Re Insurance
Content
Reinsurance
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
3. Does capital and reinsurance cover the 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$
Fixed Assets Other Assets Total Assets
1,976,554 63,194,128 65,170,682
Insurance Liabilities Other Liabilities Total Liabilities
20,507,368 11,271,860 31,779,228
Net Asset Value
33,391,454
Share Capital Retained Profits
29,644,330 3,747,124
Aggregate Property Exposures
3,759,666,987
Shareholders Equity
33,391,454
US$3.8 billion risk backed by US$33.4 million assets
Catastrophe Reinsurance
Aggregate Exposures
Probable Maximum Loss
The Critical Business Process
1.
2. 3.
Assess severity of probable loss
Inputs include sophisticated models & management’s judgment Control underwriting based on PML - RI
PML – Reinsurance Cover – Capital ≥ Zero
Catastrophe Reinsurance
Aggregate Exposures
Analyze into cat-exposed portfolios (US$):
Homeowner / Residential
Commercial & Construction 589,584,682 290,795,370
Total 1,149,109,249 845,057,308
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
Apply PML assumptions to these numbers
Catastrophe Reinsurance Aggregate Exposures to Probable Maximum Loss
Aggregate Exposures $1.7B $1.2B
Business Assumptions
1. Severity of Loss Scenario for year
Modeled Scenario:1yr. in 50; 1yr. In 100 etc.
2. Underwriting Selection Criteria
Windstorm
Distance from shoreline
Quake
Location, Location, Location
Elevation above sea level Retrofitting of buildings Topography Underwriting Discipline Retrofitting of buildings
$845M Other Caribbean Is. PMLs
Further Reading: 1. A Probable Maximum Loss Study of Critical Infrastructure in Three Caribbean Island States
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-life Reinsurance Types of Contract – A reminder
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
•Specified line of business coverage •Specified number of reinstatements.
Reinsurance Program for Y.E. March 31, 2008
75% Quota Share Max. single risk limit US$4m of which 75% is ceded & 25% retained. All territories excl. Cayman & USVI. •52% placed. (That is 39% r/i cover) • Event limit is 15% of aggregate exposure, or 100% of PML. • Cession limits US$4m per risk, but aggregate cession limit varies by territory. •100% placed. •1 Reinstatement. •100% placed. •1 Reinstatement. •100% placed. •1 Reinstatement.
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)
•All territories •All territories •All territories •Cayman Is only
• All layers 100% placed. • 3 Reinstatements. • 2 Reinstatements. • 1 Reinstatement. • 1 Reinstatement.
Reinsurance Program for Y.E. March 31, 2008
75% Quota Share Max. single risk limit US$4m of which 75% is ceded & 25% retained. All territories excl. Cayman & USVI. • 52% placed. (That is 39% insurance cover) • Event limit is 15% of aggregate exposure, or 100% of PML. • Cession limits US$4m per risk, but aggregate limit varies by territory. • 100% placed. •1 Reinstatement. • 100% placed. •1 Reinstatement.
Catastrophe Reinsurance
Commercial Excess of Loss US$30million XS US$5million • Aggregate limits per
All territories.
cover note:
All territories.
Residential Excess of Loss US$65million XS US$5million Southern Caribbean:
Northern Caribbean: $312m $183m
• 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
Reinsured decides what constitutes one risk. • 100% placed.
•1 Reinstatement. That is, they can decide whether to aggregate it if its part of a catastrophe, or not. • All layers 100% placed. • 3 Reinstatements. • 2 Reinstatements. • 1 Reinstatement. • 1 Reinstatement.
Reinsurance Program for Y.E. March 31, 2008
US$180m
Catastrophe Reinsurance
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
US$70m Residential XL, $65m xs $5m & 1 Reinstatement
$4m per risk limit is reduced:
15% Max. Agg. Exp. Zone B $27.45m Commercial XL, $30m xs $5m & 1 Reinstatement Per risk XL $7.5m XS $150k Other RI to be used first.
