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The General Insurance Market in New Zealand - Changes that have taken place during 2001/2002. Janet Lockett. New Zealand Society of Actuaries Conference Rotorua - November 2002. Year 2001 was. - PowerPoint PPT Presentation
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Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
The General Insurance Market in New Zealand - Changes that have
taken place during 2001/2002
Janet Lockett
New Zealand Society of Actuaries Conference
Rotorua - November 2002
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Year 2001 was ...
“... one of the most traumatic in the history of international insurance and will define
much of the insurance thinking and planning for decades to come.”
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Thanks
Many thanks, for providing valuable input and assistance, go to:
Andrew, Chris, Duncan, Fiona, John, John, Karl, Lynda, Paul, Peter, Phil, Richard, Rob and Rod
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Special features of the NZ general insurance market
Size, development, location ACC EQC Regulation
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
The Insurance cycle
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
The Insurance cycle
1980 1990 2000
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Situation in 1999/2000
Deteriorating claim features Large losses Continuing competition Reduced investment returns Some premium increases, but
still under-priced still slack underwriting
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
September 11
Estimated insured losses US$ bnProperty - World Trade Centre 3.5
- Other 6.0Business interruption 11.0Aviation - Hull 0.5
- Liability 3.5Other liability 10.0Workers’ compensation 2.0Life 2.7Other 1.0Total US$40.6 bn
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Other aspects and consequences
Economic losses Stock markets Solvency of insurers/reinsurers Return to basics
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Basic principles
Good information Underwriting standards Pricing Return on capital Relationships Risk management
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
What is an insurable risk?
The circumstances of a loss event and the amount of a loss must be able to be clearly defined
The occurrence of a loss must be the result of chance
The frequency and severity of a loss must be quantifiable
It must be within reasonable limits
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Good underwriting procedures
Good data Clear policy conditions Detailed information about each risk Detailed analysis of experience
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Are terrorism risks insurable?
Can the possible circumstances of a loss event and the amount of a loss be clearly defined?
Will a loss be the result of chance? Can the frequency and severity be
quantifiable? Is the risk within reasonable limits?
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
If terrorism risk is to be insured -
Should it be provided by the private sector, or the public sector, or a combination of both?
Can it be both widely available and generally affordable?
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Are terrorism risks insurable?
Is terrorism insurable - but only on the same terms as war risks?
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Risk management cycle
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Risk management cycle
IDENTIFYWhat risks
exist
ADMINISTERAnalyse, monitor
QUANTIFY & CONTROLMitigate, reinsure, risk
share, restrict
FINANCEPrice appropriately,
hold capital
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Return on equity
New capital - new RoE requirements Implied combined ratios Past performance
85.0
90.0
95.0
100.0
1992 1996 2000
CR%
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Basic principles
Good information Underwriting standards Pricing Return on capital Relationships Risk management
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Commercial property and business interruption
Data Policy conditions Earthquake cover Reinsurance Pricing the risk Relationships - risk management
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Liability
NZ vs overseas Availability Data Policy conditions Pricing Relationships - risk management
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Motor
NZ vs overseas Commercial motor Private motor Factors affecting costs
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Householders and other business
Data Aggregation of risk Other factors Pricing
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
A flatter insurance cycle?
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
The Future:
Keep on applying the basics or return to competition?
Will standards fall? Will the insurance cycle continue
and if so, will it be flatter?
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
The Future:
What will the reinsurance market be in some years time?
Will ART become more important in global insurance markets?
How might ART affect the NZ market?
What about captives?
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Regulation of general insurers
Ratings Solvency Risk margins Powers of intervention by regulatory
authorities
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Accounts and tax
Accounting standards Taxation
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Actuarial Control cycles
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Actuarial control cycles Data analysis Premiums Reserves and risk margins Capital allocation and RoE Asset/liability modelling Risk management
Actuaries can add value
Melville Jessup WeaverA Towers Perrin/Tillinghast Affiliate
Closing thoughts
Have insurance markets suffered severe shocks in the past and survived?
Does the industry learn from its experiences and develop new strengths?