CIA Annual Meeting LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 Catastrophic Loss Exposure in Group Insurance François Dagneau (Aon Re) LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 THE SOLUTIONS Know better their exposures • • • Where are employees located? Any specific limitation in coverage? Modeling Some companies are doing well, others… LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 Take a broader company view to the Cat event (e. g. WTC) • • Policy liabilities Employees Real Estate Investments (specifically or market) • LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 Solutions to reduce gross cat exposures –risk avoidance • • Pull out of Group business or Canada Introducing exclusions for certain perils (EQ, terrorism) Introduction of caps (UK, reinsurance Canada) or deductibles or coinsurance Sharing of larger groups LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 Reinsurance solutions to reduce net cat exposures • • Buying QS is often the cheapest way to go when the peak exposures are well defined to a segment of the portfolio (but reinsurers are waking up) Buying a cat cover • • • Only for certain locations For the whole portfolio Multi-Year Finite Cat Reinsurance LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 Alternative Risk Transfer Mechanisms • • • Pooling Cat bonds Collateralized cat reinsurance Contingent capital deal Cat risk swap Finite reinsurance LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 ART - Pooling • • Market: Dutch, CLHIA Terrorism pool, BCAC Voluntary: RACQ-Aon Re’s Retention Pool. • • • Market pricing – no subsidies Where the cost per million is most expensive Conditions driven by the main program Over CAD 25 M in capacity pooled since 2004. Savings of $1 M annually for the members Full terrorism coverage LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 ART – Financial markets • Cat bonds • • • Pro (no credit risk, usually multi-year, innovative) Cons (high fixed costs, reacts to catastrophes too, needs to be somewhat rated) Example, Swiss Re Collateralized Cat reinsurance Contingent capital deals Cat risk-swaps - reciprocity • • Equal price (based on modeling) and rating swap Reciprocity based on open market LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 • Managing Cat Exposure - Considerations • • • Reduction in volatility at the tail end Capital created Credit Risk Cost Allocation of cost : does that mean putting restrictions on field? Indeed! LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 Why manage actively exposures – a cat cover? • • • Protect earning stability Protect capital It is cheapest capital Good risk-management hygiene May be difficult to explain why a company did not buy after a second event – attitudes change. Gives good image of risk management to outside parties (analysts, regulators, rating agencies) LOOKING BACK…focused on the future
CIA Annual Meeting Session 2205 Analysts, regulators and rating agencies • • Analysts : they do not care about mortality risk Regulators : • • Life side waking up: AMF started to require info for 2003 AA’s report P&C 500 -yr phased-in completed by 2022 FSA (UK) probability of insolvency smaller than 0. 5%; Rating Agency : • • AM Best’s SRQ Questionnaire AM Best’s BCAR (100 -yr storm – 250 -yr EQ) S&P’s CAR ratios (250 -year return period) Nothing (yet) on the life side… LOOKING BACK…focused on the future
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