US$35m
1. Contract is only 59% placed. 2. Averaged down by a factor of 3.
US$5m
Quota Share. Max of US$0.79m per risk
Reinsurance Program for Y.E. March 31, 2008
US$180m
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
$75m $75m $30m
$0.79m $0.79m
$70m $70m $7.35m
$4.21m $4.21m $22.65m $31.07m
US$70m Residential XL, $65m xs $5m & 1 Reinstatement Compare to Net Asset Value US$35m
$33.4m
Commercial XL, $30m xs $5m
& 1 Reinstatement Per risk XL $7.5m XS $150k US$5m Other RI to be used first. Quota Share. Max of US$0.79m per risk
Net premium income for 2007 was US$22million, which improves the above outcome.
Non-Catastrophe Reinsurance Reinsurance Program for Y.E. March 31, 2008
US$180m
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
US$70m Residential XL, $65m xs $5m & 1 Reinstatement
Net premium income for 2007 was US$22million. Doesn’t help that much when you add in the attritional non-cat losses!
US$35m
Commercial XL, $30m xs $5m
& 1 Reinstatement Per risk XL $7.5m XS $150k US$5m Other RI to be used first. Quota Share. Max of US$0.79m per risk
Non-Catastrophe Reinsurance Reinsurance Program for Y.E. March 31, 2008
US$180m
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$70m Residential XL, $65m xs $5m & 1 Reinstatement
•Don’t forget about net premium income
US$35m
Commercial XL, $30m xs $5m
& 1 Reinstatement Per risk XL $7.5m XS $150k US$5m Other RI to be used first. Quota Share. Max of US$0.79m per risk
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.
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
Summary of Reinsurance Cover Notes
Cover
90% Quota Share (non-obligatory) A)Cession limit: $4m any one risk
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.
B) Cession limit: $1m any one risk
Catastrophe XL
$7.5m XS $750k. 1 Reinstatement
Fire, Homeowners Comprehensive, Motor, Business Interruption, CAR (material damage).
1. 100% placed: Lloyd’s (Chaucer)
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)
All classes of business.
1. 100% placed: 40% Lloyd’s (Canopius), 60% Odyssey Re.
Motor, Workers Comp., Employers Liability, Third Party and CAR Liability.
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
Summary of Reinsurance Cover Notes
Cover
90% Quota Share (non-obligatory) A)Cession limit: $4m any one risk
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.
B) Cession limit: $1m any one risk
•Aggregate sums insured are $550 million - within the cession limit.
Catastrophe XL $7.5m XS $750k. 1 Note Reinstatement • the
event limit
- if no other claims, responds to 6 events
Motor XL
Fire, Homeowners Comprehensive, Motor, Business Interruption, CAR (material damage).
1. 100% placed: Lloyd’s (Chaucer)
•Per risk limits split by line of business
$500k XS 500k All classes of business. - $4m per risk for property (Annual aggregate limit: $6.0m) $4.0m XS $1.0m - $1m per risk for other (Annual aggregate limit: $12.0m) $2.5m XS $5.0m • Non-obligatory QS (Annual aggregate limit: $7.5m) Motor, Workers Comp., LOBs Employers Liability, Third Party and CAR Liability. 1. 100% placed: 40% Lloyd’s (Canopius), 60% Odyssey Re.
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“Motor XL”
8m-
“Catastrophe XL”
7m-
6m-
5m-
4m-
3m-
2m-
1m-
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“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
Fire, Homeowners, Motor, Business Interruption, CAR-material damage
6m-
5m-
4m-
All lines of business
3m-
90% QS, $4m per risk limit
2m-
1m-
Property, Business Interruption, CAR-material damage 90% QS, $1m per risk limit Burglary, PA, Marine Cargo, Fidelity
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“Motor XL” Interaction Between Contracts
8m-
“Catastrophe XL”
$7.5m xs $750k + 1 Reinstatement Fire, Homeowners, Motor, Business Interruption, CAR-material damage
Reading all the contract wordings reveals:
7m-
1. Use Quota Share before XL 2. Use
Motor, Workers’ Comp, Employers Liab, TPL, Motor XL before CAR Liability $500k xs $500k
$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-
Property, Business Interruption, CAR-material damage covered for
on an “each & every loss”
basis
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“Motor XL”
8m-
“Catastrophe XL”
e.e.l. except motor damage
3
$7.5m xs $750k + 1 Reinstatement Fire, Homeowners, Motor, Business Interruption, CAR-material damage Two risk warranty
7m-
2
$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-
1
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).
