CAS Spring Meeting
Contents
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About Island Heritage
Caribbean Market
Managing Risk
Planning / Structuring a Reinsurance
Program
• Hurricane Ivan
Island Heritage
• Specialist Property Insurer
– Residential Focus
• Founded in 1996
• Caribbean Wide
– 12 Islands
• Risk Taker (Within Reason)
– Reinsurance
• Data Collection
– State of the Art
• GWP > $50M in 2005
Caribbean Market
• Low Premium Base
– By American Standards
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High CAT Exposure
Small Capital Base
Huge Dependence on Reinsurance Capacity
Many Companies Rely on Reinsurance
Commissions.
Caribbean Market
• U.S. Islands
– Rate Filing
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Actuarial Report
Loss experience
Reinsurance costs
Retention
Deductibles
• Other Islands
– No Filing
• Reinsurance (key driver)
• Competition
• Deductibles
Managing Risk
• Underwriting
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Each Risk
Construction
Occupancy
Location
Deductible (2% min)
Coverage
• B.I ?
• Risk Dispersion
• Risk Retention Strategy
• Reinsurance
Managing Risk
Risk Dispersion
• Single Island vs. Multi Island
– Concentration
– Spread
• Each Island
– Per risk
– Per county
• Towers of Excellence
– Similar large aggs in 4/5 islands
• In different zones
– Smaller aggs spread over other islands
Planning / Structuring A Reinsurance
Program
• Time
– Four months planning
– Two months executing / placing
• Marketing
– We visit all reinsurers at least once per year
• Data Control
– Accurate exposure numbers
• CAT Modeling
• WHY? – 50% of G.P spent on Reinsurance
Reinsurance Team
• Island Heritage
– Multi discipline
• Technical
• Financial
• Marketing
• Guy Carpenter
– Actuarial
– CAT modeling (INSTRAT)
– Broking
• Lead Reinsurers
– Pre renewal discussions
Reinsurance Planning
• Data Collection
– Per Risk
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Location
Occupancy
Construction
Deductible
– Per County
– Per Island
– Per Zone
• Cresta
• Caribbean sub-zone
– Historical Data
• Industry
• Own experience
• Modeled data
Reinsurance Planning
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CAT Models
Peer Review
Instinct (under-estimated)
Risk Strategy
– Risk Averse
• Q/S reinsurance (90% +)
– Risk Taker
• Set retention parameters.
• E.g. Per Risk – 1% of Cap + Surplus
Per Event – 10% of Cap + Surplus
Multi Event - ?
Reinsurance Planning
• Frequency
• Severity
• 2004 Season
– Frequency: Ivan, Francis, Jeanne
– Severity: Ivan
• PML /Event Limit ?
Event Limits
• All Q.S. (Quota Share) reinsurance programs have
event limits
– Used to be cost effective method of buying CAT reinsurance
• Must have fall back provision if Q.S. limit is
insufficient
– CAT XL program
• Some limits are mandated by Regulator
• Hours clause
• Cost
Reinsurance Program
• Quota Share
– Regional
– Single island
• Risk XL
– Per Risk
• Finite
– Working layer
– Multi retention
• Reinsurance Security
– Ratings of each reinsurer
– Dynamic not static monitoring
– Maximum exposure per reinsurer
Reinsurance Program
• CAT XL
– Layer Structure
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Per single island
Island grouping
Caribbean
Clash
– Reinstatements
• Number
• Cost
Reinsurance Structure
Cayman / Bahamas &
Turks QS
Retained
QS
USVI / BVI QS
Retained
QS
Risk XL Programme
Layer 4
Layer 3
USVI Commercial QS
Retained
QS
Cayman Commercial QS
Retained
QS
Layer 1
Retention
Retained
Cat XL Programme
Layer 6
Layer 5
Layer 4
Layer 3
Layer 2
Barbados QS
Layer 2
Layer 1
Funded Layer
Retention
QS
St. Maarten & Other
Islands QS
Retained
QS
Hurricane Ivan
Hurricane Ivan
Hurricane Ivan
Ivan
• Grand Cayman – Sept 12, 2004
• Cat 4/5
• Surge
– 80% of damage was surge related
– 20% wind related
• Minimal loss of life
– Good construction
• 92% of all structures damaged
• 60% of all vehicles written off
Ivan
• Damage to buildings and infrastructure of Cayman
Islands: US$3bn (Munich Re)
• US$75,700 economic loss per capita in Cayman
Islands (UN’s highest ever recorded).
Ivan
Island Heritage Results
• PML Loss 24.9%
• Reinsurance Program 23.2% (>30% for 2005)
• PML Breakdown:
– Residential
27.2%
– Commercial 23.6%
– Condos
21.5%
– Buildings
22.6%
– Contents
43.9%
Were We Surprised?
• Yes at the extent of the surge loss
• Industry wide issue in Cayman
• Why can’t the CAT modelers model the surge
exposure prospectively?
• Michelle was a wake-up call.
– We bought more protection but not enough!
The Scenario
• Logistical Nightmare
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60% of autos destroyed
92% of buildings damaged
Very limited accommodation including hotels
Airport damaged
Power outages
No water
Forced to abandon office
Timing
• 3 storm losses in Florida
• Bahamas / Jamaica / Grenada
• Adjusters?
How Did We React?
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We were partially operating within 4 days
Fully operational within 7 days
Back-up systems worked
Arranged temp office accommodation
Got adjusters on island quickly
– Found vehicles, offices and systems for them
• Many aspects of disaster plan worked
– Pre-printed claim forms
– Pre-printed cheques
• All staff in place
Lessons To Be Learnt
• Underwriting
– Reinsurance – review protection strategy
– Deductibles – 2% not enough
– Coverage Issues
• Alternate accommodation
• Debris removal
• Professional fees
– Contents
• Ground floor exposures
– Construction Standards
• EFIS ?
The Claims Process
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92% of all policy holders claimed
95% of all claims settled
Underinsurance not a huge problem
Loss adjustment process difficult
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Availability of adjusters
Multi-storm season
Sourcing of building materials
4 storms in Florida
Media reaction
• Fantastic reinsurance response
Operational Issues
• Reputation – A key element
– Fair claim settlement
– Effective P.R campaign
– Maintained Rating
• Opportunities
– Dislocated marketplace
– Security concerns
– High rates (and reinsurance)
• Result
– More business
– More licenses
– Now a ‘real’ company