Insight and Intelligence on the European and International (Re)insurance Markets

21 OCTOBER 2019

MONDAY

BADEN-BADEN Adapt to Industry 4.0 or face irrelevance, say industry leaders he (re)insurance industry must (re)insurance market was “complacent” our way into oblivion”. Tevolve quickly to address the client about the changes ahead. The RenRe executive pointed to the needs and challenges which come with “We have a short term-driven market experience of other industries like the fourth industrial revolution or face which creates incentives not to look at publishing, where innovation came from irrelevance, industry leaders warned the long term,” he said. “But if we are newcomers to the space. “It’s rarely the at the Guy Carpenter Baden-Baden not prepared we are going to miss [the case that the existing executive team can Reinsurance Symposium yesterday. opportunity].” lead innovation,” he said. “You have to get Speaking during a panel discussion, RMS In an earlier keynote speech, Lloyd’s the majority of them out of the way from CEO Karen White cautioned that if firms did performance management director Jon executing the day-to-day, and then a side not adapt their model to a new, data-driven Hancock said the scale of the challenge group needs to lead that innovation.” and technologically efficient age then their ahead for the (re)insurance industry was Guy Carpenter international CEO James business was at risk. “enormous” because to date it had never Nash noted that a major theme throughout “The next five years matter more than really embraced technology in the way it the whole discussion at the Symposium was most realise,” she said. should have. the need for industry collaboration in order Panellists noted that there was great “This is a massive opportunity to just for it to prepare itself for Industry 4.0. opportunity to be had from so-called leapfrog the third industrial revolution and “The battleground is not necessarily on Industry 4.0 through providing solutions get ahead of the game by really embracing the front end – the battleground for each for new technologically driven risks and the fourth,” he said. constituent is how to add value,” he said. “It’s insuring intangible assets. However, they RenaissanceRe chief risk officer Ian not just about the transaction of risks, we all warned that the industry must be proactive Branagan also noted the industry’s slowness need to play our part in reducing frictional in addressing this challenge. to adapt to new client demands in the past, costs, and all of us need to be focused on Laurent Rousseau, deputy CEO of and warned that the sector must embrace finding ways to get capital to risk in a more Scor Global P&C, said a big part of the the new pace of change and not “decline efficient manner.”

03 Mapfre Re drops London 05 European reinsurer 08 Interview: Swiss Re’s facultative business Q3 results preview Urs Baertschi INSIDE 04 Swiss Re exits Italian 06 InsurTech market 13 Big questions: crop-hail QS market matures in Europe Market conditions

Turning Risk Into Success

1_Monday cover.indd 1 20/10/2019 18:46 RR_InsInsiderAD_BadenDallies_Sept19Partner279x215.inddBaden-Baden 2019 Day 2.indb 2 1 09/09/201920/10/2019 4:25 15:43 PM COMMENT

Beware complacency

perhaps unique characteristic of the flat renewal for European wind – and 2019/20 underwriting year is going to be AEuropean windstorm market is that it another year below technical levels. another period in which reinsurers are in remarkably stubborn. Europe may be pretty siloed from the huge deficit. It pretty much refused to budge in the rest of the cat world, as a balancing peril The experience – particularly the Jebi wake of Hurricane Katrina and following the for reinsurers with big US wind bets, but it creep – has also laid bare that there is scope 2011 year of cats it was close to pancake would do well to take note of some of the for model miss, particularly when a long flat. This despite long-run fears that the parallels from recent events. period of low activity means they have not market is technically underpriced. There are lessons for writers of European been tested. And it looks as though again it will refuse windstorm to be taken from the recent This creates more room for shock losses to follow in the footsteps of the Floridian wind losses In Japan. to emerge. and Japanese markets, where underwriters For years in the run-up to Jebi, have said enough is enough after elevated Europe may be pretty underwriters complained that Japanese claims activity and shock losses. “ windstorm was priced below technical Higher retro costs, which started to much siloed from the rest of levels, but for the most part they stuck make themselves felt in a big way at the cat world, as a balancing in and left themselves exposed to a 1 January, did not make much of an peril for reinsurers with big punishing series of losses. impression on pricing at the beginning What’s worse is that underwriters of this year, and once more there is US wind bets, but it would continued to write the risk even as the scepticism that they will make much of do well to take note of some models warned about thin returns, a difference come 1 January. of the parallels from recent only to find the models had woefully Reinsurers and brokers themselves events underestimated the losses. describe the market as boring – or stable if ” There is a parallel to be drawn here with they feeling diplomatic. European windstorm, and the market A prolonged period of benign windstorm After 25 years of pretty benign typhoon should take note. losses in Europe has allowed this state of activity – which broadly led to softening Writing major cat-exposed books based affairs to drag on longer than many feel it – Japan has been hit by four meaningful on a look at the recent loss record, even should have. landfalling storms in less than two years. as the models point to pricing inadequacy, The European wind market has not seen Typhoon Jebi, which struck last year, is a risky bet and one that has recently a major windstorm loss since Kyrill in 2007, made itself felt for much longer than was gone very badly wrong in the international and losses from other cat events have been welcome. cat market. limited. Market loss estimates seem to have And even though global reinsurers may settled at around the $15bn mark, but be hurting elsewhere, European cedants this is several times the size of initial see little reason why they should pay more estimates of $2.3bn-$4.5bn from AIR to compensate reinsurers for a hurricane in and $5.5bn from RMS. Catrin Shi, Florida or a typhoon in Japan. The outcomes of Faxai and Hagibis for Acting Managing Editor, The Insurance Insider As a result, the early indications for the reinsurance market are less certain but 1 January are that we will see yet another the damage wrought is extensive, and the [email protected] Mapfre Re exits London fac market

apfre Re has ceased underwriting was EUR4.2bn ($5.4bn) in 2018. “improve the service it delivers to its Mfacultative business in London At a group level, facultative business clients, and further develop its presence following a review of the profitability and made up 31 percent of Mapfre Re’s in the market”. strategic fit of the portfolio, The Insurance gross written premiums according to It added that it would still service Insider can reveal. its latest financial statement, with most international clients in the London market Sources told this publication that Mapfre coming from proportional reinsurance in specialty insurance lines such as aviation, Re’s London facultative portfolio included business at 71 percent, and the remaining aerospace and oil and gas. power, renewable energy and property 9 percent coming from non-proportional The exit comes after the reinsurer lines. reinsurance. restructured its specialty commercial unit A portion of the portfolio is housed in its In a statement to this publication the last year, closing the German branch of its global risks arm, which was folded in to reinsurer reiterated its commitment to the global risks arm and folding its UK, French Mapfre Re’s global facultative portfolio last treaty reinsurance market in the UK, adding and Italian branches into Mapfre Re. year as part of a restructure. that it was a “key pillar in the company’s This effectively made Mapfre Global The London portfolio of facultative international strategy”. Risks an MGA, writing insurance on Mapfre business made up around 1 percent of It added that the exit would “help Mapfre Spain paper and reinsurance through Mapfre Re’s overall premium volume, which Re optimise its financial efficiency” and Mapfre Re.

DAY 2: MONDAY 03

Baden-Baden 2019 Day 2.indb 3 20/10/2019 15:43 NEWS NEWS

Industry leaders must drop proprietary attitudes to data

he (re)insurance sector must embrace was at a “crossroads” and a point at which warehoused separately the industry would Ta more “open-source” and less the market was changing so rapidly that be unable to make progress. proprietary approach to the use of data, “the pain of staying the same is worse “We think if you lock up the data you are speakers at the Baden-Baden conference than the pain of changing” for carriers part of the problem.” have warned. and brokers alike. White stressed a difference between Speaking at the Guy Carpenter Baden- the proprietary data that (re)insurers and Baden Reinsurance Symposium on Sunday, We think if you lock up brokers hold and that which they could Lloyd’s performance management director the“ data you are part of share with fellow market participants for the Jon Hancock said the industry must “get greater good of the industry as a whole. over” the question of who owns data. the problem Open platforms that succeed in any “The data is only powerful if you use it,” Karen White ” industry, White said, were “future proof, open said Hancock. “We have plenty of data but in nature [and] allow differentiation”, while we don’t always make the best use of it. The foundation to all of the adaptations enabling all participants “to make money”. “Sometimes we get too hung up on the market participants need to make to survive More broadly, White said in all industries argument of who owns the data, and I think is data science, White said. that had undergone significant change, we have got to get over that and start to “You have got to have the data right and, those companies that failed to adapt fast embrace the fact that data is far more open fundamental to that, you have got to have enough suffered the most. source and far more freely available.” a future-proof standard and get all of your “Industry disruptions are historically often The skill is getting that data and using data in one place and out of these massive ruthlessly unkind to incumbents who don’t it for much better insight – something legacy silos,” said White. embrace the change,” said White. which would allow the industry to create “The fundamental thing about AI, or She added that so far, most investments in better products and access new business machine learning, or whatever is coming technology by carriers had been concerned opportunities, he added. next, is that you have got to get all of the with “process improvements that are cost- Speaking on the same panel, RMS CEO data in one place so that you can begin to cutting”, with smaller investments made in Karen White struck a similar note. discover correlations you cannot see yet.” the technology that would allow a better White said the (re)insurance industry White warned that as long as data is understanding of “the risks of your products”. Swiss Re drops Italian crop-hail QS business

