Non-Proportional Presentation

Singapore, 2000

qMerger

between General Re and Cologne Re

1995 largest Reinsurer in the World with a AAA rating ( S&P ) have 400 Underwriters worldwide committed solely to Facultative Reinsurance
qWe qThird

Definition of Non-Proportional Reinsurance

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A form of reinsurance that subject to a specified limit and indemnifies the ceding company for that portion of loss that is excess of the retention as defined in the reinsurance contract. In other words, once a loss exceeds a predetermined limit , (100% of ) loss excess of that amount is assumed by the non-proportional reinsurer.

Three types of Facultative Non-proportional

q

Excess of Loss per Location Typically referred to as Per Risk Excess of Loss per Occurrence Covers more than one risk which suffer loss arising from one event, referred to as Per Occurrence Aggregate Excess of Loss On a given account a cedant can limit the accumulation of net losses over a set term.

Types of Non Proportional

Proportional Share
Pure Excess

Fac Net Treaty Fac Net Treaty

Types of Non Proportional

Mid Layer Excess
Net Treaty

Capacity Excess

Fac Treaty

Fac Net Treaty Net

Types of Non Proportional

Net

Working Excess

Fac

Treaty

Net

Proportional

Primary Net

1st Surplus

2nd Surplus

Proportional Facultative

Non Proportional
Excess 1st Surplus 2nd Surplus

Primary Net

Non-Proportional Property Products

q

q q

Fire /IAR/ Extended Perils Machinery Breakdown Engineering CAR/EAR Fidelity Entertainment risk

q q

q q

Auto Physical Damage Jewelers Block Electronic Equipment Insurance Inland Transit Risks Homeowners/Fine Arts

Engineered Lines
q q q q q q q q

CAR - Contractors All Risks EAR - Erection All Risks MB - Machinery Breakdown EEI - Electronic Equipment Insurance CECR - Civil Engineering Completed Risks OROL - Oil Rigs On Land DOS - Deterioration of Stock AERO-ENGINE Breakdown

OBJECTIVES
!

PROFITABILITY GROWTH

for YOU

for YOU

Loss Ratio
q q q q

Clean Loss Ratio 20% Loss Ratio > 100% Loss Ratio >> 100%

Clean Loss Ratio 20%

Loss Ratio

Loss Ratio > 100% (due to frequency losses)

Proportional is great for you if you can get itSolution- Amend deductibles, increase price etcManage the frequency- Dont Dump it.

Loss Ratio >> 100% (due to one large loss )

Size of Loss

L M S L

Volatile Predictable still Predictable M S

SIZE of Risk

Number of Risk

L M S

Relatively fewer many still many L M S

SIZE of Risk

SIZE of Risk

L M S

X X

X X

What size of loss you perceive you can retain

?
S

SIZE of Loss

Buying NP you can keep good premium from shaded area instead of giving out to proportional facultative.

Surplus 1

Surplus 2

One Line

Facultative

You can place NP as you can retain shaded portion below

Non Proportional
900 800 700 600 500 $ 400 Thousands300 200 100 0 A B C Reinsurance D E

XL Retention

What happens in the event of a loss ? View of a risk

Frequency Losses Normal Losses Probable Maximum Loss PML Error CAT

Catastrophes

Error in PML PML Normal loss expectancy Frequency

Premium Increases

Severity

Example No 1
s

Occupancy: Condominium Sum Insured: Building 100M Machinery 30M Construction: Concrete blocks Steel Structure 7 Blocks

s s

s s s

Coverage: IAR Protection: Hydrants Watchman Service Fire Department 3 km Rate: 0.06% Deductions: 21.375% Coverage Required: 51.4M excess of 0.6M iro 40% of TSI (130M)

40%

(Example No1)

TSI 130M 51.4M

Placement with other reinsurers 60% (78M)

0.6M

Coverage Required: 51.4M excess 0.6M iro 40%

40%

(Example No1)

Catastrophes 51.4M Error in PML PML Normal loss expectancy 0.6M Frequency

Coverage Required: 51.4M excess 0.6M iro 40%

iro 40%

(Example No1)

s s

51.4M

Premium: 130M x 0.06% = -21.375% Com. = Net Premium 100% =

78,000 16,672.5 61,327.5

Premium General Re 40% net: 10,058 quoted Premium 40% net: 24,531 Premium PropRe on 0.6M net: 283 Premium Cedant 40% xol net: 14,473

0.6M

Coverage Required: 51.4M excess 0.6M iro 40%

40%

(Example No1)

0.6M Premium 283

51.4M Premium 10,058 :

Premium:

14,473 51.4M excess 0.6M iro 40% 0.6M part of 130M

Example No 2
s

Occupancy: Hotel Sum Insured: Building/Machinery BI 17M MD/BI 67M Construction: Reinforced Concrete Cut-off on all floors 1 Block 20 floors

s s

50M
s s s

Coverage: IAR Protection: Hydrants Watchman Service Sprinklered Fire Department 3 km Rate: 0.05% Deductions: 21.375% Coverage Required: 39.6M excess of 0.6M iro 60% of TSI (67M)

60%

(Example No 2)

39.6M

Placement with other reinsurers 40% (26.8M)

TSI 67M

0.6M

Coverage Required: 39.6M excess 0.6M iro 60%

60%

(Example No 2)

Catastrophes 39.6M Error in PML PML Normal loss expectancy 0.6M Frequency

Coverage Required: 39.6M excess 0.6M iro 60%

iro 60%
s s s

(Example No 2)
Premium: 67M x 0.05% = 33,500 -21.375% Com. = 7,160.6 Net Premium 100% = 26,339.4 Premium General Re 60% net: 13,218 quoted Premium 60% net: 15,803.6 Premium Cedant PropRe on 0.6M net: 235.9 Premium Cedant 60% xol net: 2,585.6

39.6M

s s

s s

0.6M Coverage Required: 39.6M excess 0.6M iro 60%

(Example No 2)

0.6M Premium 235.9

39.6M Premium 13,218

Premium : 2,585.6

39.6M excess 0.6M iro 60%

0.6M part of 67M

Benefits of Excess of Loss

Each risk is assessed on its own merits, rated on exposure Insurer does not have to increase retention to increase revenue. NP capacity over your ascertained net to increase your gross share of risk Ability for adverse selection by location , by perils The most effective way to reduce an insurers exposure in the least expensive wayremoves volatility where fire divisions exist or accounts with more than one location with most accounts having PML less than 100%Ability to layer risk based on exposure. Opportunity to return more profitability premium yet still protect volatility inherent in a risk.

Contract
q q q

q q q

Retention and Limit Claims and Losses Adjustment Expenses Reinsurer will cover expenses in the ratio of the reinsurers loss to the cedants gross loss. Salvage Definintions Reinstatements Free and unlimited unless specified

What does this mean?

q

With no change in retention With no change in rates With no change in premium volume

Insurers can restructure their facultative capacity, maximize their retention's and increase the net retained premium

What do you need in order to quote?

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Information about the physical risk

C.O.P.E. Loss History

Information about the terms and conditions

Facultative requirements and treaty structure