P/C Insurance Industry
Overview & Outlook
A Story of Growth and Strength in an
Uncertain World
New York Society of Securities Analysts
New York, NY
March 18, 2013
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  bobh@iii.org  www.iii.org
P/C Insurance Industry
Financial Overview
Profit Recovery in 2012 After
High CAT Losses; Ultimate
Impact of Sandy Still Unclear
2
$26,981
$19,150
$3,043
$28,672
$35,204
$65,777
$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
P-C Industry 2012:Q3
profits were up 222% from
2011:Q3, due primarily to
lower catastrophe losses
$30,773
$60,000
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:Q3 ROAS1 = 6.3%
$36,819
$70,000








$24,404
$80,000
$62,496
P/C Net Income After Taxes
1991–2012:Q3 ($ 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:Q3
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.6% ROAS through
2012:Q3, 4.6% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
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 ~6.6% 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
100.1
10.9%
100.8
101.2
9.6%
97.5
99.5
95.7
95
7.4%
92.7
8.8%
106.2
101.0
18%
15%
12%
7.9%
9%
4.3%
4.7%
90
3.6%
Catastrophes and
lower investment
income pulled
down ROE in 2012
85
6%
3%
0%
80
1978
1979
2003
2005
2006
2007
Combined Ratio
2008
2009
2010
2011
2012E
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:Q3 combined ratio
including M&FG insurers is 100.9, 2011 combined ratio including M&FG insurers is 108.2, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO data.
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013F*
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%
15%
2013F
5.8%
9 Years
10%
5%
2012E:
3.6%
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
13F
-5%
*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2012 exclude
mortgage and financial guaranty insurers. 2012:Q3 ROAS = 6.2% including M&FG.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
6
1.4%
-8.9%
2013 is expected to see
initially slow growth,
then gradually
accelerate throughout
the year and into 2014
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
-9%
-5.3%
-7%
-3.7%
-5%
Recession began in
Dec. 2007. Economic
toll of credit crunch,
housing slump, labor
market contraction
was severe
-1.8%
-1%
-3%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.1%
2.1%
2.0%
2.5%
2.7%
2.6%
2.8%
2.9%
3.0%
1%
-0.3%
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 (%)
5.0%
US Real GDP Growth*
Demand for Insurance Continues To Be Impacted by Sluggish Economic
Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 3/13; Insurance Information Institute.
7
Auto/Light Truck Sales, 1999-2019F
14.4
12
11
16.2
16.2
16.2
16.2
12.7
11.6
13
New auto/light truck sales fell to
the lowest level since the late
1960s. Forecast for 2013-14 is
still far below 1999-2007 average
of 17 million units, but a robust
recovery is well underway.
10.4
14
13.2
15
16.0
16
15.8
16.1
16.5
16.9
16.9
17.1
17.5
16.6
17
17.8
18
17.4
19
15.3
Job growth and improved
credit market conditions
will boost auto sales in
2013 and beyond
(Millions of Units)
10
9
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 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.
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/13); Insurance Information Institute.
12
Personal Auto Insurance Direct Written
Premiums vs. Recently-Registered Cars
% of registered cars under 3 years old
26%
24%
22%
In 2004-07
no growth in
PP DWP
despite
strong new
car/truck
sales
18%
$195
$185
$175
$165
New car/truck
sales grow to
14-15M/year
Average age of
registered cars
rose as fewer
new cars were
bought (and
insured)
20%
$ Billions
4%/yr growth
forecast for PP
DWP from
recovering
new car/truck
sales
30%
28%
Auto Ins Direct Pms
$155
$145
$135
16%
$125
01
02
03
04
05
06
07
08
09
10
11
12E 13F 14F
PP DWP, flat from 2004-2009, is rising again.
Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.
Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and
Analysis, First Quarter 2012; Insurance Information Institute.
13
Monthly Change* in Auto Insurance
Prices, 1991–2013*
10%
8%
Cyclical peaks in PP
Auto tend to occur
approximately 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 Feb. 2013
reading of 5.2% is
up from 3.6% a year
earlier; Highest
since Dec. 2010
-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
*Percentage change from same month in prior year; through Feb. 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 Institutes.
14
New Private Housing Starts, 1990-2019F
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
1.21
1.35
1.44
1.50
1.51
1.50
1.9
1.00
2.1
0.55
0.59
0.61
0.78
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 are
stimulating new home construction
for the first time in 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 13F14F15F16F17F18F19F
Homeowners Insurers Are Starting to See Meaningful Exposure Growth for
the First Time Since 2005. Commercial Insurers with Construction Risk
Exposure, Surety, Workers Comp Also Benefit
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/13); Insurance Information Institute.
