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Umbrella Liability – Current Market Observations Gerry Palisi, FCAS, MAAA Aspen Insurance Holdings Ltd. Umbrella Rate Change • CIAB 1Q2008: -13.5% (premium change) • Marketscout.com April 2008: -12% (premium change) • Assuming an overall increase in exposure levels, corresponding rate change would be worse • Assuming new business not fully included, overall rate change would also likely be worse • Construction Segment: is the exposure decline commensurate with the premium decline? Umbrella ELR Dilemma • ELR is often a pegged, selected, or imputed value, rather than one based on credible loss data • Small/regional umbrellas, and high attaching capacity excess, are both frequently loss free for most/all years • Given large negative rate changes (-10% or greater) and leveraged trend (approx 10% or more), how should a “selected” ELR change year-to-year? • For low frequency/high severity lines like Umbrella or High XS, where proportional structures are common, is the ELR a good metric for decision-making? • If the “true” ELR is 20%, should we be using it? Miscellaneous • As underlying rates & premiums drop, cedants seek increased ceding commissions on QS and Cessions • Have yet to see any cedant rate change data showing changes of -10% or worse. Why? • Do management “floors” on rate decreases help or hurt? • Softening rates are preferable to softening terms & conditions, or softening underwriting • It could be worse – you could be an umbrella facultative underwriter! Q&A • Questions for our panelists?
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