Natural Catastrophe Review Webinar First Half of 2015 July 14, 2015.

Natural Catastrophe Review WebinarFirst Half of 2015

July 14, 2015

© 2015 Munich Re

IntroductionSharon Cooper

Press Spokesperson, Munich Re America

US Natural Catastrophe UpdateCarl Hedde

Head of Risk Accumulation, Munich Re America

Update on El Niño & Global Natural Catastrophes Dr. Peter Höppe

Head of Geo Risks Research, Munich Re

Economic Implications of Natural Catastrophe LossesDr. Robert Hartwig

President & Economist, Insurance Information Institute

Agenda

2

© 2015 Munich Re

You will have an opportunity to ask questions at the conclusion of the presentation.

An operator will facilitate your participation.

Webinar Interactivity

3

@Munichre_US @lworters @iii

Questions and Answers

#NATCAT2015

Live Tweeting

© 2015 Munich Re

Click icon to add picture

US Natural Catastrophes - First Half of 2015Carl Hedde, Head of Risk AccumulationMunich Reinsurance America, Inc.

Source: FEMA

© 2015 Munich Re

US Headlines – First Half 2015

Insured losses in US totaled $8.2 billion – far below 2000 - 2014 average loss of $11.2 billion (Jan-June)

Drought conditions in California continue to worsen, creating increased risk of wildfires. El Niño conditions may bring much needed rains this winter

Record rainfall in Texas and Oklahoma alleviate drought, but cause severe flash flooding in Houston and Texas Hill Country

Eastern U.S. experienced second winter of brutal cold/snow; damage estimated to exceed $2.9 billion, a new record (in terms of original loss dollars)

Severe thunderstorm events caused estimated $5.1 billion in insured loss, lowest half-year total since 2006

5

US Natural Catastrophe Update

© 2015 Munich Re

Natural disaster losses in the U.S. 2015Based on perils (January – June only)

As of July 1, 2015

Number of

Events FatalitiesEstimated Overall Losses (US $m)

Estimated Insured Losses (US $m)*

Severe Thunderstorm 38 66 7,000 5,100

Winter Storms & Cold Waves 11 80 3,800 2,900

Flood, Flash Flood 10 4 500 150

Earthquake & Geophysical 1 - - -

Tropical Cyclone 2 4 100 60

Wildfire, Heat Waves, & Drought

18 - 1,300 Minor market loss

Totals 80 154 12,600 8,200

6


*Source: Property Claim Services (PCS) as of 7.7.2015

© 2015 Munich Re

Loss events in the U.S. 1980 – 2015Number of events (January – June only)

7


Meteorological events(Tropical storm, extratropical storm, convective storm, local storm)

Hydrological events(Flood, mass movement)

Climatological events(Extreme temperature, drought, forest fire)

Geophysical events(Earthquake, tsunami,

volcanic activity)

Number

Source: Munich Re, NatCatSERVICE

1

47

10

22

First Six Months in 2015 80 Events

© 2015 Munich Re

Loss events in the U.S. 1980 – 2015Overall and insured losses (January – June only)

8


*Losses adjusted to inflation based on country CPI

Overall losses totaled US$ 12.6bn; Insured losses totaled US$ 8.2bnbn US$

Overall losses (in 2015 values)*

Insured losses (in 2015 values)*

Source: Munich Re, NatCatSERVICE

© 2015 Munich Re Photos: NASA

Notable U.S. Events First Half of 2015

March 2010 March 2015

© 2015 Munich Re

Drought Conditions as of 30 June 2015

10


© 2015 Munich Re

Extreme Precipitation in Texas & Oklahoma

The United States saw its wettest

month of May on record.

May 2015 was also the wettest

month in the history of Oklahoma

and Texas, in terms of statewide

average rainfall.

OK: 14.18” (Previous 10.75”,

October 1941)

TX: 7.54” (Previous 6.66”, June

2004)


11

© 2015 Munich ReSource: Property Claims Service; MR NatCatSERVICE

Winter stormsFirst Half 2015

For second straight year, persistent ridge over western North America caused frigid air to stream southward into eastern US

Record snowfalls across New England, caused numerous roof collapses, while frigid temperatures burst pipes

Aggregate insured losses estimated at $2.9 billion, largest total in terms of original loss dollars


Source: FEMA

12

© 2015 Munich Re

Preliminary tornado counts for first half of 2015 about 200 below the 2005-2014 average.

