Ocean MarineOverview and Catastrophe Modeling Issues
Steven G. Searle, FCASSVP Instrat
2000 – 2005 US Cat Losses
All Lines CombinedYear Insured Losses Frequency Marine
US$bn Losses USD $bn
2000 4.6 24 02001 26.5 20 02002 5.9 25 02003 12.9 21 02004 27.3 22 22005 56.8 24 4-10
Source: ISO Property Claims Services as of 1/ 31/ 06.Marine estimates compiled by S. Searle
2005 Hurricane LossesImpact on Marine and Offshore Energy
Offshore Energy– Katrina
RMS estimates between $2bn and $5bn Eqecat expects a loss ranging from $5bn to $8bn
– Rita RMS estimates between $1bn and $2bn
Yacht– Katrina
Insurance losses range from $300M to $400M. (Boat Owners Association of The United States- Oct 12, 2005)
Hurricane Katrina also destroyed an estimated 75% of the marinas along 150 miles of the Gulf Coast
Ocean Marine
Agenda– Marine Overview– Marine Results– Marine Catastrophe Modeling Developments
Ocean Marine
Agenda– Marine Overview– Marine Results– Marine Catastrophe Modeling Developments
Ocean Marine
Lines of Business– Cargo– Hull (blue-water, brown-water)– Commercial Protection and Indemnity (P&I)– Liability – Yacht (including P&I)– Offshore Energy
Ocean Marine Split by LOBCY Direct Written Premiums
33%
4%
9%5%
18%
7%
13%
11%
Cargo
Ocean Hull
All Other Hull
Commercial Primary P&I
Yacht (incl P&I)
Excess Liab
Primary Liab
Offshore Energy
Source: AIMU 2005 Calendar Year Operating Ratios
Ocean Marine
Agenda– Marine Overview– Marine Results– Marine Catastrophe Modeling Developments
Calendar Year Ocean Marine ResultsDirect Business
73.5%67.5% 67.7% 67.8% 68.8%
103.0%
95.5% 93.8% 93.8% 95.7%
0%
20%
40%
60%
80%
100%
120%
2000 2001 2002 2003 2004
Loss + LAE Ratio Combined Ratio
Source: AM Best Aggregates and Averages
Calendar Year Ocean Marine ResultsNet Business
73.6% 72.5% 70.3%73.6%
68.3%
107.0%102.4% 99.9%
104.0%97.7%
0%
20%
40%
60%
80%
100%
120%
2000 2001 2002 2003 2004
Loss + LAE Ratio Combined Ratio
Source: AM Best Aggregates and Averages
Calendar Year US Marine ResultsDirect Written Premiums ($B) and Net Combined RatioCompanies reporting to the American Institute of Marine Underwriters
1.74 1.905 1.823 2.01 2.325
99.2%
91.7%
89.9%
92.2%
98.9%
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
2001 2002 2003 2004 2005
84.00%
86.00%
88.00%
90.00%
92.00%
94.00%
96.00%
98.00%
100.00%
Premiums Combined Ratio
Source: AIMU 2005 Calendar Year Operating Ratios
US Calendar Year Net Combined RatiosLOB detailCompanies reporting to the American Institute of Marine
Underwriters
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
Cargo Ocean Hull Other Hull
2001
2002
2003
2004
2005
Source – AIMU 2005 Calendar Year Operating Ratios
US Calendar Year Net Combined RatiosLOB detail (cont.)Companies reporting to the American Institute of Marine Underwriters
50%
70%
90%
110%
130%
150%
170%
190%
Comm'lP&I
XS Liab PrimaryLiab
2001
2002
2003
2004
2005
Source – AIMU 2005 Calendar Year Operating Ratios
US Calendar Year Net Combined RatiosLOB detail (cont.)Companies reporting to the American Institute of Marine Underwriters
50%
100%
150%
200%
250%
300%
350%
Yacht (inclP&I)
Energy Total
2001
2002
2003
2004
2005
Source – AIMU 2005 Calendar Year Operating Ratios
Ocean Marine
Agenda– Marine Overview– Results– Marine Catastrophe Modeling Developments
Catastrophe Modeling Vendors
Applied Insurance Research (AIR), EQECAT or Risk Management Solutions (RMS)
valuable knowledge inputs to identify, understand and manage risk
Modeled Perils
hurricane– wind– loss amplification/demand surge– storm surge
earthquake– shake– fire following– sprinkler leakage– loss amplification/demand surge
other wind winter storm terrorism flood (Europe) pandemics
Modeled Lines of Business
Personal lines property Commercial lines property Industrial property Builders Risk Auto Physical Damage Workers Compensation Lives at risk – Accident and Health Marine (partially*)
Marine lines • Fixed Properties (marinas) - handle well• Contents (warehouse cargo) - can handle with adjustments• Oil Rigs - modeling capabilities available • Mobile Property (cargo, floaters) - capabilities exist but are limited• Yachts - capabilities in the RMS May 2006 release• Commercial Hull (?)
