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Transcript of Overview and Outlook for the P/C Insurance Industry Behind the Numbers Verisk Insurance Solutions...
Overview and Outlook for the P/C Insurance Industry
Behind the NumbersVerisk Insurance Solutions Client Summit
Orlando, FLMay 19, 2014
Download at www.iii.org/presentationsRobert 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
2
P/C Insurance Industry Financial Overview
2013: Best Year in the Post-Crisis Era
Performance Improved with Lower CATs, Strong Markets
2
P/C Net Income After Taxes1991–2013 ($ Millions)
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 = 6.1% 2013 ROAS1 = 10.3%
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.8% ROAS in 2013, 6.3% 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
5,0
74
$6
3,7
84
$2
8,6
72
-$6,970
$6
5,7
77
$4
4,1
55
$2
0,5
59
$3
8,5
01
-$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
2013 ROAS was 10.3%
Net income in 2013 was up substantially
(+81.9%) from 2012
-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
13
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013*
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.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%
10 Years
10 Years9 Years
2011: 4.7%
ROE
1975: 2.4%
2013: 9.8 %
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2013 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2013 combined ratio including M&FG insurers is 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
102.4
106.5
95.7
14.3%
15.9%
12.7%
10.9%
7.4% 7.9%
4.7%6.2%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 20130%
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, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Lower CATs helped ROEs
in 2013
6
ROE: Property/Casualty Insurance vs. Fortune 500, 1987–2013E*
* Excludes Mortgage & Financial Guarantee in 2008 – 2013. 2013 Fortune 500 figure is I.I.I. estimate. Sources: ISO, Fortune; 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 13E
P/C Profitability Is Both by Cyclicality and Ordinary Volatility
Hugo
Andrew
Northridge
Lowest CAT Losses in 15 Years
Sept. 11
Katrina, Rita, Wilma
4 Hurricanes
Financial Crisis*
(Percent)
Record Tornado Losses
Sandy
Low CATs
RNW for Major P/C Lines,2003-2012 Average
18.9%
12.1%
9.8%9.0%
7.6% 7.1% 7.1%6.0%
1.1%
26.5%
13.3%
7.9%
0%
5%
10%
15%
20%
25%
30%
Fire InlandMarine
AllOther
MedMal
CommAuto
CMP AllLines
PPAuto
WC OtherLiab
HO Allied
Source: NAIC; Insurance Information Institute
10-year returns for some lines are excellent, though homeowners is a major
laggard, largely due to major catastrophes. WC returns slipped.
9
RNW All Lines by State, 2003-2012 Average:Highest 25 States
21
.0
17
.7
15
.1
14
.8
13
.4
13
.3
13
.1
12
.6
12
.0
11
.7
11
.4
11
.4
11
.4
11
.1
11
.0
11
.0
11
.0
10
.9
10
.9
10
.7
10
.7
10
.5
10
.3
10
.3
9.9
9.4
02468
1012141618202224
HI AK ND ME WY UT VT ID WA NH IA NE SC DC MA OR VA NC RI CA CT OH NM SD WV MT
Source: NAIC.
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
10
9.2
9.1
8.9
8.9
8.6
8.5
8.3
8.1
7.9
7.7
7.7
7.6
7.4
6.5
6.5
6.1
6.1
5.5
5.2
4.9
4.9
4.2
3.2
2.0
-6.5
-9.4
-14-12-10-8-6-4-202468
10
KS MD CO WI FL MN TX IN US AR PA IL AZ MO NV KY NJ GA NY MI TN DE OK AL MS LA
RNW All Lines by State, 2003-2012 Average: Lowest 25 States
Source: NAIC.
Some of the least profitable states over the past decade were hit hard
by catastrophes
11
-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 14
Net Premium Growth: Annual Change, 1971—2014F
(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.
2014F: 4.0%
2013: 4.6%
2012: +4.3%
12
4.0%
7.2%
9.0%
5.4%
4.2% 4.1%5.0%
0.6%
4.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
PersonalAuto
Home OtherLiability*
WC CMP Fire & Allied
Comm. Auto
All OtherLines
Total P/C
Growth by Major P/C Line, 2013
Other Liability and Homeowners were the fastest growing
lines in 2013
*Includes Products Liability.Source: Annual Statement data for by line statistics; NCCI for WC; ISO for Total P/C; Insurance Information Institute.
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
13
Growth Will Expand Insurer Exposure Base Across Most Lines
13
14
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 4/14; 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%
1.1% 2.
5%4.
1%2.
4%0.
1%3.
0%3.
0%3.
1%3.
0%3.
0%3.
0%2.
9%
0.4%
-8.9%
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
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
15
:1Q
15
:2Q
15
:3Q
15
:4Q
Demand for Insurance Should Increase in 2014/15 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor market contraction
was severe
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
2014/15 are expected to see a
modest acceleration in growth
15
Real GDP by State Percent Change, 2012:Highest 25 States
13
.4
4.8
3.9
3.6
3.5
3.5
3.4
3.3
3.3
3.3
2.7
2.7
2.6
2.4
2.4
2.4
2.4
2.2
2.2
2.2
2.2
2.1
2.1
2.1
2.1
2.0
0
2
4
6
8
10
12
14
ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO
Pe
rce
nt
Ch
an
ge
(%
)
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2012—by far
Only 10 states experienced growth in excess of 3%, which is what we would see nationally in
a more typical recovery
16
1.9
1.7
1.6
1.5
1.5
1.5
1.5
1.4
1.4
1.4
1.3
1.3
1.3
1.2
1.2
1.1
1.1
0.7
0.5
0.5
0.4
0.2
0.2
0.2
0.2
-0.1
-0.4-0.20.00.20.40.60.81.01.21.41.61.82.0
IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT
Pe
rce
nt
Ch
an
ge
(%
)
Real GDP by State Percent Change, 2012: Lowest 25 States
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
Connecticut was the only state to shrink in 2012
Growth rates in 8 states (and DC) were still below
1% in 2012
22
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4
15.5 16
.0 16.4
16.2
16.2
16.2
16.216
.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F16F 17F18F 19F
(Millions of Units)
Auto/Light Truck Sales, 1999-2019F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/14 and 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 Along
With Workers Comp Exposures
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is
still below 1999-2007 average of 17 million units, but a robust recovery is well underway.
