Transcription
abHelveaSwiss Equities Conference 2007Ann GodbehereChief Financial OfficerBad Ragaz, 12 January 2007abAgenda Swiss Re at a glance Building blocks for growing Swiss Re’s franchise– Generate economic profit growth– Reduce earnings volatility– Enlarge market scope HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 2Renewal trends and outlook
abSwiss Re at a glanceLeading position in P&C and L&H reinsurance (CHF 27.8bn* NPE)Successful investment manager (CHF 147bn investments, ROI 5.3%)Leading provider of insurance-linked securitisation solutions(more than CHF 3.7bn issued last 12 months)Highly diversified portfolio by region and by line of businessProven expertise in risk and capital managementStrong corporate culture based on 143 years of experienceHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 3Very strong capital base (CHF 27bn, AA ratings) & reserve position* 2005 figure, excl. Insurance SolutionsabAgenda Swiss Re at a glance Building blocks for growing Swiss Re’s franchise– Generate economic profit growth– Reduce earnings volatility– Enlarge market scope HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 4Renewal trends and outlook
Building blocks for growingSwiss Re’s franchiseabAspirationTo be the leading force in the risk transfer industry, combining professionalresources and skills with customer focus to deliver economic profit growthStrategic directionBuilding blocksDeliverablesGenerate economic profit growthReduce earnings volatilityBest in classcustomerserviceEnlarge market scopeFoundation for successHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Advance organisational excellenceAttractiveshareholderreturnsSlide 5Intelligent cycle management andefficient capital allocationGenerate economic profit growthReduce earnings volatilityEnlarge market scopeAdvance organisational excellenceSlide 6throughabcapitalto businessopportunities AllocatingSwiss Re’sstrongcapitalisationandbasedon risk-adjustedreturnsreserveadequacy ensurea sound base togrow profits Allocating capital to businessopportunities based on risk-adjustedreturns Swiss Re’s disciplined management ofinsurance cycle
abOur commitment to profit growthhas started to deliverCHF mPercent1 60015%1 500CHF m513.9%14% 16%CHF80 13%4.513%CAGR 10.2%6013.0%1 40070504401 30012%3.511%3301 2001 100201010%1 00002.5ROE annualisedNet income1H 2005EPS1H 2006Book value pershare20021H 2006Targets over the cycle: ROE 13% and EPS growth 10%Slide 7Strongly capitalised companies willbenefit from upcoming solvency changesHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 8ab Regulators and rating agencies require insurance companiesto manage against more conservative risk criteria thanbefore, e.g. S&P nat cat model changes Regulatory and rating views will move towards convergencerecognising internal risk-based capital models EU Solvency II risk based capital requirement will lead torecognition of diversification benefits and benefit companieswith strong risk management frameworks like Swiss ReÎReduction in required capital for large diversified players likeSwiss ReÎGrowth opportunities for Swiss Re to offer innovativesolutions to customers
Intelligent cycle management andefficient capital allocationabÎ Focus on profitability not volume to grow earnings and enhance returns2006 renewals incl. Insurance SolutionsCHF lproportional non-proportionalGrowthPremiums expiringPremiums 2006-10%23%-9%-6%4%12%1%2 4152 1752 5253 1053 2202 9201 8801 7602 5852 70083093013 45513 590 Diversified business modelÎ capital deployed to the most profitable lines of businessÎ focus on disciplined underwriting led to cancellations in liability and motor Target combined ratio for 2006 was “below 95%” and by mid-year 2006 was achieving 92.7%Slide 9Our capital markets expertise,scale and ies Swiss Re’sscaletoanddiversificationbasedon risk-adjustedcombinedwith soundreturnsunderwritingprinciples to mitigate extremes of cycleGenerate economic profit growthReduce earnings volatilityEnlarge market scopeAdvance organisational excellenceSlide 10abthrough Hedging instruments to manage financialmarket risks, limiting downside exposurewhile capturing attractive risk-adjustedreturns Being the leader in securitizing insurancerisks: over USD 10bn in securities to themarket since its inception in 1997 bothfor ourselves and for our clients
