Casualty Actuarial Society
Reinsuring Small Regional Companies
November 12, 2007
Tim Madden
Business Leader – Swiss Reinsurance
Agenda

Definition of Regional Company

Profile of Regional Company Marketplace

Segment Appeal to Reinsurers

Underwriting Challenges

Expert Services

Summary
Regional Company Definition

Limited Geographic Focus

Traditional Product Offerings

Independent Agency or Exclusive Sales Force

Mutual or Stock Company Profile

Outwards Reinsurance Consistency
Regional Company
Marketplace

2005 Data

DWP - $107 Billion

Ceded Premium - $12.9 Billion

Number of Ceding Companies - 506

Ceded Premium < $10 Million
- 308 Companies
- Aggregate Ceded Premium - $900 Million

Ceded Premium > $10 Million - $25 Million
- 88 Companies
- Aggregate Ceded Premium - $1.5 Billion
Segment Appeal to Reinsurers

Consistent Buying Philosophy

Traditional Lines in Well-Defined Market

Consistent Business Plan Execution

Stable Operating Results

Business Partnership
Underwriting Challenges

Data Limitations

Concentration
- Product Offerings
- Geographic

Attitude Towards Change

Constraints
- Rating Agency
- Regulatory
- Capital
Expert Services

Strong Reinsurer Ratings are Critical

Commitment to Provide Technical Support
- Underwriting, Claims, Actuarial, Regulatory, Legal, IT,
Risk Management, etc.

Value-Added Intellectual Property
- Publications, Webinars, Client Forums, Education
Platform, Market Research

Risk Management Solutions
- Customized for Regional Segment Needs

High Touch Point, Expensive to Service
Conclusion

“Small” Companies Represent
- Approximately 80% of Company Count
- Approximately 20% of Ceded Premium

Stable Segment of Industry

Relationship Oriented

Reinsurance Needs
- Need to Differentiate

Data Quality Issues

Commitment to Expert Service Delivery

Reputation as a Market for Regional Business –
Consistency is Key!
REINSURING SMALL
REGIONAL COMPANIES
November 12, 2007
The Ceding Company's Perspective
Larry Seymour, FCAS
SO YOU WANT TO BUY
SOME REINSURANCE…
 How, What, Where, When, Why…
 Multiline, CAT’s, Terrorism, Clash,
Baskets, Reinstatements…
 Uggghhhh!
FINDING A BROKER OR
OTHER REINSURANCE
INTERMEDIARY
A broker …




Has been there, done that
Knows the current market conditions
Know your book and which reinsurers like it
Knows the contract wording
BROKER CLIENT
DISCUSSIONS








Why buy reinsurance?
What is your risk tolerance?
Is capacity an issue?
What limit, what retention?
Probability of ruin?
Structure: Quota Share,Excess?
Combined lines treaty?
Carve out LOB's (WC, umbrella, etc)?
TRANSPARENCY
 Consider the potential bias of a product
based on "commissions"
 Am I paying too
much or buying too
much?
 Go broker shopping every X years
 The broker universe is smaller than you
think
 Be fair and never burn a bridge
DATA IS KING
 There is no such thing as too much data
 There is no such thing as too much data
 There is no such thing as too much data
DATA DATA DATA
 Provide all data requested by
Broker
 Premiums, losses, rates
changes, LCM's
 Loss ratios, frequency, severity
 Large losses, CAT’s
 Proforma's, terrorism take up
rates
 Loss development triangles
THE DATA MUST HAVE’S…
 WC -->
 Class code, hazard group, zip code, location
 Property -->
 Exposures by location address
 Liability -->
 Limits profiles
 Umbrella -->
 Excess, monoline, auto exposed
 Auto -->
 Type of use, weight, limits
OTHER ITEMS TO SHARE
WITH YOUR BROKER…
 Exposure rate or experience rate?
 The "but for" exclusions, runoff business
 New endeavors, new lines, new states,
new agents
 1 in 100; 1 in 250; 1 in 500?
LAKE WOBEGON SYNDROME
(GARRISON KEILLOR)
 The place where every kid is above
average
 Every insurance company is also above
average
 Convince your broker why you are
above, above average
DEAL WITH THE FACTS
 But don’t be afraid to be an optimist
 Above the hurricane I'm sure the sun is shining
UNDERWRITING AUDITS





