Into the Looking Glass:
Trends & Challenges in the
P/C Insurance Industry
CPCU Society Annual Meeting
Philadelphia, PA
September 9, 2008
Robert P. Hartwig, Ph.D., CPCU, President
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: (212) 346-5520  Fax: (212) 732-1916  bobh@iii.org  www.iii.org
Presentation Outline
• Weakening Economy: Insurance Impacts & Implications
• Profitability
• Underwriting Trends
• Premium Growth
• Capacity/Capital
• Investment Overview
• Catastrophic Loss
• Shifting Legal Liability, Tort & Political Environment
THE ECONOMIC
STORM
What a Weakening Economy &
The Threat of Inflation Mean
for the Insurance Industry
2.5%
2.7%
09:4Q
2.0%
1.1%
0.3%
1.2%
3.3%
0.9%
2.9%
0.1%
1%
3.1%
3.6%
0.8%
2%
1.6%
3%
2.5%
4%
3.7%
5%
Economic toll of credit
crunch, labor market
contraction and high energy
prices is growing, though no
official recession declared
09:3Q
4.8%
Stimulus check,
export effects
6%
4.8%
Real GDP Growth*
0%
-0.2%
09:2Q
09:1Q
08:4Q
08:3Q
08:2Q
08:1Q
07:4Q
07:3Q
07:2Q
07:1Q
2006
2005
2004
2003
2002
2001
2000
-1%
*Yellow bars are Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 8/08; Insurance Information Institute.
U.S. Unemployment Rate,
(2007:Q1 to 2009:Q4F)*
6.5%
Rising unemployment will
erode payrolls and workers
comp’s exposure base
6.1% 6.1% 6.1% 6.1%
5.9%
6.0%
5.7%
5.4%
5.5%
5.0%
4.7%
4.6%
4.8%
4.7%
4.5% 4.5% 4.5%
4.9%
4.6%
4.5%
4.0%
06:Q1 06:Q2 06:Q3 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
* Blue bars are actual; Yellow bars are forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (8/08); Insurance Info. Inst.
New Private Housing Starts,
1990-2014F (Millions of Units)
1.56
1.54
1.51
1.45
1.38
1.36
0.97
I.I.I. estimates that each incremental
100,000 decline in housing starts costs
home insurers $87.5 million in new
exposure (gross premium). The net
exposure loss in 2008 vs. 2005 is
estimated at $963 million.
1.80
2.07
1.96
1.85
1.71
1.60
1.64
1.57
1.47
1.35
1.48
New home starts plunged
34% from 2005-2007;
Drop through 2008
trough is 54% (est.)—a
net annual decline of
1.1 million units
0.97
1.01
1.29
1.20
1.46
1.62
Impacts also for comml. insurers
with construction risk exposure
1.19
2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
Exposure growth forecast for HO
insurers is dim for 2008/09
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07F08F 09F 10F11F 12F 13F 14F
Source: US Department of Commerce; Blue Chip Economic Indicators (10/07), except 2008/09 figures from
8/08 edition of BCEF; Insurance Info. Institute
P/C Direct Carrier Employment
489.1
491.4
492.2
495.9
503.3
01
496.2
508.3
00
502.2
511.9
503.7
99
500
496.6
P/C direct carrier employment
has been stable in recent years.
Will focus on expenses impact
employment?
Thousands
600
05
06
07
08*
400
98
02
Source: U.S. Dept of Labor, Bureau of Labor Statistics
03
04
*through June 2008, preliminary
5%
0%
-5%
-10%
6%
4%
5.2%
78
-0.9%
79
80-7.4%
81 -6.5%
-1.5%
82
1.8%
83
4.3%
84
85
86
5.8%
87
0.3%
88
-1.6%
89
-1.0%
90
-1.8%
91
-1.0%
92
3.1%
93
1.1%
94
0.8%
95
0.4%
96
0.6%
97
-0.4%
98
-0.3%
99
1.6%
00
5.6%
01
02
7.7%
03
1.2%
04
-2.9%
05
-0.5%
06
-3.4%
07
08F -4.9%
Real NWP Growth
15%
10%
8%
Real NWP Growth
Real GDP
2%
Real GDP Growth
20%
P/C insurance industry’s growth
is influenced modestly by growth
in the overall economy
13.7%
25%
18.6%
20.3%
Real GDP Growth vs. Real P/C
Premium Growth: Modest Association
0%
-2%
-4%
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 8/08; Insurance Information Inst.