16
Average Premium for
Home Insurance Policies**
$1,100
$988
$1,000
$945
$909
$880
$900
$804
$800
$822
$830
07
08
$764
$729
$700
$668
$593
$600
$508
$536
$500
$400
00
01
02
03
04
05
06
09
10
11*
12*
Countrywide Home Insurance Expenditures Increased by an
Estimated 4.0%in 2011 and 4.5% in 2012
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.
Source: NAIC, Insurance Information Institute estimates for 2011-2012 based on CPI data and other data.
17
Construction Employment,
Jan. 2010—February 2013*
5,850
5,800
5,750
5,650
5,600
5,550
5,500
5,450
5,581
5,700
Construction employment growth
accelerated in the second half of
2012. Stronger growth in this key
sector is possible in 2013.
5,522
5,542
5,554
5,527
5,512
5,497
5,519
5,499
5,501
5,497
5,468
5,435
5,478
5,485
5,497
5,524
5,530
5,547
5,546
5,583
5,576
5,577
5,612
5,629
5,644
5,640
5,636
5,615
5,622
5,627
5,630
5,633
5,649
5,673
5,711
5,736
5,784
(Thousands)
5,900
Construction for
the new $4B
Tappan Zee Bridge
will create
thousands of jobs
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
2/30/2
5,400
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
18
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2012:Q4
Billions
$7,250
Latest (2012:Q4)
was $6.96 trillion, a
new peak--$708B
above 2009 trough
$7,000
Prior Peak was
2008:Q1 at $6.60 trillion
$6,750
$6,500
Pace of payroll
growth
accelerated in
late 2012
$6,250
$6,000
Growth rates in 2012
Q1:12 over Q4:11: 1.8%
Q2 over Q1: 1.4%
Q3 over Q2: 0.3%
Q4 over Q3: 1.0%
Recent trough (2009:Q3)
was $6.25 trillion, down
5.3% from prior peak
$5,750
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance
Information Institute.
12:Q4
12:Q3
12:Q1
12:Q2
11:Q3
11:Q4
11:Q2
10:Q4
11:Q1
10:Q3
10:Q1
10:Q2
09:Q3
09:Q4
09:Q2
08:Q4
09:Q1
08:Q3
08:Q1
08:Q2
07:Q3
07:Q4
07:Q2
06:Q4
07:Q1
06:Q3
06:Q1
06:Q2
05:Q3
05:Q4
05:Q2
05:Q1
$5,500
20
$1.1
$1.51
$1.46
$1.46
$1.37
$1.35
$1.28
$1.24
$1.20
$1.18
$1.17
Commercial lending plunged
by 21.2% ($330B) during the
financial crisis and ensuing
period of tight credit
$1.17
$1.18
$1.21
$1.37
$1.43
$1.49
$1.50
$1.49
$1.44
Commercial lending activity
is exceeds pre-crisis levels
(+29.1% or $340B above
mid-2010 trough)
$1.27
$1.25
$1.22
$1.16
$1.2
$1.13
$1.3
$1.18
$1.4
$1.30
$1.5
$1.39
$1.6
$1.48
$Trillions
$1.42
Commercial & Industrial Loans Outstanding
at FDIC-Insured Banks, Quarterly, 2006-2012:Q4*
12:Q4
12:Q3
12:Q1
11:Q3
11:Q1
10:Q3
10:Q1
09:Q3
09:Q1
08:Q3
08:Q1
07:Q3
07:Q1
06:Q3
06:Q1
$1.0
Outstanding Commercial Loan Volume Has Been Growing for Over Two
Years and Is Now Nearly Back to Early Recession Levels. Bodes Very Well
for the Creation of Current and Future Commercial Insurance Exposures
*Latest data as of 3/18/2013.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
21
Value of Construction Put in Place,
January 2013 vs. January 2012*
Growth (%)
Private: +12.2%
25%
Public: -3.0%
21.1%
20%
15%
10%
7.1%
7.1%
5%
0.8%
0%
-5%
-10%
Private sector
construction activity is up
in both the residential and
nonresidential segments
Public sector
construction activity
remains depressed
-11.7%
-15%
Total
Construction
Total Private Residential-Construction
Private
-2.7%
-3.0%
NonResidential-Private
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth Is Entirely in the Private
Sector as State/Local Government Budget Woes Continue
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
23
ISM Manufacturing Index
(Values > 50 Indicate Expansion)
55
50
45
40
51.4
52.5
52.5
51.8
52.2
53.1
54.1
51.9
53.3
54.1
52.5
50.2
50.5
50.7
51.6
51.7
49.9
50.2
53.1
54.2
60
Manufacturing activity expanded
in 3 of the past 4 months, but only
slightly. The recent trend is
basically flat.
