sum of these losses could become a level at year-end 2019. This cohort of ON RIGHTwill remain constrained in the near DETAIL capital event for the sector in 2020. companies0 200 400 raised 600 800 close 1000 to 1200 $10 1400 billion 1600 1800 in1900ON RIGHTterm2020 1900as’10 alternative ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 capital ’90 ’00 ’10 2020 providers 0 200 400 600 800 1000 1200 1400 1600 1800 1900 2020 1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020

We have revised our 2020 P/C capital this year, some Newof itWorld to prefund are reelingSpanish from Flu their capital being Antonine Plague Smallpox Third Plague Swine Flu New World Spanish1918-1920 Flu combined ratio expectation for the top upcomingAntonine165-180 maturities, A.D. Plague Smallpox1520-unknownand the restThird 1885is Plaguetrapped for four years Swine2009-unknownin a Flu row and 1918-192050 million 20 global reinsurers to 103%–108%, incremental165-1805 million A.D. capital. 1520-unknown25-55 million 188512 millionits underperformance over2009-unknown200,000 the past 5 million 25-55 million 12 million 50 million 200,000 including a natural catastrophe load of Most reinsurers halted theirItalianPlague share few years. Furthermore, the concerns Asian Flu Ebola 8–10 percentage points (pps), reserve buybacks to bolster their balanceItalianPlague1629-1631 sheets regardingAsian1957-1958 any Flu potential Ebola2014-2016leakage from 1 million Black Death 1629-1631 1957-19581 million 2014-201611,000 releases of 2–3 pps, and COVID-19 impact once COVID-19Black1347-1352 became Death a real 1threat. million In business1 millioninterruption 11,000into property of 6–8 pps, as well as an ROE of 0%–3%. addition, there1347-135275-200 is a millionformation of a Russiancouple Flu coverage, in addition to potential 75-200 million Russian1889-1890 Flu Hong Kong Flu MERS The reinsurance sector remains of startups that would like to capitalize1889-18901 million opportunitiesHong1968-1970 Kongin other Flu assetMERS2015 classes will 1 million 1968-19701 million 2015Less than 1,000 well capitalized, with the top 20 on the hardening reinsurance pricing. likely affect1 million capital providers’Less thanappetites. 1,000 Plague of Great Plague PlagueJustinian of Greatof London Plague Yellow Fever SARS COVID-19 Justinian541-542 A.D. of1665 London YellowLate 1800s Fever SARS2002-2003 COVID-192020 541-54230-50 million A.D. 166575,000-100,000 Late150,000 1800s Global2002-2003Less Reinsurance than 1,000 Highlights2020(as of Aug. | 2020 31) 11 30-50 million 75,000-100,000 150,000 Less than 1,000 (as849,389 of Aug. 31) 849,389 Sources: The Washington Post. Johns Hopkins University. Sources: The Washington Post. Johns Hopkins University. Copyright 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 4: Capital adequacy of the top 20 global reinsurers Chartby conﬁdence 4: Capital level adequacy of the top 20 global reinsurers by conﬁdence level 70% 70%68% 68% 2014 51% 2014 51%44% 47% 2015 43% 44% 47% 2015 35% 43% 2016 33% 35% 2016 25% 33% 2017 23% 21% 25% 18% 2017 14% 23%14% 21%15% 2018 11% 14%18% 14% 14% 8% 15% 2018 11% 6% 5% 14% 2019 8% 2% 6% 5% 2019 2% -4% (0.1) -5% -6%-4% (0.1) -5% AAA -6% AA A BBB AAA AA A BBB Source: S&P Global Ratings’ risk-based insurance capital adequacy model. Source:Copyright S&P © Global2020 by Ratings’ Standard risk-based & Poor’s insuranceFinancial Services capital adequacy LLC. All rights model. reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 5: 2019 top 20 global reinsurers capital stress test Chart 5: 2019 top 20 global reinsurers capital stress test 90 9080 80 71.5 70 71.5 62.6 7060 62.6 6050 46.4 5040 46.4 37.5

(Bil. $) 33.7 40 37.5 32.5

(Bil. $) 30 33.7 32.5 3020 20.6 20.3 18.0 17.2 20.6 20.3 18.0 17.2 12.2 10.3 2010 6.2 12.2 10.3 3.1 2.4 10 6.2 0 3.1 2.4 0

2002 U.S. R/I 2002 U.S. R/I 50% equity shock 30% equity shock 50% equity shock 30% equity shock reserve strengthening 1/50 year aggregate cat. 1/10 year aggregate cat. 1/250 year1/100 aggregate year aggregate cat. cat. Double BBB (Selling AAA) 10% reserve strengthening COVID-19 (ﬁrst half of 2020) reserve strengthening 1/50 year aggregate cat. 1/10 year aggregate cat. RoC

Chart 6: Reinsurers weighted-average cost of capital Chartversus 6: return Reinsurers on capital weighted-average cost of capital versus return on capital 16.6 18 15.9 18 16.6 16 15.9 14.3 16 14 14.3 14 11.0 11.6 12 10.5 10.4 9.9 11.0 11.6 12 9.2 10.5 10 9.9 8.7 9.0 10.4 8.8 7.9 8.4 9.2 8.1 8.7 9.0 7.7 7.4 7.8 8.8 7.8 7.6 (%) 10 7.1 7.2 7.2 8 7.9 8.4 6.7 8.1 7.7 7.4 7.8 6.6 7.8 6.9 7.6 (%) 7.2 8 7.1 6.7 7.2 6 6.6 6.9 4.5 5.8 6.0 6 4.5 2.9 3.2 4 5.8 6.0 2.1 4.4 4.7 2.9 2.4 2.9 3.2 4 4.0 3.8 2.1 2 4.4 4.7 3.3 2.9 3.0 2.4 4.0 3.8 2.4 1.5 2.7 0.7 2 2.2 3.3 1.9 1.8 3.0 2.2 2.3 1.9 0.7 0 2.4 2.7 0.7 2.2 1.9 1.8 2.2 2.3 1.5 1.9 0.7 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Q1 2020Q2 Weighted-average Return on capital 10-year U.S. 2020 2020 Wcosteighted-average of capital Return on capital 10-yeartreasuries U.S. cost of capital treasuries Source: S&P Global Ratings, Bloomberg. Source:Copyright S&P © Global2020 by Ratings, Standard Bloomberg. & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 7: Global reinsurance capital by source Chart 7: Global reinsurance capital by source 625 595 605 590 575 565 585 625 540 595 605 590 575 565 585 505 540 470 455 505 410 470 385 400 455 410 385 340 400 340 516 530 511 493 514 488 499 490 516 530 461 511 493 514 488 499 447 428 490 (Bil. $) 388 461 368 378 447 428 (Bil. $) 388 321 378 368 321 89 97 95 91 17 22 19 22 24 28 44 50 64 72 81 44 50 64 72 81 89 97 95 91 200617 200722 200819 200922 201024 20281 1 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Q1 Traditional capital Alternative capital Global reinsurer capital2020 Traditional capital Alternative capital Global reinsurer capital Sources: Aon Securities Inc. Sources: Aon Securities Inc. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 8: Top global life reinsurers average return on equity Chart 8: Top global life reinsurers average return on equity 16 16 14 13.6 14 13.6 12 12 11.2 11.2 10.3 10.2 10 10.3 10.2 10 8.9 8 8.9 8 (%)

(%) 6 6.0 6 6.0 4 4.0 4 4.0 2 2 0 0 2015 2016 2017 2018 2019 2020F 2015 2016 2017 2018 2019 2020F F: Forecast. Source: S&P Global Ratings’ estimated ﬁgures based on life F:reinsurance Forecast. Source: books of S&P the Globalfollowing Ratings’ reinsurers: estimated China ﬁgures Re, Hannover based on Re, life Munich Re, reinsuranceReinsurance books Group of of the America, following SCOR, reinsurers: and Swiss China Re. Re, Hannover Re, Munich Re, Reinsurance Group of America, SCOR, and Swiss Re. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 1: Top 40 global reinsurers rating distribution* 16

6 6

AA+ AA AA- A+ A A-

Chart 2: Top 40 global reinsurers outlook distribution*

Positive (0%)

Negative (17%)

Stable (83%) Reinsurance Outlook

Overall reinsurance pricing has been Chart 3: Deaths from pandemics, from antiquity to the modern era hardening during the past 18 months, DETAIL ON RIGHT with tightening terms and conditions, 0 200 400 600 800 1000 1200 1400 1600 1800 1900 2020 1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020 further supported by COVID-19 losses. New World Spanish Flu Reinsurers were already dealing with Antonine Plague Smallpox Third Plague Swine Flu 165-180 A.D. 1520-unknown 1885 1918-1920 2009-unknown adverse loss trends in U.S. casualty and 5 million 25-55 million 12 million 50 million 200,000 certain specialty lines, which might be ItalianPlague Asian Flu Ebola exacerbated by the pandemic-induced 1629-1631 1957-1958 2014-2016 1 million stresses and the increasing frequency Black Death 1 million 11,000 1347-1352 and severity trends owing to social 75-200 million Russian Flu 1889-1890 Hong Kong Flu MERS inflation. 1 million 1968-1970 2015 COC has increased and retrocession 1 million Less than 1,000 Plague of Great Plague capacity is expensive. Investment income Justinian of London Yellow Fever SARS COVID-19 is bound to suffer over the next couple of 541-542 A.D. 1665 Late 1800s 2002-2003 2020 30-50 million 75,000-100,000 150,000 Less than 1,000 (as of Aug. 31) years as portfolios face lower-for-longer 849,389 interest rates, higher credit losses, and Sources: The Washington Post. Johns Hopkins University. increased credit migration. Therefore, Copyright 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. higher technical underwriting margins are needed to make up for the shortfall in investment income and for insured epidemics as recently as in the past on policy language. Most standard losses, which we believe will carry the two decades: Ebola (2014–2016), MERS business interruption and aviation positive pricing momentum into 2021. (2015),Chart Swine 4: flu Capital (2009), adequacy and SARS (2002–of the toppolicies 20 global only reinsurers cover losses from physical We recognize the high degree of 2003).by So conﬁdence clearly, pandemics level aren’t rare. damage events—excluding infectious 70% uncertainty regarding the rate of spread The world has become a global diseases. For example,68% U.S. policies for and peak of the coronavirus outbreak, village aided by low-cost international the most part exclude communicable2014 51% and the potential for a second wave in the air travel, which has exacerbated the diseases. For business44% interruption 47% 2015 in the 43% fall. There is also uncertainty around the exponential spread of the virus. This time,35% U.S., there could be legislative attempts2016 33% shape of the recovery, how the economy the economic impact 25%may have been to retroactively expand insurance2017 23% 21% 18% and consumers will react to various more dramatic14% because of the14% increased contract15% coverage. We believe that2018 such 11% 14% 8% stimuli, and whether we will revisit interconnectivity and interdependence6% 5% efforts would be unsuccessful,2019 unless market lows and volatility that we saw of our global2% systems as well as the the government provides resources to in March of this year. Furthermore, the unexpected and-5% rushed -4% lockdowns. insurers to meet these obligations. (0.1) -6% risk of legal, regulatory, and legislative In the firstAA Ahalf of 2020,A Athe S&P AOutside of the U.S.,BBB there is an element intervention that redefines coverage Global Ratings’ cohort of the top 20 of uncertainty about whether business terms remains an overhang on the sector globalSource: reinsurers S&P Global recognized Ratings’ risk-based about $12insurance interruption capital adequacy claims model. will be triggered in the short term. billionCopyright in COVID-19 © 2020 by lossesStandard or& Poor’s about Financial 6 and Services covered LLC. All by rights re/insurers reserved. and may be pps on the combined ratio based on subject to legal proceedings, particularly Reinsurers Are Debating Whether annualized earned premiums. These for policies with less definitive wordings The Pandemic Is A Black Or A White booked figures are mostly incurred but around pandemic coverage. We therefore Swan not reported losses representing first- do not rule out that either regulatory or According to Johns Hopkins University, order impactsChart 5: from 2019 the top outbreak, 20 global andreinsurers legal capital pressure stress to pay test claims may arise, total global COVID-19 cases reached 25.4 include event90 cancellation, (contingent) with the potential for further volatility for million at the end of August 2020, with business interruption,80 aviation, directors reinsurers. Furthermore, we expect loss about 850,000 deaths in 188 countries and officers, errors71.5 and omissions, credit adjustment expenses (LAE) to increase 70 62.6 and regions. Given the rapid propagation including surety60 and mortgage, mortality, with a rise in litigation. of COVID-19 globally, some industry travel, and workers’50 compensation.46.4 We experts rushed to label the pandemic believe additional40 direct and37.5 indirect Reinsurance Renewals Indicate (Bil. $) 33.7 32.5 as a black swan event. However, Taleb COVID-19-related30 losses could emerge A Firming Market, But Not 20 20.6 20.3 18.0 17.2 argues that COVID-19 isn’t a black swan over the coming quarters. Necessarily A Hard12.2 10.3 One Yet 10 6.2 but reveals the fragility of our systems. A potential rise in corporate defaults The sentiment for rate increases3.1 2.4 had 0 In contrast, the September 11, 2001, will hit directors and officers policies, been in place for the past 18 months or attacks are viewed as a black swan. which have already been affected by so due to the confluence of many factors, Indeed, the world has witnessed many claims inflation2002 U.S. R/Iin recent years in the U.S. but the 2019 reinsurance price rises 50% equity shock 30% equity shock pandemics throughout millennia (Chart For business interruption and aviation, lagged those in the primary insurance reserve strengthening 1/50 year aggregate cat. 1/10 year aggregate cat. 1/250 year1/100 aggregate year aggregate cat. cat. Double BBB (Selling AAA) 10% reserve strengthening 3). It experienced at least four pandemics/ the impact will vary by region and depend and retrocessionCOVID-19 (ﬁrst half of 2020) markets. RoC

Chart 6: Reinsurers weighted-average cost of capital versus return on capital

16.6 18 15.9 16 14.3 14 11.0 11.6 12 10.5 9.9 10.4 9.2 8.7 9.0 8.8 10 7.9 8.4 8.1 7.7 7.4 7.8 7.8 7.6

(%) 7.2 8 7.1 6.7 7.2 6.6 6.9 6 4.5 5.8 6.0 4 2.9 3.2 4.7 2.9 2.4 2.1 4.4 4.0 2 3.8 3.3 3.0 0.7 2.2 2.2 2.3 2.4 1.5 2.7 0 1.9 1.8 1.9 0.7 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2 2020 2020 Weighted-average Return on capital 10-year U.S. cost of capital treasuries

Chart 7: Global reinsurance capital by source 625 595 605 590 575 565 585 540 505 470 455 410 385 400 340 516 530 511 493 514 488 499 461 490 447 428 (Bil. $) 388 378 368 321

89 97 95 91 17 22 19 22 24 28 44 50 64 72 81 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Traditional capital Alternative capital Global reinsurer capital

Chart 8: Top global life reinsurers average return on equity

14 13.6

12 11.2 10.3 10.2 10 8.9 8 (%) 6 6.0

4 4.0

0 2015 2016 2017 2018 2019 2020F F: Forecast. Source: S&P Global Ratings’ estimated ﬁgures based on life reinsurance books of the following reinsurers: China Re, Hannover Re, Munich Re, Reinsurance Group of America, SCOR, and Swiss Re.

6 6

AA+ AA AA- A+ A A-

*Financial strength ratings on core operating subsidiaries as of Aug. 31, 2020. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Reinsurance Outlook

Chart 2: Top 40 global reinsurers outlook distribution*

Positive (0%) reinsurers expected pricing to rebound Negative (17%) the loss experience and cedents’ ability coming into 2020, with a major pick-up “Pandemic-related to manage LAE. Terms and conditions seen during midyear renewals, which considerations didn’t really also improved, with pandemic and cyber were promising although somewhat start to fully factor in until exclusions put in and LAE caps included below what the sector had hoped to reflect the adverse developments for. Despite the risks from COVID-19 June renewals, which gave on hurricanes Irma and Michael losses becoming prominent, pandemic-related a further boost to pricing.” due to assignment of benefits issues. considerations didn’t really start to fully Despite the magnitude of rate increases, factor in until June renewals, which gave the reinsurance sector’s net exposure a further boost to pricing. to Florida is relatively down from the During theStable January (83%) renewals, global previous year. reinsurance pricing saw an aggregate Finally, the July renewals saw similar increase in the low-to-mid single digits tempered price gains. While most of the upward pricing trends depending on but it was not an across-the-board reinsurers retained their participation, the region, cedent, and line of business. increase,*As of withAug. 31, pricing 2020. Source: dynamics S&P Global varying Ratings. the market shares shifted slightly to the However, outside the U.S., rate increases by region,Copyright line © 2020of business, by Standard and & Poor’s cedents’ Financial large Services European LLC. All rights reinsurers, reserved. as they upped were relatively subdued but positive, performance. While property and their participation while a few North a change from historical trends. In a property-catastrophe price increases American reinsurers pulled back. nutshell, overall reinsurance pricing has were satisfactory at best, a more Florida June renewals experienced been hardening with tightening terms promisingChart aspect 3: Deaths of the from renewals pandemics, was the from dislocation. antiquity to theThe modern renewals era were and conditions, further supported by revival in U.S. casualty pricing, albeit still completed, but it wasn’t smooth sailing. the outbreak losses, which will carry the DETAIL insufficient, which in the past had been ON RIGHTLimits were taken out of the market, for momentum into 2021. 0 200 400 600 800 1000 1200 1400 1600 1800 1900 2020 1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020 characterized by subsidization from U.S. instance, the non-renewal of the Florida

New World Spanish Flu property-catastropheAntonine Plague business.Smallpox Third PlagueHurricane Catastrophe FundSwine limit Flu of $920 Capitalization Remains A Strength 165-180 A.D. 1520-unknown 1885 1918-1920 2009-unknown April5 million renewals are 25-55primarily million Asia-12 millionmillion and50 million$560 million limit200,000 reduction The reinsurance sector benefits from Pacific centric with Japan being the by Citizens, Florida insurer of last resort. robust capital adequacy, which remains

ItalianPlague largest market. Due to large losses from But, even Asianwith Flu the reducedEbola demand, the a pillar of strength for most reinsurers. 1629-1631 1957-1958 2014-2016 typhoons Jebi,Black Hagibis, Death and Faxai,1 million and rates were1 millionsignificantly higher.11,000 Unlike in This strength softens the potential 1347-1352 related adverse75-200 reserve million developments,Russian Flu previous years when alternative capital blow from the severity risks that the reinsurers had been reaching out1889-1890 to led on pricing,Hong Kong this Flu yearMERS traditional industry is exposed to. For example, 1 million 1968-1970 2015 their cedents much in advance of the reinsurers drove1 million pricing forLess a change. than 1,000 natural catastrophes, long-tail casualty renewals.Plague In the of end, pricingGreat Plague for wind and Traditional reinsurers dealing with reserves, and pandemics, to name a few, Justinian of London Yellow Fever SARS COVID-19 flood exposures541-542 A.D. rose by1665 up to 50% onLate 1800shigher losses,2002-2003 constrained2020 alternative are risks that reinsurers assume in their 30-50 million 75,000-100,000 150,000 Less than 1,000 (as of Aug. 31) loss-affected business but it left some capital capacity, and higher849,389 retrocession underwriting operations. reinsurers hoping to get to a quicker costs, pushed hard for higher rates as the The reinsurance industry often serves paybackSources: somewhat The Washington disappointed. Post. Johns Hopkins University.pandemic added another concern to the as a backstop for the primary insurance ThisCopyright market 2020 byis Standardlargely & servedPoor’s Financial by Serviceslist. The LLC. rate All rightsincreases reserved. averaged 25%– market. Therefore, to cope with these traditional capital and there wasn’t much 35% but the range was much broader severity risks and the ensuing volatility, of a capital constraint, which may have (in some cases up to 80%) depending on global reinsurers tend to be strongly capitalized with generally conservative Chart 4: Capital adequacy of the top 20 global reinsurers investment strategies (Chart 4). by conﬁdence level The top 20 global reinsurers’ 70% capitalization strengthened in 2019 and 68% 2014 was 8% redundant at the ‘AA’ confidence 51% level relative to 5% in 2018, because of 44% 47% 2015 43% a strong capital market recovery. This 35% 2016 33% cohort lost their capital redundancy at 25% 2017 23% 21% 18% the ‘AAA’ confidence level in the past three 14% 14% 15% 2018 11% 14% 8% years because of record catastrophe 6% 5% 2019 2% losses in 2017 and 2018, adjustments to

-4% the large global reinsurers’ asset liability (0.1) -5% -6% management and longevity risk capital AAA AA A BBB charges, share buybacks, and special Source: S&P Global Ratings’ risk-based insurance capital adequacy model. dividends. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Given the extreme turbulence in the

Global Reinsurance Highlights | 2020 13

Chart 5: 2019 top 20 global reinsurers capital stress test

90 80 71.5 70 62.6 60 50 46.4 40 37.5

(Bil. $) 33.7 32.5 30 20 20.6 20.3 18.0 17.2 12.2 10.3 10 6.2 3.1 2.4 0

2002 U.S. R/I 50% equity shock 30% equity shock

reserve strengthening 1/50 year aggregate cat. 1/10 year aggregate cat. 1/250 year1/100 aggregate year aggregate cat. cat. Double BBB (Selling AAA) 10% reserve strengthening COVID-19 (ﬁrst half of 2020) RoC

Impact on the top 20 BBB excess capital A excess capital AA excess capital reinsurers’ capitalization

Chart 6: Reinsurers weighted-average cost of capital versus return on capital

16.6 18 15.9 16 14.3 14 11.0 11.6 12 10.5 9.9 10.4 9.2 8.7 9.0 8.8 10 7.9 8.4 8.1 7.7 7.4 7.8 7.8 7.6

Chart 7: Global reinsurance capital by source 625 595 605 590 575 565 585 540 505 470 455 410 385 400 340 516 530 511 493 514 488 499 461 490 447 428 (Bil. $) 388 378 368 321

89 97 95 91 17 22 19 22 24 28 44 50 64 72 81 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Traditional capital Alternative capital Global reinsurer capital

Chart 8: Top global life reinsurers average return on equity

14 13.6

12 11.2 10.3 10.2 10 8.9 8 (%) 6 6.0

4 4.0

6 6

AA+ AA AA- A+ A A-

Chart 2: Top 40 global reinsurers outlook distribution*

Positive (0%)

Negative (17%)

Stable (83%)

Chart 3: Deaths from pandemics, from antiquity to the modern era

DETAIL ON RIGHT

0 200 400 600 800 1000 1200 1400 1600 1800 1900 2020 1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020

New World Spanish Flu Antonine Plague Smallpox Third Plague Swine Flu 165-180 A.D. 1520-unknown 1885 1918-1920 2009-unknown 5 million 25-55 million 12 million 50 million 200,000

ItalianPlague Asian Flu Ebola 1629-1631 1957-1958 2014-2016 Black Death 1 million 1 million 11,000 1347-1352 75-200 million Russian Flu 1889-1890 Hong Kong Flu MERS 1 million 1968-1970 2015 1 million Less than 1,000 Plague of Great Plague Justinian of London Yellow Fever SARS COVID-19 541-542 A.D. 1665 Late 1800s 2002-2003 2020 30-50 million 75,000-100,000 150,000 Less than 1,000 (as of Aug. 31) 849,389

Chart 4: Capital adequacy of the top 20 global reinsurers by conﬁdence level 70% 68% 2014 51% 44% 47% 2015 43% 35% 2016 33% 25% 2017 23% 21% 18% 14% 14% 15% 2018 11% 14% 8% 6% 5% 2019 2%

-5% -4% (0.1) -6% Reinsurance Outlook AAA AA A BBB

capital markets earlier this year and the Chart 5: 2019 top 20 global reinsurers capital stress test uncertainty around COVID-19 losses, 90 reinsurers have halted their share 80 repurchases, a few have curtailed their 71.5 70 62.6 dividends due to regulatory guidance, 60 and many have raised capital that 50 46.4 totaled close to $10 billion year-to-date, 40 37.5 (Bil. $) 33.7 32.5 to bolster their balance sheets, with 30 20 20.6 20.3 18.0 17.2 some aiming to take advantage of more 12.2 10.3 10 6.2 favorable reinsurance pricing. 3.1 2.4 0 This capital took the form of debt, hybrids, and even common equity, which should cushion against what seems to 2002 U.S. R/I 50% equity shock 30% equity shock be an active catastrophe year. We believe reserve strengthening 1/50 year aggregate cat. 1/10 year aggregate cat. 1/250 year1/100 aggregate year aggregate cat. cat. Double BBB (Selling AAA) 10% reserve strengthening capitalization will remain a strength for COVID-19 (ﬁrst half of 2020) RoC

(%) 7.2 19 losses will emerge next year, the respectively8 (defined as the weighted- widening.7.1 6.7 7.2 6.6 6.9 earnings picture will likely improve in average6 cost of capital). The impact of 2017 However, the capital markets’ 4.5 5.8 6.0 2021 as reinsurance rate increases and 20184 natural catastrophe losses, loss surprising quick recovery2.9 after3.2 the first 4.7 2.9 2.4 2.1 4.4 4.0 2 3.8 3.3 are earned, and assuming COVID-19 creep, and investment market volatility in 3.0quarter through the end of August0.7 has 2.2 2.2 2.3 2.4 1.5 2.7 losses are contained within the current fourth-quarter0 2018, all played a significant1.9 1.8 provided some—perhaps1.9 temporary— 0.7 aggregate estimates. part in these2005 results.2006 2007 2008 2009 2010 2011 2012 2013relief 2014 to 2015 reinsurers. 2016 2017 But, 2018 credit2019 Q1 risk Q2within 2020 2020 The Industry Has Struggled To Earn Its The improvedWeighted-average investment returnsReturn in fixed-incomeon capital portfolios10-year U.S. remains elevated, cost of capital treasuries

Table 1: Top 20 global reinsurers combined ratio andSource: ROE S&P performance Global Ratings, Bloomberg. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. (%) 2015 2016 2017 2018 2019 2020F 2021F Combined ratio 90.7 95.1 109.0 101.0 101.0 103-108 97-101 (Favorable)/unfavorable reserve (6.5) (6.0) (4.6) (4.7) (1.0) (2)-(3) (2)-(3) developments Natural catastrophe losses impact on 2.8 5.7 17.1 9.3 7.2 8-10 8-10 the combined ratio Chart 7: Global reinsurance capital by source Accident-year combined ratio excluding 94.5 95.4 96.6 96.3 94.8 92.0 625 91.0 595 605 590 575 565 585 natural catastrophe losses, COVID-19 540 losses, and reserve developments 505 470 455 COVID-19 losses impact on the N.A. 410 N.A N.A. N.A. N.A. 6-8 1-2 385 400 combined ratio 340 516 530 Return on equity 10.2 8.3 1.6 3.0 511 4939.2 514 4880-3 499 5-8 461 490 447 428 F: Forecast. N.A.: Not applicable. The top 20 global reinsurers(Bil. $) are: Alleghany, Arch, Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, 368 388 378 Hannover Re, Hiscox, Lancashire, Lloyd’s, Markel, Munich Re, PartnerRe,321 Qatar Ins, RenaissanceRe, SCOR, Sirius, and Swiss Re.

89 97 95 91 17 22 19 22 24 28 44 50 64 72 81 14 Global Reinsurance Highlights | 2020 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Traditional capital Alternative capital Global reinsurer capital

Chart 8: Top global life reinsurers average return on equity

14 13.6

12 11.2 10.3 10.2 10 8.9 8 (%) 6 6.0

4 4.0

6 6

AA+ AA AA- A+ A A-

Chart 2: Top 40 global reinsurers outlook distribution*

Positive (0%)

Negative (17%)

Stable (83%)

Chart 3: Deaths from pandemics, from antiquity to the modern era

DETAIL ON RIGHT

0 200 400 600 800 1000 1200 1400 1600 1800 1900 2020 1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020

New World Spanish Flu Antonine Plague Smallpox Third Plague Swine Flu 165-180 A.D. 1520-unknown 1885 1918-1920 2009-unknown 5 million 25-55 million 12 million 50 million 200,000

Chart 4: Capital adequacy of the top 20 global reinsurers by conﬁdence level 70% 68% 2014 51% 44% 47% 2015 43% 35% 2016 33% 25% 2017 23% 21% 18% 14% 14% 15% 2018 11% 14% 8% 6% 5% 2019 2%

-5% -4% (0.1) -6% AAA AA A BBB

Chart 5: 2019 top 20 global reinsurers capital stress test

90 80 71.5 70 62.6 60 50 46.4 40 37.5

(Bil. $) 33.7 32.5 30 20 20.6 20.3 18.0 17.2 12.2 10.3 10 6.2 3.1 2.4 0

2002 U.S. R/I 50% equity shock 30% equity shock

which will test the sector’s investment Chart 6: Reinsurers weighted-average cost of capital returns in 2020–2021. versus return on capital Insurance losses, including COVID-19- 16.6 18 15.9 related claims, coupled with investment 16 14.3 and natural catastrophe losses, reduced 14 11.0 11.6 the sector’s ROC in the first half of 2020 12 10.5 9.9 10.4 9.2 8.7 9.0 8.8 to 2.1% compared with 6.9% in 2019. At 10 7.9 8.4 8.1 7.7 7.4 7.8 7.8 7.6

(%) 7.2 8 7.1 6.7 7.2 the same time, the COC rose to 7.2% from 6.6 6.9 6.0%, because of higher equity and credit 6 4.5 5.8 6.0 2.9 3.2 risk premiums, partially mitigated by 4 2.1 4.4 4.7 2.9 2.4 4.0 3.8 declining risk-free rates (Chart 6). 2 3.3 3.0 2.4 2.7 0.7 2.2 1.9 1.8 2.2 2.3 1.5 1.9 0.7 In addition, any constraints on 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2 alternative capital, which the sector has 2020 2020 come to rely on heavily, will also push up the Weighted-average Return on capital 10-year U.S. cost of capital treasuries cost of doing business. While it’s difficult to project the sector’s full-year 2020 earnings Source: S&P Global Ratings, Bloomberg. because of rising uncertainties, it’s unlikely Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. that they will be sufficient to meet the sector’s COC. For some reinsurers, which quarter 2020, from year-end 2019, and such as wildfires, risk selection/ we would consider negative outliers, the represented about 15.4% of the $590 underwriting, loss reporting, and reserve 2020 underperformance may become a billion global reinsurance capital. Based setting, and the potential climate change capital event. on discussions with major reinsurers, we impact on the increase in frequency and Prospectively, we could reconsider believe Chartthe $91 7: Globalbillion reinsuranceof assets under capital severity by source of natural catastrophes. 625 our negative outlook on the sector at the management included about $20 billion This has caused595 605 a flight to quality,590 as 575 565 585 540 point that we believe that the sector may of trapped capital as collateral. Investors505 investors have become more selective earn its COC, which we don’t expect will are still reeling from their capital470 455 being and have shifted their attention to well- 410 400 happen before 2021, at the earliest. locked for385 the fourth year in a row because established sponsors or managers 340 of the 2019–2020 natural catastrophe with a better track516 record, 530modelling 511 493 514 488 499 Alternative Capital Backers Are losses, adverse developments on 2017–461 490capabilities, clearer underwriting 447 428 (Bil. $) 388 378 More Selective, While Capacity 2018 events,368 and321 potential for leakage strategies, and stronger reserving Remains Constrained from business interruption into property practices and governance while asking In 2019, alternative capital in the coverage due to COVID-19. for higher returns. 89 97 95 91 17 22 19 22 24 28 44 50 64 72 81 reinsurance market decreased for the The 2006decrease 2007 2008 in alternative2009 2010 20 capital11 2012 2013 During2014 2015 the 2016 past 2017 182018 months,2019 Q1 it first time since the 2008 financial crisis, was caused by dismal returns in the seemed that alternative capital2020 ran and the trend has continued in 2020. past few years,Traditional loss payments, capital and Alternativeloss out capital of steam, butGlobal the reinsurer case for capital investing However, alternative capital, which creep fromSources: earlier Aon Securitiesevents, exacerbatedInc. in low-correlated insurance-linked includes collateralized reinsurance by governanceCopyright issues© 2020 byat Standard certain & funds. Poor’s Financial assets Services to diversify LLC. All rights in a reserved.low interest rate funds, insurance-linked securities, These factors, among other things, have environment remains valid. As a result, sidecars, and industry loss warranties, triggered redemptions by some investors we believe alternative capital backed by still plays an important role in the global while others paused to reassess their long-term investors remains committed reinsurance market despite its recent appetite for insurance risk. Investors also to property-catastrophe risk and is here decline. have concerns vis-à-vis model credibility, to stay, further supported by hardening In general, alternative capital includingChart models 8: Top for globalsecondary life reinsurersperils reinsurance average return pricing. on equity However, this accounts for about 20% of total property- hypothesis could be tested if additional 16 catastrophe reinsurance capacity, but collateral is trapped while other asset “Prospectively, we could it provides more than 75% aggregate 14 classes may offer higher returns. 13.6 retrocession capacity. Therefore, it reconsider our negative Alternative capital has expanded to continues to exert its influence on outlook12 on the sector at other lines of business such as in-force reinsurance and retrocession pricing. the point11.2 that we believe life and annuity blocks, and has become 10.3 10.2 We believe the pullback is temporary in that10 the sector may earn a vital risk transfer instrument for U.S. a prolonged period of more inflow and private mortgage8.9 insurers. Year-to-date its COC,8 which we don’t influence from nontraditional third-party catastrophe bonds issuance has been

expect(%) will happen before capital sources. healthy and we expect it will remain so 6 6.0 According to Aon, alternative capital 2021, at the earliest.” during the remainder of 2020 and into fell 4.2% to $91 billion at the end of first- 4 2021, aided by the dislocation in4.0 the

2 Global Reinsurance Highlights | 2020 15

6 6 8 3 6 6 1 3

AA+1 AA AA- A+ A A-

*Financial strength ratings on core operating subsidiaries as of Aug. 31, 2020. Source:AA+ S&P Global Ratings.AA AA- A+ A A- Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. *Financial strength ratings on core operating subsidiaries as of Aug. 31, 2020. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: Top 40 global reinsurers outlook distribution*

Chart 2: Top 40 global reinsurersPositive (0%) outlook distribution*

Negative (17%) Positive (0%)

Negative (17%)

Stable (83%)

Chart 3: Deaths from pandemics, from antiquity to the modern era

DETAIL ON RIGHT 0 Chart200 400 3: 600Deaths 800 1000from 1200 pandemics, 1400 1600 1800 from1900 2020 antiquity1900 ’10 ’20 ’30to ’40 the ’50 ’ 60 ’70modern ’80 ’90 ’00 ’10 era2020

New World DETAIL Spanish Flu Antonine Plague Smallpox ThirdON Plague RIGHT Swine Flu 1918-1920 0 200165-180 400 A.D. 600 800 1000 1520-unknown 1200 1400 1600 180018851900 2020 1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’002009-unknown ’10 2020 5 million 25-55 million 12 million 50 million 200,000

New World Spanish Flu Antonine Plague Smallpox Third Plague Swine Flu 165-180 A.D. 1520-unknownItalianPlague1885 Asian1918-1920 Flu Ebola2009-unknown 50 million 5 million 25-55 million1629-163112 million 1957-1958 2014-2016200,000 1 million 11,000 Black Death 1 million 1347-1352 ItalianPlague Ebola 75-200 million Russian Flu Asian Flu 1629-1631 1957-1958Hong Kong Flu MERS2014-2016 1 million1889-1890 Black Death 1 million 11968-1970 million 201511,000 1347-1352 1 million Less than 1,000 75-200 million Russian Flu Plague of Great Plague 1889-1890 Hong Kong Flu MERS Justinian of London 1 millionYellow Fever SARS1968-1970 COVID-192015 541-542 A.D. 1665 Late 1800s 2002-20031 million 2020Less than 1,000 30-50 million 75,000-100,000 150,000 Less than 1,000 (as of Aug. 31) Plague of Great Plague 849,389 Justinian of London Yellow Fever SARS COVID-19 541-542 A.D. 1665 Late 1800s 2002-2003 2020 Sources:30-50 The million Washington75,000-100,000 Post. Johns Hopkins150,000 University. Less than 1,000 (as of Aug. 31) 849,389 Copyright 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 4: Capital adequacy of the top 20 global reinsurers by conﬁdence level 70% Chart 4: Capital adequacy of the top 20 global reinsurers68% by conﬁdence level 2014 51% 70% 47% 2015 68% 44% 43% 35% 20162014 33% 51% 25% 47% 20172015 23% 21% 44% 18% 43% 14% 14% 15% 2018 11% 35% 14% 2016 8% 33% 25% 6% 5% 20192017 2% 23% 21% 18% 14% 14% 15% 2018 11% -4% 14% (0.1) -5% 8% -6% 6% 5% 2019 AA2%A AA A BBB -4% (0.1) -5% Source: S&P Global-6% Ratings’ risk-based insurance capital adequacy model. Copyright ©AA 2020A by Standard &A APoor’s Financial ServicesA LLC. All rightsBBB reserved.

Chart 5: 2019 top 20 global reinsurers capital stress test

90 Chart80 5: 2019 top 20 global reinsurers capital stress test 71.5 7090 62.6 60 80 50 71.5 46.4 70 40 62.6 37.5 (Bil. $) 60 33.7 32.5 30 50 46.4 20 20.6 20.3 18.0 17.2 40 37.5 12.2 10.3 (Bil. $) 10 33.7 32.5 6.2 30 3.1 2.4 200 20.6 20.3 18.0 17.2 12.2 10.3 10 6.2 3.1 2.4 20020 U.S. R/I 50% equity shock 30% equity shock

Source:Impact S&P on Global the top Ratings. 20 RoC--ReturnBBB excess on capital. capital CoC--CostA excess of capital. capital AA excess capital Copyrightreinsurers’ © 2020 capitalization by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 6: Reinsurers weighted-average cost of capital versus return on capital

16.6 18 Chart15.9 6: Reinsurers weighted-average cost of capital 16 versus return on14.3 capital 1418 16.6 15.9 11.0 11.6 12 10.5 10.4 16 9.9 14.3 9.2 8.7 9.0 8.8 10 7.9 8.4 8.1 14 7.7 7.4 7.8 7.8 7.6 (%) 7.1 7.2 7.2 8 11.0 11.6 6.7 12 10.5 6.6 6.9 9.9 10.4 9.2 6 4.5 8.7 9.0 8.8 10 7.9 5.8 8.4 8.1 6.0 7.7 7.4 7.8 2.97.8 3.27.6 (%) 4 7.1 7.2 2.17.2 8 4.4 4.7 2.9 6.7 2.4 4.0 3.8 6.6 6.9 2 3.3 3.0 6 2.4 2.7 0.7 4.5 2.25.8 1.9 1.8 2.2 2.3 1.5 1.96.0 0.7 04 2.9 3.2 4.7 2.9 2.4 2.1 20054.4 2006 20074.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2 2 3.8 3.3 3.0 20200.7 2020 2.2 2.2 2.3 2.4 1.5 2.7 0 Weighted-average 1.9 Return1.8 on capital 10-year U.S.1.9 0.7 cost of capital treasuries 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2 2020 2020 Source:W eighted-averageS&P Global Ratings, Bloomberg.Return on capital 10-year U.S. Reinsurance Outlook Copyrightcost © of 2020 capital by Standard & Poor’s Financial Services LLC.treasuries All rights reserved. Source: S&P Global Ratings, Bloomberg. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 7: Global reinsurance capital by source 625 595 605 590 575 565 585 retrocession market. We believe that once 540 Chart 7: Global reinsurance 505capital by source the dust settles and the losses are fully 470 455 625 595 605 590 410 400 575 565 585 digested with greater visibility around 385 540 340 505 COVID-19 losses, alternative capital will 470 455 514 516 488 530 499 410 511 493 likely renew with growth (Chart 7). 385 400 461 490 447 428 (Bil. $) 340 368 388 378 321 516 530 Life Reinsurers Are Facing Higher 511 493 514 488 499 461 490 447 428 Mortality Losses, But The Impact Is (Bil. $) 388 89 97 95 91 36817 22 19 37822 24 28 44 50 64 72 81 Manageable 321 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 The life reinsurance sector has not 2020 44 50 64 72 81 89 97 95 91 remained unscathed by the pandemic, 17 T22raditional 19 capital22 24 28 Alternative capital Global reinsurer capital 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 with the top 20 global reinsurers Sources: Aon Securities Inc. 2020 reporting about $1 billion of COVID-19- CopyrightTraditional © 2020 capital by Standard & Poor’sAlternative Financial capital Services LLC. GlobalAll rights reinsurer reserved. capital related underwriting losses in the first Sources: Aon Securities Inc. half of the year. Underwriting losses arise Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. mainly from a higher mortality rate due to the outbreak, with the majority of the losses from the U.S. However, the ultimate losses will Chart 8: Top global life reinsurers average return on equity depend on the actions of governments 16 and society at large to control the spread, Chart 8: Top global life reinsurers average return on equity which will influence the mortality, 14 longevity, and morbidity experience. This 16 13.6 also highlights the sector’s sensitivity 12 14 to key actuarial assumptions related 11.2 13.6 10.3 10.2 to these business lines including 10 12 correlation. 11.2 8.9 8 10.3 10.2 However, compared with the P/C 10 reinsurance sector, life reinsurance is less (%) 8.9 6 6.0 affected, we believe. Despite the negative 8 impact from COVID-19, we believe the life (%) 4 4.0 6.0 reinsurance sector continues to benefit 6 from strong credit fundamentals and 2 4 4.0 helps with diversification benefits for 0 multiline reinsurers. While the operating 2 performance will weaken in 2020, we still 2015 2016 2017 2018 2019 2020F expect an ROE of 4%–6% in 2020 relative 0 F: Forecast. Source: S&P Global Ratings’ estimated ﬁgures based on life reinsurance books of the following reinsurers: China Re, Hannover Re, Munich Re, 2015 2016 2017 2018 2019 2020F to 10.2% in 2019. With the expected Reinsurance Group of America, SCOR, and Swiss Re. economic recovery in 2021, the ROE will F: Forecast. Source: S&P Global Ratings’ estimated ﬁgures based on life Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. likely improve to about 10% (Chart 8). reinsurance books of the following reinsurers: China Re, Hannover Re, Munich Re, Reinsurance Group of America, SCOR, and Swiss Re. In general, with its high barriers to entry and fewer global players, life rates Copyrightfrom primary © 2020 by Standardinsurers. & Poor's The Financial Foggy Services Conditions LLC. All rights Ahead reserved. reinsurance is less price sensitive U.K. longevity business continues There is no playbook for the conditions relative to P/C. Reinsurance buyers are to see strong demand. However, we reinsurers find themselves in. Although sophisticated, precluding the need for believe the industry’s future growth the reinsurance sector is adept in intermediaries, and demand is less will mostly come from Asian markets, dealing with multiple large catastrophic driven by available capacity and more specifically emerging markets, which events, the current state of affairs is by balance-sheet management. We have are experiencing increased insurance producing additional stresses and also observed an increasing demand for penetration supporting robust growth uncertainties. Unfortunately, reinsurers financially motivated reinsurance for of primary life business. Mergers and are facing the pandemic at a time when capital relief amid the hike in reserve acquisitions and alternative capital the tide was turning on the soft pricing provisions caused by low interest rates. aren’t transformative in this space. cycle. In dealing with COVID-19 losses, The U.S. is the sector’s biggest Therefore, we think the competitive the resultant stresses may expose market, with 40% market share of landscape will remain largely stable over weaknesses of the past in a more severe global premiums with stable cession the next few years. way, dealing a blow to some reinsurers.

16 Global Reinsurance Highlights | 2020 Reinsurance Outlook

Taoufik Gharib “Reinsurers are facing the New York, (1) 212-438-7253 pandemic at a time when [email protected] the tide was turning on the soft pricing cycle.” Johannes Bender Frankfurt, (49) 69-33-999-196 [email protected]

Hardeep S Manku Toronto, (1) 416-507-2547 [email protected] Reinsurers that stuck to their knitting through the soft cycle and were prudent Ali Karakuyu in their approach to underwriting are in London, (44) 20-7176-7301 a better position to navigate the current [email protected] environment. Pricing is no panacea if the adverse trends continue to pile on, and that is where the uncertainty reigns. Some reinsurers may be tempted to play to the pricing in the absence of clear loss trends, but if there is one thing that is certain in this environment, it’s uncertainty. Therefore, we expect underwriting conditions will tighten with pricing momentum firmly in place as the 2021 reinsurance renewals approach. n

This report does not constitute a rating action.

