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General Insurance Fundamentals Basics | Fonds propres réglementaires | Assurance
Transféré par JonahJunior
Short Term Insurance Booklet
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Part 1 Understanding insurance basics Part 2 Industry thematics Part 3 Key drivers in an insurer insurers s financials Part 4 IAGs businesses Part 5 Capital management
PART 1 UNDERSTANDING INSURANCE BASICS
WHAT AN INSURER DOES
The advantage of obtaining insurance is that it allows the pooling of risks and d reduces d the th probability b bilit of f one party t bearing b i the th entire ti cost t of f a loss l Insurance policies originated in 17th century London coffee houses which became the place for sharing information on agreements of pooled risks between merchants, ultimately leading to the formation of Lloyds of London In the aftermath of The Great Fire of London, Nicholas Barbon an English physician opened The Fire Office to insure Londons brick homes, and established bli h d insurance i policies li i as we know k them h today d Today, y an insurance contract is a contract in which one party y( (the insurer) ) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policy holder. (AASB 4)
Diff Differences to t assurance and d other th financial fi i l products d t
Insurance pools the risk of uncertain future events. This is different to assurance models which pool the risk of events which will happen such as death, retirement or paying interest The actual cost of providing the general insurance product is not known at the time of selling the product The product being sold only has intangible attributes such as selling a promise to pay and the likelihood of a claim occurring The product is often a grudge purchase and a need rather than a want want
SIMPLIFIED CONCEPT RISK OF A LARGE AND INFREQUENT LOSS Every year 1 in every 1,000 houses suffers a fire at a cost of $100,000. An individual risks having to finance $100,000 if it is their turn for the 1:1000 loss. A group of 1,000 householders pooling together pay only $100 each to rebuild the house each year. Even after 10 years the individual has only paid $1,000 to protect their risk of $100,000.
SIMPLIFIED CONCEPT RISK OF SMALL FREQUENT LOSSES Every year 100 in every 1,000 , houses suffers a burglary at a cost of $1,000. An individual risks having to finance $1,000 if it is their turn for the 1:10 loss. A group of 1,000 householders pooling together pay $100 each to reimburse the cost of goods stolen. Over 10 years the individual has paid $1,000.
SHORT TAIL Claims usually known and settled within 12 months Less complexity in managing claims Less risk in predicting final settlement Generally based around property
LONG TAIL Claims may not even be reported within 12 months Settlement can take 3-4 years Greater complexity in managing claims Higher risk in predicting final settlement Generally based around medical and legal outcomes
Private Motor Home, Contents Personal Effects B t Boat Caravan / Trailer Health Travel Transport Accident Consumer Credit Compulsory Third Party (statutory) Home Liability
Fleet Motor Fire, Explosion Burglary, Theft G d i Goods in T Transit it Construction Personal Accident / Travel Credit Political Risks Kidnap & Ransom Workers Compensation (statutory) Public & Products Liability Product Recall Professional Liability D & O Liability Defamation Environmental
An insurer manages the pooling of risks to optimise the result (underwriting profit) not all risk attributes in the pool are the same:
Individual Risk Driver ability Driver age Gender Ethical Ethi l profile fil Moral risk Asset Risk Type of car Type of finance
Area Average income Level of unemployment
Inflation Exchange rates Cost of parts Fuel prices L Level l of f employment
KEY STAKEHOLDERS IN INSURANCE TRANSACTIONS
Customers/ 1st Party Claimants
Employees Distributors
PART 2 INDUSTRY THEMATICS
INDUSTRY THEMATICS
Global Insurance market (US$4,060bn)
Global GI market (US$1,667bn)
Life 59%
Non Life Non-Life 41%
China 2% Australia 2% Japan 6% Netherlands % 4% France 5%
Source: Sw iss Re Sigma No3/2008. Data as at December 2007. Notes: Includes non-life health premiums
Source: Sw iss Re Sigma No3/2008. Data as at December 2007.
Source: APRA Industry Statistics, June 2010
Over the last decade there has been a trend of privatisation, demutualisation and consolidation.
