Australian Insurance Market Overview Finity Niche Insurers Conference

Transcription

1 Finity Niche Insurers Conference Thursday 8 th November, 2007 Australian Insurance Market Overview Finity Niche Insurers Conference Paul Venning Aon Australia Thursday, 8 th November 2007

2 Australian Insurance Market Overview Overall industry financial metrics Premium growth history Recent history of long tail premiums Where are we in the cycle? Future trends Forecasts 1

3 Australia Insurance Industry ROE 1983 to % 25% 20% 15% 10% 5% 0% Source: ISC / APRA

4 Australian Industry Combined Operating Ratio 12 0 % 115% 110 % 10 5% 10 0 % 95% 90% 85% 80% Source: APRA 3

5 Global Insurance Sector ROE (%) - by Region 25% Aus 20% 15% ROE target (%) US UK ROE (%) 10% Europe 5% 0% Aus Europe UK US ROE target Source: ASX, Reuters, Bloomberg. * IBES Cash EPS 12mth forward rolling, Credit Suisse estimates 4

6 P/E ratio comparison - Global Insurance Sector PER - by Region 18.0x 16.0x 14.0x Aus 12mth fwd PER (x) 12.0x 10.0x Europe US 8.0x UK 6.0x Aus Europe UK US Source: ASX, Reuters, Bloomberg. * IBES Cash EPS 12mth forward rolling, Credit Suisse estimates 5

7 Claims Reserving Probability of adequacy All major listed insurers are either at or above their long term targets Some are now adding to future reserves The trend line should be to the downside in order to protect future profitability Notwithstanding, the metric will still be substantially above APRA guidelines 6

8 Australian GWP Listed industry 7

9 Australian Net Claims Listed industry 8

10 Australian Insurance Margins Listed industry 9

11 Australian Insurance Market Overview Overall industry financial metrics Premium growth history Recent history of long tail premiums Where are we in the cycle? Future trends Forecasts 10

12 2006 Non-Life Growth Rates 11

13 Liability Insurance GWP Revenue trends 12

14 P.I. Insurance GWP Revenue trends 13

15 Australian Insurance Market Overview Overall industry financial metrics Premium growth history Recent history of long tail premiums Where are we in the cycle? Future trends Forecasts 14

16 Notional change in premium for Liability policy of $500 in Calender

17 Notional change in premium for P.I. policy of $2500 in Calender

18 Australian Insurance Market Overview Overall industry financial metrics Premium growth history Recent history of long tail premiums Where are we in the cycle? Future trends Forecasts 17

19 Aon Quarterly Market Forecast when will we hit the bottom? Bottoming Effect Bounce Effect Technical Pricing Sustainable Pricing June 04 Sep 04 Dec 04 Selective New Business & Strong Retention Mar 05 Jun 05 Sep 05 Dec 05 Market Share Behaviour Unsustainable Pricing Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Commercial Lines Pricing Cycle * Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 18

20 Rate movement in commercial classes Taken from responses of insurers & brokers & Aon 2007 forecast (f) Property Liability Professional Risks Motor W/Comp Source: JP Morgan / Deloitte Insurance Survey 2005/2006 Index 1993 =

21 Australian Insurance Market Overview Overall industry financial metrics Premium growth history Recent history of long tail premiums Where are we in the cycle? Future trends Forecasts 20

22 The Year Ahead 2007 / 2008 Expect to see: Continuation of local and overseas competition for good risks Increased capacity on most classes of insurance albeit this will slow down, but pockets will increase Deductibles/Retentions to be generally flat Some insurers focus will temper profitability as sole criteria will be volume and growth, particularly on P&C classes return on capital Expect a lot of insurer and reinsurer verbal warnings but market dynamics may ultimately prevail as in 2006 and early

23 The Year Ahead 2007 / 2008 Expect to see: The markets behaving differently in market segments plus Perhaps a more cautious approach, but a willingness to explore opportunities plus Should significant insured global disaster(s)/catastropes occur in 2007 i.e. weather, pandemic incidents expect to see markets correct and refocus their position/appetite very quickly evidence the London market reaction days after U.S. Hurricane disaster late Markets are on constant alert. 22

24 The Year Ahead 2007 / 2008 Expect to see: Increased broker and insurer competition in market place Some insurers local and global may push for flat to minor reductions but would not like to lose business! Retention is key for all of us! State of competition will vary and depend on market segments: SME greater competition Middle Market greater competition National/Global Markets complexity, size of risk, sophistication of buyer will influence competition 23

25 The Year Ahead 2007 / 2008 Expect to see: Financial results from insurers being supported by claim reserve releases may see insurer results and ROE dip quicker in 2008 than expected present company excluded, of course! Continued financial improvement and health of reinsurance sector (ability of direct insurers to collect reinsurance recoverables) underpins the market ability to continue to deliver lower premiums Greater competition by locally based insurers to win back business previously lost to London (already happening in the USA) Evidence of a number of Lloyds sponsored local underwriting agency start-ups illustrates London see local market particularly SME as a threat to their business 24

26 Australian Insurance Market Overview Overall industry financial metrics Premium growth history Recent history of long tail premiums Where are we in the cycle? Future trends Forecasts 25

27 The Market In 2007 Panel members & Aon views XL Insurance Swiss Re Liberty Int Underwriters ABN Amro Aon Bear Status quo June 2003 Dec 2005 June 2006 Dec 2006 June 2007 Dec 2007 Bull 26

28 Fire / ISR the following depicts the 3 year forecast by industry respondents & compares with actual cycle movement from forecast 1995 forecast 1996 forecast 2000 forecast 1997 forecast 1999 forecast 1998 forecast 2003 forecast 2002 forecast 2001 forecast 2004 forecast 2005 forecast 2006 forecast Aon 2007 forecast Source: JP Morgan / Deloitte Insurance Survey 2005/

29 Liability - the following depicts the 3 year forecast by industry respondents & compares with actual cycle movement from forecast 2002 forecast 2004 forecast forecast 2005 forecast 2006 forecast Aon forecast 1995 forecast 1996 forecast 1999 forecast 1997 forecast 1998 forecast 2000 forecast forecast Source: JP Morgan / Deloitte Insurance Survey 2005/

30 Finity Niche Insurers Conference Thursday 8 th November, 2007 Australian Insurance Market Overview Finity Niche Insurers Conference Paul Venning Aon Australia Thursday, 8 th November 2007

31 This presentation has been prepared for the Finity Niche Insurer Conference held on 8 November Finity Consulting Pty Limited (ABN ) wishes it to be understood that opinions put forward herein are not necessarily those of Finity and Finity is not responsible for those opinions. The information presented at the conference was of a general nature and a reader of this presentation must seek their own independent advice before using it for any purpose.