Post on 09-Jan-2019
transcript
Slide 2
The boundaries of the London
Market are not clearly defined.
Lloyd’s of London.
– Syndicates operating under the Lloyd’s franchise.
– Lloyd’s capital is sourced World Wide.
– The majority of Lloyd’s premium income is from the U.S.A.
Companies.
– Members of the Insurance Underwriting Association of London (I.U.A.)
– Other companies with London underwriting offices.
– European Economic Area (EEA) licensed insurers and reinsurers.
– Contact offices of foreign companies not authorised to transact business in the United Kingdom.
Protection and Indemnity Clubs
Marine intermediatePeter TownsendSwiss Re Academy
Chain of security pre 1992
Syndicate results premiums exceeding claims
Call on “Names” (unlimited)
Lloyd’s Central Guarantee Fund
Historical Constitution of a Syndicate
No assets (Assets held by Managing Agency)
12 month business annually recapitalised
100% dividend policy
3 year accounting system
Reinsurance to Close (RITC)
What is a “Name”
High net worth individual
Asset rich (not necessarily cash rich – eg farmers)
Earn 3 times
– Premium > Claims
– Investment income
– Capital appreciation
Pledged money as a guarantee
Gearing
Unlimited liability
Role of the Members Agent
Administer the Names assets
Assess individual syndicates for profitable investment
Balance portfolio
Rot setting in.....
Members agents fees
Back year under reserved
– Asbestos
– Pollution
– Health hazard (occurrence liability)
Reinsurance (excess of loss)
The placement
Occidental
36.5%
Texaco
23.5%
Thompson N Sea
20%
Union Texas
20%
Before
R/I
London 60%
USA 10%
Scand. 10%
Bermuda 15%
Mid. East 5%
After
R/I
London 80%
USA 5%
Scand. 5%
ROW 10%
The Spiral
How
Winners and losers
Retentions at the bottom
Retentions at the top
Reinstatement premiums
Bad debt
Risk
Risk
Risk
Risk
Risk
Risk
Risk
Insurer
XL Direct XL on XL (1st Tier)
XL on XL (2nd Tier)
XL on XL (3rd Tier)
XL on XL (3rd Tier)
XL on XL (3rd Tier)
Change in the constitution of
Lloyd’s
Asbestos and pollution
87J
Exxon Valdez
Piper Alpha
Northridge quake
Hurricane Hugo
Cat 90a
Slide 17
Lloyd’s losses from 1988 to 1992.
Conversion factor £1 = US$ 1.55
Source : The Truth about Lloyd’s who sourced the figures from Lloyd's Global reports or press statements.
Change in the constitution of
Lloyd’s
Traditional “Names” badly hit
Equitas “ring fencing”
Unlimited liability replaced by limited liability
Corporate capital
Actuarial developments
– Risk based capital
– Realistic Disaster Scenarios
Back to the future
Demise of unlimited “Names”
Brief introduction of spread vehicles
Demise of spread vehicles
Evolution to a market of corporate capacity
Growth of dedicated capacity
A market of insurance companies
Now over 95% of capacity is corporate
Change in the constitution of
Lloyd’s
•1995 Reconstruction and Renewal (R & R) announced; settlement to names and creation of Equitas to reinsure 1992 and prior liabilities.
•1998 U.K. Government signals that future regulation of Lloyd’s will fall under the Financial Services authority (F.S.A.)
•2003 Lloyd's implemented a new franchise model in 2003, which changed Lloyd's status from that of regulating the market to that of commercially managing the market.
Slide 22
Lloyd’s Franchise.
The Franchise model started in 2003.
The FSA now regulates Lloyd’s
The Corporation of Lloyd’s changed from being a regulator to being a commercial manger.
It has three objectives
An environment that encourages a long term return to capital providers.
To make Lloyd’s the market of choice for its stakeholders (Capital, Brokers, Underwriters and policyholders).
To have well managed and disciplined businesses.
It has four main activities.
Performance management
Capital management.
Risk management
International Licences & Brand
The franchise board has sharp teeth. The Lloyd’s franchise has been withdrawn from some operators.
Benefits of Lloyd’s
Small capital input
Lloyd’s sovereign S&P rating currently A+
Market
Centre of expertise
Worldwide licences
Slide 27
London Company Market
Insurers and Reinsurers operating within the City of London.
