1. Insurance Frontiers: Sustainability and Innovation in Emerging Markets Denis Kessler Chairman & CEO - SCOR IIS Seminar Rio de Janeiro, 18 June 2012

2. 2 Insurance Frontiers: Sustainability and Innovation in Emerging Markets 1Insurance is experiencing robust growth in emerging markets and markets seem to converge 2But don’t forget that each insurance market remains specific 3Achieving a sustainable development of insurance in emerging markets

3. 3 Emerging economies: a strong and lasting momentum Solid growthAlmost half of the world output Source: IMF, World Economic Outlook, April 2012 Growth rate, 2011Share of world output based on purchasing-power parity, 2011

4. 4 Emerging markets still account for a modest share of world insurance premiums… … because of low insurance penetration A relatively small fraction of insurance premiums… Source: Sigma report, May 2011, SCOR calculations Share of insurance premiums, 2010 Insurance premiums as a percentage of GDP, 2010

5. 5 … But insurance is growing very fast in emerging countries High growth rate…… and high growth in absolute terms Source: Sigma report, May 2011 Compounded annual growth rate, 2001-2010 Premium growth, 2010

6. 6 Globalisation has led to a clear convergence of market structures  On the supply side : globalisation of large insurance and brokerage companies leading to dissemination of business practices  On the demand side: globalisation of many client companies contributing to global standards  Diffusion around the world of common tools for modeling, pricing, reserving  Products, value-added services, innovations circulating around the world at an ever-increasing speed  Increased interaction between insurance regulators (IAIS)

7. 7 Insurance Frontiers: Sustainability and Innovation in Emerging Markets 1Insurance is experiencing robust growth in emerging markets and markets seem to converge 2But don’t forget that each insurance market remains specific 3Achieving a sustainable development of insurance in emerging markets

8. 8 Each insurance market remains specific (1)  One model does not fit all !  Emerging markets are not clones  They require tailor-made approaches  Adapting to local circumstances often implies offering new products and services  Really understanding an insurance market requests:  Strong commitment, time and resources  Expertise (especially from local teams)  There is no easy way to make a breakthrough  Don’t underestimate the high level of competition  Don’t neglect the volatility and cyclicality of each market  Don’t ask for quick and immediate returns

9. 9 Each insurance market remains specific (2)  Each market has its own features:  National welfare and tax systems (key of Life and health insurance)  Distribution networks (role, size, structure: agents, brokers, banks,...)  Legal systems  Regulations (need for liberalization)  Other specificities shape the demand for insurance:  savings behaviours  attitudes towards risk and uncertainty  family sizes and structures  religious beliefs, political orientations  Fast growth of economy and population creates new risks. Nat cats set to become more and more costly

10. 10 Emerging markets present specific challenges for reinsurers  Data are not always available / reliable  Models are scarce, if existing  Risk management and prevention activities are less pregnant  Emerging markets have distinct exposures to natural catastrophes  Cat exposures are evolving

11. 11 Brazil: ‘benign’ cat risk?  April Landslide:  in Teresopolis region  5 people killed, around 500 affected  March lightning  Four killed in storms  Amazon region (Para, Brazil)  January Floods  Deadly landslide occurred "after 12 hours of nonstop rain"  Death toll at 33. ~ 500 people homeless  5,243 buildings damaged or destroyed 2012 events (so far)Brazil hurricane risk  March 2004 saw the first ever South Atlantic hurricane: Catarina  An Emerging climate risk?

12. 12 Russia: Heat-wave of 2010  Russia is perceived as relatively ‘Low’ risk from a nat cat perspective  But remember 2010? ‘Longest heatwave for 1000 years’ - Russian Meteorological Center  Excess mortality (x2) in Russia during heat-wave, air pollution 2-3 time safe levels  Fires destroy 2000km 2 forest Climate change risk Source: NASA

13. 13 India: Flood, Quake and bit of Cyclone  India has the potential for significant catastrophe risk  > 20 cities with more than 1 milliion people  The Indian insurance market has suffered 21 catastrophe events since 1989 : 14 Floods, 3 Cyclones and 4 Earthquakes.  Economic growth resulting in:  Increased commercial / industrial exposure  Emerging middle class resulting in increasing personal lines coverage Massive population, major hazards Gujarat Earthquake, Mumbai Flood  Gujarat Earthquake, January 2001 : ~€500m insured loss, ~€10bn Economic Loss, around 20,000 people killed  Mumbai flood, 2005: only €20m insured loss at the time, major disruption to transport

14. 14 China: ? The next global peak zone  Even more than India, China has high exposure concentrations plus major natural hazard risk  Four Chinese earthquakes feature in the top 10 most deadly global earthquakes since 1900  ~250 industrial parks like those affected by Thai Floods  As economic development and insurance penetration increase, the financial costs of future Chinese events look set to match the human and social impact of the past Massive population, major hazards Sichuan Earthquake, 2008  Widespread outrage at the collapse of public buildings including 2 schools

15. 15 Insurance Frontiers: Sustainability and Innovation in Emerging Markets 1Insurance is experiencing robust growth in emerging markets and markets seem to converge 2But don’t forget that each insurance market remains specific 3Achieving a sustainable development of insurance in emerging markets

16. 16 A sustainable development of insurance requires…  Resources mobilized to increase expertise on risks in emerging markets  Training and education (actuaries, underwriters, loss adjusters…)  Up-to-date regulation promoting insurance development  Sound financial system supporting investments  Recourse to reinsurance to pool large Cat risks Jurisdiction Insured Losses (Mega Cats) Reinsured Losses (Mega Cats) Estimated Reinsured Share Non-Domestic Reinsured Share Thailand$15 to $20 bn$12 bn60%95% Chile$ 8.5 bn$ 8 bn95%100%

17. 17 Achieving profitability in order to ensure solvency and sustainability Emerging markets are neither gold mines… …nor coal mines… … but more realistically silver mines or copper mines Reducing volatility and cyclicality is key for the stabilization of insurance markets in emerging countries

18. 18 SCOR : a global presence