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 1688 2002 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

1811 New Madrid Earthquake $74bn 1906 SF Earthquake $34bn

1926 Great Miami Hurricane $46bn

1938 New England Hurricane $15.5bn

1992 Hurricane Andrew $20bn

1994 Northridge 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

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####

#

San FranciscoQuake

Los AngelesQuake

California

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

## Miami

Dade County

Saffir-Simpson Category< CAT 1 (<74 mph) CAT 1 (74-95 mph) CAT 2 (96-109 mph) CAT 3 (110-129 mph) CAT 4 (130-155mph)

Specific RDS - California Earthquake

Los Angeles#

Santa Monica Fault

Intensity (MMI )I to I I IIV to VVI to VI IVI I I to I X> X

Specific RDS - New Madrid Earthquake

#

#

#

#

#

Memphis

Sikeston

Clarksdale

Blytheville

Little Rock

Missouri Illinois

Kentucky

Tennessee

Mississippi

Arkansas

I ntensity (MMI )VVIVI IVI I II X

Specific RDS - European Windstorm

Specific RDS - Japanese Earthquake

Not Affected

Intensity MMI5-66-77-88-99-10

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 11th

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