CAGNY

1
CAGNY

• Property Per Risk Property Catastrophe Market
  Overview

2
Agenda

• Property Per Risk Market
• 2002 renewals
• structure, price, terms and conditions
• Property Catastrophe Market
• 2002 renewals
• structure, price, terms and conditions
• Prospects

3
CAGNY

• Property Per Risk Market

4
Property Per Risk Market

• 2002 Renewals - Impact of 9/11
• WTC concentrated in limited number of risks
• blown PMLs rather than accumulation of small
  losses
• disproportional loss to risk reinsurance treaties
• many risk programs experienced blown occurrence
  caps
• disproportional loss to risk reinsurers
• large risk syndication consisted of 25 markets
  London
• significant lines from only 15 markets
• large cat syndication consisted of 50 markets
  London
• majority of loss ceded to a small segment within
  the property reinsurance market

5
Property Per Risk Market

• 2002 Renewals
• per risk sample
• 8 renewals (2001 to 2002)
• 4 gt 100m in limit, 4 lt 100m in limit
• 3 with WTC loss, 5 without WTC loss
• exposure types
• HPR, ES, program, CMP
• beyond the market reaction to WTC, numerous
  issues impacted the transactions within this peer
  study
• a broader sample is required for definitive
  conclusions

6
Property Per Risk Market

• Structure
• changes
• retention
• 7 of 8 maintained 2001 retention
• limit
• 6 of 8 maintained 2001 limit
• small changes may be due to reinsurance market
  forces
• significant changes may be related to cedants
  underwriting criteria rather than reinsurance
  market forces

7
Property Per Risk Market

• Price
• changes
• catastrophe loads
• unicede data included in underwriting information
• measuring volatility versus burning cost
• markets are beginning to measure program
  volatility when pricing risk business
• higher roe targets

8
Property Per Risk Market
Price Changes
Premiums ceded, as a percentage of limit, doubled
9
Property Per Risk Market

• Terms and Conditions
• changes
• loss caps
• terrorism exclusions
• other issues

10
Property Per Risk Market
Loss Caps
11
Property Per Risk Market
Terrorism Exclusions
12
Property Per Risk Market

• Other Issues
• risk definition
• location versus insured
• Cyber Risk
• follow fortunes, if managed on front end
• Toxic Mold - growing issue

13
Property Per Risk Market

• Observations - 2002 Renewals
• little perceived difference in cedants risk
  management strategy
• no fundamental changes to limits and retentions
• price increases were significant
• prices doubled across the sample
• terms and conditions are tight
• limited downside with exclusions or caps for
  systemic risk (e.g. terrorism and natural
  catastrophes)

14
CAGNY

• Property Catastrophe Market

15
Property Catastrophe Market

• 2002 Renewals - Impact of 9/11
• loss primarily effected nationwide and super -
  regional programs
• programs with commercial exposure
• programs with wider syndication
• regional personal lines portfolios tend to
  generate larger authorizations than commercial
  portfolios
• with some exceptions, program losses were partial
• loss to lower layers
• higher reinstatement premiums
• less cedant leverage

16
Property Catastrophe Market

• 2002 Renewals
• catastrophe sample
• 10 renewals (2001 to 2002)
• 5 gt 400m in limit, 5 lt 400m in limit
• 6 with WTC loss, 4 without WTC loss
• 41 layers in 2001, 42 layer in 2002
• RMS output
• exposure types
• personal and commercial
• nationwide, super-regional, single state
• many factors, other than WTC loss, contributed to
  2002 transaction specifics
• a broader sample is required for definitive
  conclusions

17
Property Catastrophe Market

• Structure
• changes
• retention
• two of ten companies increased their retention
• limit
• six of ten companies increased their limits
  purchased
• 14 overall growth in limits purchased
• while retention increases were minimal, a
  majority of companies in the peer study purchased
  more limit
• may be from exposure growth in hard primary
  market
• may be increased awareness of catastrophe
  liability

18
Property Catastrophe Market
Structure - Retention
Two of ten programs increased their retention by
50
19
Property Catastrophe Market
Structure - Limit
Six of ten programs increased their limit by
between 7 and 75
20
Property Catastrophe Market

• Price
• changes
• greater attention to miscellaneous loads
• fire following for EQ events
• storm surge
• demand surge
• loss adjustment expense (3-5 for wind 5-10
  for EQ)
• APD losses (2 impact to industry loss in
  Andrew)
• annual inflation adjustment to TIV
• other wind
• cost of capital increase
• significant impact on lower layers

21
Property Catastrophe Market
Prices - 2001
Notes Layer CV is the standard deviation divided
by expected loss. Risk charge is the percent of
standard deviation added to expected loss to
determine the deposit premium.
22
Property Catastrophe Market
Prices - 2002
Notes Layer CV is the standard deviation divided
by expected loss. Risk charge is the percent of
standard deviation added to expected loss to
determine the deposit premium.
23
Property Catastrophe Market
Prices - 2001 Versus 2002 ROL
Cedants paid between 30 and 40 more for the
lower and middle layers of their programs
24
Property Catastrophe Market
Prices - 2001 Versus 2002 Risk Charge
Reinsurers doubled their risk charges on the
lower layers of the sample
25
Property Catastrophe Market

• Terms and Conditions
• changes
• terrorism
• excluded on commercial
• coverage available for non NBC events on
  personal lines
• Cyber Risk
• often excluded via side letter
• geographic specification
• unless incidental, difficult to get coverage for
  international exposures within domestic treaty
• natural perils
• reinsurers backing off named peril restrictions

26
Property Catastrophe Market

• Observations - 2002 Renewals
• cedants are purchasing additional limit
• may be due to greater awareness of catastrophe
  risk and model uncertainty
• sharp price increases within the lower and middle
  layers of catastrophe programs
• miscellaneous loads
• perils not modeled
• deficits following WTC
• successful introduction of terrorism exclusion

27
CAGNY

• Prospects

28
Prospects

• Property Per Risk Market
• price levels may be slow to decline
• despite some new capital, quoting market is
  limited
• requires both capacity and actuarial
  infrastructure
• evolving pricing techniques may push costs higher
• greater inclusion of catastrophe loads
• _at_risk simulations to measure volatility
• finite downside
• limited reinstatements on working layers
• underwriting for systemic risk
• exclusions, sub-limits and occurrence caps for
  industry-wide losses

29
Prospects

• Property Catastrophe Market
• significant downward pricing pressure
• with new capacity, quoting market is vast
• Bermuda start-ups
• re-capitalization of existing reinsurers
• large, stand-alone lines from domestics
• evolving pricing techniques may push costs lower
• increasing use of capital allocation models
• generates credits for non-correlated exposures
• influence of retrocessional costs is declining
• pricing available from net line underwriters