P/C Industry Outlook:
2013 and Beyond
SITA
Las Vegas, NV
October 21, 2013
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5540  Cell: 917.494.5945  stevenw@iii.org  www.iii.org
Here’s What Some of
Our Customers Are Like
2
3/8 of US Adults Say They Get Less
Than 6 Hours of Sleep per Night
60.4%
37.3%
2.3%
Source: CDC, National Health and Nutrition Examination Survey, Hyattsville, MD, U.S. Department of Health and Human
Services, CDC, National Center for Health Statistics; 2007-2010; highlighted at
http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6236a9.htm?s_cid=mm6236a9_e
3
CDC Report: Cell Phone Use While
Driving, US and Europe, Fall 2011
Percent saying
“regularly” or
“fairly often”
30%
“In the past 30 days, how
often have you talked on
the phone while you were
driving?”
19.5% 20.4%
27.5%
20%
“In the past 30 days, how often
have you sent a text message or
e-mail while you were driving?”
15.7%
12.8%
10%
7.8%
8.8%
10.4%
8.1%
7.7%
4.3%
2.5%
5.2%
5.9% 6.5%
2.8%
0%
Talked on cell
U.S.
U.K.
Germany
Texted/emailed
France
Spain
Belgium
Netherlands
Portugal
Sources: “Mobile Device Use While Driving—United States and Seven European Countries, 2011,” in Morbidity and Mortality Weekly
Report, Centers for Disease Control and Prevention, Vol. 62, No. 10, (March 15, 2013) available at
http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6210a1.ht5m?s_cid=6210a1_e ;Insurance Information Institute
4
Even Frequent & Severe Floods Haven’t
Changed Flood Insurance Ownership Much
Q. Do you have a separate flood insurance policy?1
25%
After
Hurricane
Irene
20%
After
SuperStorm
Sandy
21%
19%
15%
14%
15%
May 2011
May 2012
May 2013
13%
12%
12%
11%
10%
10%
6%
5%
6%
5%
0%
Northeast
Midwest
South
West
Despite extensive flooding (and wide publicity),
few U.S. homeowners say they have a flood insurance policy;
the percentage is lowest in the Northeast at 10 percent.
1Asked
of those who have homeowners insurance and who responded “yes”.
Source: Insurance Information Institute Annual Pulse Survey.
5
24%
31.1%
32.2%
32.2%
32.5%
31.8%
31.8%
31.7%
32.9%
26%
22.1%
22.5%
22.3%
23.0%
22.8%
23.0%
22.9%
23.5%
24.4%
24.4%
24.3%
24.9%
24.4%
24.4%
24.8%
25.2%
25.2%
26.3%
26.5%
26.2%
28%
The brown bars
indicate recessions.
27.9%
27.2%
27.0%
27.4%
27.9%
27.3%
27.8%
27.6%
26.8%
27.6%
30%
27.9%
28.5%
28.7%
29.3%
29.5%
32%
2011.3
34%
30.8%
29.3%
30.1%
29.1%
30.3%
30.1%
30.9%
31.0%
30.7%
31.0%
31.4%
30.9%
31.2%
31.6%
31.3%
31.5%
31.4%
1 in 3 in this age group
are working. Virtually
none of them are “baby
boomers”
32.8%
32.3%
Labor Force
participation rate
2011.1
Labor Force Participation Rate,
Ages 65-69, Quarterly, 1998:Q1-2013:Q2
2013.1
2012.3
2012.1
2010.3
2010.1
2009.3
2009.1
2008.3
2008.1
2007.3
2007.1
2006.3
2006.1
2005.3
2005.1
2004.3
2004.1
2003.3
2003.1
2002.3
2002.1
2001.3
2001.1
2000.3
2000.1
1999.3
1999.1
1998.3
20%
1998.1
22%
The labor force participation rate for workers 65-69 might grow even faster in the future
as seniors find they can’t fully retire on their meager retirement savings.
Not seasonally adjusted. Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
9%
Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
The labor force participation rate for workers 70-74 grew by about 50% since 1998.