Tornado counts in April (185) and May 2015 (414) were much higher than in 2014.

ThunderstormsTornado Count for First Half 2015

13


Source: NOAA

© 2015 Munich Re

Insured Loses Due to Convective Storms* January – June Only, 1980 - 2015

Insured losses (in 2014 values)**

**Losses adjusted to inflation based on country CPI

5 year Mean

*Convective storms include tornadoes, hail, and straight-line winds

Overall losses totaled US$ 7.0bn; Insured losses totaled US$ 5.1bn

14


US$m

© 2015 Munich Re


Update on El NiñoDr. Peter Höppe, Head of Geo Risks ResearchMunich Re

Source: NOAA

© 2015 Munich Re

1. ENSO (El Niño/Southern Oscillation): natural climate oscillation in tropical Pacific Ocean, which affects both ocean and atmosphere.

2. Anomaly of sea surface temperature in so called Niño3.4-Region (= Niño3.4-Index) is used to define ENSO-Phases:

ENSO (El Niño/Southern Oscillation)Definitions

Anomalies of sea surface temperatures inNiño3.4-region since 1950

Location of Niño 3.4-region

El Niño (Niño3.4-Index >0,5)

Neutral Phase (Niño3.4-Index <0,5 und >-0,5)

La Niña (Niñno3.4-Index <-0,5)

16Source: Climate Prediction Center/NOAA

Update on El Niño

© 2015 Munich Re

The 2015-2016 El Niño

Moderate El Niño conditions have developed over past 6 months over eastern equatorial Pacific

Forecasts indicate this will likely be strongest El Niño event since 1997-1998

If strong El Niño develops, there is high probability for a La Niña next year

Current Impacts:

- Record amount of Accumulated Cyclone Energy (ACE) released by northern hemisphere tropical cyclones so far this year (166 vs. normal of 54 through 30 June)

- Disruption of monsoons in South Asia; hascontributed to the record heat wave there.

Source: NOAA/CPC

Update on El Niño

17

© 2015 Munich Re

The 2015-2016 El Niño

Expected U.S. Impacts:

Cooler and wetter than normal along southern third of nation

Drier than normal in Pacific Northwest and Ohio River valley; warmer than normal from Alaska to Northern Plains

Reduced tropical cyclone risk in Atlantic; increased risk in Eastern Pacific and Hawaii.

Potential for heavy rains, mudslides in California

Potential for reduced winter tornado outbreaks over south-central U.S. ; increased risk of winter tornadoes over Florida peninsula

Update on El Niño

18

© 2015 Munich Re

Lower TS activity in

Atlantic ocean; higher in

East-Pacific

Increased flood risks in

South America; Southeast

China

Increased drought risk in

East and North Australia;

Southeast and South Asia;

Southern Africa;

North/Northeast Brazil

Update on El Niño

19

Global characteristic changes in El Niño phases

© 2015 Munich Re

State of Climate (NOAA): 2014 warmest year on record!2015 starts with new record!

2014 was the warmest year across global land and ocean surfaces since records began in 1880

9 of 10 warmest years in 135-year period of record have occurred in 21st century

1998 currently ranks as fourth warmest year on record.

January to May 2015 warmest first five months on record!

Update on El Niño

20

© 2015 Munich Re

G7 Climate Risk Insurance Initiative

G7 decided to support people in developing countries to protect themselves against economic consequences of more intense and frequent extreme weather events

Target: extra 400 million people earning less than US$ 2 per day getaccess to direct (100 m) or indirect (300 m) insurance of losses caused by weather extremes

German Government already pledged € 150 million for first two project years with option of more to follow later

Munich Re has been involved w/German government in preparation of G7 initiative: directly with in house geo risks research expertise and indirectly by Munich Climate Insurance Initiative (MCII)

CRII has high potential to become milestone on climate change adaptation and resilience for poor

countries.

