current issues in non-life insurance 2nd younger members convention mohammad khan 1-2 december 2003...
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Current Issues in Non-Life Insurance
2nd YOUNGER MEMBERS CONVENTION
Mohammad Khan
1-2 December 2003
Moat House, Glasgow
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What am I talking about?
What’s General Insurance? General Market Situation Hurricanes, Storms, Fires & Terrorist attacks US & UK Asbestos Investment Bank problems Liability or Why Is It Becoming More
Expensive To Be An Actuary? Implications of Regulations
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What’s General Insurance 1?
Any insurance that’s not life insurance Uncertainty relating to:
severity; and frequency of claims.
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What’s General Insurance 2?
Personal Lines Commercial Lines
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General Market Situation
Great time to be writing General Insurance business?
Excellent underwriting conditions and good loss experience
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General Market Situation 2
But what about after the market turns……..?
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General Market Situation 3
Example Premium rate movements – 31 December 2002 renewal season: Marine
Liability + 20% Hull + 25% Cargo + 15% Specie + 15% Energy Offshore + 40% Energy Onshore + 20%
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General Market Situation 4
How long will this market last? Where are we in the underwriting cycle? Do we understand amplitude of the
underwriting cycle? At what parts of the underwriting cycle do we
make profits? What actions should we take?
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General Market Situation 5
Personal Lines: Competition Household Motor
Commercial Lines: Hurricanes, Storms, Fires & Terrorist attacks US & UK Asbestos Investment Bank problems Liability or Why Is It Becoming More Expensive To
Be An Actuary?
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Hurricanes, Storms, Fires & Terrorist attacks
Hurricanes, Storms and Fires World Trade Center (still…..)
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Hurricanes, Storms, Fires & Terrorist attacks 2
Hurricane Isobel Colorado Winter Storms P&O Diamond Princess Hurricane Lili Prestige Why not SARS(?) Why not New York blackout(?)
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Hurricanes, Storms, Fires & Terrorist attacks 3 – World Trade Center
Insured Loss $bnBusiness Interruption (BI)
11
Liability 10
Property 9
Aviation 4
Life 3
Workers Compensation 2
Event Cancellation 1
Total 40
BI Property
Liability
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US & UK Asbestos – What is asbestos?
Known as the “miracle mineral” It is a naturally occurring fibre that is in
general: Incombustible Flexible Durable Strong; and Resistant to heat duration and wear
An ideal material with many uses
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US & UK Asbestos – Where was asbestos used?
Almost everywhere Shipbuilding Boilers and
machinery Electricity generation
plants Oil refineries Wallpaper Textured paints
Building insulation Pipe coverings Wire coatings Asbestos cement Roofing Brake linings Wall and ceiling tiles
and coatings Cement
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US Asbestos – What’s the issue?
Cumulative no. of US bankruptcies due to Asbestos
010203040506070
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Year
Inso
lven
cies
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US Asbestos – What’s the issue 2?
Nearly one half of all firms that have filed for bankruptcies due to asbestos liabilities have done so in the past two years
Market estimates of US asbestos are up to $275bn Joseph Stiglitz has estimated that the US asbestos
problem has cost 60,000 people their jobs at an economic cost of up to $3bn
Utility worker awarded $47m for mesothelioma The Economist estimated that 94% of asbestos
claims filed in 2001 were for unimpaired claims
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US Asbestos – What’s the issue 3?
Headline reserve increases by large US insurers
Settlements Norfolk FELA case Tort reform at state level and in Congress? Greater awareness regarding unimpaired
claims
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UK Asbestos – What’s the issue?
Market estimates of UK asbestos range from £7bn to £18bn
Impact on individual insurers can vary significantly from the market experience
Far less bankruptcies expected compared to the US although have been some “casualties”: Builders Accident Chester Street
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Investment Bank Problems
Laddering Research Spinning Others
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Liability or Why Is It Becoming More Expensive To Be An Actuary?
Global problem Poor market experience Perceived unavailability for some Media/political interest
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Liability or Why Is It Becoming More Expensive To Be An Actuary 2?
0%
50%
100%
150%
200%
1991 1993 1995 1997 1999 2001
Employers' Liability Ultimate Gross Claims Ratios
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Liability or Why Is It Becoming More Expensive To Be An Actuary 3?
0%20%40%60%80%
100%120%140%
1991 1993 1995 1997 1999 2001
Public Liability Ultimate Gross Claims Ratios
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Liability or Why Is It Becoming More Expensive To Be An Actuary 4?
Changes in Expectations and Attitudes in the UK “Compensation Culture” Establishment of legal trends seen in US
Political interest in the UK DWP OFT FSA
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Implications of Regulations
CP190 IAS 2 phases:
Phase 1: at a minimum implementation of local GAAP by 2005.
Phase 2 implementation currently unknown. However, disclosure of “fair value” amounts by 2006 in notes to the accounts required
Market value margins
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Any Questions?