Growth stalled during and after the Great Recession but has since resumed.
2013.1
2012.3
2012.1
2011.3
2011.1
2010.3
2010.1
2009.3
2009.1
2008.3
2008.1
2007.3
2007.1
2006.3
2006.1
2005.3
2005.1
2004.3
2004.1
2003.3
2003.1
2002.3
Labor Force
participation rate
2002.1
2001.3
2001.1
2000.3
2000.1
1999.3
1999.1
15%
1998.3
18%
12.5%
12.2%
12.4%
12.9%
12.4%
13.6%
13.1%
13.1%
13.3%
13.5%
13.6%
13.8%
14.4%
13.7%
14.2%
14.2%
13.8%
14.2%
14.0%
14.0%
14.4%
14.4%
14.6%
14.9%
14.9%
15.4%
15.6%
15.3%
16.4%
17.0%
15.8%
16.2%
16.7%
16.9%
17.2%
17.0%
16.7%
16.8%
18.0%
17.5%
17.3%
16.9%
18.6%
18.2%
17.7%
17.9%
18.9%
19.2%
18.0%
18.1%
17.4%
18.4%
18.0%
18.4%
19.3%
19.5%
19.2%
19.1%
19.9%
19.6%
18.8%
19.3%
21%
1998.1
Labor Force Participation Rate,
Ages 70-74, Quarterly, 1998:Q1-2013:Q2
Nearly 1 in 5 in this age
group is working.
A dozen years ago it
was 1 in 8.
12%
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
8
Yearly Nominal U.S. GDP vs.
P/C Net Written Premiums: 2000-2012
Index: 2000 = 100
NWP
Nominal GDP
“Soft” market:
NWP slipped
before the overall
economy did
“Hard” market:
NWP grew much
faster than the
overall economy
160
Recession
150
140
Post recession:
comparable
growth rates
130
120
110
100
2000
2001
2002
2003
2004
2005
2006
2007
Sources: http://www.bea.gov/national/xls/gdplev.xls ; SNL Financial; I.I.I. calculations
2008
2009
2010
2011
2012
US Real GDP, Quarterly, 2013-14
October 2013 Forecasts
Real GDP Growth Rate
4%
3%
3.3%
3.4%
3.5%
3.6%
3.1%
2.8%
2.4%
2.9%
2.9%
2.2%
2.2%
2.6%
2%
2.0%
2.0%
1.6%
10 Most Pessimistic
Median
10 Most Optimistic
1%
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
Despite the sequester and other challenges to the U.S. economy,
virtually every forecast in the Blue Chip universe in early September
sees improvement ahead
Sources: Blue Chip Economic Indicators (10/13); Insurance Information Institute
10
Real GDP Growth: Recent Recessions
and Recoveries, Yearly, 1985-2012
Real GDP
Growth (%)
In the current recovery,
real yearly GDP growth
has been 2.4% or less
5%
4%
3%
2%
1%
0%
-1%
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1997
But following the 2001
recession, real yearly GDP
growth was weaker than 3%
1996
1995
1994
1993
1992
1991
1990
1989
1988
1986
-4%
1985
-3%
1987
In most recoveries, real
yearly GDP growth is
often 3% or more
1998
-2%
Source: (GDP) U.S. Department of Commerce at http://www.bea.gov/national/xls/gdpchg.xls.
11
Federal Spending as a Share of State GDP:
Vulnerability to Sequestration Varies
Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute.
12
State-by-State Leading Indicators
through 2013:Q4
13
P/C Insurance:
Forces Affecting Personal
Lines
Brighter Days Ahead,
but Not Without Challenges
15
Private Housing Unit Starts, 1990-2014F
Millions
of Units
0.61
0.59
1.14
0.93
0.78
1.36
1.80
1.71
1.60
1.57
1.64
1.62
1.47
1.46
1.35
1.20
0.55
0.50
Starts plunged 72%
from 2005-2009 to
lowest level since
records began in
1959
0.91
0.75
1.01
1.00
1.19
1.25
1.29
1.50
1.48
1.75
1.96
2.00
1.85
Housing
“Bubble”
2.07
2.25
Forecast range
for 2013 is 0.90
to 1.02 million
units
0.25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F
Homeowners insurers are starting to see exposure growth for the first time
since 2005. Commercial insurers with construction risk exposure, surety
also benefit.
Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (10/13); Insurance Information Institute.
16
So Far, the Pickup Is Mostly in
Multi-Family Housing Starts
Thousands of
Units, Multi-Family
400
units in multi-family buildings
Thousands of Units,
Single Family
1800
Multi-family-unit
starts rose in 2011,
more in 2012, still
more so far in 2013.
350
300
250
single family units
Single family
plunge began
in 2006
200
150
1600
1400
1200
1000
800
Multi-family plunge did
not begin until 2009
100
600
400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
Is the pickup slowing down? 2013:Q1 multi-unit starts were at
a seasonally-adjusted annual rate of 325,000,
but starts since then were at a SAAR of 261,000.
*average of annualized seasonally adjusted January-August 2013 data; August is preliminary.
Source: US Census Bureau at www.census.gov/construction/nrc/pdf/newresconst.pdf.
Rental-Occupied Housing Units as % of
Total Occupied Units, Quarterly, 1990-2013
Millions
37%
Trend down began
in 1994:Q3 from
36.2% in Q2
36%
35%
34%
33%
Increasing
percent of
owners
32%
31%
Trough in
2004:Q2 and
Q4 at 30.8%
Increasing
percent of
renters
Latest was
35.0% in
2013:Q1 & Q2
90:Q1
91:Q1
92:Q1
93:Q1
94:Q1
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
00:Q1
01:Q1
02:Q1
03:Q1
04:Q1
05:Q1
06:Q1
07:Q1
08:Q1
09:Q1
10:Q1
11:Q1
12:Q1
13:Q1
30%
Since the Great Recession ended, renters occupied 3.6 million more units (+9.9%)—outstripping population
growth (+2.9%)
Sources: US Census Bureau, Residential Vacancies & Home Ownership in the Second Quarter of 2013 (released July 30, 2013) and
earlier issues; Insurance Information Institute.
18
Auto/Light Truck Sales, 1999-2014F
13
10.4
12
11
12.7
14
11.6
13.2
15
16.1
Lowest level
since the late
1960s
15.6
05
16
Forecast range
for 2013 is 15.3
to 15.8 million
units
14.4
16.9
04
16.5
16.9
17
16.6
17.1
17.5
18
17.8
19
17.4
(Millions of Units)
16.1
Truck purchases by
contractors are
especially strong
10
9
99
00
01
02
03
06
07
08
09
10
11
12 13F 14F
Job growth and improved credit market conditions will boost auto sales
in 2013 and beyond, bolstering the manufacturing sector and the
economy generally.
Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (10/13); Insurance Information Institute.
19
But Something Unusual is Happening:
Miles Driven*, 1990–2013
Billions
3,100
3,000
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
Miles Driven Growth per 5-Yr Span
1997 vs. 1992: 13.9%
2002 vs. 1997: 11.5%
2007 vs. 2002: 6.1%
2012 vs. 2007: -3.0%
Some of the growth in
miles driven is due to
population growth:
1997 vs. 1992: +5.1%
2002 vs. 1997: +7.4%
2007 vs. 2002: +4.7%
2012 vs. 2007: +3.4%
Peak in November 2007
A record: miles driven
has been below the prior
peak for 67 straight
months. Previous record
below peak was in the
early 1980s (39 months)
Will the trend toward
hybrid and non-gasolinepowered vehicles affect
miles driven? What
about the aging and
retirement of the baby
boomers?
2,100
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
*Moving 12-month total. The latest data is for June 2013.
Note: Recessions indicated by gray shaded columns..
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm );
National Bureau of Economic Research (recession dates); Insurance Information Institute.
