Global Risks, Trends and Closing the Protection Gap Swiss Re Reinsurance Agenda Global How Global Macro Protection technology Risks/Trends Gap can support Brazil | 2019 | Swiss Re 2 Global macro risk map interdependencies Background: ▪ Environmental risks have grown in prominence in recent years. 2018 saw a number of extreme weather events characterized by high-impact hurricanes, extreme temperatures and the first rise in CO2 emissions for four years ▪ Cybersecurity risks are growing Trends ▪ The global economy faces a mix of long-standing vulnerabilities and newer threats that have emerged or Risks evolved in the years since the financial crisis ▪ Unsettling geopolitical phase - multilateral rule-based approaches have been fraying. Re-establishing the state as the primary focus of power and legitimacy has become an increasingly attractive strategy for many countries ▪ Population is shifting trust from government to Private Enterprise/Companies Source: Global Risk Report 2018, WEF Brazil | 2019 | Swiss Re 3 Focus Area Increasing number of disasters 300 2018: 181 natural catastrophes (e.g. Earthquakes) 250 123 man-made disasters (e.g. Terrorism) 166 Weather related NatCat events (e.g. Storms) 200 > 11’000 people lost their lives Total economic losses: USD 337 billion 150 Possible impacts on our Industry: 100 ▪ Increasing need for protection ▪ Insurance industry needs to rethink access to 50 affordable, relevant and effective risk management tools and insurance safety nets 0 ▪ Proactive risk management can help protect whole 1970 1976 1982 1988 1994 2000 2006 2012 2018 economies Man-made disasters Weather related NatCat events NatCat Source: Swiss Re Institute Brazil | 2019 | Swiss Re 4 Focus Area Urbanisation Urbanisation rate in % Background: ▪ Between1950 and 2010, the world’s urban population grew nearly fivefold, with on average 47 million more urban residents every year ▪ Today the global urban population is expected to grow by about 1.4 billion between 2011 and 2030, more than 90% of the increase coming from emerging markets Possible impacts on our Industry: ▪ Urbanisation brings fundamental socio-economic change, this will create new opportunities for insurers ▪ Large cities require huge infrastructure investments, this will lead to a significant rise in construction-related premiums ▪ Larger cities have high risk concentration and are vulnerable to natural disasters, health hazards and food security issues Source: Swiss Re Institute Brazil | 2019 | Swiss Re 5 Focus Area Ageing Background: Europe (40.4*) ▪ The number of older persons, aged 60 years or over, is 41,0% U.S. (37.2*) 34,7% expected to more than double by 2050 and to more Asia (28.8*) than triple by 2100, rising from 962 million globally in 71,0% -9,5% 2017 to 2.1 billion in 2050 and 3.1 billion in 2100 83,9% -2,6% 93,4% 5,7% 100,1% ▪ In Latin America and Asia the number of people aged 9,0% 20,1% 65 or over will nearly double -3,6% ▪ Naturally populations will shrink over time and insurance becomes more expensive Latin America (27.4*) Africa (19.1*) 117,7% Possible impacts on our Industry: 111,5% 92,5% 26,9% 90,2% ▪ The mortality protection gap is estimated at -6,7% 70,4% USD 114 trillion globally 46,1% World (28.5*) ▪ In emerging markets, insurance and savings still meet 77,6% less than 10% of the population’s protection needs 84,9% 0-19 20-64 65-79 80+ 22,4% 7,6% Source: Swiss Re Institute Brazil | 2019 | Swiss Re 6 *Median Age in 2010 Focus Area Tort liability on the rise Example Opioid Crisis: Tort liability is an ongoing and accelerating issue 34 million people used opioids in 2018 The financial impact is significant and is present in Suffered from opioid use disorders in 2016: markets beyond the US 27 million people As a result of drug use in 2015 Product Liability, General Liability and Professional 450,000 people died Liability including D&O and Cyber Liability have heightened focus ~ USD 78bn Legal activity is ramping up and judgements and spent annually for health care, addiction treatment, lost settlements experience significant inflations work/productivity and increased policing Underwriters must be vigilant in properly assessing, In the US 2’000 suits have been filled largely underwriting and mitigating potential exposures to their by local and state governments naming opioid manufacturers portfolios relative to opioids and opioid litigations Source: WHO Brazil | 2019 | Swiss Re 7 Focus Area Nationalism & Protectionism TPP APEC Regulatory NAFTA Regulatory Inflation WTO Inflation WTO Tax NATO Escalating Reform NAFTA tariffs WTO Trade NATO Trade war Brexit TPP APEC APEC war Escalating Tax tariffs Regulatory Reform WTO NAFTA Inflation Tax APEC Reform Regulatory Inflation TPP WTO WTO WTO TPP APEC APEC Source: Swiss Re Institute Brazil | 2019 | Swiss Re 8 Focus Area Key large loss trends and themes Increasing casualty losses arising out of Increase of suits in US by states Attorneys large property events, exacerbated by General, counties and cities that aggregate climate change and urbanisation casualty claims • Wildfires (US and Australia); Mudslides (California, • Suit against 3M over perfluorochemicals US) Ageing infrastructure in mature Litigation funding/financing markets/large new infrastructure projects • Rise of litigation funding (US, UK, AUS, SG, HK) in high growth markets • Recent emergence of hedge funds buying insurers’ • Tunnel collapse at Ituango Hydroelectric Project wildfire subrogation rights to pursue PG&E (Colombia) • Motorway bridge collapse in Genoa (Italy) Acts of mass violence/terrorist actions New latent claims and/or large scale criminal activity • Brain injury/chronic traumatic encephalopathy • Las Vegas shooting (CTE) against NFL/Schools/Helmet Manufacturers • Cyber crime and cyber war attacks (Globally) Brazil | 2019 | Swiss Re 9 Agenda Global How Global Macro Protection technology Risks/Trends Gap can support Brazil | 2019 | Swiss Re 10 Global Protection Gap The shortfall in the amount of cover necessary to maintain current living standards of dependents = Total economic losses – Insured losses Brazil | 2019 | Swiss Re 11 Protection Gap in numbers Americas Natural catastrophe losses 1970 – 2017 (in USD billion) ▪ 5 in 6 US homeowners do not have flood insurance 450 Not insured Insured Losses ▪ In Mexico 69% of vehicles without motor 400 10-year moving average insured losses insurance 10-year moving average total economic losses 350 EMEA 300 ▪ France: 50% of agricultural crop production 250 not insured CAGR 200 5.8% ▪ Europe: Since 1970 only 4% of Earthquake losses of over USD 130 billion were insured 150 ASIA 100 CAGR ▪ China: Out-of-pocket expenditure for 5.4% 50 healthcare hit USD 193 billion, 3 times insurance coverage 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 ▪ Southeast Asia: 97% of typhoon losses in the Philippines not insured Source: Swiss Re Institute Brazil | 2019 | Swiss Re 12 Opportunity? Lines of business* (premium equivalents) Property cat Other P&C Property non-cat ~USD 155 bn ~USD ?? bn ~USD 80 bn Premium potential + > USD 800 billion and Emerging Risks ~USD ?? bn growing Agriculture Morbidity Mortality ~USD 30 bn ~USD ?? bn ~USD 270 bn Source: Swiss Re Institute Brazil | 2019 | Swiss Re 13 *Protection Gap for Property Cat, Property Non-Cat, Agro and Mortality only estimated at ~500bn vs Premium insured of ~900bn Opportunity in Latin America? Premium Potential Mortality Property non-cat Agriculture Property cat > 100 bn ~USD 11 bn ~USD 3bn ~USD 4bn ~USD 10bn Motor in Latin America Agriculture Protection Gap in Brazil Motor protection gap of USD 76 billion Insured area vs. planted area (in 2016) 2.8x the current market in 9% these countries Estimated annual loss of around BRL 11 billion due In Brazil 33% of vehicles to extreme events without any type of motor 91% insurance Uninsured Insured Source: Motor: National statistics agency, national insurance regulators and association and Swiss Re Institute; Brazil | 2019 | Swiss Re 14 Agro: Latino Insurance Report for ALASA, 2018. Why does it matter.. ..strengthening global economic resilience which can be directly influenced by re/-insurance Kenya Livestock Hurricanes Mexico Earthquake The government of Kenya is paying In 2017, the Caribbean Catastrophe Risk Insurance Facility Improved seismic building codes about USD 2 million to 12,000 provided the payout to the countries affected by Hurricanes introduced after the 1985 Michoacán pastoral households across six Maria and Irma within 14 days. earthquake showed their worth. The counties. This innovative insurance product has been offered to all 16 extent of damage in Mexico City The programme uses satellites to CCRIF members. following the 2017 earthquake was monitor vegetation available to much less than in 1985. livestock, and triggers financial Wildfires Around 2,000 buildings sustained assistance for feed, veterinary Canadian insurance companies sent emergency crews into moderate to severe damage, 80 medicines and water trucks when evacuation sites to provide immediate relief. buildings were completely destroyed. drought gets so bad that animal lives The industry deployed funds fast to cover the immediate are at risk. additional living expenses. Brazil | Brasil2019| 2019|| Swiss Swiss Re Re 15 Insurance Penetration/Development Non-life insurance penetration Life insurance penetration (premiums as a % of GDP) (premiums as a % of GDP) South Africa: 11%, 8 Singapore 5% 7% Japan United States 6% 4% 5% Germany 3% South Africa 4% Argentina Thailand Malaysia Chile Japan Colombia 3% United States 2%