Chapter 8: Commercial Pricing Flashcards
What are large commercial risks?
“Large risks” means a risk or group of risks which are to some extent unique
These will include large clients, schemes and delegated authorities such as line slips
What is the high-level framework when pricing large risks?
[6]
- Are we able to understand the risk?
- Understanding the nature of the company requesting cover
- Is the risk within our risk acceptance policy (u/w guidelines, risk controls)?
- Developing the technical price for the risk
- Negotiating on the premium, which is likely due to the large premium
- Monitoring the performance/profitability of the large risk portfolio
Features of large risks?
Likely to be over multiple lines of business
Premiums sizes tend to be higher so individual underwriting can occur
Will differ between each other in:
- size
- industry
- construction
- susceptibility to natural disasters
Roles that actuaries can be involved in large commercial pricing?
[14]
- Calculating the minimum technical rate
- Acting as a second pair of eyes
- Auditing
- Signing off licence agreements
- Underwriting advice
- Designing rate monitoring and data capture systems
- Accumulation control
- Negotiation with third parties
- Negotiation with agents/brokers
- Negotiation with client risk managers
- Negotiation with finance department
- Negotiation with underwriters and negotiators
- Negotiation with claims department
- Regulatory requirement as part of responsibilities associated with the HAF
Considerations when understanding the nature of a client?
[7]
- New business proposition or a renewal
- Reason the client needs cover
- Whether the client requires cover in many territories
- Whether the client has changed significantly over time (M&As)
- Any changes in processes that could affect the nature of the risks
- Client’s level of risk management
- Similar existing clients (may be a better match for understanding changing nature of insured rather than own data)
Data considerations for large risks?
- Likely to be sparse
- Claims and policy data will be required
- May use other sources such as survey reports, client details and other background info
Considerations when calculating technical price?
Should under every aspect of the risk and cover that affects following cash flows:
- Premium
- Policy term
- Reinsurance premium
- Expenses
- Commission
- Cost of capital
Methods that can be used to get technical price?
[4]
- Burning cost
- Frequency severity
- Simulation
- Market models
Items to assess when monitoring a portfolio of large risks?
[7]
- Ultimate expected performance of recent underwriting years
- Capital requirements
- Rate increases on renewed risks
- Performance of lapsed risks
- Expected performance of new business
- How the total technical premium compares to the total actual premium
- Competitor performance
Elements of multinational cover?
- Will often include a master policy with primary details of cover
- Also include additional local policies that finetune cover per country and territory
- This may result in differences in conditions (DIC) or differences in limits (DIL)
How do large risks differ from small risks?
[4]
- Non-standard covers may be available to large risks
- Unique covers- for each client
- May include extra covers
- Differing deductibles for different covers
What should policy data include?
[4]
- List of policies (with some rating factor and SI info)
- Number of policies sold
- Premium written
- Total sum insured
What should claims data include?
[4]
Details of claims with:
- Dates
- Payment amounts
- Amounts outstanding
- Triangulation data
- List of large claims