Regulatory
Response &
Financial Services
Modernization
Impacts on Insurers
Treasury Regulatory
Recommendations Affecting Insurers
•
•
•
•
Establishment of an Optional Federal Charter (OFC)

Would provide system for federal chartering, licensing, regulation and
supervision of insurers, reinsurer and producers (agents & brokers)
OFC Would Incorporate Several Regulatory Concepts



Ensure safety and soundness
Enhance competition in national and international markets
Increase efficiency through elimination of price controls, promote more
rapid technological change, encourage product innovation, reduce
regulatory costs and provide consumer protection
Establishment of Office of National Insurance (ONI)



Department within Treasury to regulate insurance pursuant to OFC
Headed by Commissioner of National Insurance
Commissioner has regulatory, supervisory, enforcement and
rehabilitative powers to oversee organization, incorporation, operation,
regulation of national insurers and national agencies
UPDATE: HR 5840 Introduced in April Would Establish
Office of Insurance Information (OII)

Would create industry “voice” within Treasury
Source: Department of Treasury Blueprint for a Modernized Financial Regulatory System, March 2008.
Post-Crunch: Fundamental
Issues To Be Examined Globally
•
•
•
•
Adequacy of Risk Management, Control & Supervision
at Financial Institutions Worldwide



Failure of risk management (and regulation)
Implications for ERM?
Includes review of incentives
Effectiveness and Nature of Regulation





What sort of oversite is optimal given recent experience?
Credit problems arose under US and European (Basel II) regulatory
regimes
Will new regulations be globally consistent?
Can overreactions be avoided?
Capital adequacy & liquidity
Accounting Rules



Problems arose under FAS, IAS
Asset Valuation, including Mark-to-Market
Structured Finance & Complex Derivatives
Ratings on Financial Instruments

New approaches to reflect type of asset, nature of risk
Source: Insurance Information Institute
Inflation
Overview
Pressures Claim Costs,
Expands Probable &
Possible Max Losses
Annual Inflation Rates
(CPI-U, %), 1990-2009F
In July 2008, on a year-over-year basis inflation
was 5.6% -- a level not seen since 1991.
6
5
4.9
5.1
4.4
3.8
4
3.0
3
2
5.6
3.2
3.3 3.4
3.0
2.9 2.8
2.6
2.4
2.5
2.8
2.9
2.3
1.9
1.5
1.3
1
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08* 08F 09F
*12-month change July 2008 vs. July 2007
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, August 10, 2008. (forecasts)
Medical & Tort
Cost Inflation
Amplifiers of Inflation, Major
Insurance Cost Driver
Consumer Price Index for Medical
Care vs. All Items, 1960-2007
(Base: 1982-84=100)
Index Value (1982-84=100)
400
300
200
Soaring medical
inflation is among
the most serious
long-term
challenges facing
casualty, disability
and LTC insurers
Inflation for Medical
Care has been surging
ahead of general
inflation (CPI) for 25
years. Since 1982-84, the
cost of medical care has
more than tripled
351.1
207.3
100
0
Medical Care
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
All Items
Source: Department of Labor (Bureau of Labor Statistics; Insurance Information Institute.
Tort Cost Growth & Medical Cost Inflation
vs. Overall Inflation (CPI-U), 1961-2008*
14%
Tort System is an
Inflation Amplifier
Tort costs move with
inflation but at twice the rate
Avg. Ann. Change: 1961-2008*
12%
Torts Costs: +8.4%
Med Costs: +6.0%
Overall Inflation: +4.2%
10%
8%
6%
4%
2%
Tort Costs
Medical Costs
CPI
0%
1961-70
1971-80
1981-90
1991-2000
2001-08E
*Medical cost and CPI-U through April 2008 from BLS. Tort figure is for full-year 2008 from Tillinghast.
Sources: US Bureau of Labor Statistics, Tillinghast-Towers Perrin, 2007 Update on U.S. Tort Costs; Insurance Info. Inst.
Med Costs Share of Total
Costs is Increasing Steadily
Med cost inflation is one
factor to high WC severity.
Med cost are now nearly 60%
of all lost time claim costs
2007p
1997
Medical
59%
1987
Indemnity
53%
Indemnity
54%
Indemnity
41%
Medical
47%
Medical
46%
Source: NCCI (based on states where NCCI provides ratemaking services).
