Clash Pricing

This presentation will illustrate some of the financial concerns of a Clash reinsurer, and how they may relate to Clash capacity.

Not all reinsurers have maximum line limits or minimum rates-on-line. This presentation doesn't advocate using them, or any particular values for reinsurers who do use them.

The data and company organization you will see are completely fictional. They do not represent the actual experience of any particular reinsurer.

Agenda

1. Remarks by CEO


2. Reserve and Profitability Study - Actuarial Department


3. Summary of Market Dynamics - Clash Sales Department


4. Corporate Risk and Capacity Analysis - Corporate Finance Department


5. Discussion of Budget Proposals - Treaty Underwriting Department


6. Votes on Budget Proposals - All Members


7. Conclusions by CEO

1. Remarks by CEO

Our actuaries have calculated that, after removing old asbestos and environmental claims that won't recur, Clash and High Layer WC have the highest ROEs of any of our product offerings. I also hear from the sales force that some our larger clients cannot place as much Clash cover as they desire or need. We have always taken a very strict underwriting posture on this product. I am concerned that this approach unduly restricts our ability to sell our clients more of this highly profitable product.

Ladies and gentlemen, you know my style, I don't want to tell you how to do your jobs [chorus: No! No! No! ], but I want this one thought through carefully.

Three Challenges to the Committes

Challenge #1 - Why don't we significantly increase the production targets for Clash and correspondingly decrease our target for other products? We will replace low ROE products with high ROE products. This will raise out total ROE.

Challenge #2 - Why don't we sell more to the clients who need more? We should raise our line limits.

Challenge #3 - Why don't we eliminate or reduce our current minimum rates-on-line. We have shown we have the discipline to run this product profitability. We don't need management imposed "handcuffs" to do this.

2. Reserve and Profitability Study

Hypothetic Re's Actuarial Department has attempted to analyze the results of the Clash and High Layer WC treaty books, considering reported losses, paid losses, counts and averages, and pricing trends. This analysis only addresses results since 1985, when absolute pollution and asbestos exclusions became standard. Recent calendar year results are much worse than these underwriting year estimates, The actuaries have assumed that there are no similar latent injury claims inthe current business.

Clash and High Layer WC
Reported Results
Hypothetic Re

RAA Development Experience
1981 Accident Year Through 14 Years

High Attachment General Liability, Excluding Environmental, Asbestos

Clash and High Layer WC
Estimated Results
Hypothetic Re

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