PRESENTATION AT THE IIZ WINTER SCHOOL BY:- FUTURE CHALLENGES, OPPORTUNITIES AND IMPERATIVES IN INSURANCE IN THE REINSURANCE SPACE PRESENTATION AT THE IIZ WINTER SCHOOL BY:-

PRESENTATION OUTLINE 1 Prevailing Insurance Industry Performance – An Overview 2 Zimbabwe’s Place On The Global Insurance Map 3 Informational Slide – The Place Of Reinsurance 4 What Role Has Reinsurance Played In Current Zimbabwe? 5 Zimbabwe – Insurance & Reinsurance Outlook

PREVAILING ZIMBABWE INSURANCE INDUSTRY PERFORMANCE - AN OVERVIEW PART I PREVAILING ZIMBABWE INSURANCE INDUSTRY PERFORMANCE - AN OVERVIEW

ZIMBABWE’S PAST 5 YEARS FINANCIAL PERFORMANCE Progressive Growth In GPW, post Dollarisation Progressive, yet marginal increase in Retention Ratios Net Commissions Payable moved up in tandem with Risk Retention trends Claims to Premium ratios have remained constant, at around 45% Continually increasing Management Expenses putting pressure on performance After Tax Profits not getting help from Investment Income. A reflection of liquidity constraints and limited high yielding investment vehicles.

ANALYSIS OF PER CLASS FINANCIAL PERFORMANCE FOR 2014/5 Fire & Motor remain the market’s major sources of GPW Retention Ratios are following the class risk spreads and the propensity to front risk in classes of high claims variance (Accident & Agriculture) Favourable reinsurance commissions in a market where reinsurers are under pressure for GPW also encouraging risk transfer. Technical Results seemingly favourably, until one factors the Management Expenses associated with transacting that business

LOCATING ZIMBABWE ON THE GLOBAL INSURANCE MAP PART II LOCATING ZIMBABWE ON THE GLOBAL INSURANCE MAP

SWISS RE’S SIGMA REPORT ON GLOBAL INSURANCE Looks at the movements in the performance indicators for the Insurance Industry in the context of Global economic performance and the performance of the Global financial markets Looks at the movements in Life & Non-Life premiums Looks at the movements in the Per Capita spending on insurance and Insurance penetration levels Gives a prediction of the direction which the industry is taking in a given outlook period.

THE PLACE OF REINSURANCE PART III THE PLACE OF REINSURANCE

WHY A DIRECT WRITER NEEDS REINSURANCE Reinsurance gives the Direct Writer capacity to underwrite risks which are too large, too complex or too risky for the Direct Writer to entirely retain to its own account Reinsurance offers the Direct Writer protection on risks which it will have retained to its own account from the possibility of single “large” losses and an accumulation of losses on a number of risks, resulting from the same loss event

PROPORTIONAL REINSURANCE – THE CAPACITY GIVERS QUOTA SHARE TREATY SURPLUS TREATY PROPORTIONAL FACULTATIVE

6M Facultative (Above 4.2 Million) 4.2M VALUE OF RISK Treaty Capacity 10% Treaty Capacity 6 Line Surplus 600K 50% 100% 80% 75% 67% 65% 24% 18% 70% 77% 86% VALUE OF RISK RISKS PICTORIAL PRESENTATION – PROPORTIONAL REINSURANCE 60% 30% 11% 12% 13% Your Retention (600,000) 14% 20% 25% 33%

TYPICAL PROPORTIONAL TREATY SUMMARY Class Retention Treaty Capacity Fire 600,000 Fire & Engineering 3,000,000 Quota Share 15,000 Accident 50,000 Miscellaneous Accident Surplus 250,000 45,000 Motor

NON-PROPORTIONAL REINSURANCE – PROTECTING THE RETAINED RISKS EXCESS OF LOSS TREATY EXCESS OF LOSS FACULTATIVE STOP LOSS / AGGREGATE XL

PICTORIAL PRESENTATION - XL TREATY Amount of loss US$30,000 Upper limit of cover Per Risk US$30,000 US$25,000 Not covered By XL US$20,000 US$15,000 Reinsurance cover US$10,000 Deductible US$5,000 US$5,000 1 2 3 4 5 6 losses

TYPICAL PROP & XL TREATY SUMMARY 2016 Accident Treaties 2016 Motor Treaties Fire & Eng. Treaties FAC OBLIG - UP TO $5,000,000 FIRE/ENG.SURPLUS - $600,000 X 5 LINES = $3,000,000 DEDUCTIBLE $20,000 XL COVER - $580,000 RETENTION $600,000 Misc. Accident Treaties MISC ACC SURPLUS - $50,000 X 5 LINES = $250,000 DEDUCTIBLE $7,500 XL COVER - $42,500 RETENTION $50,000 RETENTION $45,000 MOTOR QUOTA SHARE - $15,000 MOTOR FAC BEYOND $60,000 Motor Treaties XL COVER - $35,000 XL DEDUCTIBLE - $10,000 FAC BEYOND $300,000

WHAT ROLE HAS REINSURANCE PLAYED IN CURRENT ZIMBABWE? PART IV WHAT ROLE HAS REINSURANCE PLAYED IN CURRENT ZIMBABWE?

WHY A DIRECT WRITER NEEDS REINSURANCE Reinsurance gives the Direct Writer capacity to underwrite risks which are too large, too complex or too risky for the Direct Writer to entirely retain to its own account Reinsurance offers the Direct Writer protection on risks which it will have retained to its own account from the possibility of single “large” losses and an accumulation of losses on a number of risks, resulting from the same loss event

ZIMBABWE, A PROTECTED INSURANCE MARKET Reinsurance treaties are only placed with locally licenced players In 2000, the country had 3 indigenous companies & 1 foreign branch. Currently, there are 7 local players & 1 Regional branch. Though localised, competition has become more intense and price driven. There are cases of lack of depth & compromises, in the absence of active international players There are cases of company shareholders and directors, being non-insurance people, may not be aware of the nature and cycles of reinsurance business.

WHAT ROLE HAS REINSURANCE BEEN ASSIGNED? There has been considerable risk transfer, for capital substitution Skewed & Favourable Reinsurance commissions have persuaded Direct Writers to maintain proportional programmes on portfolios which could be retained. Reinsurance has been used a tool to accommodate / enable sub-standard pricing XL programmes have operated on considerably low deductibles Reinsurance costs have become thinner & thinner

THE ROLE OF REINSURANCE – ZIM VS GLOBAL TRENDS REINSURANCE - ZIMBABWE REINSURANCE – GLOBAL TRENDS - Capacity Plays A Major Role In Capital Substitution - Capacity Used To Accept Sub-standard & Unfamiliar Risks - Direct Writers Not Too Wary Of Counter-Party Risk - Most XL Treaty Is On Exposure Rating - Most Fac Reinsurance Is Proportional - Risk Is Largely Retained – Backed By Sound Capitalisation - Underwriting Is Only Done In Areas Of Expertise - Direct Writers Thoroughly Vet Counter-Parties - Exposure Rating Is On Prop; Motor/Acc Is On Burning Cost - Most Fac Reinsurance Is Proportional

ZIMBABWE – INSURANCE & REINSURANCE OUTLOOK PART V ZIMBABWE – INSURANCE & REINSURANCE OUTLOOK

THE FUTURE OF INSURANCE & REINSURANCE . . . Regulation of Underwriters will move towards a stricter “Solvency II” type model. Regulation will be stricter on both asset quality & solvency margins This means shareholders will be dealing with true ROE figures & will require better performance As the country opens up to (more) international investments, Zimbabwe can not sustain a closed insurance market A number of local players will consolidate into strong Global groups to operate in accordance with international standards For Insurance, it is back to the Future and for Reinsurance, the future is XL

THANK YOU, TATENDA, SIYABONGA