The Liability You Don't Know; Article from GE Insurance Solutions
Details What Underwriters May Be Missing

KANSAS CITY, Mo.--(BUSINESS WIRE)--Feb. 8, 2006--Vision may be the
most important element required to underwrite liability risk, says
Ajay Gupta, Marketing Leader of GE Insurance Solutions. Gupta says
insurers tend to look backward at historical loss experience but not
forward to factors that may impact future losses.


Gupta's article, "Crisis or Opportunity: The Liability Dilemma",
appears in the Winter edition of John Liner Review. He writes that
some of the factors essential to analyzing liability but often
overlooked are interest rate development, rising medical costs and
rising tort costs.

In his article, Gupta explores a theme that has haunted re/insurers in
the last few years: adverse development on long-tail liability risk.
He probes for the root cause of the problem that has in some cases
forced re/insurers to add billions in loss reserves.

"When pricing is inadequate, brokers and insureds contend that the
underwriter didn't ask the necessary questions," he says. "The reality
may be that the underwriter didn't understand the full scenario in the
first place."

Gupta continues: "The important issue for an underwriter is how a
contract can be sensibly priced when the outcome may not be known for
30 years, as is the case with asbestos litigation." He contends that
insurers are often hamstrung because their underwriters are
generalists "who may understand a little about many industries," but
rarely are "experts in a specific medical discipline or industrial
sector. As disciplines become more specialized, underwriters struggle
to keep up with new developments and the drivers behind such change."

The answer, Gupta says, lies in providing frontline underwriters with
the understanding and the tools they need. Gupta refers to it as
understanding "the true cost of capital the insurers put on the line
when they write a given volume of business or exposure over a 12-month
period."

Specifically, Gupta calls on insurers to recruit more specialist
underwriters and enhance their training, employ rigorous underwriting
discipline and implement strong risk management controls to avoid the
dilemma of pricing uncertainty.

Gupta concludes with a cautionary note that recalls a time when
re/insurers specifically relied on investment income to achieve
profitability and making an underwriting profit was uncommon: "Without
providing this insight to underwriters, insurers will always be in the
position of selling their product first and figuring out their true
selling price after a loss comes in."

To read the article, go to
http://www.geinsurancesolutions.com/erccorporate/theinstitute/pc/0601_cris.htm
(Due to its length, this URL may need to be copied/pasted into your
Internet browser's address field. Remove the extra space if one
exists.)

GE Insurance Solutions (NYSE: GE) is a group of companies that
protects people, property and reputations. With more than $50 billion
in combined assets, GE Insurance Solutions is one of the world's
leading providers of commercial insurance, reinsurance and risk
management services. More information is available at
www.geinsurancesolutions.com.