CAE Meeting – ZurichApril 2004

17-Nov-2003 - 2 -

What’s your expectation?

0%

10%

20%

30%

40%

50%

60%

70%

1 2 3 4 5 6 7

LR @ 12 months LR @ 48 MONTHS 12-48 M Development Factors

17-Nov-2003 - 3 -

What’s your expectation?

0%

10%

20%

30%

40%

50%

60%

70%

1 2 3 4 5 6 7 8

LR @ 12 months LR @ 48 MONTHS 12-48 M Development Factors

17-Nov-2003 - 4 -

What’s your expectation?

0%

10%

20%

30%

40%

50%

60%

70%

80%

1 2 3 4 5 6 7 8 9

LR @ 12 months LR @ 48 MONTHS 12-48 M Development Factors

17-Nov-2003 - 5 -

What’s your expectation?

0%

10%

20%

30%

40%

50%

60%

70%

80%

1 2 3 4 5 6 7 8 9 10

LR @ 12 months LR @ 48 MONTHS 12-48 M Development Factors

17-Nov-2003 - 6 -

What’s your expectation?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11

LR @ 12 months LR @ 48 MONTHS 12-48 M Development Factors

17-Nov-2003 - 7 -

What’s your expectation?

0%

20%

40%

60%

80%

100%

120%

1 2 3 4 5 6 7 8 9 10 11 12

LR @ 12 months LR @ 48 MONTHS 12-48 M Development Factors

17-Nov-2003 - 8 -

Loss ratio Analysis:Balance between stability and responsiveness

Historic Loss ratiosExcess Loss vs Capped

Year

Loss

Rat

io

Capped Excess

17-Nov-2003 - 9 -

Cumulative Effect of Rate ChangesSimple Math; full appreciation of business effect is another thing

Historice Rate Changes

Year

Cha

nge

Yearly Cumulative

17-Nov-2003 - 10 -

Long-term, which is more stable, loss trend or price movements?

Indicated Loss Ratios - Effect of Price MovementLarge Losses Capped at 5M

Accident Year

Loss

rat

io

Before Price AdjustmentsAfter Price Adjustment

17-Nov-2003 - 11 -

Is this all the risk?

− NO:− The Tail can bump up loss ratios of ALL accident years− Future loss trends might change− Quality of the book; accuracy of Price Monitoring; Terms and

conditions− And don’t forget Excess Loss

17-Nov-2003 - 12 -

Price Movements: Method

− Process:− Focus on renewed accounts − Price comparisons per account level are calculated after consideration

of movements in: premium, exposure, share, and policy/program structure (deductibles, attachment points and limits).

− Cases of extreme movement in coverage terms are excluded to avoid undue bias.

− Cases resulting in extreme case movements are reviewed by pricing actuaries/underwriters to ensure data quality.

− Aggregate results to relevant market level.

17-Nov-2003 - 13 -

Price Movements: Limitations

− Price Movements should factor additional factors before being applied to loss ratios:

− multi-year accounts− Quality of business lost; quality And price adequacy of new business− Loss trends− Change in terms and conditions− Reinsurance cost

Thank You