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Getting to Know Your Customer: Role of the Reinsurance Actuary Gerard Palisi, FCAS, MAAA. Seminar on Reinsurance Hamilton, Bermuda June 6, 2005. Getting to Know Your Customer – Worth the Effort?. Impact on data requests more focused information requests, to the benefit of all parties

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


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getting to know your customer role of the reinsurance actuary gerard palisi fcas maaa

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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

getting to know your customer worth the effort
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

becoming familiar with a client
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

submissions
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

client meetings
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!

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

audits
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

public information
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

trade press
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

underwriters account executives brokers
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

who s your cedant
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

impact of customer knowledge on treaty pricing
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?

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

impact of customer knowledge on treaty pricing continued
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 Reinsurance

Hamilton, Bermuda

June 6, 2005

working with the ceding company actuary
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

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

sophistication of the ceding company
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)

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

big picture perspective
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?

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005

in conclusion
In Conclusion …

Get to know your customer

Or not

Seminar on Reinsurance

Hamilton, Bermuda

June 6, 2005