Job growth and improved credit market conditions will boost auto sales in
2014 and beyond
Truck purchases by contractors are especially strong
25
Monthly Change* in Auto Insurance Prices, 1991–2014*
*Percentage change from same month in prior year; through April 2014; seasonally adjustedNote: 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 '13 '14
Cyclical peaks in PP Auto tend to occur roughly every 10 years (early
1990s, early 2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
The Apr. 2014 reading of 4.4% is
up from 4.2%a year earlier
30
Average Expenditures on Auto Insurance
$651$668
$691$705
$726
$786
$830$842
$831$816
$795$789$787$791$803
$832$857
$690$685$703
$600
$650
$700
$750
$800
$850
$900
$950
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11* 12* 13F
803
Countrywide Auto Insurance Expenditures Decreased by 0.8% in 2008 and 0.5% in 2009 and Increased 0.5% in 2010, 1.5% in 2011 (est.), 2.0% in 2012 and
2.2% in 2013 (forecast)* Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute estimate for 2011-2013 based on CPI and other data.
The average expenditure on auto insurance is lower today than it was in 2004
31
(Millions of Units)
New Private Housing Starts, 1990-2019F
1.4
8
1.4
7 1.6
21
.64
1.5
71
.60 1.7
1 1.8
5 1.9
6 2.0
71
.80
1.3
6
0.9
10
.55
0.5
9
0.6
1 0.7
8 0.9
2 1.0
51
.27 1
.44
1.5
01
.51
1.5
0
1.3
51.4
61
.29
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
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 13 14F15F16F17F18F19F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/14 and 3/13); Insurance Information Institute.
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction
for several more years
32
Average Premium forHome Insurance Policies**
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Source: NAIC, Insurance Information Institute estimates for 2011-2013 based on CPI data and other data.
$508$536
$593
$668
$822 $830
$880$909
$945$983
$1,022
$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* 13*
Countrywide Home Insurance Expenditures Increased by an Estimated 4.0% in 2011-2013
CONSTRUCTION, MANUFACTURING & ENERGY
OUTLOOK
37
Key Sectors Critical to the Economy and the P/C
Insurance Industry
37
38
Value of New Private Construction: Residential & Nonresidential, 2003-2013*
Billions of Dollars
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
03 04 05 06 07 08 09 10 11 12 13*
Non ResidentialResidential
Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates
$298.1
$15.0
$613.7
New Construction peaks at $911.8. in 2006
Trough in 2010 at $500.6B,
after plunging 55.1% ($411.2B)
2013: Value of new pvt. construction hits $667.5B, up
33% from the 2010 trough but still
27% below 2006 peak
38
$261.8
$238.8
$311.5
$356.0
*2013 figure is a seasonally adjusted annual rate as of December.Sources: US Department of Commerce; Insurance Information Institute.
39
Value of Private Construction Put in Place, by Segment, March 2014 vs. March 2013*
9.3%
-3.2%
2.1%
-19.0%
19.8%
33.5%
2.8%7.9%10.7%12.5%
16.0%8.6%
30.4%
13.5%
-30%
-20%
-10%
0%
10%
20%
30%
40%
To
tal
Pri
vate
Co
nst
ruct
ion
Res
iden
tial
To
tal
No
nre
sid
enti
al
Lo
dg
ing
Off
ice
Co
mm
erci
al
Hea
lth
Car
e
Ed
uca
tio
nal
Rel
igio
us
Am
use
men
t &
Rec
.
Tra
nsp
ort
atio
n
Co
mm
un
icat
ion
Po
wer
Man
ufa
ctu
rin
g
Private Construction Activity is Up in Most Segments, Including the Key Residential Construction Sector; Bodes Well for the Remainder of 2014
Growth (%) Led by the Residential Construction, Lodging and
Communication segments, Private sector construction activity is
rising after plunging during the “Great Recession.”
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
40
$314.9$304.0
$286.4 $279.0 $271.4 $262.9
$216.1 $220.2$234.2
$255.4
$289.1$308.7
$0
$50
$100
$150
$200
$250
$300
$350
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
($ Billions)
Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Continues to Contract As State/Local Governments
Grapple with Deficits and Federal Sequestration Takes Hold
Value of New Federal, State and Local Government Construction: 2003-2014*
*2014 figure is a seasonally adjusted annual rate as of March; http://www.census.gov/construction/c30/historical_data.html Sources: US Department of Commerce; Insurance Information Institute.
Construction across all levels of government
peaked at $314.9B in 2009
Austerity Reigns
Govt. construction is still shrinking, down $52.0B or
16.5% since 2009 peak
41
Construction Employment,Jan. 2010—April 2014*
*Seasonally adjusted.Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,58
15,
522
5,54
25,
554
5,52
75,
512
5,49
75,
519
5,49
95,
501
5,49
75,
468
5,43
5 5,47
85,
485
5,49
75,
524
5,53
05,
547
5,54
65,
583
5,57
65,
577
5,61
25,
629
5,64
45,
640
5,63
65,
615
5,62
25,
627
5,63
05,
633
5,64
95,
673
5,71
15,
735 5,78
35,
799
5,79
25,
791
5,80
15,
804
5,80
55,
822
5,83
05,
849
5,87
6 5,92
75,
927 5,96
86,
000
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
2O
ct-1
3N
ov-1
3D
ec-1
3Ja
n-14
Feb
-14
Mar
-14
Apr
-14
Construction employment is +565,000 above
Jan. 2011 (+10.4%) trough
(Thousands)
Construction and manufacturing employment constitute 1/3 of all payroll exposure.
43
MANUFACTURING SECTOR
A Potent Driver of Jobs and Commercial Lines Exposure
America’s Manufacturing Renaissance
43
44
Manufacturing Employment,Jan. 2010—April 2014*
11
,46
01
1,4
60
11
,46
61
1,4
97
11
,53
11
1,5
39
11
,55
81
1,5
48
11
,55
41
1,5
55
11
,57
71
1,5
90
11
,62
41
1,6
62
11
,68
21
1,7
07
11
,71
51
1,7
24
11
,74
71
1,7
60
11
,76
21
1,7
70
11
,76
91
1,7
97
11
,84
11
1,8
70
11
,91
01
1,9
20
11
,92
61
1,9
35
11
,95
71
1,9
43
11
,92
51
1,9
31
11
,93
81
1,9
51
11
,96
51
1,9
88
11
,98
41
1,9
77
11
,97
21
1,9
65
11
,94
81
1,9
63
11
,99
31
2,0
11
12
,04
61
2,0
53
12
,06
11
2,0
81
12
,08
81
2,1
00
11,250
11,500
11,750
12,000
12,250Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-1
0A
ug
-10
Se
p-1
0O
ct-1
0N
ov-
10
De
c-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-1
1A
ug
-11
Se
p-1
1O
ct-1
1N
ov-
11
De
c-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
Jul-
13
Au
g-1
3S
ep
-13
Oct
-13
No
v-1
3D
ec-
13
Jan
-14
Fe
b-1
4M
ar-
14
4/3
1/2
Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted. Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands) Since Jan 2010, manufacturing employment
is up (+640,000 or +5.6%)and still growing.