–Members of the IUA ( which was formed from the merger of LIRMA and the ILU)
–Other Company Offices.
–European Economic Area Companies.
–Contact offices ; not authorised to accept business within the UK.
These companies used to be based in the London Underwriting Centre or the ILU building, but are now more widely dispersed with the City. Swiss Re is a typical example of this.
The Association of British Insurers (ABI) represents UK insurers wider interests outside of the London Market.
Slide 28
Marine companies in London have
reduced but are now stable
The ILU used to have in excess of 100 active members.
At the of the merger with LIRMA there were 46 members.
Following withdrawals, mergers and takeovers the number of companies writing Marine business in London is now 15.
Major players are Royal and Sun Alliance (RSA), Swiss Re UK, Allianz, Zurich, Lancashire.
Constitution of P&I Club
Non profitmaking - Mutual organisation of shpowners
Cover for liabilities arising out of management and operation of the ship
Exposure:
– Crew liability
– Pollution liability
– Collision liability
– Cargo
– FFO
– ROW
History of P&I Clubs
Originally formed in 18th Century following 1720 Statutory monopoly – Lloyd’s and 2 companies
Monopoly repealed 1824
De Vaux v Salvador (1836) judgement that shipowners were liable to third parties following collision
Hull underwriters only offered 3/4ths RDC
Lord Campbell’s Fatal Accidents Act 1846 – Crew liabilities
Employers liability Act 1880
Shipowners' Mutual Protection Society set up in 1855 to provide the shipowners with a solution.
The International Group
Insure 90-95% of World’s tonnage
Committee = shipowners
Managers – undewriting/claims handling/advice/investment
Cover
Loss of life/PI to Crew or 3rd Parties
Loss/damage to cargo
Hospital/Medical/Funeral/Repatriation expenses
Death /injury expenses. Deviation etc
Life salvage
1/4th RDC
Loss/damage to third party vessel without damage to vessel (ie wavewash or causing another vessel to swerve and then damage...)
Cover
Quarantine expenses
Cargo’s proportion to GA and Salvage not recoverable from cargo due to breach in contract of carriage
Renewal date – and limits
20th February and Group R/I on same date
Until 20th February 1996 cover unlimited (except oil pollution which limited to USD 500 million a.o.acc/occ)
Partially Protected by R/I
Now limited. Vertical limit poss “target” for claimants, so compromise.
Based on 1976 Limitation Convention
Individual Owner’s liability – Calculate limitation amount entire fleet under the 1976 convention and max liability = 2.5% of that figure Est USD 4.25 billion depending on ROE USD-SDR
Slide 36
P&I Clubs
Direct or Broker
Application form for membership
No policy issued, instead a certificate of entry
Club Rules
No reserves as non-profit making
Non – competition agreement
Pooled losses excess of USD 8 million
Slide 37
Premium
USD per GRT entered (Or Contributing tonnage)
= Estimated Total Cost
ETC + Investment income less expenses
– = Anticipated Cost of Risk
Apportioned (depending on loss record) over the membership
Slide 38
Premium
Total Cost
First two calls:
– Advance calls - paid in the year of account
Final instalment – supplementary call
– Payable approx 18-24 months (if at all)
Investment income accrued
Release calls
Slide 39
Reinsurance
Retention
Pool
Captive
Group XL
Pollution limited to USD 1 billion
Non poolable risks
Slide 41
International Group P&I
Slide 42Chartered EntriesOwned Entries
Protection and Indemnity
US$ 1,000m
Collective Overspill Protection
One Reinstatement
Fir
st G
en
era
l Exc
ess
Un
lim
ite
d R
ein
sta
tem
en
ts
Fir
st G
en
era
l Exc
ess
Un
lim
ite
d R
ein
sta
tem
en
ts
US$ 30m
US$ 22m
US$ 8m
Upper Pool – Reinsured by Hydra
Third General Excess
Unlimited
ReinstatementsOil Pollution
Second General
Excess
Unlimited
Reinstatements
Lower Pool
US$ 30mPool - Reinsured by Hydra
US$ 290m
Protection and Indemnity
and Oil Pollution
International Group of P and I Associations
