Overview & Outlook for the
Commercial P/C Insurance
Industry
Trends, Challenges & Opportunities
Target Markets Mid-Year Conference
Atlanta, GA
May 6, 2015
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
Insurance Industry:
Financial Update & Outlook
2014 Was a Reasonably Good Year
2015: A Repeat of 2014?
2
$55,501
$63,784
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
Net income fell
modestly
(-12.5%) in
2014 vs. 2013
$44,155
$38,501
$30,029
$20,559
$21,865
$30,773
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$36,819
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.2%
2014 ROAS1 = 8.4%
$24,404

$ Millions 
$80,000 

$70,000 

$60,000 

$50,000 

$65,777
P/C Industry Net Income After Taxes
1991–2014
$0
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014,
9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO; Insurance Information Institute
14
13
12
11
10
09
08
07
06
05
04
03
02
01
99
98
97
96
95
94
93
92
91
00
-$6,970
-$10,000
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2016F
ROE
25%
1977:19.0%
History suggests next ROE
peak will be in 2016-2017,
but that seems unlikely
1987:17.3%
20%
1997:11.6%
15%
9 Years
2006:12.7%
2013
9.8%
2015F=6.5%
2016F=6.3%
10%
5%
2014
8.2%
0%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15F
16F
-5%
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
ROE: Property/Casualty Insurance by
Major Event, 1987–2014
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Modestly
higher
CATs
Katrina,
Rita, Wilma
Low
CATs
15%
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
Northridge
4 Hurricanes
Financial
Crisis*
Sandy
Record
Tornado
Losses
-5%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
* Excludes Mortgage & Financial Guarantee in 2008 – 2014.
Sources: ISO, Fortune; Insurance Information Institute.
6
NPW Premium Growth: Peaks & Troughs in the
P/C Insurance Industry, 1926 – 2014
ROE
Post WW II Peak:
1947: 26.2%
30%
25%
20%
Start of WW II
1941: 15.8%
1970-90: Peak premium growth was much
higher in this period while troughs were
comparable. Rapid inflation, economic
volatility, high interest rates, tort
environment all played roles
Economic Shocks,
Inflation:
1976: 22.0%
Tort Crisis
1985/86: 22.2%
1988-2000:
Period of
inter-cycle
stability
15%
10%
Post-9/11
2002:15.3%
2014
4.1%
5%
-5%
-10%
-15%
-20%
1950-70: Extended period of
stability in growth and
profitability. Low interest rates,
low inflation, “Bureau” rate
regulation all played a role
Twin
Recessions;
Interest Rate
Hikes
1987: 3.7%
Great Depression
1932: -15.9% max drop
201020XX?
Postrecession
period of
stable
growth?
Great
Recession:
2010: -4.9%
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
0%
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
P/C Insurance Industry
Combined Ratio, 2001–2014*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
120
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
Avg. CAT
Losses,
More
Reserve
Releases
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
100.1
100
Cyclical
Deterioration
101.0
100.8
99.3
98.4
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Sandy
Impacts
106.3
102.4
100.8
95.7
Lower
CAT
Losses
96.7
97.2
2013
2014
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013: = 96.1; 2014: = 97.0.
Sources: A.M. Best, ISO.
9
A 100 Combined Ratio Isn’t What It
Once Was: Investment Impact on ROEs
Combined Ratio / ROE
15.9%
110
A combined ratio of about 100 generates an
ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
106.5
14.3%
12.7%
105
100.6 100.1 100.8
100
10.9%
101.2
99.5
15%
102.4
101.0
12%
97.5
96.7
95.7
95
8.8%
7.4% 7.9%
9.6% 92.7
6.2%
4.7%
90
97.2
9%
9.8%
8.2%
Lower CATs
helped ROEs
in 2013
4.3%
85
18%
6%
3%
80
0%
1978
1979
2003
2005
2006
2007
2008
Combined Ratio
2009
2010
2011
2012
2013 2014:Q3
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014 combined ratio
including M&FG insurers is 97.0; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
Return on Net Worth (RNW) All Lines:
2004-2013 Average
25.6
30
Commercial lines have tended
to be more profitable than
personal lines over the past
decade
18.4
25
6.6
7.1
7.1
-1.0
0
4.9
5
7.8
7.9
10
8.9
9.2
15
13.2
13.4
20
in
es
th
er
Li
ab
ili
W
ty
or
ke
rs
C
om
PP
p
A
ut
o
H
To
om
ta
eo
l
w
ne
rs
Fa
M
rm
P
ow
ne
rs
M
P
A
lli
ed
Li
ne
s
O
A
ll
L
M
P
To
t
C
om
m
ut
o
A
er
ci
al
al
y
ia
bi
l it
om
m
C
ro
fL
th
er
ll
O
ed
ic
al
P
A
M
In
la
nd
M
Fi
re
ar
in
e
-5
Source: NAIC; Insurance Information Institute.
11
RNW All Lines by State, 2004-2013 Average:
Highest 25 States
18.4
20.5
Profitability Benchmark: All P/C
9.5
9.6
9.8
9.8
9.9
10.3
10.5
10.5
10.7
10.7
10.8
10.9
11.1
11.1
11.4
11.7
12.0
12.0
12.1
12.3
13.3
13.4
14.3
US: 7.9%
14.6
24
22
20
18
16
14
12
10
8
6
4
2
0
The most profitable states
over the past decade are
widely distributed
geographically, though none
are in the Gulf region
HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD
Source: NAIC; Insurance Information Institute.
12
-9.3
-6.9
Some of the least
profitable states over the
past decade were hit hard
by catastrophes
1.9
2.5
4.3
5.0
5.2
5.3
5.7
6.1
6.4
6.6
6.8
7.4
7.5
7.7
7.7
7.9
8.0
8.1
8.2
8.2
8.3
8.4
8.6
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
9.2
RNW All Lines by State, 2004-2013 Average:
Lowest 25 States
NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA
Source: NAIC; Insurance Information Institute.
