2013 Half-Year Natural Catastrophe Review
July 9, 2013
Agenda
Welcome/Introduction
Terese Rosenthal
US/Global Natural Catastrophe Update
Carl Hedde
Special Topic: Convective Storms and Floods
Peter Höppe
Economic Implications of Natural Catastrophe Losses
Dr. Robert Hartwig
Questions and Answers
© 2013 Munich Re
2
Webinar Interactivity
Questions and Answers
You will have an opportunity to ask questions at the conclusion of the
presentation.
To ask a question, please dial 1 4 on your phone.
An operator will facilitate your participation.
Live Tweeting
@Munichre_US
@lworters
@iiiorg
© 2013 Munich Re
#NATCAT2013
3
US/Global Natural Catastrophe Update
Carl Hedde, SVP, Head of Risk Accumulation
Munich Reinsurance America, Inc.
© 2013 Munich Re
Source: FEMA
MR NatCatSERVICE
The world‘s largest database on natural catastrophes
The Loss Database Today
 From 1980 until today all loss
events; for USA and selected
countries in Europe all loss events
since 1970.
 Retrospectively, all great disasters
since 1950.
 In addition, all major historical
events starting from 79 AD –
eruption of Mt. Vesuvio (3,000
historical data sets).
 Currently more than 33,000
events
© 2013 Munich Re
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US Natural Catastrophe Update
2013 Headlines
 Insured losses in the United States during the first half of 2012 totaled
$7.9 billion – far below the 2000 to 2012 January – June average loss of
$13.8 billion (in 2013 Dollars).
 Despite a relatively quiet year for tornadoes, insured losses from
thunderstorm events exceeded $6.0 billion.
 Severe drought cripples agriculture over large section of central United
States.
 Dry conditions lead to the most damaging wildfire in Colorado history,
breaking the previous record set in 2012.
© 2013 Munich Re
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US Natural Catastrophe Update
Natural Disaster Losses in the United States, 2013
Number of
Events
Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm
29
66
10,180
6,325
Winter Storm
13
17
2,434
1,255
Flood
10
9
500
Minor
Earthquake &
Geophysical
5
0
Minor
Minor
Tropical Cyclone
1
1
Minor
Minor
Wildfire, Heat, &
Drought
11
23
700
365
Totals
68
116
13,814
7,945
As of July 1, 2013
Source: MR NatCatSERVICE
© 2013 Munich Re
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US Natural Catastrophe Update
Natural Disasters in the United States, 1980 – 2013
Number of Events, January – June only
140
First Six Months 2013
68 Events
120
100
80
11
60
10
40
42
20
5
1980
1982
1984
Geophysical events
(Earthquake, tsunami,
volcanic eruption)
Source: MR NatCatSERVICE
1986
1988
1990
1992
1994
1996
1998
Meteorological events
(Storm)
© 2013 Munich Re
2000
2002
2004
Hydrological events
(Flood, mass
movement)
2006
2008
2010
2012
Climatological events
(Extreme temperature,
drought, forest fire)
8
US Natural Catastrophe Update
Natural Disasters in the United States, 1980 – 2013
Number of Events (Annual Totals 1980 – 2012 vs. First Six Months 2013)
300
First Six Months 2013
68 Events
250
200
150
100
11
10
50
42
5
1980
1982
1984
1986
Geophysical events
(Earthquake, tsunami,
volcanic eruption)
Source: MR NatCatSERVICE
1988
1990
1992
1994
1996
1998
Meteorological events
(Storm)
© 2013 Munich Re
2000
2002
2004
Hydrological events
(Flood, mass
movement)
2006
2008
2010
2012
Climatological events
(Extreme temperature,
drought, forest fire)
9
US Natural Catastrophe Update
Losses Due to Natural Catastrophes in the United States
1980 – 2013 (Jan – June only)
Insured losses in the US totaled US$ 7.9bn
90
80
70
60
50
40
30
20
10
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2002
2004
2006
2008
2010
2012
Insured losses (in 2012 values)
Overall losses (in 2012 values)
Sources: MR NatCatSERVICE, Property Claims Services
2000
© 2013 Munich Re
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2013 US Thunderstorm Season
© 2013 Munich Re
US Natural Catastrophe Update
US Tornado Count
First Half 2013
© 2013 Munich Re
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US Natural Catastrophe Update
US Thunderstorm Loss Trends
January – June only, 1980 - 2012
Thunderstorm losses for the period January – June in 2013 are lower than the past two
years, but in line with experience over the past 10 years.
Source: Property Claims Service
MR NatCatSERVICE
© 2013 Munich Re
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US Natural Catastrophe Update
US Thunderstorm Loss Trends
Annual Totals 1980 – 2013 YTD
Average thunderstorm losses have increased sevenfold since 1980.
Source: Property Claims Service
MR NatCatSERVICE
© 2013 Munich Re
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US Natural Catastrophe Update
Notable Thunderstorm Events
First Half 2013
May 18-20: Large outbreak of over 60 tornadoes across the midwest and southern Great
Plains. Moore, Oklahoma, was hit by an EF5 tornado (5th tornado strike of EF2 or above in
the town since 1998). Thousands of homes, 2 schools, and a hospital destroyed. Overall
insured losses from the outbreak are estimated at US$ 1.6 billion.