Update on El Niño

21

© 2015 Munich Re

Global Natural Catastrophes - First Half of 2015

© 2015 Munich Re

Meteorological events(Tropical storm, extratropical storm, convective storm,local storm)


Climatological events(Extreme temperature, drought, wildfire)

Geophysical events(Earthquake, tsunami, volcanic activity)

Source: Geo Risks Research, NatCatSERVICE – As at July 2015

Loss events

Selection ofCatastrophes

510Loss events

Source: Munich Re, NatCatSERVICE, 2015

Winter stormsElon and FelixEurope, 8–11 January

Winter Storm NiklasEurope, 30 March–1 April

EarthquakeNepal, China, India, Bangladesh25 April

Severe storm,tornadoChina, 1 June

Cyclone PamVanuatu,9–16 March

Winter stormAustralia, 19–24 April

Flash floodsChile,23–26 March

Winter stormUSA, Canada16–25 February

Severe stormsUSA, 18–21 April

Severe stormsUSA, 7–10 April

Avalanche, winter damageAfghanistan,February–March

Cyclone MarciaAustralia,18–20 February

HeatwaveIndia, PakistanMay–June

23

Global Natural Catastrophe Update

Loss events worldwide Jan – June 2015Geographical overview

© 2015 Munich Re

Meteorological events(Tropical storm, extratropical storm, convective storm, local storm)


Climatological events(Extreme temperature, drought, forest fire)

Geophysical events(Earthquake, tsunami,

volcanic activity)

Loss events worldwide 1980 – 2015Number of events (January – June only)

Number


24Source: Munich Re, NatCatSERVICE – As at July 2015

© 2015 Munich Re

Loss events worldwide 1980 – 2015Overall and insured losses (January – June only)

Overall losses (in 2015 values)*

Insured losses (in 2015 values)*

US$ bn

*Losses adjusted to inflation based on country CPI


25Source: Munich Re, NatCatSERVICE – As at July 2015

© 2015 Munich Re

2015(Jan – June)

2014(Jan – June)

Average of the last 10 years2005-2014

(Jan – June)

Average of the last 30 years1985-2014

(Jan – June)

Top Year 1985 -2014 (Jan – June)

Number of events 510 520 440 330 620(2012)

Overall losses in US$ m (original values)

35,000 60,000 95,000 64,000 302,000(2011, EQ Japan)

Insured losses in US$ m (original values)

12,000 23,000 27,000 15,000 82,000(2011, EQ Japan)

Fatalities 16,200 2,800 46,000 27,000 230,000(2010, EQ Haiti)

Loss events worldwide 2015 Overview and comparison with previous years


26

© 2015 Munich Re

Date Region Event Fatalities

Overall losses US$ m

Insured lossesUS$ m

16-25.2.2015 United States, Canada

Winter storm 39 2,400 1,800*

30.3-1.4.2015 Europe Winter Storm Niklas 11 1,400 1,000

7-10.4.2015 United States Severe storms 3 1,400 990*

18-21.4.2015 United States Severe storms - 1,100 780*

23-28.5.2015 United States Severe storms 32 1,300 750*


27

Loss events worldwide 2015 The five costliest natural catastrophes for the insurance industry

*Date based on information from PCS

© 2015 Munich Re

Year Event Region Insured lossUS$m (in original values)

2005 Hurricane Katrina USA 60,500

2011 EQ, tsunami Japan 40,000

2012 Hurricane Sandy USA, Caribbean 29,500

2008 Hurricane Ike USA, Caribbean 18,500

1992 Hurricane Andrew USA 17,000

2011 EQ Christchurch New Zealand 16,500

2011 Floods Thailand 16,000

1994 EQ Northridge USA 15,300

2005 Hurricane Wilma USA, Caribbean 12,500

2012 Drought USA 12,000


28

Costliest natural catastrophes since 1980Ranked by insured losses

Market & Financial Impact of Catastrophe Losses: First Half 2015 Summary

Insurance Information InstituteJuly 14, 2015

Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org 29

WINTER STORM LOSSES: Significant Economic Impact—Again!

30

Losses from Snow, Ice, Freezing and Related Causes Typical Cost Insurers

Between $1 Billion and $2 Billion Annually ($2.3B+ in 2014/15)

31

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 7/15; Insurance Information Institute.

2.7%

1.8%

-1.8

%1.

3%-3

.7%

-5.3

%-0

.3%

5.0%

2.3%

2.2% 2.6%

2.4%

0.1%

2.5%

1.3%

4.1%

2.0%

1.3%

3.1%

0.4%

2.7%

1.8%

3.5%

-2.1

%4.

6% 5.0%

2.2%

-0.2

%2.

9% 3.2%

3.0%

2.7%

2.8%

2.7%

2.6%

-8.9%

4.5%

1.4%

4.1%

1.1% 1.

8% 2.5% 3.

6%3.