Capturing upside potential in equityportfolio while limiting downsideab Within the equity portfolio, derivatives are a key tool to gain upside potential while managingthe downside risk Primary strategies include the buying of put options on single stocks and broad based indicesand going short equity futures Net realised gains 1H 2006 CHF 425m Net unrealised gains June 2006 CHF 920m (vs. CHF 1 136m December 2005)Figures shown are as of Q2 2006P&L impact of thehedges: CHF 1.1bnStress .5-2.0-2.510%Stress loss in CHF bnStress loss profile for the Global Equity PortfolioEquity price movesSlide 11Including derivativesExcluding derivativesUsing Credit Default Swaps to hedgecorporate bond credit riskabDevelopment of corporate bond credit exposureCHF 8.9bn2.1CHF 21.0bn3.1CHF 26.6bnGrossexposure31.12.05Grossexposure30.6.06 BBBSlide 127.65.91.3 Net exposure reduced to CHF 20.6bnend of June 2006 by selling creditsecurities and purchasing defaultswaps on investment grade indices Reduced credit exposure mainly of Aand BBB credits9.57.41.7Insurance Solutions added CHF 8.9bnto the gross credit exposure end ofJune 20064.811.78.77.5 CHF 20.6bn1.70.93.1Overall gross credit exposure ofcorporate bonds as of end of JuneCHF 26.6bn vs end of 2005 CHF21.0bn5.24.2CHF17.7bn combined30.6.06Net exposurecombined30.6.06A A
abLeading in securitisation to increaseSwiss Re’s franchiseRoEManagevolatility9999QueensgateJan 05USD 245mUS AdminReSMEV monetisation9Vita IIApr 05USD 362mExtrememortalityPeak risk protection9ArborMar toDec 05USD 63mNat catPeak risk protection9ALPS IIDec 05USD 370mUS AdminReSMEV monetisation9Crystal CreditJan 06EUR 252mCreditMass riskreinsurance protection9AustralisJan 06USD100mNat catPeak risk protection9SuccessorJune 06USD 950mNat catPeak risk andearnings protection9June 06Privateplacement ILWsUSD 245mNat catPeak risk protection9Total issed since Jan ‘05USD 2.6bnIncrease sustainability offranchiseGrowth9999Slide 13Active hedging of peak exposures:2006 programmeTotal claims “normal & extreme”ab200 year return period as of 30.09.06USD veaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 14Hurricane NIANetEarthquake JAPAN
abReducing earnings volatilityon the liability sideAll figures in USD mEarnings volatility eventsReturn periodMarket loss"Max earnings volatility claim"Est. SR grossclaimsNormal claimshedgeMax normal SR netclaimsHurricane NORTH ATLANTIC25 yrs55 0002 0509951 055Windstorm EUROPE25 yrs13 0001 5003821 118Earthquake CALIFORNIA50 yrs22 5001 2502221 028Earthquake JAPAN50 yrs15 000600195405Ä claims exceeding these figures are considered as “extreme” claimsHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 15Hedging enlarged from capital toearnings volatilitySwiss Re’s own US hurricane* hedging Swiss Re is a leader in a wide variety ofreinsurance and capital marketsmeasures to manage volatility Managing volatility leads to moreefficient use of capital, ensuring lowercosts of capital, as well as higher andmore consistent returnsLoss probability Sound risk management ensuresstrong reserve adequacy and profitableunderwriting15%USD125bn0.8%Industry lossSwiss Re’s skills to manage volatilityUSD18bn0%Hedging**Slide 16ab50%100%Loss for Swiss Re* Refers to US onshore hurricane only** Data includes assumptions about the basis risk between inwardsindemnity covers and outwards hedging based on parametric or marketloss triggers.