Source: FEMA
Source: Property Claims Service
MR NatCatSERVICE
© 2013 Munich Re
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US Natural Catastrophe Update
Notable Thunderstorm Events
First Half 2013
May 28-31: Another large
outbreak occurred over the
southern Plains. The city of
El Reno, Oklahoma, was hit
by an EF5 tornado that
possessed the largest
diameter ever observed in a
tornado, over 2 miles.
Fortunately, downtown El
Reno was not hit. Overall
insured losses from the
outbreak are estimated at
US$ 815 million.
Source: NWS
© 2013 Munich Re
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US Tropical Cyclones 2013
© 2013 Munich Re
US Natural Catastrophe Update
U.S. Tropical Cyclones in 2013
First Six Months 2013
Tropical Storm Andrea
 Landfall on June 6 near Cedar Key,
Florida as a tropical storm with
sustained winds of 65 mph.
Photo: FEMA
© 2013
2012 Munich Re
Source: NOAA
 Minor wind damage in Florida, storm
and its remnants causes localized
flooding along length of eastern
seaboard.
18
US Natural Catastrophe Update
Number of US Landfalling Tropical Cyclones
1900 – 2013 YTD
There has not been a major hurricane landfall in the US since Wilma in 2005.
Source: NOAA
© 2013 Munich Re
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US Natural Catastrophe Update
Insured US Tropical Cyclone Losses, 1980 - 2013
The current 5-year average (2008-2012) for privately insured tropical cyclone losses are $8.8
billion per year.
Sources: Property Claims Service, MR NatCatSERVICE, NFIP
©
© 2013
2013 Munich
Munich Re
Re
20
Other US Natural Catastrophes in 2013
© 2013 Munich Re
Source: NASA
US Natural Catastrophe Update
US Drought Conditions in December 2012
© 2013 Munich Re
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US Natural Catastrophe Update
Current US Drought Conditions
© 2013 Munich Re
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US Natural Catastrophe Update
2013 Western US Drought Impacts
 Severe drought continues over large area of western United States,
encompassing 15 states and almost of half of the area of the lower 48
states.
 Severe damage to crops
(soybeans, sorghum) and
livestock
Source: NOAA/CPC
 Record setting heat in the
desert southwest.
 Ongoing economic losses
from the drought are
estimated at over $20 billion.
© 2013 Munich Re
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US Natural Catastrophe Update
Number of Acres Burned in Wildfires,
1980 – 2013 YTD
Source: National Interagency Fire Center
© 2013 Munich Re
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US Natural Catastrophe Update
Notable Wildfires in 2013
 Colorado: “Black Forest” fire
near Colorado Springs destroyed
511 homes, becoming the most
damaging fire in state history,
surpassing the losses from the
“Waldo Canyon” fire in 2012. The
insured loss estimate from this
fire is US$ 365m.
 Arizona: “Yarnell Hill” fire near
Prescott consumes over 8,400
acres, destroys over 200
buildings, and claimed the lives
of at least 19 firemen, the sixthworst loss of firemen from a
single event in U.S. history.
Source: USDA
© 2013 Munich Re
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Global Natural Catastrophe Update
© 2013 Munich Re
Global Natural Catastrophe Update
Natural Catastrophes January – June 2013
World map with significant events
Floods
Canada, June
Floods
Europe,
June
Winter storm
USA, 7–11 April
Earthquake
China,
20 April
Severe storms, tornadoes
USA, 18–20 March
Floods
India,
June
Severe storms, tornadoes
USA, 18–19 March
Heat wave
India, June
Number of events: 460
Natural catastrophes
Selection of significant
loss events
Geophysical events
(earthquake, tsunami, volcanic activity)
Meteorological events
(storm)
© 2013 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE
– as at June
© 2013 Munich
Re2013
Floods
Indonesia,
15–22 January
Floods
Australia,
21–31 January
Hydrological events
(flood, mass movement)
Climatological events
(extreme temperature, drought, wildfire)
28
Global Natural Catastrophe Update
Natural Catastrophes Worldwide 2013
Overview and Comparison with Previous Years
2013
(Jan – June)
Number of events
460
Overall losses in
US$m
45,000
(original values)
Insured losses in
US$m
(original values)
13,000
Fatalities
4,000
Source: MR NatCatSERVICE
©
© 2013
2013 Munich
Munich Re
Re
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Global Natural Catastrophe Update
Natural Catastrophes Worldwide 2013
Overview and Comparison with Previous Years
2013
(Jan – June)
2012
(Jan – June)
Number of events
460
520
Overall losses in
US$m
45,000
58,000
Insured losses in
US$m
(original values)
13,000
19,000
Fatalities
4,000
4,500
(original values)
Source: MR NatCatSERVICE
© 2013 Munich Re
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Global Natural Catastrophe Update
Natural Catastrophes Worldwide 2013
Overview and Comparison with Previous Years
2013
(Jan – June)
2012
(Jan – June)
Average of
the last 10
years
2003-2012
(Jan –June)
Number of events
460
520
390
Overall losses in
US$m
45,000
58,000
85,000
Insured losses in
US$m
(original values)
13,000
