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1Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Welcome to Catastrophic Park(An Overview of USA Catastrophes)
Presented by
Gary EmbletonVice President, GenRe
Presented to
Los Angeles Chapter CPCUSeptember 14, 2004
2Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
AGENDA• The “Numbers” (Don’t Go Near the Outhouse!)• Origins of Catastrophes:
– Hurricane / Tornado– Wildfire– Earthquake– Climatic Change– Terrorism / Political Unrest
• Severity (Why Are Losses So Big?)• Reactions:
– Regulators– Treaty Markets– Insurers: Cat Modeling
3Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
What do youmean it’s a
8 HourPresentation!
4Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Relax…it’s only 45 minutes to an hour.And remember that time flies by a lot
quicker with audience participation
5Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
The Numbers…They Should Grab YourAttention
6Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Don’t Go Near the Outhouse!(Billions - Trended to Today’s Dollars)
W TC 2001 20.3 Andrew 1992 19.6
Northridge 1994 14.9 Charlie 2004E 6.8 H ugo 1989 5.9 Francis 2004E 5.0 Georges 1998 3.2 Betsy 1965 2.9 Allison 2001 2.5 O pal 1995 2.4 Ivan 2004E ???
Source: Insurance Service Office
7Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
The Runner’s Up(Billions - Trended to Today’s Dollars)
SoCalBrush 2004 2.25Iniki 1992 2.00
Frederick 1979 1.46Xenia 1974 1.29
W tr Strm 1993 1.24Cecelia 1970 1.12
Lom aPrieta 1989 1.09W ind Stm 1950 1.01SoCalBrush 1993 1.00W tr Strm 1996 1.00
8Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Also Rans...(Billions – Trended to Today’s Dollars)
W tr Strm 1994 0.79LA Riot 1992 0.78
Tornadoes 1992 0.74Carol 1954 0.71Elena 1985 0.71
M .W .Flood 1993 0.68Tornadoes 1992 0.68
Beth 1992 0.65W .T.C.Bom b 1993 0.65
Bob 1992 0.64
9Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
U.S. Catastrophe / Insured Losses
Catastrophe Losses in the United States 1979-2003
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
(amounts in millions and 2003 dollars) 2004E ($6.8B Charlie, $5B Francis. $2.4B Other)
Source: Insurance Information Institute
IVAN?
10Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Origins of Catastrophes
“…are like a box of chocolates…you never know whatyou are going to get!”
11Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Catastrophe Losses (USA): 1983-2002
Percent of Cat Losses
32.1
28.0
12.4
10.5
9.8
4.2
2.3
Peril
Tornado
Hurricane
Terrorism
Winter Storms
Earthquakes
Wind/Hail/Flood
Fire
Source: Insurance Information Institute
12Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
13Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Origins of Catastrophes
Hurricane / Tornado
14Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
‘tis the Season
N.Atlantic Jun-Nov H urricaneS.Atlantic Never (W e H ope)NPacW est Jul-Nov TyphoonNPacEast Jun-Nov H urricaneSPacW est D ec-Apr H urricaneBayBengal Apr-D ec CycloneS.Indian Nov-Apr CycloneChina Sea Jul-Nov TyphoonNW Aust. D ec-Apr Cyclone
15Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Saffir/Simpson Hurricane Classification System
4-5 ft
6-8 ft
9-12 ft
13-18 ft
18 ft Plus
More than 980 mb
965-979 mb
945-964 mb
920-944 mb
Less than 920 mb
74-95 MPH
96-110 MPH
111-130 MPH
131-155 MPH
155 MPH Plus
1
2
3
4
5
StormSurge
PressuresWind SpeedsCategory
16Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
30
2118
15
11
9RI 7
4
11
29
20
DE 18
13
10 8
6
310
23
19 16 13
10
8
5
3
1
022
15
13
10
8
4
31
0
22
19
1512
10
742
1
0
19
Tornados/1000 Sq M i/Yr
17Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
20th Century Hurricanes Making Landfall
0
10
20
30
40
50
60
70
Cat 1 Cat 2 Cat 3 Cat 4 Cat 5
38%
23%
29%
9% 1%
Source: Tillinghast-Towers Perrin
162 Total
18Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
So Far (as of 09/14/2004)
9-10
5-6
2-3
9
5
4
Named Storms
Hurricanes
Major Hurricanes
Average Season2004 to DateCategory
A record 5 of 8 systems made landfall in August
Hurricane Season Peaks around 09/12
19Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
20Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Hurricane Charlie (2004)
21Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Hurricane Francis (2004)
22Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
NOAA3
DayTracking
Map
HurricaneIvan
(2004)
23Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Origins of Catastrophes
Wildfires
24Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
October, 2003 Southern California Brush Fires
• Near 743,000 Acres Burned (Over 1,250 Square Miles)
• +14,000 Firefighters fighting the fires
• 25 Dead...including one firefighter
• 3,640 Homes Destroyed
• Fires burned in the following Southern CaliforniaCounties... Los Angeles, Ventura, San Bernardino,Riverside and San Diego. Additional fires Reported inBaja Mexico
• Last Fire to be Declared 100% Contained was the PiruFire in Ventura County. It was Contained at8:00pm/pst, Friday, November 14th.
25Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
26Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
27Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
28Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
29Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Modeling Aids
• Individual Risks– Risk Meter– Keyhole– ISO Fireline
• Portfolio Analysis– Tillinghast and other Consultants– Reinsurers
• Direct• Broker
– Brokers• Marsh, Aon, Willis
30Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Origin of Catastrophes
Earthquake
31Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Biggest US Earthquakes
16.0 B
10.2 B
2.5 B
2.9 B
567 K
118 K
85 K
407 K
554 K
56 K
6.7
6.9
6.5
9.2
5.9
7.6
7.1
7.5
6.3
6.4
Northridge, CA
Loma Prieta, CA
San Fernando, CA
Anchorage, AK
Whittier, CA
Landers, CA
Eureka, CA
Kern County, CA
Long Beach, CA
Coalinga, CA
1994
1989
1971
1964
1987
1992
1992
1952
1933
1983
Trended Loss
(2002 $$$)
MagnitudeLocationYear
32Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Northridge Earthquake
State Farm 2,500,000,000Allstate 1,700,000,000Farm ers 1,700,000,00020th Century 1,000,000,000USAA 257,000,000Safeco 225,000,000
33Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Northridge Adverse Development
0
2
4
6
8
10
12
14
Jan Mar May Jul Sep Jan May Feb
1994
1995Billions
2004
34Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
U.S. Earthquake Premiums
0
0.2
0.4
0.6
0.8
90 91 92 93
Total 90-93:$2.8B
Northridge:$14.9B
35Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
NORTHRIDGE Eye Openers
• EQSL
• Moment Resisting Steel Frame High Rise Structures
• Asbestos
• “Soft” First Floor Construction
36Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Northridge B.I. Estimates (Billions)
• W/I Quake Area: 2.1
• Other SoCal Areas: 2.3
• Outside California: 1.5
• Total...................................... 5.9
(Insured & Uninsured Totals) 6/95
37Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Origins of Catastrophes
Climatic Changes
38Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
CLIMATIC CHANGES
• GLOBAL WARMING/COOLING
• POLLUTION/CONTAMINATION– (Air/Water/Land/Noise)
• ACID RAIN
• GORE INITIATIVES
39Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Gore Initiative
• “...what we found is the scientists differed onwhat the causes of global warming are, andhow fast it is occurring...We can’t even getagreement among the scientists that globalwarming is even taking place...One evendemonstrated that the earth is gettingcooler.”
40Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Origin of Catastrophes
Terrorism / Political Unrest
41Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Terrorism / Political Unrest
• World Trade Center• London• Oklahoma City
• LOS ANGELES RIOTS
42Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Severity
Why are Catastrophes Causing MoreDamage?
43Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Future Shock(You Ain’t Seen Nothin’ Yet)
ESTIMATE (Billons)
85
70
58
53
45
43
34
33
30
26
1,800
MAGNITUDE
Richter 8.4
Richter 8.6
Richter 7.0
Cat 5
Cat 4
Cat 4
Cat 5
Richter 7.5
Cat 4
Cat 5
Richter 8.0
EVENT
San Francisco Earthquake
Memphis Earthquake
Los Angeles Earthquake
Miami Hurricane
New York City Hurricane
Houston Hurricane
North Carolina Hurricane
Seattle Earthquake
Honolulu Hurricane
New Orleans Hurricane
Compare: Tokyo EarthquakeSource: AIR Risk Engineering
44Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
U.S. Catastrophe / Insured Losses
Catastrophe Losses in the United States 1979-2003
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
(amounts in millions and 2003 dollars) 2004E ($6.8B Charlie, $5B Francis. $2.4B Other)
Source: Insurance Information Institute
IVAN?
45Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
ANDREW
State Farm 3,500,000,000
Allstate 2,500,000,000
Prudential 1,700,000,000
U SAA 400,000,000
Travelers 240,000,000
AIG 158,000,000
St Paul 150,000,000
46Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Increasing Severity
• Demographic Shifts
• Inadequate Valuations
• Increased Replacement Cost
• “Revisionism”
• Building Codes
47Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
POPULATION GROWTH
R EG IO N 1960-1990 1990-2010 1960-2010
S.E.Atlantic 128.7% 22.8% 180.9%
O ther Coastal 33.6% 13.2% 51.2%
Non Coastal 46.3% 12.6% 64.8%
Total U.S. 37.6% 13.7% 56.4%
Up to 70% of U.S. Population will Live Within 50 Miles of a Coast by the Year 2010
48Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Inadequate Valuations
• Fraud
• “Wrong” Sources of Information
• “Corporate” vs “Location” Exposures (B.I.)
• BBFC / Just in Time
• Social Engineering
• Accounting or Tax Depreciation Does Not EqualEconomic Depreciation for Insurance Purposes
• Blanket Issues
49Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Building Codes
• Nonexistent
• Inadequate
• Unenforced
• Purpose???
50Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Severity
• Over 50% of All U.S. Cat Losses Have Occurred since1990
• 12 of 13 Costliest U.S. Cats (Trended) Have OccurredSince 1989
51Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Reactions:
Regulators
52Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
R egulatorInsurer
53Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Regulatory Reactions to Catastrophes
• Moratoriums• Redlining• State/Fed Cat Pools• Reserve Strengthening Requirements• Joint Underwriting Assns. (Florida Cat Fund)• Controls on Public Adjustors / Vendors• Application of Deductibles (Per Hurricane Season?)• Guaranteed Replacement Cost (?)
54Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Reactions:
Treaty Markets
55Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Treaty Terms & Conditions
• Stand Alone Covers• Unlimited Per Risk Covers• Pricing• Detailed Data• Higher Retentions / Deductibles• Reinstatements Restricted• Exclusions• Pro Rata Reinsurance (Limited)
56Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Reactions:
Insurers: Catastrophe Modeling
57Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
• Aggregate Exposure Management
– Catastrophe Risk Identification
– Catastrophe Risk Transfer
– Catastrophe Risk Management
Services Offered to Clients
58Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
• Aggregate exposure data preparation– GIGO– “Data Scrubbing”– Numbers must carry credibility in the Cat Market
• Exposure analysis• Catastrophe modeling
– All industry recognized models– GeneralRe Cat Center of Excellence
• Exposure mapping
Catastrophe Risk Identification
59Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
• Catastrophe Risk Transfer– Reinsurance Program Design
• “Design Team” delivers innovative yet practicalsolutions.
• Tailored solutions to balance exposure and financialstrength with market appetite
• Blending market capacity with General Re appetite andtraditional capacity with finite solutions.
– Market Syndication through Licensed ReinsuranceBrokers
– Access to Global Reinsurance Markets– US, Bermuda, London, Europe
– Security Analysis
Risk Transfer Programs
60Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
•“Catastrophe Risk M anagem ent is not som ething that isdone once a year - it is a everyday function of insuranceunderw riting - not only is it a source of com petitiveadvantage it is critical for long term survival”
•Advice is offered in the follow ing areas:
–Portfolio O ptim ization
–Capital Allocation
–Pricing Adequacy
–Reinsurance efficiency
–Client specified projects
Catastrophe RiskManagement
61Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Optimization Matrix
Required ROE
Risk
(Allocated C
apital)
Return on Allocated Capital
Deductible StrategyProduction Management
Growth Opportunity
Rat
eIn
crea
se
Rat
eI n
crea
se
Maintain
Ris
k(A
lloca
ted
Cap
ital)
Return on Allocated Capital
+
-
Category 2 Category 1
Category 3 Category 4
62Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
Modeling (con’d)
• Terrorism
– Probabilities vs Aggregates
• Flood
• Earthquake
• Wind
• Brushfire
63Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp.
THANK YOU!
64Presentation for [client/prospect], [date]. Proprietary and Confidential. © 2004 General Reinsurance Corp. A Berkshire Hathaway Com pany
Welcome to Catastrophic Park(An Overview of USA Catastrophes)
Presented by
Gary EmbletonVice President, GenRe
Presented to
Los Angeles Chapter CPCUSeptember 14, 2004