Overview & Outlook for the P/C Insurance Industry · P/C Insurance Industry: Trends, Challenges and...
212
Overview & Outlook for the P/C Insurance Industry: Trends, Challenges and Opportunities in 2014 and Beyond Insurance Information Institute August 19, 2014 Download at www.iii.org/presentations Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
Transcript of Overview & Outlook for the P/C Insurance Industry · P/C Insurance Industry: Trends, Challenges and...
Overview & Outlook for the P/C Insurance Industry:
Trends, Challenges and Opportunitiesin 2014 and Beyond
Insurance Information Institute
August 19, 2014
Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
P/C Insurance Industry:Financial Update
2013 Was the Industry’s Best Yearin the Post-Crisis Era
2014 Is Off to a Good Start
2
P/C Industry Net Income After Taxes1991–2014: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 = 10.3%
2014 ROAS1 = 8.4%
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields an 8.2% ROAS through 2014:Q1, 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 $
33
,52
2
$6
3,7
84
$1
3,6
54
$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:Q
1
Net income rose strongly (+81.9%) in 2013 vs. 2012 on lower cats, capital gains
$ Millions
2014 is off to a slower start
-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
14
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2014:Q1*
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 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%
9 Years
History suggests next ROE
peak will be in 2016-2017
ROE
1975: 2.4%
2013 10.4%
2014:Q1 8.2%
5
ROE: Property/Casualty Insurance by Major Event, 1987–2014:Q1
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 2014 figure is through Q1:2014. 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 13 14*
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
6
P/C Insurance Industry Combined Ratio, 2001–2014:Q1*
* 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; 2014:Q1 = 97.3.
Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
96.7 97.4
101.0
92.6
100.8
98.4100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
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
Best Combined Ratio Since 1949 (87.6)
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:Q1 combined ratio including M&FG insurers is 97.3; 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 97.4
102.4
106.5
95.7
14.3%
15.9%
12.7%
10.9%
7.4%7.9%
4.7%
6.2%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:Q1
0%
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 helped ROEs
in 2013
8
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
0
2
4
6
8
10
12
14
16
18
20
22
24
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
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
Source: NAIC; Insurance Information Institute.
9
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
-4-2
0
2
4
6
8
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; Insurance Information Institute.
Some of the least profitable states over the past decade were hit hard
by catastrophes
10
Policyholder Surplus, 2006:Q4–2014:Q1
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
$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
2007:Q3Pre-Crisis Peak
Surplus as of 3/31/14 stood at a record high $662.0B
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.
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
$700
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
US Policyholder Surplus:1975–2014*
* As of 3/31/14.
Source: A.M. Best, ISO, Insurance Information Institute.
“Surplus” is a measure of underwriting capacity. It is
analogous to “Owners Equity” or “Net Worth” in non-
insurance organizations
($ Billions)
The Premium-to-Surplus Ratio Stood at $0.73:$1 as of3/31/14, a Near Record Low (at Least in Recent History)
Surplus as of 3/31/14 was a record $662.0, up 1.3% from $653.3 of 12/31/13, and up 51.5% ($224.9B)
from the crisis trough of $437.1B at 3/31/09
12
ALTERNATIVE CAPITAL & REINSURANCE MARKETS
Ample Capacity as Alternative Capital is
Transforming the Market—And Pushing
Down Prices12
Global Reinsurance Capital (Traditional and Alternative), 2007 - 2013
Source: Aon Benfield Reinsurance Market Outlook, April 1, 2014; Insurance Information Institute.
Total reinsurance capital reached a record $540B in 2013, up 58.8%
from 2008.
410
340
400
470 455505
540
22 19 22 24 28 39 50
$0
$100
$200
$300
$400
$500
$600
2007 2008 2009 2010 2011 2012 2013
Global Re Capital (Traditional & Alternative) Alternative Capital Only
(Billions)
Alternative capital constantly growing, even in 2011, when cat losses reduced total reinsurance
capital.
But alternative capacity has grown 163% since 2008, to $50B. It has grown 79% in the past two years.
Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit
Source: Guy Carpenter
(As of Year End)
Alternative Capacity accounted for approximately 14% or $45 billion
of the $316 in global property catastrophe reinsurance capital as
of mid-2013 (expected to rise to ~15% by year-end 2013)
Investor by Category
Years ended June 30.
Source: Aon Benfield Securities; Insurance Information Institute.
Catastrophe
Fund43%
Instituti
onal41%
Mutual
Fund12%
Hedge
Fund2%
Reinsurer
2% 2013
Institutional investors are accounting for a larger
share of alternative reinsurance investors
Catastrophe
Fund51%
Institutional
34%
Mutual
Fund5%
Hedge
Fund5%
Reinsurer
5%2012
Alternative Risk Transfer: Market Growth
Source: Aon Benfield Insurance-Linked Securities: Capital Revolution, August 30, 2013; Insurance Information Institute.
Since 2009, market share of collateralized reinsurance has grown faster than cat bonds or other forms of risk transfer
Catastrophe Bonds: Issuance and Outstanding, 1997- 2014:Q1
Risk Capital Amount ($ Millions)
Sources: Guy Carpenter (Aon Benfield for 2014:Q1); Artemis for 2014:Q2 estimate; Insurance Information Institute.
63
3.0
84
6.1
98
4.8
1,1
30
.0
96
6.9 2,7
29
.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
,54
1.6
$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
$2
0,3
00
.0
$1
4,8
35
.7
$1
8,5
16
.7
$2
,95
0.0
$0
$4,000
$8,000
$12,000
$16,000
$20,000
$24,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14:Q1
Risk Capital IssuedRisk Capital Outstandng at Year End
Second Quarter 2014 Will Set a Record – Nearly $4.6 Billion Issued
CAT bond issuance reached a record high in 2013.
Risk capital outstanding
reached a record high in first quarter
Financial crisis depressed issuance
Catastrophe Bonds: Issuance and Outstanding, 1997- 2014:Q2*
Risk Capital Amount ($ Millions)
*Through June 30, 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
5,7
00
.0
1,991.1
1,142.81,729.8
6,9
96
.3
4,6
93
.4
1,219.5
$3
,45
0.0
$4
,04
0.4
$4
,90
4.2
$8
,54
1.6
$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:H1
Risk 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 and could
set a new record in 2014
Risk capital outstanding
reached a record high in 2013
Financial crisis depressed issuance
U.S. Wind and Quake30%
U.S. Wind24%
Other (incl. U.S.
Wind)13%
Euro Wind11%
U.S. Quake
8%
Other (ex. U.S.
Wind)8%
Japanese Perils
6%
19
Catastrophe Bonds Outstanding, Q1 2014
Source: Willis Capital Markets.
Catastrophe bonds are heavily
concentrated in U.S. hurricane
exposures. Two-thirds of
catastrophe risks outstanding cover
U.S. wind risks.
U.S. Wind-Exposed Risk Premium* 2010:Q1 to 2014: Q1
10.9%
8.2%8.0%
8.0%
7.9%8.2%
8.2%
10.1%
10.9%
12.0%
12.0%
11.6%
11.0%
7.6%
7.4%7.2%
6.4%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
Ris
k S
pre
ad
(co
up
on
–ri
sk
-fre
e r
ate
)
Wtd. Avg. Risk Spread
Risk spreads rose in 2011-2012 from cat activity and changes to catastrophe
models
20
* Trailing 12-month average
SOURCE: Willis Capital Markets, Insurance Information Institute.
Risk spreads dropped –
equivalent to lower rates –
low cat losses, capital entering
market.
Non-U.S. Wind-Exposed Risk Premium* 2010:Q1-2014: Q1
8.5%
7.2%
6.9%
4.2%
4.2%4.5%
5.7%5.7%
5.7%
5.6%
4.9%
5.4%
4.8%
4.2%
3.6%
2.7%2.6%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Ris
k S
pre
ad
(co
up
on
–ri
sk
-fre
e r
ate
)
Wtd. Avg. Risk Spread
21
* Trailing 12-month average.
SOURCE: Willis Capital Markets, Insurance Information Institute.
Spreads are also falling in non-U.S. wind exposures, but
less sharply and in line with
expected losses
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 U.S.
Notable Cat Bond Events
23
Bond Sponsor Event(s) Loss to Investors
Kelvin Ltd. Koch Energy U.S. Winter 2000-01 $5 million
George Town Re St. Paul Re 9/11, Hurricane Floyd, European wind $1 million
KAMP Re Zurich Hurricane Katrina (2005) $144 million
Avalon Re Oil Casualty
Katrina, 2005 fuel depot explosion, NYC
street collapse $13 million
Ajax Aspen Re 2008 Lehman bankruptcy $72 million
Carillon Munich Re 2008 Lehman bankruptcy $31 million
Newton Re Catlin 2008 Lehman bankruptcy $4 million
Willow Allstate 2008 Lehman bankruptcy $10 million
Muteki Ltd.
Munich Re for
Zenkyoren 2011 Tohuku earthquake $300 million
Vega Capital Swiss Re 2011 Tohuku earthquake $16 million
Mariah Re American Family 2011 tornadoes $200 million1
Vega Capital Swiss Re Superstorm Sandy (2012) $7 million
Successor X Swiss Re Superstorm Sandy (2012) $15 million2
1 (In litigation) 2 Estimated
Source: Munich Re
Most events have been relatively small. Four were counterparty risks related to the Lehman Brothers bankruptcy in 2008.
24
Questions Arising from Influence of Alternative Capital
What Will Happen When Investors Face Large-Scale Losses?
What Happens When Interest Rates Rise?
Does ILS Have a Higher Propensity to Litigate?
How Much Lower Will Risk Premiums Shrink/ROLs Fall?
Will There Be Spillover Into Casualty Reinsurance?
Will Alternative Capital Drive Consolidation?
25
Growth Analysis by State and Business Segment
Post-Crisis Paradox?
Premium Growth Rates Vary Tremendously by State
25
26
-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%
27
Direct Premiums Written: Total P/CPercent Change by State, 2007-2013
74
.6
36
.9
31
.9
27
.4
25
.2
24
.9
22
.5
22
.2
16
.6
15
.9
15
.7
14
.5
14
.5
14
.3
12
.6
11
.9
11
.8
11
.2
10
.5
10
.3
9.9
9.8
9.3
9.1
9.0
8.6
0
10
20
30
40
50
60
70
80
ND
SD
OK
NE
KS IA VT
TX
WY
TN
MN
AR
AK IN WI
CO MI
KY
OH
NJ
LA
SC VA
AL
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 6 years with premiums written
expanding by 74.6%
28
Direct Premiums Written: Total P/CPercent Change by State, 2007-2013
8.5
8.2
7.9
7.8
7.6
7.3
7.0
6.9
6.2
5.9
5.6
5.3
4.2
4.1
3.5
1.6
1.0
0.4
-0.7
-1.7
-1.9
-4.1
-5.7
-6.7
-12
.6
-15
.3
-20
-15
-10
-5
0
5
10
MS
CT
US
NC
GA
NY
MD
MA
UT
WA
PA IL RI
NH ID
MT
ME
OR
CA
FL
DC AZ
WV HI
NV
DE
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 7 states and DC between
2007 and 2013
29
Direct Premiums Written: PP AutoPercent Change by State, 2007-2013
34
.1
26
.7
25
.8
24
.0
19
.7
18
.7
16
.8
15
.5
14
.9
14
.6
14
.4
14
.3
14
.2
14
.1
13
.8
13
.7
13
.6
13
.5
13
.5
12
.3
11
.4
10
.9
10
.7
10
.6
10
.5
10
.4
0
5
10
15
20
25
30
35
40
ND
TX MI
OK
SD
NE
NJ
TN
CO
KS
FL IA
KY WI
DE
UT
VA
SC
NY
LA
AR
US
MT
MO
WY
AL
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
30
Direct Premiums Written: PP AutoPercent Change by State, 2007-2013
10
.3
10
.3
10
.1
9.7
9.4
9.0
8.9
8.8
8.6
7.4
6.5
6.1
6.1
6.1
5.8
5.3
5.1
5.0
4.6
2.0
0.8
-0.2
-0.3
-0.9
-3.7
-6.0
-8
-6
-4
-2
0
2
4
6
8
10
12
AK
DC
NC
OR
MN IN GA
MD
WV
OH
MS
MA
NM
CT
WA
PA IL RI
ID VT
CA
NV
NH AZ
HI
ME
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Advertising Expenditures by P/C Insurance Industry, 1999-2013
$1.736 $1.737 $1.803 $1.708
$3.426
$4.102$4.354
$4.103
$5.079
$5.883$6.088 $6.175
$2.975
$2.111$1.882
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
$5.5
$6.0
$6.5
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: Insurance Information Institute from consolidated P/C Annual Statement data, Insurance Expense Exhibit (Part I).
$ Billions P/C ad spend hit an all time record high of $6.175 billion in 2013, up 1.5% over 2012.
The pace of growth has slowed from 15.8% in 2011
and 23.8% in 2010
P/C ad spending has more
than tripled since 2002
(up 256% from 2002-2013)
32
I.I.I. Poll: Ads Are Everywhere
Q. How long has it been since you have seen or heard an advertisement for auto insurance?
Source: Insurance Information Institute Annual Pulse Survey, May 2014.
