RDS Workshop - GIRO 2002 Robert Humphreys

Agenda Lloyd’s overview Regulatory RDS Specific RDS Impact of September 11th Possible future approaches Summary

Lloyd’s Overview Founded in capacity: £12.5bn Number of syndicates: 88 Number of brokers: 152 Premium income sources: 38% from US

History of RDS Introduced in 1995 Purpose of Regulatory RDS: syndicates demonstrate they can manage risk establish proper systems and controls in place syndicates choose appropriate events that reflect their exposures. Regulatory RDS broadly same since inception

Regulatory RDS 2002 USA Windstorm Marine Event Major North Sea complex Aviation collision Major risk loss Space storm Liability Political risks Second event

Major US Natural Catastrophes 1811New Madrid Earthquake$74bn 1906SF Earthquake$34bn 1926Great Miami Hurricane $46bn 1938New England Hurricane$15.5bn 1992Hurricane Andrew$20bn 1994Northridge Earthquake$14bn *2000 $ values

Lloyd’s Catastrophe Risk (1) Monitor market exposure to catastrophes Assess the resilience of the chain of security Input to the market rating Facilitate improved assessment of cat exposures across the market

Lloyd’s Catastrophe Risk (2) Difference between regulatory and specific RDS

Specific Scenarios (1) Lloyd’s greatest natural cat exposures are to US hurricanes/earthquakes Extensive practitioner consultation RMS & AIR helped specify the events and intensities Discussion with other cat modelling agencies and brokers re. their approach

Specific Scenarios (2) Florida windstorm and California earthquake specific scenarios in 2000 New Madrid scenario in 2001 N.European windstorm and Japanese earthquake in 2002

Specific Scenarios (3) Need data on best-estimate basis Understand difficulties faced by syndicates Encourage underwriting input RDS working party set up in 2001

Specific RDS - Florida Windstorm

Specific RDS - California Earthquake

Specific RDS - New Madrid Earthquake

Specific RDS - European Windstorm

Specific RDS - Japanese Earthquake

Lloyd’s readiness before the event Lloyd’s immediate response Focus on California earthquake and aviation collision Estimate of market and syndicates’ potential exposures Assessment of quality of reinsurance asset Impact of September 11 th

Possible future developments Flood Lower severity / higher frequency events Terrorism Other regions

Chairman’s Strategy Group (CSG) Cat exposure should be analysed using tools or methods approved by franchisor Each franchisee should manage to a minimum return period agreed by franchisor Maximum gross & net exposure to a single Lloyd’s specified RDS are up to 75% and 20% of capacity respectively Role of Lloyd’s Franchise Performance Director

Summary Data issues and validation Underwriting input Role of cat modelling agencies FSA proposals for risk-based approach Lloyd’s franchise concept