Hello and welcome to today's webinar titled Reinsurance Insights. Please be aware of the IMUA statement. We are fortunate to have two fabulous presenters today, Danielle Volpe and Sharon Primerano. Danielle currently works in the Property Facultative Department at XL Catlin. In the next few weeks, she will be transitioning to XL Catlin's Facultative Program segment. Her career in reinsurance began 14 years ago and since then, she has also worked at Gen Re and Arch ReFaq. Danielle has been an active member of IMUA for almost as long as her career in reinsurance. She's been a member of several IMUA technical committees and is a past chairperson of IMUA's Gen X, Gen Y committee. In 2014, Danielle presented at IMUA's annual meeting on a fine art lesson from Losses. Danielle's two young daughters keep her on her toes and she also enjoys playing golf and traveling. Sharon is the Chief Underwriting Officer for the Hartford's Middle Market Marine Business Segment. Sharon has worked in the inland marine industry for 32 years and in addition to the Hartford, has worked for William H. McGee, Chubb Insurance Group, and One Beacon. Sharon has been involved on numerous IMUA committees and is a past member of IMUA's Board of Directors. She's also a past presenter of IMUA's Intro to Commercial Inland Marine Insurance course on the overview of inland marine insurance and the nationwide marine definition. Sharon currently serves as a chairperson of IMUA's Marketing and Communications Committee and is a wonderful resource for IMUA. Outside of work, Sharon enjoys family time and playing golf. Welcome, ladies. The floor is all yours. Thank you, Lillian. Thank you. Good afternoon, everyone. This is Sharon and I'm going to get us started today. Danielle and I are very happy to be with you to talk about one of our favorite topics, reinsurance. In my role at the Hartford, underwriters come to me with reinsurance questions on a regular basis, so I know this is a topic that is important to all of you. Reinsurance is a critical part of our world as direct underwriters and the better we can understand it, the more effective we will be. In today's presentation, I will provide the direct underwriter perspective and Danielle will provide the reinsurance underwriter perspective. We're going to cover some reinsurance basics, understanding and using reinsurance, our thoughts on what a quality submission needs to look like. We're also going to talk about how to deal with catastrophe peril and we're going to close with a few negotiating tips. By the end of our presentation, we hope you'll have a better understanding of reinsurance and some tips on working with your reinsurance partner. All right, Danielle, let's get started. Okay. Good afternoon, everyone. This is Danielle and thanks again, Sharon. So, let's begin. First and foremost, what is reinsurance? Simply put, reinsurance is insurance that insurance companies buy and that's it. That's it. Thanks for listening. Just kidding. So, we are going to move on. Insurance companies, also referred to as the seeding companies, transfer a portion of risk to another carrier known as the reinsurer. This can be done directly or through a broker. This purchase by the seeding protects against significantly large claims or disasters, allowing insurance companies to cover more risk without fear of bankruptcy. This is because the risks and costs are spread over multiple carriers. This next slide is just a quick depiction of what I was just kind of talking about. So, we have our big box corporation who acts as the insured, who purchases insurance from the insurance company, also known as the seeding, who in turn, if necessary, purchases insurance from the reinsurance company, obviously the reinsurer. All or most cases, the insured big box corporation does not know that this purchase is taking place between the insurance company and the reinsurance company. It's more or less seamless from the insurance point of view. It's also good to note on this slide that depending on the insurance company, not all insurers will be quote unquote big box. Reinsurance is also purchased on small mom and pop type risks as well, and more or less everything in between. Where there's a need, reinsurance companies will participate. So, moving on, here are some more reinsurance basics. A reinsurer enables an insurance company to expand its capacity. So, whether it's due to the overall size of the account, a particularly large location, maybe a retention limitation, or even a single catastrophe peril, reinsurance can allow for greater participation by the seeding company. Greater participation can help insurance companies compete on larger accounts in the marketplace. Reinsurance also enables insurance companies to stabilize its underwriting results. So, reinsurance reduces the amount of capital needed in the event of a large loss. This ensures that results are more predictable for the seeding company, thus allowing for easier planning and projecting. And Sharon, you're going to talk about the next point, right? Yes, I am, Danielle. Thank you. So, just an example of how reinsurance can be used by a seeding company to finance expanding volume. So, a seeding company, when they enter into a new market or a new line of business, they can use reinsurance to assist them in that effort. For example, purchasing a quota share treaty from a reinsurer, where risks are shared from $1, can provide both spread of risk assistance and also surplus relief, since those upfront expenses are shared via a seeding commission. So, reinsurance can also secure catastrophe protection. These catastrophe covers typically involve the reinsurer participating excess of multiple policies, as opposed to just one. They're not really truly exposed until a real catastrophic event occurs. In this case, the reinsurer would only be responsible to pay for a loss if the total loss over all of the associated policies exceeds the reinsurance attachment point, which we'll get into a little bit later. In other words, this form of reinsurance indemnifies the seeding company for any accumulation of losses in a single or series of catastrophic events. And I think the key word here is accumulation of losses, because typically you need a lot of them for a reinsurer to be involved in such catastrophe protection. Reinsurance can also be used when a seeding company would like to withdraw quickly from a class of business. An example of this is, say a seeding company has purchased another company, and with