AON RISK SERVICES CLIENT SEMINAR 2009 STATE OF

AON RISK SERVICES CLIENT SEMINAR 2009 STATE OF THE ART RISK MANAGEMENT DURING THE CRISIS Amsterdam, 10 th September, 2009 August Pröbstl

Agenda 1. About Us 2. Trends / Developments 3. One of our answers MARP – August Pröbstl – AON Risk Services September 2009 2

Munich Re Group Half-year facts & figures 2008 and 2009 30 June 2008 30 June 2009 Ratings A. M. Best Fitch Moody's S&P A+ (superior) AA- (very strong) Aa 3 (excellent) AA- (very strong) Reinsurance premiums Life/ Health: Non-Life: € 3. 4 Mrd € 7. 4 Mrd Life/ Health: Non-Life: € 4. 4 Mrd € 7. 9 Mrd Life/ Health: Non-Life: € 5. 9 Mrd € 2. 8 Mrd Life/ Health: Non-Life: € 6. 1 Mrd € 2. 8 Mrd (half year!) Insurance premiums (half year!) Assets under management € 175 Mrd € 177 Mrd Employees >44. 000 >47. 000 More than 50 countries Regional presence Munich Re Group is a strong and reliable risk partner these days and, it goes without saying, as well in the future. MARP – August Pröbstl – AON Risk Services September 2009 3

Risk Management within Munich Re Group Our strength – your added value Reduced impact of weak capital market Hedging strategy proved successful in financial crisis Group-wide strategic risk management framework Reasonable exposure to financial sector Binding strategic risk criteria and operational limits driving Group-wide risk management Hardly exposed in stock market, ~73% very well rated government FI bonds Pro-active internal Risk Management Ongoing analysis of scenarios Reliable risk modeling Swift reaction to changed market conditions and targeted measures across all Lo. B Risks generally well captured by existing risk models MARP – August Pröbstl – AON Risk Services September 2009 4

Munich Re Group’s Business Model More than reinsurance Traditional reinsurance solutions Large individual risks solutions Specialty commercial solutions Personal specialty solutions Standard retail solutions Risk capacity Distribution power Risk know-how MARP – August Pröbstl – AON Risk Services September 2009 5

MARP’s presence in the world Further local offices to be continuously explored London Paris Munich NY/ Princeton Singapore As an integral part of Munich Re Group, MARP offers global (re-)insurance covers for Fortune 5000 companies and leading players in their industries either via fronting or via captives MARP – August Pröbstl – AON Risk Services September 2009 6

MARP’s lines of business Traditional products and individual risk solutions available General Property Casualty § § § Property damage Business interruption Machinery breakdown Nat Cat covers … Energy § § General liability Product liability Directors’ & officers’ liability … Special Enterprise Risks § Property damage § Business interruption § Offshore in combination with onshore § Mining § … § Supply chain interruption § Coverage against reputational damage or loss of brand value § Non-physical damage BI § … Engineering § § § Contractors all risks Erection all risks Builders risks Advanced loss of profit Delay in start-up …. Client Management as well as a claims handling and operations unit support our lines of business. MARP – August Pröbstl – AON Risk Services September 2009 7

Agenda 1. About Us 2. Trends / Developments 3. One of Our Answers MARP – August Pröbstl – AON Risk Services September 2009 8

Some global cycle indicators implying moderate price increases >> Global Cycle indicators Summary Capital endowment of reinsurance and primary insurance industry • Less than expected capacity-induced change and capacity constraints • Balance sheets and shareholders equity have recovered, but not to pre-crisis level Current level of r/i prices Capacity restrictions do not indicate broadbased significant further price increases June/July renewals: • Overall price increases not as significant as expected • Significant increases in capital- and loss-intensive lines • Regional differences persist Pricing is improving, but no widespread hardening / MARP – August Pröbstl – AON Risk Services September 2009 9

