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Hurricane Cat Modeling: Tightrope or Catwalk?

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Presentation on theme: "Hurricane Cat Modeling: Tightrope or Catwalk?"— Presentation transcript:

1 Hurricane Cat Modeling: Tightrope or Catwalk?
Munich Re Hurricane Cat Modeling: Tightrope or Catwalk? STRIMA Conference Stefan Birkel Baton Rouge, LA Vice President & Chief Property Underwriter September 25, 2006 Munich Reinsurance America – Specialty Markets 08/11/2018

2 AGENDA Hurricane CAT Modeling: Tightrope or Catwalk? Underwriting
Munich Re AGENDA Hurricane CAT Modeling: Tightrope or Catwalk? Underwriting Information gathering Risk evaluation Proper terms & conditions Need for reinsurance Pricing External factors How can the insurer manage walking the tightrope? How can the insured manage walking the tightrope? 08/11/2018 08/11/2018

3 Underwriting – Information Gathering
Munich Re Underwriting – Information Gathering Risk information (here: property insurance) Description of insured’s operations Description & values of insured objects/interests Building / structures Contents / machinery & equipment Time elements (extra expense and/or business interruption) COPE – Information (construction, occupancy, protection, exposure) Geographical distribution Coverage desired (All risk vs. named perils) Unusual exposures (e.g. vacant buildings, transit, builders‘ risk) 08/11/2018 08/11/2018

4 Underwriting – Information Gathering
Munich Re Underwriting – Information Gathering Historical information Loss history (ground up) Exposure changes over time Risk management information Availability & quality of risk management support Loss control / inspections (incl. recommendations) Financial information 08/11/2018 08/11/2018

5 Underwriting – Risk Evaluation
Munich Re Underwriting – Risk Evaluation Data quality Insurance-to-value Non-CAT exposure evaluation Nat CAT exposure evaluation Terrorism exposure evalution Loss prevention effectiveness Risk management quality Insurer’s Accumulation 08/11/2018 08/11/2018

6 Underwriting – Proper Terms & Conditions
Munich Re Underwriting – Proper Terms & Conditions Coverage form / endorsements / exclusions Perils to be covered Limits / sublimits SIR / deductibles Valuation: ACV, NRV, functional replacement, agreed amount Impact of national or state insurance programs (e.g. Windpool, NFIP) Per Policy / Per Risk / Per Occurrence / Aggregates $ / % / days / Corridor / by Peril 08/11/2018 08/11/2018

7 Underwriting – Need For Reinsurance
Munich Re Underwriting – Need For Reinsurance Risk transfer Per risk Per occurrence Aggregate stop loss Alternative risk transfer vehicles/mechanisms Industry loss warranties (ILWs) CAT bonds / hedge funds Portfolio swaps (uncorrelated risk) (Note: The reinsurance industry paid approx. ½ of last year’s hurricane losses) 08/11/2018 08/11/2018

8 Pricing Pricing Exposure vs. experience rating Based on values
Munich Re Pricing Exposure vs. experience rating Based on values Based on terms & conditions Ground-up vs. layering CAT modeling Qualitative factors Pricing 08/11/2018 08/11/2018

9 External Factors External Factors CAT modeling adjustments
Munich Re External Factors CAT modeling adjustments Availability & price of CAT reinsurance Competition Rating agencies: Changing capital requirements reg. CAT Impact of new CAT capacity Investors’ expectations Regulation / legislation ....and then there is still the forecast of another active storm season in 2006 External Factors 08/11/2018 08/11/2018

10 How can the Insurer manage walking the Tightrope?
Munich Re How can the Insurer manage walking the Tightrope? Improve quality of risk information (not just a CAT issue) Manage exposure accumulations in CAT-prone areas Monitor & control portfolio frequently Refine underwriting strategies (e.g. lines, geographical spread) Optimize portfolio quality Use risk-sharing techniques (e.g. layer selection, reinsurance) Assist clients with loss prevention strategies/techniques Change policy terms & conditions incl. pricing Fund for anticipated increase in CAT loss frequency & severity 08/11/2018 08/11/2018

11 How can the Insured manage walking the Tightrope?
Munich Re How can the Insured manage walking the Tightrope? Provide quality data and full transparency of risk circumstances Re-examine / determine coverage needs (e.g. flood, EE/BI limits) Request / negotiate quotes for different terms & conditions (SIR/deductible, limits, aggregates, valuation) Address any risk shortcomings (e.g. secure roof, window shutters) Establish / test / improve disaster & business continuity plan Consult with your broker/carrier about options Commit to long-term relationship Bundle property with casualty Consider (different) layering of risk to attract different players Consider alternatives: captives, pooling, etc. 08/11/2018 08/11/2018

12 Thank you for listening. Any questions?
Munich Re Thank you for listening. Any questions? STEFAN BIRKEL Enjoy the rest of the conference! © Copyright 2006 Munich Reinsurance America, Inc. All rights reserved. The Munich Re America name is a mark owned by Munich Reinsurance America, Inc. The material in this presentation is provided for your information only, and is not permitted to be further distributed without the express written permission of Munich Reinsurance America. This material is not intended to be legal, underwriting, financial, or any other type of professional advice. 08/11/2018

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