Monthly Archives: June 2011

Attention, sports fans: Return of the call

Major League Baseball is again offering call options for playoff tickets.

Recall last year you could plunk down $10 to $20 and buy the right to purchase playoff tickets at face value. I wrote about it here.

I guess response was strong, because now baseball is auctioning off the purchase rights. (Sorry, the auction ended June 27.) I assume baseball figures the average call option will go for more than $10 to $20.

I also note that all teams are participating this year. Last year, you couldn’t buy options for Yankees playoff tickets, presumably because the Yanks were a good bet to make division, LCS and World Series.

At the charming, nostalgic baseball site Pine Tar and Brickbats, Dan Berman doesn’t like the idea:

Major League Baseball evidently subscribes to the theory that there’s a sucker born every minute. And it’s hard to dispute that assumption based on the MLB postseason reservations auction.

Dan notes that people who buy options for losing teams end up with nothing and likens them to the handling fees that teams use to jack up ticket prices.

I, too, loathe handling fees, ever since I paid one picking up at will call.

But for the options scheme, I’m sanguine. Baseball could simply auction off playoff tickets and generate a lot more revenue than this system is likely to. But I think the sport is trying to capture some of the considerable revenue lost to scalpers while still giving “true” (read: impoverished) fans a chance to go to the big game.

It’s also a form of ‘legal’ gambling, sort of. If you think, say, the Brewers are all that, you can buy an option. When the Brewers win just like you thought they would, you can buy the ticket, then re-sell it at a scalper’s profit.

There also appears to be a secondary market, where you can buy our sell the options, which sounds kind of fun, as the value of an option would rise or fall with a team’s record and its prospects as the season wound down. It’ll act like a parallel set of standings, reflecting expected future performance as well as past.

Certainly the options would have come in handy for Mets fans a couple of years ago. They could have sold before their teams’ late-season collapses and taken the sting out of a couple painful years.


TweetWeek through June 26, 2011

Where was I?

  • Debate over Solvency II continues. There is growing view in London this could be a delay too far. Lloyd’s briefing next week should be good!
  • Now that Osama & Whitey have been found the FBI says it’s redoubling its search for Richie’s older brother on Happy Days
  • Bermuda reinsurer property catastrophe rates up 8-12%: Analysis | Business Insurance || But execs glum on casualty rates
  • EU Council proposes delaying Solvency II until 2014 – IFAonline || Lots of jockeying on this issue lately
  • Analysts Look at Challenges Facing Reinsurance Stocks || Coverage of CAS Reinsurance Seminar
  • Pricing Reinsurance Risks Abroad || CAS Reinsurance Seminar
  • Claim Costs From Lightning Continue to Rise; the Culprit Is Often Expensive Electronics :
  • Christchurch aftermath: Area split in four zones, with worst basically abandoned – || Maps here:
  • Anatomy of a Data Breach – || Nice Advisen/Chartis white paper on the scope of breaches, their cost and how to avoid
  • FSA hints on relaxed Solvency II deadline @Intelect_Ryan @_moneymarketing @ParaPlanScot #solvencyII
  • EU watchdog dismisses talk of delay to Solvency II | Reuters
  • Rep. Jim Boyd says @ insurance forum if you don’t like assessment now, after next storm will be worse. Storms won’t go away.
  • Aon: U.S. Insured Weather Losses Top $15.5 Billion This Year
  • Morgan Stanley: P&C insurers have $15B excess capital || ACE has $6.5B, Ren Re has $2.5B; AIG Global deficient $2B to $4B
  • Even Low Blood Alcohol Level ‘Buzz’ Unsafe for Driving: Study
  • Lawsuit over WTC tower collapse can proceed | Business Insurance
  • Solvency II news: Deadline Delay Fever Special « Solvency II Wire || Always excellent S-II site tracks the delay rumors
  • Latest New Zealand earthquake classified as new event for insurance purposes
  • Supreme Court rejects global warming lawsuit | Business Insurance || This and Wal-Mart – busy Monday at the Court
  • Supreme Court Denies Huge Sex Bias Class Action Against Wal-Mart
  • Chart of the Day: Rates at the bottom « Actuarial Opinions || Historical evidence for a hard market
  • Delay likely for Solvency II implementation – || 12-month delay would give companies, regulators time to catch up

The Week in a Minute, June 25


  • Q1 P/C industry results were tepid. Profit fell to $7.8B from $8.9B a year earlier. Combined ratio jumped to 103.3 from 101.1 a year earlier, which includes $4.5B (about four points) of favorable development on prior years. And this quarter has been no peach, with $15B in cat losses, more than double the $6.4B posted in Q2 last year. Details here, here and here.
  • Aon put the worldwide cat tab at $60B so far this year.
  • The Supreme Court turned away a lawsuit that could have left insurers holding the tab for global warming costs.
  • The Court also refused to certify a million-person discrimination class action against Wal-Mart, an action that could have sent shock waves through EPLI insurers.
  • A lot of wavering about Solvency II’s looming deadline. Financial Times reported that regulators were likely to postpone the 1/1/2013 implementation. Then the European uber-regulator said no way. Then a key Euro-governing body said yes, way. And the UK regulator said it would chill regarding deadlines.


