CATASTROPHE RISK (E) SUBGROUP Conference Call
Wednesday, January 23, 2014
2:00 p.m. – 3:00 p.m. CST
ROLL CALL
David Altmaier, Interim Chair
Perry Kupferman/ Giovanni Muzzarelli
George Bradner/Richard Marcks
Judy Mottar
Gordon Hay
Alan Seeley
Rolf Kaumann/Gloria Huberman/Sak-man Luk
Dale Bruggeman/Tom Botsko
Nicole Elliott
Florida
California
Connecticut
Illinois
Nebraska
New Mexico
New York
Ohio
Texas
AGENDA
1.
Discuss Comments Received for PR025 Instructions
a. NAMIC Comment Letter
b. Travelers Comment Letter
c. RAA Comment Letter
Attachment One
Attachment Two
Attachment Three
2.
Consider Adding 2013 Events to the Catastrophe Event Lists
3.
Discuss the Attestation for 2013 Reporting
Attachment Four
4.
Discuss PR017A Underwriting Risk Factors Issues
a. Current Identified Issues
b. RAA Comment Letter
Attachment Five
Attachment Three
5.
Discuss Any Other Matters Brought Before the Subgroup
6.
Adjournment
W:\QA\RBC\PRBC\2014\01_23_Cat_Risk_Conference_Call\012314Cat Risk Agenda.docx
© 2014 National Association of Insurance Commissioners
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Attachment One
January 17, 2014
The Honorable David Altmaier
Chair, Catastrophe Risk RBC Subgroup
National Association of Insurance Commissioners
Attn: Eva Yeung
Via E-mail: [email protected]
Re: Proposed Instructions to the PR025 Catastrophe Risk Report
Dear Chair Altmaier:
The National Association of Mutual Insurance Companies (NAMIC) appreciates the
opportunity to comment on the draft instructions. NAMIC is the largest and most diverse
property/casualty trade association in the country, with 1,400 regional and local mutual
insurance member companies serving more than 135 million auto, home, and business
policyholders and writing in excess of $196 billion in annual premiums that account for 50
percent of the automobile/homeowners market and 31 percent of the business insurance
market. More than 200,000 people are employed by NAMIC member companies.
The Catastrophe Risk Subgroup has proposed instructions for the PR025, 2014 reporting
and our members have some requests for clarification and comment.
1. Consistency of Instructions. We noted that a substantial portion of the proposed
instructions on the document released for comment are included in the instructions
appearing on the PR025. However, there are differences in the wording of instructions
on each document. We suggest that if the Subgroup intends to leave instructions on
PR025, the wording of the instructions on each document should be consistent.
2.
Definitions. The instructions include some terms that would benefit from specific
definitions to aid companies in providing consistent and accurate reporting. In paragraph
1 of the instructions the term “aggregate exceedance probability” (AEP) is used to
describe the preferred methodology for calculating the data for the report. It is indicated in
the instructions that it is preferred to the “occurrence exceedance probability” (OEP)
method. A clear definition of these two probability methodologies as they apply to this
report would be helpful for our member companies.
3. Consistency with Attestation. Paragraph 2 of the instructions, states that Companies
must use the same data, modeling and assumptions that the company uses in its own
internal catastrophe risk program. This is misleading as companies are given an
opportunity in the Attestation to explain any differences between modeling for the internal
catastrophe risk management process and modeling for RBC. To avoid confusion, we
suggest the highlighted wording at the end of this paragraph be added to the instructions
to make it clear that there could be situations where the assumptions and data used for
modeling RBC is different from internal modeling and that the Attestation should be used
Attachment One
when this situation arises. If the decision is made to include the more detailed instruction
language from the PR025 form then these same adjustments are appropriate as well..
“A company is not required to utilize any prescribed set of modeling
assumptions, but must use the same exposure data, modeling, and
assumptions that the company uses in its own internal catastrophe risk
management process. Exceptions to this requirement must be explained in the
Attestation Re: Catastrophe Modeling Used In RBC Catastrophe Risk Charges.”
4. Interrogatory for Exemption. To be consistent with the interrogatory language, we
suggest a clarification of the final sentence of paragraph 3.
“Zero entries may be made for c Companies with no or minimum exposure, as
reflected in their interrogatory responses on PR025, are exempted from
completion of PR025.”
We also suggest adding the following interrogatory to PR025 to identify companies with
minimum hurricane and earthquake exposure.
Does the company have minimum exposure to
hurricane and earthquake losses?
Y/N
If the answer is yes, the company does not have to complete this page.
5. Allocation of Group Modeling Results. We suggest clarification language for
companies that are participants in an inter-company group pooling arrangement that their
modeling may be completed on a group pool basis. We recommend the following
instruction from the footnote on PR025 be added under the specific instructions for
Column 1.