45
$200,000
$300,000
$400,000
$500,000
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Mar. 2014
* Seasonally adjusted; Data published May 2, 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments in Mar. 2014 exceeded the pre-crisis (July 2008) peak. Manufacturing is energy-intensive and growth leads to gains in many commercial
exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
$ Millions
45
The value of Manufacturing Shipments in Mar. 2014 was $494.9B—a new record high.
48
2.5%
4.9%
6.3%
7.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2013 2014F 2015F 2016F
Business Investment: Expected to Accelerate, Fueling Commercial Exposure Growth
Accelerating business investment will be a potent driver of
commercial property and liability insurance exposures and should drive employment and WC payroll
exposures as well (with a lag)
Source: IHS Global Insights as of Jan. 13, 2014; Insurance Information Institute.
49
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
Many industries are
poised for growth, though
insurers’ ability to
capitalize on these
industries varies widely
Shipping (Rail, Marine, Trucking, Pipelines)
50
ENERGY SECTOR
America’s Energy Boom Is Potentially the Most Transformative Economic
Force in the Country TodayCommercial Insurers Will Generate Billions in Premiums as Exposures
Mushroom50
51
Oil & Gas Extraction Employment,Jan. 2010—April 2014*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.
415
6.4
156.
715
7.6
158.
715
7.8
158.
015
9.5
160.
016
1.5
161.
216
1.2
163.
116
4.4
166.
616
9.3
170.
117
1.0
172.
517
3.6
176.
317
8.2
178.
518
0.9
181.
918
3.1
184.
818
5.2
185.
718
6.8
187.
618
8.0
188.
018
8.2
190.
019
1.7
191.
919
3.4
192.
419
2.6
193.
119
3.3
195.
019
6.5
199.
720
0.6
203.
020
4.1
205.
320
7.8
207.
820
8.9
150
160
170
180
190
200
210
220
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
3O
ct-1
3N
ov-1
3D
ec-1
3Ja
n-14
Feb
-14
Mar
-14
Apr
-14
Oil and gas extraction employment is up 33.6% since Jan. 2010 as the energy sector booms. Domestic energy production is essential to any robust economic recovery in
the US.
(Thousands) Highest since Aug.
1986
20.2 19.9 20.0 19.518.9 19.4
20.221.1
21.622.4
24.0
25.3 25.6
20.6
10
12
14
16
18
20
22
24
26
28
00 01 02 03 04 05 06 07 08 09 10 11 12 13
U.S. Natural Gas Production, 2000-2013
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
Trillions of Cubic Ft. per Year
The U.S. is already the world’s largest natural gas producer—
recently overtaking Russia. This is a potent driver of commercial
insurance exposures
Trends in the Healthcare Industry
55
Growth of the Health Sector and Health Sector Employment Will Continue to Outpace
55
U.S. Health Care Expenditures,1965–2022F
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$42.
0$4
6.3
$51.
8$5
8.8
$66.
2$7
4.9
$83.
2$9
3.1
$103
.4$1
17.2
$133
.6$1
53.0
$174
.0$1
95.5
$221
.7$2
55.8
$296
.7$3
34.7
$369
.0$4
06.5
$444
.6$4
76.9
$519
.1$5
81.7
$647
.5$7
24.3
$791
.5$8
57.9
$921
.5$9
72.7
$1,0
27.4
$1,0
81.8
$1,1
42.6
$1,2
08.9
$1,2
86.5
$1,3
77.2
$1,4
93.3
$1,6
38.0
$1,7
75.4
$1,9
01.6
$2,0
30.5
$2,1
63.3
$2,2
98.3
$2,4
06.6
$2,5
01.2
$2,6
00.0
$2,7
00.7
$2,8
06.6
$2,9
14.7
$3,0
93.2
$3,2
73.4
$3,4
58.3
$3,6
60.4
$3,8
89.1
$4,1
42.4
$4,4
16.2
$4,7
02.0
$5,0
08.8
U.S. health care expenditures have been on a relentless climb for most of the past half century, far outstripping population growth,
inflation of GDP growth
57
From 1965 through 2013, US health care expenditures had
increased by 69 fold. Population growth over the same period increased by a factor of just 1.6. By 2022, health spending will have
increased 119 fold.
$ Billions
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
Healthcare is a labor intensive industry. Spending will rise
from $3 trillion today to $5 trillion in 2022
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
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 16 17 18 19 20 21 22
National Health Care Expenditures as a Share of GDP, 1965 – 2022F*
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
1965 5.8%
Health care expenditures as a share of GDP rose from 5.8% in 1965 to 18.0% in 2013 and are expected to
reach 19.9% of GDP by 2022
% of GDP
2022 19.9%
1980: 9.2%
1990: 12.5%
2000: 13.8%
2010: 17.9%
Since 2009, heath expenditures as a %
of GDP have flattened out at about 18%--the
question is why and will it last?
61
Projected Number of People with No Health Insurance, 2013—2022*
31
55
4437
30
5
15
25
35
45
55
65
2013E 2014F 2015F 2018F 2022F
Millions
The projected decline in the uninsured population is very sensitive to the enrollment rate under the Affordable Care Act
By 2018 the number of people under age 65 without
insurance is expected to drop by 25 million (~45%)
61
*Under age 65.Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
Healthcare Support
Healthcare Practitioners
Construction
Personal Care and Service
Computer and Math
Social Service
Business & Financial
Groundskeeping/Janitorial
Education
All Occupations
Legal
Life, Phys and Social Science
Repair
Food Preparation
Transportation
Fire, Police, Etc.
Architects and Engineers
Sales
Management
Arts and Media
Administrative Support
Production
Farming
28.1
21.5
21.4
20.9
18
17.2
12.5
12.5
11.1
10.8
10.7
10.1
9.6
9.4
8.6
7.9
7.3
7.3
7.2
7
6.8
0.8-3.4
Source: Bureau of Labor Statistics, Insurance Information Institute.
Occupations Ranked by Projected Percentage Growth, 2012-2022F (%)
63
Healthcare professions are expected to grow at 2 to
nearly 3 times employment growth overall
65
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
65
66
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Jan14
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 6.7% in March 2014. 4%
to 6% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 12.7%
in Mar. 2014.8% to 10% is
“normal.”
January 2000 through March 2014, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.
