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CASUALTY ACTUARIAL SOCIETY
2004 Annual Meeting
Montreal, Canada
November 16, 2004
Security and the Reinsurer
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Security and the Reinsurer
Presentation Format
I. Introduction
II. Brief Presentation
III. Panelist Q/A
IV. Audience Q/A
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Reinsurance Recoverable as a Percent
of Surplus
Source: Standard & Poors/Fitch
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Unsecured
% of SurplusIn Billions $
Unsecured
Secured Secured
Secured vs. Unsecured Reinsurance Recoverables
Source: Standard & Poors
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Provision For Uncollectible Reinsurance
Source: Fitch Ratings
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Source: Standard & Poors
Reinsurer Profitability Has Been Poor
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Source: Standard & Poors
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Where Has All the Ceded Gone?Direct Insurer Reserve Increases
(examples, asbestos alone)Ace Ltd. $2.2 billion (4Q 02 - gross of
reinsurance)Travelers Insurance Co. $2.7 billion (4Q 02 - net
of
reinsurance
Hartford Financial Services Group Inc. $3.9 billion(1Q 03 -
gross of reinsurance)
CNA Financial Corp. $642 million (1Q 03 - net ofreinsurance)
Chubb Corp. $250 million (4Q 03 - net of reinsurance)Source:
Standard & Poors
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Source: Conning & Co.
Historical Aggregate Recoverable Gap
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Global Premium/Rating Shift
Source: Morgan Stanley
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Source: Standard & Poors/AON
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Rating Trends: North America Reinsurance
Source: Standard & Poors
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US Reinsurers in 1993
Source: Standard & Poors
Transatlantic/
Putnam
Employers
Re
Scor U.S.Group
Prudential
Re
Skandia America
Reins
PMA ReinsCo.
American Re
Chartwell Reins
CoChatham Rein
Corp
General Re
Group
Signet Star
Reins Co
NAC Reins
Corp
Zurich Reins
Centre
Constitution
Reins
FolksamericaGroup
Frankoana Reins
Co
Axa Reins
Co
Tig Reins
Co
Gerling Global
Reins
Winterthur ReinsCoSorema NA
Reins Co
Toa RE
America
CIGNA
Reins
Cologne Reins
Co of Amer
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US Reinsurers Today
Source: Standard & Poors
Transatlantic/
Putnam
Employers
Re
Scor U.S.Group
Prudential
Re/ Everest Re
American Re General Re
Group
Signet Star
Reins Co/Berkley
Ins Co
NAC Reins
Corp
FolksamericaGroup
Axa Reins
Co
Tig Reins
Co
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Exit - Stage Right
Source: Standard & Poors
Notable Reinsurer that ceased underwriting over the last
several years
Gerling-Konzern Globale Rckversicherungs-AG (GKG) Trenwick
America Reinsurance Corp Scandinavian Reinsurance Co. Ltd.;
Commercial Risk Reinsurance Co. Ltd. and Commercial Risk Re-
Insurance Co.AXA Corporate Solutions Reinsurance Co. and AXA
Corporate Solutions Life Reinsurance Co.
PMA Capital Insurance Co. CNA Re
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Exit - Stage Left
Notable Spin-Offs/Renewal Rights Sales
Zurich Re/ConveriumSt. Paul Re/PlatinumHart Re/Endurance
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Still on Stage
Notable Recent Downgrades
ScorConverium
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New Capital Post 9/11 (as of May 21, 2002)
$ Billions
Capital Raised: 2001 $20.5 2002 $4.1
Total $24.6 Bermuda Start-ups: $8.5
Source: Guy Carpenter
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Not All Reinsurers Will Survive
Balance Sheet Repair Efforts will be HinderedNew Capacity
Market Showing Signs of Turning Ample Capacity Available at the
Right Price
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Conclusion
Reinsurance Recoverables make up a significantportion of
policyholder surplus
Cedants and Rating Agencies are concerned withthe financial
strength of reinsurers
The game has changed and the pace of change hasincreased.
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Security and the Reinsurer
2004 CAS Annual Meeting
Montreal, Canada
November 16, 2004
Panelist Questions
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Security and The Reinsurer
Is the focus on reinsurers security a new phenomenon
or is it an old issue?
What is your perspective on the history of reinsurers
security?
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Security and The Reinsurer
How should reinsurance buyers evaluate reinsurers
security?
What things should they look at and what methods
should they employ?
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Security and The Reinsurer
How should buyers differentiate between reinsurers
with different credit quality?
What are common existing practices and what are
some ideas for the future?
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How has the insurer/reinsurer relationship changed
over the last decade?
What has led to the change?
How has this impacted reinsurer security?
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Security and The Reinsurer
In the last decade there have been many innovations
in the ways to manage run-off insurer and reinsurer
businesses. How have these innovations impacted
the security of reinsurance recoverables?
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Security and The Reinsurer
Do so-called ratings triggers in reinsurance contracts
help mitigate credit risk or do they exacerbate the
credit exposure?
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Security and The Reinsurer
In recent discussions on managing the cycle, the concept of
capital management has been raised as a tool to help reduce
the amplitude of the cycle. In fact, several reinsurers have
recently initiated share buy backs and increased dividends
as
a way to return capital to shareholders as they perceive
opportunities to deploy that capital to be more limited. Dosuch
capital management strategies help or hurt the security
of the reinsurance recoverables?
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Security and The Reinsurer
What is the current quality of reinsurance recoverables
in general?
Is it getting better or worse in 2004?
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What methods should cedants use to establish a
provision for reinsurance unrecoverable?
Is there a consistent approach used or are there big
differences from company to company?
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Security and The Reinsurer
What methods should cedants use to build the cost of
uncollectible reinsurance into their rates?
Are these methods accepted by regulators in the rate
filing process?