“For companies that are part of an inter-company pooling arrangement, the
losses should be consistent with those reported in Schedule P, i.e. losses
reported in this column should be the gross losses for the pool multiplied by the
company’s share of the pool.”
Thank you for the opportunity to comment. If there are any questions about our comments
please contact me at 317-876-4270.
Respectfully Submitted,
Michelle Rogers
Director of Financial and Regulatory Policy
National Association of Mutual Insurance Companies
Attachment Two
From: Blanchard III,Ralph S [mailto:[email protected]]
Sent: Wednesday, January 08, 2014 12:38 PM
To: Yeung, Eva K.
Subject: Comments on P&C RBC - PR025 Instructions exposure draft
Eva,
SUBJECT: PR025 Instructions exposure draft
Overall, we are comfortable with this exposure draft. The only change we suggest is one that would
make it more consistent with the actual wording on page PR025. That change would be to add to the
instructions the existing footnote on PR025 that reads:
“For companies that are part of an inter-company pooling agreement, the losses in this column [1]
should be consistent with those reported in Schedule P, i.e., losses reported in this column should be
the gross losses for the pool multiplied by the company’s share of the pool.”
This could be accomplished by adding the above quoted footnote to the end of the proposed specific
instructions for Column (1). The resulting specific instructions for Column (1) would read:
“These are the direct and assumed modeled losses per the footnote. Include losses only; no loss
adjustment expenses. For companies that are part of an inter-company pooling agreement, the losses
in this column should be consistent with those reported in Schedule P, i.e., losses reported in this
column should be the gross losses for the pool multiplied by the company’s share of the pool.”
Regards,
Ralph Blanchard
The Travelers Companies, Inc.
This communication, including attachments, is confidential, may be subject to legal privileges, and is intended for the sole use of the
addressee. Any use, duplication, disclosure or dissemination of this communication, other than by the addressee, is prohibited. If you have
received this communication in error, please notify the sender immediately and delete or destroy this communication and all copies.
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Attachment Three
Telephone: (202) 783-8311
Facsimile: (202) 638-0936
http://www.reinsurance.org
January 20, 2014
Ms. Eva Yeung
National Association of Insurance Commissioners
1100 Walnut Street, Suite 1500
Kansas City, MO 64106-2197
VIA EMAIL
Re: PR025 Exposure Draft and PR017 (A)
Dear Ms. Yeung:
The RAA believes that adding an explicit CAT risk charge is an important improvement to the
RBC formula. We appreciate the opportunity to provide written comments on issues being
considered by the Catastrophe Risk Subgroup as they finalize the requirements for the new
charge. Our members have provided some additional feedback related to the PR025 exposed
instructions and newly raised issues concerning PR017 (A) that we would like to share with the
Subgroup.
PR025 Instructions
Our members have expressed concerns about using AEP versus OEP to calculate modeled
catastrophe losses. It is our understanding that the rating agencies use OEP, and we believe that
OEP is a more practical approach to apply to a modeled loss exposure that is net of reinsurance.
It is relatively easy to calculate modeled losses net of reinsurance for CAT excess of loss and
quota share reinsurance. However, AEP could apply differently for respective scenarios around
the 100 year level depending on whether the total loss amount is driven by severity or frequency.
As an example, the actual 100 year AEP number might involve one or two large events, meaning
the company net is one or two retentions, but the 99.5 year number might consist of a number of
smaller events and the net aggregate retention could be significantly more. This could mean that
applying AEP to modeled reinsurance may not be done very well or consistently. Therefore, we
request that the Subgroup consider using the OEP standard.
We also recommend that the instructions should specify any requirements related to model
vintage and address whether there are offsets for federal income tax impact or reinstatement
premium. It is our understanding that the Subgroup reached a decision during its deliberations to
not allow adjustments for tax and reinstatement premium, but perhaps that should be stated again
in the instructions for clarity. With respect to model vintage, we recall that the Subgroup
discussed the issue and concluded that prior versions of models could be used as long they are
not too far out of date.
Attachment Three
PR017 (A)
At the Fall National Meeting of the PCRBC Working Group, there was discussion draft agenda
item related to PR017A that was deferred to an interim conference call. Our understanding is
that the discussion draft raises concerns about the appropriateness of using the ex-cat, hard-coded
line 1 and line 4 factors for companies that do not have R6 and R7 losses. The hard-coded
industry average factors incorporate historical catastrophe losses and constitute an implicit CAT
charge. The new R6 & R7 charge is an explicit charge intended to replace the old implicit
charge entirely. All companies that have CAT exposure will now have a separate R6 and R7
charge. That means that in total for the industry, all modeled CAT risk will be reflected in RBC
R6 & R7 going forward so there is no need to continue to apply CAT inclusive historical
industry average factors to any companies.
