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2004 Hurricane Season
Recap and Observations
May 2005 CAS Meeting
Agenda
Section 1
2004 Hurricane Recap
Section 2
Reinsurance Observations
Section 3
Catastrophe Model Observations
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2004 Hurricane Recap
2004 Hurricane Season
Source: Impact Forecasting
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Hurricane Path Discussion
1995 - 2003
Source: Impact Forecasting
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Hurricane Path Discussion
2004
Source: Impact Forecasting
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ISO Property Claim Service Loss Estimates
$Billions
Charley
7.475
Frances
4.595
Ivan
7.110
Jeanne
3.655
22.835
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PCS Loss Estimates and Return Periods
Charley
7.475
7-8
Frances
4.595
4-5
Ivan
7.110
6-7
Jeanne
3.655
3-4
22.835
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20 - 25
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Florida Detail
Florida PCS
$Millions:
Total
Hurricane Charley
Hurricane Frances
Hurricane Ivan
Hurricane Jeanne
7,430
4,275
4,300
2,785
18,790
Personal Lines
Commercial Lines
4,400
2,900
2,900
2,100
12,300
2,750
1,250
1,250
605
5,855
Auto
280
125
150
80
635
Florida Stakeholders
$Millions:
Industry Total
Hurricane Charley
Hurricane Frances
Hurricane Ivan
Hurricane Jeanne
7,430
4,275
4,300
2,785
18,790
FHCF
CPIC
1,700
806
237
309
2,560
Insurers Retained
925
288
230
369
1,813
3,815
2,728
2,405
2,678
11,626
FHCF payments do not sum to total because insurers will max out on FHCF recoveries
FHCF Payment threshold: $4.5 - $4.9 Billion Per Occurrence
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Catastrophe Loss as Percent of Property Premium
1992 - 2004
Countrywide: 18.8%
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2004
Countrywide: 27.0%
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Reinsurance Observations
Reinsurance Observations
 2004 hurricane events
 Excess capacity mitigated rate pressure
 Did not drive reinsurance pricing
 If there were unmodeled (or not well modeled) losses, experience rating
influenced pricing
 Reinsurers continue to
 Re-evaluate degree of uncertainty around model output
 Monitor Florida regulatory developments for impact on exposure to
reinsurance layers (“regulatory surge”, deductible issue, FHCF structure,
etc.)
 Cedents are now more interested in
 Understanding and reinsuring aggregate PML’s
 Reducing traditional coverage restrictions (i.e. Aon’s efforts to expand
hours clause, reduce co-participations, etc.)
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2005 Reinsurance Rate and Security Observations
 Reinsurer pricing models will reflect cat model changes (likely to be in 2006)
 Excess capacity is driving rates down
 Significant pockets of restless capital remain – and new capacity continues
to arrive
 Better rated Lloyd’s market is aggressive
 Aon’s leadership in restructuring this market to be more transparent and
efficient
 Generally led pricing in early 2005
 Spiral issues have been reduced
 Questions remain about long-term discipline and ongoing profitability
 Cedants more focused on security quality
 Especially anticipated quality following catastrophic event
 Want assistance in measuring reinsurer’s capacity to respond to multiple
large catastrophe events
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Catastrophe Model Observations
Summary of Hurricane Loss Estimates
Average
Estimated Loss/
Actual Loss
2.5
Model A
54%
Model B
78%
Model C
98%
Model C
2
1.5
Overestimation
Model A
Model B
1
Underestimation
Estimated Loss / Actual Loss
3
0.5
0
0
20
40
60
80
100
Event/Portfolio Data Points
Hurricane Loss Estimates Based on Post Event Catastrophe Model Analysis
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Catastrophe Model Observations
 Multi-model analysis provided value
 Demand surge happens, based on aggregate losses
 Age of building and building codes matter
 More refinement is needed in commercial occupancies, e.g. golf courses
 Quality, completeness and vintage of exposure data are important
 Losses occur at low wind speeds
 Unmodeled losses – Flood,Contingent BI, Mold, Off-Site Power interruption
 Accuracy of post-event estimates vs. actual loss is not necessarily a test of
accuracy of risk estimates (PML evaluation)
 Review of 2004 losses still underway – changes if any to damage functions
in 2006
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Anticipated Model Changes
 Information still being gathered and analyzed
 2005 model updates will be adjusted for frequency and other items
 Some changes will be deferred to 2006 (damage functions, etc.)
 Lower return period loss estimates
 Demand surge
 Revised damageability ratios at lower windspeeds
 Revised damageability ratios for select construction types
 Year of construction
 Secondary building characteristics
 Upper levels of reinsurance coverage not tested
 Possible lack of independence of events
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FHCF Change Legislation
 FHCF Retention drop down on third largest and smaller events
 Industry basis - $4.5 billion to $1.5 billion
 Loss events ordered on individual company basis
 Actuarial rates for CPIC in Monroe County if reasonable competition does
not exist – an experiment
 OIR to study standard rating territories by 1/15/2006
 OIR to study standard policy forms by 1/15/2006
 State may ask companies to report exposure and loss data for development
of public hurricane model
 OIR and Consumer Advocate to have access to models used in support of
rate filings
 More, including sinkhole provisions
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