A DECADE’S JOURNEY
THROUGH THE INSURANCE INDUSTRY
(AND WHAT THE NEXT DECADE HOLDS…)
Joe Plumeri
Chairman and CEO, Willis Group Holdings plc
IISA/SAIA/FIA Conference
Sun City, South Africa – June 11, 2012
THE LESSONS OF HISTORY
…IN BUSINESS
From this…
…to this!
2000
2012
1
HOW DID WE GET THERE?
From memories…
1912
…to dreams
2009
2
IT WASN’T EASY IN A
DECADE OF UPHEAVAL…
Man-Made Disasters:
Natural Catastrophes:
Regulatory Upheaval:
2001: 9/11 - Largest single
property, aviation & WC loss.
2011: Costliest year ever
for nat cat losses -- $105 bn
insured losses.
2004-2005: Age of Spitzer
brings $3 bn in fines.
2008: Global financial crisis
– 389 banks failed; how many
insurers?
Lessons Learned:
Contract Certainty &
stick to your knitting
2005: 2nd costliest year
with insured losses of
$101 bn.
Lessons Learned:
The importance of
resiliency & analytics
Today: Solvency II
implementation cost
€2-3 bn over 5 years.
Lessons Learned:
The importance of
transparency & ERM
3
…ALL IN THE DECADE OF
THE BLACK SWAN
8 of the top 10 costliest insurance losses in the past 30
years occurred in the last decade!
Event
Year
Total Insured Losses
1. Hurricane Katrina
2005
$74.7 billion
2. Tōhoku quake and tsunami
2011
$35 billion
3. Hurricane Andrew
1992
$25.6 billion
4. September 11 Attacks
2001
$23.8 billion
5. Northridge Earthquake
1994
$21.2 billion
6. Hurricane Ike
2005
$21.5 billion
7. Hurricane Ivan
2004
$15.3 billion
8. Hurricane Wilma
2005
$14.5 billion
9. Thailand Flooding
2011
$12 billion
10. Christchurch Earthquake
2011
$12 billion
2010 Eyjafjallajökull
Volcano: Cost airlines
€150m a day for 6 days
Source: Swiss Re
4
PLUMERI’S TOP 10 RISKS:
6
10
9
8
Reputation
Piracy
Cyber
Security
5
4
3
2
1
Regulation
and
Compliance
Market
Cap
Risk
Pandemics
Terrorism
Climate
Change
7
Cost and
Globalization Availability of
Credit
5
NEW TYPES OF RISK
PROLIFERATE
“The top 5 risks on the
minds of business leaders
today aren’t easily solved
by purchasing insurance.
Traditional risks… wind,
earthquake, flood –
aren’t even in the top 30
anymore.”
-- Hank Watkins, Lloyd’s
December 19, 2011
 Lloyds Risk Index 2011 –
Top 5 Risks
1.
Loss of customers
2.
Talent and skills shortages
3.
Reputational risk
4.
Currency fluctuation
5.
Changing legislation
 All difficult or impossible to insure
 Demanding resiliency
6
TODAY’S GLOBAL
INSURANCE INDUSTRY
Today our industry is facing a
perfect storm of:
Top 10 Risks Facing Global
Insurance Industry (2011):
 Heavy regulatory demands on
capital and solvency vs need to
run a profitable business
1. Regulation
 Continuing global macro
economic uncertainty
4. Investment performance
 Low interest rates impacting
investment performance
6. Talent
 A continued soft market –
excess capacity and stiff
competition; surge in mega
catastrophe claims
8. Corporate governance
2. Capital
3. Macro-economic trends
5. Natural catastrophes
7. Long tail liabilities
9. Distribution channels
10. Interest rates
Source: PwC/CSFI
7
THE INSURANCE INDUSTRY:
WE OWN RESILIENCE
 Insurance industry proven its own
resilience throughout the decades.
 Focus on extreme 1:200 year events –
made us more resilient to catastrophe
and shocks from mother nature and
markets.
 Transforming the scale, depth and
quality of insight about the risks facing
our clients and how to manage and
transfer them.
 Our market is fully operational –
testament to the strength and resilience
of this capital market.
8
FOR OUR INDUSTRY: A ONCE
IN A LIFETIME OPPORTUNITY
 Our responsibility as an industry:
– To “own” resilience…
– To lead using our expertise and
resources to address long term risks…
– To be an industry building sustainable
and predictable growth in the face of new
risks…
– To bring knowledge, expertise, products
and services as risk and uncertainty
grows…
– To establish resilience as an aspirational
purchase
 Insurance is the vehicle for delivering resilience rather than a
transaction; to bring risk management and analytical services to
our clients.
9
THE EMERGING GLOBAL
MIDDLE CLASS





The big story of the 21st Century is
the rise of a new global middle
class, most of it in Asia.
Relentless rise
Middle class population as % of world total
60
Two billion more people will join the
middle class by 2030.
50
They will accumulate property and
income, and rival the U.S. consumer
in spending. A business opportunity
this large is unprecedented.
40
They will want to protect their lives,
property and income, too – the
insurance opportunities are huge.
10
1820 90 1913 38 50
Greatest need will be in cities.
Source: Surjit Bhalla, “The Middle Class Kingdoms
of India and China”
30
20
0
60
80
90 2000 06
10
THE NEXT DECADE:
AFRICA’S ERA?
Over the past decade, the number of middleclass consumers in Africa has grown 60%
to 313 million
Offshore expansion strategies
South African insurers are
focusing on: e.g.
Mozambique & Angola
 34% of Africans are firmly entrenched in
the new middle class, spending between
Rest of Africa
$2 and $20 a day.
 By 2060, African middle class will be 1.1 bn
Asia
strong
 On par with Chinese and Indian middle classes.
South America
 2nd fastest-growing economy in the world.
 Huge potential for global investors.
 Africa now has more mobile-phone
China
subscribers than entire U.S. population
Source: WSJ, The Economist
Europe and USA
The emerging African Middle Class
will contribute to an emerging
Golden Age for Insurance!
0
5
10
15
20
25
Number of companies
Source: PwC
11
30
SOUTH AFRICA: GATEWAY TO
THE CONTINENT
Global brands using South Africa as a
“foothold for continental expansion”:

Wal-Mart paid $2.4 billion to buy 51% of South
Africa's Massmart Holdings Ltd

U.S. Yum Brands Inc. to invest $74 million in 100
new KFC outlets in Africa in 2012, and will double
the number of stores to 1,200 by 2014

Ford Motor invested $500 million in its SA
operations in 2011

British Vodafone now owns 65% of Vodacom,
SA's largest mobile phone operator
Source: WSJ
South African insurance market will lead the
way as the dominant market in Africa,
accounting for 90% of regional life premium
volume and half of the regional non-life
premium volume.
"Yes, there are risks to doing
business in Africa. However,
here in Africa, right now the
rewards could be as vast as
the continent itself."
Donald H. Gips
U.S. Ambassador to South Africa
12
ANYTHING IS POSSIBLE…
13
A DECADE’S JOURNEY
THROUGH THE INSURANCE INDUSTRY
(AND WHAT THE NEXT DECADE HOLDS…)
Joe Plumeri
Chairman and CEO, Willis Group Holdings plc
IISA/SAIA/FIA Conference
Sun City, South Africa – June 11, 2012