Docstoc

A-long-tail-business

Document Sample
A-long-tail-business Powered By Docstoc
					A long tail business

Powan Li
SVP Energy Syndicate
Underwriting Support




Houston Marine Insurance Seminar 2004   1
SKULD today
                                          (New York)   Bergen     Oslo

• Six offices
• Personnel of 13
  nationalities
• Members in 64
  countries
• Vessels of 93 flags


                                          Copenhagen    Piraeus   Hong Kong

  Houston Marine Insurance Seminar 2004                                   2
  Powan Li
SKULD

From the Norse Mythology
• 3 Norns - the goddesses of fate
• They tended the ash Ygdrasil –
  one of the 3 roots fo the great
  World Tree
• Their names: Urd, Verdande and
  Skuld
• SKULD represented the future
  and governed the destinies of
  gods and mortals



 Houston Marine Insurance Seminar 2004   3
 Powan Li
SKULD Profile

    • Scandinavian-based P&I club
    • Member of the International Group of P&I Clubs
    • Market focus: Scandinavia, Europe, America and Far East
    • Diversified fleet (size & type)
    • Extensive in-house services
    • ISO 9001:2000 standard




 Houston Marine Insurance Seminar 2004                          4
 Powan Li
Main Product Lines and Classes

  MUTUAL Poolable

                                                Charterers           Offshore
   Owners                         Charterers
                                                Combined              units

        P&I                              P&I          P&I               P&I

                                                Charters liability
                                                    to hull


     FD&D                                FD&D        FD&D              FD&D

 Anc. covers                      Anc. covers    Anc. covers         Anc. covers

 Houston Marine Insurance Seminar 2004                                          5
 Powan Li
MUTUALITY – the concept
• Share the risks with others - even competitors
• Share the costs of large claims,
  not to be wiped out by one large claim
• An opening to charge more premium if claims ”go nasty”




  Houston Marine Insurance Seminar 2004                    6
  Powan Li
           Back calls                   Deficit _ surplus
           Adjust at next
           policy year                                             Free
                                                                 Reserves
            Deficit
                                Expenses             Financial   Surplus
           Financial
                                                      income
            income
                                                                 Expenses



           Premiums                Claims           Premiums
                                                                  Claims




Houston Marine Insurance Seminar 2004                                       7
Powan Li
Contingency reserves

       100                                                             4
        90                                                                          Reserves
                                                                3,1                 USD/GT
        80
                                                                       3
        70
        60




                                                                           USD/GT
MUSD




        50                                                             2
        40                                                       81
        30
                                                                       1
        20
        10
         0                                                             0
               1998          1999          2000   2001   2002   2003



   Houston Marine Insurance Seminar 2004                                                       8
   Powan Li
MUTUALITY – the concept
• Share the risks with others - even competitors
• Share the costs of large claims,
  not to be wiped out by one large claim
• An opening to charge more premium if claims ”go nasty”


• P&I clubs provide insurance at cost
• No proper profit/loss, but building up funds for a rainy day


• Mutuality requires; common quality criteria/norms



  Houston Marine Insurance Seminar 2004                          9
  Powan Li
The characteristic factors
• Loyal members
• Wide span of risk exposure
• IBNR – Incurred But Not Reported
• IBNER – Incurred But Not Enough Reported
• Long tail claims
• The longer the tail, the more costly the claims expenses
• Annual renewal based on L/R




  Houston Marine Insurance Seminar 2004                      10
  Powan Li
The relationship – member & Club

                     Long term trust and loyalty

                                         ?
                                     Compromising

                                         Price




 Houston Marine Insurance Seminar 2004              11
 Powan Li
                    Long term trust and loyalty
                                        Predictable
                                           ?
                                            &
                                  Price
                            Correctly assessed




Houston Marine Insurance Seminar 2004                 12
Powan Li
Skuld’s parameterised pricing tools


• Comprehensive data from all Skuld
• Comprehensive data from the past 10 to 15 years at least
• Claims costs for various categories
• Actuarial techniques (generalised linear models)




  Houston Marine Insurance Seminar 2004                      13
  Powan Li
Basic elements of the PREMIUM




                                         Admin. costs




 Houston Marine Insurance Seminar 2004                  14
 Powan Li
Administration costs
• The running of P&I Club entails costs;
    – Acquisition of new tonnage
    – Policy renewal & maintenance
    – Opening a new claims file &
      handling of same
    – Fund management
    – Overheads




  Houston Marine Insurance Seminar 2004    15
  Powan Li
Elements of the PREMIUM



                                         High profile claims




                                         Frequency claims

                                         Admin. costs




 Houston Marine Insurance Seminar 2004                         16
 Powan Li
Claim elements
FREQUENCY CLAIMS                           HIGH PROFILE CLAIMS
• Low value & cost                         • Rare and variable by nature
• Defined as upto                          • Wide range of values
  USD 250.000                                USD 250.000 - 4.25 billion
• Happen often, represent                  • Represent only 1% of Skulds
  99% of all cases                           total case load
• Predictable                              • Represent almost 50% of gross
                                             claims cost




   Houston Marine Insurance Seminar 2004                                   17
   Powan Li
Elements of the PREMIUM



                                         High profile claims




                                         Frequency claims

                                         Admin. costs

                                         Financial income



 Houston Marine Insurance Seminar 2004                         18
 Powan Li
Finance income

• Not the effect of return on Skuld’s reserves.