66
As the unemployment rate approaches 6%,
the Fed will begin signaling on short-
term rates
67
US Unemployment Rate Forecast4
.5%
4.5
%4
.6%
4.8
%4
.9% 5.4
% 6.1
%6
.9%
8.1
%9
.3%
9.6
% 10
.0%
9.7
%9
.6%
9.6
%
8.9
%9
.1%
9.1
%8
.7%
8.3
%8
.2%
8.0
%7
.8%
7.7
%7
.6%
7.3
%7
.0%
6.7
%6
.4%
6.3
%6
.1%
6.0
%5
.9%
5.8
%5
.7%
9.6
%
4%
5%
6%
7%
8%
9%
10%
11%
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
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
15
:Q2
15
:Q3
15
:Q4
Rising unemployment
eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10%
in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (5/14 edition); Insurance Information Institute.
2007:Q1 to 2015:Q4F*
Unemployment forecasts have been revised slightly
downwards. Optimistic scenarios put the
unemployment as low as 6.9% by Q4 of this year.
Jobless figures have been revised
slightly downwards for 2014/15
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
8
19
29
4 11
01
20
11
71
07 1
99
14
99
47
22
23
23
1 32
01
66
18
6 21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
82
22
20
11
70
18
01
53 2
47
27
28
61
66
18
81
92
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan
-07
Fe
b-0
7M
ar-
07
Ap
r-0
7M
ay-
07
Jun
-07
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
Jul-
13
Au
g-1
3S
ep
-13
Oct
-13
No
v-1
3D
ec-
13
Jan
-14
Fe
b-1
4M
ar-
14
Monthly Change in Private Employment
January 2007 through March 2014 (Thousands, Seasonally Adjusted)
Private Employers Added 8.88 million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar. 09
were the largest in the
post-WW II period
192,000 private sector jobs were
created in March. As of March 2014, all the jobs lost in
the Great Recession have been recovered
68
Jobs Created2013: 2.368 Mill2012: 2.294 Mill2011: 2.400 Mill2010: 1.277 Mill
73
Unemployment Rates by State, April 2014:Highest 25 States*
8.3
8.0
7.9
7.8
7.7
7.5
7.5
7.4
7.0
6.9
6.9
6.9
6.9
6.9
6.8
6.7
6.6
6.6
6.4
6.3
6.3
6.2
6.2
6.1
6.0
6.0
6.0
0
2
4
6
8
10
RINV IL CA
KYDC M
S MI
GA AL AZ
CT NJO
RNM NY AR
MO AK
TN US FLNC W
ACO M
AW
V
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for April 2014, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In April, 43 states had over-the-month unemployment rate decreases, 2
states had increases, and 5 states and the District of Columbia had no
change.
74
5.8
5.8
5.7
5.7
5.7
5.7
5.5
5.3
5.2
5.0
4.9
4.8
4.8
4.7
4.6
4.5
4.4
4.4
4.3
3.8
3.8
3.7
3.6
3.3
2.6
0
1
2
3
4
5
6
7
DE WI IN ME OH PA MD SC TX ID VA KS MT MN OK LA HI NH IA SD UT WY NE VT ND
Une
mpl
oym
ent R
ate
(%)
Unemployment Rates by State, April 2014: Lowest 25 States*
*Provisional figures for April 2014, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In April, 43 states had over-the-month unemployment rate decreases, 2
states had increases, and 5 states and the District of Columbia had no
change.
75
U.S. Insured Catastrophe Loss Update
2013 Was a Welcome Respite from the High Catastrophe Losses in Recent Years
75
76
$1
2.6
$1
1.0
$3
.8
$1
4.3
$1
1.6
$6
.1
$3
4.7
$7
.6
$1
6.3
$3
3.7
$7
3.4
$1
0.5
$7
.5
$2
9.2
$1
1.5
$1
4.4
$3
3.6
$3
5.0
$1
0.9
$1
4.0
$4
.8
$8
.0
$3
7.8
$8
.8
$2
6.4
$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 13*
U.S. Insured Catastrophe Losses
*Through 8/31/13. Includes $9.7B for 2013:H1 (PCS) and $1.2B I.I.I. estimate for the period 7/1 – 8/31/13.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Well
Below 2011 and 2012 YTD Totals.
2012 was the third most expensive year ever for insured CAT
losses
Record tornado losses caused
2011 CAT losses to surge
($ Billions, $ 2012)
76
77
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2013*
*2010s represent 2010-2013.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
0.4 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
3.4
8.7 8.9
3.43.6
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
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: 6.1E*
Combined Ratio Points Catastrophe losses as a share of all losses reached
a record high in 2012
78
Top 10 States for InsuredCatastrophe Losses, 2013
$1,995
$1,509
$1,190
$909 $907$805 $773 $762
$677$593
0200400600800
1,0001,2001,4001,6001,8002,000
Okl
ahoma
Texas
Illin
ois
Min
nesota
Colora
do
Mis
siss
ippi
Nebra
ska
Geo
rgia
India
na
Louisia
na
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
$ MillionsTexas had the 2nd
highest CAT losses in the US in 2013 (none of it from tropical activity)
82
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1993–20121
0.1%
1.7%
3.8%4.7%
6.3%
7.1%
36.0%
40.4%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2012 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, $158.2
Fires (4), $6.5
Tornadoes (2), $140.9
Winter Storms, $27.8
Terrorism, $24.8
Geological Events, $18.4
Wind/Hail/Flood (3), $14.9
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 1993-2012
totaled $391.7B, an average of $19.6B per year or $1.6B
per month
84Sources: Munich Re NatCatSERVICE; Insurance Information Institute.
Winter Storm and Winter Damage Events in the US and Canada, 1980-2013 (2013 US$)
Three of the four most costly years ever for insured losses from
winter storms and damage occurred in the 1990s, led by the “Storm of the Century” in 1993.
Insured losses from
severe winter events
totaled $2 billion in
2013.
Insured winter storm and damage losses in Jan. 2014 already totaled $1.5 billion. Continued severe weather since then makes it likely that
2014 will become one of the top 5 costliest winters since 1980.
Insured Losses (Millions, $ 2013)
5-year running average
85
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1$13.4$18.8
$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 became the 5th
costliest event in US insurance history
Hurricane Irene became the 12th most expense hurricane
in US history in 2011
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
86
Top 16 Most Costly World Insurance Losses, 1970-2013*
(Insured Losses, 2012 Dollars, $ Billions)
*Figures do not include federally insured flood losses.**Estimate based on PCS value of $18.75B as of 4/12/13.Sources: Munich Re; Swiss Re; Insurance Information Institute research.