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
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
65
58.3
57.1
60.4
59.6
57.8
55.3
55.1
55.2
55.3
56.9
58.2
58.5
60.8
61.4
59.7
59.7
54.2
55.8
January 2010 through February 2013
The manufacturing sector expanded for 33 of the 38 months from Jan.
2010 through Feb. 2013. The expectation is that this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
26
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—Jan. 2013
$ Millions
$500,000
$400,000
ENERGY INTENSIVE
The value of Manufacturing
Shipments in Jan. 2013 were up 35%
to $481.8B from its May 2009 trough.
June figure is only 0.7% below its
previous record high in July 2008.
$300,000
Ja
n92
Ja
n93
Ja
n94
Ja
n95
Ja
n96
Ja
n97
Ja
n98
Ja
n99
Ja
n00
Ja
n
01
Ja
n
02
Ja
n
03
Ja
n
04
Ja
n
05
Ja
n
06
Ja
n
07
Ja
n
08
Ja
n
09
Ja
n
10
Ja
n
11
Ja
n
1
Ja 2
n
13
$200,000
Monthly shipments are nearly back to peak (in July 2008, 8 months into the recession).
Trough in May 2009. Growth from trough to Jan. 2013 was 35%. Manufacturing is an
energy intensive activity and growth leads to gains in many commercial exposures: WC,
Commercial Auto, Marine, Property and Various Liability Coverages
*seasonally adjusted
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 27
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
12,400
12,200
12,000
11,800
11,600
11,460
11,460
11,466
11,497
11,531
11,539
11,558
11,548
11,554
11,555
11,577
11,590
11,624
11,662
11,682
11,707
11,715
11,724
11,747
11,760
11,762
11,770
11,769
11,797
11,841
11,870
11,910
11,920
11,926
11,935
11,957
11,943
11,925
11,931
11,938
11,951
11,963
11,977
Manufacturing Employment,
Jan. 2010—February 2013*
(Thousands)
Manufacturing employment is up by
more than 500,000 or 4.5% since Jan.
2010—a surprising source of strength
in the economy. Employment in the
sector is close to a multi-year high.
11,400
11,200
11,000
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
30
ISM Non-Manufacturing Index
(Values > 50 Indicate Expansion)
January 2010 through February 2013
60
55
50.7
52.7
54.1
54.6
54.8
53.5
53.7
52.8
53.9
54.6
56
57.1
59.4
59.7
56.3
54.4
53.3
53.4
53.8
52.6
52.6
52.6
52.6
53.0
56.8
56.1
55.0
53.7
54.1
52.7
52.9
54.3
55.2
54.8
54.8
55.7
55.2
56.0
65
50
40
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
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
45
Optimism among nonmanufacturers is stable
and remains expansionary
in 2013
Non-manufacturing industries have been expanding and adding
jobs. The question is whether this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
31
Business Bankruptcy Filings,
1980-2012:Q3
90,000
60,000
50,000
40,000
30,000
20,000
10,000
0
1980-82
1980-87
1990-91
2000-01
2006-09
58.6%
88.7%
10.3%
13.0%
208.9%*
2011 bankruptcies totaled 47,806, down 15.1%
from 56,282 in 2010—the second consecutive
year of decline. Business bankruptcies more
than tripled during the financial crisis. Through
Q3:2012, filings were down 15.8% vs. Q3:2011
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:Q3
70,000
43,694
48,125
80,000
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
30,620
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
Sources: American Bankruptcy Institute at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633;
Insurance Information Institute
32
Private Sector Business Starts,
1993:Q2 – 2012:Q2*
230
220
210
200
190
180
170
Business Starts
2006: 872,000
2007: 843,000
2008: 790,000
2009: 697,000
2010: 742,000
2011: 748,000*
175
186
174
180
186
192
188
187
189
186
190
194
191
199
204
202
195
196
196
206
206
201
192
198
206
206
203
211
205
212
200
205
204
204
197
203
209
201
203
192
192
193
201
204
202
210
212
209
216
220
223
220
220
210
221
212
204
218
209
207
207
199
191
193
172
176
169
184
175
179
188
200
183
187
191
197
193
191
(Thousands)
Business starts were up 2.2% to
748,000 in 2011 vs. 2010. In 2012,
starts are likely to be up by about
2.7% over 2011 levels.