20
P/C Insurance:
Forces Affecting
Commercial Lines
Brighter Days Ahead,
but Not Without Challenges
22
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2013:Q2
Billions
$7,250
Latest (2013:Q2) was
$7.09 trillion, a new
peak -- $860B above
2009 trough
$7,000
$6,750
Prior Peak was
2008:Q1 at $6.54 trillion
$6,500
Payrolls are
12.1% above
their 2009
trough
$6,250
$6,000
$5,750
Recent trough (2009:Q1)
was $6.23 trillion, down
4.7% from prior peak
04:Q4
05:Q1
05:Q2
05:Q3
05:Q4
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
$5,500
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.
23
Dollar Value* of Manufacturers’
Shipments Monthly, January 1992—June 2013
$ Millions
$500,000
$450,000
The value of Manufacturing Shipments in
June 2013 was up 34% to $481.8B from its
May 2009 trough. June figure is slightly
below its record high in Nov. 2012.
Modest weakening in recent months.
$400,000
$350,000
$300,000
$250,000
Ja
n92
Ja
n93
Ja
n94
Ja
n95
Ja
n96
Ja
n97
Ja
n98
Ja
n99
Ja
n00
Ja
n
01
Ja
n
02
Ja
n
03
Ja
n
04
Ja
n
05
Ja
n
06
Ja
n
07
Ja
n
08
Ja
n
09
Ja
n
10
Ja
n
11
Ja
n
12
Ja
n
13
$200,000
Monthly shipments in Nov. 2012 exceeded the pre-crisis (July 2008) peak but have
since receded slightly. Manufacturing is an energy-intensive activity and growth
leads to gains in many commercial exposures: WC, Commercial Auto, Marine,
Property and various Liability Coverages.
*seasonally adjusted
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 24
Commercial & Industrial Loans Outstanding
at FDIC-Insured Banks, Quarterly, 2006-2013*
$1.18
$1.17
$1.17
$1.21
$1.18
$1.27
$1.51
$1.53
$1.56
$1.42
$1.46
$1.37
$1.43
$1.37
$1.49
08;Q2
08:Q3
$1.25
$1.44
$1.48
$1.1
$1.13
$1.16
$1.2
$1.18
$1.22
$1.3
$1.30
$1.39
$1.4
07:Q4
08:Q1
$1.5
$1.50
$1.49
Recession
$1.20
$1.24
$1.6
$1.28
$1.35
In nominal dollar
terms, this is an
all-time high.
$Trillions
13:Q2
12:Q4
13:Q1
12:Q3
12:Q1
12:Q2
11:Q3
11:Q4
11:Q2
10:Q4
11:Q1
10:Q2
10:Q3
10:Q1
09:Q3
09:Q4
09:Q1
09:Q2
08:Q4
07:Q3
07:Q1
07:Q2
06:Q3
06:Q4
06:Q2
06:Q1
$1.0
Outstanding loan volume has been growing for over two years
and (as of year-end 2012) surpassed previous peak levels.
*Latest data, released 8/29/2013.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
25
Percent of Non-current Commercial & Industrial
Loans Outstanding at FDIC-Insured Banks,
0.97%
0.87%
0.80%
0.74%
12:Q4
13:Q1
1.09%
12:Q2
12:Q3
1.17%
12:Q1
1.65%
1.49%
3.05%
3.43%
2.80%
2.44%
1.89%
1.69%
Almost back to “normal”
levels of noncurrent
industrial & commercial
loans
1.29%
0.63%
0.67%
07:Q3
2.73%
0.62%
07:Q2
10:Q3
0.63%
07:Q1
2.83%
0.64%
06:Q4
10:Q2
0.74%
06:Q3
1.07%
0.70%
06:Q2
0.81%
0.71%
1%
06:Q1
2%
1.18%
3%
2.25%
Recession
4%
3.57%
Quarterly, 2006-2013:Q2*
13:Q2
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q1
09:Q3
09:Q4
09:Q2
09:Q1
08:Q4
08:Q3
08;Q2
08:Q1
07:Q4
0%
Non-current loans (those past due 90 days or more or in nonaccrual status)
are back to early-recession levels, fueling bank willingness to lend.
