Post on 10-Jun-2020
Economic Update & Emerging Industry TrendsPAMICPittsburgh, PA, August 6, 2019
Michel Leonard, PhD, CBEInsurance Information Institute w 110 William Street w New York, NY 10038 www.iii,org 1
A world with MORE insurance
I.I.I. Mission Statement
Improving public understanding of insurance...
…what it does and how it works
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Economic Outlook
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Balance of RisksPolitical RiskMonetary PolicyGrowth & Inflation
US: Q2 numbers weaker than expected confirm negative trend.
Global: GDP growth forecast for 2019 is up from 3.0% in January to 3.2%.
US: Unusually fast policy turnaround creating instability
Global: BoE, ECB signaling cuts. Russia, Turkey cutting. China on hold.
US: Electoral cycle will move center state.
Global: Brexit, Hong Kong protests, and Iran risk underpriced. U.S.
Industry Insight: Political risk underwriters view more risks in 2019 than 2018 but losses are stable
Political Risk
Q2 GDP Inflation
Q1 GDP Inflation
Interest Rates
Skewed to downside
Arrow length = impact on balance.
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U.S. GDP Forecasts
Real GDP Growth Forecasts
0%
1%
2%
3%
19:Q3 19:Q4 20:Q1 20:Q2 20:Q3 20:Q4
Top 10 Avg Median Bottom 10 Avg
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GDP Growth (%)
Years & Quarters
53 forecasts: consensus points to slow growth in the second half of 2019 and throughout 2020.
Treasury Yields: A Long Downward Trend, 2006–2019
3.58%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Recession
10-Yr Yield
2.54%
50% of P/C investments in 5+ year bonds = low bond returns for years
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Yield Rate (%)
Years & Quarters
Yield Forecasts 2019-2020
2.5 2.52.4 2.4 2.4
2.3 2.3
2.6 2.62.7 2.7
2.8 2.8 2.82.72.8
3.0 3.03.1
3.2 3.2
2
2.5
3
3.5
2019:Q2 2019:Q3 2019:Q4 2020:Q1 2020:Q2 2020:Q3 2020:Q4
10 Most Pessimistic Median 10 Most Optimistic
53 forecasts: No consensus on level or direction of interest rates in the next six quarters
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Yield Rate (%)
Years & Quarters
Economic Indicators for the P/C Insurance Industry
Economic Indicator Q1 2019 Q2 2019 Analysis
Change in real GDP 3.1% 1.3% Uncertainty rising
Housing Unit Starts (millions of units) Actual 2018. Forecast 2019 1.21 1.23
Q2 is Blue Chip median forecast for full year 2019: essentially flatThis is a weak indicator
Employment Changes (thousands) 521 512 +500K per quarter is relatively strong Especially at this stage of cycle
Nonresidential Fixed Investment Growth 6.9% N/A Businesses are still investing… but slowing due to increased uncertainty
Hospital Services Price Increases (y-o-y) 1.8% 1.2% Lowest level in last 20 years… helps constrain BI claim severity
10-Year Treasury Yield 2.7% 2.3% No relief for insurer investment income
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P&C Industry Performance
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15.7%
5.0%
-5%
0%
5%
10%
15%
20%
07 08 09 10 11 12 13 14 15 16 17 18 19
NPW Growth Nominal GDP Growth
Net P/C Premium Written Growth vs. Nominal U.S. Economy
Through first quarter.SOURCES: A.M. Best (2007-2013), ISO (2014-present), Federal Reserve Bank of St. Louis (FRED), Insurance Information Institute.
Tax Reform Peak
-1.2%
*ISO/Verisk estimate
Premium Growth Falls Below GDP Growth For 1st Time in 10 Years
10
Years
Growth (%)
2017 Q1 – 2018 Q1 Ave: 6.9%
Key Sources of P/C Insurer Profits
Through first quarter. Data are before taxes and exclude extraordinary items. Source: NAIC data, sourced from S&P Global Market Intelligence.
$4.0
$14.6 $14.1 $14.6$20.2
$14.5$16.8
$13.6 $14.9 $15.3 $14.7
-$2.2 -$1.2-$4.2
$0.1
$5.0
$2.8
$4.6
$2.9 $0.0 $4.1 $5.3
-$10
$0
$10
$20
$30
09 10 11 12 13 14 15 16 17 18 19
Net investment gains Underwriting gains/lossesProfits ($ Billions)
Strong Capital Gains and Underwriting Result Lifted Profits.