13
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
15
Property/Casualty Insurance Industry
Investment Income: 2000–20141
Investment earnings
are still below their
2007 pre-crisis peak
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1 $47.6
$38.9
$38.7
$48.0 $47.3
$46.2
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Due to persistently low interest rates,
investment income fell in 2012, 2013 and 2014.
1
Investment gains consist primarily of interest and stock dividends.
Sources: ISO; Insurance Information Institute.
*2014 figure is estimated based on annualized data through Q3.
Book Yield on Property/Casualty
Insurance Invested Assets, 2007–2016F
(Percent)
4.6
Book yield in 2014 is
down 114 BP from
pre-crisis levels
4.42
4.4
4.19
4.2
3.95
4.0
3.71
3.8
3.74
3.52
3.6
3.38
3.4
3.28
3.20
3.2
3.13
3.0
07
08
09
10
11
12
13
14E
15F
16F
The yield on invested assets continues to decline as returns on
maturing bonds generally still exceed new money yields. The end
of the Fed’s QE program in Oct. 2014 should allow some increase
in longer maturities while short term interest rate increases are
unlikely until mid-to-late 2015
Sources: Conning.
CAPITAL/CAPACITY
Capital Accumulation Has
Multiple Impacts
27
$671.6
$673.9
$674.7
14:Q3
14:Q4
$624.4
14:Q2
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$490.8
14:Q1
13:Q4
13:Q3
13:Q2
13:Q1
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
Surplus as of 12/31/14 stood
at a record high $674.7B
09:Q3
$437.1
$463.0
09:Q2
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
$400
06:Q4
$450
09:Q1
$455.6
$478.5
$505.0
$515.6
$517.9
$521.8
$496.6
$500
$487.1
$550
$512.8
$600
$559.2
$566.5
$650
$614.0
2007:Q3
Pre-Crisis Peak
$700
$607.7
Drop due to near-record
2011 CAT losses
$662.0
($ Billions)
$653.4
Policyholder Surplus,
2006:Q4–2014:Q4
The industry now has $1 of surplus for every $0.73 of NPW,
close to the strongest claims-paying status in its history.
2010:Q1 data includes $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2015
in very strong financial condition.
28
Alternative Capital
New Investors Continue to Change
the Reinsurance Landscape
First I.I.I. White Paper on Issue Was
Released in March 2015
33
Global Reinsurance Capital (Traditional
and Alternative), 2006 - 2014
Total reinsurance capital reached a
record $570B in 2013, up 68% from
2008.
But alternative capacity has grown 210% since 2008, to $50B. It has more
than doubled in the past three years.
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
Alternative Capital as a Percentage of
Traditional Global Reinsurance Capital
Alternative Capital’s Share of Global Reinsurance Capital Has More Than
Doubled Since 2010.
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
Catastrophe Bond Issuance and
Outstanding: 1997-2014
Risk Capital Amount ($ Millions)
2014 Has Seen the Largest Cat Bond Ever - $1.5 Billion (Florida Citizens).
Bond Issuance Set a Record.
Source: Guy Carpenter.
37
Performance by Segment
43
Commercial Lines Combined Ratio,
1990-2015F*
122.3
91.1
95
98.9
99.9
93.6
100
98.3
98.9
102.4
103.4
107.9
105.4
104.2
102.0
105
102.5
110.2
111.1
112.3
109.7
104.1
107.6
110.2
112.5
118.8
109.5
110
110.2
115
109.4
Commercial Lines Combined Ratio
125
120
Commercial lines
underwriting
performance is expected
to improve as
improvement in pricing
environment persists
*2007-2012 figures exclude mortgage and financial guaranty segments.
Source: A.M. Best (1990-2014F); Conning (2015F) Insurance Information Institute.
15F
14F
13F
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
90
44
105.2
106.4
106.5
106.8
103.4
97.8
96.8
94.1
92.4
99.1
115.7
118.1
116.2
92.1
95
92.9
100
95.2
105
102.7
110
113.0
115
112.0
120
112.1
125
115.9
Commercial Auto Combined Ratio:
1993–2015F
90
85
80
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E 15F
Commercial Auto is Expected to Improve Only Slowly as Rate
Gains Barely Offset Adverse Frequency and Severity Trends
Sources: A.M. Best (1990-2014E);Conning (2015F); Insurance Information Institute.
45
105.8
110
106.5
105.8
Commercial Property Combined Ratio:
2007–2016F
11
12
105
75
85.4
90.1
80
15F
16F
72.4
85
82.7
83.3
90
86.5
95
89.4
100
70
07
08
09
10
13
14E
Commercial Property Underwriting Performance
Has Been Volatile in Recent Years, Largely Due to
Fluctuations in CAT Activity
Source: Conning Research and Consulting.
46
103.9
101.4
104.1
103.0
95
99.8
100
14F
15F
94.2
95.1
105
99.0
110
110.8
107.1
115
112.9
General Liability Combined Ratio:
2005–2015F
90
85
80
05
06
07
08
09
10
11
12
13F
Commercial General Liability Underwriting
Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting.
47
Workers Compensation Combined
Ratio: 1994–2014E
96.0
101.0
108.0
115.0
115.0
110.6
104.5
103.5
102.7
105.1
112.6
108.6
101.0
98.5
100
100.0
105
97.0
110
102.0
115
107.0
120
121.7
115.3
125
118.2
130
WC results have
improved markedly
since 2011
95
90
85
80
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F
Workers Comp Results Began to Improve in 2012.
Underwriting Results Deteriorated Markedly from 20072010/11 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2009); NCCI (2010-2014F) and are for private carriers only; Insurance Information Institute.
48
Growth Analysis by State and
Business Segment
Post-Crisis Paradox?
Premium Growth Rates Vary
Tremendously by State
51
Net Premium Growth: Annual Change,
1971—2016F
(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%
2015-16F:
4.0%
15%
2014E: 4.0%*
2013: 4.6%
10%
2012: +4.3%
5%
0%
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15F
14F
-5%
*Actual figure based on data through Q3 2014.
