Alabama Homeowners Insurance:
History and Trends for Catastrophic
Loss and Impacts on Profitability
Governor’s Affordable Homeowners
Insurance Commission
Montgomery, AL
December 12, 2011
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
Presentation Outline
 Catastrophe Loss Analysis for Alabama Insurance Markets




Total Losses vs. Homeowners Insurance Line
Claim Values and Claim Counts
2011 Catastrophe Claim Analysis
1998-2011 Analysis
 Federal Disaster Declarations: 1953—2011
 Alabama’s Long-Run Catastrophe Exposure History
 Spring 2011 Tornado and Severe Story Summary
 Quantification of Alabama’s Coastal Exposure Problem
 Profitability and Performance in Alabama’s Insurance Markets
 Homeowners Insurance: Return on Net Worth, Loss Ratios & Premium Growth
 Catastrophe Insurance Markets: Alabama Impacts World Markets
 Global & US Catastrophe loss Trends
 Reinsurance Market Overview
 Higher Catastrophe Losses Can Pressure Pricing
 Property/Casualty Insurance Markets & Catastrophic Loss
 Profitability
 Underwriting Performance
 Capital, Capacity and Financial Strength
 Q&A
2
Summary of Key Points
 Between 1998 and 2011, Insured Catastrophe Losses Across the State of
Alabama Totaled $8.4 Billion Arising from Nearly 1.1 Million Claims
 Home/Condos/Renters’ policies accounted for 67% ($5.6 bn) of dollars paid and 73% of
the total number of claims; Commercial property accounts for the remainder.
 2011 Was the Worst Year in AL History for Catastrophe Losses
 Insured catastrophe losses totaled $3.2 bn arising from nearly 175,000 claims
 Homeowners losses accounted for $1.826 bn (66%) of the total from 114,200 claims
 Homeowners losses paid exceeded estimated premiums collected of by more than $400
million in 2011
 The average cost of a homeowners catastrophe claim reached a record $15,989 in 2011
 Alabama’s Homeowners Insurance Market is Unprofitable
 Return on Net Worth (RNW) from 1990-2009 average -5.6%
 RNW from 2000-2009 averaged -7.9%, ranking the state 43rd out the 50 states
 Inclusion of the 2011 storms could make AL close to the least profitable state
 AL Has the 7th Highest Total Federal Disaster Declarations Since 1953
 April 2011 Tornadoes Were the Most Expensive/Deadly in US History
 Aggregated, this year’s spring storms are the 5th largest insurance loss in US history
 AL Losses Have Impacted Overall US and Global (Re)Insurance Markets
3
Insured Catastrophe Analysis for
Alabama Insurance Markets:
Focus on Homeowners’ Claims
Alabama Has a Long History
of Experience of
Catastrophic Loss; Loss
Data Are Trending Adversely
4
2011 Catastrophe Losses in Alabama’s
Homeowners Market Dwarf Premiums Paid
($ Billions)
$1.9
$1.8
$1.7
$1.6
$1.5
$1.4
Catastrophe losses paid to
homeowners in AL are
estimated to exceed premiums
collected for the line by $437
million or 31.5% in 2011
$1.826
$1.389
$1.3
$1.2
$1.1
$1.0
2011 Homeowners Insurance Direct
Premiums Written*
2011 Insured Homeowners Catastrophe
Losses
Insurers ROE in the AL Homeowners Line in 2011 Will be Negative by
Several Hundred Percent
Sources: Homeowners DPW for AL is III estimated based on assumed 5% growth over 2010 actual of $1.323 bn.; Catastrophe loss data is
from PCS as of Dec. 7, 2011.
5
Value of Insured Catastrophe Losses in
Alabama, by Segment, 1998–2011*
2011 set a new record for
catastrophe losses at $3.157
billion. 58% ($1.826B) of the
losses paid went to homeowners,
42% to businesses
Commercial Lines
Homeowners
$3,000
$2,500
$2,000
$1,500
$1,000
From 1998-2011 insurers
paid $8.4 billion to nearly
1.1 million AL victims of
catastrophes for damage
to their homes and
businesses
$500 $225
$33
$91
99
00
$3,157
$1,331
$3,500
$1,775
$1,478
$1,826
($ Millions)
$512
$100 $125 $185
$197
$200 $206
$76
$0
98
01
02
03
04
05
06
07
08
09
10
11
Alabama is No Stranger to Catastrophe, but 2011 Was Far More
Devastating Than Any Year in History
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute.