Business covered If justifiable,
B) Cession limit: $1m any one risk
Assume a catastrophe loss of $75million Gross loss
Catastrophe XL $7.5m XS $750k. 1 Reinstatement
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.
$75m ($67.5m) 1. 100% placed: Lloyd’s (Chaucer) ($7.5m)
Comprehensive, Motor,
Quota Share recovery – 90% Fire, Homeowners Cat XL recovery Business Interruption, Net loss
CAR (material damage). ZERO
Motor XL
1 $500k XS 500k (Annual aggregate limit: $6.0m)
to
3
Motor XL does not cover property.
All classes of business. 1. 100% placed: 40% Lloyd’s (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: $7.5m)
recovery can be split into 90% QS & Motor, Workers Comp.,
Non-life Supervisory Assessment
Capital + Reinsurance cover > Loss scenario
Summarize the reinsurance cover notes
Catastrophe business:
1. Get aggregate exposures 2. Understand & assess PML assumptions
Non-catastrophe business:
1. Compare loss ratio to prior years and market experience 2. Ensure that improved loss ratios are consistent with stricter underwriting 3. Onsite walkthrough test underwriting
3. PML assumptions consistent with underwriting guidelines
4. Onsite walkthrough test underwriting
Reinsurance
CASE STUDY – ROUND 2
Contract Wordings
Read the wording: •Identify areas where clarification is required •What questions would you ask the insurer? •What suggestions do you have to improve the wording?
Session 3
Reinsurance
CATASTROPHE (RE)INSURANCE
2 Examples from Caribbean Region: •Monoline Property Insurer •Multi-line Non-life insurer
Reinsurance
CATASTROPHE (RE)INSURANCE
1. Aggregate Exposures • • • • Total sums insured by line of business & location. Must be plausibly severe Preferably modeled by a reputable modeling agency The real issue for supervisors! 2. Assess likely loss scenario
3. Does capital and reinsurance cover the loss scenario?
Reinsurance –
Catastrophe Reinsurance
A Caribbean Insurer Ltd. Aggregate Property Exposures – Y.E. March 31, 2008. US$ (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$
Fixed Assets Other Assets Total Assets
1,976,554 63,194,128 65,170,682
Insurance Liabilities Other Liabilities Total Liabilities
20,507,368 11,271,860 31,779,228
Net Asset Value
33,391,454
Share Capital Retained Profits
29,644,330 3,747,124
Aggregate Property Exposures
3,759,666,987
Shareholders Equity
33,391,454
US$3.8 billion risk backed by US$33.4 million assets
Catastrophe Reinsurance
Aggregate Exposures
Probable Maximum Loss
The Critical Business Process
1.
2. 3.
Assess severity of probable loss
Inputs include sophisticated models & management’s judgment Control underwriting based on PML - RI
PML – Reinsurance Cover – Capital ≥ Zero
Catastrophe Reinsurance
Aggregate Exposures
Analyze into cat-exposed portfolios (US$):
Homeowner / Residential
Commercial & Construction 589,584,682 290,795,370
Total 1,149,109,249 845,057,308
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
Apply PML assumptions to these numbers
Catastrophe Reinsurance Aggregate Exposures to Probable Maximum Loss
Aggregate Exposures $1.7B $1.2B
Business Assumptions
1. Severity of Loss Scenario for year
Modeled Scenario:1yr. in 50; 1yr. In 100 etc.