that purchase, they have a book of business that they would really like to exit from. They can partner with a reinsurer to reinsure a high percentage of that risk, which helps them mitigate that exposure and get that off of their books more quickly. Reinsurers help share large risks with other companies. And basically, it's allowing a seeding company to assume greater risk than maybe its capital size would normally allow for, or maybe offer larger limits of protection than otherwise possible internally. And lastly, reinsurance enables an insurance company to expand their expertise. Because reinsurers see a range of risks from large and smaller companies throughout the world, chances are they're able and also willing to help navigate through a new line of business, a tougher class of business, or even a specific location with specialized operations. Information can be found through various publications within a reinsurance organization, potentially online or through your local contacts and partners. Reinsurance does not, I like this slide. So, reinsurance does not turn an uninsurable risk into one that is insurable, make a loss less likely to happen, or turn bad business into good business. So, although there are times when reinsurers enable companies to include, let's say, less desirable locations on a program or account, it's very obvious to the reinsurer when a seeding company is not comfortable with a risk. Many times, this can be seen simply through more conservative retentions, and Sharon's going to get into that a little bit later in the slide. Regardless, your reinsurance partners are underwriters, and they evaluate every risk that comes in. They are there to be just that, a partner, but each underwriter is accountable for the business that he or she puts on their own books. A risk is a risk. The characteristics don't change once the risk is ceded to the reinsurer. And if after review, the reinsurer feels as though the participation is either not possible or limited, he or she does have the option to either, say, reduce capacity or outright decline an account. So, now we're going to get into the types of reinsurance. This is a general overview of the types of reinsurance that are available in the market. It's not going to touch on every single one, but these, I felt, were the important ones to touch upon. Facultative is what we're really going to be concentrating on further along in the slides. So, I'll start with that. So, facultative reinsurance. This is a form of reinsurance that's more or less contained to a single transaction. It could be a single risk or a defined set of risks. A submission and acceptance is required on each individual risk the seeding company wishes to reinsure. The reinsurer is not obligated to accept every or any submissions. And in general, the underwriting expenses here are higher because facultative business is individually underwritten and issued. So, it's very transactional. Moving on to an automatic or a treaty. So, these two kind of go hand-in-hand. They are pre-negotiated agreements between the seeding and the reinsurer. The insurance company agrees to seed all risks within a certain class, whether it be a certain class of business or a certain line. And in return, the reinsurer provides coverage on all of these risks without individually underwriting them. So, again, it's pre-negotiated, it's automatic, it's done so by contract, and the agreement is defined by a set policy period. And thirdly, we have semi-automatic, which is a bit of a blend between the two that I just mentioned. It still has predefined terms and pricing, which makes it similar to automatic or treaty business. But like facultative, the reinsurer has the right of refusal over any risk that is submitted into a semi-automatic facility. Now, within these types of reinsurance, the three that I just mentioned, the purchase may happen in one of the following two ways, in the majority of all cases. Again, there are other ways that reinsurance is purchased, but we're going to concentrate on these two. So, the first one is proportional or sometimes known as quota share, although quota share is a little bit of a different animal than proportional, but sometimes the terminology is used hand-in-hand. But in any case, here the reinsurer takes a percentage of each risk. They then take the same percentage of the premium and the same percentage of all of the claims. The reinsurer also pays a commission, mainly to cover any costs that a seeding company might incur while they're running the business. The reinsurer is also involved in the risk under the same terms and conditions negotiated between the seeding company and the policyholder. So, in this case, sometimes the reinsurer is attaching from dollar one, unlike non-proportional or excess reinsurance. So, here the reinsurer pays a claim only if the loss exceeds a certain dollar amount, referred to as the insurance company's retention. In non-proportional and excess purchases, the reinsurance layer is established. So, for example, if you have a $10 million building, a reinsurance layer of, say, $7.5 million excess of $2.5 million is established. So, non-proportional reinsurance is a separate purchase under new terms and conditions defined by the reinsurer, excess of a company's retention. Now, most facultative business is done on an excess basis, and proportional and non-proportional are both prevalent in automatic and treaty business. Again, these are the most common reinsurance purchases in the market. There are others, but for the sake of this presentation, we're just going to concentrate on these. Thanks, Danielle. Now that we have a good sense of reinsurance basics, including some of the different types of reinsurance, let's get into understanding and using reinsurance. So, first and foremost, it's incumbent upon you as the underwriter to understand your company's reinsurance philosophy and how that philosophy might change over time. For example, one company might depend heavily on reinsurance to conduct business and take relatively small net lines. Another company might take very high retentions and rely only on treaty protection, that automatic protection that Danielle referenced for reinsurance. Meaning that they rarely buy facultative reinsurance. Other companies could be very much in the middle, having treaties in place, but also strategically using facultative reinsurance for certain lines or classes of business. For you as the underwriter to be as effective and successful