How to Live to Be 100 in the P/C
Insurance Industry
And What it Takes to Survive the Next 100
Insurance Information Institute
May 6, 2014
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  bobh@iii.org  www.iii.org
Presentation Outline
What Does it Take to Live to 100
in the Insurance Business?
Challenges and Opportunities
for the Next 100 Years
Q&A
2
Lessons from Nature:
What Would Darwin Would Say?
Longevity in the Business World
Has Parallels in the Natural World
3
On the Life Cycle of Businesses:
Lessons from Nature
 Most Businesses, Like Living Species, Eventually Become Extinct
 99.5% of all living species to ever exist on Earth are now extinct; The
proportion is higher for business and extinctions occur over a much
compressed timespan.
 Changes in the natural environment (not external forces like humans) were
responsible for almost all extinctions
 This means that despite millions of years of evolution and adaptation,
virtually every species eventually confronts a change in its environment to
which it cannot adapt
 It is the same in business
 Business Cycle Gives Rise to “Creative Destruction”
 Mass extinctions in business are common
 Economy is constantly reinventing itself
 New industries and businesses spring from the ashes of the previous
generation, fill voids and occupy niches
Business Bankruptcy Filings,
1980-2013
1980-82
1980-87
1990-91
2000-01
2006-09
90,000
80,000
40,000
30,000
20,000
10,000
0
58.6%
88.7%
10.3%
13.0%
208.9%
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.
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
50,000
43,694
48,125
70,000
60,000
69,300
62,436
64,004
71,277
81,235
82,446
63,853
63,235
64,853
71,549
70,643
62,304
52,374
51,959
53,549
54,027
44,367
37,884
35,472
40,099
38,540
35,037
34,317
39,201
19,695
28,322
43,546
60,837
56,282
47,806
40,075
33,212
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
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.
5
Number of Recessions Endured by P/C
Insurers, by Number of Years in Operation
Number of Recessions Since 1860
35
30
Insurers are true survivors—not
just of natural catastrophes but
also economic ones
32
27
25
20
20
13
15
10
8
5
0
1-50
51-75
76-100
101-125
126-150
Number of Years in Operation
Centenarian Insurers Have Weathered Many Economic Storms
Sources: Insurance Information Institute research from National Bureau of Economic Research data.
6
Real GDP Growth vs. Real P/C
Premium Growth: Modest Association
13.7%
0.1%
2.1%
3.1%
1.2%
1.6%
5.6%
6%
4%
-2.9%
-0.5%
-3.8%
-4.4%
-3.3%
-0.7%
-1.6%
-1.0%
-1.8%
-1.0%
8%
2%
0%
-2%
-4%
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
-10%
-7.4%
-6.5%
-1.5%
-5%
-0.9%
0%
-0.4%
-0.3%
3.1%
1.1%
0.8%
0.4%
0.6%
5%
0.3%
1.8%
4.3%
10%
5.8%
15%
5.2%
Real NWP Growth
20%
Real NWP Growth
Real GDP
7.7%
18.6%
20.3%
25%
Real GDP Growth
Inflation-adjusted
premium growth
was negative for 6
years in a row
before and during
the Great
Recession
Real GDP Growth vs. Real P/C (%)
P/C Insurance Industry’s Growth is Influenced Modestly
by Growth in the Overall Economy
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 4/14; Insurance Information Institute
7
Lessons from History:
What Types of Business Live a Very
Long Time (500+ Years) and Why?
Longevity in the Business World
Requires Focus, Long-Term Objectives
8
Number of Firms More than 500
Years Old, by Industry*
The brewery
BENEATH THE SURFACE
industry
appears to have
Most of these companies are:
the greatest
longevity with 1. Family Owned/Mutuality
35 firms 500+
2. Highly focused on one
years
old.
28
specific business
3. Have some geographic
19
focus (product or client)
Total Number
40
35
35
30
25
20
15
7
10
5
4
5
2
2
2
2
1
Source: http://en.wikipedia.org/wiki/List_of_oldest_companies
er
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O
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Tr
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Pa
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on
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Ph
ct
io
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ac
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0
Characteristics of Firms That
Stand the Test of Time
1. Business Model: Highly Focused



Firms tend to remain true to core business
Avoid businesses you don’t understand
Some diversification is usually good, but leads to an exponential
increase in complexity and unforeseen interactions across units
2. Ownership Structure: There Exists Some Concept of Mutuality
 Some of the world’s oldest firms are family owned (artisans, craftsman)
 Others have some form of cooperative arrangement (agricultural)
 Such organizations also exhibit altruistic behavior, a proven survival trait
3. Communal Interest: A Concern for the Greater Common Good
 Perpetual of the species (i.e., the industry) is evident in behaviors
 Concept of mutuality extends beyond organization to communal interest
 A strong willingness to work for the common good
Characteristics of Firms That
Stand the Test of Time (cont’d)
4. Growth: Tend to Grow Slowly
 As with living species, the longest lived businesses in the world tend to
grow only slowly, if at all
5. Size: Tend to Be Small Relative to Competition
 Size seems to matter when it comes to species longevity: smaller = longer
 Also true among living species (e.g., bacteria, insects)
6. Profitability: Healthy Margins Are Important, But Not Paramount
 Object of continuous profit maximization is not consistent with longevity
 A “will to survive” is still necessary
 Perpetuation/continuity is critical objective
The Centenarians: Who Lives to Be
100+ in the P/C Insurance World?
