PML Analysis of Construction Models

Transcription

1 PML Analysis of Construction Models The United States case 8 October, 2015 Bruce Cliff, The Travelers Companies, Inc.

2 Agenda Surety & Fidelity Association of America (SFAA) Terminology Background Results Uses for Study 2

3 Surety and Fidelity Association of America (SFAA) The Surety & Fidelity Association of America (SFAA) is a U.S. non-profit corporation whose members are engaged in the business of suretyship. Member companies collectively write the majority of surety and fidelity bonds in the United States. The SFAA is licensed as a rating or advisory organization in all states and it has been designated by state insurance departments as a statistical agent for the reporting of fidelity and surety experience. The SFAA represents its member companies in matters of common interest before various federal, state and local government agencies. The SFAA also has departments that specifically handle: statistical information, regulatory filings, publications, government affairs, membership, and both surety and fidelity bond underwriting. 3

4 Terminology Term Loss Given Default (LGD) Face Value (FV, Notional) Definition Ultimate Loss Severity Notional Bond Limits at time of loss Probable Expected Loss (PEL) Probable Maximum Loss (PML) Average ratio of LGD / FV 90 th percentile for LGD / FV 4

5 2014 SFAA Construction Loss Severity Study Background First Study published in 2004 SFAA data call issued in February 2014 (reissued July 2014) Claim data at client level for total incurred loss of US$250,000 or more Loss above includes indemnity loss reserve plus loss expense reserve net of salvage Losses with first date of loss (accident date) from 1997 to 2012 as of 12/31/2013 Losses adjusted to expected ultimate values consistently across companies using SFAA industry loss development factors 2,626 contractor claims gathered from companies representing about 85% of total US contract surety industry premium as of December

6 2014 SFAA Construction Loss Severity Study Results Study demonstrates key drivers of Loss Severity Size of Contractor (Total Open Bond Limits*) Type of Contractor Concentration of limits in one project Region of Operation Loss Severity published statistics, including model for calculating: PEL = Probable Expected Loss = Average PML = Probable Maximum Loss = 90 th percentile SFAA provides factor for 95 th percentile PML *Open Limits defined as in-force plus limits expired in prior 12 months 6

7 2014 SFAA Construction Loss Severity Study Results 100% 90% 989 2,626 Total Claims with 27% Avg Loss % $1000 $900 80% $800 70% $700 60% 50% 40% 30% 20% 10% 23% 24% % 25% % 40% % $600 $500 $400 $300 $200 $100 0% $0 Note: Contractor Types defined in Appendix # Claims Avg Loss% 7

8 2014 SFAA Construction Loss Severity Study Results 80% Base PEL % of Open Limits 70% 60% 50% 40% 30% 20% Loss severity (PEL) as a percentage of contractor open limits declines as aggregate limits increase Base PEL varies by contractor type PEL increases as concentration increases 10% 0% 0 2, Open Limits ($millions) GC-Building HH-Road Subcontractor Developer/Subdivision Other/Specialty Base PEL excludes Concentration and Region Factors; Above excludes GC-Other and HH-Other (see page 15 of Study) 8

9 Uses for Study Capital Modeling Loss Simulation Portfolio Risk Management Pricing Metrics Reinsurance Pricing 9

10 Appendix 10

11 2014 SFAA Construction Loss Severity Study Contractor Types General Contractor Building General Contractor Other Heavy/Highway - Road Heavy/Highway Other (including projects involving water resources) Sub-Contractor Building Developers/Subdivision Description Building Design, Architect, Engineer Highway, Street, Bridge, Road, Pavement, Concrete, Excavation Sewer, Sewage Treatment, Marine, Tunnel, Foundations Carpenter, Electrician, Plumbing, HVAC, Mechanical Developers/Subdivision Other/Specialty (Primarily engaged to produce a specific component of a construction contract) Drywall, Floor, Glass, Mason, Paint, Steel, Roofer, Landscaper, Sprinkler, Environmental, Interior Finish, Process Piping, Trash Hauler 11