Financial Risk Evaluation: AMERIND Program Analysis

 
Overview
 
Review Overall Results
 
Liability Analysis & Recommendation
 
Property Analysis & Recommendation
 
 
 
AMERIND Core Values
 
Be here for as long as Tribes need us
 
Effective – are we serving all our Members
Affordable – how do we compare to our competitors
Sustainable – will we be here for another 35 years
Efficient – are we using Member money wisely
 
Everyone pays their fair share
Every cell stands on its own
 
Are we serving all our Members?
 
How do we compare to our Competitors?
 
How is IHBG really performing?
 
Are we sustainable?
 
Probable Maximum Loss
 
Property
 
Industry Reinsurance Costs up ~ 58%
 
ISO Loss Costs increased 3.4 to 5.7%
 
Building inflation factor of 35-50%
 
Adjustment of Values to 150%
 
Property
Shrinking Dwelling Count
 
Amerind Risk Data
 
Property
Incurred Average per Claim
 
Amerind Risk Data
 
Property Claims
Total Claims Reported per Year
 
How much will it cost to fix homes?
Three-year average claims $14M
 
Prepare for 25-50% construction
inflation - $3.5 to $7M materials &
labor
Increase rates to pay for increased
claim costs 
(estimated $3M)
Increase Property Values
replacement cost 
(estimated $1.5M)
Do Not Limit Individual Member
increases
Other Options to lower costs
Limit minimum deductible to
$5,000 per Member per unit
(estimated savings $2M / 30% of Members file
claims)
Implement fire sub-deductible of
$10,000 per unit
(estimated savings $1.5M / 15% of Members
file fire claims)
 
 
Liability
Ultimate Losses and Trends
 
Shock Losses
 
2016
LP Gas explosion
$1.325 M
 
2016
Gas explosion
$4.462 M
 
Gas explosion
$1.265 M
 
Amerind Risk Data
 
Average Losses $1.6M
Liability
2022 Trends
Reinsurance rates have doubled due to shock losses
 
Terms are unfavorable to AMERIND.
1
st
 Layer – Quota Share 40% first $500k, $1M surprise increase
2
nd
 Layer – Primary XOL $500k xs $500k, 500% inc or $1.5M
3
rd
 Layer – Secondary XOL $5M xs $1M QS 20% of losses, 32% inc or $135k
 
Treaty reinsurance limits reduced in Alaska to $1M, XOL/XPL removed
 
Erosion of legal defenses (e.g. Lewis v. Clarke)
 
 
Liability Recommendation
 
Alaska limits in excess of $1M will require facultative reinsurance
at market rates
 
Forgo Casualty Treaty between $0-$5M
 
Increase IHBG Liability Retention up to $2M
 
Cyber Liability
2022 renewal terms - as expiring
$50,000 automatic limit for Risk Pool
No premium for coverage unless didn’t take training
 
Higher limits require submission
Premium ~ $450,000 - flat
Loss Activity - $843,000
7 Claims in NAHASDA
4 for full $50,000 limit
Average claim is $35,000
1 Claim in TGB for $500,000
Implemented Cyber Liability Loss Control for Members
 
Effective 1/1/2022
$5,000 retention
Members that don’t participate in prevention training will be charged for their Cyber
Liability premium
 
 
 
 
 
 
Do we have enough to cover our costs?
Three-year average:
Operating premium $15.3M to
pay claims and operations
(green area on chart)
Operating $3.9M
Reinsurance costs $6M
Hard market
58% increase cost 2023
$11M retention on Cat treaty
Options to lower op cost & reinsurance
Reduce Operations to 22% ratio
(estimated savings $0.9M)
Stop Loss change to 105%
operating ratio up to $3M
(estimated savings $0.3M)
Increase retentions to $5M
(estimated savings $1.3M)
 
 
 
Get reinsurance right?
Three-year average reinsurance
support
$3.1M recovery and $5.4M cost
Stop Loss Treaty set at 105%
operating ratio up to $3M
Catastrophic Treaty set at $58M
xs $3M
Options to offset increases
Stop Loss Treaty set at 105%
operating ratio up to $3M
Increase Catastrophic treaty
retention to $5M
Retain $2M Casualty
 