Characteristics of An Exclusive
Club of Insurers
12
100+ Year Old Insurers as a Share of
All P/C Insurers
About 12% of P/C insurance companies (fewer than 1-in-8) today (2013) are
100+ years old. This is a surprisingly high percentage.
Insurers at Least 100
Years Old, 12.3%
(287)
Insurers Less than
100 Years Old,
87.7%
(1,979)
12.3%
87.7%
Odds of a Human Living to 100
Born 1900: ~0.25% (1-in-400)
Born Today: ~2% (1-in-50)
Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data LLC; CDC
13
Decade of Formation for P/C Insurers at
Least 100 Years Old in 2014
77 insurers formed
in the decade 19101919 are still in
existence; 32 were
formed between
1910 and 1914
Of the Centenarian p/c insurers in existence today,
64% were formed since 1870. There was a post-Civil
war spike in formations in the 1870s and another in the
1890s. Another spike occurred in the 1910s after the
financial crises of the 1900-1909 era and as workers
compensation systems were adopted.
110
100
90
77
As of Jan. 1, 2014 there were 296 P/C
that were at least 100 years old.
80
70
65
60
60
50
37
40
30
22
20
10
1
0
0
0
4
9
2
20
38
16
10
3
0
1750- 1760- 1770- 1780- 1790- 1800- 1810- 1820- 1830- 1840- 1850- 1860- 1870- 1880- 1890- 1900- 191059
69
79
89
99
09
19
29
39
49
59
69
79
89
99
09
19
Decade Of Formation
Source: insurance Information Institute analysis of National Association of Insurance Commissioners (NAIC) Annual
Statement Database, via Highline Data LLC.
14
100-Year-Old Insurers: Independent vs.
Part of Group/Holding Company*
The number of 100-year-old insurers that are independent vs. part of a more
diversified group structure is split almost evenly.
Independent, 48.8%
(140)
Part of Holding
Company, 51.2%
(147)
51.2%
48.8%
*As of 2010.
Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data LLC.
15
100-year-old Insurers: Mutual vs. Stock
vs. Reciprocal
The vast majority (62.4%) of 100-year-old insurers are mutual insurers,
while stock insurers account for 35.9% of the total.
Reciprocal, 1.4%,
(4)
Other, 0.3%,
(1)
0.3%
1.4%
Mutual, 62.4%,
(179)
35.9%
Stock, 35.9%,
(103)
62.4%
*As of 2010.
Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data LLC.
16
Premium to Surplus Ratios, “Centenarians”
vs. Overall P-C Industry, 1998, 2008 and 2013
NWP/Surplus
$1.00
"Centenarians"
$0.90
$0.80
Overall P-C Industry
$0.95
$0.85
$0.72
Insurers that are 100+ years
old hold nearly $2 in
surplus for every $1 dollar
in premium they write
$0.73
$0.69
$0.70
$0.60
$0.51
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
1998
2008
2013
Premiums are a rough measure of risk accepted; surplus is funds beyond
reserves to pay unexpected losses. The larger surplus is in relation to
premiums—the lower the ratio of premiums to surplus—the greater the
capacity to handle the risk it has accepted.
“Centenarians” are companies at least 100 years old with positive NWP in 2013.
Sources: National Association of Insurance Commissioners’ Annual Statements, via Highline; I.I.I. calculations
17
Why Do Insurers Fail?
Leading Reasons Why Most Insurers
Never Make it to 100
18
P/C Insurer Impairments, 1969–2012
Since most failures are due
to inadequate pricing,
underreserving and
excessive growth (factors
under management
control), the leading cause
of death in the p/c
insurance industry
amounts to suicide
Impairments among P/C
insurers remain infrequent
The Number of Impairments Varies Significantly Over the P/C Insurance
Cycle, With Peaks Occurring Well into Hard Markets
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013;
Insurance Information Institute.
19
P/C Insurer Impairment Frequency vs.
Combined Ratio, 1969-2012
120
Combined Ratio after Div
P/C Impairment Frequency
2.0
1.8
1.6
1.4
110
1.2
1.0
105
0.8
100
0.6
Impairment Rate
Combined Ratio
115
0.4
95
2012 impairment rate was 0.69%, down from 1.11% in 2011; the
rate is lower than the 0.82% average since 1969
0.0
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
90
0.2
Impairment Rates Are Highly Correlated With Underwriting Performance
and Reached Record Lows in 2007; Recent Increase Was Associated
Primarily With Mortgage and Financial Guaranty Insurers and Not
Representative of the Industry Overall
Source: A.M. Best; Insurance Information Institute
20
Five Deadliest Sins for P/C
Insurance Companies
 OPERATIONAL ISSUES
1. Underpricing/Underreserving (~43% of failures)
 Leading cause of p/c insurer death according to A.M. Best
2. Excessive Growth (~13%)
 Too much growth too fast (organically or via M&A) can be fatal
3. Excessive Catastrophe Exposure (~7%)
 Too much underpriced exposure, too little reinsurance,
insufficient diversification
4. Investment Problems (~7%)
 Investments are too risky, too illiquid or insufficiently understood
5. Affiliate Problems (~8%)
 Non-core operations can cause problems for parent (e.g., AIG)
Source: I.I.I. research.
Reasons for US P/C Insurer
Impairments, 1969–2012
Historically, Deficient Loss Reserves and Inadequate Pricing Are
By Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Reinsurance Failure
Sig. Change in Business
Misc.
Investment Problems
Deficient Loss Reserves/
Inadequate Pricing
(Overstatement of Assets)
Affiliate Impairment
Catastrophe Losses
Alleged Fraud
Rapid Growth
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
22
Top 10 Lines of Business for US P/C
Impaired Insurers, 2000–2012
Workers Comp and Pvt. Passenger Auto Account for More Than 40 Percent
of the Impaired Insurers Since 2000
Other
Title
Surety
Workers Comp
Med Mal
Other Liability
Pvt. Passenger Auto
Commercial Auto Liability
Commercial Multiperil
Homeowners
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
.
23
Mergers & Acquisitions
Waves of Consolidation Periodically
Reduce the Number of Insurers
24
U.S. INSURANCE MERGERS AND ACQUISITIONS,
All Sectors, 1989-2013 (1)
($ Billions)
$165.4
$100
M&A activity recovered
to pre-crisis levels but
deal values dropped
sharply in 2013
600
$90
500
$70
400
$59.9
$60
$56.2
$55.7
$54.7
$50.8 $50.4
$50
$40.8
$46.5
$43.0
$41.7 $41.5
$43.2
300
$40
$31.4
$30
$20
$10
200
$27.0
$19.3
$12.5
$8.6
$8.5
$7.1$6.9
$5.0
$14.9
$14.4
$9.7
$0
Number of transactions
Transaction values
$80
100
0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
25
U.S. INSURANCE MERGERS AND ACQUISITIONS,
P/C SECTOR, 2002-2013 (1)
($ Millions)
M&A activity in the P/C
sector remains below
pre-crisis levels.
$40,000
$35,221
80
$35,000
60
$25,000
50
$20,353
$20,000
$16,294
40
$13,615
$15,000
$12,458
30
$9,264
$10,000
20
$6,419
$3,507
$5,000
$486
Number of transactions
70
$30,000
Transaction values
90
$4,651 $4,397
10
$425
$0
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
26
U.S. INSURANCE MERGERS AND ACQUISITIONS,
LIFE/ANNUITY SECTOR, 2002-2013 (1)
($ Millions)
Life/Annuity sector M&A
activity is highly volatile
$30,000
35
$23,848
$25,000
Transaction values
30
$18,533
25
$15,000
20
15
$10,000
$5,000
$2,796
$3,817
$6,083
$5,849
$5,055
$3,063
$3,299
10
Number of transactions
$21,865
$20,000
40
5
$382 $840
$0
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
27
Leadership Attributes Found in
Insurers that Reach 100+ Years
Secrets of the Ancients
28
Leadership Attributes Inherent in
Long-Lived Insurance Companies
1. Management Acts as a Steward of the Enterprise

Objective is to pass a healthy firm safely and securely to the next
generation of management and policyholders
2. Management Financial Incentives
 In line with the goal of providing the protection purchased
 There is typically no 3rd party (shareholders) to compensate
 Objective if public company is to maximize profits
 CEO (total) comp is a smaller multiple relative to average employee
3. Nimble: Environment for Small Insurers Can & Does Change
 Not likely first to change, but adaptation occurs within reasonable timeframe
4. Customer Focus & Relationship Driven
 Customer is the #1 priority
 Committed to agency form of distribution, with 21st century enhancements
5. Regulation
 In favor of comprehensive but local regulation (contrast with banks)
What Do I Admire in an Insurer
and Its Management?
1. A Firm Whose Management’s Incentives are Strictly
Aligned With the Insurer’s Principal Stakeholders

Customers, agents, employees, community

These include financial and operational objectives
2. Management Is Knowledgeable
 Management of small, long-lived insurer is no less knowledgeable
about industry trends, opportunities and threats than larger
competitors
3. Intuitive and Comprehensive Understanding of Enterprise
Risk Management

Much is made of ERM today, but long-lived insurers practiced it
well before it had a name
What Do I Admire in an Insurer
and Its Management?
4. CEO is Willing to Seek Advice and Counsel
 No imperial CEOs; Self-aggrandizement is rare
 CEO is a listener and consensus builder
5. Commitment to Core Constituencies
 Customer is the #1 priority
 Committed to agency form of distribution, with 21st century enhancements
6. Lack of a “Wandering Eye”
 Disciplined enough to stick with the business you know, but also
adapting to changing business conditions and seizing
opportunities as necessary
Challenges for the Next 100 Years
Staying Alive: The Decades Ahead
32
P/C (Re)Insurance Industry
Financial Overview
2013: Best Year in the
Post-Crisis Era
Performance Improved with
Lower CATs, Strong Markets
33
$63,784
$35,074
$19,456
$3,043
$28,672
$35,204
$62,496
Net income in
2013 was up
substantially
(+81.9%) from
2012
$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
2013 ROAS
was 10.3%
$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 = 6.1%
2013 ROAS1 = 10.3%
$24,404
$80,000









$65,777
P/C Net Income After Taxes
1991–2013 ($ 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
12
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.8% ROAS in 2013,
6.3% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
13
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013*
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:
9.8 %
15%
9 Years
10%
5%
2011:
4.7%
0%
1975: 2.4%
1984: 1.8%
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
-5%
*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.
