Get documents about "A-long-tail-business
W
Description
A-long-tail-business
Document Sample
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