More brilliant British goalkeeping:

Advisen: Q1 rates down 2.4% – and yet . . .

Rates are 15% higher than at the bottom of the last soft market, in 2000, according to Advisen’s Q1 survey. They peaked in 2004, 50% above the 2000 bottom.

Advisen’s index looks at four lines of business:

  • D&O, which is 38% above the 2000 bottom.
  • Property, 37% above the 2000 bottom.
  • GL, 4% below the 2000 bottom.
  • Workers comp, 2% blow the 2000 bottom.

Just a reminder: In AY2000, WC posted a loss ratio of 104%, according to industry Schedule P’s, and 2001 posted 94%. GL ran at 108% in 2000 and 111% a year later.

Sure hope claim frequency is way down, because I know severity isn’t.


Chart of the Day: Rates at the bottom

Evidence that a hard market is around the corner, if it’s not already here.

This chart, from a paper (pdf) by Shaun Wang and Jessica Leong, shows p/c insurance written premiums as a percentage of private sector GDP. Wang and Leong call this “total premium share” and use it as a proxy for rate increases, and on a macro level it works pretty well, picking up the hard markets of the mid ’80s and 2001-2002.

Now the Wang/Leong paper is not about rate adequacy. It was written to develop stochastic formulas to describe the underwriting cycle. Those formulas would drive a company’s capital model. But this chart seems to imply that rates fall to a certain floor (around 3.3% of private sector GDP), then rise.

And it shows that as of the end of 2009, rates were at or near bottom. Later in the paper, Wang/Leong model the next few years, forecasting slight rises each year (though the uncertainty bounds made it clear that rates could continue to fall).

Of course, there’s no discussion say why rates would bottom out at that particular point. Thinking about it in stock analyst jargon, it’s a technical indicator – like a head and shoulders or cup and handle pattern.

But in a stable industry like p/c insurance, one could argue that when premium gets that low, companies begin to realize rates are inadequate and begin to adjust accordingly.


TweetWeek through Sunday, June 19

  • S&P downgrades cat bonds issued by Montana Re…
  • Analyst Sees Possible Market Turn in Q1 Figures | PropertyCasualty360
  • State Farm’s spring storm tab tops $2B | Business Insurance || $1.75B paid already
  • Quantifying Incremental Damage and Losses from the June 13 Christchurch Quake || Eqecat explains its estimate.
  • Allstate’s April-May Catastrophe Losses Top $2 Billion
  • BBC News – Car industry declares victory in war on thieves || High-tech keys, GPS technology
  • HHS Sec Sebelius outlines possible CLASS Act changes; says they are consistent w/ those recommended by #Actuaries #hcr
  • CAS: Hurricanes, Sinkholes, Regulation Create Difficult FL Insurance Environment, Actuaries are Told || PR by yours truly
  • Industry redundant $22B at 12/10, Aon Benfield says || And – AIG is $0.5B redundant!
  • CMS actuary voices concern over reform measures – McKnight’s Long Term Care News || Blasts CLASS Act for L-T Care
  • NZ minister skeptical of Eqecat quake tab | The National Business Review (h/t III news feed)
  • Personal Lines Post 3rd Straight U/W Loss, Still Stable || Personal Auto: 101 CR with State Farm, 99 without
  • Predicted lifespan sank in many corners of the nation in the last decades, new study suggests.
  • Recent hacker attacks have more companies eyeing cyber risk coverage | Business Insurance
  • Florida Homeowners to Share $55 MIllion in Chinese Drywall Settlement || What Knauf knew
  • Academy of #Actuaries letter: Actuarial voice on insurance advisory committee is essential:
  • Eqecat: $3B to $5B tab from latest NZ aftershocks — Eqecat link: Strong Quakes Set Back Devastated Christchurch
  • Ezra Penland Actuarial Recruitment Launches in United States | Ezra Penland Actuarial Recruitment
  • Spectre of fraud haunts FL property market « Actuarial Opinions (h/t RiskMarketNews)
  • Largest data breaches of all time || Sony checks in at No. 4 – and No. 9
  • Former AIG reinsurer Transatlantic to merge with Allied World | Business Insurance
  • Jeremy Wagstaff: Cybercrime Comes to the IMF – || Secrecy should be the first casualty of cyberwar1 retweets
  • Spain Detains 3 in Hacking of Sony PlayStation –

