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1、SEPTEMBER 2023The 2023 InsuranceValue Creators ReportCan Reinsurers MaintainTheir Momentum?Value creation in reinsurance:Key takeawaysSource:BCG analysis.Reinsurers have outperformed primary insurers and most other sectors in TSR over the past ten yearsCash flow is king:Dividends and share buybacks
2、account for more than 50%of reinsurers value generation,as companies underperform on growth of tangible book valueThe current hard cycle is likely to strengthen performance and boost reserves with high returns on tangible equityBut warning signs loom:While pricing for catastrophe and for life and he
3、alth is strong,other lines lag The market may not be hard enough to absorb volatile and accelerating climate-change impactsReinsurers have outperformed primary insurers and most other sectors in TSR over the past ten yearsSources:S&P Capital IQ;Refinitiv;BCG Value Creators database 2023;BCG ValueSci
4、ence Center.Note:Market cap weighted average TSR per respective industry sample,based on start date market caps;n=2,468.Russian companies were omitted from the sample due to suspended trading and collapse of share prices.Turkish companies were intentionally left out due to the countrys hyperinflatio
5、nary environment.ONE-YEAR TSR(2022)5040302050TEN-YEAR AVERAGE ANNUAL TSR(20132022)2.55.07.510.012.515.017.5Mid-cap pharmaBuilding materialsFinancial infrastructure providersOil and gasInsuranceBanksConsumer nondurablesForest products and packagingPower and gas utilitiesConstructionAerospa
6、ce and defenseCommercial service providersMetalsMultibusinessMedia and publishingTransportation and logisticsAsset management and brokerageMachineryConsumer durablesReal estateChemicalsAuto OEMsTravel and tourismFashion and luxuryAuto partsRetailReinsuranceElectronic componentsMedical technologyHeal
7、th care servicesMiningServicesTech hardwareGreen energy and environmentLarge-cap pharmaSoftware and IT servicesReinsurers average annual TSR has generally exceeded that of primary insurers over five-and ten-year horizonsSources:S&P Capital IQ;Refinitiv;BCG ValueScience Center.Note:For an explanation
8、 of BCGs TSR methodology,please see the last slide of the presentation.Components of TSR are multiplicative but here they have been converted and are shown as additive with remainders assigned to the multiple change field.Aggregation is based on market cap weights at the start of the year.TSR is cal
9、culated in each companys reporting currency.L&H=life and health;P&C=property and casualty;P/TBV=price to TBV;TBV=tangible book value of equity less other comprehensive income.Because of rounding,not all segment totals equal the overall total shown.1Total industry sample=103.The ten-year analysis use
10、s the 91 companies from the sample with the highest market capitalization as of December 31,2022,that were stock-listed on January 1,2013.2Includes dividend contribution and share count change.Five years:TSR DRIVERS CONTRIBUTION TO AVERAGE ANNUAL TSR,20182022(%)Ten years:TSR DRIVERS CONTRIBUTION TO
11、AVERAGE ANNUAL TSR,20132022(%)4.34.64.3Globalinsurance1Globalinsurance1P&C5.61.62.7Reinsurance5.77.14.9Multiline3.32.7L&H3.97.410.03.51.53.92.96.44.40.0P&CReinsurance0.8Multiline7.5L&H9.411.412.210.37.33.95.53.72.55.26.92.82.56.33.22.12.3Growth of TBVChange in P/TBV multipleCash flow contribution2Th
12、e ten-year TSR performance of the largest listed global reinsurers has been solidSources:S&P Capital IQ;BCG ValueScience Center.Note:TSR at the group level was measured from January 1,2013,through December 31,2022.Dividend contribution to cash return includes investment of dividends and special divi
13、dends,compounded daily.Components of TSR are multiplicative but converted and shown here as additive with remainders assigned to the margin and multiple change fields.P/TBV=price to TBV;TBV=tangible book value of equity less other comprehensive income.1Includes dividend contribution and share count
14、change.CONTRIBUTION TO AVERAGE ANNUAL TEN-YEAR TSR,20132022(%)Growth of TBVChange in P/TBV multipleCash flow contribution256237323Hannover ReEverest Re78Munich ReRGAGlobal reinsurance sector94#5#613#752525#85106#9010851Over the past ten years,Hannover Re,Everest Re,and Munich R
15、e have delivered the best risk-return performanceTEN-YEAR AVERAGE ANNUAL TSR,20132022(%)Sources:S&P Capital IQ;BCG ValueScience Center;BCG analysis.Note:Ten-year annual TSR was measured from January 1,2013,through December 31,2022.COV=coefficient of variation.1102002,3COEFFICIENT OF VARIA