wiss Re has pulled out of Italian brought a series of overnight frosts. After an notification this year. Sproportional crop-hail cover, the usually warm spring, the budding process Swiss Re would not be the first carrier carrier has confirmed to The Insurance for many crops was advanced, meaning to abandon Italian crop-hail quota share Insider. the frost caused historic levels of damage, business. The move may signal the beginning of a particularly for fruit and wine growers. Qatar Re is understood to have pulled out turning point in the niche market, which Italy was among the worst-affected of Italian crop-hail business completely in has been notoriously underpriced for a countries, with economic losses estimated 2017, and other carriers are understood to number of years due to overcapacity. by Munich Re at around EUR1bn ($1.1bn) have reduced their appetite. It is understood that a number of carriers for the region. Sources said that Italian crop-hail is have been waiting for Swiss Re to take the Overall, Munich Re pegged economic a difficult class to insure due to tough lead as they consider ending their own losses from the 2017 frost at EUR3.3bn farmers’ unions in the country, which exert participation in the Italian crop-hail space, across Europe, with around EUR600mn of strong influence on carriers over terms and suggesting an exodus of capacity is to this insured. conditions and prevent price increases after follow. This year, frequent hail storms have bad loss years. The move comes as insurers assess their damaged harvests across Europe due to Politically, the class also presents a participation in crop insurance across changing weather patterns, pushing up the challenge to underwriters as crop the continent, with fears climate change volume of claims for (re)insurers. insurance in Italy is heavily subsidised by is driving up the risk of major losses as In Italy specifically, a single hailstorm in the state. weather patterns become more difficult to July wiped out entire crops of tobacco, A spokesperson for Swiss Re said: “Swiss predict. sunflowers and maize in the Arezzo region. Re decided to leave the proportional The crop-hail market absorbed significant This year, the country has been victim to Italian agri insurance market, with a few losses in 2017, when severe frost affected a more weather events than usual. exceptions. number of continental European countries. One source told this publication that “However, Swiss Re will continue to look In April and May of that year, a cold around 80 percent of Italian agriculture into non-proportional business and new snap struck large parts of Europe, which insurance policies had received a product development.”

04 DAY 2: MONDAY

4-5_News.indd 4 20/10/2019 18:11 NEWS NEWS

Cat losses to weigh on Q3 European reinsurer results uropean reinsurers are likely to post Estimated Typhoon business renewing in the summer was in Eweak underwriting results for the third the US, and this was a mixture of property quarter following a fairly heavy period Hagibis market share and casualty, proportional and excess of for major losses, with Swiss Re and Scor Reinsurer Net loss for Implied Jebi Assumed loss. expected to exceed their loss budgets for Typhoon market share Hagibis UBS noted that since Munich Re pivoted the quarter, according to UBS. Jebi ($mn) for $15bn market towards growth under new CEO Joachim industry loss share The third quarter saw the landfall of Wenning – who took up the role in early Hurricane Dorian in the Bahamas and US Munich Re 918 6.1% 6.0% 2017 – it has missed normalised combined as well as Typhoon Faxai in Japan, where Swiss Re 1162 7.7% 10.0% ratio guidance for eight of the last 10 both Swiss Re and Scor have larger market Hannover Re 281 1.9% 1.5% quarters. shares, UBS analysts led by Jonny Urwin “We believe this trend warrants caution Scor 225 1.5% 1.5% said in an 11 October Q3 preview note. given continued growth ambitions. Whilst Scor is the fifth largest reinsurer in the Source: UBS there are pockets of improving rate Bahamas, UBS said, and among the top which is somewhat supportive to Munich four in the Japanese market. Meanwhile, Growth outlook Re, broader reinsurance pricing is only Swiss Re has a 4-6 percent market share A key question for the European reinsurers increasing around 1 percent, with Munich in the Bahamas and a circa 10 percent in Q3 is whether they will continue to Re’s normalised combined ratio stubbornly share of the Japanese market, according take advantage of the improving rating running at around 99-100 percent. to the note. environment to grow their books. “We find others better placed to capitalise Karen Clark & Company estimates industry In Q2 earnings disclosures, the continental on the current rating environment.” losses from Dorian at $5.2bn, with just over reinsurers expressed a sense of optimism on Scor has achieved the highest rate $3.6bn of that estimate stemming from the the rate rises achieved since spring, and all increases in the cohort to date. Bahamas. four of the cohort reported rate increases in UBS said Scor’s specialty bias and Faxai industry loss estimates still vary, the US as the impact of two years of major relatively smaller size than some peers but claims are generally expected to be losses began to bear fruit. allows it to take a more nimble approach between $3bn and $7bn. Accordingly, each of the four expanded to the cycle, capitalising on pockets of rate UBS also said it expected an “elevated” their top line and three of them upped their hardening when it occurs. quarter for man-made losses at Swiss Re. exposure to North American cat risk. Scor’s growth has not impacted its margin, Munich Re and Hannover Re’s Q3 major In the year to date, Swiss Re has been the which has happened at some of its peers, losses are expected to remain within most bullish on growth, increasing treaty UBS added. budget, but in the case of Munich Re, “we volumes in the first six months of the year Conversely, Hannover Re is less geared to do however expect further weakness in the by 23 percent to $12bn. the pricing cycle, although it should be able normalised combined ratio, and project At the July renewal, it grew its top line by to achieve profitable growth, according to 99.5 percent, lagging guidance”, UBS said. 17 percent, with a 2 percent price increase. UBS. Since the publication of the UBS note, At the other end of the scale, Munich Re “In the bad years, such as 2017 and 2018, Munich Re announced it would generate grew its top line by 4.7 percent year on it can smooth losses with reserve releases. a consolidated result of about EUR850mn year in the second quarter. This figure came In the good years, it tends to rebuild reserve ($946mn) in the third quarter, despite with the disclaimer that only 30 percent of buffers,” UBS said. “major loss expenditure”. No further detail was given on losses or the combined ratio for the period. EuropeanEuropean reinsurers: reinsurers: Q2 2019 Q2 GWP2019 growth GWP andgrowth rates and rates Typhoon Hagibis, which made landfall 35% near Tokyo on 12 October, also threatens to 29.6% erode fourth-quarter earnings. 30% Q2 P&C GWP growth Q2 overall rate increase There have been no clear industry loss 25% estimates for Hagibis to date, however UBS 19.5% 20% has projected that Swiss Re and Munich Re will have the greatest exposure to the event 15% 11.8% out of the four continental reinsurers, based % growth 10% on net loss exposures from Typhoon Jebi. 3.8% 4.7% 5% 2.0% For Hagibis, UBS estimates that Swiss 1.0% 0.5% Re and Munich Re will have a potential 0% 10 percent and 6 percent of the loss, Swiss Re (H1)* Hannover Re Scor Munich Re Source: oan reors The Insurance Insider respectively, compared to 1.5 percent 2 2019 earnins or Swiss Re were no avaiae apiece for Scor and Hannover Re.

DAY 2: MONDAY 05

4-5_News.indd 5 20/10/2019 18:11 INSURTECH EXECUTIVE COMPENSATION

European InsurTech sees renewed foreignNumber of InsurTechs interest in the German market (cumulative) The European InsurTech scene sphere, with Hampleton Partners’ report finding that half of big-ticket InsurTech Number of InsurTechs in the continues to mature, receiving investments in 2018 went to Berlin-based more attention from foreign companies, and Willis Towers Watson stating German market (cumulative) investors and InsurTechs that Germany was responsible for 5 percent 140 of InsurTech transactions since 2012. 120 uropean InsurTech may still come This has been reiterated in a report by Esecond to the US in terms of the management consultants Oliver Wyman and 100 volume of InsurTech deals but the market Policen Direkt which stated that InsurTech 80 is still receiving renewed interest from had “become an integral part of the 60 investors, insurers and InsurTechs alike. insurance industry”. The consensus among industry observers is The report found that, since its first 40 that the US and Europe are leading the way InsurTech Radar report in 2016, there were 20 in terms of InsurTech, but the dynamics in 134 active InsurTechs in the German market the two regions are changing. – up from around 20 in 2010. 0

