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Intl1: International Reserving Issues

INSTRUCTIONS This template is designed for onscreen presentations and printed handouts only. The template provides the option of either a grey or white background. How to change colour palette: Format menu > Slide Design… > Color Schemes

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Intl1: International Reserving Issues

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  1. INSTRUCTIONS • This template is designed for onscreen presentations and printed handouts only. • The template provides the option of either a grey or white background. • How to change colour palette: • Format menu > Slide Design… > Color Schemes • Choose the desired colour scheme and use the dropdown option to select Apply to All Slides. • Guidance on formatting the beam is available in the notes pages of this document. Intl1: International Reserving Issues Stewart Mitchell

  2. INSTRUCTIONS • Apply a pattern fill to text slides created with a grey background by changing the design template. • How to change design template: • Format menu > Slide Design… > Design Template • Choose the desired design and use the dropdown option to select Apply to Selected Slides. • PATTERNS SHOULD NOT BE USED WITH THE WHITE BACKGROUND • Update the Presentation title and Date from the Header and Footer… option from the View menu. 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 CAS Loss Reserving Seminar

  3. INSTRUCTIONS • Apply a pattern fill to text slides created with a grey background by changing the design template. • How to change design template: • Format menu > Slide Design… > Design Template • Choose the desired design and use the dropdown option to select Apply to Selected Slides. • PATTERNS SHOULD NOT BE USED WITH THE WHITE BACKGROUND • Update the Presentation title and Date from the Header and Footer… option from the View menu. What is Lloyd’s? Straw poll of Lloyd’s • What are your perceptions? CAS Loss Reserving Seminar

  4. Positive 320 year history Unrivalled promise to pay claims (1906 San Francisco earthquake) Negative Opaque Complex What is Lloyd's? CAS Loss Reserving Seminar

  5. Lloyd’s (of London) • 17th century coffee shop • Market not a company • Landlord and regulator • Statistics • 72 Syndicates, 46 Managing Agents • $14bn capacity • 40% of income from the US • 2nd largest surplus lines insurer • 5th largest global reinsurer CAS Loss Reserving Seminar

  6. 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. CAS Loss Reserving Seminar

  7. Cultural observations on the London Market • Subscription market – leader/follower • Entrepreneurial vs One man band • The underwriter was king • ‘Relationship’ underwriting and brokers • The underwriter is still king • ‘Embeddedness’ of actuarial skills CAS Loss Reserving Seminar

  8. Current reserving issues in the London Market • KRW • Subprime/credit crunch • Risk losses in first half of 2008 • 2008 Hurricane season • Approaches to reserving: • Top down • Bottom up CAS Loss Reserving Seminar

  9. The insurance cycle • Key reasons for cycle • 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 Profits – top of cycle Losses – bottom of cycle CAS Loss Reserving Seminar

  10. Impact of the softening market on reserving • Our recent survey highlighted: • Underestimation of rate changes • Price vs Terms & Conditions CAS Loss Reserving Seminar

  11. Underestimation of rate changes • 73% respondents believe they will underestimate the softening of rates • New business • Not all business monitored • Underwriter ‘optimism’ CAS Loss Reserving Seminar

  12. Price vs Terms & Conditions • competition on price to date • competition on T&C going forward • deductibles • removal of exclusions • monitoring the impact of changes in T&C CAS Loss Reserving Seminar

  13. Impact on reserving • Roll forward of loss picks leading to under-reserving? • Rate MI under cooking true rate reductions • Changes in T&C not being captured CAS Loss Reserving Seminar

  14. Any questions? CAS Loss Reserving Seminar

  15. Thank you

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