Overview & Outlook
for the P/C Insurance Industry:
Behind the Numbers
Alabama I-Day
Tuscaloosa, AL
October 8, 2014
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5540  Cell: 917.494.5945  stevenw@iii.org  www.iii.org
2013: Best Year (So Far)
in the Post-Crisis Era
Performance Improved with
Lower CATs, Firming Markets
2
20%
5%
-5%
-10%
Sources: ISO, Insurance Information Institute.
1.3%
2.3%
1.7%
3.5%
1.6%
4.1%
3.8%
3.0%
4.2%
5.1%
4.8%
4.1%
4.7%
4.2%
4.7%
3.6%
4.2%
0.5%
2.1%
0.0%
0%
10.3%
10.2%
13.4%
6.6%
15.1%
16.8%
16.7%
12.5%
10.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
10%
10.2%
15%
2002:Q1
2002:Q2
2002:Q3
2002:Q4
2003:Q1
2003:Q2
2003:Q3
2003:Q4
2004:Q1
2004:Q2
2004:Q3
2004:Q4
2005:Q1 -4.6%
2005:Q2
-4.1%
2005:Q3 -5.8%
2005:Q4
-1.6%
2006:Q1
2006:Q2
2006:Q3
2006:Q4
2007:Q1
-1.6%
2007:Q2
2007:Q3
2007:Q4
-1.9%
2008:Q1
2008:Q2
-1.8%
2008:Q3
-0.7%
2008:Q4
-4.4%
2009:Q1
-3.7%
2009:Q2 -5.3%
2009:Q3 -5.2%
2009:Q4
-1.4%
2010:Q1
-1.3%
2010:Q2
2010:Q3
2010:Q4
2011:Q1
2011:Q2
2011:Q3
2011:Q4
2012:Q1
2012:Q2
2012:Q3
2012:Q4
2013:Q1
2013:Q1
2013:Q3
2013:Q4
2014:Q1
2014:Q2
P/C Net Premiums Written: % Change,
Quarter vs. Year-Prior Quarter
2014:Q1 marked the
16th consecutive
quarter of y-o-y
growth
Sustained growth in written premiums
(vs. the same quarter, prior year) should continue through 2014.
3
Underwriting Gain (Loss)
All Lines Combined, 1975–2014*
($ Billions)
$30
Underwriting
profit in 2013
was $15.5B
$20
$10
$0
-$10
-$20
-$30
-$40
$1.22B
2014:1H
profit
-$50
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
14:1H
-$60
High CAT losses in 2011 led to the highest underwriting loss since
2001. Lower CAT losses in 2013
led to the highest underwriting profit since 2007.
* Includes mortgage and financial guaranty insurers in all years. 2014:1H is estimated.
Sources: A.M. Best, ISO, Insurance Information Institute.
P/C Insurance Industry
Combined Ratio, 2001–2014:1H
As Recently as
2001, Insurers
Paid Out Nearly
$1.16 for Every
$1 in Earned
Premiums
120
115.8
110
Relatively
Low CAT
Losses,
Reserve
Releases
Heavy Use of
Reinsurance
Lowered Net
Losses
107.5
Best
Combined
Ratio
Since 1949
(87.6)
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Relatively
Low CAT
Losses,
Reserve
Releases
Cyclical
Deterioration
Avg. CAT
Losses,
More
Reserve
Releases
Sandy
Impacts
106.3
100.1
100
101.0
100.8
98.4
99.3
102.4
100.8
Lower
CAT
Losses
99.0
96.7
95.7
2014:1H
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
90
2001
92.6
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013: = 96.1; 2014.1H: 98.9
Sources: A.M. Best, ISO.