Chris Sandilands, a partner at insurance InsurTechs in Germany are also beginning 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 advisory firm Oxbow Partners said: “What I to mature and numbers are starting to level Source:Source: Oliver Oliver Wyman Wyman think what is interesting at the moment is off, with the amount of start-ups staying that [the European InsurTech scene] started fairly consistent between 2017 and 2019. to three years. sooner than the US, not by much, but now Berlin-based InsurTechs like WeFox and A lot of this investment has also come from US funds are beginning to accelerate away Friday have both received big founding international investors like Ping An Global so funding rounds in the US are completely rounds this year, with WeFox raising $125mn Voyager Fund, Rakuten and Softbank, and different. and Friday raising EUR114mn ($125mn), they are consequently closing a financing “There is a general truism that it is easier putting it in the top five of global InsurTech gap that had previously hindered growth. to raise money in the US, and that they have funding rounds. American venture capital firm Accel deeper pockets and are less cautious than WeFox operates two businesses: a service Partners also launched a EUR500mn fund European investors.” platform that connects insurance companies for German FinTech and InsurTech start-ups The latest Willis Towers Watson InsurTech and brokers and a digital insurance carrier earlier this year and Berlin-based Rocket briefing stated that Europe as a whole was One Insurance. Friday offers digital car Internet is including InsurTech in their responsible for 22 percent of InsurTech deals insurance and has insured more than 15,000 investment strategy. since 2012, behind the US at 55 percent and cars in Germany. But it is not only foreign investors who in front of the UK at just 10 percent. While this may not rival mammoth are taking advantage of the burgeoning However, according to international investment rounds like the $300mn Series D environment. Earlier this year, incumbent technology M&A advisers Hampleton round raised by Lemonade, it shows a shift InsurTech Lemonade made its European Partners, nearly one third of InsurTech to bigger-ticket funding rounds in Europe as debut in Germany selling contents and investments were targeting European InsurTechs continue to mature. liability insurance. companies, with its investment share Oliver Wyman and Policen Direkt said Lemonade’s co-founder Shai Wininger growing from 23 percent in 2014 to around in their report that, several years ago, this explained at the time: “We chose Germany 31 percent in 2018. would have been “unthinkable”. for our first international launch because In both reports Germany emerged as a They concluded that we could see a it combines a very traditional insurance dominant territory in the European InsurTech German InsurTech unicorn in the next two industry with a very forward-thinking, digital-first consumer.” Quarterly InsurTech transactions by target country This is echoed by Sandilands, who said Quarterly InsurTech transactions by target country Germans were generally more educated 2012 – Q2 2019 Q2 2019 about insurance than people in the UK as they tend to buy from an intermediary rather than online. United States “I am still seeing the most activity in 19% United Kingdom 27% London but I think Germany is catching up,” 3% he noted. China 3% Sandilands added that while it was still too Transactions: 42% France Transactions: early to tell what the impact of Brexit would 5% 1146 55% 69 Germany 6% be on insurance and the InsurTech sector, 6% India it would all depend on talent and market 9% 9% Other access. 16% If it becomes more difficult for talented individuals to come to the UK then that Source:Source: Willis Towers Willis Watson Towers Watson could be a “massive problem”, he stated.

06 DAY 2: MONDAY

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ODYS03-3446Baden-Baden 2019 Insurance Day 2.indb Insider 7Baden_GER.indd 1 25/09/201920/10/2019 2:42 15:43 PM INTERVIEW

‘Market momentum is with us’ Swiss Re’s new Emea reinsurance CEO Urs Baertschi talks about European cat pricing and the societal good of reinsurance

or Swiss Re’s Urs Baertschi, the We expect further rate with loss-cost inflation. Foutlook for reinsurance pricing in “ In April, all eyes turned to the Japanese 2020 is positive, although conversations increases for loss-affected renewal, when reinsurers expected payback with cedants about rate will not and underperforming on property cat treaties following vast necessarily be smooth sailing given the businesses and broadly losses from Typhoon Jebi as well as other, continued abundance of capacity. smaller storms. What emerged was a The new CEO of reinsurance for Europe, stable rates in other fragmented picture, with price increases the Middle East and Africa (Emea), who was areas, amid continued largely dependent on loss experience. installed in his latest role in September, capital abundance in the Contracts were also renewed before the says that despite the continuation of reinsurance market full extent of the creep on Jebi losses were capital oversupply acting as a check to ” revealed. price increases, there are pockets where The pattern continued in the summer reinsurers can look to achieve the rate US renewals, with price increases varying increases they were largely denied in 2017 across geographies, lines of business and and 2018. loss experience. In Australia, there was no “We expect further rate increases for loss- sign of universal price increases as major affected and underperforming businesses carrier Suncorp renewed its programme and broadly stable rates in other areas, on essentially flat terms despite handing amid continued capital abundance in the almost $400mn in losses to its reinsurers. reinsurance market,” he explains. This year’s 1 January renewal will be “Market momentum is with us and the final piece of the puzzle, and will the dynamic supports our competitive demonstrate whether rate rises in Europe advantages,” Baertschi adds. will show the same degree of specificity to “Undoubtedly, there are tough client type, loss experience and region. negotiations ahead to ensure that we are Baertschi believes there are opportunities able to secure enough of the additional for reinsurers in the Emea region to achieve margin being generated by increased rate increases but these will be account- original rates.” specific. 2020 challenges Regional differences Reinsurance pricing is understood to In some regions where cat losses have been have reached a turning point in severe and relatively frequent over some locations this year after the past few years, property cat two disappointing sets treaty rates are expected to of renewals in 2018 harden, Baertschi says. and 2019, both “Parts of Asia and of Rated A/Excellent by A.M. Best in property and the Americas have casualty. experienced severe At the 1 January and costly nat cat renewal this year, events over the last Lumen Re Ltd (Bermuda) is sponsored by LGT ILS Partners hopes were dashed three years and for widespread reinsurance [email protected] increases on property treaty CONTINUED contracts, despite ON PAGE 10 historic US wildfire and hurricane losses and a contraction in retrocession capacity. Increases on casualty treaties were modest, LGT ILS Partners with many in the market [email protected] sceptical about those increases’ ability to keep up

08 DAY 2: MONDAY

Baden-Baden 2019 Day 2.indb 8 20/10/2019 15:43 Lumen Re_ad.indd 1 29/08/2018 15:17 INTERVIEW

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Lumen Re Ltd (Bermuda) is sponsored by LGT ILS Partners [email protected]

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LumenBaden-Baden Re_ad.indd 2019 Day 1 2.indb 9 29/08/201820/10/2019 15:1715:43 INTERVIEW

CONTINUED FROM PAGE O8 better global resilience in the face of ever- Urs Baertschi CV increasing exposure to risk. prices in these markets have started to The Swiss Re Institute in collaboration 2019: Regional president, CEO reflect that loss picture in areas affected,” he with the London School of Economics reinsurance Emea and member of the explains. this year constructed a macroeconomic group executive committee, Swiss Re However, the picture is likely to be resilience index. It found that, overall,

different in Emea, where loss experience global resilience is waning. 2016-2019: President of reinsurance, has been far more benign. Swiss Re believes that by closing the Latin America, Swiss Re “Emea has been quieter on larger nat cat record-high protection gap of $1.2tn, the

events at the same time,” Baertschi notes. (re)insurance industry could boost global 2008-2015: Managing director, head of “In the past, mutuality meant that large financial resilience to the tune of more principal investments and acquisitions, losses triggered reactions all across the than $1tn in claims payouts each year, and Americas, Swiss Re global reinsurance markets. Today, the in the meantime book additional profit of

market response is more regionalised and $60bn-$80bn annually. 2001-2008: Principal, Cutlass Capital even localised due to abundant capital.” According to the executive, this quest for

In casualty treaty reinsurance there are resilience has been the reason behind his 1998-2001: Associate, Securitas Capital some opportunities to increase rates, he 20-year association with Swiss Re, working points out. within it and as a service provider to it for Here, historic underpricing and the some periods. continuing loss deterioration of primary The (re)insurance industry “Swiss Re offers a unique platform where business is finally beginning to push “is not only confronted with a we can help our clients and the ultimate insurance rates up, allowing reinsurers end customer when they need it the most,” room to negotiate for price increases of changing risk landscape, but Baertschi says. their own. also with growing exposures The long-standing reinsurance firm’s “The economic reality of the impact of as the world’s population “tremendous knowledge and range of lower yields is accepted by clients and adds capabilities” were also key to his attraction a dimension to the general pressure on increases, people live longer to Swiss Re. casualty classes,” he explains. and accumulate more assets, The carrier plays a “large role” in “It is widely accepted in the industry especially in areas prone to preventative risk management, he adds, that technical underwriting levels need to natural disaster which is key to achieving greater global improve across the board as a result.” ” sustainable resilience. It is now clear, Baertschi adds, that the “Also, given the size and scope of the client universe is “bifurcated between those “Some risks, such as secondary perils like business, it’s possible to work in a range who have had recent loss experience and wildfires, droughts, and floods, are evolving of different roles over time and therefore those where results have been good.” and require new approaches, also to risk increase one’s capabilities the course of modelling,” he says. a career. Swiss Re was attractive from a Changing landscape “At the same time, it is a challenge for personal growth opportunity as well as a Pricing aside, Baertschi feels there are other primary insurers to use the wealth of business perspective.” challenges facing reinsurers. As carriers data available as this requires profound Baertschi adds that, while at Swiss Re, he grapple with an increasingly fragmented know-how, specific skill sets and the right has been privileged to work with “highly global pricing picture, reinsurers must also resources.” motivated colleagues”. work harder to interpret the risks posed by At a macro level, reinsurers must cope “I’m proud to be part of the team that has certain perils as their profiles change. with an increasingly risky world and the a common purpose of making the world challenge ahead to create products that more resilient and addressing the global 2018 natural catastrophe serve insureds better and achieve greater protection gap. insurance resilience scores insurance penetration. “For Swiss Re, client centricity is key, “The (re)insurance industry is not only everything Swiss Re does is with our clients Region Nat-cat insurance resilience (%) confronted with a changing risk landscape, and their needs in mind.” US & Canada 55 but also with growing exposures as the In fact, Baertschi says, Swiss Re’s value Latin America & Caribbean 7 world’s population increases, people rests in large part on its relationships with live longer and accumulate more assets, and the abilities of its client base. “As a Advanced Emea 43 especially in areas prone to natural disaster,” risk knowledge company that leverages Emerging Europe & Central Asia 15 Baertschi says. technology and embraces innovation, Swiss Africa 3 In more general terms, Baertschi notes Re will fully leverage its capabilities to Asia Pacific emerging 4 that Swiss Re sees opportunities in “growing support its clients in this rapidly changing risk pools and significant shifts in consumer environment. We see good opportunities Asia Pacific advanced 22 behaviours and demographics”. as we partner with our clients to meet the Source: Swiss Re Institute Swiss Re assesses regions' fiscal and structural components and gives growing need for insurance protection. them weighted scores between zero and one against each. By averaging Improving resilience These partnerships are key, as in the end, the scores of each of the nine components, it derives an overall reslience For Baertschi, working in reinsurance is we're only as successful as the partnerships score expressed as a percentage fundamentally about working towards we have built.”

