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Reinsurance and Personal Umbrella. Reinsurance and Personal Umbrella Chuck Gegax FCAS Swiss Re CARe 2008. Reinsurance and Personal Umbrella. Introduction Personal Umbrella from Both Primary and Reinsurance Perspectives Basic and Advanced Topics

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reinsurance and personal umbrella

Reinsurance and Personal Umbrella

Reinsurance and Personal Umbrella

Chuck Gegax FCAS Swiss Re CARe 2008

reinsurance and personal umbrella2
Reinsurance and Personal Umbrella

Introduction

  • Personal Umbrella from Both Primary and Reinsurance Perspectives
  • Basic and Advanced Topics
    • Pricing, Understanding Exposure
    • Types of Treaties
    • Other Factors, Including UW Cycles
    • Reinsurance Product Differentiation
  • My Background

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

introduction
Introduction

My Background

  • Primary Personal Umbrella (2 Years) and Commercial Umbrella (5 Years) at FFIC
  • 6 Years Reinsurance Pricing at 4 Different Reinsurance Companies, Small Regional and Large National Clients
  • Special Studies – Layer Optimization, ALAE, etc.

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

personal umbrella basics
Personal Umbrella Basics

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

personal umbrella basics5
Personal Umbrella Basics

How Are Umbrella Policies Rated

  • Typically Unit Rates
    • Per House, Per Car, etc.
    • Different From Commercial Umbrella Which Is Often % of Underlying Premium
  • Other Rating Variables
    • Underlying and Policy Limit
    • Additional Exposures (Boats, Pools, Trampolines, Youthful Drivers, Business Operations, etc.)
    • Varies by State/Territory

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

personal umbrella basics6
Personal Umbrella Basics

NYT on Personal Umbrella

  • “… at companies dealing with rich clients, the first million in coverage is usually the most expensive, at perhaps $150 to $300 annually … [III] The rates per million decline as coverage increases. But at $10 million in coverage, the rate jumps because few customers buy that much, meaning insurers can spread their risk over only a relatively small group of customers.”

New York Times (Umbrella Coverage for Preventing Your Ruin, 3/18/08)

[III] source: Jeanne M. Salvatore, Insurance Information Institute

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

personal umbrella basics7
Personal Umbrella Basics

NYT on Personal Umbrella (cont.)

  • “… The situation is often the reverse for the many insurers who specialize in middle- and lower-income clients. Often their rates shoot up after the first million in umbrella coverage because they have only a small group of buyers of umbrella policies larger than $1 million. A smaller pool of customers creates more risk per dollar of premium for an insurer, so the insurer charges more for the coverage…”

New York Times (Umbrella Coverage for Preventing Your Ruin, 3/18/08)

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

personal umbrella basics8
Personal Umbrella Basics

UW Considerations

  • Depends on the Sophistication of the Company
  • Can Be Similar to PPA Exposure Profiling
    • Credit Scoring, Other Coverages, etc.
  • Capacity Layer, So Loss Drivers are Further Removed

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

personal umbrella basics9
Personal Umbrella Basics

How Do Rates Get Updated

  • Often They Don’t
  • Internal Analysis
  • Competitor Analysis
  • Consultants
  • Reinsurer Input?

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

reinsurer perspective
Reinsurer Perspective

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

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Reinsurer Perspective

Types of Primary Carriers

  • Large Personal Lines
  • Large Multi-Line Conglomerates
  • Small Regional Companies
  • Specialty Carriers

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

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Reinsurer Perspective

Types of Umbrella Portfolios

  • Fully Supported
  • Fully Unsupported
  • Mixed

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

reinsurer perspective13
Reinsurer Perspective

Types of Treaties

  • Quota Share
    • Most Common
  • Excess of Loss
    • Often Combined with Other Underlying Coverages
    • Becoming More Common
  • Surplus Share

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations
Treaty Pricing Considerations

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations15
Treaty Pricing Considerations

Experience

  • Higher Layers Often Have Little Experience
    • Not Very Credible
    • What Do You Compare Against?
  • Lower Layers from Large Books of Business Have Credible Experience, but Most Umbrella Portfolios Will Have Some Portion of the Business That Can Not Be Credibly Experience Rated