6
Number of Insured Catastrophe Claims
in Alabama, by Segment, 1998–2011*
Number of Claims
250,000
Commercial Lines
Personal Lines
200,000
226,000
2011 was the costliest year on record
and ranked 3rd in terms of number of
claims paid at 174,450. Nearly twothirds (114,200) of the claims paid were
to homeowners, 1/3 to businesses
179,400
60,250
174,450
150,000
122,700
115,470
53,750
52,900
50,000
114,200
100,000
32,00026,300
18,805
12,400
21,500
16,000
$76
0
98
99
00
01
02
03
04
05
06
07
08
09
10
11
Insurers in Alabama Paid More than 55,000 Catastrophe Claims on
Average Annually Between 1998 and 2011, Most to Homeowners
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute.
7
Value of Alabama Insured Catastrophe
Losses: Homeowners, 1998–2011*
($ Millions)
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
2011 homeowners claims set a new
record at $1.826 billion in 2011
From 1998-2011 insurers
paid $5.6 billion to nearly
775,000 AL victims of
catastrophes for damage
to their homes
$1,826
$1,500
$944
$380
$163
98
$24 $52 $53
$93 $90
99
02
00
01
03
$134 $140 $151
04
05
06
07
08
$37
09
10
11
Insurers Paid an Average of $400 million per Year to More than
55,000 Homeowners in Alabama from 1998-2011
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute.
8
Number of Homeowners Catastrophe
Losses Paid by Insurers in AL, 1998-2011*
14,200
83,000
9,000
02
31,500
01
30,000
00
19,000
99
23,000
8,500
50,000
14,355
100,000
96,500
150,000
127,300
200,000
07
08
114,200
250,000
2011 saw the 3rd largest number of
homeowners claims since 1998 even
though 2011 was the costliest year
ever ($1.826 Bill). 2011 claims were
more than double the 55,000 annual
average since 1998.
4,000
200,000
(Number of
Claims Paid)
0
98
03
04
05
06
09
10
11*
Insurers in Alabama Paid Nearly 775,000 Catastrophe Claims
Between 1998 and 2011 to Homeowners Across the State
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute calculations.
9
2011 Catastrophic Homeowners*
Claim Activity in Alabama, by Event**
Date
Perils
Avg. Pmt $ Total $ Pd. # Claims HO $ % HO # %
Event Total
2011:Q1 Total
Event Total
Event Total
2011 has been the
most expensive in
history for insured
catastrophe losses
paid to Alabama
homeowners.
Payments totaled
$1.826 billion arising
from 114,200 claims
Event Total
2011:Q2 Total
Event Total
2011:Q3 Total
2011 YTD Totals
**Through Dec, 7, 2011.
Source: PCS Division of ISO.
*Includes all categories of dwelling policies,
such as home, condo and renters’ policies 10
Average Value of Insured Homeowners
Catastrophe Loss Claims in AL, 1998-2011*
$8,000
$2,000
$1,686
$4,000
$1,687
$6,000
98
99
$2,304
05
$15,556
$10,648
04
$9,250
$6,118
$10,000
$15,989
$4,254
$12,000
$7,416
$14,000
$7,500
$16,000
$3,000
$18,000
$4,895
The average homeowners
catastrophe claim
reached a new record of
$15,989 in 2011, more
than double the average
of $6,069 (+163%) from
1998-2010
$4,578
(Cost of Average
Personal Lines Claim
$0
00
01
02
03
06
07
08
09
10
11*
Insured Catastrophe Losses to Homes in Alabama Are Volatile and
Are Trending Upward
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute calculations.
11
Cumulative Value of Catastrophe Losses
Paid by Insurers in Alabama, 1998-2011*
Insurers have paid nearly $8.4
billion on almost 1.1 million
catastrophe claims in Alabama
since 1998. The trend in
catastrophe losses began to
accelerate in 2004.
$4,000
$3,000
$258
$349
$449
$574
$759
$1,000
$225
$2,000
98
99
00
01
02
03
05
06
07
08
$5,202
$2,534
$5,000
$4,614
$6,000
$4,409
$7,000
$4,209
$8,000
$8,359
$4,012
$9,000
$5,126
($ Millions)
09
10
$0
04
11*
Catastrophe Losses in Alabama Are High Relative to the Size of the
State’s Economy and Population
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute calculations.
12
00
01
02
07
08
09
10
1,057,725
06
883,275
204,975
99
754,525
178,675
98
257,875
146,675
200,000
134,275
400,000
115,470
600,000
733,025
800,000
717,025
1,000,000
663,275
1,200,000
Insurers have paid nearly 1.1 million
catastrophe claims in Alabama
valued at nearly $8.4 billion since
1998. The trend in catastrophe
losses began to accelerate in 2004.
483,875
(Number of
Claims Paid)
877,225
Cumulative Number of Catastrophe Losses
Paid by Insurers in Alabama, 1998-2011*
0
03
04
05
11*
The Number of Catastrophe Losses in Alabama Is High Relative to
the Size of the State’s Economy and Population
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute calculations.