Four Out of Five Respondents Have Seen An Auto Insurance Ad in the Past Week.
2%3%5%
80%
9%
Less Than a Week
1 week to 1 month
Never Seen Or Heard AdMore Than 6 Months
1 to 6 months
33
Direct Premiums Written: HomeownersPercent Change by State, 2007-2013
60
.5
53
.3
50
.7
50
.7
50
.5
49
.2
46
.3
45
.4
45
.4
44
.7
44
.0
43
.5
42
.9
42
.5
42
.1
41
.9
40
.3
38
.1
37
.1
37
.1
35
.7
34
.9
34
.1
33
.6
33
.0
32
.6
0
10
20
30
40
50
60
70
OK
ND
MN
AR
TN
SD
MO
CO
KY
KS WI
WY
NE IA
GA
MT
TX
NM
OH IN AL IL
SC
DE
UT ID
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
34
Direct Premiums Written: HomeownersPercent Change by State, 2007-2013
32
.6
32
.5
31
.4
30
.6
30
.4
30
.3
29
.8
29
.6
27
.5
27
.2
26
.8
26
.4
25
.3
24
.6
22
.5
22
.3
20
.8
19
.7
19
.2
17
.2
16
.1
15
.4
8.3
8.0
2.1
0.5
0
5
10
15
20
25
30
35
40
MS
NC VA
NJ
CT RI
LA
PA
WV
WA
US
NH
ME
MD
NY
OR
MA
AK
DC AZ
VT
MI
HI
CA
FL
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
35
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
91
.1
42
.1
41
.4
33
.7
26
.3
25
.8
23
.6
19
.1
15
.6
14
.0
11
.3
10
.0
9.8
6.8
6.7
6.5
4.1
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
0
10
20
30
40
50
60
70
80
90
100
ND
OK
SD
VT
NE IA
KS ID AK
TX
WY
MN IN AR
TN W
I
OH
MA
CT
NM LA
MS
NJ
NY
US
MO
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
Only 30 states showed any commercial lines growth from 2007 through 2013
36
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
0.5
0.4
0.2
0.1
-0.5
-0.8
-0.9
-1.0
-1.1
-1.1
-1.9
-2.0
-2.1
-2.7
-3.3
-3.7
-4.3
-4.9
-10
.7
-11
.4
-11
.7
-12
.6
-12
.7
-13
.6
-22
.4
-25
.1
-30
-25
-20
-15
-10
-5
0
5
MD
NH
PA
CO IL
WA
VA
KY
NC
ME RI
MI
SC AL
GA
CA
UT
DC
OR
MT 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 6 years
Nearly half the states have yet to see commercial lines premium
volume return to pre-crisis levels
37
Direct Premiums Written: Workers’ CompPercent Change by State, 2007-2013*
32
.9
30
.8
24
.3
21
.5
13
.4
11
.5
11
.0
10
.6
8.1
4.8
4.5
3.0
1.5
-0.3
-0.6
-1.0
-2.3
-2.4
-2.9
-3.0
-3.7
-4.1
-5.7
-5.8
-8.0
-15
-10
-5
0
5
10
15
20
25
30
35
OK IA
SD
NY
CA
CT
NJ
KS
NE IN MI
VT
MN
DC WI
IL
NH
US
NM TX
PA
VA
MD
TN
AR
Pe
ce
nt
ch
an
ge
(%
)
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Only 13 states have seen works comp premium volume
return to pre-crisis levels
38
Direct Premiums Written: Worker’s CompPercent Change by State, 2007-2013*
-8.1
-8.4
-8.7
-8.8
-11
.1
-11
.3
-12
.0
-14
.7
-15
.3
-15
.4
-16
.0
-16
.3
-17
.1
-22
.1
-23
.0
-26
.5
-27
.5
-32
.5
-33
.3
-33
.5
-43
.8
-71
.0
-80-75-70-65-60-55-50-45-40-35-30-25-20-15-10-50
MS
MA RI
GA
NC
AK ID
CO LA
ME AZ
MO
SC AL
KY
UT
FL
OR
DE HI
NV
MT
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
States with the poorest performing economies also produced some of the most
negative net change in premiums of the past 6 years
39
49%
37%32% 30%
25%
9%5%
0%
10%
20%
30%
40%
50%
60%
Personal
Auto
Home Comm. Auto Comm.
Property
Business
Owners
Workers
Comp
GL
Percentage of Carriers Using Predictive Analytics by Major P/C Line, 2013
Predictive analytics is more like to be used in personal lines, but commercial lines use
is growing
Source: ISO/Earnix Survey, September 2013; Insurance Information Institute.
82% of insurers report using
predicative analytics in at least
one line. 18% do not use it all.
Benefits Cited
Drive Profitability: 85%
Reduce Risk: 55%
Grow Revenue: 52%
Improve Op. Efficiency: 39%
Uses of Predictive Analytics by Function
40
Pricing and Underwriting are the
leading uses for predictive analytics
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
41
Growth Will Expand Insurer Exposure
Base Across Most Lines
Texas Remains a Growth Leader
41
42
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 8/14; 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
%
2.7
%
1.8
%4.5
%
3.5
%
-2.1
%4.0
%
2.9
%3.0
%
2.9
%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%
Q1 2014 GDP data were hit hard by this year’s “Polar Vortex”
and harsh winter
State-by-State Leading Indicatorsthrough 2014:Q4
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.43
The economic outlook for most of the US is generally
positive, though flat-to-negative for
4 states
44
Real GDP by State Percent Change, 2013:Highest 25 States
9.7
7.6
5.1
4.2
4.1
3.8
3.8
3.7
3.1
3.0
3.0
2.9
2.8
2.7
2.7
2.4
2.3
2.2
2.1
2.0
2.0
1.9
1.9
1.9
1.8
1.8
0
1
2
3
4
5
6
7
8
9
10
ND WY WV OK ID CO UT TX SD NE MT IA MN OR WA AR NC FL IN MI CA VT KS HI GA US
Pe
rce
nt
Ch
an
ge
(%
)
Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2013—by far
Only 9 states experienced growth in excess of 3%, which is what we would see nationally in
a more typical recovery
45
1.8
1.7
1.6
1.6
1.6
1.6
1.5
1.4
1.3
1.2
1.1
1.1
1.0
0.9
0.9
0.9
0.9
0.8
0.8
0.8
0.7
0.7
0.1
0.0
-0.5
-2.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
OH WI MA DE KY MS NM RI LA SC NJ AZ NV CT ME NH IL MO AL TN NY PA VA MD DC AL
Pe
rce
nt
Ch
an
ge
(%
)Real GDP by State Percent Change, 2013:
Lowest 25 States
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
DC and Alabama were the only
states to shrink in 2013
Growth rates in 11 states were still below 1% in
2013
46
Percent Change in Real GDP by State, 2013
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
47
Annual Inflation Rates, (CPI-U, %),1990–2015F
2.82.6
1.51.9
3.3 3.4
1.3
2.52.3
3.0
3.8
2.8
3.8
-0.4
1.6
3.2
2.1
1.5
2.0 2.1
2.9
2.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 8/14 (forecasts).
The slack in the U.S. economy suggests that inflationary pressures should remain subdued for an extended period of times. Energy, health care and
commodity prices, plus U.S. debt burden, remain longer-run concerns
Annual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
commodity bubble reduced inflationary pressures in 2009/10
Inflationary expectations
have edged up but remain quite low, allowing the Fed to maintain
low interest rates
74
.47
3.6
73
.67
2.2
73
.6 76
67
.86
8.9
68
.26
7.7
71
.6 74
.57
4.2 7
7.5
67
.5 69
.87
4.3
71
.56
3.7
55
.75
9.5
60
.9 64
.16
9.9
75
.07
5.3
76
.27
6.4 7
9.3
73
.27
2.3 74
.38
2.6
82
.77
4.5
73
.87
7.6
78
.6
84
.58
4.1
85
.18
2.1
77
.57
3.2 75
.18
2.5
81
.28
1.6
80
.08
4.1
81
.98
2.5
81
.87
9.2
76
.4
40
45
50
55
60
65
70
75
80
85
90
Ja
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-
10
No
v-1
0D
ec-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-
11
No
v-1
1D
ec-1
1Ja
n-1
2F
eb
-12
Ma
r-1
2A
pr-
12
Ma
y-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Oct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4Ju
l-1
4A
ug
-14
Consumer Sentiment Survey (1966 = 100)
January 2010 through August 2014
Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact consumers, but improved substantially over the past 2+ years, though
uncertainty in Washington sometimes takes a toll.
Source: University of Michigan; Insurance Information Institute
Optimism among consumers has generally improved in 2014
48
Impact of 2011 budget impasse
$0
$10
$20
$30
$40
$50
$60
$70
$80
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
:Q1
Net Worth of Households*Recently Hit A Historic High
*Includes nonprofit organizations. Data are not seasonally adjusted or inflation-adjusted.Source: Federal Reserve Board: http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf ; Insurance Information Institute.
2008-09 recession: -15.7% $ Trillions
2001 recession
1992 recession
1982 recession
Housing “bubble”
Rising net worth fuels a “wealth affect” that helps fuel consumer
spending, which accounts for 70% of spending in the U.S. economy
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
18.5%
1990:Q
1
1990:Q
3
1991:Q
1
1991:Q
3
1992:Q
11992:Q
3
1993:Q
1
1993:Q
3
1994:Q
1
1994:Q
3
1995:Q
1
1995:Q
3
1996:Q
1
1996:Q
3
1997:Q
11997:Q
3
1998:Q
1
1998:Q
3
1999:Q
1
1999:Q
3
2000:Q
1
2000:Q
3
2001:Q
1
2001:Q
32002:Q
1
2002:Q
3
2003:Q
1
2003:Q
3
2004:Q
1
2004:Q
3
2005:Q
1
2005:Q
3
2006:Q
1
2006:Q
32007:Q
1
2007:Q
3
2008:Q
1
2008:Q
3
2009:Q
1
2009:Q
3
2010:Q
1
2010:Q
3
2011:Q
12011:Q
3
2012:Q
1
2012:Q
3
2013:Q
1
2013:Q
3
Household Financial ObligationsRatio Recently Hit A Historic Low
*through 2013:Q3 (data posted on Dec 13, 2013)Source: Federal Reserve Board, at http://www.federalreserve.gov/releases/housedebt
Financial Obligations Ratio: debt service (mortgage and consumer debt), auto lease, residence rent, HO insurance, and
property tax payments as % of personal disposable income.
Decline began in 2008:Q1.
Financial
Obligations
Ratio
15.23% in 2012:Q4is lowest ratio since 1980:Q4 (15.09%).
Household balance sheets
are stronger than they’ve
been in many years, setting
the stage for more
consumer spending
51
16
.9
16
.5
16
.1
13
.2
10
.4
11
.6
12
.7
14
.4
15
.5 16
.3
16
.7
16
.2
16
.2
16
.2
16
.216
.9
16
.617
.1
17
.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 (8/14 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
52
Monthly Change* in Auto Insurance Prices, 1991–2014*
*Percentage change from same month in prior year; through May 2014; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '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 May. 2014 reading of 4.8% is down from 4.1%
a year earlier
53
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/ForecastsSource: 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
54
Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2011 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 New Jersey $1,183.95 1 Idaho $525.15
2 District of Columbia 1,138.03 2 South Dakota 540.04
3 Louisiana 1,110.68 3 North Dakota 549.81
4 New York 1,108.64 4 Iowa 552.54
5 Florida 1,090.65 5 Maine 577.38
6 Delaware 1,052.28 6 North Carolina 600.33
7 Rhode Island 1,004.14 7 Wisconsin 601.40
8 Michigan 983.60 8 Nebraska 602.57
9 Connecticut 970.22 9 Wyoming 619.88
10 Maryland 956.17 10 Ohio 619.96
(1) Based on average automobile insurance expenditures.
Source: © 2013 National Association of Insurance Commissioners.
Texas ranked 14th as the most expensive state in 2011, with an average expenditure for auto insurance of $842.58.
55
16%
18%
20%
22%
24%
26%
28%
30%
01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F
$125
$135
$145
$155
$165
$175
$185
$195
% of registered cars under 3 years old Auto Ins Direct Pms$ Billions
Personal Auto Insurance Direct Written Premiums vs. Recently-Registered Cars
Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and Analysis, First Quarter 2012; Insurance Information Institute.
PP DWP, flat from 2004-2009, is rising again.Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.
Average age of registered cars rose as fewer new cars were bought (and
insured)
In 2004-07 no growth in
PP DWP despite
strong new car/truck
sales New car/truck sales grow to 14-15M/year
4%/yr growth forecast for PP
DWP from recovering
new car/truck sales
56
Average Age of Vehicles on the Road, 2006—2013
11.211.4
10.910.6
10.310.110.09.9
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
2006 2007 2008 2009 2010 2011 2012 2013
Sources: Polk, August 2013 Survey; Insurance Information Institute.