*Latest data, released 8/29/2013.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
26
10
8
6
4
12.9
9.2
12
Recessions in orange
11.5
14
New Bankruptcy
Law Takes Effect
9.7
16
Quarterly average for
2001:Q1-2005:Q3 was 8,915
4.1
4.9
5.3
5.6
6.3
6.7
7.2
8.0
8.7
18
13.9
13.6
12.9
12.0
13.1
12.2
12.6
12.9
13.4
14.0
13.2
12.9
13.8
14.0
13.5
12.7
12.4
11.6
10.3
9.9
9.2
10.4
9.0
9.0
9.5
9.2
8.2
8.4
10.0
10.3
9.5
10.0
9.8
9.7
9.4
9.5
8.8
9.3
8.4
8.3
10.6
8.2
7.6
7.8
8.1
8.7
9.5
12.8
(Thousands)
14.3
16.0
14.2
15.0
14.6
14.5
14.0
13.0
12.4
12.3
11.7
11.1
11.0
10.4
Business Bankruptcy Filings: Falling
but Still High in 2012 (1994:Q1 – 2012:Q3)
0
94:Q1
94:Q3
95:Q1
95:Q3
96:Q1
96:Q3
97:Q1
97:Q3
98:Q1
98:Q3
99:Q1
99:Q3
00:Q1
00:Q3
01:Q1
01:Q3
02:Q1
02:Q3
03:Q1
03:Q3
04:Q1
04:Q3
05:Q1
05:Q3
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
2
Business bankruptcies were down 42% in 2012:Q3 vs. recent peak in 2009:Q2 but
were still higher than 2008:Q1, the first full quarter of the Great Recession.
Bankruptcies restrict exposure growth in all commercial lines.
Sources: American Bankruptcy Institute at
www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance
Information Institute.
27
Private Sector Business Starts,
1993:Q2 – 2012:Q4*
(Thousands)
Business Starts
2006: 861,000
2007: 844,000
2008: 787,000
2009: 701,000
2010: 742,000
2011: 781,000
2012: 769,000
Recessions in orange
12:Q1
11:Q1
10:Q1
09:Q1
08:Q1
07:Q1
06:Q1
05:Q1
04:Q1
03:Q1
02:Q1
01:Q1
00:Q1
99:Q1
98:Q1
160
97:Q1
170
96:Q1
180
95:Q1
190
94:Q1
200
175
173
210
93:Q2
220
185
182
187
193
184
189
189
185
188
195
191
199
204
203
195
196
195
206
206
200
189
199
206
206
199
213
204
209
200
206
204
204
194
204
208
199
201
193
191
193
200
207
203
209
210
209
216
221
221
220
221
210
221
214
206
216
208
207
201
191
188
172
177
169
183
175
179
188
200
189
192
198
202
193
191
193
192
230
Business starts were down nearly 20% in the Great Recession,
holding back most types of commercial insurance exposure,
but now are recovering.
* Data through Dec 31, 2012 are the latest available (posted July 30, 2013); Seasonally adjusted.
Sources: Bureau of Labor Statistics, www.bls.gov/news.release/cewbd.t08.htm; NBER (recession dates).
28
EEOC Workplace Discrimination
Complaints, FY1997-FY2012*
10
11
12
75.8
82.8
75.4
01
79.4
80.8
00
81.3
79.9
77.4
80
79.6
80.7
90
84.4
1997-2007 Avg.
= 79,800/year
99.4
95.4
100
99.9
Biggest jumps in FY2008 complaints
came for retaliation and age
discrimination. But FY2008 excluded
the worst of the recession.
110
99.9
2008-2012 Avg.
= 97,600/year
93.3
Thousands of
Complaints
05
06
70
FY97
98
99
02
03
04
07
08
09
*The federal fiscal year runs from Oct 1 of a given year to Sept 30 of the following year. The year is designated by its endpoint.
Thus FY2009 covers the period from Oct 1, 2008 through Sept 30, 2009.
Sources: EEOC at http://www.eeoc.gov/stats/charges.html ; I.I.I.
