European Insurers: Pressures on Capital Efficiency and Expansion into Emerging Markets

2015 Insurance Market Briefing -
Europe
etc.venues St.Paul’s, London
04 November 2015

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2015 Insurance Market Briefing - Europe 4 November 2015 5
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2015 Insurance Market Briefing -
Europe
Carlos Wong-Fupuy
Senior Director, Analytics, A.M. Best
European Insurers:
Pressures on Capital Efficiency
and Expansion into Emerging
Markets

0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: European Central Bank
Italy
Spain
France
Germany
Pressures on capital efficiency
Long-Term Interest Rates for Convergence
Purposes (2000 - September, 2015)

-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012 2013 2014
%
Source: International Monetary Fund, World Economic Outlook Database, April 2015
Western Europe - Percentage Change in GDP for
Selected Countries (2008-2014)
Italy
Spain
France
Germany
UK

• Mature markets: penetration
• Regulation
• Complexity / capital intensity
• Competition
• Long-term opportunities:
– Shrinking role of the State
– Ageing populations
– Investment / infrastructure
projects

2015 Insurance Market Briefing - Europe
4 November 2015 62
Country
Gross Domestic
Product
(USD billions)
Real GDP
per Capita
(USD)
Change in
Real GDP
(%)
Insurance Market
Penetration
(%)
France 2,847 44,538 0.36% 9.5%
Germany 3,860 47,590 1.61% 6.6%
Italy 2,148 35,823 -0.42% 9.1%
Spain 1,407 30,278 1.39% 5.1%
United Kingdom 2,945 45,653 2.55% 11.9%
Sources: International Monetary Fund, World Economic Outlook Database, April 2015; Swiss Re, sigma; A.M. Best data and research

Country
Total
Premium
2014
(USD billions)
Global
Ranking
Total
Premium
2014
Total
Premium
Growth 2014
(%)
Life Premium
Growth 2014
(%)
Non-Life
Premium
Growth 2014
(%)
Total
Premium
Growth 2013
(%)
France 271 5 5.1% 7.2% 1.6% 6.7%
Germany 255 6 2.8% 3.3% 2.3% 6.6%
Italy 195 7 15.3% 23.1% -2.7% 17.3%
Spain 71 14 -0.7% -2.5% 0.9% 0.7%
United Kingdom 351 3 7.9% 7.4% 8.7% -1.1%

Strategic actions
• Returning capital to
shareholders, e.g. re-insurers
• Partnering with alternative
capital providers
• Mergers and acquisitions
• Groups’ legal re-structuring
• Re-insurance centralisation
• Cost management
• Gradually riskier investment
portfolios: real assets
and/or
• International expansion

2015 Insurance Market Briefing - Europe
BRICS challenges
4 November 2015 65
• Decoupled from
advanced
economies?
• Sliding currencies
• Sudden capital
flight?
• Globalised capital
markets
Brazil
Russia
India
China
South Africa
-10
-5
0
5
10
15
2008 2009 2010 2011 2012 2013 2014
%
Percentage Change in GDP (2008-2014)
Source: International Monetary Fund, World Economic Outlook Database, April 2015

BRICS challenges
• Fiscal imbalances
• Heavy commodity reliance
Credit ratings downgrades
• High unemployment
• Economic recession
• Unstable government
• Low oil prices
• High inflation / devaluation
• International sanctions
• Foreign investment flight
• Geopolitical tensions
• Stock market turmoil
• Yuan devaluation
• Decrease in exports
• Shift from infrastructure
investments to domestic
consumption
• Less dependence on
China
• Oil importer
• Fragile banking system /
bad debts
• Rigid labour laws
• State level legislation• Smallest of all BRICS
• Lagged behind during
commodity boom
• High unemployment
• Poor energy infrastructure
• Underinvestment in state
owned utilities

Selective growth
• Key territories:
Asia Pacific, Lat Am,
Eastern Europe, Turkey
• Exit or downsizing in particular
areas:
– Russia:
Allianz, Zurich - GI retail
– India:
RSA - GI, ING – Life
• Development costs or corrective
actions in place:
– Turkey:
Ergo, AXA – Motor
– Brazil:
Allianz, Zurich
• Regulatory changes (ownership)
/ political sanctions

Volatile emerging markets
Country
Gross Domestic
Product
(USD billions)
Real GDP
per Capita
(USD)
Change in
Real GDP
(%)
Insurance Market
Penetration
(%)
Brazil 2,353 11,604 0.15% 3.6%
Chile 258 14,477 1.84% 4.2%
China 10,380 7,589 7.36% 3.2%
Colombia 385 8,076 4.55% 2.5%
India 2,050 1,627 7.17% 3.4%
Mexico 1,283 10,715 2.13% 2.1%
Poland 547 14,379 3.30% 3.2%
Russia 1,857 12,926 0.62% 1.4%
Turkey 806 10,482 2.90% 1.4%

