Post on 31-Dec-2015
Evaluating Claims Costs Arising out of Political Disorder and Civil Unrest
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
What is this all about?Focussed on the business political and social issuesand how to make a number out of thatHelping people make decisions they didnt think they could makePoint is to enable people to crystalise thinking which often is dominated by irrational fearsThe actuary has a key role
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
CoverageWorldwide, most insurance policies excludeMutiny, civil commotion amounting to a popular rising, military risingInsurrection, rebellion, revolution, state of siege, martial lawTerrorism (violence for political ends and violence for instilling fear in the public)WarIn some cases, these losses are covered if they are caused independently from any Government actionWhere cover is required due to the perceived high levels of risk, it is provided bytraditional insurers, with various constraintsspecial purpose insurance vehicles, with greater success and robustness
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
Removal of coverage has social/economic implicationsWithdrawal of housing financein areas of perceived high riskusually affects poorer sections moreHindering entrepreneurial activitysmall business withdraw from/do not set up in targeted areasDeteriorating conditions in targeted areaas wealthier sections leaveReduction in foreign investment
Consultant's Name
Q:\CLIENT\Maher\2000\gm0158cm.ppt
The Rle of the ActuaryPossible exposuresPolicy Limit (US$ billions)Region 1:1.2Region 2:1.5Region 3:2.6Region 4:3.1Region 5:1.0 _____Total exposure9.4Total reserves0.8Reserve is insufficientThe process is stuck
Consultant's Name
Q:\CLIENT\Maher\2000\gm0158cm.ppt
The Role of the ActuaryThe actuary is able to deal with uncertainties and is not looking for certaintyCan bring external data and rigorous analysis to identify and quantify what could happenConclusion may be The largest scenario we can find is US$0.3 billion.But reserve requirement may be more than that to ensure pool can continue after deteriorationFinancial modelling required
Consultant's Name
Q:\CLIENT\Maher\2000\gm0158cm.ppt
There has been an increase in major riot and terrorist events in the 1990s
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Chart2
7
0
2
2
1
8
8
No of events
No of major insured events
Sheet1
Year1966-19701971-19751976-19801981-19851986-19901991-19951995-1999
No of events7022188
Sheet1
No of events
No of events on each year
Sheet2
Sheet3
Q:\CLIENT\Maher\2000\gm0158cm.ppt
With most insurance claims arising in the UK and the US
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Chart1
7
12
8
Sheet1
UKUSOther
7128
Sheet1
0
0
0
Sheet2
Sheet3
Q:\CLIENT\Maher\2000\gm0158cm.ppt
Pools established to deal with this includeOrganisationPool Re
SASRIA
CESCE
IFTRIC
NASRIADescriptionProvides insurance for terrorism-related risks in the UK. It is ultimately government guaranteedProvide coverage for political and labour unrest. Previously was government guaranteed.Provides insurance for political and extraordinary risks on an exclusive basis in Spain. It is government guaranteed.A government-owned insurance company which covers both political and trade risk in IsraelNASRIA is the Namibian equivalent of SASRIA
Pools set up by Governments as commercial insurers view risks as too heavy for them to cover
And provide funding mechanisms for possible reconstruction
Consultant's Name
Q:\CLIENT\Maher\2000\gm0158cm.ppt
Risk Transfer Mechanism SASRIASASRIA was established following the Soweto riots and the withdrawal of coverage by the domestic insurersReserve increased over the periodBusiness characterised by low loss ratio (20%)SASRIA progressively:reduced premiumIncreased limitExpanded coverageBut perception of risk remained high and reserves continued to expand
Consultant's Name
Chart2
2.915
26.716
58.013
60.594
76.026
110.676
250.812
416.77
712.282
988.693
1975.533
2484.762
3243.542
3995.486
5551.233
6198.108
7569.065
8500
9000
8700
R000
Year
R000
Chart1
2.915
26.716
58.013
60.594
76.026
110.676
250.812
416.77
712.282
988.693
1975.533
2484.762
3243.542
3995.486
5551.233
6198.108
7569.065
8500
9000
8700
R000
Year
Rand million
Sheet1
YearR000
197930
1980270
1981580
1982610
1983760
19841110
19852510
19864170
19877121
19889891
198919762
199024852
199132443
199239954
199355516
199461986
199575698
199685009
199790009
199887009
Sheet1
R000
Year
R000
Sheet2
Sheet3
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Risk Transfer Mechanism - Pool RePool Re has similaritiesIncreasing surplus, reducing premiums and low loss ratiosPublished surplus understated by accounting conventions
Consultant's Name
Chart1
0222.547.6
0345.993.2
4.5195.886.4
29928799
369319125
44617396
Surplus
Gross Premiums
Claims Paid
Calendar Year
million
Sheet1
199319941995199619971998
Surplus004.5299369446
Gross Premiums222.5345.9195.8287319173
Claims Paid47.693.286.49912596
Sheet1
000
000
000
000
000
000
Surplus
Gross Premiums
Claims Paid
Sheet2
199319941995199619971998
Surplus4.505299369446
Sheet3
MBD0010F764.xls
Chart1
47.6
93.2
86.4
99
125
96
Claims Paid
Sheet1
199319941995199619971998
Claims Paid47.693.286.49912596
Sheet1
0
0
0
0
0
0
Claims Paid
Sheet2
Sheet3
Q:\CLIENT\Maher\2000\gm0158cm.ppt
What are reserves?Reserves can be largeSASRIA$1.5 billion reservePool Re$1.2 billion reserveBut outstanding claims reserves are smallReserves are established fordeterioration in conditionspossible major eventPool must be able to withstand theseand continue to operateThe difficult question is how large should the reserves be?