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

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Treaty Pricing Considerations

Exposure

  • Traditional “Exposure” Analysis Relies on Layering Ground Up Losses With Some Severity Distribution
  • This Does Not Work For Personal Umbrella
    • No Way to Determine “Ground Up Losses”
    • Pricing in the Umbrella Layer Is Not Directly Related to Underlying Pricing
    • Severity Distributions May Not Be Reliable in the Upper Layers

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations17
Treaty Pricing Considerations

Peer/Competitor Comparison

  • Compare Rates of the Reinsured to Other Companies with Larger, More Credible Portfolios
  • Aggregate Data from Multiple Clients
    • Assess Overall Portfolio Adequacy
    • Develop Pricing Parameters

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations18
Treaty Pricing Considerations

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations19
Treaty Pricing Considerations

Unit Pricing

  • Estimate Loss Costs for Various Exposure Components
    • May Come From Peer Company Study, Large (Credible) Company Filings, Industry Sources
  • Compare These Loss Costs to Rates Charged
  • Will Be Difficult to Quantify Every Variable
    • Select Key Loss Drivers
    • Fill In Missing Elements with Estimates, Judgment

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations20
Treaty Pricing Considerations

Unit Pricing Example

  • From Allfarm’s Guam Filing:
    • Primary Residence Loss Cost: $50
    • Primary Auto Loss Cost: $100
    • Additional Auto Loss Cost: $40
    • Boat/RV Loss Cost: $30
    • Pool Loss Cost: $20
    • Trampoline Loss Cost: $10
    • Business Use Loss Cost: $10-$100

Note: Figures and names are entirely fictitious

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations21
Treaty Pricing Considerations

Unit Pricing Example

  • From Client’s Rate Manual:
    • Primary Residence Unit Charge: $75
    • Primary Auto Unit Charge: $120
    • Additional Auto Unit Charge: $30
    • Boat/RV Unit Charge: $40
    • Pool Unit Charge: $10
    • Trampoline Unit Charge: $0
    • Business Use Unit Charge: $30

Note: Figures and names are entirely fictitious

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

treaty pricing considerations22
Treaty Pricing Considerations

Unit Pricing Example

  • Compare Client’s Unit Charge to Base Loss Costs
  • Use Client’s Exposure Profile to Weight Various Combinations of Loss Ratios Together
  • May Need to Estimate or Use Samples to Get Exposure Profile
  • May Point Out Areas Where Client’s Rates Are Not Sufficiently Detailed

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

other considerations
Other Considerations

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

other considerations24
Other Considerations

Changes in Book/Exposure

  • Growth/Expansion into New States
  • Expansion of Coverages/Exposure
  • Shifts in Underlying and Policy Limits
  • Changes in UW/Claims Handling Practices

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

other considerations25
Other Considerations

Changes in Legal Environment

  • Could Impact Certain States or Nationwide
  • Jury Verdicts
  • Emerging Exposures/Issues
    • Identity Theft
    • Other Potential Cyber Issues
    • Housing/Credit Crisis May Impact Claims Reporting

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

other considerations26
Other Considerations

Impact of Market Cycle/Economic Conditions

  • Manual Rates Typically Are Not Discretionary, Reducing Downward Pressure on Rates
  • Other Ways to Cut Rates
    • Tiered Pricing
    • “Overlooking” Exposures
  • Decision To Purchase Umbrella May Be Driven by Cost of All Personal Insurance
  • Economic Conditions May Influence Claims

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

differentiating your reinsurance offerings
Differentiating Your Reinsurance Offerings

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

differentiating your reinsurance offerings28
Differentiating Your Reinsurance Offerings

General

  • Security/Stability
  • Relationships/Other Business with Client
  • Ease of Doing Business

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

differentiating your reinsurance offerings29
Differentiating Your Reinsurance Offerings

Services/Value Added

  • Rate/Filing Support
  • Data Management
  • Portfolio/Strategic Analysis

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

conclusions
Conclusions

Reinsurance and Personal Umbrella

Chuck Gegax Swiss Re CARe 2008

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