1. Excess Liability Price Monitoring
Anup Seth – CARe Seminar 2006

2. 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

3. 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

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

5. 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..)

6. 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

7. 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%

8. Price Monitoring – Rate Index

9. 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

10. Rate Adequacy