PROFITABILITY
Profits in 2006/07 Reached
Their Cyclical Peak;
By No Reasonable Standard Can
Profits Be Deemed Excessive
$65,777
$32,936
$44,155
$38,501
$30,029
$20,559
$30,773
$21,865
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
Insurer profits
peaked in 2006
$36,819
$50,000
$24,404
$60,000
$20,598
$70,000
2001 ROE = -1.2%
2002 ROE = 2.2%
2003 ROE = 8.9%
2004 ROE = 9.4%
2005 ROE= 9.6%
2006 ROE = 12.2%
2007 ROAS1 = 12.3%**
2008 ROAS = 6.4%***
$61,940
P/C Net Income After Taxes
1991-2008 ($ Millions)*
08*
07
06
05
04
03
01
-$6,970
00
99
98
97
96
95
94
93
92
91
-$10,000
02
$0
*ROE figures are GAAP; 2008 figure is annualized Q1 net income of $8.234B; 1Return on avg. surplus.
Sources: A.M. Best, ISO, Insurance Information Inst. ***9.5% excl. mortgage and finl. guarantee insurers.
ROE: P/C vs. All Industries
1987–2008:Q1
20%
Mortgage & Financial
Guarantee Impact
P/C profitability is
cyclical and volatile
15%
10%
Sept. 11
5%
Hugo
0%
Andrew
Katrina,
Rita, Wilma
Lowest CAT
losses in 15 years
Northridge
4 Hurricanes
-5%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08Q1
US P/C Insurers
All US Industries
2008 P/C insurer figure is annualized Q1 return on average surplus. Excluding mortgage and financial
guarantee insurers = 9.5%.
Source: ISO, Fortune; Insurance Information Institute.
Profitability Peaks & Troughs in the
P/C Insurance Industry,1975 – 2008:Q1
25%
1977:19.0%
1987:17.3%
2006:12.2%
20%
1997:11.6%
15%
10%
5%
2008Q1: 6.4%
(9.5% excl. M&FG)
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
-5%
*GAAP ROE for all years except 2007 which is ROAS of 12.3%. All figures include mortgage an d financial
guarantee insurers. Excluding M&FG insurers 2008:Q1 ROAS is 9.5%..
Source: Insurance Information Institute, ISO; Fortune
Advertising Expenditures by P/C
Insurance Industry, 1999-2007E
$ Billions
$4.5
$4.0
Ad spending by P/C insurers
is at a record high, signaling
increased competition
$4.323
$3.695
$3.5
$2.975
$3.0
$2.5
$2.0
$1.736 $1.737 $1.803 $1.708
$1.882
$2.111
$1.5
99
00
01
02
03
04
05
06
Source: Insurance Information Institute from consolidated P/C Annual Statement data.
07E
FINANCIAL
STRENGTH &
RATINGS
Industry Has Weathered
the Storms Well, But Cycle
May Takes Its Toll
P/C Insurer Impairment Frequency
vs. Combined Ratio, 1969-2007E
Combined Ratio
115
Combined Ratio after Div
P/C Impairment Frequency
2
1.8
1.6
1.4
110
1.2
105
1
0.8
100
95
0.4
2007 impairment rate was a record low 0.12%,
one-seventh the 0.8% average since 1969; Previous
record was 0.24% in 1972
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
90
0.6
Source: A.M. Best; Insurance Information Institute
0.2
0
Impairment Rate
120
Impairment rates
are highly
correlated
underwriting
performance and
could reached a
record low in 2007
UNDERWRITING
TRENDS
Extremely Strong 2006/07;
Relying on Momentum &
Discipline for 2008
P/C Insurance Combined Ratio,
1970-2008F*
Combined Ratios
120
115
110
1970s: 100.3
1980s: 109.2
1990s: 107.8
2000s: 102.0*
105
100
95
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
08F
90
Sources: A.M. Best; ISO, III
*Full year 2008 estimates from III.
P/C Insurance Industry Combined
Ratio, 2001-2010F
Including
120
115.8
As recently as 2001, insurers
paid out nearly $1.16 for every
$1 in earned premiums
Relatively
low CAT
losses,
reserve
releases
2005 ratio benefited from
heavy use of reinsurance
which lowered net losses
110
Best combined
ratio since 1949
(87.6)
107.4
Cyclical
Deterioration
107
102.5
103
2008*
2009F
100.7
100.1
100
Mortgage
& Fin.