160
150
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11 12
Business Starts Were Down Nearly 20% in the Recession,
Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly
* Data through Jun. 30, 2012 are the latest available as of Feb. 6, 2013; Seasonally adjusted.
Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
33
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)
35
Hurricane Sandy Summary
Sandy Will Become One of the
Most Expensive Events in
Insurance History
36
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 could
become 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
$22.0
$20
$10
$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
$48.7
$25.6
$13.4
$0
Wilma
(2005)
Ike
(2008)
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
38
Hurricane Sandy: Claim Payments to
Policyholders, by State
($ 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 .
39
Hurricane Sandy: Number of Claims
by Type*
Total Claims = 1.52 Million*
Commercial
, 202,500 ,
13%
Auto,
250,500 ,
16%
Sandy is a high HO
frequency, (relatively
low) severity event (avg.
severity <50% Katrina)
Hurricane Sandy
resulted in an
estimated 1.52 million
privately insured
claims resulting in an
estimated $18.75 to
$25 billion in insured
losses. Hurricane
Katrina produced 1.74
million claims and
$48.7B in losses (in
2012 $)
Homeowner
, 1,067,000 ,
71%
*PCS claim count estimate s as of 1/18/13. Loss estimate represents PCS total ($18.75B) and upper end of range estimates by risk modelers
RMS, Eqecat and AIR. All figures exclude losses paid by the NFIP.
Source: PCS; AIR, Eqecat, AIR Worldwide; Insurance Information Institute.
40
Hurricane Sandy: Insured Loss by
Claim Type* ($ 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.
41
Hurricane Sandy: Loss Distribution by
Commercial/Personal Lines and
Reinsurance vs. Primary Insurer
Personal vs. Commercial Lines*
Personal
Lines
45%
Primary vs. Reinsurer Share**
Reinsurance
30%
Commercial
Lines
55%
Primary
70%
~55% of Sandy losses appear to
be commercial lines, and ~45%
personal, the opposite of the
norm for hurricane losses
Reinsurers’ share of Sandy losses
appears to be in the 30% range,
though this is highly preliminary
*Fitch Ratings assigns a range of 60-65% commercial and 35-40% personal lines., Hurricane Sandy Update, January 8, 2013.
**Source: Insurance Information Institute rough estimate based on company reports as of January 13, 2013. Actual number will vary.
45
Hurricane Sandy: Average Claim Payment
by Type of Claim
$50,000
$43,056
$45,000
$40,000
$35,000
$30,000
$25,000
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
The average insured
flood loss was 6.5 times
larger than the average
non-flood insured loss
(mostly wind)
$20,000
$10,894
$15,000
$10,000
$44,563
$6,558
$5,000
$0
Home*
Vehicle
NFIP Flood**
Commercial
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). **As of Feb. 20, 2013.
Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of Jan. 18, 2013; Insurance Information
Institute .
46
U.S. Insured Catastrophe
Loss Update
2012 Catastrophe Losses Were Close to
“Average” Until Sandy Hit
2011 Was the 5th Most Expensive
Year on Record
57
Natural Disasters in the United States,
1980 – 2012
Number of Events (Annual Totals 1980 – 2012)
There were 184 natural
disaster events in the
US in 2012
300
250
Number
200
150
100
41
19
50
121
3
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
2000
Meteorological (storm)
Hydrological
(flood, mass movement)
2002
2004
2006
2008
2010
2012
Climatological
(temperature extremes,
drought, wildfire)
60
U.S. Thunderstorm Loss Trends,
1980 – 2012
Hurricanes get all the headlines,
but thunderstorms are consistent
producers of large scale loss.
2008-2012 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, MR NatCatSERVICE
Thunderstorm losses in 2012
totaled $14.9 billion, the 2nd
highest on record
62
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
Hurricane Sandy could
become the 4th or 5th
costliest event in US
insurance history
$60
$50
$48.7
$40
$30
Includes
Tuscaloosa, AL,
tornado
Includes
Joplin, MO,
tornado
$22.0 $23.9
$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)
$24.6 $25.6
$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
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
63
US Insured Catastrophe Losses
$7.5
$10.5
$39.0
$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
$33.1
$70
2012 was likely the
second most expensive
year ever for insured
CAT losses
$14.4
$80
$11.5
$73.4
($ Billions, 2012 Dollars)
$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*
US CAT Losses in 2012 Will Likely Become the 2nd or
3rd Highest in US History on An Inflation-Adjusted
Basis (Pvt Insured). 2011 Losses Were the 5th Highest
Record Tornado
Losses Caused
2011 CAT Losses
to Surge
*As of 1/2/13. Includes $20B gross loss estimate for Hurricane Sandy.
