Download
1 / 66
E N D
2. Slide 2
3. Slide 3 Airline Crashes
4. Slide 4
5. Slide 5 What Causes Accidents ?
6. Slide 6
7. Slide 7 … the production platform
8. Slide 8 25th March 2001
9. Slide 9 Petrobras: 20.03.2001 P36 platform, Campos Basin
10. Slide 10 Story # 3 Closer home…… extract from an international risk surveyor’s 2003 report on an oil platform: -> A major release of gas from a riser…. could result ….an explosion -> Alternatively, riser failure …… could result in a jet flame that would cause severe damage
Recommendation…. The risers .. are unfortunately on the outside of the jacket envelope ….. specifically require protection against boat impact… riser protection guards have been placed where boat operations are envisaged but it is recommended these be reviewed to determine if impact …. could be catastrophic
11. Slide 11 Story # 3 Aug 2005 extract from loss adjuster’s first report
…. it is reported that the vessel impacted with the platform and, in particular, the helideck of the vessel struck the jacket in the area of the risers in the south west corner….
…. loss reserved at $ 350 mn (PD)
12. Slide 12 Rating of Property & Engineering Risks in a Detariffed Environment
13. Slide 13 We will look at…..
-> important aspects of risk management
-> assessment of natural perils exposures
-> rate determination, i.e. from risk premium to risk rate
-> risk rate loadings
-> some features of project insurance
14. Slide 14 Risk Management, Risk Management and Risk Management
15. Slide 15 The Dynamic of Incident Causation
16. Slide 16 The Dynamic of Incident Causation (2)
17. Slide 17 Comprehensive Safety Management
18. Slide 18 Summing up of information
19. Slide 19 Assessment Matrix for Refineries and Petrochemical Plants
20. Slide 20 Expanding the Boxes: Example ….. Process control
21. Slide 21
22. Slide 22 Assessment Matrix for Refineries and Petrochemical Plants
23. Slide 23 Relative Inherent Risk (RIR) vs. Protect Level (PL)
24. Slide 24 MPL Maximum Possible Loss MPL Maximum Probabale Loss MPL Maximum Potential Loss PML Possible Maximum Loss PML Probable Maximum Loss MAS Maximum Amount Subject MML Maximum Monetary Loss NML Normal Monetary Loss NML Normal Maximum Loss NLE Normal Loss Expectancy LLP Large Loss Possibility LLP Large Loss Probability ELLP Expected Large Loss Poss. ELLP Est’d Large Loss Probability EPML Est’d Probable Maximum Loss EPML Est’d Possible Maximum Loss MFL Maximum Foreseeable Loss UML Ultimate Maximum Loss AML Absolute Maximum Loss TPL Total Probable Loss TPL Total Possible Loss MLE Maximum Loss Expectancy AS Amount Subject PS Percent Subject VS Value Subject LE Loss Expectancy LE Loss Estimation EML Estimated Maximum Loss
25. Slide 25 Assessment of Natural Perils Exposures
26. Slide 26 Underwriting natural catastrophe perils Features as distinct from fire losses
? low frequency / high severity
? accumulation control necessary (per peril and exposed area)
? company solvency is threatened if commitments exceed ability to pay losses
? full coverage may not be available
? high deductibles may be considered necessary
? insurance coverage may be prohibitively expensive, or in soft markets, exposure may be “forgotten” and insufficient premium charged
27. Slide 27 Underwriting natural catastrophe perils (2)
For example, earthquake ->
1. What exactly is covered? (shock only? fire following? BI?)
2. Is premium sufficient?
3. Are deductibles high enough to eliminate numerous (costly!) smaller losses?
4. Is there a sublimit or co-insurance for the cover?
5. Is building construction shock resistant?
6. What is the seismicity of the area? Are coastal regions exposed to “tsunami”?
7. Is accumulation strictly controlled?
28. Slide 28
29. Slide 29 Basics of Cat risk assessment …. a reinsurer’s approach
30. Slide 30 Example… Vulnerability, Storm
31. Slide 31 Example… Damageability
32. Slide 32 Cat perils: models needed Low frequency, many years with low losses or even no losses, but one year with very big, disastrous loss
Burning costs analysis (as applied for e.g. fire peril or mortality) is not applicable
Cat models simulate the EQ or W/F loss history over a very long time period (e.g. 10’000 years).
