2008 Seminar on Reinsurance Handouts

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General Sessions

Session 1
Reinsurers and the Soft Market

In the latter half of 2007 and going into 2008 the softening of rates has been a hot topic. The discussion has centered on lack of significant natural catastrophes in the U.S., legislative changes, excess capacity, increasing retentions amongst primary insurers, declining rate levels, and loosening of terms and conditions. The next 18 months could be very interesting for the reinsurance market, as many companies have announced record earnings in 2007 and 2008 (with significant capital buy-backs in place) and insurance and capital markets have converged,. Our panel of very senior executives will discuss their views on the current state of the reinsurance market and where we may be in the cycle, highlighting similarities and differences from prior cycles as well as lessons learned. They will also discuss what the profession can do to mitigate repeating the past.

Moderator:

Panelists:

Session 2
The Property and Casualty Underwriting Cycle In The United States: Measurement, Cause and Effect, Strategic Response

The property and casualty insurance industry has long been recognized to experience variations in profitability owing to changes in price level, loss experience, and investment returns. The general session will present analyses of the underwriting cycle which resolves the volatility in industry profitability into the contributions from each of these major factors, separately examining these issues for the major casualty lines of business. The session will then turn to an analysis of the extent to which price volatility can be shown to depend upon volatility in loss experience and investment returns as well as the effect of price on insurance and reinsurance utilization. Finally, a review of strategic response to the underwriting cycle will be presented with an eye to identifying successful strategies for insurers seeking to cope with the underwriting cycle and in particular highlighting challenges to the actuarial community.

Moderator:
John G. Aquino, Executive Vice President, Benfield Group
Panelists:
Isaac Mashitz, Senior Vice President, Swiss Reinsurance America Corporation
Richard J. Cook, Senior Vice President and Actuary, Benfield, Inc.

Concurrent Sessions

Non-Traditional Roles of Reinsurance Actuaries

This session will be a round-table discussion of three actuaries who have moved on to other (non-actuarial) roles in their companies. They will discuss their career paths and how their work as actuaries prepared them for their current positions.

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Panelists:

Price Monitoring

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Commercial writers’ ability to assess changes in price levels and their resulting impact on profitability can be a fairly involved process. Numerous issues arise such as changes in base rates vs. the impact of premium modifiers (such as schedule rating), pricing levels of new vs. renewal business, changes in structure at renewal such as increases in attachment point, and tightening or loosening of coverage terms at renewal. This session will consist of two speakers. The first is a profit center actuary at a large commercial writer. He will discuss how his company monitors pricing levels and how they tackle many of these issues. The second speaker, an actuary at a reinsurer, will discuss how a primary company’s rate monitor impacts his treaty pricing analysis, with particular emphasis given to the impact of new business.

Moderator:

Panelists:

Capital Markets: The Motives Behind the Madness

How do investors in the reinsurance space decide to deploy their capital? What drives the decision to invest in sidecars or cat funds instead of buying shares of publicly traded companies – and vice versa? What is the appeal – to investors – of creating unrated entities that must collateralize the reinsurance coverage that they provide? This session will discuss the relationship between the capital markets and the reinsurance markets from the point of view of the capital market players, with special attention paid to the motivations behind their actions.

Moderator:

Panelists:

US Subprime Mortgages Crisis – What is it and lessons learned?

The subprime crisis shares many characteristics with past insurance crises. As with other large losses, risk takers did not realize how bad things could get for many reasons: failure to assess correlation; contagion factor; loss of focus on core competencies, including (credit) risk assessment; moral hazard; over-reliance on leverage and hedging; softening of terms and conditions; expansion of exposure; herding effects.

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Credit Risk Exposure

Reinsurance recoveries are oftentimes a significant offset to a reinsurer’s gross liabilities. This session will focus on a framework to establish amounts that may not be collectible due to:

a retrocessionaire's current and future financial health; and
disputes / arbitrations

The session will also discuss the statutory accounting rules. However, the focus will be what “haircut” a buyer may apply to ceded reserves in an M&A situation.

Moderator:

Panelists:

Terrorism: What Does the Next Seven Years Hold?