Develop relationships with reinsurers
Confirm your u/w standards
Confirm consistency
Resolve unanswered questions
Eye to eye contact with the price setter
LET THE NEGOTIATIONS
BEGIN…
 Explore various retentions, layers,
exclusions, etc.
 Contract wording has value as well
 ROL (Rate On Line)
 A simple way to compare quotes
7/26/2016
21
WHICH QUOTE IS BETTER?
 Ex: $100M DWP:
 5.0M xs 1.0M @ 6% DWP
 5.0M xs 1.5M @ 5% DWP
 Should you pay an extra $1.0M to drop
down to a $1.0M attachment?
 Do you expect 2 losses > $1.5M per
year?
WHAT ABOUT
REINSTATEMENTS?

is always better, right?
 Just like lunch, there is no such thing as
a free reinstatement
 Get quotes with and without to determine
the value
WHAT ABOUT
CONTRACT LANGAUGE?
 Reinsurers exclude areas they have seen
problems
 Nuclear, Pollution, Pharmaceuticals, War





Special acceptances
Incidental exposures
Time per occurrence: 72 hours,144 hours?
Terrorism: NBC, Federal backstop
Commutation agreements
A TISKET, A TASKET
WHAT IS A BASKET?
 Basket Retention
 If a covered loss on a multi-line treaty spans over
Property AND Casualty then it will be subject to
only one retention.
 Ex: Fire caused by employee with
customer losses
 Find out the cost of this coverage and then
decide.
CARVE IT OUT?
 Work Comp or Umbrella can be carved
out of a treaty and handled by a specialty
reinsurer
 Occasionally the sum of two treaties can
be less than the whole
 Contrary to diversification strategies,
but can work
FIRM ORDER PRICING
 Tells the reinsurers the price to play or go home.
 If 100% subscribed in a day then price too high.
 If 10% subscribed in a week then price too low.
 If 90% subscribed in a week, then just about perfect.
FINALLY…
 Settle on price,
settle on wording
 Sign some contracts
settle on terms,
C25: Reinsuring Small/Regional
Insurers
Eric Arnst
Vice President and General Manager
Hannover Re Services USA, Inc.
Email to: eric.arnst@hannover-re.com
Casualty Actuarial Society
Chicago, 12th November, 2007, 1.30-3.00 PM
INTRODUCTION
 About Hannover Re
 Regional Companies – a meaningful part of an overall portfolio
 Appeals of regional companies
 Various Challenges with regional companies
 Hannover Re specific concerns with regional companies
 The Hannover Re appreciation for regional companies
1
About Hannover Re
WE ARE AMONG THE TOP REINSURERS IN THE WORLD
and are consistently among the most profitable reinsurers


4th largest Reinsurer worldwide with Gross Premiums written of $ 12.265 bn (behind Swiss Re,
Munich Re and Berkshire Hathaway).
•
Policyholder Surplus as of June, 2007 $ 6.823 bn
•
Return on equity 19.9 % (target > 15% p.a.)
US is the largest market for Hannover Re (ca. 40% of overall writings)
•

