5% off, hosted by Inland Marine Underwriters Association. I'm Lillian Coulson, and I thank you for joining us today. If you experience any audio challenges, there's an option to use your phone for audio. You can find the phone number and your access code on your toolbar under the audio section. We also have in the attendee control panel, you can download a PDF of the slides for today's presentation under handouts tab. This is also where underneath that is where you'll find your question box. And that's where you'll submit your questions to our presenter, whom I'll introduce in a moment. Our presenter looks forward to addressing your questions today at the end of the presentation. And to encourage your engagement, IMUA will award a $25 Amazon gift card to the most engaged attendee as a token of our appreciation. So keep those questions coming. Although we encourage questions, please be mindful of the IMUA policy statement reminding all to refrain from entering into any discussions on matters affecting rates or conditions of insurance contracts. And also at the end of the slide of your PDF of the slides, there is a policy statement that we'd also like to reference. So without further delay, I'm honored to introduce today's presenter. Anthony Cowie, whom we also know as Tony, is head of Marine Americas at Swiss Re. Tony earned a bachelor's of science degree in business administration and finance at the University of Richmond. And he spent his career in reinsurance, including the last 20 years at Swiss Re. Tony is the immediate past chair of the American Institute of Marine Underwriters, and he is a lifelong learner of insurance, as well as the history of marine insurance. Recently posting on LinkedIn about the evolution from the first reinsurance treaty focused on marine insurance signed by Swiss Re in 1864. We're honored to have him with us today. Welcome Tony, the floor is all yours. Thank you, Lillian, and thanks IMUA for the invite. Very happy to be with everyone today and to talk about the underwriting cycle, margin, and sort of just looking at how this interplays. So I'm calling this a reinsurance finance refresher for the changing times. And it really is a refresher. There's not a lot of new concepts going to be introduced today, but hopefully just a different way for you all to look at your business and how you do things. So again, welcome everybody. Please fire questions away and then Lillian will moderate those. We're gonna start off with a quick poll just to get a feel for who's on the call. I think we're, not everybody's on yet. I only see 36 or something on, but if you're on already, please launch the poll. Lillian, then let me know when we're ready to get our results. Results are in. Results are in. OK. Can we see them on the slide? I'm going to put my glasses on to see them. I think they're in the control panel under polls. I see that, yes. OK. So. We've got 74% underwriters, 4% re-enters. A few brokers, a couple of no claims, and some others. OK. So mostly primary underwriters. OK. So just to give you a little history. So I've given this talk a number of times now. I first did it last summer. And it was primarily to cargo underwriters. And they had an artist drawing in real time as I was speaking. And this is what they came up with. So the slide you're seeing right now. So a lot of it may not make any sense right now. But hopefully an hour from now, it's all going to become clear why there's a unicorn there, why we see worms running around, why there's a clock. And it's all going to make some sense. And you can look at this picture again later. Move along here. OK, so let's talk about the three topics here. So what is the insurance cycle? So the cycle, all it means is the tendency of our business to swing between profitable and unprofitable periods over time, pricing going up and going down and moving for different reasons. When we talk about cycle management as underwriters, our goal is to make a profit every year. We need to make a return on the capital for our shareholders and our capital providers. And to do that, the underwriter needs to understand where they are in the cycle to make those decisions to achieve that profit, so that cycle management piece. And my contention is that you really need to understand your margin on individual deals, on your book of business, on the industry to manage the cycle profitably over time. And so when we look at it, it really is understanding that margin and making sure that you're achieving those goals as you write your book. And it really does come down to the line underwriters, individual decision making every single day that impacts so heavily upon whether or not you're going to ride a cycle out correctly or not. But it's also important for brokers to understand this, too, and ultimately the consumer of whoever is buying the insurance. And a lot of that comes down to communication. And we're going to get into all this. But really, managing the cycle boils down to understanding your margin. So we're going to move along. So we're going to do a little bit of finance refresher here. So again, nothing