10 DAY 2: MONDAY

Baden-Baden 2019 Day 2.indb 10 20/10/2019 15:43 Baden-Baden 2019 Day 2.indb 11 20/10/2019 15:43 Mind over risk

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InsiderBaden-Baden 0919 option 2019 2.indd Day 2.indb 1 12 02/09/201920/10/2019 11:41:50 15:43 BIG QUESTIONS: MARKET CONDITIONS

Ahead of the Baden-Baden conference, leading reinsurance executives share their thoughts on reinsurance pricing, demand and buying strategies in the run-up to 1 January

After years of flat or softening pricing, Pricing for European cat price development is lagging behind will the European catastrophe renewals “ other markets, but the pressure on prices see an uptick in pricing as witnessed renewals has followed in European reinsurance markets has in other geographies over the past 12 worldwide cat pricing trends, diminished in intensity. The rising risk months? with continued downward awareness among reinsurers will likely rates over the past few years. prevent further premium erosion and may Doris Höpke, Munich Re board member: even bring about modest rate increases. Overall, Munich Re is observing a It is absolutely necessary widespread shift towards greater discipline to get increases in pricing; Dirk Spenner, managing director, head in the market and an increased focus on however, with a recent lack of EMEA North/East, Willis Re: Provided improving terms and conditions, which there are no major losses or macroeconomic is positive. In market segments where we of losses it might prove shocks, we don’t expect this to be the case. have seen firming rates after significant loss harder than in some other The uptick in April and at the June/July events, I would expect the momentum of territories renewals was primarily driven by significant price increases and tightening conditions Jonathan ”Parry local loss experience and partially to carry on through the 1 January renewals. influenced by changes in supply in the ILS Apart from loss trends, recent developments sector. But we are not seeing any of this in have increased the likelihood of a prevailing and costly nat cat events over the last three Europe. environment of extremely low interest rates, years. Reinsurance prices have started to putting pressure on casualty business. In reflect that loss picture in the affected Douglas Lacoss, chief underwriting general, we do not see room for rates going areas. EMEA has been very quiet in terms of officer P&C treaty, EMEA, Scor Global down. larger nat cat events over the same period. P&C: We expect that demand for cat Different to the past, when large losses reinsurance will remain strong, financial Jonathan Parry, chief underwriting triggered reactions in the global reinsurance income will remain weak and consequently officer, QBE Re: Pricing for European markets, it seems today that this mechanism the focus of the market will continue to be cat renewals has followed worldwide cat does not work any longer. Markets, clients on generating improved technical margins. pricing trends, with continued downward and treaties nowadays respond only to their Across geographies primary and retro rates over the past few years. It is absolutely individual loss experience. rates and terms and conditions are firming, necessary to get increases in pricing; which has a positive impact on the rating however, with a recent lack of losses it Michael Pickel, executive board member environment for cat. A flat or even softening might prove harder than in some other at Hannover Re: We saw more rational pricing environment in the reinsurance territories. behaviour in the reinsurance market in sector does not seem to be a credible general during the renewals this summer. proposition. And these dynamics should Frank Reichelt, head of northern, central However, Europe hasn’t been hit by a major apply also in Europe, even if we have not and eastern Europe, Swiss Re: Parts of Asia loss since winter storm Xynthia swept seen major loss activity. and the Americas have experienced severe over the continent in 2010. Therefore, CONTINUED ON PAGE 15

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CONTINUED FROM PAGE 13 the reinsurance marketplace and pricing will have written a number of new quota shares need to reflect this. with clients with whom we have jointly What does this tell us about how the developed new primary products. global cat market operates today? Is Höpke: Relative to previous years, the cycle pricing now far more localised than it has is less global but much more dependent on We anticipate consistency been traditionally, and why? a range of different factors such as region, “ line of business, prior losses etc. For Munich in reinsurance purchasing Reichelt: It tells us that reinsurers’ analytical Re the specifics of a client relationship are strategies across Europe in and modelling capabilities reach much always relevant. 2020, as the relatively stable deeper and are much more granular claims environment will than in the past. It allows steering not Spenner: This isn’t a new phenomenon, just on global portfolio level, but also on it just wasn’t as evident in the absence not create much pressure sub-portfolio levels. Consequently, price of losses. The last time losses impacted to change structures and developments can vary from portfolio to global pricing was arguably post-9/11 and demand for cover remains portfolio, market by market. to some extent after hurricanes Katrina, Rita and Wilma in 2005. There is sufficient strong Pickel: The biggest difference is still capital underpinning localised rating Douglas” Lacoss between loss-affected and loss-free areas trends when compared with previous hard of coverage. For US wildfire for example, markets, where shortages of capital drove Höpke: Within Europe, we can observe price increases of 60 percent were possible generalised pricing increases across the a further consolidation of reinsurance on loss-affected programmes. Pricing also entire market. panels with focus on quality reinsurers depends on the level of competition in the with leading capacities and willingness market, especially from alternative capital Jörg Bruniecki, head of global client & to support clients across the board with – take Florida as an example. For two years broker management, PartnerRe: While the a strategic perspective. Finally, cyber in a row nat cat business was impacted by cat market continues to be global in nature, exposure is more actively looked at and immense losses in many regions around the cyclical movements are specific to individual reinsurance covers are sought in the world, the adverse effects of which can also markets and demand and supply differs context of risk management. Many cedants be seen in the balance sheets of reinsurers from territory to territory. The appetite of take a structured approach to silent cyber and capacity providers in the ILS market. capacity providers is determined by the type in primary policies to make exposure In property cat business this has resulted of cover, risk/return requirements, structures transparent and ensure an appropriate overall in price increases, driven by loss- of programmes and the underlying portfolio. treatment under insurance. affected programmes. One should not forget that while cat remains the single most important placement, it Lacoss: We anticipate consistency in The last time losses is embedded in overall relationships and reinsurance purchasing strategies across “ access is driven by client preferences. Europe in 2020, as the relatively stable impacted global pricing was claims environment will not create much arguably post-9/11 and to Lacoss: There has not been any notable pressure to change structures and demand some extent after hurricanes withdrawal of capital in the cat reinsurance for cover remains strong. As there is more Katrina, Rita and Wilma in space, but the breed of pure cat specialists focus on costs in the industry, however, has almost entirely disappeared. The we may see more limited reinsurance 2005. There is sufficient reinsurance industry is becoming panels in order to reduce the associated capital underpinning increasingly concentrated, with the effect administrative burden. Although we localised rating trends when that a smaller number of market players don’t see a broad shift into quota share partner with larger clients across all programmes, they are more common where compared with previous programmes and lines of business. The cedants are developing new products and hard markets, where benefits of the overall trading relationships strong reinsurance partners are needed shortages of capital drove are not only based on capacity and price, to support the portfolio development. generalised pricing increases with offering global service and expertise Cyber is a good example of where we see becoming ever more important. The opportunities, especially as cedants focus across the entire market distribution of the cat risk has become more more on clearer wordings in their original Dirk Spenner ” a function of available vehicles such as policies in order to get a handle on silent sidecars, cat bonds or other retro solutions cyber exposure. for the redistribution of the risk. Parry: After suffering from frequent Bruniecki: While many cedants are looking cat events in both 2017 and 2018, the How are European cedants’ buying to use their available group capital in an reinsurance market is revising pricing strategies changing? Are you efficient manner, their priority is to protect and requirements going forward. In some seeing increased use of quota share the franchise value of their company. smaller, localised markets that don’t have programmes? We are seeing insurers buying more large cat exposures, there is still sufficient quota share protection and man-made supply. However, areas like the US, Japan Reichelt: There have been no real changes covers are featuring much higher on the and Europe require maximum capacity from in the existing reinsurance programmes. We CONTINUED ON PAGE 17

