Professional Documents
Culture Documents
Session 3
Reinsurance
CATASTROPHE (RE)INSURANCE
2 Examples from Caribbean Region: Monoline Property Insurer Multi-line Non-life insurer
Reinsurance
CATASTROPHE (RE)INSURANCE
1. Aggregate Exposures Total sums insured by line of business & location. Must be plausibly severe Preferably modeled by a reputable modeling agency The real issue for supervisors! 2. Assess likely loss scenario
Reinsurance
Catastrophe Reinsurance
A Caribbean Insurer Ltd. Aggregate Property Exposures Y.E. March 31, 2008. US$ (net of fac) 24,333,470 82,534,118 513,572,642 655,535,718 1,648,750 1,645,250 1,177,224,951 10,298,520 21,762,939 29,952,188 91,490,811 36,008,407 22,141,125 6,779,389 70,676,148 6,158,620 325,000 160,551,133 847,027,808
A Caribbean Insurer Ltd. Abridged Balance Sheet Y.E. March 31, 2007.
Anguilla Antigua Bahamas Barbados Belize BVI Cayman Curacao Dominica Grenada Jamaica St. Lucia St. Kitts St. Nevis St. Maarten St. Vincent Trinidad & Tobago Turks & Caicos USVI
US$
33,391,454
29,644,330 3,747,124
3,759,666,987
Shareholders Equity
33,391,454
Catastrophe Reinsurance
Aggregate Exposures
Catastrophe Reinsurance
Aggregate Exposures
Homeowner / Residential
Cayman Is USVI
559,524,567 554,261,938
Other
Total
1,708,468,339
1,708,468,339
2,822,254,844
880,380,052
3,702,634,896
Quake
Location, Location, Location
Elevation above sea level Retrofitting of buildings Topography Underwriting Discipline Retrofitting of buildings
Cayman
Cayman
Other
USVI
USVI
Caribbean Disaster Mitigation Project http://www.oas.org/cdmp/document/pml/pml.htm# executive 2. Natural Catastrophe Probable Maximum Loss Woo. British Actuarial Journal 2002.
Non-Proportional
Proportional
Excess of Loss
Specified limit e.g. $65m. Specified deductible
e.g. $5m.
Quota share
Traditionally, shares premiums and claims in the same proportions Specified line of business coverage BUT: Aggregate cession limits Event limits Risk limits
Catastrophe Reinsurance
Commercial Excess of Loss US$30million XS US$5million Residential Excess of Loss US$65million XS US$5million Umbrella Property Catastrophe US$110million XS
1.US$70m Residential, 2. US$35M Commercial, and 3. QS Event & Cession limits
All territories.
All territories.
All territories.
Property Per Risk US$350k XS US$150k US$500k XS US$500k US$4million XS US$1million US$2.5million XS US$5million (Kicks in after all other reinsurances) (Reinsured decides what constitutes a risk)
Catastrophe Reinsurance
All territories.
cover note:
All territories.
Compare to aggregate exposure (slide 5) Umbrella Property Catastrophe All territories. US$110million XS of $1.7billion for non Cayman & USVI risk.
The underwriting has overshot the cession limits, so reinsurance cover is averaged down in proportion (say by Property rd). Per Risk 1/3 US$350k XS US$150k All territories
US$500k XS US$500k US$4million XS US$1million US$2.5million XS US$5million (Kicks in after all other reinsurances) (Reinsured decides what constitutes one risk) All territories All territories Cayman Is only
1.US$70m Residential, 2. US$35M Commercial, and 3. QS Event & Cession limits
Catastrophe Reinsurance
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
US$35m
US$5m
Catastrophe Reinsurance
Loss Scenario Assume 3 hurricanes causing losses to residential book of business: 2 losses of $75m & 1 loss of $35m to the insurer.
Gross incurred 1st Hurricane 2nd Hurricane 3rd Hurricane QS Recovery XL Recovery Risk XL Recovery Net Incurred
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
$0.79m $0.79m
US$70m Residential XL, $65m xs $5m & 1 Reinstatement Compare to Net Asset Value US$35m
$33.4m
Net premium income for 2007 was US$22million, which improves the above outcome.
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
Net premium income for 2007 was US$22million. Doesnt help that much when you add in the attritional non-cat losses!
US$35m
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
Catastrophe losses have appropriate RI cover, but limited to two events Beware of attritional claims not covered by RI
US$35m
Non-Catastrophe Reinsurance
The example was a monoline property insurer. Diversified insurer reinsurance is usually designed to respond to a variety of business lines. PMLs & Loss Scenarios for all lines must be covered by reinsurance and capital.