new here, just sort of a different way to look at it. And I've made up all the numbers, just so it's clear these are all fictional, other than I've got some Swiss read numbers in there. But for the most part, I made these up. And again, as I originally wrote this for cargo underwriters, this actually transcends basically all lines of business. There is a way to make it fit into what you're doing every day. And we know that Inland Marine is a very, very diverse line. But the topics we're going to cover really do fit across the board. And you'll hopefully find a way to make these topics fit into your day-to-day work. And apologies up front. There's going to be a good bit of math throughout this thing. So, first thing we're gonna look at is the income statement. This is a fake one. This is the incredibly profitable Cowee Widget Company. So, it's also known as the P&L. So, what makes up this statement? Which tells us, are we making money? Are we losing money? And so, there's revenue. Basically, we're gonna sell things and we're gonna bring money in the door, right? And so, that is the revenue. There may be some costs associated with that, maybe some discounts and things. And we're gonna get that sort of total net revenue in the door. If we're selling things, they cost something to make, right? And so, we're gonna have inventory, we're gonna buy some more inventory, we're gonna have an ending inventory. We're gonna come up with a cost of goods sold, right? And so, if we subtract that cost of goods sold from the revenue, we're gonna get sort of a, kind of a gross profit and loss range, right? But there's also expenses to run our business, right? We've gotta pay salaries and we have administrative costs and we have rent and we have an insurance and we've gotta pay for utilities and maintenance and other things, right? And so, at the end of the day, we're gonna have a bunch of expenses and we're gonna subtract those out and we're gonna get a profit or loss. Did we make money? Did we lose money? If we express this as a percentage, it's just our profit margin. So, they're very, very simple and I'm sure everybody has seen this before. Nothing really new here. Now, let's think about it in insurance terms, right? So, for an insurance company, that revenue is the premium that we charge that comes in the door. Our cost of goods sold or cost of sales is the losses that we pay. Our expenses, for the most part, are our acquisition costs. So, we have to pay brokerage and things like that to get the business in the door and all of our internal expenses to run the business. So, those salaries, those rents. And then, at the end of the day, did we make money? Did we lose money? So, we're gonna have a profit or loss and we're gonna look at it as a percentage. We're gonna get a profit margin. Again, very, very simple in insurance terms. So, this is actually, these are the real Swiss Re numbers from our annual statement, 2023. And if we look at P&C Re, where I work, we wrote gross premiums of 24 billion and a bit. We had net premiums written of 22 billion. The earned premiums were almost $23 billion, right? And then, there had some investment income. For our purposes today, we're gonna sort of ignore investment income. I think underwriters should be ignoring investment income when they underwrite. And we had total revenue at the end of the day of roughly $25 billion. But then, we had that cost of goods sold. So, we had claims. We had $15 billion in claims. We had acquisition costs. So, to bring that business in the door, we paid brokerage and seating commissions and other acquisition costs of 5.4 billion, roughly. We had to pay salaries and rents and other operating expenses of 1.4 billion. So, at the end of the day, before taxes and interest and other things, we made $3 billion. And we had to pay some interest. We had to pay some taxes. Net, at the end of the day, we made $1.8 billion. Now, is that good? Is it bad? That all depends on cost of capital and return to investors and other things. And everyone's case is gonna be different. And everyone has got to make these own judgment calls on their own. All I will tell you is that, the Swiss Re stock has done okay for the past year or so. So, the investors seem to like it. So, there is the proof is kind of in the pudding at that point. But so, this is a typical insurance company income statement. We have all the different entities and then we have a total at the end. So, again, insurance company balance sheet. So, I think we're gonna come up to another quiz now. So, let's see. So, we're gonna come up to another quiz now. So, the big question is, why is insurance different from all other businesses? And so, we've got four choices here, right? So, one, we're a highly regulated industry. Two, investment returns impact our results. Three, we don't really know our cost of goods sold when we sell our product. Or four, we're just cooler than everyone else. So, if everyone could vote. Poll is open, Molleen, I'm guessing. Yes, it's open. Okay. And they're sharing the results now. Okay. Very good. Okay, so, we got 66%. We don't know