DAY 2: MONDAY 15

Baden-Baden 2019 Day 2.indb 15 20/10/2019 15:43 BIG QUESTIONS: MARKET CONDITIONS

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CONTINUED FROM PAGE 15 with QBE Europe SA/NV having set up in Besides property cat Brussels last year. “ strategic agenda, as delivering against reinsurance, the fire communicated financial targets, especially Spenner: Yes. Unfortunately, we are still and industrial business in times of increased VUCA [volatility, awaiting the final outcome of the Brexit is definitely a growing uncertainty, complexity and ambiguity], is negotiations and the no-deal uncertainty crucial. is driving clients – where needed – to seek opportunity in Europe and alternative solutions away from the London elsewhere. In terms of rates, A FRESH PERSPECTIVE Pickel: There is a bit of a change. It varies market. it wasn’t profitable for many When you need innovative solutions from country to country, but what we can providers for years. This has to complex risks, you need a re/insurance say is that we do see more proportional Are you seeing any harder pockets of programmes in Europe than in the past. opportunity outside of property cat changed recently partner who sees clearly. This trend has several reasons as it can be reinsurance? Michael Pickel ” driven by solvency concerns, uncertain legal developments or higher expected volatility. Höpke: Although far from hard, we expect corrections are needed to achieve rate an upward trend for casualty business as adequacy. Generally speaking, the market Spenner: Yes, but not as a market-wide the dramatic low interest rate environment environment is creating a multitude of trend. These are individually motivated in the EU must surely have an impact on challenges for cedants and reinsurance placements often pursued to address either pricing of long-tail business. Overall, we partners that can help solve those loss frequency concerns or to assist in see a very dynamic market environment challenges are in demand. The market will capital management. with lots of interesting developments in the always do what the market does, but it sphere of changing technology, innovation is clear that the momentum for a return Last year we saw a cautious approach to and new or adjusted business models. to sensible market behaviour is building the use of Lloyd’s reinsurance capacity in quickly. light of Brexit. Will this wariness still exist Reichelt: Specialty lines like marine, this year? aviation, engineering, credit and surety are currently in a very dynamic market phase, Lacoss: Until we know what we’re partly driven by significant losses. CONTRIBUTORS getting with Brexit, continental cedants will continue to consider carefully their Pickel: Besides property cat reinsurance, Jörg Bruniecki, head of reinsurance placements into the Lloyd’s the fire and industrial business is definitely global clients and broker market. It’s not obvious that Solvency II a growing opportunity in Europe and management, ParternRe equivalence for UK-based entities will be elsewhere. In terms of rates, it wasn’t quickly put into place after the UK comes profitable for many providers for years. This out of the EU and cedants need more has changed recently and we can see the certainty about their reinsurance protection. achievements of the restructuring actions Doris Höpke, board undertaken by our clients within the fire member, Munich Re While many cedants are and industrial business. And of course, this “ also has an impact on the reinsurance rates Douglas Lacoss, chief looking to use their available and conditions. underwriting officer P&C group capital in an efficient treaty, EMEA, Scor Global manner, their priority is to Lacoss: There will always be markets and P&C protect the franchise value of lines of business where better profitability their company. We are seeing can be found. We have seen a reduction in capacity for certain specialty lines, for Jonathan Parry, CUO, insurers buying more quota example marine and engineering, which QBE Re share protection and man- is creating opportunities to adjust rates made covers are featuring back towards sustainable levels. The Lloyd’s Decile 10 review in 2018 seemed to Michael Pickel, much higher on the spur a wider resolve across the insurance executive board strategic agenda industry to move capacity out of non- member, Hannover Re Jörg Bruniecki ” performing areas and we should see better opportunities as a result. Frank Reichelt, head of Parry: Yes, I would say there is still a level Bruniecki: The market is improving and northern, central and of wariness in the market. We are still in there are signs of a return to rationality eastern Europe, Swiss Re a place of uncertainty when it comes to after years of inadequate pricing. Outside the outcome of Brexit. We see this trend property cat, we’re seeing double-digit 360° THINKING Find out more at Dirk Spenner, managing continuing in the short term. However, QBE rate increases in aviation, engineering and director, head of EMEA aspen.co Re is fortunately able to give clients the offshore energy benefiting both primaries North/East, Willis Re option of either Lloyd’s or company paper, and reinsurers. Nevertheless, further rate

DAY 2: MONDAY 17

Baden-Baden 2019 Day 2.indb 17 20/10/2019 15:43 Baden-Baden 2019 Day 2.indb 18 20/10/2019 15:43 % change in gains/losses from Change in GWP for Swiss Combed ratio for Swiss non-life reinsurers investments (reinsurance) non-life reinsurers 119.1% 25.7% 125.0% 120.5% 106.0% 73.6% 93.6% 96.0% EXECUTIVE COMPENSATION ANALYSIS 6.3% 3.8%

-9.4% -3.5% -28.5% Swiss reinsurance market pushed -67.1% -24.0% 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Source: inma The Insurance Insider Source: inma The Insurance Insider 2014 2015 2016 2017 2018 to third year of underwriting losses Source: inma The Insurance Insider

nother year of catastrophe activity Aforced Swiss-domiciled reinsurers Loss ratios for SwissLoss ratiosnon-life for Swiss reinsurers non-life reinsurers to log their third consecutive year of underwriting losses as their collective 2014 2015 2016 2017 2018 non-life reinsurance combined ratio for 86.2%

2018 settled at 120.5 percent, according 81.7% 77.3% 71.2%

to data from the Swiss Financial Market 68.8% 65.6% 64.9% 63.9% 61.4% 61.0% 61.3% 59.0% Supervisory Authority (Finma). 59.2% 57.7% 56.4% 56.0% 56.1%

Although the Swiss reinsurance market’s 50.3% underwriting loss remained high, data presented in Finma’s 2018 insurance market 33.4% 27.4% report marked a year-on-year improvement compared to 2017, during which the Short-tail Long-tail Catastrophes Total global reinsurance market was hit by high Source: inma The Insurance Insider claims activity resulting from a series of unprecedented natural catastrophes. Michael as well as tropical cyclones and effect from the change in US tax regulation, The 2018 combined ratio improved by flooding in Asia. saying “available information suggests 4.5 percentage points from 125 percent in Pointing to significant loss creep from that a negative effect of around CHF10bn 2017. under-reserving, the regulator commented: on premium volumes in Switzerland can In 2017, Swiss reinsurance losses stemmed “The extent of the losses was initially therefore be expected in the 2018 financial mainly from hurricanes Harvey, Irma and underestimated and the year 2019 will also year”. Maria which battered the US and the be burdened by this.” Finma’s prediction was almost true, as Caribbean. Swiss reinsurers paid out CHF27.2bn premiums earned for non-life business Loss ratios in 2018 fell year on year ($33.5bn) in claims in 2018, which is over dropped by CHF8.7bn year on year while across all classes of risk, particularly for 50 percent higher than the CHF18.1bn paid total net premiums earned – which includes catastrophe business and short-tail risks, out in 2017. life reinsurance – fell by CHF7.6bn. but losses were still high compared to pre- Even though claims were still high, and Meanwhile, Asia Pacific reinsurance 2017 periods. despite a 28.5 percent year-on-year decline business written by Swiss reinsurers rose The total loss ratio for Swiss non-life in investment income, annual profits in the sharply by 38.5 percent to CHF6.7bn. reinsurers improved by 13.4 percentage Swiss reinsurance space improved from However, the Asia Pacific region is one points to 63.9 percent in 2018. The CHF840mn to CHF2.4bn. of the smallest regions from which Swiss Swiss regulator said this was due to reinsurance premiums originate. improvements in reinsurance business with Reinsurance premiums For the entire Swiss market – including short-tail risks and catastrophe-exposed drop significantly non-life insurance, reinsurance and life risks. Non-life gross written premiums (GWP) insurance – Swiss insurance companies’ The reinsurance market’s loss ratio booked by Swiss reinsurers fell sharply in aggregate annual profits for 2018 reached for catastrophe risks dropped by 27.2 2018 by 24 percent to CHF37.5bn. CHF10.6bn in 2018 – a 40 percent increase percentage points to 59 percent in 2018, The change reflected a change in US compared to the prior year. but reinsurers still picked up high losses, taxation regulation relating to group CONTINUED ON PAGE 21 mainly from hurricanes Florence and companies in the US doing business with group companies outside the US. This led to comprehensive changes to intra-group Change in GWP for Swiss % change in gains/losses from Change in GWP for Swiss Combed ratio for Swiss reinsurance% contracts change in and, gains/losses as a result, from non-lifeChangenon-life reinsurers inreinsurers GWP for Swiss Combinednon-lifeCombed ratio reinsurers ratio for Swiss Swiss investments (reinsurance) premiums fell119.1%investments across the board.(reinsurance) non-life25.7% reinsurers non-life reinsurers125.0% non-life reinsurers 120.5% Unsurprisingly,119.1% net earned premiums 25.7% 125.0% 106.0% 120.5% (NEP) also plummeted. Total73.6% non-life NEP 93.6% 96.0% 106.0% 73.6% 6.3% 93.6% 96.0% fell by 27.7 percent to CHF22.5bn. 3.8% The drop in premiums was driven by 6.3% 3.8% business in North America, which is -3.5% the -9.4%biggest market for companies in -9.4% -28.5% -3.5% Switzerland. Following the new tax rules,-28.5% -67.1% NEP originating from the region tumbled by -24.0% 2014 2015 2016 2017 2018 2014 2015 2016-67.1% 2017 2018 46.4 percent. 2014 2015 2016 2017 2018-24.0% Source: inma2014 The Insurance 2015 Insider 2016 2017 2018 Source: inma2014 The Insurance 2015 Insider 2016 2017 2018 Source: inma The Insurance Insider In lastSource: year’s inma The Finma Insurance Insider insurance market Source: inma2014 The Insurance 2015 Insider 2016 2017 2018 report the regulator warned of the negative Source: inma The Insurance Insider