13
Distribution of Catastrophe Insured
Claims in AL, by Segment, 1998–2011*
Value of Claims Paid
Number of Claims Paid
Commercial
33.2%
Homeowners
66.8%
($2.77 Bill)
Homeowners
73.2%
Commercial
26.8%
(283,170 Claims)
(774,555 Claims)
($5.59 Bill)
2/3 of the
catastrophe claim
dollars paid since
1998 were for
damage to homes
*Data are current through Dec. 7, 2011.
Source: PCS unit of ISO; Insurance Information Institute calculations.
Nearly 3/4 of the
catastrophe claims paid
since 1998 were for
damage to homes
14
Federal Disaster Declarations:
Trending Adversely
Alabama Has the 7th Highest
Number of Federal Disaster
Declarations From 1953 - 2011
15
Number of Federal Disaster
Declarations, 1953-2011*
0
98
81
75
59
63
48
52
56
44
32
36
32
38
43
45
11
31
34
27
28
23
24
21
15
23
22
25
29
17
17
19
11
11
22
20
25
25
12
12
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
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*
7
7
13
17
18
16
16
40
30
38
42
48
46
46
60
20
69
65
80
The number of federal
disaster declarations set a
new record in 2011, with 98
declarations through Dec 11.
50
45
45
49
100
There have been 2,048
federal disaster
declarations since
1953. The average
number of declarations
per year is 34 from
1953-2010, though that
few haven’t been
recorded since 1995.
75
120
The Number of Federal Disaster Declarations Is Rising and Set a New
Record in 2011
*Through December 11, 2011.
Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ;
Insurance Information Institute.
Federal Disasters Declarations by State,
1953 – Dec. 11, 2011: Highest 25 States
Over the past
nearly 60 years,
Texas has had the
highest number of
Federal Disaster
Declarations
30
20
10
39
42
44
45
45
46
47
47
47
48
48
50
51
53
53
55
55
63
40
40
50
50
58
60
65
70
70
Disaster Declarations
80
78
90
86
100
AL has had 55
federal disaster
declarations since
1953, nearly one per
year, and has had 1
so far in 2011
0
TX CA OK NY FL LA AL KY AR MO IL MS TN IA MN KS NE PA WV OH VA WV ND NC IN
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
17
Federal Disasters Declarations by State,
1953 – Dec. 11, 2011: Lowest 25 States*
Over the past nearly 60
years, Wyoming, Utah
and Rhode Island had
the fewest number of
Federal Disaster
Declarations
9
9
10
9
11
14
15
16
17
17
22
23
24
24
25
25
26
26
27
33
35
35
39
33
20
20
28
30
36
Disaster Declarations
40
39
50
0
ME SD GA AK WI VT NJ NH OR MA PR HI MI AZ NM ID MD MT NV CT CO SC DE DC RI UT WY
*Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
18
1
1
1
1
0
1
1
2
3
1
0
0
1
2
2
3
3
2
2
2
1
1
1
0
0
0
1
0
2
1
2
0
0
0
1
1
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
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*
0.0
0
0
0
0
0
0
0
0
1.0
0
0
0
0
0
0
0
1
2.0
1
2
3.0
1
1
4.0
3
5.0
The one federal disaster
declaration in 2011 was
associated with the severe
tornado and severe storm
outbreak in April
There have been 55
federal disaster
declarations in AL since
1953. The average
number of declarations
per year is 0.9 from 19532011, though the number
has been higher in
recent years
0
6.0
5
Number of Federal Disaster
Declarations In Alabama, 1953-2011*
The Number of Federal Disaster Declarations Spike in 2009 Was the Highest
Ever, Mostly Associated with Tornadoes, Severe Storms, Straight Line
Winds, Floods and Tropical Storm Ida
*Through December 11, 2011.
Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ;
Insurance Information Institute.
Number of Tornadoes and Related
Deaths, 1990 – 2011*
800
600
1,880
1,282
1,098
1,103
1,376
1,216
1,148
1,173
1,234
1,082
1,297
1,173
1,071
941
1,000
1,132
1,200
1,133
1,400
546
There were 1,880
tornadoes recorded
in the US by Dec. 4
400
600
500
400
300
200
Number of Deaths
Number of Tornadoes
1,600
1,345
1,424
Number of Deaths
1,800
1,692
1,819
1,156
Number of Tornadoes
1,264
2,000
Tornadoes have already
claimed more than 500 lives
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 11P
Insurers Expect to Pay Approximately $2 Billion Each for the April 2011
Tornadoes in Alabama and a Similar Amount for the May Storms in Joplin
*2011 is preliminary data through December 4.
Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
21
Location of Tornadoes in the US,
January 1—December 5, 2011
1,880 tornadoes
killed 546 people
through Dec. 5,
including at least
340 on April 26
mostly in the
Tuscaloosa area,
and 130 in Joplin
on May 22
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
23
Tornado Tracks by Enhanced Fujita
(EF) Scale, January – July 2011
Alabama averaged 59
tornadoes per year
from 2000-2010, but
128 from Jan. – July
2011, the highest in
the country
AL had the highest
concentration of EF-3,
4 and 5 storms in 2011
Source: NOAA at: http://www.spc.noaa.gov/wcm/2011-jan-jul.png
24
Average Number of Tornadoes per
Year, 2000-2010
Alabama averaged
59 tornadoes per
year from 2000-2010
Source: NOAA at http://www.spc.noaa.gov/wcm/ustormaps/2001-2010-states.png
25
Tornado by County, 1952-2010
AL is quite
vulnerable to
tornadoes
Source: NOAA at http://www.spc.noaa.gov/wcm/ustormaps/tornadoes-by-county.png
26
Tornado Tracks by EF Scale,
1950-2010
Alabama has
experiences every
strength of tornado,
including EF-5 storms
Source: NOAA at: http://www.spc.noaa.gov/gis/svrgis/images/EF_tracks.gif
27
Location of Large Hail Reports in the
US, January 1—December 5, 2011
There were 9,413
“Large Hail”
reports through
Dec. 5, causing
extensive damage
to homes,
businesses and
vehicles
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
28
Location of Wind Damage Reports in
the US, January 1—December 5, 2011
There were 18,580
“Wind Damage”
reports through
Dec. 5, causing
extensive damage
to homes and,
businesses
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
29
Severe Weather Reports,
January 1—December 5, 2011
There have
been 29,885
severe weather
reports through
Dec. 5;
including 1,881
tornadoes;
9,413 “Large
Hail” reports
and 18,580 high
wind events
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
30
Number of Severe Weather Reports in US,
by Type: January 1—December 5, 2011
Tornadoes,
1,885 , 6%
Large Hail,
9,413 , 32%
Wind
Damage,
18,580 , 62%
Tornadoes accounted
for just 6% of all
Severe Weather
Reports through
October 13 but more
than 500 deaths
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
Alabama’s 2011 Severe
Loss Summary
Tornadoes, Hail and Severe
Thunderstorms Took their Toll
32
Severe Weather Reports in Alabama,
January 1—December 5, 2011
There were 1,288
severe weather
reports in AL
through Dec. 5
ALABAMA
Total Reports = 1,288
Tornadoes = 170 (Red)
Hail Reports = 217 (Green)
Wind Reports = 901 (Blue)
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
33
Insurers Making a Difference in
Impacted Communities
Destroyed home in Tuscaloosa.
Insurers will pay some 133,000
claims totaling $3 billion across
AL for Q2 damage,
concentrated in the Tuscaloosa/
Birmingham areas
Presentation of a check
to Tuscaloosa Mayor
Walt Maddox to the
Tuscaloosa Storm
Recovery Fund
Source: Insurance Information Institute
34
Coastal Exposure in Alabama
Remains a Primary Concern
Alabama’s Coastal Exposure
Is Considerable Despite Its
Small Coast
35
Total Value of Insured Coastal Exposure in 2007
($ Billions)
Florida
$2,458.6
$2,378.9
New York
$895.1
Texas
$772.8
Massachusetts
$635.5
New Jersey
$479.9
Connecticut
$224.4
Louisiana
$191.9
S. Carolina
Virginia
$158.8
Maine
$146.9
North Carolina
$132.8
Alabama
$92.5
Georgia
$85.6
Delaware
$60.6
New Hampshire
$55.7
Mississippi
$51.8
Rhode Island
$54.1
Maryland
Even though Alabama’s
coast is small, the total
value of insured coastal
exposure was $92.5 billion
in 2007
$14.9
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Insured Coastal Exposure As a % Of Statewide
Insured Exposure In 2007
Florida
79.0%
64.0%
Connecticut
62.0%
New York
59.0%
Maine
54.0%
Massachusetts
36.0%
Delaware
35.0%
Louisiana
34.0%
New Jersey
29.0%
Rhode Island
28.0%
S. Carolina
23.0%
NH
13.0%
Mississippi
12.0%
Alabama
11.0%
Virginia
