CICA Fronting Survey Results

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0

10

20

30

40

50

60

70

SingleParent

RRG AssociationSponsored Agency IndustrialInsured

Reciprocal Seg. Cell

2007 2006 2005 2004

0 20 40 60 80 100

USA

OutsideUSA

20072006

0

5

10

15

20

25

30

35

40

45

< 1 Year 1-5 Years 6-10 Years > 10 Years

0 20 40 60 80 100

Yes

No

��

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0%

10%20%

30%

40%50%

60%

70%

80%90%

100%

Single Parent Group

% o

f Res

pond

ents

High-frequency, Low-severityLow-frequency, High-severityProperty (CAT)

Property (non-CAT)

Short-tail Casualty

Long-tail Casualty

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0%

20%

40%

60%

80%

100%

Single Parent Group

% o

f Res

pond

ents

Large (>$25m capital & suprlus)Medium ($10-25m capital & surplus)Small (<$10m capital & surplus)

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0%10%20%30%40%50%60%70%80%90%

100%

Single Parent Group

% o

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0%10%20%30%40%50%60%70%80%90%

100%

Single Parent Group

% o

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0%10%20%30%40%50%60%70%80%90%

100%

Single Parent Group

% o

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95th Percentile90th Percentile85th Percentile80th Percentile75th Percentile50% (Expected)

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0%10%20%30%40%50%60%70%80%90%

100%

Single Parent Group

% o

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pond

ents

=<10% 10-25% 26-50% 51-100% >100%

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0%10%20%30%40%50%60%70%80%90%

100%

Single Parent Group

% o

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ents

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0%

20%

40%

60%

80%

100%

Single Parent Group

% o

f Res

pond

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=<45% 46-55% 56-65% 66-75%76-85% 86-95% 96-105% >105%

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0%

20%

40%

60%

80%

100%

Single Parent Group

% o

f Res

pond

ents

=<45% 46-55% 56-65% 66-75%76-85% 86-95% 96-105% >105%

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0%

20%

40%

60%

80%

100%

Single Parent Group

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0

5

10

15

20

25

30

35

40

< $200K $200K-$500K $500K-$1M >$1M Not Fronted

2007 2006 2005 2004


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0

10

20

30

40

50

60

70

< 5% 6%-10% 11%-15% 16%-20% > 20% N/A

2007 2006 2005 2004


0

10

20

30

40

50

60

70

80

% w

ho

sel

ecte

d c

ho

ice

* In 2006 Policy Issuance and Administration were one category

0

10

20

30

40

50

60

70

Yes No

% w

ho r

espo

nded

2007 2006

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1020

3040

5060

70

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Oce

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CA

T-E

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quak

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CA

T-W

ind

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T-Te

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ism

Med

Mal

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Med

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pita

ls

Med

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Acc

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iab

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Aut

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Aut

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% w

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2007 2006

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10

20

30

40

50

60

70

80

90

100

Adm

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Tax

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bal

Str

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Reg

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tory

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% w

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elec

ted

cho

ice

2007 2006 2005 2004


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10

20

30

40

50

AC

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rave

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hur

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All

Oth

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2007 2006 2005

% w

ho s

elec

ted

choi

ce


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0 10 20 30 40 50 60 70

Not Important At All

Not Very Important

Somewhat Important

Important

Very Important

2007

2006


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1

2

3

4

5

Claims Handling Marketing Policy Language Underwriting

2007 2006 2005 2004

1 = Most Important, 5 = Not Important


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1

2

3

4

5

Claims Handling Marketing Policy Language Underwriting

2007 2006 2005 2004

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1 = Total Freedom, 5 = No Freedom


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0

10

20

30

40

50

60

70

80

Expensive Reasonable Inexpensive

2007 2006 2005 2004

0

10

20

30

40

50

60

70

80

Excellent Moderate Low

Price Value


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0

10

20

30

40

50

60

70

Decreased Same Increased <5%

Increased 6%-10%

Increased11%-20%

Increased21%-30%

Increased>30%

2007 2006 2005 2004


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0

20

40

60

80

100

More Restrictive Same Less Restrictive

2007 2006 2005 2004


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0

20

40

60

80

100

120

Yes No

2007 2006 2005 2004


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0

15

30

45

60

75

90C

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LOC

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ccou

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rust

Acc

t

Sur

ety/

Tru

stA

cct

Oth

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% w

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sele

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ch

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2007 2006 2005 2004

Prior to 2007 survey participants were only allowed to select one option on this question.