the cost of our cost of goods sold when we sell our product. Yeah, so, it's true that we are a highly regulated industry. We are a highly regulated industry, but so are a lot of others, right? A lot of financial services are highly regulated. It is true that investment returns impact our results, but again, also, they impact the results of a lot of other industries. We are cooler than everyone else, that is true. But the real answer here is, when we sell a product, when we sell a policy, we don't know what those losses are going to be. We might have a very good estimate of them. We might do our best to price them. We have actuaries. We do all kinds of things to sort of predict that ultimate loss number, but we don't really know the outcome. There could be catastrophes. There could be massive events. Bad things can happen. We are pretty good at predicting where we're going to end up ultimately, but we don't really know. And I think if we look at perhaps the casualty business in the United States right now, there are some outcomes happening that we're not really contemplated exactly. So that's a case where there's been a significant difference in the outcome. So we're selling this product upfront and we don't know. So that makes insurance very different from other businesses. And we're going to see how that plays into sort of the mindset. And when we start talking about the cycle, what that really means for everybody. So we're going to go forward now. I'm going to say a couple of words about inflation. Generally, what I'm talking about here, we're sort of ignoring inflation, but let's not forget that it exists and it's there and it has to be understood by underwriters and contemplated in what we do. So two kinds of inflation really that we're concerned with as underwriters. We have economic inflation, which is just your general, the price of goods and services in an economy going up over time. And then we also have the social inflation, which is like a whole nother one hour talk, which is the increase in the costs over and above basic economics, economic trends that we are paying as insurers that are being driven by things like the changing attitudes in the judicial system, expanding concepts of liability over time. People now wanting to use the legal system to resolve more and more things. What we've been seeing over these past six, 10 years is larger costs to defend claims, the so-called nuclear verdicts, a more plain and friendly environment. So we're seeing that over and above the economic inflation, insurance has been impacted by the social inflation. Now, when we're saying we don't know the ultimate cost of our product when we sell it, and we haven't contemplated inflation, that sort of compounds the problem. And remember that when you come up with some kind of freemium, you've gotta be accounting for all these different pieces, right? Not just the expected loss today, but what it's gonna cost to pay that claim at some point in the future when it actually comes the time to pay the claim. So bear that in mind. This is just a simple chart. Again, what I did here was the blue line is just the CPI from 2013 onwards. Now, for a long time, we were living in a very low inflationary environment, low interest rate environment through sort of that post 2008 financial crisis period up until the teens. And then with the sort of when the pandemic kicked in, you can see around 2020 when inflation really starts to kick in. And the compounding effect of it is quite insidious, right? So if you were not contemplating inflation at all, you're sort of out by 34% over time, like if you just ignored inflation completely. The black line is where I sort of put some made up rate changes in there just to sort of show you what happens over time. So if you had some softening in the market and there was a 10% rate reduction in 2014, you see that index kind of dropped to 90 when really the claim payment costs would go up to sort of 101. Then if you had sort of another 5% off and then flat, and then even if you started getting some significant firming, right? Some rate increases, the black line goes over the blue line for just a little bit, but then you just, you know, a little bit, another little 5% off or something, they start to diverge again. So it's just, it's running in the background. Inflation exists. We have to contemplate it, just sort of keep it in the back of your mind also. All right, we're gonna go now. We're gonna now, we're gonna talk about the cycle, okay? For everybody on the call has heard about the insurance cycle. So this is sort of a modern view of it that I stole off one of the Swiss Re webpages, right? And so we hear about the hard market, soft market, the hard market, the premiums are higher. People start making money, capacity comes in, rates start to fall. Then you could have losses and poor returns. Rates might start to rise. So this is a simplified version. I'm not crazy about this one. I like to look at this one. So this is from 40 years ago when Paul Ingray developed this reinsurance clock. And I like the clock idea. So the clock, because we can