Reinsurance Symposium 2016 - Gen Re

Reinsurance Symposium 2016

A Berkshire Hathaway Company

MAY 10–12, 2016GEN RE HOME OFFICE, STAMFORD, CT

Reinsurance Symposium 2016MAY 10–12, 2016 | GEN RE HOME OFFICE, STAMFORD, CT

What Can Reinsurance Do For You?Presented by Doug Oberg

Reinsurance Symposium 2016 | What Can Reinsurance Do For You? | Doug Oberg 2

Reinsurance Symposium 2016MAY 10–12, 2016 | GEN RE HOME OFFICE, STAMFORD, CT

Presentation TitlePresented by [Insert Presenter’s Name] –

[Insert Date of Presentation]

A Berkshire Hathaway Company

What Can Reinsurance Do For You?

Corporate Strategy

• Enterprise Risk Management framework

• Which risks are you trying to manage?

• Which risks, and how much of the risk, can you retain?

• How can you transfer risk appropriately?

• How can your reinsurer support your corporate strategy?


The ERM Framework

• Holistic process• Links impact on capital of:

– Underwriting risk

– Investment risk

– Operational risk

– Reputational risk

• Often includes capital models• Significant cultural component• “What are the top five loss scenarios in terms of dollars at risk?”


The ERM Framework


Leverage

Dividend Policy

Asset Mix

Product Mix

Reinsurance

Growth Strategy

Capital

Leverage

Dividend Policy

Asset Mix

Product Mix

Reinsurance

Growth Strategy

Capital

How Does the Reinsurance Structure Fit Within the ERM Framework?

• Demonstrates management’s understanding of risk (e.g., to Board and Rating Agencies)

• Yardstick in assessment of management’s risk appetite

• Capital preservation tool

• Minimizes variability in earnings and capital


The ERM Framework

How Does the Reinsurance Structure Fit Within the ERM Framework?

• Individual large losses

• An accumulation of losses from natural or man-made catastrophes

• Multiple insureds involved in the same occurrence

• A single event involving multiple policies for a single insured

• Volatility in loss ratios – across lines of business or across years

• Capital base limits opportunities to grow when opportunity presents itself

• Problems with legal / social / regulatory climates

• Worry that a company’s expertise is limited in certain lines / classes / territories


What Risks Are You Trying to Manage with Reinsurance?

• Individual large losses – Products that reduce volatility from a Single Loss– Property Per Risk Excess of Loss Treaty

– Casualty Per Occurrence Excess of Loss Treaty

– Individual Risk Facultative




• Accumulation of losses from a natural or man-made catastrophe – products that reduce volatility of result from a single event– Property Catastrophe Excess of Loss Treaty

– Property Pro-Rata Treaty

– Stand-Alone Terrorism Treaty

– Typically Treaty only



• Multiple insureds involved in the same occurrence – products that limit the potential of clash losses being unreinsured– Combined Retention / “basket” cover in Treaties

– Additional Casualty Per Occurrence Treaty Limits (“Clash” Cover)

– Casualty Per Policy Excess of Loss

– Treaty only, practically speaking



• A single event involving multiple policies for a single insured – products that limit the potential of clash losses being unreinsured– Combined Retention / “basket” cover in treaties

– Additional Casualty Per Occurrence XOL Limits (“Clash” Cover)

– Casualty Per Policy Excess of Loss

– Treaty only, practically speaking



• Volatility in Loss Ratios – Across lines of business or across years – Virtually any reinsurance product can dampen volatility across years – Helping to limit net loss severity

and/or frequency

– Lower XOL retentions or pro-rata reinsurance can be useful for managing given lines / products

– Stop Loss Covers can help reduce volatility on books of business



• Capital base limits growth opportunities – Quota Share

– Low Retention Excess of Loss

– Loss portfolio transfers

– These products can help reduce NWP to PHS ratios, thereby freeing capital for new opportunities



• Problems With Legal / Social / Regulatory Climates– Most reinsurance products provide a hedge against adverse legal / regulatory developments

(i.e., exposure to adverse legal trends becomes largely limited to a company’s net retention)

– Reinsurance can help a company feel more comfortable offering coverage in areas it otherwise might not find attractive (unprotected property, coastal exposure, poor drivers, etc.)