1%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

2

00

0

2

00

1

2

00

2

2

00

3

2

00

4

2

00

5

2

00

6

2

00

7

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

15

:1Q

15

:2Q

15

:3Q

15

:4Q

16

:1Q

16

:2Q

16

:3Q

16

:4Q

Demand for Insurance Should Increase in 2015 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly

Real GDP Growth (%)

Great Recession Dec. 2007- June 2009

The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%

Q1 2014 GDP data were hit hard by that year’s “Polar Vortex”

and harsh winter

Q1 2015 GDP data were again hit hard

by harsh winter weather

32

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1995–20141

0.1%

1.5%5.4%

0.1%

6.2%

6.8%

39.2%

40.7%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2014 dollars.2. Excludes snow.3. Does not include NFIP flood losses4. Includes wildland fires5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.

Hurricanes & Tropical Storms, $161.2

Fires (4), $6.0

Events Involving Tornadoes (2), $154.9

Winter Storms, $26.9

Terrorism, $24.5

Geological Events, $0.5

Wind/Hail/Flood (3), $21.4

Other (5), $0.2

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Insured cat losses from 1995-2014

totaled $395.6B, an average of $19.8B per year or $1.65B

per month

Winter storm losses were much above average in 2014/15 are

will push this share up

33

Top 16 Most Costly Disastersin U.S. History—Katrina Still Ranks #1

(Insured Losses, 2014 Dollars, $ Billions)

$8.1 $9.0 $9.4 $11.4$13.8

$19.3$24.6 $25.3$26.4

$50.2

$7.7$7.3$6.9$5.8$5.7$4.6

$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)

Storm Sandy in 2012 was the last mega-CAT

to hit the US

Includes Tuscaloosa, AL, tornado

Includes Joplin, MO,

tornado

12 of the 16 Most Expensive Events

in US History Have Occurred

Since 2004

Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.

34

I.I.I. Poll: 10 Years After Katrina, Most Understand Flood Is Not Covered Under Standard HO Policies

Q. Does your homeowners policy cover damage from flooding during a hurricane?1

1Asked of those who have home insurance.

Source: Insurance Information Institute Annual Pulse Survey.

More Than Half of Homeowners Know Their HO Insurance Does Not Cover Flood From a Hurricane, But A Significant Proportion Either

Think It Does Or Do Not Know.

24%

56%

19%

Don’t know Yes

No

I.I.I. Poll: Flooding from Hurricanes

South Northeast Midwest West Total U.S.0%

10%

20%

30%

40%34%

30%

14% 14%

24%

35

Q. Does your homeowners policy cover damage from flooding during a hurricane?1

Respondents answering “yes”.

Homeowners in the South and Northeast Were Most Likely to Think Home Insurance Pays for Flood Damage.

1Asked of those who have home insurance.

Source: Insurance Information Institute Annual Pulse Survey.

2015 Is Likely to Be One of the Strongest Years

in the Post-Recession Era(2013 Was Best)

36

P/C Insurance Industry:Financial Update

P/C Industry Net Income After Taxes1991–2015:Q1

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 ROAS1 = 5.9% 2013 ROAS1 = 10.2% 2014 ROAS1 = 8.4% 2015:Q1E ROAS =

10.5%

•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO; Insurance Information Institute

$1

4,1

78

$5

,84

0 $1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04

$3

6,8

19

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

5,2

04

$1

9,4

56 $3

3,5

22

$6

3,7

84

$5

5,5

01

$1

8,1

00

$3

8,5

01

$2

0,5

59

$4

4,1

55

$6

5,7

77

-$6,970

$2

8,6

72

-$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

13

14

15:Q

1

Net income fell modestly (-12.5%)

in 2014 vs. 2013

$ Millions

Net income was up

sharply in Q1, lower cats were one

factor

37

38

ROE: Property/Casualty Insurance by Major Event, 1987–2015:Q1

* Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO; Insurance Information Institute.

-5%

0%

5%

10%

15%

20%

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 13 14*15**

P/C Profitability Is Subject to Cyclicality and Ordinary

Volatility, Typically Due to CAT Activity

Hugo

AndrewNorthridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

Record Tornado Losses

Sandy

Low CATs

Somewhat higher CAT

activity in 2014 had a modest

negative impact on ROE

2015 similar to 2013-14

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014: combined ratio including M&FG insurers is 97.0; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.