Average Vehicle
Age (Years)
The average age of a vehicle on the road is is expected to continue to increase until 2018. By 2018, the number of vehicles 12+ years old is
expected to rise 11.6% from 2013 and the number that are under 5 years old is expected to increase by 41%
The average vehicle age reached a record
11.4 years in 2013
56
Average vehicle age continues
to increase because the slow
economy leads many drivers
to keep cars on the road
longer and because cars are
becoming more reliable
57
Auto Insurance Price Indexvs. CPI, 1994–2014*
*Seasonally adjusted, through March 2014
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
100
120
140
160
180
200
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Recession CPI auto insurance
Index: Jan 1994 = 100
Annual average growth rate of the CPI from 1994 to now: 2.5%.Annual average growth rate of auto insurance prices from 1994 to now: 3.3%.
58
Yearly Change in Auto Insurance Prices vs. Median Weekly Earnings
Sources: US Bureau of Labor Statistics; Insurance Information Institute
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Auto Insurance Prices Median weekly earnings
59
Monthly Change* in Auto Insurance Prices, January 2005 - December 2013
(Percent Changefrom same month,prior year)
*Percentage change from same month in prior year, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute
Auto Insurance Price Increases Averaged 5.1% in 2010 over 2009, After
Averaging 4.5% in 2009 over 2008.
Underwriting performance remained
strong even when prices were flat or
falling due to improvements in
underlying frequency and severity trends
PPA Auto, like most p/c lines, exhibits strong cyclicality in pricing. Prices rose from 2000 to late 2005, were flat/falling in 2006 and 2007 before beginning to
rise gain in 2008.
Pricing weakened in 2011, strengthened in
2012/early 2013 but has since moderated
Private Passenger Auto: Premium Growth vs. Loss Cost Spread
Sources: Evercore Equity Research, Jan. 2014.60
Premium growth has generally exceeded underlying loss cost
trends since mid-2008
61
(Millions of Units)
New Private Housing Starts, 1990-2019F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
1
0.5
5
0.5
9
0.6
1 0.7
8 0.9
2
1.0
1 1.2
0
1.4
4
1.5
0
1.5
1
1.5
0
1.3
51.4
6
1.2
9
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 (8/14 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
62
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
63
Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2011 (1)
Rank Most
expensive statesHO average
premium RankLeast
expensive statesHO average
premium
1 Florida $1,933 1 Idaho $518
2 Louisiana 1,672 2 Oregon 559
3 Texas (2) 1,578 3 Utah 563
4 Mississippi 1,409 4 Wisconsin 592
5 Oklahoma 1,386 5 Washington 626
6 Alabama 1,163 6 Ohio 644
7 Rhode Island 1,139 7 Delaware 664
8 Kansas 1,103 8 Arizona 675
9 New York 1,097 9 Nevada 689
10 Connecticut 1,096 10 Iowa 713
(1) Includes policies written by Citizens Property Insurance Corp. (Florida) and Citizens Property Insurance Corp. (Louisiana), Alabama Insurance
Underwriting Association, Mississippi Windstorm Underwriting Association, North Carolina Joint Underwriting Association and South Carolina
Wind and Hail Underwriting Association. Other southeastern states have wind pools in operation and their data may not be included in this chart.
Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those
specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. In addition,
due to the Texas Windstorm Association (which writes wind-only policies) classifying HO-1, 2 and 5 premiums as HO-3, the average premium for
homeowners insurance is artificially high.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC
does not rank state average expenditures and does not endorse any conclusions drawn from this data.
Source: ©2013 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited
without written permission of NAIC.
Texas ranked as the 3rd most expensive state for homeowners insurance in 2011, with an average expenditure of $1,578.
64
Interest Rate on Convention 30-Year Mortgages: Up a Bit, 1990–2014*
*Monthly, through June 2014. Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.
0%
2%
4%
6%
8%
10%
12%
'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
Yields on 30-Year mortgages have been below 6% for a six years
Rising mortgage interest rates have impacted home sales but are unlikely to derail the recovery on housing
Mortgages rates plunged to near-record lows in early 2013 but rose as the Fed initiated tapering in its QE program, but have come down
a bit through mid-2014
64
65
Mortgage Interest Rates Were Expected to Continue to Rise as the Fed Pursued Tapering and the Economy Recovered; Rates Are
Still Low by Historical Standards
4.5
3%
4.5
1%
4.4
1%
4.3
9%
4.3
2%
4.2
3%
4.2
8%
4.3
3%
4.3
7%
4.2
8%
4.3
7%
4.3
2% 4
.40
%
4.4
1%
4.3
4%
4.2
7% 4.3
3%
4.2
9%
4.2
1%
4.2
0%
4.1
4%
4.1
2%
4.1
4%
3.9%
4.0%
4.1%
4.2%
4.3%
4.4%
4.5%
4.6%
03-J
an
10-J
an
17-J
an
24-J
an
31-J
an
07-F
eb
14-F
eb
21-F
eb
28-F
eb
07-M
ar
14-M
ar
21-M
ar
28-M
ar
04-A
pr
11-A
pr
18-A
pr
25-A
pr
02-M
ay
09-M
ay
16-M
ay
23-M
ay
30-M
ay
06-J
un
30-year mortgage rates are down nearly 40 basis points since
early January
30-Year Mortgages in 2014 Are Falling! What Will Be the Impact on Construction?
*Weekly through June 5, 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.; Insurance Information Institutes.
66
Commercial & Industrial Loans Outstandingat FDIC-Insured Banks, Quarterly, 2006-2013*
$1
.16
$1
.18
$1
.22
$1
.44
$1
.48
$1
.49
$1
.50
$1
.49
$1
.43
$1
.37
$1
.27
$1
.21
$1
.18
$1
.17
$1
.17
$1
.18
$1
.20
$1
.24
$1
.28 $1
.35
$1
.37
$1
.42
$1
.46
$1
.51
$1
.53
$1
.56
$1
.13
$1
.25
$1
.30
$1
.39
$1.0
$1.1
$1.2
$1.3
$1.4
$1.5
$1.6
06
:Q1
06
:Q2
06
:Q3
06
:Q4
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
;Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
Outstanding loan volume has been growing for over two yearsand (as of year-end 2012) surpassed previous peak levels.
*Latest data as of 9/8/2013.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
$TrillionsIn nominal dollar terms, this is an
all-time high.
Recession
67
Percent of Non-Current Commercial & Industrial Loans Outstanding at FDIC-Insured Banks,Quarterly, 2006-2013:Q2*
0.7
0%
0.7
4%
0.6
4%
0.6
7%
0.8
1%
1.0
7%
1.1
8% 1
.69
% 2.2
5% 2
.80
%
3.5
7%
3.4
3%
3.0
5%
2.8
3%
2.7
3%
2.4
4%
1.8
9%
1.6
5%
1.4
9%
1.2
9%
1.1
7%
1.0
9%
0.9
7%
0.8
8%
0.8
0%
0.7
4%
0.7
1%
0.6
3%
0.6
2%
0.6
3%
0%
1%
2%
3%
4%
06
:Q1
06
:Q2
06
:Q3
06
:Q4
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
;Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
Non-current loans (those past due 90 days or more or in nonaccrual status) are nearly back to early-recession levels, fueling bank willingness to lend.
*Latest data as of 9/8/2013.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
Almost back to “normal” levels of noncurrent
industrial & commercial loans
Recession
NFIB Small Business Optimism Index
January 1985 through July 2014
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 68
Small business optimism in July was nearly at its
level since the crisis began in Dec. 2007.
69
43
,69
4
48
,12
5
69
,30
0
62
,43
6
64
,00
4
71
,27
7
81
,23
5
82
,44
6
63
,85
3
63
,23
5
64
,85
3
71
,54
9
70
,64
3
62
,30
4
52
,37
4
51
,95
9
53
,54
9
54
,02
7
44
,36
7
37
,88
4
35
,47
2
40
,09
9
38
,54
0
35
,03
7
34
,31
7
39
,20
1
19
,69
5
28
,32
2
43
,54
6
60
,83
7
56
,28
2
47
,80
6
40
,07
5
33
,21
2
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
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
Business Bankruptcy Filings,1980-2013
Sources: American Bankruptcy Institute (1980-2012) at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013 data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2013 bankruptcies totaled 33,212, down 17.1% from 2012—the fourth
consecutive year of decline. Business bankruptcies more than tripled during
the financial crisis.
% Change Surrounding Recessions
1980-82 58.6%
1980-87 88.7%
1990-91 10.3%
2000-01 13.0%
2006-09 208.9%
69
50
.75
2.7 5
4.1
54
.65
4.8
53
.55
3.7
52
.8 53
.95
4.6 5
6 57
.15
9.4
59
.75
6.3
54
.45
3.3
53
.45
3.8
52
.65
2.6
52
.65
2.6
53
.05
6.8
56
.15
5.0
53
.75
4.1
52
.75
2.9 5
4.3 55
.25
4.8
54
.8 55
.75
5.2 56
.0
53
.15
3.7
52
.25
6.0
58
.65
4.4 55
.45
3.9
53
.0 54
.05
1.6 5
3.1
55
.2 56
.35
6.0
58
.7
54
.4
40
45
50
55
60
65
Ja
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-
10
No
v-1
0D
ec-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-
11
No
v-1
1D
ec-1
1Ja
n-1
2F
eb
-12
Ma
r-1
2A
pr-
12
Ma
y-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4Ju
l-1
4
ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through July 2014
Non-manufacturing industries have been expanding and adding jobs. This trend is likely to continue through 2014.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
Optimism among non-manufacturers has been
generally increasing in 2014
70
71
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)
CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK
72
The Construction Sector Is Critical to the Economy and the P/C Insurance Industry
72
73
Value of New Private Construction: Residential & Nonresidential, 2003-2014*
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 14*
Non Residential
Residential
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)
2014: Value of new pvt. construction hits $685.5B as of June 2014, up 37%
from the 2010 trough but still 25%
below 2006 peak
73
$261.8
$238.8
$329.5
$355.9
*2014 figure is a seasonally adjusted annual rate as of June.
Sources: US Department of Commerce; Insurance Information Institute.
74
Value of Construction Put in Place, June 2014 vs. June 2013*
-2.9%
-12.3%
-2.7%
5.5%
9.2%7.4%
11.2%
-15%
-10%
-5%
0%
5%
10%
15%
Total
Construction
Total Private
Construction
Residential--
Private
Non-
Residential--
Private
Total Public
Construction
Residential-
Public
Non-
Residential--
Public
Overall Construction Activity is Up, But Growth Is Almost Entirely in the Private Sector as State/Local Government Budget Woes Continue
Growth (%)
Private sector construction activity is up in the
residential and nonresidential segments
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +9.2% Public: -2.9%
Public sector construction activity remains depressed
75
Value of Private Construction Put in Place, by Segment, June 2014 vs. June 2013*
11.0%
-2.3%-4.5%
4.8%0.3%
-12.9%
22.7%
8.9%
3.1%
9.2% 7.4%11.2%
18.7%
28.6%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
To
tal
Pri
vate
Co
nstr
ucti
on
Resid
en
tial
To
tal
No
nre
sid
en
tial
Lo
dg
ing
Off
ice
Co
mm
erc
ial
Healt
h C
are
Ed
ucati
on
al
Reli
gio
us
Am
usem
en
t &
Rec.
Tra
nsp
ort
ati
on
Co
mm
un
icati
on
Po
wer/
Uti
lity
Man
ufa
ctu
rin
g
Private Construction Activity is Up in Many Segments, Including the Key Residential Construction Sector; Bodes Well for the Remainder of 2014
Growth (%) Led by the Office, Lodging and Power/Utility 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.
76
Value of Public Construction Put in Place, by Segment, June 2014 vs. June 2013*
-14.0%-6.4%-5.8%
14.8%8.2%
-8.5%
8.6%
-3.7%
48.7%
-2.7%-2.9%-12.3%
-2.7%-2.1%
-20.3%-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
To
tal
Pu
bli
c
Co
nstr
ucti
on
Resid
en
tial
To
tal
No
nre
sid
en
tial
Off
ice
Co
mm
erc
ial
Healt
h C
are
Ed
ucati
on
al
Pu
bli
c S
afe
ty
Am
usem
en
t &
Rec.
Tra
nsp
ort
ati
on
Po
wer
Hig
hw
ay &
Str
eet
Sew
ag
e &
Waste
Dis
po
sal
Wate
r S
up
ply
Co
nserv
ati
on
&
Develo
p.
Public Construction Activity is Down in Many Segments as State and Local Budgets Remain Under Stress; Improvement Possible in 2015.
Growth (%)
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Public sector construction activity is down substantially in many segments, a situation that will likely persist, dragging
on public entity risk exposures
Amusement & Recreation, Sewage & Waste Disposal and
Conservation projects lead public sector construction
77
Real (Inflation-Adjusted) Nonresidential Construction, 2000-2014*
*Through Q1 2014.
Source: US Dept. of Commerce; Wells Fargo Securities (June 6, 2014 research report).
