2013.03_NYSSA_pres by Insurance Info Inst.pdf

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P/C Insurance Industry

Overview & OutlookA Story o f Grow th and Streng th in anUncertain World

New York Society of Securities Analysts

New York, NYMarch 18, 2013

Download at www.i i i.org /presentat ion sRobert P. Hartwig, Ph.D., CPCU, President & Economist

Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org


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2

P/C Insurance Industry

Financial Overview

Profit Recovery in 2012 AfterHigh CAT Losses; Ultimate

Impact of Sandy Still Unclear

2


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P/C Net Income After Taxes19912012:Q3 ($ Millions)

$14

,178

$5

,840

$19

,316

$10

,870

$20

,598

$24

,404 $

36,8

19

$30

,773

$21

,865

$3,0

46

$30

,029

$62

,496

$3,0

43

$35,2

04

$19

,150

$26

,981

$28

,672

-$6,970

$65

,777

$44

,155

$20

,559

$38

,501

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12:Q3

2005 ROE*= 9.6%

2006 ROE = 12.7% 2007 ROE = 10.9%

2008 ROE = 0.1%

2009 ROE = 5.0%

2010 ROE = 6.6%

2011 ROAS1 = 3.5%

2012:Q3 ROAS1 = 6.3%

P-C Industry 2012:Q3

profits were up 222% from2011:Q3, due primarily tolower catastrophe losses

* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.6% ROAS through2012:Q3, 4.6% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute


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A 100 Combined Ratio Isnt What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012:Q3 combined ratioincluding M&FG insurers is 100.9, 2011 combined ratio including M&FG insurers is 108.2, ROAS = 3.5%.

Source: Insurance Information Institute from A.M. Best and ISO data.

97.5

100.6 100.1 100.8

92.7

101.299.5

101.0

106.2106.5

95.7

3.6%4.7%

7.9%7.4%

4.3%

9.6%

15.9%

14.3%

12.7% 10.9%

8.8%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012E 0%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Todays DepressedInvestment Environment to Generate Risk Appropriate ROEs

A combined ratio of about 100 generates an

ROE of ~6.6% in 2012, ~7.5% ROE in 2009/10,10% in 2005 and 16% in 1979

Catastrophes andlower investment

income pulleddown ROE in 2012


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-5%

0%

5%

10%

15%

20%

25%

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13F

Profitability Peaks & Troughs in the P/CInsurance Industry, 1975 2013F*

*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2012 excludemortgage and financial guaranty insurers. 2012:Q3 ROAS = 6.2% including M&FG.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

1977:19.0% 1987:17.3%

1997:11.6%2006:12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%

9 Years

2012E:3.6%

History suggests next ROE

peak will be in 2016-2017

ROE

1975: 2.4%

2013F5.8%


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The Strength of the EconomyWill Influence P/C Insurer

Growth Opportunities

6

Growth Will Expand Insurer ExposureBase Across Most Lines

6


7/1687

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 3/13; Insurance Information Institute.

2.7

%

0.5

%

3.6

%

3.0

%

1.7

%

-1.8

%

1.3

%

-3.7

%

-5.3

%

-0.3%

1.4

%

5.0

%

2.3

%

2.2

%2.6

%

2.4

%

0.1

%2.5

%

1.3

%4.1

%

2.0

%

1.3

% 3.1

%

2.1

%

2.0

%2.5

%

2.7

%

2.6

%

2.8

%

2.9

%

3.0

%

0.1

%

-8.9%

4.1

%

1.1

%1.8

%2.5

%3.6

%

3.1

%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

2000

2001

2002

2003

2004

2005

2006

07:1Q

07:2Q

07:3Q

07:4Q

08:1Q

08:2Q

08:3Q

08:4Q

09:1Q

09:2Q

09:3Q

09:4Q

10:1Q

10:2Q

10:3Q

10:4Q

11:1Q

11:2Q

11:3Q

11:4Q

12:1Q

12:2Q

12:3Q

12:4Q

13:1Q

13:2Q

13:3Q

13:4Q

14:1Q

14:2Q

14:3Q

14:4Q

Demand for Insurance Continues To Be Impacted by Sluggish EconomicConditions, but the Benefits of Even Slow Growth Will Compound and

Gradually Benefit the Economy Broadly

Real GDP Growth (%)

Recession began inDec. 2007. Economictoll of credit crunch,housing slump, labormarket contraction

was severe

The Q4:2008 declinewas the steepest

since the Q1:1982drop of 6.8%

2013 is expected to seeinitially slow growth,

then graduallyaccelerate throughoutthe year and into 2014


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Federal Spending as a Share of State GDP:Vulnerability to Sequestration Varies

Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute. 8

NY has relatively

little exposure tosequester cuts


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Defense and Non-Defense Federal Spendingas a Share of State GDP: Top 10 States*

14

.6

10

.5

9.8

9.8

9.8

8.0

7.0

5.9

5.3

5.2

10

.0

10

.0

10

.0

9.2

4.9

3.8

3.1

2.8

2.7

2.6

0

2

4

6

8

10

12

14

16

HI AK DC MD VA KY AL MO CT AZ DC MD VA NM ID WV TN AK MT SC

Shareo

fStateGDP(%)

Federal defensespending accounts forapproximately 10%+ of

GDP in 5 states

*As of 2010.Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo Securities; Insurance Information Institute.

Defense Spending Non-Defense Spending

Federal non-defense spendingaccounts for 10%+of GDP in 3 states

Sequestration Could Adversely Impact Commercial Insurance ExposuresDirectly at Defense Contractors and Indirectly in Impacted Communities


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State-by-State Leading Indicatorsthrough 2013:Q1

Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.10

5 Fastest Growing StatesSouth Carolina 6.97%Michigan 4.32%West Virginia 3.59%

Idaho 3.14%Georgia 3.04%

5 Slowest Growing StatesWyoming -1.09%Delaware -0.24%North Dakota -0.19%

Vermont 0.09%Minnesota 0.18%

Near-term growth

forecasts varywidely by state
http://www.philadelphiafed.org/index.cfmhttp://www.philadelphiafed.org/index.cfm


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74

.4

73

.6

73

.6

72

.273

.676

67

.868

.9

68

.2

67

.7 71

.674

.5

74

.2 77

.5

67

.569

.8 74

.3

71

.5

6

3.7

55

.7 59.560

.9 64

.16

9.9

75

.0

75

.376

.2

76

.479

.3

73

.2

72

.374

.3

82

.682

.7

74

.5

73

.8 77

.6

71

.8

40

45

50

55

6065

70

75

80

8590

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Consumer Sentiment Survey (1966 = 100)

January 2010 through March 2013

Consumer confidence has been low for years amid highunemployment, falling home prices and other factors adversely impact

consumers, but improved substantially in late 2011 and in 2012

Source: University of Michigan; Insurance Information Institute

Optimism amongconsumers has

remained fairly strongdespite tax hike, federal

budget concerns

11


12/16812

16.9

16.5

16.1

13.2

10.4

11.6

12.7

1

4.4 1

5.3 1

5.8

16.0

16.2

16.2

16.2

16.21

6.9

16.61

7.1

17.5

17.8

17.4

910

11

12

13

14

15

16

17

18

19

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F15F 16F17F18F 19F

(Millions of Units)

Auto/Light Truck Sales, 1999-2019F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/13); Insurance Information Institute.

Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point,Bolstering the Auto Insurer Growth and the Manufacturing Sector.

New auto/light truck sales fell tothe lowest level since the late1960s. Forecast for 2013-14 is

still far below 1999-2007 averageof 17 million units, but a robust

recovery is well underway.

Job growth and improved

credit market conditionswill boost auto sales in2013 and beyond


13/16813

16%

18%

20%

22%

24%

26%

28%

30%

01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F

$125

$135

$145

$155

$165

$175

$185

$195

% of registered cars under 3 years old Auto Ins Direct Pms$ Billions

Personal Auto Insurance Direct WrittenPremiums vs. Recently-Registered Cars

Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast andAnalysis, First Quarter 2012; Insurance Information Institute.

PP DWP, flat from 2004-2009, is rising again.Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.

Average age ofregistered carsrose as fewernew cars werebought (and

insured)

In 2004-07no growth in

PP DWPdespite

strong newcar/truck

sales New car/trucksales grow to14-15M/year

4%/yr growthforecast for PP

DWP fromrecovering

new car/trucksales


14/16814

Monthly Change* in Auto InsurancePrices, 19912013*

*Percentage change from same month in prior year; through Feb. 2013; seasonally adjusted

Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

-2%

0%

2%

4%

6%

8%

10%

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '1

Cyclical peaks in PP

Auto tend to occurapproximately every 10years (early 1990s, early

2000s and likely theearly 2010s)

Hard marketstend to occur

duringrecessionary

periods

Pricing peakoccurred in late

2010 at 5.3%, fallingto 2.8% by Mar. 2012

The Feb. 2013

reading of 5.2% isup from 3.6% a yearearlier; Highestsince Dec. 2010


15/16815

Monthly Change* in Auto Insurance Prices,January 2005 - February 2013

(Percent Changefrom same month,

prior year)

*Percentage change from same month in prior year, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute

Auto Insurance Price IncreasesAveraged 5.1% in 2010 over 2009, After

Averaging 4.5% in 2009 over 2008.

Underwritingperformance remained

strong even whenprices were flat or

falling due toimprovements in

underlying frequency

and severity trends

PPA Auto, like most p/c lines, exhibitsstrong cyclicality in pricing. Prices rosefrom 2000 to late 2005, were flat/fallingin 2006 and 2007 before beginning to

rise gain in 2008.

Pricing weakenedmaterially in 2011 and

early 2012 but hasstrengthened since then


16/16816

(Millions of Units)

New Private Housing Starts, 1990-2019F

1.4

8

1.4

7 1.6

2

1.6

4

1.5

71

.60 1

.71 1

.85 1.9

6

2

.07

1.8

0

1.3

6

0.9

1

0.5

50

.59

0.6

1 0.7

81

.00 1

.21 1

.35

1.4

41

.50

1.5

1

1.5

0

1.3

51.4

6

1.2

9

1

.20

1.011

.19

0.3

0.5

0.7

0.9

1.11.3

1.5

1.7

1.9

2.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F14F15F16F17F18F19F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/13); Insurance Information Institute.

Homeowners Insurers Are Starting to See Meaningful Exposure Growth forthe First Time Since 2005. Commercial Insurers with Construction Risk

Exposure, Surety, Workers Comp Also Benefit

New home startsplunged 72% from2005-2009; A net

annual decline of 1.49million units, lowestsince records began

in 1959

Job growth, low inventories ofexisting homes, low mortgage

rates and demographics arestimulating new home construction

for the first time in years


17/16817

Average Premium forHome Insurance Policies**

* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Source: NAIC, Insurance Information Institute estimates for 2011-2012 based on CPI data and other data.

$508$536

$593

$668

$822 $830

$880$909

$945

$988

$804

$764$729

$400

$500

$600

$700

$800

$900

$1,000

$1,100

00 01 02 03 04 05 06 07 08 09 10 11* 12*

Countrywide Home Insurance Expenditures Increased by anEstimated 4.0%in 2011 and 4.5% in 2012


18/16818

Construction Employment,Jan. 2010February 2013*

*Seasonally adjusted

Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

5,5

81

5,5

22

5,5

42

5,5

54

5,5

27

5,5

12

5,4

97

5,5

19

5,4

99

5,5

01

5,4

97

5,4

68

5,4

35 5

,478

5,4

85

5,4

97

5,5

24

5,5

30

5,5

47

5,5

465

,583

5,5

76

5,5

775

,612

5,6

29

5,6

44

5,64

0

5,63

6

5,6

15

5,6

22

5,6

27

5,6

30

5,6

33

5,6

49

5,6

73 5

,711

5,7

36 5

,784

5,400

5,450

5,500

5,550

5,600

5,650

5,700

5,750

5,800

5,8505,900

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

2/30/2

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

2/30/2

Construction employment growthaccelerated in the second half of2012. Stronger growth in this key

sector is possible in 2013.

(Thousands)

Construction forthe new $4B

Tappan Zee Bridge

will createthousands of jobs
http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/


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19

Construction Employment,Jan. 2003Feb. 2013

Note: Recession indicated by gray shaded column.Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.

5,000

5,500

6,000

6,500

7,000

7,500

8,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

The Great Recession andhousing bust destroyed 2.3

million constructions jobs

The Construction Sector Could Be a Growth Leader in 2013 and 2014 as the HousingMarket and Private Investment Recover. Commercial Insurers Will Benefit.

Constructionemployment

troughed at 5.435million in Jan.

2011, after a lossof 2.291 millionjobs, a 29.7%

plunge from theApril 2006 peak

19

Construction

employmentpeaked at

7.726 millionin April 2006

(Thousands)Construction

employment as of

Feb. 2013 totaled5.784 million, anincrease of 349,000

jobs or 6.4% from theJan. 2011 trough


20/168

20

Nonfarm Payroll (Wages and Salaries):Quarterly, 20052012:Q4

Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.

Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); InsuranceInformation Institute.

