Excess Liability Price Monitoring Anup Seth – CARe Seminar 2006

Agenda  Introduction to the ACE Bermuda Excess Liability Book  Why bother with Price Monitoring  A Practical Approach to Price Monitoring  Actuarial Challenges  Sample Output  Measuring Rate Adequacy Portfolio Analysis Individual Risk Analysis

ACE Bermuda Excess Liability Low Frequency High Severity Average Attachment Point $350m Average Limit $100m Occurrence First Reported Form Fortune 1000 Client Base Good mix of business by Industry Sector

Price Monitoring Why bother? A quick guide to relative profitability Business Planning Reinsurance Purchasing Rating Agencies Regulators Reserving

Price Monitoring A Practical Approach Rate Change = Renewal Premium/”As if” Expiring Premium - 1 “As if” Expiring Premium is adjusted for Changes in Limit Changes in Attachment Point Changes in Exposure Changes in Terms & Conditions (e.g. Form, Perils etc..)

Price Monitoring Actuarial Challenges Maintain Consistency & Minimize Subjectivity Appropriate ILF Curve Appropriate Exposure Measure Revenues or Assets Industry Specific Exposure Measures Terms & Conditions New Business Rate per mille adjusted for Limit & Attachment

Price Monitoring - Sample Output   Actual Expected 2006 Q1 Renewal New Other Total GWP Rate Change Excess Liability - TOTAL 43,101 6,029 3,330 52,459 2.5% 3.4% TOTAL Chemicals 4,479 2,142 - 6,621 0.4% 0.6% TOTAL Pharmaceuticals 15,916 935 16,851 0.1% TOTAL Utilities 2,177 217 2,394 -1.5% -2.0% TOTAL Industrial 5,385 500 5,885 19.5% 26.1% TOTAL Consumer Goods 1,506 4.4% 5.9% TOTAL Oil 325 600 925 TOTAL Service 333 2.8% 3.7% TOTAL Transportation 7,443 475 7,918 3.8% 5.1% TOTAL All Other 5,537 1,160 6,697 -0.3% -0.4%

Price Monitoring – Rate Index

Rate Adequacy Portfolio Approach Individual Risk Analysis Compare Actual to Target Rate per Mille Based on Historical Loss Experience Adjust for Limit & Attachment Point New v Renewal Business Industry Sector Individual Risk Analysis Frequency/Severity rating tool

Rate Adequacy