1. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate The General Insurance Market in New Zealand - Changes that have taken place during 2001/2002 Janet Lockett New Zealand Society of Actuaries Conference Rotorua - November 2002

2. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Year 2001 was... “... one of the most traumatic in the history of international insurance and will define much of the insurance thinking and planning for decades to come.”

3. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Thanks Many thanks, for providing valuable input and assistance, go to: Andrew, Chris, Duncan, Fiona, John, John, Karl, Lynda, Paul, Peter, Phil, Richard, Rob and Rod

4. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Special features of the NZ general insurance market Size, development, location ACC EQC Regulation

5. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate The Insurance cycle

6. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate The Insurance cycle

7. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Situation in 1999/2000 Deteriorating claim features Large losses Continuing competition Reduced investment returns Some premium increases, but still under-priced still slack underwriting

8. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate September 11

9. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Other aspects and consequences Economic losses Stock markets Solvency of insurers/reinsurers Return to basics

10. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Basic principles Good information Underwriting standards Pricing Return on capital Relationships Risk management

11. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate What is an insurable risk? The circumstances of a loss event and the amount of a loss must be able to be clearly defined The occurrence of a loss must be the result of chance The frequency and severity of a loss must be quantifiable It must be within reasonable limits

12. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Good underwriting procedures Good data Clear policy conditions Detailed information about each risk Detailed analysis of experience

13. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Are terrorism risks insurable? Can the possible circumstances of a loss event and the amount of a loss be clearly defined? Will a loss be the result of chance? Can the frequency and severity be quantifiable? Is the risk within reasonable limits?

14. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate If terrorism risk is to be insured - Should it be provided by the private sector, or the public sector, or a combination of both? Can it be both widely available and generally affordable?

15. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Are terrorism risks insurable? Is terrorism insurable - but only on the same terms as war risks?

16. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Risk management cycle

17. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Risk management cycle IDENTIFY What risks exist ADMINISTER Analyse, monitor QUANTIFY & CONTROL Mitigate, reinsure, risk share, restrict FINANCE Price appropriately, hold capital

18. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Return on equity New capital - new RoE requirements Implied combined ratios Past performance CR%

19. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Basic principles Good information Underwriting standards Pricing Return on capital Relationships Risk management

20. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Commercial property and business interruption Data Policy conditions Earthquake cover Reinsurance Pricing the risk Relationships - risk management

21. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Liability NZ vs overseas Availability Data Policy conditions Pricing Relationships - risk management

22. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Motor NZ vs overseas Commercial motor Private motor Factors affecting costs

23. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Householders and other business Data Aggregation of risk Other factors Pricing

24. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate A flatter insurance cycle?

25. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate The Future: Keep on applying the basics or return to competition? Will standards fall? Will the insurance cycle continue and if so, will it be flatter?

26. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate The Future: What will the reinsurance market be in some years time? Will ART become more important in global insurance markets? How might ART affect the NZ market? What about captives?

27. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Regulation of general insurers Ratings Solvency Risk margins Powers of intervention by regulatory authorities

28. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Accounts and tax Accounting standards Taxation

29. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Actuarial Control cycles

30. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Actuarial control cycles Data analysis Premiums Reserves and risk margins Capital allocation and RoE Asset/liability modelling Risk management Actuaries can add value

31. Melville Jessup Weaver A Towers Perrin/Tillinghast Affiliate Closing thoughts Have insurance markets suffered severe shocks in the past and survived? Does the industry learn from its experiences and develop new strengths?