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With the seven year extension that was provided by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), the industry faces some changes with the law changes. However, stability looks to be on the horizon with the law in place for a number of years. The panelists will explain the law changes and the impact on the insurance and reinsurance industry. In addition, they will explore the pricing, underwriting and monitoring of these critical exposures.

Moderator:

Panelists:

Workers’ Compensation Cat Pricing

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Workers compensation catastrophe possesses many challenges. The session will specifically address catastrophes caused by terrorism and earthquake as well as catastrophes due to other causes, such as occupational disease. Panelists will discuss the potential approaches for evaluating exposures and pricing workers compensation catastrophe, including the critical underlying assumptions with the data and models.

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Panelists:

Capital Allocation

This session is for actuaries who want to learn more about capital allocation in the context of pricing reinsurance treaties. The discussion will begin with the question of whether the allocated capital is really allocated at all or is instead the risk-adjusted capital in a RORAC (return on risk-adjusted capital) pricing model. Panelists will discuss some practical issues in implementing capital methods within pricing models and how the choice of a particular method can influence the perceived attractiveness of alternative deals. The session will be divided between individual panelist presentations and roundtable discussion.

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Pricing Property Per Risk - Advanced Topics

This panel will explore advanced topics in property per risk pricing. Exposure rating and treatment of large losses will be a central point. Topics to be explored will focus on the practical application of tools in the actuary's and underwriter's arsenal, which are not widely known among the actuarial community. These tools include an approach to the allocation of grouped or blanket policy premium to the individual risk level, and the use of an international cost index to make US exposure curves more appropriate for rating non-US risks.

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D&O--Current Market Update

The D&O market has softened considerably over the last couple of years. Along with this price softening has been a sharp decline of securities action lawsuits. However, with the sub-prime mortgage crisis and other potential economic shocks, are we at another turning point? Lawsuit filings have ticked up since the middle of 2007. Is this due solely to sub-prime or are there other dangers lurking? Our panelists will discuss the recent trends in the D&O market and their impact for reinsurers.

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Panelists:

2008 Cat Market Update

It has been observed that as a result of natural catastrophe activity which differs from what is expected, resulting reinsurance prices are affected.

This panel will discuss the issues surrounding the impacts of natural catastrophe activity in both good and bad years. They will discuss reinsurance pricing, terms and condition changes, alternative risk options that have appeared in recent years and the impact natural catastrophes have had on rating agency requirements. Also under discussion will be insight on how a primary company manages its exposure to natural catastrophes both through risk selection and through use of risk transfer mechanisms.

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Panelists:

Enterprise Risk Management

The past two years continue to be a turning point for Enterprise Risk Management as it has evolved from the conceptual talking points to the actual implementation and results. This was driven by many factors, such as the need for coordinating risk management across all classes of risk, technology, and the rating agencies. Our panel will focus on a discussion of ERM and economic capital, operational risk, a survey of over 200 insurers regarding their views on ERM, and the recent developments at one of the rating agencies.

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Reinsurance and Rating Agency Models

This session will cover how a company's reinsurance program is considered in a Rating Agency evaluation. Reinsurance is a significant rating criteria with respect to risk management and has quantitative implications in the capital adequacy models employed by the Rating Agencies. Reinsurance impacts the capital adequacy models with respect to required Premium, Reserve, Recoverable, and Catastrophe risk capital. This panel will provide perspective from two major rating agencies as well as insight on how reinsurance transactions are analyzed for rating agency implications.

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Casualty Reserve Risk

This session will discuss risks related to casualty loss reserves that are not typically addressed by actuaries. The impact reserve risk and adverse loss development has a significant impact on the insurance industry. Often times, actuarial analysis does not reflect issues related to accumulation risk of casualty reserves and the cyclical nature of loss development for casualty business. Unique approaches to measuring, incorporating, and possibly mitigating these risk will be discussed.

