monte carlo 2017 · pdf fileincreased demand for strategic ... if major loss happens, ......

Willis Re press conference

Monte Carlo 2017

© 2017 Willis Towers Watson. All rights reserved.

willistowerswatson.com

John Cavanagh

Global CEO, Willis Re



John Haley

CEO, Willis Towers Watson



James Kent

Deputy Global CEO, Willis Re


5 © 2017 Willis Towers Watson. All rights reserved.

Landscape

Internal

Miller/SurePoint acquisitions

successfully bedded in

Towers Watson integration

a game changer

OIP work complete

Succession at CEO level

External

Prolonged soft markets but capital

at all time-high for reinsurers

M&A activity high

Evolution of alternative capital

Increased demand for strategic

advice

Low interest rates

Embryonic lines: Cyber, Mortgage,

Life, Insurtech

Specific NA Hurricane Commentary

6


Hurricane Harvey

An unusually complex cat event due to sheer level of flooding from rain

Before landfall, ‘Live Cat’ was active at triggers between $7.5B and $15B

Post event modelling suggests actual wind loss <$2B; flood will be a much larger

component

Key contributors to flood loss will emerge from Auto, Commercial,

Cargo/Inland Marine

Early market commentary suggests NFIP could exceed Sandy

Combination of i) low insurance penetration for flood and ii) significant net

retention in Auto & Commercial will drive majority of loss away from reinsurance

Too early to forecast loss but we expect delegated underwriting authority

business to produce oversized loss relative to share of market premium

Some reinsurance accounts have been impacted (regional, super regional)

Business interruption and the tort system of TX market will add to complexity

Some Tor/Hail losses in prior years experienced extensive development due

to lawyers re-opening claims via courts favouring policyholders

Likely to be a ‘long-tail’ cat recovery with the potential to creep in the same way

EQ losses have done

7

Hurricane Irma

A very different storm to Harvey being faster moving and with much greater wind

speeds

Live cat trading prior to event has been limited

Devastating impact in the Leeward Islands

High take-up of insurance with insurers reliant on reinsurance

French government has declared the loss will be ceded to CCR

Major commercial areas in Puerto Rico and Dominican Republic largely

avoided the storm

Only making US landfall this morning (EST) so variance around loss estimates

likely to vary significantly for next few days

Point of landfall favourable from expected track 2 days ago

FL is most heavily reinsured region and reinsurers pick-up losses from a relatively

low base

If major loss happens, the reinsured loss will be inflated by aggregate

covers paying immediately after exhaustion of retention from prior events

ILS a major player in the FL reinsurance market but also largest PML for most

cat reinsurers


Specific NA Hurricane Commentary, cont.

Specific NA Hurricane Commentary, cont.

8

Market dynamics in 2017 very different from 1986 and 2002

A highly regulated and disciplined reinsurance market with current capital at record

levels

Majority of cat business now placed with A+ reinsurers or collateral

ILS capital has the fluidity to move very quickly post-event

While reserves releases have slowed, we are not seeing broad reserve

strengthening as we did in aforementioned prior soft markets

Clients approach with reinsurers has been to establish comprehensive partnerships

seeking long-term stability

Expectations that long-term view provides continuity and longevity

Diversification across many reinsurance placements supports wider partnership

Key is how market reacts after a major event

Correction in 2006 led to higher attachments on many accounts as well as period

of ILS capital establishing strong foothold in US property cat

Reinsurance is a proven capital management tool


An Evolving Intermediary

9 © 2017 Willis Towers Watson. All rights reserved.

Continue to broaden our fundamental value proposition utilising the

entirety of the WTW product offering

We aspire to be the professional services provider of choice across the

risk/capital spectrum

Diversity of portfolio (product & geography) increases probability of

significant profitable growth

Growing in a soft market

Investment in people, analytics, new regions, new business lines

A transforming business model enhanced by WTW joint offering

Particularly resonates with regional, specialty and life insurers

Accessing new forms of capital and sources of risk


Alice Underwood

Global Leader, Insurance Consulting and technology



Insurance Consulting

and Technology


We live insurance


Willis Towers Watson

Insurance Consulting and Technology

12 © 2017 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Consulting …strategic and analytical expertise plus deep local

and global knowledge of the insurance industry

Technology …software and solutions that span the insurance

value chain

Insurance …our client focus

Together with our clients, innovating and transforming

the business of insurance


Partnering with re/insurers on their business priorities


Strategy & Growth

Assess relative benefits of

alternative strategies, e.g.