We transact all lines of non-life and life and health reinsurance

We are a Broker Market Reinsurer in the US

Very strong Ratings by the agencies most relevant to the insurance industry:
•


AM Best's: "A" (stable Outlook) / Standard & Poor's: "AA-" (stable Outlook)
Hannover Re is a Trusteed Reinsurer in 50 U.S. jurisdictions (except for Louisiana)
•
2
US P&C Treaty Reinsurance of $1.257bn (expected in 2007) / US Non life Reinsurance in total of $2.4bn (2006)
Master U.S. Reinsurance Trust domiciled in New York. As of Dec 31, 2006, invested assets in the Trust were
almost $3 billion.
Local Presence by Hannover Re Services USA, Inc. located in Illinois
Regional Companies as a potential growth segment
A MEANINGFUL PART OF AN OVERALL PORTFOLIO
U/W Year
3
Written
Premium
Change
1995
32,107
1996
29,198
-9.1%
1997
36,209
24.0%
1998
35,092
-3.1%
1999
32,903
-6.2%
2000
42,213
28.3%
2001
76,600
81.5%
2002
95,998
25.3%
2003
153,132
59.5
2004
152,977
-0.1
2005
164,096
7.3
2006
147,363
-10.2
METHODS TO DIVERSIFY
(in million USD)
Category
4
Premium distribution
Groups/Cedents
Sum of Prem
Percentage
National
29
791
63%
Super-regional
40
138
11%
Regional
236
147
12%
Monoline
107
177
14%
412
1253
100%
Monoline
14%
Regional
12%
Superregional
11%
National
63%
Appeals of Regional Companies
REGIONAL COMPANIES IN PARTICULAR CAN ENLARGE
their capacity by buying reinsurance
 Regional companies need their reinsurers
 Loyal buying behaviour/partnership with reinsurers
 Predictable casualty results (property could be different due to natural
catastrophes)
 Mostly standard lines
 Very conservative underwriting approach, few changes
 You always deal with the same people
5
VARIOUS CHALLENGES WITH REGIONAL COMPANIES
 Data quality often insufficient to do exposure or experience analysis
•
therefore Brokers are important to support company
 Vulnerable to natural catastrophes, since focused on one region
•
therefore we need to participate in all program parts to be able to balance our
results
 Challenges from:
6
•
Rating Agencies
•
Regulatory
•
Legal + capital issues
HANNOVER RE SPECIFIC CONCERNS / REQUESTS
 In umbrella business we need a certain balance (liability vs. premium) to be
able to pay total losses
 Lack of umbrella balance can be overcome by writing other parts of the
program
 Essential information must be available otherwise our pricing models do not
work
 We have to be very creative with regional companies
7
THE HANNOVER RE APPRECIATION FOR REGIONAL COMPANIES
long standing relationships going back to the 70's
8

We regard them to be our core group of clients

We value regional companies as reliable and stable partners and provide consistent pricing
through the cycles

We make every effort to visit existing regional clients regularly even if located in remote areas

We provide special services to regional cedants upon request:
•
Underwriting- and claims audits
•
Peer analysis
•
Have a great understanding of their needs
•
Provide long term commitments

We are member of the NAMIC

We generally write larger lines on regional companies than on national companies

We like regional exposures to balance/ diversify our book of business

We have lower data standards for smaller regional companies than for large national companies
Hannover Re's Peer Study about regional companies
STRONG LONG TERM RELATIONSHIPS ARE THE RULE
not the exception
Group figures
Cedent 1
Cedent 2
Cedent 3
Cedent 4
A+
A+
A
A
30/70
30/70
35/65
10/90
since '94
since '87
since '91
since '86
Premium with Hannover Re
$8.0m
$8.0m
$1.6m
6.7m
Company Ceded Re Premium '06
$185m
$105m
$114m
$105m
4.3%
7.7%
1.4%
6.4%
56.1%
50.0%
37.5%
23.0%**
Do we participate in all Program Parts?
yes
yes
no*
yes
Loyal Buying behaviour?
yes
yes
yes
yes
HR internal categorization
A
A/B
A
A
Frequency of contacts in 2006
3
1
1
3
yes
no
no
yes
AM Best Rating
Split Personal/ Commercial
Relationship with Hannover Re
% ceded Premium to HR
Overall Result (before IBNR)
Ever visited Hannover
*only Property per Risk and Casualty Clash
**large Katrina losses
9
Thank you for your attention!
DISCLAIMER
The information provided in this presentation does in no way whatsoever constitute legal,
accounting, tax or other professional advice.
While Hannover Rückversicherung AG has endeavoured to include in this presentation
information it believes to be reliable, complete and up-to-date, the company does not make
any representation or warranty, express or implied, as to the accuracy, completeness or
updated status of such information.
Therefore, in no case whatsoever will Hannover Rückversicherung AG and its affiliate
companies be liable to anyone for any decision made or action taken in conjunction with
the information in this presentation or for any related damages.
© Hannover Rückversicherung AG. All rights reserved.
Hannover Re is the registered service mark of Hannover Rückversicherung AG.
10
2007 CAS MEETING
C25: Reinsurance For Regional
Companies
November 12, 2007
Linda C. Johnson
Executive Vice President
Benfield
Linda.Johnson@us.benfieldgroup.com
952.886.8093
Table of Contents
Page
1
What Should Be Considered Before Purchasing Reinsurance?
3
2
What Factors Influence the Price of a Specific
Reinsurance Program?
14
3
What Should Be Expected of a Reinsurance Broker?
19
4
What is the Role of the Insurance Actuary in the Reinsurance
Placement Process?
22
What Should Be Considered
Before Purchasing Reinsurance?
What Should Be Considered Before Purchasing Reinsurance?
1. Why is the Reinsurance Being Purchased?
2. What Risk is Intended to Be Transferred?
3. What Type of Reinsurance Protection is Being Considered?
4. What is the Best Premium Mechanism?
5. What is Covered?
6. Is It Cost Effective?
7. Is It Appropriately Transferring Risk?
Reasons For Purchasing Reinsurance
 Regulatory Requirements
 Rating Agency Concerns
 Reduce Risk of Ruin
 Earnings Stabilization
 Protect Policyholders’ Surplus
 Per Policy Limits Capacity
 Expertise