Construction activity has generally been positive since late
2010 but has occasionally be
erratic. Forecast is for slowing
improving growth
(Bar = CAGR; Line = Y/Y Growth Rate)
78
Commercial & Industrial Loans Outstandingat FDIC-Insured Banks, Quarterly, 2006-2014:Q1
$1
.16
$1
.18
$1
.22
$1
.44
$1
.48
$1
.49
$1
.50
$1
.49
$1
.43
$1
.37
$1
.27
$1
.21
$1
.18
$1
.17
$1
.17
$1
.18
$1
.20
$1
.24
$1
.28 $1
.35
$1
.37
$1
.42
$1
.45
$1
.50
$1
.52
$1
.55
$1
.57
$1
.60
$1
.61
$1
.13
$1
.25
$1
.30 $
1.3
9
$1.0
$1.1
$1.2
$1.3
$1.4
$1.5
$1.6
$1.7
06
:Q1
06
:Q3
07
:Q1
07
:Q3
08
:Q1
08
:Q3
09
:Q1
09
:Q3
10
:Q1
10
:Q3
11
:Q1
11
:Q3
12
:Q1
12
:Q3
13
:Q1
13
:Q3
14
:Q1
Outstanding Commercial Loan Volume Has Been Growing for Over Two Years and Is Now Nearly Back to Early Recession Levels. Bodes Very Well for the Creation of Current and Future Commercial Insurance Exposures
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
$Trillions
Commercial lending plunged by 21.2% ($330B) during the financial crisis and ensuing
period of tight credit
Commercial lending activity exceeds pre-crisis levels (+36.75% or $430B above
mid-2010 trough)
79
Percent of Non-current Commercial & Industrial Loans Outstanding at FDIC-Insured Banks,Quarterly, 2006-2014:Q1
0.7
0%
0.7
4%
0.6
4%
0.6
7%
0.8
1%
1.0
7%
1.1
8% 1
.69
% 2.2
5% 2
.80
%
3.5
7%
3.4
3%
3.0
5%
2.8
3%
2.7
3%
2.4
4%
1.8
9%
1.6
5%
1.4
9%
1.2
9%
1.1
7%
1.0
9%
0.9
8%
0.8
8%
0.8
0%
0.7
4%
0.7
2%
0.6
2%
0.6
0%
0.7
1%
0.6
3%
0.6
2%
0.6
3%
0%
1%
2%
3%
4%
06
:Q1
06
:Q2
06
:Q3
06
:Q4
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
;Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
Non-current loans (those past due 90 days or more or in nonaccrual status) are below even pre-recession levels, fueling bank willingness to lend.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
Back to “normal” levels of noncurrent industrial
& commercial loans
Recession
80
Change from Peak in New Construction Expenditures to 2013*
-28.8%
-61.6%
-48.6%-50.2%
-19.9%
-11.8%-17.1%
-24.3%
-31.7%
-45.9%
-59.3%-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
All
Co
nstr
uctio
n
(20
06
)
Pvt.
Co
nstr
uctio
n
(20
06
)
To
tal
Re
sid
en
tia
l
(20
06
)
Ne
w H
ou
sin
g
(20
05
)
To
tal
No
nre
sid
en
tia
l
(20
08
)
Lo
dg
ing
(20
08
)
Offic
e (
20
08
)
Co
mm
erc
ial
(20
07
)
Ma
nu
factu
rin
g
(20
09
)
Oth
er
(20
08
)
Go
ve
rnm
en
t
(20
09
)
Despite Recent Improvements, Construction Activity (and Employment) Remains Far Below Pre-Crisis Peaks
Change (%)
Note: Year in parentheses is the year of peak expenditure.
*2013 figure is a seasonally adjusted annual rate as of June.
Sources: US Department of Commerce; Insurance Information Institute.
Residential Nonresidential Govt.
81
$314.9$304.0
$286.4 $279.0 $271.4 $267.0
$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 April; 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 $47.9B or
15.2% since 2009 peak
82
(Millions of Units)
New Private Housing Starts, 1990-2019F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
1
0.5
5
0.5
9
0.6
1 0.7
8 0.9
2
1.0
1 1.2
0
1.4
4
1.5
0
1.5
1
1.5
0
1.3
51.4
6
1.2
9
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 (8/14 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
83
Construction Employment,Jan. 2010—June 2014*
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,5
81
5,5
22
5,5
42
5,5
54
5,5
27
5,5
12
5,4
97
5,5
19
5,4
99
5,5
01
5,4
97
5,4
68
5,4
35 5,4
78
5,4
85
5,4
97
5,5
24
5,5
30
5,5
47
5,5
46
5,5
83
5,5
76
5,5
77
5,6
12
5,6
29
5,6
44
5,6
40
5,6
36
5,6
15
5,6
22
5,6
27
5,6
30
5,6
33
5,6
49
5,6
73
5,7
11
5,7
35 5,7
83
5,7
99
5,7
92
5,7
91
5,8
01
5,8
04
5,8
05
5,8
22
5,8
30
5,8
49
5,8
76 5,9
27
5,9
27
5,9
64
6,0
00
6,0
09
6,0
15
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
Ja
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-
10
No
v-1
0D
ec-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-
11
No
v-1
1D
ec-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
2O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4
Construction employment is +580,000 above
Jan. 2011 (+10.7%) trough
(Thousands)
Construction and manufacturing employment constitute 1/3 of all payroll exposure.
84
Construction Employment, Jan. 2003–June 2014
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Could Be a Growth Leader in 2014 as the Housing Market, Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Construction employment troughed at 5.435 million in
Jan. 2011, after a loss of 2.291 million jobs, a 29.7% plunge
from the April 2006 peak
84
Construction employment
peaked at 7.726 million in April 2006
(Thousands)Construction
employment as of June 2014 totaled 6.0 million, an increase of 580,000 jobs or
10.7% from the Jan. 2011 trough
Gap between pre-recession
construction peak and today: 1.7 million jobs
85
Construction Jobs: Largest Gains & Losses by Metro Area, May 2014 vs. May 2013*
-4,200-2,800
-2,000 -1,700 -1,200
11,100
9,300
7,300 7,200 7,100
(6,000)
(4,000)
(2,000)
0
2,000
4,000
6,000
8,000
10,000
12,000
Da
lla
s
Lo
s
An
ge
les
Ho
usto
n
Sa
nta
An
a/
An
ah
eim
Atla
nta
Be
the
sd
a/
Ro
ckville
,
MD
Ga
ry, IN
Vir
gin
ia
Be
ach
Ne
wa
rk
Ro
ch
este
r,
NY
Construction Employment Is Expanding—Albeit Modestly—in Much of the US
Change
Construction employment expanded in 218 out of the 339 metro areas in the US
in May 2014
*Seasonally adjusted; Source: Associated General Contractors: http://www.agc.org/galleries/news/Metro_Empl_1404_Rank.pdf; Ins. Information Institute.
Largest Increases Largest Losses+10%
+4%
Florida Total Private Housing Starts,2000 – 2017F
86
The economic outlook for most of
the US is positive for the first time in many
years
Source: University of Central Florida Institute for Economic Competitiveness: http://iec.ucf.edu/post/2014/01/07/Florida-Metro-Forecast-December-2013.aspx
CRASH, CRATER, RECOVERYHomebuilding in FL continues
to recover, adding substantially to coastal exposures.
(Thousands of Units)
87
Interest Rate on Convention 30-Year Mortgages: Up a Bit, 1990–2014*
*Monthly, through May 2014. Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.
0%
2%
4%
6%
8%
10%
12%
'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
Yields on 30-Year mortgages have been below 6% for a six years
Rising mortgage interest rates have impacted home sales but are unlikely to derail the recovery on housing
Mortgages rates plunged to near-record lows in early 2013 but rose as the Fed initiated tapering in its
QE program
87
88
Mortgage Interest Rates Were Expected to Continue to Rise as the Fed Pursued Tapering and the Economy Recovered; Rates Are
Still Low by Historical Standards
4.5
3%
4.5
1%
4.4
1%
4.3
9%
4.3
2%
4.2
3%
4.2
8%
4.3
3%
4.3
7%
4.2
8%
4.3
7%
4.3
2% 4
.40
%
4.4
1%
4.3
4%
4.2
7% 4.3
3%
4.2
9%
4.2
1%
4.2
0%
4.1
4%
4.1
2%
4.1
4%
3.9%
4.0%
4.1%
4.2%
4.3%
4.4%
4.5%
4.6%
03-J
an
10-J
an
17-J
an
24-J
an
31-J
an
07-F
eb
14-F
eb
21-F
eb
28-F
eb
07-M
ar
14-M
ar
21-M
ar
28-M
ar
04-A
pr
11-A
pr
18-A
pr
25-A
pr
02-M
ay
09-M
ay
16-M
ay
23-M
ay
30-M
ay
06-J
un
30-year mortgage rates are down nearly 40 basis points since
early January
30-Year Mortgages in 2014 Are Falling! What Will Be the Impact on Construction?
*Weekly through June 5, 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.; Insurance Information Institutes.
89
New Home Inventories and Rental Vacancy Rates, 2003-2013*
370
422
511536
497
353
234
190
151 150 161
8.2%
8.7%9.5%
10.2%10.6%
10.0%
9.7%9.7%9.8%
10.2%
9.8%
0
100
200
300
400
500
600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
Inv
en
tory
of
Ho
me
s f
or
Sa
le
0%
2%
4%
6%
8%
10%
12%
Va
ca
nc
y R
ate
for R
en
tal H
ou
sin
g
(Thousands)
Low new home inventories and falling vacancy rates bode well
for residential construction
*2013 figure is a seasonally adjusted annual rate as of June.
Sources: US Department of Commerce; Insurance Information Institute.
90
Change from Peak in New Construction Expenditures to 2013*
-28.8%
-61.6%
-48.6%-50.2%
-19.9%
-11.8%-17.1%
-24.3%
-31.7%
-45.9%
-59.3%-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
All
Co
nstr
uctio
n
(20
06
)
Pvt.
Co
nstr
uctio
n
(20
06
)
To
tal
Re
sid
en
tia
l
(20
06
)
Ne
w H
ou
sin
g
(20
05
)
To
tal
No
nre
sid
en
tia
l
(20
08
)
Lo
dg
ing
(20
08
)
Offic
e (
20
08
)
Co
mm
erc
ial
(20
07
)
Ma
nu
factu
rin
g
(20
09
)
Oth
er
(20
08
)
Go
ve
rnm
en
t
(20
09
)
Despite Recent Improvements, Construction Activity (and Employment) Remains Far Below Pre-Crisis Peaks
Change (%)
Note: Year in parentheses is the year of peak expenditure.
*2013 figure is a seasonally adjusted annual rate as of June.
Sources: US Department of Commerce; Insurance Information Institute.
Residential Nonresidential Govt.
ENERGY SECTOR: OIL & GAS INDUSTRY FUTURE IS BRIGHT
91
US Is Becoming an Energy Powerhouse; Domestic Demand
and Exports Are Key
Need Infrastructure Investment91
20.2 19.9 20.019.5
18.919.4
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
5.19 5.08 5.005.35 5.47 5.65
6.49
7.44
8.37
9.13
5.09
0
1
2
3
4
5
6
7
8
9
10
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F
U.S. Crude Oil Production, 2005-2015P
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
Millions of Barrels per Day
Crude oil production in the U.S. is expected to increase by 82.6% from 2008 through 2015—and could overtake
Saudi Arabia as the world’s largest oil producer
94
Oil & Gas Extraction Employment,Jan. 2010—June 2014*
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.4
156.4
156.7
157.6
158.7
157.8
158.0
159.5
160.0
161.5
161.2
161.2
163.1
164.4
166.6
169.3
170.1
171.0
172.5
173.6
176.3
178.2
178.5
180.9
181.9
183.1
184.8
185.2
185.7
186.8
187.6
188.0
188.0
188.2
190.0
191.7
191.9
193.4
192.4
192.6
193.1
193.3
195.0
196.5
199.7
200.6
203.0
204.1
205.3
207.8
207.5
207.9
210.2
211.5
150
160
170
180
190
200
210
220
Ja
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-
10
No
v-1
0D
ec-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-
11
No
v-1
1D
ec-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4
Oil and gas extraction employment is up 35.2% 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
354.8
523.9
629.8
729.2
819.6
406.0
0
100
200
300
400
500
600
700
800
900
1990 2000 2010 2020P 2030P 2040P
World Primary Energy Consumption, 1990-2040P
Source: Energy Information Administration, 2013 International Energy Outlook, Insurance Information Institute.
Between 2010 and 2040, energy consumption in projected to increase by
56.4% worldwide
Quadrillion BTUs
Growth in worldwide energy consumption will
create more risk and vulnerabilities (natural and manmade); Innovations in
risk management and insurance are needed.
Biofuels,
$0.3 , 1%
Oil, $10.1 ,
27%
Natural
Gas, $9.5 ,
25%
Power,
$16.9 , 44%
Coal, $1.1 ,
3%
Projected energy infrastructure investment
through 2035 total $38 trillion; Implies substantial
incurrence of risk.
Cumulative Projected Investment in Global Energy Infrastructure, 2011-2035 ($ Trill.)
Source: International Energy Agency, World Energy Outlook 2011.
