abcd Current Issues in NonLife Insurance 2 nd
abcd Current Issues in Non-Life Insurance 2 nd YOUNGER MEMBERS CONVENTION Mohammad Khan 1 -2 December 2003 Moat House, Glasgow
What am I talking about? n What’s General Insurance? n General Market Situation n Hurricanes, Storms, Fires & Terrorist attacks n US & UK Asbestos n Investment Bank problems n Liability or Why Is It Becoming More Expensive To Be An Actuary? n Implications of Regulations
What’s General Insurance 1? n Any insurance that’s not life insurance n Uncertainty relating to: n severity; and n frequency of claims.
What’s General Insurance 2? n Personal Lines n Commercial Lines
General Market Situation n Great time to be writing General Insurance business? n Excellent underwriting conditions and good loss experience
General Market Situation 2 n But what about after the market turns……. . ?
General Market Situation 3 n Example Premium rate movements – 31 December 2002 renewal season: Marine n Liability n Hull n Cargo n Specie n Energy Offshore n Energy Onshore + 20% + 25% + 15% + 40% + 20%
General Market Situation 4 n How long will this market last? n Where are we in the underwriting cycle? n Do we understand amplitude of the underwriting cycle? n At what parts of the underwriting cycle do we make profits? n What actions should we take?
General Market Situation 5 n Personal Lines: n Competition n Household n Motor n Commercial Lines: n Hurricanes, Storms, Fires & Terrorist attacks n US & UK Asbestos n Investment Bank problems n Liability or Why Is It Becoming More Expensive To Be An Actuary?
Hurricanes, Storms, Fires & Terrorist attacks n Hurricanes, Storms and Fires n World Trade Center (still…. . )
Hurricanes, Storms, Fires & Terrorist attacks 2 n Hurricane Isobel n Colorado Winter Storms n P&O Diamond Princess n Hurricane Lili n Prestige n Why not SARS(? ) n Why not New York blackout(? )
Hurricanes, Storms, Fires & Terrorist attacks 3 – World Trade Center Insured Loss $bn Business Interruption (BI) 11 Liability 10 Property Aviation Life Workers Compensation Event Cancellation Total BI 9 4 3 2 1 40 Liability Property
US & UK Asbestos – What is asbestos? n Known as the “miracle mineral” n It is a naturally occurring fibre that is in general: n Incombustible n Flexible n Durable n Strong; and n Resistant to heat duration and wear n An ideal material with many uses
US & UK Asbestos – Where was asbestos used? n Almost everywhere n Shipbuilding n Boilers and machinery n Electricity generation plants n Oil refineries n Wallpaper n Textured paints n Building insulation n Pipe coverings n Wire coatings n Asbestos cement n Roofing n Brake linings n Wall and ceiling tiles and coatings n Cement
US Asbestos – What’s the issue?
US Asbestos – What’s the issue 2? n Nearly one half of all firms that have filed for bankruptcies due to asbestos liabilities have done so in the past two years n Market estimates of US asbestos are up to $275 bn n Joseph Stiglitz has estimated that the US asbestos problem has cost 60, 000 people their jobs at an economic cost of up to $3 bn n Utility worker awarded $47 m for mesothelioma n The Economist estimated that 94% of asbestos claims filed in 2001 were for unimpaired claims
US Asbestos – What’s the issue 3? n Headline reserve increases by large US insurers n Settlements n Norfolk FELA case n Tort reform at state level and in Congress? n Greater awareness regarding unimpaired claims
UK Asbestos – What’s the issue? n Market estimates of UK asbestos range from £ 7 bn to £ 18 bn n Impact on individual insurers can vary significantly from the market experience n Far less bankruptcies expected compared to the US although have been some “casualties”: n Builders Accident n Chester Street
Investment Bank Problems n Laddering n Research n Spinning n Others
Liability or Why Is It Becoming More Expensive To Be An Actuary? n Global problem n Poor market experience n Perceived unavailability for some n Media/political interest
Liability or Why Is It Becoming More Expensive To Be An Actuary 2?
Liability or Why Is It Becoming More Expensive To Be An Actuary 3?
Liability or Why Is It Becoming More Expensive To Be An Actuary 4? n Changes in Expectations and Attitudes in the UK n “Compensation Culture” n Establishment of legal trends seen in US n Political interest in the UK n DWP n OFT n FSA
Implications of Regulations n CP 190 n IAS 2 phases: n Phase 1: at a minimum implementation of local GAAP by 2005. n Phase 2 implementation currently unknown. However, disclosure of “fair value” amounts by 2006 in notes to the accounts required n Market value margins
Any Questions?
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