5
P/C Industry Net Income After Taxes
1991–2014:1H
$63,784
$25,980
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
$65,777
$44,155
$38,501
$30,029
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$20,559
$50,000
$21,865
$60,000
$30,773
$70,000
Net income rose
strongly (+81.9%)
vs. 2012
$36,819
$80,000
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.3%
$24,404
$ Millions









$0
-$10,000
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.9% ROAS through
2013:Q3, 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
14:1H
13
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
-$6,970
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2014:1H*
ROE
25%
1977:19.0%
History suggests next ROE
peak will be in 2016-2017
1987:17.3%
20%
2006:12.7%
1997:11.6%
15%
9 Years
2013
10.4%
10%
5%
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
-5%
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
Policyholder Surplus,
2006:Q4–2014:1H
$662.0
$671.6
14:Q2
$587.1
12:Q4
14:Q1
$583.5
$567.8
12:Q2
12:Q3
$550.3
$570.7
11:Q4
$559.1
11:Q2
$538.6
$559.2
$566.5
$530.5
10:Q2
$544.8
$540.7
10:Q1
$511.5
$490.8
$463.0
$515.6
08:Q1
$450
$437.1
$517.9
07:Q4
$455.6
$521.8
07:Q3
$478.5
$512.8
07:Q2
$500
$496.6
$550
$487.1
$600
$505.0
$650
10:Q4
$700
$653.3
2007:Q3
Pre-Crisis Peak
$750
13:Q4
Drop due to near-record
2011 CAT losses
$624.4
($ Billions)
13:Q3
12:Q1
11:Q3
11:Q1
10:Q3
09:Q4
09:Q3
09:Q2
09:Q1
08:Q4
08:Q3
08:Q2
07:Q1
06:Q4
$400
The industry now has $1 of surplus for every $0.73 of NPW,
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
the second half of 2014
in very strong financial shape.
8
Profitability in P/C Markets
in Alabama
and Neighboring States
Analysis by Line and State
9
Return on Net Worth, All Lines:
2002-2012
AL
MS
GA
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
02
Source: NAIC.
03
04
05
06
07
08
09
10
11
12
10
Return on Net Worth, All Lines:
2002-2012
AL
FL
TN
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
02
Sources: NAIC.
03
04
05
06
07
08
09
10
11
12
11
Return on Net Worth, All Lines:
2003-2012 Average, by State
10%
8.6%
8%
7.9%
5.5%
6%
4.9%
4%
2.0%
2%
0%
-2%
-4%
-6%
-6.5%
-8%
FL
Sources: NAIC.
US
GA
TN
AL
MS
12
RNW PP Auto: Alabama and Neighboring
States, 2003-2012, 10-year average
10%
8.1%
8%
5.9%
6%
5.8%
5.5%
4.7%
4%
2%
0%
AL
Sources: NAIC.
MS
TN
GA
FL
13
RNW HO: Alabama and Neighboring
States, 2003-2012, 10-year average
0%
0.0%
-5%
-7.2%
-10%
-15%
-14.4%
-16.6%
-20%
-25%
-24.7%
-30%
FL
Sources: NAIC.
GA
AL
TN
MS
14
RNW CMP: Alabama and Neighboring
States, 2003-2012, 10-year average
8%
7.3%
5.7%
6%
4%
1.8%
2%
0%
-2%
-2.2%
-4%
-3.7%
-6%
FL
Sources: NAIC.
GA
TN
AL
MS
15
RNW WC: Alabama and Neighboring
States, 2003-2012, 10-year average
12%
11.0%
10%
7.6%
8%
7.4%
6.9%
6%
4.3%
4%
2%
0%
FL
Sources: NAIC.
MS
AL
TN
GA
16
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
17
Real Quarterly GDP Growth Since
the “Great Recession, and Forecast
5%
-2%
1.0%
1.1%
1.1%
1.0%
1.0%
0.9%
2.5%
2.4%
2.4%
2.5%
2.4%
2.4%
4.6%
-2.1%
3.5%
4.5%
1.8%
2.7%
0.1%
0.1%
2.5%
1.6%
4.6%
0.8%
2.9%
-1.5%
2.5%
3.9%
-1%
15:4Q
15:3Q
15:2Q
15:1Q
14:4Q
14:3Q
14:2Q
14:1Q
13:4Q
13:3Q
13:2Q
13:1Q
12:4Q
12:3Q
12:2Q
12:1Q
11:4Q
11:3Q
11:2Q
10:4Q
10:3Q
10:2Q
10:1Q
09:3Q
-3%
09:4Q
Since the Great Recession ended, even
3% real growth in a quarter has been
unusual (only 6 times in 20 quarters)
11:1Q
0%
2.7%
1%
1.3%
2%
1.7%
3.9%
3%
2.3%
4%
Additional
growth
forecast by
average of
10 most
optimistic
models
Growth
forecast
by average
of 10 least
optimistic
models
Demand for insurance continues to be affected by sluggish economic
conditions, but the benefits of even slow growth will compound and
gradually benefit the economy broadly.
Forecasts from Blue Chip Economic Indicators; data are quarterly changes at annualized rates.
Sources: (history) US Department of Commerce,at http://www.bea.gov/national/index.htm#gdp ; (forecasts) Blue Chip Economic
Indicators 9/14; Insurance Information Institute.