NRMA, SGIO, SGIC, CGU, Swann, RACV (JV), State, Circle, NZI Allianz, MMI, Switzerland, Federation, FAI, CIC, HIH Personal Lines Royal, Sun Alliance, Promina/Vero,Phoenix, AAMI, RAC (WA), APIA IAG
Promina (RSA) Suncorp Suncorp
Suncorp, AMP, GIO, AGC, RAQ (JV), TGIO
QBE, Australian Eagle, MLC, UAP (port), Mercantile Mutual (jv),ITT Hartford (port), Kemper, CE Heath, HIH (Commercial & Travel), Carlingford, Nat Ins Co of NZ, Colonial Mutual, Trade Indemnity
Price Increases The Insurance Market Cycle Underwriting Profits Peak
Underwriting Profits Peak
Capacity Increases Competition Increases / Rates Deteriorate Loss Ratio Begins to Rise / R t Continue Rates C ti to t Fall F ll
Loss Ratio Improves Rates Rise Capacity Leaves
Major Underwriting Losses
Source: Ord Minnett / Deloitte Touche
LARGEST GLOBAL INSURANCE LOSSES 1970 - 2008
6 of the most costly losses have occurred in the last four years
Rank Event 1 Hurricane Katrina 2 Hurricane Andrew 3 WTC Terrorist Attack 4 US, US N Northridge th id E Earthquake th k 5 Hurricane Ike 6 Hurricane Ivan 7 Hurricane Wilma 8 Hurricane Rita 9 Hurricane Charlie 10 Japan, Typhoone Mireille * Indexed to 2008
Source: Swiss Re Sigma No 2/ 2009. All figures quoted in USD.
Insured Loss $bn * 71 3 71.3 24.6 22.8 20 3 20.3 20 14.6 13.8 11.1 9.2 8.9
Year 2005 1992 2001 1994 2008 2004 2005 2005 2004 1991
AUSTRALIAS MAJOR INSURANCE LOSSES
WEATHER EVENTS DOMINATE AUSTRALIAN INSURANCE DISASTER STATISTICS
$ $4.3bn
$3.7bn $3.3bn
$2.0bn* $1 5bn $1.5bn $1 5bn $1.5bn $1.3bn $1.1bn $1.1bn $1.1bn $1bn $732m $707m $662m $579m $540m $518m*
Source: Insurance Council of Australia (2007 Repeated Cost - $million)
PART 3 KEY DRIVERS IN AN INSURERS FINANCIALS
HOW DOES AN INSURER MAKE MONEY ?
Govt. Taxes & Levies
Salaries & associated admin expenses
Distribution Di t ib ti to t Shareholders Sh h ld (return on their investment)
IAG 1H11 PROFIT & LOSS
1H10 A$m Gross written premium Gross earned premium Reinsurance expense Net earned premium Net claims expense Commission expense Underwriting expense Underwriting profit/(loss) Investment income on technical reserves Insurance profit Net corporate expense Interest Profit/(loss) from fee based business/share of associates Investment income on shareholders' funds Profit/(loss) before income tax and amortisation Income tax expense Profit/(loss) after income tax (before amortisation) Non-controlling interests Profit/(loss) attributable to IAG shareholders (before amortisation) Amortisation and impairment Profit/(loss) attributable to IAG shareholders Insurance Ratios Loss ratio Immunised loss ratio Expense ratio Commission ratio Administration ratio Combined ratio Immunised combined ratio 64.1% 65.0% 28.3% 9.4% 18.9% 92.4% 93.3% 13.4% 80.0% 78.0% 30.0% 9.3% 20.7% 110.0% 108.0% 0.1% 63.6% 66.4% 27.8% 9.1% 18.7% 91.4% 94.2% 12.7% 3,863 3,872 (229) 3,643 (2,335) (341) (689) 278 210 488 8 (43) 11 91 555 (156) 399 (58) 341 (12) 329 2H10 A$m 3,919 3,749 (327) 3,422 (2,737) (317) (707) (339) 344 5 (4) (45) (1) 5 (40) (56) (96) (41) (137) (101) (238) 1H11 A$m 3,936 3,938 (228) 3,710 (2,359) (336) (694) 321 149 470 (44) 17 147 590 (223) 367 (44) 323 (162) 161
KEY DRIVERS - HOW INSURANCE WORKS
Gross Written Premium (GWP) Is the total amount we received from customers for the payment of their insurance policies. Premiums = Gross Earned Premium (GEP) When we calculate our results for the year (financial) we only include the portion of policies up to June 30 30. Net Earned Premium (NEP) Our net earned premium is our gross earned premium minus reinsurance costs.
