AIPSO 10 th Residual Market Planning Conference
Providence, RI
April 10, 2012
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute

110 William Street

New York, NY 10038
Office: 212.346.5540

Cell: (917) 494-5945
 stevenw@iii.org
 www.iii.org

2

Real GDP Growth: Past Recessions and Recoveries, Yearly, 1970-2012
Real GDP
Growth (%)
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
In most recoveries, real yearly GDP growth is often 4% or more
In the current recovery, real yearly GDP growth has been 2.4% or less
But, following the 1991 and 2001 recessions, real yearly GDP growth was weaker than 4%
Source: (GDP) U.S. Department of Commerce at http://www.bea.gov/national/xls/gdpchg.xls
.
3

March 2013 Forecasts of Quarterly
US Real GDP for 2013-14
Real GDP Growth Rate
4%
3.7%
3.5%
3.6% 3.6%
3%
3.4%
2.9% 2.9%
2.7%
2.8%
2.5%
2.6%
2% 2.0%
2.1%
2.0%
1.7% 1.7%
1.6%
1%
1.1%
10 Most Pessimistic
Median
10 Most Optimistic
0%
3.7%
3.0%
2.2%
13:Q2 13:Q3 13:Q4 14:Q1 14:Q2 14:Q3 14:Q4
Sources: Blue Chip Economic Indicators (3/13); Insurance Information Institute
4

Depends on Exposure Growth,
Price Level Changes, and Other Factors
5

1991 –2013
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
“Hard” markets tend to occur during recessions
A pricing peak, at a
5.4% rate
Latest
(Jan 2013) at 4.9%
-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
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
7

Auto Loans and other Nonrevolving
Credit Outstanding, 1990 –2013*
$ Billions
$2,000
No growth in outstanding nonrevolving credit for three years
$1,750
$1,500
$1,250
$1,000 Spurt began in
Dec. 2010
$750
$500
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Note: Recessions indicated by gray shaded columns. *Latest data is for January 2013, preliminary
Sources: Federal Reserve at http://www.federalreserve.gov/datadownload/Download.aspx?rel=G19&series=8ee7aa36107a130bcc862d44824a3b86&lastObs=&fro m=&to=&filetype=csv&label=include&layout=seriescolumn&type=package
National Bureau of Economic Research (recession dates); Insurance Information Institutes.

15
10
5
0
(5)
(10)
(15)
Auto/Light Truck Exposure Changes,
2000-2014F
Millions of Units new vehicle registrations scrappage
20
In a “normal” 2-year span, new cars would replace about 25 million old cars, but in 2009-10 only about 17 million old cars were replaced
Sources: NADA, State of the Industry Report 2012 , p. 16, at www.nada.org/nadadata citing R. L. Polk; new vehicle estimate/forecasts from Blue Chip Economic Indicators, 3/2013 issue; scrappage estimates/forecasts from Insurance
Information Institute.
9

PP Auto NWP vs. # of Vehicles in Operation, 2001 –2011
$ Billion
Private Passenger Auto Premium No. of Vehicles in Operation (millions)
$165
$155
$145
$135
$125
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
250
245
240
235
230
225
220
215
PP Auto premiums written are recovering from a period of no growth attributable to the weak economy affecting new vehicle sales, car choice, and increased price sensitivity among consumers
Sources: A.M. Best; NADA, State of the Industry Report 2012 , p. 16, at www.nada.org/nadadata citing R. L. Polk;
Insurance Information Institute.
10

Billions
3,100
Something Unusual is Happening:
Miles Driven*, 1990 –2013
3,000
2,900
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%
2,800
2,700
2,600
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%
A record: miles driven has been below the prior peak for 62 straight months. Previous record was in the early 1980s
(39 months)
2,500
2,400
2,300
2,200
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 January 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.
11

14

Prices for Hospital Services:
12-Month Change,* 1998 –2013
Recession Outpatient Services Inpatient Services
14%
12%
10%
8%
6%
4%
2%
0%
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
15

Forces that Drive Car Repair Costs:
12-Month Change,* 2001 –2013
Recession Auto repair Auto body work
14%
12%
10%
8%
6%
4%
2%
0%
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
16

-3%
-6%
-9%
PP Auto BI Liability Paid Claim
Frequency*,
2004:Q1-2012:Q3
% Change from same quarter, prior year
3%
0%
The frequency of PP Auto BI paid claims (paid claims as a percent of earnedcar-years) fell (at a slowing rate) from 2004-2010, rose in 2011, fell again.
*measured as % change from same quarter, prior year Source: ISO Fast Track data.

4%
3%
2%
1%
0%
Trend in PP Auto BI Liability Average
Loss*
2008:Q4-2012:Q3
% Change from same quarter, prior year
7% BI liability average loss seems to be moderating.
6%
5%
*measured as % change from same quarter, prior year Source: ISO Fast Track data.

-1%
-2%
-3%
-4%
-5%
PP Auto PD Liability Paid Claim
Frequency*,
2008:Q4-2012:Q3
% Change from same quarter, prior year
3%
2%
1%
0%
The frequency of PP Auto PD liability paid claims fell in 2008-09 but has been essentially flat 10 the last 12 quarters.
*measured as % change from same quarter, prior year Source: ISO Fast Track data.

Trend in PP Auto PD Liability
Average Loss
2008:Q4-2012:Q3
% Change from same quarter, prior year
3.0%
2.5%
2.0%
PD growth in average loss trending down until 2010:Q3…
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
Then rising fairly steadily until 2012:Q2
*measured as % change from same quarter, prior year Source: ISO Fast Track data.

CDC Report: Cell Phone Use While
Driving, US and Europe, Fall 2011
Percent saying
“regularly” or
“fairly often”
30%
27.5%
20%
10%
“In the past 30 days, how often have you talked on the phone while you were driving?”
7.8%
8.8%
10.4%
12.8%
15.7%
19.5%
20.4%
“In the past 30 days, how often have you sent a text message or email while you were driving?”
7.7%
2.5%
4.3%
5.2%
2.8%
8.1%
5.9%
6.5%
0%
Talked on cell Texted/emailed
U.S.
U.K.
Germany 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
21

22

U.S. Treasury Security Yields*:
A Long Downward Trend, 1990 –2013
9%
8%
Yields on 10-Year U.S. Treasury
Notes have been essentially below 5% for a full decade.
7%
U.S. Treasury security yields recently plunged to record lows
6%
5%
4%
3%
2%
1%
Recession
2-Yr Yield
10-Yr Yield
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
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 Feb 2013.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm
.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.

Distribution of Bond Maturities,
P/C Insurance Industry, 2003-2011
2011
2010
2009
2008
2007
2006
2005
2004
2003
15.2%
16.3%
16.2%
15.7%
15.2%
16.0%
16.0%
15.4%
14.4%
41.4%
39.5%
36.2%
32.4%
30.0%
29.5%
28.8%
29.2%
29.8%
26.8%
26.7%
28.7%
31.2%
33.8%
34.1%
34.1%
32.5%
31.3%
10.3% 6.3%
11.1% 6.4%
11.7% 7.3%
12.7% 8.1%
12.9% 8.1%
13.1% 7.4%
13.6% 7.6%
15.4% 7.6%
15.4% 9.2%
Under 1 year
1-5 years
5-10 years
10-20 years over 20 years
0% 20% 40% 60% 80% 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 16.9% in 2011) and then trimmed bonds in the 5-10-year category.
Falling average maturity of the P/C industry’s bond portfolio is contributing to a drop in investment income along with lower yields.
Sources: A.M. Best; Insurance Information Institute.
24

Insurance Information Institute Online: