1. Macro Issues affecting insurers
CLAIMS MANAGEMENT CONFERENCE
Jim Power
Jim Power Economics Limited
June 21st 2017

2. Global Economic Environment Irish Economic Environment
To Be discussed
Global Economic Environment
Irish Economic Environment
Insurance Issues

3. GLOBAL BACKDROP Global growth picked up H2 2016 US doing well
UK has held up well since Brexit – sterling weakness has helped exports
Euro Zone improvement very palpable
Chinese growth has stabilised
US interest rates rising > 4 increases since December % > more to come
ECB rates 0%, rate cycle could turn in 2018/19
# Global growth story compelling > implications for Interest Rates & Bond Yields

4. US GDP (YoY)

5. UK GDP (YoY)

6. Euro Zone GDP (YoY)

7. Global Growth Forecast
(IMF APRIL 17)
2016
2017f
2018f
World Output
+3.1%
+3.5%
+3.6%
Advanced
+1.7%
+2.0% US
+1.6%
+2.3%
+2.5%
Euro Zone
-Germany
+1.8%
+1.5%
-France
+1.2%
+1.4% UK
Japan
+1.0%
+0.6%
Emerging
+4.1%
+4.5%
+4.8%
China
+6.7%
+6.6%
+6.2%
India
+6.8%
+7.2%
+7.7%

8. The Global Risks Rejection of Conventional Politics
Politics – Netherlands & France OK; Germany Sept 24th OK; Italy May 2018 – cause for concern
Migration – causing dangerous tensions in EU particularly
Global Terrorism
Trump
Brexit
Equity markets have come a very long way since Q1 2009

9. Trumponomics
Corporation Tax Rate 35% to 15% - threat to Ireland? Don’t think so
Attitude to Free Trade potentially bad for Ireland
Infrastructure Investment Plan positive
Income Tax cuts positive
Creating global divisions at a time when united approach never more important in face of immense threats

10. The Irish Economy Today
Economy in strong statistical recovery
Significant domestic challenges
Housing, Public Services, Pay Pressures & Pensions
Brexit key challenge on many fronts
Trump is an unknown quantity, but FDI threat is obvious
Ireland needs to be managed in prudent, sensible manner
Competitiveness is key priority

11. Unemployment (%)

12. Employment

13. Ireland-Consumer Confidence

14. PRESSURES ON IRISH CONSUMER
Despite recovery, personal sector still financially stretched
Personal Tax burden
Income Tax Take €202 m below profile (Jan-May)
Quality of employment/low paid/lack of wage growth
Cost of living increases
Over past year : Rents +7.9%; Petrol +9%; Diesel +13.8%; Home Insurance +8%; Health Insurance +10.1%
Motor insurance +57% past 4 years
‘Squeezed middle’ getting more attention

15. THE NATIONAL COMPETITIVENESS COUNCIL 2017
Insurance inflation well above EU average
Health Insurance inflation well above EU average
Ireland remains an expensive location in which to enforce business contract (6th most expensive in OECD 32)
Cost of contract enforcement 26.9% of a claim (22.1% in OECD)
650 days to enforce contract (551 in OECD)
Legal Service Prices +10.4% Q to Q3 2016

16. Insurance Costs

17. Issues for insurance sector
Poor investment returns
Cost of claims
Number of claims
Non-profitable business written in the past
Brexit
Government interventions

18. US Dow Jones

19. US S&P 500

20. UK FTSE 100

21. German DAX

22. NIKKEI

23. ISEQ

24. Sterling v Euro

25. Bond Yields United States 1.16% 2.16% United Kingdom 0.11% 1.02%
1 YEAR
10 YEAR
United States
1.16%
2.16%
United Kingdom
0.11%
1.02%
Germany
-0.78%
0.27%
France
-0.55%
0.69%
Ireland
-0.58%
0.75%
Greece
1.61%
5.98%
Portugal
-0.23%
3.03%
Italy
-0.34%
2.24%
Spain
-0.36%
1.53%

26. Brexit
Article 50 process has begun
Eu-27 response April 29th – many conflicting aspirations
UK stance skewed by domestic politics
Divorce settlement will be very difficult
Terms of divorce will drive trade negotiations
Hard Brexit the obvious risk

27. Brexit & Ireland
Sterling impact to date – post-Brexit trading relationship bigger issue
Broad & significant sectoral implications
Trade exposure very strong > 37% Food & Drink exports; 70% Prepared Consumer Food exports go to UK
Border Issue very problematical
Opportunities as UK companies move to EU base – particularly financial services
Housing an issue – regional opportunities

28. Brexit & INSURANCE INDUSTRY – the issues
Economic impact and business environment
UK firms doing business in Ireland & Irish firms doing business in UK, do so on basis of Single European Market
Access to EU markets & access to UK market
Regulatory uncertainty
Solvency 11 – would UK firms be able to avoid?
‘Passporting’ rules
Would EU directives such as gender directive apply?
92 financial services firms giving UK as member state operate in Ireland under passporting rules

29. Passporting rules
EU freedom of establishment legislation – registered in one state can offer services in another by opening a branch or offering services on a cross-border basis without establishing a permanent presence
Prudentially regulated by UK authorities eg; Aviva, Royal London, Standard Life
Underwrite general & life insurance risks in Ireland from the UK
Loss of free movement of services & passporting – UK firms no longer able to passport across EU or EU firms passporting into UK
New licences would need to be negotiated or new business structures established

30. A HARD BREXIT – UK selling INTO EU
Identify how much business in EU
Passporting unlikely to exist
Regulatory regime unlikely to change very much
Freedom of employment will be undermined
Relocate to EU base

31. Selling from EU into uk
UK likely to reciprocate EU measures
Access to UK market will not be possible
UK will not be able to negotiate with individual EU countries
Move base to UK ( tax implications?)
Move to Isle of Man

32. THANK YOU FOR LISTENING!