 
 
We built a strong company for a reason?
IHBG Balance Sheet Strength
$50.3M Total Net Assets
Exposures
Stop Loss Treaty set at 105%
operating ratio up to $3M
Increase Catastrophic treaty
retention to $5M
Retain $2M Casualty
 
 
 
AMERIND Rating Assessment 2021
 
 
Business Profile
 
BP
 
 
 
Neutral
(-1)
 
Balance Sheet
Strength
 
BSS
 
 
 
Very Strong
(a-)
 
 
 
 
 
 
Operating
Performance
 
OP
 
 
Strong
(+1)
 
 
 
Enterprise Risk
Management
 
ERM
 
 
 
Appropriate
(+0)
 
Country Risk
 
 
Published ICR
Rating
 
OVERALL
 
 
 
“a-”
 
Strongest level of BCAR
Top 10% in CAGR of surplus
over last 5 years
Conservative investment
strategy 
– adjust?
Adequate reserves &
favorable historical
development
Comprehensive
reinsurance program
No debt
Positive outlook for
improvement with
continued BS/OP
performance
 
Sustainable competitive
advantage in providing
coverage for tribal risks
Tenured and well regarded
management team
Tribal marketplace
Regulated by stable and
consistent Cell Commission
Flexibility in pricing, terms
and conditions
Tax exempt- federal, state
premium tax
 
“Strong” performance
over last 5 & 10 year
periods with most recent
5 years significantly better
and reflective of on-going
strategy
Organic surplus growth
from operations
Return metrics align with
“Strong” peers
 
Key risks are identified
and monitored
Board approved formal
risk tolerances in place
Conservative risk
appetite
Strong governance and
controls
ERM evolving and
maturing
 
Need based on Performance and Policy
Recommendations
 
Recommendations
Construction inflation of 25-50%
 
Property Values to 150%
 
Overall increase of ~ 25%
 
Limit Individual Member change to performance
+30%/0% subject to changes in exposure, terms
or focus
 
Increases may be paid from Rate Stabilization
Fund
 
Sharing the  Cost to Meet the Need
 
Recommendations
 
Increase base rate 10% to pay for increased claim costs
(estimated $2M increase)
 
Increase Property Values to 150% replacement cost
(estimated $2M increase)
 
Increase minimum deductible to $5,000 per unit x 500-800 claims
(estimated savings $2M)
 
Do Not Limit Individual Member increases
 
Decrease operations charge to 22%
(estimated savings $3M)
 
Change AM Re Stop Loss Treaty to 105% operating ratio up to $3M
(estimated savings on reinsurance $0.3M)
 
 
 
 
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Through a comprehensive analysis of AMERIND program components like Core Values, Member Services, Competitor Comparison, Program Performance, and Sustainability, this report delves into key aspects such as risk exposure, potential liabilities, and operational efficiency. Findings highlight areas needing improvement for long-term sustainability and effectiveness.

  • Financial risk
  • Program analysis
  • Sustainability
  • Liability
  • Competitors

Uploaded on Mar 08, 2024 | 1 Views


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Presentation Transcript


  1. How Much Is Enough?

  2. Overview Review Overall Results Liability Analysis & Recommendation Property Analysis & Recommendation

  3. AMERIND Core Values Be here for as long as Tribes need us Effective are we serving all our Members Affordable how do we compare to our competitors Sustainable will we be here for another 35 years Efficient are we using Member money wisely Everyone pays their fair share Every cell stands on its own

  4. Are we serving all our Members? We are losing performing members

  5. How do we compare to our Competitors? AMERIND Competitors 100% Indian Owned Non-Indian 55% Indian Operated 5% Indian Operated A rated A- rated Deductibles $1000 to $25k Deductible $10k under & $25k over $100k Premium $345 per $100k value Premium $500-600 per $100k value Property Limits - $250M Property Limits $1B GL Limits $2M, Buy-up $10M GL Limits $2M, Buy-up $25M

  6. How is IHBG really performing?

  7. Are we sustainable?

  8. Probable Maximum Loss Indicated CAT Risk Exposure Based upon Worldwide Exposures 2022 Gross Losses* (I) 2022 Pre-Tax Net Losses* (II) PER OCCURRENCE AGGREGATE** PER OCCURRENCE AGGREGATE** (06) (08) (01) (03) (05) (07) (02) (04) TVAR or TCE*** (Excluding Reinstatement Costs) ($000) TVAR or TCE*** (Excluding Reinstatement Costs) ($000) Loss Return Period (Annual Probability) Probable Maximum Loss (PML) ($000) Probable Maximum Loss (PML) ($000) PML (Including Reinstatement Costs ($000) PML (Excluding Reinstatement Costs ($000) TVAR or TCE*** ($000) TVAR or TCE*** ($000) 1. 20 Years (5.0%) 27,532 52,033 47,172 74,133 6,800 3,949 21,966 24,918 2. 50 Years (2.0%) 48,092 76,635 70,021 101,306 7,631 3,971 24,977 27,605 3. 100 Years (1.0%) 67,242 96,707 91,934 122,550 8,082 4,007 26,726 29,462 4. 200 Years (0.5%) 83,172 119,941 112,015 145,570 8,370 4,079 28,564 31,332 5. 250 Years (0.4%) 90,261 128,228 116,277 153,467 8,384 4,114 29,600 31,910 6. 500 Years (0.2%) 111,203 156,804 148,967 180,745 8,578 4,294 31,091 33,727 7. 1,000 Years (0.1%) 147,257 177,473 164,280 204,257 8,767 4,653 32,614 35,696

  9. Property Industry Reinsurance Costs up ~ 58% ISO Loss Costs increased 3.4 to 5.7% Building inflation factor of 35-50% Adjustment of Values to 150%

  10. Property Shrinking Dwelling Count Dwelling count continues to decline 50,000 43,539 45,000 42,881 42,784 42,325 41,496 41,134 40,000 36,747 36,115 35,000 32719 30,000 25,000 20,000 15,000 10,000 5,000 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 Amerind Risk Data Dwellings Linear (Dwellings)

  11. Property Incurred Average per Claim $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 2015 2016 2017 2018 2019 2020 2021* Amerind Risk Data Trended Ultimate Cost per Claim Linear (Ultimate Cost Per Claim)

  12. Property Claims Total Claims Reported per Year 800 750 700 600 500 400 308 299 293 285 300 265 234 200 100 0 2015 2016 2017 2018 2019 2020 *2021 2015 2016 2017 2018 2019 2020 *2021

  13. How much will it cost to fix homes? Three-year average claims $14M Prepare for 25-50% construction inflation - $3.5 to $7M materials & labor Increase rates to pay for increased claim costs (estimated $3M) Increase Property Values replacement cost (estimated $1.5M) Do Not Limit Individual Member increases Other Options to lower costs Limit minimum deductible to $5,000 per Member per unit (estimated savings $2M / 30% of Members file claims) Implement fire sub-deductible of $10,000 per unit (estimated savings $1.5M / 15% of Members file fire claims)

  14. Liability Ultimate Losses and Trends $7 Shock Losses Millions 2016 $6 LP Gas explosion $1.325 M $5 2016 Gas explosion $4.462 M $4 $3 Gas explosion $1.265 M $2 Average Losses $1.6M $1 $0 2014 2015 2016 2017 2018 2019 2020 2021 Amerind Risk Data

  15. Liability 2022 Trends Reinsurance rates have doubled due to shock losses Terms are unfavorable to AMERIND. 1stLayer Quota Share 40% first $500k, $1M surprise increase 2ndLayer Primary XOL $500k xs $500k, 500% inc or $1.5M 3rdLayer Secondary XOL $5M xs $1M QS 20% of losses, 32% inc or $135k Treaty reinsurance limits reduced in Alaska to $1M, XOL/XPL removed Erosion of legal defenses (e.g. Lewis v. Clarke)

  16. Liability Recommendation Alaska limits in excess of $1M will require facultative reinsurance at market rates Forgo Casualty Treaty between $0-$5M Increase IHBG Liability Retention up to $2M