– Organic vs. acquisition

– New regions or products

– Distribution channels

Deployment and execution of

selected strategy

Risk & Capital Management

Practical solutions to meet

regulatory and reporting

requirements and improve

performance

Industry-leading analytical

expertise

Operational Efficiency

Transform, streamline, and

automate operational processes

Connect legacy systems

Reduce cost

Enhance customer management

Create competitive advantage

Technology

Leading global provider of

insurance technology solutions

Software products and enterprise

platforms for distribution,

underwriting, pricing, claims,

reserving, reporting, and financial

and capital modeling workflows


Europe, Middle East, and Africa Reducing expense ratios through

automation and industrialization

Enhancing analytics, data and systems

Americas Using technology to engage consumers

Developing and industrializing advanced

analytics solutions

Asia-Pacific Regulatory reform and detarification

Market share / profitability focus of local

players and MNCs

Global reach, local knowledge and presence

Current topics of interest by region include…

14 © [2017] Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.


Services as integrated or as modular as you desire


Corporate Risk

and Broking

Insurance Consulting

and Technology

Willis Re

Reinsurance broking

Human Capital

and Benefits

Willis Towers Watson

Securities

Insurance Asset

Management Client


Rafal Walkiewicz

CEO, Willis Towers Watson Securities (Re)insurance M&A Market Dynamics

© 2017 Willis Towers Watson Securities. All rights reserved.

(a) Ex. cat loss ratio excludes U.S. catastrophe losses (+$25 million per event).

Note: Public Market valuations for U.S. P&C companies only including commercial, specialty, personal, FL homeowners and Bermuda (re)insurers.

Source: SNL Financial and Insurance Information Institute.

Improving P&C Valuations are Not Supported by Fundamentals…

1.5x

17

0.8x

Price /

Book

Value

Invest.

Yield

Premium

Growth

1.5x

3.4%

3.9%

99.9%

94.1%

5.7%

4.6%

7.5%

5 Yr. Avg.

Prior to ‘07

1.5x

(3.1%)

Combined

Ratio (a)

2007 2008 2009 2010 2014 2015 2016 2011 2012 2013 YTD ‘17

Combined Ratio (ex. Cat)

Cat Load

94.9%

5.8%

100.7%

4.8%

3.3%

…and M&A Transactions Price with Meaningful Premium…

18 (a) Represents purchase price to earnings per share.

Source: SNL Financial and industry news sources.

Price / TBV

Deal Value

($mm)

Price to

EBITDA /

Earnings

Buyer /

Target

Buyer

Motivations

1.5x

$604

22.1x (a)

Scale

3.2x

$919

18.1x(a)

Modular

Economy

--

$4,200

12.2x

Capital Light

with Scale

--

$287

19.7x

Capital Light

with Growth

--

$490

50.0x

Technology

AWAC

OneBeacon

Amlin

Chubb

HCC

State National

(10%)

(5%)

0%

5%

10%

(35%) (30%) (25%) (20%) (15%) (10%) (5%) 0%

Axis

Catlin

PlatinumMontpelier

Western World

Cathedral

(10%)

(5%)

0%

5%

10%

(35%) (30%) (25%) (20%) (15%) (10%) (5%) 0%

… As Investors Support More Aggressive Deal-Making

19

Est. Immediate Acquiror TBV Accretion / (Dilution)

Source: SNL Financial, FactSet and Company filings.

Pre Q2 ‘15

After Q2 ‘15

0%

5%

10%

(5%)

Acquiro

r Sto

ck P

rice 1

-Week P

ost-A

nnouncem

ent

(35%) (30%) (25%) (20%) (15%) (5%) 0% (10%)

(10%)

Is Insurance Going to be Next Growth Driver of U.S. Economy?

8%

12%

19%

20

IRR

Valuation Drivers:

Entry Multiple: 20x

Debt Leverage: 7x

Interest Rate: 7%

Tax Rate: 35%

Premium Growth

Margin Expansion

5-Yr. EBITDA CAGR: 10% 25% 50%

Year 5 / Year 0 Ratio: 1.6x 3.0x 7.5x

Is Insurance Going to be Next Growth Driver of U.S. Economy?

5 Fastest Growing Industries in the U.S. Projected 5 Year Revenue Growth

Peer to Peer Lending +35%

Medical Marijuana Stores +38%

Cider Production +38%

Telehealth Services +50%

Motion Capture Software Developers +65%

21 Source: IBISWorld publications.

In Times of War Law Falls Silent

22

Distribution Underwriting Portfolio Management

Agent Wholesale

Agent Insurer Broker Reinsurer Broker

Retro

Provider

Technology Third Party Capital

Risk Origination Product Design Capital Pools

Skills

Current

Providers

Disruption

End

Game?

Over $7.1 billion spent on InsurTech funding since 2012 $75 billion of Alt. Capital in place – 25x increase from 2000

152

112

91

1,616 1,663

1,356

0

500

1,000

1,500

2,000

M&A Pressure will Further Increase due to Scarcity of Targets

23 Source: SNL Financial.

Public P&C Companies

Private P&C Companies

2000 2008 2016


Questions?


? ?

?

monte carlo 2017 · pdf fileincreased demand for strategic ... if major loss happens, ......

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