Underwriting, Claims
Major Types of Reinsurance

Treaty

Facultative

Pro Rata

Excess of Loss

Aggregate Excess

Per Policy or Per Occurrence Protection
Premium Mechanisms & Features

Flat Rated

Cessions Rated

Ceding Commission

Experience Adjusted Features

Sliding Scale, Losses Loaded, Profit Sharing

Annual Aggregate Deductibles

Exposure Adjusted Features

Premium Based on Agreed PML
What Factors Should Be Considered in Establishing a
Retention?

Impact on Policyholder Surplus

Written Premium

Impact of Loss on Net Income

Claims Frequency and Severity

Capital Implications / Parent Company Support

Cash Flow Implications

Cost of Reinsurance / Market Conditions

Rating Agency Impact

Volatility of Underwriting Results

Net Benefit of Reinsurance

Return of Risk Adjusted Capital
Understanding Contract Language is Critical in Evaluating
Protection

Business Covered

Coverage Basis

Definitions

Exclusions

Treatment of Loss Adjustment Expenses, ECO, XPL

Termination Provisions

Reinsurer Funding Provisions

“Standard” Articles
What Factors Should Be Considered When Determining How
Much Limit is Purchased?

Per Occurrence and Aggregate Limits

Per Policy Limits Exposure

Workers Compensation Catastrophe Limit


Contingency / Clash Limit



Earthquake, Terrorism, and Industrial Accident Models
Exposure to Extra Contractual Obligations
Exposure to Multiple Policy Accumulations
Cost of Reinsurance / Market Conditions
What Should a Company Consider When Buying Clash
Reinsurance?

Exposure to Private Passenger Type Losses

Exposure to Industry Group Accumulations

Significant Market Share in a State

Claims Adjusting Culture

Contract Language: Which Losses are Intended to Be
Covered?