Global Reinsurance Highlights | 2020 17 Catastrophe Risk

Global Reinsurers Face Threat If COVID-19 Losses Are Followed By A Major Catastrophe

By Charles-Marie Delpuech and Johannes Bender

The insured losses and investment volatility related to the COVID-19 pandemic have already eroded much of the global reinsurance industry’s earnings buffers for 2020. The industry relies on its very strong capital adequacy, which is generally sufficient to cushion it against catastrophe risk exposure.

owever, S&P Global Ratings could now find even an average Reinsurers’ strategic reactions to the anticipates that certain catastrophe year testing. positive pricing momentum in the sector Hreinsurers—those that have 2020 could turn into a capital event continue to diverge. Most of the top 20 shown a higher appetite for natural for the sector if it matches 2019, which reinsurers, which are listed in Table 1, catastrophe risk and are also more was fairly average and saw global insured chose to either maintain or increase exposed to the effects of the pandemic— losses of $59 billion. their exposure relative to capital, to Shutterstock / DroneX / Shutterstock

18 Global Reinsurance Highlights | 2020 Catastrophe Risk

benefit from the improved conditions. consolidated buffer of about $32 billion group’s aggregate losses in 2019 reached A few took defensive measures, before reinsurers would have to dip into a level seen less than once in every five allowing their exposure to contract. their capital reserves, in a severe natural years (a 1-in-5-year loss, Chart 2). The On average, reinsurers’ property- catastrophe stress scenario. losses were broadly in line with the group’s catastrophe risk appetite at a 1-in-250- However, the picture changes when budgeted catastrophe losses for 2020 of year return period was broadly flat at we incorporate 2020’s COVID-19 losses about $12.5 billion, or 7 percentage points 27% of shareholder equity, but some for property/casualty (P/C) and life of the combined (loss and expense) ratio. reinsurers saw reductions of more than 5 reinsurance, plus lower investment returns; In an average catastrophe year, we percentage points. the buffer shrinks to just $14 billion. estimate insured losses globally at $60 Meanwhile, reinsurers’ retrocession The top 20 group picked up about 25% billion-$70 billion, based on historical strategies have not materially shifted. of the total insured industry losses in figures and reinsurers’ catastrophe Alternative capital is likely to remain a 2019 (Charthart 1). We Global estimate reinsurers that the ticall peer budgets tae 20 (Table o total 2). If inustr2020 proves losses to be an reliable and vital avenue to retrocede 35 35 T peak perils, but has increased in cost and op 20 loss market share (%) 30hart Global reinsurers ticall tae 20 o total inustr losses30 reduced in capacity. 35 35

25 25 T

op 20 loss market share (%) COVID-19 Makes A Capital Event More 30 30 Likely 20 20 Normalizing the 2020 forecasts to exclude 25 25 15 15 COVID-19-related losses and potential 20 13 20 10 10 lower investment returns, we find that Actual net loss (mil. $) 0 with catastrophe losses at the budgeted 15 15 5 5 level, the top 20 global reinsurers would 13 10 10 Actual net loss (mil. $) likely report combined pretax profits 0 0 0 of about $19 billion. This suggests a 5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 5 Actual annual aggregate net catastrophe loss Top 20 loss market share 0 (restated for premium growth) (left scale) (right scale) 0 Table 1: Top 20 global reinsurers 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Group 1: Large global reinsurers Source:Actual Swiss annual Re sigma; aggregate S&P Global net catastrophe Ratings. loss Top 20 loss market share (restated for premium growth) (left scale) (right scale) Hannover Rueck SE Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Lloyd’s Source: Swiss Re sigma; S&P Global Ratings. Munich Reinsurance Co. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. SCOR SE Swiss Reinsurance Co. Ltd. hart 2 20 catastrohe losses ere in line ith eecte buget

Group 2: Midsize global reinsurers 1,000 Everest Re Group Ltd. hart 2 20 catastrohe losses ere in line ith eecte buget PartnerRe Ltd. 1,000 AXIS Capital Holdings Ltd. 100 RenaissanceRe Holdings Ltd.

Fairfax Financial Holdings Ltd. 2017 2011 100 Alleghany Corp. 10 Group 3: Other (re)insurance group 2017 2011 2012 2018 Aspen Insurance Holdings Ltd. 2016 2019 10 Hiscox Insurance Co. Ltd. Return period in year (log scale) 2014 2013 20152012 2018 Qatar Insurance Co. S.A.Q. 1 2016 2019 0 10 20 30 40 50 60 70 80 Lancashire Holdings Ltd. Return period in year (log scale) 2014 2013 2015 oele net loss bil Arch Capital Group Ltd. 1 Natural0 catastrophe10 net 20 Actual30 annual aggregate40 50 Annual60 expected70 net loss80 Fidelis Insurance Holdings Ltd. exposure estimate net catastrophe loss oele net loss bil Sirius International Group Ltd. (restated for premium growth) Markel Corp. Natural catastrophe net Actual annual aggregate Annual expected net loss exposureSource: S&P estimate Global Ratings’ estimatesnet catastrophe for the loss top 20 global reinsurers. China Reinsurance (Group) Corp. (restated for premium Copyright © 2020 by Standardgrowth) & Poor’s Financial Services LLC. All rights reserved.

hart Global reinsurers catastrohe eosure is oinate in but aanese eosure is rising

Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation harteffects as ofGlobal Jan. 1, reinsurers2020 catastrohe eosure is oinate in but aanese eosure is rising

Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation U.S. wind effects as of Jan. 1, 2020 U.S. earthquake

EuropeU.S. wind all Jan. 1, 2019 U.S. earthquakeJapan wind Jan. 1, 2020 Japan earthquakeEurope all Jan. 1, 2019 AustraliaJapan wind all Jan. 1, 2020 JapanRest earthquake of world

Australia all 0 5 10 15 20 25 30 35 40

Rest of world otal aggregate net eosure

Source: S&P0 Global Ratings.5 10 15 20 25 30 35 40 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. otal aggregate net eosure Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart eian net losses ro thoons Hagibis an aai are beon the in0 ear leel 200 180hart eian net losses ro thoons Hagibis an aai are beon the in0 ear leel 160 200 140 180 120 160 100 140 80 120 60 100

Estimated return periods (years) 40 80 20 60 0

Estimated return periods (years) 40 1* 20

Reinsurer0 Reinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Reinsurer 10 ReinsurerReinsurer 1 Reinsurer 12* 13* 1* *The estimated return periods are beyond 200 years. Source: S&P Global Ratings.

ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Copyright © 2020 by Standard & Poor’s Financial Services ReinsurerLLC. All 10 rights reserved. ReinsurerReinsurer 1 Reinsurer 12* 13*

hart arge reinsurers allo ore o their earnings an caital to be at ris

hart1.4 arge reinsurers allo ore o their earnings an caital to be at ris 1.2 1.4

1.0 1.2

arge global 0.8 1.0 reinsurers ther reinsurer 0.6 arge global 0.8 reinsurers ther reinsurer 0.4 0.6

catastrophe loss (x) isie global reinsurers 0.2 0.4

catastrophe loss (x) isie global 0.0 reinsurers 0.2 0 5 10 15 20 25 30 35 40 45 50

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%) 0.0 0 5 10 15 20 25 30 35 40 45 50 As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings.

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart Ris ositions hae shite as larger reinsurers tae on ore eosure

hart35 Ris ositions hae shite as larger reinsurers

tae30 on ore eosure

2535

2030

1525

1020 isie global arge global 155 reinsurers reinsurers ther reinsurers 100 isie global arge global reinsurers reinsurers (5)5 ther reinsurers (10)0

(5) PBT excluding catastrophe loss (pct point) (15)

(20)(10)

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8

PBT excluding catastrophe loss (pct point) (15) Change 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point) (20)

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8 pct: Percentage. PBT: Proﬁt before tax. Source: S&P Global Ratings. Change 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

pct: Percentage. PBT: Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart Global Ratings relatie catastrohe benchar as teste in 20

hart14 Global Ratings relatie catastrohe benchar unichRe as teste in 20 12 14 R unichRe 10 HannoerRe irius 12 atarRe 8 R 10 HiscoHannoerRe irius los is issRe 6 atarRe sen 8 ancashire lleghanHisco artnerRe 4 issRe los is ielis 6 aira sen erest Re Renaissance Re 2 ancashire lleghan artnerRe 4 arel rch ielis 0 aira erest Re Renaissance Re 2

2018 total reported shareholders’ equity (%) arel (2) rch 2019 annual net catastrophe loss against year-end 0 0 5 10 15 20 25

S&P Global relative catastrophe benchmark 2018 total reported shareholders’ equity (%) (2) (ranking from least to most exposed left to right)

2019 annual net catastrophe loss against year-end 0 5 10 15 20 25 Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt S&P Global relative catastrophe benchmark before tax (excluding(ranking catastrophes). from least to mostSource: exposed S&P Global left to Ratings right) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt before tax (excluding catastrophes). Source: S&P Global Ratings Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart roert catastrohe reinsurance utiliation at a in20 ear aggregate leel is broal lat

hart90 roert catastrohe reinsurance utiliation at a in20 ear aggregate leel is broal lat 80 90 70 80 60 70 ther reinsurers 50 eer aerage isie global 60 reinsurers 40 ther reinsurers 50 arge global reinsurers 30 eer aerage isie global reinsurers 40 20 arge global reinsurers 30 10 20 0 10 0 10 20 30 40 50 60 70 80 90 2020 (recoveries as percentage of 1-in-250-year gross exposure) 0 2019 (recoveries as percentage of 1-in-250-year gross exposure) 0 10 20 30 40 50 60 70 80 90 Source: S&P Global Ratings. 2020 (recoveries as percentage of 1-in-250-year gross exposure) Copyright © 20202019 by (recoveries Standard &as Poor’s percentage Financial of 1-in-250-year Services LLC. Allgross rights exposure) reserved.

120 hart he inustrs caital surlus14.7 13.5suggests it oul be resilient to stress scenarios 20.6 37.5 46.4 62.6 100 9.9 12.5 120 85.0 40.4 19.2 14.7 13.5 80 20.6 37.5 46.4 62.6 100 9.9 12.5 60 85.0 40.4 19.2 Bil. $ 80 40 60 Bil. $ 20 40 0 20 AA AAA

Surplus A 0 Surplus Deficit Surplus BBB Expected PBT* AA 2020 cat budget AAA Expected P/C1-in-10-year Re 1-in-50-year loss loss COVID-19 losses 1-in-100-year1-in-250-year loss loss Surplus A Surplus Deficit Surplus*Excludes BBB property/casualty reinsurance (P/C Re) COVID-19 losses, but includes Expected PBT* 2020 cat budget investment loss and mortality losses. PBT:Expected Profit P/C before1-in-10-year Re tax.1-in-50-year loss loss 1-in-100-year1-in-250-year loss loss Source: S&P Global Ratings’ estimates. COVID-19 losses

Copyright*Excludes © property/casualty 2020 by Standard reinsurance & Poor’s Financial (P/C Re) Services COVID-19 LLC. losses, All rights but includes reserved. investment loss and mortality losses. PBT: Proﬁt before tax. Source: S&P Global Ratings’ estimates.

hart 0 trong roits oer resilience in a noralie earnings enironent ecluing iact

2.0hart 0 trong roits oer resilience in a noralie 1.5earnings enironent ecluing iact 1.0 2.0 0.5 1.5 0.0 1.0 (0.5) 0.5 (1.0) 0.0

Relative to PBT (x) (1.5) (0.5) (2.0) (1.0) (2.5)

Relative to PBT (x) (1.5) (3.0) (2.0) Axis Arch Sirius (2.5) Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe QatarRe SwissRe Markel Alleghany Lancashire MunichRe EverestRe PartnerRe (3.0) HannoverRe

PBT PBT post $50 billion PBAxisT post $100 billion PBT post $150 Archbillion Sirius Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe aggregate lossQatarRe aggregateSwissRe loss aggregateMarkel loss Alleghany Lancashire MunichRe EverestRe PartnerRe HannoverRe PBT: Proﬁt before tax (normalized to exclude COVID-19 impact). Impact estimate basedPBT on 2018-2019PBT post average $50 billion loss marketPBT shares. post $100 *Future billion experience PBT postmay differ$150 billionfrom aggregate loss aggregate loss historical experience as some reinsurersaggregate adjusted loss their exposure in 2020. PBT:Source: Proﬁt S&P before Global tax Ratings. (normalized to exclude COVID-19 impact). Impact estimate Copyrightbased on 2018-2019 © 2020 by averageStandard loss & Poor’smarket Financial shares. *Future Services experience LLC. All rights may differ reserved. from historical experience as some reinsurers adjusted their exposure in 2020. Source: S&P Global Ratings. hartCopyright © 2020 by Standard losses & in Poor’s 2020 Financial a eroe Services buer LLC. All rights reserved. o an reinsurers

hartCatastrophe budget and losses prospective in 2020 Catastrophea eroe budget buer and prospective earnings are sufﬁcient earnings are not sufﬁcient o an reinsurers

CatastropheExcluding budget COVID-19 and prospective loss Catastrophe budget and prospective earnings are sufﬁcient earnings are not sufﬁcient

Plus COVID-19 loss o 0 billion nustr loss Excluding COVID-19 loss Excluding COVID-19 loss Plus COVID-19 loss o 0 billion nustr loss Plus COVID-19 loss o billion nustr loss Excluding COVID-19 loss Excluding COVID-19 loss Plus COVID-19 loss o billion nustr loss Plus COVID-19 loss nustr loss o 00 billion Excluding COVID-19 loss Excluding COVID-19 loss Plus COVID-19 loss nustr loss o 00 billion Plus COVID-19 loss nustr loss o 0 billion Excluding COVID-19 loss 20 10 0 10 20 30 Plus COVID-19 loss Number of reinsurers affected nustr loss o 0 billion Copyright © 2020 by Standard & Poor’s20 Financial10 Services0 LLC.10 All rights20 reserved.30 Number of reinsurers affected hartCopyright 2 Reinsurers © 2020 by Standard caital & aeuac Poor’s Financial coul Services sli LLC. i All rights reserved. losses are cobine ith a in0 ear scenario

hart 2No changeReinsurers caital aeuac Capitalcoul adequacy sli i drops by 1 notch losses areCapital cobine adequacy drops ith by a 2in0 notches earCapital scenario adequacy drops by 3 notches Capital adequacy drops by 4 notches No change Capital adequacy drops by 1 notch Capital adequacy drops by 2 notches Capital adequacy drops by 3 notches After a 1-in-10 year event Capital adequacy drops by 4 notches

After a 1-in-50 year event After a 1-in-10 year event After a 1-in-100 year event After a 1-in-50 year event After a 1-in-250 year event cl losses After a 1-in-100 year event After a 1-in-10 year event After a 1-in-250 year event cl losses After a 1-in-50 year event After a 1-in-10 year event After a 1-in-100 year event After a 1-in-50 year event After a 1-in-250 year event ith losses After a 1-in-100 year event 10 5 0 5 10 15 20 25 After a 1-in-250 year event ith losses Number of companies that would lose/retain notches of capital adequacy 10 5 0 5 10 15 20 25 Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P GlobalNumber Ratings. of companies that would lose/retain notches of capital adequacy Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart Global reinsurers ticall tae 20 o total inustr losses 35 35 T

op 20 loss market share (%) 30 30

25 25

20hart Global reinsurers ticall tae 20 o total inustr losses20 35 35 15 15

op 20 loss market share (%) 30 13 30 10 10 Actual net loss (mil. $) 0 25 25 5 5 20 20 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 15 15 Actual annual aggregate net catastrophe loss Top 20 loss market share 13 10 (restated for premium growth) (left scale) (right scale) 10 Actual net loss (mil. $) 0

5Source: Swiss Re sigma; S&P Global Ratings. 5 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Actual annual aggregate net catastrophe loss Top 20 loss market share (restated for premium growth) (left scale) (right scale)

100 hart 2 20 catastrohe losses ere in line ith eecte buget

2017 2011 1,000

2012 2018 2016 2019

Return period in year (log scale) 100 2014 2013 2015 1 0 10 20 201730 201401 50 60 70 80

oele net loss bil 10 Natural catastrophe net Actual annual aggregate Annual expected net loss 2012 2018 exposure estimate net catastrophe loss 2019 2016 (restated for premium

Return period in year (log scale) 2014 2013 growth) 2015 Source:1 S&P Global Ratings’ estimates for the top 20 global reinsurers. 0 10 20 30 40 50 60 70 80 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. oele net loss bil

Natural catastrophe net Actual annual aggregate Annual expected net loss exposure estimate net catastrophe loss Catastrophe Risk (restated for premium hart Global reinsurersgrowth) catastrohe eosure is oinate in but aanese eosure is rising Source: S&P Global Ratings’ estimates for the top 20 global reinsurers. Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation Copyrighteffects as © of 2020 Jan. by 1, Standard2020 & Poor’s Financial Services LLC. All rights reserved.

U.S. wind

U.S. earthquake average catastrophe year, we forecast hart Global reinsurers catastrohe eosure is oinate Europe allin but aanese eosure is rising that at least eight of the top 20 reinsurers Jan. 1, 2019 Japan wind could suffer a capital event in 2020. That Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation effects as of Jan. 1, 2020 Jan. 1, 2020 said, capital positions in 2020 have been Japan earthquake particularly volatile because of capital Australia all U.S. wind market fluctuations, significant capital Rest of world raising by the sector, and meaningful U.S. earthquake 0 5 10 15 20 25 30 35 40 growth in a hardening market environment. Europe all Although the sector remains resilient otal aggregate net eosure Jan. 1, 2019 Japan wind to extreme events, it is clear that the Source: S&P Global Ratings. Jan. 1, 2020 COVID-19 losses have eaten into the Japan earthquakeCopyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. reserves that would otherwise be Australia all available if a major catastrophe loss were Rest of world to occur. For example, if the insurance industry were to suffer a $100 billion 0 5 10 15 20 25 30 35 40 total loss, we now expect only 14 of the 20 otal aggregate net eosure global reinsurers to maintain the capital Source: S&P Global Ratings. adequacy level they had at the end of Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 2019, based on our model. If we run a similar scenario that hart eian net losses ro thoons Hagibis an aai excludes COVID-19 losses, the whole peer are beon the in0 ear leel group would likely maintain their S&P 200 Global Ratings capital adequacy level. 180 160 COVID-19 Exacerbates The Issue Of 140 Model Limitations 120 100 Global reinsurer’s exposures to model hart eian net losses ro thoons Hagibis an aai risk will likely translate into balance 80 are beon the in0 ear leel 60 sheet volatility, especially given the 200

Estimated return periods (years) 40 ongoing COVID-19 pandemic. 180 20 In 2019, insured catastrophe losses 160 0 were dominated by the two Japanese 140 1* typhoons: Faxai and Hagibis. These proved 120 to be the year’s most costly events, and 100Reinsurer Reinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Reinsurer 10 ReinsurerReinsurer 1 Reinsurer 12* 13* consequently 30% of insured catastrophe 80 *The estimated return periods are beyond 200 years. Source: S&P Global Ratings. losses came from Asia (source: Swiss Re 60 sigma). Unsurprisingly, global reinsurers Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Estimated return periods (years) 40 20 0 Table 2: Average global insured loss estimates vary widely at $60 billion–$70 billion 1* Expected annual loss from natural catastrophes (bil. $) hart arge reinsurers allo ore o their earnings

ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 an caital to be at ris Reinsurer 10 Source Scope Economic Insured Comment ReinsurerReinsurer 1 Reinsurer 12* 13* 1.4 Munich Re Average 2009-2018 *The187.0 estimated return periods65.0 are beyond 200 years. Source: S&P Global Ratings. Swiss Re sigma 10-year average Copyright © 2020 by Standard67.0 & Poor’s Financial Services LLC. All rights reserved. 1.2 Aon 10-year average 298.5 84.0 Willis Average 2011-2019 65.0 1.0 AIR 2019 annual aggregate 92.0 Stochastically modeled by AIR hart arge reinsurers allo ore o their earnings Climate-drivenarge catastrophe global losses only; 2020 an0.8 caital to be at ris reinsurers predicted range $80 billion-$164 billion; 2019 110 (below long ther reinsurerexpected outcome: $153 billion (predicted AbsoluteClimo 2020 forecast 1.4 0.6term average of 165) range $90 billion-$257 billion); 2018 expected outcome: $140 billion (predicted range $95 1.2 billion-$212 billion) 0.4 Budget estimate based on 20% market S&P Global Ratings estimate 2020 budget catastrophe loss (x) 63.0 isie global 1.0 reinsurersshare for top 20 reinsurers 0.2

arge global 20 Global Reinsurance Highlights | 2020 0.8 0.0 reinsurers 0 5 10 15 ther20 reinsurer25 30 35 40 45 50 0.6

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%)

As0.4 of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings.

0.0 hart0 Ris5 ositions10 15 hae shite20 as25 larger30 reinsurers 35 40 45 50 tae on ore eosure

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%) 35 As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings. 30 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 25

15 hart Ris ositions hae shite as larger reinsurers 10 tae on ore eosure isie global arge global 5 reinsurers reinsurers 35 ther reinsurers 0 30 (5) 25 (10) 20

PBT excluding catastrophe loss (pct point) (15) 15 (20) 10 Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4isie ) (2 )global 0 arge2 global4 6 8 reinsurers reinsurers Change5 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point) ther reinsurers 0 pct: Percentage. PBT: Proﬁt before tax. Source: S&P Global Ratings. (5) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. (10)

PBT excluding catastrophe loss (pct point) (15) hart Global Ratings relatie catastrohe benchar (20)as teste in 20

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8

Change14 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point) unichRe

atarRe 8 Hisco los hart Globalis Ratings relatieissRe catastrohe benchar as6 teste in 20 sen ancashire lleghan artnerRe 144 unichRe ielis aira erest Re Renaissance Re 122 arel rch R 100 HannoerRe irius

2018 total reported shareholders’ equity (%) (2) atarRe 8

2019 annual net catastrophe loss against year-end 0 5 10 15 20 25 Hisco los is issRe S&P Global relative catastrophe benchmark 6 sen (ranking from least to most exposed left to right) ancashire lleghan artnerRe 4 Bubble size shows 2019 annual net catastrophe loss against 2019ielis actual proﬁt aira before tax (excluding catastrophes).erest Re Source: S&P GlobalRenaissance Ratings Re 2 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. arel rch 0

2018 total reported shareholders’ equity (%) (2)

2019 annual net catastrophe loss against year-end 0 5 10 15 20 25

hart roertS& catastroheP Global relative reinsurance catastrophe benchmark utiliation at a in20 ear(ranking aggregate from least leel to ismost broal exposed lat left to right) Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt 90 before tax (excluding catastrophes). Source: S&P Global Ratings Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 80

60 ther reinsurers 50 hart roert catastroheeer aerage reinsurance isie utiliation global at a in20 ear aggregate leel is broal latreinsurers 40 arge global reinsurers 3090

2080

1070

600 0 10 20 30 40 50 ther60 reinsurers70 80 90

2020 (recoveries as percentage of 1-in-250-year gross exposure) 50 eer aerage isie global 2019 (recoveries as percentage of 1-in-250-yearreinsurers gross exposure) 40 Source: S&P Globalarge Ratings. global reinsurers 30Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

20 hart he inustrs caital surlus suggests it oul be 10 resilient to stress scenarios

120 0 0 10 20 30 4014.7 5013.5 60 70 80 90

2020 (recoveries as percentage of 1-in-250-year gross exposure) 20.6 37.5 46.4 62.6 100 12.5 2019 (recoveries9.9 as percentage of 1-in-250-year gross exposure) 85.0 40.4 19.2 80 Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 60 Bil. $

40hart he inustrs caital surlus suggests it oul be resilient to stress scenarios 20 120 14.7 13.5 0 12.5 20.6 37.5 46.4 62.6 100 AA 9.9 AAA 85.0 40.4 19.2 Surplus A Surplus Deﬁcit Surplus80 BBB Expected PBT* 2020 cat budget Expected P/C1-in-10-year Re 1-in-50-year loss loss 1-in-100-year1-in-250-year loss loss 60 COVID-19 losses Bil. $ *Excludes property/casualty reinsurance (P/C Re) COVID-19 losses, but includes 40 investment loss and mortality losses. PBT: Proﬁt before tax. Source: S&P Global Ratings’ estimates.

AA AAA

Surplus A Surplus Deﬁcit Surplus BBB Expected PBT* hart 0 trong roits2020 cat budgetoer resilience in a noralie Expected P/C1-in-10-year Re 1-in-50-year loss loss earnings enironent ecluingCOVID-19 losses iact1-in-100-year 1-in-250-year loss loss

2.0*Excludes property/casualty reinsurance (P/C Re) COVID-19 losses, but includes investment loss and mortality losses. PBT: Proﬁt before tax. 1.5 Source: S&P Global Ratings’ estimates. 1.0 0.5Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0.0 (0.5) (1.0)

Relative to PBT (x) (1.5) (2.0)hart 0 trong roits oer resilience in a noralie (2.5)earnings enironent ecluing iact (3.0) 2.0 Axis Arch 1.5 Sirius Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe QatarRe SwissRe Markel Alleghany 1.0 Lancashire MunichRe EverestRe PartnerRe HannoverRe 0.5 PBT PBT post $50 billion PBT post $100 billion PBT post $150 billion 0.0 aggregate loss aggregate loss aggregate loss (0.5) PBT: Proﬁt before tax (normalized to exclude COVID-19 impact). Impact estimate (1.0) based on 2018-2019 average loss market shares. *Future experience may differ from historical experience as some reinsurers adjusted their exposure in 2020. Relative to PBT (x) (1.5) Source: S&P Global Ratings. (2.0) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. (2.5) (3.0)

hart losses in 2020Axis a eroe buer Arch Sirius Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe QatarRe SwissRe Markel o an reinsurers Alleghany Lancashire MunichRe EverestRe PartnerRe HannoverRe Catastrophe budget and prospective Catastrophe budget and prospective PBT earnings are suPBfTﬁcient post $50 billion PBT earningspost $100 are billion not su fﬁcientPBT post $150 billion aggregate loss aggregate loss aggregate loss

PBT: ProﬁtExcluding before taxCOVID-19 (normalized loss to exclude COVID-19 impact). Impact estimate based on 2018-2019 average loss market shares. *Future experience may differ from historical experience as some reinsurers adjusted their exposure in 2020. Plus COVID-19 loss o 0 billion

Source:nustr loss S&P Global Ratings.

Plus COVID-19 loss o billion hart nustr loss losses in 2020 a eroe buer o an reinsurersExcluding COVID-19 loss

Catastrophe budget and prospective Catastrophe budget and prospective earnings are suPlusfﬁcient COVID-19 loss earnings are not sufﬁcient nustr loss o 00 billion

Excluding COVID-19 loss Excluding COVID-19 loss

Plus COVID-19 loss Plus COVID-19 loss nustr loss o 0 billion o 0 billion nustr loss 20 10 0 10 20 30 Excluding COVID-19 loss Number of reinsurers affected

hart 2 ReinsurersExcluding COVID-19 caital loss aeuac coul sli i losses are cobine ith a in0 ear scenario Plus COVID-19 loss nustr loss

No changeo 00 billion Capital adequacy drops by 1 notch Capital adequacy drops by 2 notches Capital adequacy drops by 3 notches Excluding COVID-19 loss Capital adequacy drops by 4 notches Plus COVID-19 loss nustr loss After ao 0 billion 1-in-10 year event 20 10 0 10 20 30 After a 1-in-50 year event Number of reinsurers affected Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. After a 1-in-100 year event

After a 1-in-250 year event hartcl losses 2 Reinsurers caital aeuac coul sli i

lossesAfter are a 1-in-10cobine year event ith a in0 ear scenario No change Capital adequacy drops by 1 notch AfterCapital a 1-in-50 adequacy year event drops by 2 notches Capital adequacy drops by 3 notches Capital adequacy drops by 4 notches After a 1-in-100 year event

After a 1-in-250 year event

ith losses After a 1-in-10 year event

After a 1-in-50 year event10 5 0 5 10 15 20 25 Number of companies that would lose/retain After a 1-in-100 year event notches of capital adequacy Notch represents a capital adequacy category as per S&P Global Ratings criteria. After a 1-in-250 year event Datacl losses as of Dec. 31, 2019. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. After a 1-in-10 year event

After a 1-in-50 year event

After a 1-in-100 year event

After a 1-in-250 year event ith losses

10 5 0 5 10 15 20 25

Number of companies that would lose/retain notches of capital adequacy Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart Global reinsurers ticall tae 20 o total inustr losses 35 35 T

hart Global reinsurers ticall tae 20 o total inustr lossesop 20 loss market share (%) 30 30 35 35 T

25 25 op 20 loss market share (%) 30 30 20 20 25 25

15 15 20 20 13 10 10 Actual net loss (mil. $) 15 0 15 5 13 5 10 10 Actual net loss (mil. $) 0 0 0 5 5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 Actual annual aggregate net catastrophe loss Top 20 loss market share 0 (restated2010 20 for11 premium 2012 growth)2013 (left2014 scale) 2015 2016 (right2017 scale) 2018 2019

Source:Actual Swiss annual Re sigma; aggregate S&P Global net catastrophe Ratings. loss Top 20 loss market share (restated for premium growth) (left scale) (right scale) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: Swiss Re sigma; S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart 2 20 catastrohe losses ere in line ith eecte buget

1,000 hart 2 20 catastrohe losses ere in line ith eecte buget

1,000

100

100 2017 2011

10 2017 2011 2012 2018 2019 10 2016

Return period in year (log scale) 2014 2013 2012 2018 2015 1 2016 2019

Return period in year (log scale) 0 10 20 30 40 50 60 70 80 2014 2013 2015 1 oele net loss bil 0 10 20 30 40 50 60 70 80 Natural catastrophe net Actual annual aggregate Annual expected net loss exposure estimate net catastropheoele net loss loss bil (restated for premium Natural catastrophe net growth)Actual annual aggregate Annual expected net loss exposure estimate net catastrophe loss Source: S&P Global Ratings’ estimates(restated for for the premium top 20 global reinsurers. Copyright © 2020 by Standard growth)& Poor’s Financial Services LLC. All rights reserved. Source: S&P Global Ratings’ estimates for the top 20 global reinsurers. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart Global reinsurers catastrohe eosure is oinate in but aanese eosure is rising

Nethart 1-in-250 Global year aggregate reinsurers probable catastrohe maximum loss eosureby peril and afteris oinate diversiﬁcation effects as of in Jan. 1, but 2020 aanese eosure is rising

Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation effectsU.S. wind as of Jan. 1, 2020

U.S. earthquake U.S. wind Europe all U.S. earthquake Jan. 1, 2019 Japan wind Europe all Jan. 1, 2020 Japan earthquake Jan. 1, 2019 Japan wind Australia all Jan. 1, 2020 Japan earthquake Rest of world Australia all 0 5 10 15 20 25 30 35 40 Rest of world otal aggregate net eosure Source: S&P Global0 Ratings.5 10 15 20 25 30 35 40 Copyright © 2020 by Standardotal & Poor’s aggregate Financial net Serviceseosure LLC. All rights reserved. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart eian net losses ro thoons Hagibis an aai are beon the in0 ear leel 200 hart eian net losses ro thoons Hagibis an aai 180 are beon the in0 ear leel 160200 140180 120160 Catastrophe Risk 100140 80120 60100

Estimated return periods (years) 4080 2060 0

Estimated return periods (years) 40 20 1* 0 that haveReinsurer sizableReinsurer 1 marketReinsurer 2 Reinsurer 3 sharesReinsurer 4 inReinsurer 5Japan Reinsurer 6 catastropheReinsurer 7 Reinsurer 8 9 exposure, their exposure in other perils since April 2019, as demand Reinsurer 10 took an earnings hit. Asia is material,Reinsurer growing,Reinsurer 1 1* andReinsurer 12* higher 13* than for reinsurance from the primary market We estimate*The estimated that return the periods top 20 are global beyond 200their years. exposure Source: S&P toGlobal European Ratings. perils, on has increased and on the back of price ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Reinsurer 10 reinsurersCopyright covered © 2020 about by Standard a third & Poor’s of the Financial average. Services Roughly LLC. AllReinsurer rights17% Reinsurerofreserved. 1 theReinsurer 12* top 20 13* global increases over the past two renewals. 2019 Japanese*The estimated incurred return periodstotal insured are beyond 200reinsurers’ years. Source: 1-in-250-year S&P Global Ratings. aggregate The 2019 Japanese typhoon season losses, whichCopyright totaled © 2020 about by Standard $17 billion. & Poor’s Financialexposure Services comes LLC. All from rights Asia, reserved. mainly Japan was exceptional, and also generated higher Although North American perils wind and earthquake perils (Chart 3). losses than many anticipated (Chart 4). typicallyhart dominate arge globalreinsurers reinsurers’ allo ore oRelative their earnings exposure has grown against Losses from Faxai and Hagibis, which we an caital to be at ris assess as having return periods of more 1.4hart arge reinsurers allo ore o their earnings than 50 years, highlight once again that an caital to be at ris global reinsurers are exposed to model risk. 1.21.4 A significant proportion of reinsurers’ losses from Typhoon Jebi, which occurred

1.01.2 in 2018, also crept into 2019. We estimate that final losses were more than twice arge global the year-end 2018 estimate of $6 billion. 0.81.0 reinsurers These unexpected losses add to earnings ther reinsurer arge global and capital volatility in an extreme event. 0.60.8 reinsurers COVID-19 could increase this ther reinsurer uncertainty further because of the 0.40.6 possibility that a major disaster could catastrophe loss (x) isie global reinsurers coincide with potential restrictions or a 0.20.4 lockdown, inflating claims costs.

catastrophe loss (x) isie global reinsurers 0.00.2 Appetite For Catastrophe Risk Remains 0 5 10 15 20 25 30 35 40 45 50 In Check

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%) 0.0 Most of the top 20 reinsurers have 0 5 10 15 20 25 30 35 40 45 50 As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings. increased their exposure to property 1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%) catastrophe risk since last year. For many, Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. exposure growth outpaced capital growth As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings. during the period (Charts 5 and 6). Some Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. individual reinsurers within the peer group made material exposure changes, hart Ris ositions hae shite as larger reinsurers tae on ore eosure but we estimate that capital-at-risk exposure was flat. 35hart Ris ositions hae shite as larger reinsurers tae on ore eosure Total shareholders’ equity exposed in 30 January 2020 stood at 27%, similar to 35 the 2019 level. This highlights reinsurers’ 25 30 measured and disciplined approach to 20 growth amid further rate increases. 25 15 About half of the top 20 reinsurers 20 10 increased their absolute net exposure isie global arge global 15 to a 1-in-250-year aggregate loss by 5 reinsurers reinsurers more than 10 percentage points relative 10 ther reinsurers 0 isie global arge global to equity. That said, as in 2019, some 5 reinsurers reinsurers (5) reinsurers made defensive moves, ther reinsurers 0 choosing to reduce their exposure (10) (5) to extreme events by more than 5

PBT excluding catastrophe loss (pct point) (15) percentage points relative to equity. (10) (20) PBT excluding catastrophe loss (pct point) Change 1-in-10-year net catastrophe loss versus expected (15) (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8 Loss Volatility In 2019 Skewed By Change(20) 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point) Japanese Typhoons

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8 Reinsurers that had higher catastrophe Changepct: Percentage. 1-in-250-year PBT: net Proﬁt catastrophe before tax. loss Source: versus S&P reported Global shareholders' Ratings. equity (pct point) risk appetites in Japan have generally Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. suffered more losses than peers in 2019, pct: Percentage. PBT: Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Global Reinsurance Highlights | 2020 21 hart Global Ratings relatie catastrohe benchar as teste in 20 hart Global Ratings relatie catastrohe benchar 14 as teste in 20 unichRe 12 14 RunichRe 10 HannoerRe irius 12 atarRe R 8 10 HannoerRe irius Hisco los is issRe 6 atarRe 8 sen Hisco ancashire lleghan artnerReissRe los 4 is 6 sen ielis aira erest Re Renaissance Re ancashire 2 lleghan artnerRe 4 arel ielis rch aira 0 erest Re Renaissance Re 2 arel 2018 total reported shareholders’ equity (%) (2) rch 0 2019 annual net catastrophe loss against year-end 0 5 10 15 20 25

2018 total reported shareholders’ equity (%) (2) S&P Global relative catastrophe benchmark

2019 annual net catastrophe loss against year-end 0 (ranking5 from least to10 most exposed left15 to right) 20 25

Bubble size showsS& 2019P Global annual relative net catastrophe catastrophe loss benchmark against 2019 actual proﬁt before tax (excluding(ranking catastrophes). from least to Source: most exposed S&P Global left toRatings right)

CopyrightBubble size © 2020 shows by 2019Standard annual & Poor’s net catastrophe Financial Services loss against LLC. 2019 All rights actual reserved. proﬁt before tax (excluding catastrophes). Source: S&P Global Ratings Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart roert catastrohe reinsurance utiliation at a in20 ear aggregate leel is broal lat hart roert catastrohe reinsurance utiliation at 90a in20 ear aggregate leel is broal lat

80 90 70 80 60 70 ther reinsurers 50 60 eer aerage isie global reinsurers 40 ther reinsurers 50 arge global eer aerage reinsurers isie global 30 reinsurers 40 arge global 20 reinsurers 30 10 20 0 10 0 10 20 30 40 50 60 70 80 90 2020 (recoveries as percentage of 1-in-250-year gross exposure) 0 2019 (recoveries as percentage of 1-in-250-year gross exposure) 0 10 20 30 40 50 60 70 80 90

2020 (recoveries as percentage of 1-in-250-year gross exposure) Source: S&P Global Ratings. Copyright © 20202019 by Standard(recoveries & asPoor’s percentage Financial of Services 1-in-250-year LLC. All gross rights exposure) reserved.