think about, what time is it for ourselves when we're looking at the clock? So, and I like the topic calls it, at 12 o'clock, it's euphoria. Everybody's making money, it's great. Then prices start to drop a little. People get excited. They come into it, competition comes in. Then we get, you know, price falling, profits starting to slide. Then we get down to horrible results and it can't get any worse, right? AM Best writes a letter of concern. We've got a crunch, prices go up and it sort of swings around again. My point is in the long run, this clock, the cycle, it harms everybody. The insurers, the producers, the insureds. It's not good for anybody. People want a nice, smooth, consistent experience and pricing over time. When we have this radical in and out, it's not healthy, but it exists. And it's hard to break this nature. But I think as an underwriter, it's important for each of us to understand where our particular line of business or lines of business are in the cycle. And if we understand where we are, we understand what time it is. We can build scenarios to deal with it and to try and manage through this entire 24 hour period. And we're gonna start talking a little bit about that next. So how can the underwriter deliver, you know, consistent profitability over the cycle? So first, as I said, you need to know where you are first off. So you need to know what time it is, right? Risk selection always matters in my opinion, right? So the underwriting decisions and the knowledge, it really is very critical. And then it's about selling, you know, service and security and continuity and delivering value and not just selling price. And so I love this meme. You know, the guy getting the tattoo wanted that beautiful winged Pegasus unicorn thing and he's not really gonna get what he wanted. And it's probably gonna be painful for somebody after it. But there's always somebody who wants to do it cheaper. Understand your value and what you're selling. And it's not about price. This is where I wanna go next. And that's sort of, as you're making those decisions, how can you impact it? And that is where understanding your margin comes into play. So again, there's gonna be a bit of math here, but we're gonna run through it. So margin, margin, margin. This next bit is just gonna be hammer and margin for the next, you know, 20 minutes. So it always matters, but when the market is softening, it really can make a huge difference in your results if you're not paying attention to it. So we're gonna run through a base case. We're gonna pretend we're gonna sell one insurance policy for $100, okay? And we're going to assume that the origination expense for that is $15, right? So a 15% origination fee. We're gonna expend, we're gonna, and then we're gonna assume that we've got fixed expenses of $7, so a 7% internal expense ratio. So total expenses are $22, right? So that's 22% expense ratio. We're gonna assume that we're going to have an ultimate loss ratio of 65%. That is an honest assessment of where we really expect those losses to be, right? So our expected profit on this one policy is $13. It's a 13% profit margin, which will always be the inverse of that is gonna give you your combined ratio when you think about it, because it's your loss ratio plus your expense ratio. So 87. So basic, really clear. Hopefully, you know, everyone's familiar with this. Okay, we're gonna make some, let's look at some of our assumptions here. We're looking at this from the perspective of that line underwriter. The premium is assumed to be adequate in the base case, meaning that, okay, this is a reasonable adequacy to generate that expected loss and resulting margin. We've been honest about it. Again, we're assuming that expected loss pick is appropriate, right? It has to be honest. There's a phase of it where we start saying, you know, it's kind of the cheating phase. We're on where people might like, you know, fudge that loss pick a little bit. We have to be about, we have to be honest with ourselves and realize that it has to be correct and as accurate as can be. And looking at the different components, whether it's attritional loss, if there's a cap exposure, if there's large loss exposure, we'll talk more about that. We're ignoring investment income in this case. We're also ignoring all of the terms and conditions such as deductibles and extended covers and things. These are things that tend to also negotiate and move through as the market cycles swing. But we're assuming all of the things being equal, whatever conditions and terms that we're putting in this are appropriate to support that loss pick, right? Again, as I said, we're gonna ignore inflation for the time being, but we know it's there. We're ignoring any impact of reinsurance, which may or may not come into play. There's also the question of yourself is what profit margin is the right one? And that's again, gonna be an individual decision based upon whatever returns you have to provide for your company to satisfy your capital providers. And we're gonna talk about expected versus actual. So what we have here is sort