Getting to Know Your Customer:
Role of the Reinsurance Actuary
Gerard Palisi, FCAS, MAAA
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Getting to Know Your Customer –
Worth the Effort?

Impact on data requests
– more focused information requests, to the benefit
of all parties

Impact on rating approach
– more accurate rating, less parameter risk

Impact on deal team decisions
– contribute qualitative, as well as quantitative,
input
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 2

Impact on your client
– audit feedback, and other services, add value
Becoming familiar with a client

Submission

Client meeting

Client audit

Public information
– annual reports
– annual statements
– website
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005

Trade press/news services
Page 3

Underwriters, Account Executives, Brokers
Submissions
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 4

Most direct source of information pertaining to the
treaty

Narrative section generally includes discussion of
company or business unit results, strategy, outlook
and projections

Other non-data sections, e.g. resumes, can also be
important and relevant!

What is not provided can be as informative as what
is

Be alert for “spin”, e.g. in narrative, choice of data,
years included, differences from prior submissions
Client Meetings
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 5

Prospect, Renewal, or Mid-term

Very efficient way to learn about client, their
operations, and current issues

Client actuaries are often involved in such meetings

Opportunity to directly question key client managers,
and to hear questions from other reinsurers!
Audits
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 6

Actuaries should participate in underwriting audits

Perhaps no better way for actuaries to get a good
understanding of the risks they are assuming

Gain both quantitative and qualitative perspectives
on the book of business

Direct opportunity to provide opinions and offer
value-added services to your client

Consider attending claims audits as well

At a minimum, actuaries should read current (and
prior) audit reports if they cannot participate directly
Public Information
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 7

Annual statement data can be valuable, particularly
for smaller companies and multiline treaties

AS is a source of triangles and expense information

AS data is less valuable for larger (e.g. G&N)
companies, where cedant is generally a specific
business unit within insurer

For public companies, annual reports can also shed
light on company strategy

Company websites are also a good source of
information
Trade Press
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 8

A. M. Best (Best Review, Bestweek, Bestwire, etc.)

Other Periodicals: Commercial Insurance, U.S.
Insurer, National Underwriter

Online services, e.g. NewsEdge

Wall Street Journal

Reinsurer’s own news gathering services
Underwriters, Account
Executives, Brokers
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 9

Your company’s underwriters, account executives,
claims staff, and other actuaries should be fully
familiar with current clients

They can also be a source of information on
prospective clients, if they’ve had past dealings with
the cedant or with key personnel

Brokers (including actuaries) should be able to field
most questions about the ceding companies they
represent
Who’s your cedant?

Business Unit of a Global/National Insurer
– can’t rely on “whole company” data
– higher retentions
– reinsurance generally for “non-bureau” lines
(umbrella/excess, professional, environmental,
excess WC, cat/clash)

Small/Regional Insurer
– lower layers and smaller net participations
– reinsurance generally for standard lines (via
stand-alone or multiline covers)
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 10

Specialty Insurer
Impact of customer knowledge
on treaty pricing

Treaty Structure
– Why does the cedant desire a particular structure
(QS, VQS, flat rated XOL, cessions XOL)? Is there
a better alternative?

Ceding Commission
– Is there an “override” (i.e. the cedant’s costs are
less than the ceding commission)? How does
this impact the cedant’s breakeven loss ratio and
net participation?
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 11
Impact of customer knowledge
on treaty pricing (continued)

Rate Changes
– Is the rate change calculation actuarially sound,
i.e. properly adjusts for changes in exposure,
limit, attachment, etc.?
– Is it consistent with rate changes provided in the
past? Is all of the subject business included in
the calculation?

Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 12
Book of Business
– Has the book changed over time? Is an “as if”
rating approach warranted?
– Have there been material changes in reserving
practices? What is the cedant’s IBNR position?
Working with the ceding
company actuary
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 13

The cedant’s actuary can be a great resource in
understanding the company, the subject book of
business, and nuances that can impact on pricing

Establishing a “direct link” to the actuary can
facilitate data requests and get questions answered
more quickly and efficiently

Evaluate the extent, and effectiveness, of the
actuary’s direct involvement in the business unit, i.e.
“underwrite the actuary”

First two bullets apply equally well to broker
actuaries if there is no cedant actuary involvement
Sophistication of the ceding
company
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 14

How large?

How managed?

Central reinsurance management, or each BU
manages on its own?

Systems and automation

Degree of actuarial involvement

Receptive to reinsurer input?

Culture issues (flexible/responsive vs.
rigid/conservative)
Big picture perspective

“Key customer”? (premium volume, strategic
importance, relationship, etc.)

Reinsurer strategy: individual treaty vs. portfolio
viewpoint

Cedant business strategy

Cedant reinsurance buying strategy
– Centralized vs. decentralized ceded re
– Sensitivity to individual treaties (leverage)
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 15

How is your reinsurance company perceived by the
cedant? By the cedant community as a whole?
In Conclusion …
Get to know your customer
Or not
Seminar on Reinsurance
Hamilton, Bermuda
June 6, 2005
Page 16