as possible, you need to be aware of what automatic reinsurance facilities are. What automatic reinsurance facilities or treaties are available to you as an Inland Marine underwriter. Now let's talk about some of the automatic facilities that are typically available or might be available to you as an Inland Marine underwriter. One might be your company's property per risk treaty. Many insurers' property treaties cover their Inland Marine lines of business. If this is the case at your company, you should become familiar with your property treaty and what the general structure is. Key items would be you should know what your treaty net retention is and what the limit is on the treaty. So what size risk can you write within that property per risk treaty? Another key thing that you should understand is how your treaty defines risk. This should be outlined in your property underwriting guidelines and certainly your manager or your underwriting referral resource should be able to help you with understanding anything to do with your reinsurance arrangements. You also might have marine treaties available to you as an Inland Marine underwriter. Some companies have specific Inland Marine treaties, specific Ocean Marine treaties, or you could have a combined marine treaty that covers both your ocean and Inland Marine lines of business. And it could be as specific as you could have a frame builder's risk treaty just set up for that specific type of risk. Reinsurance can definitely get complicated and as an underwriter in your professional development, learning and understanding reinsurance will definitely help you. Now in terms of CAT reinsurance, so all companies have catastrophe reinsurance protection and it's highly likely that your marine lines are included in this CAT protection. So this is typically wind, flood, earthquake, those sort of natural catastrophe perils we'd be thinking about. So you should be aware of what the protection is at a high level and consider how your individual risk fits into your company's overall CAT strategy, including the reinsurance protection. So for example, you would want to understand what are your guidelines around aggregations in certain counties that are exposed to windstorm and how does your individual risk fit into those guidelines. You may feel like your risk is a good one, but it still may not be something you can write based on your corporate catastrophe guidance. Catastrophe reinsurance protection is very much about managing risk at the portfolio level. The protection and the guidance go hand in hand and they're there to ensure that your company is managing risk as intelligently as possible. At the end of the day, though, it's about all of your individual underwriting decisions. In addition to the automatic facilities, so the various treaties that you might have available to you, Danielle mentioned the semi-automatic. So this is a type of arrangement that could be available to you at your company as well. It could be set up for an entire book of business or a specific line of business. Property or builder's risk are good examples of where auto facts might come into play. As the underwriter, you need to understand what capabilities these additional facilities will give you because they can help you write more business if you have them. You also need to be aware what the guidelines are for these different facilities and what you can and can't place into them. They're definitely going to have more restrictions than your regular treaty, hence the semi-automatic nature of them. So now once you have a good understanding of what the automatic and semi-automatic facilities are that are available to you, then you're going to move on to your individual risk decisions and think about where you may or may not need to call Danielle or one of her competitors for some facultative reinsurance assistance. Your facultative decision starts first and foremost with setting your retention on a given risk. Always be conservative when setting your retention. So Danielle had her favorite slide earlier, which is basically reinsurance does not make a good risk a bad risk. So that's a key message that she has. A key message I have is always be conservative when setting your retention. And definitely if you are confused about what your retentions might be, consult your manager, your underwriting referral resource. You'll make a better decision if you're talking with someone else. And never ever guess. Always have a partner when you feel like you need some assistance determining a retention. Those of us who are setting guidelines around retention try very hard to be clear and black and white, but we all know in Marine it is very difficult to be black and white. So that's why when you're looking at a retention and it's not clear, consult with someone. Now let's get into some specifics. So each of you are going to have your own specific retention guidelines, your company guidelines. So I'm just going to talk about some general examples of what Inland Marine underwriters might find. So typically, in Inland Marine, we're going to be working with either location-based risk or floater-type risk. For your location-based risk, retention settings should be very similar to property line setting, especially if your Inland Marine risk are included in your property treaties. When you're setting your line on location-based risk, consider what type of risk you're writing, so classification or occupancy. So for example, I'm going to think quite differently about a computer equipment policy that I'm writing that's where the equipment is located in a chemical manufacturing plant versus computer equipment that's sitting in an office building. That type of difference should be built into your line setting through some sort of hazard code or occupancy guidance. Construction and public and private protection are also factored into retention. So I would certainly expect to have a higher retention for a fire-resistive sprinkler building versus a frame, non-sprinkler building in a protection class 9. Another point that I think is really important is when we think about private protection and we're setting our lines for sprinkler risk versus non-sprinkler risk, many companies are very specific about what qualifies as a sprinkler risk. So be sure that you are understanding when and when you can't. When you can and when you can't, use a sprinkler risk. Use a sprinkler line. You might have tables, underwriting tables, retention tables, and there