ROE: Property/Casualty Insurance vs.
Fortune 500, 1987–2013E*
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Katrina,
Rita, Wilma
15%
Low
CATs
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
Northridge
4 Hurricanes
Financial
Crisis*
Sandy
Record
Tornado
Losses
-5%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E
* Excludes Mortgage & Financial Guarantee in 2008 – 2013. 2013 Fortune 500 figure is I.I.I. estimate.
Sources: ISO, Fortune; Insurance Information Institute.
36
A 100 Combined Ratio Isn’t What It
Once Was: Investment Impact on ROEs
Combined Ratio / ROE
15.9%
110
A combined ratio of about 100 generates an
ROE of ~7.0% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
106.5
14.3%
12.7%
105
100.6 100.1 100.8
100
10.9%
101.2
99.5
15%
102.4
101.0
12%
97.5
96.7
95.7
95
8.8%
9.6%
7.4%
92.7
7.9%
6.2%
9.8%
4.7%
90
4.3%
85
18%
9%
6%
Lower CATs
helped ROEs
in 2013
3%
0%
80
1978
1979
2003
2005
2006
2007
Combined Ratio
2008
2009
2010
2011
2012
2013
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2013 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2013 combined ratio
including M&FG insurers is 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
RNW for Major P/C Lines,
2003-2012 Average
10-year returns for some lines are
excellent, though homeowners is a major
laggard, largely due to major
catastrophes. WC returns slipped.
30%
26.5%
25%
18.9%
20%
15%
13.3%
12.1%
9.8%
10%
9.0%
7.9% 7.6% 7.1% 7.1%
6.0%
5%
1.1%
0%
Fire
Inland
All
Med Comm CMP
Marine Other Mal
Auto
Source: NAIC; Insurance Information Institute
All
Lines
PP
Auto
WC
Other
Liab
HO
Allied
RNW All Lines by State, 2003-2012 Average:
Highest 25 States
9.4
9.9
10.3
10.3
10.5
10.7
10.7
10.9
10.9
11.0
11.0
11.0
11.1
11.4
11.4
11.4
11.7
12.0
12.6
13.1
13.3
13.4
14.8
15.1
17.7
21.0
24
22
20
18
16
14
12
10
8
6
4
2
0
The most profitable states
over the past decade are
widely distributed
geographically, though none
are in the Gulf region
HI AK ND ME WY UT VT ID WA NH IA NE SC DC MA OR VA NC RI CA CT OH NM SD WV MT
Source: NAIC.
39
2.0
-9.4
-6.5
Some of the least
profitable states over the
past decade were hit hard
by catastrophes
3.2
4.2
4.9
4.9
5.2
5.5
6.1
6.1
6.5
6.5
7.4
7.6
7.7
7.7
7.9
8.1
8.3
8.5
8.6
8.9
8.9
9.1
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
9.2
RNW All Lines by State, 2003-2012 Average:
Lowest 25 States
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
Source: NAIC.
40
P/C UNDERWRITING
Underwriting Losses in 2013
Much Improved After High
Catastrophe Losses in 2011/12
41
P/C Insurance Industry
Combined Ratio, 2001–2013*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
Cyclical
Deterioration
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Avg. CAT
Losses,
More
Reserve
Releases
107.5
Sandy
Impacts
Lower
CAT
Losses
106.3
101.0
100.8
100.1
99.3
98.4
100
102.4
100.8
96.7
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013: = 96.1.
Sources: A.M. Best, ISO.
42
Number of Years with Underwriting
Profits by Decade, 1920s–2010s
Number of Years with Underwriting Profits
12
10
10
8
8
7
6
6
5
4
4
3
2
2
0
0
1980s
1990s
0
1920s
1930s
1940s
1950s
1960s
1970s
2000s*
2010s**
Underwriting Profits Were Common Before the 1980s
(40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –
But Then They Vanished. Not a Single Underwriting Profit Was
Recorded in the 25 Years from 1979 Through 2003
* 2009 combined ratio excl. mort. and finl. guaranty insurers was 99.3, which would bring the 2000s total to 4 years with an u/w profit.
**Data for the 2010s is for the period 2010 through 2013.
Note: Data for 1920–1934 based on stock companies only.
Sources: Insurance Information Institute research from A.M. Best Data.
43
Underwriting Gain (Loss)
1975–2013*
($ Billions)
$35
$25
Underwriting
profit in 2013
totaled
$15.5B
Cumulative
underwriting deficit
from 1975 through
2012 is $510B
$15
$5
-$5
-$15
-$25
High cat losses
in 2011 led to
the highest
underwriting
loss since 2002
-$35
-$45
-$55
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
Large Underwriting Losses Are NOT Sustainable
in Current Investment Environment
* Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best, ISO; Insurance Information Institute.
PRICING, PREMIUM GROWTH &
CYCLES
Surviving the to the Century
Mark Means Surviving the
Underwriting Cycle
47
Net Premium Growth: Annual Change,
1971—2014F
(Percent)
1975-78
1984-87
25%
2000-03
Net Written Premiums Fell
0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008,
and 4.2% in 2009, the First 3Year Decline Since 1930-33.