DAY 2: MONDAY Loss ratios for Swiss non-life reinsurers 19 Loss ratios for Swiss non-life reinsurers 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Baden-Baden 2019 Day 2.indb 19 86.2% 20/10/2019 15:44 81.7% 86.2% 77.3% 81.7% 71.2% 68.8% 77.3% 65.6% 64.9% 63.9% 71.2% 61.4% 61.0% 61.3% 68.8% 59.0% 59.2% 57.7% 65.6% 64.9% 56.4% 56.0% 56.1% 63.9% 61.4% 61.0% 61.3% 59.0% 59.2% 50.3% 57.7% 56.4% 56.0% 56.1% 50.3% 33.4% 27.4% 33.4% 27.4% Short-tail Long-tail Catastrophes Total Source: inma The InsuranceShort-tail Insider Long-tail Catastrophes Total Source: inma The Insurance Insider ANALYSIS

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The free mobile app for global commercial and specialty (re)insurance professionals % change in gains/ Premiums earned by reinsurers (CHFbn) losses from investments Category 2016 2017 2018 % change Y/Y % of total 2018 Short-tail 14.9 15.4 11.6 -24.7% 34.2% % change in gains/losses from Change in GWP for Swiss Combed ratio for Swiss (reinsurance) non-life reinsurers investments (reinsurance) Long-tail non-life14.0 reinsurers 13.8 8.9 -35.3% 26.3% 25.7% 119.1% Catastrophes 2.6 2.0 2.0 1.7% 5.9% 125.0% 120.5% 106.0% 73.6% Total non-life 31.5 31.2 22.5 -27.7% 66.4% 93.6% 96.0% Life 6.3% 3.8% 10.4 10.3 11.4 10.6% 33.6% Total net premiums 41.9 41.5 34.0 -18.2% 100.0%

-9.4% Asia/Pacific 11.2 -3.5%4.9 6.7 38.5% 19.9% -28.5% Europe 9.8 13.2 14.0 6.2% 41.3% -67.1% North America 19.1 21.9 -24.0% 11.7 -46.4% 34.6% 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Source: inma The Insurance Insider Source: inma The Insurance Insider Rest 2014of the world 20151.8 2016 20171.5 2018 1.5 -6.0% 4.3% TotalSource: net inma premiums The Insurance Insider41.9 41.5 34.0 -18.2% 100.0% CONTINUED FROM PAGE 19 Source: Finma, The Insurance Insider Loss ratios for Swiss Stabilitynon-life reinsurers in the non-life Market shares of non-life insurers 2014 2015 2016 2017direct 2018 Swiss market On the non-life direct insurance side of the Gross premiums written (CHFbn) Market share (%)

Swiss market, premium86.2% trends remained Company 2016 2017 2018 2016 2017 2018 81.7% relatively stable, booking a 1.6 percent77.3% year- Axa Insurance 3.3 3.3 3.4 18.5 18.5 18.6 71.2% 68.8% 65.6% 64.9%

on-year growth in GWP. 63.9% 61.4% 61.0% 61.3% Swiss Mobiliar Insurance Company 2.7 2.8 2.9 15.3 15.6 15.9 59.0% 59.2% 57.7% 56.0% 56.4% However, Finma noted:56.1% “Whereas premiums grew50.3% slightly faster than GDP Zurich Insurance Company 2.5 2.5 2.5 14.3 13.8 13.6 in the previous year, they were not able to Allianz Suisse Insurance Company 1.8 1.8 1.9 10.3 10.4 10.5 33.4%

keep pace27.4% with GDP growth in 2018 (plus 2 Helvetia Insurance Company 1.5 1.5 1.5 8.5 8.4 8.3 percent in real terms).” Short-tail Long-tail Catastrophes Total Baloise Insurance Company 1.3 1.3 1.3 7.3 7.3 7.3 Finma added that the Swiss insurance Source: inma The Insurance Insider market faced intense pricing competition in Vaudoise Insurance Company 0.9 0.9 0.9 4.9 4.9 5.0 the property and liability sectors as well as Generali Insurance Company 0.8 0.8 0.8 4.5 4.4 4.2 the private client market. Others 2.9 3.0 3.0 16.4 16.7 16.6 It noted that the household and personal Eight largest insurance companies 14.8 14.9 15.1 83.6 83.3 83.4 liability sector was also facing pricing pressures. Source: Finma, The Insurance Insider For the first time in 10 years, motor vehicle insurance premiums (comprehensive and was mostly seen in motor lines where the Loss ratios for direct liability combined) fell year on year by 0.3 loss ratio for motor liability improved by percent. 3.7 percentage points to 38 percent. For Swiss business According to Finma, this reflects an above- comprehensive motor insurance the loss 2016 2017 2018 Y/Y average decline in newly registered vehicles ratio improved by 1.2 percentage points to change which suggests a general shift in motor 70.5 percent. Health 77.7% 75.0% 73.9% -1.1 pp mobility behaviour. Looking at domestic market shares of Fire/property 45.7% 55.9% 56.1% +0.2 pp Personal Feed: Recommended Feed: Topics/Companies/ Alerts: Elsewhere, the health insurance market in direct Swiss insurers, little has changed over Accident 72.8% 66.6% 73.3% +6.7 pp Build a customised feed of 10 top daily articles from Publications: Internal and push notifications Switzerland generated the most premiums the last four years. latest content from over 100 the industry’s most trusted Dedicated pages for for significant events in 2018, totalling CHF11bn, up 2.8 percent None of the eight companies that Finma Motor vehicles 64.7% 71.7% 70.5% -1.2 pp (comprehensive) industry specific pages sources categorised content compared to the prior year. This sector reports on have changed their positions in accounts for 39 percent of total Swiss non- the overall ranking – sorted by market share Motor vehicles (liability) 39.3% 41.7% 38.0% -3.7 pp life GWP. – since 2015. Liability 41.5% 52.6% 60.2% +7.6 pp Fire and property lines produced around Axa Insurance continues to lead the Marine, aviation and 50.7% 42.4% 54.3% +11.9 pp CHF4.1bn in GWP for the Swiss insurance domestic market with an 18.6 percent share transport sector in 2018, a 1.8 percent year-on-year of the non-life Swiss insurance market. The Download and follow: Legal expenses 53.2% 53.6% 57.7% +4.1 pp increase. carrier wrote CHF3.4bn in premiums in In terms of losses in the direct Swiss non- Switzerland during 2018. Financial losses 70.9% 61.1% 63.1% +2 pp life market, the claims ratio increased by 0.6 Market shares for the top eight insurers Credit and surety 40.1% 45.5% 29.7% -15.8 pp percentage points to 65.2 percent, despite remained constant in 2018 at 83.3 percent Tourist assistance 76.2% 73.8% 70.3% -3.5 pp an improvement in the number of major while the remaining 16.7 percent of Total 62.9% 64.6% 65.2% +0.6 pp loss events during the year. the market was shared by a further 106 The decline in the number of loss events insurance companies. Source: Finma, The Insurance Insider www.slipcase.com DAY 2: MONDAY 21

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iiBaden-Baden ad _letter size_16 2019 sept.inddDay 2.indb 1 22 16/09/201920/10/2019 12:4415:44 Q&A