2. Underwriting Selection Criteria
Windstorm
Distance from shoreline
Quake
Location, Location, Location
Elevation above sea level Retrofitting of buildings Topography Underwriting Discipline Retrofitting of buildings
$845M Other Caribbean Is. PMLs
Further Reading: 1. A Probable Maximum Loss Study of Critical Infrastructure in Three Caribbean Island States
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-life Reinsurance Types of Contract – A reminder
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
•Specified line of business coverage •Specified number of reinstatements.
Reinsurance Program for Y.E. March 31, 2008
75% Quota Share Max. single risk limit US$4m of which 75% is ceded & 25% retained. All territories excl. Cayman & USVI. •52% placed. (That is 39% r/i cover) • Event limit is 15% of aggregate exposure, or 100% of PML. • Cession limits US$4m per risk, but aggregate cession limit varies by territory. •100% placed. •1 Reinstatement. •100% placed. •1 Reinstatement. •100% placed. •1 Reinstatement.
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)
•All territories •All territories •All territories •Cayman Is only
• All layers 100% placed. • 3 Reinstatements. • 2 Reinstatements. • 1 Reinstatement. • 1 Reinstatement.
Reinsurance Program for Y.E. March 31, 2008
75% Quota Share Max. single risk limit US$4m of which 75% is ceded & 25% retained. All territories excl. Cayman & USVI. • 52% placed. (That is 39% insurance cover) • Event limit is 15% of aggregate exposure, or 100% of PML. • Cession limits US$4m per risk, but aggregate limit varies by territory. • 100% placed. •1 Reinstatement. • 100% placed. •1 Reinstatement.
Catastrophe Reinsurance
Commercial Excess of Loss US$30million XS US$5million • Aggregate limits per
All territories.
cover note:
All territories.
Residential Excess of Loss US$65million XS US$5million Southern Caribbean:
Northern Caribbean: $312m $183m
• 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
Reinsured decides what constitutes one risk. • 100% placed.
•1 Reinstatement. That is, they can decide whether to aggregate it if its part of a catastrophe, or not. • All layers 100% placed. • 3 Reinstatements. • 2 Reinstatements. • 1 Reinstatement. • 1 Reinstatement.
Reinsurance Program for Y.E. March 31, 2008
US$180m
Catastrophe Reinsurance
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
US$70m Residential XL, $65m xs $5m & 1 Reinstatement
$4m per risk limit is reduced:
15% Max. Agg. Exp. Zone B $27.45m Commercial XL, $30m xs $5m & 1 Reinstatement Per risk XL $7.5m XS $150k Other RI to be used first.
US$35m
1. Contract is only 59% placed. 2. Averaged down by a factor of 3.
US$5m
Quota Share. Max of US$0.79m per risk
Reinsurance Program for Y.E. March 31, 2008
US$180m
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
$75m $75m $30m
$0.79m $0.79m
$70m $70m $7.35m
$4.21m $4.21m $22.65m $31.07m
US$70m Residential XL, $65m xs $5m & 1 Reinstatement Compare to Net Asset Value US$35m
$33.4m
Commercial XL, $30m xs $5m
& 1 Reinstatement Per risk XL $7.5m XS $150k US$5m Other RI to be used first. Quota Share. Max of US$0.79m per risk
Net premium income for 2007 was US$22million, which improves the above outcome.
Non-Catastrophe Reinsurance Reinsurance Program for Y.E. March 31, 2008
US$180m
Umbrella Property Catastrophe $110m XS: 1. 2. 3. $70m Residential $35m Commercial QS Event Limits (15% Agg. Exp.) & 1 Reinstatement
US$70m Residential XL, $65m xs $5m & 1 Reinstatement
Net premium income for 2007 was US$22million. Doesn’t help that much when you add in the attritional non-cat losses!
US$35m
Commercial XL, $30m xs $5m
& 1 Reinstatement Per risk XL $7.5m XS $150k US$5m Other RI to be used first. Quota Share. Max of US$0.79m per risk
Non-Catastrophe Reinsurance Reinsurance Program for Y.E. March 31, 2008
US$180m
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$70m Residential XL, $65m xs $5m & 1 Reinstatement
•Don’t forget about net premium income
US$35m
Commercial XL, $30m xs $5m
& 1 Reinstatement Per risk XL $7.5m XS $150k US$5m Other RI to be used first. Quota Share. Max of US$0.79m per risk
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.