will be an asterisk about sprinkler protection. A lot of times, there has to be independent verification of that sprinkler system, maybe an ISO report or a company risk engineering report. And also, typically, it's expected that that sprinkler system is adequate for the occupancy. So just many, many things to consider when determining if you can use a sprinkler retention or not. Catastrophe peril for our location-based inland marine risk definitely come into play. Make sure you understand your corporate guidance around cat perils and how reinsurance plays into that guidance. You may have specific net lines depending on where your risk is, what type of construction it is, in addition to your typical underwriting guidance and deductible guidance for cat perils. For inland marine floaters, we write all types of floater policies inland marine, contractor's equipment, miscellaneous articles, medical equipment, entertainment equipment. Typically, your retention guidelines are going to vary depending on the type of equipment that you're insuring. So for example, many of us have lower retentions for cranes than we do for other types of equipment. Retentions for floater-type policies can be set on a per-item basis. They can be set on a per-occurrence basis. These are both things that you have to consider when you're looking at your risk, depending on what your company's individual guidelines are. So for example, you can have a contractor's equipment risk with $50 million in values, with no single item valued at more than $1 million. If your company retentions were $1 million per item, you wouldn't need any FAC for any individual item. But say your retention was $20 million per occurrence, if you want to put up that $50 million limit, you may need some FAC support in order to do that. That's just an example of how retention might work on a floater risk. Now let's talk a little bit about builder's risk. Builder's risk, as you all know, are also location-based in the marine classes. So you're going to contemplate the construction, your public and private protection, your cap peril, just as you do with your other in the marine location-based risk. With builder's risk, typically, retentions are going to vary depending on the type of project you have. New construction, ground up, is probably going to be considered your most desirable. Whereas if it's a renovation project and or if you're being asked to cover the existing building, you could have lower retentions. And you have to consider that in your underwriting. In particular, when you have a renovation project and you're covering the existing building and there are structural changes being made to that existing building, that's an area where retentions are typically lower and you're going to be engaging some reinsurance partners like Danielle. Another aspect of builder's risk is when you have risk with multiple buildings. It can be more complicated. Say you have a framed garden apartment complex going up. You could have 10 buildings at a site. In almost all cases, companies look at that and have guidelines set around how close the buildings are to each other. So you may have 10 buildings that are all very close together that are considered one amount subject. You could have buildings that have significant spread. And then you have to look at your plot plans, determine how close groups of buildings are to each other, and determine your amount subject and apply that to your retention. This is another area where you really should be conservative. And if you are going to veer from the guidance at all, always consult with your manager, your underwriting referral person. This is not an area where you should take any additional personal risk. Always be conservative. So now in terms of property retention, I mentioned that many of you will find your inland marine risk are included in your property reinsurance treaty. Also, many of you work at companies with counterpart underwriters who might also be writing risk at the same location that you're at. So for example, you could be writing a fine arts policy for an insured. And you have an underwriting counterpart writing a package policy covering the building content and business income for that same insured. If you are both subject to the same treaty and that is considered one risk, you need to work together to make sure you know how much you have exposed at that location together, what your single retention is for that risk, and if you need facultative support for that risk combined. And then you can purchase facultative reinsurance for that individual risk that applies over both of your policies. That's very important to consider for those of you who are working at companies where you have package counterparts, other lines counterparts where you could be writing the same risk, writing different coverages at the same location. And now I'm going to turn it back over to Danielle. She's going to talk a little bit more about amount subject and some other reinsurance topics. Thanks, Sharon. OK, so understanding and using reinsurance now with complex minds of property facultative reinsurers. So like Sharon said, we're basically starting in the same place that you guys are. We are looking at amount subjects. We are determining where our exposure is. So again, we're starting. We're looking at a particular risk. We are figuring out where our true exposure is. And even if two risks may seem similar, the amount subject may be very different. So we're just going to go through a couple examples. I'm going to start with a museum versus a gallery. So a museum, and now I'm talking about one that's on the larger side, is typically of excellent construction. And it's very well protective. And I say typically because I know there are obvious exceptions to all of these occupancies. But let's just picture your fire-resistive, large, high-valued museum. So the larger the museum, typically the larger the values can be. However, a museum may also have a true fire division since the footprint is more times than not very compartmentalized. So it's the job of the reinsurer. Now, again, it's all property facultative at this point that we're discussing. It's the job of the reinsurer to figure out where in the museum the majority of the values are. So let's just say the total value of the museum is a billion dollars. Our amount subject may only be a percentage of that, given such risk factors. We may find that one section of the entire museum houses the most expensive works. So