ILS has shown its longevity: LGT Christian Bruns, partner and and the US. This broadening of the investor try to automate claims management, only base further supports the diversification of to find out that adjusting claims is an area portfolio manager at LGT ILS our sources of capital. where a lot of profit either is made or lost, Partners, explains that cat and handling losses through a machine bond cover now offers broader Can you comment on the state of the typically results in sub-par performance. cat bond market – should primary We welcome InsurTech initiatives that focus choices to cedants insurers consider such structures to on standardisation, such as distributed buy protection in the current market ledger technologies, which would help Christian, as an ILS manager, how would environment? everyone to eliminate the incredible paper you describe the role of ILS in 2019? The cat bond market has evolved trail associated with binding a reinsurance LGT ILS was established many years ago, considerably in recent years. It is interesting contract. and our insurance-linked funds have been to hear that some cedants still believe cat providing capacity for peak reinsurance bonds are only transacted using industry Lastly, cyber risk is a recurring topic these risks to primary insurers since 2001 – that loss data or physical elements such as days – are you active in this area and is longer than a good number of traditional windspeed, thus exposing cedants to basis what is your stance as an ILS manager? carriers. The initial scepticism around risk. The market today is transacting virtually Not all of our investors would endorse us capacity provided by ILS funds and its all placements with primary insurers on targeting specific cyber reinsurance and classification as opportunistic and short- the basis of their ultimate net loss, and establishing an active portfolio of cyber lived has now disappeared – not least as as such working as a full reinsurance exposures within our existing ILS fund a result of the catastrophe activity in 2017 cover just like any other excess-of-loss or suite. This is partly driven by the potential and 2018, and the resilience the market has aggregate placement. Furthermore, the correlation of extreme cyber losses with shown. ILS investors provide as much as 25 cat bond market today is increasingly financial market movements. However, we percent of global catastrophe reinsurance willing to protect riskier levels within the continue to monitor this space for potential capacity. LGT ILS is a manager of insurance- capital structure of primary insurance opportunities as the market is swiftly linked strategies in the purest sense, with companies, thus often providing earnings making progress in quantifying risk and a clear focus on peak insurance regions protection and not only cover against very possible loss scenarios, while many actuarial and the aim to back our cedants during extreme events. In order to make investors companies research models to calculate a extreme catastrophe events. With the access comfortable with such riskier placements, fair, risk-based premium. Therefore, whilst to our A/Excellent-rated carrier Lumen Re the transparency regarding the underlying it may be difficult to diversify a portfolio of in Bermuda, transacting with LGT as an ILS portfolio composition had to be increased, cyber reinsurance contracts – as in the event market is as easy as transacting traditional and cat bonds today often feature a similar of an extreme cyber incident, one must reinsurance – with the key benefit of submission file as seen in the traditional assume a simultaneous payout of many knowing that the limit is backed by actual market. The cat bond payouts of 2017 and contracts – we believe that the ILS market collateral, and the credit risk is thus far lower 2018 clearly show that the market is robust will eventually start to trade such risks. than trading with a traditional carrier. and that the structures work as intended. Investor interest overall remains healthy, Can you briefly elaborate on your especially since a large volume of cat bonds investor base – and has this changed is due to mature early next year. This is over time? on the back of a somewhat subdued new Our main investor base consists issuance volume in 2019 – which implies predominantly of institutional investors that there is sufficient capital available to such as pension schemes and sovereign allow for further growth in the cat bond wealth funds, but we also cater to family market. Overall, the outlook for ILS is very offices – ultimately all professional investors positive for cedants and investors alike. with a profound understanding of the asset class and a long-term investment Over the last few years there has been a horizon. Some of our investors have been lot of talk about InsurTech – how do you investing in ILS for over a decade now, and see these ventures from the perspective understand the risk and the reinsurance of an ILS manager? cycles. More importantly, our investors In our view, many InsurTech companies allocate only a small share of their portfolios are simply adding alternative ways to ILS. The investor base has remained very of distributing insurance products to consistent – the only real change is the consumers. Too many of them simply broadening and diversification driven by our offer a shiny app or a sleek user interface. growth. We started out in Switzerland, and Behind the scenes, they are not solving the Christian Bruns still have a very strong footprint in our home really tough issues the industry is facing, Partner and Portfolio Manager, country. We also have investors from Asia, which are rooted to a great extent in very LGT ILS Partners the Middle East, Continental Europe, Canada convoluted legacy IT systems. Some of them

DAY 2: MONDAY 23

Baden-Baden 2019 Day 2.indb 23 20/10/2019 15:44 SPEAKER LINE-UP:

Pina Albo Steve Arora Sheila Cameron Ben Canagaretna CEO, Hamilton CEO, CEO, Group Chief Actuary, 7 November 2019 Insurance Group AXIS Re Lloyd's Market Barbican Insurance Association Group

Stephen Catlin Hamzah Chaudhary Dominic Christian Lucy Clarke Chairman and Chief Director of Global Chairman, President, Executive, Convex Deployment, Reinsurance Marsh JLT Group Limited Cytora Solutions, Aon Specialty

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LMCBaden-Baden one pager_usA4_218 2019 Day 2.indb oct.indd 24 1 18/10/201920/10/2019 14:1115:44 TRADING RISK

ILS sector deliberates protection gap challenge

he ILS market’s response to the reinsurers. This meant there was plenty more range year on year after adjusting for higher Tprotection gap and the need for business to go after, he said. loss-cost assumptions, he said. Florida reform were key topics discussed This meant that pricing was still 35 percent by attendees at the Trading Risk New York Florida reform below 2012 levels, versus 43 percent off conference, held on 3 October. However, the Florida reinsurance market ahead of Hurricane Irma in 2017. The mismatch between the risk that remains in need of reform after the mid-year “2012 was not a hard market,” he added. reinsurers want to take on and the risk in renewals, a separate panel of experts argued “We don’t believe the market charges the world is what drives the protection at the conference. enough rate to cover our loss costs.” gap, according to John Seo, managing The panellists said Hurricane Dorian’s initial However, Raymond James managing director and co-founder of Fermat Capital projected track highlighted the state’s need director Kapil Bhatia said that reinsurers Management. to secure more cover. rarely agreed that rates were adequate. In response to this, ILS firms need to pursue Had Dorian made landfall in Florida with “[The rate increase] paid for the social a complementary set-up to reinsurers to the severity initially forecast, rather than inflation,” he argued. help build a sustainable market, rather skirting the coast, it would have created There had been hugely disparate views in than trying to imitate them, he said at the dislocation and exhausted some local the market this year on what constituted conference. carriers’ reinsurance resources, causing the adequate pricing, TigerRisk senior broker “Any kind of overlaps where you are market to revert to its post-2004/05 status, David Unsworth noted. duplicating effort is where a lot mischief said HCI Group CEO Paresh Patel. But from a broker’s point of view, as every comes from,” he said. “Hope shouldn’t be your strategy,” he programme was fully subscribed, that Seo noted that the need for insurance added. was an indication of a market performing cover by perils and zones across the world is The panellists discussed whether Florida adequately, he added. not flat. reinsurance rates and terms had moved far Next year, one factor that may influence Hurricane risk in Florida remains the enough in the recent mid-year renewals. the market is whether reinsurers end up with peak risk, presenting roughly $160bn of Validus Re executive vice president and lower levels of retro quota share support, reinsurance need, with other risks sloping head of US property underwriting Chris Silvester said. down thereafter in scale. Silvester estimated rates were around 9 As many carriers have shifted to being net Seo noted that rated reinsurance carriers percent up year on year on a like-for-like underwriters in the Sunshine State any lack organise their risk taking by peril “bucketing”, basis. However, Validus Re calculated that of retro support could finally push them to thereby limiting their exposure to any one rates were down within a low single-digit reduce their gross footprint, he explained. risk. But the exposure above their tolerance for Pimco ILS targeting $3bn-$5bn in size peak risks is what drives the protection gap. “It is a fundamental mismatch between our Pimco is looking to deploy $3bn-$5bn recent months investigating the areas for financial institutions and the way the world of capital in the ILS market within a potential growth and he detailed several is shaped.” three- to five-year window, the firm’s for the audience. Some ILS managers – mostly European- head of ILS Rick Pagnani told the One idea he shared was to allow Pimco based – pursue a similar approach to audience at the Trading Risk New York investors to cross collateralise or part diversification, but Seo suggested this could conference. collateralise ILS investments with other be a “little bit of a zero-sum game” as it Pagnani said the firm had had a positive assets, effectively adding an ILS overlay to encroached into the traditional sector. reception from investors, although he an existing mandate. But he suggested that ILS markets going declined to comment on nearer-term “By doing that we can effect a pickup in deeper into Florida and other peak risks projections for its ILS capacity. returns for investors, a source of alpha … would give them more room to grow. ILS The executive detailed that the new it is totally diversifying for that other asset can follow the peaks of the uneven risk offering had the benefit of being at the class,” he stated. landscape, he added. “intersection” of Allianz and subsidiary In addition the unit is working with its “The ILS market literally completes the Pimco, which has $1.84tn of assets under commodities group to find ways that it picture of society,” Seo said. “If you fill that in management including $35bn in the can offer livecat market. you will actually fill all the protection gaps alternative platform where its ILS offering And it is looking into hedging and all the disaster gaps. Those protection sits. opportunities to find mispricing within and disaster gaps exist because of risk “While this is a new initiative to Pimco (re)insurance debt and equity markets. bucketing.” it is far from a start-up – we have all the Finally Pagnani noted that there was Although overall ILS market capacity is a ingredients to hit the ground running,” the potential to develop a multi-strategy smaller portion of the reinsurance whole, he stated. He listed these advantages as solution, adding small allocations to ILS this is not true for the peak zones, he including “instant scale” due to access to into other broader strategies, and use this pointed out. Allianz risk as well as fronting, leverage, to target the retail market however he In Florida, the ILS market had already risk management and infrastructure. indicated this would be some way down introduced $50bn of new capital to sit on According to Pagnani, the firm has spent the line. top of the $40bn of limit from traditional

