CAS Seminar on Reinsurance
Hamilton, Bermuda
Excess Liability:
An International Perspective
David Gansberg
June 6, 2005
Agenda
•
•
•
•
Scope of International Liability Market
International Insurance Programs
Reinsurance Market
Technical Pricing Considerations
2
Liability Premium by Region
GTPL Premium by Country
70
USD billions
60
50
40
30
20
10
0
USA
Germany
UK
Italy
France
Spain
Source: Axco Insurance Market Reports
3
Claims Incurred by Region
GTPL 2002 Claims Incurred
70
USD billions
60
50
40
30
20
10
0
USA
Germany
UK
France
Italy
Spain
Source: Swiss Re sigma No 6/2004
4
Typical Multinational Policy Structure
Master Policy
Local policy 2
Local policy 1
Local Policy 4
Local policy 3
Local Policy 5
5
Implications of Master Policy Structure
• Advantages
 One aggregate limit
 One policy trigger
 Local policies do not expose XOL reinsurance
• Challenges
 Few insurance companies have all the licenses necessary to issue the
local policies
 What is the subject premium of your treaty?
 Premium for local policies
 Policy issuance fees
6
Country Specific Coverage Issues
• Claims Made Policies
 France
 Italy
• Product Recall
• Pure Financial Loss
• Gradual Pollution
7
Differences in the Legal Environment
•
•
•
•
•
Jury Trials
Punitive Damages
Class Action Lawsuits
Contingency Fees
Compensation mentality / social insurance
8
Illustrative ILF Example
Comparison of General Liability ILFs
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
USA
UK
1
5
10
20
Limit (millions)
9
Recent Market Losses
• International Casualty Market Losses





Bayer – Lipobay / Baycol
Sulzer – Hip and Knee Implants
Aventis – Starlink
Charles De Gaulle Airport – terminal collapse
Various – PPA
• Trend toward larger products claims either through US sales or US
operations.
10
Recent Insurance Market Developments
Driven by reinsurance market
•
•
•
•
Reduction in capacity
Significant rate increases
Dramatic increases in SIRs
Move from occurrence to claims made triggers on high hazard
industries with products exposure
• Tighter policy wordings
11
Recent Reinsurance Market Developments
• Reduction in capacity
• Increases in ceding company retentions
• Rate increases
• An Example:
Treaty
Year
Reinsurance
Capacity
Ceding Co.
Retention
2000
136
7
2001
124
7
2002
96
7
2003
57
8
2004
57
8
2005
100
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12
Reinsurance Submissions
• Loss ratios are often accounting year
• Rate changes on underlying business are not tracked
• Audits are not common
 In many cases, they are not accepted
13
Technical Pricing Considerations
• Indexation of Claims
• An Example for a French treaty:




Limit:
Retention:
Index at inception:
Total Paid Loss:
 Payment 1:
 Payment 2:
 Payment 3:
4,000,000
1,000,000
1.00
3,000,000
500,000 at index 1.05
1,500,000 at index 1.12
1,000,000 at index 1.25
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Technical Pricing Considerations
• Calculation of Indexed Payments




Payment 1 – 500,000 x 1.00 / 1.05 = 476,190
Payment 2 – 1,500,000 x 1.00 / 1.12 = 1,339,286
Payment 3 – 1,000,000 x 1.00 / 1.25 = 800,000
Total 2,615,476
• Ratio of actual payments to indexed payments
 3,000,000 / 2,615,476 = 1.147
• Indexed Retention and Limit
 1,000,000 x 1.147 = 1,147,019
 4,000,000 x 1.147 = 4,588,075
• Reinsurance Recovery
 2,615,476 – 1,147,019 = 1,468,458
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Technical Pricing Considerations
• Complicating Factors for Indexation
 Claims inflation is usually greater than indexation (wages or CPI)
 Indexation works differently in different regions
• Other Pricing Issues
 Periodic claim payments rather than lump sum
 O/S losses carried at PV
 Changes in interest rate
 Re-opening of claims / adjusting of benefits
 Change in scheduled (tabular) awards
16