Billions

$5,500

$5,750

$6,000

$6,250

$6,500

$6,750

$7,000

$7,250

05:Q1

05:Q2

05:Q3

05:Q4

06:Q1

06:Q2

06:Q3

06:Q4

07:Q1

07:Q2

07:Q3

07:Q4

08:Q1

08:Q2

08:Q3

08:Q4

09:Q1

09:Q2

09:Q3

09:Q4

10:Q1

10:Q2

10:Q3

10:Q4

11:Q1

11:Q2

11:Q3

11:Q4

12:Q1

12:Q2

12:Q3

12:Q4

Prior Peak was2008:Q1 at $6.60 trillion

Latest (2012:Q4)was $6.96 trillion, anew peak--$708B

above 2009 trough

Recent trough (2009:Q3)was $6.25 trillion, down

5.3% from prior peak

Growth rates in 2012Q1:12 over Q4:11: 1.8%

Q2 over Q1: 1.4%

Q3 over Q2: 0.3%Q4 over Q3: 1.0%

Pace of payrollgrowth

accelerated inlate 2012

20
http://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCUR


21/168

21

Commercial & Industrial Loans Outstandingat FDIC-Insured Banks, Quarterly, 2006-2012:Q4*

$1.1

6

$1.1

8$1.2

2

$1.4

4$1.4

8

$1.49

$1.5

0

$1.49

$1.4

3

$1.3

7

$

1.2

7

$1.2

1

$1.1

8

$1.1

7

$1.1

7

$1.1

8

$1.20$1

.24

$1.2

8 $1.3

5

$1.3

7$1.4

2

$1.4

6

$1.4

6$1.5

1

$1.1

3

$1

.25

$1.3

0$

1.3

9

$1.0

$1.1

$1.2

$1.3

$1.4

$1.5

$1.6

06:Q1

06:Q3

07:Q1

07:Q3

08:Q1

08:Q3

09:Q1

09:Q3

10:Q1

10:Q3

11:Q1

11:Q3

12:Q1

12:Q3

12:Q4

Outstanding Commercial Loan Volume Has Been Growing for Over TwoYears and Is Now Nearly Back to Early Recession Levels. Bodes Very Well

for the Creation of Current and Future Commercial Insurance Exposures*Latest data as of 3/18/2013.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.

$Trillions

Commercial lending plungedby 21.2% ($330B) during thefinancial crisis and ensuing

period of tight credit

Commercial lending activity

is exceeds pre-crisis levels(+29.1% or $340B abovemid-2010 trough)

P f N C i l & I d i l
http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/


22/168

22

Percent of Non-current Commercial & IndustrialLoans Outstanding at FDIC-Insured Banks,Quarterly, 2006-2012:Q4*

0.7

0%

0.7

4%

0.6

4%

0.6

7%

0.8

1%

1.0

7%

1.1

8% 1.

69% 2

.25% 2

.80%

3.57

%

3.43

%

3.0

5%

2.8

3%

2.7

3%

2.4

4%

1.8

9%

1.65%

1.49

%

1.2

9%

1.1

7%

1.0

9%

0.9

7%

0.8

7%

0.7

1%

0.6

3%

0.6

2%

0.6

3%

0%

1%

2%

3%

4%

06:Q1

06:Q2

06:Q3

06:Q4

07:Q1

07:Q2

07:Q3

07:Q4

08:Q1

08;Q2

08:Q3

08:Q4

09:Q1

09:Q2

09:Q3

09:Q4

10:Q1

10:Q2

10:Q3

10:Q4

11:Q1

11:Q2

11:Q3

11:Q4

12:Q1

12:Q2

12:Q3

12:Q4

Non-current loans (those past due 90 days or more or in nonaccrual status)are back to early-recession levels, fueling bank willingness to lend.

*Latest data as of 3/18/2013.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.

Almost back to normallevels of noncurrent

industrial & commercialloans

Recession

V l f C t ti P t i Pl
http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/http://www2.fdic.gov/qbp/


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23

Value of Construction Put in Place,January 2013 vs. January 2012*

-3.0%

-11.7%

-2.7%

7.1% 7.1%

21.1%

0.8%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Total

Construction

Total Private

Construction

Residential--

Private

Non-

Residential--

Private

Total Public

Construction

Residential-

Public

Non-

Residential--

Public

Overall Construction Activity is Up, But Growth Is Entirely in the PrivateSector as State/Local Government Budget Woes Continue

Growth (%)

Private sectorconstruction activity is upin both the residential andnonresidential segments

*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

Private: +12.2% Public: -3.0%

Public sectorconstruction activityremains depressed

f C
http://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.html


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24

Value of Private Construction Put in Place,by Segment, Jan. 2013 vs. Jan. 2012*

3.0%

-1.9%

5.8%

-9.4%

4.4%

-0.5%-2.7%

13.1%

-6.1%

12.2%

22.0%

4.0%

13.3%

26.2%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

TotalPrivate

Construc

tion

Residential

Total

Nonresidential

Lodging

Office

Commercial

HealthC

are

Educational

Religious

Amusement&

Rec.

Transporta

tion

Communica

tion

Po

wer

Manufacturing

Private Construction Activity is Up in Most Segments, Including the KeyResidential Construction Sector

Growth (%)Led by the Residential Construction, Lodging, Office,

and Manufacturing industries, Private sector

construction activity is up across many segments afterplunging during the Great Recession


V l f P bli C t ti P t i Pl
http://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.html


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25

Value of Public Construction Put in Place,by Segment, Jan. 2013 vs. Jan. 2012*

-0.4%

-8.5%-12.8%

-10.1%

15.8%

4.2%

-13.2%

-6.9%

0.9%

14.3%

-11.7% -11.7%

-2.7%

-26.1%

-9.7%

-30%-25%-20%-15%-10%

-5%0%5%

10%15%20%

Total

Public

Construction

Residential

Tot

al

Nonresidential

Office

Comm

ercial

HealthCare

Educational

Public

Safety

Amusement&

Re

c.

Transpo

rtation

Power

High

way&

Street

Sewag

e&

WasteDi

sposal

WaterS

upply

Conservation&

Devel

op.

Public Construction Activity is Down in Many Segments as State andLocal Budgets Remain Under Stress; Improvement Possible in 2013.

Growth (%)


Public sector construction activity is

down substantially in manysegments, but is actually now up in

some key segments

Transportation and Powerprojects lead public sector

construction

ISM Manufacturing Index
http://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.html


26/168

58

.3

57

.16

0.4

59

.6

57

.8

55

.3

55

.1

55

.2

55

.3 56

.958

.2

58

.5 60

.861.4

59

.7

59

.7

54

.2 55

.8

5

1.45

2.5

52

.5

5

1.8

52

.253

.154

.1

51

.953

.354

.1

52

.5

50.

2

50.5

50

.7

5

1.6

5

1.7

49.9

50.

25

3.15

4.2

40

45

50

55

60

65

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

ISM Manufacturing Index(Values > 50 Ind icate Expans ion )

January 2010 through February 2013

The manufacturing sector expanded for 33 of the 38 months from Jan.2010 through Feb. 2013. The expectation is that this will continue.

Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.

Manufacturing activity expandedin 3 of the past 4 months, but only

slightly. The recent trend isbasically flat.

26

D ll V l * f M f t
http://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfmhttp://www.ism.ws/ismreport/mfgrob.cfm


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27

$200,000

$300,000

$400,000

$500,000

Jan-9

2Jan-9

3Jan-9

4Jan-9

5Jan-9

6Jan-9

7Jan-9

8Jan-9

9Jan-0

0Jan0

1Jan0

2Jan0

3Jan0

4Jan0

5Jan0

6Jan0

7Jan0

8Jan0

9Jan1

0Jan1

1Jan1

2Jan1

3

Dollar Value* of ManufacturersShipments Monthly, Jan. 1992Jan. 2013

*seasonally adjustedSource: U.S. Census Bureau, Full Report on Manufacturers Shipments, Inventories, andOrders, http://www.census.gov/manufacturing/m3/

Monthly shipments are nearly back to peak (in July 2008, 8 months into the recession).Trough in May 2009. Growth from trough to Jan. 2013 was 35%. Manufacturing is an

energy intensive activity and growth leads to gains in many commercial exposures: WC,Commercial Auto, Marine, Property and Various Liability Coverages

ENERGY INTENSIVE

The value of ManufacturingShipments in Jan. 2013 were up 35%to $481.8B from its May 2009 trough.