The Week in a Minute, June 17, 2011

The News

  • Transatlantic, Allied World merge in $3.2B deal.
  • Brutal Q2 so far for Allstate, with cat claims hitting $2B. Travelers put its tab at $1B.
  • $55M settlement for Chinese drywall.
  • Another significant quake in NZ. Eqecat estimates $3B to $5B additional damage. Others (read to 6th graph) not so sure.
  • Commercial rates continue flat, Towers Watson says. But WC showing increases, even outside California.
  • U.S. p/c industry was $22B redundant as of 12/10, according to Aon Benfield. AIG – 10% of statutory reserves – was redundant $0.5B.


Kissing during the Vancouver Stanley Cup riots? That’s what it looks like. Post Weiner, viral investigators have shifted to the case. Update: Not a kiss.

Towers Watson: Most rates continue flat; WC rising

Towers’ measure of rate change has been basically flat for nine consecutive quarters. Oddly, the chart the consultancy provided doesn’t show the q1-2011 data point: [Update: Corrected chart now appears below.]

Biggest news was in workers compensation. CA WC has been rising for several quarters, but this survey showed comp rates rising outside of California for the first time in almost six years.

Property (!) rates were slightly lower, as was management liability (D&O). Commercial was up a sliver.

Small and mid-sized accounts rose a bit, while large account rates stayed flat.


Spectre of fraud haunts FL property market

Among the myriad problems the Florida homeowners market suffers: fraud-like behavior. (Via RiskMarketNews on twitter) Sayeth the Palm Beach Post:

The state requires insurers to issue discounts if a property is solidly built – credit for having hurricane shutters or specially installed straps to hold a roof in place. Only problem – most properties that get the credit don’t deserve it, based on inspections by Citizens Property, the state-run market leader:

Since the company started reinspecting with an eye toward catching deception, 65 percent of single-family homes have lost credits. Among commercial properties, 53 percent inspected were found to have discounts they didn’t deserve.

Other insurers are stepping up inspections. This isn’t too big a surprise – here’s a slide that Locke Burke, chairman and president of Security First, dropped at the CAS Spring Meeting last month:

The average reinspected home had been paying about $165 less than they should have. The average older home (pre-95) was underpaying by more than $300.

Hard to blame the property owners here, as they are only hiring inspectors, not submitting results. However there’s a contractor problem here. The Palm Beach Post notes:

Among the abuses noted by the state Office of Insurance Regulation were unqualified or unregulated inspectors, vague forms and a lack of documentation proving homeowners took the measures they said they had taken to harden their homes.

And it’s a shame. I support the credits. Construction makes a huge difference in being able to withstand a hurricane. I think every home in Florida should be retrofitted and inspected by a private-public consortium.

Tagged ,

For casualty rates to rise, you don’t need a catastrophe

W.R. Berkley sees the future of rate changes about how I do:

Berkley says he believes the market has already begun to turn. He says there is a misunderstanding among some that the market simply turns overnight. The reality, he says, is that in casualty lines, there is generally a level of unrest that builds, and then urgency increases over time.

In the previous soft-market cycle, Berkley says, the 9/11 attacks didn’t turn the market. He says the market had already been turning, and that event accelerated the turn in a dramatic way. Severe catastrophe activity later this year could have the same effect, he says.

Berkley sees rate increases already, and I haven’t. But his memory tracks mine.

Increases started in late 1999 or 2000 in professional liability lines, and it was driven by the realization that, yeah, the actuaries were right – prices were way, way too low. (The dotcom bust had an effect, as unrealized losses cost the industry billions.)

WTC was a shock, and I think the early estimates of losses from the attacks ($70 billion was the high; the true cost was about a third of that) certainly accelerated what was already happening.

Now, I’m not enough of an old-timer to remember what created the mid-80s hard market, but this old David Cummings paper gives a few clues:

We find that the atypical premium increases of 1984–1986 can be explained largely by the increase in expected losses during the period, the restoration of markups to more normal levels following the shock, and changes in interest rates.

The feds approached it differently in this paper, saying rates fell because interest rates rose, and insurers depended on the float to cover themselves. When interest rates fell, rates had to rise.

They also noted that tort theory shifted 1970s and 1980s, as joint-and-several liability and other tactics made insurance a way to make an injured party whole, even if the blame didn’t rest on the party the insurance company covered.

The important point: The ’80s hard market wasn’t driven by a catastrophe.

And a large cat doesn’t guarantee a hard market. Otherwise, casualty rates would have risen after Hurricane Andrew in 1992 and Hurricane Katrina in 2005.

A large cat is neither necessary nor sufficient to drive casualty prices. To believe so is to fight the last war.