  17. Cyber Liability 2022 renewal terms - as expiring $50,000 automatic limit for Risk Pool No premium for coverage unless didn t take training Higher limits require submission Premium ~ $450,000 - flat Loss Activity - $843,000 7 Claims in NAHASDA 4 for full $50,000 limit Average claim is $35,000 1 Claim in TGB for $500,000 Implemented Cyber Liability Loss Control for Members Effective 1/1/2022 $5,000 retention Members that don t participate in prevention training will be charged for their Cyber Liability premium

  18. Do we have enough to cover our costs? Three-year average: Operating premium $15.3M to pay claims and operations (green area on chart) Operating $3.9M Reinsurance costs $6M Hard market 58% increase cost 2023 $11M retention on Cat treaty Options to lower op cost & reinsurance Reduce Operations to 22% ratio (estimated savings $0.9M) Stop Loss change to 105% operating ratio up to $3M (estimated savings $0.3M) Increase retentions to $5M (estimated savings $1.3M)

  19. Get reinsurance right? Three-year average reinsurance support $3.1M recovery and $5.4M cost Stop Loss Treaty set at 105% operating ratio up to $3M Catastrophic Treaty set at $58M xs $3M Options to offset increases Stop Loss Treaty set at 105% operating ratio up to $3M Increase Catastrophic treaty retention to $5M Retain $2M Casualty

  20. We built a strong company for a reason? IHBG Balance Sheet Strength $50.3M Total Net Assets Exposures Stop Loss Treaty set at 105% operating ratio up to $3M Increase Catastrophic treaty retention to $5M Retain $2M Casualty Property $5M each Occurrence Liaibility $2M each Occurrence Excess Losses $3M Unrestricted Net Assets $39.7M (4 times)

  21. AMERIND Rating Assessment 2021 Country Risk Enterprise Risk Management Balance Sheet Strength Published ICR Rating Operating Performance Business Profile BP ERM BSS OVERALL OP Strong (+1) Neutral (-1) Appropriate (+0) Very Strong (a-) a- Key risks are identified and monitored Board approved formal risk tolerances in place Conservative risk appetite Strong governance and controls ERM evolving and maturing Strongest level of BCAR Top 10% in CAGR of surplus over last 5 years Conservative investment strategy adjust? Adequate reserves & favorable historical development Comprehensive reinsurance program No debt Positive outlook for improvement with continued BS/OP performance Sustainable competitive advantage in providing coverage for tribal risks Tenured and well regarded management team Tribal marketplace Regulated by stable and consistent Cell Commission Flexibility in pricing, terms and conditions Tax exempt- federal, state premium tax Strong performance over last 5 & 10 year periods with most recent 5 years significantly better and reflective of on-going strategy Organic surplus growth from operations Return metrics align with Strong peers

  22. Need based on Performance and Policy Recommendations COVERAGE IMPACT Recommendations Construction inflation of 25-50% $17,500,000 Property Property Values to 150% $1,500,000 Liability Overall increase of ~ 25% $300,000 THOL & Crime Limit Individual Member change to performance +30%/0% subject to changes in exposure, terms or focus $19,300,000 Estimated Net Losses Budgeted Operations $6,500,000 Increases may be paid from Rate Stabilization Fund Reinsurance $6,400,000 Overall Contribution $32,200,000

  23. Sharing the Cost to Meet the Need Recommendations COVERAGE IMPACT Revised Minimum deductible $2,500 per unit $15,250,000 Property Increase base rate 10% to pay for increased claim costs (estimated $2M increase) $1,500,000 No change Liability Increase Property Values to 150% replacement cost (estimated $2M increase) THOL & Crime $300,000 No change Estimated Net Losses Increase minimum deductible to $5,000 per unit x 500-800 claims (estimated savings $2M) $17,050,000 Change to 22% operations ratio from 30% Budgeted Operations Do Not Limit Individual Member increases $3,500,000 Decrease operations charge to 22% (estimated savings $3M) Higher retention & 100% Combined ratio Reinsurance $4,700,000 Change AM Re Stop Loss Treaty to 105% operating ratio up to $3M (estimated savings on reinsurance $0.3M) Overall Contribution $25,250,000

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