Catastrophic Risk and Insurance Hurricane and hydrometeorological risks Catastrophic Risk and Insurance Hurricane and hydrometeorological risks ASSAL XVII Annual Meeting VII Conference Insurance Regulation / Supervision Latin America Lisbon, Portugal, April 24 – 28, 2006 Dr. Sebastian Aschenbrenner-von Dahlen (BaFin) Member of the IAIS Reinsurance Transparency Group International Association of Insurance Supervisors (IAIS)

2 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Introduction / Introducción / Introdução ¡Estimados señoras y señores! Perdónenme que mi presentación sea en inglés. Mis escasos cononcimientos del español y portugués me permiten solamente decirles que pueden sentirse dichosos de que me estoy limitando a esta sola página. ¡Muchas gracias! Estimados senhoras e senhores, Peço desculpa por proferir a minha conferência somente em língua inglesa, mas os meus escassos conhecimentos das línguas portuguesa e espanhola são apenas suficientes para lhes comunicar que se podem considerar felizes que agora acabo por continuar a falar apenas em língua inglesa. Muito obrigado!

3 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Hurricane Katrina 2005 Importance of reinsurance coverage

4 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Insurance supervision and catastrophes Today’s content Background concerning IAIS Storm and flood impact within ASSAL Role of National Supervisors / A brief case study IAIS Global Reinsurance Market Report

5 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Importance of the IAIS IAIS Mandate Standards and guidance for insurance supervision Assist national supervisors Promote cooperation among insurance supervisors Coordinate with other financial sector and international organizations (Basel Committee, IOSCO, Joint Forum, Financial Stability Forum, etc.)

6 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Structure of the IAIS IAIS and Reinsurance Transparency

7 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Hurricane and hydrometeorological risks Storm impact within ASSAL in 2005 Emily: Mexico, and Gulf (July)  € 200m insured loss, € 450m total damage Stan: Mexico, and Guatemala (October)  € 150m insured loss, € 2.4bn total damage Wilma: Mexico, Jamaica, Haiti (October)  € 8bn insured loss, € 16bn total damage

8 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Hurricane and hydrometeorological risks Flood impact within ASSAL in 2005 Venezuela, Colombia (February)  Heavy rain: > 100 dead, ~ € 50m damage Brazil, Guatemala, and El Salvador (June)  Landslides: > 80 dead, > 2000 homeless Colombia (September until November)  Mudslide: > 100 dead, > damaged houses

9 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Global perspective 10 largest insured losses  8 storms (6 hurricanes) Occurred since 1990  5 hurricanes in 2004 and 2005  Ivan, Charley; Katrina, Rita, Wilma  Katrina: largest insured event ever ~ € 50bn insured losses ~ € 120bn total damage Importance of hurricanes

10 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Role of National Supervisors Insurance and Reinsurance Katrina proved that the (re-)insurance industry is ready to bear very large losses Insurance Supervisors play an important role in the context of catastrophic risks  Appropriate coverage for primary insurers

11 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Brief case study for National Supervisors Order of events during the case study Read and answer the case (3 minutes) –Everybody receives one case study (A or B) –Each case study describes one insurer –Read it (identical text in three languages) –Answer the question (one) at your case study Presentations (1 minute each) –Each case (A and B) shall be presented by one person.

12 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Case Study … … all participants are solving their case Case A ( = Insurance company “A”) or Case B ( = Insurance company “B”) Good luck!

13 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Case Study – Solution A Insurance Company “A” ( = case A) Description of insurer “A” –“A” is a medium sized insurer, with a focus on potentially catastrophe affected business –“A” bought only quota share reinsurance Solution –Buy not only quota share but also excess of loss reinsurance coverage!

14 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Case Study – Background information A Quota share treaty

15 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Case Study – Solution B Insurance Company B ( = case B) Description of insurer “B” –“B” is a medium sized insurer, with a focus on potentially catastrophe affected business –“B” bought its reinsurance protection only at one reinsurer “RCB”; “RCB” is a weak company Solution –“Do not put all eggs into one basket”

16 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Case Study – Background information B Diversification and financial strength Reinsurance protection should be bought at –Strong, and financially healthy reinsurers –More than one reinsurer (“eggs in the basket”) Judgments concerning financial strength –Home supervisors –Rating agencies –Capital market indicators

17 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks IAIS Reinsurance Transparency Group Global Reinsurance Market Report Strong capital base of reinsurers “Hurricane Katrina losses are not expected to have a material impact on the reinsurance sectors overall capital position” (cf. p. 12)

18 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks International Association of Insurance Supervisors (IAIS) A source for questions und answers IAIS source for the Global Reinsurance Market Report:

19 April 2006 Dr. Sebastian Aschenbrenner-von Dahlen IAIS – Catastrophic Risk and Insurance: Hurricane and Hydrometerological Risks Thank you very much for your attention