U.S. Insured
Catastrophe Loss Update
Catastrophe Losses in Recent Years
Have Been Very High
31
U.S. Insured Catastrophe Losses
($ Billions, 2012 Dollars)
$73.4
$90
$80
$70
$7.9
$35.0
$33.6
$14.4
$11.5
$29.2
$7.5
$10.5
$16.3
$7.6
$33.7
$34.7
$6.1
$11.6
$14.3
$11.0
$12.6
$3.8
$10
$8.0
$20
$4.8
$30
$14.0
$40
$8.8
$50
$26.4
$37.8
$60
$0
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*
2012 Was the 3rd Highest Year on Record for Insured
Losses in U.S. History on an Inflation-Adj. Basis. 2011
Losses Were the 6th Highest. YTD 2013 Running Below
Average But Q3 Is Typically the Costliest Quarter.
Record tornado
losses caused
2011 CAT losses
to surge
*Through 6/2/13. Includes $2.6B for 2013:Q1 (PCS) and $5.32B for the period 4/1 – 6/2/13 (Aon Benfield Monthly Global Catastrophe Recap).
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.
32
32
Natural Disasters in the United States,
1980 – June 2013*
Number of Events (Annual Totals 1980 – June 2013*)
There were 68 natural
disaster events in the
first half of 2013
300
250
There were over 150 natural
disaster events in the US every
year since 2006. That hadn’t
happened in any year before.
Number
200
150
100
41
19
50
121
3
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
*Through June 30, 2013.
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
2000
Meteorological (storm)
Hydrological
(flood, mass movement)
2002
2004
2006
2008
2010
2012
Climatological
(temperature extremes,
drought, wildfire)
33
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2012*
8.7
9.4
3.4
2012E
2010
2008
1.6
2.6
2.7
2006
1.6
2002
2004
1.6
2000
1.0
1998
1996
3.3
3.3
3.6
2.9
3.3
2.8
1994
5.0
5.4
5.9
8.1
8.8
1990
2.1
2.3
3.0
1.2
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1.2
0.4
0.8
1.3
0.3
0.4
0.7
1.5
1.0
0.4
0.4
0.7
1.8
1.1
0.6
1.4
2.0
1.3
2.0
0.5
0.5
0.7
1968
0.4
1966
1962
1964
3.6
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 7.20*
0.8
1.1
1.1
0.1
0.9
1960
10
9
8
7
6
5
4
3
2
1
0
Catastrophe losses as a
share of all losses reached
a record high in 2012
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1992
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
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.
34
If They Hit Today, the Dozen Costliest
(to Insurers) Hurricanes in U.S. History
Insured Losses,
2012 Dollars, $ Billions
$140
$120
$100
Storms that hit long ago had less property and
businesses to damage, so simply adjusting their
actual claims for inflation doesn’t capture their
destructive power.
Karen Clark’s analysis aims to overcome that.
$80
$125
$65
$60
$35
$40
$20
$20
$20
Sandy*
(2012)
Betsy
(1965)
Hazel
(1954)
$40
$40
Katrina
(2005)
Galveston
(1915)
$50
$50
$50
Andrew
(1992)
southFlorida
(1947)
Galveston
(1900)
$25
$20
$0
Donna
(1960)
New
England
(1938)
midFlorida
(1928)
Miami
(1926)
When you adjust for the damage prior storms could have done if they
occurred today, Hurricane Katrina slips to a tie for 6th among the most
devastating storms.
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: Karen Clark & Company, Historical Hurricanes that Would Cause $10 Billion or More of Insured LossesToday, August 2012; I.I.I.
35
Investments
Investment Performance is a
Key Driver of Profitability
36
U.S. Treasury Security Yields*:
A Long Downward Trend, 1990–2013
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
U.S. Treasury
security yields
recently plunged
to record lows
7%
6%
5%
4%
3%
2%
1/31/2013
1/31/2010
1/31/2009
1/31/2008
1/31/2007
1/31/2006
1/31/2005
1/31/2004
1/31/2003
1/31/2002
1/31/2001
1/31/2000
1/31/1999
1/31/1998
1/31/1997
1/31/1996
1/31/1995
1/31/1994
1/31/1993
1/31/1992
1/31/1991
1/31/1990
0%
1/30/2012
1%
1/31/2011
Recession
2-Yr Yield
10-Yr Yield
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.
