Swiss Re Ag · SIX:SREN
Swiss Re — Swiss Re Economic Forum 2012
37 slides from Swiss Re's conference presentation, Dec 11, 2012
Slide 1: Turbulent times – navigating a challenging environment
Turbulent times – navigating a challenging environment Global insurance review 2012 and outlook 2013-14 Swiss Re, London, 11 December 2012 Dr. Kurt Karl, Chief Economist and Dr. Thomas Holzheu, Chief US Economist
Slide 2: Agenda
Agenda Macroeconomic environment Key risks to the outlook Life market in advanced economies Non-life market in advanced economies Emerging markets Conclusions Kurt Karl | Swiss Re Economic Research & Consulting 2
Slide 3: Macroeconomic environment
Macroeconomic environment Dr. Kurt Karl
Slide 4: Global Outlook: Economic and financial outlook
Global Outlook: Economic and financial outlook A modest US expansion is expected to continue through 2013 and into 2014, driven by consumer spending, business investment and an improvement in residential construction. Europe is in a mild recession which is expected to end soon. Growth is hampere
Slide 5: PMIs have stabilised recently, but remain fairly weak
PMIs have stabilised recently, but remain fairly weak, with China barely expanding Purchasing Managers Indices, monthly data PMIs are survey based indicators. Values above 50 indicate economic expansion, Sources: Datastream, values below 50 contraction Bloomberg Kurt Karl | Swiss Re Economic Researc
Slide 6: Real growth in GDP is expected to improve into 2014
Real growth in GDP is expected to improve into 2014 Real GDP growth, % 12 10 8 6 4 2 0 -2 -4 -6 -8 Emerging Middle East Latin America Central & Advanced Asia Eastern markets Europe 2009 2010 2011 2012 2013 2014 Source: Swiss Re Economic Research & Consulting Kurt Karl | Swiss Re Economic Research &
Slide 7: Yields in safe haven countries have dropped to extreme lows
Yields in safe haven countries have dropped to extreme lows due to increased risk aversion and loose monetary policy 10yr government bond yields, monthly data Source: Datastream Kurt Karl | Swiss Re Economic Research & Consulting 7
Slide 8: Housing set to take off in the US
Housing set to take off in the US House starts in the US, millions US Recessions Forecast Sources: Datastream, Swiss Re Economic Research and Consulting, NBER Kurt Karl | Swiss Re Economic Research & Consulting 8
Slide 9: US housing prices have increased recently whereas UK prices flat
US housing prices have increased recently whereas UK prices have been roughly flat House prices, index (right axis) and %-change yoy (left axis), monthly data For the US the seasonally adjusted S&P/Case-Shiller 20-city composite index is shown. For the UK we show the Source: Datastream Halifax all h
Slide 10: Key risks to the outlook
Key risks to the outlook
Slide 11: Recent key achievements in the Euro area crisis resolution process
Recent key achievements in the Euro area crisis resolution process European level – Building the institutions for a stable monetary union – ESM in co-ordination with ECB's "Outright Monetary Transactions" programme (OMT) has good chance to become an effective "Lender of last resort" for solvent, b
Slide 12: Three scenarios for the Euro area
Three scenarios for the Euro area: Our assessment remains broadly unchanged Euro area stays intact Greece (only) exits Disintegration of the Euro (70% probability) (25%) (5%) Policymakers gradually Greece fails to deliver on Greek exit leads to deliver on the necessary minimum required reforms co
Slide 13: Risk of "fiscal cliff"
Risk of "fiscal cliff" In the US, a number of federal government tax increases and spending cuts are scheduled to begin in January 2013 – these amount to a "fiscal cliff" of about USD 600 to 750 bn (4 – 5% of GDP) – if allowed to happen, the cliff would cause a recession Uncertainty around fisca
Slide 14: Growth rates of federal government revenue and spending
S&P 500: Not overvalued Growth rates of federal government revenue and spending: Solving the deficit problem is very feasible. Balanced by 2019? 12-month moving average, % change y-o-y ¦Clinton ¦Bush ¦Obama When revenues are growing faster than spending, the deficit is generally declining and vice R
Slide 15: Life & Health market in advanced economies
Life & Health market in advanced economies
Slide 16: L&H primary market: Navigating choppy waters
L&H primary market: Navigating choppy waters Premiums stagnated in 2012 in advanced economies and also in two key emerging markets – India and China – due to regulatory changes Capacity increased under GAAP accounting, but is down from economic/risk-based viewpoint Interest rates are a signifi
Slide 17: L&H reinsurance market: Being a large player helps
L&H reinsurance market: Being a large player helps Reinsurance continues to contract in US and UK as regulatory motive recedes Less affected by the low interest rates because of low exposure to savings products Mortality and morbidity products are growing very slowly and shrank last year in ad
Slide 18: Negative impact of low interest rates reflected in declining valuations
Negative impact of low interest rates is reflected in declining valuations for insurance companies Insurer price-to-book values and long-term interest rates 7% 3.5 6% 3.0 5% 2.5 Price-to-book ratio Long-term government 4% 2.0 bond yield 3% 1.5 2% 1.0 1% 0.5 0% 0.0 2000 2002 2004 2006 2008 2010 2012E