• But, the cash flow effect of taking a new member into our
  portfolio




  Houston Marine Insurance Seminar 2004                       19
  Powan Li
Elements of the PREMIUM



               +
                                         High profile claims
       UW
   consideration
               =
                                         Frequency claims
         Annual
        premium
                                         Admin. costs

                                         Financial income



 Houston Marine Insurance Seminar 2004                         20
 Powan Li
Policy year, premium & claims



12:00 GMT                                                    12:00 GMT
20/2 - 2004                                                  20/2 - 2005



   Premium=?
                                                      ROI=?
  Adequate or insufficent                          Bonanza or disaster


                                          Claims


  Houston Marine Insurance Seminar 2004                                  21
  Powan Li
Unexpected occurrence
• Not necessarily make the associated risks negliable
• No systematice pattern
• Hit randomly




  Houston Marine Insurance Seminar 2004                 22
  Powan Li
                +ve                         Small risk for
                                        ≠
historical record                           high profile claims




Houston Marine Insurance Seminar 2004                             23
Powan Li
THEORETICAL risk



  Risk                      = Probability x Consequence




 Houston Marine Insurance Seminar 2004                24
 Powan Li
The risks matrix
Consequence


 CATASTROPHIC




         SEVERE




    SIGNIFICANT




              MINOR

                                                                            Frequency
                        EXTREMELY                   REASONABLY
                                           REMOTE                FREQUENT
                         REMOTE                      PROBABLE

   Houston Marine Insurance Seminar 2004                                           25
   Powan Li
Risk PERCEPTION




   500 accidents                             1 accident
   with 1 fatality                       with 500 fatalities




 Houston Marine Insurance Seminar 2004                     26
 Powan Li
Claims development – a long tail perspective

                                          •IBNR: Incurred, but not reported
        Claims
                                          •IBNER: Incurred, but not enough reported
    120,0

    100,0

      80,0

      60,0
                                                                      PY 1
      40,0                                                            PY 2
                                                                      PY 3
      20,0                                                            PY 4
                                                                      PY 5
        0,0
              0     2    4     6    8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
                                              Accounting month


  Houston Marine Insurance Seminar 2004                                           27
  Powan Li
Policy year, open year, closed year
                                                        YEAR
 POLICY
                1995          1996        1997   1998          1999      2000      2001       2002
  YEAR

  1995


  1996


  1997


  1998
               Membership implies cover
               AND ongoing commitment
  1999            for the mutuality!

  2000



                                                 Fin yr= Pol Yr       + Changes on Earlier years


  Houston Marine Insurance Seminar 2004                                                              28
  Powan Li
Claims performance – an example
                                                                                Changes
                                                                                  since
                                                                               claims first
                     14000                                                      reported
                                                   Changes                                    Dev. Yr_ finan yr
                                                     since
                     12000                        claims first                                     1_1994
                                                   reported                                        2_1995
                     10000
 amount in $1,000




                                                                                                   3_1996

                       8000                                                                        4_1997
                                                                        *                          5_1998
                       6000                                 *
                                        *                                                          6_1999

                       4000                                      *                                 7_2000

                                                                                                   8_2001
                       2000                        *                                               9_2002

                                                                                                   10_2003
                               0
                                                                                                   11_2004
                                   1994 1995 1996 1997 1998 1999 2000 2001 2002
                                                                 Policy year



                    Houston Marine Insurance Seminar 2004                                                   29
                    Powan Li
Policy year, premium & claims



12:00 GMT                                                    12:00 GMT
20/2 - 2004                                                  20/2 - 2005



   Premium=?
                                                      ROI=?
  Adequate or insufficent                          Bonanza or disaster


                                          Claims


  Houston Marine Insurance Seminar 2004                                  30
  Powan Li
Deficits – how come?
• High profile claims?
• ’good fleets’ do not pay adequate premium?
• Insignificant contribution from sizeable fleets?
• Or??



Not necessarily a correlation among quality tonnage, sizeable
  fleet and underwriting profitability




  Houston Marine Insurance Seminar 2004                         31
  Powan Li
The assured wish
• Insurer having sufficient understanding to:
    –    His operation
    –    His business practice
    –    The related risks
    –    The cultural behaviour
    –    The market behaviour
• Insurer having:
    – Sufficient and comfortable security
    – Tiptop services


On less possible if any premium charged


  Houston Marine Insurance Seminar 2004         32
  Powan Li
The cyclical behaviour

                                                 Good result
                                   Higher
                                   premiums                    More
                                                               capacity

                      Tougher
                      terms                                       Wider
                                                                  terms
                              Less
                              capacity                    Lower
                                              Poor        premiums
                                              results


 Houston Marine Insurance Seminar 2004                                    33
 Powan Li
Insurance – the balancing act..




                           Premium               Claims
                                         Admin
        Invest.
                                         costs
       income




 Houston Marine Insurance Seminar 2004                    34
 Powan Li
Houston Marine Insurance Seminar 2004   35
Powan Li

				
DOCUMENT INFO
Shared By:
Tags: A-lon, g-tai
Stats:
views:14
posted:12/1/2009
language:English
pages:35
Description: A-long-tail-business