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
Summary of Reinsurance Cover Notes
Cover
90% Quota Share (non-obligatory) A)Cession limit: $4m any one risk
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.
B) Cession limit: $1m any one risk
Catastrophe XL
$7.5m XS $750k. 1 Reinstatement
Fire, Homeowners Comprehensive, Motor, Business Interruption, CAR (material damage).
1. 100% placed: Lloyd’s (Chaucer)
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)
All classes of business.
1. 100% placed: 40% Lloyd’s (Canopius), 60% Odyssey Re.
Motor, Workers Comp., Employers Liability, Third Party and CAR Liability.
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
Summary of Reinsurance Cover Notes
Cover
90% Quota Share (non-obligatory) A)Cession limit: $4m any one risk
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.
B) Cession limit: $1m any one risk
•Aggregate sums insured are $550 million - within the cession limit.
Catastrophe XL $7.5m XS $750k. 1 Note Reinstatement • the
event limit
- if no other claims, responds to 6 events
Motor XL
Fire, Homeowners Comprehensive, Motor, Business Interruption, CAR (material damage).
1. 100% placed: Lloyd’s (Chaucer)
•Per risk limits split by line of business
$500k XS 500k All classes of business. - $4m per risk for property (Annual aggregate limit: $6.0m) $4.0m XS $1.0m - $1m per risk for other (Annual aggregate limit: $12.0m) $2.5m XS $5.0m • Non-obligatory QS (Annual aggregate limit: $7.5m) Motor, Workers Comp., LOBs Employers Liability, Third Party and CAR Liability. 1. 100% placed: 40% Lloyd’s (Canopius), 60% Odyssey Re.
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“Motor XL”
8m-
“Catastrophe XL”
7m-
6m-
5m-
4m-
3m-
2m-
1m-
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“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
Fire, Homeowners, Motor, Business Interruption, CAR-material damage
6m-
5m-
4m-
All lines of business
3m-
90% QS, $4m per risk limit
2m-
1m-
Property, Business Interruption, CAR-material damage 90% QS, $1m per risk limit Burglary, PA, Marine Cargo, Fidelity
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“Motor XL” Interaction Between Contracts
8m-
“Catastrophe XL”
$7.5m xs $750k + 1 Reinstatement Fire, Homeowners, Motor, Business Interruption, CAR-material damage
Reading all the contract wordings reveals:
7m-
1. Use Quota Share before XL 2. Use
Motor, Workers’ Comp, Employers Liab, TPL, Motor XL before CAR Liability $500k xs $500k
$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-
Property, Business Interruption, CAR-material damage covered for
on an “each & every loss”
basis
Multi-line Reinsurance Another Insurer Y.E. 31 March 2009
“Motor XL”
8m-
“Catastrophe XL”
e.e.l. except motor damage
3
$7.5m xs $750k + 1 Reinstatement Fire, Homeowners, Motor, Business Interruption, CAR-material damage Two risk warranty
7m-
2
$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-
1
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).
Business covered If justifiable,
B) Cession limit: $1m any one risk
Assume a catastrophe loss of $75million Gross loss
Catastrophe XL $7.5m XS $750k. 1 Reinstatement
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.
$75m ($67.5m) 1. 100% placed: Lloyd’s (Chaucer) ($7.5m)
Comprehensive, Motor,
Quota Share recovery – 90% Fire, Homeowners Cat XL recovery Business Interruption, Net loss
CAR (material damage). ZERO
Motor XL
1 $500k XS 500k (Annual aggregate limit: $6.0m)
to
3
Motor XL does not cover property.
All classes of business. 1. 100% placed: 40% Lloyd’s (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)
recovery can be split into 90% QS & Motor, Workers Comp.,
Non-life Supervisory Assessment
Capital + Reinsurance cover > Loss scenario
Summarize the reinsurance cover notes
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
3. PML assumptions consistent with underwriting guidelines
4. 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?
