0. Fiachra McLoughlin, Executive Advisor KPMG LLP-UK Isaac Mashitz
CAS Ratemaking Seminar Price Governance II- Implementing Price Governance for Complex Lines March 8,
Moderator:
Chris Nyce
Senior Manager
KPMG LLP
Fiachra McLoughlin, Executive Advisor
KPMG LLP-UK
Isaac Mashitz
Head of Actuarial Special Projects
Swiss Re

1. Disclaimer
The views expressed in this presentation are those of the speakers; and
They are not necessarily the views of the CAS, KPMG, Swiss Re or any other sponsor of this seminar;
Anyone who says otherwise is not only wrong, but is itching for a fight.
As we progress through today’s presentation, we will address a number of important issues, that we hope will help you to select KPMG as your actuarial service provider.
WHY KPMG? A simple yet powerful question. As we will discuss throughout, we believe that we have both the competence and experience to provide the services required by the captive.
What are our industry qualifications (including actuarial expertise) to provide the services you need.
Who will be doing the work? We believe we have assembled a team of individuals who are not only highly qualified technical actuaries, but impressive in the breadth of their experience.
Lastly – The captive should be asking itself – How does it benefit from a relationship with KPMG. We believe that value goes beyond simply providing actuarial estimates on a timely basis – it also includes providing real-time practical advise and council. We pride ourselves in delivery results beyond the numbers.

2. Critical Questions in Price Governance for Complex Lines
Who is accountable for making judgments?
Who is responsible; whose judgment should prevail?
What aspects of rate change should/can be quantified?
What is too subject to judgment to quantify?
What methods should be used in quantifying rate changes?
And how much should be/can be “parameterized”?
What level of precision is it reasonable to expect in measuring rate change?
Ground rules:
Ask questions as they arise (during presentation is OK)
Feel free to challenge our panel

3. As Articulated by the Lloyds Market Directive
Source: Lloyds market directive Y3318, “Monitoring Pricing Movement and Assessing the Impact on Loss Ratios”

4. As Articulated by the Lloyds Market Directive
Source: Lloyds market directive Y3318, “Monitoring Pricing Movement and Assessing the Impact on Loss Ratios”

5. *Facts changed to simplify and preserve confidentiality
The Role of Judgment: A Real Life* Example Offshore Energy Platforms in the London Market
Risk Characteristics (both expiring and renewal):
Values are $1.5 billion, consisting of platforms off the coast of West Africa and the North Sea ($1 billion), and Gulf of Mexico ($500 million)
Insured retention and limit for both terms is $500 million excess of a $10 million retention
No other significant changes
Expiring Terms effective 1/1/2005:
Premium = $15 million
No sub-limit on Gulf Hurricane
Renewing Terms effective 1/1/2006:
Premium $13.5 million
Sub-limit of $150 million on Gulf Hurricane
Interesting Fact: Underwriters had believed the Gulf Hurricane PML to be $150 million before the 2005 storms
*Facts changed to simplify and preserve confidentiality

6. Alternate Views of Rate Change: Which is Correct?
1) Underwriter determines risk is 50% driven by Gulf Hurricane
2) Underwriter determines risk is 10% driven by Gulf Hurricane
3) Underwriter determines sub-limit only clarified the exposure they believed was in place: Rate change = -10%

7. Todays Panelists: Introduction
Fiachra McLoughlin, Executive Advisor
KPMG LLP-UK
Isaac Mashitz
Chief Pricing Actuary
Swiss Re