“The analysis of investment
strategies in the insurance
sector”
MABISZ Conference
The role of insurance in
stimulating the economy
8 October 2013
Non Life Business: 2014 scenario
Bull Case
Bear Case
■ Pricing Drives P&C Premium
Growth as Volumes Fall
■ Rising Yields a Mixed Blessing for
Europe's Insurers
■ European P&C Insurers Continue
to Push Rates Higher
■ Falling Bond Values Cut
European Insurer Book Values
■ New Capacity May Reduce
Insurers Reinsurance Costs
■ Mark-to-Market Bond Losses May
Take Toll on Results
© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative
("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.
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Non Life Business: Bear and Bull Case
BEAR CASE
BULL CASE
Pricing Drives P&C
Premium Growth
as Volumes Fall
European P&C
Insurers Continue
to Push Rates
Higher
New Capacity May
Reduce Insurers
Reinsurance Costs
Insurers can compensate for
lower volumes by raising
prices.
Rising Yields a
Mixed Blessing for
Europe's Insurers
The decline in bond values
will also reduce book values
and hurt the profits of
insurers
Zurich Insurance increased
personal insurance pricing by
3%
and
commercial
insurance pricing by 5% on
average in 2Q 2013
Falling Bond
Values Cut
European Insurer
Book Values
Abundant traditional capacity
will
cut
the
cost
of
reinsurance
for
primary
insurers
Mark-to-Market
Bond Losses May
Take Toll on
Results
© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative
("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.
Falling values reduce the
reserves for unrealized gains
and losses on investments
and cancel out the gains
from rising equity markets
The sharp increase in U.S.
interest rates may wipe out
the gains in bonds
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Life Business: 2014 scenario
Bull Case
Bear Case
■ CDS Spreads for European
Insurers Continue Declining
■ Economy Remains Greatest
Threat to European Insurers
■ Spanish, Italian Bond Yields Stay
Below Crisis Levels
■ Wider Duration Gap Fuels
Interest-Rate Sensitivity
■ Major Equity Markets Return to
Pre-Crisis Levels
■ Insurers May Face Higher Lapse
Rate If Yields Spike
© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative
("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.
4
Life Business: Bear and Bull Case
BULL CASE
CDS Spreads for
European Insurers
Continue Declining
Spanish, Italian
Bond Yields Stay
Below Crisis Levels
Major Equity
Markets Return to
Pre-Crisis Levels
Resolution
of
Europe's
indebtedness may result in
rising market confidence
Less distressed valuations of
southern European debt may
ease the risk to assets held
by European life insurers
Stronger equity markets may
also help life-insurer balance
sheets
BEAR CASE
Economy Remains
Greatest Threat to
European Insurers
Wider Duration Gap
Fuels Interest-Rate
Sensitivity
Insurers May Face
Higher Lapse Rate
If Yields Spike
© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative
("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.
Market
risks
remain
dominated by the low-yield
environment
Life insurers would be
particularly vulnerable to any
cuts in interest rates
This lapse rate may rise if
interest rates climb suddenly,
which
would
prompt
unexpected cash outflows for
insurers
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Conclusion
No more “growth at all costs” strategy
Flexibility
European Macroeconomic Recovery is crucial
© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative
("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.
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