Post-event Loss Assessment and Implications to Underwriting 5th ICRM Symposium, Singapore, April 2014, Rajeev Ramaswamy, Property Product Manager, Asia-Pacific 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy 2 Agenda Post event loss assessment Underwriting implications Key take-aways Building awareness 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Post event loss assessment 3 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy 4 Considerations Regulator requires us to inform investors as soon as an event causes a loss to Swiss Re that is larger than USD 200m net of retrocession Sensitive information as any release may impact the share price, hence highly confidential and clear roles defined Global consistency and auditability (guidelines, minutes, quarterly audit) 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Top-down loss assessment Industry loss estimates –> Market share approach Run model footprints over in-force portfolio Bottom-up loss assessment Exposure analysis Loss assessment for every potentially affected treaty Add up claims notification/client feedback Review, validate and release Critical review and loss pick by the "project board" Press release by Investor Relations team Monitor further developments Approach 5 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy 6 Challenges Limited access to disaster site slows down loss estimation Interests abroad portfolios of global insurers CBI/BI losses difficult to estimate at an early stage Aggregation across multiple lines of business – agriculture, engineering, motor, marine – and types of businesses – treaty, facultative reinsurance, structured etc.. Wide range of initial estimates from the cat modeling firms Some clients reluctant to share their loss estimates Uncertainty as to how the nat cat schemes or pools respond 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Underwriting implications 7 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy & prior 2009, Typhoon Ketsana, Philippines 2008, Hurricane Ike, USA 2005, Hurricane Katrina, USA Chile earthquake Darfield earthquake, New Zealand Queensland flood, Australia Thailand flood Tohuku earthquake, Japan Lyttelton, earthquake, New Zealand Hurricane Sandy, USA Typhoon Haiyan, Philippines Typhoon Fitow, China Recent catastrophe events Source: Swiss Re SIGMA 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy 9 Insurance conditions Sums insured Cover Deductible Exclusions Hours clause Hazard Example Hurricane “Charley” Aug 2004 How often? How severe? Vulnerability What extent of damage? What is covered... where... and how? Value distribution Components of catastrophe models 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy CAT event HazardVulnerability Value distribution Insurance conditions 2013, Typhoon Haiyan √√ 2012, Hurricane Sandy √√√ 2011, Thailand flood √√√√ 2011, Tohuku earthquake √√ 2011, Queensland flood √√ 2011, Christchurch earthquake √√ 2010, Chile earthquake √√ 2008, Hurricane Ike √ 2005, Hurricane Katrina √√√√ Learnings from recent events 10 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Secondary perils of liquefaction of soil (Christchurch earthquake) and tsunami (Tohuku earthquake) is not sufficiently included in modeling or is underestimated Unknown fault lines near Christchurch and larger than anticipated magnitude in Tohuku Increased seismicity after a large event is not modelled Significant flooding can happen outside the designated flood zones (Queensland flood /Hurricane Sandy) Lack of hazard understanding, risk awareness allowed building in heavily storm surge prone coastal and low lying areas (Tacloban, New York) Learnings from recent events: Hazard 11 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Certain construction type performing poorer than expected in the region (Haiyan) CBI losses are most difficult to model for any peril – earthquake/typhoon BI losses are not adequately modeled (Chile earthquake) Learnings from recent events: Vulnerability 12 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Missing exposures of non-property lines of business (eg. MOD Typhoon Fitow) Inadequate data quality leading to underestimation of risk; exposures at CRESTA level only, missing construction and occupancy information (Typhoon Haiyan) Concentration of assets in industrial parks along the river or coast/deltas (Thailand) Data capture not adequate in coastal towns with high value floating restaurants/casinos (Katrina) Unreported Interests abroad exposures led to surprise losses in Thailand floods Learnings from recent events: Value distribution 13 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Key take-aways 14 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Secondary perils can be more important than the primary peril but also is trickier to assess (loss/risk) High resolution claims data helps calibrate cat models and assess the risk ex-ante more accurately It is a challenge to explain and enforce changes in non-affected regions where reinsurance costs and conditions may change even when no loss has occurred Commercial cat models often require several years to implement new findings from the cat events Key take-away 15 Recent events have taught us that…. 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Building awareness 16 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy 17 Examples Pearl River Delta: Industrial clusters & flood risk 616 worlds' largest urban areas Earthquake, cyclones, storm surge, tsunami and river flood 334 cities in Asia/Oceania People potentially affected & economic loss For Jakarta, Indonesia, the Nat Cat protection gap would be ~USD 10 billion if a major earthquake or flood hit the city today By 2023, this could nearly triple unless the city improves its disaster preparedness Global ranking of citiesProtection gap studies Pearl River DeltaShanghai 5 th ICRM Symposium 2014

ICRM Symposium | April 2014 | Rajeev Ramaswamy Thank you! 18 ©2014 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation. 5 th ICRM Symposium 2014