97.5

100.6 100.1 100.8

92.7

101.299.5

101.0

96.7 97.296.0

102.4

106.5

95.7

14.3%

15.9%

12.7%

10.9%

7.4% 7.9%

4.7%6.2%

10.5%

8.2%9.6%

8.8%

4.3%

9.8%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015:Q10%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs

A combined ratio of about 100 generates an ROE of ~7.0% in 2012/13, ~7.5% ROE

in 2009/10,10% in 2005 and

16% in 1979

Lower CATs (relative to 2011/12) helped

ROEs in 2013/14/15

39

SURPLUS/CAPITAL/CAPACITY

Industry Claims Paying Capital Stands at Near Record High as of mid-2015

(Re)Insurance Industry is Well Positioned to Manage Large Scale

Catastrophe Losses

40

Policyholder Surplus, 2006:Q4–2015:Q1E

Sources: ISO, A.M .Best; I.I.I. estimate for Q1:2015

($ Billions)$4

87.1

$496

.6

$512

.8

$521

.8

$478

.5

$455

.6

$437

.1 $463

.0 $490

.8 $511

.5 $540

.7

$530

.5

$544

.8

$559

.2

$559

.1

$538

.6

$550

.3

$567

.8

$583

.5

$586

.9 $607

.7

$614

.0

$624

.4 $653

.4

$671

.6

$673

.9

$674

.7

$671

.0

$662

.0

$570

.7

$566

.5

$505

.0

$515

.6

$517

.9

$400

$450

$500

$550

$600

$650

$700

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

13:Q

4

14:Q

1

14:Q

2

14:Q

3

14:Q

4

15:Q

1E

2007:Q3Pre-Crisis Peak

Surplus as of 3/31/15 stood at a near-record high of $671B

2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business.

The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.

Drop due to near-record 2011 CAT losses

The P/C insurance industry entered

2015 (and the 2015 hurricane season on

June 1)in very strong

financial condition.

41

Investments: The New Reality

Investment Income Offsets Less Loss than in the Past, Including

Losses from Catastrophes

42

Property/Casualty Insurance Industry Investment Income: 2000–2015E1

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$48.0 $47.3$46.2 $46.7

$39.6

$49.5

$52.3

$30

$40

$50

$60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E

Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014. A small increase in

2015 is possible as interest rates slowly increase.

1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q1.Sources: ISO; Insurance Information Institute.

($ Billions) Investment earnings are still below their 2007 pre-crisis peak

43

Book Yield on Property/Casualty Insurance Invested Assets, 2007–2015*

4.38

4.17

4.023.87

3.63 3.643.74

3.82

3.44

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

07 08 09 10 11 12 13 14 15*

The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to raise interest rates in late 2015 has

already pushed up some yields, albeit quite modestly.

*2015 figure is the average of the four quarters ending in 2015:Q1.Sources: SNL Financial; Insurance Information Institute

(Percent)

Book yield in 2015 is down 74 BP from pre-

crisis levels

44

UNDERWRITING

Underwriting Results in 2015 (and 2013-14) Were Helped by

Generally Modest Catastrophe Losses

Welcome Respites from 2011/2012

45

46

P/C Insurance Industry Combined Ratio, 2001–2015:H1*

* 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; I.I.I. estimate for H1:2015.

95.7

99.3100.8

106.3

102.4

96.7 97.2 97.0

101.0

92.6

100.898.4

100.1

107.5

115.8

90

100

110

120

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15:H1

As Recently as 2001, Insurers Paid Out Nearly $1.16 for

Every $1 in Earned Premiums Relatively

Low CAT Losses, Reserve Releases

Heavy Use of Reinsurance Lowered Net

Losses

Relatively Low CAT Losses, Reserve Releases

Higher CAT Losses,

Shrinking Reserve

Releases, Toll of Soft Market

Cyclical Deterioration

Sandy Impacts

Lower CAT

Losses

Best Combined

Ratio Since 1949 (87.6)

Avg. CAT Losses,

More Reserve Releases

Modest CATs

Somewhat higher CAT

Losses

Underwriting Gain (Loss)All Lines Combined, 1975–2015*

Note: Includes mortgage and financial guaranty insurers in all years. Sources: A.M. Best, ISO, Insurance Information Institute.

High CAT losses in 2011 led to the highest underwriting loss since 2001. Lower CAT losses in 2013, 2014 and modest losses so far in 2015.

First underwriting profits since 2007.

