CASUALTY ACTUARIAL SOCIETY 2004 Annual Meeting Montreal, Canada November 16, 2004 Security and the...
-
Upload
karin-katherine-kelly -
Category
Documents
-
view
219 -
download
2
Transcript of CASUALTY ACTUARIAL SOCIETY 2004 Annual Meeting Montreal, Canada November 16, 2004 Security and the...
CASUALTY ACTUARIAL SOCIETY
2004 Annual Meeting
Montreal, Canada
November 16, 2004
Security and the Reinsurer
Security and the Reinsurer
Presentation Format
I. Introduction
II. Brief Presentation
III. Panelist Q/A
IV. Audience Q/A
Reinsurance Recoverable as a Percent of Surplus
48%
59%
56%
41%34%32%
0%10%20%30%40%50%
60%70%80%90%
100%
1998 1999 2000 2001 2002 2003
Source: Standard & Poors/Fitch
0%
10%
20%
30%
40%
50%
60%
70%
1997 1998 1999 2000 2001 2002 2003
0
20
40
60
80
100
120
140
160
180
200
1997 1998 1999 2000 2001 2002 2003
Unsecured
% of SurplusIn Billions $
Unsecured
Secured Secured
Secured vs. Unsecured Reinsurance Recoverables
Source: Standard & Poors
Provision For Uncollectible Reinsurance
$6,369
$6,245
$5,588$5,378$5,007
$3,764
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1998 1999 2000 2001 2002 2003
$ M
illio
ns
Source: Fitch Ratings
Reinsurance Industry Combined Ratio Versus ROR
0
20
40
60
80
100
120
140
160
-25.0%-20.0%-15.0%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%
CR ROR
Source: Standard & Poors
Reinsurer Profitability Has Been Poor
Source: Standard & Poors
Source: NAIC data as of 5-24-2004
Total Reserve Development
2003- 2001
Reserve Development
as a % of 2000 Surplus
Reinsurers 15,174,963 68%
1 Amer Reins Group 3,630,626 167%2 Ge Reins Corp 1,151,223 149%3 Discover Rein Co 89,429 149%4 Scor Reins Co Grp 442,222 131%5 XL Reins America Inc & Affiliates 746,619 130%6 Gerling Global Rein Corp Grp 733,265 110%7 Gerling Global Rein Corp of US Branch 112,564 86%8 Employers Reins Corp Grp 4,191,686 81%9 Converium Reins North Amer Inc 636,551 74%
10 Transtatlantic Rein Co 659,356 43%11 General Rein Corp 1,786,767 40%12 Putnam Rein Co 34,719 32%13 Folkesmerica Rein Co 126,498 28%14 Everest Reins Grp 303,055 24%15 Pxre Reins Co 65,539 19%16 Odyssey America Reins Co 142,290 17%17 Swiss Re Amer Corp Group 292,745 15%18 Qbe Reins Corp 10,798 7%19 Axa Corp Solutions Reins Co 19,011 7%20 Partner Reins co of the US and Affil N.A N.A
PC Reinsurance Industry Adverse Reserve Development Top 20 Groups or companies (In $000s)
Where Has All the Ceded Gone?
Direct Insurer Reserve Increases (examples, asbestos alone)
Ace Ltd. $2.2 billion (4Q ‘02 - gross of reinsurance)
Travelers Insurance Co. $2.7 billion (4Q ‘02 - net of reinsurance
Hartford Financial Services Group Inc. $3.9 billion (1Q ‘03 - gross of reinsurance)
CNA Financial Corp. $642 million (1Q ‘03 - net of reinsurance)
Chubb Corp. $250 million (4Q ‘03 - net of reinsurance)
Source: Standard & Poors
Source: Conning & Co.
Historical Aggregate Recoverable Gap
020406080
100120140160180200
1995
1996
1997
1998
1999
2000
2001
2002
2003
$ M
illi
ons
TotalCase &IBNRCeded
TotalCase &IBNRAssumed
Global Premium/Rating Shift
% Premium % PremiumRating 2001 2002 Difference
Aaa/AAA 61.9% 11.9% -50.1%
Aa/AA 28.3% 68.8% 40.5%
A 9.8% 14.1% 4.3%
Below A 0.0% 5.2% 5.2%
Total 100.0% 100.0% 0.0%
Negative Outlook 69.3%
Source: Morgan Stanley
S&P Ratings Drift by Reinsurers
0
5
10
15
20
25
30
35
40
AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- R NR
S&P Financial Strength Rating
Nu
mb
er o
f T
op
150
Rei
nsu
rers
(G
lob
al)
8/1/2002 8/1/2003 8/1/2004
Source: Standard & Poors/AON
Rating Trends: North America Reinsurance
Source: Standard & Poors
12
10
8
6
4
2
0
2
4
6
8
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Upgrades
Downgrades
* Year-over-Year changes, Ratio above bar shows upgrades / downgrades (green) or downgrades / upgrades (red). Chart tracks universe of 30 companies and groups rated today, looking backward. 2004 data is through May 21.