97
US Electric Power Generation by Fuel Source, 2010-2035F (Billions of Kilowatt Hours)
3225 26 26 27 27
776903 874 882 983 1,074
807830 887
917914
887390 504 544
579594
630
1,7991,531 1,604 1,710 1,757 1,803
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2010 2015 2020 2025 2030 2035
Coal Petroleum Natural Gas Nuclear Renewable Other
Source: US Energy Information Administration, Annual Energy Outlook 2012, Appendix A7.
Demand for Electricity Is Expected to Grow at a 0.6% Annual Rate Through 2035. Renewables and Natural Gas Will Account for an Increasing Share of Fuel Source
3,806 3,796 3,9374,118 4,279 4,427
98
U.S. Electricity Generation by Fuel,1990-2040F (Trillions of Kilowatt Hours)
Source: US Energy Information Administration, 2014 Annual Energy Outlook Early Release Overview; Insurance Information Institute.
Natural gas share of fossil fired
generation will grow rapidly (more
investment needed). Coal fired
generation will remain flat but its share will fall due to abundant gas and EPA carbon
regulations
99
US Natural Gas Production and Non-Hydro Renewable Electricity Generation, 1990-2035P
Source: US Energy Information Administration, Annual Energy Outlook 2011; Insurance Information Institute.
Shale gas production is expected to grow rapidly in the US
Wind is expected to account for the majority of renewable
electricity generation
Tight gas production involves controversial
hydraulic fracturing (fracking) techniques
100
U.S. Private Power Construction,2000-2014* (% Change, 3-Month Moving Avg.)
*Through April 2014.
Source: US Dept. of Commerce; Energy Information Administration, Wells Fargo Securities (June 6, 2014 research report).
Power construction accounts for a large share of all construction activity. The
recent slowdown was in part due to the expiration of renewable production tax credits. Going forward, about 75% of
new capacity will be for gas fired plants
MANUFACTURING SECTOR OVERVIEW & OUTLOOK
101
The U.S. Is Experiencing a Mini Manufacturing Renaissance That
Is Benefitting the US Economy and the P/C Insurance Industry
101
102
Manufacturing Growth for Selected Sectors, 2014 vs. 2013*
1.8%
-0.8%
4.8%4.1%
0.9%
5.7%
-1.7%-1.0%
3.1%
-0.7%
2.3%
3.9%
7.9%
4.5%
1.8%
-4%
-2%
0%
2%
4%
6%
8%
10%
All
Ma
nu
factu
rin
g
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ry
Me
tals
Fa
bri
ca
ted
Me
tals
Ma
ch
ine
ry
Ele
ctr
ica
l
Eq
uip
.
Co
mp
ute
rs &
Ele
ctr
on
ics
Tra
nsp
ort
atio
n
Eq
uip
.
No
n-D
ura
ble
Mfg
.
Fo
od
Pro
du
cts
Pe
tro
leu
m &
Co
al
Ch
em
ica
l
Pla
stics &
Ru
bb
er
Te
xtile
Pro
du
cts
Manufacturing Is Expanding—Albeit Slowly—Across a Number of Sectors that Will Contribute to Growth in Insurable Exposures Including: WC, Commercial
Property, Commercial Auto and Many Liability Coverages
Growth (%)
Manufacturing of durable goods was stronger than
nondurables in 2013
*Seasonally adjusted; Date are YTD comparing data through May 2014 to the same period in 2013.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Durables: +3.9% Non-Durables: +0.9%
103
$200,000
$300,000
$400,000
$500,000
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan 01
Jan 02
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
12-Jan
13-Jan
14-Jan
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Apr. 2014
* Seasonally adjusted; Data published June 3, 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments in Apr. 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
103
The value of Manufacturing Shipments in Apr. 2014 was $497.6B—a new record high.
104
Manufacturing Employment,Jan. 2010—June 2014*
11,4
60
11,4
60
11,4
66
11,4
97
11,5
31
11,5
39
11,5
58
11,5
48
11,5
54
11,5
55
11,5
77
11,5
90
11,6
24
11,6
62
11,6
82
11,7
07
11,7
15
11,7
24
11,7
47
11,7
60
11,7
62
11,7
70
11,7
69
11,7
97
11,8
41
11,8
70
11,9
10
11,9
20
11,9
26
11,9
35
11,9
57
11,9
43
11,9
25
11,9
31
11,9
38
11,9
51
11,9
65
11,9
88
11,9
84
11,9
77
11,9
72
11,9
65
11,9
48
11,9
63
11,9
93
12,0
11
12,0
46
12,0
53
12,0
61
12,0
81
12,0
85
12,0
94
12,1
05
12,1
21
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-
10
No
v-1
0D
ec-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-
11
No
v-1
1D
ec-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4
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 (+661,000 or +5.8%)and still growing.
58.3
57.1
60.4
59.6
57.8
55.3
55.1
55.2
55.3 5
6.9 58.2
58.5
60.8
61.4
59.7
59.7
54.2 5
5.8
51.4 52.5
52.5
51.8
52.2 53.1 54.1
51.9 5
3.3 54.1
52.5
50.2
50.5
50.7 51.6
51.7
49.9
50.2
53.1 54.2
50.7
49.050.9
55.4
55.7
56.2
56.4
57.0
56.5
51.3 5
3.2
53.7 54.9
55.4
55.3 5
7.1
51.3
40
45
50
55
60
65
Ja
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-
10
No
v-1
0D
ec-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-
11
No
v-1
1D
ec-1
1Ja
n-1
2F
eb
-12
Ma
r-1
2A
pr-
12
Ma
y-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4Ju
l-1
4
ISM Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through July 2014
The manufacturing sector expanded for 53 of the 55 months from Jan. 2010 through July 2014. Pace of recovery has been uneven due to
economic turbulence in the U.S., Europe and China.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
Manufacturing continues to expand in 2014
105
106
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.
66%
68%
70%
72%
74%
76%
78%
80%
82%
Mar
01
Jun 0
1
Sep
Dec
Mar
02
Jun 0
2
Sep
Dec
Mar
03
Jun 0
3
Sep
Dec
Mar
04
Jun 0
4
Sep
Dec
Mar
05
Jun 0
5
Sep
Dec
Mar
06
Jun 0
6
Sep
Dec
Mar
07
Jun 0
7
Sep
Dec
Mar
08
Jun 0
8
Sep
Dec
Mar
09
Jun 0
9
Sep
Dec
Mar
10
Jun 1
0
Sep
Dec
Mar
11
Jun 1
1
Sep
Dec
Mar
12
Jun 1
2
Sep
Dec
Mar
13
Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 107
Percent of Industrial Capacity
Hurricane Katrina
March 2001-November 2001
recession
“Full Capacity”
The closer the economy is to operating at “full
capacity,” the greater the inflationary pressure
The US operated at 77.8% of industrial capacity in Apr. 2013, well above the June
2009 low of 66.9% but is still below pre-recession levels.
December 2007-June 2009 Recession
March 2001 through April 2013
107
108
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
108
109
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 6.1% in June 2014. 4% to 6% is
“normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through June 2014, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.
109
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 12.1%
in Apr. 2014.8% to 10% is
“normal.”
110
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%
6.2
%6
.2%
6.0
%5
.9%
5.8
%5
.7%
5.6
%
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; = forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (7/14 edition); Insurance Information Institute.
2007:Q1 to 2015:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 5.8% by Q4 of this year.
Jobless figures have been revised
modestly downwards for 2014/15
111
Unemployment Rates by State, May 2014:Highest 25 States*
8.2
7.9
7.7
7.7
7.6
7.5
7.5
7.5
7.2
6.9
6.9
6.8
6.8
6.8
6.7
6.6
6.5
6.4
6.4
6.4
6.4
6.3
6.3
6.3
6.1
5.9
5.8
0
2
4
6
8
10
RI
NV
KY
MS
CA
DC IL M
IG
ACT
OR A
L AZ
NJ
NY
MO
NM A
KAR
NC TN U
S FLW
VW
ADE
CO
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for May 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In May, 20 states had over-the-month unemployment rate decreases, 16
states had increases, and 14 states and the District of Columbia had no
change.
112
5.7
5.7
5.7
5.6
5.6
5.6
5.5
5.3
5.1
5.1
4.9
4.9
4.8
4.6
4.6
4.6
4.4
4.4
4.4
3.8
3.8
3.6
3.6
3.3
2.6
0
1
2
3
4
5
6
IN ME WI MA MD PA OH SC TX VA ID LA KS MN MT OK HI IA NH SD WY NE UT VT ND
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, May 2014:
Lowest 25 States*
*Provisional figures for May 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In May, 20 states had over-the-month unemployment rate decreases, 16
states had increases, and 14 states and the District of Columbia had no
change.
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
19
91
49
94
72
22
32
313
20
16
61
86
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
24
72
72
86
16
62
01
20
0 27
82
24
26
2
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan-0
7F
eb-0
7M
ar-
07
Apr-
07
May-0
7Jun-0
7Jul-07
Aug-0
7S
ep-0
7O
ct-
07
Nov-0
7D
ec-0
7Jan-0
8F
eb-0
8M
ar-
08
Apr-
08
May-0
8Jun-0
8Jul-08
Aug-0
8S
ep-0
8O
ct-
08
Nov-0
8D
ec-0
8Jan-0
9F
eb-0
9M
ar-
09
Apr-
09
May-0
9Jun-0
9Jul-09
Aug-0
9S
ep-0
9O
ct-
09
Nov-0
9D
ec-0
9Jan-1
0F
eb-1
0M
ar-
10
Apr-
10
May-1
0Jun-1
0Jul-10
Aug-1
0S
ep-1
0O
ct-
10
Nov-1
0D
ec-1
0Jan-1
1F
eb-1
1M
ar-
11
Apr-
11
May-1
1Jun-1
1Jul-11
Aug-1
1S
ep-1
1O
ct-
11
Nov-1
1D
ec-1
1Jan-1
2F
eb-1
2M
ar-
12
Apr-
12
May-1
2Jun-1
2Jul-12
Aug-1
2S
ep-1
2O
ct-
12
Nov-1
2D
ec-1
2Jan-1
3F
eb-1
3M
ar-
13
Apr-
13
May-1
3Jun-1
3Jul-13
Aug-1
3S
ep-1
3O
ct-
13
Nov-1
3D
ec-1
3Jan-1
4F
eb-1
4M
ar-
14
Apr-
14
May-1
4Jun-1
4
Monthly Change in Private Employment
January 2007 through June 2014 (Thousands, Seasonally Adjusted)
Private Employers Added 9.67 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
262,000 private sector jobs were
created in June. In March 2014, the last of the private jobs lost in the Great Recession were
recovered
113
Jobs Created
2013: 2.368 Mill
2012: 2.294 Mill
2011: 2.400 Mill
2010: 1.277 Mill
1,331,000 jobs created so far
in 2014
0.0
55
0.0
58
-0.0
57
-0.1
63
-0.3
84
-0.5
99
-0.8
05
-1.0
66
-1.3
24
-1.7
46
-2.2
32
-3.0
08
-3.7
01
-4.5
22
-5.2
20
-6.0
30
-6.8
31
-7.1
25
-7.5
51
-7.8
23
-8.0
55
-8.1
96
-8.4
67
-8.4
82
-8.7
14
-8.6
94
-8.7
32
-8.6
19
-8.4
27
-8.3
33
-8.2
23
-8.1
03
-7.9
86
-7.8
79
-7.6
80
-7.5
31
-7.4
37
-7.3
65
-6.9
11
-6.5
91
-6.4
25
-6.2
39
-6.0
20
-5.8
95
-5.6
27
-5.4
50
-5.2
59
-5.0
37
-4.6
73
-4.4
45
-4.1
99
-4.0
97
-3.9
66
-3.8
91
-3.7
19
-3.5
83
-3.4
24
-3.1
69
-2.9
58
-2.7
43
-2.5
24
-2.2
61
-2.0
97
-1.9
09
-1.6
87
-1.4
86
-1.3
16
-1.1
36
-0.9
83
-0.7
36
-0.4
64
-0.3
78
-0.2
12
-0.0
11
0.1
89
0.4
59
0.6
75
-7.1
42
-10
-8
-6
-4
-2
0
2
De
c-0
7
Ap
r-0
8
Au
g-0
8
De
c-0
8
Ap
r-0
9
Au
g-0
9
De
c-0
9
Ap
r-1
0
Au
g-1
0
De
c-1
0
Ap
r-1
1
Au
g-1
1
De
c-1
1
Ap
r-1
2
Au
g-1
2
De
c-1
2
Ap
r-1
3
Au
g-1
3
De
c-1
3
Ap
r-1
4
Millio
ns
Cumulative Change in Private Employment: Dec. 2007—May 2014
December 2007 through May 2014 (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job losses peaked at 8.765 million
in February 2010
It took more than 6 ½ years (79 months) to
recover all of the private sector jobs lost in the Great Recession
114
Private Employers Added 9.39 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Pvt. employment hit 116.6 million in April 2014—
617,000 above its pre-crisis peak of 116.0 million
0.0
20
-0.0
18
0.0
95
0.2
87
0.3
81
0.4
91
0.6
11
0.7
28
0.8
35
1.0
34
1.1
83
1.2
77
1.3
49
1.5
72
1.8
03
2.1
23
2.2
89
2.4
75
2.6
94
2.8
19
3.0
87
3.2
64
3.4
55
3.6
77
4.0
41
4.2
69
4.5
15
4.6
17
4.7
48
4.8
23
4.9
95
5.1
31
5.2
90
5.5
45
5.7
56
5.9
71
6.1
90
6.4
53
6.8
05
7.0
27
7.2
28
7.3
98
7.5
78
7.7
31
7.9
78
8.2
50
8.3
36
8.5
02
8.7
03
8.9
03
9.1
73
9.3
89
6.6
17
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan-1
0F
eb-1
0M
ar-
10
Apr-
10
May-1
0Jun-1
0Jul-10
Aug-1
0S
ep-1
0
Oct-
10
Nov-1
0D
ec-1
0Jan-1
1
Feb-1
1M
ar-
11
Apr-
11
May-1
1Jun-1
1
Jul-11
Aug-1
1S
ep-1
1O
ct-
11
Nov-1
1D
ec-1
1Jan-1
2F
eb-1
2
Mar-
12
Apr-
12
May-1
2Jun-1
2Jul-12
Aug-1
2S
ep-1
2O
ct-
12
Nov-1
2
Dec-1
2Jan-1
3F
eb-1
3M
ar-
13
Apr-
13
May-1
3Jun-1
3Jul-13
Aug-1
3
Sep-1
3O
ct-
13
Nov-1
3D
ec-1
3Jan-1
4
Feb-1
4M
ar-
14
Apr-
14
May-1
4
Cumulative Change in Private Sector Employment: Jan. 2010—May 2014
(Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job gains through Apr. 2014
totaled 9.39 million
115
Job gains and pay
increases have added more
than $1 trillion in new
payrolls since 2009 trough
Private Employers Added 9.39 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
116
Net Change in Government Employment: Jan. 2010—Apr. 2014
-611
-380
-79
-152
-700
-600
-500
-400
-300
-200
-100
0
Total Local State Federal
(Thousands)
Local government employment shrank by 380,000 from Jan.