We think it is entirely appropriate for companies with zero R6 & R7 CAT Risk to use ex-cat
industry average factors because they have no exposure to CATs. If these companies are
required to use CAT inclusive industry average factors, they would be receiving an implicit
charge for a risk they do not have—a risk that is based on the historical CAT loss experience of
other companies in the historical industry aggregate. The existing RBC approach is less precise
because it penalized companies with zero CAT exposure by applying industry average factors
that implicitly included CATs. The new RBC approach is more precise because it explicitly
applies the charge to all of the companies with CAT exposure.
Again we appreciate the opportunity to provide these comments and look forward to discussing
these issues on the upcoming interim conference call.
Sincerely,
________________________________
Scott Williamson
Attachment Four
ATTESTATION RE: CATASTROPHE MODELING USED IN RBC CATASTROPHE RISK CHARGES
_________[Name of Company]________________________________ hereby certifies that the modeled catastrophe losses for earthquake risk
and hurricane risk entered on lines 1 through 8 of Schedule PR025 of this Risk-Based Capital Report were determined by applying the same
catastrophe models or combination of models to the same underlying exposure data, and using the same modeling assumptions, as the
Company uses in its own internal risk management process, with the following exceptions:
_____________________________________________________________________________________
_____________________________________________________________________________________
These exceptions, if any, are made for the following reasons:
_____________________________________________________________________________________
_____________________________________________________________________________________
The following describes the Company’s application of catastrophe modeling to the determination of the R6 and R7 risk charges: (include which
models are used in what combinations for each of the R6 and R7 charges; what key modeling assumptions are used, including but not limited to
time dependency, secondary uncertainty, storm surge, demand surge, and fire following earthquake; and the rationale for treatment of each
issue or item): (provide attachments if necessary):
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
The Company further certifies that the underlying exposure data used in the catastrophe modeling process is accurate and complete to the best
of our knowledge and ability, with the following limitations:
_____________________________________________________________________________________
_____________________________________________________________________________________
The following describes the extent to which the exposure location data is accurate to GPS coordinates; to zip code; and to a level less accurate
than zip code: (provide attachments if necessary):
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
The following describes the steps taken to validate, to the best of the Company’s knowledge and belief, the accuracy and completeness of the
exposure data used in the modeling process to determine the R6 and R7 catastrophe risk charges (provide attachments if necessary):
_____________________________________________________________________________________
_____________________________________________________________________________________
Completed on behalf of: _____________________[name of Company]_________________________ Date: _____________________________
Completed By: ________________________________________________________________
Title: _______________________________________________________________________
Phone/Email: ________________________________________________________________
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Attachment Five
Cat Risk Charge Calculation Issues For 2013 reporting in PR017A
• Lines 1 and 4 are hard coded with factors
o For non-cat lines, these factors are the same as the PR017 factors
o For cat lines (Homeowners, Commercial Multi-Peril, Special Liability, Special Property,
Auto Physical Damage, International, Reinsurance Property & Financial), the factors are
the PR017 factors but on an ex-cat basis
o Thus, companies writing in the cat lines will have differing PR017 and PR017A results
and thus different overall RBC results on each basis (inclusive and exclusive of the cat
risk charge) regardless if they have an R6 or R7 charge
o Issue 1: RBC results (stemming from PR017 and PR017A) should be the same with and
without the cat charge, if there is no R6 and R7 reported
 Solution 1 for 2014: The PR017A factors for the cat lines should default to
PR017 factors unless there is non-zero data reported in R6 or R7
o Issue 2: R6 and R7 may only be related to one or two cat lines; however, the company
gets the cat offset for all cat lines if there is non-zero data in R6 and R7.
 No solution identified yet since cat charges are reported in PR025 in the
aggregate and not by line. Possible solution: Add a check box in PR025 for
lines impacted by the charge.
• Line 2 is derived using ex-cat data for ALL lines, using cat data reported in PR100+ pages
o Issue 3: For non-cat lines that report cat data in PR100+ pages, line 2 will be calculated
on an ex-cat basis whereas lines 1 and 4 will be the same factors as in PR017, thus
potentially producing differing PR017 and PR017A results and thus different overall
RBC results on each basis (inclusive and exclusive of the cat risk charge), whereas there
should be no impact for these non-cat lines
 Solution 3 for 2014: For non-cat lines, the line 2 factors should default to the
PR017 factors. (Eventually, we will cut off reporting in PR100+ pages for noncat lines, eliminating this problem.)
o Issue 4: For cat lines that report cat data in PR100+ pages and report no R6 or R7
charges, there should be no ex-cat benefit, since there is no double counting issue if there
is no R6 or R7 charge reported. (However, as mentioned, line 2 is calculated on an ex-cat
basis.)
 Solution 4 for 2014: The PR017A factors for the cat lines should default to
PR017 factors unless there is non-zero data reported in R6 or R7
 Note that Issue 2 applies here as well