12 April 2010 Tim Jenkins

1. Current Issues in General Insurance Presentation to the Faculty of Actuaries Students Society 12 April 2010 Tim Jenkins

2. Agenda Current Issues in General Insurance

3. Industry updateHot topics affecting the largest UK general insurers 2009 UK Motor Recession Weather Periodic Payments Asbestos • UK trading conditions for general insurers were • “challenging”, “rocky”, “difficult”, “tough” • Hardening market • Additional claims cost • Commercial lines business volumes affected by lower economic activity • Cumbria floods and snow at end of 2009 • Lessons learnt • Increase in personal injury claims settled by periodic payments • Some insurance groups reported material strengthening of their asbestos reserves Current Issues in General Insurance

4. Personal injury update • Personal injury claims • Largest part of the reserves for certain classes such as • motor, employers liability, medical malpractice • A number of potential reforms announced in 2009 and 2010 • Lord Justice Jackson’s review of civil costs • Fundamental review into the costs of civil litigation Current Issues in General Insurance

5. UK Asbestos update • Summary • AWP has doubled its estimate of future costs for UK asbestos claims to UK insurance industry • 2009 estimate of £11bn compared to estimate from previous AWP review in 2004 • Non-insurance costs are not covered by AWP • Mesothelioma • Near doubling of proportion of mesothelioma sufferers claiming for compensation • Approximately 90% of AWP’s revised estimate relates to mesothelioma • Number of claims nearly double number of deaths by 2008 • Possible reasons for the increase include: • Increased publicity of asbestos-related diseases • NHS Mesothelioma Framework • Internet • Uncertainty in projecting future relationship between deaths and claims • Estimates range from £5bn to £20bn • Industry impact • Most of insurance industry should have allowed for higher experience over last few years • Pleural plaques • Excluded from latest AWP study due to current state of legal uncertainty across UK Current Issues in General Insurance

6. UK Asbestos updateMesothelioma Insurance Claims Experience 1968-2008 Source: Faculty & Institute of Actuaries 2009 UK Asbestos Working Party: “UK Asbestos Working Party Update 2009” Current Issues in General Insurance

7. Solvency II Comes into effect 1 November 2012: more urgent than that sounds Old capital formula very simple and too low Current Issues in General Insurance

8. New tax rules for GI reservesBackground & Summary • During 2009, new regulations in respect of the tax deductibility of general insurance technical provisions were brought into force • Seek to prevent insurers reserving too prudently for tax purposes • New legislation applies to UK insurers, UK branches and captive insurers • HMRC does not want to target the vast majority of general insurers – but the legislation has affected all • Insurers tax return may be challenged if HMRC considers the technical provisions stated in the accounts exceed an “appropriate amount” • If “disallowed” the closing technical provisions in one year are the brought forward provisions for the next year, for tax purposes • Technical provisions in the accounts should be allowable, provided the claims reserve component of the provisions are based on an actuarial opinion that they are not excessive • How ‘excessive’ is interpreted is at the heart of actuarial considerations involved in providing the actuarial opinion Current Issues in General Insurance

9. New tax rules for GI reservesThree conditions for the “appropriate amount” to be the technical provisions in the accounts Current Issues in General Insurance

10. Recessionary issues • Key classes affected by recession are • Personal lines • Motor • Household • Other • Commercial lines • Trade credit risks • Political risks • Property • Recessionary effects on claims and pricing • Higher unemployment • Buying behaviour • Uninsured levels increase • Reduced car mileage. • Commercial property unoccupied • Increase in fraudulent claims • Claims inflation • Impact on claims reserving • ACPC • Chain Ladder • BF • Other impacts of the recession on insurance • Pricing • Mergers and Acquisitions • Discounting of reserves Current Issues in General Insurance

11. Market cyclesThe Underwriting Cycle Current Issues in General Insurance

12. Market cyclesThe Reserving Cycle Gross ULRs of Casualty business at Lloyd’s of London Source: Lloyd’s SRD Database. The above chart has been used with the kind permission of Lloyd’s of London Current Issues in General Insurance

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