20%
2014F: 4.0%
15%
2013: 4.6%
2012: +4.3%
10%
5%
0%
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
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
48
Average Commercial Rate Change,
All Lines, (1Q:2004–4Q:2013)
(Percent)
4%
-1%
-6%
-11%
-16%
-0.1%
-3.2%
-5.9%
-7.0%
-9.4%
-9.7%
-8.2%
-4.6%
-2.7%
-3.0%
-5.3%
-9.6%
-11.3%
-11.8%
-13.3%
-12.0%
-13.5%
-12.9%
-11.0%
-6.4%
-5.1%
-4.9%
-5.8%
-5.6%
-5.3%
-6.4%
-5.2%
-5.4%
-2.9%
-0.1%
0.9%
2.7%
4.4%
4.3%
3.9%
5.0%
5.2%
4.3%
3.4%
2.1%
9%
Pricing as of Q4:2013 was
positive for the 10th consecutive
quarter. Gains are likely to
continue into 2014.
Q2 2011 marked the
last of 30th
consecutive quarter
of price declines
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
KRW Effect
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
49
Change in Commercial Rate Renewals,
by Account Size: 1999:Q4 to 2013:Q3
Percentage Change (%)
Peak = 2001:Q4
+28.5%
Pricing Turned
Negative in Early
2004 and
Remained that
way for 7 ½ years
Pricing turned positive in
Q3:2011, the first increase in
nearly 8 years; Q3:2013
renewals were up 3.4%.
Some insurers posted
stronger numbers.
KRW : No
Lasting
Impact
Trough = 2007:Q3
-13.6%
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
50
Monthly Change* in Auto Insurance
Prices, 1991–2014*
10%
8%
Cyclical peaks in PP Auto
tend to occur roughly
every 10 years (early
1990s, early 2000s and
likely the early 2010s)
Pricing peak
occurred in late
2010 at 5.3%, falling
to 2.8% by Mar. 2012
6%
4%
2%
0%
“Hard” markets
tend to occur
during
recessionary
periods
The Mar. 2014
reading of 3.6% is
down from 4.8%
a year earlier
-2%
'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
*Percentage change from same month in prior year; through March 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.
52
Homeowners Insurance
Net Written Premium, 2000–2015F
Homeowners insurance NWP continues to rise
(up 128% 2000-2013) despite very little unit
growth during the real estate crash. Reasons
include rate increases, especially in coastal
zones, ITV endorsements (e.g., “inflation
guards”), and inelastic demand
$ Billions
$80
$75
$77.9
$74.0
$70.4
$70
$66.8
$65
$61.1
$60
$54.8
$55
$55.2 $56.2
$63.5
$57.5
$52.2
$49.5
$50
$45.8
$45
$40.0
$40
$35.2
$35 $32.4
$30
00
01
02
03
04
05
Sources: A.M. Best; Insurance Information Institute.
06
07
08
09
10
11
12
13P 14F
15F
53
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
A Century of Survival: Investment
Environment Varies Wildly Over the
Span of 100 Years
54
Property/Casualty Insurance Industry
Investment Income: 2000–20131
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1
$38.9
$38.7
$37.1
$36.7
01
02
$39.6
$47.6
$48.0
$47.4
12
13
Investment earnings are
running below their 2007
pre-crisis peak
$30
00
03
04
05
06
07
08
09
10
11
Investment Income Fell in 2012 and 2013 Due to Persistently Low Interest
Rates, Putting Additional Pressure on (Re) Insurance Pricing
1
Investment gains consist primarily of interest and stock dividends...
Sources: ISO; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset
1% Decline in Investment Yield to Maintain
Constant ROE, by Line*
s
ne
i
L
-5.7%
-5.2%
-4.3%
-3.7%
-3.3%
-3.3%
-3.1%
-2.1%
-1.9%
-3.6%
-2.0%
-1.8%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-1.8%
s
ty
l
e
e
o
p
t
r
a
s
n
i
a
ro
p
l
Li
y
rc
Su
Au
s
o
t
P
C
a
/
al
r
e
l
s
s
n
y
n
t
a
t
P
u
M
m
m
m
m
li
P
di
so
s
pl
rra
d
e
m
m
m
m
r
r
r
t
e
C
a
e
d
o
o
r
o
o
Pe
Pv
Pe
C
C
C
C
C
Fi
W
Su
M
W
to
u
A
R
a
ur
s
n
ei
**
e
nc
-7.3%
Lower Investment Earnings Place a Greater Burden on
Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
58
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2014*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
6%
U.S. Treasury
yields plunged to
historic lows in
2013. Only
longer-term
yields have
rebounded.
5%
4%
3%
2%
1%
0%
Recession
2-Yr Yield
10-Yr Yield
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations,
most P/C insurer portfolios will have low-yielding bonds for years to come.
*Monthly, constant maturity, nominal rates, through March 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institute.
59
SURPLUS/CAPITAL/CAPACITY
2013 Recorded Yet Another
Record High in the Primary
and Reinsurance Sectors
61
Policyholder Surplus,
2006:Q4–2013:Q4
($ Billions)
Drop due to near-record
2011 CAT losses
2007:Q3
Pre-Crisis Peak
$700
$653.3
$650
$624.4
$614.0
$607.7
$600
$559.2
$521.8$517.9$515.6
$512.8
$505.0
$496.6
$487.1
$478.5
$490.8
$463.0
13:Q4
13:Q3
13:Q2
13:Q1
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
09:Q1
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
06:Q4
11:Q3
Surplus as of 12/31/13 stood
at a record high $653.3B
$437.1
11:Q2
$450
11:Q1
$455.6
$400
$550.3
$538.6
$511.5
09:Q3
$500
$559.1
$544.8
$540.7
$530.5
09:Q2
$550
$583.5$586.9
$570.7 $567.8
$566.5
The industry now has $1 of surplus for every $0.73 of NPW,
close to the strongest claims-paying status in its history.