this makes a difference when we are determining our amount subject or our true exposure, which is the basis of our rating. A gallery, on the other hand, may have lesser construction. Size-wise, it may be significantly smaller, and it probably has no fire divisions to speak of. So if the total values are, let's say, $50 million at the gallery, the amount subject would probably be the full $50, since there are no positive risk factors that would lessen our amount subject for rating. Same thing goes for the spread of risk. Now, Sharon brought up the example of an apartment complex, so I'm going to stick with that, just so we're kind of talking about the same thing here. So on the reinsurance side, another example where the amount subject would be less than the actual TIV could potentially be an apartment complex. If we're looking at a complex with multiple buildings, let's just use 25 for this example. So we have an apartment complex with 25 buildings. We may be able to carve out a grouping of buildings that create our amount subject, which is less than that 25. This is more times than not, based off of the distance between buildings, as Sharon brought up on her previous slide. You need to follow your own company's guidelines when it comes to determining what distance counts as adequate separation. But for this example, let's just say 100 feet between buildings, given a wood frame construction. So out of the 25 buildings in your complex, you may find that only six come within 100 feet of each other. This would be our amount subject. Additionally, you might find that there are three instances within this one apartment complex where that grouping occurs. So for rating purposes, we would have three similar amount subjects. So there's your spread of risk example, just with the apartment complex that Sharon was mentioning earlier. From there, what the reinsurer is doing is then setting a PML. So there are multiple definitions of a PML. But generally, we're referring to the largest foreseeable loss that could happen given normal functionality of a location's fire protection. So if everything's in working order, what is the largest loss we think we're going to see? So at this point, we've determined our PML. And now we're looking at the layer that were presented by the seating company. And are we attaching above or below this point? So all risk factors, construction, protection, occupancy, they all play into this PML calculation. And in very general terms, because I don't want to speak for everyone out there, but in general terms, when a reinsurer feels they're attaching within this PML, he or she is more conservative than if the attachment falls outside of that number. Again, the lower the attachment point, the more conservative on both pricing and capacity a reinsurer will tend to be. And this especially holds true as the risk factors are less desirable, say wood frame or non-sprinklered. Similarly, insurance companies sometimes buy buffer layers or mid-layers. And dealing with these compressed layers that do not stretch the total value or the full amount subject, it's important to understand that on a $10 million account, a 5X5, which is a 50% attachment point, is not the same as a 5X5 on a $100 million account. And obviously the attachment is at 5%. The attachment point or that percentage attachment on the $100 million risk is exceedingly lower and is therefore priced accordingly. On the flip side, there are cases where a reinsurance attachment point is very high in the risk. We are clearly out of the PML, and there is very little exposure in the layer. We then hit a minimum premium. And this minimum premium is basically what we need to charge to issue our facultative certificate. I mentioned earlier that facultative expenses are higher on facultative because we are issuing individual certificates for every risk that we see. So there's where the minimum premium comes into play. And Sharon, you wanted to touch on something here too, correct? Yes, yes, this last bullet point. Buying facultative reinsurance at the most cost-effective level. So what I'm talking about here is when you do hit the minimum premium with your facultative purchase. So for example, you have $150 million risk and you need to buy 50 million in FAC. If that 50 million is gonna cost the same 50X of 100 or 50X of 75, then I personally always will buy the 50X of 75. I consider that more cost-effective than attaching at the 100 million level. Okay, so dealing with catastrophe perils. First off, capacity in the reinsurance market. It's really important to have an understanding of what the different reinsurance markets are able and willing to offer in high hazard areas. This enables seeding companies to better predict whether a layer can be filled out and by how many markets. Many times these layers are split between multiple reinsurers. There are limitations in the cat market because this business is really volatile. So have these discussions with your markets, with your partners, and your reinsurer should be well-versed in what they can offer you as well. So whether it be over lunch, over the phone, whatever it is, just understand where am I gonna get this capacity filled and will I be able to right this risk? Modeling obviously also comes into play and this obviously holds true for the insurance company and the reinsurer. We all know models are computer-assisted calculations that help companies estimate cat losses. There are several models out there in the market and I don't think any two are exactly alike. So we're not always going to agree. But models take all risk characteristics into account. Again, the construction, the occupancy. It also takes in obviously the physical address and the size of the location. We also have to look at our aggregation. And this is basically how companies track how much capacity is already placed through the market and in our market with our clients. The aggregation can be tracked by state, county, zip code, or any other geographical measure. Reinsurers sometimes restrict capacity regardless of the attachment point or risk characteristics simply because their aggregation in any said geographical measure in any said geographical region is too great. This is to manage their capital as well in the event of a large disaster. So you could really have a fire-resistive building that's 10 miles inland, but if our aggregates are high in that particular zip code, we probably need to limit our capacity just to protect ourselves in the event of