19,000
22,000
Fatalities
4,000
4,500
53,000
(original values)
Source: MR NatCatSERVICE
© 2013 Munich Re
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Global Natural Catastrophe Update
Natural Catastrophes Worldwide 2013
Overview and Comparison with Previous Years
2013
(Jan – June)
2012
(Jan – June)
Average of
the last 10
years
2003-2012
(Jan –June)
Average of
the last 30
years
1983-2012
(Jan –June)
Number of events
460
520
390
300
Overall losses in
US$m
45,000
58,000
85,000
61,600
Insured losses in
US$m
(original values)
13,000
19,000
22,000
13,500
Fatalities
4,000
4,500
53,000
30,000
(original values)
Source: MR NatCatSERVICE
© 2013 Munich Re
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Global Natural Catastrophe Update
Natural Catastrophes Worldwide 2013
Overview and Comparison with Previous Years
2013
(Jan – June)
2012
(Jan – June)
Average of
the last 10
years
2003-2012
(Jan –June)
Average of
the last 30
years
1983-2012
(Jan –June)
Top Year
1983 -2012
(Jan – June)
Number of events
460
520
390
300
2012
620
Overall losses in
US$m
45,000
58,000
85,000
61,600
2011
(EQ Japan)
302,000
Insured losses in
US$m
(original values)
13,000
19,000
22,000
13,500
2011
(EQ, Japan)
82,000
Fatalities
4,000
4,500
53,000
30,000
2010
(EQ Haiti)
230,000
(original values)
Source: MR NatCatSERVICE
© 2013 Munich Re
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Global Natural Catastrophe Update
Natural Catastrophes Worldwide 1980 – 2013
Number of Events (Annual Totals 1980 – 2012 vs. First Six Months 2013)
Number
First Six Months in 2013
460 Events
1 200
1 000
800
600
400
200
1980
1982
1984
1986
Geophysical events
(Earthquake, tsunami,
volcanic eruption)
Source: MR NatCatSERVICE
1988
1990
1992
1994
1996
1998
Meteorological events
(Storm)
© 2013 Munich Re
2000
2002
Hydrological events
(Flood, mass
movement)
2004
2006
2008
2010
2012
Climatological events
(Extreme temperature,
drought, forest fire)
34
Global Natural Catastrophe Update
Natural Catastrophes Worldwide 1980 – 2013
Number of Events (January – June only)
Number
First Six Months in 2013
460 Events
600
500
400
300
200
100
1980
1982
1984
1986
Geophysical events
(Earthquake, tsunami,
volcanic eruption)
Source: MR NatCatSERVICE
1988
1990
1992
1994
1996
1998
Meteorological events
(Storm)
© 2013 Munich Re
2000
2002
Hydrological events
(Flood, mass
movement)
2004
2006
2008
2010
2012
Climatological events
(Extreme temperature,
drought, forest fire)
35
Global Natural Catastrophe Update
Natural Catastrophes Worldwide 1980 – 2013
Overall and Insured Losses (Annual Totals 1980 – 2012 vs. First Six Months 2013)
Overall losses totaled US$ 45bn; Insured losses totaled US$ 13bn
(bn US$)
450
400
350
300
250
200
150
100
50
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Overall losses (in 2012 values)
Source: MR NatCatSERVICE
2000
2002
2004
2006
2008
2010
2012
Insured losses (in 2012 values)
© 2013 Munich Re
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Global Natural Catastrophe Update
Natural Catastrophes Worldwide 1980 – 2013
Overall and Insured Losses (January – June only)
Overall losses totaled US$ 45bn; Insured losses totaled US$ 13bn
(bn US$)
350
300
250
200
150
100
50
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Overall losses (in 2012 values)
Source: MR NatCatSERVICE
2000
2002
2004
2006
2008
2010
2012
Insured losses (in 2012 values)
© 2013 Munich Re
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Global Natural Catastrophe Update
Natural Catastrophes: Comparison of Insured Losses
Percentage Distribution – Annual Totals 1980 – 2012 vs. First Six Months 2013
16%
65%
27%
59%
14%
4%
<1%
<1%
5%
10%
Insured losses
US$
1980 – 2012 (annual totals):
970bn*
2013 (first six months):
13bn
Source: MR NatCatSERVICE
*losses in 2012 values
© 2013 Munich Re
38
Global Natural Catastrophe Update
Natural Catastrophes Worldwide 2013
The Five Costliest Natural Catastrophes for the Insurance Industry
Overall
losses
US$ m
Fatalities
Insured
losses
US$ m
Date
Region
Event
June 2013
Europe
Floods
22
>16,000*
~3,900*
18-20.5.2013
USA
Thunderstorms,
tornado
26
3,100
1,575
18-19.3.2013
USA
Thunderstorms
2
2,000
1,415
June 2013
Canada
Floods
3
>3,000*
>1,000*
21-31.1.2013
Australia
Floods
6
2,000
1,100
*Loss estimation in progress
Source: PCS - Property Claim Services
© 2013 Munich Re
39
Global Natural Catastrophe Update
Costliest Natural Catastrophes Since 1950
Rank by Insured Losses
Year
Event
Region
Insured loss
US$m
(in original values)
2005
Hurricane Katrina
USA
62,200
2011
EQ, tsunami
Japan
40,000
2012
Hurricane Sandy
USA, Caribbean
30,150
2008
Hurricane Ike
USA, Caribbean
18,500
1992
Hurricane Andrew
USA
17,000
2011
Floods
Thailand
16,000
2012
Drought
USA
16,000
1994
EQ Northridge
USA
15,300
2004
Hurricane Ivan
USA, Caribbean
13,800
2011
EQ Christchurch
New Zealand
13,000
Source: MR NatCatSERVICE
© 2013 Munich Re
40
Special Topic:
Convective Storms and Floods
Prof. Dr. Peter Höppe,
Head Geo Risks Research/Corporate Climate Centre,
© 2013 Munich Re
Special Topic: Convective Storms and Floods
Convective loss events in the U.S.
