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1、Boom Or BustUS Surety Market in a Post Covid WorldPresenters:John Spencer TransReVimal Patel Guy CarpenterModerator:Christian HauprichObjectives:1.Analyze the key principles and components of surety,including its role in risk mitigation,contractual obligations,and financial security2.Compare and con
2、trast surety bonds and P&C insurance3.Discuss the current state of the market including challenges and opportunities4.Reinsurance and its role in the US Surety MarketHistory of Suretyship First reference is found in the Bible Surety came into mainstream in US upon adoption of Miller ACT In 1935 Each
3、 of the 50 states has their own version of Miller ACT Miller ACT requires 100%performance and payment bonds on all state and federal financed projects.Bonds are conditional in nature.“Pay on demand”and percentage bonds are the exception and not the norm Surety bonds are effectively an alternative to
4、 bank letters of credit Surety in the Western Hemisphere$700MM$8.6BB$900MM$1.9BBOther developed marketsJapanItalySouth KoreaDeveloping Markets:China-$750MM alreadyIndia First bonds written in 2023Believe the global premium is between$15BB to$17BB and growingWhat is a Surety Bond?Surety Vs Insurance
5、Whats the DifferenceSurety vs.Insurance Whats the differenceU.S.Surety Industry OverviewU.S.market differs from most of the rest of the world by requiring bonds at 100%of contract valueDistributionBusiness accessed through brokers Specialty agents(National Association of Surety Bond Producers)contro
6、l a significant portion of the business Banks are prohibited from issuing Surety bonds in the U.S.Commercial Contract Transactional Bail The Three“Cs”of SuretyUnlike most insurance underwriters,surety specialist have a personal relationship with the client.Trust amongst all parties is paramount to a
7、 successful relationship.Claims Wording makes all the difference Significant differences in handling dependent upon bond form wording Perform work to completion Finance principal to completion Buy back the bond cut a check Indemnity is key Always expect to get paid back in theory All three parties n
8、eed to work together in the claim processU.S.Surety vs.P&C Industry Surety represents 1%of written premiums in U.S.Property and Casualty Industry Surety has outperformed U.S.Property and Casualty industry in combined ratio 18 of last 23 years Surety combined ratios over 100%last seen from 2001 to 20
9、05Source:US Statutory DataU.S.Surety Industry OverviewMarket SizeNo.CompanyYE 2022 DPWMarket Share1Travelers1,133 M13%2Liberty Mutual1,098 M13%3Zurich580 M7%4CNA 578 M7%5Chubb439 M5%Top 5 Writers3,827 M45%Top 6-20 Writers2,675 M31%Total Industry8,605 M100%Source:GC Risk Benchmarks Research,US Statut
10、ory DataThe market share of the top 5 writers is moderately decreasing as new markets are established.Travelers13%Liberty13%Zurich7%CNA7%Chubb5%Top 6-20 Writers31%All Other24%Market Share of U.S.Surety Writers by Direct PremiumU.S.Surety Industry OverviewBreakdown of ResultsContinued long term indus
11、try profitability trend has led to new entrants as carriers seek expanded growth opportunities in the U.S.The industry continues to run very profitability with a combined ratio of 71%over the last five-year period Segmenting the industry reflects loss and expense ratios efficiencies for the top 5 wr
12、iters Some contributing factors:Greater access to national and global construction and commercial accounts with strong credit profiles Tiered commission levels for larger bonds offered by top 5 writers reduce their overall expense ratiosNameDirect Premium WrittenCY 2018-2022CY 2022Company Name2022 D
13、PW($M)2021DPW($M)Market Share5 Yr.CAGRDirect Loss&DCC RatioNet Loss&DCC RatioDirect Expense RatioNet Expense RatioDirect Combined RatioNet Combined RatioDirect Combined RatioNet Combined RatioTop 5 Writers3,827 3,299 44%5%17%17%49%49%66%66%59%59%Top 6-20 Writers2,675 2,289 31%11%23%18%53%55%77%74%77
14、%70%Industry ex.Top 202,103 1,849 24%6%21%19%55%56%76%75%75%67%Industry8,605 7,438 100%7%20%18%52%52%71%70%68%64%Reinsurance in the Surety Space Xol vs Quota Share Vast majority of placements are Xols on cedents net exposure Losses Discovered Nature on a per principal nature Losses are not on indivi
15、dual bonds,but the aggregation of exposure Exposure can run in the billions Risk attaching“xol”is cheap quota share coverage and not an option Virtually all reinsurers purchase an xol treaty Increasing retentions and limits purchased Inflation driven Reinsurance underwriters in the space are mainly former primary underwriters Thirty markets participate in the space Need to understand nuances of the product There are no experts in surety only studentsXOL Structure w/reinstatements?