Business covered
A)Property, Business Interruption, CAR (material damage). B) Burglary, Personal Accident, Marine Cargo, Fidelity, Personal effects.
Comments
1. Aggregate cession limit of $600m. Quake & Windstorm 2. Event limit for Quake and Windstorm $90m or 15% of in force aggregate exposure. 3. 100% placed: Everest Re.
Catastrophe XL
Motor XL
$500k XS 500k (Annual aggregate limit: $6.0m) $4.0m XS $1.0m (Annual aggregate limit: $12.0m) $2.5m XS $5.0m (Annual aggregate limit: $7.5m)
Motor, Workers Comp., Employers Liability, Third Party and CAR Liability.
Business covered
A)Property, Business Interruption, CAR (material damage). B) Burglary, Personal Accident, Marine Cargo, Fidelity, Personal effects.
Comments
1. Aggregate cession limit of $600m. Quake & Windstorm 2. Event limit for Quake and Windstorm $90m or 15% of in force aggregate exposure. 3. 100% placed: Everest Re.
Aggregate sums insured are $550 million - within the cession limit.
Catastrophe XL $7.5m XS $750k. 1 Note Reinstatement the
event limit
Motor XL
8m-
Catastrophe XL
7m-
6m-
5m-
4m-
3m-
2m-
1m-
Motor XL
8m-
Catastrophe XL
$7.5m xs $750k + 1 Reinstatement
7m-
$6.5m xs $1m Motor, Workers Comp, Employers Liab, TPL, CAR Liability $500k xs $500k
6m-
5m-
4m-
3m-
1m-
Property, Business Interruption, CAR-material damage 90% QS, $1m per risk limit Burglary, PA, Marine Cargo, Fidelity
Catastrophe XL
$7.5m xs $750k + 1 Reinstatement Fire, Homeowners, Motor, Business Interruption, CAR-material damage
$6.5m xs $1m
6m-
Catastrophe XL
5m-
3. CAT XL
Two Risk Warranty for all covered lines of All lines of business business. Two losses from one event are necessary before making a recovery. A Hurricane or Quake are not necessary. 90% QS, $4m per risk limit
4m-
3m-
2m-
4. Motor XL
Motor (own physical damage) is only 90% QS, $1mhurricane per risk limit / quake
Burglary, All PA, Marine otherCargo, linesFidelity are covered
1m-
basis
Motor XL
8m-
Catastrophe XL
e.e.l. except motor damage
$7.5m xs $750k + 1 Reinstatement Fire, Homeowners, Motor, Business Interruption, CAR-material damage Two risk warranty
7m-
$6.5m xs $1m Motor, Workers Comp, Employers Liab, TPL, CAR Liability $500k xs $500k All lines of business
6m-
5m-
4m-
3m-
1
90% QS, $4m per risk limit Property, Business Interruption, CAR-material damage 90% QS, $1m per risk limit Burglary, PA, Marine Cargo, Fidelity
2m-
1m-
Multi-line Reinsurance Within event limit of $90m. Another Insurer Y.E. 31 March 2009
The reinsured can determine what constitutes a risk under QS.
Cover 90% Quota Share A)Cession limit: $4m any one risk
it canComments of adjust its recovery under the QS to take A)Property, Business 1. Aggregate cession of limit of $600m. maximum advantage the XL.
Interruption, CAR (material damage).
Quake & Windstorm 2. Event limit for Quake and QS is NON-OBLIGATORY Windstorm $90m or 15% of in force B) Burglary, Personal aggregate exposure. Accident, Marine Cargo, 3. 100% placed: Everest Re. Fidelity, Personal effects.
Quota Share recovery 90% Fire, Homeowners Cat XL recovery Business Interruption, Net loss
Motor XL
to
All classes of business. 1. 100% placed: 40% Lloyds (Canopius), 60% Odyssey Re. (assume 500 xs 500 is used up) Employers Liability, Third Party and CAR Liability.
$4.0m XS $1.0m A single claim (Annual aggregate limit: $12.0m) 10% XL. $2.5m XS $5.0m (Annual aggregate limit: $7.5m)
Catastrophe business:
1. Get aggregate exposures 2. Understand & assess PML assumptions
Non-catastrophe business:
1. Compare loss ratio to prior years and market experience 2. Ensure that improved loss ratios are consistent with stricter underwriting 3. Onsite walkthrough test underwriting
Reinsurance
CASE STUDY ROUND 2
Contract Wordings
Read the wording: Identify areas where clarification is required What questions would you ask the insurer? What suggestions do you have to improve the wording?