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
52
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2013
Top 25 States
74.6
80
North Dakota was the country’s
growth leader over the past 6
years with premiums written
expanding by 74.6%, fueled by
the state’s energy boom
60
Growth Benchmarks: Total P/C
16.6
15.9
15.7
14.5
14.5
14.3
12.6
11.9
11.8
11.2
10.5
10.3
9.9
9.8
9.3
9.1
9.0
8.6
TN
MN
AR
AK
IN
WI
CO
MI
KY
OH
NJ
LA
SC
VA
AL
MO
NM
22.2
TX
20
WY
22.5
24.9
IA
VT
25.2
KS
30
US: 7.9%
27.4
40
31.9
50
36.9
Pecent change (%)
70
NE
OK
SD
0
ND
10
Sources: SNL Financial LC.; Insurance Information Institute.
54
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2013
Sources: SNL Financial LC.; Insurance Information Institute.
-15.3
DE
HI
WV
AZ
CA
ID
NH
RI
IL
PA
WA
UT
MA
MD
NY
GA
NC
US
CT
-20
MS
-15
NV
-12.6
-6.7
Growth was negative in 7
states and DC between
2007 and 2013
-10
-5.7
-4.1
-1.9
-0.7
DC
0.4
OR
-5
-1.7
1.0
ME
0
FL
1.6
4.1
4.2
3.5
MT
Pecent change (%)
5
5.3
5.6
5.9
6.2
6.9
7.0
7.3
7.6
7.8
7.9
8.2
10
8.5
Bottom 25 States
55
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2013
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
CT
NM
LA
MS
NJ
NY
US
MO
6.5
WI
MA
6.7
TN
4.1
6.8
9.8
IN
AR
10.0
MN
US: 1.3%
11.3
14.0
TX
Growth Benchmarks: Commercial
WY
15.6
AK
19.1
ID
23.6
25.8
IA
KS
26.3
NE
33.7
41.4
SD
VT
42.1
OK
Only 30 states
showed any
commercial lines
growth from 2007
through 2013
OH
91.1
100
90
80
70
60
50
40
30
20
10
0
ND
Pecent change (%)
Top 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
58
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2013
Bottom 25 States
-25.1
NV
WV
AZ
-22.4
-12.7
FL
-13.6
-12.6
DE
-11.7
HI
-4.9
DC
-11.4
-4.3
UT
MT
-3.7
CA
SC
MI
RI
ME
NC
KY
VA
WA
IL
-30
MD
-25
CO
-20
PA
States with the poorest
performing economies also
produced the most negative
net change in premiums of the
past 6 years
-15
-10.7
-3.3
GA
-10
OR
-2.7
-2.1
-2.0
-1.9
-1.1
-1.1
-1.0
-0.9
-0.8
-0.5
0.1
-5
NH
Pecent change (%)
0
0.2
0.4
0.5
5
AL
Nearly half the states have yet to
see commercial lines premium
volume return to pre-crisis levels
Sources: SNL Financial LLC.; Insurance Information Institute.
59
Direct Premiums Written: Workers’ Comp
Percent Change by State, 2007-2013*
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
-8.0
AR
-4.1
VA
-5.8
-3.7
PA
TN
-3.0
TX
-5.7
-2.9
NM
MD
-2.4
US
-1.0
IL
-2.3
-0.6
WI
NH
-0.3
DC
1.5
MN
3.0
4.5
MI
VT
4.8
IN
10.6
KS
8.1
11.0
NJ
NE
11.5
CT
13.4
CA
NY
SD
IA
Only 13 states have seen
works comp premium volume
return to pre-crisis levels
21.5
24.3
30.8
32.9
35
30
25
20
15
10
5
0
-5
-10
-15
OK
Pecent change (%)
Top 25 States
60
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2007-2013*
-33.3
-33.5
DE
HI
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
MT -71.0
NV
-43.8
-32.5
-27.5
FL
SC
MO
AZ
ME
LA
CO
ID
AK
NC
GA
RI
MA
States with the poorest
performing economies also
produced some of the most
negative net change in
premiums of the past 6 years
OR
-26.5
-23.0
KY
UT
-22.1
AL
-17.1
-16.3
-16.0
-15.4
-15.3
-14.7
-12.0
-11.3
-11.1
-8.8
-8.7
-8.4
-8.1
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
-60
-65
-70
-75
-80
MS
Pecent change (%)
Bottom 25 States
61
Commercial Lines Pricing
Trends
Survey Results Suggest
Commercial Pricing Is Mixed
64
Commercial Lines NPW Premium Growth:
1975 – 2014E
ROE
35%
Commercial lines is prone to more
cyclical volatility that personal
lines. Recently, growth has
stabilized in the 4% to 5% range.
Economic Shocks,
Inflation:
1976: 22.2%
30%
Tort Crisis
1986: 30.5%
25%
Post-9/11
2002: 22.4%
20%
1988-2000:
Period of
inter-cycle
stability
Post-Hurricane
Andrew Bump:
1993: 6.3%
15%
10%
Post Katrina
Bump:
2006: 7.7%
2014E
4.0%
5%
0%
Note: Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
11
09
07
01
99
97
95
93
91
89
87
85
83
81
79
77
75
-15%
05
Great
Recession:
2009: -9.0%
-10%
13
Recessions:
1982: 1.1%
03
-5%
201020XX?
Postrecession
period of
stable
growth?
Change in Commercial Rate Renewals,
by Account Size: 1999:Q4 to 2015:Q1
Percentage Change (%)
Peak = 2001:Q4
+28.5%
Pricing turned
positive in
Q3:2011, the
first increase in
nearly 8 years
Pricing Turned
Negative in Early
2004 and
Remained that
way for 7 ½ years
KRW : No
Lasting
Impact
Trough = 2007:Q3
-13.6%
Rate trends are roughly
flat, some carriers
reporting small gains,
others flat, others small
declines
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 and Brokers; Barclay’s Capital; Insurance Information Institute.