*Monthly, constant maturity, nominal rates, through September 2013.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
37
Distribution of Bond Maturities,
P/C Insurance Industry, 2003-2012
2012
16.5%
40.4%
2011
15.2%
41.4%
2010
16.3%
39.5%
2009
16.2%
2008
15.7%
2007
15.2%
30.0%
2006
16.0%
2005
36.2%
9.8% 5.7%
26.8%
10.3% 6.3%
26.7%
28.7%
11.7% 7.3%
8.1%
33.8%
12.9%
8.1%
29.5%
34.1%
13.1%
7.4%
16.0%
28.8%
34.1%
13.6%
7.6%
2004
15.4%
29.2%
2003
14.4%
29.8%
20%
31.2%
11.1% 6.4%
12.7%
0%
32.4%
27.6%
32.5%
31.3%
40%
60%
15.4%
15.4%
80%
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
7.6%
9.2%
100%
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.
Sources: SNL Financial; Insurance Information Institute.
38
P/C Insurance Industry
Financial Overview
39
$24,509
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
Net income is up
substantially
(+42.4%) from
2012:1H $17.2B
$44,155
$38,501
$30,029
$20,559
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$21,865
$50,000
$30,773
$60,000
$36,819
$70,000
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:Q1 ROAS1 = 9.6%
$24,404
$80,000









$65,777
P/C Net Income After Taxes
1991–2013:1H ($ Millions)
$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.7% ROAS in
2013:Q1, 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
12 13:1H
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013:1H*
ROE
History suggests next ROE
peak will be in 2016-2017
25%
1977:19.0%
1987:17.3%
20%
2006:12.7%
1997:11.6%
2013:1H
8.2%
15%
9 Years
10%
5%
2012:
5.9%
0%
1975: 2.4%
1992: 4.5%
2001: -1.2%
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
13:1H
-5%
1984: 1.8%
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
Policyholder Surplus,
Quarterly, 2006:Q4–2013:1H
$586.9
12:Q4
$614.0
$583.5
12:Q3
$605.0
$583.5
12:Q3
$570.7
$553.8
$566.5
$530.5
$540.7
$511.5
$490.8
$463.0
$437.1
$455.6
$515.6
08:Q1
$400
$478.5
$517.9
07:Q4
$505.0
$521.8
07:Q3
$512.8
$450
$487.1
$500
$496.6
$550
$559.2
$600
$544.8
$650
$538.6
Up nearly $175 Billion
from the 2009:Q1
trough, a new peak
Down $84
Billion from the
previous peak,
due to the
financial crisis,
CATs
$559.1
($ Billions)
13:Q2
13:Q1
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
09:Q3
09:Q2
09:Q1
08:Q4
08:Q3
08:Q2
07:Q2
07:Q1
06:Q4
$350
The industry at year-end 2012 had $1 of surplus for every $0.78 of
NPW, the strongest claims-paying status in its history.
2013:Q1 is estimated
Sources: ISO; A.M .Best.
43
Key Takaways
44
Takeaways:
P/C Insurance Predictions for 2013-14
 P/C Insurance Exposures Will Grow With the U.S.
Economy
 Personal lines exposure growth is likely in 2013
 Wage and employment growth is also positive and could modestly
accelerate
 P/C Industry Growth in 2013 Will Be Strongest Since 2004
 Growth likely to exceed A.M. Best projection of +3.8% for 2012
 No traditional “hard market” emerges in 2013-4
 Underwriting Fundamentals Deteriorate Modestly
 Some pressure from claim frequency, severity in some key lines
 Industry Capacity Hits a New Record by Year-End 2013
(Barring Meg-CAT)
 Investment Environment Is/Remains Challenging
 Interest rates remain low
45
Insurance Information Institute
www.iii.org
Thank you for your time
and your attention!