9.0%
NC
5.0%
Georgia
Maryland
Even though Alabama’s
coast is small, coastal
exposure accounts for
12.0% of all insured
exposure in the state
26.0%
Texas
1.0%
0%
Source: AIR Worldwide
20%
40%
60%
80%
100%
Value of Insured Residential Coastal Exposure
In 2007 ($ Billions)
$1,238.6
Florida
$660.4
New York
$388.3
$373.0
$319.5
$250.8
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Maine
North Carolina
Virginia
Alabama
Georgia
Delaware
Rhode Island
New Hampshire
Mississippi
Maryland
$96.9
$90.1
$81.1
$78.4
$72.6
$46.5
$38.1
$36.7
$31.9
$30.8
$25.7
$7.2
$0
Source: AIR Worldwide
$200
Residential coastal
exposure totaling $46.5 bill
in Alabama accounts for
about half the $92.5 billion
in total coastal exposure
$400
$600
$800
$1,000
$1,200
$1,400
Population Growth Projections for Hurricane
Exposed States (2000 to 2030) (000)
Florida
12,703.4
12,465.9
Texas
4,178.4
3,831.4
2,746.5
North Carolina
Georgia
Virginia
410.7
New Hampshire
1,725.8
Maryland
229.1
1,136.6
254.5
1,388.1
Delaware
South Carolina
Hawaii
New Jersey
By 2030, Alabama is
expecting a population
increase of 427,000
136.2
662.9
104.6
427.1
247.8
283.1
333.7
501.0
Maine
Massachusetts
Rhode Island
Alabama
Mississippi
Connecticut
Louisiana
New York
0
2,000
4,000
6,000
8,000
10,000 12,000 14,000 16,000
Source: U.S. Census Bureau, accessed at http://www.census.gov/population/projections/PressTab1.xls
Value Of Insured Commercial Coastal Exposure
2007 ($ Billions)
$1,718.6
New York
$1,220.0
Florida
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Georgia
Alabama
Mississippi
New Hampshire
Delaware
Rhode Island
Maryland
$506.8
$399.8
$316.0
$229.1
$127.5
$101.8
$86.2
Commercial coastal
$65.9
exposure totaling $46.0 bill
$54.4
in Alabama accounts for
$47.5
about half the $92.5 billion
$46.0
in total coastal exposure
$26.1
$24.9
$23.8
$22.2
$7.7
$0
Source: AIR Worldwide
$200
$400
$600
$800
$1,000 $1,200 $1,400 $1,600 $1,800 $2,000
Profitability & Performance
Analysis: Alabama Homeowners
Insurance Markets
Alabama’s Home Insurance
Market is Highly Volatile
41
RNW All Lines: AL vs. U.S., 1990-2009*
20%
US All Lines
AL All Lines
14.4%
15.7%
15%
12.0%
11.8%
10%
8.8%
7.7%
5%
7.8%
13.6%
12.6%
10.0%
7.7%
6.6%
6.3%
6.5%
5.6%
4.6%
5.3%
2.4%
1.0%
0%
-1.0%
-2.9%
-5%
0.1%
Average 1990-2009
US: 8.0%
AL: 4.9%
-10%
-0.5%
-7.3%
-7.0%
1.2%
2004/05
hurricane
seasons
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
*Latest available as of December 11, 2011.
Source: NAIC; Insurance Information Institute.
42
RNW Homeowners: AL vs. U.S.,
1990-2009*
Average 1990-2009
US: 0.4%
AL: -5.6%
30%
20%
10%
US HO
17.8%
12.4%
18.5%
11.3%
5.8%
3.7%
-0.9%
-4.2%
-10%
6.2%
11.5%
9.7%
3.8%
3.7%
2.5%
0%
-20%
AL HO
-10.1%
-2.6%
-2.8%
-7.2%
-16.0%
-24.1%
-18.1%
-30%
-40%
-45.0%
-50%
-54.3%
Return on Net Worth
fluctuates wildly in AL’s
home insurance market
-60%
-70%
-67.1%
-80%
90
91
92
93
94
*Latest available as of December 11, 2011.
Source: NAIC; Insurance Information Institute.
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
43
Losses Incurred as a Percent of Premiums
HO: AL vs. U.S., 1990-2009*
160%
US HO
AL HO
140%
2004/05
hurricane
seasons
120%
100%
80%
60%
40%
Average 1990-2009
20%
US: 68.9%
AL: 76.3%
0%
90 91
92 93 94
*Latest available as of December 11, 2011.
Source: NAIC; Insurance Information Institute.
95 96 97
98 99 00 01
02 03 04
05 06 07
08 09
44
All Lines: 10-Year Average RNW AL &
Nearby States
2000-2009
10.8%
Alabama All Lines
profitability is below
the US and above the
regional average
7.0%
South Carolina
U.S.
6.7%
Florida
5.3%
Georgia
3.7%
Texas
3.3%
Alabama
-9.3%
Mississippi
-13.0%
Louisiana
-15%
-10%
-5%
0%
Source: NAIC, Insurance Information Institute
5%
10%
15%
Homeowners: 10-Year Average RNW AL
& Nearby States
2000-2009
Alabama Homeowners
profitability is below the
US and above the
regional average
20.8%
4.7%
South Carolina
U.S.