120 hart he inustrs caital surlus suggests it oul be 13.5 resilient to stress scenarios 14.7 12.5 20.6 37.5 46.4 62.6 100120 9.9 14.7 13.5 85.0 40.4 19.2 80 20.6 37.5 46.4 62.6 100 9.9 12.5 85.0 40.4 19.2 60 Bil. $ 80

4060 Bil. $

2040

0 20 AA AAA

0 Surplus A Surplus Deficit Surplus BBB AA Expected PBT* 2020AAA cat budget Expected P/C1-in-10-year Re 1-in-50-year loss loss 1-in-100-year1-in-250-year loss loss Surplus A COVID-19 losses Surplus Deficit Surplus BBB Expected PBT* *Excludes property/casualty2020 reinsurance cat budget (P/C Re) COVID-19 losses, but includes Expected P/C1-in-10-year Re 1-in-50-year loss loss investment loss and mortality losses. PBT: ProfitCOVID-19 before losses tax. 1-in-100-year1-in-250-year loss loss Source: S&P Global Ratings’ estimates. *Excludes property/casualty reinsurance (P/C Re) COVID-19 losses, but includes Copyrightinvestment © 2020 loss andby Standard mortality & losses. Poor’s PBT:Financial Profit Services before tax. LLC. All rights reserved. Source: S&P Global Ratings’ estimates.

hart 0 trong roits oer resilience in a noralie earnings enironent ecluing iact

2.0 hart 0 trong roits oer resilience in a noralie 1.5 earnings enironent ecluing iact 1.02.0 0.51.5 0.01.0 (0.5)0.5 (1.0)0.0

Relative to PBT (x) (1.5)(0.5) (2.0)(1.0)

Relative to PBT (x) (2.5)(1.5) (3.0)(2.0)

(2.5) Axis Arch Sirius Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe QatarRe SwissRe Markel (3.0) Alleghany Lancashire MunichRe EverestRe PartnerRe HannoverRe Axis Arch Sirius Lloyd’sPBTAspen Hiscox PBT postSCOR $50 billion PBT post $100 billion PBFidelisT postFairfax $150 billionRenRe QatarRe SwissRe Markel aggregate loss aggregate loss Alleghany aggregate loss Lancashire MunichRe EverestRe PartnerRe HannoverRe PBT:PB ProﬁtT beforePBT posttax (normalized $50 billion to excludePBT post COVID-19 $100 billion impact). ImpactPBT post estimate $150 billion based on 2018-2019aggregate average loss loss marketaggregate shares. *Future loss experienceaggregate may differ loss from historical experience as some reinsurers adjusted their exposure in 2020. Source:PBT: Proﬁt S&P beforeGlobal taxRatings. (normalized to exclude COVID-19 impact). Impact estimate based on 2018-2019 average loss market shares. *Future experience may differ from Copyrighthistorical © experience 2020 by Standard as some & reinsurers Poor’s Financial adjusted Services their exposure LLC. All rights in 2020. reserved. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart losses in 2020 a eroe buer o an reinsurers

hartCatastrophe budget and prospectivelosses in 2020Catastrophe a eroe budget buer and prospective oearnings an are reinsurers sufﬁcient earnings are not sufﬁcient

Catastrophe budget and prospective Catastrophe budget and prospective earningsExcluding are sufﬁcient COVID-19 loss earnings are not sufﬁcient

Plus COVID-19 loss o 0 billion nustr loss Excluding COVID-19 loss

Excluding COVID-19 loss Plus COVID-19 loss o 0 billion nustr loss Plus COVID-19 loss o billion nustr loss Excluding COVID-19 loss

Excluding COVID-19 loss Plus COVID-19 loss o billion nustr loss Plus COVID-19 loss Excluding COVID-19 loss nustr loss o 00 billion

Excluding COVID-19 loss Plus COVID-19 loss nustr loss o 00 billion Plus COVID-19 loss Excluding COVID-19 loss nustr loss o 0 billion 20 10 0 10 20 30 Plus COVID-19 loss

nustr loss Number of reinsurers affected o 0 billion Copyright © 2020 by Standard & Poor’s20 Financial10 Services0 LLC.10 All rights20 reserved.30 Number of reinsurers affected hart Copyright2 Reinsurers © 2020 by caitalStandard aeuac& Poor’s Financial coul Services sli i LLC. All rights reserved. losses are cobine ith a in0 ear scenario hart No2 change Reinsurers caital aeuacCapital coul adequacy sli i drops by 1 notch lossesCapital are cobine adequacy drops ith by a2 notchesin0 earCapital scenario adequacy drops by 3 notches CapitalNo change adequacy drops by 4 notches Capital adequacy drops by 1 notch Capital adequacy drops by 2 notches Capital adequacy drops by 3 notches AfterCapital a 1-in-10 adequacy year event drops by 4 notches

10 5 0 5 10 15 20 25 After a 1-in-250 year event ith losses Number of companies that would lose/retain 10 5 0notches 5 of capital10 adequacy15 20 25 Notch represents a capital adequacy category as per S&P Global Ratings criteria. Number of companies that would lose/retain Data as of Dec. 31, 2019. Source: S&P Global Ratings.notches of capital adequacy Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart Global reinsurers ticall tae 20 o total inustr losses 35 35 T

op 20 loss market share (%) 30hart Global reinsurers ticall tae 20 o total inustr losses30

2535 2535 T

op 20 loss market share (%) 2030 2030

1525 1525 13 1020 1020 Actual net loss (mil. $) 0

155 515 13 10 10 Actual net loss (mil. $) 0 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 5 5 Actual annual aggregate net catastrophe loss Top 20 loss market share (restated for premium growth) (left scale) (right scale) 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Swiss Re sigma; S&P Global Ratings. Actual annual aggregate net catastrophe loss Top 20 loss market share Copyright(restated © 2020 for by premium Standard growth) & Poor’s (left Financial scale) Services LLC.(right All rights scale) reserved.

hart 2 20 catastrohe losses ere in line ith eecte buget

1,000

hart 2 20 catastrohe losses ere in line ith eecte buget

1,000 100

2017 2011 100 10 2018 2012 2017 2011 2016 2019

Return period in year (log scale) 2014 10 2013 2015 1 2012 2018 0 201610 201920 30 40 50 60 70 80

Return period in year (log scale) 2014 2013 oele net loss bil 2015 1 Natural catastrophe net Actual annual aggregate Annual expected net loss exposure0 estimate10 20 net catastrophe30 loss40 50 60 70 80 (restated for premium oele net loss bil growth) Natural catastrophe net Actual annual aggregate Annual expected net loss Source: S&P Global Ratings’ estimates for the top 20 global reinsurers. exposure estimate net catastrophe loss Copyright © 2020 by Standard(restated & Poor’s for Financial premium Services LLC. All rights reserved. growth)

Source: S&P Global Ratings’ estimates for the top 20 global reinsurers. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart Global reinsurers catastrohe eosure is oinate in but aanese eosure is rising

Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation harteffects as ofGlobal Jan. 1, 2020reinsurers catastrohe eosure is oinate in but aanese eosure is rising

NetU.S. 1-in-250 wind year aggregate probable maximum loss by peril and after diversiﬁcation U.S. earthquakeeffects as of Jan. 1, 2020

Europe all U.S. wind Jan. 1, 2019 Japan wind U.S. earthquake Jan. 1, 2020 Japan earthquake Europe all Australia all Jan. 1, 2019 Japan wind Rest of world Jan. 1, 2020 Japan earthquake 0 5 10 15 20 25 30 35 40 Australia all otal aggregate net eosure Rest of world Source: S&P Global Ratings. Copyright ©0 2020 by Standard5 10 & Poor’s Financial15 20Services LLC.25 All rights30 reserved.35 40 otal aggregate net eosure Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart eian net losses ro thoons Hagibis an aai are beon the in0 ear leel 200 180 hart eian net losses ro thoons Hagibis an aai 160 are beon the in0 ear leel 140200 120180 100160 14080 12060

Estimated return periods (years) 10040 2080 600 1*

Estimated return periods (years) 40 20 ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Reinsurer 10 0 ReinsurerReinsurer 1 Reinsurer 12* 13* *The estimated return periods are beyond 200 years. Source: S&P Global1* Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Reinsurer 10 ReinsurerReinsurer 1 Reinsurer 12* 13*

*The estimated return periods are beyond 200 years. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart arge reinsurers allo ore o their earnings an caital to be at ris

1.4 hart arge reinsurers allo ore o their earnings an caital to be at ris 1.2 1.4 1.0 1.2 arge global 0.8 reinsurers 1.0 ther reinsurer 0.6 arge global 0.8 reinsurers 0.4 ther reinsurer

catastrophe loss (x) 0.6 isie global reinsurers 0.2 0.4

catastrophe loss (x) isie global 0.0 reinsurers 0.20 5 10 15 20 25 30 35 40 45 50

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%) 0.0 As of0 Jan. 1, 2020.5 PBT--Proﬁt10 15 before tax.20 Source:25 S&P Global30 Ratings.35 40 45 50 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%)

As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart Ris ositions hae shite as larger reinsurers tae on ore eosure

35 hart Ris ositions hae shite as larger reinsurers tae30 on ore eosure 25 35 20 30 15 25 10 20 isie global arge global 5 reinsurers reinsurers 15 ther reinsurers 0 Catastrophe Risk 10 isie global arge global (5) 5 reinsurers reinsurers (10) ther reinsurers 0

PBT excluding catastrophe loss (pct point) (15) (5) (20) (10)

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8

ChangePBT excluding catastrophe loss (pct point) (15) 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point) compared with a typical year, in which Our stress(20) test does not include about $21 billion for the peer group. Given

insured losses were more balanced raisingChange 1-in-10-year net catastrophe loss versus expected anypct: (14Percentage.equity ) (12 or ) issuance, PBT: (10 Proﬁt) (8 before )although (6 tax. ) Source: (4 that) S&P (2this ) Global is0 well Ratings. above2 the4 top6 20 group’s8 globally. As a result, reinsurers’ individual the topChange 20Copyright global 1-in-250-year © reinsurers 2020 by net Standard catastrophe have &already Poor’s loss Financial versus $12.5 reported Services billion shareholders' LLC. natural All rights catastrophe equity reserved. (pct point) budget experiences did not fully match our raised close to $10 billion in 2020 by for the year, such an event may hit the relative riskiness expectations, which these meanspct: Percentage. to bolster PBT: their Proﬁt buffers. before tax. Source:sector’s S&P Global earnings Ratings. and capital. The Swiss Re we derive from our annually updated An aggregatedCopyrighthart © 2020 loss by Global Standard experience Ratings & Poor’s relatieFinancial Institute Servicescatastrohe estimates LLC. All rightsbenchar that thereserved. global insured catastrophe exposure metrics. equivalentas to 1-in-10-years teste in 20 is likely to be loss from natural catastrophes in the first The reinsurers that we classified as 14 most exposed to catastrophe risk, in terms hart Global Ratings relatieunichRe catastrohe benchar of both earnings and capital, were not as12 teste in 20 the hardest hit in 2019 (these reinsurers R 14 appear on the right-hand side in Chart 7). 10 HannoerRe unichRe irius Industrywide, 2019 losses averaged about 12 atarRe 0.5x of the annual normalized earnings 8 Hisco R issRe los and affected about 6% of shareholders’ 10 is HannoerRe irius 6 equity at year-end 2018. sen atarRe ancashire 8 lleghan artnerRe 4 Hisco issRe ielislos Retrocession Provides Flexibility airais 6 erest Re Renaissance Re Although the market for retrocession has 2 sen ancashire arellleghan artnerRe also observed significant rate increases, 4 rch 0 ielis reinsurance utilization by primary aira erest Re Renaissance Re reinsurers has been flat. As of Jan. 1, 2 2018 total reported shareholders’ equity (%) (2) arel 2020, reinsurers reinsure about half 2019 annual net catastrophe loss against year-end 0 rch 5 10 15 20 25 0 of their 1-in-250 exposure, on S&P Global relative catastrophe benchmark average. As we expect further rate (ranking from least to most exposed left to right) 2018 total reported shareholders’ equity (%) (2)

hardening, we will monitor whether global 2019 annual net catastrophe loss against year-end 0 5 10 15 20 25 Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt reinsurers gradually start to cede less of before tax (excludingS&P catastrophes).Global relative Source:catastrophe S&P benchmarkGlobal Ratings their exposure in the future. Copyright © 2020(ranking by Standard from least & Poor’s to most Financial exposed Services left to right) LLC. All rights reserved. That said, average utilization rates Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt conceal a wide spectrum of coverage. On before tax (excluding catastrophes). Source: S&P Global Ratings average, large global reinsurers retrocede Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. less risk (Chart 8).

hart roert catastrohe reinsurance utiliation at More Volatility Expected As Buffers a in20 ear aggregate leel is broal lat Eroded by COVID-19 Losses Based on data from the top 20 reinsurers, hart90 roert catastrohe reinsurance utiliation at and our estimates of the effects of the a in20 ear aggregate leel is broal lat pandemic, we estimate that the sector 80 is likely to post profits before tax of 7090 only about $1 billion in 2020, if natural catastrophe losses match the budgeted 6080 level of about $12.5 billion. The budget ther reinsurers 5070 represents about 7 percentage points of eer aerage isie global reinsurers the sector’s combined ratio for 2020. 4060 In a severe stress scenario, this implies arge global ther reinsurers 50 reinsurers that the sector has a buffer of about 30 eer aerage isie global reinsurers $14 billion ($1 billion plus $12.5 billion) 2040 arge global before depleting its capital, assuming it reinsurers pays no dividends or other shareholder 1030 returns. In 2019, the top 20 companies 200 paid out about $8 billion in dividends and 0 10 20 30 40 50 60 70 80 90 share buybacks—we expect the figure 2020 (recoveries as percentage of 1-in-250-year gross exposure) 10 to be much lower in 2020 because some 2019 (recoveries as percentage of 1-in-250-year gross exposure) 0 dividend payments and share buybacks Source:0 S&P10 Global 20 Ratings. 30 40 50 60 70 80 90 have already been cancelled. 2020 (recoveries as percentage of 1-in-250-year gross exposure) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 2019 (recoveries as percentage of 1-in-250-year gross exposure)

22 Global Reinsurance Highlights | 2020 Source: S&P Global Ratings. hartCopyright he © 2020 inustrs by Standard caital & Poor’s surlus Financial Servicessuggests LLC. it All oul rights reserved. be resilient to stress scenarios

120 13.5 hart he inustrs caital surlus14.7 suggests it oul be 20.6 37.5 46.4 62.6 100resilient to stress scenarios9.9 12.5 120 85.0 40.4 19.2 80 14.7 13.5 20.6 37.5 46.4 62.6 100 9.9 12.5 60 Bil. $ 85.0 40.4 19.2 80 40

60 Bil. $ 20

40 0

AA 20 AAA

Surplus A Surplus Deﬁcit Surplus0 BBB Expected PBT* 2020 cat budget Expected P/C1-in-10-year Re 1-in-50-year loss loss AA 1-in-100-year1-in-250-year loss loss AAA COVID-19 losses

Surplus A *Excludes property/casualtySurplus Deﬁcit reinsurance (P/C Re) COVID-19 losses, but includes Surplus BBB investment loss and mortality losses.Expected PBT: PBT* Proﬁt before tax. 2020 cat budget Source: S&P Global Ratings’ estimates. Expected P/C1-in-10-year Re 1-in-50-year loss loss COVID-19 losses 1-in-100-year1-in-250-year loss loss

hart 0 trong roits oer resilience in a noralie earnings enironent ecluing iact

2.0 1.5 hart 0 trong roits oer resilience in a noralie 1.0 earnings enironent ecluing iact 0.52.0 0.01.5 (0.5)1.0 (1.0)0.5

Relative to PBT (x) (1.5)0.0 (2.0)(0.5) (2.5)(1.0)

Relative to PBT (x) (3.0)(1.5)

(2.0) Axis Arch Sirius SCOR Lloyd’sAspen Hiscox FidelisFairfax RenRe QatarRe SwissRe Markel (2.5) Alleghany Lancashire MunichRe EverestRe PartnerRe HannoverRe (3.0) PBT PBT post $50 billion PBT post $100 billion PBT post $150 billion aggregate loss Axis aggregate loss Arch Sirius aggregate loss Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe QatarRe SwissRe Markel Alleghany Lancashire MunichRe EverestRe PartnerRe PBT: Proﬁt before tax (normalized to exclude COVID-19HannoverRe impact). Impact estimate based on 2018-2019 average loss market shares. *Future experience may differ from PBT PBT post $50 billion PBT post $100 billion PBT post $150 billion historical experienceaggregate as loss some reinsurersaggregate adjusted loss their exposureaggregate in 2020. loss Source: S&P Global Ratings. PBT: Proﬁt before tax (normalized to exclude COVID-19 impact). Impact estimate Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. based on 2018-2019 average loss market shares. *Future experience may differ from historical experience as some reinsurers adjusted their exposure in 2020. Source: S&P Global Ratings. hartCopyright © 2020 by Standard losses & in Poor’s 2020 Financial a eroe Services buer LLC. All rights reserved. o an reinsurers

Catastrophe budget and prospective Catastrophe budget and prospective hartearnings are sufficient losses in 2020earnings a eroe are not buer sufficient o an reinsurers Excluding COVID-19 loss Catastrophe budget and prospective Catastrophe budget and prospective earnings are sufficient earnings are not sufficient Plus COVID-19 loss o 0 billion nustr loss Excluding COVID-19 loss Excluding COVID-19 loss

Plus COVID-19 loss o 0 billion nustr loss Plus COVID-19 loss o billion nustr loss Excluding COVID-19 loss Excluding COVID-19 loss

Plus COVID-19 loss o billion nustr loss Plus COVID-19 loss nustr loss o 00 billion Excluding COVID-19 loss Excluding COVID-19 loss

Plus COVID-19 loss nustr loss

o 00 billion Plus COVID-19 loss nustr loss o 0 billion Excluding COVID-19 loss20 10 0 10 20 30 Number of reinsurers affected Plus COVID-19 loss nustr loss Copyrighto 0 billion © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 20 10 0 10 20 30

hart 2 Reinsurers caital aeuacNumber coul of slireinsurers i affected lossesCopyright are cobine © 2020 by Standard ith a in0 & Poor’s Financial ear scenario Services LLC. All rights reserved. No change Capital adequacy drops by 1 notch hart 2Capital Reinsurers adequacy drops caital by 2 notches aeuac Capital coul adequacy sli i drops by 3 notches losses Capitalare cobine adequacy drops ith by a 4in0 notches ear scenario No change Capital adequacy drops by 1 notch AfterCapital a 1-in-10 adequacy year event drops by 2 notches Capital adequacy drops by 3 notches Capital adequacy drops by 4 notches After a 1-in-50 year event

AfterAfter a a1-in-100 1-in-10 yearyear eventevent

AfterAfter a a1-in-250 1-in-50 yearyear eventevent cl losses

AfterAfter a a 1-in-100 1-in-10 yearyear eventevent

After a 1-in-250 year event cl losses After a 1-in-50 year event

AfterAfter a a1-in-100 1-in-10 yearyear eventevent

AfterAfter a a1-in-250 1-in-50 yearyear eventevent ith losses

After a 1-in-100 year event10 5 0 5 10 15 20 25

After a 1-in-250 year event Number of companies that would lose/retain ith losses notches of capital adequacy Notch represents a capital adequacy10 category5 0as per S&P5 Global10 Ratings15 criteria.20 25 Data as of Dec. 31, 2019. Source: S&P Global Ratings. Number of companies that would lose/retain Copyright © 2020 by Standard & Poor’s Financialnotches Services of LLC. capital All rightsadequacy reserved. Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart Global reinsurers ticall tae 20 o total inustr losses 35 35 T

op 20 loss market share (%) 30 30

25 25

20 hart Global reinsurers ticall tae 20 o total inustr losses20 35 35

15 15 T op 20 loss market share (%) 30 30 13 10 10 Actual net loss (mil. $) 25 0 25 5 5 20 20 0 0 15 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 15 13 10 Actual annual aggregate net catastrophe loss Top 20 loss market share 10 Actual net loss (mil. $) (restated for premium growth) (left scale) 0 (right scale)

5 5 Source: Swiss Re sigma; S&P Global Ratings. Copyright0 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Actual annual aggregate net catastrophe loss Top 20 loss market share (restated for premium growth) (left scale) (right scale)

hart100 2 20 catastrohe losses ere in line ith eecte buget

1,000 2017 2011

2012 2018 100 2016 2019

Return period in year (log scale) 2014 2013 2015 2017 2011 1 0 10 20 30 40 50 60 70 80 10 oele net loss bil 2012 2018 Natural catastrophe2016 net2019 Actual annual aggregate Annual expected net loss

exposureReturn period in year (log scale) 2014 estimate 2013 net catastrophe loss 2015 (restated for premium 1 growth) 0 10 20 30 40 50 60 70 80 Source: S&P Global Ratings’ estimates for the top 20 global reinsurers. oele net loss bil Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Natural catastrophe net Actual annual aggregate Annual expected net loss exposure estimate net catastrophe loss (restated for premium growth)

hartSource: S&P Global Global Ratings’reinsurers estimates catastrohe for the top 20 eosure global reinsurers. is oinate in but aanese eosure is rising Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation effects as of Jan. 1, 2020

hartU.S. wind Global reinsurers catastrohe eosure is oinate U.S. earthquake in but aanese eosure is rising

NetEurope 1-in-250 all year aggregate probable maximum loss by peril and after diversiﬁcation effects as of Jan. 1, 2020 Jan. 1, 2019 Japan wind Jan. 1, 2020 Japan earthquakeU.S. wind

U.S.Australia earthquake all

Rest Europeof world all Jan. 1, 2019 Japan wind0 5 10 15 20 25 30 35 40 Jan. 1, 2020 Japan earthquake otal aggregate net eosure AustraliaSource: S&P all Global Ratings.

0 5 10 15 20 25 30 35 40

hart eian net losses ro thoons Hagibis an aai are beon the in0 ear leel 200 180 160 140 hart eian net losses ro thoons Hagibis an aai 120 are beon the in0 ear leel 100200 80180 60160 140

Estimated return periods (years) 40 20120 1000

80 1* 60 ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9

Estimated return periods (years) 40 Reinsurer 10 ReinsurerReinsurer 1 Reinsurer 12* 13* 20 *The estimated return periods are beyond 200 years. Source: S&P Global Ratings. 0 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 1*

ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Reinsurer 10 ReinsurerReinsurer 1 Reinsurer 12* 13*

*The estimated return periods are beyond 200 years. Source: S&P Global Ratings. hart arge reinsurers allo ore o their earnings anCopyright caital © 2020 to be by atStandard ris & Poor’s Financial Services LLC. All rights reserved.

1.4

1.2hart arge reinsurers allo ore o their earnings an caital to be at ris 1.0 1.4

arge global 0.8 1.2 reinsurers ther reinsurer 0.6 1.0

0.4 arge global 0.8 reinsurers

catastrophe loss (x) isie global therreinsurers reinsurer 0.2 0.6

0.0 0.4 0 5 10 15 20 25 30 35 40 45 50

catastrophe loss (x) isie global reinsurers

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%) 0.2

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%)

As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings. hart Ris ositions hae shite as larger reinsurers Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. tae on ore eosure

30 hart Ris ositions hae shite as larger reinsurers 25tae on ore eosure 20 35 15 30 10 25 isie global arge global 5 reinsurers reinsurers 20 ther reinsurers 0 15 (5) 10 isie global arge global (10) 5 reinsurers reinsurers ther reinsurers PBT excluding catastrophe loss (pct point) (15) 0 (20) (5)

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8 (10) Change 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point)

PBT excluding catastrophe loss (pct point) (15)

pct:(20) Percentage. PBT: Proﬁt before tax. Source: S&P Global Ratings.

Change 1-in-10-year net catastrophe loss versus expected Copyright (14 ) © (12 2020 ) by (10 Standard ) (8 ) & Poor’s (6 ) Financial (4 ) Services(2 ) 0 LLC. All2 rights reserved.4 6 8 Change 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point)

pct:hart Percentage. PBT: Global Proﬁt Ratings before tax. relatie Source: S&P catastrohe Global Ratings. benchar Copyrightas teste © 2020 in by 20 Standard & Poor’s Financial Services LLC. All rights reserved.

14 unichRe

12hart Global Ratings relatie catastrohe benchar as teste in 20 R 10 HannoerRe irius 14 atarRe unichRe 8 12 Hisco issRe los is R 6 sen irius 10 HannoerRe ancashire lleghan artnerRe 4 atarRe 8 ielis aira erestHisco Re Renaissancelos Re 2 is issRe 6 arel sen rch ancashire 0 lleghan artnerRe 4 ielis

2018 total reported shareholders’ equity (%) aira (2) erest Re Renaissance Re

2019 annual net catastrophe loss against year-end 20 5 10 15 20 25 arel rch 0 S&P Global relative catastrophe benchmark (ranking from least to most exposed left to right)

2018 total reported shareholders’ equity (%) (2)Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt

2019 annual net catastrophe loss against year-end 0 5 10 15 20 25 before tax (excluding catastrophes). Source: S&P Global Ratings Copyright © 2020 S&by PStandard Global relative & Poor’s catastrophe Financial Services benchmark LLC. All rights reserved. (ranking from least to most exposed left to right)

Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt before tax (excluding catastrophes). Source: S&P Global Ratings Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart roert catastrohe reinsurance utiliation at a in20 ear aggregate leel is broal lat

90 hart roert catastrohe reinsurance utiliation at 80 a in20 ear aggregate leel is broal lat 70 90 60 80 ther reinsurers 50 70 eer aerage isie global reinsurers 40 Catastrophe Risk 60 arge global reinsurers 30 ther reinsurers 50 eer aerage isie global 20 reinsurers 40 arge global 10 reinsurers 30 0 20 0 10 20 30 40 50 60 70 80 90 half of2020 (recoveries as percentage of 1-in-250-year gross exposure) 2020 was $28 billion. This implies deplete the current capital surplus of $19 10 that half of the 20202019 catastrophe (recoveries budgetas percentage billion of 1-in-250-year at the ‘AA’ gross level, exposure) as per our capital “Most of the top 20 could alreadySource:0 have S&P been Global consumed. Ratings. model, based on the capital as of yearreinsurers have increased An aggregatedCopyright0 ©10 2020 loss by 20Standard experience30 & Poor’s Financial40 end 2019 50Services (Chart LLC.60 All9). rights 70 reserved.80 90 their exposure to property equivalent2020 (recoveries as percentage of 1-in-250-year gross exposure) to 1-in-50-years, implying These are averages—an earnings or 2019 (recoveries as percentage of 1-in-250-year gross exposure) catastrophe risk since last losses of around $38 billion, would be capital event at an individual company year.” similar harttoSource: the annual heS&P Globalinustrs aggregate Ratings. caital loss surlus could suggests be triggered it oul earlier, be depending on observedresilient Copyrightin 2011. to © stress2020 This by Standardscenarioswould &likely Poor’s Financialits relative Services exposures. LLC. All rights reserved.

120 14.7 13.5 hart he inustrs caital surlus suggests20.6 it oul37.5 46.4 be 62.6 100 12.5 resilient to stress scenarios9.9 85.0 40.4 19.2 80120 14.7 13.5 Reinsurers’ Resilience Is Starting To 20.6 37.5 46.4 62.6 Crack 60100 9.9 12.5 Bil. $ Based on average loss market shares 85.0 40.4 19.2 for the past two years, we expect profit 4080 before tax (normalized to exclude the

60 effect of the pandemic), including the Bil. $ 20 catastrophe budget, at most reinsurers

040 would have been sufficient to absorb

AA industry losses up to an aggregate of AAA 20 $150 billion. This is roughly equivalent to Surplus A Surplus Deﬁcit Surplus BBB a 1-in-30 to 1-in-40 years loss (Chart 10). Expected PBT* 0 2020 cat budget Expected P/C1-in-10-year Re 1-in-50-year loss loss That said, reinsurers that have higher risk COVID-19 losses 1-in-100-year1-in-250-year loss loss AA AAA appetites and subdued returns would

*ExcludesSurplus property/casualty A reinsurance (P/C Re) COVID-19 losses, but includes Surplus Deficit likely see their profit before tax depleted Surplusinvestment BBB loss and mortality losses. PBT: Profit before tax. Expected PBT* Source: S&P Global Ratings’2020 estimates. cat budget more quickly than peers. Expected P/C1-in-10-year Re 1-in-50-year loss loss COVID-19 losses 1-in-100-year1-in-250-year loss loss The pandemic has lowered these Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. *Excludes property/casualty reinsurance (P/C Re) COVID-19 losses, but includes buffers, compared with the normalized view investment loss and mortality losses. PBT: Profit before tax. (Chart 11). Therefore, if 2020 catastrophe Source: S&P Global Ratings’ estimates. losses reach the level reinsurers have Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. budgeted for, we expect at least eight of them to suffer a capital event. hart 0 trong roits oer resilience in a noralie Capital levels at individual reinsurers earnings enironent ecluing iact vary. In line with our aggregate view for 2.0 the sector, we expect half of reinsurers to 1.5 hart 0 trong roits oer resilience in a noralie sustain their S&P Global Ratings capital 1.0 earnings enironent ecluing iact adequacy in a 1-in-50-year aggregate

0.52.0 loss in 2020, factoring in the effect of 0.01.5 the pandemic. That said, Chart 12 shows (0.5)1.0 (1.0) 0.5 Definitions Used

Relative to PBT (x) (1.5) 0.0 • Earnings-at-risk exposure (2.0) (0.5) is defined as a 1-in-10-year (2.5) (1.0) modeled annual aggregate net (3.0) Relative to PBT (x) (1.5) loss, compared with normalized Axis Arch (2.0) Sirius Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe expected profits before taxes and QatarRe SwissRe Markel (2.5) Alleghany Lancashire MunichRe EverestRe PartnerRe HannoverRe net catastrophe claims. (3.0) PBT PBT post $50 billion PBT post $100 billion PBT post $150 billion • Capital-at-risk exposure is defined aggregate loss aggregateAxis loss aggregate loss Arch Sirius as a 1-in-250-year modeled Lloyd’sAspen Hiscox SCOR FidelisFairfax RenRe QatarRe SwissRe Markel Alleghany PBT: Proﬁt before taxLancashire (normalized MunichRe to exclude EverestRe COVID-19 impact).PartnerRe Impact estimate annual aggregate net loss against HannoverRe based on 2018-2019 average loss market shares. *Future experience may differ from PBT PBT post $50 billion PBT post $150 billion shareholders’ equity as reported historical experience as some reinsurersPBT adjusted post $100 their billion exposure in 2020. aggregate loss aggregate loss aggregate loss (including preference shares). Source: S&P Global Ratings. CopyrightPBT: Proﬁt © before2020 by tax Standard (normalized & Poor’s to exclude Financial COVID-19 Services impact). LLC. All Impact rights estimate reserved. based on 2018-2019 average loss market shares. *Future experience may differ from historical experience as some reinsurers adjusted their exposure in 2020. Source: S&P Global Ratings. Global Reinsurance Highlights | 2020 23 hartCopyright © 2020 by Standard losses &in Poor’s 2020 Financial a eroe Services buer LLC. All rights reserved. o an reinsurers

Plus COVID-19 loss o 0 billion nustr loss Plus COVID-19 loss o billion nustr loss Excluding COVID-19 loss Excluding COVID-19 loss

Plus COVID-19 loss o billion nustr loss Plus COVID-19 loss nustr loss o 00 billion Excluding COVID-19 loss Excluding COVID-19 loss

Plus COVID-19 loss nustr loss o 00 billion Plus COVID-19 loss nustr loss o 0 billion Excluding COVID-19 loss20 10 0 10 20 30 Number of reinsurers affected Plus COVID-19 loss nustr loss Copyrighto 0 billion © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 20 10 0 10 20 30 Number of reinsurers affected hart 2 Reinsurers caital aeuac coul sli i lossesCopyright are cobine © 2020 by ithStandard a in0 & Poor’s Financial ear scenario Services LLC. All rights reserved. No change Capital adequacy drops by 1 notch hart Capital2 Reinsurers adequacy drops caital by 2 notches aeuac Capital coul adequacy sli i drops by 3 notches lossesCapital are cobine adequacy drops ith by a 4 in0notches ear scenario No change Capital adequacy drops by 1 notch

AfterCapital a 1-in-10 adequacy year event drops by 2 notches Capital adequacy drops by 3 notches Capital adequacy drops by 4 notches After a 1-in-50 year event

After a 1-in-10 year event After a 1-in-100 year event

After a 1-in-50 year event After a 1-in-250 year event cl losses After a 1-in-100 year event After a 1-in-10 year event After a 1-in-250 year event cl losses After a 1-in-50 year event After a 1-in-10 year event After a 1-in-100 year event After a 1-in-50 year event After a 1-in-250 year event ith losses After a 1-in-100 year event 10 5 0 5 10 15 20 25 After a 1-in-250 year event ith losses Number of companies that would lose/retain notches of capital adequacy 10 5 0 5 10 15 20 25 Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P GlobalNumber Ratings. of companies that would lose/retain Copyright © 2020 by Standard & Poor’s Financialnotches Services of LLC. capital All rights adequacy reserved. Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. harthart GlobalGlobal reinsurersreinsurers ticallticall taetae 2020 oo totaltotal inustrinustr losseslosses 35 35 35 35 T

op 20 loss market share (%) T

op 20 loss market share (%) 30 30 30 30 25 25 25 25

20 20 20 20

15 15 15 15 13 10 13 10 Actual net loss (mil. $) 10 10

Actual net loss (mil. $) 0 0 5 5 5 5 0 0 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Actual annual aggregate net catastrophe loss Top 20 loss market share Actual annual aggregate net catastrophe loss Top 20 loss market share (restated for premium growth) (left scale) (right scale) (restated for premium growth) (left scale) (right scale)

Source: Swiss Re sigma; S&P Global Ratings. Source: Swiss Re sigma; S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart 22 2020 catastrohecatastrohe losseslosses ereere inin lineline ithith eecteeecte bugetbuget 1,000 1,000

100 100

2017 2011 2017 2011

10 10 2012 2018 2012 2018 2016 2019 2016 2019

Return period in year (log scale) 2014 2013 Return period in year (log scale) 2014 2013 2015 1 2015 1 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 oele net loss bil oele net loss bil Natural catastrophe net Actual annual aggregate Annual expected net loss Natural catastrophe net Actual annual aggregate Annual expected net loss exposure estimate net catastrophe loss exposure estimate net catastrophe loss (restated for premium (restated for premium growth) growth) Source: S&P Global Ratings’ estimates for the top 20 global reinsurers. Source: S&P Global Ratings’ estimates for the top 20 global reinsurers. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart GlobalGlobal reinsurersreinsurers catastrohecatastrohe eosureeosure isis oinateoinate in but aanese eosure is rising in but aanese eosure is rising

Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation Net 1-in-250 year aggregate probable maximum loss by peril and after diversiﬁcation effects as of Jan. 1, 2020 effects as of Jan. 1, 2020

U.S. wind U.S. wind U.S. earthquake U.S. earthquake Europe all Europe all Jan. 1, 2019 Japan wind Jan. 1, 2019 Japan wind Jan. 1, 2020 Japan earthquake Jan. 1, 2020 Japan earthquake Australia all Australia all Rest of world Rest of world 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 otal aggregate net eosure otal aggregate net eosure Source: S&P Global Ratings. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart eianeian netnet losseslosses roro thoonsthoons HagibisHagibis anan aaiaai areare beonbeon thethe in0in0 earear leelleel 200 200 180 180 160 160 140 140 120 120 100 100 80 80 60 60

Estimated return periods (years) 40

Estimated return periods (years) 40 20 20 0 0 1* 1*

ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 Reinsurer 9 10 ReinsurerReinsurer 10 Reinsurer 1 Reinsurer 12* 13* ReinsurerReinsurer 1 Reinsurer 12* 13* *The estimated return periods are beyond 200 years. Source: S&P Global Ratings. *The estimated return periods are beyond 200 years. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart argearge reinsurersreinsurers alloallo oreore oo theirtheir earningsearnings anan caitalcaital toto bebe atat risris 1.4 1.4

1.2 1.2

1.0 1.0

arge global arge global 0.8 reinsurers 0.8 reinsurers ther reinsurer ther reinsurer 0.6 0.6

0.4 0.4

catastrophe loss (x) isie global

catastrophe loss (x) isie global reinsurers reinsurers 0.2 0.2

0.0 0.0 0 5 10 15 20 25 30 35 40 45 50 0 5 10 15 20 25 30 35 40 45 50

1-in-10-year net catastrophe loss versus expected PBT excluding 1-in-250-year net catastrophe loss relative to reported shareholders’ equity (%)

As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings. As of Jan. 1, 2020. PBT--Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart RisRis ositionsositions haehae shiteshite asas largerlarger reinsurersreinsurers taetae onon oreore eosureeosure 35 35 30 30 25 25 20 20 15 15 10 10 isie global arge global isie global arge global 5 reinsurers reinsurers 5 reinsurers reinsurers ther reinsurers 0 ther reinsurers 0 (5) (5) (10) (10)

PBT excluding catastrophe loss (pct point) (15)

PBT excluding catastrophe loss (pct point) (15) (20) (20)

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8

Change 1-in-10-year net catastrophe loss versus expected (14 ) (12 ) (10 ) (8 ) (6 ) (4 ) (2 ) 0 2 4 6 8 Change 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point) Change 1-in-250-year net catastrophe loss versus reported shareholders' equity (pct point)

pct: Percentage. PBT: Proﬁt before tax. Source: S&P Global Ratings. pct: Percentage. PBT: Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart GlobalGlobal RatingsRatings relatierelatie catastrohecatastrohe bencharbenchar asas testeteste inin 2020

14 14 unichRe unichRe 12 12 R R 10 HannoerRe irius 10 HannoerRe irius atarRe 8 atarRe 8 Hisco Hisco issRe los is issRe los 6 is 6 sen sen ancashire lleghan artnerRe ancashire 4 lleghan artnerRe 4 ielis aira erest Re ielis aira erest Re Renaissance Re 2 Renaissance Re 2 arel rch arel 0 rch 0

2018 total reported shareholders’ equity (%) (2) 2018 total reported shareholders’ equity (%) (2)

2019 annual net catastrophe loss against year-end 0 5 10 15 20 25

2019 annual net catastrophe loss against year-end 0 5 10 15 20 25 S&P Global relative catastrophe benchmark S&P Global relative catastrophe benchmark (ranking from least to most exposed left to right) (ranking from least to most exposed left to right) Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt Bubble size shows 2019 annual net catastrophe loss against 2019 actual proﬁt before tax (excluding catastrophes). Source: S&P Global Ratings before tax (excluding catastrophes). Source: S&P Global Ratings Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart roertroert catastrohecatastrohe reinsurancereinsurance utiliationutiliation atat aa in20in20 earear aggregateaggregate leelleel isis broalbroal latlat

90 90

80 80

70 70

60 60 ther reinsurers ther reinsurers 50 50 eer aerage isie global eer aerage isiereinsurers global 40 reinsurers 40 arge global argereinsurers global 30 reinsurers 30

20 20

10 10

0 0 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 2020 (recoveries as percentage of 1-in-250-year gross exposure) 2020 (recoveries as percentage of 1-in-250-year gross exposure) 2019 (recoveries as percentage of 1-in-250-year gross exposure) 2019 (recoveries as percentage of 1-in-250-year gross exposure) Source: S&P Global Ratings. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart hehe inustrsinustrs caitalcaital surlussurlus suggestssuggests itit ouloul bebe resilientresilient toto stressstress scenariosscenarios 120 120 14.7 13.5 14.7 13.5 20.6 37.5 46.4 62.6 100 9.9 12.5 20.6 37.5 46.4 62.6 100 9.9 12.5 85.0 40.4 19.2 85.0 40.4 19.2 80 80

60 Bil. $ 60 Bil. $

40 40

20 20

0 0 AA AA AAA AAA Surplus A Surplus A Surplus Deficit Surplus BBB Surplus Deficit Surplus BBB Expected PBT* 2020 cat budgetExpected Expected PBT* P/C Re 2020 cat budget Expected P/C 1-in-10-yearRe 1-in-50-year loss loss COVID-19 losses1-in-10-year 1-in-50-year loss 1-in-100-year loss 1-in-250-year loss loss COVID-19 losses 1-in-100-year1-in-250-year loss loss *Excludes property/casualty reinsurance (P/C Re) COVID-19 losses, but includes *Excludes property/casualty reinsurance (P/C Re) COVID-19 losses, but includes investment loss and mortality losses. PBT: Profit before tax. investment loss and mortality losses. PBT: Profit before tax. Source: S&P Global Ratings’ estimates. Source: S&P Global Ratings’ estimates. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

harthart 00 trongtrong roitsroits oeroer resilienceresilience inin aa noralienoralie earningsearnings enironentenironent ecluingecluing iactiact 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 (0.5) (0.5) (1.0) (1.0)

Relative to PBT (x) (1.5) Relative to PBT (x) (1.5) (2.0) (2.0) (2.5) (2.5) (3.0) (3.0)

Axis Arch Lloyd’sAspen Sirius SCOR Axis Arch RenRe HiscoxSirius SCOR FidelisFairfax Markel Lloyd’sAspen Hiscox QatarRe SwissRe FidelisFairfax RenRe QatarReMunichRe EverestReSwissRe AlleghanyPartnerRe Markel Lancashire Alleghany Lancashire MunichRe EverestRe HannoverRe PartnerRe HannoverRe PBT PBT post $50 billion PBT post $150 billion Catastrophe Risk PBT PBT post $50 billion PBT post $100 billion PBT post $150 billion aggregate loss PBaggregateT post $100 loss billion aggregate loss aggregate loss aggregate loss aggregate loss PBT: Profit before tax (normalized to exclude COVID-19 impact). Impact estimate PBT: Profit before tax (normalized to exclude COVID-19 impact). Impact estimate based on 2018-2019 average loss market shares. *Future experience may differ from based on 2018-2019 average loss market shares. *Future experience may differ from historical experience as some reinsurers adjusted their exposure in 2020. historical experience as some reinsurers adjusted their exposure in 2020. Source: S&P Global Ratings. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. that such a scenario could lead 10 harthart losseslosses inin 20202020 aa eroeeroe buerbuer reinsurers to experience a deterioration oo anan reinsurersreinsurers in their S&P Global Ratings capital Catastrophe budget and prospective Catastrophe budget and prospective Catastrophe budget and prospective Catastrophe budget and prospective earnings are sufficient earnings are not sufficient adequacy, unless they take action to earnings are sufficient earnings are not sufficient manage their capital levels. Excluding COVID-19 loss Excluding COVID-19 loss Will COVID-19 Put Reinsurers Off Plus COVID-19 loss o 0 billion Catastrophe Risk? nustr loss Plus COVID-19 loss o 0 billion nustr loss As we expect reinsurance markets to Excluding COVID-19 loss get firmer, the temptation to expand Excluding COVID-19 loss exposure will continue. Reinsurers’ Plus COVID-19 loss o billion nustr loss Plus COVID-19 loss o billion attitudes to catastrophe risk are nustr loss Excluding COVID-19 loss diverging. Some reinsurers have Excluding COVID-19 loss reacted to the improved premium rates Plus COVID-19 loss by taking on increased catastrophe Plus COVID-19 loss nustr loss o 00 billion nustr loss risk—others have taken a more defensive o 00 billion Excluding COVID-19 loss attitude. Excluding COVID-19 loss

We expect this divide will widen. Plus COVID-19 loss Plus COVID-19 loss nustr loss o 0 billion

Those that combine being less affected nustr loss o 0 billion 20 10 0 10 20 30 by COVID-19 with being in a position to 20 10 0 10 20 30 Number of reinsurers affected deploy capital are likely to take a more Number of reinsurers affected offensive stand at the next renewals. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. As the uncertainty regarding COVID- 19-related losses expands into 2021, harthart 22 ReinsurersReinsurers caitalcaital aeuacaeuac coulcoul slisli ii many reinsurers will face difficult losseslosses areare cobinecobine ithith aa in0in0 earear scenarioscenario strategic decisions. Overexposure could No change Capital adequacy drops by 1 notch imperil their balance sheet and earnings, No change Capital adequacy drops by 1 notch Capital adequacy drops by 2 notches Capital adequacy drops by 3 notches Capital adequacy drops by 2 notches Capital adequacy drops by 3 notches but overprotection will cause them to Capital adequacy drops by 4 notches miss out on the higher returns offered by Capital adequacy drops by 4 notches the property catastrophe space. n After a 1-in-10 year event After a 1-in-10 year event

This report does not constitute a rating After a 1-in-50 year event After a 1-in-50 year event action. After a 1-in-100 year event After a 1-in-100 year event

Charles-Marie Delpuech After a 1-in-250 year event cl losses After a 1-in-250 year event London, (44) 20-7176-7967 cl losses After a 1-in-10 year event [email protected] After a 1-in-10 year event

After a 1-in-50 year event Johannes Bender After a 1-in-50 year event Frankfurt, (49) 69-33-999-196 After a 1-in-100 year event After a 1-in-100 year event [email protected] After a 1-in-250 year event ith losses After a 1-in-250 year event ith losses Rachit Chauhan 10 5 0 5 10 15 20 25 Mumbai 10 5 0 5 10 15 20 25 Number of companies that would lose/retain Number of companies that would lose/retain notches of capital adequacy notches of capital adequacy Notch represents a capital adequacy category as per S&P Global Ratings criteria. Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2019. Source: S&P Global Ratings. Data as of Dec. 31, 2019. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

24 Global Reinsurance Highlights | 2020 Lloyd’s of London

Turning The Supertanker: Underwriting At Lloyd’s Market Changes Course

By Robert J Greensted and Ali Karakuyu

The Lloyd’s market looks unlikely to turn an underwriting profit in 2020. The COVID-19 pandemic has already caused it considerable losses, both underwriting and investment, with the North Atlantic hurricane season still to come. Although the market did manage to report an overall profit in 2019, its first since 2016, its underwriting remained unprofitable, with a headline combined (loss and expense) ratio of 102%. Nevertheless, S&P Global Ratings sees some signs that the market is beginning to turn.

nderlying combined ratios have 2020–2021. While the supertanker has hit two types of syndicate hardest: Those slowly, but steadily, improved not reached its cruising speed yet, it specializing in catastrophe-exposed Usince 2017. As rates continue seems to be on the right course for now. short-tail lines; and special-purpose to harden and Lloyd’s cracks down on At the syndicate level, results over the syndicates, which often reinsure the underperforming syndicates, the overall past five years indicate that the high level property catastrophe risk of their sponsor improvement is likely to continue in of natural catastrophes since 2015 has syndicates. Our analysis shows that the Shutterstock / QQ7 / Shutterstock

Global Reinsurance Highlights | 2020 25 Lloyd’s of London

maturity of a syndicate is often the best management division has undoubtedly break 120% by the same metric. determinant of operating success—size factored into its progress. The “Decile Given that Lloyd’s has continued to is less important. 10” program, which focused on the crack down on underperformance, we Lloyd’s has completely overhauled worst performing syndicates and lines expect more syndicates to close in 2020. its C-suite and the management team of business, saw several syndicates The significant number of catastrophes has launched an ambitious project leave the market, either of their own in recent years have made it more to create the world’s most advanced volition or at Lloyd’s behest. We list those difficult to achieve technical profitability insurance marketplace. An organization syndicates in Table 1. None had a five- through underwriting, but we believe as complex as Lloyd’s takes some time year weighted-average combined ratio Lloyd’s Performance Management to change course, but in our view, if “The below 100% (weighted by gross premium Directorate (PMD) has identified serial Future at Lloyd’s” project is well executed, written) and only three managed to underperformers among syndicates that it will enable Lloyd’s to address its historical underperformance and further hart lo turnaroun n los oerating erorance strengthen its competitive position. 140 20 18 Making A Break For Open Water 120 Although it has taken some time, we 16 believe that Lloyd’s is now steering 100 14 in the right direction on underwriting 12 80 % performance. Although the market as a 10 % 60 whole has recorded combined ratios over 8 100% for the past three years, signifying 40 6 underwriting losses, the underlying 4 performance, excluding the impact of 20 reserve releases and large losses and 2 adding an average 9% catastrophe charge 0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f shows a different picture. Performance by this measure has improved, very Major claims Reserve releases Reported combined gradually, every year since 2017, a trend (right scale) (right scale) ratio (left scale) we expect to continue into 2021 (Chart 1). Accident year combined Underlying combined Much of the improvement stems from ratio (left scale) ratio (left scale) hardening re/insurance rates, but the f: Forecast. Source: S&P Global Ratings. work undertaken by Lloyd’s performance Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Table 1: End of service or retired early? Lloyd’s syndicate closures 2015–2019 hart 2 reaing out o startu oe taes los snicates tie Net combined ratio (%) Managing agent Number Closure Age210 2019 2018 2017 2016 2015 WA announced 2015–2019 190 Hamilton 2014 2019 2014 107 112 117 117 99 112 170 AmTrust 2526 2017 15+ N/A 739 (5) 252 257 238 AmTrust 44 2018 15+150 106 107 98 98 87 100

Tokio Marine Kiln 308 2017 15+130 101 87 175 94 108 124 AmTrust 779 2017 15+ N/A 127 128 131 124 128 110

Neon 2468 2020 Net combined ratio (%)* 15+ 118 120 105 217 138 130 90 Vibe 5678 2019 2007 118 110 152 150 99 128 Asta 1980 2019 201870 139 176 N/A N/A N/A 160 Five years or less Five to 15 years 15+ years Capita 1110 2017 2010 102 79 111 108 102 105 nicate age Advent 780 2018 15+ N/A 123 126 100 103 114 2015 2016 2017 2018 2019 Asta 1897 2019 2011 165 121 117 127 105 120 *Average net combined ratio weighted by gross premium written. Charles Taylor 1884 2018 2015Source: S&P 151Global Ratings. 160 157 152 216 162 WA: Average net combined ratio weighted by gross premiumCopyright written. N/A:© 2020 Not by applicable. Standard & Source: Poor’s Financial S&P Global Services Ratings. LLC. All rights reserved

26 Global Reinsurance Highlights | 2020 hart ll lines hae suere but shorttail secialists hae elt the ost ain

160 140 120 100 80 60 40 Net combined ratio (%)* 20 0 Liability Life Multiple Short-tail Special- Specialist lines purpose arrangements 2015 2016 2017 2018 2019

hart ie oes not necessaril translate into outerorance

150

140

130

Axis 1686 120 Apollo 1969 Aspen 4711 MS Amlin 2001 110 Markel 3000 Canopius 4444 Liberty 4472 Hardy 382 Catlin 2003 Antares 1274 Talbot 1183 Brit 2987 Net combined ratio (%)* 100 Tokio Marine Kiln 510 AEGIS 1225 QBE 2999

Ascot 1414 Chaucer 1084 Beazley 2623 90 Munich Re 457 Hiscox 33 Chubb 2488 MAP 2791 80 0 500 1,000 1,500 2,000 2,500

Average gross premium written 2015–2019 (mil. £)

hart los eense ratio is higher than its eers

25 % 20

0 Lloyd’s Swiss Re RSA QBE Allianz Chubb (non-life only) (non-life only)

hart lo turnaroun n los oerating erorance

140 20 18 120 16 Table 2: 10 syndicates still navigating stormy seas 100 14 Gross premium written (mil. £) Net combined ratio (%) 12 80 % Managing Number Age 2019 2018 2017 2016 2015 Average 2019 2018 2017 2016 2015 10 WA agent % 2015– 2015– 60 2019 8 2019

Axis 1686 2014 893 313 40308 216 118 370 113 118 158 103 133 6 122 Allied 2232 2010 219 225 204 164 144 191 121 101 190 100 102 4 125 20 Asta 5886 2017 205 148 100 N/A N/A 151 110 118 184 N/A N/A 2 129 Starstone 1301 2000 175 249 2360 209 170 208 131 177 135 96 92 0 129 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f Asta 2786 2016 146 116 114 59 N/A 109 121 108 125 146 N/A 122 Capita 1492 2015 134 130 88 43Major claims3 80 Reserve94 releases98 158 Reported175 combined500 121 (right scale) (right scale) ratio (left scale) Sirius 1945 2011 97 100 111 115 83 101 120 110 151 111 106 121 Accident year combined Underlying combined Nephila 2357 2013 376 443 266 128 47ratio (left scale)252 138 161 ratio167 (left scale)80 45 143 Asta 4242 2007 201 160 157 137 111 153 120 168 138 87 71 121 f: Forecast. Source: S&P Global Ratings. Asta 2689 2017 115 102 Copyright60 ©N/A 2020 by StandardN/A & Poor’s92 Financial112 Services116 LLC. All152 rights reserved.N/A N/A 122 WA: Average net combined ratio weighted by gross premium written. N/A: Not applicable. Source: S&P Global Ratings. would have dragged down the market’s hart 2 reaing out o startu oe taes los snicates tie performance regardless. In our analysis, we have identified 10 210 syndicates (excluding special-purpose 190 arrangements [SPAs]) that have been 170 operating for more than three years and have an average weighted combined ratio 150 over 120% for the past five years (Table 130 2). Most have been operating for less than 10 years. 110 Syndicates like these seem to be Net combined ratio (%)* 90 struggling to move out of the startup phase. Given that some of the recent 70 closures were syndicates established in Five years or less Five to 15 years 15+ years 2014 and 2015, we think Lloyd’s may have nicate age lost patience with such syndicates. We 2015 2016 2017 2018 2019 believe that the market’s management *Average net combined ratio weighted by gross premium written. has learnt from its errors when it Source: S&P Global Ratings. expanded the number of syndicates Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved during the soft market of 2012-2017. Potential new entrants will likely find it tougher to gain approval in future. 2020. But since 2015, major claims have already been booked at the half year, and exceededhart 9% in ll every lines year hae except suere 2015 but shorttailthe North Atlanticsecialists hurricane hae elt season and Mature Syndicates Steer Clear Of and 2019,the ost and ain2020 is also expected Pacific typhoon season have yet to come. Hazards to exceed the 9% long-term average. It is therefore not surprising that short- 160 Young, short-tail syndicates have Significant losses from COVID-19 have tail specialists and SPAs, which often 140 struggled more than larger and more- take a share of property catastrophe risk mature syndicates to achieve a profit 120 from their sponsor syndicates, suffered during 2015–2019, when the Lloyd’s “ The100 maturity of a most during 2015–2019. Even syndicates market suffered at the hands of a series syndicate80 is often the best that have less exposure to property of large catastrophes (Chart 2). Our determinant60 of operating catastrophe performed poorly over this expected catastrophe load for Lloyd’s, success—size40 is less period—only liability-focused syndicates based on long-term averages, is 9% of Net combined ratio (%)* recorded more years with underwriting important.”20 the combined ratio. This is in line with profits than losses. 0 our catastrophe load forecast of 8% to Liability Life Multiple WeShort-tail found theSpecial- clearestSpecialist indicator lines purpose 10% for the top 20 global reinsurers in of a syndicate’sarrangements performance is the 2015 2016 2017 2018 2019 Global Reinsurance Highlights | 2020 27 *Average net combined ratio weighted by gross premium written. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart ie oes not necessaril translate into outerorance

150

140

130

Ascot 1414 Chaucer 1084 Beazley 2623 90 Munich Re 457 Hiscox 33 Chubb 2488 MAP 2791 80 0 500 1,000 1,500 2,000 2,500

Average gross premium written 2015–2019 (mil. £)

hart los eense ratio is higher than its eers

25 % 20

0 Lloyd’s Swiss Re RSA QBE Allianz Chubb (non-life only) (non-life only)

140 20 hart lo turnaroun n los oerating erorance 18 120 140 2016 100 1814 120 12 80 16 % 100 10

% 14 60 128 80 % 40 106 % 60 84 20 2 40 6 0 40 20 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f 2 0 Major claims Reserve releases Reported combined0 2012 (right2013 scale)2014 2015 2016(right scale)2017 2018 2019 ratio2020f (left scale)2021f Accident year combined Underlying combined Major claimsratio (left scale) Reserve releases ratio (left scale)Reported combined (right scale) (right scale) ratio (left scale) f: Forecast. Source: S&PAccident Global Ratings. year combined Underlying combined Copyright © 2020 by Standardratio (left & scale)Poor’s Financial Services LLC.ratio All (left rights scale) reserved.

