ocean marine overview and catastrophe modeling issues steven g. searle, fcas svp instrat

Ocean MarineOverview and Catastrophe Modeling Issues

Steven G. Searle, FCASSVP Instrat

2000 – 2005 US Cat Losses

All Lines CombinedYear Insured Losses Frequency Marine

US$bn Losses USD $bn

2000 4.6 24 02001 26.5 20 02002 5.9 25 02003 12.9 21 02004 27.3 22 22005 56.8 24 4-10

Source: ISO Property Claims Services as of 1/ 31/ 06.Marine estimates compiled by S. Searle

2005 Hurricane LossesImpact on Marine and Offshore Energy

Offshore Energy– Katrina

RMS estimates between $2bn and $5bn Eqecat expects a loss ranging from $5bn to $8bn

– Rita RMS estimates between $1bn and $2bn

Yacht– Katrina

Insurance losses range from $300M to $400M. (Boat Owners Association of The United States- Oct 12, 2005)

Hurricane Katrina also destroyed an estimated 75% of the marinas along 150 miles of the Gulf Coast

Ocean Marine

Agenda– Marine Overview– Marine Results– Marine Catastrophe Modeling Developments

Ocean Marine

Agenda– Marine Overview– Marine Results– Marine Catastrophe Modeling Developments

Ocean Marine

Lines of Business– Cargo– Hull (blue-water, brown-water)– Commercial Protection and Indemnity (P&I)– Liability – Yacht (including P&I)– Offshore Energy

Ocean Marine Split by LOBCY Direct Written Premiums

33%

4%

9%5%

18%

7%

13%

11%

Cargo

Ocean Hull

All Other Hull

Commercial Primary P&I

Yacht (incl P&I)

Excess Liab

Primary Liab

Offshore Energy

Source: AIMU 2005 Calendar Year Operating Ratios

Ocean Marine

Agenda– Marine Overview– Marine Results– Marine Catastrophe Modeling Developments

Calendar Year Ocean Marine ResultsDirect Business

73.5%67.5% 67.7% 67.8% 68.8%

103.0%

95.5% 93.8% 93.8% 95.7%

0%

20%

40%

60%

80%

100%

120%

2000 2001 2002 2003 2004

Loss + LAE Ratio Combined Ratio

Source: AM Best Aggregates and Averages

Calendar Year Ocean Marine ResultsNet Business

73.6% 72.5% 70.3%73.6%

68.3%

107.0%102.4% 99.9%

104.0%97.7%

0%

20%

40%

60%

80%

100%

120%

2000 2001 2002 2003 2004

Loss + LAE Ratio Combined Ratio

Source: AM Best Aggregates and Averages

Calendar Year US Marine ResultsDirect Written Premiums ($B) and Net Combined RatioCompanies reporting to the American Institute of Marine Underwriters

1.74 1.905 1.823 2.01 2.325

99.2%

91.7%

89.9%

92.2%

98.9%

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

2001 2002 2003 2004 2005

84.00%

86.00%

88.00%

90.00%

92.00%

94.00%

96.00%

98.00%

100.00%

Premiums Combined Ratio

Source: AIMU 2005 Calendar Year Operating Ratios

US Calendar Year Net Combined RatiosLOB detailCompanies reporting to the American Institute of Marine

Underwriters

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

Cargo Ocean Hull Other Hull

2001

2002

2003

2004

2005

Source – AIMU 2005 Calendar Year Operating Ratios

US Calendar Year Net Combined RatiosLOB detail (cont.)Companies reporting to the American Institute of Marine Underwriters

50%

70%

90%

110%

130%

150%

170%

190%

Comm'lP&I

XS Liab PrimaryLiab

2001

2002

2003

2004

2005

Source – AIMU 2005 Calendar Year Operating Ratios

US Calendar Year Net Combined RatiosLOB detail (cont.)Companies reporting to the American Institute of Marine Underwriters

50%

100%

150%

200%

250%

300%

350%

Yacht (inclP&I)

