Presentation - Renewals 2004 - Munich Re

munichre

Presentation - Renewals 2004 - Munich Re

Munich Re Group

Renewals 2004

19 February 2004


Agenda

Overview

Reinsurance group

Business units / Lines of business

Outlook


Overview


Munich Re’s renewals

Highlights

Overview

Reinsurance group Business units / Lines of business Outlook

Renewal season successful: all profitability targets met

– Rate increases averaging nearly 5%

– Further improvement in terms and conditions driven by risk

limitations and exclusions

– Overall growth flat

Risk profile clearly improved;

conditions for a continued strong operating performance set

4


Market sentiment

Overview

Reinsurance group Business units / Lines of business Outlook

– Ongoing high degree of

discipline, also among small

market players = focus on

underwriting profit, not growth

– Hard market still holding but

ambivalent signals; game is

played on a high plateau

– Capacity generally adequate,

but not excessive

– Widely differing market

conditions (regional, line of

business, proportional vs.

non-proportional)

300

250

200

150

100

50

0

CBS-Lloyds Index (1986=100)

91 93 95 97 99 01 03

Source: CBS Private Capital, December 2003

Marine

5

Non-marine

Aviation


Munich Re’s renewals strategy

Overview

Reinsurance group Business units / Lines of business Outlook

Munich Re is committed to strong profitability

(RoE targets instead of growth or market share targets)

Inadequately priced business eliminated

Focus on a sustainable improvement of our portfolio

and the enhancement of terms and conditions

Minimal topline decline offset by

significantly improved portfolio quality

6


Munich Re’s renewals

Pricing

Overview

Reinsurance group Business units / Lines of business Outlook

Munich Re met profitability targets in all lines of business and regions

– Consolidation of property rates at a technically adequate level

– Casualty rates show further increase

– Aviation business with price reductions but still risk-adequate

Improved Munich Re portfolio through consistent

and selective underwriting

7


Munich Re’s renewals

Terms and conditions

Overview

Reinsurance group Business units / Lines of business Outlook

– Consistent application of restrictive terrorism clauses

– Further implementation of event limits

– Exclusion and limitation of epidemics in high risk areas

Reduced exposure in contingent business interruption covers

– Named risk exclusion clause for large property risks

– Introduction of ACOD clause* (“one man, one event”) in workers’

compensation

Reductions of exposures in unlimited liability covers

Risk profile of our portfolio was further improved:

positive impact will be sustainable

*Accumulation of occupational disease clause

8


Reinsurance group


January renewals 2004 (Premiums written)

Overview

in %

100

80

60

40

20

0

Reinsurance group

Business units / Lines of business Outlook

Total

portfolio Facultative Total treaty Multi -year

Total

renewable

Later

renewals

January

renewals

100 21 79 1 78 17 61

10


Portfolio up for renewal

Overview

Reinsurance group

Business units / Lines of business Outlook

– Total portfolio in 2003 consisted of 21% facultative business and 79%

treaty business

– 78% of our total treaty business renewable during 2004

– 17% of total portfolio has later renewal dates (mainly Asia and the US)

– Overall, 61% of our total portfolio is renewable in January

– Portfolio mix unchanged

11


Changes in premium

Overview

in %

100

80

60

40

20

0

Reinsurance group

Business units / Lines of business Outlook

Total 2003

renewable Cancelled Renewed

Increase on

Total 2004 est.

renewable New business outcome

100 21

79 9 10 98

This represents 11.4%

of renewed.

Thereof

4.9% rate increase

6.5% share increase

All numbers on 2004 renewals contain estimates

12


Risk adequate pricing

Overview

Proportional

business

XS-treaty/

facultative

business

Reinsurance group

Business units / Lines of business Outlook

Strict application of risk-adequate pricing

– Only clients that implement strict risk-related original rates policy and

procure reinsurance for pure capacity reasons get proportional cover

– Application of sophisticated prospective pricing tools

– Permanent monitoring of original rates introduced by segment/by

market to have most up-to-date information available for adequate

underwriting decision (avoid retrospective view)

– Additional underwriting audits to verify the underwriting of our cedants

– Introduction of clauses to guarantee rate increase/rate stability of the

covered portfolio

– Application of state-of-the-art pricing tools

– Good knowledge of price adequacy

– Worldwide monitoring of price developments

13


Business units /

Lines of business


Split of renewed business by

business units / lines of business

Overview

Business units in %

Reinsurance group Business units / Lines of business

Outlook

37 Europe 1, Europe 2 / Latin America

18 North America

4 Asia, Australasia, Africa

33 Global Clients

8 Special and Financial Risks

Lines of business in %

33 Property

51 Casualty

7 Marine

5 Credit

4 Aviation/Space

15


Business units – Europe

Overview

Reinsurance group Business units / Lines of business

Outlook

– Slight rate increases in Germany; fine-tuning of terms and

conditions was achieved

– Slight premium reduction due to selective underwriting in a mature

market

– Constant price level in the UK; non-renewal of one large motor

quota share due to changed ownership

– Increased competition and adequate market capacity

16


Business units – North America

Overview

Reinsurance group Business units / Lines of business

Outlook

– Our pricing was at the very top of the US market

– Increased net retentions by clients, in order to reduce their reinsurance

costs, was a big issue

– Slight decrease of property business

– Further growth in specific US casualty lines with further increasing rates

– Withdrawal from larger industrial business as a result of rate reductions

in the market

17


Business units – Asia, Australasia, Africa

Overview

Reinsurance group Business units / Lines of business

Outlook

– Prices remained at a risk-adequate level

– Further reduction of exposures through

• typhoon limits in Greater China and earthquake limits in Israel;

• exclusion or limitation of epidemics in Hong Kong and China.