Slide 19: Return on equity of global composite and life insurance companies
Return on equity of 32 global composite and life insurance companies (IFRS/US GAAP data), % 25 20 15 10 RoE, % 5 0 -5 -10 Q1 2009 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 3 Canadian companies 6 UK
Slide 20: There is a huge and growing protection gap in many markets
There is a huge and growing protection gap in many markets Canada 2010: USD 1 trillion UK Continental 2011: USD 4 trillion Europe USA 2010: USD 13 trillion 2010: USD 20 trillion Japan South & East 2010: USD 8 trillion Asia 2010: USD 32 trillion Global gap: USD 79 trillion Australia 2010: USD 1 trill
Slide 21: Non-life market in advanced economies
Non-life market in advanced economies Dr. Thomas Holzheu
Slide 22: P&C primary market: Weak, but rates are likely to rise
P&C primary market: Weak, but rates are likely to rise Premium growth accelerated modestly in 2012, but profitability eroded – ROE at 5% – due to underwriting results and low investment yields Capitalisation is overstated, due to low interest rates Insurers are cautious and putting less capita
Slide 23: P&C reinsurance market: Largely following the primary market
P&C reinsurance market: Largely following the primary market Higher combined ratio compared to primary sector due to elevated cat losses, profitability eroded – ROE 4% to 5% Capitalisation is sufficient, but not as strong as it appears due to low interest rates Underwriting results are increas
Slide 24: Continuous reserve releases
Continuous reserve releases Reserve levels are declining US core reserve releases Global P&C industry has enjoyed as a % of NPE substantial reserve releases since 2004 8% Pace of releases is winding down 6% US: data shows net releases of 4% comparatively unseasoned years in 2% 2011 ? US: onl
Slide 25: Reinsurance industry capitalisation: Is there any excess capital?
Reinsurance industry capitalisation Is there any excess capital? Relevant capital adequacy ratios are not public 150 Very rough approximation 2005 = 100 is to use premiums as 130 measure for risk and ? GAAP/IFRS capital as 110 measure for available capital 90 Taking out artificial effect of un
Slide 26: Emerging markets
Emerging markets
Slide 27: Premium growth will strengthen in 2013 and beyond
Premium growth will strengthen in 2013 and beyond Life premium growth is expected to improve further in Asia now that India and China are putting the regulatory changes behind them Life premium growth remained strong in LatAm and recovered in CEE Non-life premium growth has been moderate, exce
Slide 28: Real growth in life premiums fell in 2011, stabilised in 2012
Real growth in life premiums fell in 2011, stabilised in 2012 and is expected to grow next year 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Emerging Asia Middle East Latin America Central & Advanced Eastern Europe markets 2008 2009 2010 2011 2012 2013 Source: Swiss Re Economic Research & Consulting Kur
Slide 29: Real growth in non-life premiums remains robust in EMs
Real growth in non-life premiums remains robust in EMs 25% 20% 15% 10% 5% 0% -5% -10% -15% Emerging Asia Middle East Latin America Central & Advanced Eastern markets Europe 2008 2009 2010 2011 2012 2013 Source: Swiss Re Economic Research & Consulting Kurt Karl | Swiss Re Economic Research & Consulti
Slide 30: Conclusions
Conclusions
Slide 31: Conclusions
Conclusions The economic and financial outlook is uncertain, particularly in Europe, but is expected to improve over the next two years P&C Rates, particularly casualty rates, are expected to continue improving. A strong hard market would require severe adverse developments, but this is not ex
Slide 32: Appendix
Appendix
Slide 33: Global economic outlook: Global growth improves in 2013 and 2014
Global economic outlook: Global growth improves in 2013 and 2014 2011 2012 2013 2014 Real GDP growth, annual avg., % US 1.7 2.2 2.5 3.3 Euro area 1.5 -0.4 0.4 1.3 UK 0.9 -0.2 1.6 1.8 Japan -0.7 2.0 1.6 1.5 China 9.3 7.7 8.2 8.0 Inflation, all-items CPI, annual avg., % US 3.1 2.0 2.0 2.1 Euro area 2.
Slide 34: Real non-life reinsurance premium growth, advanced and emerging markets
Real non-life reinsurance premium growth, advanced and emerging markets 2010 2011 2012 2013 2014 World -3.5% 8.0% 3.4% 4.9% 5.7% Advanced markets -4.3% 5.9% 2.1% 3.8% 4.9% Emerging markets -0.2% 15.5% 7.7% 8.5% 7.8% Source: Swiss Re Economic Research & Consulting Kurt Karl | Swiss Re Economic Resear
Slide 35: Real traditional life reinsurance premium growth
Real traditional life reinsurance premium growth, advanced and emerging markets 2010 2011 2012 2013 2014 World 2.1% 0.5% -1.6% -0.7% -0.4% Advanced markets 1.8% -0.4% -2.1% -1.3% -1.0% Emerging markets 7.0% 16.3% 4.8% 6.3% 6.3% Source: Swiss Re Economic Research & Consulting Kurt Karl | Swiss Re Eco
Slide 36: Thank you
Thank you To receive your copy of sigma publications, email [email protected] or visit www.swissre.com/sigma Kurt Karl | Swiss Re Economic Research & Consulting 36
Slide 37: Legal notice
Legal notice ©2012 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivatives of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. Although all the information used was taken from reliable sou