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Panelists:

Reinsurance Research Corner

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Hosted by the CAS Reinsurance Research Committee, the Research Corner is a forum to present preliminary reports on works in progress or recently completed. Research Corner participants can pose new problems and demonstrate innovative practical approaches. Individual investigators as well as representatives of research working parties and other groups are encouraged to participate. There is no need to preregister—“walk in” speakers are most welcome, though advance notice is appreciated whenever possible. Speakers should plan on having ten to fifteen minutes to make their presentation. Attendees who would like to present their work during this session are invited to contact the moderator.

Moderator:

Ceding Company Considerations

This session will explore the ceding company considerations in the reinsurance buying process. What are the myriad of considerations a company analyzes prior to issuing a firm order (price, service, credit considerations, alternatives to reinsurance, rating agency issues)? How does a company prioritize its decision making criteria? How might the issues differ for small companies vs. larger companies?

Moderator:

Panelists:

Workers Compensation Excess Loss Development

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Excess workers compensation is an extremely difficult line to price and reserve. Chief among the uncertainty inherent in this line is the extremely long loss development patterns. Both NCCI and the RAA have released recent studies concerning workers compensation excess loss development. In this session, each of these studies will be discussed, including descriptions of underlying the data, analyses, and results.

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Panelists:

Professional Liability Update

This panel will discuss recent developments in the professional liability markets, focusing particularly on medical malpractice and attorneys E&O. The current medical malpractice “state of the market” will be presented, including a discussion of financial results, pricing trends, and significant reforms. The current Attorneys E&O environment will be discussed .Impacts of the softening pricing market will also be addressed.

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Panelists:

Loss Triangle Philosophy

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Reinsurance loss triangles are notoriously unstable. Most reinsurance actuaries learn how to develop loss triangles on the job, and the range of techniques they use is wide. The published literature contains little guidance on which techniques work better than others for picking loss development factors, or even whether, given the well-known biases in the chain-ladder technique, reinsurance actuaries should be picking loss development factors at all. The CAS Committee on Reinsurance Research recently started looking at how practicing actuaries actually select factors, as a first step towards possibly producing some guidance as to how actuaries should approach a given loss triangle, and what pitfalls may await them. Though the work is still in its early stages, an initial survey of practicing actuaries with a relatively stable loss triangle resulted in a large range of approaches to picking development factors and an equally large range in the final results.

In this session:

we will present some of the early results from our survey and also invite attendees to enlarge our survey sample size by telling us how they would pick development factors;
we will debate whether we should be giving guidance to actuaries about picking development factors, or whether we should be counseling them to drop chain-ladder methods in favor of some other technique; and
we will discuss the future of this project, including how to address the business implications of the wide dispersion of the results.

This session is intended to be a free-flowing exchange of ideas, and audience participation will be encouraged.

Moderator:

Panelists:

Umbrella Liability

This session will cover Commercial and Personal Umbrella pricing concepts and issues, from both an actuarial and underwriting perspective. Panelists will also discuss the current state of the market for Umbrella lines, particularly the impact of soft market conditions on pricing, terms, and conditions.

Moderator:

Panelists:

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2008 Seminar on Reinsurance Handouts

General Sessions

Session 1 Reinsurers and the Soft Market

Session 2 The Property and Casualty Underwriting Cycle In The United States: Measurement, Cause and Effect, Strategic Response

Concurrent Sessions

Non-Traditional Roles of Reinsurance Actuaries

Price Monitoring

Capital Markets: The Motives Behind the Madness

US Subprime Mortgages Crisis – What is it and lessons learned?

Credit Risk Exposure

Terrorism: What Does the Next Seven Years Hold?

Workers’ Compensation Cat Pricing

Capital Allocation

Pricing Property Per Risk - Advanced Topics

D&O--Current Market Update

2008 Cat Market Update

Enterprise Risk Management

Reinsurance and Rating Agency Models

Casualty Reserve Risk

Reinsurance Research Corner

Ceding Company Considerations

Workers Compensation Excess Loss Development

Professional Liability Update

Loss Triangle Philosophy

Umbrella Liability

Session 1
Reinsurers and the Soft Market

Session 2
The Property and Casualty Underwriting Cycle In The United States: Measurement, Cause and Effect, Strategic Response