“The analysis of investment strategies in the insurance sector ”

1. “The analysisofinvestmentstrategies in the insurancesector” MABISZ Conference The role of insurance in stimulating the economy 8 October 2013

2. Non Life Business: 2014 scenario Bull Case Bear Case • Pricing Drives P&C Premium Growth as Volumes Fall • European P&C Insurers Continue to Push Rates Higher • New Capacity May Reduce Insurers Reinsurance Costs • Rising Yields a Mixed Blessing for Europe's Insurers • Falling Bond Values Cut European Insurer Book Values • Mark-to-Market Bond Losses May Take Toll on Results

3. Non Life Business: Bear and Bull Case BEAR CASE BULL CASE Rising Yields a Mixed Blessing for Europe's Insurers Pricing Drives P&C Premium Growth as Volumes Fall The decline in bond values will also reduce book values and hurt the profits of insurers Insurers can compensate for lower volumes by raising prices. European P&C Insurers Continue to Push Rates Higher Zurich Insurance increased personal insurance pricing by 3% and commercial insurance pricing by 5% on average in 2Q 2013 Falling values reduce the reserves for unrealized gains and losses on investments and cancel out the gains from rising equity markets Falling Bond Values Cut European Insurer Book Values New Capacity May Reduce Insurers Reinsurance Costs Abundant traditional capacity will cut the cost of reinsurance for primary insurers Mark-to-Market Bond Losses May Take Toll on Results The sharp increase in U.S. interest rates may wipe out the gains in bonds

4. Life Business: 2014 scenario Bull Case Bear Case • CDS Spreads for European Insurers Continue Declining • Spanish, Italian Bond Yields Stay Below Crisis Levels • Major Equity Markets Return to Pre-Crisis Levels • Economy Remains Greatest Threat to European Insurers • Wider Duration Gap Fuels Interest-Rate Sensitivity • Insurers May Face Higher Lapse Rate If Yields Spike

5. Life Business: Bear and Bull Case BULL CASE BEAR CASE Resolution of Europe's indebtedness may result in rising market confidence CDS Spreads for European Insurers Continue Declining Economy Remains Greatest Threat to European Insurers Market risks remain dominated by the low-yield environment Life insurers would be particularly vulnerable to any cuts in interest rates Spanish, Italian Bond Yields Stay Below Crisis Levels Wider Duration Gap Fuels Interest-Rate Sensitivity Less distressed valuations of southern European debt may ease the risk to assets held by European life insurers This lapse rate may rise if interest rates climb suddenly, which would prompt unexpected cash outflows for insurers Major Equity Markets Return to Pre-Crisis Levels Insurers May Face Higher Lapse Rate If Yields Spike Stronger equity markets may also help life-insurer balance sheets

6. Conclusion • No more “growth at all costs” strategy • Flexibility • European Macroeconomic Recovery is crucial