a large disaster as well. So facultative reinsurance is obviously being used a lot these days. The flood exposure is ever so prevalent now, especially in the Northeast following Sandy. Similarly, we have dealt with flooding in the Midwest, Colorado, Tennessee, Texas, and countless other areas just in the last few years. And I've listed all of them just to show that it's countrywide and it's happening. Many companies have changed their stance on flood retentions and limits since then. So in order to provide substantial flood limits and remain competitive in the market, facultative reinsurance has been heavily utilized to seed standalone flood limits. And similarly, as wind models are updated, facultative reinsurance is used to protect against wind-prone areas that may not have been seen as exposed in earlier versions of the model. And we're seeing this a lot as either RMS comes out with new wind zones and new wind exposures, locations that once were not wind exposed are absolutely being placed in the facultative market. So like fire business, placing cat perils in the facultative market helps to ensure companies have a better handle on their cat exposures in the event of a large loss. But again, the more severe the exposure, the more conservative the reinsurance markets tend to be. Talk to your reinsurance partners again and understand their appetite for this business. So just to reiterate from what I said earlier, and Danielle has very clearly outlined there, as an underwriter, you have to be well-versed in your corporate cat guidance and know who your reinsurance partners are and what they can do. And you should expand your network of reinsurance partners as much as possible so you have more chances of success and building that capacity that you need. Quality submission. Okay, so obviously the relationship between the seeding company and the reinsurer is important. It's built on trust and transparency. We both have the same goal and that's to write good profitable books. Profitable business. As a reinsurer, I feel much more comfortable with the risk when I feel I'm getting the full story, I'm getting good information, and I feel the seeding underwriter knows the risk as well. Part of the reinsurer's job is to understand a seeding company's appetite and retention. So we wanna know why, in some cases, a purchase may be out of the ordinary or why you're stretching to write an account outside normal appetite. And this should be very obvious to us if we are continually seeing submissions from you. Obviously, the more information, the better. The more information, the more accurate your quote will be. And when in doubt, I always say just send what you might think is too much information because that can only help. Okay, so pricing from the reinsurer perspective. I would tell you but then I'd have to, just kidding. So pricing from the reinsurer perspective. Each account is priced individually based on the risk factors presented. So again, this goes back to the quality of submission. If your reinsurer has to make assumptions based on the lack of information, most times these assumptions are made on the conservative side. So again, the more information the better and the better the quote. Rarely are there general or average reinsurance prices and this especially holds true for the inland marine market since like Sharon mentioned before, nothing's really black and white in inland marine. The rating is very subjective and so again, we're, I don't know, there really isn't an average reinsurance price here. And the pricing and the rates that we're using are typically based on historical loss information. So the rates aren't pulled out of thin air. There has been a lot of time and effort spent on ensuring you get an accurate quote and that the rates are adequate for a sustainable book of business. And that's it from the reinsurance perspective. Thank you, Danielle. Got it. So from the direct underwriter perspective, pricing, I think it's important as the direct underwriter that you know what you're looking for before you go out and look for your facultative quotes. So you need to determine your own roundup pricing for your risk and then depending on what type of layer you need in the reinsurance market, whether it's a cat layer, a building capacity layer, and reinsurance on a certain item, you should have a sense of what you'd like that pricing to come in at. So that when the quotes do start coming in, you're not surprised that you have some idea. And the way you determine that, it's going to be different from company to company. There are various different layering tools out there to help you determine. So if you're looking at a 50 million dollar risk, what should a 25 million, extra 25 million go for? And I'm sure you each have your own individual company guidance to help you along with that. But just first and foremost, understand what you want to price the risk at and then what you think the reinsurance should go for. And then you can start your negotiating with your partner like Danielle. Also when you're looking at your reinsurance costs, so you're looking at your total premium that you're going to get for your risk and how much you need to spend for reinsurance, never forget to factor in expenses when you're thinking about that. So say you have a hundred thousand dollar premium risk. You are going to quote that. You're going to include commission in that. You're going to have your own expenses because you have to issue a policy. You're going to be paying claims most likely. The reinsurance cost that Danielle is giving you is almost always going to be net of everything. So you need to build in. She doesn't have to pay commission usually. You need to build in those expenses when you're thinking about how much am I spending on reinsurance. I also think it's very important as an underwriter to contemplate what your net rate is for a given risk. So you look at that hundred thousand premium and you have to take out your commission and take out your expenses and take out what you're spending on facultative reinsurance. Then what are you left with and what does that rate look like and what does that premium look like because that's what you're left with for a little profit and to pay losses. You need to factor all that into your decision-making process and I'm sure you all have some sort of guidance around that and as I've said a few times, always discuss with your manager, your underwriting referral resources, because two heads are always