CAS Seminar on Reinsurance Hamilton, Bermuda

1. CAS Seminar on ReinsuranceHamilton, Bermuda Excess Liability: An International Perspective David Gansberg June 6, 2005

2. Agenda • Scope of International Liability Market • International Insurance Programs • Reinsurance Market • Technical Pricing Considerations

3. Liability Premium by Region Source: Axco Insurance Market Reports

4. Claims Incurred by Region Source: Swiss Re sigma No 6/2004

5. Typical Multinational Policy Structure

6. Implications of Master Policy Structure • Advantages • One aggregate limit • One policy trigger • Local policies do not expose XOL reinsurance • Challenges • Few insurance companies have all the licenses necessary to issue the local policies • What is the subject premium of your treaty? • Premium for local policies • Policy issuance fees

7. Country Specific Coverage Issues • Claims Made Policies • France • Italy • Product Recall • Pure Financial Loss • Gradual Pollution

8. Differences in the Legal Environment • Jury Trials • Punitive Damages • Class Action Lawsuits • Contingency Fees • Compensation mentality / social insurance

9. Illustrative ILF Example Comparison of General Liability ILFs

10. Recent Market Losses • International Casualty Market Losses • Bayer – Lipobay / Baycol • Sulzer – Hip and Knee Implants • Aventis – Starlink • Charles De Gaulle Airport – terminal collapse • Various – PPA • Trend toward larger products claims either through US sales or US operations.

11. Recent Insurance Market Developments Driven by reinsurance market • Reduction in capacity • Significant rate increases • Dramatic increases in SIRs • Move from occurrence to claims made triggers on high hazard industries with products exposure • Tighter policy wordings

12. Recent Reinsurance Market Developments • Reduction in capacity • Increases in ceding company retentions • Rate increases • An Example:

13. Reinsurance Submissions • Loss ratios are often accounting year • Rate changes on underlying business are not tracked • Audits are not common • In many cases, they are not accepted

14. Technical Pricing Considerations • Indexation of Claims • An Example for a French treaty: • Limit: 4,000,000 • Retention: 1,000,000 • Index at inception: 1.00 • Total Paid Loss: 3,000,000 • Payment 1: 500,000 at index 1.05 • Payment 2: 1,500,000 at index 1.12 • Payment 3: 1,000,000 at index 1.25

15. Technical Pricing Considerations • Calculation of Indexed Payments • Payment 1 – 500,000 x 1.00 / 1.05 = 476,190 • Payment 2 – 1,500,000 x 1.00 / 1.12 = 1,339,286 • Payment 3 – 1,000,000 x 1.00 / 1.25 = 800,000 • Total 2,615,476 • Ratio of actual payments to indexed payments • 3,000,000 / 2,615,476 = 1.147 • Indexed Retention and Limit • 1,000,000 x 1.147 = 1,147,019 • 4,000,000 x 1.147 = 4,588,075 • Reinsurance Recovery • 2,615,476 – 1,147,019 = 1,468,458

16. Technical Pricing Considerations • Complicating Factors for Indexation • Claims inflation is usually greater than indexation (wages or CPI) • Indexation works differently in different regions • Other Pricing Issues • Periodic claim payments rather than lump sum • O/S losses carried at PV • Changes in interest rate • Re-opening of claims / adjusting of benefits • Change in scheduled (tabular) awards