2010 through Apr. 2014, accounting for 62% of all government job losses,
negatively impacting WC exposures for those cities and counties that insure privately
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
State government employment fell by 1.5% since the end of 2009 but is
recovering while Federal employment is down by 5.3% and deteriorating
4-1
033 9
2511
287
98
-68
-224
-184
-194
-213
-224
-271
-289
-288
-356
-324
-452
-449
-480
-488
-511
-530
-542
-536
-539
-547
-574
-565
-589
-555
-535
-592
-601
-606
-622
-609
-610
-621
-643
-654
-623
-616
-633
-618
-631
-621
-800
-600
-400
-200
0
200
400
600
Jan-1
0
Feb-1
0
Mar-
10
Apr-
10
May-1
0
Jun-1
0
Jul-10
Aug-1
0
Sep-1
0
Oct-
10
Nov-1
0
Dec-1
0
Jan-1
1
Feb-1
1
Mar-
11
Apr-
11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oct-
11
Nov-1
1
Dec-1
1
Jan-1
2
Feb-1
2
Mar-
12
Apr-
12
May-1
2
Jun-1
2
Jul-12
Aug-1
2
Sep-1
2
Oct-
12
Nov-1
2
Dec-1
2
Jan-1
3
Feb-1
3
Mar-
13
Apr-
13
May-1
3
Jun-1
3
Jul-13
Aug-1
3
Sep-1
3
Oct-
13
Nov-1
3
Dec-1
3
Cumulative Change in Government Employment: Jan. 2010—Dec. 2013
January 2010 through Dec. 2013* (Millions)
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Cumulative job losses through Dec. 2013 totaled 631,000
117
Governments at All Levels are Under Severe Fiscal Strain As Tax Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Government at all levels has
shed more than 600,000 jobs
since Jan. 2010 even as private
employers created 8.14 million
jobs, though losses may now
be stabilizing.
Temporary Census hiring distorted 2010
figures
118
Oil & Gas Extraction Employment,Jan. 2010—June 2014*
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.4
156.4
156.7
157.6
158.7
157.8
158.0
159.5
160.0
161.5
161.2
161.2
163.1
164.4
166.6
169.3
170.1
171.0
172.5
173.6
176.3
178.2
178.5
180.9
181.9
183.1
184.8
185.2
185.7
186.8
187.6
188.0
188.0
188.2
190.0
191.7
191.9
193.4
192.4
192.6
193.1
193.3
195.0
196.5
199.7
200.6
203.0
204.1
205.3
207.8
207.5
207.9
210.2
211.5
150
160
170
180
190
200
210
220
Ja
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-
10
No
v-1
0D
ec-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-
11
No
v-1
1D
ec-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4
Oil and gas extraction employment is up 35.2% 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
119
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2014:Q1
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,5000
5:Q
1
05
:Q2
05
:Q3
05
:Q4
06
:Q1
06
:Q2
06
:Q3
06
:Q4
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
Prior Peak was 2008:Q1 at $6.60 trillion
Latest (2014:Q1) was $7.29 trillion, a new peak--$1.04 trillion above 2009 trough
Recent trough (2009:Q3) was $6.25 trillion, down
5.3% from prior peak
Payrolls are 16.6% above
their 2009 trough and up 3.6% over
the past year
119
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
120
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2013P
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2013 actuals.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow Again in 2014; +8.6% Growth Estimated for 2013
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
Workers Compensation Operating Environment
121
Workers Comp Results Have Improved Substantially in Recent Years
121
Workers Compensation Combined Ratio: 1994–2015F
10
2.0
97
.0 10
0.0
10
1.0
11
2.6
10
8.6
10
5.1
10
2.7
98
.5
10
3.5
10
4.5 1
10
.6 11
5.0
11
5.0
10
8.0
10
1.0
99
.0
98
.0
12
1.7
10
7.0
11
5.3
11
8.2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E14F 15F
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-2010/11 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2009); NCCI (2010-2013P) and are for private carriers only; Insurance Information Institute (2014-15).122
WC results have improved markedly
since 2011
Workers Compensation Premium: Third Consecutive Year of IncreaseNet Written Premium
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2
31.134.7
37.8 38.6 37.633.8
30.3 29.932.3
35.137.0
35.3 35.734.3
35.433.6
30.128.5
26.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.6 33.8
36.4
39.641.9
0
10
20
30
40
50
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
State Funds ($ B)
Private Carriers ($ B)
Pvt. Carrier NWP growth was +5.4% in 2013 and
8.7% in 2012
$ Billions
Calendar Yearp Preliminary
Source: 1990–2013p Private Carriers, Annual Statement Data, NCCI.
1996–2013p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
124
2013 Workers Compensation Direct Written Premium Growth, by State*
PRIVATE CARRIERS: Overall 2013 Growth = +5.4%
*Excludes monopolistic fund states (in white): OH, ND, WA and WY.
Source: NCCI.
While growth rates varied widely, all states
experienced positive growth in 2013
Workers Compensation Lost-Time Claim Frequency Declined in 2013Lost-Time Claims
125
-4.2 -4.4
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5 -4.1 -3.7
-6.6
-4.5
-2.2
-4.3
-5.7
11
-4
-6.1
-2.0
3.5
-1.0
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13P
Indicated
Adjusted
Frequency Change: 2007—2012
Contracting: 7.97.1 -9.3%
Manufacturing: 13.612.0 -11.8%
Percent
Accident Year*Adjustments primarily due to significant audit activity.
2013p: Preliminary based on data valued as of 12/31/2013
1991–2012: Based on data through 12/31/2012, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policies
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
Source: NCCI.
Cumulative Change of –55.4%
(1991–2011 adj.)
Workers Compensation Medical SeverityModerate Increase in 2013
126
Accident Year
Annual Change 1991–1993: +1.9%
Annual Change 1994–2001: +8.9%
Annual Change 2002–2010: +6.0%
Average Medical Cost per Lost-Time ClaimMedical
Claim Cost ($000s)
$8
.1
$8
.2
$8
.1
$8
.8
$9
.1
$9
.8
$1
0.8
$11
.7
$1
2.9
$1
3.9
$1
5.7
$1
7.1
$1
8.4
$1
9.4
$2
1.0
$2
2.2
$2
3.5
$2
5.1
$2
6.1
$2
6.4
$2
7.1
$2
7.9
$2
8.8
+6.8%+1.3%-2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%
+10.6%+7.3%
+13.5%
+8.8%
+7.7%+5.4%
+7.8%
+5.8%
+6.1%
+6.8%+4.0%+1.2%
+2.6%+3.0%
+3%
5
10
15
20
25
30
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13p
2013p: Preliminary based on data valued as of 12/31/2013.
1991-2012: Based on data through 12/31/2012, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Cumulative Change = 256%
(1991-2013p)
Annual Change 1991–1993: +1.9%
Annual Change 1994–2001: +8.9%
Annual Change 2002–2013: +5.2%
Accident Year
127
U.S. Insured Catastrophe Loss Update
2013 Was a Welcome Respite from the
High Catastrophe Losses in Recent Years
2014 Is Off to a Modest Beginning
127
128
$1
2.8
$1
1.1
$3
.8
$1
4.5
$1
1.7
$6
.2
$3
5.2
$7
.7
$1
6.5
$3
4.2
$7
4.5
$1
0.7
$7
.6
$2
9.6
$1
1.6
$1
4.6
$3
4.1
$3
5.5
$1
2.9
$9
.1$1
4.2
$4
.9
$8
.1
$3
8.3
$8
.9
$2
6.8
$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 14*
U.S. Insured Catastrophe Losses
*Through 6/30/14.
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.
2013 Was a Welcome Respite from 2012, the 3rd
Costliest Year for Insured Disaster Losses in US History. Longer-term Trend is for more—not
fewer—Costly Events
2012 was the 3rd most expensive year ever for
insured CAT losses
$9.1 billion in insured CAT
losses through June 30
($ Billions, $ 2013)
128
129
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
1.42
.01
.32
.00
.50
.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
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of theCombined 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
130
Top 8 States for InsuredCatastrophe Losses, 2013
$1,995
$1,509
$907$845
$773 $762
$661$593
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Oklahoma Texas Colorado Minnesota Nebraska Georgia Illinois Louisiana
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
$ Millions
Oklahoma led the US with nearly $2 billion
in insured CAT losses in 2013
131
$9,756
$6,369
$2,318$1,511 $1,440
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
New York New Jersey Texas Kentucky Colorado
*Includes catastrophe losses of at least $25 million.
Sources: PCS unit of ISO; Insurance Information Institute.
Top 5 States by Insured Catastrophe Losses in 2012*
Texas is almost always one of the
top 5 states for insured CAT losses
(2012, $ Billions)
132
Top States by Inflation-Adjusted Insured Catastrophe Losses, 1983–2012
9.0%
10.4%
14.3%
66.3%
Source: PCS unit of ISO, Verisk Company.; Insurance Information Institute.
Over the Past 30 Years Florida Has Accounted for the Largest Share of Catastrophe Losses in the U.S., Followed by Texas and Louisiana
Rest of the U.S.$309.9BFlorida
$66.7B
Texas$48.8B
Louisiana$42.0B
Total: $467.5 Billion, an average of
$16.6B per year or $1.3B per month
TX is the 2nd
costliest state for CATs, with nearly $50B in insured losses
over the past 30 years
133
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1994–20131
0.1%
1.4%
3.8%4.8%
6.4%
6.4%
36.0%
41.1%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2013 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.
Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $159.1
Fires (4), $5.5
Events Involving Tornadoes (2), $139.3
Winter Storms, $24.7
Terrorism, $24.8
Geological Events, $18.4
Wind/Hail/Flood (3), $14.6
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 $386.7B, an average of $19.3B per year or $1.6B
per month
134
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2013 Dollars, $ Billions)
$7.9 $8.8 $9.3 $11.2$13.6
$19.0$24.2 $24.9$25.9
$49.4
$7.6$7.2$6.8$5.7$5.6$4.5
$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 Ike and other storms have hot TX hard over the past
decade
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
Sources: PCS; Insurance Information Institute inflation adjustments to 2013 dollars using the CPI.
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 135
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
136
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
137
Top 16 Most Costly World Insurance Losses, 1970-2013*
(Insured Losses, 2013 Dollars, $ Billions)
*Figures do not include federally insured flood losses.
Sources: Munich Re; Swiss Re; Insurance Information Institute research.
