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Catastrophe Management – An Evolving Strategy
Personal Lines Perspective
November 15, 2006
Rob Hair
Senior State Manager, Allstate Insurance Company
Agenda
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Formulating a Strategy
Catastrophe Management Tactics
Public/Private Challenges
Organizational Challenges
Potential Considerations for a Catastrophe
Management Strategy
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Risk Tolerance
Rating Agency Requirements
Impairment/Solvency
Return on Capital
Efficiency & Stability of Strategy
Volatility of Returns
Setting a Catastrophe Management Strategy
Allstate’s catastrophe risk management strategy is intended to
provide our shareholders an acceptable return on the risks
assumed in our property business and to reduce variability of
earnings, while providing protection to our customers.
Source: 8/18/2006 Allstate 8-K
Executing a Catastrophe Management Strategy
• Underwriting
• Risk Transfer
• Legislative/Regulatory
Executing a Catastrophe Management Strategy
Underwriting
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Appropriate Rate Level
Rate Segmentation
New Business Limitations
Property Inspections (New and Renewal)
Mitigation Device Requirements
Residual Markets
Expanded Markets
Coverage Changes
Non-Renewals
Executing a Catastrophe Management Strategy
Risk Transfer
Reinsurance and Capital Markets
– Fills immediate need
– Capacity and stability
– Credit security
– Ability to reflect cost in pricing
Allstate’s Reinsurance Strategy Has Evolved
2006 Reinsurance Program
2005 Reinsurance Program
AK
NH
WA
OR
MN
ID
WY
CA
HI
NV
VT
ND
MT
NE
UT
AZ
CO
NM
WI
SD
KS
OK
TX
NY
MI
IA
OH
IL IN
KY
MO
AR
WV VA
NC
TN
MS AL
PA
GA
SC
ME
NH
WA
MA
CT
NJ
DC
RI
OR
MN
ID
WY
DE
CA
MD
HI
NV
VT
ND
MT
NE
UT
AZ
CO
NM
WI
SD
KS
OK
TX
LA
FL
No Reinsurance
Separate state contracts
AK
NY
MI
IA
OH
IL IN
KY
MO
AR
WV VA
NC
TN
MS AL
PA
GA
ME
MA
CT
NJ
DC
SC
LA
FL
Annual Aggregate cover only
Separate state contracts underlie Annual Aggregate cover
South-East contract underlies Annual Aggregate cover
Separate contract not included in Annual Aggregate cover
RI
DE
MD
Growing Reliance on Risk Transfer
What Changed?
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Exposure is increasing in risk prone areas
Climatological influences - frequency and severity of storms
Rating agency models
Need for quick action
Rating Agencies
Rating agencies have increased their capital requirements to maintain the
same rating
A.M. Best
2005 introduced a new cat risk stress test
2006 toughened the stress test
S&P
Introduced a 1 in 250 annual aggregate PML in capital adequacy Model
Moody’s
Introduced a risk adjusted capital model
Executing a Catastrophe Management Strategy
Legislative/Regulatory
- Finding Common Ground
- Communication Challenges
- Long term vs. short term results
Organizational Challenges
– Alignment (cultural change)
– Structure
– Doing the Work