CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003 CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003 Directors’ & Officers’ Liability Richard J. Castillo, ACAS Senior Vice President Zurich North America Specialties Claude D. Yoder, FCAS Vice President The Hartford
Directors’ & Officers’ Liability. Richard J. Castillo, ACAS Senior Vice President Zurich North America Specialties. Claude D. Yoder, FCAS Vice President The Hartford. Pure Premium. Pure Premium =. Claim Frequency * Claim Severity. AGENDA. Frequency Severity Monitor Prices - PowerPoint PPT Presentation
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CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Directors’ & Officers’ Liability
Richard J. Castillo, ACASSenior Vice PresidentZurich North America Specialties
Claude D. Yoder, FCASVice PresidentThe Hartford
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Pure Premium
Pure Premium =
Claim Frequency * Claim Severity
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
AGENDA
•Frequency
•Severity
•Monitor Prices
•Rating Variables
•Questions
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
MONITORING PRICES
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Objective
Measure the premium adequacy of all new and renewal policies written in the current year against all new and renewal policies written in the prior year
New business can be monitoredNo “rate change”Rate adequacy
If exclude newUnderstate increases in hard marketsUnderstate decreases in soft marketsMiss multi-year renewals
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Process
“Normalize” premiums to account for varying coverage parameters
Contrast w/Benchmarking and base rates
Reliance on judgment for class relativities,
other parameters
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Process
XYZ Corp.
Expiring Renewal
Premium $100,000 $300,000
Limits $10 million $20 million
“ILF” 1.0 2.0
“Normalized Premium” $100,000 $150,000
Rate Change 50%
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Rating Factors
ILF
Limit
Retention
Attachment Point
Part Of/Quota Share Arrangement
Exposure Base
Term
Industry Group
Public or Private
Prior Acts Exclusions
Side A only
Pre-set Allocation
Coinsurance
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Rating Factors
Public vs. Private
Public company exposure is mostly class action suits
Private company exposure is mostly EPL
Term
Multi-years now annual
3 year terms had been commonplace 2 years ago
2.25 factors
Today – “unwinding” the discount
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003
Rating Factors
Class of Business
Class relativities rely on judgment
Data available, but very limited (see class action suits)
Side A Only
Recent phenomenon
Reaction to “Enronitis”
Removes large portion of risk
D and O reimbursement only, no company reimbursement
Bankruptcy and derivative cases
CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003CAS Ratemaking Seminar – San Antonio, TX March 27-28, 2003