Tag Archives: Rates

Cat (model) fighting

Guy Carpenter recently had a nice briefing on RMS’s movement to version 11 of its North America hurricane model. RMS is the market leader in cat modeling and its changes will influence what reinsurers charge for property covers. That, in turn, will affect the consumer price for homeowners and commercial property insurance.

According to the conventional wisdom – well, RMS’s own wisdom – the new model should decrease losses close to shore while increasing them inland – a bit of a reaction to Hurricane Ike in 2008. Cat costs in Texas and the Carolinas were projected to rise while Florida would catch a break.

In a bit of death by meta-ing, the reality of what the models actually revealed often differed from what RMS said the models would reveal. A company’s Texas portfolio might fail to show the predicted increase while its Florida portfolio would see model losses increase. GC’s brief basically says that RMS projected a broad result and your mileage may vary.

As evidence, GC publishes two graphics that compare the two leading models – RMS’s latest and AIR Classic – in estimating losses in Florida’s portfolio. (GC got the data from the Florida Commission on Hurricane Loss Projection Methodology.)

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MarketScout: Rates move ‘out of the doldrums’

Not the news I’d pick out of a 4% rate decline in March, but then I’m not MarketScout.

But the good Scouters note that workers comp rates are increasing in some states and cat exposed property risks are rising 2% to 5% since the Tokyo quake.

Large accounts realized decreases of 5% or more.

More here.


New quake estimate: Enough to harden market, not crush it

Towers Watson weighs in: $20 billion to $45 billion for the quake and tsunami. But the tragedy “will not have a devastating effect on either the capital of the Japanese insurance industry or the international reinsurance market.”

The range is wider and, overall, higher than either Eqecat or AIR estimates. Unlike AIR and Eqecat, the estimate isn’t heavily dependent on computer models. It relies on Tower communications with clients and on the Japanese government’s estimate of $300 billion in economic losses. (Generally at some point, insurer estimates rely less on models and more on assessments at the scene.)

It also assumes that 50% of residences affected had purchased quake and tsunami protection. That’s a higher take-up rate than I’ve read elsewhere.

The loss breaks down this way. (Figures don’t quite add up because of rounding, and yen are convered to dollars at 82 to 1.):

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Commercial rates flat, Towers says

It’s the eighth consecutive quarter (actually a 1% decline).

Five lines – commercial property, professional liability, D&O liability and EPLI all showed declines for the fifth quarter in a row.

Small and mid-market accounts were flat; large and specialty accounts showed declines.

The survey also indicated AY10 loss ratios are 5 points higher than in 2009, which were themselves 2 points higher than 2008.

Claim cost inflation was 4%, in line with long-term averages. (Last year claim cost inflation was -2%.)

Quoth Bruce Fell, director of Towers P&C practice in the Americas: “Our survey results for 2010 support the contention that the economic recovery will be accompanied by higher cost trends, and those estimates could increase if additional ‘catch-up’ from 2009 negative trends — beyond a return to long-term averages — would occur with rebounding economic conditions.”


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Commercial rates fall 5%: MarketScout

Rates on small accounts fell 1%. On accounts $1 million and more, they fell 6%.

In other news, sun rose in East.

Via Business Insurance.


Another win for predictive modeling

Towers Watson again hails predictive modeling. National Underwriter summarizes:

Nearly 90 percent of U.S. insurance companies said the use of predictive modeling enhanced rate accuracy in 2010, according to the results of a survey conducted by Towers Watson.

The global professional services company reported that 70 percent of companies said the same in 2009. The use of predictive modeling in the U.S. is up about 10 percent across all lines of business except commercial property/business owners packages.

The survey indicates the use of predictive modeling continues to gain momentum. For example, 76 percent of the companies surveyed said they realized an improvement in loss ratio compared to 57 percent the previous year, and 68 percent said it improved profitability compared to 55 percent in 2009.