66
U.S. Insured Catastrophe
Loss Update
2013/14 Experienced Below Average CAT
Activity After Very High CAT Losses in
2011/12
Winter Storm Losses Far Above Average in
2014 and 2015
67
U.S. Insured Catastrophe Losses
$74.5
($ Billions, $ 2013)
$80
$70
2012 was the 3rd most
expensive year ever for
insured CAT losses
$15.5
$12.9
$35.5
$34.1
$14.6
$11.6
$29.6
$7.6
$10.7
$16.5
$7.7
$34.2
$35.2
$6.2
$11.7
$14.5
$11.1
$12.8
$3.8
$10
$8.1
$20
$4.9
$30
$14.2
$40
$8.9
$50
$26.8
$38.3
$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 12 13 14
2013/14 Were Welcome Respites from 2011/12,
among the Costliest Years for Insured Disaster
Losses in US History. Longer-term Trend is for
more—not fewer—Costly Events
$15.5 billion in
insured CAT
losses in 2014
*Through 12/31/14.
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 ($15.6B in 2011 dollars.)
Sources: Property Claims Service/ISO; Insurance Information Institute.
68
68
Loss events in the US, 1980 – 2014
Number of events
2014 Total:
119 Events
Number of Events
250
Geophysical events
(Earthquake, tsunami,
volcanic activity)
The number of loss events
surged from 2006 – 2010,
though insured losses
remained elevated through 2012
200
Meteorological events
(Tropical storm,
extratropical storm,
convective storm,
local storm)
150
Hydrological events
(Flood,
mass movement)
100
16
24
50
Climatological events
(Extreme temperature,
drought, forest fire)
72
7
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: Geo Risks Research, NatCatSERVICE
69
Loss Events in the US, 1980 – 2014
Overall and insured losses
Overall losses totaled US$ 25bn; Insured losses totaled US$ 15.3bn
$ Billions
200
150
100
Overall losses
(in 2013 values)*
50
Insured losses
(in 2013 values)*
1980
1982
1984
1986
1988
1990
1992
Source: Property Claim Services, MR NatCatSERVICE.
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
*Losses adjusted
to inflation based
on CPI.
70
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2014E*
8.7
8.9
3.4
3.9
5.0
2.6
3.4
2.7
2014E
2012
2010
2008
1.6
2006
1.6
2002
2004
1.6
2000
1.0
1998
1996
1994
3.3
3.3
3.6
2.9
3.3
2.8
2.1
1990
5.4
5.9
8.1
8.8
Catastrophe losses as
a share of all losses
reached a record high
in 2012
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: 5.7E*
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
*2010s represent 2010-2014.
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 (2012) Insurance Information Institute (2013-14).
71
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1994–20131
Wind/Hail/Flood (3), $14.6
Winter storm
losses were
much above
average in
2014/15 and
will push this
share up
Fires (4), $5.5
Other (5), $0.2
1.4%
Geological Events, $18.4
4.8% 3.8%0.1%
Terrorism, $24.8
6.4%
Winter Storms, $24.7
6.4%
Tornado share of
CAT losses is
rising
Events Involving
Tornadoes (2), $139.3
Insured cat losses
from 1993-2012
totaled $386.7B, an
average of $19.3B
per year or $1.6B
per month
41.1%
Hurricanes & Tropical Storms,
$159.1
36.0%
Wind losses are by
far cause the most
catastrophe losses,
even if hurricanes/TS
are excluded.
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2013 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.
Source: ISO’s Property Claim Services Unit.
73
Loss events in the US, 1980 – 2014
Insured losses due to winter storms*
Overall losses in 2014 totaled $3.7B; Insured losses totaled $ 2.4B
Preliminary figures for 2015 suggest $2.3B in insured winter storm losses.
$ Billions
4 000
3 000
2 000
1 000
Insured losses
(in 2014 values)**
5 year Mean
1980
1982
1984
1986
1988
1990
1992
Source: Property Claim Services, MR NatCatSERVICE.
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
*Winter storms include
winter damage, blizzard,
snow storm and cold
wave
2014
**Losses adjusted to
inflation based on
country CPI
74
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2013 Dollars, $ Billions)
Superstorm Sandy in
2012 was the last
mega-CAT to hit the
US
$60
$50
$49.4
$40
$30
Includes
Tuscaloosa, AL,
tornado
Includes
Joplin, MO,
tornado
$24.2 $24.9 $25.9
$19.0
$20
$10
$0
$9.3 $11.2
$8.8
$7.9
$7.6
$7.2
$6.8
$4.5 $5.6 $5.7
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.6
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
Sources: PCS; Insurance Information Institute inflation adjustments to 2013 dollars using the CPI.
75
Riots, Civil Commotion
and Insurance
Damage to Insured Properties is
Generally Covered Under Standard
Property and Auto Policies
Baltimore Riots Have Officially Been
Designated a PCS CAT Event
84
Insurance Coverage for Riots and Civil
Commotions: Home, Auto and Business
 Auto, homeowners, and business insurance policies generally include
coverage for property losses caused by riots and civil commotions
 Homeowners policies pay to repair, or rebuild, an insured home if its
structure is damaged or destroyed as the result of a riot or civil commotion,
as well as to replace the homeowner’s personal belongings if they are
damaged or stolen during the event.
 If the home is rendered uninhabitable by the damage caused by a riot or civil
commotion, policyholders can file an additional living expenses (ALE) claim to
finance their temp. housing expenses until the residence has been repaired.
 The optional comprehensive coverage on an auto insurance policy
reimburses losses to a vehicle due to damage caused by falling objects,
fire, riots and vandalism, among other things.
 Standard business property insurance policies provide coverage for the
structure of the building as well as the contents inside, and cover losses
arising from riots or civil commotion. Business interruption (BI) coverage,
whereby the policyholder can file a claim for lost income, is usually only
triggered when the insured business incurs direct physical damage.
Source: Insurance Information Institute, www.iii.org .