Even
3.0
Even
1.3
8.0
Even
US Reinsurers in 1993
Source: Standard & Poors
Transatlantic/Putnam
Employers Re
Scor U.S. Group
Prudential Re
Skandia AmericaReins
PMA Reins Co.
American Re
Chartwell ReinsCo
Chatham ReinCorp
General Re Group
Signet StarReins Co
NAC Reins Corp
Zurich ReinsCentre
ConstitutionReins
FolksamericaGroup
Frankoana ReinsCo
Axa ReinsCo
Tig ReinsCo
Gerling GlobalReins
Winterthur ReinsCoSorema NA
Reins Co
Toa –RE America
CIGNAReins
Cologne ReinsCo of Amer
US Reinsurers Today
Source: Standard & Poors
Transatlantic/Putnam
Employers Re
Scor U.S. Group
Prudential Re/ Everest Re
Skandia AmericaSkandia AmericaReinsReins
PMA ReinsPMA Reins Co.Co.
American Re
Chartwell ReinsChartwell ReinsCoCo
Chatham ReinChatham ReinCorpCorp
General Re Group
Signet StarReins Co/Berkley
Ins Co
NAC Reins Corp
Zurich ReinsZurich ReinsCentreCentre
ConstitutionConstitutionReinsReins
FolksamericaGroup
Frankoana ReinsFrankoana ReinsCoCo
Axa ReinsCo
Tig ReinsCo
Gerling GlobalGerling GlobalReinsReins
Cologne ReCologne ReCo of AmerCo of Amer
Sorema NASorema NAReins CoReins Co
Toa –ReToa –ReAmericaAmerica
CIGNACIGNAReins CoReins Co
WinterthurWinterthur ReinsReinsCoCo
Exit - Stage Right
Source: Standard & Poors
Notable Reinsurer that ceased underwriting over the last several years
Gerling-Konzern Globale Rückversicherungs-AG (GKG) Trenwick America Reinsurance Corp Scandinavian Reinsurance Co. Ltd.; Commercial Risk Reinsurance Co. Ltd. and Commercial Risk Re-
Insurance Co. AXA Corporate Solutions Reinsurance Co. and AXA
Corporate Solutions Life Reinsurance Co. PMA Capital Insurance Co. CNA Re
Exit - Stage Left
Notable Spin-Offs/Renewal Rights Sales
Zurich Re/Converium
St. Paul Re/Platinum
Hart Re/Endurance
Still on Stage
Notable Recent Downgrades
Scor
Converium
New Capital Post 9/11 (as of May 21, 2002)
$ Billions
• Capital Raised:
– 2001 $20.5
– 2002 $4.1
• Total $24.6
• Bermuda Start-ups: $8.5
Source: Guy Carpenter
Not All Reinsurers Will Survive
• Balance Sheet Repair Efforts will be Hindered• New Capacity• Market Showing Signs of Turning• Ample Capacity Available at the Right Price
Conclusion
• Reinsurance Recoverables make up a significant portion of policyholder surplus
• Cedants and Rating Agencies are concerned with the financial strength of reinsurers
• The game has changed and the pace of change has increased.
Security and the Reinsurer
2004 CAS Annual Meeting
Montreal, Canada
November 16, 2004
Panelist Questions
Security and The Reinsurer
Is the focus on reinsurers’ security a new phenomenon or is it an old issue?
What is your perspective on the history of reinsurers’ security?
Security and The Reinsurer
How should reinsurance buyers evaluate reinsurers’ security?
What things should they look at and what methods should they employ?
Security and The Reinsurer
How should buyers differentiate between reinsurers with different credit quality?
What are common existing practices and what are some ideas for the future?
Security and The Reinsurer
How has the insurer/reinsurer relationship changed over the last decade?
What has led to the change?
How has this impacted reinsurer security?
Security and The Reinsurer
In the last decade there have been many innovations
in the ways to manage run-off insurer and reinsurer
businesses. How have these innovations impacted
the security of reinsurance recoverables?
Security and The Reinsurer
What tools do cedants use to mitigate their risk to reinsurance unrecoverable?
Are there differences between the US and the Rest of the World in this regard?
Security and The Reinsurer
Do so-called “ratings triggers” in reinsurance contracts
help mitigate credit risk or do they exacerbate the
credit exposure?
Security and The Reinsurer
In recent discussions on managing the cycle, the concept of
capital management has been raised as a tool to help reduce
the amplitude of the cycle. In fact, several reinsurers have
recently initiated share buy backs and increased dividends as
a way to return capital to shareholders as they perceive
opportunities to deploy that capital to be more limited. Do
such capital management strategies help or hurt the security
of the reinsurance recoverables?
Security and The Reinsurer
What is the current quality of reinsurance recoverables in general?
Is it getting better or worse in 2004?
Security and The Reinsurer
What methods should cedants use to establish a provision for reinsurance unrecoverable?
Is there a consistent approach used or are there big differences from company to company?
Security and The Reinsurer
What methods should cedants use to build the cost of uncollectible reinsurance into their rates?
Are these methods accepted by regulators in the rate filing process?