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CAS Ratemaking Seminar
Moderator:
Chris Nyce
Senior Manager
KPMG LLP
Price Governance IIImplementing Price Governance for
Complex Lines
March 8, 9 2007
Fiachra McLoughlin, Executive Advisor
KPMG LLP-UK
Isaac Mashitz
Head of Actuarial Special Projects
Swiss Re
Disclaimer
• The views expressed in this presentation are those of the speakers; and
• They are not necessarily the views of the CAS, KPMG, Swiss Re or any other sponsor of this seminar;
• Anyone who says otherwise is not only wrong, but is itching for a fight.
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Critical Questions in Price Governance for Complex Lines
•
Who is accountable for making judgments?
–
•
Who is responsible; whose judgment should prevail?
What aspects of rate change should/can be quantified?
–
•
What is too subject to judgment to quantify?
What methods should be used in quantifying rate changes?
–
•
And how much should be/can be “parameterized”?
What level of precision is it reasonable to expect in measuring rate change?
Ground rules:
•
Ask questions as they arise (during presentation is OK)
•
Feel free to challenge our panel
2
As Articulated by the Lloyds Market Directive
Source: Lloyds market directive Y3318, “Monitoring Pricing Movement and Assessing the Impact on
Loss Ratios”
3
As Articulated by the Lloyds Market Directive
Source: Lloyds market directive Y3318, “Monitoring Pricing Movement and Assessing the Impact on
Loss Ratios”
4
The Role of Judgment: A Real Life* Example
Offshore Energy Platforms in the London Market
Risk Characteristics (both expiring and renewal):
•Values are $1.5 billion, consisting of platforms off the coast of West Africa and the North Sea ($1 billion),
and Gulf of Mexico ($500 million)
•Insured retention and limit for both terms is $500 million excess of a $10 million retention
•No other significant changes
Expiring Terms effective 1/1/2005:
•Premium = $15 million
•No sub-limit on Gulf Hurricane
Renewing Terms effective 1/1/2006:
•Premium $13.5 million
•Sub-limit of $150 million on Gulf Hurricane
Interesting Fact: Underwriters had believed the Gulf Hurricane PML to be $150 million before the 2005 storms
*Facts changed to simplify and preserve confidentiality
5
Alternate Views of Rate Change: Which is Correct?
1) Underwriter determines risk is 50% driven by Gulf Hurricane
In millions USD
Gulf Cat
o/t Gulf Cat
Total
Percentage Changes
Expiring Renewing Change in Change in Change in
Cash
Cash
Cash
Coverage
Rate
7.50
6.75
-10.0%
-20.0%
12.5%
7.50
6.75
-10.0%
0.0%
-10.0%
15.00
13.50
-10.0%
-10.0%
0.0%
2) Underwriter determines risk is 10% driven by Gulf Hurricane
In millions USD
Gulf Cat
o/t Gulf Cat
Total
Percentage Changes
Expiring Renewing Change in Change in Change in
Cash
Cash
Cash
Coverage
Rate
1.50
1.35
-10.0%
-20.0%
12.5%
13.50
12.15
-10.0%
0.0%
-10.0%
15.00
13.50
-10.0%
-2.0%
-8.2%
3) Underwriter determines sub-limit only clarified the exposure they believed was in place: Rate change = 10%
6
Todays Panelists: Introduction
Fiachra McLoughlin, Executive
Advisor
KPMG LLP-UK
Isaac Mashitz
Chief Pricing Actuary
Swiss Re
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