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January 1, 2002 Renewals and Beyond

January 1, 2002 Renewals and Beyond. The Reinsurance Market in the Aftermath of September 11. Factors Affecting January 1, 2002 Renewals. Prior to September 11 Results were already bad for most lines Companies exiting certain lines of business Low interest rates & investment returns

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January 1, 2002 Renewals and Beyond

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  1. January 1, 2002 Renewals and Beyond The Reinsurance Market in the Aftermath of September 11

  2. Factors Affecting January 1, 2002 Renewals • Prior to September 11 • Results were already bad for most lines • Companies exiting certain lines of business • Low interest rates & investment returns • Substantial rate increases in underlying coverage • WTC losses from September 11 • Enron

  3. One Actuary’s Perspective • Many submissions in earlier • More data (e.g., rate changes) • Requests to price alternate structures • Loss corridors • Swing-rated treaties • Aggregate caps • New programs

  4. One Actuary’s Perspective • More contracts involving actuarial input • Sharp increase in new business submissions • Difficulty in completing some placements • New terms • Updated data • Late submissions

  5. Hardening Market • Workers compensation • High combined ratios • California • Carve-out market disappearing • Primary rate increases • Loss cost multipliers • Smaller credits (even debits) • Higher XOL costs / Higher retentions • Quota Share v. XOL

  6. Hardening Market • General Liability, Commercial Auto • Rate increases in underlying coverages • Increases in XOL • Umbrella: lower limits • Aviation • Rate increases of 20% and more • Clash • Disappearance of WC carve-out protection

  7. Hardening Market • Medical Malpractice • Fewer Writers • Increased Severity • Nursing Home Liability • Runaway loss cost trends • Lack of capacity • XOL: return of the sliding scale • Finite Risk covers

  8. WTC Loss of September 11 • Life, A&H, AD&D • Property • Business Interruption • Aviation • Workers Compensation • General Liability • Errors & Omissions • Clash

  9. January 1, 2002 Renewals in the Aftermath of the WTC Loss • Reinsurance Reaction • Exclude? • Sublimit? • Class, Geographic restrictions? • What additional price? • Payback? More margin?

  10. WTC Loss • Reinsurance Reaction • Aggregation of Exposure • Geographic concentration • # of risks • Employees in a given location • Clash • Large workers compensation losses • Combined with loss of inuring carve-out protection

  11. Aftermath of WTC Loss • Aggregate Limits • Reinstatement premiums • New capacity • Reinsurers formed in Bermuda • Capital raised by existing reinsurers • Not unusual following a major catastrophe

  12. Enron • Financial collapse • Allegations of cover-up • Retirement savings nearly wiped out for many employees/retirees • Layoffs • Role of independent auditor questioned

  13. Enron Lines of Business Affected • Surety (Performance Bonds) • D&O • E&O • Casualty Clash • Workers Compensation

  14. Directors & Officers • Large increases in severity • Changes in ILF tables • Changes in underlying coverage • Higher retentions required • Reduction in limits being offered

  15. Challenges • What are company’s aggregate exposures? • for one event • for one location • among all lines • How do we address terrorism? • Can we price for it? • Or how do we manage the risk?

  16. Managing Expectations

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