The Subprime and Credit Crisis

The Subprime and Credit CrisisSeattle 2008

Proprietary and Confidential. © 2008 General Reinsurance CorporationPresentation for [client/prospect], [date].

3

Complexity

• “We know that things are uncertain at times of crisis. Uncertainty disrupts financial markets. It induces mob behavior. People hate uncertainty. Often, there is a feeling that a conspiracy must be behind it all, organizing and disseminating the problems. Someone must be punished. The witches must be burned. The communist spies must be revealed. People begin looking for signs of conspiracy, particularly events which, when connected, will reveal a tapestry of deception – a pattern that will be there for all to see.

• If we look hard enough, we can always find a pattern. Experts will say that the “probability” that a particular connection might happen by chance is very small… In retrospect, the conspiracies usually turn out to be deadly flights of the imagination… Yet the patterns were there.”

• “Complexity, Risk and Financial Markets” by Edgar E. Peters

• This introduction was dated March 1999


4

Reinsurer Concerns

• Accumulation– Horizontal– Vertical– BOTH

• Excess of Loss

• Net – or without a net, if you will

• Cede

• Clash – very limited market

• Large insurers retaining more net – pushes reinsurers into new markets

• Worldwide exposure – Soc Gen, Northern Rock, UBS, etc.


5

Schedule P – Other Liability – Claims-Made

Premiums Earned

Years in 1 2 3

Which

Premiums

Were Earned

and Losses Direct

Were and Net

Incurred Assumed Ceded (1-2)

1. Prior XXXX XXXX XXXX

2. 1997 8,002,553 2,416,223 5,586,330

3. 1998 8,655,354 2,776,457 5,878,897

4. 1999 8,795,197 3,213,335 5,581,863

5. 2000 10,067,112 3,342,575 6,724,531

6. 2001 10,885,305 3,732,741 7,152,569

7. 2002 15,657,930 6,031,310 9,626,620

8. 2003 19,881,973 7,710,253 12,171,720

9. 2004 22,444,237 7,873,856 14,570,381

10. 2005 22,877,951 7,341,286 15,536,665

11. 2006 22,489,101 7,123,407 15,365,700

12. Totals XXXX XXXX XXXX


6

Schedule P – Other Liability – Claims-Made

Loss and Loss Expense Percentage

(Incurred/Premiums Earned)

29 30 31

Direct

and

Assumed Ceded Net

XXXX XXXX XXXX

75.3 83.5 71.7

99.5 118.7 90.5

115.7 123.6 111.1

121.9 142.8 111.5

129.5 168.4 109.3

100.1 104.9 97.1

64.2 60.3 66.6

56.1 53.3 57.5

59.6 57.0 60.9

65.8 60.9 68.0

XXXX XXXX XXXX


7

Year Failed Acquired

2008 31 13

2007 149 42

2006 18 19

2005 8 7

2004 4 8

2003 6 2

2002 0 4

2001 4 3

2000 4 0

1999 4 0

1998 0 2

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8

Growing Pressure on Credit Quality


9

A Speculative Grade World

The Subprime and Credit Crisis

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