Modeled Coverage Parts
Fixed Property– completed structures– structures under construction (e.g.
shipbuilders risk)– machinery & equipment– piers / wharves– offshore platforms
Personal Property– contents – stock– electronic Data Processing equipment
Mobile Property– cargo – floaters including contractors equipment
(though generally difficult to include)– personal yachts
Time Element
The Four Catastrophe Model Modules
Module 2Event
Database
Module 3Damage
Calculation
Module 4Loss
Calculation
Module 1Data
Preparation
Model Applications - Loss Potential “Occurrence" Return Period Losses
Annual Probability of
Non-Exceedance
Return Period
Damage
(000s)
Gross (000s)
Net (000s)
90.00% 10 $9,427 $8,359 $8,025
95.00% 20 $18,814 $16,378 $15,723
98.00% 50 $33,724 $32,194 $30,906
99.00% 100 $48,803 $47,979 $46,060
99.60% 250 $78,865 $75,338 $72,324
99.80% 500 $100,622 $96,395 $92,539
99.90% 1,000 $123,950 $118,776 $114,025
Average Annual Loss $3,597 $3,482 $3,343
A.M. Best Benchmarks
• U.S. Hurricane
• U.S. Earthquake
Yacht Modeling Capabilities
X
RMS RiskLink May 2006 release
RMS Construction Classification Update RiskLink version 6.0 (May, 2006) Seven New RMS Yacht Classes (length and
power)– Boats, inside a Building (Marina) - Precast
Reinforced Concrete with Concrete Roof (RMS Code 54)
– Boats, Moored, Less than 26 ft, Motor - (RMS Code 55)
– Boats, Moored, Less than 26 ft, Sail – (RMS Code 56)
– Boats, Moored, 26-60 ft, Motor - (RMS Code 57)– Boats, Moored, 26-60 ft, Sail (RMS Code 58)– Boats, Moored, Greater 60 ft, Motor (RMS Code
59)– Boats, Moored, Greater 60 ft, Sail (RMS Code 60)
Offshore Energy Modeling/Databases RMS currently has offshore modeling
capabilities– Version 6.0 Changes
new construction classes new year built ranges new occupancy classes includes Contingent Business Interruption, Operators
Extra Expense new loss amplification factors specific to offshore platforms
EQE to release offshore energy model ERAS - database program used by many
energy clients for capturing exposure information by platform– Exposure management only, no damage estimates
or simulations of events.
Outlook
Role of Actuaries and Catastrophe Modelers continues to grow in the Marine renewal process.
Models will continue to be valuable as one of many information inputs…– but extremely dangerous if used as the only information
input Models have improved risk quantification
significantly…– but can mislead if users do not understand shortcomings
Applications can create significant marketplace advantages…– but inappropriate applications can create hidden dangers
Models continue the tradition of innovation and progress…– but models are “not" perfect and need to improve
Questions