Regulation of Reinsurance Recoverables: Protection or Protectionism? Presented by: Cassandra Cole, Kathleen McCullough, and Lars Powell American Risk and.

Slides:



Advertisements
Similar presentations
Jennifer Marshall Senior Financial Analyst Property/Casualty Division February 12, 2009 Treatment of Investments in the A.M. Best Rating Process NYIA Educational.
Advertisements

1 ASSAL Reinsurance Walter Bell – Alabama Commissioner of Insurance – NAIC President.
1 CHANGES TO SSAP #62 PROPERTY & CASULTY REINSURANCE NAIC Property and Casualty Reinsurance Study Group Chicago, IL May 10, 2005 Michael Moriarty Director,
1 U. S. Risk-Based Capital Requirements and Their Context Alfred W. Gross Virginia Commissioner of Insurance National Association of Insurance Commissioners.
SAP Accounting. Statutory Accounting Insurers produce financial statement prescribed by NAIC Filed with insurance department of regulators Based on Statutory.
Assignment Nine Actuarial Operations.
Joseph L. Petrelli President & Co-Founder, Demotech, Inc.
Copyright © 2011 Pearson Prentice Hall. All rights reserved. Chapter 7 Financial Operations of Insurers.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 7 Financial Operations of Insurers.
McGraw-Hill /Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Fifteen Insurance Companies.
8-1 Statutory Accounting 1.NAIC Annual Statement Blank 2.Differences between Statutory Accounting and GAAP admitted and non-admitted assets valuation of.
Topic 7. Insurance Markets and Regulation
C O N N I N G A S S E T M A N A G E M E N T Analyzing Reinsurance with DFA Practical Examples Daniel Isaac Washington, D.C. July 28-30, 2003.
Finance 431: Property-Liability Insurance Lecture 2: Overview of Insurance Operations.
Loss Reserving in Argentina, Brazil and Mexico Eduardo Esteva New Orleans, Louisiana September 11, 2001.
Reinsurance Financial Concerns Frank J. Maffa, CFE, CIE Vice President American Re-Insurance Company.
Presenter: Amara Gondal General Insurance Balance Sheet October 28, 2010.
SB304 Montana State Fund Financial Presentation September 23, 2003.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 8 Government Regulation of Insurance.
1 Reinsurance Counterparty Relationships and Firm Performance In the U.S. Property-Liability Insurance Industry by J. David Cummins, Zhijian Feng, Mary.
CAS Ratemaking Seminar March 2005 INT-6 Introduction to Profit Provision Calculations Ira Robbin, PhD Partner Re.
Reinsurance Structures and On Level Loss Ratios Reinsurance Boot Camp July 2005.
Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright (c) 2006 Standard.
Reinsurance Supervision The US Perspective ASSAL XIV Annual Meeting Alessandro Iuppa, Superintendent Maine Bureau of Insurance, USA.
FINANCIAL CONDITION REPORTING Ioana Abrahams 13 November 2009.
Insurance Company: Functions Chapter 7. Insurance related functions Ratemaking Production Underwriting Loss adjustment Investment Reinsurance Accounting,
The Reserving Actuary’s Role in Risk Assessment: Value Added by the Reserving Actuary in Identifying and Helping Mitigate Financial Risk Both on the Balance.
Risk Financing The Principles of Utilizing Insurance Resources Peter Wang
Casualty Loss Reserve Seminar Minneapolis, Minnesota September 18 – 19, 2000 Actuarial Standard of Practice No. 36 Discussion of Implementation Considerations.
Further Information Insurance
2009 Annual results 24 March © Lloyd’s2009 Annual Results Presentation highlights Record financial results Solid financial position Equitas.
CAS Ratemaking Seminar March 2004 INT-7 Introduction to Profit Provision Calculations Ira Robbin, PhD Partner Re.
THE USE OF ADMINISTRATIVE BANKING AND INSURANCE DATA 1 Presented by Hazel Corbin Statistics Adviser, ECCB Palm Haven Hotel Saint Lucia 3 to 7 February,
Derivatives in the Insurance Market Stephen P. D’Arcy Professor of Finance University of Illinois First Annual OFOR Symposium.
Intensive Actuarial Training for Bulgaria January 2007 Lecture 11 – Reinsurance By Michael Sze, PhD, FSA, CFA.