DAY 2: MONDAY 25

Baden-Baden 2019 Day 2.indb 25 20/10/2019 15:44   EVENTS 

EVENTS

The London Market Conference (Re)insurance Claims Congress For further information on attending any of 7 November 2019 | 08:15 - 16:00 5 March 2020 the above events, please contact: (followed by networking drinks) etc venues Monument, 8 Eastcheap, [email protected] etc venues 155 Bishopsgate, London, EC3M 1AE +44 (0)20 7397 0607 Liverpool Street, #InsiderClaims London, EC2M 3YD For further information on speaking, #InsiderLMC The Insurance Insider US Honors exhibiting and sponsorship opportunities, 23 April 2020 please contact: Insider Progress Guastavinos, 409 East 59th Street, 20 November 2019 New York, 10022 Sajeeda Merali, Commercial Director Hyperion Insurance Group, #InsiderHonors [email protected] One Creechurch Place, +44 (0) 20 7397 0613 London, EC3A 5AF #InsiderProgress Benjamin Bracken, Head of Marketing Services [email protected] Insider London +44 (0) 20 7779 8754 28 January 2020 | 08:15 - 16:05 (followed by networking drinks) Oliver Nevill, Head of Strategic Partnerships etc venues Fenchurch Street, [email protected] 8 Fenchurch Place, +44 (0)20 7397 0619 London, EC3M 4PB #InsiderLondon

THE TEAM

EDITOR-IN-CHIEF DIRECTOR OF RESEARCH STRATEGIC ACCOUNT MANAGER EVENTS EXECUTIVE Adam McNestrie & HEAD OF AMERICAS Tom Lovell Amelia Blanks [email protected] Gavin Davis [email protected] [email protected] [email protected] ACTING MANAGING EDITOR SUBSCRIPTIONS ACCOUNT MANAGER PRODUCT MANAGER SENIOR ANALYST Catrin Shi Luis Ciriaco Carlos Pallordet James Thaler [email protected] [email protected] [email protected] [email protected] EDITOR SUBSCRIPTION SALES SUPPORT DATA ANALYST ANALYSTS Laura Board Paul Mansfield Khilan Shah Gianluca Casapietra [email protected] [email protected] [email protected] [email protected] ASSOCIATE EDITORS Dan Lukpanov HEAD OF MARKETING & ANALYTICS PRODUCTION EDITOR Christopher Munro [email protected] Lynette Stewart Ewan Harwood [email protected] [email protected] [email protected] Christie Smythe COMMERCIAL DIRECTOR [email protected] Sajeeda Merali BRAND MARKETING & SUB-EDITOR ANALYTICS MANAGER [email protected] Steve Godson FEATURES EDITOR Aimee Fuller [email protected] Gavin Bradshaw HEAD OF MARKETING SERVICES [email protected] [email protected] Benjamin Bracken JUNIOR SUB-EDITOR SENIOR EVENTS MARKETING EXECUTIVE [email protected] Simeon Pickup SENIOR REPORTERS Richard Skipper [email protected] Fiona Robertson HEAD OF STRATEGIC PARTNERSHIPS [email protected] SENIOR DESIGNER [email protected] Oliver Nevill EVENTS MARKETING ASSISTANT Mike Orodan Lucy Jones [email protected] Luke Kavanagh [email protected] [email protected] [email protected] Rachel Dalton SENIOR BUSINESS DEVELOPMENT MANAGER Copyright Terms & Conditions [email protected] EVENTS DIRECTOR No part of this publication may be used, distributed, reproduced, Baker Jaggwe Emmanuel Kenning Sara Donaldson or stored in any manner whatsoever without the express written [email protected] permission of Euromoney Trading Ltd. Distribution of this issue is [email protected] [email protected] limited to the named subscriber only, unless separately licensed. Any Bernard Goyder SUBSCRIPTIONS DIRECTOR usage that is made, outside of these term & conditions without the prior written permission from Insider Publishing Ltd may therefore [email protected] Tom Fletcher CONFERENCE PRODUCTION MANAGER Matthew Sime infringe our copyright which will result in personal and corporate John Hewitt Jones [email protected] liability, detailed in our Legal Disclaimer on www.insuranceinsider. [email protected] [email protected] com/terms-and-conditions. Further distribution of, or access in any PARTNERSHIPS MANAGER other form of The Insurance Insider by other persons is a breach of REPORTERS Joel Lagan CONFERENCE PRODUCER copyright and is prohibited whether working for the same entity or Miraal Mayet not. Euromoney Trading Ltd actively monitors the use and distribution Sofia Geraghty [email protected] of its publication and will take steps to prosecute any misuse. To [email protected] [email protected] ensure you don’t infringe our copyright we offer Corporate Licences SENIOR ACCOUNT MANAGER Anna Sagar which enable companies to receive multiple copies of The Insurance Georgia Macnamara EVENTS OPERATIONS MANAGER Insider at discounted rates. Corporate Licences can be tailored to meet [email protected] [email protected] Holly Dudden your company needs and are the only viable way of ensuring you do Samuel Casey [email protected] not breach our copyright if there are multiple users of our content. For further information please call +44 (0)20 7397 0619 or email [email protected] [email protected]

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26 DAY 2: MONDAY

Baden-Baden 2019 Day 2.indb 26 20/10/2019 15:44 OPINION

Motor insurance in EMEA: Evolving at speed

otor insurance is the most widely Mpurchased P&C product in Europe Mortality index (2014=100) and represents an important platform in Mortality Index (2014 = 100) the region for both traditional and non- 180 traditional products, MGAs, captives and Austria other affinity and distribution platforms. 160 Belgium In 2017, motor insurance premiums grew Germany for the third year in a row at a rate of 4.2 140 Spain percent year on year, reaching a record Greece EUR138bn ($152bn). Most European markets 120 Croatia Italy contributed to the growth, including 100 Poland the top three territories by premium Portugal income: Germany (+4 percent), France 80 Sweden (+2.7 percent) and the UK (+8.3 percent). Slovenia Furthermore, some smaller motor markets 60 UK have experienced strong growth, including 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: National Statistical ecords Poland, Slovenia and the Czech Republic. Source: National statistical records A key factor in the market’s evolution has been revisions to the legal system for assessing bodily injuries as a result of road developments should allow claims histories discount rate change in the UK. Furthermore, accidents and an overall positive trend in to be integrated with additional information in France there is a proposal to allow at-fault road safety. such as driving behaviours. drivers to claim from their insurers. The local Looking at the extreme entries in the Legislation protecting injured parties across legislative environment drives how large mortality index chart, we note: the territories is undergoing significant claims are assessed for the cost of third-party change, leading to larger claims both for assistance. ●● Portugal currently has the lowest index physical damage and bodily injury. In most In response to these challenges, Guy value; despite a 4 percent increase in the instances, these are borne by the reinsurance Carpenter’s EMEA Motor Study provides number of fatalities for 2017, the number market. At the same time, motor insurers are clients and reinsurance partners with an of claims increased (above 7 percent), seeing an increase in the Solvency Capital overview of this peril throughout the region. resulting in a reduction in the index. Requirement allocated to motor due to the The 2019 edition has an enlarged territorial ●● The highest index value is currently increased weight of reserving risk for claims. scope, including Israel for the first time. The recorded by Slovenia. The index has While studies have shown there is no study also includes external contributions fluctuated over the past decade, strong correlation between the share from major players in the motor industry but when examined in detail the of motor third party liability (MTPL) in a both from the (re)insurance sector and from improvements are vast, as the number of company’s portfolio and its solvency ratio, within the automotive industry. fatalities has reduced by 53 percent and on average the greater the share of MTPL in accidents by 42 percent. a portfolio the lower the solvency ratio. Due Note ●● Sweden shows the greatest reduction to the relatively high capital requirements Guy Carpenter would like to thank: since 2014. The Swedish government has of MTPL and reduced diversification, the a long-term zero vision for road accident difference between companies with a small ●● BMW and Swiss Re for their overview of the mortality, and investments are being MTPL portfolio and a large one can be as Advanced Driving Assistance Systems made in road safety actions and speed much as 70 percent. ●● The Dräxlmaier Group, a leader in limits. The profitability of MTPL in individual production of components for the territories is heavily influenced by local electrification of cars, for its view on the Market statistics show a trend towards economic and legislative factors, which megatrends that will determine future reduced claims numbers but increasing affect both average premiums and claims mobility claims costs. This is due, in part, to improved cost. ●● Unipol Group, a telematics insurance leader driver assistance technology and more road An economic upturn can generate more in Europe, for insight into the impact of safety initiatives, offset by more expensive claims from increased traffic volumes. black boxes on motor insurance portfolios vehicles and parts. Economic strengthening supports The insurance industry is constantly infrastructure improvements that reduce Federico Camera innovating to better meet evolving accident volumes, as well as an increase in Managing Director, Guy Carpenter consumer demands. The European newer vehicles with higher repair costs. Commission initiated a review of the Motor Legislative and judicial changes are Artur Rene Insurance Directive in 2016 through various being seen throughout Europe, the Middle Managing Director, Guy Carpenter consultations, with proposed revisions East and Africa (EMEA). These range Pawel Koszorek including the standardisation of claims from increases in the mandated Baremo Senior Vice President, Guy Carpenter history statements. Future technological compensation scale in Spain, to the Ogden

DAY 2: MONDAY 27

Baden-Baden 2019 Day 2.indb 27 20/10/2019 15:44 Adaptation + Opportunity = Growth

As record amounts of capital from new sources continue to create abundant capacity, companies are seeking agile and transparent tools to identify opportunities to maximize return and yield. Guy Carpenter’s broking, strategy and analytics expertise helps clients match the right capital with the right risk to drive profitable growth by capitalizing on emerging risks.

Baden-Baden 2019 Day 2.indb 28 20/10/2019 15:44