better than one. So in summary, I feel like you know reinsurance is a powerful tool. If you know your guidelines, you have a partnership with your reinsurers, you know what they can offer you and you know how to utilize your reinsurance market, it can really help you write business, write profitable business, write larger lines, whatever it is that you are setting out, whatever your goals are when you're setting out to write business. Understanding how and when to use reinsurance can give you that advantage. Developing a strong partnership, like I said, can assist you and you might get taken out to lunch a couple times too, which is kind of fun. So again, thanks for listening. If you have any questions, I think Lily and you might be instructing people what to do now with questions, but thanks for listening everyone and thanks Sharon. Thank you for an informative presentation, Danielle and Sharon. At this time, our presenters will take questions. If you're in full screen mode, first toggle out of it by hitting the full screen icon and then use the question pod to type your question and then click the balloon icon next to it. We'll wait a few moments for questions to come in. Okay, here's a question. How do you deal with multiple submissions from different carriers on the same risk? I assume this is directed towards me. Okay, so if we are getting the same submission in from multiple carriers, we try to be as fair as possible. Again, going back to the quality of submission slide, sometimes we're receiving better information from one carrier than another. So in that case, we need to be fair to the company who made the extra effort to get us more information. So although we're looking at the same risk, we might be able to price one a little bit better than another just given the quality of information we've received. We also sometimes receive the same submission but different layers. So although our rating might be the same, the pricing will be different just given where we are attaching in the risk. So a one carrier might place a buffer layer in the PML and one might place a high excess layer. So as long as companies are writing 100% of the risk, we absolutely can quote both. It's just, you know, one, based on the information we get, how we're going to quote it and where in the risk we're attaching will make a difference in the price as well. And we have another, thank you, Danielle, we have another question. From an underwriter's perspective, is it wise to share my pricing with the reinsurer within my submission? So I'll give what I think, Danielle, and then you give what you think. Sure, absolutely. So I believe in most cases it is wise because you are going to be looking to partner with that facultative reinsurer to help you write the risk. So the more you can share with them about, you know, what it's going to take and how they can help you, and it's going to be, you have a better chance at it being a win for both of you, right? I mean, everyone's looking to write the business. We're not looking to practice. I completely agree. I feel like if I'm given the pricing within the reinsurance submission, it's good for two reasons. One, as a reinsurer, I know what your expectations are and I can quickly give a glance and say we're not going to fit or we can fit, and sometimes that just helps move the process along a little bit. It also might help if you do have a relationship with your reinsurer and you are upfront about pricing. If it's a good risk and we would like to write it, it's nice to have a target so we know if we are in the ballpark before we quote. So absolutely 100%, and that definitely helps, you know, form a relationship with your reinsurer. Okay, the next question is, how many reinsurance carriers would you approach on a particular risk and why use a reinsurance broker instead of going direct? So we'll do the same thing on this one, Danielle. So typically, I look for maybe three or four quotes. Unless I'm really, you know, looking to build capacity, I've got some issues. I'm not going to go more than that. In terms of using a broker, I've always been taught to use my direct markets first. The broker markets tend to be different and you get smaller lines from them. That's been my personal experience, but if it's the type of risk where you need to build a certain amount of capacity, you might need to do both. From my perspective, I think just calling XL Catlin will suffice, but, you know, in actuality... Well, Rosa will be very proud, Danielle. I had to, even though he's not on the call, I had to do it. I would say that, again, knowing your reinsurance markets and what they can provide might help you answer that question. So if you're, if you know that, you know, one reinsurer, it will provide cat coverage and one won't, or you know you need, you're going to need four reinsurers to fill out a particular layer. I mean, I really think it's, it depends on the risk. In terms of the reinsurance brokers, from my perspective, most of the, I mean, most of my business is direct and I would say that that's across the board. A lot of the reinsurance placements that go through the broker market are on the tougher side, stuff that you might not be able to fill out by direct markets because it's heavily cat exposed or seriously low buffer layers. So, I mean, again, it all depends on the risk, but, you know, for the most part, you know, just know your reinsurance carriers and know who you trust and know who you want to work with and that kind of answers the first part of that question. Okay. Here's another question. Is there ever a time where you can purchase reinsurance below your company's given retention on a particular risk? So, I think that's for me. Yes, I think there are going to be situations where that comes into play. You might have a risk that is a little tougher and you've got a special reason for doing it, but you'd like some facultative support at a lower level than you normally would. So, maybe you have a high hazard transit risk and on top of the tough commodity, it's also in a tough area from a theft standpoint, for example, maybe you want to retain less on that than your normal guidelines would say. And like Danielle had said, I would certainly be up front with my reinsurers about that. The more you can explain to them about what you're doing and why, the better your chances of getting a good response. Okay. Thank you. Here's another question. What is the state of the facultative market and are you seeing treaty and