June figure is only 0.7% below itsprevious record high in July 2008.

$ Millions

27

M f t i G th f S l t d
http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/


28/168

28

Manufacturing Growth for SelectedSectors, 2013 vs. 2012*

10.2%

2.7%

6.0%

2.5%

3.8% 3.9%

-0.2%

3.6%

2.9%3.1%

3.8%

11.4%

1.4% 1.6%

-2%

0%

2%4%

6%

8%

10%

12%

A

ll

Manufa

cturing

Durab

leMfg.

W

ood

Products

P

rimary

Metals

Fabricated

Metals

Machinery

Electrical

E

quip.

Transportation

Equ

ip.

Non-D

urable

M

fg.

Food

Products

Petroleum&

C

oal

Ch

emical

Pla

stics&

Rubber

T

extile

Products

Manufacturing Is Expanding Across a Wide Range of Sectors that WillContribute to Growth in Insurable Exposures Including: WC, Commercial

Property, Commercial Auto and Many Liability Coverages

Growth (%)

Manufacturing of durablegoods was especially

strong in 2012

*Seasonally adjusted; Date are YTD comparing data through January 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers Shipments, Inventories, andOrders, http://www.census.gov/manufacturing/m3/

Durables: +3.8% Non-Durables: +2.5%

Recovery in Capacity Utilization is a
http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/


29/168

66%

68%

70%

72%

74%

76%

78%

80%

82%

Mar01

Jun01

Sep01

Dec01

Mar02

Jun02

Sep02

Dec02

Mar03

Jun03

Sep03

Dec03

Mar04

Jun04

Sep04

Dec04

Mar05

Jun05

Sep05

Dec05

Mar06

Jun06

Sep06

Dec06

Mar07

Jun07

Sep07

Dec07

Mar08

Jun08

Sep08

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

Sep11

Dec11

Mar12

Jun12

Sep12

Dec12

Recovery in Capacity Utilization is aPositive Sign for Commercial Exposures

Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 29

Percent of Industrial Capacity

HurricaneKatrina

March 2001-November 2001

recession

Full Capacity

The closer the economy isto operating at full

capacity, the greater theinflationary pressure

The US operated at 79.6% ofindustrial capacity in Feb.2013, well above the June

2009 low of 68.3% and highestlevel since Mar. 2008

December 2007-June 2009 Recession

March 2001 through February 2013

29

Manufacturing Employment
http://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htm


30/168

30

Manufacturing Employment,Jan. 2010February 2013*

11,4

60

11,4

60

11,4

66

11,4

97

11,5

31

11,5

39

11,5

58

11,5

48

11,5

54

11,5

55

11,5

77

11,5

90

11,6

24

11,6

62

11,68

2

11,7

07

11,7

15

11,7

24

11,7

47

11

,760

11

,762

11

,770

11

,769

1

1,7

97

11,8

41

11,8

70

11,9

10

11,9

20

11,9

26

11,9

35

11,9

57

11,9

43

11,9

25

11,9

31

11,9

38

11,9

51

11,9

63

11,9

77

11,000

11,200

11,400

11,600

11,800

12,000

12,200

12,400

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

2/30/2

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Manufacturing employment is up by

more than 500,000 or 4.5% since Jan.2010a surprising source of strength

in the economy. Employment in thesector is close to a multi-year high.

*Seasonally adjusted

Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

(Thousands)

ISM Non-Manufacturing Index
http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/http://data.bls.gov/


31/168

50

.7 52

.754

.154

.6

54

.8

53

.5

53

.7

52

.853

.954

.656 5

7.1 5

9.4

59

.7

56

.3

54

.4

53

.3

53

.453

.8

52

.6

52

.6

52

.6

52

.653

.0

56

.8

56

.1

55

.0

53

.754

.1

52

.7

52

.954

.355

.2

54

.8

54

.855

.7

55

.256

.0

40

45

50

55

60

65

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

ISM Non-Manufacturing Index(Values > 50 Ind icate Expans ion )


Non-manufacturing industries have been expanding and addingjobs. The question is whether this will continue.

Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.

Optimism among non-manufacturers is stable

and remains expansionaryin 2013

31

Business Bankruptcy Filings
http://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfm


32/168

32

43

,694

4

8,1

25

69

,300

62

,436

64

,004

71

,277

81

,23

5

82

,44

6

63

,853

63

,235

64

,853

71

,549

70

,643

62

,304

52

,374

51

,959

53

,549

54

,027

44

,367

37

,884

35

,47

2

40

,0

99

38

,5

40

35

,03

7

34

,317

39

,2

01

19

,695

28

,322 4

3

,546

60

,837

56

,282

4

7,8

06

30

,620

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

80

81

82

83

848586

8788

89

90

91

92

93

9495

96

9798

99

00

01

02

03

040506

0708

09

10

11

12:Q3

Business Bankruptcy Filings,1980-2012:Q3

Sources: American Bankruptcy Institute athttp://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633;Insurance Information Institute

Significant Exposure Implications for All Commercial Lines asBusiness Bankruptcies Begin to Decline

2011 bankruptcies totaled 47,806, down 15.1%from 56,282 in 2010the second consecutiveyear of decline. Business bankruptcies more

than tripled during the financial crisis. Through

Q3:2012, filings were down 15.8% vs. Q3:2011

% Change SurroundingRecessions

1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%*

32

Private Sector Business Starts
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633


33/168

33

Private Sector Business Starts,1993:Q2 2012:Q2*

175

186

174

180

1861

92

18818718

9

18619

0194

191

1992

04

202

195

196

196

206

206

201

1

92

198

206

206

203

211

205

212

2002

05

204

204

197

203

209

201

1

92

1

92

193

2012

04

202

2102

12

209

2162

202

23

220

220

210

221

212

204

218

209

207

207

199

1911

93

1721

76

169

184

1751

79

188

200

1831

87191

197

193

191

203

150

160

170

180

190

200

210

220

230

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Business Starts Were Down Nearly 20% in the Recession,Holding Back Most Types of Commercial Insurance Exposure, But

Are Recovering Slowly

* Data through Jun. 30, 2012 are the latest available as of Feb. 6, 2013; Seasonally adjusted.Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.

(Thousands)

Business starts were up 2.2% to748,000 in 2011 vs. 2010. In 2012,starts are likely to be up by about

2.7% over 2011 levels.

Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,0002010: 742,0002011: 748,000*

33
http://www.bls.gov/news.release/cewbd.t08.htmhttp://www.bls.gov/news.release/cewbd.t08.htmhttp://www.bls.gov/news.release/cewbd.t08.htm


34/168

NFIB Small Business Optimism Index


Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif; Insurance Information Institute. 34

Small business optimism isreturning after taking a big hit

over Fiscal Cliff fears

12 Industries for the Next 10 Years:
http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif


35/168

35

12 Industries for the Next 10 Years:Insurance Solutions Needed

Export-Oriented Industries

Health Sciences

Health Care

Energy (Traditional)

Alternative Energy

Petrochemical

Agriculture

Natural Resources

Technology (incl. Biotechnology)

Light Manufacturing

Insourced Manufacturing

Manyindustries are

poised for

growth,though

insurersability to

capitalize onthese

industriesvaries widely

Shipping (Rail, Marine, Trucking, Pipelines)


36/168

Hurricane Sandy Summary

36

Sandy Will Become One of theMost Expensive Events inInsurance History

36


37/168

37

2012 Catastrophe Summary

Catastrophe Communications: US & Global

U.S. Focus: ~$37-$42B = 2nd Most Costliest Year Ever forInsured Catastrophe Loss (Behind 2005)

Economic Losses = $101B

Crop = Additional ~$16B ($7B-$8B privately insured)

NFIP Flood = Additional $9B+ Flood losses/NFIP/FEMA has been the #1 communications

issue in the wake of Sandy

Global Focus: $65B in Insured LossesWell Below $105B

in 2011 but Above 10-Yr. Avg. of $50B Cats abroad did not drive media cycle in 2012, save

ongoing Fukishima issues; Climate change

Market Consequences: Primary & Reinsurance

Impacts on price, availability

Top 12 Most Costly Hurricanes


38/168

38

Top 12 Most Costly Hurricanesin U.S. History

(Insured Losses, 2012 Dollars, $ Billions)

*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

$9.2 $11.1$13.4

$22.0$25.6

$48.7

$8.7$7.8$6.7$5.6$5.6$4.4

$0

$10

$20

$30

$40

$50

$60

Irene

(2011)

Jeanne

(2004)

Frances

(2004)

Rita

(2005)

Hugo

(1989)

Ivan

(2004)

Charley

(2004)

Wilma

(2005)

Ike

(2008)

Sandy*

(2012)

Andrew

(1992)

Katrina

(2005)

Hurricane Sandy could

become the 3rd

costliesthurricane in USinsurance history

Hurricane Irenebecame the 12th mostexpensive hurricanein US history in 2011

10 of the 12 most costly hurricanes in insurancehistory occurred over the past 9 years (20042012)

Hurricane Sandy: Claim Payments to


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Hurricane Sandy: Claim Payments toPolicyholders, by State

$9,600

$6,300

$700 $500$410 $295 $292 $210 $103 $84 $57 $55 $37 $36 $13$58

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

NY NJ PA CT MD VA OH MA RI DE W V NC NH DC ME VT

Insurers Will Pay at Least $18.75 Billion to 1.52 Million PolicyholdersAcross 15 States and DC in the Wake of Hurricane Sandy

39

At $9.6B and $6.6B,respectively, NY andNJ suffered, by far,the largest losses

from Hurricane Sandy

TOTAL = $18.75 BILLION($ Thousands)

Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 31, 2012) from PCS as of Jan. 18, 2013; Insurance InformationInstitute .

Hurricane Sandy: Number of Claims


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Auto,

250,500 ,

16%

Commercial

, 202,500 ,

13%

Homeowner, 1,067,000 ,

71%

Hurricane Sandyresulted in an

estimated 1.52 millionprivately insured

claims resulting in anestimated $18.75 to

$25 billion in insuredlosses. Hurricane

Katrina produced 1.74million claims and

$48.7B in losses (in2012 $)

Hurricane Sandy: Number of Claimsby Type*

*PCS claim count estimate s as of 1/18/13. Loss estimate represents PCS total ($18.75B) and upper end of range estimates by risk modelers

RMS, Eqecat and AIR. All figures exclude losses paid by the NFIP.Source: PCS; AIR, Eqecat, AIR Worldwide; Insurance Information Institute. 40

Sandy is a high HOfrequency, (relatively

low) severity event (avg.severity


41/168

Auto, $2,729, 15%

Commercial

, $9,024 ,48%

Homeowner, $6,997 ,

37%

Although Commercial

Lines accounted foronly 13% of total

claims, they accountfor 48% of all claim

dollars paid. In mosthurricanes,

Commercial Lines

accounts for about1/3 of insured losses.

Hurricane Sandy: Insured Loss byClaim Type* ($ Millions)

*PCS insured loss estimates as of 1/18/13. Catastrophe modeler estimates range up to $25 billion. All figures exclude losses paid by the NFIP.Source: PCS; Insurance Information Institute. 41

Total Claim Value = $18.75 Billion*

Hurricane Sandy: Value of Homeowners


42/168

New Jersey,

$2,500 , 36% New York,

$2,700 , 38%

All Other,$1,797 , 26%

Hurricane Sandy: Value of HomeownersClaims Paid, by State* ($ Millions)

*Preliminary as of 1/18/13.Source: PCS.

42

Hurricane Sandy

Estimated 1,067,000homeownersclaims**

$7.0 billion ininsured losses.

Average loss per

claim is $6,558

Claims in NJestimated at $2.5

billion (36%) and $2.7billion in NY (38%)

Hurricane Sandy: Number of Auto Claims


43/168

New Jersey,

60,000 , 24%

All Other,40,500 , 16%

New York,

150,000 ,

60%

Hurricane Sandy

Estimated 250,500vehicle claims


Average loss per

claim is $10,894

60% of the claimsoccurred in NY state.

Hurricane Sandy: Number of Auto Claimsby State*


43

Hurricane Sandy: Value of Auto Claims


44/168

New Jersey,

$250 , 32%

All Other,$129 , 17%

New York,$400 , 51%

Hurricane Sandy

Estimated 250,500vehicle claims


Average loss perclaim is $10,894

About 50% of theclaim dollars will be

paid in NY, 32% in NJ.

Hurricane Sandy: Value of Auto ClaimsPaid, by State* ($ Millions)


44

Hurricane Sandy: Loss Distribution by


45/168

y yCommercial/Personal Lines andReinsurance vs. Primary Insurer

*Fitch Ratings assigns a range of 60-65% commercial and 35-40% personal lines., Hurricane Sandy Update, January 8, 2013.**Source: Insurance Information Institute rough estimate based on company reports as of January 13, 2013. Actual number will vary. 45

Personal

Lines

45%Commercial

Lines

55%

Primary

70%

Reinsurance30%

Personal vs. Commercial Lines* Primary vs. Reinsurer Share**

~55% of Sandy losses appear tobe commercial lines, and ~45%personal, the opposite of the

norm for hurricane losses

Reinsurers share of Sandy lossesappears to be in the 30% range,though this is highly preliminary

Hurricane Sandy: Average Claim Payment


46/168

Hurricane Sandy: Average Claim Paymentby Type of Claim

$6,558$10,894

$43,056 $44,563

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000$45,000

$50,000

Home* Vehicle NFIP Flood** Commercial

Commercial (Business) Claims Were Nearly Seven Times More Expensivethan Homeowners Claims; Vehicle Claims Were Unusually Expensive

Due to Extensive Flooding

46

Commercial (i.e., businessclaims) are more expensive

because the value of property isoften higher as well as theimpact of insured business

interruption losses

*Includes rental and condo policies (excludes NFIP flood). **As of Feb. 20, 2013.

Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 31, 2012) from PCS as of Jan. 18, 2013; Insurance InformationInstitute .

The average insuredflood loss was 6.5 timeslarger than the averagenon-flood insured loss

(mostly wind)


47/168

Hurricane Sandy: Flood Issues

47

Most of the Uninsured DirectLosses Are Due to Flooding

47

Residential NFIP Flood Take-Up Rates


48/168

Source: Wharton Center for Risk Management and Decision Processes, Issue Brief, Nov. 2012; Insurance Information Institute.

Residential NFIP Flood Take Up Ratesin NJ (2010) & Sandy Storm Surge

48

Flood coverage penetration

rates were extremely low inmany very vulnerable areas in

NJ, with take-up rates far below50% in many areas

Residential NFIP Flood Take-Up Rates


49/168

Source: Wharton Center for Risk Management and Decision Processes, Issue Brief, Nov. 2012; Insurance Information Institute.

Residential NFIP Flood Take Up Ratesin NY, CT (2010) & Sandy Storm Surge

49

Floodcoverage

penetrationrates were

extremely lowin many veryvulnerable

areas of NYand CT, withtake-up ratesfar below 50%in many areas

Hurricane Sandy: National Flood


50/168

Hurricane Sandy: National FloodInsurance Program Payment, by State*

$2,437

$2,152

$149

$19 $12 $11 $8 $7 $0 $0$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

NY NJ CT RI MD DE VA NC ME DC

The NFIP Will Ultimately Likely Pay Close to $7 Billion to 100,000Policyholders Across 9 States and DC in the Wake of Hurricane Sandy

50

At $2.437B and$2.152B, respectively,NY and NJ sustained,

by far, the largest NFIPflood losses fromHurricane Sandy

TOTAL = $4.797 BILLION($ Millions)

*As of February 20, 2013.Sources: NFIP; Insurance Information Institute .

Flood Loss Paid by the National Flood


51/168

51

Flood Loss Paid by the National FloodInsurance Program, 1980-2012E

*Estimate as of 11/25/12.Sources: Department of Homeland Security, Federal Emergency Management Agency, NFIP; Insurance Information Institute.

Billions (Original Values)

$0.23 $0.37 $0.17$1.30

$0.25

$17.74

$0.64 $0.61

$3.47

$0.78 $0.77$1.85

$7.50

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012*

Hurricanes Katrinaand Rita accountedfor the majority of

2005s record

$17.4B payout

HurricaneIke

51

Hurricane Sandy and otherevents could result in $7.5billion in payouts from the NFIP

in 2012, second only to 2005and potentially exhausting the

NFIPs borrowing authority

Federal Aid Requests for States With Greatest


52/168

52

Federal Aid Requests for States With GreatestSandy Impact & Federal Aid Proposals (as of 1/6/13)

*As of Jan. 2, 2013.Source: New YorkTimes, Dec. 6, 2012; Insurance Information Institute research.

Billions

$0

$10

$20

$30

$40

$50

$60

$70

New York New Jersey Connecticut Obama

Administration

Proposal

Senate

Proposal

(Dec. 28)

House

Proposal

(Jan. 2)Repair Mitigation/Prevention

States Requested Enormous Sums in Sandy Aid in the Middle of theFiscal Cliff Debate, Causing Delays

$33.0

$7.4

$29.5

$42.0

$9.0$6.0

$36.9$7.9

52

$33B to repairsubways, hospitals

and other facilities;$9B to upgradeinfrastructureagainst future

storms

$3.2

$60.4

$39.5B to repair schoolsroads, bridges,

businesses, homes andother facilities; $7.4B to

for mitigation andprevention against

future storms

$3.2B to burypower lines,

upgradetransmission

systems, buildsewage treatmentplants and other

mitigation projects

$60.2

$9.7

$51.0

Housepassed on

Jan. 5

$60.0*

Housepassed on

Jan. 15


53/168

53

Federal Disaster

Declarations Patterns:1953-2012

53

Despite 11 Sandy Declarations,

Fewer Disasters Were Declared in2012 than the Record Number of

Declarations in 2010 and 2011

Number of Federal Disaster


54/168

Declarations, 1953-2013*

13 1

718

16

16

7 71

212

22

20 2

525

11

11

19

29

17

17

48

46

46

38

30

22 2

5

42

23

15

24

21

34

272

8

23

11

31

38

45

32 3

6

32

75

44

65

50

45

45 4

9 5

6

69

48 52

63

75

59

81

99

47

5

43

0

20

40

60

80

100

120

53545556575859606162636465666768697071727374757677787980818283848586878889909192939495969798990001020304050607080910111213

*Through Mar. 16, 2013.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set New Recordsin 2010 an d2011. Hurricane Sandy Produced 13 Declarations in 2012/13.

The number of federal

disaster declarations set anew record in 2011, with 99,shattering 2010s record 81

declarations.

There have been 2,101federal disaster

declarations since1953. The average

number of declarationsper year is 35 from1953-2012, though

there few havent beenrecorded since 1995.

47 federal disasterswere declared in 2012

54

Federal Disasters Declarations by State,
http://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disastershttp://www.fema.gov/disasters


55/168

55

Federal Disasters Declarations by State,1953 2013: Highest 25 States*

86

78

72

66 6560

57

56

54

53

52

51

51

50

48

48

48

48

47

47

47

46

42

40

39

0

10

2030

40

50

6070

80

90

100

TX CA OK NY FL LA AL KY AR MO MS IL TN WV IA MN KS PA NE VA OH WA ND NC IN

Disas

ter

Dec

lara

tion

s

Over the past 60

years, Texas hashad the highest

number of FederalDisaster

Declarations

*Through Mar. 16, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Federal Disasters Declarations by State,
http://www.fema.gov/news/disaster_totals_annual.femahttp://www.fema.gov/news/disaster_totals_annual.fema


56/168

56

Federal Disasters Declarations by State,1953 2012: Lowest 25 States*

39

39

38

36

36

35

34

30

28

28

26

26

25

24

24

24

23

22

18

17

17

15

15

13

11

10 9

0

10

20

30

40

50

ME SD AK GA WI NJ VT NH OR MA PR HI MI AZ MD NM ID MT CT NV CO DE SC DC UT RI WY

D

isas

ter

Dec

lara

tions

Over the past 60 years,Wyoming and RhodeIsland had the fewest

number of FederalDisaster Declarations

*Through Mar, 16, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
http://www.fema.gov/news/disaster_totals_annual.femahttp://www.fema.gov/news/disaster_totals_annual.fema


57/168

57

U.S. Insured Catastrophe

Loss Update

2012 Catastrophe Losses Were Close toAverage Until Sandy Hit

2011 Was the 5thMost Expensive

Year on Reco rd57

Natural Disaster Losses in the


58/168

As of January 1, 2013

Number of

Events Fatalities

Estimated Overall

Losses (US $m)

Estimated Insured

Losses (US $m)

Tropical Cyclone 4 143 52,240 26,360

Severe

Thunderstorm115 118 27,688 14,914

Drought 2 0 20,000 16,000

Wildfire 38 13 1,112 595

Winter Storm 2 7 81 38

Flood 19 3 13 0

TOTALS 184 284 $101,134 $57,907

United States: 2012

58Source: MR NatCatSERVICE - Includes Federal Crop Insurance Losses. - Excludes federal flood.