Is the total amount we received from customers after making adjustments for unearned premium and reinsurance costs
This is the g gross amount paid out during the year, as well as an estimate of how much we need to pay on future claims which have been incurred (whether reported or not). It also includes the cost of processing claims. We deduct from this gross amount any recoveries (reinsurance, salvage, third parties, etc, which arise from the gross claim.
These are costs associated with researching risk and determining appropriate premiums, administering policy information, marketing, distribution, etc.
This is the p profit/loss we make from our insurance business before we consider related investment income
Underwriting P fit Profit
Investment Income from Technical Reserves Policy Holder Funds, this is the income received from investments that were made using funds received from customers paying their premiums
Insurance P fit Profit
This is the profit/loss we make from our insurance business before we consider related investment income
Our insurance profit is determined by adding net earned premium to the investment return from our technical reserves and subtracting claims and underwriting expenses
Investment Income from Shareholders Fund
This is the income received from investments made using i shareholders h h ld funds. These investments are usually more aggressive than those made using technical Reserves.
Tax and other costs*
Our insurance profit is determined by adding net earned premium t the to th investment i t t return from our technical reserves and subtracting claims and underwriting expenses.
* Other costs include interest, amortisation, , etc which is specific to a company.
This is the net result after allowing for income taxes and d th the share h of f profit owing to minority shareholders/ unit holders within the Group.
The ratio of net claims expense to Net Earned Premium (NEP)
The ratio of underwriting expenses to net earned premium
Our claims and underwriting expenses measured a a percentage of our net earned premium
Investment income on technical reserve
The pre tax profit margin of the general insurance operations as a percentage of net earned premium
Policyholders Funds (Technical R Reserves) ) Provisions made for unearned premiums & outstanding t t di claims l i
More conservative i investment t t approach 100% Fixed Interest
Capital (Shareholders ( Shareholders Funds)
More assertive, includes investment in equities
CONSERVATIVE MIX HIGH CREDIT QUALITY
INVESTMENT ASSET ALLOCATION $11.8B
GROUP FIXED INTEREST & CASH $10.3B
Fixed Interest and Cash Growth
"AA" "A" A < "A"
87% of total portfolio in fixed interest and cash Growth Gro th assets ha have e risen to 40% of shareholders funds f nds Credit quality remains high 94% of fixed interest and cash rated AA or better
KEY DRIVERS 1H11 FINANCIAL MEASURES
600 500 400 300 488
4,000 5.1%
3,800 3,863
470 0.1%
200 100 5 0 1H10 2H10
Insurance Prof it (A$m)
6.0% 4.0% 2.0% -
3,700 1H10 2H10 1H11
Insurance Margin (%)
Reported GWP (A$m)
Underlying GWP Growth (%)
400 300 200 100 0 (100) (200) (300) 1H10 2H10
Net Profit After Tax (A$m)
17.35 8.50 (1.16) 1H10 2H10 4.50 1H11 9.00
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% 1H10 (1 0%) (1.0%) 2H10 1H11 17.0% 16.0%
2.00 1.60 1.20 2.03 0.80 0.40 0.00 1H10
MCR (multiple)
Long term benchmark (1.45 - 1.50)
Cash ROE (%)
DIFFERING OPERATING RATIOS
Long tail has more volatility, longer duration and higher capital