facility capacity taking some of the facultative business? Sharon, do you want to split this one or do you want me to start? I think that's mainly you, but I might have a comment after you talk. Sure. Okay. So, I feel like this question is a little subjective. So, the facultative market, I believe, will always be strong and I always feel like there are certain places that need to be in the facultative market. I do feel like facility capacity is kind of taking up some of the facultative business currently, but it's also cyclical. It's nice for companies. I mean, I'm moving this way, so I will be in the programs department in a week or two. And it's nice to see companies that are going that way and reinsurers like to bundle that business and hold onto it for renewal, but there are definitely pieces of the business that need to stay in the facultative market because it's too broad to get around into a box or into a facility like that. I know people think that the facultative market is subsiding, but I truly believe that it's here for the long run. I agree with that, Danielle. I think it would be impossible to build a box or a treaty for everything. There are always going to be risks that need to be individually underwritten and shared between a direct underwriter and a facultative underwriter. And one thing we were going to touch on that we didn't earlier is think of your facultative partner as a partner on risk, not always when you're looking for capacity. Maybe you get a risk in the door and you've never seen that type of risk before. Danielle and her competitors see so many risks every day from all over the place, and they're seeing the tougher risk. So they might have seen something that you haven't seen before. So it never hurts to pick up the phone and say, I've got X, Y, and Z, and what do you think about it? The more you can partner that way with your facultative reinsurers and the more those folks like Danielle can respond, the better the partnerships are going to be. Okay. Thank you. And here's another question going back to quality submissions. What are the most important elements of a quality submission for a $20 million builder's risk exposure? Well, from a reinsurance perspective, I would say, well, what is the $20 million represent? Do we have hard costs? What are the breakout of hard costs? What are the soft costs? What are the breakout of soft costs? What's the construction? Like Sharon touched on before, what kind of protection? Is it structural or non-structural? Are we covering an existing building or is it ground up? Again, as much information on what surrounds that A, $20 million, and B, what is the builder's risk? What is happening? What are they building? What are they renovating? So again, those risk factors, construction, structural or non-structural, and the breakout of values is extremely important. Sharon, did you want to add anything? I think I would just ask Danielle, so do you think about opportunity? I mean, does that help you like get through the, you know, I don't know how many submissions you get a day, but I know it's a lot. Does it bring something to the top of the pile if the underwriter says, you know, I have a really good chance at writing this? I feel, I mean, yes. The short answer is yes. It's also a history as well. So if we're seeing, you know, it's a hit ratio. So if our hit ratio with underwriter A at company A is 65% and our hit ratio with underwriter B is at 10%, you know, even if the underwriter that, underwriter B says they have a good chance of writing it, you know, are they selling us something that's not necessarily true? It's hard. You just have to get to know everyone and get to know what kind of submissions they're bringing in and if, you know, if the submission is something that is in the wheelhouse of the seeding company. So it's both. I mean, yes, we would, obviously I'm not calling anyone a liar. It's a, you know, but you get to know your partners kind of just like your brokers. It's about the same, like a little bit of a different relationship, but it's about the same. Thank you. You got it. And we have another question. Thoughts on the use of Lloyd's table to determine premium as a standard practice? Sharon, this came up. Yes, it did. It did. So the Lloyd's scale, to the best of my knowledge, is not based off of any historical loss information. It is a pure distribution of premium. So for the reinsurers who really don't use the Lloyd's scale, it's not a great comparison to where our premium will end up being. Sometimes it comes out perfectly and sometimes it's completely off. So no, I wouldn't really use that as a basis of what the reinsurance pricing would be. It's almost like saying if your premium is $100,000, you won't pay more than $25,000 for reinsurance. Well, that really depends on where we're attaching in the risk, what the occupancy is. Like, not every risk is the same. So, you know, like I said earlier, our rates are based off of historical loss information, and that's where our pricing is coming from. So I would like to say that what I've learned in working with Danielle on this presentation is that she and her competitors, too, I'm sure, can be very helpful in helping you just price risk in general. So that's just one more way to develop those partnerships. In terms of the Lloyd's scale, I still have one at my desk, and I do still use it now and again, but certainly I recognize its limitations. But as a direct underwriter, you feel like you have to use something to get some idea. And there's probably some other layering tools out there that you have at your company. So you just try to use the different tools that you have at your disposal, and you always have to have that gut check as well. And in marine, especially in the marine, we should be used to that. Okay, thank you very much. All attendees will receive an email with a link to an electronic survey. Please take a moment and provide feedback to IMUA. If there were several people at your location, please forward the link to them so they may also provide feedback. On behalf of IMUA, I'd like to thank Danielle Fulpe and Sharon Primerato. I think their collaboration and investment and preparation resulted in a great presentation. Thank you also to you, our audience.

Reinsurance Insights

Quality Submissions

Facultative Reinsurance

Pricing Reinsurance

Reinsurance Brokers

Building Strong Partnerships

Leveraging Facultative Reinsurance

Catastrophe Perils

Underwriters

Navigating Reinsurance Market