$11.1$13.4 $13.4$13.4$18.8
$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)
WinterStormDaria(1991)
ChileQuake(2010)
Ivan (2004)
Charley(2004)
TyphoonMirielle(1991)
Wilma(2005)
ThailandFloods(2011)
NewZealandQuake(2011)
Ike (2008)
Sandy(2012)**
Northridge(1994)
WTC TerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)**
Katrina(2005)
5 of the top 14 most expensive catastrophes in
world history have occurred within the past 3 years
(2010-2012)
Hurricane Sandy is now the 6th costliest event in global
insurance history
2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2013Number of Events (Annual Totals 1980 – 2013)
Source: MR NatCatSERVICE 87
22
19
81
6
50
100
150
200
250
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 128 natural disaster events in 2013
Losses Due to Natural Disasters in the US, 1980–2013
88
Overall losses (in 2012 values) Insured losses (in 2013 values)
Source: MR NatCatSERVICE
(2013 Dollars, $ Billions) (Overall and Insured Losses)
50
100
150
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
2013 CAT Losses
Overall : $21.8B
Insured: $12.8B
Indicates a great deal of losses are uninsured (~40%-50% in the US) =
Growth Opportunity
2013 losses were far below 2011 and 2012 and were 44% lower
than the average from 2000-2012
92
Top 12 Most Costly Hurricanesin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
$9.2 $11.1$13.4
$18.8
$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 became the 3rd costliest hurricane in US
insurance historyHurricane Irene
became the 12th most expensive hurricane in US history in 2011
10 of the 12 most costly hurricanes in insurance history occurred over the past 9 years (2004—2012)
94
Total Value of Insured Coastal Exposure in 2012
(2012, $ Billions)
Source: AIR Worldwide
$293.5$239.3
$182.3$164.6$163.5
$118.2$106.7$81.9$64.0$60.6$58.3
$17.3
$567.8$713.9
$849.6$1,175.3
$2,862.3$2,923.1
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500
New YorkFloridaTexas
MassachusettsNew JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
In 2012, New York Ranked as the #1 Most Exposed State to Hurricane Loss, Overtaking Florida with $2.862 Trillion. Texas is very exposed too, and
ranked #3 with $1.175 Trillionin insured coastal exposure
The Insured Value of All Coastal Property Was $10.6 Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and
Up 48% from $7.2 Trillion in 2004
The value of insured coastal exposure in TX is
3rd highest in US.
99
The combined ratios for both personal and commercial lines
improved substantially in 2013:H1
Florida Citizens Total Policies In-Force,2002 – 2014*
*Year-end figures 2003-2013 and as of 3/31/14 for 2014 accessed at https://www.citizensfla.com/about/bookofbusiness/.Source: PIPSO; Florida Citizens, Insurance Information Institute
820.3 810.0
1,299.01,304.9
1,029.2
874.0938.4
1,314.8
1,084.2 1,021.7
1,283.5
1,472.4
0
200
400
600
800
1,000
1,200
1,400
1,600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
(Thousands)
6+ hurricane impact Florida in
2004-2005 causing more
than $25 billion in insured losses
Florida Citizens is experiencing meaningful depopulation
FL Citizen’s policies in-force
is now below 1 million for the first time since
2005
Florida Citizens Exposure to Loss,2002 – 2014* ($ Billions)
*As of March 31, 2014 from Florida Citizens accessed at: https://www.citizensfla.com/about/bookofbusiness/ Source: PIPSO; Insurance Information Institute (I.I.I.).
$154.6
$195.5 $206.7 $210.6
$408.8
$485.1
$421.9 $406.0
$460.7
$510.7
$318.9$298.4
$429.4
$0
$100
$200
$300
$400
$500
$600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Total exposure to loss in Florida Citizens since its 2002 inception increased by 230 percent, from $154.6 billion to $510.7 billion in 2011 but has now dropped
by $212.3 billion or 41.6% through 3/31/14
U.S. Thunderstorm Insured Loss Trends, 1980 – 2013
102Source: Property Claims Service, MR NatCatSERVICE
Thunderstorm losses in 2013 totaled $10.3 billion, the 6th
highest on record
Average thunderstorm
losses are up 7 fold since the early
1980s. The 5-year running average
loss is up sharply
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2013 are the most expensive
years on record.
Convective Loss Events in the U.S. Overall and insured losses 1980 – 2012 and First Half 2013
Overall losses (in 2013 values) Insured losses (in 2013 values)
Analysis contains: straight-line winds, tornadoes, hail, heavy precipitation, flash floods, lightning.
104Source: Geo Risks Research, NatCatSERVICE.
10
20
30
40
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Convective events are those caused by straight-line winds,
tornadoes, hail, heavy precipitation,
flash floods and lightning
The insured and total economic cost of
convective events has rising tremendously
over the past 30+ years
(Bill. US$)
Number of Acres Burned in Wildfires, 1980 – 2013
Source: National Interagency Fire Center 105
TX experienced significant wildfire losses in 2011 (Bastrop fire insured losses ~$500 million)
Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*
*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 106
Avg. catastrophe claim cost rose
approximately 200% from 1997-2011
Cat claim frequency in 2011 was at historic highs and more than
double the rate in 1997
Homeowners Insurance Combined Ratio: 1990–2015F
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
94
.4 10
0.3
89
.0 95
.7
11
6.9
10
5.8
10
6.7
12
2.2
10
4.1
90
.0
10
1.2
10
0.7
11
8.4
11
2.7 12
1.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E 14F 15F
1
Low Cat Losses Led to 2013 Improvement. Homeowners Performance in 2011/12 Impacted by Large Cat Losses.