0.5%
Florida
-2.3%
Texas
-7.1%
Georgia
-7.9%
Alabama
-29.0%
Mississippi
-32.4%
Louisiana
-40%
-30%
-20%
-10%
0%
Source: NAIC, Insurance Information Institute
10%
20%
30%
Return on Net Worth: Homeowners Insurance,
10-Year Average (2000-2009*)
Top 25 States
(Percent)
45
Hawaii was the most profitable
state for home insurers from
2000-2009 due to the total
absence of hurricanes during
this period
45.0
50
40
11.2
11.9
11.9
12.0
13.5
13.7
13.9
14.3
14.4
14.0
14.7
15.2
15.7
17.2
17.4
18.0
18.5
18.6
18.7
15.5
15
19.0
20
20.0
25
20.1
30
20.8
RNW HO
35
10
5
0
HI SC RI DC CT AK UT NY NV MA DE AZ OR NC CA MT WY PA WA NJ CO NM ME VT ID
*Latest available.
Sources: NAIC.
47
Return on Net Worth: Homeowners Insurance,
10-Year Average (2000-2009*)
*Latest available.
Sources: NAIC
LA
-29.0
-32.4
-11.8
-14.4
-10.8
-7.9
-8.6
IN
N
E
A
R
G
A
A
L
K
Y
N
D
M
O
M
N
M
S
TX
O
H
TN
W
I
O
K
IA
FL
IL
SD
S
K
I
.S
.
U
M
-6.9
-7.1
-3.7
-4.9
-5.5
-6.7
-1.6
-2.3
0.4
4.3
2.2
5.3
5.1
4.7
8.0
9.3
10.3
Hurricane Katrina and other storms
made Alabama among the least
profitable states for home insurers
from 2000-2009, ranking 43rd out of
the 50 state. 2011 catastrophe
losses will likely push the state to
48th position.
VA
M
D
N
H
W
V
RNW HO
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40
1.6
1.0
0.5
Bottom 25 States
(Percent)
48
Percent Change in DPW: Homeowners,
by State, 2005-2010
While premium growth
in the Alabama
homeowners line has
been above average, it
hasn’t kept pace with
losses, especially after
considering record
2011 losses.
29.6
29.2
28.8
28.8
28.6
28.2
27.2
26.7
KY
CT
OK
MN
MT
ME
NH
NY
31.2
WY
29.6
31.5
AL
TN
32.0
GA
29.9
32.1
UT
ND
32.1
35.1
SC
RI
35.3
NM
32.2
35.5
AR
NC
36.4
DE
33.4
36.4
MO
MS
36.8
ID
46.7
LA
51.5
60
55
50
45
40
35
30
25
20
15
10
5
0
HI
Pecent change (%)
Top 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
49
Percent Change in DPW: Homeowners,
by State, 2005-2010
7.0
Michigan was the
slowest growing state
between 2005 and 2010
10
8.4
9.6
12.2
15
14.2
16.2
18.1
18.9
19.2
20
20.3
20.8
22.1
22.2
22.4
22.4
23.2
23.9
24.0
24.3
24.5
23.6
21.1
Pecent change (%)
25
25.0
25.6
30
26.1
Bottom 25 States
MI
CA
NV
AZ
WV
MD
PA
DC
AK
VT
OH
NE
IN
CO
SD
OR
IA
WI
IL
TX
FL
WA
MA
VA
KS
NJ
0
0.0
5
Sources: SNL Financial LC.; Insurance Information Institute.
50
Global Catastrophe Loss
Developments and Trends
2011 Will Rewrite Global Catastrophe
Loss and Insurance History
51
Natural Loss Events,
January – September 2011
World Map
Source: MR NatCatSERVICE
52
Top 16 Most Costly World Insurance
Losses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
$80
$70
$60
$50
$40
$30
$20
$10
Taken as a single event, the
Spring 2011 tornado and
thunderstorm season would
likely become the 7th
costliest event in global
insurance history
$11.3
$7.8 $8.0 $8.0 $9.0 $9.3 $10.0
3 of the top 15 most
expensive
catastrophes in world
history have occurred
in the past 18 months
$14.0 $14.9 $16.3
$20.5 $20.8
$23.1 $24.9
$72.3
$30.0
$0
Winter
Storm
Daria
(1991)
Chile Hugo
Typhoon Charley New
Rita
Quake (1989) Mirielle (2004) Zealand (2005)
(2010)
(1991)
Quake
(2011)
Wilma
(2005)
Ivan
Spring Ike
Northridge WTC
(2004) Tornadoes/ (2008) (1994) Terror
Storms
Attack
(2011)
(2001)
Andrew Japan Katrina
(1992) Quake, (2005)
Tsunami
(2011)*
*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.
Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.
