Quality of Property Catastrophe Data Impacts Reinsurance Pricing

Business Wire, August 25, 2008

Ernst & Young LLP releases survey of reinsurers

NEW YORK -- When it comes to their ability to underwrite property catastrophe exposure, the biggest concern among reinsurers is quality of cedant data, according to Ernst & Young LLP's 2008 Catastrophe Exposure Data Quality Survey. In fact, the study found data quality can directly impact reinsurance pricing and capacity extension.

Findings from the survey were released today in a new Ernst & Young report, "Raising the bar on catastrophe exposure data quality." Following are highlights from the report:

Assessing the data

More than half of reinsurers currently use sophisticated tools to evaluate the accuracy of exposure data received in broker submissions, and 83% have basic checks in place confirming that the most critical data fields are populated. When asked which data items they consider most problematic, reinsurers pointed to insured values, complete inventory of locations and secondary characteristics.

High quality data has its rewards

Nearly all reinsurers (90%) acknowledge that they apply surcharges to compensate for data quality deficiencies, and among these 70% say they would include a 20-25% premium penalty. Additionally, more than one third say they would be willing to offer a minimum 10% premium credit for cedants with high quality data.

Controls report needed to boost confidence in data

When analyzing the potential risk of a cedant with poor data quality, a majority (58%) of reinsurers say they directly modify their catastrophe model results while the remaining 42% of respondents make upward adjustments to the data prior to running their models. To help boost their confidence level in data quality, the vast majority of reinsurers (92%) agree that if the cedant used strong collection, enhancement and data maintenance controls, the risk would be more attractive to them.

Indeed, seven in ten companies would consider extending additional capacity and 75% would consider offering premium credits of 5% to 15% to a cedant who could demonstrate strong controls and policies via an independent report.

"With recent natural catastrophes exacting significant tolls, now is the time for insurers and reinsurers to take action by developing world-class data quality controls and management practices," explains Trish Conway, Actuarial Advisor, Ernst & Young LLP. "Investing the time to improve their catastrophe data quality is a win-win situation for insurers. It helps them improve their own operations and also makes their business more attractive to reinsurers, potentially leading to better pricing and more capacity. At the same time, reinsurers who apply similar effort in assessing the data they are given by insurance companies will find success in the increasingly high-stakes property catastrophe market."

About Ernst & Young's 2008 Catastrophe Exposure Data Quality Survey

The survey was conducted in early 2008 among leading reinsurance chief underwriting officers, heads of property underwriting and heads of catastrophe modeling. The participating reinsurers included both domestic and off-shore, pure-play catastrophe and diversified companies that cover both commercial and property exposures.

To receive a copy of the survey report, please contact Deanna Decker at 1 (212) 752-8338 or ddecker@psbpr.com or go to www.ey.com/us/actuarial.> About Ernst & Young Insurance and Actuarial Advisory Services

Ernst & Young's North American Insurance and Actuarial Advisory Services (IAAS) practice includes 175 professional staff throughout the United States, Mexico, Bermuda and Canada. IAAS helps clients address risk, reporting, capital management, merger and acquisition due diligence and integration, retirement income and actuarial department transformation issues. The practice also provides insurance risk management and claims advisory services.

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