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0

5

10

15

20

25

30

35

40

45

50

Loss Reserve Loss Reserve &UEPR

<100% LossReserve, UEPR

& IBNR

>100% of LossReserve, UEPR

& IBNR

101%-120% lossreserve & UEPR

121%-150% lossreserve & UEPR

>150% lossreserve & UEPR

Other

2007 2006 2005 2004


8��*��

� Negotiated amount

� Aggregate attachment point

� Negotiated based on loss history

� 112% of actual loss reserve

� Actuarial valuation

� Agg stop

� Policy limits

� 250% of fronts loss pick, outrageous, but that is all I haveavailable

� =Actual Loss Reserve, Unearned Premiums and IBNR


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0

10

20

30

40

50

60

70

80

Yes No

2007 2006 2005

0 10 20 30 40 50 60

QS & Agg Stop

QS

XS & Agg Stop

Agg Stop

XS

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0

10

20

30

40

50

60

70

< $200K $200K-$500K $500K-$1M >$1M

2007 2006 2005


0

10

20

30

40

50

<5% 6-10% 11-15% 16-20% >20%

2007 2006 2005

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0

10

20

30

40

50

60

70

Premiums notbroken out

<$200,000 $200,001-$500,000

$500,001-$1,000,000

>$1 million

2007 2006


� ��< ��$��.��

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0 10 20 30 40 50 60

> 3%

1-3%

< 1%

Premium NotBroken Out

2007

2006


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10

20

30

40

50

60

70

Affilia

ted C

aptiv

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Lexin

gton In

s Co.

Lloyd

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tes

Munich Re

Swiss Re

Hannover

Re

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rance

Zurich

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AIGOld

Rep

ublic

Bermuda M

arke

tsOth

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2007 2006


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0

10

20

30

40

50

60

70

80

90

Expensive Reasonable Inexpensive

2007 2006 2005

0

10

20

30

40

50

60

70

80

90

Excellent Moderate Low

Price Value


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0

10

20

30

40

50

Dec

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30%

Dec

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-30%

Dec

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-20%

Dec

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10%

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Incr

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2007 2006 2005

In the 2005 year all “Decreased” responses are included in the Decreased < 5% category.


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0

10

20

30

40

50

60

70

80

90

More Restrictive Same Less Restrictive

2007


��> ?

0102030405060708090

More ReinsuranceLimits

Same Less ReinsuranceLimits

2007

0

10

20

30

40

50

60

70

80

90

Increase Same Decrease

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5

10

15

20

25

30

35

40

45

Reinsu

rance

Securit

y

Frontin

g

Servic

eTax

Other

s

2007 2006 2005 2004


� ��((��*��(�

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� Demonstrating value to parent, year after year (What haveyou done for me lately?)

� Actuarial understanding of my program – IBNR� Investments and Yield� New IRS Proposal


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By Majority Exposure

0 5 10 15 20 25 30 35 40 45 50

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)

Low-frequency, High-severity

High-frequency, Low-severity

% of Respondents

2007

2006


� ��

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)

Low-Frequency, High-Severity

High-Frequency, Low-Severity

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



% of Respondents

Small (< $10m capital & surplus) Medium ($10-25m capital & surplus) Large (>25m capital & surplus)

2007

2006


.�� +��0��

• Gauge of insurer’s relativesecurity and ability to take onrisk

• No “correct” premium-to-surplus ratio benchmark forall insurers

• Low values may indicate thata captive is overcapitalized

• Ratio penalizes rate or priceincreases

• Proper benchmark for acaptive will be set by theregulator

2:1 – 5:1Low-frequency,High-severity

Up to 5:1High-frequency,Low-severity

< 1:1Property (CAT)