General Excess of Loss Reinsurance Contract Structure
Owned and Chartered Entries
(including Overspill Protection, Hydra Participation, Pooling and Individual Club Retentions)
12 months at Noon GMT 20th February, 2011
Lower Pool
First General
Excess
Unlimited Reinstatements
First General
Excess
Unlimited Reinstatements
Co
insu
ran
ce
25
%
Re
insu
red
by
Hyd
ra
Co
insu
ran
ce
25
%
Re
insu
red
by
Hyd
raSecond General
Excess
Unlimited
Reinstatements
Co
insu
ran
ce 2
5%
Re
insu
red
by
Hyd
ra
Individual Club Retention
Lower Pool
Individual Club Retention
First General
Excess
Unlimited Reinstatements
Pool
Pool – Reinsured by Hydra
Pool
US$ 3,060m
US$ 2,060m
US$ 1,060m
US$ 560m
US$ 8m
US$ 30 m
US$ 60 m
US$ 1,000m
US$ 500m
US$ 500m
US$ 22m
US$ 8m
Options
Non-poolable risks
– Eg Freight Demurrage and Defence (FD&D)
– Legal expense cover for Owners in their disputes with charterers and others
– Strikes cover
– Contractual liabilities
Fixed premium
Extensions of cover (eg navigating port risks)
EU commission
The European Commission has opened formal proceedings to investigate whether certain provisions accompanying claim-sharing and joint-reinsurance agreements in the marine insurance sector might infringe European Union antitrust rules.
The Commission fears that the provisions at stake in the agreements between the Protection & Indemnity Clubs (P&I Clubs) within the International Group of P&I Clubs (IG) may harm ship owners and the insurers that are not members of the IG.
Slide 45
The aim of the procedure is to examine whether certain provisions of the agreements may lessen competition between P&I Clubs as well as restrict, to a certain extent, the access of commercial insurers and/or other mutual P&I insurers to the relevant markets.
The opening of antitrust proceedings does not imply that the Commission has conclusive proof of an infringement, rather that the Commission will conduct an in-depth investigation of the case as a matter of priority. The Commission opened the investigation on its own initiative. The companies will have ample opportunity to give their views and comment on the Commission’s proceedings before a final conclusion is reached.
Slide 46
EU commission
Capital Challenges
Basel Capital Accord (Solvency 2)
Individual Capital Assessment
Capital adequacy
– Reflect business written
– More transparency
– Earlier regulatory intervention
– Closer alignment of capital with risks
Minimum Capital Requirement
Ultimate Loss Ratios
Net Premium Income for a policy year by the sum of the net claims paid out to policyholders plus the Minimum Reserve Requirements.
18% of premium written up to €50m plus 16% of premiums above €50m.
26% of claims up to €35m plus 23% of claims above €35m.
Slide 49
Enhanced Capital Requirement
Asset related values x Relevant asset values (%) = X
Insurance related values x Relevant tech. provision factors (%) = X
Net written premium x Relevant premium factors (%) = X
Total ECR (before equalization adjustment) = X
Slide 50
Individual Capital Assessment (ICA)
Calibrated to BBB+
0.5% probability of ruin
Stochastic analysis
Realistic Disaster Scenario
Slide 51
Realistic Disaster Scenarios
Los Angeles Earthquake
USA windstorm
European Storm/Flood
Japanese Earthquake
Marine Collision
North Sea - Loss of major complex
Aviation collision.
Percentile Ranges for Net Underwriting Income
(150,000)
(100,000)
(50,000)
0
50,000
100,000
150,000
Gross Current Option 1 Option 2
Structure
Ne
t U
nd
erw
riti
ng
In
co
me
1%-5%
5%-25%
25%-50%
50%-75%
75%-95%
95%-99%
x
* Cost of Risk refers to the sum of premium paid and the expected claims experienced
through the retained risk. As the degree of protection (and premium) falls, the expected
cost of risk generally declines…
Distributions of Cost of Risk
0 5 10 15 20 25 30 35
Program 1
Program 2
Program 3
Program 4
Program 5
Program 6
Program 7
Program 8
Program 9
Program 10
Cost of Risk (£ Millions)
No CoverMean Cost of
Risk
Full Cover
Example of Presentation of Results as Cost of Risk