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CARe 2006: Marine Reinsurance

CARe 2006: Marine Reinsurance. Lee Tookey Underwriter, Marine and Aerospace Aspen Re London (and nearly an actuary). Marine Reinsurance:. Introduction: review of the basics Objectives: what the actuary can do Some typical questions Some observations on specific classes Hull Cargo

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CARe 2006: Marine Reinsurance

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  1. CARe 2006: Marine Reinsurance Lee Tookey Underwriter, Marine and Aerospace Aspen Re London (and nearly an actuary)

  2. Marine Reinsurance: Introduction: review of the basics Objectives: what the actuary can do Some typical questions Some observations on specific classes Hull Cargo Energy Closing remarks

  3. Marine Reinsurance: Introduction • Significant Actuarial involvement for at least 15 years • Slow improvement in data • Always has been plenty of it but little consistency and difficult to model. • Little interest from commercial modelling companies • In house development and discussion papers

  4. Introduction (2) • Proportional and Non-Proportional • Facultative and Treaty • Pure and Composite • “Marine” Classes include • Hull • Cargo & Specie • Offshore Energy • Liability (Marine and Energy)

  5. Introduction (3): Non Proportional Treaty (pre 2005) • Risk and event common. • Attachment point of programme a function of maximum risk line. • Combined or “Whole Account” layers above specific class layers

  6. Introduction (4): Rating Non-Proportional Treaty • Usually experience and exposure rating • Experience from actual and “as-if” losses • Attritional risk losses • Headline risk losses • Catastrophes (natural and man made) • Exposure from • Risk profile and size of loss curve for risk losses • Market share and market loss return periods • Possibly stochastic models

  7. Introduction (5): Where is the experience? • Attachment point for excess of loss typically 10% of maximum line. • Usually few losses at this level • Money swap layers generally avoided • Low level backup layers in softer market • Frequency/severity approach would usually need to look at layer below programme

  8. An aside on attachment points • Of 68 marine programmes seen in 2006.. • 12 had a ROL>50% for first layer • Of these, 9 were domiciled in Americas or led by US reinsurers • All attached below 10% of maximum line • Possibly Lloyd’s influence • Underwriting capacity measured in terms of written premium

  9. Objectives • Using information we have, provide guidance to underwriters on • Pure premium • Volatility of result • Changes to exposure over time • Claims inflation • Accumulations

  10. Objectives (2) • Understanding the business from an insurance perspective • Understanding what information is collected and why • Understanding effects of changes in the market • Understanding the results of our analysis in light of the actual experience.

  11. Common Questions • Why is the experience rate so different to the exposure rate? • What has changed over the experience period and how can I quantify it? • How homogeneous is the exposure data and does that cause a problem? • What more is there to know and can the underwriter tell me?

  12. Marine Hull Excess of Loss Information • Typically loss experience given excess of 50% of attachment point last year. • Several years data usually available but what is the effect of… • Change in mix of vessel types • Change in lines size • Changes in policy conditions and coverage • Inflation

  13. Marine Hull Excess of Loss Information (2) • Risk Profiles • Gross or Net of reinsurance • By type of vessel ? • In force or risks written, what period • 9 month written profiles not uncommon • Premium, sum insured and count • Losses by band as well?

  14. Range of ocean going vessels • Very large container ships • Tankers • Bulk carriers • Passenger vessels • Car Carriers • Fishing vessels • Service boats

  15. Where is the value? • Container Vessel • Mostly in hull and engines, some machinery • Little else of value (apart from cargo) • Cruise ship • Hull and engines smaller percentage of value • Upper, accommodation decks high value

  16. So what if there is a fire?

  17. Underwriting approaches to book building vary • For larger vessels, percentage line, dollar line or both, smaller vessels 100% writing • “Normal” maximum line • Use of proportional treaty • Facultative reinsurance • Proportional or excess • Territorial considerations • Special acceptances

  18. All hull insurance is not the same • Standard coverage include • Hull and machinery (H&M) • Total Loss / Increased Value (IV) • Mortgagees Interests (MI) • Loss of Hire (LOH) • Collision Liability • But we rarely see the claims or the exposure broken down like this

  19. H&M $200m IV $50m LOH $20m In a risk profile, this may appear as three entries (200, 50, 20), one entry of $250m or one of $270m Maximum partial loss $220m (H&M + LOH) Maximum total loss $250m (H&M + IV) Hull Interest Example

  20. Hull and Machinery versus Total Loss • In some markets, TLO coverage is limited to certain percentage of total insured value • Premium rate significantly different • TLO may be 30% of all risk rate • Size of loss curves different for H&M and TLO • TLO pro rata

  21. Inflation • Very unpredictable • Salvage • Labour • Steel • Reflected to some extent by ship-owner revaluing vessel and we get rate on sum insured

  22. What we should aim to do • Price for the experience of the account • Adjusted for quantifiable changes in the account from re-underwriting or market changes • Allowing for events that haven’t happened • If the reinsured is getting premium for the risk, we should get our share

  23. A risk profile is so versatile…. • Exposure rating – obviously • Number of vessels and TSI • Average rate by band • Level and utilisation of maximum line size

  24. Change in line size Change in reinsurance strategy Territory % line, adjust losses and subject premium Dollar line, harder to adjust. Need risk profiles to help Ideally work from gross losses and apply current RI Cat risk and usual perils of the sea Adjusting Experience

  25. Adjusting experience (2) • Usually use on level premium to adjust historic frequency / avg severity • Can use historic risk profiles • Index for frequency based on exposed vessels count to layer • Index average severity based on average exposed sum insured to layer

  26. Exposure rating • Current risk profiles gives indication of exposure • Assume size of loss curve appropriate • Underlying loss ratio assumption key. • But this may vary through risk profile • With all adjustments, often significant difference between experience and exposure

  27. What is available? • Historic risk profiles usually are • Commentary on line size • Commentary on reinsurance • Fleet mix • But no use asking 2 days before renewal

  28. A few cargo issues • Policy limit or shipment • How long is exposure on risk • Where is most of trade • What sort of commodity • Accumulation risk • Start and end of exposure

  29. Energy – the opportunity • After 2005 windstorm, full review • Great time to question • Every aspect of coverage under review • Significant change in data presentation • Sub limits in GOM for wind • Per policy not per platform • Does not effect risk rate • Increased modelling

  30. Closing • Do not stick to basic methods • What else can we use data for • Learn subject • Engage underwriter and client • Demonstrate use

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