Treatment of Loss Adjustment Expense

Cost of Reinsurance
Volatility of Underwriting Result
XYZ Insurance Company
Retention Analysis
Net Underwriting Gain/Loss by Retention
Adverse
Outcomes
10 Year Return Time
20 Year Return Time
50 Year Return Time
100 Year Return Time
250 Year Return Time
500 Year Return Time
Expected Result:
Mean
Volatility Measure: Standard Deviation
Alternatives Analyzed
Gross
$20M Retention
$10M Retention
$5M Retention
467,234
-4,904,190
-13,414,539
-19,445,761
-26,578,342
-31,532,067
85,116
-4,720,358
-10,701,669
-14,566,778
-19,269,431
-22,819,573
554,302
-3,174,240
-7,487,612
-10,501,776
-14,076,248
-17,246,461
1,431,123
-1,591,111
-5,175,326
-7,777,288
-11,245,907
-13,557,211
$1M Retention $500K Retention
2,781,540
710,487
-1,646,508
-3,308,927
-5,776,695
-7,312,408
3,263,090
1,627,414
-360,289
-1,685,690
-3,451,141
-4,961,078
10,552,696
8,325,396
10,301,013
7,742,087
9,941,706
6,980,686
9,763,422
6,243,981
8,715,775
4,494,133
8,118,311
3,677,032
99% Range of Outcomes
30,000,000
20,000,000
10,000,000
0
-10,000,000
Differences in Expected
Outcomes Help Evaluate
Cost vs. Benefit
-20,000,000
-30,000,000
99% Range of Outcomes
High
Mean
Low
23,629,826
10,552,696
-24,628,633
23,205,026
10,301,013
-18,144,686
22,480,076
9,941,706
-13,378,908
21,738,026
9,763,422
-10,458,760
Dynamic Financial Analysis is a Valuable Tool in Analyzing Continuum of
Cost / Benefit Trade Offs of Alternative Structures and Retentions
18,100,979
8,715,775
-5,152,661
15,979,600
8,118,311
-3,019,978
Net Benefit of Reinsurance
Cash Flows Associated With Reinsurance Transactions
XYZ Insurance Company
Retention Analysis
Net Benefit of Reinsurance Statistical Summary by Retention (Recoveries - Ceded Premium)
10 Year Return Time
20 Year Return Time
50 Year Return Time
100 Year Return Time
250 Year Return Time
500 Year Return Time
Mean
Standard Deviation
$20M Retention
-467,280
-467,280
799,533
8,728,178
13,565,362
16,069,442
$10M Retention
-1,264,725
1,021,174
10,405,112
18,314,100
23,279,519
25,730,508
$5M Retention
843,122
5,282,831
15,071,815
22,579,710
27,906,022
31,143,128
-276,851
1,516,055
-672,089
3,071,531
-868,201
4,170,479
Evaluating Multiple Metrics Helps
Identify the Optimal Structure
$1M Retention $500K Retention
4,527,232
4,864,801
9,837,265
10,276,168
19,730,496
19,941,514
26,603,908
26,848,030
32,874,549
33,519,559
37,283,576
38,063,273
-2,020,614
6,293,231
-2,677,824
6,864,855
31,359,336
-2,222,675
-6,293,925
31,859,265
-2,945,606
-9,307,018
99% Range of Outcomes
40,000,000
30,000,000
20,000,000
10,000,000
0
-10,000,000
-20,000,000
99% Range of Outcomes
High
Mean
Low
12,690,076
-304,536
-467,280
22,360,961
-739,298
-1,264,725
26,882,752
-955,022
-2,080,980
What Factors Influence the Price of a
Specific Reinsurance Program?
What Factors Influence the Price of a Specific Reinsurance
Program?
Derivation of a Reinsurance Rate
$500K xs $500K Flat Rate
Risk Load
2.19%
Expenses
1.88%
Expenses
1.88%
Expected
Layer Loss
10.66%
Expected
Layer Loss
10.66%
Expected
Layer Loss
10.66%
Step 1
Step 2
Step 3
Reinsurance Ratemaking Parallels Primary Ratemaking
Discounted
Rate
12.15%
Step 4
What Factors Influence the Price of a Specific Reinsurance
Program?
CASUALTY LINES COMBINED
Accident/Report
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1997
82.03%
86.78%
86.34%
81.40%
78.15%
77.20%
79.30%
79.73%
80.35%
81.19%
1998
86.71%
86.10%
81.16%
77.86%
76.77%
78.83%
79.20%
80.92%
82.04%
83.99%
Direct & Assumed Loss & LAE Ratio
Schedule P Year
1999
2000
2001
2002
2003
85.82%
80.64%
77.02%
75.68%
77.74%
78.18%
80.11%
82.50%
84.97%
85.51%
80.27%
76.87%
75.32%
77.47%
77.90%
79.98%
83.07%
86.83%
88.80%
87.01%
76.69%
75.13%
77.29%
77.67%
79.54%
83.51%
88.19%
92.96%
90.51%
87.78%
75.16%
77.15%
77.54%
79.59%
83.85%
89.81%
95.56%
94.74%
89.41%
79.48%
Adverse Development Creates
Parameter Uncertainty
Average
Standard Deviation
CoV
81.25% 81.36% 80.82% 81.35%
3.16% 3.39%
3.73%
4.80%
3.89% 4.16%
4.61%
5.89%
Overall
Average
Standard Deviation
CoV
82.19%
10.24%
12.46%
82.93%
6.50%
7.84%
84.23%
7.59%
9.01%
2004
2005
77.44%
77.87% 77.91%
79.72% 79.85% 80.37%
84.05% 84.15% 84.79% 84.82%
90.64% 91.51% 92.58% 92.58%
97.72% 97.94% 99.40% 99.88%
98.55% 100.22% 102.19% 102.89%
92.30% 94.10% 96.86% 97.55%
79.76% 80.35% 81.97% 82.51%
74.64% 71.66% 71.09% 70.74%
72.78% 68.68% 66.75%
72.74% 69.39%
72.11%
85.27%
8.83%
10.35%
85.05%
10.28%
12.09%
85.07%
12.21%
14.35%
The Gross Loss Ratio Assumption is a Key
Determinant in Establishing the Reinsurance Price
SOURCE: Highline Data and Federal Reserve Economic Database
2006
83.92%
13.73%
16.36%
Adverse/Favorable
Development
0.00%
-0.08%
-0.60%
-1.38%
-1.87%
-2.64%
-2.35%
-2.29%
0.02%
4.48%
10.24%
16.81%
18.25%
11.13%
3.81%
-5.22%
-8.28%
-4.61%
0.00%
What Factors Influence the Price of a Specific Reinsurance
Program?
After Expenses & Investment Income,
Reinsurer is Still Making Money
Company Specific Results
80%
70%
Net
Ceded
Loss & LAE Ratio %
60%
50%
40%
30%
The Reinsurer Results Relative to the Cedent Results
Signal Whether Decreases or Increases are Warranted
20%
10%
0%
1997
1998
1999
2000
2001
2002
Accident Year
SOURCE: Sample Insurance Company Data
2003
2004
2005
2006
What Factors Influence the Price of a Specific Reinsurance
Program?
Impact of Severity Trend
2.0%
1.74%
Trended Loss Cost
(to Hist SEP)
1.62%
1.6%
The Cumulative Impact of Individual Assumptions
Materially Impacts the Ultimate Rate
1.45%
1.21%
1.2%
0.8%
0.99%
0.69%
0.53%
0.4%
0.0%
0% Trend
2% Trend
4% Trend
5% Trend
6% Trend
Selected
3.5-9.0%
Trend*
7% Trend
Key Drivers'
Impact on Loss Costs
Trend Sensitivities
2.40%
Rate Change Impact on Loss Costs
1.62%
1.62%
1.2%
Loss Cost
1.6%
Loss Cost
1.97%
2.00%
2.0%
0.91%
1.60%
0.91%
1.20%
0.8%
0.80%
0.4%
0.40%
0.53%
0.00%
0.0%
Historic Premium
On-Level Premium
Reported Losses
Severity Trend
Rate Change
Key Driver
Loss Development Impact on Loss Costs
2.4%
2.0%
1.81%
1.89%
1.97%
Loss Cost
1.64%
1.6%
1.2%
0.91%
0.8%
0.4%
0.0%
Undeveloped
Developed 0% Developed 10% Developed 15% Developed 20%
Tail
Tail
Tail
Tail
SOURCE: Sample Insurance Company Data
Loss Development
What Should Be Expected
From a Reinsurance Broker?
What Should Be Expected From a Reinsurance Broker?

