|
Risk disclosures
|
 |
|
Insurance risk
Introduction
The Group accepts insurance risk in a range of classes of business through Lloyd's Syndicate 2001's four separate underwriting businesses and Amlin Bermuda. The bias of the portfolio is towards short-tail property and accident risk but liability cov erage is also underwritten.
In the underwriting of insurance or reinsurance policies the Group's underwriters use their skill, knowledge and data on past claims experience to evaluate the likely claims cost and therefore the premium which should be sufficient (across a portfolio of risks) to cover claims costs, expenses and
to produce a profit. However due to the nature of insurance risk there is no guarantee that the premiums charged will be sufficient to cover claims costs. This shortfall may be caused by insufficient premium being charged or result from an unexpectedly high level of claims.
A number of controls are deployed to limit the amount of insurance exposure underwritten. Each year a business plan is prepared and agreed which limits the amount of premium income to be written in total and for each class of business. Progress to this plan is carefully monitored during the year. The Group also operates under a line guide which determines the maximum liability per policy which can be written for each class and for each underwriter. Apart from UK motor liability, which has unlimited liability, all policies have a per loss limit which caps the size of any individual claims. For larger sum insured risks reinsurance coverage may be purchased. The Group is also exposed to catastrophe losses which may impact many risks in a single event and again reinsurance is purchased to limit the impact of such events. Reinsurance arrangements.
The insurance liabilities underwritten by the Group are carefully reviewed on an individual risk basis and through review of portfolio performance. All claims arising are reserved upon notification. Each quarter the entire business is subject to a reserving process whereby levels of paid and outstanding (advised but not paid) claims are reviewed. Potential future claims are assessed with a provision for incurred but not reported (IBNR) claims being made. This provision is subject to careful review by senior executives and an independent internal actuarial assessment is carried out by the in-house actuarial team to determine the adequacy of the provision. Whilst a detailed and disciplined exercise is carried out to provide for claims advised, it is possible that these could exceed the reserves carried. In particular there is increased uncertainty in establishing an accurate provision for claims which have been incurred but not reported and there is a possibility that claims may arise which in aggregate exceed the reserve provision established. The review of claims arising may result in underwriters adjusting pricing levels to cater for an unexpectedly higher trend of claims. However, this may not be possible in a competitive market and business may be lost. Also, there is a portfolio of risk already underwritten which cannot be re-priced until renewal at the end of the policy period. |
|
|  Print |
|
Top