Energy Total

2001

2002

2003

2004

2005

Source – AIMU 2005 Calendar Year Operating Ratios

Ocean Marine

Agenda– Marine Overview– Results– Marine Catastrophe Modeling Developments

Catastrophe Modeling Vendors

Applied Insurance Research (AIR), EQECAT or Risk Management Solutions (RMS)

valuable knowledge inputs to identify, understand and manage risk

Modeled Perils

hurricane– wind– loss amplification/demand surge– storm surge

earthquake– shake– fire following– sprinkler leakage– loss amplification/demand surge

other wind winter storm terrorism flood (Europe) pandemics

Modeled Lines of Business

Personal lines property Commercial lines property Industrial property Builders Risk Auto Physical Damage Workers Compensation Lives at risk – Accident and Health Marine (partially*)

Marine lines • Fixed Properties (marinas) - handle well• Contents (warehouse cargo) - can handle with adjustments• Oil Rigs - modeling capabilities available • Mobile Property (cargo, floaters) - capabilities exist but are limited• Yachts - capabilities in the RMS May 2006 release• Commercial Hull (?)

Modeled Coverage Parts

Fixed Property– completed structures– structures under construction (e.g.

shipbuilders risk)– machinery & equipment– piers / wharves– offshore platforms

Personal Property– contents – stock– electronic Data Processing equipment

Mobile Property– cargo – floaters including contractors equipment

(though generally difficult to include)– personal yachts

Time Element

The Four Catastrophe Model Modules

Module 2Event

Database

Module 3Damage

Calculation

Module 4Loss

Calculation

Module 1Data

Preparation

Model Applications - Loss Potential “Occurrence" Return Period Losses

Annual Probability of

Non-Exceedance

Return Period

Damage

(000s)

Gross (000s)

Net (000s)

90.00% 10 $9,427 $8,359 $8,025

95.00% 20 $18,814 $16,378 $15,723

98.00% 50 $33,724 $32,194 $30,906

99.00% 100 $48,803 $47,979 $46,060

99.60% 250 $78,865 $75,338 $72,324

99.80% 500 $100,622 $96,395 $92,539

99.90% 1,000 $123,950 $118,776 $114,025

Average Annual Loss $3,597 $3,482 $3,343

A.M. Best Benchmarks

• U.S. Hurricane

• U.S. Earthquake

Yacht Modeling Capabilities

X

RMS RiskLink May 2006 release

RMS Construction Classification Update RiskLink version 6.0 (May, 2006) Seven New RMS Yacht Classes (length and

power)– Boats, inside a Building (Marina) - Precast

Reinforced Concrete with Concrete Roof (RMS Code 54)

– Boats, Moored, Less than 26 ft, Motor - (RMS Code 55)

– Boats, Moored, Less than 26 ft, Sail – (RMS Code 56)

– Boats, Moored, 26-60 ft, Motor - (RMS Code 57)– Boats, Moored, 26-60 ft, Sail (RMS Code 58)– Boats, Moored, Greater 60 ft, Motor (RMS Code

59)– Boats, Moored, Greater 60 ft, Sail (RMS Code 60)

Offshore Energy Modeling/Databases RMS currently has offshore modeling

capabilities– Version 6.0 Changes

new construction classes new year built ranges new occupancy classes includes Contingent Business Interruption, Operators

Extra Expense new loss amplification factors specific to offshore platforms

EQE to release offshore energy model ERAS - database program used by many

energy clients for capturing exposure information by platform– Exposure management only, no damage estimates

or simulations of events.

Outlook

Role of Actuaries and Catastrophe Modelers continues to grow in the Marine renewal process.

Models will continue to be valuable as one of many information inputs…– but extremely dangerous if used as the only information

input Models have improved risk quantification

significantly…– but can mislead if users do not understand shortcomings

Applications can create significant marketplace advantages…– but inappropriate applications can create hidden dangers

Models continue the tradition of innovation and progress…– but models are “not" perfect and need to improve

Questions