Long tail business has significantly longer claims payment cycle allowing investment returns to offset the higher loss ratios: $126 8% 8% Pr remium + inv $100 Pre emium Yr 1
Short tail business has average claims payment cycle of less than 12 months, months so investment return has less of an impact on the insurance margin earned:
$104 $100 Pr remium 4% Premiu um + inv
KEY DRIVERS IN AN INSURERS FINANCIALS
Quality & Stability of Earnings Underwriting Claims management Liability & risk management Asset A t management t Balance sheet management Stability of earnings Competitive Returns on Invested Capital
PART 4 IAGS IAG S BUSINESSES
IAGS CORPORATE STRATEGY
A portfolio of high performing, customer-focused diverse operations providing general insurance in a manner that delivers superior experiences for our stakeholders and creates shareholder value
Top quartile TSR ROE > 1.5x WACC Improve our performance in Australia and New Zealand
OUR STRATEGIC PRIORITIES OUR STRATEGY
Deliver superior performance by actively managing our portfolio and driving operational performance and execution
Pursue selective international growth options Asia and other narrow specialist opportunities Driving operational performance and execution
OUR BUSINESS MODEL AND BRANDS
DIRECT INSURANCE INTERMEDIATED INSURANCE ONLINE INSURANCE 2 DIRECT INSURANCE DIRECT INSURANCE INTERMEDIATED INSURANCE
AUS STRALIA
INTERMEDIATED INSURANCE
ACTIVE PORTFOLIO MANAGEMENT & GOVERNANCE (CORPORATE OFFICE)
1. RACV is via a distribution relationship and underwriting joint venture with RACV Limited 1 2. RACV has a 30% interest in The Buzz 3. 49% ownership of AmG Insurance, which is part of AmAssurance 4. 98% voting rights in Safety Insurance, based in Thailand 5. 26% ownership of SBI General Insurance Company, a joint venture with the State Bank of India
UNITED D KINGDOM
IAGS HISTORY
1925 National Roads and Motorists Association (NRMA) starts providing motor insurance to its members in NSW and the Australian Capital Territory Territory. NRMA Insurance begins underwriting home insurance. NRMA Insurance expands interstate, launching in Victoria. NRMA Insurance launches in Queensland. NRMA Insurance acquires MLC Building Society. NRMA Insurance acquires an interest in Thailands Safety Insurance. Insurance NRMA Insurance acquires SGIO (including SGIC). NRMA Insurance signs a joint venture agreement with RACV RACV. NRMA Insurance acquires an interest in Chinas CAA. p Limited lists on the ASX. NRMA Insurance Group
1969 1994 1995 1997 1998
2001 NRMA Insurance acquires State Insurance in NZ. NRMA Insurance acquires q the in-force p policies and renewal rights g to the HIH Australian workers compensation businesses. NRMA Insurance sells its Building Society. NRMA Insurance puts its inwards reinsurance portfolio into run off. NRMA Insurance changes its name to Insurance Australia Group (IAG). IAG acquires general insurance businesses in Australia and NZ of CGU and NZI from Aviva. IAG acquires Zurich Insurances NSW workers compensation business. IAG sells its health insurance underwriting and claims operation. IAG i increases it its i interest t ti in Chi Chinas CAA t to 100% 100%. IAG sells its financial services business, ClearView. IAGs IAG s NZ business acquires a 50% interest in Mike Henry Travel Insurance Insurance. IAGs NZ business acquires specialist underwriters National Auto Club and Clipper Club Marine. IAG acquires Royal & SunAlliances general insurance business in Thailand. IAG acquires a 30% interest in Malaysias AmAssurance.