Significant Natural Catastrophes, 2012


59/168

g(Events with$1 billion economic loss and/or 50 fatalities)

Date Event

Estimated Economic

Losses (US $m)

Estimated Insured

Losses (US $m)June Sept 2012 Central US Drought 20,000 16,000

March 2 - 3 Thunderstorms 5,000 2,500

April 2 4 Thunderstorms 1,550 775

April 13- 15 Thunderstorms 1,800 910

April 28 29 Thunderstorms 4,500 2,500

May 25 30 Thunderstorms 3,400 1,700

June 6 7 Thunderstorms 1,400 1,000

June 11 13 Thunderstorms 1,900 950

June 28 July 2 Thunderstorms 4,000 2,000

August 26 - 30 Hurricane Isaac 2,000 1,220

October 28 - 30 Hurricane Sandy 50,000 25,000

5959Source: MR NatCatSERVICE - Includes Federal Crop Insurance Losses.; - Excludes NFIP losses.

Natural Disasters in the United States,1980 2012


60/168

Numbe

r

Geophysical(earthquake, tsunami,volcanic activity)

Climatological(temperature extremes,drought, wildfire)

Meteorological (storm)

Hydrological(flood, mass movement)

1980 2012Number of Events (Annual Totals 1980 2012)

Source: MR NatCatSERVICE 60

41

19

121

3

50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

There were 184 naturaldisaster events in the

US in 2012

Losses Due to Natural Disasters in the US,


61/168

19802012 (Overall & Insured Losses)

61

Overall losses (in 2012 values) Insured losses (in 2012 values)

Source: MR NatCatSERVICE

(2012 Dollars, $ Billions)(Overall and Insured Losses)

20

40

60

80

100

120

140

160

180

200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

2012 was the 2nd or3rd most expensiveyear on record for

insured catastrophelosses in the US.

Approximately 57% ofthe overall cost of

catastrophes in theUS was covered byinsurance in 2012

2012 Losses

Overall : $101.1B

Insured: $57.9B

U.S. Thunderstorm Loss Trends,


62/168

,1980 2012

62Source: Property Claims Service, MR NatCatSERVICE

Averagethunderstorm

losses are up 7 foldsince the early

1980s. The 5- yearrunning average

loss is up sharply.

Hurricanes get all the headlines,but thunderstorms are consistent

producers of large scale loss.2008-2012 are the most expensive

years on record.

Thunderstorm losses in 2012

totaled $14.9 billion, the 2ndhighest on record

Top 16 Most Costly Disasters


63/168

63

in U.S. History


$7.8 $8.7 $9.2$11.1

$13.4

$22.0$23.9$24.6$25.6

$48.7

$7.5$7.1$6.7$5.6$5.6$4.4

$0

$10

$20

$30

$40

$50

$60

Irene (2011) Jeanne(2004)

Frances(2004)

Rita(2005)

Tornadoes/T-Storms

(2011)

Tornadoes/T-Storms

(2011)

Hugo(1989)

Ivan(2004)

Charley(2004)

Wilma(2005)

Ike(2008)

Sandy*(2012)

Northridge(1994)

9/11 Attack(2001)

Andrew(1992)

Katrina(2005)

Hurricane Sandy couldbecome the 4th or 5thcostliest event in US

insurance history

Hurricane Irene became the12th most expense hurricane

in US history in 2011

IncludesTuscaloosa, AL,

tornado

IncludesJoplin, MO,tornado

12 of the 16 Most ExpensiveEvents in US History Have

Occurred Over the Past Decade

*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

US Insured Catastrophe Losses


64/168

64

$12

.6

$11

.0

$3

.8$

14

.3

$11

.6

$6

.1

$34

.7

$7

.6$

16

.3

$33

.7

$73

.4

$10

.5

$7

.5

$

29

.2

$11

.5

$14

.4

$33

.1$39

.0

$14

.0

$4

.8$8

.0

$37

.8

$8

.8

$26

.4

$0

$10

$20

$30

$40

$50

$60

$70

$80

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

US Insured Catastrophe Losses

*As of 1/2/13. Includes $20B gross loss estimate for Hurricane Sandy.

Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business andpersonal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)

Sources: Property Claims Service/ISO; Insurance Information Institute.

US CAT Losses in 2012 Will Likely Become the 2nd or3rd Highest in US History on An Inflation-Adjusted

Basis (Pvt Insured). 2011 Losses Were the 5th Highest

2012 was likely thesecond most expensive

year ever for insuredCAT losses

Record TornadoLosses Caused

2011 CAT Lossesto Surge

($ Billions, 2012 Dollars)

64

Top 16 Most Costly World Insurance


65/168

65

Losses, 1970-2012*


*Figures do not include federally insured flood losses.

**Estimate based on PCS value of $18.75B as of 1/18/13 and assumption of upward development based on catastrophe modelerestimates ranging as high as $25B.

Sources: Swiss Re sigma 1/2011; Munich Re; Insurance Information Institute research.

$11.1$13.4 $13.4$13.4

$22.0 $23.9$24.6$25.6

$38.6

$48.7

$7.8 $8.1 $8.5 $8.7 $9.2 $9.6

$0

$10

$20

$30

$40

$50

$60

Hugo

(1989)

Winter

Storm

Daria

(1991)

Chile

Quake

(2010)

Ivan

(2004)

Charley

(2004)

Typhoon

Mirielle

(1991)

Wilma

(2005)

Thailand

Floods

(2011)

New

Zealand

Quake

(2011)

Ike

(2008)

Sandy

(2012)**

Northridge

(1994)

WTC

Terror

Attack

(2001)

Andrew

(1992)

Japan

Quake,

Tsunami

(2011)**

Katrina

(2005)

5 of the top 14 mostexpensive

catastrophes in worldhistory have occurredwithin the past 3 years

Hurricane Sandy couldbecome the 6th costliest eventin global insurance history

2012 insured CAT Los ses to taled$60B; Econom ic losses totaled$140B, acco rdin g to Sw iss Re

U.S. Insured Catastrophe Losses by


66/168

66

Cause of Loss, 2011 ($ Millions)

2.8%

1.5%5.6%

72.1%

15.4%

.

Source: ISOs Property Claim Services Unit, Munich Re; Insurance Information Institute.

Hurricanes & Tropical Storms,$5,510

Wildfires, $855

Thunderstorms (Incl.Tornadoes , $25,813

Winter Storms, $2,017Geological Events, $50, (0.1%)

Flood , $535, (1.5%) Other, $1,000

2011s insured lossdistribution wasunusual with tornado

and thunderstormaccounting for the

vast majority of loss

Thunderstorm/

Tornado losseswere 2.5 timesabove the 30-year average

Inflation Adjusted U.S. Catastrophe1


67/168

67

Losses by Cause of Loss, 199220111

0.4%

1.6%

3.8%4.7%

6.3%

7.3%

33.9%

42.0%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.