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 .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2014
in very strong financial condition.
62
Global Reinsurance Capital (Traditional
and Alternative), 2007 - 2013
Total reinsurance capital reached
a record $540B in 2013, up 58.8%
from 2008. Of that, $50B (9.3%) is
alternative capacity, up 163% from
$19B since 2008
Source: Aon Benfield Reinsurance Market Outlook, April 1, 2014; Insurance Information Institute.
Reinsurance Pricing: Rate-on-Line Index
by Region, 1990 – 2014*
Lower CATs and a
flood of new
capital has pushed
reinsurance
pricing down in
most regions,
including the US
*As of Jan. 1.
Source: Guy Carpenter
Shifting Legal Liability &
Tort Environment
Could the Tort Pendulum Once Again
Swing Against Insurers?
67
Over the Last Three Decades, Total Tort Costs as a
% of GDP Appear Somewhat Cyclical, 1980-2013E
($ Billions)
$300
2.25%
Deepwater
Horizon Spike
in 2010
$200
2.00%
$150
$100
1.75%
Tort costs in dollar terms have
remained high but relatively stable
since the mid-2000s., but are down
substantially as a share of GDP
$50
Tort Costs as % of GDP
2.21% of
GDP in 2003
= pre-tort
reform peak
$250
Tort System Costs
2.50%
Tort Costs as % of GDP
Tort Sytem Costs
1.68% of
GDP in
2013
1.50%
$0
80
82
84
86
88
90
92
94
96
98
00
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A
02
04
06
08
10
12E
68
Business Leaders Ranking of Liability
Systems in 2012

Worst States
41.
Florida
42.
Oklahoma
43.
Alabama
44.
New Mexico
45.
Montana
46.
Illinois
47.
California
North Dakota
48.
Mississippi
Utah
49.
Louisiana
50.
West Virginia

Best States
1.
Delaware
2.
Nebraska
3.
Wyoming
4.
Minnesota
5.
Kansas
6.
Idaho
7.
Virginia
8.
9.
10. Iowa
New in 2012




Wyoming
Minnesota
Kansas
Idaho
Drop-offs




Indiana
Colorado
Massachusetts
South Dakota
Source: US Chamber of Commerce 2012 State Liability Systems Ranking Study; Insurance Info. Institute.
Newly Notorious
 Oklahoma
Rising Above
 Arkansas
69
The Nation’s Judicial Hellholes:
2012/2013
Illinois
Watch List
 Philadelphia,
Pennsylvania
 South Florida
 Cook County, Illinois
 New Jersey
 Nevada
 Louisiana
Madison County
West Virginia
Maryland
Baltimore
California
Dishonorable
Mention
 MO Supreme Court
 WA Supreme Court
Source: American Tort Reform Association; Insurance Information Institute
New York
Albany and
NYC
70
U.S. Insured Catastrophe
Loss Update
2013 Was a Welcome Respite from the
High Catastrophe Losses in Recent Years
2014 Winter Storm Losses Manageable
71
U.S. Insured Catastrophe Losses
$73.4
($ Billions, $ 2012)
$33.6
$35.0
$12.9
$7.5
$10.5
$29.2
$33.7
$16.3
$7.6
$6.1
$11.6
$14.3
$3.8
$11.0
$12.6
$8.8
$10
$8.0
$20
$4.8
$30
$14.0
$40
$26.4
$37.8
$50
$34.7
$60
$14.4
$70
2012 was the third
most expensive year
ever for insured CAT
losses
$11.5
$80
$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 Well
Below 2011 and 2012 YTD Totals.
Record tornado
losses caused
2011 CAT losses
to surge
*Through 12/31/13.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property
claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)
Sources: Property Claims Service/ISO; Insurance Information Institute.
72
72
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2013*
8.7
8.9
8.1
3.4
3.4
2012
2010
2008
2006
1.6
2.6
2.7
3.3
3.3
1.6
2002
2004
1.6
2000
1.0
1998
1996
5.0
5.4
3.6
2.9
3.3
2.8
2.3
2.1
1990
1992
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
1966
3.0
3.6
0.4
1964
1962
0.8
1.1
1.1
0.1
0.9
1960
1
0
5.9
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 6.1E*
8
7
3
2
8.8
10
9
6
5
4
Catastrophe losses as a
share of all losses reached
a record high in 2012
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1994
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
*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.
73
Top 10 States for Insured
Catastrophe Losses, 2013
$ Millions
$1,995
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Oklahoma let the
country in insured
CAT losses in 2013
$1,509
$1,190
$909
$907
$677
In
di
an
a
eo
rg
ia
G
eb
ra
sk
a
$762
$593
Lo
ui
si
an
a
M
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
$773
N
is
si
ss
ip
pi
do
ol
or
a
C
Ill
in
oi
s
Te
xa
s
in
ne
so
ta
M
O
kl
ah
om
a
$805
75
Top 5 States by Insured Catastrophe
Losses in 2012*
(2012, $ Billions)
$12,000
$10,000
NY and NJ let the US
in CAT losses in
2012 due Sandy
$9,756
$8,000
$6,369
$6,000
$4,000
$2,318
$2,000
$1,511
$1,440
$0
New York
New Jersey
*Includes catastrophe losses of at least $25 million.