Number of events 1980 – 2012 and the half year 2013
Number
160
140
120
100
80
60
40
20
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Loss events caused by straight-line winds, tornadoes, hail, heavy precipitation, flash floods, lightning
Source: Geo Risks Research, NatCatSERVICE – As at July 2013
© 2013 Munich Re
42
Special Topic: Convective Storms and Floods
Convective loss events in the U.S.
Overall and insured losses 1980 – 2012 and the half year 2013
(bn US$)
50
45
40
35
30
25
20
15
10
5
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Analysis contains: straight-line winds, tornadoes, hail, heavy precipitation, flash floods, lightning.
Overall losses (in 2012 values)
Source: Geo Risks Research, NatCatSERVICE – As at July 2013
Insured losses (in 2012 values)
© 2013 Munich Re
43
Special Topic: Convective Storms and Floods
New Munich Re/DLR scientific paper on U.S.
Thunderstorm Trends
© 2013 Munich Re
44
Special Topic: Convective Storms and Floods
Major Results of New Munich Re Convective Storm
Study
• 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 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 it could be shown
that climatic changes have already
influenced US thunderstorm losses!
© 2013 Munich Re
45
Special Topic: Convective Storms and Floods
Specific humidity has risen in large parts
of northern hemisphere
Change in near-surface specific humidity over time in the northern hemisphere
1973–2012 (Source: Willett et. al. (2013), Clim. Past, 9, 657–677.)
Black dots: trends significant at the 95% level
Climate model based studies: Increase has to be expected from anthropogenic climate change
(Willet et al., 2010, Environ. Res. Letter, 5; Santer et al., 2007, PNAS, 104)
© 2013 Munich Re
46
Special Topic: Convective Storms and Floods
Observed changes in sea surface temperature
in tropical ocean basins (1968-2012)
Five-year running mean
Source: Munich Re, May 2013.
Data source: HadISST, MetOffice, 2013
© 2013 Munich Re
47
Floods
© 2013 Munich Re
Special Topic: Convective Storms and Floods
Floods in Europe in May/June 2013
Most probably the most expensive nat cat in Germany!
Source: GDV
Region
Germany, Austria,
Czech Republic
* Loss estimation still ongoing
Overall losses
Insured losses
Fatalities
US$ > 16 bn*
US$ ~3.9 bn*
22
Source: New York Times
© 2013 Munich Re
49
Special Topic: Convective Storms and Floods
Historical Precipitation and River Gauge Records
Precipitation anomalies in May 2013
72 h precipitation sums June1-3, 2013
© 2013 Munich Re
50
Special Topic: Convective Storms and Floods
Weather pattern trough over central Europe
Weather pattern trough over central Europe
in June - August
[Days]
20
Number of days
per year
18
16
14
11-year running mean
12
 The number of days with
the weather pattern trough
over central Europe has
increased
(see upper graph)
10
8
 One reason is that weather
patterns in general move
more slowly from west to
east, leading to a longer
persistence
6
4
2
1885
1890
1895
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
0
Duration of weather patterns
(10-year running mean)
[Days]
(see lower graph)
year
summer
winter
 Scientific findings indicate
that climate change driven
arctic warming is
responsible for the
reduced propagation
(Francis and Vavrus 2012)
Data source: Katalog der Grosswetterlagen Europas (1881-2009).
PIK Report No. 119.
© 2013 Munich Re
51
Special Topic: Convective Storms and Floods
Floods in Calgary Region (Alberta, Canada) June 20-23
Worst flood in documented Canadian history
220 mm precipitation
within 36 hours
(= average half year
precipitation),
75,000 people
evacuated
Source: Rueters
Region
Canada, Alberta
Overall losses
Insured losses
US$ >3.0bn*
US$ > 1.0bn*
Fatalities
3
Source: New York Times
* Loss estimation still ongoing
© 2013 Munich Re
52
Special Topic: Convective Storms and Floods
Floods in Calgary Region (Alberta, Canada) June 20-23
Worst flood in Alberta in documented history!
