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Creating Value Through Reinsurance

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Creating Value Through Reinsurance Creating value through reinsurance Ulrich Wallin, CEO 21st International Investors' Day London, 18 October 2018 Reinsurance market and outlook Market overviewoverview Hannover Re's positioning US mortality business Value creation & distribution Growing Property and Casualty reinsurance market Hannover Re outperforms the market Market size and concentration 2017 in bn. EUR 4-year CAGR Market +2.3% 155 Other +2.1% 151 154 142* 143* 46% Top 10 +2.4% Top 10 46% 54% Other 46% HR +6.7% 47% 48% Hannover Re 7% 5.8% 6.9% 2013 2014 2015 2016 2017 Source: own research as at May 2018 Top 10 in 2017: Munich Re, Swiss Re, Lloyd's, Hannover Re, Berkshire Hathaway (excl. AIG deal), SCOR, Everest Re, XL Catlin, GIC India, Alleghany Top 10 ranking for each year * F/x adjusted (2015 rates) 1 Market overviewoverview Hannover Re's positioning US mortality business Value creation & distribution ILS market: more than catastrophe bonds Strong growth of Collateralised Reinsurance ILS market volumes vs. total traditional reinsurance capacity* in bn. USD in % of traditional R/I capacity [13%] [16%] [18%] [20%] [25%] [25%] 362 Mortgage EU US & other 743 745 JP 345 345 NatCat 340 3,495 332 2,840 320 Life US/Canada 1,505 4,820 Other 91 85 NatCat Total 1,360 70 60 ~ 31 bn. 53 55 60 US EQ 43 3,536 45 US Multi 30 36 22 7,735 18 22 13 15 17 18 US Wind 12 8 9 7 7 9 4,371 2013 2014 2015 2016 2017 2018E Summe Collateralised Reinsurance Outstanding catastrophe bond volume excl. new issuances New issuances Traditional R/I capacity * Source: A.M. Best data and research working in conjunction with Guy Carpenter; ILS market volumes: own analysis 2 Market overviewoverview Hannover Re's positioning US mortality business Value creation & distribution Riding hard market cycles is becoming more difficult Recent rate increases have been less pronounced after large loss occurrence Development of return on equity (RoE) and Guy Carpenter Global Property Cat RoL index 238% 234% 230% 138 226% 222% 132 218% 130 214% 210% 206% 202% 198% 194% 320 190% 186% 182% 178% 174% 170% 17.0% 166% 162% 158% 154% 150% 146% 14.0% 142% 13.7% 138% 134% 12.8% 270 130% 12.5% 126% 122% 118% 11.4% 114% 10.8% 110% 106% 102% 9.4% 9.6% 98% 94% 90% 86% 82% 9.0% 78% 74% 220 70% 66% 62% 58% 54% 50% 46% 42% 38% 34% 30% 3.8% 26% 3.4% 22% 18% 14% 10% 0.5% 170 6% 2% -2% -6% -10% -14% -18% (1.2%) -22% -26% -30% -34% -38% -42% -46% -50% 120 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H/2018 RoE 1) Hannover Re RoE GC Global Property Cat RoL Index Global insured losses natural disasters2) 1) Return on equity based on company data (Top 10 of the Global Reinsurance Index (GloRe), own calculation, 1H/2018 excl. Validus Holdings 2) Source: Swiss Re Sigma No. 1/2018; in bn. USD Returns must be achieved in any time of the cycle 3 Market overviewoverview Hannover Re's positioning US mortality business Value creation & distribution Life and Health reinsurance in a global perspective Concentrated market due to high entry barriers Market size and concentration 2017 in bn. EUR 4-year CAGR Market +4.9% 79 75 Other +10.7% 70 68* 65* 24% 27% Other Top 5 +2.5% 33% HR Top 5 67% HR +0.4% 9% 67% 62% 11% 9% 2013 2014 2015 2016 2017 Source: own research as at May 2018 Top 10 in 2017: Munich Re, Swiss Re, RGA, Great-West Lifeco, SCOR, Hannover Re, China Re, Berkshire Hathaway, Korean Re, Pacific Life Top 10 ranking for each year * F/x adjusted (2015 rates) 4 Market overviewoverview Hannover Re's positioning US mortality business Value creation & distribution The reinsurance business is an attractive market ... ... offering us the opportunity to create value for our clients Primary insurance New risks need to be Earnings volatility needs Cost of capital needs to Capital requirements covered: cyber, BI, to be managed be competitive are challenging telematics etc. We provide risk- We provide services to We provide risk- We provide solutions to mitigating instruments/ assess new risks/to transfer solutions to meet regulatory/ capacity for individual move into new markets reduce cost of capital capital needs or aggregated risks Reinsurance 5 Hannover Re's positioning in the R/I market Successful as pure play reinsurer Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Our competitive advantages enable us to increase market share Lower expense ratio than our competitors 6 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution We have a