18
Real Quarterly GDP Growth by State,
2013
Q2
Q3
Q4
10.3%
Q1
12%
-3%
AL
MS
FL
GA
4.0%
2.3%
1.9%
5.7%
0.9%
2.0%
3.9%
4.4%
3.7%
0.8%
3.2%
-0.4%
0%
-3.0%
3%
0.1%
2.3%
3.3%
0.7%
6%
4.2%
9%
TN
Economic growth varied widely among Alabama and its neighbors in
2013. Not only were the rates of growth different from state to state,
but even the direction of growth differed.
Data are seasonally-adjusted quarterly changes at annualized rates
Source: US Department of Commerce,at http://www.bea.gov/newsreleases/regional/gdp_state/2014/pdf/qgsp0814.pdf
19
Monthly Change in Nonfarm Employment,
2011 - 2014
2011: 173,600
280
225
203
214
197
203
199
201
149
202
164
237
274
144
222
203
304
229
267
243
180 248
84
100
70
150
141
102
106
122
200
168
250
217
212
300
221
183
164
196
226
243
322
350
2014*: 226,700
360
400
Average Monthly Gain
2012: 186,300 2013: 194,250
96
110
88
160
150
161
Thousands
0
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
50
The pace of job growth varies considerably from month to month.
*Seasonally adjusted. Aug 2014 and Sept 2014 are preliminary data. Monthly gain for 2014 is average for January-August
Sources: US Bureau of Labor Statistics; Insurance Information Institute
20
AL Change in Nonfarm Employment:
Quarterly, 2009:Q3—2014:Q3*
(Thousands)
15
14.2
13.2
10.7
8.4
10
6.5
4.4
5
5.3 5.2 5.2
1.6 2.1
0.2
0.7
0
-5
-3.4
-4.6
-10
-1.2
-2.9
-4.4
-8.6
-15
2014:Q2
2014:Q1
2013:Q4
2013:Q3
2013:Q2
2013:Q1
2012:Q4
2012:Q3
2012:Q2
2012:Q1
2011:Q4
2011:Q3
2011:Q2
2011:Q1
2010:Q4
2010:Q3
2010:Q2
2010:Q1
2009:Q4
-16.2
2009:Q3
-20
Nonfarm employment growth in Alabama since the end of the “Great
Recession” is still very variable, quarter to quarter; still, there are
now 36,000 more people working in Alabama than in June 2009.
*seasonally-adjusted
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
21
Nonfarm Employment, Birmingham vs. Montgomery,
Mobile, & Tuscaloosa: Quarterly, 2008:Q1—2014:Q2*
Index
2008:Q1=100
Mobile
Birmingham
Montgomery
Tuscaloosa
103
102
101
100
99
98
97
96
95
94
93
2014.1
2013.3
2013.1
2012.3
2012.1
2011.3
2011.1
2010.3
2010.1
2009.3
2009.1
2008.3
2008.1
92
Employment in Alabama’s major urban areas slumped sharply in the
“Great Recession,” and all but Tuscaloosa are still down vs. 2008:Q1
*seasonally adjusted.
Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
Full-time vs. Part-time Employment,
Quarterly, 2003-2014: WC Implications
Full-time
Millions
Recession
122
119
Part-time
Recession shifted
employment growth from
full-time to part-time
Millions
Pre-recession,
most new jobs
were full-time
28.5
28.0
27.5
27.0
26.5
116
26.0
25.5
113
25.0
24.5
110
2003.1
2003.2
2003.3
2003.4
2004.1
2004.2
2004.3
2004.4
2005.1
2005.2
2005.3
2005.4
2006.1
2006.2
2006.3
2006.4
2007.1
2007.2
2007.3
2007.4
2008.1
2008.2
2008.3
2008.4
2009.1
2009.2
2009.3
2009.4
2010.1
2010.2
2010.3
2010.4
2011.1
2011.2
2011.3
2011.4
2012.1
2012.2
2012.3
2012.4
2013.1
2013.2
2013.3
2013.4
2014.1
2014.2
Jul-14
24.0
The Great Recession shifted employment from full-time to part-time, and the
recovery to date hasn’t changed that. Full-time employment is still 3.2 million
below its pre-recession peak, but part-time recently reached a new peak.
Data are seasonally-adjusted. Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
Forces Affecting Personal Lines
24
Private Housing Unit Starts, 1990-2015F
0.5
1.01
0.93
0.78
0.61
1.20
2.07
1.96
1.80
1.71
1.60
1.57
1.64
1.47
1.48
1.36
0.59
0.7
Housing unit starts
plunged 72% from 20052009, down 1.5 million, to
lowest level since records
began in 1959
0.55
0.9
Still well below the
levels reached in
1998-2002, before
the bubble began
0.91
1.1
1.29
1.3
1.19
1.01
1.5
1.20
1.7
1.46
1.35
1.9
1.62
2.1
1.85
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 14F 15F
Housing starts are rising, but this could be retarded by rising mortgage
interest rates. Recently, the fastest growth is in multi-unit residences.