Organic and transactional growthmeeting the needs of our clientsab The skills capitaland resourcesthe Grouphas developedAllocatingto businessopportunitiessuch onas riskmodels, ILS andasset managementbasedrisk-adjustedreturnsGenerate economic profit growthhave significant commercial value Emerging markets and new products such asvariable annuities in Japan and healthcare jointventure in IndiaReduce earnings volatility While Swiss Re primarily engages in organicmarket building, the Group is also a successfulmarket consolidatorEnlarge market scope Insurance Solutions provides solid growth at veryattractive terms at a time of low market growththrough GE Life UK closed December 2006 and is SwissRe’s largest Admin ReSM transaction addingfurther profitable growth in 2007Advance organisational excellenceSlide 17abInsurance Solutions providesdiversification and growth 2005 portfolio (net premiums earned)Insurance Solutions1)Swiss ReCombinedBy product segmentProperty7%20%27%By l InsuranceLife & Health traditional7%3%Admin ReSMEurope8%AmericasAsia43%41%56%USD 22.3bn1)46%46%48%Premiums: USD 5.7bnSlide 185%21%USD 28.0bnIncludes cat retro of USD 137m and other Commercial Insurance lines exited in 2005 of USD 189m
.and has consolidated Swiss Re’sglobal leadership positionabWorldwide reinsurance premiumUSD 173bn (Gross Premium Written 2005)1Total premium split0%20%40%60%80%100%Source: Economic Research & ConsultingNote 1: Pro forma for Swiss Re including GE Insurance SolutionsSlide 19abNon-life products: Opportunities for growthCommercial insuranceEngineeringCredit solutions Complimentary to other P&Clines and low correlation withcat events IS portfolio diversifies andcompliments existing SwissRe portfolio Good opportunities in Asianmarkets, mainly Japan,Korea, Singapore and HGK Higher barriers to entry, highdegree of technical expertiserequired, longer tail Strong distribution networkand highly digitised platform Niche line of business servingas door openerApprox. USD 800m premiumbase (Insurance Solutions) –emphasis on casualtyproductsHigh demand for tradefinance, corporate creditsolutions and credit andsurety business Shape regulatory and legalframework allowing healthyand broad credit marketdevelopmentÎSwiss Re currentlydeveloping products andworking to diversify theclient baseÎMarket penetration:– Actively increasingpenetration in selectedmarkets where previouslyunder represented–Large infrastructureprojects in AsiaSlide 20ÎIncrease market share viageographic expansion andrisk appetiteÎDrive organic growthopportunities in property,E&S and professional liability
abL&H products: Exploring new marketsVariable annuitiesHealth (medical insurance) Provide solutions in Asia(India, China) Establish claimsprocessing capabilities andMedical Services Providers(MSP) network withstrategic partnershipsÎ26% stake in TTKHealthcare Services inIndia acquired December2006Longevity Develop products to reducerisk of variable annuityguarantees, whilecontrolling Swiss Re's risk Develop longevityproducts with attractivepricing for investment,longevity and credit risk Discussions underway withclients willing to shareexperience data and partnerwith Swiss Re on productdevelopment In-force transaction orquota shares for newbusinessÎContinued developmentwork with clients in the USand JapanÎRange of interestedclients, primarily in UKSlide 21abSouth and East Asia drive lifeinsurance growthLife premiums writtenin 2005(Total: USD 1 974bn)350Japan19%Europe& Other45%South &EastAsia10%USA26%CAGR1995-2005Real growth rate index11.1%3002502005.5%1504%100-0.7%50HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 22WorldJapanSouth and East AsiaMiddle East and Central AsiaSources: National insurance statistics, Swiss Re Economic Research & 199519940USA
abHigh saving rates, despite low interest rates% of GDP, eHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 23Euro AreaJapanChinaSE AsiaSavingNote: Non-US Anglosphere includes Australia, Canada, UK, New ZealandSources: IMF, compiled by Reserve Bank of AustraliaabInsufficiency of state-run pensionand medical schemesProportion of health expenditure financed by state-run,private insurance, and out-of-pocket payments 2003100%80%60%40%20%0%UKHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 24AustraliaTax / Social insuranceSource: World Health OrganisationGermanyJapanPrivate InsuranceIndiaChinaOut of pocket