of the expected margin here. We all know that because we don't know what those actual losses are gonna be at the end of the day, we're not sure what the actual is. Bear in mind that as we cost something upfront, this is what we're expecting. Actual may be different. We need to constantly be looking at the actual and bringing it back to the expected to make sure that we're in line and we haven't got our numbers wrong anywhere. Okay, now we're just gonna look at the 5% rate reduction, what happens, okay? So the base case stays the same and we're going to reduce the rates by 5%, okay? So premium is going to fall to $95. So that's the 5% off of that $100. The origination expense falls to $14.25. It's still 15% of the 95. Our fixed expenses remain at $7, right? We still have to cover those internal costs. We now just have less premium to do it with. So our internal expense ratio ticked up a hair up to 7.37. So our total expenses are actually down overall in dollars, right, they went down to $21.25, but the rate went up. So the ratio went up to 22.37. Our expected losses remain at $65, right? So we're still gonna get $65 of expected loss. We've just now getting $5 less premium. So our loss ratio ticked up a hair, okay? So at the end of the day, the profit falls from $13 to $8.75. So the margin came down quite a bit. So the profit hit from that 5% loss ratio was actually a reduction of 33%. And the combined ratio went up by 4%. Now, this is the sort of the crux of the entire talk here is in the blue box. Expenses are expenses and they're going to stay the same. Expected losses are expected losses and they're gonna stay the same. So any dollars that come out of premium have to come out of your margin. The inverse is also true. Any additional dollars that go on drop directly to margin. Again, everything else being equal and honest. So that's sort of the whole thing. If you don't remember anything else, just remember that the only place reductions can come from is out of your margin. Now we're gonna do the same thing with a 10% reduction. And I'm gonna blow through it pretty quickly. The premium is gonna fall 10%. You can see that the expense ratio pops up a bit more. The loss ratio really starts to jump and the profit margin takes a significant hit, right? It goes from 13 to five. Combined ratio deteriorates by eight points. So 65% of the margin went away. So you need to understand what your margin is when you're starting, where you're starting places to understand how much you can give back before you start running negative. Now at this point, can you operate on a 5% margin becomes the question, right? And so again, understanding what your company's targets are and where you need to get to. So making these decisions to support this is becomes critical because you could be putting yourself into a position where you're not returning the return that you need to make to justify your capital. Now let's take a look at what happens if you just let 10% of your business go versus a 10% portfolio level rate reduction. So now we're in a place where we're looking at an entire portfolio, right? Let's call it millions of dollars. So if we started at that base case and we reduced the premium both sides by 10%. So if we took, we non-renewed 10% of the business on the left-hand side, yes, premium top line falls. Origination expense stays the same. Internal expense ratio ticks up. The loss ratio actually stays the same because we're just writing 10% less business. So the profit margin takes a minimal hit and you've come out pretty healthy. On the flip side, you're sort of in that hot zone, right? Where your profit margin has fallen, that's 65%. Now, let's face it, shrinking to greatness, non-renewing business is not a good long-term strategy. It's a very challenging thing, right? But so it can help manage certain downturns. The top line is gonna suffer either way, but the bottom line is stronger. When you're making those hard calls each and every day and sometimes letting a thing go rather than sort of following just the cycle and the natural swing of that clock moving around. So we're gonna continue on here. Other things to consider when we're looking at this. When you let underpriced business go, you lower your overall exposure. So you end up with less volatility than if you're in the rate cut version. So that's a benefit. In the rate reduction example, there isn't a time lag obviously, right? So you can borrow from sort of the other bits and pieces in there, like sort of the large loss and cat loads that you may or may not have in there. But what happens is then eventually something does happen. You get the big pop or you get a natural catastrophe. And it gets really, really bad, really fast. And again, also known sort of as the cheating phase where we've sort of played with that loss ratio, which is not quite honest. Inflation is gonna impact both of these, obviously. In all cases, right? Inflation can make it hotter if we're not dealing with inflation as we go. And as I said, that falling top line, if you cut the book with non-renewals or lower it, likely there's going