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.
64
64
Top 16 Most Costly World Insurance
Losses, 1970-2012*
(Insured Losses, 2012 Dollars, $ Billions)
2012 insured CAT Losses totaled
$60B; Economic losses totaled
$140B, according to Swiss Re
$60
$50
$40
$30
$20
$10
5 of the top 14 most
expensive
catastrophes in world
history have occurred
within the past 3 years
$48.7
Hurricane Sandy could
become the 6th costliest event
in global insurance history
$11.1 $13.4 $13.4
$9.6
$9.2
$8.7
$8.5
$8.1
$7.8
$38.6
$22.0 $23.9
$24.6 $25.6
$13.4
$0
Hugo
(1989)
Winter
Storm
Daria
(1991)
Chile
Quake
(2010)
Ivan
Charley Typhoon Wilma Thailand New Ike
Sandy Northridge WTC
(2004) (2004) Mirielle (2005) Floods Zealand (2008) (2012)** (1994) Terror
(1991)
(2011) Quake
Attack
(2011)
(2001)
Andrew Japan Katrina
(1992) Quake, (2005)
Tsunami
(2011)**
*Figures do not include federally insured flood losses.
**Estimate based on PCS value of $18.75B as of 1/18/13 and assumption of upward development based on catastrophe modeler
estimates ranging as high as $25B.
Sources: Swiss Re sigma 1/2011; Munich Re; Insurance Information Institute research.
65
Homeowners Insurance Catastrophe-Related
Claim Frequency and Severity, 1997—2012*
Avg. catastrophe
claim cost rose
approximately 200%
from 1997-2011
Cat claim frequency in
2011 was at historic
highs and more than
double the rate in 1997
*All policy forms combined, countrywide.
Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data.
68
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2012*
8.7
9.4
3.4
2012E
2010
2008
1.6
2.6
2.7
2006
1.6
2002
2004
1.6
2000
1.0
1998
1996
3.3
3.3
3.6
2.9
3.3
2.8
1994
5.0
5.4
5.9
8.1
8.8
1990
2.1
2.3
3.0
1.2
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1.2
0.4
0.8
1.3
0.3
0.4
0.7
1.5
1.0
0.4
0.4
0.7
1.8
1.1
0.6
1.4
2.0
1.3
2.0
0.5
0.5
0.7
1968
0.4
1966
1962
1964
3.6
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 7.20*
0.8
1.1
1.1
0.1
0.9
1960
10
9
8
7
6
5
4
3
2
1
0
Catastrophe losses as a
share of all losses reached
a record high in 2012
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1992
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for
losses ultimately paid by foreign insurers and reinsurers.
Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.
69
Homeowners Insurance Combined
Ratio: 1990–2014F
Record
tornado
activity
158.4
170
160
Hurricane
Sandy
106.8
105.5
118.0
122.2
106.7
105.8
116.9
95.7
89.0
90
100.3
94.4
109.3
121.7
111.4
108.2
109.4
112.7
118.4
1
Hurricane
Ike
98.2
100
101.0
110
113.6
120
117.7
130
113.0
140
121.7
150
80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F13F14F
Homeowners Performance Deteriorated in 2011/12 Due to
Large Cat Losses. Extreme Regional Variation Can Be
Expected Due to Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.
70
Growth Analysis by State and
Business Segment
Premium Growth Rates Vary
Tremendously by State
71
Direct Premiums Written: Total P/C
Percent Change by State, 2006-2011*
Top 25 States
A limited number of states
showed strong growth over
the past 5 years
71.5
80
60
50
41.8
6.6
6.3
6.1
5.8
4.9
4.7
4.2
3.9
2.4
2.2
2.1
2.1
2.1
0.9
0.9
0.7
0.4
LA
AR
WI
TN
IN
AK
DE
NM
NC
KY
SC
WA
DC
MO
VT
MS
10.5
TX
OK
MT
SD
0
ND
10
MN
11.8
20.8
KS
WY
22.6
NE
20
18.2
22.8
30
IA
40
26.4
Pecent change (%)
70
Sources: SNL Financial LC.; Insurance Information Institute.