-$60

-$50

-$40

-$30

-$20

-$10

$0

$10

$20

$30

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 13 1415

E

($ Billions)

Underwriting profit in 2014 estimated at

$14B

2014 underwriting profit totaled

$12.3B

47

Severe Weather Reports: Jan. 1 – July 13, 2015

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2015_annual_summary.html

There were 12,360 severe

weather reports

through July 13, 2015;

including 874 tornadoes;

3,921 “Large Hail” reports

and 7,564 high wind

events

Severe weather reports are concentrated east of

the Rockies

48

http://www.spc.noaa.gov/climo/online/monthly/2015_annual_summary.html

http://www.spc.noaa.gov/climo/online/monthly/2015_annual_summary.html

Number of Federal Major Disaster Declarations, 1953-2015*

13 1

7 18

16

16

7 71

21

22

22

0 25

25

11

11

19

29

17

17

48

46

46

38

30

22 2

54

22

31

52

42

13

42

7 28

23

11

31

38

45

32 3

63

27

54

46

55

04

54

5 49

56

69

48 5

26

37

55

98

19

94

75

55

42

3

43

0

20

40

60

80

100

120

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

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

13

14

15

*

*Through July 12, 2015.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011 Before Dropping in 2012-2014

The number of federal disaster

declarations set a new record in 2011, with 99, shattering 2010’s record 81

declarations.

There have been 2,228 federal disaster

declarations since 1953. The average number of declarations per year is

35 from 1953-2014, though there few

haven’t been recorded since 1995.

23 federal disasters have declared so far

in 2015*

49

http://www.fema.gov/disasters

50

Combined Ratio Points Associated withCatastrophe Losses: 1960 – 2015E*

*2010s represent 2010-2015E.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 (2012-2014); Insurance Information Institute.

0.4

1.2

0.4 0.

8 1.3

0.3 0.4 0.

71.

51.

00.

40.

4 0.7

1.8

1.1

0.6

1.4 2.

01.

3 2.0

0.5

0.5 0.7

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

4.5

9.1

7.5

3.2 3.

6 3.7

3.6

0.9

0.1

1.1

1.1

0.8

0

1

2

3

4

5

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

2012

2014

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

Avg. CAT Loss Component of the Combined Ratio

by Decade

1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 5.6E*

Combined Ratio Points

Catastrophe losses as a share of all losses reached

a record high in 2011

Catastrophe losses as a share of all losses have

been down substantially since

2013

Catastrophe Losses Impact Trajectory of Premium Growth

51

Premium Growth

52

-5%

0%

5%

10%

15%

20%

25%

71 72 73 74 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 13 1415

E

Net Premium Growth: Annual Change, 1971—2015E

(Percent)

1975-78 1984-87 2000-03

Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.

Net Written Premiums Fell 0.7% in 2007 (First Decline Since 1943) by

2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since

1930-33.

2015E: 3.9%

2014: 4.1%

2013: 4.4%

2012: +4.3%

Post-Andrew

spike

Post-Katrina spike

www.iii.org

Thank you for your timeand your attention!

Twitter: twitter.com/bob_hartwig

Insurance Information Institute Online:

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Describe the impact of severe weather and how individuals, businesses, government, and insurers can work together to prepare for and mitigate weather risks.

Includes data, publications, preparation tips and other useful information for the press.

Website

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www.munichre.com/natcatservice/downloadcenter/en

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

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

Annual statistics Long-term statistics Information on significant natural disasters Focus analyses NatCatSERVICE methodology, info brochure Publication Topics Geo

NatCatSERVICE Downloadcenter

200

400

600

800

1 000

1 200

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

MR NatCatSERVICEThe world‘s largest database on natural catastrophes

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Natural Catastrophe Review WebinarFirst Half of 2015

July 14, 2015

© Copyright 2015 Munich Reinsurance America, Inc. All rights reserved. "Munich RE" and the Munich Re logo are internationally protected registered trademarks. The material in this presentation is provided for your information only, and is not permitted to be further distributed without the express written permission of Munich Reinsurance America, Inc. This material is not intended to be legal, underwriting, financial, or any other type of professional advice. Any descriptions of coverage reflected in this presentation are meant to be general in nature and do not include and are not intended to include all of the actual terms, benefits and limitations found in an insurance policy. Only the insurance policy will form the contract between the insured and insurance company, and governs in all cases.

Natural Catastrophe Review Webinar First Half of 2015 July 14, 2015.

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