210 hart 2 reaing out o startu oe taes los snicates tie 190 210 170 190 150 170 130 150 110 Net combined ratio (%)* 130 90 110

Net combined ratio (%)* 70 90 Five years or less Five to 15 years 15+ years nicate age 70 Five2015 years or less2016 2017Five to 15 years2018 2019 15+ years Lloyd’s*Average of London net combined ratio weighted bynicate gross premium age written. Source: S&P Global Ratings. 2015 2016 2017 2018 2019 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved *Average net combined ratio weighted by gross premium written. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved hart ll lines hae suere but shorttail secialists hae elt the ost ain

160hart ll lines hae suere but shorttail secialists hae elt the startup syndicates to significantly 140the ost ain underperform as they built scale, we were surprised at the extent of the differential 160120 between the established and mature 140100 syndicates (Chart 3). On average, the 80 120 mature syndicates outperformed the 60 100 established syndicates by 7% on their 8040 Net combined ratio (%)* weighted-average combined ratios. In the 6020 heavier catastrophe years of 2017-2019, 400 the difference increased to 9% (Chart Net combined ratio (%)* Liability Life Multiple Short-tail Special- Specialist 4). Potential new entrants be warned: it 20 lines purpose arrangements is not easy to launch a Lloyd’s syndicate 0 2015 2016 2017 2018 2019 Liability Life Multiple Short-tail Special- Specialist successfully. lines purpose *Average net combined ratio weighted by gross premium written. arrangements Source: S&P Global Ratings. 2015 2016 2017 2018 2019 New Captain And Crew Streamline The Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Market *Average net combined ratio weighted by gross premium written. Source: S&P Global Ratings. Between 2016 and 2019, Lloyd’s Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. executive suite had a complete overhaul. The market appointed a new chief hart ie oes not necessaril translate into outerorance executive officer, chief financial officer, chief operating officer, and performance 150 management director in that period. It hart ie oes not necessaril translate into outerorance has not taken the new team long to make 140 150 an impression. The team shelved the previous 130 140 management team’s strategy of Axis 1686 expanding into new emerging markets 120 130 in favor of modernizing the market Apollo 1969 Aspen 4711 MS Amlin 2001 itself. “The Future at Lloyd’s” blueprint, 110 Axis 1686 120 Markel 3000 Canopius 4444 Liberty 4472 published in 2019, followed considerable Hardy 382 Catlin 2003 ApolloAntares 1969 1274 consultation with market stakeholders on Aspen 47Talbot11 1183 Brit 2987MS Amlin 2001 Net combined ratio (%)* 100 Tokio Marine Kiln 510 110 AEGIS 1225 QBE 2999 how Lloyd’s could ensure its continuing Markel 3000 Canopius 4444 Liberty 4472 Catlin 2003 Hardy 382 Chaucer 1084 Beazley 2623 presence at the top table of global re/ AntaresAscot 1274 1414 90 Talbot 1183 Hiscox 33 Brit 2987 Net combined ratio (%)* Munich Re 457 insurance. 100 QBE 2999 Tokio Marine Kiln 510 AEGISChubb 1225 2488 We consider the change in strategy MAP 2791 Beazley 2623 80 Ascot 1414 Chaucer 1084 90 necessary, but see significant execution 0 500 Munich Re 4571,000 Hiscox 331,500 2,000 2,500 Chubb 2488 risks ahead. The program is extensive, MAP 2791A verage gross premium written 2015–2019 (mil. £) 80 with ambitious targets, and will require 0 500 1,000 1,500 2,000 2,500 significant changes to how the market *Average net combined ratio weighted by gross premium written. operates. It aims to look beyond the use of Source: S&P GlobalAverage Ratings. gross premium written 2015–2019 (mil. £) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. technology to make Lloyd’s more efficient *Average net combined ratio weighted by gross premium written. and attractive to customers. maturitySource: of the S&P syndicate, Global Ratings. not its size. performing syndicates are large—for For example, Lloyd’s has faced Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Although the very worst-performing example, Hiscox 33 and Beazley 2623 criticism from some quarters because hart los eense ratio is higher than its eers syndicates tend to write gross premium each averaged over £1 billion in GPW in of the high cost and difficulty of doing of less than $400 million, some of the 2015–2019. Nevertheless, the age of the business at Lime Street in the City 45 very besthart performances los eensecome from ratio small is higher syndicate than its proved eers a far more significant of London. As Chart 5 shows, Lloyd’s syndicates.40 Both MAP 2791 and Asta factor, in our opinion. expense ratio is higher than some of its 2525 write45 less than £200 million in gross We looked at syndicates in three age key insurance and reinsurance peers. premium.35 However, size does have its brackets: Much of the market’s high acquisition 40 advantages. • Startup (under five years); costs stem from the significant amount 30 No 35syndicate that averages gross • Established (five to 15 years); and of managing agent and specialized premium25 written (GPW) above £500 • Mature (over 15 years). business it writes. million30 had a weighted-average combined Mature syndicates make up 75% Senior management’s new blueprint % ratio above20 110%, and some of the best- of the market. Although we expected seeks to reduce the cost and increase the 25 15 % 28 Global20 Reinsurance Highlights | 2020 10 15 5 10 0 5 Lloyd’s Swiss Re RSA QBE Allianz Chubb (non-life only) (non-life only) 0 Source: S&P Global Ratings. Lloyd’s Swiss Re RSA QBE Allianz Chubb Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. (non-life only) (non-life only)

140 20 18 120 16 100 14 12 80 % 10 % 60 8

40 6 4 20 2 0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f

Major claims Reserve releases Reported combined (right scale) (right scale) ratio (left scale) Accident year combined Underlying combined ratio (left scale) ratio (left scale)

hart 2 reaing out o startu oe taes los snicates tie

210

190

170

150

130

110 Net combined ratio (%)* 90

70 Five years or less Five to 15 years 15+ years

nicate age

2015 2016 2017 2018 2019

hart ll lines hae suere but shorttail secialists hae elt the ost ain

160 140 120 100 80 60 40 Net combined ratio (%)* 20 0 Liability Life Multiple Short-tail Special- Specialist lines purpose arrangements 2015 2016 2017 2018 2019

hart ie oes not necessaril translate into outerorance

150

140

130

Axis 1686 120 Apollo 1969 Aspen 4711 MS Amlin 2001 110 Lloyd’s of London Markel 3000 Canopius 4444 Liberty 4472 Hardy 382 Catlin 2003 Antares 1274 Talbot 1183 Brit 2987 Net combined ratio (%)* 100 Tokio Marine Kiln 510 AEGIS 1225 QBE 2999

Ascot 1414 Chaucer 1084 Beazley 2623 90 Munich Re 457 Hiscox 33 Chubb 2488 MAP 2791 80 0 500 1,000 1,500 2,000 2,500 ease of conducting business at Lloyd’s, task, when each stakeholder has its own expense of Lloyd’s ongoing work to drive Average gross premium written 2015–2019 (mil. £) by driving efficiencies in placement and needs and desires. performance improvement. However, as simplifying the process of matching In particular,*Average net management combined ratio weightedstretch by grossother premium insurance written. centers, in Bermuda, customer and underwriter. Doing so will could becomeSource: S&Pan Globalissue. Ratings. Execution of Singapore, and Zurich, continue to thrive, require significant improvement in IT the blueprintCopyright should © 2020 notby Standard come &at Poor’s the FinancialLloyd’s Services cannot LLC. afford All rights to stand reserved. still. platforms, an area where Lloyd’s has had problems in the past. However, we consider that Lloyd’s hart los eense ratio is higher than its eers recent efforts to digitalize the market through its placing platform limited 45 (PPL) system have been more successful than previous attempts. The lockdown 40 implemented as a result of COVID-19 35 has actually helped the market’s uptake of this platform. The enforced closure of 30 “the room” where face-to-face business has historically been contracted has 25

led a significant increase in the use of % 20 PPL as syndicates embraced virtual underwriting. 15 Successfully executing many of “The Future at Lloyd’s” programs should 10 secure Lloyd’s future competitive 5 position, in our opinion, but the execution risk is high. Creating change in the 0 market is notoriously hard because it Lloyd’s Swiss Re RSA QBE Allianz Chubb requires support from managing agents, (non-life only) (non-life only) members’ agents, capital providers, and Source: S&P Global Ratings. the market’s distributors. This is no easy Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Table 3: Many recent deals gave the acquiring party a substantial Lloyd’s presence Acquired Acquiree Acquiree location Date announced Cathedral Capital Ltd. Lancashire Bermuda August 1, 2013 Antares Holding Ltd. Qatar Insurance Company Qatar February 1, 2014 Catlin Group Ltd. XL Group Ltd Bermuda January 1, 2015 Brit Insurance Holdings PLC Fairfax Financial Holdings Ltd. Canada February 1, 2015 Montpelier Re Holdings Ltd. Endurance Specialty Holdings Ltd. U.S. March 1, 2015 Ironshore Inc. Fosun International Ltd. China May 1, 2015 Amlin PLC Mitsui Sumitomo Insurance Co. Ltd. Japan September 1, 2015 ANV Holdings AmTrust Financial Services Inc. U.S. November 1, 2016 Ascot Underwriting Holdings Ltd. Canada Pension Plan Investment Board Canada September 1, 2016 Ariel Re Holdings Ltd. Argo Group US Inc. U.S. November 1, 2016 Argenta Holdings PLC Hannover Re Germany March 1, 2017 Novae Group PLC Axis Capital Holdings Ltd. Bermuda July 1, 2017 Sompo Canopius AG Centerbridge Partners Private Equity September 1, 2017 Validus Holdings Ltd. American International Group Inc. U.S. January 1, 2018 Chaucer Holdings China Reinsurance (Group) Corporation China August 1, 2018 MSP Underwriting Ltd. (Beaufort) Cincinnati Financial Corp. U.S. June 1, 2005 Amtrust at Lloyd’s Canopius AG Switzerland April 1, 2019 Barbican Group Holdings Ltd. Arch Capital group Bermuda July 1, 2005

Global Reinsurance Highlights | 2020 29 Lloyd’s of London

hart argest to allest Ho the ctie nicates at los oare

erage G net cobine Ratio Gross reiu ritten et cobine ratio Ran anaging agent nicate nuber 2020 il 2020 20 il 20

1 atlin 2003 2,141 109% 2,091 110% 2 lin 2001 2,005109% 2,085 103% 3 rit 2987 1,548 101% 1,771 98% 4 eale 2623 1,496 94% 1,855 99% 5 ibert 4472 1,376 104% 1,322 108% 6 oio arine iln1510 ,341 97% 1,45090% 7 Hisco 33 1,209 92% 1,602 108% 8 2999 1,129 98% 1,222 94% 9 anoius 4444 1,128 106% 1,364 103% 10 haucer 1084 911 96% 1,025 94% 11 albot 1183 717 100% 77295% 12 scot 1414 638 96%689 96% 13 rgo 1200 528 110% 561 109% 14 arel 3000 508 107% 543 108% 15 G 1225 476 93%653 97% 16 triu 609 471 91% 591 90% 17 RenRe 1458 465 106% 685106% 18 unich Re 457 461 93% 56997% 19 hubb 2488 435 90% 488 94% 20 rust 1861 408105% 661 107% 21 Hisco 3624 400 102% 320 112% 22 ntares 1274 386 103% 473 101% 23 sen 4711 380 113% 379 139% 24 arbican 1955 375 104% 357 102% 25 R 218 373 102% 360 100% 26 is 1686 370122% 893 113% 27 araa 435 360 101% 448 100% 28 Hailton 4000 349 102%302 105% 29 386 34395% 346 104% 30 rgenta 2121 342 102% 458 105% 31 raelers 5000 335 113%370 136% 32 aigators 1221 334 105% 359 126% 33 eale 623 329 94% 407 99% 34 Har 382 313 107% 31699% 35 r 4020 295 97% 277 100% 36 rgo 1910 294 103% 289 103% 37 tarr 1919 285 98% 306 127% 38 nurance 5151 283 111% 329 109% 39 ollo 1969 272 113% 409 102% 40 he hannel 2015 252 118% 252 113% 41 sta 2357 252 143% 376 138% 42 oio arine iln 1880 250 102% 319 111% 43 ancashire 2010 208 101% 22399% 44 tarstone 1301 208 129% 175 131% 45 rch 2012 198 102% 22491% 46 llie 2232 191125% 219 121% 47 R erle 1967 187 111% 263 88% 48 2791 181 85% 224 75% 49 incinnati 318 155 112% 167 88% 50 sta 4242 153121% 201 120% 51 sta 5886 151 129% 205 110% 52 eale 3623 135 98% 114 109% 53 H 4141 133 95% 146 97% 54 eline 1218 132 90% 175 95% 55 oers 1991 120 115% 163 109% 56 sta 2786 109 122% 146 121% 57 sta 3268 104 122% 119 100% 58 sta 1729 104 112% 139106% 59 irius 1945 101 121% 97 120% 60 sta 2689 92 122% 115 112% 61 r 3902 87 102%8990% 62 aita 1492 80 118% 134 94% 63 eacoc 727 68 98% 75 106% 64 sta 2525 60 88% 82 90% 65 ancashire 3010 59 96% 101 91% 66 Hailton 1947 41 138%58 105% 67 oers 1975 38 120%39 126% 68 atlin 3002 35 91% 50 90% 69 haucer 1176 29 37% 28 28% 70 eale 3622 19 96% 26 95%

30 Global Reinsurance Highlights | 2020 Lloyd’s of London

Insurers Still See Lloyd’s As A Safe Port secure its future, Lloyd’s will want to Despite the criticisms, we still see “ We still see Lloyd’s as an ensure it doesn’t lose what also makes it Lloyd’s as an attractive market and attractive market and a key special. n a key insurance location, with global insurance location.” distribution channels (Chart 6). This This report does not constitute a rating enabled Lloyd’s to attract a significant action. amount of the surge in insurance mergers and acquisitions in recent years. Table Robert J Greensted 3 shows the deals agreed in recent London, (44) 20-7176-7095 years where the acquired party has a [email protected] substantial Lloyd’s presence. In particular, Asian markets have Munich Re and AIG have both established Giulia Filocca invested heavily at Lloyd’s. Prominent syndicates. London, (44) 20-7176-0614 acquisitions include those by China Perhaps the explanation is that many [email protected] Re and Mitsui Sumitomo. Although of the market’s weaknesses can also be some companies have voluntarily viewed as its strengths. Its face-to-face Ali Karakuyu exited Lloyd’s—most recently, Sompo’s culture, while less efficient and more London, (44) 20-7176-7301 syndicate 5151—this has been more expensive, has cemented Lloyd’s position [email protected] than offset by international groups as a leading specialty insurance market. seeking to launch new Lloyd’s syndicates. Although change will be essential to

Global Reinsurance Highlights | 2020 31 Protection Gap

COVID-19 Highlights Global Insurance Protection Gap On Climate Change

By Olivier J Karusisi and Dennis P Sugrue

As the COVID-19 pandemic spread from region to region, it has drawn attention to a hitherto unnoticed protection gap in insured and noninsured property/casualty (P/C) risks. The problem is global, and even affected mature economies, where insurance penetration (insurance premium as a percentage of gross domestic product [GDP]) is typically high. Shutterstock / Alberto Andrei Rosu Andrei Alberto / Shutterstock

32 Global Reinsurance Highlights | 2020 Protection Gap

n June 2020, the International Chart 1: Uninsured losses are growing faster than insured losses Monetary Fund indicated global Insured versus uninsured losses, 1970-2019 economic losses from COVID-19 of I 500 about $12 trillion over 2020–2021 while Munich Re estimates insured property/ 400 casualty losses at $30 billion–$107 billion for 2020. Moreover, S&P Global 300 Ratings expects global GDP to fall by

more than 2.5% in 2020. Bil. US$ 200 Although the pandemic’s protection gap had not previously been recognized, 100 other protection gaps have been raising concerns for some time. As the 0 growing wealth of the rising middle class has outpaced insurance penetration, 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 it has created protection gaps in life, Uninsured losses Insured losses health, cyber, and natural catastrophe 10-year moving average 10-year moving average insured losses economic losses insurance. Source: Swiss Re Institute. The most studied protection gaps are Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. those associated with natural catastrophe risks. As temperatures rise with climate change, we expect the number of extreme and persistent social tensions. With their their living standards; for countries, their weather events to increase in some areas economic performance already impaired, it long-term economic prospects. of the globe. Our research shows that all can be hard to deliver basic social services The insurance sector, and more of the top 20 most vulnerable nations and make best use of donor assistance. particularly reinsurers, could help are in emerging markets, and average Few governments in developing countries to proactively build their insurance penetration in these countries countries have implemented initiatives resilience to the financial shocks is less than half of the global average. to secure the financing that would aid associated with natural catastrophes recovery and reconstruction after a (and pandemics). Such a partnership is Warming Temperatures Amplify natural catastrophe, in advance of a likely to benefit both parties by boosting Vulnerability To Extreme Weather Events crisis. Instead, they tend to react after the national recovery capabilities after Today, much of the world faces event, selling assets, reallocating budget catastrophe events while increasing increasingly frequent and long periods items, or seeking international aid and revenue in its insurance sector. For of meteorological drought. Previously, loans. reinsurers, it would increase geographic economic consequences from drought A reactive approach has several diversification, which would be positive mainly affected African countries; this is disadvantages. In many cases, the for ratings in the sector. changing. Chile, India, Australia, the US, amount raised proves insufficient to Natural catastrophe events, which France, and even Russia have suffered meet relief requirements. The process is include extreme weather events, have badly in recent years. Indeed, many also conducted at a time of stress, and been occurring more frequently around natural disasters, such as drought and often without a cohesive plan and vision. the world (Chart 1). Given that the 20 forest fires, have started to affect regions Several studies have shown that the result nations we consider most vulnerable are that historically had been relatively of such a lack of preparedness against all in emerging markets where insurance untouched, adding to more-frequent shocks is felt at both an individual and a penetration is less than half of the natural weather events, such as flood or national level. For individuals, it worsens global average, we expect the insurance tropical and winter storms. sector to contribute comparatively little By 2030, we expect 80% of the poorest to recovery and reconstruction after a people to be concentrated in the most “The insurance sector, and catastrophic event. fragile countries, according to a report more particularly reinsurers, We believe these underpenetrated from the Organisation for Economic could help countries to markets contain pools of risk for the Co-operation and Development. These proactively build their insurance industry that, if accessed, countries have characteristics that resilience to the financial could provide diversification of risk substantially impair their economic shocks associated with and new client bases that could affect and social performance, such as weak competitive positions. governance, limited administrative natural catastrophes..” Preserving financial stability in the capacity, chronic humanitarian crises, face of natural catastrophe depends not

Global Reinsurance Highlights | 2020 33 Protection Gap

only on the sovereign’s financial strength, early warning systems, and improving data and expertise to assess evolving risks but also on the level of insurance the adaptive capacity of resident to help price climate risk, thus allowing penetration (Table 1). Economies rely on populations (for example, through governments, companies, and individuals insurance to support a quick recovery raising awareness of adaptation to make better decisions. Government- after a catastrophe event. Typically, measures taken during flood events). backed insurance solutions, supported the two go hand in hand; the wealthier For example, Bangladesh uses an early by the global reinsurance industry, could the country, the higher the insurance warning system for flash floods and provide some protection and stability penetration. thunderstorms. to government budgets, mitigating the That said, Japan’s commercial Financial planning is also vital potential for instability and limiting insurance penetration is relatively low because it ensures that sufficient funds the impact of natural catastrophes on because companies typically invest in to rebuild the economy will be available economic growth (see The Heat Is On: risk mitigation, such as increasing the when needed. Some countries self-source How Climate Change Can Impact Sovereign resilience of buildings. In our view, risk these funds by accumulating wealth Ratings, published on Nov. 25, 2015). awareness and mitigation partly explain before the event; others transfer the risk Reinsurers can offer expertise in why mature markets are attractive to to insurance or capital markets. Many modeling and assessing catastrophe investors. countries have to make a choice; invest risk exposure, educating stakeholders in risk reduction financial instruments on the level of their exposures, creating Quantifying Risks In Advance Is Key or implement adaptation programs to tailormade solutions that provide proper Efficient disaster management depends reduce the impact of climate change on protection, and acting as an intermediary on the nation being aware of its most their economies (see Sink Or Swim: The with the capital markets to pair buyers prevalent natural catastrophes, and Importance Of Adaptation Projects Rises and sellers of protection. prepared for them. Governments can With Climate Risks, published on Dec. 3, Many insurance-based solutions mitigate the consequences of these 2019). already protect developing economies events by using tools such as land Insurance Can Play A Valuable Role around the world. Governments have planning, infrastructure development, In our view, the insurance industry has the made use of pooling arrangements,

Table 1: Few emerging economies insure against catastrophes Historical catastrophe losses Event Year Peril Economic loss Insured loss Insured/ Economic Insurance (mil. $) (mil. $) economic (%) loss/GDP (%) loss/GDP (%) Mature economies Tohuku (Japan) 2011 EQ 210,000 40,000 19 3.4 0.6 Katrina (USA) 2005 HU 125,000 60,500 48 1.0 0.5 Harvey (USA) 2017 HU 95,000 30,000 32 0.5 0.2 Kumamoto 2016 EQ 32,000 6,500 20 0.6 0.1 New Zealand 2011 EQ 24,000 16,500 69 14.2 9.8 Camp Fire (USA) 2018 WF 16,500 12,500 76 0.1 0.1 Emerging economies Sichuan (China) 2008 EQ 85,000 300 0 1.9 0.0 Thailand 2011 FL 43,000 16,000 37 11.6 4.3 Chile 2010 EQ 30,000 8,000 27 13.7 3.7 China 2003 FL 7,900 0 0.5 0.0 China 2004 FL 7,800 0 0.4 0.0 Mexico 2017 EQ 6,000 2,000 33 0.5 0.2 Mexico 2014 HU 2,500 1,200 48 0.2 0.1 Indonesia 2002 FL 640 200 31 0.3 0.1 India 2005 FL 5,000 770 15 0.6 0.1 Developing economies Nargis (Myanmar) 2008 CL 4,000 - 0 12.6 0.0 Haiti 2010 EQ 8,000 200 3 120.8 3.0 Source: Munich Re, NatCatSERVICE, World Bank. EQ: Earthquake. HU: Hurricane. WF: Wildfire. FL: Flood. CL:Cyclone

34 Global Reinsurance Highlights | 2020 Protection Gap

structured reinsurance solutions, and because its business model relies on bespoke insurance policies. Countries “In many developing a government-determined program to such as Turkey and Mexico have set up economies, insurance is formalize policy terms. CCR accepts effective solutions, after learning the viewed as a tax, rather than catastrophe business in France on the hard way following large losses. Some a valuable protection.” basis of a national, law-driven natural vulnerable nations are taking note of catastrophe scheme that includes these solutions and looking for inspiration mutualized, uniformly set rates. to reduce their own exposure before they suffer extreme weather events. Making The Economics Work As commercial enterprises, the Not All Countries Recognize The Value insure, rather than purchase explicit, economics of these deals must make In many developing economies, insurance insurance-based protection. However, sense for reinsurers as well. Once a is viewed as a tax, rather than a valuable this choice would deprive them of the government has shown interest, the firm protection, particularly if no major loss benefit of protection against very extreme it works with will have to develop a product events have recently occurred in the events. A better option may be to choose that takes that country’s regulatory region. When much of the population has a product that pays out after more- framework and decision-making process irregular income, earned on a day-to-day frequent events. into account. This is likely to increase the basis, they do not tend to view a potential If the protection kicks in for smaller time and cost required to develop and catastrophic event as an immediate catastrophes, the country will receive execute the protection plan. These costs concern. benefits more regularly. This can make may reduce the value of the structures for As a result, authorities are likely it easier for voters and governments to both reinsurers and states. to underestimate or play down their recognize the value of the protection they Although some aspects of these catastrophe exposure. Even if they are paying for. structures could keep the arranging recognize the scale of their exposure costs high for reinsurers, we expect these to catastrophe risk, elected politicians Options For Addressing The Protection limitations to ease over time. One of the must consider how the public assesses Gap main goals of the Insurance Development the value of any insurance-backed Developed countries have taken different Forum (IDF), a World Bank and insurance transaction. paths in addressing the protection industry-backed partnership, is to build Reinsurers will have to invest time gap for natural catastrophes. Some greater resilience and protection for and effort to change how politicians countries have relied on the insurance people, communities, businesses, and and the electorate consider the value of market to determine coverage costs; public institutions that are vulnerable to insurance. History shows that politicians others have combined state guarantees disasters and their associated economic are generally rewarded for acting after a and the insurance market to foster shocks, through insurance. IDF will raise major event, but not for thinking ahead risk mutualization across the country. awareness on climate risks across the and investing in risk management. Examples include: globe. We anticipate that it could help Reacting well to an extreme event gives • Flood Re: This is a joint initiative insurers find a way to pool resources, a politician a boost in the polls. Limiting between the UK government and which will reduce costs. the consequences of an event well after insurers that aims to make the flood your term, through sound planning and cover part of household insurance Get The Basis Risk Right, Or Pay A foresight, does not. policies more affordable. Reputational Penalty In particular, if insurance provides • Consorcio de Compensación de Reinsurers may face reputational damage protection only against an infrequent, Seguros (CCS): This is a private-public if a major event occurs and the authorities severe event, the short-term benefit is partnership that indemnifies Spanish and the public do not believe that the likely to be perceived as significantly insurance companies against claims insurance performed as promised. For less than the premium paid. Indeed, if arising from unpredictable events, example, it is common to use simple, insurers are to make any money in these including natural disasters. It provides easy-to-measure parameters, such as transactions, it is likely that, as with most nationwide, state-guaranteed cover for wind speed or earthquake magnitude, as insurance contracts, over the long term, extraordinary risks. a basis for claims. Parametric triggers are the premium paid would likely exceed • Caisse Centrale de Réassurance important structural features that enable the value of the indemnification received. (CCR): This benefits from its role as reinsurers to pay claims quickly. Any premium paid has to include the the only provider of unlimited coverage However, if an event occurs that does reinsurers’ profit and cost-of-capital against drought, flood, earthquake, not meet these parameters, the protection margins. and terrorism risks in France, and is won’t be triggered. This is known as basis Authorities that take a longer-term supported by a state guarantee. CCR risk and it means that payouts will be less view may be tempted to choose to self- differs from other private reinsurers than actual losses. Material differences

Global Reinsurance Highlights | 2020 35 Protection Gap

may undermine the transaction’s value solutions. In many emerging markets, and damage a reinsurer’s reputation. “For some of the perils attitudes toward insurance and risk Voters may consider that the reinsurer is in developing markets, awareness are changing. Regulators are avoiding paying the true cost. reinsurers have insufficient increasing capital requirements and For example, in 2019, during an data on loss history or mandating the purchase of insurance outbreak of Ebola in the Democratic exposures to create in some lines of business. As capital Republic of Congo, criticism was leveled market capacity expands, demand to effective models.” at a parametric pandemic bond issued diversify risks by region and peril also by the World Bank in 2018 as part of its intensifies. This could also make it easier Pandemic Emergency Financing Facility to find capital to back solutions, based (PEFF). Despite the parametric triggers reinsurers to demonstrate to buyers on partnerships between re/insurers and not being breached, market observers and investors that the models they governments. criticized the bonds for not paying out to use are sufficiently robust. The models We consider that the reinsurance aid with what Médecins Sans Frontières are likely to be reinsurers’ main tool industry has a long-term and important defined as the second-largest outbreak for demonstrating the benefits of their role to play in developing awareness of Ebola on record. insurance structures to their clients. and acceptance of insurance-backed The bonds faced further criticism Modeling uncertainty presents reinsurers solutions for states’ catastrophe in March and April this year for being with a difficult choice: build margins exposure. In our view, reinsurers that take too slow to respond to the COVID-19 into their pricing to reflect the modeling on this role and are able to demonstrate pandemic. They were eventually triggered uncertainty and reduce the value for their diversification of risk exposure and the and paid $196 million to 64 of the world’s customers; or risk accepting underpriced ability to gain access to new markets and poorest countries to help them manage risks. risk pools could experience competitive the pandemic. The critique of the bond’s advantages and reinforce their relevance structure and triggering mechanisms Building Disaster Resilience Could Help to clients. forced the World Bank to reconsider Open Markets To Reinsurers This is also an opportunity for renewing the bonds after they matured Insurers and reinsurers are increasingly investors—as the insurance industry in July. looking for ways to expand their presence takes on new risks, it is likely to increase in emerging markets, which offer high its capital needs. The development of vital Data Gaps Increase Protection Gaps growth potential because of their low infrastructure will also require private The cost of insuring bad risks could insurance penetration. In our view, investment. n also explain the current size of the government-backed risk protection protection gap. Modeling for the key solutions can be a diversifying offering This report does not constitute a rating industry perils, such as US hurricane or for reinsurers, can help to develop new action. Japanese earthquake, is well developed, markets, and could be key to entrenching and helps reinsurers to build a robust the relevance of insurance in high-growth Olivier J Karusisi risk view. Reinsurers may struggle markets. Protecting a country’s wealth Paris, (33) 1-4420-7530 where modeling is not as advanced. and the stability of its economic growth [email protected] For some of the perils in developing will expand the pool of insurable assets, markets, reinsurers have insufficient which will benefit the industry. Dennis P Sugrue data on loss history or exposures to Various market trends—regulatory London, (44) 20-7176-7056 create effective models. This makes it changes, insurance growth in emerging [email protected] harder to accurately price risk in these markets, and insurance-linked new regions and perils. securitization—could also help to In our view, it will be important for increase the profile of insurance-backed

36 Global Reinsurance Highlights | 2020 IFRS 17

Reinsurers And IFRS 17: Getting Balance Sheets Ready And On Time

By Volker Kudszus, Eiji Kubo, Robert J Greensted, Eunice Tan, and Mark D Nicholson

Considering the multiple challenges from the COVID-19 pandemic and recent market volatility, reinsurers have had a lot on their minds. Now, with the approaching implementation of IFRS 17, effective Jan. 1, 2023, and the race to get balance sheets in order, reinsurers have much more to consider. Shutterstock / shutter_o / Shutterstock

Global Reinsurance Highlights | 2020 37 IFRS 17

&P Global Ratings believes that Chart 1: IFRS 17 affects a large number of listed insurers reinsurers and primary insurers— and users of their financial S J GAAP reporting—should brace themselves for Local (2%) GAAP hurdles in the transition to International (6%) Financial Reporting Standards (IFRS 17). The implementation of IFRS 17 requires insurers and reinsurers—globally, excluding those based in the U.S.—to US GAAP restate their balance-sheet comparatives (20%) IFRS with new key metrics. In June 2020, the (72%) International Accounting Standards Board (IASB) published its final amendments to IFRS 17, addressing issues for primary insurers regarding their purchase of reinsurance. These amendments dissolved some significant accounting mismatches between market value assets and book Source: IASB, S&P Global Market Intelligence. value liabilities (see IFRS 17 Highlights How Copyright © 2020 by Standard & Poor’s Financial Services LLC. Low Interest Rates Hurt Insurers, published All rights reserved. Sept. 18, 2019, on RatingsDirect). Specifically, the recent amendments intend to facilitate companies’ financial up to speed Chartwill be 2: a IFRSmajor 17 undertaking. and reinsurers, Propel albeit Long-Term a small Shifts portion, In Life Insurers’ performance reporting (Charts 1 and 2). We expect that insurers requireadopting careful new considerationStrategies,” published Oct. 28, 2019). For instance, where primary contracts KPIs may consequently change their risk GAAP’s accounting standards are considered onerous and losses appetite. As such,Reinsurance we cannot rule out any codification (ASC) 944 requires that are therefore recognized immediately, rating impact. That(5%) said, we currently do actuarial assumptions used for reinsurance gains will now be not foresee reinsurers modifying their reinsurance accounts match those of simultaneously recognized. prudent underwriting and investmentProperty/casualty primary contracts. Importantly, ASC944 Second, although the IASB has risk appetite, or adjusting their capital also(33%) requires that discount rates are maintained its definition of proportionate management. substantially locked in, although related reinsurance—previously criticized by Furthermore, at this time, the new IFRS defects are partially mitigated through reinsurers as too narrow—the scope now standard complicates the comparison reducing deferred acquisition costs (DAC) captures all reinsurance. Third, a risk analysis of global reinsurers, especially and booking a premium deficiency reserve Multiline mitigation option will apply to reinsurance with long-term contracts, with(40%) peers if insurersLife/health fail to pass recoverability/loss cover when primary contracts have adhering to the U.S. Securities and recognition(21%) tests. direct participation features, otherwise Exchange Commission’s Generally Under GAAP’s accounting standard alternatively handled by a variable fee Accepted Accounting Principles (GAAP). update (ASU) 2018-12, actuarial approach. (The risk mitigation option Updates to the long-duration contracts assumptions of long-duration contracts allows insurance and financial risks to under GAAP are in the pipeline, which may will be updated at least annually. We be immediately reflected in profit and simplify the comparabilitySource: between IASB, S&Pthese Global believe Market Intelligence.this will narrow the gap between loss statements, while the variable fee standards and IFRSCopyright 17 (see© 2020 “Credit by Standard FAQ: & Poor’sASC944 Financial and ServicesIFRS 17 LLC. for long-duration approach means that changes in cash GAAP Accounting Standard ChangesAll Could rights reserved.contracts. This might be more relevant flow are reflected in the contractual for life reinsurance contracts, which service margin.) generally have a duration exceeding “Where primary contracts those of non-life contracts, which tend Most Reinsurers Aren’t Ready For IFRS 17 are considered onerous to be short term. Generally, we do not In our view, the accounting and risk and losses are therefore anticipate a material increase in costs management systems of reinsurers— recognized immediately, for global insurers or reinsurers reporting as well as of primary insurers—are far reinsurance gains will under IFRS and local GAAP, as this has from being IFRS 17 ready. Alongside the already been a common practice. now be simultaneously technical accounting challenges, the That said, some differences will development of new key performance recognized.” remain, such as recognition of an explicit indicators (KPIs) and bringing important risk margin and DAC. Furthermore, stakeholders, both internal and external, key distinctions in presentation and

38 Global Reinsurance Highlights | 2020 Chart 1: IFRS 17 affects a large number of listed insurers

J GAAP Local (2%) GAAP (6%)

US GAAP (20%) IFRS (72%)

IFRS 17

Chart 2: IFRS 17 and reinsurers, albeit a small portion, “Updates to the long- require careful consideration duration contracts under Reinsurance GAAP are in the pipeline, (5%) which may simplify the comparability between Property/casualty these standards and (33%) IFRS 17.”

Multiline disclosure will make it difficult for external (40%) Life/health (21%) stakeholders to make comparisons, since traditional metrics like gross premium, net premium, technical expenses, and claims expenses will no longer be reported under IFRS 17. Interestingly, Swiss Re announced Source: IASB, S&P Global Market Intelligence. that it will report its consolidated financial Copyright © 2020 by Standard & Poor’s Financial Services LLC. statements under US GAAP until Dec. 31, All rights reserved. 2023, and then under IFRS from Jan. 1, 2024.

New Amendments Are Unlikely To Have Volker Kudszus Eunice Tan An Immediate Ratings Impact Frankfurt, (49) 69-33-999-192 Hong Kong, (852) 2533-3553 IFRS 17 is a complete transformation for [email protected] [email protected] insurers and reinsurers. This framework might reveal new information, inviting Eiji Kubo Mark D Nicholson novel ways to analyze performance, Tokyo, (81) 3-4550-8750 London, (44) 20-7176-7991 including profitability in a reinsurance [email protected] [email protected] transaction. Although we do not expect the accounting change to trigger rating Robert J Greensted actions, over the long term, we do expect London, (44) 20-7176-7095 the new KPIs to shape companies’ [email protected] strategic asset allocation, dividend policy, or reinsurance approach. n

This report does not constitute a rating action.

Global Reinsurance Highlights | 2020 39 APAC

APAC’s Costly Catastrophes: Reinsurance And More Required

By Eunice Tan, Koshiro Emura, Craig A Bennett, WenWen Chen, and Charles-Marie Delpuech

The Asia-Pacific region’s insurance and reinsurance sector saw its fair share of weather-induced woes over the past two years. And now, the COVID-19 pandemic is adding to this list.

fter significant catastrophe and diversification, despite increasing their equity is exposed to extreme natural losses, insurance and reinsurance catastrophe losses. catastrophes (1-in-250 year return period Aprice hikes seem inevitable. S&P Global Ratings believes the level). This is lower than the average 27% However, we believe the need for underlying proposition of reinsurers and exposure of the top 20 global reinsurers reinsurance protection has strengthened insurers remains unchanged: they help (Chart 1). amid the successive catastrophes. This policyholders manage risk and reduce In our view, this shows there is scope need has become more urgent with the financial burdens related to extreme for deepening insurance uptake of unfolding of the COVID-19 pandemic. weather and, more recently, pandemic- reinsurance in APAC, even though this At the same time, numerous disasters induced losses. Based on our recent would come with risk. For the region’s across the Asia-Pacific, or APAC, region study of rated Asia-Pacific reinsurers reinsurers, rapid urbanization and an highlighted important considerations (China Reinsurance [Group] Corp., Korean evolving risk landscape make deepening for the broader reinsurance industry. We Reinsurance Co., Toa Reinsurance Co., an understanding of changing operating believe global reinsurers will continue Taiping Reinsurance Co. Ltd., and Central conditions an urgent matter. The need to view the region as one of growth Reinsurance Corp.), an average of 15% of to manage catastrophes that are more Shutterstock / 19 STUDIO 19 / Shutterstock

40 Global Reinsurance Highlights | 2020 APAC

frequent and severe than the historical global advance estimates. Dominated average, an acute combination of by the two most costly events, typhoons “Particularly with the catastrophe events, and mounting Faxai and Hagibis in Japan, 30% of pricing cycle on an upward concerns around concentration risk insured losses globally came from Asia, trajectory and tightening and risk accumulations are central for according to Swiss Re sigma. Looking underwriting terms, reinsurers operating in the region. back at catastrophe modeling results we believe reliance on with hindsight, these two typhoons were Sobering Moment extreme and generated higher losses reinsurance alone cannot hart sian reinsurers ten to tae less natural overcome weather-related In 2019,catastrohe insured catastrophe riss than the losses to 20in globalthan reinsurersanticipated for many reinsurers Asia were significant, exceeding the (Chart 2). We calculate that the top 20 challenges.” 50 hart45 sian reinsurers ten to tae less natural catastrohe40 riss than the to 20 global reinsurers global reinsurers cover roughly a third of 3550 Japanese incurred losses for 2019. 3045 Japan is no stranger to natural 25 catastrophes. The country has a long % 40 2035 history of having to adapt to life with 1530 natural disasters such as typhoons and earthquakes. Since World War II, the 1025 % country has put significant effort into 205 disaster mitigation and related data 150 Top 20 Global Reinsurers average Rated Asian reinsurers collection. In spite of being equipped 10 with catastrophe models supported by Net 1-in-250 year aggregate Net 1-in-250 year aggregate 5 loss impact on loss ratio loss impact on SHE detailed historical data and a strong Rated0 Asian insurers are Toa Reinsurance Co., Taiping Reinsurance Co. Ltd., knowledge of domestic risk landscapes, Top 20 Global Reinsurers average Rated Asian reinsurers Central Reinsurance Corp., the significant loss creep arising from China ReinsuranceNet 1-in-250 Group, Korean year aggregate Reinsurance Net Co. 1-in-250 The top 20 year global aggregate reinsurers are Alleghany, Arch,loss impact on loss ratio loss impact on SHE typhoon Jebi in 2018 and high frequency Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, of successive typhoons in 2018 and 2019 Lloyd’s,Rated Asian Markel, insurers are Toa Reinsurance Co., Taiping Reinsurance Co. Ltd., Central Reinsurance Corp., took the domestic insurers and global Munich Re, PartnerRe, Qatar Ins., RenaissanceRe, SCOR, Sirius, and Swiss Re. China Reinsurance Group, Korean Reinsurance Co. The top 20 global reinsurers are reinsurance industry by surprise (Chart CopyrightAlleghany, © Arch, 2020 by Standard & Poor's Financial Services LLC. All rights reserved. 3). By the end of 2019, insurance claims Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, Lloyd’s, Markel, from Typhoon Jebi ballooned to more Munich Re, PartnerRe, Qatar Ins., RenaissanceRe, SCOR, Sirius, and Swiss Re. than US$12 billion (doubling from 2018’s Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. estimates). The successive typhoons of 2018 and 2019 broke five of the top 10 hart 2 sias 20 catastrohe losses eceee eectations wind/flood insurance payment records.