lower expense ratio than our competitors Centralised underwriting in P&C reinsurance Lean structures Operating in low-cost locations Delegation of not only Hannover, responsibility and decisions, but worldwide no matrix organisation Offering services High only connected to business staff retention and premium revenues or strategic client relationships Homogeneous IT infrastructure Defined distribution channels re7 in 95% of our locations in P&C; high share of brokers No recent M&A deals with transformational character 7 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Low expense ratio is an important competitive advantage Administrative expense ratio 6.0% 6.0% 5.8% 5.6% 5.4% 2.9% 2.7% 2.7% 2.8% 2.6% 2013 2014 2015 2016 2017 Hannover Re Peer Average* * Peers: Munich Re, Swiss Re, Scor, Everest Re, RGA; own calculation 8 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Our competitive advantages enable us to increase market share 1 Lower expense ratio than our competitors Consistent U/W approach (no surprises for our clients) and long-dated client relationships 9 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution We ensure a consistent and no-surprises U/W approach ... ... in P&C and L&H reinsurance Our NatCat capacity Very short decision-making processes to our clients has combined with a high speed of not been reduced execution Exceptional expertise in financial Our margins are predictable/stable solutions and longevity combined and transparent with a high certainty of execution Our clients have long-lasting relationships Focus on value-adding services with our underwriters due to our such as automated underwriting high staff retention systems 10 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Our competitive advantages enable us to increase market share Lower expense ratio than our competitors Consistent U/W approach (no surprises for our clients) and long-dated client relationships Top tier reinsurer with benefit from diversification by line of business and global reach 11 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution High diversification benefit due to global reinsurance portfolio Well diversified within each risk category Risk capital for the 99.5% VaR (according to economic capital model) Property & Casualty Premium (incl. catastrophe) Reserve Underwriting risk P&C 26% Life & Health Mortality (incl. catastrophe) Market Longevity Morbidity and disability Lapse Counterparty default Expense Underwriting risk L&H 50% Operational Credit and spread Interest rate Required capital before tax 36% Foreign exchange Equity Deferred taxes Real estate Market risk 39% Required capital after tax Operational risk (internal model) Capital requirement As at 30 June 2018 Diversification 12 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Our competitive advantages enable us to increase market share Lower expense ratio than our competitors Consistent U/W approach (no surprises for our clients) and long-dated client relationships Top tier reinsurer with benefit from diversification by line of business and global reach Efficient offering of tailor-made solutions with short time to market and high deal certainty 13 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Growing EBIT contribution from tailor-made solutions Successful development driven by high expertise and efficient execution Structured R/I & ILS in m. EUR Financial Solutions in m. EUR 2,607 1,554 1,307 1,309 1,295 1,271 918 961 895 103 618 95 203 224 74 168 57 129 38 75 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Gross written premium EBIT 14 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Our competitive advantages enable us to increase market share Lower expense ratio than our competitors Consistent U/W approach (no surprises for our clients) and long-dated client relationships Top tier reinsurer with benefit from diversification by line of business and global reach Efficient offering of tailor-made solutions with short time to market and high deal certainty Strategic focus on reinsurance to avoid conflict of interests with primary insurers 15 Market overview HannoverHannover Re'sRe's positioningpositioning US mortality business Value creation & distribution Our strategic focus is on reinsurance New joint venture to establish a focused provider in an attractive market New joint venture Global P&C reinsurance Casualty Lines L&H reinsurance Property Lines Global Specialty „Specialty insurance Specialty Lines solutions – customized“ Avoid conflict of interests
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