Current Events in Marine & Energy CAS 2006 Annual Meeting-Session C8 Chris Steinbach, FCAS, MAAA Chief Actuary Navigators Insurance Group Henry Newman, ACAS, MAAA Head of Pricing Navigators Insurance Group

AIMU American Institute of Marine Underwriters

Industry trade association US insurers and reinsurers, International trade Marine industry advocate, educator, information center –Surveyors (claims handling) –Maritime matters, media, legislation, courts –Congressional testimony –Safety –Crime prevention Industry trade association US insurers and reinsurers, International trade Marine industry advocate, educator, information center –Surveyors (claims handling) –Maritime matters, media, legislation, courts –Congressional testimony –Safety –Crime prevention

AIMU Current Industry Data Operating ratios –By class (Cargo, Hull, Yacht, etc.) –Calendar year Hull, Cargo Income Cargo losses, 2001 Operating ratios –By class (Cargo, Hull, Yacht, etc.) –Calendar year Hull, Cargo Income Cargo losses, 2001

AIMU Data Issues Calendar year –Reserve distortions –Pricing cycle Class definitions Net vs. gross Calendar year –Reserve distortions –Pricing cycle Class definitions Net vs. gross

AIMU F acts and Figures Committee Actuaries, underwriters, other marine experts Accident year data –Paid, incurred –Triangles –Gross –Annual statement “equivalent” Actuaries, underwriters, other marine experts Accident year data –Paid, incurred –Triangles –Gross –Annual statement “equivalent”

AIMU Needs for Additional Data Underwriting predictability via Fair premiums (loss, profit, risk load) Reserving issues –Establishing claims departments –Insured loss control (mitigate and reduce losses) Insured’s protection of assets via effective insurance Manage the business better Underwriting predictability via Fair premiums (loss, profit, risk load) Reserving issues –Establishing claims departments –Insured loss control (mitigate and reduce losses) Insured’s protection of assets via effective insurance Manage the business better

Katrina Liability Claims

PEMEX’s PSS Chamul Rig was at Bender Shipyard for repairs During storm, rig broke lose and crashed into a dock and a bridge Government is suing PEMEX and Bender for damage to dock and bridge PEMEX is suing Bender for damage to rig and their liability to the government Rig was at Bender Shipyard for repairs During storm, rig broke lose and crashed into a dock and a bridge Government is suing PEMEX and Bender for damage to dock and bridge PEMEX is suing Bender for damage to rig and their liability to the government

Industrial Canal Levee Failure Ingram Barge #4727 in the custody & control of Lafarge Boat Yards Barge in the Industrial Canal next to a levee for safe berth during storm After the storm, the barge was on the wrong side of the levee Did the barge contribute to the failure of the levee? Ingram Barge #4727 in the custody & control of Lafarge Boat Yards Barge in the Industrial Canal next to a levee for safe berth during storm After the storm, the barge was on the wrong side of the levee Did the barge contribute to the failure of the levee?

Mississippi River Gulf Outlet (MRGO) Army Corp of Engineers built the canal in the 1960s by dredging wetlands The assertion is that the canal contributed to the loss of wetlands, which exacerbated the storm damage It is an environmental claim, which permits a continuous trigger Both the Corp and private dredging contractors are named Army Corp of Engineers built the canal in the 1960s by dredging wetlands The assertion is that the canal contributed to the loss of wetlands, which exacerbated the storm damage It is an environmental claim, which permits a continuous trigger Both the Corp and private dredging contractors are named

Katrina still has a tail left... Most lawsuits still in the discovery phase Even the simplest motions have yet to be ruled upon Class actions are proceeding first and opt- outs will follow Pollution claims are only being filed now Most lawsuits still in the discovery phase Even the simplest motions have yet to be ruled upon Class actions are proceeding first and opt- outs will follow Pollution claims are only being filed now

PAY ATTENTION While many of these suits appear to be longshots... These are the nation’s best plaintiff lawyers People need compensation and this is Louisiana While many of these suits appear to be longshots... These are the nation’s best plaintiff lawyers People need compensation and this is Louisiana

How the Market Responded Rate increases of 50%+ Wind sublimits Business Interruption coverage now excluded (must be purchased separately) Rate increases of 50%+ Wind sublimits Business Interruption coverage now excluded (must be purchased separately)

Current Events in London

Why does London Market Exist? Technical Expertise Responsiveness Capacity Low Price Central Fund Guarantee Rate & Form Flexibility World Wide Licenses Capital Advantages Ease of Entry & Exit London is fun to visit Technical Expertise Responsiveness Capacity Low Price Central Fund Guarantee Rate & Form Flexibility World Wide Licenses Capital Advantages Ease of Entry & Exit London is fun to visit

Lloyds Franchise Committee Business plans must be filed and approved Business plans are being refused by Lloyds You must stick to your business plan or re-file it Enhanced reporting requirements – especially for rate monitoring Enhanced audits by Lloyds Business plans must be filed and approved Business plans are being refused by Lloyds You must stick to your business plan or re-file it Enhanced reporting requirements – especially for rate monitoring Enhanced audits by Lloyds

Internal Capital Assessment (ICA) Required by the UK regulator (FSA) Consists of an ERM-style identification of risks followed by an actuarial DFA-style quantification of the risks No guidance provided as of yet Our rating agencies are promoting something similar in the US Required by the UK regulator (FSA) Consists of an ERM-style identification of risks followed by an actuarial DFA-style quantification of the risks No guidance provided as of yet Our rating agencies are promoting something similar in the US