Proportion of Asia’s loss / global loss (left scale) Typhoon Jebi’s loss creep serves as a Average of estimates (right scale) timely reminder around the evaluation of risk concentration in megalopolises and 35 hart 2 sias 20 catastrohe losses eceee eectations 35 other large urban areas and of the need Proportion of Asia’s loss / global loss (left scale) 30 30 for catastrophe models to incorporate Average of estimates (right scale) updated information on city landscapes 25 25 35 35 and building codes. External research 20 20

30 30 % points to a combination of factors, such

% as higher wind speed, maintenance of 15 15 25 25 buildings, and inflating claims due to lack 1020 2010 of workers to do repairs as behind the %

% loss creep. 5 5 15 15 In the case of Typhoon Jebi, we see the 100 100 increased concentration of risk in Japan’s Asia’s 2019 Asia estimate of Asia estimate of S&P Global industrial belt as a factor (Chart 4). In 5 catastrophe average annual 1-in-250 year Ratings’ estimate 5 losses* losses** catastrophe of Asia particular, with increasing urbanization losses** catastrophe 0 losses 0 in Greater Tokyo (including Kanagawa, *DataAsia from’s 2019 Swiss Re sigma. **Data Asiafrom estimate AIR. Source: of Asia S&P estimate Global Ratings. of S&P Global Chiba, and Saitama prefectures) and catastrophe average annual 1-in-250 year Ratings’ estimate Copyrightlosses* © 2020 by Standard & Poor’slosses** Financial Servicescatastrophe LLC. All rights reserved.of Asia the Kansai area, (including Osaka and losses** catastrophe losses *Data from Swiss Re sigma. **Data from AIR. Source: S&P Global Ratings. Global Reinsurance Highlights | 2020 41 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart aan has ha a costl coule o ears Claims paid for major catastrophes in Japan 2,000 1,800 hart aan has ha a costl coule o ears 1,600 Claims paid for major catastrophes in Japan 1,400 2,000 1,200 1,800 1,000 1,600 Bil. ¥ 800 1,400 600 1,200 400 1,000 200 Bil. ¥ 800 0 600 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 400 200 Fiscal year 0 Earthquakes Typhoons and windstorms 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s FinancialFiscal year Services LLC. All rights reserved. Earthquakes Typhoons and windstorms

hart igniicant thoon loss concentration in urban areas Claims after Typhoon Jebi in August 2018 Number of claims (left scale) Claims paid (right scale) 400,000hart igniicant thoon loss concentration in urban areas600 350,000Claims after Typhoon Jebi in August 2018 500 300,000 Number of claims (left scale) Claims paid (right scale) 400 250,000400,000 600 Bil. ¥ 200,000350,000 300 500 150,000 300,000 200 100,000 400 250,000 Bil. ¥ 100 200,00050,000 300 150,0000 0 200

100,000 Mie Gifu Aichi Nara Shiga Kyoto

Osaka Hyogo 100 50,000 Others akayama Hokkaido

0 W 0 Mie

Gifu Prefecture Aichi Nara Shiga Kyoto Osaka Hyogo Others

hart 2 igniicant thoon loss concentration in urban areas Claims after Typhoon Trami in September 2018 Number of claims (left scale) Claims paid (right scale) 70,000hart 2 igniicant thoon loss concentration in urban areas 70 60,000Claims after Typhoon Trami in September 2018 60 50,000 Number of claims (left scale) Claims paid (right scale) 50

40,00070,000 7040 Bil. ¥ 30,00060,000 6030 20,00050,000 5020 Bil. ¥ 10,00040,000 4010 30,0000 300 20,000 20 okyo Aichi Chiba T

10,000 Ibaraki Others 10 Saitama Okinawa Miyazaki Shizuoka Kanagawa

0 Kagoshima 0 okyo Aichi

Chiba T Prefecture Ibaraki Others Saitama Okinawa Miyazaki Shizuoka

Source: S&P Global Ratings based on Kanagawa The General Insurance Association of Japan (GIAJ). Kagoshima Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Prefecture Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart igniicant thoon loss concentration in urban areas Claims after Typhoon Faxai in September 2019 Number of claims (left scale) Claims paid (right scale) 180,000hart igniicant thoon loss concentration in urban areas300 160,000 Claims after Typhoon Faxai in September 2019 250 140,000 Number of claims (left scale) Claims paid (right scale) 120,000 200

180,000 300 Bil. ¥ 100,000 160,000 150 80,000 250 140,000 60,000 100 120,000 200 40,000 Bil. ¥ 100,000 50 20,000 150 80,000 0 0 60,000 100 40,000 okyo Aichi 50 Chiba T ochigi Osaka Others Ibaraki 20,000 T Saitama Fukuoka Shizuoka

0 Kanagawa 0 okyo Prefecture Aichi Chiba T ochigi Osaka Others Ibaraki T Saitama Fukuoka

Source: S&P Global Ratings based on The General InsuranceShizuoka Association of Japan (GIAJ). Kanagawa Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Prefecture Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart igniicant thoon loss concentration in urban areas Claims after Typhoon Hagibis in October 2019 Number of claims (left scale) Claims paid (right scale) 60,000hart igniicant thoon loss concentration in urban areas120 Claims after Typhoon Hagibis in October 2019 50,000 100 Number of claims (left scale) Claims paid (right scale) 40,000 80 60,000 120 Bil. ¥ 30,000 60 50,000 100 20,000 40 40,000 80 Bil. ¥ 10,000 20 30,000 60 0 0 20,000 40 okyo T Chiba 10,000 ochigi 20 Miyagi Others T Ibaraki Nagano Saitama Shizuoka

0 Kanagawa 0 Fukushima okyo

PrefectureT Chiba ochigi Miyagi Others T Ibaraki Nagano Source: S&P Global Ratings based on TheSaitama General Insurance Association of Japan (GIAJ). Shizuoka Kanagawa Copyright © 2020 byFukushima Standard & Poor's Financial Services LLC. All rights reserved. Prefecture Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

hart roun 0 o catastrohe ris reseres isaeare at the three aors in the last to ears 900 800 hart roun 0 o catastrohe ris reseres 700 isaeare at the three aors in the last to ears 600900 500800 400700 300600 200500 Catastrophe risk reserves Bil. ¥ 100400 3000 200 2014 2015 2016 2017 2018 2019 Catastrophe risk reserves Bil. ¥ 100 Fiscal year *Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc., and SOMPO 0Holdings Inc. Source: S&P 2014 2015 2016 2017 2018 2019 Global Ratings based on company disclosures. Fiscal year Copyright*Tokio Marine © 2020 Holdings by Standard Inc., MS&AD & Poor’s Insurance Financial Group Services Holdings LLC. AllInc., rights and SOMPOreserved. Holdings Inc. Source: S&P Global Ratings based on company disclosures. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart ustralias eclare catastrohes three ears ene an linear tren

30 hart ustralias eclare catastrohes three ears ene an linear tren 25 30

2025

1520 No. of events 1015

No. of events 105

05 1960 1970 1980 1990 2000 2010 2020 2030 2040

0 Three year normalised 2017 equivalent losses (bil. A$) 1960 1970 1980 1990 2000 2010 2020 2030 2040 As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). Source ICA and S&P Global Ratings. Three year normalised 2017 equivalent losses (bil. A$) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). Source ICA and S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart ustralia gross an net clais an reinsurance coer

40,000 35 hart ustralia gross an net clais an reinsurance coer 35,000 30 40,000 35 30,000 25 35,000 30 25,000 20 30,000 % 20,000 25

A$ mil. 25,000 15 15,000 20 % 20,000 10 10,000

A$ mil. 15 15,000 5,000 5 10 10,000 0 0 5,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5

0 Twelve months ending June of year 0 Gross direct claims Reinsurance cover 2008 2009 2010 2011 2012 Net2013 incurred 2014 2015 claims 2016 2017 2018 2019 2020 (left scale) (left scale) (right scale) Twelve months ending June of year Source:Gross S&P direct Global claims Ratings, based onNet APRA incurred Quarterly claims Statistics. Reinsurance cover Copyright(left ©scale) 2020 by Standard & Poor’s(left Financial scale) Services LLC. All rights(right reserved. scale)

hart nsurance enetration since in aecte regions 1.8 1.6 hart nsurance enetration since in aecte regions 1.41.8 1.21.6 1.01.4 % 0.81.2 0.61.0

% 0.40.8 0.20.6 0.00.4 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0.2

0.0 Shanghai Anhui Jiangxi Hubei Guangxi China 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Souce: Yearbook of China’s Insurance, Wind. CopyrightShanghai © 2020 by StandardAnhui & Poor’sJiangxi Financial ServicesHubei LLC. AllGuangxi rights reserved.China

Souce: Yearbook of China’s Insurance, Wind. Copyrighthart © 2020 conoic by Standard losses & Poor’s relate Financial to Servicesnatural LLC. catastrohe All rights reserved. eents in hina 3.5 hart conoic losses relate to natural catastrohe eents in hina 3.0 3.5

2.5 3.0

2.0 2.5

% of GD P 1.5 2.0

1.0

% of GD P 1.5

0.5 1.0

0.0 0.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Other natural disasters Earthquakes Floods 0.0 Source:2007 China 2008 Statistical 2009 Yearbook, 2010 20 Wind.11 2012 2013 2014 2015 2016 2017 2018 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Other natural disasters Earthquakes Floods Source: China Statistical Yearbook, Wind. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart sian reinsurers ten to tae less natural catastrohe riss than the to 20 global reinsurers 50 hart45 sian reinsurers ten to tae less natural catastrohe riss than the to 20 global reinsurers 40 50 35 45 hart30 sian reinsurers ten to tae less natural 40 catastrohe25 riss than the to 20 global reinsurers % 35 5020 30 4515 25 % 4010 20 355 15 300 Top 20 Global Reinsurers average Rated Asian reinsurers 2510 % 205 Net 1-in-250 year aggregate Net 1-in-250 year aggregate loss impact on loss ratio loss impact on SHE 150 Rated AsianT insurersop 20 Global are Toa Reinsurers Reinsurance average Co., Taiping ReinsuranceRated Asian Co.reinsurers Ltd., Central10 Reinsurance Corp., Net 1-in-250 year aggregate Net 1-in-250 year aggregate China5 Reinsurance Group, Korean Reinsurance Co. The top 20 global reinsurers are Alleghany, Arch,loss impact on loss ratio loss impact on SHE RatedAspen,0 Asian AXIS, insurers China Re, are Everest Toa Reinsurance Re, Fairfax, Co., Fidelis, Taiping Hannover Reinsurance Re, Hiscox, Co. Ltd., Lancashire, CentralLloyd’s, Reinsurance Markel,Top 20 Global Corp., Reinsurers average Rated Asian reinsurers ChinaMunich Reinsurance Re, PartnerRe,Net 1-in-250 Group, Qatar Korean year Ins., aggregate RenaissanceRe,Reinsurance Net Co. 1-in-250 SCOR,The top Sirius, 20 year global andaggregate reinsurersSwiss Re. are Alleghany, Arch, Copyright © 2020loss by impact Standard on loss & Poor's ratio Financialloss Services impact LLC.on SHE All rights reserved. Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, RatedLloyd’s, Asian Markel, insurers are Toa Reinsurance Co., Taiping Reinsurance Co. Ltd., Central Reinsurance Corp., Munich Re, PartnerRe, Qatar Ins., RenaissanceRe, SCOR, Sirius, and Swiss Re. China Reinsurance Group, Korean Reinsurance Co. The top 20 global reinsurers are Alleghany,Copyright © Arch, 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, Lloyd’s, Markel, Munichhart Re, 2 PartnerRe, sias 20 Qatar catastroheIns., RenaissanceRe, losses SCOR, eceee Sirius, and eectationsSwiss Re. Copyright © 2020 byProportion Standard of& AsiaPoor's’s loss Financial / global Services loss (left LLC. scale) All rights reserved. Average of estimates (right scale) hart 2 sias 20 catastrohe losses eceee eectations 35 35 Proportion of Asia’s loss / global loss (left scale) 30 30 Average of estimates (right scale) 3525 hart 2 sias 20 catastrohe losses eceee eectations 3525

3020 Proportion of Asia’s loss / global loss (left scale) 3020 %

% Average of estimates (right scale) 2515 2515 35 35 2010 2010 30 30 % % 155 155 25 25 100 100 20 20 Asia’s 2019 Asia estimate of Asia estimate of S&P Global %

% 5 catastrophe average annual 1-in-250 year Ratings’ estimate 5 15 losses* losses** catastrophe of Asia 15 0 losses** catastrophe 0 10 losses 10 Asia’s 2019 Asia estimate of Asia estimate of S&P Global *Data from Swiss Re sigma. **Data from AIR. Source: S&P Global Ratings. catastrophe average annual 1-in-250 year Ratings’ estimate 5 Copyrightlosses* © 2020 by Standard & Poor’slosses** Financial Servicescatastrophe LLC. All rights reserved.of Asia 5 losses** catastrophe 0 losses 0 *DataAsia from’s 2019 Swiss Re sigma. **DataAsia from estimate AIR. Source: of Asia S&P estimate Global Ratings. of S&P Global Copyrightcatastrophe © 2020 by Standard & Poor’saverage Financial annual Services 1-in-250 LLC. year All rights Ratings’ reserved. estimate APAC losses* losses** catastrophe of Asia losses** catastrophe hart aan has ha a costl coule o ears losses *Data fromClaims Swiss paid Re for sigma. major **Data catastrophes from AIR. in JapanSource: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 2,000 1,800 hart aan has ha a costl coule o ears 1,600 Claims paid for major catastrophes in Japan 2,0001,400 1,8001,200 hart aan has ha a costl coule o ears 1,6001,000 Kyoto and Hyogo prefectures), the Bil. ¥ 1,400800 Claims paid for major catastrophes in Japan danger of concentrated damage calls 2,0001,200600 for underwriters to scrutinize risk 1,8001,000400 accumulation more closely.

Bil. ¥ 1,600800200 0 1,400600 After Protection, Payback 1,200 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 400 In the two years following the typhoons, 1,000200 Fiscal year

Bil. ¥ Japanese insurers substantially drew 8000 Earthquakes Typhoons and windstorms 600 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 down catastrophe loss reserves (Chart 5). Source:400 S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). We expect recent losses related to COVID- Fiscal year Copyright200 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 19 will reduce insurers’ profit in fiscal 0 Earthquakes Typhoons and windstorms 2020, leading to further capital buffer Source: S&P2008 Global 2009 Ratings 2010 based2011 on2012 The General2013 2014 Insurance 2015 Association2016 2017 of Japan2018 (GIAJ).2019 deterioration. Based on the tendency for Copyright © 2020 by Standard & Poor’s FinancialFiscal year Services LLC. All rights reserved. Japanese insurers to try and keep a lid

Earthquakes Typhoons and windstorms on earnings volatility related to natural hart igniicant thoon loss concentration in urban areas catastrophes, we believe the appetite for Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Claims after Typhoon Jebi in August 2018 domestic catastrophe risk will be limited Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Number of claims (left scale) Claims paid (right scale) and demand for reinsurance will persist. 400,000hart igniicant thoon loss concentration in urban areas600 In fact, the insurers have taken a 350,000Claims after Typhoon Jebi in August 2018 number of steps to enhance reinsurance 500 300,000 Number of claims (left scale) Claims paid (right scale) cover, built up reduced catastrophe loss 400

250,000 Bil. ¥ reserves, and tightened their underwriting 400,000hart igniicant thoon loss concentration in urban areas600 350,000200,000 300 standards in high-risk regions and for Claims after Typhoon Jebi in August 2018 500 150,000 300,000 200 corporations with potential high-risk Number of claims (left scale) Claims paid (right scale) 400

250,000100,000 Bil. ¥ concentration (Chart 5). 400,000 600100 200,00050,000 300 In return for maintained or partially 350,000 150,0000 5000 200 enhanced cover when possible, major 300,000 100,000 Mie

Gifu 400 Japanese non-life groups accepted Aichi Nara Bil. ¥ 250,000 Shiga Kyoto 100 Osaka Hyogo 50,000 Others large reinsurance rate hikes as well akayama 200,000 Hokkaido 300 0 W 0 as renegotiations on portfolios to the 150,000 200 Mie Gifu Prefecture benefit of reinsurers in terms of risk Aichi 100,000 Nara Shiga Kyoto Osaka Hyogo Others 100 taken on (payback). Property catastrophe akayama 50,000Source: S&PHokkaido Global Ratings based on The General Insurance Association of Japan (GIAJ). W Copyright0 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0 reinsurance pricing in Japan rose during Prefecture April 2019 renewals, which brought about Mie Gifu Aichi Nara Shiga Kyoto

Osaka Hyogo 15% to 25% rate increases in loss-hit Source: S&P Global Ratings based on The General Insurance Association of JapanOthers (GIAJ). akayama Hokkaido layers, according to Willis Re. In 2020,

Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.W prices for loss-hit layers continued rising, Prefecture hart 2 igniicant thoon loss concentration in urban areas by 30% to 50%. Source:Claims afterS&P GlobalTyphoon Ratings Trami based in September on The General 2018 Insurance Association of Japan (GIAJ). In parallel, insurers have been trying Copyright © 2020Number by Standard of claims & (left Poor’s scale) Financial ServicesClaims LLC. All paid rights (right reserved. scale) to raise fire insurance prices since 70,000hart 2 igniicant thoon loss concentration in urban areas 70 2019; some are also planning to reflect 60,000Claims after Typhoon Trami in September 2018 60 flood risk more closely in their pricing 50,000 Number of claims (left scale) Claims paid (right scale) 50 in conjunction with hazard vulnerability

70,000 70 Bil. ¥ 40,000hart 2 igniicant thoon loss concentration in urban areas 40 maps produced by local governments. 60,000 60 30,000Claims after Typhoon Trami in September 2018 30 However, we believe it would take many 50,000 20,000 Number of claims (left scale) Claims paid (right scale) 5020 years to improve product profitability to 40,000 Bil. ¥ 70,00010,000 704010 healthy levels due to the long duration 30,000 of policies in-force for retail contracts 60,0000 60300 20,000 and Japanese pricing practices, which 50,000 5020 okyo Aichi Chiba T Bil. ¥ are based on a progressive review of the Ibaraki 40,00010,000 Others 10 Saitama 40 Okinawa Miyazaki Shizuoka industry association’s reference rate. Kanagawa

0 Kagoshima 30,000 300

20,000 okyo

Aichi 20

Chiba T Prefecture Protection Amid Catastrophes Ibaraki Others Saitama Okinawa Miyazaki

10,000 Shizuoka 10

Source: S&P Global Ratings based onKanagawa The General Insurance Association of Japan (GIAJ). Means Price Hikes Kagoshima Copyright0 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0 While reinsurance programs are Prefecture okyo Aichi Chiba T Ibaraki Others

Source: S&P GlobalSaitama Ratings based on The General Insurance Association of Japan (GIAJ).

hart igniicant thoonPrefecture loss concentration in urban areas ClaimsSource: after S&P Typhoon Global Ratings Faxai in based September on The 2019 General Insurance Association of Japan (GIAJ). Copyright © 2020Number by Standard of claims & (left Poor’s scale) Financial ServicesClaims LLC. All paid rights (right reserved. scale) 180,000hart igniicant thoon loss concentration in urban areas300 160,000 Claims after Typhoon Faxai in September 2019 250 140,000 Number of claims (left scale) Claims paid (right scale) 120,000 200

180,000 300 Bil. ¥ 100,000 160,000hart igniicant thoon loss concentration in urban areas 150 80,000 250 140,000Claims after Typhoon Faxai in September 2019 60,000 100 120,000 Number of claims (left scale) Claims paid (right scale) 200 40,000 Bil. ¥ 180,000100,000 30050 20,000 150 160,00080,000 0 2500 140,00060,000 100 120,00040,000 200 okyo Aichi Bil. ¥

Chiba T 50 ochigi Osaka Others Ibaraki 100,00020,000 T Saitama Fukuoka Shizuoka 150 80,0000 Kanagawa 0 60,000 100 okyo Prefecture Aichi Chiba T 40,000 ochigi Osaka Others Ibaraki T

Saitama 50 Fukuoka 20,000Source: S&P Global Ratings based on The General InsuranceShizuoka Association of Japan (GIAJ). Kanagawa Copyright0 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0 Prefecture okyo Aichi Chiba T ochigi Osaka Others Source: S&PIbaraki Global Ratings based on The General Insurance Association of Japan (GIAJ). T Saitama Fukuoka Shizuoka

Prefecture Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyrighthart © 2020 igniicant by Standard thoon & Poor’s Financial loss concentration Services LLC. All rights in urban reserved. areas Claims after Typhoon Hagibis in October 2019 Number of claims (left scale) Claims paid (right scale) 60,000hart igniicant thoon loss concentration in urban areas120 50,000Claims after Typhoon Hagibis in October 2019 100

Number of claims (left scale) Claims paid (right scale) 40,000 80 60,000 120 Bil. ¥ 30,000hart igniicant thoon loss concentration in urban areas60 50,000 100 Claims after Typhoon Hagibis in October 2019 20,000 40 40,000 Number of claims (left scale) Claims paid (right scale) 80 10,000 20 Bil. ¥ 60,00030,000 12060 0 0 50,00020,000 10040 okyo T Chiba 40,000 ochigi 80 Miyagi

10,000 Others 20 T Bil. ¥ Ibaraki Nagano Saitama Shizuoka

30,0000 Kanagawa 600 Fukushima 20,000 40 Prefectureokyo T Chiba ochigi Miyagi Others T Ibaraki Nagano

10,000Source: S&P Global Ratings based on TheSaitama General Insurance Association of Japan (GIAJ).20 Shizuoka Kanagawa

Copyright © 2020 Fukushima by Standard & Poor's Financial Services LLC. All rights reserved. 0 0 Prefecture okyo T Chiba Source: S&P Global Ratings basedochigi on The General Insurance Association of Japan (GIAJ). Miyagi Others T Ibaraki Nagano Saitama Copyright © 2020 by Standard & Poor's Financial Services LLC. All rightsShizuoka reserved. Kanagawa Fukushima

hart roun 0 o catastrohe ris reseres isaeare at the three aors in the last to ears 900 800 hart roun 0 o catastrohe ris reseres 700 isaeare at the three aors in the last to ears 900600 800500 hart roun 0 o catastrohe ris reseres 700400 isaeare at the three aors in the last to ears 600300 900 500200

Catastrophe risk reserves Bil. ¥ 800 400100 700 3000 600 200 2014 2015 2016 2017 2018 2019

Catastrophe risk reserves Bil. ¥ 500 Fiscal year 100*Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc., and SOMPO 400 0Holdings Inc. Source: S&P 300 2014 2015 2016 2017 2018 2019 Global Ratings based on company disclosures. 200 Fiscal year

Catastrophe risk reserves Bil. ¥ Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. *Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc., and SOMPO 100 Holdings Inc. Source: S&P 0 Global2014 Ratings based2015 on company disclosures.2016 2017 2018 2019 Copyright © 2020 by Standard & Poor’sFiscal Financial year Services LLC. All rights reserved. hart*Tokio Marine ustralias Holdings Inc., eclare MS&AD catastrohesInsurance Group Holdings three earsInc., and ene SOMPO Holdings Inc. Source: S&P an linear tren Global Ratings based on company disclosures. 30 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart ustralias eclare catastrohes three ears ene an linear tren 25 30 hart ustralias eclare catastrohes three ears ene 20 25 an linear tren 30 15 20 25 No. of events 10 15 20 5 No. of events 10 15 0 5 1960 1970 1980 1990 2000 2010 2020 2030 2040 No. of events 10 Three year normalised 2017 equivalent losses (bil. A$) 0 1960 1970 1980 1990 2000 2010 2020 2030 2040 5 As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). Source ICA and S&P Global Ratings. Copyright © 2020 byThree Standard year normalised & Poor’s Financial 2017 equivalent Services losses LLC. All (bil. rights A$) reserved. 0 As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). 1960Source ICA1970 and S&P1980 Global Ratings.1990 2000 2010 2020 2030 2040 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Three year normalised 2017 equivalent losses (bil. A$) hart ustralia gross an net clais an reinsurance coer As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). 40,000Source ICA and S&P Global Ratings. 35

40,00030,000 35 25

35,00025,000hart ustralia gross an net clais an reinsurance coer30 20 30,000 % 40,00020,000 3525

A$ mil. 15 25,000 35,00015,000 3020 % 20,000 10 30,00010,000 25 A$ mil. 15 15,000 5 25,0005,000 2010 10,000 % 20,0000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

A$ mil. 15 5,000 5 15,000 Twelve months ending June of year 0 100 10,000 Gross direct claims Net incurred claims Reinsurance cover (left2008 scale) 2009 2010 2011 2012 2013(left scale) 2014 2015 2016 2017 2018(right 2019 scale) 2020 5,000 5 Source: S&P Global Ratings,Twelve based months on APRA ending Quarterly June Statistics. of year Gross direct claims Net incurred claims Reinsurance cover Copyright0 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0 (left scale) (left scale) (right scale) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: S&P Global Ratings, based on APRA Quarterly Statistics. Twelve months ending June of year Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Gross direct claims Net incurred claims Reinsurance cover hart(left scale) nsurance enetration(left scale) since in aecte(right scale) regions

1.8Source: S&P Global Ratings, based on APRA Quarterly Statistics. 1.6Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart nsurance enetration since in aecte regions 1.4 1.8 1.2 1.6 1.0 1.4 % 0.8 hart nsurance enetration since in aecte regions 1.81.2 0.6 1.61.0 0.4 % 1.40.8 0.2 1.20.6 0.0 1.00.4 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

% 0.80.2 Shanghai Anhui Jiangxi Hubei Guangxi China 0.60.0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0.4Souce: Yearbook of China’s Insurance, Wind. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0.2 Shanghai Anhui Jiangxi Hubei Guangxi China 0.0 Souce: Yearbook of China’s Insurance, Wind. 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Copyrighthart © 2020 conoic by Standard losses & Poor’s relate Financial to Services natural LLC. catastrohe All rights reserved. eents in hina Shanghai Anhui Jiangxi Hubei Guangxi China 3.5 Souce:hart Yearbook conoic of China’s lossesInsurance, relate Wind. to natural catastrohe 3.0Copyrighteents © in2020 hina by Standard & Poor’s Financial Services LLC. All rights reserved.

3.5 2.5

hart conoic losses relate to natural catastrohe 3.0 2.0eents in hina

3.52.5

% of GD P 1.5

3.02.0 1.0

% of GD P 2.51.5 0.5

2.01.0 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 % of GD P 1.50.5 Other natural disasters Earthquakes Floods 1.00.0Source: China Statistical Yearbook, Wind. Copyright2007 © 20202008 by 2009 Standard 2010 & Poor’s2011 Financial2012 2013 Services 2014 LLC. 2015All rights 2016 reserved. 2017 2018 0.5 Other natural disasters Earthquakes Floods Source: China Statistical Yearbook, Wind. 0.0 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Other natural disasters Earthquakes Floods Source: China Statistical Yearbook, Wind. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart sian reinsurers ten to tae less natural catastrohe riss than the to 20 global reinsurers 50 45 40 35 30 hart sian reinsurers ten to tae less natural 25 % catastrohe riss than the to 20 global reinsurers 20 50 15 45 10 hart40 sian reinsurers ten to tae less natural 5 catastrohe35 riss than the to 20 global reinsurers 0 30 50 Top 20 Global Reinsurers average Rated Asian reinsurers 25 % 45 Net 1-in-250 year aggregate Net 1-in-250 year aggregate 20 loss impact on loss ratio loss impact on SHE 40 Rated15 Asian insurers are Toa Reinsurance Co., Taiping Reinsurance Co. Ltd., Central35 Reinsurance Corp., 10 China Reinsurance30 Group, Korean Reinsurance Co. The top 20 global reinsurers are Alleghany, Arch, 255 Aspen,% AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, Lloyd’s,200 Markel, Top 20 Global Reinsurers average Rated Asian reinsurers Munich15 Re, PartnerRe, Qatar Ins., RenaissanceRe, SCOR, Sirius, and Swiss Re. Copyright © 2020Net by Standard 1-in-250 &year Poor's aggregate Financial ServicesNet 1-in-250 LLC. yearAll rights aggregate reserved. 10 loss impact on loss ratio loss impact on SHE Rated5 Asian insurers are Toa Reinsurance Co., Taiping Reinsurance Co. Ltd., Central Reinsurance Corp., 0 China ReinsuranceTop 20 Group,Global ReinsurersKorean Reinsurance average Co. The topRated 20 global Asian reinsurers are Alleghany, Arch, Aspen, AXIS, ChinaNet 1-in-250Re, Everest year Re, aggregate Fairfax, Fidelis, Net Hannover1-in-250 year Re, Hiscox, aggregate Lancashire, hartLloyd’s, 2 Markel, siasloss 20 impact catastrohe on loss ratio lossesloss eceee impact on SHE eectations MunichRated Asian Re, PartnerRe, insurers are Qatar Toa Ins., Reinsurance RenaissanceRe, Co., Taiping SCOR, Reinsurance Sirius, and Co. Swiss Ltd., Re. CopyrightCentral Reinsurance © 2020Proportion by Standard Corp., of Asia & Poor's’s loss Financial/ global loss Services (left scale) LLC. All rights reserved. China ReinsuranceAverage Group, of estimatesKorean Reinsurance (right scale) Co. The top 20 global reinsurers are Alleghany, Arch, 35 35 Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, Lloyd’s, Markel, 30 30 Munich Re, PartnerRe, Qatar Ins., RenaissanceRe, SCOR, Sirius, and Swiss Re. 25 Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. 25 hart 2 sias 20 catastrohe losses eceee eectations 20 20 Proportion of Asia’s loss / global loss (left scale) % % 15 Average of estimates (right scale) 15 35 35 10 10 30 hart 2 sias 20 catastrohe losses eceee eectations 30 5 5 Proportion of Asia’s loss / global loss (left scale) 25 25 0 Average of estimates (right scale) 0 2035 Asia’s 2019 Asia estimate of Asia estimate of S&P Global 2035 catastrophe average annual 1-in-250 year Ratings’ estimate % % losses* losses** catastrophe of Asia 1530 losses** catastrophe 1530 losses *Data1025 from Swiss Re sigma. **Data from AIR. Source: S&P Global Ratings. 1025 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 205 520 % % 150 015 Asia’s 2019 Asia estimate of Asia estimate of S&P Global 10 catastrophe average annual 1-in-250 year Ratings’ estimate 10 losses* losses** catastrophe of Asia hart aan has ha a costl coule olosses** ears catastrophe 5 losses 5 Claims paid for major catastrophes in Japan *Data from Swiss Re sigma. **Data from AIR. Source: S&P Global Ratings. 0 0 2,000Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Asia’s 2019 Asia estimate of Asia estimate of S&P Global 1,800 catastrophe average annual 1-in-250 year Ratings’ estimate 1,600 losses* losses** catastrophe of Asia losses** catastrophe 1,400 losses 1,200*Data from Swiss Re sigma. **Data from AIR. Source: S&P Global Ratings. 1,000Copyright hart © 2020 aan by Standard has &ha Poor’s a costl Financial coule Services o LLC. ears All rights reserved. Bil. ¥ 800 Claims paid for major catastrophes in Japan 600 4002,000 2001,800 1,600 0 hart aan has ha a costl coule o ears 1,4002008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1,200 Claims paid for major catastrophes in Japan Fiscal year 1,0002,000

Bil. ¥ 1,800800 Earthquakes Typhoons and windstorms 1,600 Source:600 S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright1,400400 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 1,200200 1,0000

Bil. ¥ 800 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 600 Fiscal year 400 Earthquakes hart200 igniicant thoon lossT yphoonsconcentration and windstorms in urban areas ClaimsSource:0 after S&P TyphoonGlobal Ratings Jebi in basedAugust on 2018 The General Insurance Association of Japan (GIAJ). 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Copyright Number© 2020 by of Standardclaims (left & scale)Poor’s Financial ServicesClaims LLC. paid All rights(right scale)reserved. 400,000 Fiscal year 600 350,000 Earthquakes Typhoons and windstorms 500 300,000 Source: S&P Global Ratings based on The General Insurance Association of Japan 400(GIAJ).

250,000 Bil. ¥ Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 200,000 hart igniicant thoon loss concentration in urban areas300 150,000 Claims after Typhoon Jebi in August 2018 200 100,000 Number of claims (left scale) Claims paid (right scale) 100 50,000400,000 600 350,0000 0 hart igniicant thoon loss concentration in urban areas500

300,000 Mie Gifu Aichi Claims after Typhoon Jebi in August 2018 Nara Shiga Kyoto Osaka Hyogo

Others 400

250,000 Bil. ¥ akayama Hokkaido Number of claims (left scale) Claims paid (right scale)

200,000 W 300 400,000 600 150,000 Prefecture 350,000 200 100,000 500 Source:300,000 S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). 100 50,000 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 400 250,000 Bil. ¥ 0 0 200,000 300 Mie Gifu Aichi 150,000 Nara Shiga Kyoto Osaka Hyogo

Others 200 akayama

100,000 Hokkaido

W 100 50,000 hart 2 igniicant thoon loss concentration in urban areas 0 Prefecture 0 Claims after Typhoon Trami in September 2018

Source: S&P Global Ratings basedMie on The General Insurance Association of Japan (GIAJ). Gifu Aichi Nara

Number of claims (left scale) Shiga Kyoto Claims paid (right scale) Osaka Hyogo Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.Others akayama 70,000 Hokkaido 70 W 60,000 60 Prefecture 50,000 50

Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ).Bil. ¥ 40,000 40 hartCopyright 2 © 2020 igniicant by Standard thoon & Poor’s Financial loss concentration Services LLC. All inrights urban reserved. areas 30,000 30 Claims after Typhoon Trami in September 2018 20,000 20 Number of claims (left scale) Claims paid (right scale) 10,000 10 70,000 70 0 0 60,000hart 2 igniicant thoon loss concentration in urban areas 60 okyo 50,000 Aichi 50 Claims after TyphoonChiba Trami inT September 2018 Ibaraki Others Bil. ¥ Saitama Okinawa Miyazaki 40,000 Number of claims (left scale) Shizuoka Claims paid (right scale) 40 Kanagawa Kagoshima 30,00070,000 3070 20,00060,000 Prefecture 2060 10,000Source:50,000 S&P Global Ratings based on The General Insurance Association of Japan (GIAJ).1050

20,000 Saitama 20 Okinawa Miyazaki Shizuoka Kanagawa 10,000 Kagoshima 10 0 hart igniicant thoon lossPrefecture concentration in urban areas 0 Claims after Typhoon Faxai in September 2019 okyo Source: S&P Global Ratings based on The General InsuranceAichi Association of Japan (GIAJ). Chiba T Ibaraki Number of claims (left scale) Claims paid (right scale) Others Saitama Okinawa Copyright © 2020 by Standard & Poor’s Financial Services LLC.Miyazaki All rights reserved. Shizuoka Kanagawa

180,000 Kagoshima 300 160,000 APAC 250 140,000 Prefecture 120,000Source: S&P Global Ratings based on The General Insurance Association of Japan200 (GIAJ). Bil. ¥ 100,000 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.150 80,000hart igniicant thoon loss concentration in urban areas 60,000Claims after Typhoon Faxai in September 2019 100 40,000 Number of claims (left scale) Claims paid (right scale) 50 20,000180,000 300 160,0000 0 250 140,000hart igniicant thoon loss concentration in urban areas effective for mitigating losses, we believe okyo Claims after Typhoon Faxai in September 2019 Aichi Chiba T 120,000 ochigi underwriting discipline remains another

Osaka 200 Others Ibaraki T Bil. ¥ Saitama Fukuoka 100,000 Number of claims (left scale) Shizuoka Claims paid (right scale) core focus for our rated insurers and Kanagawa 150 180,00080,000 300 reinsurers. A strong understanding of 160,00060,000 100 Prefecture 250 the urban and geographic landscape, 140,00040,000 Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ).50 a defined risk appetite, and prudent 120,00020,000 200

60,000 Chiba T 100 ochigi Like Japan, Australia insurers Osaka Others Ibaraki T Saitama Fukuoka

40,000 Shizuoka

Kanagawa 50 continue to see the benefits of large 20,000 reinsurance programs after successive 0 0 Prefecture catastrophes. Australia’s insurers are Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). okyo Aichi amongst the world’s largest purchasers Chiba T ochigi Osaka Others Ibaraki hartCopyright © igniicant 2020 byT Standard thoon & Poor’s loss Financial concentration Services LLC. Allin rightsurban reserved. areas Saitama Fukuoka

Shizuoka of reinsurance coverage, with Insurance

Claims after Typhoon Hagibis in October 2019 Kanagawa Number of claims (left scale) Claims paid (right scale) Australia Group Ltd at the top of the list 60,000 Prefecture 120 with cover provided across Australia Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). and New Zealand. Since the beginning 50,000 100 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. of the bushfire season in late calendar

40,000 80

Bil. ¥ 2019, Australia’s property/casualty (P/C) 30,000 60 insurers claims management teams— hart igniicant thoon loss concentration in urban areas 20,000Claims after Typhoon Hagibis in October 2019 40 and earnings—have been continually Number of claims (left scale) Claims paid (right scale) pressured by significant natural disasters, 10,000 20 60,000 120 from bushfires to hail storms to strong 0 0 winds to flooding. To the end of September 50,000hart igniicant thoon loss concentration in urban areas100 okyo

T 2020, catastrophe claims related to the Chiba ochigi Miyagi Others T Claims after TyphoonIbaraki Hagibis in October 2019

40,000 Nagano 80 Saitama Bil. ¥

Shizuoka four recent natural disasters passed

Number of claims (left scale) Kanagawa Claims paid (right scale) 30,000 Fukushima 60 A$5.2 billion (approx. US$3.7 billion). 60,000 120 20,000 Prefecture 40 Claims related to the bushfire catastrophe 50,000 100 Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). (affecting the states of Queensland, New 10,000 20 Copyright40,000 © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. 80

Bil. ¥ South Wales, Victoria, and South Australia) 0 0 30,000 60 alone exceeded A$2.2 billion. okyo T

Chiba However, the ongoing availability of ochigi

20,000 Miyagi 40 Others T Ibaraki Nagano Saitama

Shizuoka large reinsurance programs comes at a

10,000 Kanagawa 20 Fukushima price. Particularly with the pricing cycle 0 Prefecture 0 on an upward trajectory and tightening Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). okyo underwriting terms, we believe reliance T Chiba ochigi Miyagi Others T Ibaraki

Copyright © 2020 by Standard & Poor's Financial Services LLC. AllNagano rights reserved. Saitama on reinsurance alone cannot overcome Shizuoka Kanagawa Fukushima weather-related challenges. The industry’s hart roun 0 o catastrohePrefecture ris reseres ability to establish additional solutions Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). isaeare at the three aors in the last to ears to natural perils and the pandemic will Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. 900 be key. It could do this through measures 800 such as implementing government-backed 700 schemes or seeking new capital resources 600 from alternative investors. 500 Australia’s declared catastrophes have 400 hart roun 0 o catastrohe ris reseres been incrementally increasing in frequency 300 isaeare at the three aors in the last to ears over the past 50 years, with the average 200900 cumulative cost relatively steady over the Catastrophe risk reserves Bil. ¥ 100800 past ten years at about A$2.3 billion per 0700 hart roun 0 o catastrohe ris reseres year to the end of calendar 2019 (Chart 6). A 2014 2015 2016 2017 2018 2019 600 isaeare at the three aors in the last to ears simple extrapolation of claims experienced Fiscal year from January 2020 to September 2020 for 500*Tokio900 Marine Holdings Inc., MS&AD Insurance Group Holdings Inc., and SOMPO 400Holdings800 Inc. Source: S&P the following three years indicates a lower 300Global700 Ratings based on company disclosures. frequency of events but higher aggregate 200Copyright600 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. severity of claims. Catastrophe risk reserves Bil. ¥ 100500 4000 Global Reinsurance Highlights | 2020 43 2014 2015 2016 2017 2018 2019 300 Fiscal year hart200*Tokio ustraliasMarine Holdings eclare Inc., MS&AD catastrohes Insurance Group three Holdings ears Inc., ene and SOMPO Catastrophe risk reserves Bil. ¥ an100Holdings linear Inc.tren Source: S&P 30 0Global Ratings based on company disclosures. Copyright2014 © 2020 by Standard2015 & Poor’s2016 Financial Services2017 LLC. All2018 rights reserved.2019 Fiscal year *Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc., and SOMPO 25 Holdings Inc. Source: S&P Global Ratings based on company disclosures. 20 hartCopyright ustralias © 2020 by Standard eclare & Poor’s catastrohes Financial Services three LLC. ears All rights ene reserved. an linear tren

15 30

hart ustralias eclare catastrohes three ears ene No. of events 25 10 an linear tren

30 5 20

25 0 15 1960 1970 1980 1990 2000 2010 2020 2030 2040 20 No. of events 10 Three year normalised 2017 equivalent losses (bil. A$)

15As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). 5Source ICA and S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. No. of events 10 0 1960 1970 1980 1990 2000 2010 2020 2030 2040 5 hart ustraliaThree gross year normalisedan net clais 2017 equivalent an reinsurance losses (bil. A$) coer

As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). 40,0000 35 1960Source ICA1970 and S&P1980 Global Ratings.1990 2000 2010 2020 2030 2040 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 35,000 30 Three year normalised 2017 equivalent losses (bil. A$) 30,000 As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). 25 Source ICA and S&P Global Ratings. 25,000 Copyrighthart © ustralia 2020 by Standard gross & an Poor’s net Financial clais Services an reinsuranceLLC. All rights reserved. coer20 % 20,000 40,000 35

A$ mil. 15 15,000 35,000 hart ustralia gross an net clais an reinsurance coer10 30 10,000 30,000 25 5,00040,000 5 35 25,000 35,0000 0 2030 % 20,0002008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 30,000 A$ mil. 1525 15,000 Twelve months ending June of year 25,000 Gross direct claims Net incurred claims Reinsurance cover 10 10,000(left scale) (left scale) (right scale) 20 % 20,000 5

Source:A$ mil. 5,000 S&P Global Ratings, based on APRA Quarterly Statistics. 15 Copyright15,000 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0 010 10,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

5,000 Twelve months ending June of year 5 Gross direct claims Net incurred claims Reinsurance cover hart0 (left scale) nsurance enetration(left scale) since in aecte(right regions scale) 0 1.8 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: S&P Global Ratings, based on APRA Quarterly Statistics. 1.6 Copyright © 2020 by StandardTwelve & Poor’s months Financial ending Services June of yearLLC. All rights reserved. 1.4 Gross direct claims Net incurred claims Reinsurance cover (left scale) (left scale) (right scale) 1.2 1.0 Source: S&P Global Ratings, based on APRA Quarterly Statistics.

% Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 0.8 hart nsurance enetration since in aecte regions 0.61.8 0.41.6 0.21.4 hart nsurance enetration since in aecte regions 0.01.2 1.8 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1.0 1.6 % 0.8 Shanghai Jiangxi Hubei Guangxi China 1.4 Anhui 0.6 Souce:1.2 Yearbook of China’s Insurance, Wind. 0.4 Copyright1.0 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

% 0.2 0.8 0.0 0.6 hart1998 2000 conoic 2002 losses2004 relate2006 2008 to natural 2010 catastrohe2012 2014 2016 2018 0.4eents in hina

3.5 0.2 Shanghai Anhui Jiangxi Hubei Guangxi China

2.5 Shanghai Anhui Jiangxi Hubei Guangxi China

% of GD P 1.53.5 hart conoic losses relate to natural catastrohe 1.03.0 eents in hina

0.52.5 3.5

0.02.0 3.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% of GD P 1.5 2.5 Other natural disasters Earthquakes Floods

% of GD P 0.51.5

0.01.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0.5 Other natural disasters Earthquakes Floods Source: China Statistical Yearbook, Wind. Copyright0.0 © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

hart 2 sias 20 catastrohe losses eceee eectations hart 2 siasProportion 20 catastrohe of Asia’s loss / globallosses loss eceee (left scale) eectations Average of estimates (right scale) Proportion of Asia’s loss / global loss (left scale) 35 35 Average of estimates (right scale)

3530 3530

3025 3025

2520 2520 % % 2015 2015 % % 1510 1510

105 105

50 50 Asia’s 2019 Asia estimate of Asia estimate of S&P Global 0 catastrophe average annual 1-in-250 year Ratings’ estimate 0 Asialosses*’s 2019 Asialosses** estimate of Asiacatastrophe estimate of S&Pof GlobalAsia catastrophe average annual 1-in-250losses** year Ratings’catastrophe estimate losses* losses** catastrophe oflosses Asia *Data from Swiss Re sigma. **Data from AIR. Source: S&Plosses** Global Ratings.catastrophe losses Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. *Data from Swiss Re sigma. **Data from AIR. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart aan has ha a costl coule o ears hartClaims paid aan for major has catastrophes ha a costl in Japan coule o ears 2,000 Claims paid for major catastrophes in Japan 1,800 2,000 1,600 1,800 1,400 1,600 1,200 1,400 1,000 1,200 Bil. ¥ 800 1,000 600 Bil. ¥ 800 400 600 200 400 0 200 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 2008 2009 2010 2011 2012Fiscal 2013 year 2014 2015 2016 2017 2018 2019

Earthquakes FiscalT yearyphoons and windstorms

Source: S&P Global RatingsEarthquakes based on The GeneralTyphoons Insurance and windstorms Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart igniicant thoon loss concentration in urban areas hartClaims after Typhoon igniicant Jebi in Augustthoon 2018 loss concentration in urban areas Number of claims (left scale) Claims paid (right scale) Claims after Typhoon Jebi in August 2018 400,000 Number of claims (left scale) Claims paid (right scale) 600 350,000 400,000 600500 300,000 350,000 500400

250,000 Bil. ¥ 300,000 200,000 400300

250,000 Bil. ¥ 150,000 200,000 300200 100,000 150,000 100 50,000 200 100,000 0 1000 50,000 Mie 0 Gifu 0 Aichi Nara Shiga Kyoto Osaka Hyogo Others akayama Hokkaido Mie Gifu Aichi Nara W Shiga Kyoto Osaka Hyogo Others akayama Hokkaido

Prefecture W

Source: S&P Global Ratings based on ThePrefecture General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart 2 igniicant thoon loss concentration in urban areas hartClaims after2 Typhoon igniicant Trami in thoon September loss 2018 concentration in urban areas Number of claims (left scale) Claims paid (right scale) Claims after Typhoon Trami in September 2018 70,000 70 Number of claims (left scale) Claims paid (right scale) 60,000 60 70,000 70 50,000 50 60,000 60 40,000 40 Bil. ¥ 50,000 50

30,000 30 Bil. ¥ 40,000 40 20,000 20 30,000 30 10,000 10 20,000 20 0 0 10,000 10 okyo 0 Aichi 0 Chiba T Others Ibaraki Saitama Okinawa Miyazaki Shizuoka Kanagawa okyo Aichi Kagoshima Chiba T Others Ibaraki Saitama Okinawa Miyazaki Shizuoka Kanagawa Prefecture Kagoshima

hart igniicant thoon loss concentration in urban areas Claims after Typhoon Faxai in September 2019 hart igniicant thoon loss concentration in urban areas Number of claims (left scale) Claims paid (right scale) Claims after Typhoon Faxai in September 2019 180,000 300 Number of claims (left scale) Claims paid (right scale) 160,000 180,000 300250 140,000 160,000 120,000 250200 140,000 Bil. ¥ 100,000 120,000 200150

80,000 Bil. ¥ 100,000 60,000 150100 80,000 40,000 60,000 10050 20,000 40,000 0 500 20,000 0 okyo

Aichi 0 Chiba T ochigi Osaka Others Ibaraki T Saitama Fukuoka Shizuoka okyo Kanagawa Aichi Chiba T ochigi Osaka Others Ibaraki T Saitama Fukuoka Shizuoka Prefecture Kanagawa Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Prefecture Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart igniicant thoon loss concentration in urban areas Claims after Typhoon Hagibis in October 2019 hart igniicant thoon loss concentration in urban areas Number of claims (left scale) Claims paid (right scale) Claims after Typhoon Hagibis in October 2019 60,000 120 Number of claims (left scale) Claims paid (right scale) 60,00050,000 120100

50,00040,000 10080 Bil. ¥

40,00030,000 8060 Bil. ¥ 30,00020,000 6040

20,00010,000 4020

10,0000 200

0 okyo 0 T Chiba ochigi Miyagi Others T Ibaraki Nagano Saitama Shizuoka okyo Kanagawa T Chiba ochigi Fukushima Miyagi Others T Ibaraki Nagano Saitama Shizuoka

Prefecture Kanagawa Fukushima Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Prefecture Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Source: S&P Global Ratings based on The General Insurance Association of Japan (GIAJ). Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

hart roun 0 o catastrohe ris reseres isaeare at the three aors in the last to ears hart roun 0 o catastrohe ris reseres 900 isaeare at the three aors in the last to ears 800 900 700 800 600 700 500 600 400 500 300 400 200

Catastrophe risk reserves Bil. ¥ 300 100 200 Catastrophe risk reserves Bil. ¥ 0 100 2014 2015 2016 2017 2018 2019 0 Fiscal year APAC *Tokio2014 Marine Holdings2015 Inc., MS&AD2016 Insurance Group2017 Holdings Inc.,2018 and SOMPO2019 Holdings Inc. Source: S&P Fiscal year *Tokio Marine Holdings Inc., MS&AD Insurance Group Holdings Inc., and SOMPO Global Ratings based on company disclosures. Holdings Inc. Source: S&P Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Global Ratings based on company disclosures. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart ustralias eclare catastrohes three ears ene an linear tren On the back of global warming and hart ustralias eclare catastrohes three ears ene 30 an linear tren climate change, the concerns about increasing catastrophe frequency will 30 weigh heavy on the mind of direct insurers. 25

To enhance preparation against these 25 extreme events, wider use of multiyear 20 contracts or longer contract periods 20 may be sought by Australia insurance 15 companies. Australian P/C insurers have signed on to reinsurance programs 15 containing reinstatements, top-and-drop No. of events 10 cover, and multiyear cover attributes. No. of events 10 Without a doubt, reinsurance protection 5 had proved useful for them. Since 2008, 5 the benefits from reinsurance have 0 strengthened, and in the year to June 1960 1970 1980 1990 2000 2010 2020 2030 2040 30, 2020 provided 28% cover for claims 0 incurred (Chart 7). 1960 1970 Three1980 year normalised1990 2000 2017 equivalent2010 losses2020 (bil. A$)2030 2040

As of Sept. 30, 2020.Three Bubble year size normalised represents 2017 2017 equivalent equivalent losses losses (bil. (A$bn). A$) Time To Speed Up The Walk Source ICA and S&P Global Ratings. As of Sept. 30, 2020. Bubble size represents 2017 equivalent losses (A$bn). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. The surge in extreme weather events Source ICA and S&P Global Ratings. suggests the broader effects of climate Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. change could be raising disaster risk amid rapid urbanization across the region. In China, COVID-19 and recent severe floods hart ustralia gross an net clais an reinsurance coer have led to a renewed push by Chinese hart ustralia gross an net clais an reinsurance coer 40,000 35 authorities to deepen the penetration 40,000 35 of catastrophe insurance (Chart 8). This 35,000 30 is also facilitated by a three-year action 35,00030,000 30 plan released by the China Banking and 25 30,000 Insurance Regulatory Commission (CBIRC) 25,000 25 20 in early August 2020. China is exposed to % 25,00020,000 flooding, earthquakes, and typhoons. 20 %

A$ mil. 15 Furthermore, its rapidly changing 20,00015,000

A$ mil. 15 urban landscape makes historical data 10 15,00010,000 less representative of the actual risk 10 exposures. In our view, uneven insurance 10,0005,000 5 penetration across the country and a lack 5,000 5 of awareness of insurance among many 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 limits the effective use of reinsurance to 0 0 insulate against financial losses. 2008 2009 2010 2011Twelve 2012 months 2013 2014ending 2015 June 2016 of year 2017 2018 2019 2020 The 2020 China floods bring back Gross direct claims Net incurred claims Reinsurance cover (left scale) Twelve months(left scale) ending June of year (right scale) memories of those that wrought Gross direct claims Net incurred claims Reinsurance cover devastation in 1998. We believe the severe Source:(left S&P scale) Global Ratings, based on(left APRA scale) Quarterly Statistics. (right scale) Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. floods will likely weigh on underwriting Source: S&P Global Ratings, based on APRA Quarterly Statistics. results in 2020 for some P/C and Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. reinsurance market participants. Intense The CBIRC also released an estimate of works to reform the economy. In April rain and severe floods have impacted approximately RMB2.4 billion insurance 2020, the Shanghai Insurance Exchange large tracts of southern China since early losses athart the end nsurance of July. The enetration wide gap sincelaunched typhoon in aecte and floodregions insurance for June 2020, resulting in auto, property, between1.8 hart economic nsurance and enetrationinsurance sinceresidential in properties, aecte regionssupplementing the construction, and agriculture-related losses highlights in the lack of insurance earthquake insurance released in 2016. 1.81.6 claims. The floods triggered RMB219.9 penetration within affected regions. Following President Xi Jinping’s recent 1.61.4 billion (approximately US$30 billion) Clearly, seeking protection against visit to Southern China, the acceleration 1.41.2 economic losses (according to the Ministry weather-induced economic losses to develop Greater Bay Area into an 1.0 of Emergency Management in China). will be1.2 key as the Chinese government economic powerhouse will intensify this % 1.00.8

% 0.6 44 Global Reinsurance Highlights | 2020 0.8 0.60.4 0.40.2 0.20.0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0.0 1998 Shanghai2000 2002 Anhui2004 2006Jiangxi 2008 2010Hubei 2012 Guangxi2014 2016 China2018

Souce: YearbookShanghai of China’sAnhui Insurance, Jiangxi Wind. Hubei Guangxi China Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Souce: Yearbook of China’s Insurance, Wind. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart conoic losses relate to natural catastrohe eents in hina hart conoic losses relate to natural catastrohe 3.5 eents in hina

3.5 3.0

3.0 2.5

2.5 2.0

2.0 % of GD P 1.5

% of GD P 1.5 1.0

1.0 0.5

0.5 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0.0 2007 2008 Other2009 natural 2010 disasters2011 2012 Earthquakes2013 2014 2015Floods 2016 2017 2018 Source: China Statistical Yearbook, Wind. Other natural disasters Earthquakes Floods Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: China Statistical Yearbook, Wind. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. hart sian reinsurers ten to tae less natural catastrohecatastrohe rissriss thanthan thethe toto 2020 globalglobal reinsurersreinsurers 5050 4545 4040 3535 3030 25 % 25 % 2020 1515 1010 55 00 TTopop 2020 GlobalGlobal ReinsurersReinsurers averageaverage RatedRated AsianAsian reinsurersreinsurers

Net 1-in-250 year aggregate Net 1-in-250 year aggregate lossloss impactimpact onon lossloss ratioratio lossloss impactimpact onon SHESHE

RatedRated AsianAsian insurersinsurers areare ToaToa ReinsuranceReinsurance Co.,Co., TaipingTaiping ReinsuranceReinsurance Co.Co. Ltd.,Ltd., CentralCentral ReinsuranceReinsurance Corp.,Corp., ChinaChina ReinsuranceReinsurance Group,Group, KoreanKorean ReinsuranceReinsurance Co.Co. TheThe toptop 2020 globalglobal reinsurersreinsurers areare Alleghany,Alleghany, Arch,Arch, Aspen,Aspen, AXIS,AXIS, ChinaChina Re,Re, EverestEverest Re,Re, Fairfax,Fairfax, Fidelis,Fidelis, HannoverHannover Re,Re, Hiscox,Hiscox, Lancashire,Lancashire, Lloyd’s,Lloyd’s, Markel,Markel, Munich Re, PartnerRe, Qatar Ins., RenaissanceRe, SCOR, Sirius, and Swiss Re. CopyrightCopyright ©© 20202020 byby StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

hart 2 sias 20 catastrohe losses eceee eectations

ProportionProportion ofof AsiaAsia’’ss lossloss // globalglobal lossloss (left(left scale)scale) AAverageverage ofof estimatesestimates (right(right scale)scale) 3535 3535

3030 3030

2525 2525

20 20

20 20 % % % % 1515 1515

1010 1010

55 55

00 00 AsiaAsia’’ss 20192019 AsiaAsia estimateestimate ofof AsiaAsia estimateestimate ofof S&PS&P GlobalGlobal catastrophecatastrophe averageaverage annualannual 1-in-2501-in-250 yearyear Ratings’Ratings’ estimateestimate losses*losses* losses**losses** catastrophecatastrophe ofof AsiaAsia losses**losses** catastrophecatastrophe losseslosses *Data*Data fromfrom SwissSwiss ReRe sigma.sigma. **Data**Data fromfrom AIR.AIR. Source:Source: S&PS&P GlobalGlobal Ratings.Ratings. CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

hart aan has ha a costl coule o ears ClaimsClaims paidpaid forfor majormajor catastrophescatastrophes inin JapanJapan 2,0002,000 1,8001,800 1,6001,600 1,4001,400 1,2001,200 1,0001,000 Bil. ¥ Bil. ¥ 800800 600600 400400 200200 00 20082008 20092009 20102010 20201111 20122012 20132013 20142014 20152015 20162016 20172017 20182018 20192019

FiscalFiscal yearyear

EarthquakesEarthquakes TTyphoonsyphoons andand windstormswindstorms

Source:Source: S&PS&P GlobalGlobal RatingsRatings basedbased onon TheThe GeneralGeneral InsuranceInsurance AssociationAssociation ofof JapanJapan (GIAJ).(GIAJ). CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

harthart igniicant thoon lossloss concentrationconcentration inin urbanurban areas ClaimsClaims afterafter TyphoonTyphoon JebiJebi inin AugustAugust 20182018 Number of claims (left scale) ClaimsClaims paidpaid (right(right scale)scale) 400,000400,000 600600 350,000350,000 500500 300,000300,000 400

250,000 400 Bil. ¥

250,000 Bil. ¥ 200,000200,000 300300 150,000150,000 200200 100,000100,000 100100 50,00050,000 00 00 Mie Gifu Mie Aichi Nara Gifu Shiga Kyoto Aichi Nara Osaka Hyogo Shiga Kyoto Others Osaka Hyogo Others akayama Hokkaido akayama Hokkaido W W

PrefecturePrefecture

hart 2 igniicant thoon loss concentration in urban areas ClaimsClaims afterafter TyphoonTyphoon TramiTrami inin SeptemberSeptember 20182018 Number of claims (left scale) ClaimsClaims paidpaid (right(right scale)scale) 70,00070,000 7070 60,00060,000 6060 50,00050,000 5050 Bil. ¥ 40,00040,000 4040 Bil. ¥ 30,00030,000 3030 20,00020,000 2020 10,00010,000 1010 00 00 okyo Aichi okyo Aichi Chiba T Ibaraki Others Chiba T Ibaraki Others Saitama Okinawa Miyazaki Saitama Shizuoka Okinawa Miyazaki Shizuoka Kanagawa Kagoshima Kanagawa Kagoshima

PrefecturePrefecture Source:Source: S&PS&P GlobalGlobal RatingsRatings basedbased onon TheThe GeneralGeneral InsuranceInsurance AssociationAssociation ofof JapanJapan (GIAJ).(GIAJ). CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

hart igniicant thoon loss concentration in urban areas ClaimsClaims afterafter TyphoonTyphoon FaxaiFaxai inin SeptemberSeptember 20192019 Number of claims (left scale) ClaimsClaims paidpaid (right(right scale)scale) 180,000180,000 300300 160,000160,000 250250 140,000140,000 120,000120,000 200200 Bil. ¥ Bil. ¥ 100,000100,000 150150 80,00080,000 60,00060,000 100100 40,00040,000 5050 20,00020,000 00 00 okyo Aichi okyo Aichi Chiba T ochigi Osaka Others Ibaraki Chiba T ochigi T Osaka Others Ibaraki T Saitama Fukuoka Saitama Shizuoka Fukuoka Shizuoka Kanagawa Kanagawa

hart igniicant thoon loss concentration in urban areas ClaimsClaims afterafter TyphoonTyphoon HagibisHagibis inin OctoberOctober 20192019 Number of claims (left scale) ClaimsClaims paidpaid (right(right scale)scale) 60,00060,000 120120

50,00050,000 100100 40,000 80

40,000 80 Bil. ¥ Bil. ¥ 30,00030,000 6060

20,00020,000 4040

10,00010,000 2020

00 00 okyo okyo T Chiba ochigi T Miyagi Chiba Others ochigi T Ibaraki Miyagi Others T Ibaraki Nagano Saitama Nagano Saitama Shizuoka Shizuoka Kanagawa Kanagawa Fukushima Fukushima

PrefecturePrefecture Source:Source: S&PS&P GlobalGlobal RatingsRatings basedbased onon TheThe GeneralGeneral InsuranceInsurance AssociationAssociation ofof JapanJapan (GIAJ).(GIAJ). CopyrightCopyright ©© 20202020 byby StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

hart roun 0 o catastrohe ris reseres isaeare at the three aors in the last to ears 900900 800800 700700 600600 500500 400400 300300 200200 Catastrophe risk reserves Bil. ¥ Catastrophe risk reserves Bil. ¥ 100100 00 20142014 20152015 20162016 20172017 20182018 20192019 FiscalFiscal yearyear *Tokio*Tokio MarineMarine HoldingsHoldings Inc.,Inc., MS&ADMS&AD InsuranceInsurance GroupGroup HoldingsHoldings Inc.,Inc., andand SOMPOSOMPO HoldingsHoldings Inc.Inc. Source:Source: S&PS&P GlobalGlobal RatingsRatings basedbased onon companycompany disclosures.disclosures. CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

hart ustralias eclare catastrohes three ears ene an linear tren

3030

2525

2020

1515 No. of events No. of events 1010

00 19601960 19701970 19801980 19901990 20002000 20102010 20202020 20302030 20402040

ThreeThree yearyear normalisednormalised 20172017 equivalentequivalent losseslosses (bil.(bil. A$)A$)

AsAs ofof Sept.Sept. 30,30, 2020.2020. BubbleBubble sizesize representsrepresents 20172017 equivalentequivalent losseslosses (A$bn).(A$bn). SourceSource ICAICA andand S&PS&P GlobalGlobal Ratings.Ratings. CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

hart ustralia gross an net clais an reinsurance coer

40,00040,000 3535

35,000 35,000 3030

30,00030,000 2525 25,00025,000 2020 % % 20,00020,000

A$ mil. 15

A$ mil. 15 15,00015,000 1010 10,00010,000 5 5,0005,000 5

00 00 20082008 20092009 20102010 20112011 20122012 20132013 20142014 20152015 20162016 20172017 20182018 20192019 20202020 TTwelvewelve monthsmonths endingending JuneJune ofof yearyear APAC GrossGross directdirect claimsclaims NetNet incurredincurred claimsclaims ReinsuranceReinsurance covercover (left(left scale)scale) (left(left scale)scale) (right(right scale)scale)

Source:Source: S&PS&P GlobalGlobal Ratings,Ratings, basedbased onon APRAAPRA QuarterlyQuarterly Statistics.Statistics. CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved.

focus. With this region prone to winds hart nsurance enetration since in aecte regions and heavy rainfall, the momentum of 1.81.8 insurance demand and awareness is 1.61.6 likely to spike among the general public. 1.41.4 Following Guangdong’s experience of its 1.2 pilot catastrophe insurance program, 1.2 first launched in 2016, we expect the local 1.01.0 % governments to enhance and establish % 0.80.8 more comprehensive catastrophe 0.60.6 insurance frameworks. 0.40.4 As the primary insurance market’s 0.20.2 accelerates its shift toward business 0.00.0 segments other than autos, we believe 19981998 20002000 20022002 20042004 20062006 20082008 20102010 20122012 20142014 20162016 20182018 the correlation between underwriting performance volatility and weather-related ShanghaiShanghai AnhuiAnhui JiangxiJiangxi HubeiHubei GuangxiGuangxi ChinaChina events will increase. In tandem with the Souce:Souce: YearbookYearbook ofof China’sChina’s Insurance,Insurance, Wind.Wind. shift in business mix, we expect the Chinese CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. P/C insurers’ oversight of catastrophe risks will intensify through enhanced reliance on catastrophe models. The country’s largest hart conoic losses relate to natural catastrohe eents in hina reinsurer, China Reinsurance (Group), eents in hina launched the first domestic proprietary 3.53.5 commercial earthquake catastrophe 3.0 model in August 2019. 3.0 We expect insurers to proactively 2.52.5 review their retained catastrophe

exposures and risk mitigation 2.02.0 arrangements. Technology will likely play % of GD P an increasingly important role in areas % of GD P 1.51.5 such as data analytics and risk and claim 1.0 assessments. 1.0

0.50.5 Balancing The Trade-Offs

Reinsurance protection remains the go-to 0.00.0 for the region’s insurers as they seek 20072007 20082008 20092009 20102010 20201111 20122012 20132013 20142014 20152015 20162016 20172017 20182018 insulation from natural catastrophes OtherOther naturalnatural disastersdisasters EarthquakesEarthquakes FloodsFloods (Chart 9). S&P Global Ratings believes Source:Source: ChinaChina StatisticalStatistical Yearbook,Yearbook, Wind.Wind. the value proposition of reinsurance CopyrightCopyright ©© 20202020 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. will strengthen after recent tumultuous events: a series of natural catastrophes of underwriting strategies for insurers and the pandemic. However, hiking and reinsurers. For the APAC insurance Koshiro Emura reinsurance price tags will leave insurers sector, the partnership with reinsurance Tokyo, (81) 3-4550-8307 deep in thought as to how they can companies are here to stay. We believe [email protected] strike the balance between risk and higher reinsurance premiums will also return. While insurers could pass on the lead to calls for reinsurers to enhance Craig A Bennett costs to policyholders, the economic their offerings and services to insurers, by Melbourne, (61) 3-9631-2197 considerations and potential social providing more technical know-how and [email protected] backlash may limit the price hike relay/ underwriting support. n transfer. Inevitably, higher reinsurance WenWen Chen costs will narrow profit margins for the This report does not constitute a rating Hong Kong, (852) 2533-3559 primary insurers. action. [email protected] Technological innovation related to pre and post-disaster management, Eunice Tan Charles-Marie Delpuech and active utilization of catastrophe Hong Kong, (852) 2533-3553 London, (44) 20-7176-7967 models, will facilitate reconsiderations [email protected] [email protected]

Global Reinsurance Highlights | 2020 45 Investments

Investment Caution Has So Far Paid Off For Global Reinsurers

By Marc-Philippe Juilliard, Johannes Bender, Ali Karakuyu, Dennis P Sugrue, and Charles-Marie Delpuech

Given that reinsurers exist to take on insurance risks, it is not surprising that they are more exposed to underwriting, reserving, and catastrophe risks than to investment risks. However, their investment risk has never been negligible, and a decade of low interest rates and tough underwriting conditions forced reinsurers to increase their appetite for investment risk.

o generate additional return, their investment returns would have in the economy, the stress test S&P Global reinsurers invested, cautiously, in shown an even more material decline. Ratings performed on reinsurers’ balance Triskier and more illiquid assets. The economic impact of the pandemic sheets as of the end of 2019 does not The gradual shift in strategy has been has somewhat eroded reinsurers’ indicate change to our assessment of the successful—reinsurers’ capital adequacy capital adequacy, but their caution has sector’s overall capital adequacy. has remained high, on average. Had their largely paid off. Despite unfavorable Our stress test examines asset asset allocations remained unchanged, movements in the financial markets and allocation at the top 20 global reinsurers, Shutterstock / phanurak rubpol phanurak / Shutterstock

46 Global Reinsurance Highlights | 2020 Investments

as a proxy for the sector. We also looked to take on insurance risks that primary Reinsurers’ Asset Allocation back over the past five to 10 years and insurers cannot keep on their own balance Evolved As Interest Rates Dropped forward for the next two to three years, sheet and reinsurance cover is typically As returns on reinsurers’ traditional given current and expected market renewed annually. investments have declined over the conditions and reinsurers’ strategies and Meanwhile, many primary players past decade, the relative weight of risky risk tolerances. operate significant general account assets in the investment portfolios has savings business. These often constitute increased. Here, we define risky assets Risk Tolerance Varies Between the most important part of their balance as listed and private equities, real estate, Reinsurers And Primary Insurers sheet and generate material investment and alternative investments. The gradual For primary players, average exposure to risks. Asset allocation at primary players shift toward these riskier and more illiquid asset risk typically exceeds 50% of total is set up to match this kind of long- assets has helped reinsurers to generate risk-based capital, as we calculate it. By term liability. Therefore, a more material additional return and slowed the decline contrast, it was about 35% for the top proportion of their investments take the in their investment returns. 20 reinsurers at year-end 2019. This is form of equities or real estate. Although no significant change can unsurprising, given that reinsurers exist be observed from one year to the next, the trend has been steady. Risky assets hart he rise o ris assets accounted for just over 5% of reinsurers’ Evolutionhart in he the investment rise o ris mix 2011–2019 assets investment portfolios in 2011 (Chart 1). Evolution in the investment mix 2011–2019 The proportion doubled over 2011–2017 100% and represented 13% at the end of 2019. 100% 90% Nevertheless, we consider this level 80%90% manageable, given reinsurers’ capital 70%80% adequacy. On average, we view capital 60%70% adequacy at the top 20 global reinsurers 50%60% 40%50% as robust. 30%40% The most common risky assets in 20%30% reinsurers’ portfolios are listed and Investment portfolio mix 20%

Investment portfolio mix 10% private equities, which account for 9% 10% 0% of total investments. We recognize that 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 overall positive market movements have 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 supported the inflationary trend for the Other investments Property/real estate Listed and private Fixed income Other investments Property/real estate Listedequities and private Fixed income past decade. That said, other asset classes equities Source: S&P Global Ratings. have seen similar market movements. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Valuation of fixed-income instruments Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. has materially increased due to low interest rates and the general tightening of credit spreads. Real estate investments hart 2 he share o euit inestents rose as interest rates stae lo hart 2 he share o euit inestents rose as interest rates stae lo have also generally experienced material positive revaluation since the global

Group 3 financial crisis of 2008-2009. Group 3 Because of the lower-for-longer interest rate environment, large reinsurers have Group 2 modified their investment guidelines Group 2 over the past decade. They deliberately chose to invest more in riskier assets, Group 1 most likely to offset the gradual dilution Group 1 2019 2019 of their investment yield caused by years 2015 2015 of lower interest rates (Chart 2). The whole Global average Global average insurance industry experienced a dilution in yields, but the reinsurance sector was hit 0 2 4 6 8 10 12 14 16 faster because their business is shorter- 0 2 4 6 8 10 12 14 16 % tail in nature. Many primary players are very % Group 1 comprises large global reinsurers. Group 2 comprises smaller regional players. active in the long-term savings business; by Group 31 comprises largemore global specialized reinsurers. players. Group Source: 2 comprises S&P Global smaller Ratings. regional players. contrast, reinsurers have limited exposure Group 3 comprises more specialized players. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. to this line of business. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

Global Reinsurance Highlights | 2020 47

hart lliui assets rose in oularit as interest rates ell hart lliui assets rose in oularit as interest rates ell Liquid assets as a percentage of total investments (2015–2019) Liquid assets as a percentage of total investments (2015–2019)

9 9

8 8

7 7

6 6

5 5 % % 4 4

3 3

2 2

1 1

0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

Source: S&P Global Ratings. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

hart he unchange aerage rating conceals a shit to hart he unchange aerage rating conceals a shit to loer rate bons loer rate bons 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% % 50% % 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2011 2012 2013 2014 2015 2016 2017 2018 2019 AAA AA A BBB BB B CCC/C Unrated AAA AA A BBB BB B CCC/C Unrated Source: S&P Global Ratings. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

hart nestent returns reaine surrisingl stable oer 20020 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 %

% 2.0 2.0

1.5

1.0

0.5

0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019

Group average Group 1 Group 2 Group 3

hart ggregate caital surlus iinishe but still signiicant Equity and rating migration risks are the most signiﬁcant

15 Bil. $ Bil. $ 10

Equity Equity Default Property

Rating migration Rating migration Stressed surplus Loans/mortgagesStressed surplus 2020 starting surplus Asset risk stresses

Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. hart he rise o ris assets Evolutionhart in he the investment rise o ris mix 2011–2019 assets Evolution in the investment mix 2011–2019 100% 100%90% 80%90% 70%80% 60%70% 50%60% 40%50% 30%40% 20%30% Investment portfolio mix 10%20% Investment portfolio mix 10%0% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Other investments Property/real estate Listed and private Fixed income equities Other investments Property/real estate Listed and private Fixed income Source: S&P Global Ratings. equities Source:Copyright S&P © 2020Global by Ratings. Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart 2 he share o euit inestents rose as interest rates stae lo hart 2 he share o euit inestents rose as interest rates stae lo

Group 3 Group 3

Group 2 Group 2

Group 1 Group 1 2019 2019 2015 Global average 2015 Global average

Investments0 2 4 6 8 10 12 14 16 0 2 4 6 8 10 12 14 16 % % Group 1 comprises large global reinsurers. Group 2 comprises smaller regional players. Group 13 comprises large more global specialized reinsurers. players. Group Source: 2 comprises S&P Global smaller Ratings. regional players. CopyrightGroup 3 comprises © 2020 by more Standard specialized & Poor's players. Financial Source: Services S&P LLC.Global All Ratings. rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

hart lliui assets rose in oularit as interest rates ell Reinsurers Also Moved Into Illiquid hart lliui assets rose in oularit as interest rates ell Liquid assets as a percentage of total investments (2015–2019) Assets Liquid assets as a percentage of total investments (2015–2019) Illiquid assets (defined as real estate, 9 hedge funds, private equity, and loans) 9 have become a slightly more significant 8 part of the investment portfolios of the 8 top 20 reinsurers over the past five years 7 7 (Chart 3). We consider the current level of 6 just over 7% of total invested assets to 6 be manageable; the year-end 2015 figure 5 was less than 6%.

% 5 Most of the increase has come from % 4 greater investment in private equity and 4 real estate assets. Investment in hedge 3 3 fund vehicles and loans remained low 2 and stable and was less than 2% of total 2 investments at the end of 2019. 1 Although large global reinsurers were 1 cautious in their overall asset allocation, 0 they have been more willing to increase the 0 2015 2016 2017 2018 2019 share of their investments that comprised 2015 2016 2017 2018 2019 Source: S&P Global Ratings. illiquid assets (9% at end-2019). Typically, CopyrightSource: S&P © 2020 Global by Ratings.Standard & Poor's Financial Services LLC. All rights reserved. these reinsurers are more sophisticated Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. investors and their liabilities are of longer duration, giving them more leeway to hart he unchange aerage rating conceals a shit to tolerate lower liquidity on the asset side of hartloer rate he bons unchange aerage rating conceals a shit to their balance sheet. loer rate bons Midsized global reinsurers and other 100% 100%90% reinsurers, by contrast, have historically 80%90% been more reluctant to allow their liquidity 70%80% profile to deteriorate. Even now, they do not 60%70% invest more than 3% to 6% of the total in 50%60% illiquid assets, on average. Many of these % 50% players are relatively involved in short-tail

% 40% 30%40% lines of business. For example, property 20%30% catastrophe claims must be paid promptly 10%20% once an event has occurred. As such, they 10%0% cannot afford to invest in illiquid assets 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 that they could be forced to sell at short 2011 2012 2013 2014 2015 2016 2017 2018 2019 AAA AA A BBB BB B CCC/C Unrated notice. Source: S&PAA GlobalA Ratings.AA A BBB BB B CCC/C Unrated Source:Copyright S&P © 2020Global by Ratings. Standard & Poor's Financial Services LLC. All rights reserved. Credit Risk Is On The Up Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. The average rating in the fixed-income portfolios held by the top 20 reinsurers has not changed over the past decade— Whenhart we drill nestent into exposure returns within reaine other surrisingl reinsurers (Groupstable 3) were invested it is still in the ‘AA’ category (Chart 4). the topoerhart 20 20020sample, nestent we see returnsthat certain reaine in equities. surrisingl stable That said, in 2011, more than 40% of the oer 20020 types 4.0of players are more exposed to risky We consider that these riskier bonds held were rated ‘AAA’; by year-end assets4.0 than others. Despite large global investment policies were clearly adopted 2019, this share has dropped to 31%. 3.5 reinsurers’3.5 (Group 1) increased exposure, to reduce dilution of the investment yield We attribute the shift to a number of it remains3.0 below average, especially for on fixed-income investments. In addition, downgrades, notably of sovereign issuers, 3.0 equities,2.5 which accounted for just 8% of it was a more significant move for less- that occurred during the period, combined

total% invested2.5 assets at the end of 2019. diversified players as they are more with the gradual shift in the portfolios 2.0 % By contrast,2.0 up to 15% of portfolios at involved in short-tail reinsurance, such as toward corporate bonds. midsize1.5 global reinsurers (Group 2) and natural catastrophe business. Over the same period, the share of 1.5 1.0 48 Global1.0 Reinsurance Highlights | 2020 0.5 0.5 0.0 0.020 11 2012 2013 2014 2015 2016 2017 2018 2019 2011 2012 2013 2014 2015 2016 2017 2018 2019 Group average Group 1 Group 2 Group 3 Group average Group 1 Group 2 Group 3 Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart ggregate caital surlus iinishe but still signiicant hartEquity ggregateand rating migration caital risks surlus are the most iinishe signiﬁcant but still signiicant Equity and rating migration risks are the most signiﬁcant 25 25

20 20

15 15 Bil. $ 10 Bil. $ 10

5 5

0 0 Equity Default Property Equity Default Property Rating migration Loans/mortgagesStressed surplus Rating migration 2020 starting surplus Stressed surplus Asset risk stresses Loans/mortgages 2020 starting surplus Asset risk stresses Source: S&P Global Ratings. Source:Copyright S&P © 2020Global by Ratings. Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. hart he rise o ris assets Evolution in the investment mix 2011–2019

100% 90% 80% 70% 60% 50% 40% 30% 20% Investment portfolio mix 10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

hart 2 he share o euit inestents rose as interest rates stae lo

Group 3

Group 2

Group 1 2019

2015 Global average

0 2 4 6 8 10 12 14 16

% Group 1 comprises large global reinsurers. Group 2 comprises smaller regional players. Group 3 comprises more specialized players. Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

hart lliui assets rose in oularit as interest rates ell Liquid assets as a percentage of total investments (2015–2019)

5 % 4

0 2015 2016 2017 2018 2019

hart he unchange aerage rating conceals a shit to loer rate bons

100% 90% 80% 70% 60% 50% % 40% 30% 20% 10% 0% Investments 2011 2012 2013 2014 2015 2016 2017 2018 2019

hart nestent returns reaine surrisingl stable oer 20020 “Given the generally 4.0 conservative nature 3.5 of the investment mix, 3.0 realized capital gains have

2.5 historically contributed

% little to reinsurers’ 2.0 investment yields.” 1.5

1.0

0.5 The actions they took in shifting toward riskier assets instead helped to sustain 0.0 investment returns. In our view, the change 2011 2012 2013 2014 2015 2016 2017 2018 2019 in policy formed the basis of the broadly Group average Group 1 Group 2 Group 3 stable trend we have observed over the past three-to-five years (Chart 5). Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Investment Expertise Can Be bonds rated in the ‘BBB’ category has challenge of controlling tariffs amid Exploited increasedhart to 16%ggregate from 6%.caital Excluding surlus iinisheintense competition but still and signiicant frequent natural Large global reinsurers typically generate these movements,Equity and rating bonds migration rated risks in the are the‘A’ mostcatastrophe signiﬁcant claims. Both investment and somewhat higher investment returns than or ‘AA’ category have remained broadly underwriting have suffered, and reinsurers smaller market participants because 25 unchanged. have sought additional profitability their investment horizon is slightly longer. Overall, reinsurers still aim to invest elsewhere. They found it in revising their In addition, most of them have taken 20 almost all their cash flows in fixed-income investment guidelines and increasing advantage of their size to establish their securities rated investment-grade. their tolerance for credit risk. That said, own asset management company. Such 15 However, they have become increasingly the shift has been fairly gradual and was specialized firms typically generate better willing to invest in speculative-grade managed in a controlled way. return for a given risk appetite. They can Bil. $ bonds. Indeed,10 the share of speculative- also build on their expertise to offer third- grade and unrated bonds has doubled An Adapted Investment Mix party asset management activities, which over the past5 decade and now represents Protected Reinsurers Against help to amortize cost across a larger asset 8% of the average bond portfolio. That Larger Yield Dilution base. said, reinsurers0 have shown prudence; Investment yields achieved a soft landing, Reinsurers with asset management most of the speculative-grade bonds they but probably won’t take off again for some companies can also develop valuable Equity Default invest in are rated in the ‘BB’ category, the time.Property Over the past decade, average yield in specialist knowledge, for example, of highest level within the speculative-gradeRating migration reinsurers’ investment portfolio has fallen insurance-linked securities (ILS). This Loans/mortgagesStressed surplus space.2020 They starting have surplus not deployed more-risky to an estimated 2.4% average in 2020 not only leads to a better investment strategies, such as buying instrumentsAsset risk stressesfrom 3% or more before 2010. This dilution performance, but also offers potential issued bySource: ailing companiesS&P Global Ratings. and hoping for is in line with the general fall in interest business synergies with their non-life recovery orCopyright favorable © 2020 liquidation. by Standard & Poor's Financialrates Servicesaffecting LLC. every All rights major reserved. currency that underwriting and risk management Once again, risk appetites for investing reinsurers invest in. functions. in speculative-grade bonds demonstrate Oddly, performance in recent years Given the generally conservative nature material differences across the top 20 has shown that yield dilution has become of the investment mix, realized capital reinsurers. Group 1 players invested less, less significant. We consider that this gains have historically contributed little at just 6% of total fixed income portfolio stems from the relatively short duration to reinsurers’ investment yields. Although at end-2019, while reinsurers in Groups of the reinsurers’ bond portfolios. The investment mixes are now slightly less 2 and 3 have been more aggressive. Some old instruments that generated higher conservative, their contribution has have invested as much as 18% of their yields were mostly repaid during the first not altered significantly. Constructing bond portfolios in speculative-grade part of the decade. They have therefore material unrealized gain capital buffers instruments, albeit mostly in the ‘BB’ contributed little to portfolio yields since takes time and equity markets have also category. 2015. been somewhat volatile over the past These trends clearly illustrate that If reinsurers had not changed the credit three years. the sector has had to adapt to the quality of their fixed-income portfolios, That said, the impact of realized capital persistently low interest rates and the the downward trend could have continued. gains is likely to increase materially as

Global Reinsurance Highlights | 2020 49 hart he rise o ris assets Evolution in the investment mix 2011–2019

100% 90% 80% 70% 60% 50% 40% 30% 20% Investment portfolio mix 10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

hart 2 he share o euit inestents rose as interest rates stae lo

Group 3

Group 2

Group 1 2019

2015 Global average

0 2 4 6 8 10 12 14 16

hart lliui assets rose in oularit as interest rates ell Liquid assets as a percentage of total investments (2015–2019)

5 % 4

0 2015 2016 2017 2018 2019

hart he unchange aerage rating conceals a shit to loer rate bons

100% 90% 80% 70% 60% 50% % 40% 30% 20% 10% 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019

hart nestent returns reaine surrisingl stable oer 20020 4.0

3.5

3.0

2.5 % 2.0

1.5

1.0

0.5

Investments0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019

Group average Group 1 Group 2 Group 3

hart ggregate caital surlus iinishe but still signiicant Equity and rating migration risks are the most signiﬁcant “Half of the top 20 reinsurers have excellent 25 capital adequacy, in our

20 view, and we forecast that nine of them would still

15 have a positive buffer after our stress test.” Bil. $ 10

5 various stresses in our stress test, the aggregated excess melts away, falling 0 by over half to US$9.3 billion (Chart 6).

Equity Default Nevertheless, we still anticipate that Property capital adequacy would remain in line with Rating migration Loans/mortgagesStressed surplus our current assessments for the group as 2020 starting surplus a whole and, on an individual basis, for 16 Asset risk stresses of the 20 players. Source: S&P Global Ratings. Our stress testing exercise suggests Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. that reinsurers’ capital adequacy would be most affected by the simulated equity shock, and by the assumed credit current investment yields are further various players will weather the crisis. migration of their bond portfolio, which diluted by persistently negative interest This gives us an indication of which would reduce their capital buffer by rates. Reinsurers have historically ratings could be at risk. about US$4.8 billion and US$2.6 billion, dedicated a material portion of their cash Since COVID-19 started to spread, respectively. By contrast, the stress we flow to short-to-medium term maturities, we have been measuring the sensitivity applied to the bond portfolios to replicate which have been most affected by yield of insurers’ capital to volatility in the a potential spike in credit defaults had a dilution. In our view, the gradual increase financial market using a consistent set lesser impact of about US$1.7 billion. This in investment in riskier assets is mostly of assumptions regarding the stresses is because only a limited portion of the intended to provide financial flexibility applicable to certain asset classes (see “,” portfolios is invested in rating categories to realize capital gains, as opposed to published on Sept. 22, 2020). We consider for which we assume a high default rate. supporting annual investment yields. the reinsurance sector to be more resilient A hypothetical drop in real estate asset That said, the availability of such buffers than the global insurance sector, by these values would reduce the capital buffer by is by nature uncertain, given the inherent measures. These stresses combined, a moderate US$1.6 billion. Lastly, defaults volatility of financial markets. Therefore, account for 54% of the reinsurance on loans and bank deposits would lower we continue to appreciate investment sector’s starting capital buffer, compared capital adequacy by a minimal amount— returns over the medium term, rather than with 85% for the global industry. just US$200 million. quarterly. Our stress test suggests that, based on their investment portfolios, the top Smaller And Less Diversified Stress Test Aims To Replicate The 20 reinsurers are in a good position to Players Are Most Likely To Buckle Economic Effect Of The Pandemic navigate the crisis. Taken as a whole, we Although the aggregate figures show a We expect reinsurers’ investment anticipate that capital adequacy will be somewhat healthy picture, this conceals portfolios could be hard hit by the reduced by a manageable amount that will the variation across the groups and at an economic fallout from the pandemic. still enable most reinsurers to meet their individual level. Large global reinsurers To measure the potential impact, we respective targets. included in the top 20 are in a good set up a range of stressed assumptions The top 20 reinsurers had total position. We anticipate that they would be covering the main asset classes to which aggregated adjusted capital of around able to maintain their capital adequacy they are exposed: equities, bonds, real US$263 billion at year-end 2019. The above their current target level. The same estate, and loans. We compared the aggregated buffer above the target is generally true for other reinsurers that outcome of our stress tests with the level that justifies their respective we classify as having excellent capital year-end 2019 total adjusted capital assessments was then slightly above adequacy, according to our criteria. Half available to determine how well the US$20 billion. However, as we apply the of the top 20 reinsurers have excellent

50 Global Reinsurance Highlights | 2020 Investments

capital adequacy, in our view, and we forecast that nine of them would still have a positive buffer after our stress test. The players whose capital buffer could be exhausted under our stress test are typically smaller or less diversified regional reinsurers that have lower capital adequacy assessment. For some of these, the pressure on their credit quality could even trigger a rating action. That said, we take rating actions after considering a wide range of metrics. Investment-related risk is important, but far from the only factor we would consider. n

This report does not constitute a rating action.

