Insurance Frontiers: Sustainability and Innovation in Emerging Markets Denis Kessler Chairman & CEO - SCOR

1. Insurance Frontiers: Sustainability and Innovation in Emerging Markets Denis KesslerChairman & CEO - SCOR IISSeminar Rio de Janeiro, 18 June 2012

2. Insurance Frontiers: Sustainability and Innovation in Emerging Markets

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

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

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

6. Globalisation has led to a clear convergence of market structures • On the supplyside: globalisation of large insurance and brokeragecompaniesleading to dissemination of business practices • On the demandside: globalisation of manyclient companiescontributing to global standards • Diffusion around the world of commontoolsfor modeling, pricing, reserving • Products, value-added services, innovations circulatingaround the world at an ever-increasingspeed • Increased interaction betweeninsuranceregulators(IAIS)

7. Insurance Frontiers: Sustainability and Innovation in Emerging Markets

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. Each insurance market remains specific (2) • Eachmarkethas itsownfeatures: • National welfare and taxsystems (key of Life and healthinsurance) • Distribution networks (role, size, structure: agents, brokers, banks,...) • Legalsystems • Regulations(need for liberalization) • Otherspecificitiesshape the demand for insurance: • savingsbehaviours • attitudes towardsrisk and uncertainty • familysizes and structures • religiousbeliefs, political orientations • Fastgrowth of economyand population createsnew risks. Nat cats set to become more and more costly

10. Emergingmarketspresentspecific challenges for reinsurers • Data are not alwaysavailable / reliable • Models are scarce, if existing • Risk management and preventionactivities are lesspregnant • Emergingmarkets have distinct exposures to naturalcatastrophes • Cat exposuresare evolving

11. Brazil: ‘benign’ cat risk? 2012 events (so far) Brazil hurricane risk • March 2004 saw the first ever South Atlantic hurricane: Catarina • An Emerging climate risk? • April Landslide: • in Teresopolisregion • 5people 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

12. Russia: Heat-wave of 2010 Climate change risk • 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 2000km2 forest Source: NASA

13. India: Flood, Quake and bit of Cyclone Gujarat Earthquake, Mumbai Flood Massive population, major hazards • 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 • 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

14. China: ? The next global peak zone Sichuan Earthquake, 2008 Massive population, major hazards • 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 • Widespread outrage at the collapse of public buildings including 2 schools

15. Insurance Frontiers: Sustainability and Innovation in Emerging Markets

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

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. SCOR : a global presence