Jardine Lloyd Thompson Group Plc

1
The Impact of September 11th 2001 on the
Protection and Indemnity Market
John Garthwaite
2
Intertanko legitimate interest in PI Clubs
reinsurance purchasing. Questions to address

• 1.    What reinsurance capacity will be
  Shipowners through the PI Clubs in the post
  September 11th Reinsurance market?
•  2.  At what price?
•  3.  How much risk should Shipowners underwrite?

3

• 2002 Reinsurance Programme, third year of a three
  year deal struck in 1999 with a 20 increase on
  the 2001 rate

4
International Group Reinsurance Program 2002
Clubs retain up to US4,500m
Overspill (where purchased)
International Group General Excess
Loss Reinsurance Upper Layers
US2,000m
US500m
US1,500m
US500m
POLLUTION
NON POLLUTION
US1,000m
International Group General Excess
Loss Reinsurance First and Second Layers
75 US1,000m
15
10
15
75 US1,000m
10
US500m
US70m
US70m
US30m
US10m
Pool
Upper pool
US20m
US15m
Lower pool
US5m
US5m
Club Retention
5
Reinsurance Allocation to Ship Owners
Rates per Gross Ton US
6
International Group Reinsurance Program 2002
Clubs retain up to US4,500m
Overspill (where purchased)
International Group General Excess
Loss Reinsurance Upper Layers
US2,000m
US500m
US1,500m
US500m
POLLUTION
NON POLLUTION
US1,000m
International Group General Excess
Loss Reinsurance First and Second Layers
75 US1,000m
15
10
15
75 US1,000m
10
US500m
US70m
US70m
US30m
US10m
Pool
Upper pool
US20m
US15m
Lower pool
US5m
US5m
Club Retention
7
Insurance market losses September 11th related
and unrelated

• Lloyds, the major market 10th April 2002
  results
• 2001 loss est. 3.11bn including September 11th
• 2000 loss est. 1.72bn
• 1999 loss est. 1.95bn (on 3 year accounting
  policy)
• Representative of 140 loss ratio for 2001,
  similar to other major insurers

8
Non concurrency problem

• Effects capacity
• Major Lloyds Syndicates underwrote up to 100m
  gross each Syndicate
• Net retained on annual reinsurance protection
  typically less than 5m
• 2002 whole account reinsurance unavailable
• Expensive, specific reinsurance up to a maximum
  of 20-30m
• Retained 2002 un-reinsured up to 70m for large
  Syndicates

9
2003 CapacityWhat capacity will be available?

• Lloyds capacity has risen but capacity to the
  Clubs has reduced
• New carriers e.g
• Axis, Arch Re, Ascot
• Conclusion - Capacity is available for the Group
  programme up to 1.5bn
• Clubs may need to retain 100m

10
At what price?

• Best estimate a further 30 increase for a
  reduced limit and increased excess point
• Underwriters own reinsurance costs have
  increased by more than 100 over the period
• Clubs existing price relates back to 1999
  pricing (noting the increase in 2002)

11
How much risk should Shipowners underwrite in the
post September 11th market?

• What are Shipowners underwriting in 2002?

12
P I Club Limit Approximately US4.5bn2002 Club
Market
US4,500m
SHIPOWNERS IN ALL CLUBS UNDERWRITE
US2,030m
MARKET REINSURERS UNDERWRITE US2BN EXCESS US30M
US500m
10
US100m
15
US30m
SHIPOWNERS IN ALL CLUBS UNDERWRITE
US5m
SHIPOWNERS IN A SINGLE CLUB UNDERWRITE
13
How much risk should Shipowners underwrite in the
post September 11th market?

• What are Shipowners underwriting in 2002?
• What may Shipowners be underwriting in 2003?

14
2003 Position? if PI Club limit remains
US4.5bn
US4,500m
SHIPOWNERS IN ALL CLUBS UNDERWRITE
US1,500m
US1,000m
MARKET REINSURERS UNDERWRITE US2bn EXCESS US30m
10
US100m
US100m
SHIPOWNERS IN ALL CLUBS UNDERWRITE
US6m
SHIPOWNERS IN A SINGLE CLUB UNDERWRITE
15
Conclusions
16
The Protection and Indemnity Market 2002
Conclusion