Neither NU nor Towers Watson mention it directly, but modeling is not only penetrating deeper into its original market, personal auto, but insurers are also broadening its use across lines, including into commercial business. Now, 32% of workers comp companies use predictive modeling, vs. 18% a year ago.

The emergence as a commercial lines tool is an important change. Commercial lines has used a (very) crude form of predictive modeling for decades, schedule credits. Underwriters of course, credit and (occasionally) debit insureds for indiosyncrasies in their business or the quality of their risk controls. Predictive modeling just puts quantitative controls on the process, precisely granting the credit and monitoring its effectiveness.

Of course, some could see the model as a threat to underwriters’ discretion, and that might help explain why BOP was the only line of business where use didn’t increase more than 10 percentage points. But really the models supplement the underwriter’s work more than replace it.

Finally, the Towers survey shows that regulators are good about approving models, but not so good about keeping details secret:

When asked how often they have encountered difficulty securing regulatory approval for new iterations of pricing predictive models, nearly half (49%) said less than 10% of the time, while an additional 31% said it occurs only 10% to 25% of the time. However, when filing for regulatory approval, 48% said they face challenges in keeping the details of their predictive models proprietary and confidential at least 25% of the time.

(Towers summarizes its survey here.)

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RIMS: Rates flat in Q4

Via Business Insurance.

D&O rates fell 4.6% overall, 5.1% for large companies and 2.4% for small companies.

GL, property and workers comp policies renewed at no change.

But these are renewals at already low rates:

“We have seen more carriers exercising underwriting discipline—walking away from business that does not meet their pricing targets—but it is still a very competitive market,” Robert Cartwright, loss prevention manager for Bridgestone Americas Holding Inc. in Exton, Pa., and a member of the RIMS board of directors, said in the statement.

He said that while premiums have stabilized in recent quarters, they still lag 2003-2004. “In some lines, they are back to where they were during the soft market of the 1990s. It remains a buyer’s market,” Mr. Cartwright said.

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CIAB: Rates fell 5.4% in Q4

Not much different from -5.2% last quarter. Via Business Insurance.


On rates: What will turn the market?

Moody’s agrees with other reports: Rates on Jan. 1 renewals of the reinsurance market are down between 5% and 10%.

So the story is both depressing (from a reinsurer’s POV) and monotonous (from a blogger/journalist’s POV). So, a couple of twists:

  • Moody’s also doubts that the new version of the catastrophic model RMS will turn the market. RMS is the leader in modeling catastrophes and its post-Katrina work helped drive the last big jump in property rates. But RMS is telling the Wall Street Journal (NO sub req) that the new model, due out in a couple of months, will drive exposures significantly higher inland, while possibly giving coastal exposures a break.
    The 1-in-100 storm for a typical insurer could rise 15% to 25%, with exposures in Texas and the mid-Atlantic states shooting up even more. As far as I know, reinsurers weren’t using the leaked RMS information to increase rates, so when the information does flow into reinsurer’s computers, things could get interesting.
    Offsetting this is a tendency for reinsurers these days to prefer short-term risks, like property. It’s tough these days to justify buying bonds at today’s low interest rates to support long-tailed casualty business.
    Meanwhile, most insurers acknowledge that homeowners rates are too low, a point touched on in this story about CEO reaction to the looming model change. The rate inadequacy, though, is caused by underpricing risks in non-coastal states, something that cat modelers haven’t convinced the industry that they do well. And I think it would take a big jump in Texas exposures to create a shortage of capital to support the market in, say, Montana. But it is a dynamic market, so a change in one place can affect other places.
  • In a non-cat vein, stock analyst Keefe, Bruyette and Woods, said the market could harden “sooner than many anticipate.” However, from the report I saw, it looks like that is a single line, perhaps a throwaway, in a much longer report. I’d be curious what reasoning they were using.
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Guy Carpenter: Reinsurance rates lower

Nice chart from GC’s Capital Ideas summarizes the reinsurance renewal season:

A time for renewal

Fancy way of saying “Rates down 5 to 10%.”