getting to know your customer: role of the reinsurance actuary gerard palisi, fcas, maaa seminar on...

Getting to Know Your Customer: Role of the Reinsurance Actuary Gerard Palisi, FCAS, MAAA

Seminar on ReinsuranceHamilton, BermudaJune 6, 2005

Getting to Know Your Customer – Worth the Effort?

Impact on data requests– more focused information requests, to the

benefit of all parties

Impact on rating approach– more accurate rating, less parameter risk

Impact on deal team decisions– contribute qualitative, as well as quantitative,

input

Impact on your client– audit feedback, and other services, add value


Becoming familiar with a client

Submission

Client meeting

Client audit

Public information– annual reports– annual statements– website

Trade press/news services

Underwriters, Account Executives, Brokers


Submissions

Most direct source of information pertaining to the treaty

Narrative section generally includes discussion of company or business unit results, strategy, outlook and projections

Other non-data sections, e.g. resumes, can also be important and relevant!

What is not provided can be as informative as what is

Be alert for “spin”, e.g. in narrative, choice of data, years included, differences from prior submissions


Client Meetings

Prospect, Renewal, or Mid-term

Very efficient way to learn about client, their operations, and current issues

Client actuaries are often involved in such meetings

Opportunity to directly question key client managers, and to hear questions from other reinsurers!


Audits

Actuaries should participate in underwriting audits

Perhaps no better way for actuaries to get a good understanding of the risks they are assuming

Gain both quantitative and qualitative perspectives on the book of business

Direct opportunity to provide opinions and offer value-added services to your client

Consider attending claims audits as well

At a minimum, actuaries should read current (and prior) audit reports if they cannot participate directly


Public Information

Annual statement data can be valuable, particularly for smaller companies and multiline treaties

AS is a source of triangles and expense information

AS data is less valuable for larger (e.g. G&N) companies, where cedant is generally a specific business unit within insurer

For public companies, annual reports can also shed light on company strategy

Company websites are also a good source of information


Trade Press

A. M. Best (Best Review, Bestweek, Bestwire, etc.)

Other Periodicals: Commercial Insurance, U.S. Insurer, National Underwriter

Online services, e.g. NewsEdge

Wall Street Journal

Reinsurer’s own news gathering services


Underwriters, Account Executives, Brokers

Your company’s underwriters, account executives, claims staff, and other actuaries should be fully familiar with current clients

They can also be a source of information on prospective clients, if they’ve had past dealings with the cedant or with key personnel

Brokers (including actuaries) should be able to field most questions about the ceding companies they represent


Who’s your cedant?

Business Unit of a Global/National Insurer– can’t rely on “whole company” data– higher retentions– reinsurance generally for “non-bureau” lines

(umbrella/excess, professional, environmental, excess WC, cat/clash)

Small/Regional Insurer– lower layers and smaller net participations– reinsurance generally for standard lines (via

stand-alone or multiline covers)

Specialty Insurer


Impact of customer knowledge on treaty pricing

Treaty Structure– Why does the cedant desire a particular

structure (QS, VQS, flat rated XOL, cessions XOL)? Is there a better alternative?

Ceding Commission– Is there an “override” (i.e. the cedant’s

costs are less than the ceding commission)? How does this impact the cedant’s breakeven loss ratio and net participation?


Impact of customer knowledge on treaty pricing (continued)

Rate Changes– Is the rate change calculation actuarially

sound, i.e. properly adjusts for changes in exposure, limit, attachment, etc.?

– Is it consistent with rate changes provided in the past? Is all of the subject business included in the calculation?

Book of Business– Has the book changed over time? Is an “as if”

rating approach warranted? – Have there been material changes in reserving

practices? What is the cedant’s IBNR position?Seminar on ReinsuranceHamilton, BermudaJune 6, 2005

Working with the ceding company actuary

The cedant’s actuary can be a great resource in understanding the company, the subject book of business, and nuances that can impact on pricing

Establishing a “direct link” to the actuary can facilitate data requests and get questions answered more quickly and efficiently

Evaluate the extent, and effectiveness, of the actuary’s direct involvement in the business unit, i.e. “underwrite the actuary”

First two bullets apply equally well to broker actuaries if there is no cedant actuary involvement


Sophistication of the ceding company

How large?

How managed?

Central reinsurance management, or each BU manages on its own?

Systems and automation

Degree of actuarial involvement

Receptive to reinsurer input?

Culture issues (flexible/responsive vs. rigid/conservative)


Big picture perspective

“Key customer”? (premium volume, strategic importance, relationship, etc.)

Reinsurer strategy: individual treaty vs. portfolio viewpoint

Cedant business strategy

Cedant reinsurance buying strategy– Centralized vs. decentralized ceded re– Sensitivity to individual treaties (leverage)

How is your reinsurance company perceived by the cedant? By the cedant community as a whole?


In Conclusion …


Get to know your customer

Or not

getting to know your customer: role of the reinsurance actuary gerard palisi, fcas, maaa seminar on...

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