– Treaty or Facultative



• Worry that a company’s expertise is limited in certain lines, classes or territories– Reinsurer can provide expertise / “second head” on individual risks

– Good source for research and insight on emerging issues

– Generally very broad knowledge of issues across all jurisdictions

– Treaty or Facultative



• Reinsurance serves many needs, including:– Loss / limits capacity

– Spread of risk

– Stabilization of results

– Catastrophe relief

– Underwriting assistance

– Social / regulatory purposes


How Can You Transfer Risk Appropriately?


Source: standardandpoors.com

Standard & Poor’s Reinsurer Financial Strength RatingData as of April 27, 2016

AAA AA+ AA AA- A+ A A- BBB+ Watch / Outlook

General Re Group X StableNational Indemnity` X StableACE Tempest Re X NegativeHannover Re X StableMunich Re X Stable Reinsurance Group of America X StableRenaissance Re X StableSwiss Re X StableSwiss Re X StableSCOR X StableArch Re X StableAxis Re X StableEverest Re X StableLloyd’s X StablePartner Re X NegativeTOA Re X StableTransatlantic Re X StableW.R. Berkley X StableXL Re Ltd X PositiveAlterra (ex Harbor Point Re Ltd) X StableAspen Re X StableEndurance Re X StableOdyssey Re X StablePlatinum X Stable

What, and How Much Risk Should You Transfer?

• Rating agency expectations (e.g., for Cat, 1 in 250 Quake event)

• Surplus position, willing to lose?

• Expertise and experience in line

• Peer retentions

• Dynamic financial analysis (stress testing for extreme events)

• Employee compensation


How Can Your Reinsurer Help Manage Your Risks?


0% 20% 40% 60% 80% 100%

Information Gathering

Information Pursuit

Risk Analysis & Selection

Pricing

U/W Compliance

Reinsurance Compliance

Documentation

Alignment

Risk Return

Portfolio Underwriting Review Summary

Underwriting Feedback

Emerging Issues

Publications

Tools & Deliverables

How Can Your Reinsurer Help Manage Your Risks?


Share of Target Market By LOB

19%22% 21%

17%

25%

0%

5%

10%

15%

20%

25%

30%

Auto CU PU PropCat PropXS

Training Programs Referral Resource

Transaction ExcellenceCompetitive Products

How Can Your Reinsurer Support Your Business Strategy?


Percent of Claim Payments Made in Five Days or Less By Quarter

96% 96% 96%97%

80%

85%

90%

95%

100%

Q2 2006 Q3 2006 Q4 2006 Q1 2007$384M $261M $305M $216M

Customer-Driven Innovation Fast Payments

Service PlansLeveraging Gen ReRelationships

Claims – Specialization

• Identifying experts resources; engineering, accounting, subrogation, legal• Catastrophe Planning• ECO – Best practices for property loss adjustment, and Bad Faith Avoidance.• Identifying trends in the property claims industry; vacancy, fraud detection and a stalled

economy, • Lessons from Losses, a global perspective: e.g., German hail storms and the increase in loss value

impact on the “green” construction


For example, Property –

Predictive Analytics

• Peer group comparisons• Severity• Data pooling

– Access to a larger data set for more sophisticated rating plans– Lines of business – to be determined– Required data sets will not require insured or company identifiers– Gen Re will contract with analytics firm to do analysis– Predetermined set of reports provided to each participant– Provided exclusively to Gen Re customers– Cost to participants will be minimized


What Can Reinsurance Do For You?

• Reinsurance provides a means to transfer risk to meet Enterprise Risk Management objectives– Capacity, Credit

• Your reinsurer can also assist in identifying and measuring the risks you hold, and support your Enterprise Risk activities

• An effective reinsurance program also supports your business strategy


Key Takeaways

Reinsurance Symposium 2016

Thank you!Doug Oberg / 203 328 5578 / [email protected]


Documents

Reinsurance Symposium 2016 - Gen Re