– 54% of the treaties were renewed on 1 January

Upcoming important renewal date for these regions is 1 April

(e.g. Japan, Korea)

18


Business units – Global Clients

Overview

Reinsurance group Business units / Lines of business

Outlook

– Premium reduction mainly due to planned reduction in RSA quota

share (approx –€600m)

– Increased rates for casualty business

– Property: cutback of reinsurance for Lloyds

– Treaties renewed at tighter terms and conditions

– No shortage of capacity but disciplined competition

19


Business units – Special and Financial Risks

Overview

Reinsurance group Business units / Lines of business

Outlook

– Focus on alternative markets business, aviation/space and credit

– Alternative markets:

• Consolidation of property rates

• Strong increase in casualty

– Rates in credit stable and at very attractive levels

– Strong reduction of energy business due to insufficient rates

– Aviation rates are weakening but are at a risk-adequate level

– Higher rates and more satellite launches will increase the premiums

in space

20


Lines of business – Property

Overview

Overview

Pricing

Reinsurance group Business units / Lines of business

Outlook

– Rates consolidating at technically adequate level

– The favourable loss experience over the last two years is causing

pressure with cedants trying for lower rates

– Property nat. cat. rates are starting to decrease. However, owing to

underwriting discipline in the markets, pricing remains responsible

21


Lines of business – Property

Overview

Overview

Reinsurance group Business units / Lines of business

Outlook

Terms and conditions

Reduction of exposure in contingent business interruption

– Nuclear causes exclusion

– Continuation of our terrorism insurance concept

– Further introduction of event or cession limits in nat. cat.

Capacity

– Sufficient capacity available

22


Lines of business – Property

January renewals (premiums written)

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total

portfolio Facultative Total treaty Multi -year

Total

renewable

Later

renewals

January

renewals

100 28 72 1 71 14 57

23


Lines of business – Property

Changes in premium

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total 2003

renewable Cancelled Renewed

Increase on

renewable New business

Total 2004 est.

outcome

100 22 78 5

12

95

This represents 6.4%

of renewed.

Thereof

2.6% rate increase

3.8% share increase

All numbers on 2004 renewals contain estimates

24


Lines of business – Casualty

Overview

Overview

Pricing

Reinsurance group Business units / Lines of business

Outlook

– Overall price improvement particularly in industrial risk and special

lines D&O, E&O.

– Motor:

• Proportional business stable on high level

• in XL substantial rate increases

– Increase of XL reinsurance rates, but slowed down

– Benefit of proportional reinsurance through favourable situation in

primary segment

25


Lines of business – Casualty

Overview

Overview

Reinsurance group Business units / Lines of business

Outlook

Terms and conditions

– Improved and achieved

Capacity

• Clearer definition of the scope of cover

• Tighter exclusions

Reduction of exposures, e.g. in unlimited covers

• Abolishment of severe inflation clause

• Introduction of ACOD clause*

• Old Bermuda capacity entering the market, but not aggressively

• Industrial liability – no visible overcapacity in the renewal

*Accumulation of occupational disease clause

26


Lines of business – Casualty

January renewals (premiums written)

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total

portfolio Facultative Total treaty Multi -year

Total

renewable

Later

renewals

January

renewals

100 20 80 1 79 13 66

27


Lines of business – Casualty

Changes in premium

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total 2003

renewable Cancelled Renewed

Increase on

renewable New business

Total 2004 est.

outcome

100 20

80

11 10

101

This represents 13.8%

of renewed.

Thereof

8.3% rate increase

5.5% share increase

All numbers on 2004 renewals contain estimates

28


Lines of business – Marine

Overview

Overview

Reinsurance group Business units / Lines of business

Outlook

Pricing

– Rate level generally risk-adequate

– Still rate improvements in most classes (direct business)

Terms and conditions

– Leading role in implementation of new RACE*, including biochemical

exclusion

– Introduction of occupational disease clause (one man one event) in

marine liability

Reduced exposure due to further increase in retentions

Capacity

– Increasing capacity noticeable (=more competition)

– Tight surveillance of the market is necessary

*Radioactive contamination exclusion

29


Lines of business – Marine

January renewals (premiums written)

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total

portfolio Facultative Total treaty Multi -year

Total

renewable

Later

renewals

January

renewals

100 6 94 0 94 11 83

30


Lines of business – Marine

Changes in premium

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total 2003

renewable Cancelled Renewed

Increase on

renewable New business

Total 2004 est.

outcome

100 12

88

6

5

99

This represents 6.8%

of renewed.

