Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 ZZ

WC Cat ReinsuranceWC Cat Reinsurance

Seth Ruff, FCASSeth Ruff, FCASAssistant Vice President, Treaty Assistant Vice President, Treaty

UnderwritingUnderwritingSwiss Re Underwriters Agency Inc.Swiss Re Underwriters Agency Inc.

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Agenda

Stu

ff w

e ask

for

What we do with it

Issu

es

Modeling

fun

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Here’s what we’d like to see

• Hazard Groups become less interesting

• More concerned with concentrations

• Drill down to individual account level

Exposure

Experience• Typical trend/chop/develop process = thing of the past

• Multi-claimant occurrence detail = thing of the future

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Stochastic Modeling FunSimulatedSimulated

LossesLosses ContractContractStructureStructure

EconomicEconomicProfit/(Loss)Profit/(Loss)

E[Profit]E[Profit]Capital RequiredCapital Required

ROCROC

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Building the Loss Distribution

• Frequency of “Large” occurrences

• Number of claimants per large occurrence

• Severity distribution of each claimant

• Non-modeled perils - the “Armageddon” factor

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Loss Dist - Chart

Simulated Annual Loss

0 2 4 6 8 10 12 14 16 18 20 22 24 26

Loss ($m)

Rel

ativ

e P

rob

abil

ity

Loss Free

Partial Loss

Armageddon

...Twice

Reinstated Limit

…Plus Partial

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Reinsurance Contract Structure

• Retention and Limit

• Maximum Any One Life (MAOL)

• Reinstatements

• Premium

• Loss sensitive features

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Profit - Chart

Simulated Economic Profit

(20) (18) (16) (14) (12) (10) (8) (6) (4) (2) 0 2 4

Profit/(Loss) ($m)

Rel

ativ

e P

rob

abil

ity

Lose!

Win!

Find new job.

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Drivers of Capital Requirements

• Profit/(Loss) distribution

• Correlation with portfolio

• Accounting/regulatory/rating agency impact

• The basis of coverage

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Which do you prefer?

50

50

50

50

Swiss Re Underwriters Agency Inc. WC Cat Presentation - CAS Spring Meeting 2002 Z

Open Issues

• Terrorism

• “Carve-out” v. Full P&C Coverage

• Standard terms and conditions

• Capacity and Security