53
Worldwide Natural Disasters,
1980 – 2011*
Number of Events
There were 355 events
through the first 6
months of 2011
600
500
400
300
200
100
1980
1982
1984
1986
Geophysical events
(Earthquake, tsunami,
volcanic eruption)
*2011 figure is through June 30.
Source: MR NatCatSERVICE
1988
1990
1992
1994
Meteorological events
(Storm)
1996
1998
2000
2002
Hydrological events
(Flood, mass
movement)
2004
2006
2008
2010
Climatological events
(Extreme temperature,
drought, forest fire)
54
U.S. Insured Catastrophe
Loss Update
2011 CAT Losses Already Greatly
Exceed All of 2010 and Will Become One
of the Most Expensive Years on Record
55
US Insured Catastrophe Losses
($ Billions)
$120
$100
$80
Record Tornado
Losses Caused
2011 CAT Losses
to Surge
$61.9
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
$100.0
$100 Billion CAT Year is
Coming Eventually
$27.0
$13.6
$10.6
$6.7
$9.2
$27.1
$27.5
$12.9
$5.9
$26.5
$4.6
$8.3
$10.1
$2.6
$7.4
$8.3
$16.9
$4.7
$2.7
$20
$7.5
$40
$5.5
$22.9
$60
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??
2011 Will Become the 5th or 6th Most Expensive Year in History for
Insured Catastrophe Losses in the US
*Estimate through Nov. 30, 2011.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal
property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.
Sources: Property Claims Service/ISO; Insurance Information Institute.
56
Top 13 (14?) Most Costly Disasters
in U.S. History
(Insured Losses, 2010 Dollars, $ Billions)**
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Taken as a single event, the
Spring 2011 tornado season
would likely become 5th costliest
event in US insurance history
$45.8
$22.6 $23.1
$8.6
$11.5 $12.8
$4.3
$6.7
$8.2
$4.3
$6.3
Irene
(2011)
Jeanne Frances Rita
(2004) (2004) (2005)
Hugo
(1989)
Ivan
Charley Wilma
(2004) (2004) (2005)
$5.3
*Losses will actually be broken down into several “events” as determined by PCS.
**Hurricane Irene losses stated in 2011 dollars.
Sources: PCS; Insurance Information Institute inflation adjustments.
$16.3 $17.5
Ike
Spring NorthridgeAndrew9/11 AttackKatrina
(2008) Tornadoes (1994) (1992) (2001) (2005)
& Storms*
(2011)
57
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2011:H1*
5.0
2.6
3.3
2010E
2008
1.6
2.7
2006
1.6
2002
2004
1.6
2000
1998
1.0
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
1968
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
0.4
1966
1962
1964
3.6
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 4.15*
0.8
1.1
1.1
0.1
0.9
1960
10
9
8
7
6
5
4
3
2
1
0
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
*Insurance Information Institute estimates for 2010 and 2011:H1
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; Insurance Information Institute.
58
Natural Disasters in the United States,
1980 – 2011*
Number of Events (Annual Totals 1980 – 2010 and First Half 2011)
300
There were 98 natural
disaster events in the first
half of 2011
250
Number
200
150
100
37
8
50
51
2
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
*Through June 30.
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
Meteorological (storm)
Hydrological
(flood, mass movement)
2000
2002
2004
2006
2008
2010
Climatological
(temperature extremes,
drought, wildfire)
59
U.S. Thunderstorm Loss Trends,
1980 – 2011*
Thunderstorm losses in the first half
of 2011 totaled $16.4 billion, a new
annual record through just 6 months
Average thunderstorm
losses are up more
than 8 fold since the
early 1980s
*Through June 30, 2011.
Source: Property Claims Service, MR NatCatSERVICE
Hurricanes get all the headlines,
but thunderstorms are consistent
producers of large scale loss.
2008-2011 are the most expensive
years on record.
60
REINSURANCE MARKET
CONDITIONS
Record Global
Catastrophes Activity is
Pressuring Pricing, But
Capacity is Adequate
62
Global Reinsurance Capital, 2007-2011:H1
Reinsurer Capital
$500
$480
$460
% Change
Global reinsurance
market capacity is down
in mid-2011 due to large
catastrophe losses
18%
17%
20%
15%
$470
$445
$440
$420
$411
10%
5%
$402
$400
-5%
$380
0%
-5%
$360
$342
$340
-10%
-17%
$320
-15%
-20%
$300
2007
2008
2009
Reinsurer Capital
2010
2011:H1
Change
High Global Catastrophe Losses Have Had a Modest Adverse Impact on
Global Reinsurance Market Capacity
Source: Aon Reinsurance Market Outlook, September 2011 from Individual Company and AonBenfield Analytics;
Insurance Information Institute.
