2010 Ratemaking Survey Presented By: Laura Stevens, ACAS, CCRA John Lewandowski, FCAS, MAAA CAS Annual Meeting Washington, D.C. November 9, 2010
Objective § Companion to 2008 CAS Reserving Survey § Ratemaking Survey initially proposed in GRIP paper § Desire to coordinate U.S. with UK, Australia efforts § Desire to cover all aspects of pricing (Personal, Commercial, London market & Reinsurance § Focus on what people are actually using § Global coverage with a comparison of results by region § Report back to the professions (GIRO, CAS Annual, RPM) § Important part of the CAS Research Centennial Goals 2
Process § UK, US and Australian working parties § Started with Reserve Survey questions § Three separate sets of questions, three interpretations of scope, three time zones … .. § Each group came up with recommendations and reviewed other teams questions § Final survey was product of US/UK working parties § Survey included: • 34 Common Questions • 11 US questions • 14 UK questions § Rolled out early July until mid-August to: CAS mailing list • GIRO mailing list • LMAG • CAE • 3
Overall Response rate 1,295 responses to the first question 913 from the US • 89 from Canada • 135 from the UK • 46 from Europe (17-Switzerland, 6-Germany, 5-Ireland) • 92 from Rest of the World (Bermuda-19, China-10, Uruguay-8, Australia-6) • 20 from out of this world! • 602 (46%) finished the survey 46% from US • 34% from Canada • 49% from UK • 63% from Europe • 42% from Rest of World • 4
Response by Employer Type Europe ROW UK US Total Broker/Intermediary 2% 3% 8% 3% 3% Small consulting 7% 4% 1% 5% 4% Large consulting 11% 5% 8% 5% 6% Insurance Information Entity (ISO, NCCI, etc.) 0% 2% 0% 4% 3% Lloyds Syndicate 2% 2% 19% 0% 2% Primary Insurer (Multi-National Multiline) 33% 19% 34% 15% 18% Primary Insurer (National Multiline) 11% 28% 17% 41% 36% Primary Insurer (Regional or Monoline) 0% 13% 4% 19% 16% Regulatory Body 2% 2% 1% 2% 2% Reinsurer 33% 22% 10% 6% 9% 100% 100% 100% 100% 100% • 70% of respondents from Primary Carriers • Only 9% from Reinsurers – largest for Europe/ROW • Brokers fairly small representation, largest concentration from UK 5
Response by Length of Experience 50% 45% 40% 35% EU 30% ROW 25% UK 20% US/Canada 15% 10% 5% 0% 0-‑5 ¡years 6-‑10 ¡years 11-‑15 ¡years 16-‑20 ¡years 21+ ¡years • 50% of the responses were from individuals with < 10 years. This increased to 70% for non-US responses. • 75% of the respondents from the UK have < 10 years of experience compared to 46% for US. • Only 7.5% of responses from the UK have more than 15 years experience compared to 36% for US. • Nearly 80% are credentialed actuaries, another 15% under the course of study to become actuaries. 6
Response by Current or Most Senior Position 60% 50% EU ROW 40% UK US/Canada 30% 20% 10% 0% Student Analyst Mid ¡-‑level Senior Chief R&D • Nearly 50% of responses were from a Senior or Lead Actuary • 18% of responses were from a Chief Actuary/Practice Leader incl. management of a business segment 7
Response by Primary Role/Area of Specialty 70% EU 60% ROW 50% UK US/Canada 40% 30% 20% 10% 0% ERM R&D Underwriting Reserving MI ¡& ¡reporting Regulatory Pricing Product ¡Management Reinsurance Capital ¡Modeling Mixed ¡role ¡incl ¡pricing • Slightly more than 50% indicated their principal role is Pricing • Approximately 15% indicated they perform Reserving/Pricing and Capital modeling. 8
Pricing Techniques What is your main product line? 45% EU 40% ROW UK 35% US/Canada 30% 25% 20% 15% 10% 5% 0% CL: ¡Auto PL: ¡Auto CL: ¡GL ¡& ¡Other PL: ¡Prop. ¡& ¡Other CL: ¡Property RI: ¡Excess RI: ¡Property Work ¡Comp/EL Surety,A$H,Marine Prof ¡Liab ¡ex ¡Med RI: ¡Primary RI:P/L,Struc,Marine Medical • Personal Lines dominate • UK lowest percentage personal lines, but more diverse than other regions 9
Pricing Techniques What are the top 3 product lines? 25% EU ROW UK 20% US/Canada 15% 10% 5% 0% CL: ¡Auto PL: ¡Auto CL: ¡GL ¡& ¡Other PL: ¡Prop. ¡& ¡Other CL: ¡Property RI: ¡Excess RI: ¡Property Work ¡Comp/EL Surety,A$H,Marine Prof ¡Liab ¡ex ¡Med Medical RI: ¡Primary RI:P/L,Struc,Marine • Personal Lines Property is second largest line for nearly 30% of US respondents 10