85
Top 10 Insured Loss Events from Riots
and Civil Commotion*
Year
Deaths
Date
State
Insured Loss When
Occurred
Insured
Losses
(2014 $MM)
1992
14
Apr 29 - May 4
CA
775,000,000
1,307.7
1980
62
May 17 - 19
FL
65,250,000
187.5
1967
48
Jul 23 - 31
MI
41,500,000
294.2
1965
87
11-Aug
CA
38,000,000
285.6
1977
99
Jul 13 - 14
NY
28,000,000
109.4
1967
47
Jul 12 - 21
NJ
11,000,000
78.0
1966
20
12-Jul
IL
4,000,000
29.2
1971
63
Jun 13 - 15
NM
3,000,000
17.5
1977
11
Jul 13 - 14
NY
2,000,000
7.8
1968
77
Jul 23 - 24
OH
1,500,000
10.2
April 2015 Baltimore riots were designated a PCS CAT event on April 29 but loss
estimates are not yet available (2014 Ferguson riots did not receive PCS designation)
Source: PCS unit of Verisk Analytics; Insurance Information Institute
86
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
89
US Real GDP Growth*
1%
-7%
-0.3%
Q1 2014 GDP data
were hit hard by this
year’s “Polar Vortex”
and harsh winter
4.6%
5.0%
-8.9%
2000
2001
2002
2003
2004
2005
2006
2007
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
15:1Q
15:2Q
15:3Q
15:4Q
16:1Q
16:2Q
16:3Q
16:4Q
-9%
-5.3%
-5%
Recession
began in
in June
2009
-3.7%
-3%
-1.8%
-1%
-2.1%
1.4%
2.2%
0.2%
3.1%
3.0%
2.9%
2.8%
2.8%
2.8%
2.7%
1.3%
3%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
1.8%
5%
4.1%
7%
5.0%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
2.7%
1.8%
4.5%
3.5%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
Real GDP Growth (%)
Demand for Insurance Should Increase in 2015 as GDP Growth
Accelerates Modestly and Gradually Benefits the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 4/15; Insurance Information Institute.
90
State-by-State Leading Indicators
through August 2015
Growth in
the West is
finally
beginning
to pick up
The economic
outlook for most of
the US is generally
positive, though
flat-to-negative for
2 states
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.
91
Business Bankruptcy Filings,
1980-2014
1980-82
1980-87
1990-91
2000-01
2006-09
90,000
80,000
40,000
30,000
20,000
10,000
0
58.6%
88.7%
10.3%
13.0%
208.9%
2014 bankruptcies totaled 26,983,
down 18.8% from 2013—the 5th
consecutive year of decline. Business
bankruptcies more than tripled during
the financial crisis.
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
50,000
43,694
48,125
70,000
60,000
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
40,075
33,212
26,983
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
Sources: American Bankruptcy Institute (1980-2012) at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013-14
data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
102
CONSTRUCTION INDUSTRY
OVERVIEW & OUTLOOK
The Construction Sector Is
Critical to the Economy and
the P/C Insurance Industry
105
Value of New Private Construction:
Residential & Nonresidential, 2003-2015*
Billions of Dollars
New Construction peaks
at $911.8. in 2006
Trough in 2010
at $500.6B,
after plunging
55.1% ($411.2B)
$1,000
$900
$800
2014: Value of new
pvt. construction
hits $698.2B as of
Feb. 2015, up 40%
from the 2010
trough but still 23%
below 2006 peak
$15.0
$613.7
$700
$600
$348.4
$500
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$349.9
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13
14
15*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2015 figure is a seasonally adjusted annual rate as of February.
Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
106
Value of Construction Put in Place,
Feb. 2015 vs. Feb. 2014*
Growth (%)
Private: +1.8%
16%
14%
12%
10%
8%
6%
4%
2%
Public sector
construction activity
is finally beginning to
pick up after years of
decline
Private sector construction
activity is up in the
residential and
nonresidential segments but
growth is sluggish
2.1%
Public: +3.1%
13.9%
5.9%
3.1%
2.9%
1.8%
0%
-2%
-4%
-2.1%
Total
Construction
Total Private
Construction
Residential-Private
NonResidential-Private
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth In the Private Sector
Slowed in Late 2014 While Picking in the State/Local Sector Government
Sector as Budget Woes Ease in Some Jurisdictions
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
107
Value of Private Construction Put in Place,
by Segment, Feb. 2015 vs. Feb. 2014*
Led by the Manufacturing and Office
segments, Private nonresidential
sector construction activity continues
to rising after plunging during the
“Great Recession.” Residential
weakened.
Growth (%)
50%
40%
30%
22.8%
20%
10%
5.9%
1.8%
21.4%
16.2%
13.1%
9.6%
38.7%
-0.1%
0%
-1.7%
Manufacturing
Power/Utility
Transportation
-15.3%-16.8%
Amusement &
Rec.
Educational
Health Care
Commercial
Office
Lodging
Total
Nonresidential
Residential
Total Private
Construction
Religious
-10.3%
-20%
Communication
-2.1%
-10%
Private Construction Activity is Up in Many Segments, though the Key
Residential Construction Sector Weakened in Late 2014/Early 2015; Mixed
Outlook for 2015, though Expansion Should Continue
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
108
Value of New Federal, State and Local
Government Construction: 2003-2015*
($ Billions)
$350
Construction
across all levels
of government
peaked at $314.9B
in 2009
$289.1
$300
$255.4
$250
$216.1 $220.2
Austerity Reigns
Govt. construction MAY be
turning a corner; still down
$46.0B or 14.6% since 2009 peak
$308.7 $314.9 $304.0
$286.4 $279.0
$280.0
$271.4
$268.9
$234.2
$200
$150
$100
$50
$0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Government Construction Spending Peaked in 2009, Helped by Stimulus
Spending, but Contracted As State/Local Governments Grappled with
Deficits and Federal Sequestration
*2014 figure is a seasonally adjusted annual rate as of December; http://www.census.gov/construction/c30/historical_data.html
Sources: US Department of Commerce; Insurance Information Institute.
111
New Private Housing Starts, 1990-2021F
2.1
1.9
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
0.55
0.59
0.61
0.78
0.92
1.01
1.16
1.30
1.41
1.46
1.49
1.52
1.52
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 should continue
to stimulate new home construction
for several more 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 13 14 15F 16F 17F 18F 19F20F 21F
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the
“Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/15 and 3/15); Insurance Information Institute.
112
(Thousands)
6,400
6,200
6,100
6,000
5,900
5,800
5,700
5,600
5,500
5,400
5,581
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
5,629
5,628
5,627
5,608
5,623
5,632
5,641
5,649
5,668
5,684
5,724
5,746
5,798
5,815
5,813
5,833
5,856
5,854
5,866
5,893
5,918
5,953
5,937
6,006
6,032
6,062
6,103
6,114
6,121
6,152
6,169
6,191
6,201
6,231
6,275
6,316
6,345
6,344
6,300
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
2/30/20
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-12
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Construction Employment,
Jan. 2010—March 2015*
Construction employment
is +990,000 above
Jan. 2011 (+16.7%) trough
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
113
Construction Employment,
Jan. 2003–March 2015
(Thousands)
Construction
employment as of
Mar. 2015 totaled
6.344 million, an
increase of 990,000
jobs or 16.7% from
the Jan. 2011 trough
Construction
employment
peaked at
7.726 million
in April 2006
8,000
7,500
Gap between prerecession
construction
peak and today:
1.38 million jobs
7,000
The “Great Recession” and
housing bust destroyed 2.3
million constructions jobs
6,500
6,000
Construction employment
troughed at 5.435 million in
Jan. 2011, after a loss of 2.291
million jobs, a 29.7% plunge
from the April 2006 peak
5,500
5,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
The Construction Sector Was a Growth Leader in 2014 as the Housing Market,
Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
114
MANUFACTURING SECTOR
OVERVIEW & OUTLOOK
The U.S. Is Experiencing a Mini
Manufacturing Renaissance but
Headwinds from Weak Export
Markets and Strong Dollar
115
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—February 2015
$ Millions
$500,000
The value of Manufacturing
Shipments in Feb. 2015 was
$481.3B—down slightly since the
July 2014 record high of $508.1B
$400,000
$300,000
Ja
n9
Ja 2
n9
Ja 3
n9
Ja 4
n9
Ja 5
n9
Ja 6
n9
Ja 7
n9
Ja 8
n9
Ja 9
n0
Ja 0
n
0
Ja 1
n
0
Ja 2
n
0
Ja 3
n
0
Ja 4
n
0
Ja 5
n
0
Ja 6
n
0
Ja 7
n
0
Ja 8
n
0
Ja 9
n
1
Ja 0
n
1
12 1
-J
a
13 n
-J
a
14 n
-J
a
14 n
-J
an
$200,000
Monthly shipments in Feb. 2015 are similar to pre-crisis (July 2008) peak but has
declined in recent months. Manufacturing is energy-intensive and growth leads to
gains in many commercial exposures: WC, Commercial Auto, Marine, Property, and
various Liability Coverages.
* Seasonally adjusted; Data published Apr. 2, 2015.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 116
Manufacturing Growth for Selected
Sectors, 2015 vs. 2014*
Growth (%)
Non-Durables: -9.7%
Durables: +3.0%
Textile
Products
Plastics &
Rubber
Chemical
Petroleum &
Coal
Food
Products
Non-Durable
Mfg.
Transportation
Equip.
Computers &
Electronics
Electrical
Equip.
Machinery
Fabricated
Metals
Primary
Metals
Wood
Products
Durable Mfg.
All
Manufacturing
15%
9.7%
8.8%
6.3%
10%
3.0%
3.1%
2.3%
2.0%
5%
0.1%
0%
-5%
-0.5%
-2.2%
-3.7%
-4.1%-2.4%
-10%
-9.7%
-15%
Manufacturing of durable
-20%
goods is stronger than
-25%
Impact of falling
nondurables in 2015
-30%
energy prices
-35%
-34.0%
-40%
Manufacturing Is Expanding in Many Sectors But Declining Energy Prices Are
Dragging Down Industry Figures. Continued Gortwh Across a Number of
Sectors that Will Contribute to Growth in Insurable Exposures Including: WC,
Commercial Property, Commercial Auto and Many Liability Coverages
*Seasonally adjusted; Date are YTD comparing data through February 2015 to the same period in 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 117
*Seasonally adjusted; Feb. and Mar. 2015 are preliminary
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
11,500
Nov-10
11,750
Sep-10
12,000
Jul-10
Thousands
May-10
12,250
11,462
11,453
11,458
11,493
11,527
11,543
11,571
11,550
11,557
11,557
11,581
11,592
11,620
11,653
11,675
11,704
11,711
11,723
11,755
11,763
11,766
11,773
11,771
11,798
11,837
11,859
11,901
11,916
11,928
11,939
11,979
11,956
11,942
11,947
11,951
11,965
11,982
12,004
12,007
12,001
11,994
11,991
11,982
11,990
11,993
12,011
12,046
12,053
12,061
12,081
12,085
12,094
12,103
12,130
12,154
12,157
12,214
12,237
12,282
12,301
12,318
12,320
12,319
12,500
Mar-10
Jan-10
Manufacturing Employment,
January 2010—March 2015*
In the past 5 years (from January
2010) manufacturing employment
is up (+857,000 or +7.5%)
and still growing.
11,250
Manufacturing employment is a surprising source of strength in the
economy. Employment in the sector is at a multi-year high.
118
ENERGY SECTOR: OIL & GAS
INDUSTRY FUTURE IS BRIGHT
BUT VOLATILE
US Is Becoming an Energy
Powerhouse but Fall in Prices
Will Have Negative Impact
123
U.S. Crude Oil Production, 2005-2016P
Millions of Barrels per Day
12
Crude oil production in the
U.S. is expected to increase
by 90.6% from 2008 through
2016—and could overtake
Saudi Arabia as the world’s
largest oil producer
10
8
9.31
9.53
8.67
7.44
6.49
6
5.19
5.09
5.08
5.00
5.35
5.47
5.65
4
2
Source: Energy Information Administration, Short-Term Energy Outlook (January 15, 2015) , Insurance Information Institute.
F
20
16
F
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
0
(Thousands)
Despite recent declines, Oil and
gas extraction employment is
210
still up 26.8% since Jan. 2010 as
the energy sector booms.
Domestic energy production is
200
essential to any robust
economic recovery in the US.