$11.2$13.6 $13.6$13.6
$19.0$24.2 $24.9$25.9
$39.1
$49.4
$7.9 $8.2 $8.7 $8.8 $9.3 $9.7
$0
$10
$20
$30
$40
$50
$60
Hugo
(1989)
Winter
Storm
Daria
(1991)
Chile
Quake
(2010)
Ivan
(2004)
Charley
(2004)
Typhoon
Mirielle
(1991)
Wilma
(2005)
Thailand
Floods
(2011)
New
Zealand
Quake
(2011)
Ike
(2008)
Sandy
(2012)
Northridge
(1994)
WTC
Terror
Attack
(2001)
Andrew
(1992)
Japan
Quake,
Tsunami
(2011)**
Katrina
(2005)
5 of the top 14 most expensive catastrophes in
world history have occurred within the most recent 4
years (2010-2013)
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
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 138
Geophysical events
(earthquake, tsunami, volcanic activity)
Meteorological events
(storm)
Hydrological events
(flood, mass movement)
Climatological events
(extreme temperature, drought, wildfire)
Extraterrestrial events
(Meteorite impact)
880
Loss 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, tornadoesUSA, 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
FebruaryFlash 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
Geophysical
(earthquake, tsunami,
volcanic activity)
Climatological
(temperature extremes,
drought, wildfire)
Meteorological (storm)
Hydrological
(flood, mass movement)
Natural Disasters Worldwide,1980 – 2013 (Number of Events)
Source: MR NatCatSERVICE139
Nu
mb
er
200
400
600
800
1 000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 880 natural disaster events globally in
2013 compared to 905 in 2012
Losses Due to Natural Disasters Worldwide, 1980–2013 (Overall & Insured Losses)
140
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
Geophysical
(earthquake, tsunami,
volcanic activity)
Climatological
(temperature extremes,
drought, wildfire)
Meteorological (storm)
Hydrological
(flood, mass movement)
Natural Disasters Worldwide,1980 – 2013 (Number of Events)
Source: MR NatCatSERVICE141
Nu
mb
er
200
400
600
800
1 000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 880 natural disaster events globally in
2013 compared to 905 in 2012
Losses Due to Natural Disasters Worldwide, 1980–2013 (Overall & Insured Losses)
142
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
Natural Disaster Losses in the US, by Type, Jan. 1 – June 30, 2014
143Source: Munich Re NatCatSERVICE 143
As of July 1, 2014
Number
of
Events Fatalities
Estimated
Overall Losses
(US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm33 65 9,100 6,700
Winter Storms & Cold
Waves11 84 3,400 2,400
Flood, flash flood 10 1 10 -
Earthquake &
Geophysical,
landslides
5 44 20 -
Tropical Cyclone - - - -
Wildfire, Heat Waves,
& Drought8 1 770 -
Totals 67 195 13,300 9,100
As of December 31,
2013
Number of
Events Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm69 110 16,341 10,274
Winter Storm 11 43 2,935 1,895
Flood 19 23 1,929 240
Earthquake &
Geophysical6 1 Minor Minor
Tropical Cyclone 1 1 Minor Minor
Wildfire, Heat, &
Drought22 29 620 385
Totals 128 207 21,825 12,794
Natural Disaster Losses in the United States, by Type, 2013
144Source: Munich Re NatCatSERVICE 144
Date Event
Estimated Economic
Losses (US $m)
Estimated Insured
Losses (US $m)
February 24 – 25 Winter Storm 1,300 690
March 18 – 19 Thunderstorms 2,200 1,600
April 7 – 11 Winter Storm 1,600 1,200
April 16 – 18 Thunderstorms 1,100 560
May 18 – 20 Thunderstorms 3,100 1,800
May 28 – 31 Thunderstorms 2,800 1,400
August 6 – 7 Thunderstorms 1,300 740
September 9 – 16 Flooding 1,500 160
November 17 - 18 Thunderstorms 1,300 931
Source: Munich Re NatCatSERVICE 145
Significant Natural Catastrophes, 2013(Events with $1 billion economic loss and/or 50 fatalities)
146
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)
The current 5-year average (2008 - 2013) insured tropical
cyclone loss is $5.6 billion per year.
Insured US Tropical Cyclone Losses, 1980 - 2013
Sources: Property Claims Service, Munich Re NatCatSERVICE, NFIP 147
148
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 York
Florida
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode 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 $7.2 Trillion in 2004
The value of insured coastal exposure in TX is
3rd highest in US.
149
The combined ratios for both personal and commercial lines
improved substantially in 2013:H1
U.S. Residual Market: Total Policies In-Force (1990-2012) (000)
Source: PIPSO; Insurance Information Institute
931.6
1,785.0
1,458.1
1,196.5
1,741.7
2,841.4
3,311.83,227.3
2,479.4
1,319.7
2,621.32,780.6
1,642.3
2,840.4
2,209.32,203.9
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(000)
Hurricane Andrew
4 Florida Hurricanes
Katrina, Rita and Wilma
In the 23-year period between 1990 and 2012, the total number of policies in-force in the residual market (FAIR & Beach/Windstorm) Plans has more than tripled.
Hurricane Sandy
150
U.S. Residual Market Exposure to Loss(1990-2012) ($ Billions)
Source: PIPSO; Insurance Information Institute (I.I.I.).
$281.8
$884.7
$757.9$818.1
$430.5$372.3
$54.7
$150.0
$292.0$244.2
$221.3
$419.5
$656.7 $696.4
$771.9
$703.0
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
($ Billions)
In the 23-year period between 1990 and 2012, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7
billion in 1990 to $818.1 billion in 2012.
Hurricane Andrew
4 Florida Hurricanes
Katrina, Rita and Wilma
Hurricane Sandy
20
40
60
80
100
120
140
160
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Number
Convective Loss Events in the U.S. Number of events 1980 – 2012 and First Half 2013
Source: Geo Risks Research, NatCatSERVICE – As at July 2013 151
Convective events
are those caused by
straight-line winds,
tornadoes, hail,
heavy precipitation,
flash floods and
lightning
The frequency of convective events has rising tremendously
over the past 30+ years
Convective Loss Events in the U.S. Overall and insured losses 1980 – 2013 and First Half 2014
Overall losses (in 2013 values) Insured losses (in 2013 values)
(Bill. US$)
Analysis contains: straight-line winds, tornadoes, hail, heavy precipitation, flash floods, lightning.
152Source: Geo Risks Research, Munich Re NatCatSERVICE – As at July 2014
10
20
30
40
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
First half 2014 convective event insured losses totaled $6.7B ($9.1B overall
economic loss)
Hurricanes get all the
headlines, but thunderstorms
are consistent producers of
large scale loss. 2008-2013 are
the most expensive years on
record.
Average thunderstorm losses are up 7 fold since
the early 1980s. The 5-year running average loss
is up sharply
U.S. Thunderstorm Insured Loss Trends, 1980 – 2013
153Source: Property Claims Service, MR NatCatSERVICE
Thunderstorm losses in 2013 totaled $10.3 billion, the 6th
highest on record
Average
thunderstorm
losses are up 7 fold
since the early
1980s. The 5-year
running average
loss is up sharply
Hurricanes get all the headlines,
but thunderstorms are consistent
producers of large scale loss.
2008-2013 are the most expensive
years on record.
New Research Suggests Increase in Convective Activity Is Costly for Insurers
• Study examines convective (hail, tornado, thundersquall and heavy
rainfall) events in the US with losses exceeding US$ 250m in the period
1970–2009 (80% of all losses)
• Past losses are normalized (i.e., adjusted) to currently exposed values
• After normalization there are still increases of losses
• Increases are correlated with
the increase in the meteorological
potential for severe thunderstorms
and its variability
For the first time research shows
that climatic changes have already
influenced US thunderstorm losses
154
Source: Munich Re research paper, Marhc 18, 2013: Rising Variability in Thunderstorm-Related U.S. Losses as a
Reflection of Changes in Large-Scale Thunderstorm Forcing.
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 155
Geophysical events
(earthquake, tsunami, volcanic activity)
Meteorological events
(storm)
Hydrological events
(flood, mass movement)
Climatological events
(extreme temperature, drought, wildfire)
Extraterrestrial events
(Meteorite impact)
880
Loss 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, tornadoesUSA, 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
FebruaryFlash 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
156
Total Value of Insured Coastal Exposure in 2007
(2007, $ Billions)
Source: AIR Worldwide
$224.4
$191.9
$158.8
$146.9
$132.8
$92.5
$85.6
$60.6
$55.7
$51.8
$54.1
$14.9
$479.9
$635.5
$772.8
$895.1
$2,378.9
$2,458.6
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode Island
Maryland
In 2007, Florida Still Ranked as the #1 Most Exposed State to Hurricane Loss, with
$2.459 Trillion Exposure, but Texas is very exposed too, and ranked #3 with $895B
in insured coastal exposure
The Insured Value of All Coastal Property Was $8.9 Trillion in 2007, Up 24% from $7.2 Trillion in 2004
157
Total Potential Home Value Exposure to Storm Surge Risk in 2013*
($ Billions)
*Insured and uninsured property. Based on estimated property values as of April 2013.
Source: Storm Surge Report 2013, CoreLogic.
$65.2$51.0$50.3
$35.0$22.4$20.5
$15.9$10.4$7.2$4.7$3.1$2.7$2.6$0.6
$65.6$72.0$78.0
$118.8$135.0
$386.5
$0 $50 $100 $150 $200 $250 $300 $350 $400 $450
FloridaNew York
New JerseyVirginia
LouisianaS. CarolinaN. Carolina
TexasMassachusetts
ConnecticutMarylandGeorgia
DelawareMississippi
Rhode IslandAlabama
MaineNew
PennsylvaniaDC
The Value of Homes Exposed to Storm Surge was $1.147 Trillion in 2013.* Only a fraction of this is insured, hence the huge demand for federal aid
following major coastal flooding events.
Florida is by the state most vulnerable to storm surge.
Number of Acres Burned in Wildfires, 1980 – 2013
Source: National Interagency Fire Center 158
TX experienced significant wildfire losses in 2011 (Bastrop fire insured losses ~$500 million)
Wildfire Outlook for the Western US is Grave but Improving in TX
Source: National Interagency Fire Center 159
Much of the West and
Northwest US is at an
elevated risk for wildfire
due to prolonged
drought and high
temperatures
Recent rains have helped
reduce wildfire risk in TX
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. 160
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
4.4
10
1.7
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 12E13F 14F 15F
1
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 (1990-2011);Conning (2012E-2015F); Insurance Information Institute.161
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
162
Federal Disaster Declarations Patterns:
1953-2014
162
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
53
0
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 July 21, 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 2,166 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.
30 federal disasters were declared so far in 2014*
163
164
Federal Disasters Declarations by State, 1953 – 2014: Highest 25 States*
88
79
75
68
67
60
58
56
56
55
53
53
53
52
51
51
50
50
49
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 (none so far in
2014; 2 in in 2013)
*Through July 21, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
165
Federal Disasters Declarations by State, 1953 – 2014: Lowest 25 States*
43
40
40
38
38
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 July 21, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
166
SEVERE WEATHER REPORT UPDATE: 2014
Damage from Tornadoes, Large Hail
and High Winds Keep Insurers Busy
166
Location of Tornado Reports in 2014:Through July 14, 2014
167Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#; PCS.
There have been 813
tornadoes so far in 2014, causing
extensive property
damage in several states
U.S. Tornado Count, 2005-2014*
168
*Through July 15, 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
2014 count (816 though July 15) is
running below avg.
Location of Large Hail Reports:Through July 14, 2014
169Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
There have been 4,091 “Large Hail” reports in the US so far in
2014, causing extensive
property and vehicle damage
Location of High Wind Reports:Through July 14, 2014
170Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
There have been 7,822
“Wind Damage” so far in 2014,
causing extensive property damage
Severe Weather Reports:Through July 14, 2014
171Source: 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 12,727 severe
weather reports so far in 2013; including 813
tornadoes; 4,091 “Large Hail” reports
and 7,822 high wind events
172
I.I.I. Poll: Homes Near Hazards
Q. If you were to purchase a home today, which of the following summarizes your views on that home’s risk of damage from natural disasters . . . and your decision to purchase that home?
Source: Insurance Information Institute Annual Pulse Survey.
More Than Half of the Public Would Be Significantly Influenced by Risk of Damage from Natural Disasters. Close to a Third Do Not
Regard Such a Risk To Be a Major Consideration.
3%
17%
53%28%
Risk a Significant Influence
on Purchase
Willing to Accept Risk
Risk Not a Major Consideration
Don’t Know
173
I.I.I. Poll: Flood Insurance Rates
Q. Congress recently passed a law that will roll back some of the rate increases it put in place for homeowers who purchase subsidized flood insurance from the government . . . . Do you think the recent rate rollback and subsidies should remain in place for most homeowners who purchase flood insurance; or the rollbacks and subsidies should be eliminated; or don’t know?
Source: Insurance Information Institute Annual Pulse Survey.
Most Americans Support the Flood Insurance Rate Rollback.
10%
62%
27%
Remain in Place
Don’t Know
Eliminated
174
Outlook for the 2014 Atlantic Hurricane Season
Somewhat Below Average Activity, Fewer Landfalls
Expected
Outlook for 2014 Hurricane Season: 30% Less Active Than Typical Year
Median* 2005(Katrina Year)
2014F
Named Storms 12.0 28 10
Named Storm Days 60.1 115.5 40
Hurricanes 6.5 14 4
Hurricane Days 21.3 47.5 15
Major Hurricanes 2.0 7 1
Major Hurricane Days 3.9 7 3
Accumulated Cyclone Energy 92.0 NA 65
Net Tropical Cyclone Activity 103% 275% 70%
*Over the period 1981-2010.
Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 2, 2014.
Probability of Major Hurricane Landfall (CAT 3, 4, 5) in 2014
Average* 2014F
Entire US Coast 52% 40%
US East Coast Including
Florida Peninsula
31% 22%
Gulf Coast from FL
Panhandle to Brownsville, TX
30% 23%
ALSO…Above-Average Major Hurricane
Landfall Risk in Caribbean for 2011 (32% vs. 42%)
*Average over the past century.
Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 2, 2014.
177
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 York
Florida
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode 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 FL and
NY is close to $3 trillion
178
Total Value of Insured Coastal Exposure in 2007
(2007, $ Billions)
Source: AIR Worldwide
$224.4
$191.9
$158.8
$146.9
$132.8
$92.5
$85.6
$60.6
$55.7
$51.8
$54.1
$14.9
$479.9
$635.5
$772.8
$895.1
$2,378.9
$2,458.6
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode Island
Maryland
In 2007, Florida Still Ranked as the #1 Most Exposed State to Hurricane Loss, with
$2.459 Trillion Exposure, but Texas is very exposed too, and ranked #3 with $895B
in insured coastal exposure
The Insured Value of All Coastal Property Was $8.9 Trillion in 2007, Up 24% from $7.2 Trillion in 2004
Terrorism Update
179
TRIA’s Success
Consequences of Expiration
Download III’s Terrorism Insurance Report at: http://www.iii.org/white_papers/terrorism-
risk-a-constant-threat-2014.html
179
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)
181
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
182
*Data for 27 states with sufficient data.
Source: Marsh 2014 Terrorism Risk Insurance Report; Insurance Information Institute.
Terrorism Insurance Take-Up Rates by State for 2013*
Take-up rate for terrorism insurance in
TX is 54%
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)
183
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
184
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
185
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.
Framing the Issue and Educating Policymakers: A Timeline
Education Efforts Pay Off
Senate Banking Committee unanimously reports out TRIA bill 22-0
House Financial Services Committee passes bill
Senate passes bill with strong support; Votes 93-4 to reauthorize on 7/17
Key addition to bills: clarification on certification process, cyber terrorism
Where do we go from here? Are difference between the bills bridgeable?
Reauthorization terms differ (Senate: 7yrs; House: 5yrs)
Bifurcation of NBCR and conventional
Trigger points ($100M vs. $500M)
Clock is running: After July 31, the House is in session for only 12 days before the election
Lame duck for enactment
Source: Marsh
Initial Market Response to Potential TRIA Expiration
Carriers monitoring and modeling WC exposure aggregations across their portfolio and correlated lines of business such as property or life and health (both on an individual client basis and in the aggregate)
Carrier declinations have occurred because they are “overlined” in a particular zip code or city
Many carriers attached NCCI Endorsement WC00 01 14 (Notification Endorsement of Pending Law Change to Terrorism Risk Insurance Program Reauthorization Act of 2007) or an equivalent for non-NCCI states.
For some high-profile clients or those in urban areas and/or with high employee concentrations, carriers issued short term policies set to expire at the same time as TRIPRA
Regarding non-WC lines (including select XSWC placements), policyholders were faced with new or broadened exclusionary wording on GL, umbrella, and XS forms
Source: Marsh
CAT OF THE FUTURE?CYBER RISK
188
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
188
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
190
2013 Data Breaches By Business Category, By Number of Breaches
3.7%
9.1%
9.0%
43.8%
34.4%
Source: Identity Theft Resource Center, http://www.idtheftcenter.org/images/breach/2013/UpdatedITRCBreachStatsReport.pdf
The majority of the 614 data breaches in 2013 affected business and medical/healthcare organizations, according to the Identity Theft Resource Center.
Business, 211 (34.4%)Govt/Military, 56 (9.1%)
Banking/Credit/Financial, 23 (3.7%)
Educational, 55 (9.0%)
Medical/Healthcare, 269 (43.8%)
191
The Most Costly Cyber Crimes, Fiscal Year 2013
5%
5%
7%
8%
9%
11%
13%
21%
21%
Source: 2013 Cost of Cyber Crime: United States, Ponemon Institute.
Denial of service, malicious code and web-based attacks account for more than 55 percent of all cyber costs per U.S. organization on an annual basis.
Malicious code
Viruses, Worms, Trojans
Denial of service
Botnets
Malware
Malicious insiders
Stolen devices
Phishing + social engineering
Web-based attacks
192
External Cyber Crime Costs: Fiscal Year 2013
4%
17%
36%
43%
* Other costs include direct and indirect costs that could not be allocated to a main external cost category
Source: 2013 Cost of Cyber Crime: United States, Ponemon Institute.
Information loss (43%) and business disruption or lost productivity (36%) account for the majority of external costs due to cyber crime.
Information loss
Equipment damages
Other costs* 0%
Revenue loss
Business disruption
193
Distribution Trends
Distribution by Channel Type Continues to Evolve Around
the World
194
All P/C Lines Distribution Channels, Direct vs. Independent Agents
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
0%
10%
20%
30%
40%
50%
60%
70%
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
Direct Independent Agents
Independent agents steadily lost market share from the early 1980s through the early 2000s across all P/C lines, but have gained or held
generally steady in recent years. Direct channels include exclusive agency companies, direct
marketers and direct sales (e.g., internet)
195
Commercial P/C Distribution Channels, Direct vs. Independent Agents
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
72 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
Direct Independent Agents
Independent agents have seen only modest erosion in commercial lines market share
in recent decades
196
Personal Lines Distribution Channels, Direct vs. Independent Agents
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
0%
10%
20%
30%
40%
50%
60%
70%
80%
72 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
Direct Independent Agents
Independent agents have lost significant personal lines market share since the early 1970s. Although the trend has slowed, it may be
accelerating again.
INVESTMENTS: THE NEW REALITY
197
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
197
Property/Casualty Insurance Industry Investment Income: 2000–20141
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.4$45.8
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
Due to persistently low interest rates,investment income fell in 2012 and in 2013
and is falling again in 2014.
1 Investment gains consist primarily of interest and stock dividends. *2014 investment income is estimated Q1, annualized.Sources: ISO; Insurance Information Institute.
($ Billions)Investment earnings are still below their 2007 pre-crisis peak
199
P/C Insurer Net Realized Capital Gains/Losses, 1990-2014:Q1
Sources: A.M. Best, ISO, Insurance Information Institute.
$2
.88
$4
.81
$9
.89
$9
.82
$1
0.8
1 $1
8.0
2
$1
3.0
2
$1
6.2
1
$6
.63
-$1
.21
$6
.61
$9
.13
$9
.70
$3
.52 $8
.92
-$7
.90
$5
.85
$7
.04
$6
.18 $1
1.4
3
$3
.00
-$1
9.8
1
$9
.24
$6
.00
$1
.66
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1314:Q1
Insurers Posted Net Realized Capital Gains in 2010 - 2013 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE
($ Billions)Realized capital gains rose
sharply as equity markets rallied
Property/Casualty Insurance Industry Investment Gain: 1994–2014:Q11
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$53.4$56.2
$54.2
$58.8
$14.1
$58.0
$51.9
$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 1314:Q1
Investment Income Continued to Fall in 2013 Due to Low Interest Rates but Realized Investment Gains Were Up Sharply; The Financial Crisis
Caused Investment Gains to Fall by 50% in 2008
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; Sources: ISO; Insurance Information Institute.
($ Billions)
Investment gains in 2013 were their highest in the
post-crisis era
201
-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%
Per
sona
l Lin
es
Pvt P
ass
Aut
o
Per
s Pro
p
Com
mer
cial
Com
ml A
uto
Cre
dit
Com
m P
rop
Com
m C
as
Fidel
ity/S
uret
y
War
rant
y
Sur
plus
Lin
es
Med
Mal
WC
Rei
nsur
ance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
201
202
U.S. 10-Year Treasury Note Yields:A Long Downward Trend, 1990–2014*
*Monthly, through June 2014. Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.
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
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.
Yields on 10-Year U.S. Treasury Notes recently plunged to record modern-era lows in early 2013 but have since risen as the Fed begins “tapering” its
QE program in 2014
202
203
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2014*
*Monthly, constant maturity, nominal rates, through June 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. Longer-
term yields have rebounded a bit.
203
204
-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%
Per
sona
l Lin
es
Pvt P
ass
Aut
o
Per
s Pro
p
Com
mer
cial
Com
ml A
uto
Cre
dit
Com
m P
rop
Com
m C
as
Fidel
ity/S
uret
y
War
rant
y
Sur
plus
Lin
es
Med
Mal
WC
Rei
nsur
ance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
204
205
Distribution of Bond Maturities,P/C Insurance Industry, 2003-2013
14.4%
15.4%
16.0%
16.0%
15.2%
15.7%
15.6%
16.0%
14.9%
16.6%
16.5%
29.8%
29.2%
28.8%
29.5%
30.0%
32.4%
36.4%
39.5%
41.2%
40.4%
38.8%
31.3%
32.5%
34.1%
34.1%
33.8%
31.2%
29.0%
27.1%
27.3%
27.6%
29.3%
15.4%
15.4%
13.6%
13.1%
12.9%
12.7%
11.9%
11.2%
10.4%
9.8%
9.8%
9.2%
7.6%
7.6%
7.4%
8.1%
8.1%
7.1%
6.2%
6.2%
5.7%
5.7%
0% 20% 40% 60% 80% 100%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
Sources: SNL Financial; Insurance Information Institute.
The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds
(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s
bond portfolio is contributing to a drop in investment income along with lower yields.
Shifting Legal Liability & Tort Environment
206
Is the Tort PendulumSwinging Against Insurers?
206
207
Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical, 1980-2013E
$0
$50
$100
$150
$200
$250
$300
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12E
To
rt S
ys
tem
Co
sts
1.50%
1.75%
2.00%
2.25%
2.50%
To
rt Co
sts
as
% o
f GD
P
Tort Sytem Costs Tort Costs as % of GDP
($ Billions)
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A
Tort costs in dollar terms have remained high but relatively stable since the mid-2000s., but are down
substantially as a share of GDP
Deepwater Horizon Spike
in 2010
1.68% of GDP in 2013
2.21% of GDP in 2003
= pre-tort reform peak
208
Commercial Lines Tort Costs: Insured vs. Self-(Un)Insured Shares, 1973-2010
Billions of Dollars
$0
$20
$40
$60
$80
$100
$120
$140
$160
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
Self (Un) Insured Share
Insurer Share
Tort Costs and the Share Retained by Risks Both Grew Rapidly from the mid-1970s to mid-2000s, When Tort Costs Began to Fall But Self-
Insurance Shares Continued to Rise
$9.5
$15.0
$6.0
1973: Commercial Tort Costs
Totaled $6.49B, 94% was insured,
6% self-(un)insured
1985: $46.6B 74.5% insured,
25.5% self-(un)insured
1995: $83.6B 69.5% insured,
30.5% self-(un)insured
2005: $143.5B 66.4% insured,
33.6% self-(un)insured
2009: $126.5B 64.4% insured,
35.6% self-(un)insured
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, III Calculations based on data from Appendix 4. 208
209
Commercial Lines Tort Costs: Insured vs. Self-(Un)Insured Shares, 1973-2010
Percent
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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
Self (Un) Insured Share
Insurer Share
The Share of Tort Costs Retained by Risks Has Been Steadily Increasing for Nearly 40 Years. This Trend Contributes Has Left
Insurers With Less Control Over Pricing.
1973: 94% was insured,
6% self-(un)insured
1985:74.5% insured,
25.5% self-(un)insured
1995: 69.5% insured,
30.5% self-(un)insured
2005: 66.4% insured,
33.6% self-(un)insured
2010: $138.1B 56.6% insured, 44.4% self-(un)insured
(distorted by Deepwater Horizon event with most losses retained by BP)
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, III Calculations based on data from Appendix 4. 209
Business Leaders Ranking of Liability Systems in 2012
Best States
1. Delaware
2. Nebraska
3. Wyoming
4. Minnesota
5. Kansas
6. Idaho
7. Virginia
8. North Dakota
9. Utah
10. Iowa
Worst States
41. Florida
42. Oklahoma
43. Alabama
44. New Mexico
45. Montana
46. Illinois
47. California
48. Mississippi
49. Louisiana
50. West Virginia
Source: US Chamber of Commerce 2012 State Liability Systems Ranking Study; Insurance Info. Institute.
New in 2012
Wyoming
Minnesota
Kansas
Idaho
Drop-offs
Indiana
Colorado
Massachusetts
South Dakota
Newly Notorious
Oklahoma
Rising Above
Arkansas
210
211
The Nation’s Judicial Hellholes: 2012/2013
Source: American Tort Reform Association; Insurance Information Institute
West VirginiaIllinois
Madison County
New York
Albany and NYC
Watch List
Philadelphia, Pennsylvania
South Florida
Cook County, Illinois
New Jersey
Nevada
Louisiana
Dishonorable Mention
MO Supreme Court
WA Supreme Court
California
Maryland
Baltimore
www.iii.org
Thank you for your timeand your attention!
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212