Sources: PCS unit of ISO; Insurance Information Institute.
Texas
Kentucky
Colorado
76
Hurricane Sandy: Average Claim Payment
by Type of Claim
$70,000
$60,000
$50,000
$40,000
Commercial (i.e., business
claims) are more expensive
because the value of property is
often higher as well as the
impact of insured business
interruption losses
$30,000
$20,000
$10,000
$6,558
$10,994
$57,277
$44,563
The average insured flood
loss was nearly 9 times
larger than the average
non-flood insured loss
(mostly wind)
$0
Homeowners*
Vehicle
Commercial
NFIP Flood**
Post-Sandy, the I.I.I. worked very hard to make help media, consumers
and regulators understand the distinction between a flood claim and a
standard homeowners claim. NFIP is $24B in debt.
*Includes rental and condo policies (excludes NFIP flood). **As of Oct. 31, 2013.
Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of March 2013; Insurance Information Institute.
77
Insurers Making a Difference in
Impacted Communities
Destroyed home in Tuscaloosa.
Insurers will pay some 165,000 claims
totaling $2 billion in the Tuscaloosa/
Birmingham areas alone.
Presentation of
a check to
Moore, OK,
Public School
Relief Fund
Source: Insurance Information Institute
Presentation of a check to
Tuscaloosa Mayor Walt
Maddox to the Tuscaloosa
Storm Recovery Fund
78
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1993–20121
Wind/Hail/Flood (3), $14.9
Fires (4), $6.5
Other (5), $0.2
1.7%
Geological Events, $18.4
4.7% 3.8%0.1%
Terrorism, $24.8
6.3%
Winter Storms, $27.8
7.1%
Tornado share of
CAT losses is
rising
Tornadoes (2), $140.9
Insured cat losses
from 1993-2012
totaled $391.7B, an
average of $19.6B
per year or $1.6B
per month
40.4%
Hurricanes & Tropical Storms,
$158.2
36.0%
Wind losses are by
far cause the most
catastrophe losses,
even if hurricanes/TS
are excluded.
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2012 dollars.
2. Excludes snow.
3. Does not include NFIP flood 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.
80
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
Hurricane Sandy
became the 5th
costliest event in US
insurance history
$60
$50
$48.7
$40
$30
Includes
Tuscaloosa, AL,
tornado
Includes
Joplin, MO,
tornado
$23.9 $24.6 $25.6
$18.8
$20
$10
$0
$9.2 $11.1
$8.7
$7.8
$7.5
$7.1
$6.7
$4.4 $5.6 $5.6
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Hurricane Irene became the
12th most expense hurricane
in US history in 2011
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.4
Ike
(2008)
Sandy* Northridge9/11 Attack Andrew
(2012)
(1994)
(2001)
(1992)
Katrina
(2005)
12 of the 16 Most Expensive
Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
81
Winter Storm and Winter Damage Events in
the US and Canada, 1980-2013 (2013 US$)
Insured Losses (Millions, $ 2013)
5-year
running
average
Three of the four most costly
years ever for insured losses
from winter storms and damage
occurred in the 1990s, led by the
“Storm of the Century” in 1993.
Insured
losses from
severe winter
events
totaled $2
billion in
2013.
Insured winter storm and damage losses in Jan. 2014 already totaled
$1.5 billion. Continued severe weather since then makes it likely that
2014 will become one of the top 5 costliest winters since 1980.
Sources: Munich Re NatCatSERVICE; Insurance Information Institute.
83
U.S. Thunderstorm Insured Loss Trends,
1980 – 2013
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
Source: Property Claims Service, and MR NatCatSERVICE
Thunderstorm losses in 2013
totaled $10.3 billion, the 6th
highest on record
84
Terrorism Update
A Challenge Through Which the
Industry Has Persevered
Download III’s Terrorism Insurance Report at:
http://www.iii.org/white_papers/terrorismrisk-a-constant-threat-2014.html
85
Loss Distribution by Type of Insurance
from Sept. 11 Terrorist Attack ($ 2013)
($ Billions)
Other
Liability
$4.9 (12%)
Property Life
WTC 1 & 2*
$1.2 (3%)
$4.4 (11%)
Aviation
Liability
$4.3 (11%)
Event
Cancellation
$1.2 (3%)
Aviation Hull
$0.6 (2%)
Workers
Comp
$2.2 (6%)
Property Other
$7.4 (19%)
Biz
Interruption
$13.5 (33%)
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.
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, 9/25/13
House Financial Services
Subcommittee, 11/13/13
87
CAT OF THE FUTURE?
CYBER RISK
Cyber Risk is a Rapidly Emerging
Exposure for Businesses Large
and Small in Every Industry
NEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf
90
Data Breaches 2005-2013, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
700
656
222.5
Millions
662
619
220
200
600
180
498
500
160
446
127.7
419
447
400
300
140
87.9
66.9
321
157
100
80
35.7
200
120
60
16.2
19.1
22.9
40
17.3
20
100
0
2005
2006
2007
2008
# Data Breaches
2009
2010
2011
2012
2013*
# Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records
Exposed (+408%) in 2013 Soared
* 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.
