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Intl1: International Reserving
Issues
Stewart Mitchell
Casualty Loss Reserve Seminar
Washington, DC
September 17-18, 2008
Reserving from a London Market perspective
Agenda
►What
is Lloyd's and the London Market?
►Cultural observations on the London Market
►Current reserving issues in the London Market
►Impact of the softening market on reserving
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September 17-18, 2008
CAS Loss Reserving Seminar
What is Lloyd’s?
Straw poll of Lloyd’s
What are your perceptions?
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September 17-18, 2008
CAS Loss Reserving Seminar
What is Lloyd's?
Positive
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320 year history
Unrivalled promise to pay claims (1906 San
Francisco earthquake)
Negative
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Opaque
Complex
September 17-18, 2008
CAS Loss Reserving Seminar
Lloyd’s (of London)
►17th
century coffee shop
►Market not a company
►Landlord and regulator
►Statistics
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72 Syndicates, 46 Managing Agents
$14bn capacity
40% of income from the US
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2nd largest surplus lines insurer
5th largest global reinsurer
September 17-18, 2008
CAS Loss Reserving Seminar
What is the London Market?
The London insurance market is a collective term for the
insurance companies, including Lloyd's of London, which
issue policies out of London. It is a subscription market
whereby a number of insurers may well participate in smaller
individual shares on each policy. Each insurer's participation
on that policy is a separate contract of insurance.
Page 6
September 17-18, 2008
CAS Loss Reserving Seminar
Cultural observations on the London Market
►Subscription
market – leader/follower
►Entrepreneurial
►The
underwriter was king
►‘Relationship’
►The
vs One man band
underwriting and brokers
underwriter is still king
►‘Embeddedness’
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September 17-18, 2008
of actuarial skills
CAS Loss Reserving Seminar
Current reserving issues in the London
Market
►KRW
►Subprime/credit
crunch
►Risk losses in first half of 2008
►2008 Hurricane season
►Approaches
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to reserving:
Top down
Bottom up
September 17-18, 2008
CAS Loss Reserving Seminar
The insurance cycle
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Key reasons for cycle
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Supply/demand
Not a perfect market
Large loss impacts and “pay-back”
Macro impacts e.g. recession
Relative attractiveness compared to other investments
Profits – top of cycle
Profits – top of cycle
Losses – bottom of cycle
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September 17-18, 2008
CAS Loss Reserving Seminar
Impact of the softening market on reserving
Our recent survey highlighted:
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Underestimation of rate changes
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Price vs Terms & Conditions
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September 17-18, 2008
CAS Loss Reserving Seminar
Underestimation of rate changes
73% respondents believe they will underestimate the
softening of rates
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New business
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Not all business monitored
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Underwriter ‘optimism’
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September 17-18, 2008
CAS Loss Reserving Seminar
Price vs Terms & Conditions
►competition
on price to date
►competition
on T&C going forward
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deductibles
removal of exclusions
►monitoring
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the impact of changes in T&C
September 17-18, 2008
CAS Loss Reserving Seminar
Impact on reserving
Roll forward of loss picks leading to under-reserving?
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Rate MI under cooking true rate reductions
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Changes in T&C not being captured
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September 17-18, 2008
CAS Loss Reserving Seminar
Any questions?
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September 17-18, 2008
CAS Loss Reserving Seminar
Thank you
Casualty Loss Reserve Seminar
Washington, DC
September 17-18, 2008