to be pressure to reduce internal expenses. So a lot of people don't like to go down the path, right? It creates a compounding problem. People wanna chase business sometimes just to grow top line. And that becomes, again, very dangerous. And it's not a good course of action just to write to sort of chase your tail and write for top line. So the best course of action is to manage that cycle during all phases, understand where you are in the cycle and build a book that consistently produces that margin that you need to return to make sure that you're getting what you need to do to be successful. So we are going to just recap really briefly and then we're gonna get into the more interesting part which will be the questions and the answers. So what do I wanna remember today? Margin matters. All other things being equal, premium reductions can only come out of margin. The insurance cycles happen. You need to know what time it is. You need to know where you are. Again, to talk about data now, we have so much more and so much better quality data today and we can use it right down to the desk underwriting level to understand what the margins are, to understand what adding one piece of business or subtracting one piece of business does to the portfolio. There's a lot more that we can do to make ourselves better and to be less dependent upon the swings of that underwriting cycle. Inflation, again, it'll sneak up on you just to be aware of it and deal with it. Underwriters, I say they're not powerless to manage the cycle. You can remain profitable every single year and many, many people have done it. There's no reason to be beaten up by changes in the cycle that are going on. And just to talk about the relationships and that communication. I think the more you talk and the better you know the insureds and how the producers can also weigh into this. It's important that everyone has a smooth, reasonable outcome over time. Nobody wants sort of up and down, where they pay 50% more for their policy one year and 30% off the next year and 10% off the next. It makes it hard to budget. It's not consistent. So it's getting those understandings and having that conversation and understanding that everyone has to earn a living here or they won't exist. And just making that clear. And I think it works, right? If you just have those upfront adult conversations. And lastly, again, I like to quote Warren Buffett. So when we think about sort of pricing these, price is what you pay, but value is what you get, right? So it's not just about how much premium goes out the door, but it's that service, it's that claims paying ability, it's that willingness to pay claims, it's the turnaround, it's getting those policies out the door and getting those endorsements done. And it's all about, it's about service and relationship. And that's the important thing at the end of the day. So that wraps up the bulk of the talk and we're gonna move into questions now. Excellent. Thank you so much, Tony. So before we begin questions, I'd like to reference the IMUA survey. The link to the survey is in the chat box. So on your control panel, you go to the chat and that's where you can click on that and it'll take you to the survey to provide your feedback on today's session. And now for the Q and A. Let's start. Okay, we have some questions here. I will start with a question from John Nicholas. So John said, unless I'm jumping the gun, what time would you say the underwriting clock is for inland marine and ocean marine business? Okay, so again, broad swipes there, John, but let's say, again, so many classes. Let's say ocean cargo. I'll pick on ocean cargo. My personal view, and again, I'm a reinsurer, not a primary insurer, but what I'm hearing is, it sounds like ocean cargo might be around two, 2.30. Again, your experience may be different and your market will be different, but I'll pick on that one, right? So I think that we are entering a phase where we're starting to see a lot of folks being attracted by the business people coming in and all of the things that happen when it turns to 2.30, three o'clock. But again, this is a call for each and every underwriter to make, right? So look at that clock and try and figure out where your particular line is. And again, it's gonna be different by geographies too. So that's the other thing, right? It may be one time in the United States and another in London and another in Asia, right? So let's also keep that in mind, right? It is very, it's a very, keep that in mind, right? It is very, it's very specific and it should be very specific and personal to each person. Hopefully that answered the question. Okay, thank you for that, Tony. Let's see, we have, actually, so this is a comment. Tricia said she, oops, oh my goodness, I just deleted, inadvertently deleted. Instead of it, I was trying to expand the comment. It was, I know, I do remember it was going back to the earlier slides. I think it was the second polling question where she was saying, you know, she knew that the fourth one wasn't really a response, but she wanted to select that one. But yeah, let's