Volatile emerging markets
Country
Total
Premium
2014
(USD billions)
Global
Ranking
Total
Premium
2014
Total
Premium
Growth 2014
(%)
Life Premium
Growth 2014
(%)
Non-Life
Premium
Growth 2014
(%)
Total
Premium
Growth 2013
(%)
Brazil 85 13 3.3% 2.8% 3.8% 0.5%
Chile 11 40 -6.8% -8.4% -4.5% 4.2%
China 328 4 17.3% 15.4% 19.5% 14.1%
Colombia 10 41 -5.6% -21.2% 3.2% 13.4%
India 70 15 7.2% 6.4% 10.4% -1.0%
Mexico 27 25 -0.4% 1.0% -1.7% 13.9%
Poland 17 33 -4.7% -11.0% 0.7% -6.0%
Russia 26 27 -9.4% 6.1% -11.0% 9.2%
Turkey 12 39 -6.9% -16.2% -5.4% 14.6%

Significant growth in emerging
markets (examples)
2015 Insurance Market Briefing - Europe 704 November 2015
0%
50%
100%
150%
200%
250%
300%
350%
Mapfre Talanx Pru
0%
20%
40%
60%
80%
2004 2009 2014
Mapfre (Intl) Talanx (Int) Pru (Asia)
Growth in key areas
(percentage of total premiums)
Total assets 2014 / 2004
(percentage)

Expansion becoming more
selective
1: Out of EUR 30bn, international business was EUR 4bn from six countries (namely European countries and Japan). Source: Company accounts, A.M.Best data and research
Rank Company
Country of
Domicile
Gross Premium
Written (2014)
(EUR millions)
Asia
Pacific
Central
Eastern
Europe
Latin
America Turkey
1 AXA S.A. France 86,267    
2 Allianz SE Germany 73,883    
3 Assicurazioni Generali S.p.A. Italy 66,236   
4 Zurich Insurance Group Ltd. Switzerland 45,068  
5 Prudential plc UK 41,959 
6 CNP Assurances France 30,643 
7 Credit Agricole Assurances1
France 29,377
8 Talanx AG Germany 27,903   
9 Aviva plc UK 27,694  
10 MAPFRE S.A. Spain 22,401   

Potentially higher margins but not
without some challenges
HGM: High Growth Markets. Based on 2014 year figures Source: Company accounts, A.M.Best data and research
Company
P/C
Share
HGM (%)
Combined
Ratio
HGM (%)
Combined
Ratio
Total (%)
Life
Share
HGM (%)
Life
Margin
HGM (%)
Life
Margin
Total (%)
AXA S.A. 16.0% 98.7% 97.6% 17.5% 49.0% 34.0%
Allianz SE 9.0% 111.3% 94.3% 15.1% 3.6% 2.4%
Generali S.p.A. 14.8% 96.9% 93.8% 5.9% 21.9% 24.0%
Zurich Insurance Group Ltd. 12.3% 104.6% 97.3% 33.2% 26.5% 22.1%
Prudential plc n/a n/a n/a 48.1% 52.0% 46.0%
CNP Assurances n/a n/a n/a 14.7% 32.1% 11.9%
Credit Agricole Assurances n/a n/a n/a n/a n/a n/a
Talanx AG 34.4% 96.4% 101.7% 18.6% 6.9% 1.9%
Aviva plc 10.2% 7.6% 4.1%
MAPFRE S.A. 48.8% 95.3% 95.7% 47.7% 17.7% 12.0%

Emerging Markets Challenges
• Lack of scale/
fragmented regions
• Dominance of compulsory
lines
• Dependence on regulation
• Ownership and investment
restrictions
• Loss leader behaviour/
focus on market share
• Underperformance/
management and
integration issues
• Difficult target company
valuations/
private ownership

Conclusions
• Focus on efficient re-deploying
of capital
• Expansion is becoming more
selective
• Increased efforts in turning
around existing businesses
• Groups have moved to a more
centralised approach to manage
their risks.

Q & A
Carlos Wong-Fupuy
Senior Director, Analytics, A.M. Best
European Insurers:
Pressures on Capital Efficiency
and Expansion into Emerging
Markets

European Insurers: Pressures on Capital Efficiency and Expansion into Emerging Markets

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