Guarantee
insurers
99.0
98.3
95.6
92.4
90
2001
2002
2003
2004
2005
*Includes Mortgage & Financial Guarantee insurers.
2006
2007
2008
Sources: A.M. Best, ISO; III.
2010F
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
Insurers earned a record underwriting profit of
$31.7 billion in 2006, the largest ever but only the
second since 1978. Cumulative underwriting deficit
from 1975 through 2007 is $422 billion.
$561 mill
underwriting
loss in 08:Q1
incl. mort. &
FG insurers
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
$ Billions
Underwriting Gain (Loss)
1975-2008:Q1*
Source: A.M. Best, ISO; Insurance Information Institute
* Includes mortgage * finl. guarantee insurers
PREMIUM
GROWTH &
PRICING
Sluggishness Persists
Strength of Recent Hard Markets by
NWP Growth
1975-78
1984-87
2000-03
24%
22%
Shaded areas
denote “hard
market” periods
20%
18%
16%
14%
Negative or
zero growth
likely
12%
10%
8%
6%
4%
2%
0%
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008F
2009F
2010F
-2%
In 2007 net written
premiums fell 0.6%, the
first decline since 1943
Sources: A.M. Best, ISO, Insurance Information Institute
$650
$847
$851
$847
$838
$823
$724
$690
$668
$700
$651
$750
$685
$800
$703
$850
$705
$900
Countrywide auto
insurance expenditures
are expected to fall 0.5%
in 2007, the first drop
since 1999
$691
$950
$780
Average Expenditures on
Auto Insurance
Lower underlying
frequency and modest
severity are keeping auto
insurance costs in check
$600
94 95 96 97 98 99 00 01 02 03 04 05* 06* 07*
*Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute
Cumulative Commercial Rate
Change by Line: 4Q99 – 2Q08
Commercial account pricing has been
trending down for 4+ years and is now
on par with prices in late 2001
Source: Council of Insurance Agents & Brokers
U.S. Domiciled Captives- Net
Premiums Written ($ Millions)
$10.5
$ Millions
$10.0
Following a five-year period of
rapid growth, U.S. captive
insurers saw net premiums
written increase by just 2.7
percent in 2006, after 6.2
percent growth in 2005.
$9.5
$9.9
$9.3
$9.0
$9.0
$8.5
$10.2
$8.4
$8.0
2002
2003
2004
2005
Source: A.M. Best, 2007 Special Report: U.S. Captive Insurers – 2006 Market Review
2006
RISING EXPENSES
Expense Ratios Will Rise as
Premium Growth Slows
Personal vs. Commercial Lines
Underwriting Expense Ratio*
30%
Personal
31.1%
32%
29.4%
Commercial
30.0%
30.8%
29.9%
29.1%
28%
26%
25.0%
24.3%
24%
25.6% 25.6%
23.4%
27.0% 27.5%
26.6%
26.3%
25.6% 26.4%
27.1%
26.6%
25.0%
24.5%
26.1%
24.8%
24.7%
24.4% 24.6%
Expenses ratios will likely rise
as premium growth slows
22%
20%
96
97
98
99
00
01
02
*Ratio of expenses incurred to net premiums written.
Source: A.M. Best; Insurance Information Institute
03
04
05
06
07E
08F
CAPACITY/
SURPLUS
Accumulation of Capital/
Surplus Depresses ROEs
U.S. Policyholder Surplus:
1975-2008:Q1*
$550
$500
Capacity as of 3/31/08 was $515.6, down 0.4% from
12/31/07 was $517.9B, but 80% above its 2002 trough.
$450
Recent peak was $521.8 as of 9/30/07
$400
$ Billions
$350
$300
$250
$200
The premium-to-surplus
fell to $0.85:$1 at yearend 2007, approaching
its record low of
$0.84:$1 in 1998
$150
$100
$50
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners
Equity” or “Net Worth” in
non-insurance organizations
$0
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Source: A.M. Best, ISO, Insurance Information Institute.
*As of March 31, 2008
Annual Catastrophe Bond
Transactions Volume, 1997-2007
Risk Capital Issues ($ Mill)
$8,000
Number of Issuances
Catastrophe bond issuance has
soared in the wake of Hurricanes
Katrina and the hurricane
seasons of 2004/2005, despite two
quiet CAT years
$7,000
$6,000
$5,000
$7,329.6
35
30
25
$4,693.4
20
$4,000
15
$3,000
$1,000
$633.0
$846.1$984.8
$1,139.0
$1,219.5
$966.9
10
$1,991.1
$1,729.8
$2,000
$1,142.8
5
$0
0
97
98
99
00
01
02
03
04
Source: MMC Securities Guy Carpenter, A.M. Best; Insurance Information Institute.
