Beazley Group plc Analysts Presentation RDS/Catastrophe Stress Testing

Transcription

1 Beazley Group plc Analysts Presentation RDS/Catastrophe Stress Testing 4 July 2005

2 Content Introduction Natural Catastrophe Specialty Lines Offshore Energy Account Conclusion

3 Looking Forward!

4 Content Introduction Natural Catastrophe Specialty Lines Offshore Energy Account Conclusion

5 Overview of Treaty Treaty GWP Team led by Neil Maidment Split of Business By Focus Area Market leaders Cat Established in 1986 Clash Ex Cat Other Diversified portfolio focused on larger non-life insurance markets

6 Overview of Property Property GWP Split of Business By Focus Area Team led by Jonathan Gray Market leaders Covers Engineering Open Market Motor Jew ellers Homeow ners Other Established in 1992 Global portfolio with US emphasis Engineering team joined in 2004 BUSA US high value homeowners started in 2004

7 Natural Catastrophe Risk Management Largest event insurance exposures to Beazley Impact correlates across products/teams A growing threat Economic/insured natural catastrophe losses increasing Climate Change Demographics

8 Economic/Insured Natural Catastrophe Losses Munich Re Annual Review

9 Global warming/climate change Certainly, evidence exists that suggests average temperatures have increased: Sources: BHRC, IPCC

10 100 year trends in US landfalling activity NOAA ACE Index Average 2.2 ( ) No long term trend exhibited natural variability cyclical activity

11 In many major cat prone regions exposure growth is driving increases in potential loss For example, population growth in Florida exceeds growth in the US as a whole: 80% % change in population (per de 70% 60% 50% 40% 30% Florida US 20% 10% 0% decade

12 Natural Catastrophe Risk Management Objective to manage effect from 1:250 US catastrophe to 15% of premium capacity

13 Natural Catastrophe Risk Management Risk Measurement Data capture Scenario testing

14 Data Capture

15 Scenario Testing Individual Account Output

16 Scenario Testing Portfolio Output RISKLINK ALM v4.5 USA Cat Account Only RETURN PERIOD USD 000's Date: 23/05/2005 RiskLink v4.4 AAL SD WINDSTORM ALL REGIONS OEP 9,552 27,053 49, , , , , ,766 Movement ,954 3,518 5,440 5,757 6,030

17 Natural Catastrophe Risk Management Risk Management Risk Selection Portfolio optimisation Reinsurance Reporting

18 Property and Treaty Reinsurance Structure As at 1/07/05

19 Natural Catastrophe Risk Management Realistic Disaster Scenarios results as at April 2005 Gross ($m) Net ($m) Net as % of stamp California EQ % Florida HU (Pinellas) % New Madrid EQ % Japan EQ % European Storm %

20 Content Introduction Natural Catastrophe Specialty Lines Offshore Energy Account Conclusion

21 Overview of Specialty Lines Specialty Lines GWP Split of Business By Focus Area Split of Business By Geographical Area Law yers Miscellaneous E&O Architects & Engineers Third Party EPL Information Technology Insurance Brokers Hospitals Political Financial E&O Africa Australasia Canada Europe Far East Middle East South America USA West Indies World Wide Specialty Lines vision: Be a premier specialty lines insurer, measured by reputation and results, operating seamlessly and effectively in those geographies, customer segments and products that offer sustainable and profitable risk-taking opportunities Key principles are: Product driven business Attract, develop and retain top talent Core competencies Underwriting Access Have deep institutional understanding of our business Strong disciplines based on accountability and responsibility

22 Catastrophic risk in Specialty Lines environment Description Accumulation of losses arising from same event, situation, or issue Unfolds in slow motion Several categories of catastrophe, each with distinct exposures Our perspective Specialty Lines have catastrophes they are just different Claims made trigger = time to react Many risks emerge - very few become losses Experience required to judge which are significant

23 Types of catastrophic risks Natural catastrophes Earthquake Hurricane Virus outbreak Man-made failures Infrastructure project failure Corporate collapse Major identity theft Terrorist attack Business practices After-hours trading by mutual funds Contingent commission practices Tax shelters Product widely mis-sold Social or Economic malaise Increase in corporate dissatisfaction House price slump

24 Ways we manage these risks Measure Portfolio analysis Actuarial modelling Measurement of aggregate exposures Predict Development of pricing models Establishment of intelligence network Realistic Disaster Scenario work Mitigate Early recognition Extensive use of wordings specialists Pro-active claims management Diversify Benefits of low correlation through diversity by product, geography, industry and size of insured Portfolio construction Transfer Excess of loss reinsurance Active hedge of systemic risk Coverage management