see. From Alexander. Oh my gosh, okay. Artificial intelligence is transforming how insurance companies assess risk process claims and interact with customers. Do you believe this will lead to a better decision-making on the part of insurance companies and less volatility in the insurance cycle? That's an interesting question. So I think AI has a long way to go, right? So I think there's certainly applications where it's going to add some value, especially probably in the upfront information gathering part of it. But I personally think that the role of an educated, informed underwriter making decisions is critical, right? And I don't know that given, especially in sort of the inland marine and ocean marine lines where things are very highly specialized, not homogeneous, right? That the human element is going to, I think, continue to make the difference in sort of winning and losing and profit and loss in the line of businesses that we're dealing with here, right? I think that certainly I can see applications for AI to help enhance the human as a tool, but I honestly don't, maybe I'm wrong, but I'm struggling to see how sort of AI really adds a ton to what we do, given that so much of what we do is weird and different and unusual. And it just takes a lot of experience. Maybe it can, I'm not sure, but Alexander, next time we see each other, we can debate this further, but I'm still a little skeptical on AI at this point. All right, thank you for that, Tony. Do you have any comments about writing larger risk management, loss-sensitive accounts in combination with small, more profitable businesses to develop a balanced portfolio from a loss ratio standpoint? So- That would be specific to the PNC space, sorry. Okay, so I mean, certainly, line size management is critical, but I mean, that's more of a, when you're building the portfolio and making a decision, sort of that line setting, concept and box and underwriting box you want to build is critical to get right. The bigger piece to me is, it doesn't really matter, right? Assuming you can support and have the capital to write whatever kind of line size you want to write. It's more being honest about understanding those exposures that you have and picking those accurate ultimate loss picks, right? So if you were writing larger line sizes on business that's highly volatile, and I'll pick on offshore energy, right? So for the most part, oil platforms, offshore oil platforms are extremely safe and have run very, very well, but they are massive values. And when there is an incident, they tend to be, but they don't happen all that often. So understanding that and managing it are critical, but understanding that loss pick for sort of that run of the mill business, if you're just writing, want to write large lines, it's getting that loss pick right up front. And there are other ways you can manage it. I mean, I'll sell you some reinsurance too. We can help you manage it that way. But it's more being honest with yourself about those loss picks and understanding that those loss picks are going to be there for a long time. It's more being honest with yourself about those loss picks and understanding that, and again, balance is critical across your portfolio, sort of the premium to limit balance that you can generate. I wouldn't go out the door and write massive limits against no premium. That's probably not a great strategy. So again, it's just making sure you build the box right and do it over time and understand the risk that you're taking and the exposure that you're dealing with. Hopefully that answers the question. Great, thank you. The next question. So you state that the insurance cycle is harmful in the long-term, but it still persists. Why? Ah, okay. That's an interesting question. So yeah, so the chart is 40 years old and people were talking about it even before the clock was made, right? And here we are 40 years later and we should be all smarter. And I've been around a long time. I'm sure a lot of the others in the call have been around a long time. The cycle still persists. And why does it still persist? Because it's sort of that natural flow of, some people are going to follow the herd and if you're making money, nothing attracts a crowd like a crowd, right? So it's sort of supply and demand is one of the main reasons, right? So if one line of business looks really good and other people want to now expand into it, they can cause an impact on it. I can remember many years ago, if we look at the Inland Marine example, there was a paper written about Inland Marine business and how profitable and wonderful Inland Marine was. And a lot of people hadn't been paying attention to Inland Marine until this paper had come out. Right, excellent. Thank you. Excellent. So this question, what are best practices for managing broker expectations when the insurance cycle changes? This is from Alexander. Businesses that are within Inland Marine, you're never going to get any of that. And so... persists mainly because of the changes in supply and demand and people being attracted to profitable lines. I think the point is, is