abAsians spend more than the globalaverage on life insuranceDeveloped Asia12%L&H insurance penetration 2005Taiwan10%UKHong KongJapan8%S. Korea FranceEmerging Asia6%Italy4%USAustraliaGermany CanadaMalaysiaIndia2%China ThailandVietnam PhilippinesIndonesia0%0.11.010.0100.0GDP per capita, 1000 USD (log scale)HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 25SwitzerlandSingaporeNote: GDP per capita figures are given in real terms and have been converted into USD at 2005 exchange rates.Source: Swiss Re Economic Research & ConsultingabSecuritisation:Swiss Re’s leading market positionTotal underwritten: 1 January 2003 to 29 December 2006* (USD m)7 7547 754Swiss Re CapitalMarkets5 7925 792Lehman Brothers5 179Goldman Sachs7 099UBS1 4691 469Barclays1 4041 404-HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 261 0002 000Lead manager* Lead underwriters of less than USD 1 000m not shownSource: Swiss Re Capital Markets3 0004 000Total underwritten5 0006 0007 0008 000
abRisks securitised since 1997:Large variety of perilsUS Term life 24% (USD 7.1bn)Embedded Value 18% (USD 5.4bn)Multiperil 13% (USD 3.9bn)US Wind 12% (USD 3.4bn)Other – Life 8% (USD 2.5bn)CA EQ 7% (USD 2.1bn)Extreme Mortality 3% (USD 1.4bn)JA EQ 3% (USD 1bn)Euro Wind 3% (USD 1bn)Pacific NW EQ 2% (USD 0.6bn)Industrial Accident 1% (USD 0.4bn)Credit Reinsurance 1% (USD 0.3bn)JA Typhoon 1% (USD 0.3bn)Auto 1% (USD 0.2bn)HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 27New Madrid 1% (USD 0.2bn)Mexico EQ 1% (USD 0.2bn)As of 17 November 2006Source: Swiss Re Capital MarketsTaiwan EQ 0% (USD 0.1bn)abInvestor segmentation: Migration from“retrocession” to investor based marketDebt capital marketinvestors nowdominate the ILSinvestor base,including large fixedincome institutionalmoney managersand many fundsdedicated to thesector. Dedicated cat funds, money managers and hedge fundshave increased their participation in the sector in recentyearsReinsurer Bank4%6%Insurer30%Moneymanager30%Bank5%Hedge fund5%HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 2820061999Moneymanager29%Dedicatedcat fund5%Reinsurer25%Market size USD 1.1bn*Source: Swiss Re Capital MarketsDedicatedcat fund28%Insurer2%Hedge fund31%Market size USD 7.5bn** Cumulative figure by end 2006 amounts to USD 23.7bn
abProjected growth rate:A case for creation of a substantial 0201120122013201420152016The compoundannual growth ratefrom 1997 – 2006is approximately39%, whichtranslates to a totaloutstanding amountof USD 23.7bnActual Outstanding ILS (39%*)Projected Outstanding ILS (31%*)Projected Outstanding ILS (27%*)Projected Outstanding ILS (39%*)HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 29*Assumed compound annual growth rateSource: Swiss Re Capital MarketsabAgenda Swiss Re at a glance Building blocks for growing Swiss Re’s franchise– Generate economic profit growth– Reduce earnings volatility– Enlarge market scope HelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 30Renewal trends and outlook
Renewals 2007:Capacity situation remains balancedab Shareholder capital for non-life primary insurance in the UnitedStates, Canada, Japan, United Kingdom, Germany and France addsup to 710 billion in 2006 Additional demand for capacity 2007- increase in exposure- higher exposure on the asset side- higher solvency due to new cat models Additional supply of capacity 2007- profits after tax- net Bermuda capital inflow- dividends and capital buy backs- internally-financed acquisitions 6% 10% 1%3%2%6%4%1%1%Illustrationof possiblescenariosHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 31Source: Swiss Re Economic Research & ConsultingRenewals 2007:Market trendsHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 32ab Very late renewal Reinsurance terms and conditions generally stable but pressureon original terms Higher client retentions and some shift to Excess of Lossstructures US property cat rates, up from January 2006 prices and nearJuly 2006 peak European windstorm rates for large global programs remainedfirm Other perils down 5-10% Pressure on casualty rates; disciplined underwriting is key
