1. reinsurance to protect a green card portfolio
The dynamics of buying
reinsurance to protect
a green card portfolio
Nick Goulder International Casualty Director, Willis Re
July

2. Lots to Discuss … Deductible €200,000 Reinstatements
Cover at the Low Level
Cover at the Middle Level
Unlimited Layer Issues
Reinsurer Security
The Future

3. How Big Is €200,000 ? Personal injury compensation in Russia
Do the award levels feels right ?
Very low compared to e.g. German or UK court awards
Every country has a different view – nobody is “right”
Severe injury e.g. Paraplegic/Tetraplegic
Could cost €5m to €25m+ in the UK
Would often cost €2m to €10m or more in other EC countries
So reinsurers are wary of low deductibles

4. Ways to make Reinsurers more Comfortable? – (1)
Territory
Obtain transparent analysis of where Green Card vehicles are going
If it’s to the Ukraine, Belarus, Moldova, Poland, Czech, Slovakia, Hungary or the smaller Baltic states, the XL risk is very low
If it’s to Germany, France, Spain or UK the risk is very much more serious
Good information helps create good reinsurance pricing

5. Ways to make Reinsurers more Comfortable? – (2)
Vehicles
Maintain transparent statistics as to which vehicles are being insured
Small engine private cars – the XL risk is very low
40-tonne lorries – the risk is very much more serious
Good underwriting is going to price to select the better risks
Cheaper prices for 1000 cc cars, higher for 2000 cc + cars
Cheaper prices for light commercial, higher for heavy lorries & “bad” fleets
Good information helps create good reinsurance pricing

6. Making Reinsurers more Comfortable? – (3)
Claims
Very important concern for Reinsurers is your claims handling
Are you going to be aware quickly that you may have a big claim ?
Reinsurers have a great fear of their reinsureds piling up liabilities without reporting them
Work hard to report quickly !

7. One More on Claim Handling
Reinsurers can help in larger claim situations
They have wide experience of this
They can advise on tactics
It’s going to be their money – they will really want to help you get the best result
Don’t be afraid to report early, it works for the best for everyone

8. Pricing By Layer – It’s Not Rocket Science !
Mainstream claim distributions are well known
Typical German motor TPL portfolio – claim split by layer (**)
€25,000 xs € nil @ 36.8%
€75,000 xs € 25,000 @ %
€100,000 xs € 100,000 @ 8.9%
€300,000 xs € 200,000 @ 8.6%
€500,000 xs € 500,000 @ 3.9%
€ 1 mio xs € 1 mio @ 2.7%
€ 3 mio xs € 2 mio @ 0.9%
€ 95 mio xs € 5 mio @ 0.0%
[Source – 2003/2004/2005 claims, average incidence of distribution, assumption 80% Loss Ratio 20% Cost + Profit Ratio]

9. Reinstatements
Tradition in larger EC countries has been to give unlimited reinstatements for motor
Reinsurers generally are trying to reduce this
Willis doesn’t approve
We think reinsurers can easily calculate the right premiums
But (right or wrong) this seems to be the trend

10. Reinstatements (2)
Especially for East European countries, the pattern is for limited reinstatements
Commercial reality
However … significant problem …
RUMI has 23 insurer members
XL Cover is one arrangement across all 23
Consider 1st XL layer …

11. 1st Layer reinstatement problem
Cover is €300,000 xs 200,000 per loss
Could have many losses
Usual pricing would be about 10% of primary premium in larger- award EC countries (see German example)
Should cost less for Russian Green Cards (since big % of risk is in e.g. Ukraine etc)
If total Green Card GNPI is €15 mio …
… then 10% rate pays for 5 losses …

12. 1st Layer Problem (ctd)
Suppose we obtain cover for 10 losses (shared across 23 insurers)
Suppose Insurer X and Insurer Y both have 5 losses each
Then the cover is exhausted
But what happens for Insurer Z ???
Insurer Z has paid premium …
… but no cover is left now …

13. Coverage vs Cost question
We hope reinsurers should realise that 10% would be a very fair rate for 100 reinstatements
(We at Willis think it is generous to reinsurers – it would be enough for e.g. a 100% German portfolio)
Then the cover could be given with at least two losses cover available to each of 23 insurers
The larger insurers might want more reinstatements …
Depth of cover should (roughly) match premiums paid

14. Middle Layers - Example
Here’s another country … four insurers all buying €14 mio xs €1 mio
All rates include domestic GNPI
Ins A (GNPI €72m) pays 0.51%
Ins B (GNPI €46m) pays 0.68%
Ins C (GNPI €20m) pays 0.70%
Ins D (GNPI €20m) pays 1.33% (why?)

15. Unlimited Layers Reinsurers trying to avoid writing unlimited
But they have done it for years
Philosophy, philosophy …
Commercial truth – it’s hard for them to stop
Insurers badly want the cover
We have the Willis Facility

16. Long Tail, Long Worries
Property XL is easy … you know very soon whether you have a loss
Motor XL goes on for DECADES
Average time delay for large personal injury claim to settle in major European countries is seven years
Many claims take longer than this
NB - the biggest claims usually take the longest time
Children can be 18 years or more

17. Motor XL Security Issues
So … you need to be friends with your Motor XL reinsurers for a VERY long time
They need to be financially robust
Willis recommends always to avoid anything BBB+ or worse (S&P)
Willis recommends a cautious position
we always try very hard to get best security
Some of our clients only accept AA- (S&P)

18. The Future
Each insurer is going to want to buy its own motor XL programme
Clear reinstatements
Good portfolios judged on merits
Quality of reinsurer security becomes own decision
Best planning will include …

19. Planning for the Future
Keep very clear statistics
Where your green card risks are going
How long for
What types of vehicle you are insuring
What your claims experience is
Keep clear claims information and report it
Work with reinsurers to settle claims quickly
Use a good reinsurance broker !

20. Questions ?