180
170
160
150
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
181.3
182.3
184.7
185.2
186.2
187.8
188.6
189.3
189.4
189.4
190.5
192.2
193.1
194.6
194.0
193.8
193.1
192.5
193.0
193.4
193.3
193.1
194.0
194.0
194.0
195.4
193.7
194.6
196.4
197.6
198.6
198.4
199.4
201.5
201.0
201.2
199.4
198.0
198.3
190
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
2/30/21
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Oil & Gas Extraction Employment,
Jan. 2010—March 2015*
After peaking at its highest level
since 1986, O&G employment is
falling as oil and gas prices decline
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
126
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend Has
Greatly Improved
127
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through March 2015,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
14
12
U-6 soared from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 10.9%
in Mar. 2015.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 5.5% in Mar.
2015. 4.5% to
5.5% is “normal.”
6
4
2
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
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.
128
US Unemployment Rate Forecast
Rising unemployment
eroded payrolls
and WC’s
exposure base.
11%
Unemployment peaked
at 10% in late 2009.
10%
6%
5%
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
7%
8.1%
9%
8%
9.3%
9.6%
10.0%
9.7%
9.6%
9.6%
9.6%
8.9%
9.1%
9.1%
8.7%
8.3%
8.2%
8.0%
7.8%
7.7%
7.6%
7.3%
7.0%
6.6%
6.2%
6.1%
5.7%
5.6%
5.4%
5.3%
5.2%
5.1%
5.0%
5.0%
4.9%
2007:Q1 to 2016:Q4F*
Jobless figures
have been revised
downwards for
2015/16
Unemployment forecasts
have been revised modestly
downwards. Optimistic
scenarios put the
unemployment as low as
5.0% by Q4 of 2015.
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
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
15:Q1
15:Q2
15:Q3
15:Q4
16:Q1
16:Q2
16:Q3
16:Q4
4%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (4/15 edition); Insurance Information Institute.
129
(600)
(800)
(1,000)
Monthly losses in
Dec. 08–Mar. 09
were the largest in
the
post-WW II period
-426
-422
-486
(400)
-776
-693
-821
-698
-810
-801
(200)
-294
-272
-232
-141
-271
-15
-232
-38
-115
-106
-221
-215
-206
-261
-258
-71
400
113
192
94
110
120
117
107
199
149
94
72
223
231
320
166
186
219
125
268
177
191
222
364
228
246
102
131
75
172
136
159
255
211
215
219
263
164
188
222
201
170
180
153
247
272
86
183
175
223
313
238
272
243
209
235
218
414
319
202
129 264
20
3
32
64
81
55
3
0
231
52
170
52
126
57
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
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Monthly Change in Private Employment
January 2007 through Mar. 2015 (000s, Seasonally Adj.) 3,042,000 jobs were created
in 2014, the most since 1997
600
Jobs Created
2014: 3.042 Mill
2013: 2.452 Mill
2012: 2.315 Mill
2011: 2.396 Mill
2010: 1.282 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
129,000 private
sector jobs were
created in March. In
March 2014, the last
of the private jobs
lost in the Great
Recession were
recovered
Private Employers Added 11.20 million Jobs Since Jan. 2010 After
Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
130
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2014:Q4
Billions
$7,750
$7,500
$7,250
Prior Peak was
2008:Q3 at $6.54 trillion
Latest (2014:Q4) was
$7.57 trillion, a new
peak--$1.34 trillion
above 2009 trough
$7,000
$6,750
$6,500
$6,250
$6,000
$5,750
Recent trough (2009:Q1)
was $6.23 trillion, down
5.3% from prior peak
Growth rates
2011:Q3 over 2010:Q3: 4.1%
2012:Q3 over 2011:Q3: 3.2%
2013:Q3 over 2012:Q3: 3.6%
2014:Q4 over 2013:Q4: 5.1%
05:Q1
05:Q2
05:Q3
05:Q4
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
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
$5,500
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.
131
Payroll vs. Workers Comp Net Written
Premiums, 1990-2014P
Payroll Base*
$Billions
$7,000
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
7/90-3/91
$50
12/07-6/09
$45
WC premium
volume dropped
two years before
the recession began
$6,000
$5,000
$40
$35
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$4,000
$3,000
$30
E
14
13
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
$25
90
$2,000
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow
Again in 2015
*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are I.I.I. estimates..
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
132
12,250
12,000
11,750
11,500
11,250
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
11,834
11,857
11,899
11,916
11,930
11,941
11,965
11,961
11,948
11,951
11,947
11,961
11,980
12,002
12,006
12,006
12,007
12,005
11,983
12,011
12,022
12,040
12,072
12,086
12,102
12,122
12,131
12,142
12,154
12,177
12,191
12,205
12,214
12,237
12,282
12,301
12,318
12,320
12,319
12,500
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
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Manufacturing Employment,
Jan. 2010—March 2015*
(Thousands)
Since Jan 2010,
manufacturing
employment is up
(+859,000 or +7.5%)
and still growing.
Manufacturing employment is a surprising source of strength in the
economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
135
Workers Compensation
Operating Environment
Workers Comp Results Have Improved
Substantially in Recent Years
136
Workers Compensation Premium:
Third Consecutive Year of Increase
Net Written Premium
$ Billions
50
46.5
State Funds ($ B)
46.5
44.3
Private Carriers ($ B)
40
47.8
42.3
41.9
39.3
37.7
35.3 35.7 34.3 35.4
33.6
34.6 33.8
32.1
30.1
30
28.5
26.9 25.9
25.0
10
36.4
28.6
20
31.0 31.3 29.8 30.5
29.1
39.6
34.7
26.3 25.2
25.0 26.1
24.2 23.3
22.3
29.2
37.8 38.6 37.6
33.8
31.1
30.3 29.9
32.3
35.1
37.0
Pvt. Carrier NWP growth
was +5.4% in 2013 and
8.7% in 2012
0
90
91
p Preliminary
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Calendar Year
Source: 1990–2013p Private Carriers, Annual Statement Data, NCCI.
1996–2013p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
10
11
12
13
Workers Compensation Lost-Time
Claim Frequency Declined in 2013
Lost-Time Claims
Percent
12
Cumulative Change of –55.4%
(1991–2011 adj.)