72
Direct Premiums Written: Total P/C
Percent Change by State, 2006-2011*
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
NV
AZ
-19.2
-13.5
-12.0
CA
-10.8
WV
-11.7
-10.5
NH
FL
-10.3
-6.0
MI
RI
MD
CO
HI
-5.8
-4.4
OR
ME
-4.1
ID
-5.2
-3.5
-3.2
-3.1
-2.5
NJ
PA
CT
GA
US
UT
NY
VA
OH
AL
-20
IL
States with the poorest
performing economies also
produced the most negative
net change in premiums of
the past 5 years
-15
-25
MA
-10
-2.0
-5
-1.6
-1.4
-1.3
-1.1
-0.8
-0.6
Pecent change (%)
0
-0.8
0.4
5
-1.9
NY’s change in
premium growth
was similar to
the US average
73
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend is
Improving
82
Unemployment and Underemployment
Rates: Stubbornly High in 2012, But Falling
January 2000 through Feb. 2013, Seasonally Adjusted (%)
18
Traditional Unemployment Rate U-3
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 14.3%
in Feb. 2013
Unemployment + Underemployment Rate U-6
16
Recession
ended in
November
2001
14
12
Unemployment
kept rising for
19 more
months
Recession
began in
December
2007
Unemployment
stood at 7.7% in
Feb. 2013—
lowest in 4 years.
10
Unemployment
peaked at 10.1%
in October 2009,
highest monthly
rate since 1983.
8
6
4
2
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Peak rate in the
last 30 years:
10.8% in
November December 1982
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.
83
(600)
(800)
(1,000)
-786
-701
-821
-692
-812
-821
Monthly Losses in
Dec. 08–Mar. 09 Were
the Largest in the
Post-WW II Period
-442
-429
-484
(400)
-167
-282
-222
-162
-233
-288
-222
-219
-203
-267
-269
(200)
-114
-105
-17
-26
-34
-79
66
227
168
123
400
111
170
102
94
103
129
113
188
154
114
80
243
223
303
183
177
206
129
256
174
197
249
323
265
208
120
152
78
177
131
118
217
256
224
140
246
24
68
74
51
2
1
0
50
54
200
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
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
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Monthly Change in Private Employment
January 2007 through Feb. 2013 (Thousands)
Jobs Created
2012: 2.247 Mill
2011: 2.420 Mill
2010: 1.235 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
246,000 private
sector jobs were
created in February
Private Employers Added 6.31million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
84
Cumulative Change in Private Sector
Employment: Jan. 2010—Feb. 2013
0.068
0.238
0.340
0.434
0.537
0.666
0.779
0.967
1.121
1.235
1.315
1.558
1.781
2.084
2.267
2.444
2.650
2.779
3.035
3.209
3.406
3.655
3.978
4.243
4.451
4.571
4.723
4.801
4.978
5.109
5.227
5.444
5.700
5.924
6.064
6.310
January 2010 through February 2013* (Millions)
7.0
Job gains and pay
increases have added more
than $600 billion to payrolls
since Jan. 2010
6.0
4.0
3.0
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
Dec-10
Nov-10
Oct-10
Sep-10
Aug-10
Jul-10
Jun-10
May-10
Feb-10 -0.043
-1.0
-0.017
0.0
Jan-10
1.0
Apr-10
Cumulative job gains
through Feb. 2013
totaled 6.31 million
2.0
Mar-10
Millions
5.0
Private Employers Added 6.31million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
86
Cumulative Change in Government
Employment: Jan. 2010—Feb. 2013
Government at all levels has
shed more than half a million
jobs since Jan. 2010 even as
private employers created
6.31 million jobs, though
losses may now be ending.
January 2010 through Feb. 2013* (Millions)
511
-68
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
Dec-10
Nov-10
-224
-184
-194
-213
-224
-271
-289
-288
-356
-324
-452
-449
-480
-488
-511
-530
-542
-536
-539
-547
-574
-565
-589
-555
-535
-592
-601
-606
-627
-637
Oct-10
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Mar-10
-800
Jan-10
-600
Feb-10
Temporary
Census hiring
distorted 2010
figures
-400
Cumulative job
losses through Feb.
2013 totaled 637,000
Sep-10
-200
Feb-12
-10
4
0
33
92
200
98
287
400
Jan-12
600
Governments at All Levels are Under Severe Fiscal Strain As Tax
Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
87
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-10
200
195
190
185
180
175
170
165
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
192.2
193.3
Oil & Gas Extraction Employment,
Jan. 2010—February 2013*
(Thousands)
Oil and gas extraction
employment is up 24.4%
since Jan. 2010 as the
energy sector booms.
Domestic energy
production is essential to
any robust economic
recovery in the US.
155
150
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
91
Payroll vs. Workers Comp Net Written
Premiums, 1990-2012E
Payroll Base*
$Billions
$7,000
7/90-3/91
$6,000
$5,000
$4,000
$3,000
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
12/07-6/09
WC premium
volume dropped
two years before
the recession began
+9% in
2012E
$50
$45
$40
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$2,000
$35
$30
$25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*
Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow
Again in 2012; +7.9% Growth in 2011 Was the First Gain Since 2005
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2012 actuals.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
95
The BIG Question:
Where Is the Market Heading?