Extreme Regional Variation Can Be Expected Due to Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2012);Conning (2014E-2015F); Insurance Information Institute. 107
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 109
Geophysical events(earthquake, tsunami, volcanic activity)
Meteorological events (storm)
Hydrological events(flood, mass movement)
Climatological events(extreme temperature, drought, wildfire)
Extraterrestrial events(Meteorite impact)
880Loss events
EarthquakeChina, 20 April
Severe storms, tornadoesUSA, 18–22 May
FloodsIndia, 14–30 June
HailstormsGermany, 27–28 July
Winter Storm Christian (St. Jude)Europe, 27–30 October
Typhoon HaiyanPhilippines, 8–12 NovemberSevere storms, tornadoes
USA, 28–31 May
Hurricanes Ingrid & ManuelMexico, 12–19 September
FloodsCanada, 19–24 June
FloodsEurope, 30 May–19 June
Heat waveIndia, April–June
Typhoon FitowChina, Japan, 5–9 October
Earthquake (series)Pakistan, 24–28 September
FloodsAustralia, 21–31 January
Meteorite impactRussian Federation, 15 February
Flash floodsCanada, 8–9 July
FloodsUSA, 9–16 September
Geophysical events(earthquake, tsunami, volcanic activity)
Meteorological events (storm)
Selection of significant Natural catastrophes
Natural catastrophes Hydrological events(flood, mass movement)
Climatological events(extreme temperature, drought, wildfire)
Natural Loss Events:Full Year 2013
World Map
Losses Due to Natural Disasters Worldwide, 1980–2013 (Overall & Insured Losses)
111
Overall losses (in 2013 values) Insured losses (in 2013 values)
Source: MR NatCatSERVICE
(2013 Dollars, $ Billions)(Overall and Insured Losses)
100
200
300
400
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
US$ bn
2013 Losses
Overall : $125B
Insured: $34B
There is a clear upward trend in both insured and overall losses over the past
30+ years
10-Yr. Avg. Losses
Overall : $184B
Insured: $56B
112
Federal Disaster Declarations Patterns:
1953-2014
112
Disaster Declarations Set New Records in Recent Years
Number of Federal Major Disaster Declarations, 1953-2014*
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
52
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
*Through May 18, 2014.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 2012/13
The number of federal disaster declarations set a new record in 2011, with 99, shattering 2010’s
record 81 declarations.
There have been 2,163 federal disaster
declarations since 1953. The average
number of declarations per year is 35 from 1953-2013, though
there few haven’t been recorded since 1995.
23 federal disasters were declared so far in 2014*
113
114
Federal Disasters Declarations by State, 1953 – 2014: Highest 25 States*
88
79
75
67
67
60
58
56
56
55
53
53
52
52
51
50
50
50
48
48
47
47
44
43
40
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY AR MO IL MS IA TN WV MN KS PA NE WA OH VA ND SD ME
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Texas has had the highest
number of Federal Disaster
Declarations
*Through May 18, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
115
Federal Disasters Declarations by State, 1953 – 2014: Lowest 25 States*
43
40
40
38
37
37
35
33
29
29
26
26
26
26
25
24
24
23
22
19
17
17
15
13
11
11
9
0
10
20
30
40
50
NC AK IN GA VT WI NJ NH MA OR PR HI MI NM MD AZ MT ID CO CT NV SC DE DC UT RI WY
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Wyoming and Rhode Island had the fewest
number of Federal Disaster Declarations
*Through May 18, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
116
SEVERE WEATHER REPORT UPDATE: 2014
Damage from Tornadoes, Large Hail and High Winds Keep Insurers Busy
116
Severe Weather Reports: 2014*
121
*Through May 13.Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
Severe weather reports are
concentrated east of the Rockies
There were 3,911 severe
weather reports so far in 2014; including 358
tornadoes; 1,496 “Large Hail” reports
and 2,056 high wind events
U.S. Tornado Count, 2005-2014*
122
*Through May 17, 2014.Source: http://www.spc.noaa.gov/wcm/.
There were 1,897 tornadoes in the U.S. in 2011 far
above average, but well below 2008’s record
2013 count was the
lowest in a decade
The YTD tornado count in 2014 is well
below average
Terrorism Update
142
TRIA’s SuccessConsequences of Expiration
Download III’s Terrorism Insurance Report at: http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2014.html
142
Life$1.2 (3%)
Aviation Liability
$4.3 (11%)
Other Liability
$4.9 (12%)
Biz Interruption $13.5 (33%)
Property -WTC 1 & 2*$4.4 (11%) Property -
Other$7.4 (19%)
Aviation Hull$0.6 (2%)
Event Cancellation
$1.2 (3%)
Workers Comp
$2.2 (6%)
Total Insured Losses Estimate: $42.9B***Loss total does not include March 2010 New York City settlement of up to $657.5 million to compensate approximately 10,000 Ground Zero workers or any subsequent settlements.
**$32.5 billion in 2001 dollars.
Source: Insurance Information Institute.
Loss Distribution by Type of Insurancefrom Sept. 11 Terrorist Attack ($ 2013)
($ Billions)
144
Terrorism Insurance Take-up Rates,By Year, 2003-2013
Source: Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014 and earlier editions.
27%
49%
58% 59% 59% 57%61% 62% 64% 62% 62%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
In 2003, the first year TRIA was in effect, the terrorism take-up rate was 27 percent. Since then, it has increased steadily, remaining in the
low 60 percent range since 2009.
TRIA’s high take-up rates, availability and affordability have benefitted businesses,
workers and the entire US economy since the program’s enactment
145
*Data for 27 states with sufficient data.Source: Marsh 2014 Terrorism Risk Insurance Report; Insurance Information Institute.
The overall US take-up rate for terrorism coverage was 62% in 2013 and ranged from
a lows of 41% in Michigan to a high of
84% in Massachusetts (where demand likely increased due to the
April 2013 Boston Marathon bombing)
Terrorism Insurance Take-Up Rates by State for 2013*
146
I.I.I. White Paper (March 2014):Terrorism Risk: A Constant Threat
Detailed history of TRIA How TRIA works Assessing the threat of
terrorism Terrorism market
conditions Global perspective Download at
http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2014.html
147
Terrorism Risk Insurance Program
Testified before House Financial Services Nov. 2013 Testified before Senate Banking Cmte. in Sept. 2013 Provided testimony at NYC hearing in June 2013 Provided Capitol Hill Joint House/Senate Staff Briefing in
April 2014 I.I.I. Published Several Updates to its Study on Terrorism
Risk and Insurance Working with Trades, Congressional Staff, GAO & Others
Senate Banking Committee, 9/25/13House Financial Services Subcommittee, 11/13/13
148
Summary of President’s Working Group Report on TRIA (April 2014)
Insurance for terrorism risk is available and affordable Availability/affordability have has not changed appreciably since 2010
Prices for terrorism risk insurance vary considerably depending on the policyholder’s industry and location of risk
Prices have declined since TRIA was enacted Currently ~3% to 5% of commercial property insurance premiums
Take-up rates have improved since adoption of TRIA Overall take-up rate is steady at ~60% (62% in 2013 per Marsh)
Market capacity is currently tightening given uncertainty over TRIA reauthorization
The private market does not have the capacity to provide reinsurance for terror risk to the extent currently provided by TRIA
In the absence of TRIA, terrorism risk insurance would likely be less available. Coverage that would be available likely would be more costly and/or limited in scope
Source: Report of the President’s Working Group on Financial Markets,The Long-Term Availability and Affordability of Insurance for Terrorism Risk,April 2014.