By summing up all the losses at the end of this time period, and dividing this sum by 10’000 years, the average yearly loss for EQ or W/F can be derived. Likewise, event losses are sorted according to their size and the 500-, 100-year, etc loss levels can be defined.
annual expected loss can be drilled down to single risk level
=> move from a zonal (EQ) or country (cyclone) rate to location specific rates for natural perils exposures.
33. Slide 33
34. Slide 34 How about Engineering Risks? Engg-specific features for project risks
-> TSI exposed towards the end of the project …. for eg. assume an avg exposure of 50% of TSI?
-> lower vulnerability as compared to property risks …. the more vulnerable fittings and installations are added towards the end of the project
For Annual Engg risks…. - depends on coverage - assume lower exposure… say 80% if adequate info is available
35. Slide 35 Underwriting natural catastrophe perils – a dynamic scenario Structural changes which affect “cat” exposure
? growth of world population
? more concentration of people / values in exposed areas
? increasing use of exposed areas (coasts, flood plains)
? increasing standard of living
? introduction of complex and fragile technology
? changing building standards (enforcement)
? broadening scope of cover and deteriorating conditions
? global warming?
36. Slide 36 Underwriting natural catastrophe perils – future uncertain? Global Warming? signs of trouble
? global surface temperature increased by ?0.6°C during 20th century
? another increase of ?1.4 - 5.8 °C projected for 1990 - 2100
? probably without precedent for the last 10,000 years
? evidence that most warming during the last 50 years is attributable to human activities
? man-made climate change will persist for centuries
source: Summary for policy makers (www.ipcc.ch)
37. Slide 37 Global Warming? potential consequences for property (re-)insurers
? more extreme precipitation events (flash floods) likely
? more heat waves likely
? increase in tropical storms in some areas likely
? possible increase in storm severity and frequency
? potential increase in loss figures also affected by demographic and socio-economic change, as well as by technological advances
? in spite of the uncertainty involved, climate issues must be taken seriously!
38. Slide 38 Natcat Pool ?
39. Slide 39 Setting the risk rate
40. Slide 40 Premium must pay ? claims
? loss adjusting costs
? reserves (for losses with low frequency and the “unforeseen”)
? a contribution to the Insurer’s overheads and capital costs
? reasonable profit (hopefully)
adjustments fluctuation, data quality inflation underlying changes – portfolio, law, etc…
Developing appropriate rating starts with detailed loss statistics.
41. Slide 41 Expected loss costs: components The expected loss cost must encompass the annual average of ALL losses (frequent and infrequent) that may incur as a result of the contractual obligations.
Types of losses to be considered:
Small and frequent losses: basic loss ratio
Large and infrequent individual losses: large loss loading
Large and infrequent event losses affecting many risks: Cat loading
All components together form the expected loss costs
42. Slide 42 Assessment methods for estimating expected loss costs Two main assessment methods:
Experience rating: calculation of expected loss based on the loss experience of the past and its projection in the future.
Exposure rating: calculation of expected loss based on risk exposure (e.g. sums insured, number of risks, risk size distribution)
43. Slide 43 Portfolio / Rating Analysis
(whole property portfolio, material damage/business interruption, occupancy/etc)
A company’s analysis of its own figures will give the most relevant information. Some national market associations provide members with market (or tariff) info.
Portfolio analysis
44. Slide 44 A credibility approach to rating A credibility coefficient would account for -> premium volumes -> heteogeneity of portfolio -> fluctuation of loss ratios from year to year
45. Slide 45 Deductibles Purpose ? encourage prudence by the insured (in addition to the duty of due precaution) ? reduce insurers’ claims burden ? reduce insurers’ administrative costs
Discounting for deductibles
? may not be justified at all on a poor account ? should be based on a company’s own statistics ? a company should be able to calculate (by occupancy, protection) what portion of its loss burden would be removed by which deductibles and discount its rates accordingly ? only makes sense if the original gross rates are adequate!!