A large ridge in the jet stream caused record warmth in Alaska and hot weather across parts
of Canada’s north and blocked a strong dip in the jet stream from moving quickly from west
to east.
Source: http://www.theweathernetwork.com/news/articles/albertafloods-why-is-there-so-much-rain/8124/
© 2013 Munich Re
53
Special Topic: Convective Storms and Floods
Article
, 2012
© 2013 Munich Re
54
Special Topic: Convective Storms and Floods
Floods in India June 2013
The deadliest natural catastrophe of first half of 2013!
Source: NASA
Source: NASA
Region
Overall losses
Insured losses
Fatalities
India, Uttarakhand
Loss estimation in
progress
Loss estimation in
progress
1,056
© 2013 Munich Re
55
Special Topic: Convective Storms and Floods
Enhanced future variability during India's rainy season
New climate model simulations
Ensemble climate model
simulations (for IPCC AR-5)
projects significant increases
from pre-industrial climate
to 2100 in day-to-day rainfall
variability
- in all the 20 models (see
graphic)
Time series of intra seasonal standard deviation of all
India summer monsoon rainfall (June-Sept.) for the
strongest future warming scenario (RCP-8.5)
Menon A., et al. (2013): Enhanced future variability during India's
rainy season. Geophys. Res. Lett.
© 2013 Munich Re
- and under all four future
warming scenarios
(Representative Concentration Pathways
RCP -2.6/-4.5/-6.0/-8.5)
56
Special Topic: Convective Storms and Floods
Study shows causal associations between climate
change and weather extremes
“… Here we show that human-induced
increases in greenhouse gases have
contributed to the observed
intensification of heavy precipitation
events found over approximately twothirds of data-covered parts of Northern
Hemisphere land areas. ..Changes in
extreme precipitation projected by
models and thus the impacts of future
changes in extreme precipitation, may
be underestimated because models
seem to underestimate the observed
increase in heavy precipitation with
warming”.
© 2013 Munich Re
57
Market & Financial Impact of
Catastrophe Loss:
First Half 2013
Insurance Information Institute
July 9, 2013
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
P/C Insurance Industry
Financial Overview
Industry’s Financial Strength
and Overall Performance
Improved During the First
Half of 2013 in Part Due to
Lower Catastrophe Losses
59
P/C Net Income After Taxes
1991–2013:Q1 ($ Millions)
$14,394
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
$65,777
Net income is up
substantially
(+40.9%) from
2012:Q1 $10.2B
$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
2012:Q1
ROAS
was 7.2%
$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









$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:Q1
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013:Q1*
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:Q1
9.7%
15%
9 Years
10%
5%
2012:
5.9%
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:Q1
-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.
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
97.5
100.6 100.1 100.8
9.6%
10.9%
101.2
99.5
95
7.4%
92.7
8.8%
15%
102.4
101.0
95.7
9.7%
7.9%
6.2%
94.8
4.7%
6%
Catastrophes and
lower investment
income pulled
down ROE in 2012
85
80
1978
1979
2003
2005
2006
2007
Combined Ratio
2008
2009
2010
12%
9%
4.3%
90
18%
2011
3%
0%
2012 2013:Q1
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012 combined ratio
including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO data.
INVESTMENTS:
THE NEW REALITY
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
63
Property/Casualty Insurance Industry
Investment Income: 2000–2013*1
($ Billions)
$60
$54.6
$52.3
$51.2
$49.5
$50
$49.2
$47.1
$47.7
$47.6
$45.5
$40
$38.9
$38.7
$37.1
$36.7
01
02
$39.6
Investment earnings are
running below their 2007
pre-crisis peak
$30
00
03
04
05
06
07
08
09
10
11
12
13*
Investment Income Fell in 2012 and is Falling in 2013 Due to Persistently
Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1
Investment gains consist primarily of interest and stock dividends..
*Estimate based on annualized actual Q1:2013 investment income of $11.385B.
Sources: ISO; Insurance Information Institute.
SURPLUS/CAPITAL/CAPACITY
Industry Claims Paying Capital Stands
at or Near Record High as of
Mid-2013;
Strength Despite Large Catastrophe
Losses in 2011-2012, Including Sandy
65
Policyholder Surplus,
2006:Q4–2013:Q1
($ Billions)
Drop due to near-record
2011 CAT losses
2007:Q3
Pre-Crisis Peak
$620
$607.7
$600
$583.5$586.9
$566.5
$580
$559.2
$560
$540
$520
$500
$480
$460
$440
$544.8
$540.7
$530.5
$521.8$517.9
$515.6
$512.8
$505.0
$496.6
$487.1
$478.5
The Industry now has $1
of surplus for every $0.80
of NPW, close to the
strongest claims-paying
status in its history.