CAT OF THE FUTURE?CYBER RISK
149
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large
and Small in Every IndustryNEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf
149
Data Breaches 2005-2013, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed
* 2013 figures as of Jan. 1, 2014 from the ITRC updated to an additional 30 million records breached (Target) as disclosed in Jan. 2014.Source: Identity Theft Resource Center.
157
321
446
656
498
419447
619662
87.9
17.322.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
2005 2006 2007 2008 2009 2010 2011 2012 2013*0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records Exposed (+408%) in 2013 Soared
Millions
153
Growth Analysis by State and Business Segment
Premium Growth Rates Vary Tremendously by State
153
154
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
58
.4
25
.4
24
.5
21
.0
19
.2
17
.6
16
.3
13
.2
13
.2
12
.4
9.9
9.2
9.2
8.5
8.0
6.2
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
0
10
20
30
40
50
60
70
ND
SD
OK
NE IA KS
VT
AK
TX
WY
MN
AR
TN IN W
I
KY
MT
OH LA
VA
NJ
MI
SC
CO
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
North Dakota was the country’s growth leader over the past 5 years with premiums written
expanding by 58.4%
155
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
3.6
3.1
3.0
2.9
2.7
2.2
2.1
2.1
2.0
1.8
1.1
0.0
-0.1
-0.3
-0.7
-0.9
-2.8
-5.6
-6.0
-7.2
-7.2
-9.3
-10
.1
-11
.2
-12
.5
-17
.3
-20
-15
-10
-5
0
5
CT
MS
NC AL
MD PA
U.S
.
MA IL
WA
GA
UT
NH RI
ID ME
NY FL
CA
DC
WV HI
AZ
OR
DE
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 13 states and DC between
2007 and 2012
156
Direct Premiums Written: PP AutoPercent Change by State, 2007-2012*
24
.8
18
.8
18
.5
14
.4
13
.6
12
.7
12
.4
11
.2
10
.7
10
.4
10
.2
10
.1
9.3
9.1
9.1
9.0
9.0
8.4
8.1
8.0
7.9
7.6
7.1
7.0
6.5
6.3
02468
101214161820222426
ND
OK
TX MI
NE
NJ
SD FL IA NY
KY
KS WI
DE VA
TN
UT
AK
CO AR
WY
SC
DC
MO
WV
MD
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
161
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*
72
.2
35
.2
28
.8
25
.7
21
.0
20
.2
16
.0
15
.1
14
.6
8.8
6.3
4.6
3.3
2.9
1.5
1.2
0.0
-1.5
-2.3
-2.4
-2.6
-2.6
-3.2
-3.3
-3.5
-3.7
-20
0
20
40
60
80
ND
OK
SD VT
NE IA KS
AK ID WY
TX
MN IN WI
AR
TN
MT
OH LA
MA
PA
CT
MS
NM IL
WA
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
Only 16 states showed any commercial lines growth
2007 and 2012
162
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*
-4.1
-4.2
-4.5
-4.6
-4.9
-4.9
-5.1
-5.4
-5.9
-6.2
-6.5
-6.8
-6.8
-6.9
-7.3
-9.1
-10
.2
-11
.1
-13
.2
-14
.5
-15
.3
-16
.2
-16
.8
-20
.2
-22
.2
-30
.3
-40
-35
-30
-25
-20
-15
-10
-5
0
US
NY
MD
NH NJ
MO
ME
NC
KY VA RI
CO MI
SC AL
GA
CA
UT
DC
OR HI
DE FL AZ
WV
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
The BIG Question:Where Is the Market Heading?
169
Catastrophes and Other Factors Are Pressuring Insurance Markets
169
New Factor: Record Low Interest Rates Are Contributing to
Underwriting and Pricing Pressures
Property/Casualty Insurance Industry Investment Income: 2000–20131
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.4
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Investment Income Fell in 2012 and 2013 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1 Investment gains consist primarily of interest and stock dividends...Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings are running below their 2007
pre-crisis peak
174
-1.8
%
-1.8
%
-2.0
%
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
-5.7
%
-7.3%
-1.9
%
-2.1
%
-3.1
%
-8%-7%-6%-5%-4%-3%-2%-1%0%
Perso
nal L
ines
Pvt Pass
Aut
o
Pers P
rop
Comm
ercia
l
Comm
l Auto
Credit
Comm
Pro
p
Comm
Cas
Fidelity
/Sure
ty
Warra
nty
Surplu
s Line
s
Med
Mal
WC
Reinsu
rance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
174
176
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2014*
*Monthly, constant maturity, nominal rates, through April 2014.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
'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
Recession2-Yr Yield10-Yr Yield
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
U.S. Treasury yields plunged to historic lows in
2013. Only longer-term yields have rebounded.
176
P/C UNDERWRITING
183
Underwriting Losses in 2013 Much Improved After High
Catastrophe Losses in 2011/12
183
184
P/C Insurance Industry Combined Ratio, 2001–2013*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
96.7
101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Best Combined
Ratio Since 1949 (87.6)
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
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
186
Combined Ratios by Predominant Business Segment, 2013 vs. 2012*
*Excludes mortgage and financial guaranty insurers.Source: ISO/PCI; Insurance Information Institute
102.3101.1
102.3
104.8
96.797.6
94.3
98.7
90
92
94
96
98
100
102
104
106
All Lines Personal LinesPredominating
Commercial LinesPredominating
Diversified Insurers
2012 2013
(Percent)
The combined ratios for both personal and
commercial lines improved substantially in 2013
Underwriting Gain (Loss)1975–2013*
* Includes mortgage and financial guaranty insurers in all years.Sources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
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
Cumulative underwriting deficit from 1975 through
2012 is $510B
($ Billions) Underwriting profit in 2013
totaled $15.5B
High cat losses in 2011 led to the highest
underwriting loss since 2002
188
2
(2)
(8)
(3)
(7)(10)(10)
(4)
(0)
11
24
1512
10
(4)
(9)
(13)(12)
(10)
(14)(11)(10)
(7) (7)
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
E
14
E
15
E
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
B)
-6
-4
-2
0
2
4
6
8 Imp
ac
t on
Co
mb
ine
d R
atio
(Po
ints
)
Prior Yr. ReserveDevelopment ($B)
Impact onCombined Ratio(Points)
P/C Reserve Development, 1992–2015E
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: A.M. Best, ISO, Barclays Research (estimates for 2013-2015).
200
P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2012
90
95
100
105
110
115
1206
97
07
17
27
37
47
57
67
77
87
98
08
18
28
38
48
58
68
78
88
99
09
19
29
39
49
59
69
79
89
90
00
10
20
30
40
50
60
70
80
91
01
11
2
Co
mb
ine
d R
ati
o
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Imp
airm
en
t Ra
te
Combined Ratio after Div P/C Impairment Frequency
Source: A.M. Best; Insurance Information Institute
2012 impairment rate was 0.69%, down from 1.11% in 2011; the rate is lower than the 0.82% average since 1969
Impairment Rates Are Highly Correlated With Underwriting Performance and Reached Record Lows in 2007; Recent Increase Was Associated
Primarily With Mortgage and Financial Guaranty Insurers and Not Representative of the Industry Overall
201
Reasons for US P/C Insurer Impairments, 1969–2012
43.4%
12.6%
7.2%
7.1%
8.0%
6.6%
8.4%
3.5% 3.1%
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013; Insurance Information Institute.
Historically, Deficient Loss Reserves and Inadequate Pricing AreBy Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Deficient Loss Reserves/Inadequate Pricing
Reinsurance Failure
Rapid GrowthAlleged Fraud
Catastrophe Losses
Affiliate Impairment
Investment Problems (Overstatement of Assets)
Misc.
Sig. Change in Business
203
Top 10 Lines of Business for US P/C Impaired Insurers, 2000–2012
19.7%
22.2%
9.2%8.8%
7.3%
8.6%
6.7%
4.8%
4.0%
8.6%
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013; Insurance Information Institute..
Workers Comp and Pvt. Passenger Auto Account for More Than 40 Percent of the Impaired Insurers Since 2000
Workers Comp
Other
Pvt. Passenger Auto
HomeownersCommercial Multiperil
Commercial Auto Liability
Other Liability
Med Mal
Surety
Title
204
Performance by Segment
204
Private Passenger Auto Combined Ratio: 1993–2015F
10
1.7
10
1.3
10
1.3
10
1.0
10
9.5
10
7.9
10
4.2
98
.4
94
.3
95
.1
95
.5 98
.3 10
0.2
10
1.0
10
2.0
10
2.1
98
.8
98
.9
98
.2
97
.399
.5 10
1.1
10
3.5
80
85
90
95
100
105
110
115
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F14F15F
Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry
205Sources: A.M. Best (1990-2012);Conning (2013F-15F); Insurance Information Institute.
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.4
10
7.9
10
3.4
10
1.2
99
.5
99
.610
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
F
14
F
15
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2012); Conning (2013F-2015F) Insurance Information Institute
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
209
Commercial Auto Combined Ratio: 1993–2015F
11
2.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4 94
.3 96
.8 99
.1
97
.8
10
3.4 10
6.8
10
1.7
10
0.3
99
.8
11
8.1
11
5.7
11
6.2
80
85
90
95
100
105
110
115
120
125
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F
Commercial Auto is Expected to Improve as Rate Gains Outpace Any Adverse Frequency and Severity Trends
210Sources: A.M. Best (1990-2012);Conning (2013F-2015F); Insurance Information Institute.
Workers Compensation Combined Ratio: 1994–2015F
102.
0
97.0 10
0.0
101.
0
112.
6
108.
6
105.
1
102.
7
98.5
103.
5
104.
5 110.
6 115.
0
115.
0
108.
0
101.
0
99.0
98.0
121.
7
107.
0
115.
3
118.
2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E14F 15F
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-
2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2013P) and are for private carriers only; Insurance Information Institute (2014-15). 216
WC results have improved markedly
since 2011
SURPLUS/CAPITAL/CAPACITY
217
2013 Recorded Yet Another Record High in the Primary and Reinsurance Sectors
217
218
Policyholder Surplus, 2006:Q4–2013:Q4
Sources: ISO, A.M .Best.
($ Billions)
$487.1$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
$653.3
$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
2007:Q3Pre-Crisis Peak
Surplus as of 12/31/13 stood at a record high $653.3B
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 2014in very strong financial condition.
221
U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 2002-2013 (1)
$486
$20,353
$425
$9,264
$35,221
$13,615
$16,294
$3,507
$6,419
$12,458
$4,651 $4,397
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012
Tra
ns
ac
tio
n v
alu
es
0
10
20
30
40
50
60
70
80
90
Nu
mb
er o
f tran
sa
ctio
ns
($ Millions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
M&A activity in the P/C sector remains below
pre-crisis levels.
223
REINSURANCE MARKET CONDITIONS
Ample Capacity as Alternative Capital is
Transforming the Market—And Pushing Down
Prices223
225
Global Reinsurer Capital, 2007-2013:H1*
$510
$410
$340
$400
$470 $455$505
$0
$100
$200
$300
$400
$500
$600
2007 2008 2009 2010 2011 2012 2013:H1
*Includes both traditional and non-traditional forms of reinsurance capital.Source: Aon Benfield Aggregate study for the 6 months ending June 2013; Insurance Information Institute.
($ Billions)
Global Reinsurance Capital Has Been Trending Generally Upward Since the Global Financial Crisis, a Trend that Seems Likely to Continue
-17%+18%
+18% -3%+11% +1%
Reinsurance Pricing: Rate-on-Line Index by Region, 1990 – 2014*
*As of Jan. 1.Source: Guy Carpenter
Lower CATs and a flood of new
capital has pushed reinsurance pricing
down in most regions, including
the US
Catastrophe Bonds: Issuance and Outstanding, 1997- 2014:Q1*Risk Capital Amount ($ Millions)
*Through Jan. 31, 2014.Source: Guy Carpenter; Insurance Information Institute.
63
3.0
84
6.1
98
4.8
1,1
30
.0
96
6.9 2
,72
9.2
3,3
91
.7
4,6
00
.3
4,1
08
.8
5,8
52
.9
7,0
83
.0
1,4
10
.0
1,991.11,142.8
1,729.8
6,9
96
.3
4,6
93
.4
1,219.5
$3
,45
0.0
$4
,04
0.4
$4
,90
4.2 $
8,5
41
.6
$1
4,0
24
.2
$1
2,0
43
.6
$1
2,5
08
.8
$1
2,1
85
.0
$1
2,1
39
.1
$1
4,8
35
.7 $1
8,5
16
.7
$2
,95
0.0
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14:Q1Risk Capital IssuedRisk Capital Outstandng at Year End
Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk Capital Outstanding Stands at an All-Time Record
CAT bond issuance reached a record high in 2013
Risk capital outstanding
reached a record high in 2013
Financial crisis depressed issuance
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260