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
92
US Real GDP Growth*
-7%
5.0%
-0.3%
The remainder of 2014
into 2015 are expected
to see a modest
acceleration in growth
-8.9%
2000
2001
2002
2003
2004
2005
2006
07:1Q
07:2Q
07:3Q
07:4Q
08:1Q
08:2Q
08:3Q
08:4Q
09:1Q
09:2Q
09:3Q
09:4Q
10:1Q
10:2Q
10:3Q
10:4Q
11:1Q
11:2Q
11:3Q
11:4Q
12:1Q
12:2Q
12:3Q
12:4Q
13:1Q
13:2Q
13:3Q
13:4Q
14:1Q
14:2Q
14:3Q
14:4Q
15:1Q
15:2Q
15:3Q
15:4Q
-9%
-5.3%
-5%
Recession began in
Dec. 2007. Economic
toll of credit crunch,
housing slump, labor
market contraction
was severe
-3.7%
-3%
-1.8%
-1%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
1.1%
2.5%
4.1%
2.4%
0.1%
3.0%
3.0%
3.1%
3.0%
3.0%
3.0%
2.9%
1%
1.4%
3%
1.3%
5%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
0.5%
3.6%
3.0%
1.7%
7%
4.1%
Real GDP Growth (%)
Demand for Insurance Should Increase in 2014/15 as GDP Growth
Accelerates Modestly and Gradually Benefits the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 4/14; Insurance Information Institute.
93
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through April 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
14
12
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 12.3%
in Apr. 2014.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 6.3% in April
2014. 4% to 6% is
“normal.”
6
4
2
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Stubbornly high unemployment and underemployment constrain overall
economic growth, but the job market is now clearly improving.
Source: US Bureau of Labor Statistics; Insurance Information Institute.
94
Auto/Light Truck Sales, 1999-2019F
14.4
12
11
10
12.7
11.6
13
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.
10.4
14
13.2
15
16.2
16.2
16.2
16.2
16.4
16.0
16
15.5
16.5
16.9
16.9
17.1
17.5
16.6
17
17.8
18
17.4
19
16.1
Job growth and improved
credit market conditions
will boost auto sales in
2014 and beyond
(Millions of Units)
Truck purchases
by contractors are
especially strong
9
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F 16F 17F 18F 19F
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
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/14 and 3/13); Insurance Information Institute.
95
New Private Housing Starts, 1990-2019F
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
New home starts
plunged 72% from
2005-2009; A net
annual decline of 1.49
million units, lowest
since records began
in 1959
1.31
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.92
1.08
1.19
1.01
1.20
1.29
1.46
1.35
1.48
1.47
1.62
1.64
1.57
1.60
1.71
1.85
1.96
2.07
1.80
1.36
0.91
Job growth, low inventories of
existing homes, low mortgage rates
and demographics should continue
to stimulate new home construction
for several more years
(Millions of Units)
0.3
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
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
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/14 and 3/13); Insurance Information Institute.
96
Value of New Private Construction:
Residential & Nonresidential, 2003-2013*
Billions of Dollars
New Construction peaks
at $911.8. in 2006
Trough in 2010
at $500.6B,
after plunging
55.1% ($411.2B)
$1,000
$900
$800
$15.0
2013: Value of new
pvt. construction
hits $667.5B, up
33% from the 2010
trough but still
27% below 2006
peak
$613.7
$700
$600
$500
$311.5
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$356.0
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2013 figure is a seasonally adjusted annual rate as of December.
Sources: US Department of Commerce; Insurance Information Institute.
97
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—Mar. 2014
$ Millions
$500,000
The value of Manufacturing
Shipments in Mar. 2014 was
$494.9B—a new record high.
$400,000
$300,000
Ja
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Ja
n9
Ja 3
n94
Ja
n95
Ja
n9
Ja 6
n97
Ja
n9
Ja 8
n99
Ja
n00
Ja
n
01
Ja
n
0
Ja 2
n
03
Ja
n
0
Ja 4
n
05
Ja
n
0
Ja 6
n
07
Ja
n
0
Ja 8
n
09
Ja
n
1
Ja 0
n
1
12 1
-J
a
13 n
-J
an
14
-J
an
$200,000
Monthly shipments in Mar. 2014 exceeded the pre-crisis (July 2008) peak.
Manufacturing is energy-intensive and growth leads to gains in many commercial
exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
*seasonally adjusted; Data published May 2, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 98
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
220
210
200
190
180
170
160
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
207.7
208.1
Oil & Gas Extraction Employment,
Jan. 2010—March 2014*
(Thousands)
Oil and gas extraction employment
is up 33.1% since Jan. 2010 as the
energy sector booms. Domestic
energy production is essential to
any robust economic recovery in
the US.
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Highest
since Aug.
1986
150
99
12 Industries for the Next 10 Years:
Insurance Solutions Needed
Health Care
Health Sciences
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Many
industries are
poised for
growth,
though
insurers’
ability to
capitalize on
these
industries
varies widely
Light Manufacturing
Insourced Manufacturing
Export-Oriented Industries
Shipping (Rail, Marine, Trucking, Pipelines)
100
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_Hartwig
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