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Years
$8,300
$2,254
-$728
$4,170
$5,259
-$2,500
$0
$2,500
$5,000
$7,500
$10,000
07 08 09 10 11 12 13 14 15 16 17 18 19
P/C Underwriting Gains
Sources: NAIC data, sourced from S&P Global Market Intelligence, ISO/PCI. 2019 12
Gains & Losses ($ Billions)
Years
Third Year in a Row of Underwriting Gains Lead to Best Performance since 2007
P/C Sources of Investment Gains and Losses
Through First Quarter. Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.
$11.9 $11.7 $13.1 $11.9 $12.1 $11.5 $12.0 $11.2 $12.2 $12.3 $13.7
-$7.9
$2.9 $1.1 $2.7
$8.1
$3.1$4.9
$2.4$2.7 $3.6 $1.7
-$10
-$5
$0
$5
$10
$15
$20
$25
09 10 11 12 13 14 15 16 17 18 19
Net investment income Realized capital gains/losses
Steady investment income - but smaller Q1 realized capital gains
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Years
Gains & Losses ($ Billions)
P/C Insurer Portfolio Yields
Sources: NAIC data, sourced from S&P Global Market Intelligence, ISO/PCI. 2019 projected with Q1 data
Insurers facing yields below 4% since 2009
14
4.9
3.83.7
3.43.7
3.23.0 3.0
3.43.2
0%
1%
2%
3%
4%
5%
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19P
Yield (%)
Years
P/C Industry Combined Ratio
*Excludes Mortgage & Financial Guaranty insurers 2008-2014.Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0. Sources: A.M. Best; ISO, a Verisk Analytics company; 2019 based on Q1 data
110.1
115.8
107.5
100.1
98.4
100.8
92.6
95.7
101
99.3
101.1
106.5
102.5
96.497.4 98.3
100.9
104.0
101.5 101.2
90
100
110
120
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18E 19P
Hurricanes, Wildfires Drive CR Higher.
Best Since 1949’a 87.6
Higher CAT Losses, Shrinking
Reserve Releases, Toll of
Soft Market
Sandy
3 Years in a Row U/W Profits1st time since 1971-73
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Combined Ratio
Years
P/C Industry Net Income After Taxes
Through first quarter. Adjusted for inflation using the BLS CPI calculator.Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.
10.2
-1.2
12.9
9.5
13.6
23.8
15.2
20.0
14.7
8.6
17.1 17.9
-$5
$5
$15
$25
$35
08 09 10 11 12 13 14 15 16 17 18 19
Net Income ($ Billions)
16
Years
All Leading to Rising Net Income After Taxes
Commercial Rates
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All Commercial Lines Rate Changes
Sources: Willis Towers Watson, MarketScout.
Rates creeping higher but that masks differences by line of business
-16%
5%2%
-6%
7%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2003
:Q3
2004
:Q1
2004
:Q3
2005
:Q1
2005
:Q3
2006
:Q1
2006
:Q3
2007
:Q1
2007
:Q3
2008
:Q1
2008
:Q3
2009
:Q1
2009
:Q3
2010
:Q1
2010
:Q3
2011
:Q1
2011
:Q3
2012
:Q1
2012
:Q3
2013
:Q1
2013
:Q3
2014
:Q1
2014
:Q3
2015
:Q1
2015
:Q3
2016
:Q1
2016
:Q3
2017
:Q1
2017
:Q3
2018
:Q1
2018
:Q3
2019
: Q1
MarketScout Willis
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Quarters & Years
Rates Growth (%)
Liability Rate Changes
SOURCE: Marsh Insurance Market Index.
U.S. Casualty U.S. Financial and Prof Liab
1.9%
-2.1%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Q2
2012
Q4
2012
Q2
2013
Q4
2013
Q2
2014
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4
2018
2.1% 1.5%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Q2
2012
Q4
2012
Q2
2013
Q4
2013
Q2
2014
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4
2018
19
Years & Quarters
Rates Growth (%)
Years & Quarters
Rates Growth (%)
Slight Softening, Though Local Markets Vary
Property/Cyber Rate Changes
SOURCE: Marsh Insurance Market Index.
U.S. Property U.S. Cyber
3.8%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Q2
2012
Q4
2012
Q2
2013
Q4
2013
Q2
2014
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4
2018
19.1%
-0.6%
-5.0%
5.0%
15.0%
25.0%
Q2
2012
Q4
2012
Q2
2013
Q4
2013
Q2
2014
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4
2018
20
Years & Quarters
Rates Growth (%)
Years & Quarters
Rates Growth (%)
Also Slight Softening, Though Local Markets Vary
Industry Trends
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Personal Auto: Combined Ratios
Source: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; 2018 is I.I.I. estimate.