$570.7
$567.8
$559.1
$550.3
$538.6
$511.5
$490.8
$455.6
$463.0
Surplus as of 3/31/13 stood
at a record high $607.7B
$437.1
$420
06:Q407:Q107:Q207:Q307:Q408:Q108:Q208:Q308:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q413:Q1
*Includes $22.5B of paid-in capital
from a holding company parent for
one insurer’s investment in a noninsurance business in early 2010.
Sources: ISO, A.M .Best.
The P/C Insurance Industry Both Entered
and Emerged from the 2012 Hurricane
Season Very Strong Financially.
66
Reinsurance Capital Is at a Record High
Change in Global Reinsurer Capital
Source: Reinsurance Association of America from company reports and Aon Benfield Analytics.
Premium Growth
Catastrophe Losses Impact
Trajectory of Premium Growth
68
Net Premium Growth: Annual Change,
1971—2013:Q1
(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%
15%
2013:Q1
growth
was
+4.1%
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:Q1
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
69
20%
5%
-5%
-10%
Sources: ISO, Insurance Information Institute.
1.3%
2.3%
1.7%
3.5%
1.6%
4.1%
3.8%
3.0%
4.2%
5.1%
4.8%
4.1%
0.5%
2.1%
0.0%
0%
10.3%
10.2%
13.4%
6.6%
15.1%
16.8%
16.7%
12.5%
10.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
10%
10.2%
15%
2002:Q1
2002:Q2
2002:Q3
2002:Q4
2003:Q1
2003:Q2
2003:Q3
2003:Q4
2004:Q1
2004:Q2
2004:Q3
2004:Q4
2005:Q1 -4.6%
2005:Q2
-4.1%
2005:Q3 -5.8%
2005:Q4
-1.6%
2006:Q1
2006:Q2
2006:Q3
2006:Q4
2007:Q1
-1.6%
2007:Q2
2007:Q3
2007:Q4
-1.9%
2008:Q1
2008:Q2
-1.8%
2008:Q3
-0.7%
2008:Q4 -4.4%
2009:Q1
-3.7%
2009:Q2 -5.3%
2009:Q3 -5.2%
2009:Q4
-1.4%
2010:Q1
-1.3%
2010:Q2
2010:Q3
2010:Q4
2011:Q1
2011:Q2
2011:Q3
2011:Q4
2012:Q1
2012:Q2
2012:Q3
2012:Q4
2013:Q1
P/C Net Premiums Written: % Change,
Quarter vs. Year-Prior Quarter
Premium growth in Q1
2013 was up 4.1% over
Q1 2012, marking the
12th consecutive
quarter of growth
Sustained Growth in Written Premiums
(vs. the same quarter, prior year) Will Continue through 2013
70
UNDERWRITING
Underwriting Losses in 2012 and
2011 Were Impacted by High
Catastrophe Losses
Too Soon to Tell for 2013; Historically Q3
Has the Highest Losses for the US
71
P/C Insurance Industry
Combined Ratio, 2001–2013:Q1*
Heavy Use of
Reinsurance
Lowered Net
Losses
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Relatively
Low CAT
Losses,
Reserve
Releases
120
Best
Combined
Ratio Since
1949 (87.6)
115.8
110
107.5
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Relatively
Low CAT
Losses,
Reserve
Releases
Cyclical
Deterioration
Avg. CAT
Losses,
More
Reserve
Releases
Lower
CAT
Losses
Before
Sandy
106.3
101.0
100.8
100.1
99.3
98.4
100
102.4
100.8
95.7
94.8
92.6
:Q
1
20
13
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
20
01
90
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2.
Sources: A.M. Best, ISO.
72
Underwriting Gain (Loss)
1975–2013:Q1*
($ Billions)
$35
$25
Underwriting
profit in
2013:Q1
totaled $4.6B
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:Q1
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.
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2012*
8.7
9.0
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: 7.01*
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.
74
Severe Weather Events:
First Half 2013
Natural Catastrophe Activity Has
Down from Elevated Levels of
First Half 2011-2012
75
U.S. Tornado Count, 2005-2013*
There were 1,897 tornadoes
in the U.S. in 2011 far
above average, but well
below 2008’s record
2013 count is
running well
below average
*Through July 6, 2013.
Source: http://www.spc.noaa.gov/wcm/.
76
Location of Tornado Reports:
Through July 3, 2013
The storm
system that
spawned the
deadly EF-5
tornado on May
19 in Moore, OK,
produced
insured losses
of $1.575 billion
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#; PCS.
There were 630
tornadoes
through July 3,
causing
extensive
property
damage in
several states
77
Number of Tornadoes and Related
Deaths, 1990 – 2013*
600
1,692
939
1,691
1,282
1,098
1,103
1,376
1,216
1,071
1,148
1,173
1,234
1,082
1,173
1,297
1,132
628 tornadoes have
been recorded so far
this year, 44 deaths*
400
300
628
800
553
500
941
1,000
1,133
1,200
600
400
200
Number of Deaths
Number of Tornadoes
1,600
1,345
1,424
Number of Deaths
1,800
1,400
1,819
1,146
Number of Tornadoes
1,264
2,000
Tornadoes claimed 553 lives in
2011, the most since 1925
100
200
0
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*
Insured Losses from Tornadoes and Thunderstorms in the First Half of
Produced Insured Losses of Approximately $6B.