46. Slide 46 Setting natural catastrophe deductibles ? adequate loss statistics may not be available
? rating/deductibles based on theoretical models
? information on historical return periods may be thin
? will depend on the size of the portfolio
? is often subject to undue market pressure, especially during a period without catastrophic losses (memory is short)
47. Slide 47 Individual risk adjustments (+/-) for:
48. Slide 48 Contingent Business Interruption A challenge to underwriting management because of
• expanded BI exposure
• underwriting is “once removed” from the risk
• potential lack of transparency
• insufficient information
• possible concerns of the insured about confidentiality
• another type of contingency planning analysis
• potential accumulation exposures with other business
• pricing difficulties
49. Slide 49 Contingent Business Interruption - continued
50. Slide 50
51. Slide 51 Risk Rate Loadings
52. Slide 52 From the Risk rate to the Gross Rate
53. Slide 53 Do we chase the price cycle? or, attempt to manage it? long-term target:
pre-defined profit to be achieved over the cycle in order to achieve a long-term return on equity target
short-term target:
profit to be achieved according to current year’s business plan
54. Slide 54 Capital Costs: The Investor’s perspective When assessing the profitability of the company’s activities, the cost of holding capital to support the business must be considered
The capital necessary to support insurance business is the frictional capital and is in excess of the base capital which is needed to support the investment portfolio
But: how much capital is needed to support the insurance business (capital adequacy) ?
=>risk-specific capital cost helps in assessing line profitability as well as performance measurement
55. Slide 55 Capital adequacy: risk-adjusted capital
56. Slide 56 Definition of an adverse year: shortfall as a risk measure
57. Slide 57 Capital adequacy: risk-adjusted capital
58. Slide 58 Capital adequacy: external views from a global perspective
59. Slide 59 Exposure Rating Used for excess of loss rating, may be increasingly relevant under detariff as clients seek loss limit covers
this is only a tool to determine layer premiums or deductible credits but does not substitute underwriting
60. Slide 60 Project Insurance, briefly
61. Slide 61 Challenges in underwriting a single project risk (1) Multiyear period (2-10 years, sometimes more)
Many insured parties: contractors/subcontractors, designers, manufacturers (often unknown); owner
Multiline cover: MD (+ DSU), TPL, (marine)
All risk, tailor-made wordings
Insured perils: construction/erection, testing, manufacturers risk incl. guarantee, natural perils, FLEXA, SRCC/malicious, etc.
62. Slide 62 Challenges in underwriting a single project risk (2) Plant/construction existing only on plans
Exposures are difficult to assess in advance;
construction phases (permanent change)
temporary stages and conditions: high exposures (fire, flood, etc.); construction method may be new
management and workforce: quality, change
environment: often not well known
first running of machines (new technology?)
No loss history available
63. Slide 63 Challenges in underwriting a project insurance portfolio (3) High capacity required (cost of capital)
Large risks are very heterogeneous (type, composition, characteristics, location); portfolio is unbalanced
Risk and claims to be managed during all years until insurance periods expire
No cancellation or change of conditions
Portfolio subject to economic fluctuations
New risks to be added every year to replace those expiring and provide minimum balance
High acquisition and management costs
Bad performance world-wide during last years
64. Slide 64 Possible perils of a project
65. Slide 65 Typical progress of a project Pre Project phase :
Different alternatives are actively or passively considered
Promoter writes a request for authorisation ( what is it, what will it cost, alternatives, how will it be financed )
Development Phase :
- Feasilibility and profitability study is performed
Promoters issue tenders for supply of drawings, construction of parts, contractors and sub contractors are determined
Pre Project phase :
Different alternatives are actively or passively considered
Promoter writes a request for authorisation ( what is it, what will it cost, alternatives, how will it be financed )
Development Phase :
- Feasilibility and profitability study is performed
Promoters issue tenders for supply of drawings, construction of parts, contractors and sub contractors are determined
66. Slide 66
67. Slide 67 Thank you for your attention !
