Growth and profit opportunities in Hannover Re's longevity business Klaus Miller Member of the Executive Board 14th International Investors' Day Hannover, 23 June 2011
Current status Enhanced annuities Annuity BATs Conclusion Agenda Current status Enhanced annuities Annuity block assumption transactions Conclusion
Current status Enhanced annuities Annuity BATs Conclusion Agenda Current status Enhanced annuities Annuity block assumption transactions Conclusion
Current status Enhanced annuities Annuity BATs Conclusion The five-pillar business model Our long-term unique business approach Financial Solutions New Markets Bancassurance Multinationals Conventional R/I Worldwide: new business financing, block assumption transactions in life, personal accident and annuities Worldwide: inventing and pioneering new markets, e.g. enhanced annuities, products for senior citizens and takaful Current emphasis on Southern Europe, Scandinavia, selected Asian markets Preferred partner of various major international groups of life companies Selected lines of business: life, critical illness and health (niches!) Selected markets: USA, UK, Australia, Asia, South Africa and Latin America 1
Current status Enhanced annuities Annuity BATs Conclusion Life and health reinsurance: well diversified portfolio 5 strategic pillars Regional split Conventional R/I 43% Financial Solutions 8% New Markets 28% Australia 7% Germany 7% Asia 7% France 3% Africa 3% Latin America 3% North America 35% Multinationals 10% Bancassurance 11% Other European countries 8% United Kingdom 27% 2010 Gross written premium: EUR 5,090 m. (2009: EUR 4,529 m.) 2
Current status Enhanced annuities Annuity BATs Conclusion Strong growth of life and annuity business Diversify into longevity: annuity CAGR 2006-2010 of 45% in m. EUR 5,000 4,529 5,090 4,000 3,000 2,794 3,083 3,135 3,164 3,386 2,166 2,262 2,198 2,000 1,000,0 758 445 458 328 241 62 314 410 69 87 59 1,076 530 520 99 2006 2007 2008 2009 2010 Total GWP Life (incl. disability) Annuity Health Personal accident Consolidated IFRS gross written premium 3
Current status Enhanced annuities Annuity BATs Conclusion Improved diversification of our portfolio Portion of annuities more than doubled within 5 years 2006 EUR 2,794 m. 2010 EUR 5,090 m. Health 12% Personal accident 2% Health 10% Personal accident 2% Annuity 9% Annuity 21% Life (incl. disability) 77% Life (incl. disability) 67% 4
Current status Enhanced annuities Annuity BATs Conclusion Longevity will last forever HLR identified the trend in 1995 Market leader UK enhanced annuities IFRS net premium 1995 to 2010: GBP 2,653 m. (EUR 3,088 m.) PVFP 1) 2010: EUR 138 m. VIF 2) 2010: EUR 69.3 m. Key success factor: automatic medical underwriting system Steady growth in UK annuity block assumption transactions (BATs) Liability written as of 2010: GBP 4,000 m. (EUR 4,700 m.) PVFP 1) 2010: EUR 168 m. VIF 2) 2010: EUR 30.8 m. Key success factor: preferred partner for all market participants 1) PVFP = Present Value of Future Profits 2) VIF = Value in Force 5
Current status Enhanced annuities Annuity BATs Conclusion UK annuities - where it all began... How is the future of annuities? Enhanced annuities From innovative niche to main stream commodity market Margins reducing Underwriting systems built by clients and competitors Annuity block assumption transactions Intermediates creaming off margins Capital market as partner and/or competitor Insufficient capacity for large corporations Longevity exposure is currently concentrated in the UK Relying on existing lines of business is risky 6
Current status Enhanced annuities Annuity BATs Conclusion...and how it will develop Further improve the UK proposition Export concept to other countries Write alternative longevity products 7
Current status Enhanced annuities Annuity BATs Conclusion Agenda Current status Enhanced annuities Annuity block assumption transactions Conclusion
Current status Enhanced annuities Annuity BATs Conclusion Enhanced annuity application High volumes require efficient processing Portals Portals enable efficient comparison of quotes for Independent Financial Advisors (IFAs) and consumers HLR-Point of sale (HLR-POS) to cope with variety of information provided Flexible portal version of HLR-POS being developed to provide immediate guaranteed quotes on all portals Tele-interviewing/tele-underwriting Based on co-operation with portals Improves quality of medical information D2C (Dedicated 2 Customers) propositions * Through the Looking-Glass and what Alice found there (1871) "It takes all the running you can do, to keep in the same place."* 8
Current status Enhanced annuities Annuity BATs Conclusion Enhanced annuities spread around the world US Cooperation with a strong partner Huge market volumes Launch is immanent Ireland Individual annuity market similar to the UK First tender for enhanced annuities Germany Vesting individual annuity business developing (Riester, Rürup) German providers gaining interest Discussions with a couple of clients started 9
Current status Enhanced annuities Annuity BATs Conclusion Agenda Current status Enhanced annuities Annuity block assumption transactions Conclusion
Current status Enhanced annuities Annuity BATs Conclusion Capital markets as partner Anchor investor for capital market placements Innovative short-term concepts required Writing longevity-linked covered derivatives Mortality index covers Mortality/longevity swaps Co-operation with Insurance-Linked Securities (ILS) Innovative concepts offer attractive margins 10
Current status Enhanced annuities Annuity BATs Conclusion Annuity BATs spreading Many opportunities Ireland First block assumption transaction closed Liability: EUR 150 m. Further opportunities in the pipeline Germany Key market for HLR Co-operation with a bank started Denmark Quoted for Pension fund with liabilities of DKK 4.3 bn. (EUR 580 m.) Pension fund is determined to transact Canada and Spain First quotes provided Interest developing on a worldwide basis 11
Current status Enhanced annuities Annuity BATs Conclusion Billions are waiting for placement Is liquidity in the longevity market a necessity? 12
Current status Enhanced annuities Annuity BATs Conclusion Conclusion Need to invest in enhanced annuity HLR-POS Explore new concepts for annuity block assumption transactions involving capital markets and their instruments In the next three years we will expand our longevity solutions into other (non-uk) markets and grow our longevity business overall by ~50% As the market leader for longevity solutions we will benefit most from underlying strong market growth 13