10
8
Frequency Change: 2007—2012
6
Contracting: 7.97.1
-9.3%
4
Manufacturing: 13.612.0
-11.8%
2
11
Indicated
Adjusted
3.5
0.5
0.3
0
-1.0
-2
-4
-6
-4.2 -4.4
-3.9
-4.5
-10
91
-9.2
92 93 94
95
-3.7
-4.5 -4.1
-4.5
-4
-4.3
-4.5
-5.7
-6.5
-8
-2.0
-2.2
-2.3
-6.9
96
97
98
99
00
01
-6.1
-6.6
02
03
04
05
06
07
08
09
10
11
12 13P
Accident Year
*Adjustments primarily due to significant audit activity.
2013p: Preliminary based on data valued as of 12/31/2013
1991–2012: Based on data through 12/31/2012, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policies
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
Source: NCCI.
140
Workers Compensation Medical Severity
Moderate Increase in 2013
Medical
Claim Cost ($000s)
30
25
20
Average Medical Cost per Lost-Time Claim
+3%
AnnualChange
Change1991–1993:
1991–1993: +1.9%
+1.9%
Annual
AnnualChange
Change1994–2001:
1994–2001: +8.9%
+8.9%
Annual
AnnualChange
Change2002–2013:
2002–2010: +5.2%
+6.0%
Annual
+3.0%
+2.6%
+4.0%+1.2%
+6.8%
+6.1%
+5.8%
+7.8%
Cumulative Change = 256%
(1991-2013p)
+5.4%
+7.7%
Accident
Year
01 02 03
00
Accident Year
04
05
06
07
08
$28.8
99
$27.9
98
$27.1
97
$26.4
$11.7
96
$23.5
$10.8
95
$22.2
$9.8
94
$18.4
$9.1
93
$17.1
$8.8
92
5
$13.9
$8.1
91
+1.3%-2.1%
+6.8%
$12.9
$8.2
+7.4%
+5.1%
+9.0%
$8.1
10
$15.7
+8.3%
+10.1%
$19.4
+7.3%
+10.6%
$21.0
15
$25.1
+13.5%
$26.1
+8.8%
09
10
11
12 13p
2013p: Preliminary based on data valued as of 12/31/2013.
1991-2012: Based on data through 12/31/2012, developed to ultimate
Based on the states where NCCI provides ratemaking services including state
141funds, excluding WV; Excludes high deductible policies.
WC Medical Severity Generally Outpaces
the Medical CPI Rate
16%
13.5%
14%
12%
10.1%
10%
8%
Average annual increase in WC medical
severity form 1995 through 2011 was well
above the medical CPI (6.8% vs. 3.8%), but
the gap is narrowing.
10.6%
8.8%
8.3%
7.7%
7.4%
7.8%
6.8%
6.1%
7.3%
6% 5.1%
5.4% 5.8%
4.0%
4%
3.0%
4.7%
4.6%
4.5%
4.4%4.2%
4.4%
4.1%
4.0%
4.0%
2.0%
3.7%
3.5%
3.5%
3.4%
3.2%
3.2%
3.0% 3%3.0%
2%
2.8%
Change in Medical CPI
1.2%
Change Med Cost per Lost Time Claim
0%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13p
4%
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
CYBER RISK &
CYBER INSURANCE
Cyber Risk is a Rapidly Emerging
Exposure for Businesses Large and
Small in Every Industry
Rapidly Increasing Interest from
Businesses, Media & Public Policymakers
153
Data Breaches 2005-2014, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
Millions
222.5
800
700
783
200
662
656
619
180
600
160
498
500
140
446127.7
419
447
87.9
400
66.9
120
85.6
321
35.7
157
100
80
300
200
220
60
16.2
19.1
22.9
40
17.3
20
100
0
2005
2006
2007
2008
2009
# Data Breaches
2010
2011
2012
2013
2014
# Records Exposed (Millions)
The Total Number of Data Breaches Rose 28% While the Number of
Records Exposed Was Relatively Flat (-2.6%)
154
* 2014 figures as of Jan. 12, 2014 from the ITRC.
Source: Identity Theft Resource Center.
Data/Privacy Breach:
Many Potential Costs Can Be Insured
Costs of
notifying
regulatory
authorities
Regulatory
fines at
home &
abroad
Costs of
notifying
affecting
individuals
Data
Breach
Event
Forensic costs
to discover
cause
Defense and
settlement
costs
Lost customers
and damaged
reputation
Cyber extortion
payments
Business
Income Loss
Source: Zurich Insurance; Insurance Information Institute
156
The Three Basic Elements of Cyber
Coverage: Prevention, Transfer, Response
Loss
Prevention
Loss
Transfer
(Insurance)
Post-Breach
Response
(Insurable)
Cyber risk management today involves
three essential components, each designed
to reduce, mitigate or avoid loss. An
increasing number of cyber risk products
offered by insurers today provide all three.
Source: Insurance Information Institute research.
157
Autonomous/Driverless
Vehicles
Rapid Technological Innovations in
Motor Vehicle Engineering Are
Likely to Transform Auto Insurance
and Product Liability Markets
173
Projected Sales of Partially and Fully
Autonomous Vehicles through 2035
By 2035, it is
estimated that 25%
of new vehicle sales
could be fully
autonomous models
Source: Boston Consulting Group.
175
Shifting Legal Liability &
Tort Environment
Will the Tort Pendulum
Swing Against Insurers?
187
Over the Last Three Decades, Total Tort Costs as a
% of GDP Appear Somewhat Cyclical, 1980-2013E
($ Billions)
$300
2.25%
Deepwater
Horizon Spike
in 2010
$200
2.00%
$150
$100
1.75%
Tort costs in dollar terms have
remained high but relatively stable
since the mid-2000s., but are down
substantially as a share of GDP
$50
Tort Costs as % of GDP
2.21% of
GDP in 2003
= pre-tort
reform peak
$250
Tort System Costs
2.50%
Tort Costs as % of GDP
Tort Sytem Costs
1.68% of
GDP in
2013
1.50%
$0
80
82
84
86
88
90
92
94
96
98
00
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A
02
04
06
08
10
12E
188
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
193