Consultant's Name
Q:\CLIENT\Maher\2000\gm0158cm.ppt
Reserving ApproachModelling Characteristics of eventsIdentification of Key Risk FactorsAnalysis of Historical ExperienceReview of Global ExperienceGeneration of Possible ScenariosDataAnalysis of claims in regionAnalysis of world eventsReports on major situationsStudy of social/economic/demographic/political conditionsInterviews
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
CharacteristicsTerrorismSmall group of peopleHighly organisedGenerally focussed on property damagePolitically motivatedRiotLarge group of peopleDisorganised and randomLimited timescaleSocial (political) exclusion main motivatorLabour UnrestSimilar to riots but large durationRequire labour issueLess public participationMay be difficult to differentiate from riotInsurrectionRequires significant political unrest (and retaliatory action)Larger scale durationTypically massive destructionUsually excluded from coverage
Consultant's Name
Q:\CLIENT\Maher\2000\gm0158cm.ppt
Identification of Key Risk FactorsFactors might beFailure of government to meet peoples expectationswhether reasonable or notFailure of key component of infrastructureFall in the price of important commodity in producing companyPurpose is toUnderstand where things could go wrong in this regionWhich parts of population might be disaffected
Consultant's Name
Q:\CLIENT\Maher\2000\gm0158cm.ppt
Analysis of Historical ExperienceHistorical experience may give some insightsBut often is of limited valueNo. of incidents
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
Analysis of Global ExperienceThe analysis of global events adds significant insightWhat has happened elsewhereWhat could happen here - but what are the differencesDemographicsInsurance buyingProperty valuesConcentrationCausation
Consultant's Name
Terrorism and Riots
Brought to 1999 values
Year
Country
City
Present Value Insured ($m)
1992
UK
London
1,447.7
1992
USA
Los Angeles
922.0
1993
UK
London
854.1
1996
UK
Manchester
698.7
1993
USA
New York
687.6
1996
UK
London
686.7
1998
Kenya & Tanzania
Nariobi & Dar es Salaam
508.6
1999
Jamaica
322.0
1998
Indonesia
Medan
255.2
1965
USA
Los Angeles
232.1
1967
USA
Various - esp. Detroit
206.4
1995
USA
Oklahoma City
136.8
1980
USA
Miami
131.2
1968
USA
Washington, D.C.
114.9
1996
USA
Atlanta
105.9
1992
UK
London
90.4
1977
USA
New York
77.4
1990
Trinidad & Tobago
76.5
1967
USA
Newark
74.6
1993
Germany
Weiterstadt
67.1
1968
USA
Baltimore
67.1
1968
USA
Chicago
62.3
1997
Norway
Drammen
36.6
1968
USA
New York
20.1
1981
UK
London
8.3
1984
UK
Brighton
7.9
1993
India
Bombay
5.8
1997
Colombia
Apartado
1.6
Source: Sigma reports with monetary values restated.
Q:\CLIENT\Maher\2000\gm0158cm.ppt
Analysis of Global ExperienceFor example
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
Generation of Possible ScenariosWhat are areas of potential disturbance?What are the areas of potential damage?
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
Identification of major scenarios
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
Reserves also depend on policy conditions and reinsuranceCover cancelable/or not?Refusable or not?Limits to cover (cause of loss or monetary)?Limits to cover in the aggregate?Reinsurance will become more expensive when conditions deteriorate(may not be there when needed)Following change in conditions canIncrease ratesReduce limits
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
Calculation of Reserve Requirements
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Q:\CLIENT\Maher\2000\gm0158cm.ppt
Calculation of Reserve Requirement
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