1 Casualty Loss Reserve Seminar September 14, 1999 Presented by: Susan E. Witcraft Milliman & Robertson, Inc. DYNAMIC FINANCIAL ANALYSIS What Does It Look.
AEG recommendations on Non-life insurance services (Issue 5) Workshop on National Accounts December 2006, Cairo 1 Gulab Singh UN STATISTICS DIVISION.
Copyright © 2004 by Thomson Southwestern All rights reserved Insurance Company Financial Management Issues Chapter 16.
Course on Professionalism Statement of Principles.
May 18, 2004CAS Spring Meeting1 Demand Based Pricing: A Company Perspective CAS Spring Meeting May 18, 2004 Floyd M. Yager, FCAS, MAAA Allstate Insurance.
Spring 2002 CAS Meeting Modeling Capital Adequacy Matthew C. Mosher, FCAS Group Vice President Property/Casualty Ratings May 21, 2002.
By: Marife Umali and Pearl Mabutas Term Paper Compliance of Phil. Non-Life Insurance Companies to Risk- Based Capital as Imposed by the Insurance Commission.
The Surety Industry and Workers Compensation Guarantees Casualty Actuarial Society Presentation by: Marsh Surety Practice Drew Brach, Managing Director.
1 Welcome To The IEI-Sponsored Insurance Workshop MTSU June 4-6, 2007.
The Application Of Fundamental Valuation Principles To Property/Casualty Insurance Companies Derek A. Jones, FCAS Joy A. Schwartzman, FCAS.
Overview of Insurance Operations Types of Insurers Risk Transfer Process Objectives of Insurers Constraints of Achieving Objectives Measurement of Insurer.
Risk-Based Capital: So Many Models CAS Annual Meeting 2007 Matthew Carrier, Principal Deloitte Consulting LLP November 12, 2007.
THE SATELLITE INSURANCE MARKET AND UNDERWRITING CYCLES Piotr Manikowski, Poznan University of Economics, Poland Mary Weiss, Temple University ARIA Annual.
RIHM 3505 DR. WEISS Financial Ratio Analysis for Property-Liability Insurers 1.
2003 FINANCIAL REVIEW Samuel M. Garvin, Jr. Vice President and Chief Financial Officer.
Spring 2004 CAGNY Meeting How do Rating Agencies Determine Insurance Company Ratings John Andre Vice President Property/Casualty Ratings June 3, 2004.
Copyright © 2011 Pearson Education. All rights reserved FINANCIAL OPERATIONS OF PRIVATE INSURERS Chapter 26.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Insurance Company Operations.
Chapter 7 Financial Operations of Insurers. Copyright ©2014 Pearson Education, Inc. All rights reserved.7-2 Agenda Property and Casualty Insurers Life.
CAS Annual Meeting EMERGING ISSUES IN MEDICAL MALPRACTICE THE ROLE OF THE ACTUARY IN ALTERNATIVE INSURANCE MARKETS November 16, 2004 Richard B. Lord, FCAS.
Making better decisions… © Copyright 2003 Willis Limited all rights reserved. Using Enterprise Risk Management to Maximize Shareholder Value William H.
Capital Allocation for Property-Casualty Insurers: A Catastrophe Reinsurance Application CAS Reinsurance Seminar June 6-8, 1999 Robert P. Butsic Fireman’s.
Cabinet Presentation State of the Florida Homeowners’ Insurance Market June 26,
GERLING GLOBAL FINANCIAL PRODUCTS Loss Reserve Reinsurance Casualty Actuaries in Reinsurance June 16, 2000.
Insurance Companies. Chapter Outline Two Categories of Insurance Companies: Chapter Overview Life Insurance Companies Property-Casualty Insurance Companies.
2005 Casualty Loss Reserve Seminar Loss Reserve Analysis and Statements of Actuarial Opinion Robert E. Farnam Senior Financial Analyst and Actuary A.M.
Consultation on Guidance for (Re)Insurance undertakings on the Head of Actuarial Function Role (CP 103) Presentation to Society of Actuaries in Ireland.
0 July , 1998 Boston, Massachusetts Presented by: Susan E. Witcraft Milliman & Robertson, Inc. Addressing Three Questions Regarding an Insurance.
Mutual Insurance Company Industry Statistics
Insurance Accounting Overview
Negative underwriting loss turning into positive profit — Explore the role of investment income for U.S. Property and Casualty insurers Shuang Yang Department.
Loss Reserving in Mexico
Casualty Loss Reserve Seminar September 2007
Catastrophe Modeling Personal Lines Perspective
Overview of Insurance Operations
Presentation transcript:

Regulation of Reinsurance Recoverables: Protection or Protectionism? Presented by: Cassandra Cole, Kathleen McCullough, and Lars Powell American Risk and Insurance Association Meeting, 2006 Washington D.C.

2 Background Reinsurance recoverables Paid losses & LAE Loss reserves Unearned premium reserves Authorized/unauthorized reinsurer

3 Background Credit for Reinsurance Laws Collateralization Letter of credit / Trust account Provision for unauthorized reinsurance Adjustment to statutory assets

4 Motivation Scope: $240b in recoverables (2004) Almost 60% of industry surplus Cost of collateralization: 15 to 60 basis points Estimate $200m - $500m annually

5 Motivation Considerable public debate Lloyd’s of London: not necessary for old and strong reinsurers (such as Lloyd’s) RAA (and others): necessary to the financial strength of domestic insurers given differences in accounting methods and enforceability Collateralization enables smaller insurers to access international reinsurance market

6 Research Question Valuable solvency protection? Unfair trade protection? What does the market think? How does the PFUR affect the price of insurance?

7 Hypotheses Development Price of insurance is negatively correlated with insolvency risk All else equal, if consumers are concerned about collecting uncollateralized recoverables from unauthorized reinsurers, price will be negatively related to PFUR

8 Variables Price = inverse of economic loss ratio [Net premium – dividends – UW expenses] / [PV (incurred losses)] PFUR = provision for unauthorized reinsurance / net premium Controls: firm size, group membership, organizational form, underwriting leverage, concentration of underwriting exposure, and business mix

9 Data NAIC Property-Casualty Database % of insurers report a provision for reinsurance

10 Methodology PFUR it =  +   X it +   % FOREIGN it +  it Eq. (1) PRICE it =  +  (PFUR it = PFURHAT it ) +   X it t +  it Eq. (2) where, PFUR = the provision for unauthorized reinsurance scaled by net premiums written for insurer i in year t; X = a vector of exogenous financial and operational factors controlling for the size of the provision for in equation (1) and variation in price equation (2) for insurer i in year t; % FOREIGN= the percentage of premiums ceded to foreign reinsurers by insurer i in year t; PRICE = the inverse of the economic loss ratio for the insurer i during year t; and PFURHAT = the predicted values of the PFUR variable(s) in equation 1 for insurer i in year t used as instrument for these variable(s).

11 Summary Statistics

12 Results

13 Conclusions There are significant differences in insurers with and without PFUR. PFUR is negatively related to price. Initial results suggest Credit for Reinsurance Laws provide protection for U.S. insurers accessing international markets.

14 Further Research Explore differences for primary insurers and reinsurers More fully explore the determinates of PFUR Evaluate proposals by Lloyd’s and other large insurers to reduce collateralization requirements for financially strong alien reinsurers