Risk, return and growth – gettingthe balance rightHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007ab By remaining disciplined, Swiss Re is committed to deliveringsustainable profit growth to our shareholders Strongly capitalised companies like Swiss Re will benefit fromupcoming solvency changes – effective capital management is astrategic priority for Swiss Re By addressing volatility on both sides of the balance sheet, SwissRe will deliver more stable earnings to our shareholders Swiss Re will benefit from substantial growth in 2007 fromInsurance Solution and GE Life UK transactions January renewals are late but bound business to date is atattractive price levelsSlide 33abCorporate calendarHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 3413 February 2007Non-life January 2007 renewals1 March 2007Annual results 2006, Analysts’ meeting3 April 2007Life & Health Embedded Value 200620 April 2007143rd Annual General Meeting8 May 2007First quarter 2007 results
abInvestor Relations contacts Hotline 41 43 285 4444– Susan Holliday– Andreas Leu– Rolf Winter 41 43 285 6516 41 43 285 5603 41 43 285 9673E-mailinvestor relations@swissre.comHelveaSwiss Equities ConferenceBad Ragaz, 12 January 2007Slide 35Cautionary note onforward-looking statementsabCertain statements contained herein are forward-looking. These statements provide current expectations of future events based on certain assumptions andinclude any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrasessuch as "anticipate", "assume", "believe", "continue", "estimate", "expect", "foresee", "intend", "may increase" and "may fluctuate" and similar expressions orby future or conditional verbs such as "will", "should", "would" and "could". These forward-looking statements involve known and unknown risks, uncertaintiesand other factors, which may cause Swiss Re's actual results, performance, achievements or prospects to be materially different from any future results,performance, achievements or prospects expressed or implied by such statements. Such factors include, among others: the impact of completed and future investments, acquisitions or dispositions, and any delays, unexpected costs or other issues experienced in connectionwith any such transaction, including the ability to efficiently and effectively integrate the former GE Insurance Solutions operations into our own;cyclicality of the reinsurance industry;changes in general economic conditions, particularly in our core markets;uncertainties in estimating reserves;the performance of financial markets;expected changes in our investment results as a result of the changed composition of our investment assets or changes in our investment policy;the frequency, severity and development of insured claim events;acts of terrorism and acts of war;mortality and morbidity experience;policy renewal and lapse rates;changes in rating agency policies or practices;the lowering or withdrawal of one or more of the financial strength or credit ratings of one or more of our subsidiaries;changes in levels of interest rates;political risks in the countries in which we operate or in which we insure risks;extraordinary events affecting our clients, such as bankruptcies and liquidations;risks associated with implementing our business strategies;changes in currency exchange rates;changes in laws and regulations, including changes in accounting standards and taxation requirements; andchanges in competitive pressures.These factors are not exhaustive. We operate in a continually changing environment and new risks emerge continually. Readers are cautioned not to placeundue reliance on forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statements, whether as a result ofnew information, future events or otherwise.Slide 36
Capturing upside potential in equity portfolio while limiting downside Figures shown are as of Q2 2006 P&L impact of the hedges: CHF 1.1bn Stress test Within the equity portfolio, derivatives are a key tool to gain upside potential while managing the downside risk