Marc-Philippe Juilliard Paris, (33) 1-4075-2510 [email protected]

Johannes Bender Frankfurt, (49) 69-33-999-196 [email protected]

Ali Karakuyu London, (44) 20-7176-7301 [email protected]

Dennis P Sugrue London, (44) 20-7176-7056 [email protected]

Charles-Marie Delpuech London, (44) 20-7176-7967 [email protected] research contributor: Kalyani Joshi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

Global Reinsurance Highlights | 2020 51 North American Investment Stress Test

COVID-19 Market Volatility Tests North American Reinsurers’ Resilience

By Taoufik Gharib, Hardeep S Manku, and Saurabh B Khasnis

In view of current heightened market volatility, S&P Global Ratings conducted its investment assets stress tests for the North American (Bermuda, Canada, and the U.S.) reinsurers. The results show that the significant majority of our rated North American reinsurers are able to maintain capital adequacy in line with our ratings on them. Shutterstock / DisobeyArt / Shutterstock

52 Global Reinsurance Highlights | 2020 North American Investment Stress Test

ven those that have felt the pinch the history of the U.S. stock market. This “Reinsurers should preserve and saw capital adequacy dip and has triggered a significant jump in the Ebecome deficient, as of year-end financial markets’ volatility, with investors capital to offset the erosion 2019 on a pro forma basis, will likely be having nowhere to hide. As a result, the in capital positions due to able to replenish their capital over the Chicago Board Options Exchange’s (CBOE) the current volatility in the next two years (2020–2021). On the other Volatility Index, or VIX, reached an all- financial markets.” hand, if the COVID-19 pandemic becomes time high of 82.69 on March 16, relative a capital event rather than an earnings to 12.47 where it started the year, and event for the few negative outliers, we closed at 53.54 on March 31 (Chart 1). will likely take rating actions if we believe Similarly, between February 19 and that they won’t be able to rebuild their March 23, the S&P 500 index saw a peak- capitalization through earnings retention to-trough drop of 33.9% and ultimately and capital management strategies over was down 20.3% for the quarter. production cuts to stabilize the pricing the next 12 to 24 months. Adding to the global economic shock freefall. At the same time, among other During the third week of February is the oil price war between Saudi actions, the Fed slashed interest rates to 2020, the COVID-19 pandemic led to one Arabia/Organization of the Petroleum near zero to support the U.S. economy. As of the steepest and fastest declines in Exporting Countries and Russia regarding a result, the 10-year U.S. Treasury yield dropped to 0.70% at the end of the quarter from 1.88% at the start of the year, while hart 00 ne ersus ne an 2 to arch 2020 hart 00 ne ersus ne an 2 to arch 2020 falling to an all-time low of 0.54% on March 9 as investors sought the safety 3,600 90 3,600 3,386 -- Peak 83 90 of U.S. government bonds, contributing 3,386 -- Peak 83 3,400 80 3,400 80 to corporate credit spread widening 3,200 70 (Chart 2). Of greater importance, the U.S. 3,200 70 3,258 60 3,000 3,258 60 Congress passed a historic $2.2 trillion 3,000 54 50 500 stimulus package as a shot in the U.S. 54 50 500 2,800 2,800 VIX

40 VIX economy’s arm to help small businesses S& P 40 S& P 2,600 2,600 30 and essential industries weather the 30 2,400 current economic disruption. 2,400 20 2,585 20 2,200 2,585 2,200 12 Trough -- 2,237 10 12 Trough -- 2,237 10 Market Volatility: All Eyes On 2,000 0 2,000 0 Capital As Risk Dashboards Light Up 1-Jan 10-Jan 19-Jan 28-Jan 6-Feb 15-Feb 24-Feb 4-Mar 13-Mar 22-Mar 31-Mar 1-Jan 10-Jan 19-Jan 28-Jan 6-Feb 15-Feb 24-Feb 4-Mar 13-Mar 22-Mar 31-Mar Given the extreme turbulence in the S&P 500 (left scale) VIX (right scale) S&P 500 (left scale) VIX (right scale) capital markets, we reviewed North Source: S&P Global; CBOE. Source: S&P Global; CBOE. American reinsurers’ ability to weather Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. the hit to their investment portfolios under stressed conditions. In doing so, we hart 2 looberg arclas ggregate on ne iel or the hart 2 looberg arclas ggregate on ne iel or the not only took account of their investment ast three ears ast three ears risk profiles such as asset allocation and 4.0 sector diversification, fixed income credit 4.0 3.66 3.66 quality and duration, but also considered 3.5 234 bps 3.5 234drop bps their ability to recover their capital drop 3.0 adequacy position over the next 12 to 24 3.0 months. 2.5 2.5 This testing primarily focused on the 2.0 Index value (%) 2.0 asset-side stress and the implications Index value (%) 1.5 for prospective capital position assuming 1.5 1.32 normalized earnings; or in other words, 1.0 1.32 1.0 our base-case scenarios. However, we are

. 2017 . 2017 cognizant of the challenges reinsurers . 2017 . 2017 Mar May Jul. 2017Sep. 2017Nov. 2017Jan. 2018Mar. 2018 Jul. 2018Sep. 2018Nov. 2018Jan. 2019Mar. 2019 Jul. 2019Sep. 2019Nov. 2019Jan. 2020Mar. 2020 Jul. 2017 May. 2018Jul. 2018 May. 2019Jul. 2019 also face on the underwriting side, which Mar May Sep. 2017Nov. 2017Jan. 2018Mar. 2018May. 2018 Sep. 2018Nov. 2018Jan. 2019Mar. 2019May. 2019 Sep. 2019Nov. 2019Jan. 2020Mar. 2020 would hamper their business prospects Source: Bloomberg. Source: Bloomberg. and earnings. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. For instance, the outbreak exposes

Global Reinsurance Highlights | 2020 53 hart orth erican reinsurers inestent hart orth erican reinsurers inestent ortolio allocation at earen 20 ortolio allocation at earen 20 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20%

% of total investments 20%

% of total investments 10% 10% 0% 0% Argo AXIS Arch Argo AXIS Arch Fidelis Enstar Fairfax Markel Everest Fidelis Enstar Fairfax Markel Everest Berkshire Alleghany PartnerRe Berkshire Lancashire Berkshire Alleghany PartnerRe Berkshire Lancashire RenaissanceRe RenaissanceRe Industry excluding Industry excluding Alternative investments Equities Non-investment-grade ‘BBB’ ratings Alternative investments Equities Non-investment-grade ‘BBB’ ratings ‘A-’ ratings and above Cash and cash equivalents ‘A-’ ratings and above Cash and cash equivalents Source: Company public ﬁlings and data provided by companies. Alternative investments includeSource: hedgeCompany funds, public private ﬁlings equity, and datareal estate, provided and by other companies. risky investments. Alternative investments include hedge funds, private equity, real estate, and other risky investments. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

hart orth erican reinsurers inestent ortolio hart orth erican reinsurers inestent ortolio allocation ris assets at earen 20 allocation ris assets at earen 20 Berkshire 74.7 % Berkshire 74.7 % Fairfax 37.3% Fairfax 37.3% Markel 34.1 % Markel PartnerRe 27.8%34. 1 % PartnerRe Enstar 262.7.8%4% Enstar 26.4% Industry excluding Berkshire 24.2% Industry excluding BerkshireArch 20.1%24.2 % EverestArch 19.520.1% 19.5 EverestArgo 19.4 19.4 AlleghanyArgo 15.8% 15.8% LancashireAlleghany 13.6 % LancashireAXIS 13.5%13.6 % RenaissanceReAXIS 13.1%13.5% 13.1% RenaissanceReFidelis 0.3% Fidelis 0.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80%

Non-investment-grade Equities Alternative investments Non-investment-grade Equities Alternative investments Source: Company public ﬁlings and data provided by companies. Alternative investments includeSource: hedgeCompany funds, public private ﬁlings equity, and data real providedestate, and by companies.other risky investments. Alternative investments include hedge funds, private equity, real estate, and other risky investments. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. North American Investment Stress Test

COVID-19 Market Volatility Tests North American Reinsurers' Resilience

Table 1 Table 1: S&P Global Ratings’ COVID-19 Market Volatility Capital Stress Test Dashboard

NorthThe capital American stress reinsurers test dashboard to potential in table 1 highlights our estimates of reinsurers' capital lossesadequacy from for aviation, 2019-2021 travel relative insurance, to the minimum required levels to support our ratings. We creditestimate insurance, that the stressed contingent investment business valuations S&P would Global be lower Ratings’ by about Stress 7.7%, Test on average,Approach for interruption,the cohort of 13 reinsurersevent cancellation, we rate. However, the• impactThe starting varies point depending is S&P onGlobal investment Ratings’ risk estimated year-end 2019 risk-adjusted mortgageappetites. Atreinsurance, the high end, and Berkshire, mortality Fairfax, and Markelcapitalization. are experiencing greater declines in their risk.portfolio In addition, values compared they could with see those spillover of Fidelis, • RenaissanceRe, Based on S&P AXIS,Global and Ratings’ Lancashire, Corporate which Default, are Transition, and Recovery study, toat other the lower lines end. of business such as errors our stressed parameters include asset devaluation/impairment starting at the andUndoubtedly, omissions, capital as well positions as directors take an and immediate ‘BBB’ hit with rated most bonds reinsurers combined facing with deficiencies a steep decline at in equities and alternative officers.the required capital levels needed to support the ratingsinvestments as of year-end comparable 2019 to on those a pro from forma the basis. 2008 financial crisis. These stress WhileThese most aspects of the reinsurers are not in recover scope their for capital positionsfactors are and outlined can bear in Table the investments' 2. stress thefor now,purpose the pathof this and exercise. the time We it takesestimate to recover • dependThe stress on many factors factors. are applied On the to the year-end 2019 investment portfolios to thatmacroeconomics our 2019 base-case level, the shaperisk-adjusted of the recovery willcalculate influence stressed the reinsurance investment business losses. These losses are incorporated into the capitalizationconditions and theof demandthe North side American of the equation, aspro some forma of theyear-end economic 2019 output risk-adjusted could be capitalization. reinsurerspermanently prior gone. to On the the stress microeconomics test was level,• itWe will rely be on based our base-case on the strength scenario of a earnings reinsurer's projections for 2020-2021 to assess supportivestarting capitalization, of our ratings. the risk The profile box of to its investmentprospective portfolio, capital its underlying position, while earnings acknowledging power, that COVID-19 developments theand right management's and Table ability2 outline and our strategies testingtaken tocould preserve further and influence shore up capitalour estimates. over the next approach12-24 months. and assumptions. • Furthermore, we account for reinsurers’ ability to preserve capital by suspending The capital stress test dashboard their share repurchases during 2020–2021. We believe this is a reasonable Despite the right side of our capital stress test dashboard turning green for the significant in Table 1 highlights our estimates of assumption because most of the reinsurers are taking a cautious approach to majority of reinsurers by 2021, the capital buffers we have become accustomed to would deplete reinsurers’ capital adequacy for 2019– capital management given market uncertainties despite the drop in their stock and the capital positions would remain too close for comfort. With global economies in recession 2021 relative to the minimum required prices relative to their book values. levels to support our ratings. We estimate • Lastly, we make an assumption that the appreciation on high-quality fixed that the stressed investment valuations income securities and the widening of credit spreads (which provide modest www.spglobal.com/ratingsdirect April 17, 2020 3 would be lower by about 7.7%, on relief on the reinvestment rate) would help mitigate the decline in the 10-year average, for the cohort of 13 reinsurers government yield, which reduces the credit we apply within total adjusted we rate. However, the impact varies capital for the time value of money on reserves. depending on investment risk appetites.

54 Global Reinsurance Highlights | 2020 North American Investment Stress Test

At the high end, Berkshire, Fairfax, and lead to more rating actions over the next “While most of the Markel are experiencing greater declines 12-24 months. in their portfolio values compared While we continue to monitor the reinsurers recover their with those of Fidelis, RenaissanceRe, sector, we took the following rating capital positions and can AXIS, and Lancashire, which are at the actions: bear the investments’ stress lower end. • Fairfax Financial Holdings Ltd.: On for now, the path and the Undoubtedly, capital positions take April 3, 2020, we revised our outlook time it takes to recover an immediate hit with most reinsurers to stable from positive to reflect our depend on many factors.” facing deficiencies at the required capital view that over the next 12 months, levels needed to support the ratings as the company is unlikely to achieve a of year-end 2019 on a pro forma basis. higher level of capitalization required While most of the reinsurers recover to support a higher rating. However, 2019. The negative outlook captures their capital positions and can bear the we continue to believe the current the risk to Argo’s capital position along investments’ stress for now, the path and rating is well supported by Fairfax’s with our pre-existing views about risks the time it takes to recover depend on diversified business profile and strong to its performance and its governance. many factors. capitalization. The company is undertaking strategic On the macroeconomics level, the • Arch Capital Group Ltd.: On March 26, actions to improve the performance shape of the recovery will influence 2020, we revised our outlook to negative of its international business, and the reinsurance business conditions from stable, reflecting the risk to the strengthening its governance. and the demand side of the equation, company’s earnings and capitalization On March 3, 2020, we revised our as some of the economic output from the mortgage insurance business. outlook to positive from stable on could be permanently gone. On the In our asset stress test, the company is PartnerRe Ltd. after the announcement microeconomics level, it will be based able to maintain our expected capital of its sale by its parent, EXOR N.V. (BBB+/ on the strength of a reinsurer’s starting range of 5% to 10% deficiency at the Positive), for $9 billion in an all-cash capitalization, the risk profile of its ‘AA’ confidence level by 2021, but our transaction to France-based mutual investment portfolio, its underlying base case shows a heavy reliance on insurance Covea group (AA-/Stable). earnings power, and management’s earnings from the mortgage insurance We believe that subsequent to the ability and strategies taken to preserve segment. Despite the deficiency at the acquisition, PartnerRe could benefit from and shore up capital over the next 12-24 ‘AA’ confidence level, our group capital stronger support as part of a higher-rated months. model incorporates severe mortgage- group with a strong balance sheet. Despite the right side of our capital related stress loss estimates that stress test dashboard turning green for are higher than those experienced by Investment Risk Appetites Come To the significant majority of reinsurers by the primary mortgage insurers for a The Fore 2021, the capital buffers we have become similar risk profile during the 2008 U.S. In general, the North American cohort accustomed to would deplete and the financial crisis. of 12 reinsurers’ (excluding Berkshire) capital positions would remain too close We believe that Argo Group investment portfolios are well diversified for comfort. With global economies in International Holdings Ltd. could be and conservatively managed, with 67.3% recession and reinsurance losses arising pressured in maintaining its capital of total invested assets at year-end 2019 from COVID-19, reinsurers are facing an position under the stress scenario allocated to investment-grade fixed environment where uncertainty reigns, despite the material de-risking of its income securities, 8.5% to cash and cash and the decline in capital resiliency could investment portfolio in fourth-quarter equivalents, and 24.2% to risky assets

Table 2: Asset devaluation stress assumptions (%) BBB (11.0) Non-investment-grade charge based on below: (18.5) BB/not rated (14.0) B (22.5) CCC/CC (36.8) Equity (30.0) Alternative Between (30.0) and (45.0) Capital charge on ‘BB’ and unrated fixed securities is equal. Non-investment-grade assets devaluation is estimated based on a weighted-average composition of rated North America property and casualty insurers.

Global Reinsurance Highlights | 2020 55 hart 00 ne ersus ne an 2 to arch 2020 hart 00 ne ersus ne an 2 to arch 2020 3,600 90 3,386 -- Peak 83 3,600 9080 3,400 3,386 -- Peak 83 3,400 80 3,200 70 3,258 3,200 7060 3,0003,258 54 6050 500 3,000 2,800 54 50 VIX 500 40 S& P 2,800 2,600 40 VIX S& P 30 2,600 2,400 3020 2,400 2,585 2,200 20 12 Trough -- 2,237 2,585 10 2,200 2,000 12 Trough -- 2,237 100 2,000 0 1-Jan 10-Jan 19-Jan 28-Jan 6-Feb 15-Feb 24-Feb 4-Mar 13-Mar 22-Mar 31-Mar 1-Jan 6-Feb 4-Mar 10-Jan 19-JanS& P 50028-Jan (left scale) 15-Feb 24-FebVIX (right scale)13-Mar 22-Mar 31-Mar

Source: S&P Global;S& CBOE.P 500 (left scale) VIX (right scale) Source:Copyright S&P © Global; 2020 by CBOE. Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. hart 2 looberg arclas ggregate on ne iel or the hartast 2three looberg ears arclas ggregate on ne iel or the

ast4.0 three ears 3.66 4.0 3.5 3.66 234 bps 3.5 234drop bps 3.0 drop 3.0 2.5 2.5 2.0 Index value (%) 2.0 Index value (%) 1.5 1.5 1.32 1.0 1.32 1.0 North. 2017American . 2017 Investment Stress Test Mar Jul. 2017Sep. 2017Nov. 2017Jan. 2018 Jul. 2018Sep. 2018Nov. 2018Jan. 2019 Jul. 2019Sep. 2019Nov. 2019Jan. 2020 . 2017Ma . 2017y Mar. 2018May. 2018 Mar. 2019May. 2019 Mar. 2020 Jul. 2017 Jul. 2018 Jul. 2019 Mar May Sep. 2017Nov. 2017Jan. 2018Mar. 2018May. 2018 Sep. 2018Nov. 2018Jan. 2019Mar. 2019May. 2019 Sep. 2019Nov. 2019Jan. 2020Mar. 2020 Source: Bloomberg. Source:Copyright Bloomberg. © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

hart orth erican reinsurers inestent hartortolio orth allocation erican at earen reinsurers 20 inestent

ortolio100% allocation at earen 20 “In general, the North 100%90% American cohort 90%80% of 12 reinsurers’ 80%70% 70%60% (excluding Berkshire) 60%50% investment portfolios 50%40% are well diversified and 40%30% 30%20% conservatively managed.” % of total investments 20%10% % of total investments 10%0% 0% Argo AXIS Arch Fidelis Enstar Fairfax Markel Everest Argo AXIS Arch Berkshire

Alleghany risk asset strategy incompatible with its PartnerRe Fidelis Enstar Berkshire Fairfax Markel Everest Lancashire Berkshire Alleghany long-term objectives. PartnerRe Berkshire Lancashire RenaissanceRe On the other hand, Berkshire is an Industry excluding RenaissanceRe outlier, with 74.7% of its re/insurance Alternative investments Equities Non-investment-gradeIndustry excluding ‘BBB’ ratings group $326 billion invested assets at Alternative‘A-’ ratings investments and above CashEquities and cashNon-investment-grade equivalents ‘BBB’ ratings year-end 2019, almost entirely allocated ‘A-’ ratings and above Cash and cash equivalents Source: Company public filings and data provided by companies. Alternative investments to the U.S. equity market. Berkshire’s re/ Source:include Company hedge funds, public private filings equity, and data real provided estate, and by companies. other risky investments.Alternative investments insurance group has $240 billion invested include hedge funds, private equity, real estate, and other risky investments. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. in U.S. blue chip companies with the top Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. five holdings at year-end 2019 included Apple $73.67 billion, Bank of America hart orth erican reinsurers inestent ortolio $33.38 billion, Coca-Cola $22.14 billion, hartallocation orth ris erican assets reinsurersat earen inestent 20 ortolio American Express $18.87 billion, and allocation ris assets at earen 20 Berkshire 74.7 % Wells Fargo $18.6 billion. BerkshireFairfax 37.3% 74.7 % However, Berkshire holds 20% in cash Markel Fairfax 34.37.3%1 % PartnerRe and cash equivalents totaling about Markel 27.8%34. 1 % Enstar PartnerRe 2627.8%.4% $65 billion, which partially mitigates the Industry excluding BerkshireEnstar 24.26.24%% Arch 20.1% risk from equities, and provides more Industry excluding Berkshire 19.524.2% EverestArch 20.1% than ample liquidity. In this analysis, we 19.4 EverestArgo 19.5 15.8% did not account for additional assets AlleghanyArgo 19.4 AlleghanyLancashire 13.15.68%% and earnings accessible to the parent, LancashireAXIS 13.13.5%6 % 13.1% Berkshire Hathaway Inc. RenaissanceReAXIS 13.5% RenaissanceReFidelis 0.3% 13.1% Berkshire has a unique business Fidelis 0%0.3% 10% 20% 30% 40% 50% 60% 70% 80% model and places emphasis on generating 0% 10% 20% 30% 40% 50% 60% 70% 80% float, which the holding company has Non-investment-grade Equities Alternative investments successfully deployed over the years in Non-investment-grade Equities Alternative investments acquiring non-insurance operations and Source: Company public filings and data provided by companies. Alternative investments include hedge funds, private equity, real estate, and other risky investments. public equities, primarily held by its re/ Source: Company public filings and data provided by companies. Alternative investments includeCopyright hedge © 2020 funds, by private Standard equity, & Poor’s real estate,Financial and Services other risky LLC. investments.All rights reserved. insurance companies. Similarly, Fairfax Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. and Markel have a large appetite for (Chart 3). These risky assets incorporated 15% of their portfolios at year-end 2019, investment risk, with 37.3% and 34.1%, non-investment-grade bonds, public as they try to balance the higher volatility respectively, of their portfolios allocated equities, and alternative investments on their property-catastrophe business. to risky assets. Both of these entities, including hedge funds, private equities, In addition, AXIS has been de-risking its in addition to Alleghany, resemble the real estate, and other risky assets. investment portfolio (Chart 4). Berkshire business model, although on a On one end of the spectrum, Fidelis, However, Fidelis has virtually no smaller scale. RenaissanceRe, AXIS, and Lancashire exposure to risky assets. Although the have conservative investment strategies company began its operations as a total COVID-19 Wreaks Havoc On compared with those of Berkshire, return re/insurer, its investment risk Reinsurers’ Valuations Fairfax, and Markel; the latter three are significantly decreased following its The sudden shock to the global economy more aggressive, on the other end of the strategic decision in mid-2017 to move due to the containment measures spectrum. Lancashire and RenaissanceRe away from hedge funds and into plain undertaken following the COVID-19 have risky asset exposure of less than vanilla fixed income as it found the high- outbreak has brought significant volatility

56 Global Reinsurance Highlights | 2020 North American Investment Stress Test

Table 3: North American reinsurers’ stock performance and price-to-book value ratio comparison Price to book value (x) Company name Ticker Market capitalization Year-to-date stock Dec. 31, 2019 March 31, as of March 31, 2020 performance, Jan. 2020 (bil. $) 2-March 31 (%)

Berkshire Hathaway Inc. NYSE:BRK.A 442.90 (20.27) 1.39 1.04 Markel Corp. NYSE:MKL 12.79 (19.68) 1.49 1.16 Arch Capital Group Ltd. NasdaqGS:ACGL 11.59 (34.42) 1.67 1.07 Fairfax Financial Holdings Ltd. TSX:FFH 11.56 (29.90) 0.99 0.68 Alleghany Corp. NYSE:Y 7.92 (31.79) 1.30 0.90 Everest Re Group Ltd. NYSE:RE 7.85 (30.82) 1.26 0.86 RenaissanceRe Holdings Ltd. NYSE:RNR 6.59 (23.50) 1.63 1.24 Enstar Group Ltd. NASDAQ:ESGR 3.42 (23.79) 0.98 0.72 AXIS Capital Holdings Ltd. NYSE:AXS 3.25 (34.95) 1.04 0.68 Argo Group International Holdings Ltd. NYSE:ARGO 1.28 (44.65) 1.19 0.72 Lancashire Holdings Ltd. LSE:LRE 1.25 (20.50) 1.75 1.39 Average (28.57) 1.34 0.95 Median (29.90) 1.30 0.90 Source: S&P Capital IQ. to the global financial markets. As a result, which are still recovering from some the stock prices of the publicly traded “Reinsurers pursuing earnings, and in certain cases capital, North American reinsurers nosedived aggressive capital depletions from record back-to-back in first-quarter 2020. The impact was strategies such as share catastrophe years in 2017-2018, and the material as their average stock price repurchases while carrying resulting loss creep in 2019. Furthermore, dropped 28.6%, while their average price- the positive reinsurance pricing thin capital buffers could to-book value multiple also dipped 28.8% momentum during the latest renewals to 0.95x on March 31, 2020, from 1.34x on result in negative rating has provided underwriting opportunities Dec. 31, 2019 (Table 3). actions.” to profitably deploy capital rather than In the first quarter, Argo, AXIS, and spend it on buybacks. However, reinsurers Arch were laggards, with their stock pursuing aggressive capital strategies prices falling 44.7%, 35.0%, and 34.4%, imprudent to do so. Rather, we think such as share repurchases while carrying respectively. At the same time, Markel, reinsurers should preserve capital to thin capital buffers could result in negative Berkshire, and Lancashire stock prices fell offset the erosion in capital positions due rating actions. about 20%. At the end of the quarter, about to the current volatility in the financial half of the North American reinsurers markets and the potential re/insurance Capital Preservation Is Key In This traded below their book values. claims from COVID-19. Time In contrast, Lancashire and Over the past few years, North Overall, North American reinsurers RenaissanceRe led the other half and still American reinsurers have used share entered 2020 with robust capitalization traded at a premium relative to their book buybacks and dividend payouts to and brighter market prospects, with values, 1.39x and 1.24x, respectively. This optimize their capital. However, share firming reinsurance pricing after years in could be partly explained by the relative repurchases have materially declined decline supported by relatively disciplined conservative investment strategies during the past 18 months. This decline underwriting so far and by well-developed adopted by these companies, and relatively is partly attributable to the majority of enterprise risk management practices. higher proportion of uncorrelated property- North American reinsurers trading at We believe the investment losses and catastrophe exposure, making these a premium relative to their respective low interest rates depressing investment companies somewhat less susceptible to book values up to the middle of February yields, along with reinsurance claims due COVID-19 fallout. this year, when the deepest market to the outbreak, could further harden Despite the current low valuations correction started since the 2008 reinsurance pricing and maintain the providing ample incentives for North financial crisis. momentum during the upcoming 2020 American reinsurers to pursue share In addition, many reinsurers have been renewals. In aggregate, this should help buybacks, we believe it would be focusing on rebuilding their capital levels, the sector partially mitigate some of

Global Reinsurance Highlights | 2020 57 North American Investment Stress Test

the risks and uncertainties arising from Taoufik Gharib COVID-19 and the resulting economic New York, (1) 212-438-7253 contraction. [email protected] However, North American reinsurers are carrying thinner capital buffers Hardeep S Manku relative to the past few years because Toronto, (1) 416-507-2547 of the current financial market turmoil. [email protected] Therefore, those with riskier investment strategies and outsize natural Saurabh B Khasnis catastrophe exposure could be further Centennial, (1) 303-721-4554 exposed if 2020 ends up being an above- [email protected] average catastrophe year, which any additional drops in market values could research assistants: exacerbate. We believe that in such Hoyt Crance, New York times, prudence in capital management Michael Zimmerman, Centennial strategies is key. n Aishwarya Agarwal, Pune

This report does not constitute a rating action.

58 Global Reinsurance Highlights | 2020 Cat Bonds

In A Correlated Market, Catastrophe Bonds Stand Out

By Maren Josefs, Ali Karakuyu, and Johannes Bender

Financial markets have recently proved to be highly correlated, as the COVID-19 pandemic cut a swathe through various different industries. However, catastrophe bonds (cat bonds) usually protect against specific perils across different regions and cover predominantly residential risks, with limited exposure to commercial business. Hence, S&P Global Ratings does not expect investors in cat bonds to suffer significant losses as a result of COVID-19 and hence future new issuance to continue. Shutterstock / Camera Kidd Camera / Shutterstock

Global Reinsurance Highlights | 2020 59 Cat Bonds

ere, S&P Global Ratings remain unchanged for now, but we answers questions from market “Some investors may continue to monitor the transactions and Hparticipants about how the leave the market for other will incorporate developments as they insurance-linked securities (ILS) market opportunities, or to free up occur. Based on the stress tests we have has been faring and what could happen cash following the COVID-19 performed, we consider that it would take as the pandemic continues. pandemic.” a severe morbidity stress to trigger the S&P Global Ratings acknowledges a notes (see “Morbidity Stress Test: How A high degree of uncertainty about the rate Hypothetical Pandemic Could Affect U.S. of spread and peak of the coronavirus Health Insurers”, published March 12, outbreak. Some government authorities 2020). estimate the pandemic will peak about midyear, and we are using this As the midyear reinsurance renewals assumption in assessing the economic investments into cash to meet liquidity approach, how will the pandemic affect and credit implications. needs for margin calls on foreign ILS rates? We believe the measures adopted exchange hedges. ILS and reinsurance prices are much to contain COVID-19 have pushed the However, if the demand for pandemic more aligned nowadays, so that our global economy into recession (see our risk transfer increases in future, we could overall expectations for the Florida macroeconomic and credit updates see the ILS market assume a portion of renewals can give some guidance here. here: www.spglobal.com/ratings). As the exposure. In turn, this could increase We consider that the Florida market the situation evolves, we will update our correlation with other asset classes. is facing a dislocation, which could assumptions and estimates accordingly. For the ILS market to remain attractive, support rate increases of over 10% (see investors need to ensure that they hold our recent pricing article “U.S. Casualty Frequently Asked Questions a diversified portfolio across different Reinsurance Pricing Revives During The Did investing in the ILS market offer the regions and perils. January 2020 Renewals”, published Jan. diversification benefits that investors 15, 2020). Florida is a peak zone exposure hoped for? What rating actions have you taken on for many reinsurers and a large market In the current pandemic, financial outstanding cat bonds in relation to for alternative capital. After consecutive markets have demonstrated a high level COVID-19 developments? years of catastrophe losses and a shift in of correlation. However, even under As of the date of this publication (May views on risks, we expect both traditional this extreme level of stress, the ILS 2020), we have taken only one rating action and alternative capital to increase their market and in particular, the cat bond related to COVID-19 in the ILS space. We return targets. market, has once again demonstrated placed our rating on the outstanding $100 Bearing in mind that COVID-19 its value as a source of diversification. million 2015-I class A notes issued by Vita will erode overall investment returns The ILS market predominantly provides Capital VI on CreditWatch with negative and could lead to further claims, we protection against natural catastrophes implications (see “Rating On Vita Capital expect underwriters (including ILS and other named perils across different VI Ltd.’s 2015-I Class A Notes Placed On asset managers) to come under greater regions, most of which should be CreditWatch Negative Due To COVID-19 pressure to achieve higher returns during unaffected by recent events. A limited Pandemic”, published on March 31, 2020). the upcoming renewals. number of cat bonds, which represent These notes enabled Swiss Re to obtain less than 5% of the outstanding principal protection from the capital markets Will the pandemic eat into ILS capacity amount, are exposed to pandemics; against extreme mortality events, such at the next renewals? these include extreme mortality, as a pandemic. We see an increased risk We still expect the ILS market to play a medical benefit ratio, or specific that investors could lose principal if the significant role in the upcoming midyear pandemic bonds like the ones issued by COVID-19 pandemic leads to a significant renewals. However, third-party capital the World Bank. increase in deaths in the U.K., Canada, or inflows were already slowing in 2019, The cat bond market, which is Australia. because of investors’ concerns regarding the most liquid part of the ILS market, We also published a bulletin in issues such as model credibility, risk enabled investors to trade out of their relation to the four outstanding Vitality selection/underwriting, loss reporting, positions where needed during the Re transactions (see “The Coronavirus reserve setting, and the potential impact first weeks of the crisis. The increase in Pandemic May Pose A Risk To Four Vitality of climate change on the frequency and trading was fueled by draw-downs from Re Transactions”, published March 19, severity of natural catastrophes. The funds which rebalanced their portfolio; 2020). The notes could be triggered if resulting flight to quality made investors realizing the value of cat bonds to pursue the pandemic leads to a significant more selective, and this trend is likely short-term opportunities in other asset increase in medical claims payments by to continue post-pandemic. Investors classes; or converting cat bond Aetna Life. Our ratings on these issues already preferred well-established

60 Global Reinsurance Highlights | 2020 Cat Bonds

hart at on econar reas is, they are not dependent on cedants’ ecte loss ersus issuance ultile ultimate losses) provide investors with even more certainty. 5.0x 4.5x As a result, we could see investors’ 4.0x interest turn from the less public part 3.5x 3.0x of the ILS market, such as collateralized 2.5x 2.0x reinsurance or sidecars, to the more 1.5x Multiple 1.0x liquid and transparent cat bond market, 0.5x while demanding pandemic exclusion at (spread / expected loss) 0.0% 0.5% 1.0% 1.5% 5.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% contract renewals Expected loss Even before the pandemic outbreak,

144A secondary pricing 144A secondary pricing issuance was at record levels. Nat cat (28 Feb. 2020) (31 March. 2020) bond issuance reached over $4 billion in Note: Implied spreads of zero-coupon bonds are derived from Issue Price of each class. the first quarter of 2020 (source: Artemis. Prior to pricing, issuance multiples of deals currently in marketing status are derived from bm), making 2020 the most active midpoint of initial price guidance. Chart excludes certain issuances that due to unique features (for example, rarely) issued transactions with exceptionally high or exceptionally low first quarter recorded and beating the risk levels) are not relevant for year-on-year comparison purposes. $2.8 billion issued in 2019. In addition Source: GC Securities Proprietary Database (P&C catastrophe bonds status update as of to replacing maturing transaction, March 31,2020; secondary pricing as of March 31,2020 excluding private transactions). we saw an increase in deals seeking Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. retro protection, possibly because of the anticipated capacity constraint in the retrocession market. For example, sponsors or managers with better track of the outbreak, when financial markets Swiss Re sponsored two issuances of hart 2 atastrohe bon an aret eeloentsne records and modeling capabilities, were in turmoil, cat bonds provided a $605 million in the first quarter of 2020, issuance an total outstaning b ear clearer underwriting strategies, and liquidity benefit to investors that wanted and is currently back in the market stronger16 reserving practices and to sell their positions. Bid and ask45 spreads with a third issuance of around governance. remained reasonable and investors were $250 million. 40 If losses14 from the pandemic creep able to sell their positions close the par. Another interesting development was 35 into contracts12 where the pandemic risk By contrast, sidecars and an investment fund issuing a parametric was not modeled, we expect investors to collateralized reinsurance positions30 U.S. earthquake cat bond to obtain risk 10 scrutinize individual fund performance proved much more illiquid. Investors25 Mil. $ in transfer protection for its mortgage- and diversification8 even more closely. these vehicles usually have to wait until related investments. 20 Some6 investors may leave the market the next renewal to release their capital. After a very short halt at the beginning 15

for otherRisk capital (mil.$) opportunities, or to free up In addition, volatility in the cat bond of the global outbreak, new issuance has 4 cash following the COVID-19 pandemic, market was much lower than in10 the rest now continued at slightly higher spreads, and we 2could see an increase in trapped of the capital markets. 5 and spreads also increased in the collateral0 in the short term. That said, Furthermore, the uncertainty0 secondary market (Chart 1). According to investors will be seeking to achieve1 their regarding whether unmodeled pandemic- Willis Re, about $4.6 billion of bonds will YTD 20 1 2006 2007 2008 2009 2010 2012 2013 2014 2016 2017 2018 2019 higher target returns. If successful, this related2015 business interruption claims mature in the second quarter of 2020 and

could be an incentive for investors that could creep into reinsurance2020 contracts, another $2.2 billion during the rest of the have been waiting on the sidelines to will play out in favor of cat bonds. year, which should create a reinvestment Mortgage ILS (left scale) Cat bond and other ILS Total outstanding come in and increase ILS capacity (leftat scale)Collateralized reinsurance (right scale) and sidecar need for investors. For this reason, we do future renewals. positions are more likely to become not expect new cat bond issuance to drop, Source: www.artemis.bm. Cat bond: Catastrophe bond. ILS: Insurance-linked securitization. YTD: Year to date. subject to legal disputes around wording. as it did back in 2008. On the contrary, we CouldCopyright demand © 2020for cat by Standardbonds increase & Poor’s Financial As Services a consequence, LLC. All rights reserved. collateral could expect 2020 to remain on track, becoming in the long term, as investors seek be trapped for some time. Cat bonds, another active new issuance year. investments with low correlation to the by contrast, usually work on a named market? perils basis and cover predominantly Could the pandemic cause the ILS We anticipate that investors are likely to residential risks. They have limited market to expand, as it did after the show as much interest in cat bonds as exposure to commercial business. 2008 global financial crisis? before, or even more. Initially, investors Hence, investors in cat bonds Any boom should be considered in may make a trade-off between the lower covering natural catastrophes do not relation to the event’s effect on demand correlated returns of ILS investments and expect to suffer significant losses as a for insurance protection and the supply the potential short-term opportunities in result of COVID-19. Cat bonds that have of capital to invest in insurance risk, other asset classes. But at the beginning parametric or modeled loss triggers (that rather than to the event itself. Most of

Global Reinsurance Highlights | 2020 61 Cat Bonds

“We expect ILS investors to double the level back in 2008, and we insurance-related investments as a result expect further new issuance to continue of COVID-19. At the same time, investors’ seek higher returns at future as outstanding deals mature. interest could also evolve because of calls renewals, following years of We expect ILS investors to seek higher for the insurance industry to play a bigger record losses from natural returns at future renewals, following role in absorbing the economic impact of catastrophes, exacerbated years of record losses from natural the COVID-19 pandemic. by the COVID-19 pandemic.” catastrophes, exacerbated by the COVID- As we have just witnessed, there hart at on econar reas19 pandemic. If long-term investors is substantial correlation between ecte loss ersus issuance ultileexpect to be sufficiently compensated, business lines, regions, and markets in they are likely to supply alternative capital the case of a pandemic. For investors to 5.0x the expansion4.5x in the ILS market following and remain committed to insurance risk. be willing to meet any increase in demand the 20084.0x financial crisis occurred in the 3.5x However, this time around, we for pandemic protection, modeling needs collateral3.0x reinsurance space. Investors, anticipate the cat bond and industry to be credible and pricing adequate. 2.5x and specialized2.0x ILS funds in particular, loss warranty markets will benefit 1.5x startedMultiple 1.0x to provide capacity alongside from any ILS market expansion. This report does not constitute a rating the traditional0.5x reinsurance market, for Investments in collateral reinsurance action. (spread / expected loss) 0.0% 0.5% 1.0% 1.5% 5.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% different risk-return strategies. or sidecars are unlikely to expand as By contrast, the cat bond market,Expected they loss did after the 2008 financial crisis, Maren Josefs where new issuance had144 reachedA secondary an pricing because 144 theyA secondary have pricingbeen affected by London, (44) 20-7176-7050 annual record of just over(28 $8Feb. billion 2020) in liquidity(31 constraints March. 2020) and uncertainty [email protected] 2007, didn’tNote: Implied return spreads to that of levelzero-coupon again bonds until are regardingderived from Issuepotential Price of eachlosses class. during the 2013. TotalPrior to annual pricing, issuancenew issuance multiples dropped of deals currently COVID-19 in marketing pandemic. status are derived from Ali Karakuyu midpoint of initial price guidance. Chart excludes certain issuances that due to unique to roughlyfeatures $3 (for billion example, per rarely) year issuedin 2008 transactions and withThe exceptionally ILS market high or exceptionallyhas also lowrecently London, (44) 20-7176-7301 2009. riskOnly levels) from are not2013 relevant onward for year-on-year did new comparison expanded purposes. into other lines of business, [email protected] annualSource: new issuanceGC Securities go Proprietary back up Databaseto pre- (P&Csuch catastrophe as mortgage bonds status and in-forceupdate as oflife and March 31,2020; secondary pricing as of March 31,2020 excluding private transactions). crisis levels,Copyright with © 2020 significant by Standard more & Poo growthr’s Financial annuity Services blocks. LLC. All rightsWe expect reserved. these trends Johannes Bender occurring in 2017 and 2018 (Chart 2). To to continue unless investors incur Frankfurt, (49) 69-33-999-196 date, new issuance in 2020 is already substantial losses through their mortgage [email protected]

hart 2 atastrohe bon an aret eeloentsne issuance an total outstaning b ear

16 45

14 40 35 12 30 10 25 Mil. $ 8 20 6 15 Risk capital (mil.$) 4 10

2 5

0 0 1 YTD 20 1 2006 2007 2008 2009 2010 2012 2013 2014 2016 2017 2018 2019 2015 2020

Mortgage ILS (left scale) Cat bond and other ILS Total outstanding (left scale) (right scale)

62 Global Reinsurance Highlights | 2020 Global Reinsurers

Top 40 Global Reinsurers And Reinsurers By Country: 2020 Shutterstock / Artistdesign29 / Shutterstock

Global Reinsurance Highlights | 2020 63 Top 40 Global Reinsurers

Top 40 Global Reinsurance Groups Ranked By Net Reinsurance Premiums Written

Net reinsurance Pretax operating income (mil. $) Combined ratio (%) Total adjusted shareholders’ Return on revenue (%) premiums written (mil. $) funds (mil. $)

