Future market growth The way forward

1
Future market growth The way forward
John CoomberChief Executive Officer Swiss Re
2
Agenda

• Insurance and the global economy
• Ingredients of a successful market
• Some thoughts on the Irish market
• Conclusions

3
Insurance remains a growth industry
Premium index based on real growth rates (1990
100)
CAGR
4.5
3.1
2.5
Source Swiss Re Economic Research Consulting
4
Insurance penetration increases with GDP per
capita - Life
Life insurance 4.6 of global GDP
14
13
12
11
10
9
8
Life premiums in of GDP, 2003
7
6
5
4
3
2
1
0
100
1,000
10,000
100,000
GDP per capita, USD, 2003
Source Swiss Re Economic Research Consulting
5
Insurance penetration increases with GDP per
capita - Life
Life insurance 4.6 of global GDP
14
South Africa
13
12
11
10
UK
9
8
Switzerland
South Korea
Life premiums in of GDP, 2003
7
Hong Kong
Ireland
6
Singapore
Denmark
5
US
4
Germany
3
Chile
PR China
India
Thailand
Russia
Czech Republic
2
Colombia
Slovenia
Slovakia
Brazil
Poland
Hungary
Morocco
1
Argentina
Ukraine
0
100
1,000
10,000
100,000
GDP per capita, USD, 2003
Source Swiss Re Economic Research Consulting
6
Insurance penetration increases with GDP per
capita Non-life
Non-life insurance 3.5 of global GDP
6
5
4
3
Non-life premiums in of GDP, 2003
2
1
0
100
1,000
10,000
100,000
GDP per capita, USD, 2003
Source Swiss Re Economic Research Consulting
7
Insurance penetration increases with GDP per
capita Non-life
Non-life insurance 3.5 of global GDP
6
US
Switzerland
5
UK
Germany
Slovenia
4
Ireland
South Africa
3
Non-life premiums in of GDP, 2003
Czech Republic
South Korea
Denmark
Lebanon
Malaysia
Russia
Morocco
Slovakia
Jordan
2
Argentina
Colombia
Poland
Hungary
Brazil
Singapore
Hong Kong
Chile
PR China
1
0
100
1,000
10,000
100,000
GDP per capita, USD, 2003
Source Swiss Re Economic Research Consulting
8
Insurance and economic developments are linked
Increasing role of services
9
What do we do ?
Essentially, we provide capital , skills and
promises
We are an exchange where risk owners swap
risks
1 factory fire risk 5 estate protection 3
credit programmes guarantees
Our share capital facilitates risk
diversification and absorbs residual risk
Insurance contingent equity in clients
balance sheets
cost of equity cost of insurance
10
The insurance industry the added value

• Important pooling mechanism - diversifying risk
• between pool members
• across products
• across geographies
• over time
• Provides a risk pricing mechanism
• Capital and surplus provide a shock absorber for
  volatility

11
Conditions for insurance

• Randomness
• The insured should not be able to induce a
  claimable event
• Assessibility
• Within reasonable confidence limits it must be
  possible to assess the frequency and severity of
  claimable events
• Mutuality of interest
• Insureds must be satisfied that the terms for
  sharing risk with other members of the insured
  community are economically fair
• Affordability
• The absolute amount payable for any event or
  series of events must be limited to an amount
  which can be diversified within the risk pool

12
Challenges of risk management

• Climate change
• frequency
• severity
• risk landscape
• Demographic change
• Terrorism
• Longevity
• Technology
• New risk solutions

13
Indicators of climate changeObserved temperature
Source IPCC 2001
14
The next 100 yearsTemperature projections
Source IPCC 2001
15
The next 100 yearsIncreasing variability

• Toward the end of the century every second summer
  could be as warm or warmer than 2003.

Source Nature 2004
16
Climate and demographic change
17
Headlines - Life expectancy
18
Ageing has increased the proportion of people
reaching old age
100
2000
1950
1920
1900
Survivors
Age
Life-span
Source British Actuarial Journal 1999 Vol 5
19
Future ageing may continue or accelerate the
established trend
100
2030?
2000
1950
Survivors
Life-span
Age
Source Swiss Re Life Health
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and/or push the lifespan limit
100
2030?
2000
1950
Increasing Uncertainty
Relative cost of inflation- linked annuity at age
65 (illustrative) 1950 82 2000 100 2030 111 - 186
Survivors
Lifespan ?
Age
Source Swiss Re Life Health
21
Agenda

• Insurance and the global economy
• Ingredients of a successful market
• Some thoughts on the Irish market
• Conclusions

22
Ingredients of a successful market

• Access to capital
• Broad skill base
• Favourable tax and regulatory environment
• effective and stable supervision
• facilitates innovation
• stable and supportive tax regime
• Scale for cost efficiency
• Positive relationship with Government

23
Government in partnership with industry

• Addressing the commercial boundaries of
  insurability e.g. terrorism
• Mandated coverage e.g. motor
• Transferring risk from State to the individual

24
Agenda

• Insurance and the global economy
• Ingredients of a successful market
• Some thoughts on the Irish market
• Conclusions

25
Historical real GDP growth of major economies
Source Oxford Economic Forecasting
26
Future estimated real GDP growth of major
economies
Source Oxford Economic Forecasting
27
Population growth
Source Oxford Economic Forecasting
28
Pension dependency ratio retired/working
Source Oxford Economic Forecasting
29
Size of market shown as share of European
insurance market

Source, Swiss Re Economic Research and
Consulting, 2002
30
Ireland

• Well respected primary, secondary and tertiary
  education
• Returning professional emigrants with
  international experience
• Well established insurance industry
  infrastructure for professional development
• Supportive tax and regulatory regimes

31
Agenda

• Insurance and the global economy
• Ingredients of a successful market
• Some thoughts on the Irish market
• Conclusions

32
Conclusions

• Irish insurance industry well situated to benefit
  from economic growth and rising demand for risk
  transfer products
• Realising this opportunity depends on our ability
  to successfully engage with consumers and
  Government to
• build trust
• Enhance consumer understanding of their own
  needs, the solutions we provide and how these
  integrate with state provision

33
Future market growth The way forward
John CoomberChief Executive Officer Swiss Re