16、TION:STANDARD DEVIATION OF ANNUAL TSRS/AVERAGE TSR(%)Hannover Re(CoV=122)Munich Re(CoV=96)Everest Re(CoV=108)#6(CoV=173)#5(CoV=150)#9(CoV=2,302)#8(CoV=395)#7(CoV=200)RGA(CoV=191)Lower volatility,higher returnsHigher volatility,higher returnsHigher volatility,lower returnsLower volatility,lower retur
17、nsOnly a few reinsurers operate at or above their cost of equitySources:S&P Capital IQ;BCG analysis.Note:Sample of 103 largest stock listed insurers globally.1Compounded annual growth rate of tangible book value of equity per share plus dividend per share from 2018 to 2022,excluding other comprehens
18、ive income.AVERAGE RETURN ON TANGIBLE EQUITY,20182022(%)20182022 CAGR of tangible book value1(%)Top-quartile insurers from BCGs Insurance Value Creators sample 2023ReinsurersOther insurers0007030Hannover ReMunich ReMedian:10.7Cost of equityReturn on tangible equity is the key driver of va
19、luation multiple in the(re)insurance industrySources:S&P Capital IQ;BCG ValueScience Center.Note:Peers include 2023 VCR industry sample(n=103),FY 20122022;outliers removed or normalized.The country factor for companies domiciled in India(+)are excluded from the stacked bar;RoTE=return on tangible bo
20、ok value of equity.About 82%of the variance in valuation is explained by five factors602010008040CONTRIBUTION TO DIFFERENCES IN VALUATION AMONG PEERS(%)Predicted RoTE(+)P&C insurance focus(+)Dividends(+)Debt to capital()Forward revenue growth(+)UnexplainedActual versus fit valuationACTUAL MULTIPLEPR
21、EDICTED MULTIPLEPeersAdjustedR2=82%F stat 727n=956On average,reinsurers have lower RoTEs than primary insurersSource:BCG insurance RoTE benchmarking database.Note:The reinsurance sample in this analysis is n=30,also including non-stock-listed reinsurers,whereas the main TSR analyses include 9 reinsu
22、rers in the Insurance Value Creators sample of the 103 largest stock-listed insurers.L&H=life and health;P&C=property and casualty;pp=percentage point;RoTE=return on tangible book value of equity.1Operating profit before tax divided by tangible book value of equity allocated to each segment;average
23、of median RoTEs,20182022.3002010No evidence that reinsurers with higher volatility systematically deliver higher RoTEP&C reinsuranceP&C insurance14571L&H insurance231610111L&H reinsurance2114306 ppBottom quartileTop quartileMedian7 ppAVERAGE RETURN ON TANGIBLE EQUITY,20182022(%)1100%minus thecombine
24、d ratioTBV/net earnedpremiumInvestment income/financial assetsFinancial assets/TBVUnderwriting RoTEGroup contribution1Investment RoTEThe underlying factors driving reinsurers RoTE reveal poor underwriting margins and high capital intensity in property and casualty reinsuranceSource:BCG insurance RoT
25、E benchmarking database.Note:The reinsurance sample in this analysis is n=30,also including non-stock-listed reinsurers,whereas the main TSR analyses include 9 reinsurers in the Insurance Value Creators sample of the 103 largest stock-listed insurers.P&C=property and casualty;RoTE=return on tangible
26、 book value of equity;TBV=tangible book value of equity.1P&C reinsurance share of centrally allocated buckets(for example,group functions,noncore business,and eliminations).P&C reinsurance RoTELoss ratioExpense ratio7%0%0%70%92%30%3%325%2%9%AVERAGE ROTE,20182022(%)L&H reinsurance RoTE100%minus theco
27、mbined ratioTBV/net earnedpremiumLoss ratioExpense ratioInvestment income/financial assetsFinancial assets/TBVUnderwriting RoTEGroup contribution1Investment RoTE5%11%6%88%58%18%3%363%1%15%For life and health reinsurance,the factors undermining RoTE include negative underwriting margins mainly driven
28、 by high loss ratiosSource:BCG insurance RoTE benchmarking database.Note:The reinsurance sample in this analysis is n=30,also including non-stock-listed reinsurers,whereas the main TSR analyses include 9 reinsurers in the Insurance Value Creators sample of the 103 largest stock-listed insurers.L&H=l
29、ife and health;RoTE=return on tangible book value of equity;TBV=tangible book value of equity.1L&H reinsurance share of centrally allocated buckets(for example,group functions,noncore business,and eliminations).AVERAGE ROTE,20182022(%)TSR(%)Capital gain(%)Growth of TBV(%)Change in P/TBVmultiple(%)Ca
30、sh flow contribution(%)Dividend yield(%)Change inshare count(%)Fundamental developmentGrowth of TBV of equityMultiple valuationMirrors market expectations,influenced by fundamentals,investor sentiment,investor relations and targeting,and expectation managementCash flow contributionto shareholdersIncludes dividends,share buybacks,and share issuanceBCGs methodology for TSRthe key metric for value creationSource:BCG analysis.Note:P/TBV=price to TBV;TBV=tangible book value of equity.