Personal lines exposure will grow, and commercial insurers with Workers
Comp, Construction risk exposure, and Surety also benefit.
Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (8/14); Insurance Information Institute.
25
US: Pct. Of Private Housing Unit Starts
In Multi-Unit Projects, 1990-2014*
Units in Multiple-Unit Projects
as Percent of Total
A NEW NORMAL?
In 4 of the last 6 years,
over 30% of housing
unit starts were in
multi-unit projects
40%
35.8%
33.3%
31.4%
29.3%
19.7%
19.7%
22.8%
18.6%
17.0%
17.7%
18.9%
20.3%
20.6%
21.5%
20.6%
21.4%
23.1%
21.4%
17.7%
20.5%
12.6%
14.2%
10%
25.0%
17.1%
20%
31.3%
30%
0%
90 91 92
93 94 95 96 97 98
99 00 01 02 03 04 05
06 07 08 09 10 11
12 13 14*
For the U.S. as a whole, the trend toward multi-unit housing projects (vs.
single-unit homes) is recent. Commercial insurers with Workers Comp,
Construction risk exposure, and Surety benefit.
*through July 2014
Sources: U.S. Census Bureau; Insurance Information Institute.
26
Rental Vacancy Rates, Quarterly, 1990-2014
Percent vacant
11.5
Peak vacancy
rate 11.1% in
2009:Q3
11.0
10.5
10.0
9.5
Vacancy
rate 10.4%
in 2004:Q1
9.0
8.5
8.0
7.5
7.0
Latest vacancy
rate was 7.5%
in 2014:Q2
90:Q1
91:Q1
92:Q1
93:Q1
94:Q1
95:Q1
96:Q1
97:Q1
98:Q1
99:Q1
00:Q1
01:Q1
02:Q1
03:Q1
04:Q1
05:Q1
06:Q1
07:Q1
08:Q1
09:Q1
10:Q1
11:Q1
12:Q1
13:Q1
14:Q1
6.5
Before the 2001 recession, rental vacancy rates were 8% or less.
We’re close to those levels again. => More multi-unit construction?
Sources: US Census Bureau, Residential Vacancies & Home Ownership in the Second Quarter of 2014 (released July 29, 2014) and
earlier issues; Insurance Information Institute. Next Census Bureau report to be released on October 28, 2014.
27
14.4
16
13
10.4
12
11
16.7
16.3
12.7
14
11.6
13.2
15
15.5
05
16.1
16.9
04
16.5
16.9
01
17
16.6
00
It seems likely that we’re back
to new vehicle sales levels
last seen pre-recession
17.1
17.5
18
17.4
(Millions
of Units)
19
17.8
Auto/Light Truck Sales, 1999-2015F
10
9
99
02
03
06
07
08
09
10
11
12
13 14F 15F
Yearly car/light truck sales will keep rising, in part replacing cars that
were held onto in 2008-12. New vehicles will generate more physical
damage insurance coverage but will be more expensive to repair.
PP Auto premium might grow by 6%.
Sources: U.S. Department of Commerce; Blue Chip Economic Indicators, 8/14 issue (forecasts); Insurance Information Institute.
28
Auto Loans and other Nonrevolving
Credit Outstanding, 1990–2014*
$ Billions
Outstanding
nonrevolving credit
grew by 7.8% in 2013
$2,500
$2,250
$2,000
No growth in outstanding
nonrevolving credit for
three years
$1,750
$1,500
$1,250
$1,000
Spurt
began in
Dec. 2010
$750
$500
'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
Note: Recessions indicated by gray shaded columns. *Seasonally adjusted; Latest data is for June 2014, preliminary
Sources: Federal Reserve at
http://www.federalreserve.gov/datadownload/Download.aspx?rel=G19&series=8ee7aa36107a130bcc862d44824a3b86&lastObs=&fro
m=&to=&filetype=csv&label=include&layout=seriescolumn&type=package
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
29
Something Unusual is Happening:
Miles Driven*, 1990–2014
Billions
3,100
3,000
2,900
2,800
2,700
2,600
2,500
Miles Driven Growth per 5-Yr Span
1997 vs. 1992: 13.9%
2002 vs. 1997: 11.5%
2007 vs. 2002: 6.1%
2012 vs. 2007: -3.0%
Some of the growth in
miles driven is due to
population growth:
1997 vs. 1992: +5.1%
2002 vs. 1997: +7.4%
2007 vs. 2002: +4.7%
2012 vs. 2007: +3.4%
A record: miles driven has been
below the prior peak for 80
straight months (through June
2014). Previous record was in
the early 1980s (39 months)
2,400
2,300
2,200
2,100
'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
*Moving 12-month total. The latest data is for July 2014.
