CARe 2006: Marine Reinsurance
Lee Tookey
Underwriter, Marine and Aerospace
Aspen Re
London
(and nearly an actuary)
Marine Reinsurance:
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Introduction: review of the basics
Objectives: what the actuary can do
Some typical questions
Some observations on specific classes
– Hull
– Cargo
– Energy
• Closing remarks
Marine Reinsurance: Introduction
• Significant Actuarial involvement for at
least 15 years
• Slow improvement in data
– Always has been plenty of it but little
consistency and difficult to model.
• Little interest from commercial modelling
companies
– In house development and discussion papers
Introduction (2)
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Proportional and Non-Proportional
Facultative and Treaty
Pure and Composite
“Marine” Classes include
– Hull
– Cargo & Specie
– Offshore Energy
– Liability (Marine and Energy)
Introduction (3): Non Proportional
Treaty (pre 2005)
• Risk and event common.
• Attachment point of programme a function
of maximum risk line.
• Combined or “Whole Account” layers
above specific class layers
Introduction (4): Rating NonProportional Treaty
• Usually experience and exposure rating
– Experience from actual and “as-if” losses
• Attritional risk losses
• Headline risk losses
• Catastrophes (natural and man made)
– Exposure from
• Risk profile and size of loss curve for risk losses
• Market share and market loss return periods
• Possibly stochastic models
Introduction (5): Where is the
experience?
• Attachment point for excess of loss
typically 10% of maximum line.
• Usually few losses at this level
• Money swap layers generally avoided
• Low level backup layers in softer market
• Frequency/severity approach would
usually need to look at layer below
programme
An aside on attachment points
• Of 68 marine programmes seen in 2006..
– 12 had a ROL>50% for first layer
– Of these, 9 were domiciled in Americas or led
by US reinsurers
– All attached below 10% of maximum line
• Possibly Lloyd’s influence
– Underwriting capacity measured in terms of
written premium
Objectives
• Using information we have, provide
guidance to underwriters on
– Pure premium
– Volatility of result
– Changes to exposure over time
– Claims inflation
– Accumulations
Objectives (2)
• Understanding the business from an
insurance perspective
• Understanding what information is
collected and why
• Understanding effects of changes in the
market
• Understanding the results of our analysis
in light of the actual experience.
Common Questions
• Why is the experience rate so different to
the exposure rate?
• What has changed over the experience
period and how can I quantify it?
• How homogeneous is the exposure data
and does that cause a problem?
• What more is there to know and can the
underwriter tell me?
Marine Hull Excess of Loss
Information
• Typically loss experience given excess of
50% of attachment point last year.
• Several years data usually available but
what is the effect of…
– Change in mix of vessel types
– Change in lines size
– Changes in policy conditions and coverage
– Inflation
Marine Hull Excess of Loss
Information (2)
• Risk Profiles
– Gross or Net of reinsurance
– By type of vessel ?
– In force or risks written, what period
• 9 month written profiles not uncommon
– Premium, sum insured and count
– Losses by band as well?
Range of ocean going vessels
• Very large container
ships
• Tankers
• Bulk carriers
• Passenger vessels
• Car Carriers
• Fishing vessels
• Service boats
Where is the value?
• Container Vessel
– Mostly in hull and engines, some machinery
– Little else of value (apart from cargo)
• Cruise ship
– Hull and engines smaller percentage of value
– Upper, accommodation decks high value
So what if there is a fire?
Underwriting approaches to book
building vary
• For larger vessels, percentage line, dollar
line or both, smaller vessels 100% writing
– “Normal” maximum line
• Use of proportional treaty
• Facultative reinsurance
– Proportional or excess
• Territorial considerations
• Special acceptances
All hull insurance is not the same
• Standard coverage include
– Hull and machinery (H&M)
– Total Loss / Increased Value (IV)
– Mortgagees Interests (MI)
– Loss of Hire (LOH)
– Collision Liability
• But we rarely see the claims or the
exposure broken down like this
Hull Interest Example
• H&M $200m
• IV $50m
• LOH $20m
• Maximum partial loss
– $220m (H&M + LOH)
• Maximum total loss
– $250m (H&M + IV)
• In a risk profile, this may appear as three
entries (200, 50, 20), one entry of $250m or
one of $270m
Hull and Machinery versus Total
Loss
• In some markets, TLO coverage is limited
to certain percentage of total insured value
• Premium rate significantly different
– TLO may be 30% of all risk rate
• Size of loss curves different for H&M and
TLO
– TLO pro rata
Inflation
• Very unpredictable
– Salvage
– Labour
– Steel
• Reflected to some extent by ship-owner
revaluing vessel and we get rate on sum
insured
What we should aim to do
• Price for the experience of the account
– Adjusted for quantifiable changes in the
account from re-underwriting or market
changes
– Allowing for events that haven’t happened
• If the reinsured is getting premium for the risk, we
should get our share
A risk profile is so versatile….
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Exposure rating – obviously
Number of vessels and TSI
Average rate by band
Level and utilisation of maximum line size
Adjusting Experience
• Change in • % line, adjust losses and subject
line size
premium
• Dollar line, harder to adjust. Need
risk profiles to help
• Change in • Ideally work from gross losses
reinsurance and apply current RI
strategy
• Territory
• Cat risk and usual perils of the
sea
Adjusting experience (2)
• Usually use on level premium to adjust
historic frequency / avg severity
• Can use historic risk profiles
– Index for frequency based on exposed
vessels count to layer
– Index average severity based on average
exposed sum insured to layer
Exposure rating
• Current risk profiles gives indication of
exposure
• Assume size of loss curve appropriate
• Underlying loss ratio assumption key.
– But this may vary through risk profile
• With all adjustments, often significant
difference between experience and
exposure
What is available?
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Historic risk profiles usually are
Commentary on line size
Commentary on reinsurance
Fleet mix
• But no use asking 2 days before renewal
A few cargo issues
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Policy limit or shipment
How long is exposure on risk
Where is most of trade
What sort of commodity
Accumulation risk
Start and end of exposure
Energy – the opportunity
• After 2005 windstorm, full review
• Great time to question
– Every aspect of coverage under review
• Significant change in data presentation
– Sub limits in GOM for wind
• Per policy not per platform
• Does not effect risk rate
• Increased modelling
Closing
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Do not stick to basic methods
What else can we use data for
Learn subject
Engage underwriter and client
Demonstrate use