>> Some global cycle indicators impacting moderate price increases Global Cycle indicators Summary “Consensus” of external views about the cycle External observers expect: • Prices to increase slightly with substantial differences by line and region • For capital intensive lines further price increases are expected • For regions and lines with recent losses and exposure increases further hardening is expected / Macro economy; expected capital market returns / • Recently improved economic outlook but still high uncertainties • Investment returns recovered recently, but still not reaching pre-crisis levels • On balance overall macro economy supportive for price increases MARP – August Pröbstl – AON Risk Services September 2009 10

Financial Credibility Crisis disclosed interesting insights about the insurance market CDS Spreads 1 Jan 2008 to 31 Aug 20091 Source: Datastream 900 800 Munich Re 700 600 500 400 300 200 100 0 1 Raw beta to DJ Stoxx 600, total return, daily basis, 1 -year. 5 -year credit default swaps (spreads in basis points p. a. ). Clients increasingly focus on security and financial credibility of business partners when considering the intrinsic value of capacity and overall economics in placements. MARP – August Pröbstl – AON Risk Services September 2009 11

Introduction of a risk-based capital approach Regulatory capital requirement for a captive and its types of risk current capital requirement after individual risk transfer potential requirement under Solv II § Risk-based capital approach reveals opportunity costs of self-insurance via captive § Insurance buying driven by exposures rather than available budgets MARP – August Pröbstl – AON Risk Services September 2009 12

Increased awareness for new types of risk Liquidity risks and intangible assets in the spotlight Customers § Cost-conscious and demanding § Well informed (e. g. via internet) § Diminishing loyalty Market Environment Financial Crisis § Highly competitive § Global and dynamic § Shortened product cycle Company § Pursuing profitable growth § Seizing opportunities § Taking new risks Other Important Parties § Analysts § Investors § Rating agencies Regulatory Requirements § New or pending requirements § Spinney of regulations § Various, regional distinctions “Of all our identified risks that we face, I am only able to transfer 7% to the insurance market, although I am aiming for more than 10%. ” … says a corporate risk manager. MARP – August Pröbstl – AON Risk Services September 2009 13

Agenda 1. About Us 2. Trends / Developments 3. One of Our Answers MARP – August Pröbstl – AON Risk Services September 2009 14

Special Enterprise Risk (SER) SER’s objective is to fully comprehend client’s ERM needs What does SER do? § Develop innovative solutions for individual risk profiles § Tailor-made solutions, not “off the shelf” products § Close collaboration with clients and their broker § Project-driven, not product-driven What does SER not do? § Cover 100% of client’s mitigation need without reservation § Cover standard exclusions on a stand alone basis § Cover strategic business risk or management decisions § Cover success of market entry MARP – August Pröbstl – AON Risk Services September 2009 15

SER’s working model Quite flexible, trying to identify and focus on promising topics § Boundaries are given by conceptional design and issue based work. Reputational/ Brand Value Risk Ext. Warranty Multi Year & Line REACH § Solutions are developed for individual as well as across all industries. Pandemic § SER is not a “product developing unit”. Renewable Energies Clinical Trials § In principle global with current focus Europe and US CBI Legend A few current examples Conceptional Design Issue Based Deal done MARP – August Pröbstl – AON Risk Services September 2009 16

SER solution for a pharmaceutical company Structured solution for a multi line & multi year deal 1 Captive‘s situation § Efficient capital structure using RI § FSA induced activities Motivation § Capital adequacy directive (similar to Solvency II) § Limited risk transfer using captive’s liquidity situation Coverage is 7 Lo. B, e. g. § NDBI § Product recall § Business travel accident 2 4 Deal structure § Multi year and multi line § Traditional underwriting via MARP UK 3 MARP – August Pröbstl – AON Risk Services September 2009 17

© 2009 Münchener Rückversicherungs-Gesellschaft © 2009 Munich Reinsurance Company THANK YOU VERY MUCH FOR YOUR INTEREST August Pröbstl Head of MARP Munich Re Group Tel. : +49 (0) 89/ 38 91 – 2626 Fax: +49 (0) 89/3891 – 72626 E-mail: aproebstl@munichre. com