Ranking Company Country Rating Outlook Footnote 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 1 Swiss Reinsurance Co. Switzerland AA- Negative 1 39,649.0 34,042.0 -671.0 356.0 111.4 106.6 29,251.0 28,153.0 -1.6 0.9 2 Munich Reinsurance Co. Germany AA- Stable 2 35,394.7 33,685.6 2,524.3 3,548.5 101.0 99.4 38,733.2 35,397.9 5.9 9.0 3 Hannover Rück SE Germany AA- Stable 22,815.3 20,885.7 1,591.8 1,632.2 98.5 96.9 12,250.1 10,967.3 6.7 7.3 4 Berkshire Hathaway Re United States AA+ Stable 16,952.0 16,532.0 N.A. N.A. N.A. 110.4 216,000.0 162,000.0 N.A. N.A. 5 SCOR SE France AA- Stable 16,196.4 16,541.7 768.2 668.7 99.0 99.3 7,118.6 6,962.9 4.7 4.0 6 China Reinsurance (Group) Corp China A Stable 12,236.2 10,677.8 1,177.3 1,097.7 101.4 98.8 13,927.0 12,685.0 8.6 9.4 7 Reinsurance Group of America, Inc. United States AA- Stable 11,297.0 10,543.8 1,099.0 1,017.9 N.A. N.A. 11,601.0 8,450.6 7.7 7.9 8 Lloyd’s United Kingdom A+ Stable 3 10,541.7 9,969.4 -575.3 -581.9 105.5 106.0 39,558.2 34,998.1 -5.5 N.A. 9 Everest Group Ltd. Bermuda A+ Stable 4 7,824.4 7,414.4 927.3 -117.4 95.5 108.8 8,434.3 8,165.5 11.5 -1.6 10 PartnerRe Ltd. Bermuda A+ Negative 6,909.0 5,803.0 N.A. N.A. 100.4 101.8 7,270.0 6,516.0 N.A. N.A. 11 General Insurance Corporation of India India NR 6,207.6 6,170.2 -48.5 603.7 115.5 105.3 3,178.3 3,993.1 -0.7 8.6 12 MS&AD Insurance Group Holdings, Inc. Japan A+ Stable 5,620.1 5,080.1 N.A. N.A. N.A. N.A. 34,016.2 35,576.0 N.A. N.A. 13 Korean Reinsurance Co. South Korea A Stable 4,788.8 4,983.5 202.9 139.6 100.9 101.6 2,209.3 2,119.8 4.0 2.7 14 Transatlantic Holdings Inc. United States A+ Stable 4,495.0 3,969.1 266.9 64.0 100.9 105.4 5,244.0 4,723.5 5.7 1.5 15 SOMPO Holdings, Inc. Japan A+ Stable 4,032.0 3,900.3 N.A. N.A. N.A. N.A. 17,995.2 19,158.7 N.A. N.A. 16 Mapfre Re Spain A+ Stable 3,719.9 3,660.7 86.0 258.7 101.1 95.4 1,958.2 2,003.0 2.1 6.2 17 R+V Versicherung AG Germany AA- Negative 3,638.6 3,169.7 391.1 399.9 102.6 100.8 7,471.3 7,777.3 9.4 10.8 18 RenaissanceRe Holdings Ltd. Bermuda A+ Stable 3,381.5 2,131.9 N.A. N.A. 95.1 89.3 5,971.4 5,045.1 N.A. N.A. 19 AXIS Capital Holdings Ltd. Bermuda A+ Negative 3,280.5 2,334.2 N.A. N.A. 101.6 98.4 5,544.0 5,030.1 N.A. N.A. 20 Fairfax Financial Holdings Ltd. Canada A- Stable 3,117.4 2,790.2 487.2 395.0 93.5 94.2 13,042.6 11,779.3 15.1 13.1 21 Tokio Marine & Nichido Fire Insurance Co. Ltd. Japan A+ Stable 2,822.6 2,692.6 2,082.5 2,845.0 N.A. N.A. 23,922.3 26,062.1 N.A. N.A. 22 Toa Re Ltd. Japan A+ Stable 2,513.1 2,239.8 -150.4 -119.6 109.5 109.5 2,665.7 2,729.0 -6.0 -5.2 23 Validus Reinsurance Ltd. Bermuda A Stable 2,112.1 1,700.5 261.3 -91.0 89.6 108.1 3,447.3 3,259.0 12.6 -4.9 24 Taiping Reinsurance Co. Ltd. Hong Kong A Stable 1,854.7 1,257.2 32.6 37.0 99.3 98.6 1,160.4 1,032.0 1.8 3.4 25 Arch Capital Group Ltd. Bermuda A+ Negative 1,602.7 1,372.6 636.6 519.5 94.9 94.5 7,160.4 6,032.7 36.2 33.9 26 Caisse Centrale de Reassurance France AA Stable 1,543.1 1,506.5 186.1 139.4 94.2 100.8 6,304.5 6,157.8 11.6 8.7 27 Sirius Group Bermuda A- Negative 1,502.6 1,357.1 -178.7 21.8 110.8 103.1 1,642.8 1,706.2 -11.5 1.5 28 Allianz SE Germany AA Stable 5 1,480.4 959.4 48.7 -64.3 96.8 108.0 N.A. N.A. 3.5 -6.9 29 Peak Reinsurance Co. Ltd. Hong Kong NR 1,324.9 1,056.5 38.7 17.2 97.1 98.3 1,094.6 965.5 3.0 1.7 30 Aspen Insurance Holdings Ltd. Bermuda A- Stable 1,251.1 1,182.9 -39.7 61.3 103.0 104.0 2,725.5 2,656.0 -2.7 4.5 31 QBE Insurance Group Ltd. Australia A+ Stable 984.0 920.0 18.0 123.0 98.1 62.2 8,153.0 8,400.0 1.9 13.2 32 Markel Corporation United States A Stable 964.9 882.3 -40.0 -118.3 104.4 112.7 N.A. N.A. -4.4 -12.7 33 Chubb Tempest Reinsurance Ltd. Bermuda AA Stable 817.4 857.9 409.5 294.3 85.0 101.8 N.A. N.A. 35.2 24.5 34 Deutsche Rückversicherung AG Germany A+ Stable 814.1 841.3 40.3 70.0 96.1 95.2 1,003.5 917.9 4.7 8.0 35 PICC Reinsurance Co. Ltd. China NR 729.3 634.2 -16.7 -34.6 109.6 106.5 542.7 394.6 -2.3 -5.3 36 African Reinsurance Corp. Nigeria A- Stable 681.6 681.3 26.0 30.6 97.4 97.9 975.2 917.1 3.5 4.4 37 Qatar Reinsurance Co. Ltd. Bermuda A Negative 6 594.5 971.0 -112.7 21.2 119.3 103.9 N.A. 1,109.7 -17.2 2.0 38 Nacional de Reaseguros S.A. Spain A Stable 529.5 540.7 44.4 48.6 92.8 92.9 412.1 435.4 8.1 8.7 39 Central Reinsurance Corp. Taiwan A Stable 519.4 468.8 38.7 39.9 99.3 95.9 525.4 495.5 7.3 8.3 40 DEVK Re Germany A+ Stable 515.3 486.3 132.2 148.1 91.1 95.1 1,394.0 1,374.1 17.7 21.6 Totals: 247,254.6 226,894.3 11,684.6 13,471.7 102.7 102.2 543,903.2 476,146.7 4.4 5.7

Rating = Financial strength ratings of core operating entities of the groups as of 31.08.2020 4: Everest Group Ltd.: 2018 net income and adjusted shareholders’ funds were revised during 3Q19 for prior periods. N.A. = Not available 5: Allianz SE: Data refer to reinsurance business written by Allianz SE. Figures are based on IFRS results (only external business). Adjusted N.M. = Not meaningful shareholders’ funds not available at external business level. NR = Not rated 6: Qatar Reinsurance Co. Ltd.: Net technical expenses exclude board remuneration and tax. Note: Exchange rates may slightly differ from previous years’ GRH data due to alignment of foreign exchange rates with other S&P Global surveys 1: Swiss Reinsurance Co.: Figures represent the group as a whole including primary business. 2: Munich Reinsurance Co.: Total adjusted shareholders’ funds for the group includes ERGO. 3: Lloyd’s: Investment income/other income not available at reinsurance class of business level. Adjusted shareholders’ funds are members’ funds for the market as a whole

64 Global Reinsurance Highlights | 2020 Top 40 Global Reinsurers

Top 40 Global Reinsurance Groups Ranked By Net Reinsurance Premiums Written

Net reinsurance Pretax operating income (mil. $) Combined ratio (%) Total adjusted shareholders’ Return on revenue (%) premiums written (mil. $) funds (mil. $)

Global Reinsurance Highlights | 2020 65 Global Reinsurers By Country

Global Reinsurers By Country

o bring you the 2020 edition of Global is to provide market participants with and reinsurance business. These cases Reinsurance Highlights, S&P Global an indication of the ongoing reinsurance can be identified through the footnotes to TRatings sought data on around capacity available in each market. Hence, the tables, although if we do not consider 132 reinsurance organizations from over we try to exclude intragroup reinsurances that the metrics provided by the company 33 countries. As in previous years, the as far as possible. Companies that have not are representative of the company’s data is based on survey responses from been able to exclude intragroup reinsurance reinsurance operations, we have marked reinsurance organizations worldwide. are highlighted in the footnotes. the metric as not available (N.A.). To ensure consistency, we requested One of the challenges has been to For companies that report in currencies that respondents complied with clear separate reinsurance from primary other than the U.S. dollar, we have converted guidelines on the definition of the financial insurance business, especially when the reported data at year-end exchange items required. In addition, S&P Global reinsurance operation is a division within rates. Ratings attempted to verify the veracity a company and not a distinct operation. We have endeavored to collect the data of the data submitted with reference to Generally speaking, the premium data underlying each group or entity’s combined publicly available data sources, insofar as relates to a company’s reinsurance ratio in order to calculate this metric in a this was possible. premiums written but, in some cases, comparable manner. The combined ratios Our ongoing aim in producing this data other metrics will include both primary presented in our Global Reinsurance

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Australia A+ Stable QBE Insurance Group Ltd.* 984.0 920.0 7.0 18.0 123.0 98.1 62.2 8,153.0 8,400.0 -2.9 1.9 13.2 AA- Stable Munich Re Co. of Australasia Ltd. 461.1 484.2 -4.8 -350.1 -150.0 N.M. N.M. 787.2 854.2 -7.8 -62.1 -27.1 AA- Stable Hannover Life Re of Australasia Ltd. 351.3 380.3 -7.6 -77.1 -12.9 N.M. N.M. 340.0 367.0 -7.4 -19.1 -2.9 AA- Stable SCOR Global Life Australia 104.2 110.4 -5.6 -12.4 1.0 N.M. N.M. 96.1 113.2 -15.1 -11.2 0.9 AA- Negative Swiss Re Life & Health Australia Ltd. -831.6 796.1 -204.5 -42.1 34.6 N.M. N.M. 860.4 909.4 -5.4 -4.3 2.0 Total: 1,068.9 2,691.0 -60.3 -463.7 -4.3 98.1 62.2 10,236.6 10,643.9 -3.8 -15.3 -0 .1 Bahrain A+ Stable Hannover Re Takaful 173.1 148.4 16.6 25.8 3.4 96.3 89.0 182.1 167.5 8.7 15.4 2.2 Total: 173.1 148.4 16.6 25.8 3.4 96.3 89.0 182.1 167.5 8.7 15.4 2.2 Barbados NR Wentworth Insurance Co Ltd 94.1 N.A. N.A. 4.0 N.A. 100.3 N.A. 330.4 N.A. N.A. 4.8 N.A. Total: 94.1 N.A. N.A. 4.0 N.A. 100.3 N.A. 330.4 N.A. N.A. 4.8 N.A.

66 Global Reinsurance Highlights | 2020 Global Reinsurers By Country

Highlights report have been calculated as: (net losses incurred + net underwriting Antun Zvonar expenses)/net premiums earned. The New York, (1) 212-438-7338 combined (loss and expense) ratio of any [email protected] entity that writes purely life reinsurance has been marked as not meaningful (N.M.), Patrice Mizeski as we do not consider this to be an accurate New York, (1) 212-438-7172 measure of a life reinsurer’s profitability. For [email protected] these groups or entities writing both non-life and life reinsurance business, the combined Johannes Bender ratio reflects non-life business only. Frankfurt, (+49) 69-33-999-196 The main group and country listing for [email protected] each entity surveyed is representative of that group or company’s total reinsurance Jean Paul Huby Klein business written, whether it be life, non-life, Frankfurt, (+49) 69-33-999-198 or a combination of both. n [email protected]

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Global Reinsurance Highlights | 2020 67 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Bermuda A+ Negative Partner Reinsurance Company Ltd 3,173.3 2,917.7 8.8 266.7 101.9 96.9 103.8 4,137.5 3,319.6 24.6 6.8 3.4 A Stable Validus Reinsurance Ltd. 2,112.1 1,700.5 24.2 261.3 -91.0 89.6 108.1 3,447.3 3,259.0 5.8 12.6 -4.9 A+ Stable Sompo International Holdings Ltd.* 1,971.0 1,573.0 25.3 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. A+ Stable Renaissance Reinsurance Ltd. 1,494.0 1,186.0 26.0 N.A. N.A. 89.8 77.0 2,250.0 2,000.0 12.5 N.A. N.A. A+ Stable Everest Reinsurance (Bermuda) Ltd. 1,243.8 1,581.7 -21.4 484.0 907.3 75.0 49.0 3,084.5 3,152.7 -2.2 34.5 53.9 A+ Negative Arch Reinsurance Ltd. 1,002.6 1,140.9 -12.1 610.4 499.9 94.0 96.1 5,480.7 4,478.1 22.4 51.1 36.2 AA Stable Chubb Tempest Reinsurance Ltd. 649.3 670.5 -3.2 366.7 247.1 85.0 101.8 N.A. N.A. N.A. 39.3 25.8 A Negative Qatar Reinsurance Co. Ltd. 1 594.5 971.0 -38.8 -112.7 21.2 119.3 103.9 N.A. 1,109.7 N.A. N.A. 2.0 AA- Stable Hannover Re Bermuda Ltd. 576.6 476.4 21.0 165.4 168.3 81.6 75.6 1,534.4 1,234.9 24.3 26.9 33.2 A+ Stable DaVinci Reinsurance Ltd. 379.1 317.2 19.5 N.A. N.A. 80.8 92.7 1,988.4 1,477.4 34.6 N.A. N.A. NR Harrington Reinsurance Ltd. 305.0 N.A. N.A. 50.0 N.A. 102.7 N.A. 0.0 N.A. N.A. 14.9 N.A. A- Stable International General Insurance Co. Ltd. 252.2 203.4 24.0 34.3 39.3 84.1 78.6 348.0 322.7 7.8 15.2 20.4 A+ Negative AXIS Specialty Limited 208.3 305.4 -31.8 N.A. N.A. 176.0 137.9 3,398.5 3,470.8 -2.1 N.A. N.A. A- Stable Fidelis Insurance Bermuda Ltd. 183.3 N.A. N.A. 72.9 N.A. 90.5 N.A. 1,029.1 N.A. N.A. 44.8 N.A. A Stable Markel Bermuda Ltd. 182.3 170.8 6.7 13.1 -46.5 92.3 127.0 N.A. N.A. N.A. 7.7 -27.0 AA Stable Chubb Tempest Life Reinsurance, Ltd. 168.1 187.5 -10.3 42.8 47.2 N.A. N.A. N.A. N.A. N.A. 18.6 19.5 A- Stable Aspen Bermuda Ltd. 137.6 97.2 41.5 9.6 -44.6 92.1 136.5 1,381.2 1,565.5 -11.8 4.2 -18.8 A Stable Hiscox Insurance Co. (Bermuda) Ltd. 98.5 81.2 21.3 -71.8 -16.6 187.5 116.9 598.4 613.8 -2.5 -65.3 -17.1 A- Stable Lancashire Insurance Co. Ltd. 77.9 84.6 -7.9 131.9 79.1 31.1 69.2 951.7 869.5 9.5 50.8 34.0 NR Vermeer Reinsurance Ltd 65.2 N.A. N.A. N.A. N.A. 26.9 N.A. 1,003.6 N.A. N.A. N.A. N.A. AA Stable Top Layer Reinsurance Ltd. 19.9 21.9 -9.1 N.A. N.A. 24.4 25.5 70.7 93.1 -24.1 N.A. N.A. Total: 14,894.6 13,686.7 8.8 2,324.7 1,912.5 92.6 93.0 30,704.0 26,966.9 13.9 20.5 16.5 Bosnia & Herzegovina NR Bosna Re 14.0 14.4 -2.9 1.2 1.1 85.2 84.5 17.2 20.6 -16.7 8.9 7.5 Total: 14.0 14.4 -2.9 1.2 1.1 85.2 84.5 17.2 20.6 -16.7 8.9 7. 5 Brazil NR Markel Resseguradora do Brasil 0.5 13.3 -96.2 -3.7 3.7 138.4 69.7 N.A. N.A. N.A. -38.4 30.3 Total: 0.5 13.3 -96.2 -3.7 3.7 138.4 69.7 0.0 0.0 N.A. -38.4 30.3 Canada A+ Stable Temple Insurance Company 170.3 142.9 19.2 -64.3 -4.4 149.1 115.1 192.1 166.8 15.2 -36.7 -3.6 AA- Stable Munich Reinsurance Co. of Canada 155.2 137.0 13.3 16.9 40.4 100.3 84.4 151.4 208.3 -27.3 10.2 23.6 AA- Stable SCOR Canada Reinsurance Co. 152.6 129.2 18.1 15.9 5.7 94.4 101.2 123.9 113.5 9.2 10.0 4.0 Total: 478.1 409.0 16.9 -31.5 41.6 115.5 98.6 467.4 488.6 -4.3 -6.3 9.5 China A Stable China Property & Casualty Re Co. Ltd. 4,328.8 3,719.2 16.4 153.2 158.4 102.1 100.3 2,892.6 2,714.0 6.6 3.5 4.3 NR PICC Reinsurance Co. Ltd. 729.3 634.2 15.0 -16.7 -34.6 109.6 106.5 542.7 394.6 37.6 -2.3 -5.3 Total: 5,058.2 4,353.5 16.2 136.6 123.9 103.2 101.2 3,435.3 3,108.6 10.5 2.7 2.9 Czech Rep. A+ Stable VIG RE zajist’ovna a.s. 351.0 259.5 35.3 13.6 17.2 96.0 90.3 200.7 194.4 3.2 3.7 6.2 Total: 351.0 259.5 35.3 13.6 17.2 96.0 90.3 200.7 194.4 3.2 3.7 6.2 France AA- Stable SCOR SE 5,658.6 2,225.7 154.2 1,125.9 679.5 107.4 119.1 4,547.3 4,321.8 5.2 15.9 23.3 AA Stable Caisse Centrale de Reassurance 947.9 974.7 -2.7 152.8 94.8 92.8 101.3 5,690.3 5,767.7 -1.3 14.9 8.8 A Stable CCR RE 595.1 531.8 11.9 33.8 31.1 98.1 99.4 871.7 730.0 19.4 5.8 5.9 Total: 7,201.6 3,732.2 93.0 1,312.5 805.4 104.7 111.6 11,109.3 10,819.6 2.7 15.1 17.8

68 Global Reinsurance Highlights | 2020 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Global Reinsurance Highlights | 2020 69 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Germany AA- Stable Munich Reinsurance Co. 21,274.1 19,769.1 7.6 2,575.9 2,226.1 98.5 95.5 39,865.8 37,806.4 5.4 10.9 10.6 AA- Stable Hannover Rückversicherung SE 14,133.3 12,622.2 12.0 841.7 949.2 99.9 100.6 12,171.8 9,629.8 26.4 5.6 6.8 AA- Negative R+V Versicherung AG 3,638.6 3,169.7 14.8 391.1 399.9 102.6 100.8 7,471.3 7,777.3 -3.9 9.4 10.8 AA- Stable E+S Rückversicherung AG 2,378.8 2,193.1 8.5 259.0 134.9 94.8 103.7 2,633.6 2,524.2 4.3 10.3 5.5 AA Stable Allianz SE 2 1,480.4 959.4 54.3 48.7 -64.3 96.8 108.0 N.A. N.A. N.A. 3.5 -6.9 A+ Stable Deutsche Rückversicherung AG 542.0 551.8 -1.8 36.0 46.5 98.1 94.4 864.4 793.8 8.9 6.3 8.1 A+ Stable DEVK Re 515.3 486.3 6.0 132.2 148.1 91.1 95.1 1,394.0 1,374.1 1.4 17.7 21.6 Total: 43,962.6 39,751.7 10.6 4,284.4 3,840.4 98.9 98.3 64,400.9 59,905.5 7. 5 8.9 8.9 Hong Kong A Stable Taiping Reinsurance Co. Ltd. 1,854.7 1,257.2 47.5 32.6 37.0 99.3 98.6 1,160.4 1,032.0 12.4 1.8 3.4 NR Peak Reinsurance Co. Ltd. 1,324.9 1,056.5 25.4 38.7 17.2 97.1 98.3 1,094.6 965.5 13.4 3.0 1.7 AA- Stable SCOR Reinsurance Co. (Asia) Ltd. 179.6 146.1 23.0 35.0 -16.6 73.9 105.6 269.8 213.3 26.5 17.8 -11.2 Total: 3,359.3 2,459.8 36.6 106.4 3 7.7 9 7. 0 98.9 2,524.7 2,210.8 14.2 3.3 1.7 India NR General Insurance Corporation of India 6,207.6 6,170.2 0.6 -48.5 603.7 115.5 105.3 3,178.3 3,993.1 -20.4 -0.7 8.6 Total: 6,207.6 6,170.2 0.6 -48.5 603.7 115.5 105.3 3,178.3 3,993.1 -20.4 -0.7 8.6 Iran NR Iranian Reins Co. 25.5 16.7 52.8 23.7 32.7 82.9 100.9 123.0 88.9 38.4 48.2 64.3 Total: 25.5 16.7 52.8 23.7 32.7 82.9 100.9 123.0 88.9 38.4 48.2 64.3 Ireland AA- Stable SCOR Life Ireland DAC. 3,134.6 2,947.0 6.4 278.6 215.7 N.A. N.A. 2,654.1 2,335.0 13.7 8.6 7.2 AA- Stable Hannover Reinsurance (Ireland) DAC 3,124.1 2,909.1 7.4 117.0 90.5 99.1 102.0 697.3 857.3 -18.7 3.7 2.9 A+ Negative Partner Reinsurance Europe Plc 2,277.8 2,148.1 6.0 103.1 130.6 75.3 68.8 2,699.0 2,657.5 1.6 8.6 11.7 AA- Stable SCOR Global Life Reinsurance Ireland Ltd. 1,482.3 1,442.7 2.7 149.5 830.2 N.A. N.A. 1,701.3 1,611.9 5.6 9.8 54.9 A+ Negative AXIS Re SE 975.5 764.9 27.5 N.A. N.A. 88.8 91.6 859.7 1,439.2 -40.3 N.A. N.A. A+ Negative Arch Re Europe 61.4 64.6 -4.9 N.A. N.A. 71.1 60.0 N.A. N.A. N.A. N.A. N.A. A- Stable Fidelis Insurance Ireland DAC 0.0 N.A. N.A. -3.5 N.A. N.A. N.A. 44.3 N.A. N.A. -387.2 N.A. Total: 11,055.8 10,276.3 7. 6 644.8 1,266.9 91.7 92.8 8,655.7 8,900.8 -2.8 7.1 14.5 Japan A+ Stable Tokio Marine & Nichido Fire Insurance Co. Ltd. 2,822.6 2,692.6 4.8 2,082.5 2,845.0 N.A. N.A. 23,922.3 26,062.1 -8.2 N.A. N.A. A+ Stable Aioi Nissay Dowa Insurance Co. Ltd. 2,137.5 1,957.0 9.2 N.A. N.A. N.A. N.A. 8,965.6 9,326.1 -3.9 N.A. N.A. A+ Stable Sompo Japan Nipponkoa Insurance Inc. 1,955.6 2,259.1 -13.4 N.A. N.A. N.A. N.A. 15,761.0 16,992.9 -7.2 N.A. N.A. A+ Stable Toa Reinsurance Co. 1,934.5 1,758.7 10.0 -21.9 9.9 103.1 102.2 2,175.8 2,256.6 -3.6 -1.1 0.6 A+ Stable Mitsui Sumitomo Insurance Co. Ltd. 1,811.1 1,677.5 8.0 N.A. N.A. N.A. N.A. 20,492.4 21,931.2 -6.6 N.A. N.A. Total: 10,661.2 10,344.9 3.1 2,060.6 2,854.9 103.1 102.2 71,317.0 76,568.9 -6.9 -1.1 0.6 Kazakhstan BBR Stable Eurasia Insurance Co. 86.0 74.9 14.8 17.2 -6.5 76.8 125.7 406.2 423.8 -4.2 15.0 -4.0 NR Eurasia Life Insurance Company JSC 0.0 N.A. N.A. 1.9 N.A. N.M. N.M. 15.9 N.A. N.A. 124.7 N.A. Total: 86.0 74.9 14.8 19.1 -6.5 76.8 125.7 422.1 423.8 -0.4 16.5 -4.0 Kuwait NR Kuwait Reinsurance Co. K.S.C. 165.9 143.9 15.3 12.9 12.2 82.1 92.1 176.2 160.5 9.8 8.0 9.0 Total: 165.9 143.9 15.3 12.9 12.2 82.1 92.1 176.2 160.5 9.8 8.0 9.0 Luxembourg AA- Negative Swiss Re Europe S.A. 7,496.7 6,947.8 7.9 472.4 492.9 98.9 82.0 1,818.7 1,174.5 54.9 13.7 17.1 A+ Stable TransRe Europe S.A. 108.1 97.0 11.5 -5.9 -1.5 93.6 104.5 399.4 274.5 45.5 -5.3 -1.6 Total: 7,604.8 7,044.8 7. 9 466.5 491.4 98.7 82.7 2,218.0 1,449.0 53.1 13.1 16.5 Nigeria A- Stable African Reinsurance Corp. 515.3 468.9 9.9 27.7 34.3 95.3 87.9 916.9 875.9 4.7 4.9 7.1 Total: 515.3 468.9 9.9 2 7.7 34.3 95.3 87.9 916.9 875.9 4.7 4.9 7.1

70 Global Reinsurance Highlights | 2020 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Global Reinsurance Highlights | 2020 71 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Poland NR Polskie Towarzystwo Reasekuracji S.A. 85.9 67.9 26.6 0.6 2.3 99.9 98.2 71.9 77.8 -7.7 0.8 3.0 Total: 85.9 67.9 26.6 0.6 2.3 99.9 98.2 71.9 77.8 -7.7 0.8 3.0 Russia BBB Stable SOGAZ OJSC 169.7 122.7 38.4 73.1 19.1 53.2 82.3 3,140.6 2,633.1 19.3 11.7 4.7 BBB- Stable Ingosstrakh Insurance Co. 70.0 48.5 44.2 48.2 12.1 27.0 71.9 1,220.5 989.5 23.3 65.5 28.0 NR Russian Re Co. Ltd. 19.6 13.4 46.7 3.1 1.6 83.2 87.7 18.2 13.8 32.1 15.5 10.4 Total: 259.3 184.6 40.5 124.4 32.9 48.4 80.0 4,379.3 3,636.5 20.4 17.4 7.1 Singapore AA- Stable SCOR Reinsurance Asia-Pacific 506.0 442.2 14.4 63.0 35.6 90.7 92.4 209.9 165.6 26.8 12.2 8.0 NR Singapore Reinsurance Corporation Ltd. 48.3 38.1 26.6 -2.2 -3.7 N.A. N.A. 202.8 196.7 3.1 -4.1 -7.4 Total: 554.3 480.3 15.4 60.8 31.9 90.7 92.4 412.7 362.2 13.9 10.6 6.4 Slovenia A Stable Triglav Re, Reinsurance Co. Ltd. 112.7 92.4 22.0 2.5 3.5 98.4 97.5 93.2 91.7 1.7 2.2 3.7 A Stable Pozavarovalnica Sava, d.d. 95.7 98.1 -2.4 44.0 51.6 103.0 91.0 385.7 366.3 5.3 21.7 27.2 Total: 208.4 190.5 9.4 46.4 55.1 101.1 93.4 478.9 458.0 4.6 14.7 19.4 South Africa AA- Stable Munich Reinsurance Co. of Africa Ltd. 356.3 321.1 10.9 21.9 18.0 93.9 100.6 224.3 221.7 1.2 4.0 3.8 AA- Negative Swiss Re Africa Ltd. 303.7 214.8 41.4 -24.6 5.2 89.2 110.0 52.0 51.1 1.8 -7.9 2.3 A- Stable African Re Corp. (South Africa) Ltd. 180.1 233.5 -22.8 -1.7 -4.3 101.9 104.8 58.3 59.5 -2.1 -0.9 -1.8 AA- Stable Hannover Reinsurance Africa Ltd. 3 108.7 73.0 49.0 18.7 7.2 92.6 101.0 73.6 70.4 4.5 14.6 7.1 AA- Stable Hannover Life Reassurance Africa Ltd. 92.3 162.1 -43.0 23.7 3.0 N.A. N.A. 61.7 45.7 35.0 22.2 1.7 AA- Stable SCOR Africa Ltd. 30.6 36.1 -15.2 7.6 5.6 84.8 78.3 28.9 27.4 5.4 21.6 14.3 BB+ Negative GIC Re South Africa Ltd. 14.5 65.9 -78.0 10.1 25.0 80.0 84.6 15.5 10.5 47.8 30.8 31.8 Total: 1,086.2 1,106.4 -1.8 55.7 59.7 93.2 101.7 514.3 486.3 5.7 4.1 4.5 South Korea A Stable Korean Reinsurance Co. 4,783.7 4,980.1 -3.9 206.6 136.3 100.7 101.6 2,130.1 2,100.1 1.4 4.1 2.7 Total: 4,783.7 4,980.1 -3.9 206.6 136.3 100.7 101.6 2,130.1 2,100.1 1.4 4.1 2.7 Spain A+ Stable Mapfre Re, Compania de Reaseguros, S.A. 3,451.6 3,595.7 -4.0 74.7 256.4 101.4 95.7 1,857.9 1,920.6 -3.3 1.9 6.2 A Stable Nacional de Reaseguros S.A. 529.5 540.7 -2.1 44.4 48.6 92.8 92.9 412.1 435.4 -5.3 8.1 8.7 Total: 3,981.1 4,136.4 -3.8 119.1 305.0 100.3 95.3 2,270.1 2,356.0 -3.6 2.7 6.5 Switzerland AA- Negative Swiss Reinsurance Co. Ltd. 13,709.5 11,851.5 15.7 -602.1 1,122.5 112.1 104.5 12,960.6 10,771.7 20.3 -3.3 8.8 AA- Stable New Reinsurance Co. 5,541.0 5,399.0 2.6 -51.1 -118.5 80.3 93.4 1,621.2 1,507.4 7.6 -0.9 -2.1 AA- Negative Swiss Re Asia Ltd 2,987.2 2,246.5 33.0 -217.6 -329.3 104.5 181.0 1,247.0 1,368.7 -8.9 -7.5 -17.0 AA- Stable SCOR Switzerland AG 1,779.5 1,446.9 23.0 107.6 133.2 70.7 88.1 1,361.8 1,446.8 -5.9 6.7 9.4 A Stable MS Amlin AG 1,415.8 1,129.2 25.4 20.7 -100.1 98.7 107.8 N.A. N.A. N.A. 1.5 -8.5 A+ Stable Renaissance Reinsurance Europe AG 579.4 N.A. N.A. N.A. N.A. 98.1 N.A. 880.8 N.A. N.A. N.A. N.A. A+ Stable Deutsche Rückversicherung Schweiz AG 278.8 297.1 -6.2 1.4 17.6 103.2 98.0 224.5 203.5 10.3 0.4 5.8 NR - SIGNAL IDUNA Rückversicherungs AG 182.3 159.5 14.2 11.1 10.9 97.8 97.4 253.9 204.3 24.3 5.6 6.3 A- Stable Echo Rückversicherungs-AG 149.8 124.1 20.7 2.4 -13.2 102.4 97.0 147.9 110.9 33.3 1.6 -10.6 A+ Stable The Toa 21st Century Reinsurance Company (TTFC) 111.8 N.A. N.A. -64.1 N.A. 179.2 N.A. 289.7 N.A. N.A. -73.6 N.A. A Stable Korean Reinsurance Switzerland AG 0.1 N.A. N.A. -3.8 N.A. 16,418.5 N.A. 60.6 N.A. N.A. 619.3 N.A. Total: 26,735.1 22,653.8 18.0 -795.5 723.1 100.9 107.3 19,047.9 15,613.2 22.0 -2.6 3.1 Taiwan A Stable Central Reinsurance Corp. 519.4 468.8 10.8 38.7 39.9 99.3 95.9 525.4 495.5 6.0 7.3 8.3 Total: 519.4 468.8 10.8 38.7 39.9 99.3 95.9 525.4 495.5 6.0 7. 3 8.3

72 Global Reinsurance Highlights | 2020 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Global Reinsurance Highlights | 2020 73 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

Turkey trA+ - Milli Reasurans T.A.S.** 244.2 218.4 11.8 14.3 19.0 123.1 136.1 359.0 328.3 9.4 5.3 8.2 Total: 244.2 218.4 11.8 14.3 19.0 123.1 136.1 359.0 328.3 9.4 5.3 8.2 United Kingdom A+ Stable Lloyd’s 4 10,541.7 9,969.4 5.7 -575.3 -581.9 105.5 106.0 39,558.2 34,998.1 13.0 -5.5 N.A. NR MS Amlin Plc 1,674.6 1,489.5 12.4 93.9 -156.1 94.3 111.7 N.A. N.A. N.A. 5.4 -10.3 NR China Re International Holdings Ltd. 923.0 N.A. N.A. 60.0 N.A. 99.2 N.A. 43.2 N.A. N.A. 6.1 N.A. A- Stable Aspen Insurance U.K. Ltd. 802.7 1,052.0 -23.7 -222.1 2.1 126.6 99.8 841.9 842.5 -0.1 -25.0 0.2 NR Brit Limited 419.0 342.8 22.2 48.0 -30.0 91.8 111.8 1,319.9 N.A. N.A. 11.9 -8.8 A+ Stable TransRe London Ltd. 240.6 219.4 9.6 24.1 10.3 98.9 101.2 574.9 520.6 10.4 9.7 4.5 A Stable Markel International Insurance Co. Ltd. 109.8 152.0 -27.8 -16.0 -1.4 113.0 100.9 N.A. N.A. N.A. -13.0 -0.9 NR Cathedral Capital Holdings Ltd 68.4 72.1 -5.1 -5.7 -0.2 15.5 99.5 37.9 43.3 -12.5 -3.1 -0.1 A- Stable Fidelis Underwriting Ltd. 50.1 N.A. N.A. 7.5 N.A. 224.5 N.A. 292.2 N.A. N.A. 15.4 N.A. A- Stable Lancashire Insurance Co. (UK) Ltd. 21.1 7.6 177.6 6.0 -5.9 17.9 63.2 179.4 170.0 5.5 16.4 -22.3 NR Korean Re Underwriting Ltd. 5.1 3.4 50.4 0.1 3.3 138.7 75.6 18.6 19.7 -5.9 2.5 28.1 Total: 14,856.0 13,308.1 11.6 -579.4 -759.7 104.7 106.0 42,866.3 36,594.3 1 7.1 -3.8 -1.3 United States AA+ Stable National Indemnity Co. 25,035.0 25,986.0 -3.7 304.0 682.0 97.6 92.6 155,615.0 121,739.0 27.8 1.0 2.0 AA- Negative Swiss Reinsurance America Corp. 6,842.7 4,099.9 66.9 985.0 -198.1 78.1 109.5 4,271.8 3,312.4 29.0 35.5 -4.7 A+ Stable Everest Reinsurance Co. 5,797.6 5,052.3 14.8 471.0 -1,326.3 99.7 130.4 3,715.2 3,468.2 7.1 7.9 -26.5 AA- Negative Swiss Re Life & Health America Inc. 4,791.9 2,219.8 115.9 1,512.7 -1,199.6 N.M. N.M. 1,531.6 2,035.8 -24.8 135.4 -23.2 A+ Stable Transatlantic Reinsurance Co. 4,079.1 3,579.8 13.9 213.4 48.2 103.4 107.2 4,904.1 4,614.1 6.3 5.1 1.2 AA- Stable Munich Reinsurance America, Inc. 3,810.1 4,083.4 -6.7 -266.6 -406.9 111.5 113.9 3,730.1 3,718.7 0.3 -5.0 -7.6 A+ Negative Partner Reinsurance Co. of United States 2,056.3 1,306.4 57.4 -116.3 -161.3 117.5 122.8 1,080.2 1,094.3 -1.3 -5.8 -14.0 A- Stable Odyssey Re Holdings Corp.* 1,783.2 1,595.3 11.8 310.2 324.7 93.7 89.9 4,589.9 N.A. N.A. 16.2 18.9 AA- Stable SCOR Reinsurance Co. 1,712.5 1,324.9 29.3 -76.7 -158.7 110.5 117.5 827.1 903.5 -8.5 -4.6 -12.0 A- Stable Allied World Insurance Co. 736.2 N.A. N.A. 122.0 N.A. 92.3 N.A. 4,135.3 N.A. N.A. 16.5 N.A. A+ Negative Axis Reinsurance Company 728.4 588.3 23.8 N.A. N.A. 94.2 92.4 1,120.0 987.3 13.4 N.A. N.A. A Stable Markel Global Reinsurance Company 663.8 542.9 22.3 -34.4 -80.6 105.8 113.8 N.A. N.A. N.A. -5.8 -13.8 AA- Stable Munich American Reassurance Co. 659.6 1,111.4 -40.7 -277.6 40.3 N.A. N.A. 655.9 638.6 2.7 -29.5 2.9 A+ Negative Arch Reinsurance Co. 538.7 167.1 222.3 26.2 19.6 99.6 99.8 1,679.7 1,554.6 8.0 5.2 22.3 A+ Stable Toa Reinsurance Co. of America (The) 476.8 N.A. N.A. -51.8 N.A. 119.8 N.A. 682.9 N.A. N.A. -10.1 N.A. A+ Stable Renaissance Reinsurance United States Inc. 465.5 359.9 29.3 N.A. N.A. 102.3 97.0 711.0 506.9 40.3 N.A. N.A. AA+ Stable Berkshire Hathaway Life Insurance Co. of NE 452.0 1,461.0 -69.1 1,113.0 -386.0 N.M. N.M. 7,524.0 5,414.0 39.0 107.3 -18.9 AA- Stable SCOR Global Life USA Reinsurance Company 300.7 232.8 29.2 13.6 15.6 N.M. N.M. 237.8 264.4 -10.1 4.2 6.1 AA- Stable SCOR Global Life Americas Reinsurance Company 225.1 196.5 14.6 12.0 -57.6 N.M. N.M. 206.8 208.0 -0.6 5.0 -26.9 AA- Stable SCOR Global Life Reinsurance Company of Delaware 67.8 103.7 -34.6 -30.6 45.3 N.M. N.M. 99.2 127.1 -21.9 -40.5 41.0 Total: 61,222.9 54,011.5 13.4 4,229.1 -2,799.5 100.0 102.5 197,317.7 150,586.7 31.0 6.8 -4.2 Vietnam NR PVI Reinsurance Company 24.5 15.5 58.2 2.1 2.5 85.0 82.1 37.1 37.1 0.1 8.6 11.9 Total: 24.5 15.5 58.2 2.1 2.5 85.0 82.1 3 7.1 3 7.1 0 .1 8.6 11.9

GRAND TOTAL: 227,539.1 203,882.3 11.6 14,440.2 9,920.6 100.1 100.9 481,026.4 420,119.1 14.5 5.5 3.6

Rating = Financial strength ratings as of 31.08.2020 * Rating = Financial strength ratings of core operating entities of the groups ** Rating = Turkey National Scale N.A. = Not available N.M. = Not meaningful NR = Not rated Note: Exchange rates may slightly differ from previous years’ GRH data due to alignment of foreign exchange rates with other S&P Global surveys

74 Global Reinsurance Highlights | 2020 Global Reinsurers By Country

Net insurance premiums Pretax operating Combined Total adjusted shareholders’ Return on written (mil. $) income (mil. $) ratio (%) funds (mil. $) revenue (%)

Rating Outlook Company Footnotes 2019 2018 Change % 2019 2018 2019 2018 2019 2018 Change % 2019 2018

GRAND TOTAL: 227,539.1 203,882.3 11.6 14,440.2 9,920.6 100.1 100.9 481,026.4 420,119.1 14.5 5.5 3.6

1. Qatar Reinsurance Co. Ltd.: Net Technical Expenses exclude board remuneration and tax. 2. Allianz SE: Data refer to reinsurance business written by Allianz SE. Figures are based on IFRS results (only external business). Adjusted shareholders’ funds not available at external business level. 3. Hannover Reinsurance Africa Ltd.: Audited figures for 2018 were restated. 4. Lloyd’s: Investment income/other income not available at reinsurance class of business level. Adjusted shareholders’ funds are members’ funds for the market as a whole.

Global Reinsurance Highlights | 2020 75 Ratings Definitions

Insurer Financial Strength Ratings

An S&P Global Ratings insurer financial This opinion is not specific to any Assignment of ratings to debt issued by strength rating is a forward-looking particular policy or contract, nor does insurers or to debt issues that are fully or opinion about the financial security it address the suitability of a particular partially supported by insurance policies, characteristics of an insurance policy or contract for a specific purpose contracts, or guarantees is a separate organization with respect to its ability or purchaser. Furthermore, the opinion process from the determination of to pay under its insurance policies and does not take into account deductibles, insurer financial strength ratings, and it contracts in accordance with their terms. surrender or cancellation penalties, follows procedures consistent with those Insurer financial strength ratings are timeliness of payment, nor the likelihood used to assign an issue credit rating. also assigned to health maintenance of the use of a defense such as fraud to An insurer financial strength rating is organizations and similar health plans deny claims. not a recommendation to purchase or with respect to their ability to pay under Insurer financial strength ratings do discontinue any policy or contract issued their policies and contracts in accordance not refer to an organization’s ability to by an insurer. with their terms. meet nonpolicy (i.e., debt) obligations.

Category Definition*

AAA An insurer rated ‘AAA’ has extremely strong financial security characteristics. ‘AAA’ is the highest insurer financial strength rating assigned by S&P Global Ratings.

AA An insurer rated ‘AA’ has very strong financial security characteristics, differing only slightly from those rated higher.

A An insurer rated ‘A’ has strong financial security characteristics but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.

BBB An insurer rated ‘BBB’ has good financial security characteristics but is more likely to be affected by adverse business conditions than are higher-rated insurers.

BB, B, CCC, and CC An insurer rated ‘BB’ or lower is regarded as having vulnerable characteristics that may outweigh its strengths. ‘BB’ indicates the least degree of vulnerability within the range and ‘CC’ the highest.

BB An insurer rated ‘BB’ has marginal financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.

B An insurer rated ‘B’ has weak financial security characteristics. Adverse business conditions will likely impair its ability to meet financial commitments.

CCC An insurer rated ‘CCC’ has very weak financial security characteristics and is dependent on favorable business conditions to meet financial commitments.

CC An insurer rated ‘CC’ has extremely weak financial security characteristics and is likely not to meet some of its financial commitments.

SD and D An insurer rated ‘SD’ (selective default) or ‘D’ is in default on one or more of its insurance policy obligations. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on a policy obligation are at risk. A ‘D’ rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay substantially all of its obligations in full in accordance with the policy terms.

*Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.

76 Global Reinsurance Highlights | 2020 Ratings Definitions

Insurer Financial Enhancement Ratings

An S&P Global Ratings insurer financial Insurer financial enhancement ratings obligation in the event of a bankruptcy, enhancement rating is a forward-looking are based, in varying degrees, on S&P reorganization, or other arrangement opinion about the creditworthiness of Global Ratings’ analysis of the following under the laws of bankruptcy and an insurer with respect to insurance considerations: other laws affecting creditors’ rights. policies or other financial obligations • The likelihood of payment: capacity that are predominantly used as credit and willingness of the insurer to enhancement and/or financial guarantees. meet its financial commitments on When assigning an insurer financial an obligation in accordance with the enhancement rating, S&P Global Ratings’ terms of the obligation; analysis focuses on capital, liquidity, • The nature and provisions of the and company commitment necessary to financial obligation; and support a credit enhancement or financial • The protection afforded by, and guaranty business. relative position of, the financial

Category Definition*

An insurer rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest insurer AAA financial enhancement rating assigned by S&P Global Ratings.

An insurer rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest-rated AA insurers to only a small degree.

An insurer rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the A adverse effects of changes in circumstances and economic conditions than insurers in higher-rated categories.

An insurer rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic BBB conditions or changing circumstances are more likely to weaken the insurer’s capacity to meet its financial commitments.

Insurers rated ‘BB’, ‘B’, ‘CCC’, and ‘CC’ are regarded as having significant speculative characteristics. ‘BB’ indicates BB, B, CCC, and CC the least degree of speculation and ‘CC’ the highest. While such insurers will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure to adverse conditions.

An insurer rated ‘BB’ is less vulnerable in the near term than other lower-rated insurers. However, it faces major BB ongoing uncertainties and exposure to adverse business, financial, or economic conditions that could lead to the insurer’s inadequate capacity to meet its financial commitments.

An insurer rated ‘B’ is more vulnerable than the insurers rated ‘BB’, but the insurer currently has the capacity to B meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the insurer’s capacity or willingness to meet its financial commitments.

An insurer rated ‘CCC’ is currently vulnerable and is dependent upon favorable business, financial, and economic CCC conditions to meet its financial commitments.

CC An insurer rated ‘CC’ is currently highly vulnerable.

An insurer rated ‘SD’ (selective default) or ‘D’ has failed to pay one or more of its financial obligations when it came due. A ‘D’ rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when S&P SD and D Global Ratings believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations. An ‘SD’ or ‘D’ rating can include the completion of a distressed exchange offer.

*Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.

Global Reinsurance Highlights | 2020 77 Addresses

S&P Global HQ - EMEA Intelligent Insurer 20 Canada Square Kingfisher House Canary Wharf 21-23 Elmfield Road London E14 5LH Bromley (+44) 20-7176-3800 BR11LT United Kingdom S&P Global HQ – North America Email: [email protected] 55 Water Street New York, NY 10041 (+1) 212-438-1000

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78 Global Reinsurance Highlights | 2020