Historical Capital Levels of Guy Carpenter
Reinsurance Composite, 1998—2Q11
Most excess
reinsurance
capacity was
removed from the
market in 2011,
leaving
uncertainty as to
the direction of
2012 reinsurance
renewals
Source: Guy Carpenter, GC Capital Ideas.com, November 23, 2011.
Global Property Catastrophe Rate on
Line Index, 1990-2011 YTD (6/1/11)
A modest increase in global property
catastrophe reinsurance pricing was
evident in June 1 renewals in the
wake of record global catastrophe
losses. Larger increase could occur
for the Jan.1, 2012 renewals
Source: Guy Carpenter, GC Capital Ideas.com, September 26, 2011.
Underwriting Trends:
Cycle, Catastrophes Are Among
2011 and 2012 Drivers
66
P/C Insurance Industry
Combined Ratio, 2001–2011:H1*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Cyclical
Deterioration
Best
Combined
Ratio Since
1949 (87.6)
Higher
CAT
Losses,
Avg. CAT
Losses,
More
Reserve
Releases
109.4
107.5
100.1
100
101.0
100.8
98.4
99.3
100.8
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011*
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=110.5
Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
67
Underwriting Gain (Loss)
1975–2011*
($ Billions)
$35
$25
$15
$5
-$5
-$15
-$25
-$35
-$45
-$55
Underwriting
losses in
2011 will be
much larger:
~$40B due
to big CATs
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 1011*
Large Underwriting Losses Are NOT Sustainable
in Current Investment Environment
* Includes mortgage and financial guaranty insurers in all years. 2011 figure is III estimate based on actual H1
underwriting losses of $24.098 billion.
Sources: A.M. Best, ISO; Insurance Information Institute.
158.4
Homeowners Insurance Combined
Ratio: 1990–2011P
170
160
118.0
106.7
105.7
116.8
95.6
100.3
109.3
94.4
88.9
90
98.2
100
121.7
111.4
108.2
109.4
118.4
112.7
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 11P
Homeowners Line Will Deteriorate in 2011 Due to Large Cat
Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).
P/C Insurance Industry
Financial Overview
Profit Recovery Will Be Set
Back by High CATs, Low
Interest Rates, Diminishing
Reserve Releases
70
$3,043
$4,758
$28,672
$34,670
$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
$30,773
$60,000
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.3%
2009 ROAS1 = 5.9%
2010 ROAS = 6.5%
2011:H1 ROAS = 1.7%
P-C Industry 2011:H1 profits were
down 71.6% to $4.8B vs. 2010:H1,
due to high catastrophe losses
and as non-cat underwriting
results deteriorated
$36,819
$70,000







$24,404
$80,000
$62,496
P/C Net Income After Taxes
1991–2011:H1 ($ Millions)
$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 2.3% ROAS for
2011:H1, 7.5% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
10
11*
Capital/Policyholder
Surplus (US)
Have Large Global Losses Reduced
Capacity in the Industry, Setting
the Stage for a Market Turn?
72
Policyholder Surplus,
2006:Q4–2011:Q2
($ Billions)
2007:Q3
Previous Surplus Peak
$580
Surplus as of 6/30/11 fell by 1% below
its all time record high of $564.7B set
as of 3/31/11.
$559.1
$556.9
$544.8
$560
$540.7
$530.5
$540
$521.8$517.9
$515.6
$512.8
$520
$505.0
$496.6
$500 $487.1
$478.5
$511.5
$490.8
$480
$460
$440
The Industry now has $1 of
surplus for every $0.78 of
NPW—the strongest claimspaying status in its history.
$455.6
$463.0
$437.1
$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:Q2
*Includes $22.5B of paid-in
capital from a holding
company parent for one
insurer’s investment in a
non-insurance business in
early 2010.
Sources: ISO, A.M .Best.
Quarterly Surplus Changes Since 2007:Q3 Peak
09:Q1: -$84.7B (-16.2%)
09:Q2: -$58.8B (-11.2%)
09:Q3: -$31.0B (-5.9%)
09:Q4: -$10.3B (-2.0%)
10:Q1: +$18.9B (+3.6%)
10:Q2: +$8.7B (+1.7%)
10:Q3: +$23.0B (+4.4%)
10:Q4: +$35.1B (+6.7%)
11:Q1: +$42.9B (+8.2%)
11:Q2: +37.3B (+7.1%)
74
Financial Strength &
Underwriting
P-C Impairments Remain Low
Despite High Catastrophe Losses
and Poor Economic Environment
75
P/C Insurer Impairments, 1969–2010
8 of the 18 in 2009 were small
Florida carriers. Total also
includes a few title insurers.
0
11
16
18
18
19
12
18
14
15
35
31
29
16
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
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 “1969-2010 Impairment Review,” June 21, 2010; Insurance Information Institute.
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_hartwig
Download at www.iii.org/presentations