1 / 18

Reserving and Pricing in Liability Insurance

Reserving and Pricing in Liability Insurance. 2 nd International Istanbul Insurance Conference 30 September 2010. Prepared by Thomas Cordier, FCAS, FIA Aon Benfield Analytics . Key Message. Investing in strong technical capabilities now is critical for future success. Agenda.

jaclyn
Télécharger la présentation

Reserving and Pricing in Liability Insurance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Reserving and Pricing in Liability Insurance 2nd International Istanbul Insurance Conference 30 September 2010 Prepared by Thomas Cordier, FCAS, FIA Aon Benfield Analytics

  2. Key Message Investing in strong technical capabilities now is critical for future success

  3. Agenda Section 1 Some facts about the Turkish liability market Section 2 Playing by the rules Section 3 Summary

  4. Agenda Section 1 Some facts about the Turkish liability market Section 2Playing by the rules Section 3 Summary

  5. Some Facts about the Turkish Liability Market Source: Turkish Treasury, Insurance Supervision Board

  6. Non-life Premium Production of the last 5 years TL million 12.000 30 10.000 25 8.000 20 % 6.000 15 4.000 10 2.000 5 0 0 2005 2006 2007 2008 2009 Years premiums increase Some Facts about the Turkish Liability Market Growth of non-life business Source: Turkish Treasury, Directorate General of Insurance

  7. Some Facts about the Turkish Liability Market How much can the Turkish market continue to grow?

  8. Profitability of insurance companies over the last 5 Years 10.000,00 15 9.000,00 equity profit roe 8.000,00 7.000,00 10 TL million 6.000,00 % 5.000,00 4.000,00 5 3.000,00 2.000,00 1.000,00 0,00 0 2005 2006 2007 2008 2009 years Some Facts about the Turkish Liability Market Source: Turkish Treasury, Directorate General of Insurance

  9. Some Facts about the Turkish Liability Market Recent events affecting liability lines in Turkish Liability lines • Amendment of reserve regulation (2008) • High inflation levels (CPI circa 10% since 2005, was much higher previously) • Use of tariffs or regulator approval in a number of lines of business • Medical Malpractice reform (July 2010) • New reserving guidelines (expected in late 2010) • MTPL limits have increased to TL 175,000 ( March 2010)- further increase to TL 200,000 (January 2011)

  10. Agenda Section 1Some facts about the Turkish liability market Section 2 Playing by the rules Section 3 Summary

  11. Playing by the rules Actuarial drivers of reserving and pricing Recent developments • Increase in case reserve level for large liability claims observed in a number of Central and Eastern Europe countries • High inflation • Increase in MTPL limits • New reserving requirements Impact: make projections more uncertain, actuaries increase ultimates. Reinsurers have already responded by increasing rates heavily. Are we going to see an increase in reserves for primary insurers? Have reinsurers over-reacted to these changes?

  12. Playing by the rules Regulatory constraints Tariffs • Write liability lines at an unprofitable rate (legal minimum) may make sense because it allows cross-selling opportunities • How to identify customers who are genuinely profitable overall and those who aren’t? • Generalized Linear Models (GLM) combined with good underwriting standards provide a way of monitoring expected gains/loss per insured by line and overall. In the long run, companies with the most advanced rating system will end-up writing more “good risks”, leaving less profitable risks to their competitors (anti-selection). This remains true even in the presence of tariffs.

  13. Playing by the rules Capital Overall worldwide trend towards more disclosure and a better understanding of risk (e.g.: Solvency II in Europe, Solvency Modernization Initiative in US) Lack of consistency within a company may lead to: Deteriorating underwriting results Increased volatility in earnings Increased regulatory capital requirements Companies with an embedded internal capital model and a coherent risk management framework will be better equipped than others to face future uncertainty. Risk Management and Internal Model

  14. Playing by the rules Reinsurance to support growth and reduce volatility of earnings Formulating a risk appetite that can flow down to all areas of the business • Use of proportional reinsurance can help support growth • As capital is built-up, shift to non-proportional reinsurance to cede less profit and reduce volatility of earnings • Insurers also benefit from brokers and reinsurer’s technical expertise Internal Model helps optimize reinsurance program and it ensures that your company receives sufficient capital credit for your reinsurance program

  15. Playing by the rules Reinsurance to manage capital

  16. Agenda Section 1Some facts about the Turkish liability market Section 2Playing by the rules Section 3 Summary

  17. Summary • The Turkish liability market is going through a period of great changes • Even in the presence of tariffs companies can select the best risks by using GLM and a strong underwriting process • An embedded risk management process and a well-designed internal model will help optimize capital • Reinsurance is a great tool to align a company’s exposure to its risk appetite, manage capital and reduce earnings volatility Companies that invest in strong analytical capabilities now will gain a decisive competitive advantage for the next few years

  18. Contact List Thomas Cordier, FCAS, FIAAon Benfield London Analytics+44 207 522 8244thomas.cordier@aonbenfield.com Müge DirenAon Benfield Istanbul Senior Account Executive+90.212.282.7100muge.diren@aonbenfield.com

More Related