Advocacy

Program Structure, Negotiations, Terms & Conditions

Transparency

Market Knowledge

Ease of Administration

Role in Original Business

Broker Services
Market Knowledge: Peer Information
Modeled Perils
Company
A
B
C
D
E
F
G
H
I
J
K
L
M
Region
Southeast
Nationwide
Nationwide
Northeast
Southeast
Nationwide
Nationwide
Nationwide
Northeast
Nationwide
Nationwide
Nationwide
Nationwide
Nationwide Average
RMS v6.0 Data
Attach RT
Exhaust RT
11.4
1.8
4.5
16.0
40.1
3.4
5.6
5.6
92.6
10.5
5.2
3.7
5.7
117.4
706.6
183.6
66.8
188.9
327.0
111.4
126.3
486.8
95.7
64.0
84.4
26.3
5.1
191.7
Tor/Hail EQ Hurr
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Retention
% of PHS
5.5%
2.3%
5.6%
6.8%
3.8%
4.3%
1.0%
1.0%
9.3%
4.8%
7.8%
0.3%
4.5%
3.5%
Market Knowledge: Pricing
ROL VS. LOL
( THREE APRIL 1 RENEWALS )
35%
30%
25%
ROL
20%
15%
2006 Bound Pricing
2007 Quotes
10%
2007 FOT
5%
0%
0%
2%
4%
6%
8%
LOL
RMS v6.0 Data for 2006 & 2007 Renewals
10%
12%
14%
16%
Broker Services
ALFA Group
Consolidated
Total Risk - 99% TVaR
($000)