2. Excludes snow.

3. Does not include NFIP flood losses

4. Includes wildland fires

5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.

Source: ISOs Property Claim Services Unit.

Hurricanes & Tropical Storms,$161.3

Fires (4), $6.0

Tornadoes (2), $130.2

Winter Storms, $28.2

Terrorism, $24.4

Geological Events, $18.2

Wind/Hail/Flood (3), $14.8

Other (5), $1.4

Wind losses are byfar cause the mostcatastrophe losses,

even if hurricanes/TSare excluded.

Tornado share ofCAT losses is

rising

Insured cat losses

from 1992-2011totaled $384.3B, anaverage of $19.2Bper year or $1.6B

per month

Homeowners Insurance Catastrophe-RelatedCl i F d S it 1997 2012*


68/168

Claim Frequency and Severity, 19972012*

*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 68

Avg. catastrophe

claim cost roseapproximately 200%

from 1997-2011

Cat claim frequency in2011 was at historichighs and more than

double the rate in 1997

Combined Ratio Points Associated withC h L 1960 2012*


69/168

69

Catastrophe Losses: 1960 2012*

Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for

losses ultimately paid by foreign insurers and reinsurers.Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.

0.4

1.2

0.4 0

.8 1.3

0.3

0.40

.71

.5

1.0

0.4

0.40

.7

1.8

1.1

0.6

1.4

2.0

1.3

2.0

0.5

0.50

.7

3.0

1.2

2.1

8.8

2.3

5.9

3.3

2.8

1.0

3.6

2.9

1.6

5.4

1.6

3.3

3.3

8.1

2.7

1.6

5.0

2.6

3.4

8.79

.4

3.6

0.9

0.1

1.1

1.1

0.8

0

1

2

3

45

6

7

8

9

10

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012E

The Catastrophe Loss Component of Private Insurer Losses HasIncreased Sharply in Recent Decades

Avg. CAT LossComponent of the

Combined Ratioby Decade

1960s: 1.041970s: 0.851980s: 1.311990s: 3.39

2000s: 3.522010s: 7.20*

Combined Ratio Points Catastrophe losses as ashare of all losses reached

a record high in 2012

Homeowners Insurance CombinedR ti 1990 2014F


70/168

Ratio: 19902014F

113.0

11

7.7

158.4

113.6

101.0 1

09.4

108.2

111.4

1

21.7

109.3

98.2

94.4 1

00.3

89.0 95.7

11

6.9

105.8

106.7

122.2

11

8.0

105.5

106.811

8.4

112.7

1

21.7

80

90

100

110

120

130

140

150

160

170

9 0 9 1 92 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 03 0 4 05 0 6 0 7 0 8 09 1 0 1 1 1 2F1 3F1 4F

1

Homeowners Performance Deteriorated in 2011/12 Due toLarge Cat Losses. Extreme Regional Variation Can Be

Expected Due to Local Catastrophe Loss Activity

Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.70

HurricaneIke

HurricaneSandy

Recordtornadoactivity


71/168

71

Growth Analysis by State and

Business Segment

Premium Growth Rates Vary

Tremendously by State

71

Direct Premiums Written: Total P/C


72/168

72

Percent Change by State, 2006-2011*

71

.5

41

.8

26

.4

22

.8

22

.6

20

.8

18

.2

1

1.8

10

.5

6.6

6.3

6.1

5.8

4.9

4.7

4.2

3.9

2.4

2.2

2.1

2.1

2.1

0.9

0.9

0.7

0.4

0

10

20

30

40

50

60

70

80

ND

SD

MT IA

NE

KS

OK

WY

TX

MN L

AAR

WI

TN IN A

KDE

NM

NC

KY

SC

WA

DC

MO V

TMS

Pecen

tc

hange

(%)

Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 States

A limited number of statesshowed strong growth over

the past 5 years

Direct Premiums Written: Total P/CP Ch b S 2006 2011*


73/168

73


0.4

-0.6

-0.8

-0.8

-1.1

-1.3

-1.4

-1.6

-

1.9

-

2.0

-2

.5

-3.1

-3.2

-3.5 -4.1

-4.4

-5.2

-5.8

-6.0

-10

.3

-10

.5

-10

.8

-11

.7

-12

.0

-13

.5

-19

.2

-25

-20

-15

-10

-5

0

5

AL

OH IL V

ANY

UT

US

GA

CT

PA

NJ

CO

MD

MA ID

OR R

I

ME M

IHI

NH

WV

FL

CA

AZ

NV

Pecen

tc

hange(

%)

Bottom 25 States

States with the poorestperforming economies alsoproduced the most negative

net change in premiums ofthe past 5 years


NYs change inpremium growth

was similar tothe US average

Direct Premiums Written: PP AutoP t Ch b St t 2006 2011*


74/168

74


16

.0

14

.6

13

.3

11

.5

9.1 9.0 8.7

8.1

8.0

7.7

7.1

6.7

6.7

6.0

5.7

5.7

5.3

5.0

4.8

4.6

4.3

4.3

3.5

3.5

3.4

2.8

0

2

4

6

8

10

12

14

16

TX

ND

OK

UT

WY

LA

KS W

ISD

SC

WA

NE IA A

KMT

WV

DC

DE

NC

NM

MO

TN V

AKY

MD

AR

Pecen

tc

hange

(%)


Top 25 States

Direct Premiums Written: PP AutoP t Ch b St t 2006 2011*


75/168

75


1.8

1.7

1.6

1.6

1.2

1.2

1.2

1.1

0.8

0.7

0.7

-0.4

-1.8

-2.0

-2.9

-2.9

-3.8

-4.4

-4.5

-5.0

-5.9

-6.9

-8

.2

-8.4

-9.5

-10

.1

-12

-10

-8

-6

-4-2

0

2

NY IN A

LUS IL P

AOR

CO ID G

ACT

FL

MS

NJ

OH

MN R

IHI

CA

VT

NV

MA

NH A

ZMI

ME

Pecen

tc

hange(

%)

Bottom 25 States

States with the poorestperforming economies also

produced the most negativenet change in premiums ofthe past 5 years


NYs change in

premium growthwas similar tothe US average

Direct Premiums Written: HomeownersP t Ch b St t 2006 2011*


76/168

76


25

.4

24

.6

24

.6

24

.4

24

.2

24

.2

23

.7

23

.6

23

.4

23

.4

23

.0

22

.0

20

.3

19

.8

18

.3

1

6.5

15

.9

15.3

14.5

14.4

12

.5

6.8

4.5

3.5

-0.5

-2.3

-5

0

5

10

15

20

25

30

RI

NY IL

CO

NE

NH V

A IN NJ

OH

TX

WA

OR

MA

US

PA

AK

WV

DC

VT

MD A

ZCA

MI

NV

FL

Pecen

tc

hange

(%)


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2013.03_NYSSA_pres by Insurance Info Inst.pdf

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