Thereof

3.5% rate increase

3.3% share increase

All numbers on 2004 renewals contain estimates

31


Lines of business – Credit

Overview

Overview

Pricing

Reinsurance group Business units / Lines of business

Outlook

– Increased rates, portfolio at a risk-adequate level

Terms and conditions

– Favourable terms and conditions could be maintained and defended

Capacity

– Towards the end of the renewals more capacity in the market

32


Lines of business – Credit

January renewals (premiums written)

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total

portfolio Facultative Total treaty Multi -year

Total

renewable

Later

renewals

January

renewals

100 6 94 0 94 18 76

33


Lines of business – Credit

Changes in premium

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total 2003

renewable Cancelled Renewed

Increase on

renewable New business

100 20

80

4

7

91

This represents 5% of

renewed.

Thereof

4.5% rate increase

0.5% share increase

All numbers on 2004 renewals contain estimates

Total 2004 est.

outcome

34


Lines of business – Aviation/Space

Overview

Overview

Aviation

Reinsurance group Business units / Lines of business

Outlook

– Rate reductions throughout underwriting year 2003

– Rate level still adequate

– Further rate reductions to be expected unless higher claims

frequency occurs

– Price reductions for portfolios with unchanged exposures

Space (no specific renewal date)

– Increased number of satellite launches planned in 2004

– Slight premium increase due to higher rates

35


Lines of business – Aviation/Space

January renewals (premiums written)

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business

Outlook

Total

portfolio Facultative Total treaty Multi -year

Total

renewable

Later

renewals

January

renewals

100 49 51 3 48 12 36

36


Lines of business – Aviation/Space

Changes in premium

Overview

in %

100

80

60

40

20

0

Reinsurance group Business units / Lines of business Outlook

Total 2003

renewable Cancelled Renewed

Decrease on

renewable New business

Total 2004 est.

outcome

100 2

98 4 3 97

This represents –4.1%

of renewed.

Thereof

–2.5% rate decrease

–1.6% share decrease

All numbers on 2004 renewals contain estimates

37


Outlook


Renewals outlook:

Reasons for a stable market

Overview

Supply

Reinsurance group Business units / Lines of business Outlook

– Capital position of the industry is adequate but not excessive

– Investment returns do not compensate for poor underwriting results

– Continued rating agencies’ pressure on the industry

– Improved price transparency and cycle monitoring

– Lessons learned among many industry players

Demand

– Continued high demand for reinsurance cover

– Limited appetite among primary insurers for volatile earnings remains

39


Renewals outlook: Conditions for a

continued strong operating performance remain

Overview

Reinsurance group Business units / Lines of business Outlook

– Market remains firm; some lines of business have further upward

potential

– Sufficient capacity available for adequately priced business

– Overall market discipline remains strong

Munich Re committed to RoE targets

– Further portfolio enhancement through focus on terms and conditions

– Leveraging on our strengths of expertise, quality and security

For 2004 we expect a combined ratio of under 97%

40


Appendix


Financial calendar

Overview Appendix

Reinsurance group Business units / Lines of business Outlook

17 March 2004

Provisional figures for consolidated financial statements 2003

15 April 2004

Annual report 2003; balance sheet press conference

16 April 2004

Analysts’ conference, Munich

26 May 2004

Annual General Meeting, Munich

27 May 2004

Dividend payment

3 June 2004

Interim report as at 31 March 2004

4 August 2004

Interim report as at 30 June 2004; half-year press conference

3 November 2004

Interim report as at 30 September 2004

42


For information please contact

Overview Appendix

Reinsurance group Business units / Lines of business Outlook

Pedro Janeiro Martins Christian Jacobi

Head of Investor Relations Tel.: +49 (0) 89/38 91-23 76

Tel.: +49 (0) 89/38 91-39 10 E-mail: cjacobi@munichre.com

E-mail: pmartins@munichre.com

Ralf Kleinschroth Robert Kinsella

Tel.: +49 (0) 89/38 91-45 59 Tel.: +49 (0) 89/38 91-30 19

E-mail: rkleinschroth@munichre.com E-mail: rkinsella@munichre.com

Ingrid Grunwald

Tel.: +49 (0) 89/38 91-35 17

E-mail: igrunwald@munichre.com

Fax: +49 (0) 89/38 91-98 88

E-mail: InvestorRelations@munichre.com

Internet: www.munichre.com

43


Disclaimer

Overview Appendix

Reinsurance group Business units / Lines of business Outlook

The information given here, in particular the “Outlook” section, refers to

statements relating expressly and implicitly to the future and contains words

such as “expect”, “believe”, “assume”, “targets” and other similar expressions.

Such forward-looking statements are based on current expectations, estimates,

forecasts and prognoses concerning the development of the market as well as

management estimates and assumptions. Such forward-looking statements are

no guarantee that events or results will actually materialise in the future and are

subject to risks, uncertainties, assumptions and other factors that could lead to

actual events or results deviating substantially from those anticipated in these

forward-looking statements. Other factors include in particular catastrophes that

could lead to extraordinary loss burdens as well as considerable price changes

on the capital market, namely share price changes which may have an impact

on the financial situation of the Munich Re Group.

44

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