*Through July 3, 2013.
Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service at http://www.spc.noaa.gov/climo/online/monthly/newm.html
78
Location of Large Hail Reports:
Through July 3, 2013
Large hail
reports were
heavily
concentrated in
the Plains states
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
There were
3,716 “Large
Hail” reports
through July 3,
causing
extensive
property and
vehicle damage
79
Location of High Wind Reports:
Through July 3, 2013
Wind damage
reports were
more heavily
concentrated in
the Southeast
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
There were
7,371 “Wind
Damage”
reports through
July 3, causing
extensive
property
damage
80
Severe Weather Reports:
Through July 3, 2013
There were
11,717 severe
weather reports
through July 3;
including 630
tornadoes;
3,716 “Large
Hail” reports
and 7,371 high
wind events
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
81
Number of Severe Weather Reports in US,
by Type, 2013*
Tornadoes,
630 , 5%
Large Hail,
3,716 , 32%
Wind
Damage,
7,371 , 63%
Tornadoes
accounted for just
5% of all Severe
Weather Reports so
far in 2013. Tornado
and Hail reports are
running below
average while Wind
reports are close to
average
*As of July 3, 2013
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
82
OUTLOOK FOR 2013 HURRICANE SEASON:
ABOVE AVERAGE ACTIVITY EXPECTED
Hurricanes and Tropical Storms
Frequently Drive Some of the
Largest Losses Each Year as with
Sandy in 2012
83
Outlook for 2013 Hurricane Season:
75% Worse Than Average
Forecast Parameter
Median
2013F
(1981-2010)
Named Storms
12.0
18
Named Storm Days
60.1
95
Hurricanes
Hurricane Days
6.5
21.3
9
40
Major Hurricanes
2.0
4
Major Hurricane Days
3.9
9
Accumulated Cyclone Energy
92.0
165
Net Tropical Cyclone Activity
103%
175%
Source: Philip Klotzbach and Dr. William Gray, Colorado State University, June 2013, accessed at
http://tropical.atmos.colostate.edu/forecasts/2013/jun2013/jun2013.pdf ; Insurance Information Institute..
Landfall Probabilities for 2013 Hurricane
Season: Above Average
Entire US East & Gulf
Coasts
US East Coast Including
Florida Peninsula
Gulf Coast from Florida
Panhandle to Brownsville
Caribbean
Average*
2013F
52%
72%
31%
48%
30%
47%
42%
61%
*Average over the past century.
Source: Philip Klotzbach and Dr. William Gray, Colorado State University, June 2013.
Top 12 Most Costly Hurricanes
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
10 of the 12 most costly hurricanes in insurance
history occurred over the past 9 years (2004—2012)
Hurricane Sandy became
the 3rd costliest
hurricane in US
insurance history
$60
$50
$40
$30
Hurricane Irene
became the 12th most
expensive hurricane
in US history in 2011
$25.6
$18.8
$20
$10
$48.7
$5.6
$6.7
$7.8
$8.7
$9.2
$4.4
$5.6
Irene
(2011)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$11.1
$13.4
$0
Wilma
(2005)
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
Ike
(2008)
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
86
Hurricane Sandy: Claim Payments to
Policyholders, by State
($ Thousands)
$12,000
$10,000
$9,600
$8,000
$6,300
TOTAL = $18.75 BILLION
At $9.6B and $6.6B,
respectively, NY and
NJ suffered, by far,
the largest losses
from Hurricane Sandy
$6,000
$4,000
$2,000
$700 $500
$410 $295 $292 $210
$103
$84
$58
$57
$55
$37
$36
$0
NY NJ
PA CT MD VA OH MA
RI
$13
DE WV NC NH DC ME VT
Insurers Will Pay at Least $18.75 Billion to 1.52 Million Policyholders
Across 15 States and DC in the Wake of Hurricane Sandy
Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of Jan. 18, 2013; Insurance Information
Institute .
87
Hurricane Sandy: Insured Loss by
Claim Type* ($ Millions)
Total Claim Value = $18.75
Billion*
Commercial
, $9,024 ,
48%
Auto, $2,729
, 15%
Although Commercial
Lines accounted for
only 13% of total
claims, they account
for 48% of all claim
dollars paid. In most
hurricanes,
Commercial Lines
accounts for about
1/3 of insured losses.
Homeowner
, $6,997 ,
37%
*PCS insured loss estimates as of 1/18/13. Catastrophe modeler estimates range up to $25 billion. All figures exclude losses paid by the NFIP.
Source: PCS; Insurance Information Institute.