Assessment of Risk and Developing
Risk Distributions







Catastrophe Modeling
Large Loss Distributions
Non-Cat Loss Volatility
Asset Risks
Other Risks
Correlations and Dependencies Identified
Comprehensive Stochastic Financial
Model
(1)
(2)
Total Risk
Asset Risk
(3)
(4)
(5)
(6)
Non CAT UW Risk
Trial
44151
12530
27949
41102
24196
26371
2843
28716
33041
30507
4699
Operating
Result
(1,528,502)
(568,699)
(350,959)
(285,747)
(252,516)
(230,310)
(213,245)
(200,740)
(189,382)
(180,348)
(171,343)
Investment
Income
255,319
178,594
(286,989)
(46,955)
(276,677)
(281,585)
(203,114)
(10,299)
(50,170)
(142,525)
(177,085)
Reserves
Yr End
245,788
196,041
232,592
209,892
215,763
220,127
214,404
215,759
232,146
243,941
241,357
Paid
Current AY
419,507
319,068
419,186
372,182
363,110
369,187
387,422
386,710
408,031
430,833
426,498
Paid
On Prior AY's
192,501
150,715
133,993
135,822
176,838
187,585
131,297
156,691
165,412
177,044
152,351
CAT Loss
Gross
2,432,675
1,878,809
165,862
1,027,544
67,831
19,526
224,131
774,363
240,051
33,707
21,753
CAT Loss
Net
1,725,175
880,619
119,163
320,044
67,831
19,526
112,099
245,384
172,734
33,707
21,753
97.50
95.00
18720
33162
(104,458)
(53,623)
(179,973)
(112,354)
218,907
243,268
403,315
374,751
119,474
153,873
30,490
17,078
30,490
17,078
214,380
(347,408)
184,994
(22,097)
223,582
227,710
392,017
401,089
158,708
163,947
55,673
716,670
42,769
356,224
12,904
360,446
4,128
9,072
5,239
660,998
313,455
347,542
Mean
99% TVaR
Risk
561,787
207,091


Net Risk $
Net Risk %
207,091
18,439
336,257
561,787
36.86%
3.28%
59.85%
100.00%
Gross Risk
Gross Risk %
207,091
18,439
660,998
886,528
23.36%
2.08%
74.56%
100.00%
(A) Asset Risk
(B) Non CAT UW Risk
(C) Cat Risk
(D) Total Risk
Net Risk
Non CAT UW
Risk
3%
Asset Risk
37%
Notes:
(A)=(2)
(B)=(3)+(4)+(5)
(C) Net =(7)+(8)-(9), Gross = (6)
(D)=(A)+(B)+(C)
Cat Risk
60%
$1,500M
$1,300M
Step 4
$1,100M
Step 3
Starting Point
$900M
Step 1
Step 2
$700M
$500M

Capital Allocations
CAT Loss
Recoveries
707,500
998,190
46,699
707,500
112,032
528,980
67,317
-
(TVaR Less Mean - Sign adjusted)
(A) Asset Risk
(B) Non CAT UW Risk
(C) Cat Risk
(D) Total Risk
Expected Return

By Source of Risk (UW, Cat, Asset)
By Region
By Line of Business
By Company or Business Unit
(9)
Percentile
99.99
99.90
99.80
99.70
99.60
99.50
99.40
99.30
99.20
99.10
99.00
Risk Measures in Total and By Desired
Sub-Categories

(8)
CAT Risk
Return v Standard Deviation in Dollars

(7)
$300M
$100M
$200M
$300M
$400M
Standard Deviation
$500M
$600M
-
CAT Reins
Benefit
610,397
901,087
(8,589)
610,397
(48,552)
(48,552)
50,871
446,829
10,175
(48,552)
(48,552)
(48,552)
(48,552)
(36,887)
287,854
324,740
What is the Role of the Insurance
Actuary in the Reinsurance Placement?
(a.k.a. How Can a Primary Insurance Actuary
Position Him or Herself to Get a Trip
to London or Bermuda as Part of the
Reinsurance Placement Process?)
How Can a Primary Insurance Actuary Position Him or Herself to Get
a Trip to London or Bermuda as Part of the R/I Placement Process?

Primary Company Actuaries Impact Reinsurance Terms and
Conditions

Rate Change Information

Interpreting Loss Development Triangles

Rating Implication of Underwriting and / or Claims Reserving Practices

Trends: Their View and Supporting Work of Such (Sev & Freq)

Policy Limit Shifts

Cost Effect of Expansion / Contraction

Perspective on the Environment: Tort Reform, etc.