Catastrophes and Other Factors Are
Pressuring Insurance Markets
New Factor: Record Low Interest
Rates Are Contributing to
Underwriting and Pricing Pressures
96
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
97
Property/Casualty Insurance Industry
Investment Income: 2000–2012E1
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$47.1
$38.9
$38.7
$37.1
$36.7
01
02
$39.6
$47.6
$49.0
$46.8
Investment earnings in 2012
were running 14% below
their 2007 pre-crisis peak
$30
00
03
04
05
06
07
08
09
10
11
12E
Investment Income Fell in 2012 Due to Persistently Low Interest Rates,
Putting Additional Pressure on (Re) Insurance Pricing
1
Investment gains consist primarily of interest and stock dividends.
*2012F is based on annualized 9M:2012 actual figure of $35.131B.
Sources: ISO; Insurance Information Institute.
Property/Casualty Insurance Industry
Investment Gain: 1994–2012F1
($ Billions)
$70
$64.0
$58.0
$60
$52.3
$55.7
$51.9
$53.4
$56.2
$50.8
10
11 12F
$48.9
$47.2
$50
$59.4
$56.9
$45.3
$44.4
$42.8
$40 $35.4
$39.2
$36.0
$31.7
$30
$20
Investment gains in 2012 are
running approximately 20%
below their pre-crisis peak
$10
$0
94
95
96
97
98
99
00
01
02
03
04
05* 06
07
08
09
Investment Gains Are Slipping in 2012 as Low Interest Rates Reduce
Investment Income and Lower Realized Investment Gains; The Financial
Crisis Caused Investment Gains to Fall by 50% in 2008
1
Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.
* 2005 figure includes special one-time dividend of $3.2B; 2012F figure is III estimate based on annualized actual 9M:2012 result of $38.089B.
Sources: ISO; Insurance Information Institute.
Average Maturity of Bonds Held by US
P/C Insurers, 2006—2011*
Average Maturity (Years)
The average bond maturity is
down by a full year between
2007 and 2011
8.0
7.5
7.32
7.46
7.30
6.89
7.0
6.53
6.45
2010
2011
6.5
6.0
5.5
5.0
2006
2007
2008
2009
Falling Average Maturity (and Duration) of the P/C Industry’s
Bond Portfolio is Contributing to the Drop in Investment
Income Along With Lower Yields
*Year-end figures. Latest available.
Sources: Insurance Information Institute calculations based on A.M. Best data.
104
Distribution of Bond Maturities,
P/C Insurance Industry, 2006-2011
2011
15.2%
41.4%
2010
16.3%
39.5%
2009
16.2%
2008
15.7%
2007
15.2%
30.0%
2006
16.0%
29.5%
0%
36.2%
32.4%
20%
26.8%
26.7%
28.7%
31.2%
40%
10.3% 6.3%
11.1% 6.4%
11.7% 7.3%
12.7%
8.1%
33.8%
12.9%
8.1%
34.1%
13.1%
7.4%
60%
80%
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
100%
The main shift over these 6 years has been from bonds with 5-10 years of
maturity to bonds with 1-5 years of maturity. The industry also slightly
trimmed it holdings of bonds in the 10-20-year maturity category
and bonds in the longest-maturity category.
Sources: A.M. Best; Insurance Information Institute.
105
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.
107
1. UNDERWRITING
Underwriting Losses in 2011
and 2012 Are Elevated by High
Catastrophe Losses
108
P/C Insurance Industry
Combined Ratio, 2001–2012:Q3*
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
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
Cyclical
Deterioration
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Avg. CAT
Losses,
More
Reserve
Releases
106.4
101.0
100.8
100.1
99.3
98.4
100
100.8
Lower
CAT
Losses
Before
Sandy
100.0
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011*
2012:Q3
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.2; 2012:Q3=100.0.
Sources: A.M. Best, ISO.
109
Financial Strength &
Underwriting
Cyclical Pattern is P-C Impairment
History is Directly Tied to
Underwriting, Reserving & Pricing
114
P/C Insurer Impairments, 1969–2012
Impairments among P/C
insurers remain infrequent
0
18
18
14
15
16
19
21
34
35
31
12
16
18
19
29
5
9
13
12
9
9
11
7
8
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
10
15
12
20
16
14
13
19
30
31
34
34
40
36
41
50
49
50
47
49
50
48
55
60
60
58
70
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 “1969-2011 Impairment Review,” June 2012 and March 6, 2013 update; Insurance Info. Institute.