88
Hurricane Sandy: Average Claim Payment
by Type of Claim
$60,000
$50,000
$40,000
$30,000
$51,996
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
$20,000
$10,994
$10,000
$6,558
$44,563
The average insured flood
loss was nearly 8 times
larger than the average
non-flood insured loss
(mostly wind)
$0
Homeowners*
Vehicle
Commercial
NFIP Flood**
Commercial (Business) Claims Were Nearly Seven Times More Expensive
than Homeowners Claims; Vehicle Claims Were Unusually Expensive
Due to Extensive Flooding
*Includes rental and condo policies (excludes NFIP flood). **Preliminary as of May 14, 2013.
Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of March 2013; Insurance Information Institute.
89
Total Value of Insured Coastal Exposure
in 2012
(2012, $ Billions)
New York
$2,923.1
$2,862.3
Florida
Texas
$1,175.3
Massachusetts
$849.6
$2.923 trillion
$713.9
New Jersey
insured coastal
Connecticut
$567.8
exposure in New
Louisiana
$293.5
York in 2012
$239.3
S. Carolina
Virginia
$182.3
In 2012, New York ranked as the #1 most
Maine
$164.6
exposed state to hurricane loss, overtaking Florida
$163.5
North Carolina
with $2.862 trillion. Texas is very exposed too, and
Alabama
$118.2
ranked #3 with $1.175 trillion
Georgia
$106.7
in insured coastal exposure
$81.9
Delaware
New Hampshire $64.0
The insured value of all coastal property was $10.6
Mississippi $60.6
trillion in 2012 , up 20% from $8.9 trillion in 2007 and
Rhode Island $58.3
up 48% from $7.2 trillion in 2004
Maryland $17.3
$0
Source: AIR Worldwide.
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
90
Total Potential Home Value Exposure to
Storm Surge Risk in 2013*
($ Billions)
$386.5
Florida
$135.0
New York
$118.8
New Jersey
$78.0
Virginia
$72.0
Louisiana
Nearly $400 billion in
S. Carolina
$65.6
home value is exposed
$65.2
N. Carolina
to storm surge in FL
$51.0
Texas
$50.3
Massachusetts
$35.0
Connecticut
$22.4
Maryland
$20.5
Georgia
$15.9
Delaware
The Value of Homes Exposed to Storm Surge was
$10.4
Mississippi
$1.147 Trillion in 2013.* Only a fraction of this is
Rhode Island $7.2
insured, hence the huge demand for federal aid
Alabama $4.7
following major coastal flooding events.
Maine $3.1
New $2.7
Pennsylvania $2.6
DC $0.6
$0
$50
$100
$150
$200
$250
*Insured and uninsured property. Based on estimated property values as of April 2013.
Source: Storm Surge Report 2013, CoreLogic.
$300
$350
$400
$450
91
Storm Surge Inundation Graphic
 NHC shooting for mid-season for deployment.
First of many ways of distributing storm-surge
forecasts.
Catastrophe Losses and
Public Opinion:
First Half 2013 Poll
Many Americans Don’t Believe It’s
Fair to Reflect Higher
Catastrophe Losses in Rates;
Government Aid Influences
Insurance Purchase Decision
93
I.I.I. Poll: Homeowners Insurance
Q. Do you think that it is fair that people who live in areas affected by record
storms in 2011 and 2012 should pay more for their homeowners insurance in
the future?
Don’t know
Public believes it
is not fair to raise
premiums of
homeowners due
to events they
cannot control
4%
37%
No
59%
Yes
Nearly 60 percent of Americans believe that homeowners insurance
premiums should not be raised as a result of recent storms in their areas.
Source: Insurance Information Institute Annual Pulse Survey.
94
I.I.I. Poll: Disaster Preparedness
Q. If you expect some relief from the government, do you purchase less
insurance coverage against these natural disasters than you would have
otherwise?
Don’t know
Yes
6%
22%
No
More than 20
percent cut back
on insurance
coverage in
expectation of
government
disaster aid
72%
Seventy-two percent of Americans would not purchase less insurance if
they expect some relief from the government—but 22% would.
Source: Insurance Information Institute Annual Pulse Survey.
95
I.I.I. Poll: Flood Insurance
Q. The federal government plans to raise the price of flood insurance
so it reflects the costs of paying claims. Do you believe this is fair?
[% Responding “NO”]
Most people believe it is unfair for government
to raise flood insurance premiums, even though
they are subsidized by taxpayers
80%
60%
55%
46%
47%
Northeast
West
58%
61%
Midwest
South
40%
20%
0%
Total U.S.
More than one-half of Americans do not think it is fair for the federal
government to raise its flood insurance premiums to better reflect claims
payouts.
Source: Insurance Information Institute Annual Pulse Survey.
96
I.I.I. Poll: Disaster Preparedness
Q. Have recent flooding events such as Hurricane Sandy or Hurricane Irene
motivated you to buy flood coverage?1
Yes
100%
100%
99%
96%
No
96%
93%
80%
60%
Despite recent major flood events, few
people see the need to buy coverage
40%
20%
4%
1%
5%
0%
3%
0%
Northeast
Midwest
South
West
Total U.S.
Recent storms have not motivated people to buy flood insurance coverag.e
1Asked
of those who have homeowners insurance but not flood insurance.
Source: Insurance Information Institute Annual Pulse Survey.
97
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