Pricing Techniques Technique - Main Line of Business 25% 20% Personal 15% Commercial 10% Other Reinsurance 5% 0% Manual-‑Advis./Indep Experience Exposure Loss ¡rating Predictive Market Telemetrics Stochastic Judgment Freq/Sev Comparative • Experience and Exposure Rating most common for Commercial lines • Freq/Severity and Predictive Modeling popular for Personal Lines • Judgment commonly used for several lines 11
Pricing Techniques Personal Lines Individual Account Pricing Techniques By Region 20.0% EU ROW UK 15.0% US/Canada 10.0% 5.0% 0.0% Manual Loss Stochastic Experience ¡rating Exposure Freq/Sev Predictive Compariative Market Telemetrics Judgment 12
Pricing Techniques Commercial Lines Individual Account Pricing Techniques By Region EU 20.0% ROW UK US/Canada 15.0% 10.0% 5.0% 0.0% Manual Stochastic Experience ¡rating Exposure Loss Freq/Sev Predictive Compariative Market Telemetrics Judgment 13
10% 12% 14% 16% 18% 20% Loss ratio 0% 2% 4% 6% 8% Europe uses more sophisticated models Market conversion Market analysis One/Two way Curve fit Clustering Credibility EU Spatial smoothing PCA PL methods ROW Personal Lines Methods By Region 14 Flood/Cat UK GLM Discrete US Pricing Techniques World GLM Cts GAM GNLM Behaviour GLM Behaviour GAM Stochastic
10% 15% 20% 25% 30% 35% Commercial Lines tend toward simpler and stochastic methods L 0% 5% o M s s a r r k a e t i o t c o n v e M r s a i r o k n e t a n a l y s O i s n e / T w o w a y C u r v e f i t C l u s t e r i n g C r e d i b i l i t y EU S p P a t C i a CL methods A l s ROW m o o t Commercial Lines Methods By Region h 15 i n g F UK l o o d / C G a L t US M D i s c r e World t e Pricing Techniques G L M C t s G A M G N B L e M h a v i o u r B G e L h M a v i o u r G A M S t o c h a s t i c
Pricing Techniques Data Sources (Trend) by Region 25% EU ROW 20% UK US/Canada 15% 10% 5% 0% t t r l e l c c e t n c i a c o l e n n i i d l i i c r c e r i t d n l h f b e o a i i e n t m r i p h o e c t t u r p i t a e e l a C M m e e u e P ¡ a r t p r l p V u g n z s g a ¡ o m s i s n t d I r n o n a ¡ u n o o u t m a C o n t i C J C g -‑ a c u e n r N E o D O o c N ¡ c y A t s u d n I US is region with largest reliance on Industry or Advisory Data Sources UK is region with largest reliance on Account Specific information 16
Pricing Techniques Loadings – Profit Provision 40% EU ROW 35% UK 30% US/Canada 25% 20% 15% 10% 5% 0% ROC N/A Pct ¡Premium Price ¡Opt Percentile Combined ¡ratio Cashflow Capital ¡model • Combined Ratio most common • Return on Capital popular in US/Canada, Capital model in UK 17
Pricing Techniques Loadings – Large Losses 80% EU 70% ROW 60% UK 50% US/Canada 40% 30% 20% 10% 0% No ¡adjustment Cap Separate ¡model 18
Pricing Techniques Loadings – Type of Cat Models Used 40% EU 35% ROW UK 30% US/Canada 25% 20% 15% 10% 5% 0% Single ¡vendor Vendor ¡w/ ¡in-‑ Pure ¡In-‑house Blended Actual model house ¡adjust. experience 19
Pricing Techniques Types of Platforms Used for Pricing Personal lines Commercial lines 140 300 120 250 100 200 80 150 60 100 40 50 20 0 0 S/S formula S/S Programming Pricing package Custom built model In house Web In house Desktop S/S formula S/S Programming Pricing package Custom built model In house Web In house Desktop EU ROW UK US EU ROW UK US Reinsurance Liability 70 160 140 60 120 50 100 40 80 30 60 20 40 10 20 0 0 S/S formula S/S Programming Pricing package Custom built model In house Web In house Desktop S/S formula S/S Programming Pricing package Custom built model In house Web In house Desktop EU ROW UK US EU ROW UK US 20
Pricing Techniques Form of Estimates Given to Employer/Client 100% EU 80% ROW UK 60% US/Canada 40% 20% 0% Range ¡of ¡Estimates Point ¡Est. ¡& ¡Quartiles Optimised ¡Price Non-‑negotiable ¡price Price ¡recommendation • More than 80% provide a final price subject to UW discretion • Range of Estimates less than 10% of the time 21
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