115
100.2
98.5
99.6
101.9
101.0
101.3
100.3
98.3
95.5
95.1
98.4
101.1
101.0
101.3
104.2
94.3
95
99.5
100
101.3
105
101.7
110
103.5
109.5
115
107.9
Private Passenger Auto Combined
Ratio: 1993–2014F
90
85
80
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F 14F
Private Passenger Auto Accounts for 34% of Industry Premiums and
Remains the Profit Juggernaut of the P/C Insurance Industry
Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.
121
Homeowners Insurance Combined
Ratio: 1990–2014F
Record
tornado
activity
158.4
170
160
Hurricane
Sandy
106.8
105.5
118.0
122.2
106.7
105.8
116.9
95.7
89.0
90
100.3
94.4
109.3
121.7
111.4
108.2
109.4
112.7
118.4
1
Hurricane
Ike
98.2
100
101.0
110
113.6
120
117.7
130
113.0
140
121.7
150
80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F13F14F
Homeowners Performance Deteriorated in 2011/12 Due to
Large Cat Losses. Extreme Regional Variation Can Be
Expected Due to Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.
122
Commercial Lines Combined Ratio,
1990-2013F*
Commercial Lines Combined Ratio
125
122.3
118.8
120
115
110
Commercial lines
underwriting
performance in 2012 was
the worst since 2002
due to heavy impact
from Sandy
112.5
110.2
109.4
112.3
111.1
109.7
110.2
109.5
110.2
109.0
107.6
106.7
105.4
104.2
104.1
105
102.5
102.0
102.9
102.1
98.9
100
95
93.6
91.1
*2007-2013F figures exclude mortgage and financial guaranty segments.
Source: A.M. Best; Insurance Information Institute
13F
12F
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
90
125
111.0
115.0
117.3
116.9
116.8
110.6
104.5
103.5
102.7
105.1
108.6
101.0
98.5
100
100.0
105
97.0
110
102.0
115
107.0
120
112.6
115.3
125
118.2
130
121.7
Workers Compensation Combined
Ratio: 1994–2014F
95
90
85
80
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F
Workers Comp Results Should Begin to Improve in 2013.
Underwriting Results Deteriorated Markedly from 20072012 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2013F); Insurance Information Institute (2014F).
133
2. SURPLUS/CAPITAL/CAPACITY
How Will Large Catastrophe Losses
Impact Capacity?
143
Policyholder Surplus,
2006:Q4–2012:Q3
($ Billions)
Drop due to near-record
2011 CAT losses
2007:Q3
Pre-Crisis Peak
$583.5
$566.5
$580
$559.2
$560
$544.8
$540.7
$530.5
$540
$520
$500
$480
$460
$440
$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
$463.0
$455.6
$437.1
Surplus as of 9/30/12 was
up $12.8B or 2.2% from the
previous record high of
$570.7B set as of 3/31/12.
$420
06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3
*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. There is
No Insurance Industry “Fiscal Cliff”
145
3. REINSURANCE MARKET
CONDITIONS
Record Global
Catastrophes Activity is
Pressuring Pricing
146
Regional Property Catastrophe Rate on Line
Index, 1990—2013 (as of January 1)
Property-Cat
reinsurance pricing
was up in the US as
of 1/1/13 but was
down in Europe/UK
Sources: Guy Carpenter; Insurance Information Institute.
148
4. RENEWED PRICING
DISCIPLINE
Evidence of a Broad and
Sustained Shift in Pricing
149
Net Premium Growth: Annual Change,
1971—2012E
(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%
2012E
growth
was
+4.9%
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
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
151
Average Commercial Rate Change,
All Lines, (1Q:2004–4Q:2012)
(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%
9%
Pricing as of Q4:2012 was
positive for the 6th consecutive
quarter. Gains are likely to
continue through 2013.
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
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
154
Change in Commercial Rate Renewals,
by Line: 2012:Q4
Percentage Change (%)
9.0%
3.4%
3.5%
3.4%
General
Liability
Commercial
Auto
Umbrella
Commercial
Auto
4.4%
Construction
3.3%
4.4%
EPL
3.2%
Business
Interruption
5.7%
4.9%
Workers
Comp
Commercial
Property
D&O
1.3%
Surety
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Workers Comp rate
increases are large than
any other line, followed
by Property lines
Major Commercial Lines Renewed Uniformly Upward in Q4:2012 for the Sixth
Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
159
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_hartwig
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168