2:1 – 5:1Property (non-CAT)

2:1 – 5:1Short-tailCasualty

1:1 – 4:1Long-tail Casualty

TRACS Premium-to-Surplus Ratios


� ��

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)

Low-Frequency, HighSeverity


<1:1 1:1 2:1 3:1 4:1 5:1 >5:1

0% 20% 40% 60% 80% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)

Low-Frequency,High Severity

High-Frequency,Low-Severity

% of Respondents

2007

2006


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• Measures how much theinsurer’s capital & surplusmight be impaired if lossreserves are undervalued

• E.g., if loss reserves areundervalued by 10%, thenexisting capital & surplus isoverstated by 30% in acaptive writing long tailcasualty exposure

4:1Mixed Portfolio

5:1Short-tail Casualty

3:1Long-tail Casualty

TRACS -Loss Reserves-to-Surplus Ratio


� ��

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0% 20% 40% 60% 80% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)


High-Frequency, LowSeverity

% of Respondents

<3:1 3:1 4:1 5:1 >5:1

0% 20% 40% 60% 80% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)


High-Frequency, LowSeverity

2007

2006


0�� *��2� ��

• The higher the confidence level, the lower theprobability that actual losses will deviate from thereserves on the captive’s financial statements

• Potential “hidden” surplus


$��

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



% of Respondents

50% (Expected) 75th percentile 80th percentile 85th percentile 90th percentile 95th percentile

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



2007

2006


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Implied Surplus Requirement @ $500,000 RetentionRetention-to-Surplus RatioCaptive Type & Exposure

$5,000,000Up to 10%Group captive, broad membershipof small insureds

$2,000,000Up to 25%Group captive, small membershipof midsize insureds

$1,000,000Up to 50%Group captive, small sophisticatedmembership, low-frequencycasualty

$500,000Up to 100%Single-owner, low-frequencycasualty

$250,000200%Single-owner, non-casualty, non-CAT

TRACS Risk Retention-to-Surplus Ratio

• Gauge of the potential effect of a maximum loss from a single event• The lower the ratio the more surplus required – something that is often problematic for captives,

especially group captives• High ratios may require capital calls to cover unfunded liabilities


� �� !!"�� !!A�

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



% of Respondents

=<10% 10-25% 26-50% 51-100% >100%

0% 20% 40% 60% 80% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



2007

2006


��0��

• Measures how much of each captive premium dollar goesto running the captive

• Typically this ratio should not exceed 25%• Direct-writing captives will have lower expense ratios than

captives that need fronting paper• Single parent captives will have lower expense ratios that

group captives


� ��%��&�� !!"�� !!A�

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



% of Respondents

=<10% 11-15% 16-20% 21-25% >25%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



2007

2006


2��0��

• Measures the % of each premium dollar used to pay losses andrelated expenses

• Best viewed over a long time horizon (5 years) to minimize year-to-year variability

• Acceptable range is between 45 and 100%• Low-frequency, high-severity exposures may require a significantly

lower ratio so that risk margin can be used to build the surplusposition of the captive

Up to 80%Short-tail

Up to 90%Long-tail

TRACS Loss Ratio (Maximum)


� �� !!"�� !!A�

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



% of Respondents

=<45% 46-55% 56-65% 66-75% 76-85% 86-95% 96-105% >105%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



2007

2006


� ��'�� !!"�� !!A�

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



% of Respondents

=<45% 46-55% 56-65% 66-75% 76-85% 86-95% 96-105% >105%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



2007

2006


3� �� 7��

• Most captives invest conservatively• A low yield is not bothersome, unless investment

income is needed to support underwriting losses ordiscounted loss reserves

• The benchmark of each captive depends on their owninvestment policy statement objectives and constraints


� �� (�� (��

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



% of Respondents

=<3% 3-4% 4-5% 5-6% >6%

0% 20% 40% 60% 80% 100%

Long-tail Casualty

Short-tail Casualty

Property (non-CAT)

Property (CAT)



2007

2006

CICA Fronting Survey Results

Economy & Finance

underwriting support