2002 2003 003
increases it its i interest t ti in S Safety f t I Insurance i in Th Thailand il d t to almost l t 100% 100%. 2006 IAG i IAGs NZ business acquires a 51% stake in mechanical warranty insurance company DriveRight. IAG acquires a Lloyds Lloyd s managing agency and specialist Asian syndicate, syndicate branded Alba Group. IAGs NZ business increases its interest in Mike Henry Travel Insurance to 100%. IAG acquires Hastings Insurance Services and Advantage Insurance in the UK. 2007 IAG acquires Equity Insurance Group in the UK. 2008 IAGs UK business acquires specialist insurance broker Barnett & Barnett. IAG enters negotiations to form Indian general insurance joint venture with the State Bank of India. Following a strategic review, IAG revises its corporate strategy. As a result IAG scales back its UK operations by divesting some of its UK mass market underwriting and distribution businesses.
IAGS GWP MIX: 1H11
GWP BY REGION
Direct Broker/agent Affinity
PART 5 CAPITAL MANAGEMENT AND PRICING
Outcomes of risks from individual policies are unknown when underwritten However, when many similar risks are underwritten, expected results of t t l portfolio total tf li become b more predictable di t bl Claims processes are driven by: Frequency F (or ( probability) b bilit ) of f a claim l i event t occurring; i and d Severity (or size) of a claim if it occurs Risks inherent in different classes of insurance vary: High frequency / low severity (eg motor and health) outcomes easy to predict reliably Low frequency / high severity (eg earthquake and hail) outcomes hard to predict reliably
Capital plays a central role in the provision of insurance: Provides security to policyholders that claims will be paid Provides support in face of adverse unexpected outcomes from insurance activities, investment performance and operations F ilit t growth Facilitates th Can be defined as = Total Assets Total Liabilities
Capital available for regulatory purposes includes: Tier 1 (Share capital, retained earnings, eligible hybrid debt and excess technical provisions less intangible assets and goodwill) and Tier 2 (Subordinated debt, non tier 1 eligible hybrid debt and other) MCR is calculated as required by APRA as: Insurance risk charge, plus Investment risk charge, plus Maximum event retention Capital strength is measured by: Capital multiple = capital available/ MCR Capital multiple must always > 1.0 to stay in business
IAGS MINIMUM CAPTIAL REQUIREMENTS
1H10 A$m Tier 1 capital Paid-up ordinary shares Non-controlling interests Treasury shares Hybrid equity Reserves Retained earnings Excess technical provisions (net of tax) 2 Less: deductions Total Tier 1 capital Ti 2 capital Tier it l Hybrid equity in excess of Tier 1 limit Subordinated debt Other Total Tier 2 capital Capital base Minimum Capital Requirement (MCR): Insurance risk Investment risk C t t Catastrophe h concentration t ti risk i k Total MCR MCR multiple
2H10 A$m 5,353 170 (31) 475 (34) (775) 522 (2,513) 3,167 425 536 12 973 4,140
1H11 A$m 5,353 147 (35) 496 (91) (692) 454 (2,326) 3,306 404 465 9 878 4,184
5,353 154 (34) 496 (37) (362) 482 (2,789) 3,263
404 537 4 945 4,208
1,242 693 135 2,070 2.03
1,344 790 20 2,154 1.92
1,315 850 150 2,315 1.81
Hyb rid equity includes Reset Exchangeab le Securities and Reset Preference Shares. These securities are classified under APRAs prudential standards as Innovative Tier 1 and are eligib le to b e included in Tier 1 capital up to a limit of 15% of net Tier 1 capital capital. The aggregate amount of these securities in excess of this limit is included in Tier 2 capital.
Includes goodwill and intangib les, net deferred tax assets, capitalised software, deferred reinsurance expense and expected dividends. The amount of sub ordinated deb t eligib le to b e included in Tier 2 capital excludes capitalised transaction costs and discount on issue, and for foreign currency denominated deb t, the liab ility is translated at the current exchange rate excluding any related cross-currency swaps.
Meet expected claims Meet operational expenses Provide a return on capital Be competitive in market for risk
Analyse and understand the risk Premium comprised of Risk Premium Claims administration expenses Acquisition q & maintenance expenses p ( (incl. Commission) Taxes, levies, duties Reinsurance costs Profit Margin Risk Ri kP Premium i Expected No. of claims x Expected Average Claim Size Inflated and discounted
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