05
06
07
Number of Issuances
Risk Capital Issued
MERGER &
ACQUISITION
Are Catalysts for P/C
Consolidation Growing
in 2008?
P/C Insurer M&A Activity,*
1997-2008**
$36,407
15
Transaction Value ($ Mill)
$40,000
M&A activity began to accelerated in
2007. The largest deals as of mid 2008
are Liberty Mutual’s acquisition of
Safeco for $6.2B and Allied World’s
acquisition of Darwin for $550 million
$35,000
$30,000
$25,000
16
14
12
10
10
9
$18,289
$20,000
7
8
$13,808
$15,000
$10,000
Number of Transactions
$8,683
$5,000
$12,823
$9,325
$3,318
2 $599
1
2
$0
0
97
Source: Lehman Brothers.
98 99
00
01
02
0
03
04
$6,750 4
$800
1
2
05
6
06
Number of Transactions
Transaction Values
2 2
0
07 08**
*Deals exceeding $500 million. *Through June 30, 2008.
Distribution Sector: InsuranceRelated M&A Activity, 1988-2006
$2,500
$2,000
300
No extraordinary
trends evident
$1,934
250
200
$1,633
$0
96 & Consulting.
97 99
Source: Conning Research
00
01
02
$944
03
04
150
100
50
$212
$60
$500
$446
$542
$1,000
$689
$1,500
$7
Transaction Value ($ Mill)
$3,000
Number of Transactions
0
05
06
Number of Transactions
$2,720
Transaction Values
All P/C Lines Distribution Channels,
Direct vs. Independent Agents
Direct
Independent Agents
70%
60%
50%
40%
30%
Independent agents steadily lost market share
from the early 1980s through the early 2000s
across all P/C lines, but have gained in recent
years. Direct channels include exclusive
agency companies, direct marketers and
direct sales (e.g., internet)
20%
10%
02
03
04
05
06
97
98
99
00
01
93
94
95
96
88
89
90
91
92
83
84
85
86
87
0%
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
INVESTMENT
OVERVIEW
More Pain,
Little Gain
Property/Casualty Insurance
Industry Investment Gain1
$ Billions
$57.9
$60
$52.3
$56.9
$51.9
$47.2
$50
$59.4
$44.4
$42.8
$55.7
$48.9
$36.0
$40 $35.4
$30
$45.3
$63.6
Investment gains are off in
2008 due to lower yields and
poor equity market conditions.
$20
$10
$12.2
1Investment
08
Q
1
07
06
05
*
04
03
02
01
00
99
98
97
96
95
94
$0
gains consist primarily of interest, stock dividends and realized capital gains and losses.
2006 figure consists of $52.3B net investment income and $3.4B realized investment gain.
*2005 figure includes special one-time dividend of $3.2B.
Sources: ISO; Insurance Information Institute.
CATASTROPHIC
LOSS
What Will 2008 Bring?
$80
$60
$40
$20
$9.2
$6.7
$9.3
$100
2008 CAT losses already exceed
all of 2006/2007. 2005 was by far
the worst year ever for insured
catastrophe losses in the US, but
the worst has yet to come.
$7.5
$2.7
$4.7
$22.9
$5.5
$16.9
$8.3
$7.4
$2.6
$10.1
$8.3
$4.6
$26.5
$5.9
$12.9
$27.5
$120
$100 Billion
CAT year is
coming soon
$61.9
$ Billions
$100.0
U.S. Insured Catastrophe Losses*
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08:Q2**
20??
$0
*Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita.
**Based on preliminary PCS data through June 30.
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.
Source: Property Claims Service/ISO; Insurance Information Institute
REINSURANCE
MARKETS
Reinsurance Prices are
Falling in Non-Coastal
Zones, Casualty Lines
Share of Losses Paid by
Reinsurers, by Disaster*
70%
60%
50%
40%
30%
Reinsurance is playing
an increasingly
important role in the
financing of megaCATs; Reins. Costs are
skyrocketing
30%
25%
60%
45%
20%
20%
10%
0%
Hurricane Hugo Hurricane Andrew
Sept. 11 Terror
2004 Hurricane
2005 Hurricane
(1989)
(1992)
Attack (2001)
Losses
Losses
*Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer,
which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at
$3.85 billion for 2004 and $4.5 billion for 2005.
Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.
Reinsurer Market Share Comparison:
1990 vs. 2006
1990
Offshore
Reinsurer
35.3%
U.S.
Reinsurer
64.7%
2006
Offshore
Reinsurer
53.1%
U.S. Reinsurer market
share fell precipitously
between 1990 and 2006
Sources: Reinsurance Association of America; Insurance Information Institute.
U.S.
Reinsurer
46.9%
Shifting Legal
Liability & Tort
Environment
Is the Tort Pendulum
Swinging Against Insurers?
Personal, Commercial &
Self (Un) Insured Tort Costs*
$250
Commercial Lines
Personal Lines
Self (Un)Insured
Total = $216.7 Billion
Billions
$200
$45.5
Total = $159.6 Billion
$150
Total = $121.0 Billion
$30.0
$85.6
$20.4
$100
$70.9
Total = $39.3 Billion
$51.0
$50
$0
$85.6
$5.2
$17.1
$17.0
$49.6
$58.7
1980
1990
2000
*Excludes medical malpractice
Source: Tillinghast-Towers Perrin, 2007 Update on US Tort Cost Trends.
2006
Tort System Costs and Tort Costs as
a Share of GDP, 2000-2009F
1.82%
$246
$220
$200
$180
$260
$233
$240
2.10%
$205
$179
$277
$265
1.87% 1.84%1.83%1.83% 2.0%
1.5%
After a period of rapid
escalation, tort system costs
as % of GDP are now falling
$160
$140
$120
1.0%
0.5%
$100
0.0%
00
01
02
03
04
Tort Sytem Costs
05
06
07E
Tort Costs as % of GDP
Source: Tillinghast-Towers Perrin, 2007 Update on US Tort Cost Trends.
08E
09E
Tort Costs as % of GDP
$260
2.03%
$261
Tort System Costs
$280
2.5%
$253
2.22% 2.24% 2.23%
$247
$300
REGULATORY &
LEGISLATIVE
ENVIRONMENT
Isolated Improvements,
Mounting Zealoutry
Rating of Auto/Home Insurance
Regulatory & Operating Environment*
Most states (25) get a “B”, but 7 got A’s, 10 got
C’s (including DC), 5 earned D’s and 4 got F’s
AK
AL
WA
ME
MT
ND
VT
NH
MN
OR
=A
=B
=C
=D
=F
SD
ID
MA
NY
WI
CT
MI
RI
WY
NJ
PA
IA
DC
OH
NE
IL
NV
IN
DE
MD
WV
UT
VA
CO
MO
KS
KY
CA
NC
TN
AZ
HI
OK
NM
SC
AR
Source: James Madison Institute, FebruaryAL2008.
MS
GA
LA
TX
FL
*Criteria considered were auto/home residual mkts.,
auto/home mkt. concentration, loss ratio stability,
reg. env.,form regulation, credit scores, territorial
restrictions
Source: James Madison Institute, Feb. 2008
PRESIDENTIAL
POLITICS & P/C
PROFITABILITY
Political Quiz
• Does the P/C insurance industry perform
better (as measured by ROE) under
Republican or Democratic administrations?
• Under which President did the industry realize
its highest ROE (average over 4 years)?
• Under which President did the industry realize
its lowest ROE (average over 4 years)?
P/C Insurance Industry ROE by
Presidential Administration,1950-2008*
ELECTION IMPACT
16.43%
15.10%
Carter
Reagan II
10.13%
8.93%
OVERALL RECORD:
8.65%
1950-2008*
8.35%
7.98%
Republicans 8.05%
7.68%
6.98%
Democrats 7.14%
6.97%
Party of President has
5.43%
5.03%
marginal bearing on
4.83%
profitability of P/C
4.43%
insurance industry
3.55%
G.W. Bush II
Nixon
Clinton I
G.H.W. Bush
Clinton II
Reagan I
Nixon/Ford
Truman
Eisenhower I
Eisenhower II
G.W. Bush I
Johnson
Kennedy/Johnson
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
*ROE for 2008 based on Q1 data. Truman administration ROE of 6.97% based on 3 years only, 1950-52.
Source: Insurance Information Institute
Insurance Information
Institute On-Line
If you would like a copy of this presentation, please
give me your business card with e-mail address