Personal auto rates rose rapidly to catch up with expected losses
106103
98
94% 96% 98% 100% 102% 104% 106% 108%
2006200720082009201020112012201320142015201620172018
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Years
Combined Ratios
94 96 98 100 102 104. 106 108
-9.0%
8.7%9.1%
-0.1%
4.9%
8.0%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Commercial Auto
Private Passenger Auto
Auto Direct Written Premium Growth: Commercial vs. Private Passenger, 2008-2017
Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.23
Years
Premium Growth (%)
Commercial Premium Growth Stronger than Private But Both Rising
Personal Auto: Road Safety
Source: Insurance Information Institute research.
Distracted driving
Faster driving
Economic well-being
Legalized marijuana
Expensive auto parts
Safety Devices Can Be Expensive
Better Economy = More Drivers = More Accidents
14 Percent of Injury Crashes
SpeedStillKills
It’s Not Funny
Why rates go up
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Personal Auto: Marijuana Laws by State
*CBD/Low THC medical program.Source: National Journal; Ballotpedia, 2019.
13.0
10.0
1.0
6.0
0
4
8
12
16
CO WA OR Overall
Change in Collision Frequency vs.
neighboring states2012-2017
Percent
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Health: Medical Inflation Moderating
Annual Change (%), CPI - Medical
Sources: St. Louis Federal Reserve (FRED), Bureau of Labor Statistics Series ID CUUR0000SAM; Insurance Information Institute.
4.6% 4.7%
4.0%
4.4%4.2%
4.0%
4.4%
3.7%
3.2%3.4%
3.0%
3.7%
2.5% 2.4%2.6%
3.8%
2.5%
2.0%
2001 2003 2005 2007 2009 2011 2013 2015 20170.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Fastest Growth in More Than a
Decade
Injury Severity Typically Exceeds Medical CPI.
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-11.6% -12.4%
-3.4%
9.6%10.7%
8.5%
5.8%4.0%
1.4%
-0.5%
-15%
-10%
-5%
0%
5%
10%
15%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
US Workers Comp DWP Growth
Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.27
Growth (%)
Years
Multi Year Downward Trend Now Crossed Negative
Key I.I.I. Initiatives
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Insurance Industry News Cycle
Nat cats, auto, tech/innovation continue as biggest P/C drivers
U.S. Media Coverage On Insurance Topics In 2018 and 2019
2018
Homeowner Insurance
2019
3%
Insurtech
Mortgage & Title InsuranceTravel & Pet Insurance
Crop Insurance
Life Insurance & Long Term Care
Auto Insurance
Wildfires
Flood & Storms
NFIP
Cyber Insurance
41% on other P/C and life products
23% on Nat Cat risks
16% on cyber insurance and digital trends11% 9%
7% 7%
8%4%
6%
10%7%
6%
7%
12%17%
18% 18%
4% 9%4%
6%6%8%10%Insurance Lawsuits2%
*Source: Quid, HPS Analysis
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Our priorities in 2019 continue to reflect industry and customer conversations focus
Political Risk
Audiences
B2G
B2C
B2B
Inform Own
Manage Elevate
High
I.I.I. Opp/Risk
Publ
ic D
iscu
ssio
n
HighLow
Low
Nat Cat Resilience
Terror
Fraud
Home/Rental
Industry Talent
Auto
Cyber Risk
Insurance As Economic Capital
Innovation
Life
Strategic Initiative
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T r a c k , q u a n t i t y a n d b e n c h m a r k progress towards these goals through theI.I.I.’s insurance and resilience m o d e l s & i n d i c e s
Promote resiliency through insurance by empowering individuals, small businesses, andcommunities to develop a holistic approach to managing extreme weather events
Insurance For Resilience Coalition
Help us identify the best aspirational + realistic goals
y Directly contribute to hardening, retrofitting, and implementation of preemptive risk reduction strategies for 100,000 Households
y Directly contribute to decreasing the protection gap for extreme weather events by $10 Billion
y Support vulnerable households by ensuring that at least 20% of impact focuses on low-income communities
Extreme Weather Events Defined AsFLOODS ● HURRICANES ● TORNADOES ● WILDFIRES ● EARTHQUAKES
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Conclusion: Key Points
• GDP is slowing and rates are going down
• Manufacturing may be running out of steam
• Services are doing well• Wages are finally beating inflation
• P/C industry follows economic growth cycles
• Falling interest rates hurts investment income• Catastrophes drive results – and losses are up
• Rates are drifting higher – but it’s not a hard market
Economic growth likely to slow – but when?
P/C Industry will continues to follow economic cycle
Michel Leonard, PhD, CBESenior Economist & Vice President110 William St, 18th FloorNew York, NY 10038212.346.5518 w michell@iii.org w www.iii.org
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