25 Methods of analysing Realistic Disaster Scenarios Market share analysis Historic analysis and projection Measurement of numbers of different parties involved and likely losses Our market share in those Quarterly measurement based on latest portfolio mix Measurement of increases in frequency and severity from prior events and assessment of likely increases for future Application to specifically exposed parts of portfolio Conceptual analysis Using common principles, assessing individual scenarios to determine likely catastrophic frequency and severity Application to specifically exposed part of portfolio Frequency simulation Stress tests Assess the distribution of changes in frequency and severity for different industries over time Apply the entire range to each segment of the portfolio and take the worst two linked segments General economic malaise MGA fraud

26 Conclusions of Realistic Disaster Scenarios analysis No scenario or stress test produces more than 5% loss to premium capacity Quarterly monitoring of existing scenarios Continuous assessment of new scenarios

27 Case study - Enron Situation What was then largest US bankruptcy in 2001 after allegations of misstatement of results Lawsuits issued (or in process) against: Company directors and officers 12 bankers and other lenders 10 Law firms 2 Accountancy firms Beazley s potential exposure: D&O liability, lawyers professional liability, accountants liability, bankers liability How we managed the risk Financial institutions, F100 D&O and large accountancy firms E&O avoided Dedicated claims & underwriting specialists Exposure monitored actively Catastrophe reinsurance to tackle risk type Proprietary pricing model includes catastrophe risk Specific RDS to cater for risk type

28 Case study IFA mis-selling Situation In recent years several major UK life insurers, banks and financial advisors have faced thousands of compensation claims Various mis-sold products resulted in claims against:: Financial institutions Bankers IFA s Beazley s potential exposure: E&O / D&O financial institutions Financial advisors E&O How we managed the risk Risk anticipated before issues manifested, based on our work with IFA risk management firm Application form amended Per claimant deductible Specialist underwriters Catastrophe reinsurance to tackle risk type Exposure to any one product monitored on ongoing basis Specific RDS to cater for risk type

29 Conclusion Diverse and complex business Catastrophic risk awareness and analysis Catastrophe management strategy Track record Commitment to continuous improvement

30 Content Introduction Natural Catastrophe Specialty Lines Offshore Energy Account Conclusion

31 Overview of Marine Marine GWP Split of Business By Focus Area Team led by Clive Washbourn Marine account established 1998 Market Leaders Hull Energy Cargo War Other Energy focus area established 2003 Energy 24.5m GWP part of 93.85m An Upstream biased portfolio Capacity supply and demand in balance

32 Catastrophe risk within Energy Large single risk exposures Multi risk exposure to natural peril catastrophes Co-venturer shares assets often jointly owned by various energy companies The policies we write often cover various interests Subscription placements

33 Types of catastrophic risks & exposures Natural catastrophes Earthquake Hurricane Storm Tsunami Flood Man-made failures Installation failure Fire and explosion Well blowout Collision Terrorist attack Asset exposure Material damage Increased cost of construction Inventory Loss of profit Redrill of wells Expense exposure Liabilities to employees and third parties Control of well expenses Clean up expenses Debris removal expenses Debt services charges

34 A Single risk exposure - Hibernia

35 Beazley Hibernia exposure Co-Venturer Oil Company Share 100% Ground Up Loss Beazley Share Murphy 6.5% $7,572,184,615 $12,375,000 Petro-Canada 20% $3,000,000,000 $14,670,000 Exxon % $2,415,094,340 $10,562,500 Totals $37,607,500 Beazley Exposure Net of Reinsurance $3,240,000

36 Multi Risk Exposure Hurricane Ivan September /16/04 9/16/04 MP 281 NEPTUNE EINSET 9/15/04 9/15/04 9/15/04 DEVILS TOWER 9/15/04 9/15/04 Insured market loss circa $2bn Offshore

37 Multi Risk Exposure Lloyd s realistic disaster scenario Key Centre of the Damage Track Less than 10 miles from the centre of the Damage Track 10 to 25 miles from the centre of the Damage Track 25 to 50 miles from the centre of the Damage Track Insured market loss circa $7bn Offshore

38 Multi Risk Exposure Beazley Exposure Policy data captured within ERAS Engineering input available to Market Expert Group Storm exposure modelled according to defined damage factors Beazley Marine Exposure Gross of Reinsurance $132,605,064 Energy $92,783,833 Hull $37,177,737 Cargo $2,643,494 Beazley Marine Exposure Net of Reinsurance $7,697,145

39 Ways we manage these risks Measure Use of market leading risk aggregation tools Detailed capture of policy exposure data Predict Development of loss models Intelligence from industry experts Realistic Disaster Scenario Mitigate Disciplined use of line structure Pro-active claims management Diversify Balance portfolio by geographical diversity, size of insured, position within programme Transfer Active use of reinsurance Coverage and deductible management

40 Content Introduction Natural Catastrophe Specialty Lines Offshore Energy Account Conclusion

41 Conclusion Evolving science Major part of our business activity Catastrophes bring opportunities