that we as underwriters need to understand our place in that cycle and build different scenarios of how we're going to deal with it as we move through it, as things soften and harden. And again, I always advocate for consistency. I don't think that we want to hammer people when it gets hard just the same way we don't want to go crazy when it gets soft, right? I have preached for decades here as a reinsurer that we should look to make a reasonable return over time. And that should be our goal, not to sort of pillage when it's hard and go crazy when it's soft, right? So again, I always just look at it on a consistent basis. Hopefully that answers that one. Other questions? Yes, so how can a desk underwriter or a broker dampen the cycle? Okay, so exactly going back to the exhibits I was showing is one, knowing where they are in the cycle, two, understanding their margin. I can't stress how critical it is that an underwriter understand how much margin they have to play with. And as they're making decisions to write or not write an individual deal, understanding what their expected profit position is on that deal and where their walkaway is. And I think often what I see is an unclear understanding of that sometimes and therefore making a decision which probably is not in the underwriter's best interest in the longterm. It may be sticking with something too long or pushing too hard the other way, right? There's both sides of it. So again, it's that, and I can't stress how critical the individual underwriter is in this process, right? From a management perspective, it's easy for us to sort of go out and sort of do, let's do this, this and this. But at the end of the day, it's that individual underwriter making those decisions, working with, as a partner, I would say as a partner with the producers to come to a reasonable solution which is gonna allow everyone to make a reasonable return over time. And that's where the rubber really does meet the road is that underwriter making those decisions and building that book and having that strategy to ride out the changes in the cycle. Hopefully that answers that one. Do we have any other questions? Yes. So this one, this is shifting to the government. Does government investment have any impact on the insurance cycle? Specifically, do you believe that makes ship building great again order which calls for wholesale overhaul of US maritime industry? Do you think that it will have a significant impact on the marine insurance industry? So I don't think it will have a major impact, right? So the, I think that the capacity that exists is there, others may come in. If ship building comes back in the United States, I think we'll have ample capacity. It's not as if the government is investing in an insurance company which would directly compete against us and crowd us out. So that's not the case, right? So I think it would be a healthy thing if the government was supporting ship building and supporting the maritime industry in the United States. I think that would be wonderful. I think that provides opportunity for us as an industry, both in the ocean and inland marine underwriting spaces. And that'll be great. But I don't know that it impacts us negatively from sort of a cyclical perspective in any way, right? So if anything, it would help because if it increases demand for our product at the end of the day, that's a good thing. An increased demand would help to firm a cycle. So I would see it as a positive. If for some reason the government decided that they wanted to open up their own insurance company and go into competition with us, then I wouldn't be concerned, but I see that as fairly remote. Other questions? These are good. All right. Those are our questions. Yeah. A lot of great questions and excellent topics that were addressed. And thank you so much, Tony. This was a fantastic webinar. Are you ready? If anybody has any questions, I'm on LinkedIn or most of you know me, I think. So feel free to reach out. Always happy to chat and debate. And if you think I got it wrong, let me know that too. So again, thank you, everybody. Elaine, I'm gonna continue to scroll through here, right? We need to get that up. Yep. That was the statement, the IMUA statement that I referenced earlier. Perfect. Excellent. So are you ready to hear who the most engaged is? Yes. Who do you think you can guess? The most engaged is Alexander McGinley. Congratulations, Alexander. We will send a $25 Amazon e-gift card to you. And thank you so much for your excellent questions today, Alexander. And thanks also to our attendees. Yes. Thanks also to our attendees for your participation and your questions. For those who didn't get a chance to open the survey link, there will be a follow-up email that will be sent to you. And we hope to see you at our next event or maybe even the annual meeting. Have a wonderful rest of the day. This concludes today's webinar. Okay, bye.

Inland Marine Underwriters Association

Tony Cowie

Swiss Re

insurance cycle

marine insurance

risk selection

artificial intelligence

stakeholder communication

profit margins