CAS Ratemaking Seminar Moderator Chris Nyce Senior Manager

CAS Ratemaking Seminar Moderator: Chris Nyce Senior Manager KPMG LLP Price Governance IIImplementing Price Governance for Complex Lines March 8, 9 2007 Fiachra Mc. Loughlin, Executive Advisor KPMG LLP-UK Isaac Mashitz Head of Actuarial Special Projects Swiss Re 0

Disclaimer • The views expressed in this presentation are those of the speakers; and • They are not necessarily the views of the CAS, KPMG, Swiss Re or any other sponsor of this seminar; • Anyone who says otherwise is not only wrong, but is itching for a fight. 1

Critical Questions in Price Governance for Complex Lines • Who is accountable for making judgments? – • Who is responsible; whose judgment should prevail? What aspects of rate change should/can be quantified? – • What is too subject to judgment to quantify? What methods should be used in quantifying rate changes? – • And how much should be/can be “parameterized”? What level of precision is it reasonable to expect in measuring rate change? Ground rules: • Ask questions as they arise (during presentation is OK) • Feel free to challenge our panel 2

As Articulated by the Lloyds Market Directive Source: Lloyds market directive Y 3318, “Monitoring Pricing Movement and Assessing the Impact on Loss Ratios” 3

As Articulated by the Lloyds Market Directive Source: Lloyds market directive Y 3318, “Monitoring Pricing Movement and Assessing the Impact on Loss Ratios” 4

The Role of Judgment: A Real Life* Example Offshore Energy Platforms in the London Market Risk Characteristics (both expiring and renewal): • Values are $1. 5 billion, consisting of platforms off the coast of West Africa and the North Sea ($1 billion), and Gulf of Mexico ($500 million) • Insured retention and limit for both terms is $500 million excess of a $10 million retention • No other significant changes Expiring Terms effective 1/1/2005: • Premium = $15 million • No sub-limit on Gulf Hurricane Renewing Terms effective 1/1/2006: • Premium $13. 5 million • Sub-limit of $150 million on Gulf Hurricane Interesting Fact: Underwriters had believed the Gulf Hurricane PML to be $150 million before the 2005 storms *Facts changed to simplify and preserve confidentiality 5

Alternate Views of Rate Change: Which is Correct? 1) Underwriter determines risk is 50% driven by Gulf Hurricane 2) Underwriter determines risk is 10% driven by Gulf Hurricane 3) Underwriter determines sub-limit only clarified the exposure they believed was in place: Rate change = -10% 6

Todays Panelists: Introduction Fiachra Mc. Loughlin, Executive Advisor KPMG LLP-UK Isaac Mashitz Chief Pricing Actuary Swiss Re 7