Note: Recessions indicated by gray shaded columns..
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm );
National Bureau of Economic Research (recession dates); Insurance Information Institute.
30
Forces Affecting Commercial Lines
31
Index of Total Industrial Production:*
A New Peak in July 2014
105
Many economists
expect business
investment to
rise in 2014,
2015, and 2016
95
85
July 2014
Index at
103.9,
a new peak
75
Peak at 100.82 in
December 2007
(officially the 1st
month of the Great
Recession)
65
Recession
1/31/2014
1/31/2013
1/30/2012
1/31/2011
1/31/2010
1/31/2009
1/31/2008
1/31/2007
1/31/2006
1/31/2005
1/31/2004
1/31/2003
1/31/2002
1/31/2001
1/31/2000
1/31/1999
1/31/1998
1/31/1997
1/31/1996
1/31/1995
1/31/1994
1/31/1993
1/31/1992
1/31/1991
1/31/1990
55
Insurance exposures for industrial production will continue growing
in 2014, and commercial insurance premium volume with them.
*Monthly, seasonally adjusted, through July 2014 (which is preliminary). Index based on year 2007 = 100
Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt .
National Bureau of Economic Research (recession dates); Insurance Information Institute.
32
Private Sector Business Starts:
1993:Q2 – 2013:Q4* As Strong as Ever?
Business Starts
2006: 861,000
2007: 844,000
2008: 787,000
2009: 701,000
2010: 742,000
2011: 781,000
2012: 800,000
2013: 870,000**
220
210
200
190
180
170
175
173
230
185
182
187
193
184
189
189
185
188
195
191
199
204
203
195
196
195
206
206
200
189
199
206
206
199
213
204
209
200
206
204
204
194
204
208
199
201
193
191
193
200
207
203
209
210
209
216
221
221
220
221
210
221
214
206
216
208
207
201
191
188
172
177
169
183
175
179
188
200
189
192
198
202
201
197
201
201
226
215
214
Thousands
2013:Q1
578,000
business
starts*
Recessions in orange
13:Q1
12:Q1
11:Q1
10:Q1
09:Q1
08:Q1
07:Q1
06:Q1
05:Q1
04:Q1
03:Q1
02:Q1
01:Q1
00:Q1
99:Q1
98:Q1
97:Q1
96:Q1
95:Q1
94:Q1
150
93:Q2
160
*Data posted Jul 30, 2014, the latest available; a classification change in 2013:Q1 resulted in a report of 578,000 businesses started in
that quarter. Seasonally adjusted. **2013 number assumes 1st quarter equals average of second-through-fourth quarters
Sources: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm. NBER (recession dates)
33
Dollar Value* of Manufacturers’
Shipments Monthly, January 1992—June 2014
$ Millions
$500,000
The value of Manufacturing
Shipments in June 2014 was
$499.8B—a new record high.
$400,000
$300,000
Ja
n92
Ja
n9
Ja 3
n9
Ja 4
n9
Ja 5
n9
Ja 6
n9
Ja 7
n9
Ja 8
n99
Ja
n00
Ja
n
0
Ja 1
n
0
Ja 2
n
0
Ja 3
n
0
Ja 4
n
05
Ja
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
an
Ja
n
1
Ja 3
n
14
$200,000
Monthly shipments in November 2013 exceeded the pre-crisis (July 2008) peak;
December 2013, January 2014, and February 2014 slipped a bit.
March 2014, then April, then May, then June 2014 (prelim.) set new record highs.
*seasonally adjusted; June 2014 is preliminary; data published July 25, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 34
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2014:Q2
Billions
$7,750
$7,500
$7,250
Prior Peak was
2008:Q3 at $6.54 trillion
Latest (2014:Q2)
was $7.46 trillion, a
new peak--$1T
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
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
$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.
35
Commercial & Industrial Loans Outstanding
at FDIC-Insured Banks, Quarterly, 2006-2014:Q1
$Trillions
$1.6
$1.5
$1.4
$1.3
$1.2
$1.13
$1.16
$1.18
$1.22
$1.25
$1.30
$1.39
$1.44
$1.48
$1.49
$1.50
$1.49
$1.43
$1.37
$1.27
$1.21
$1.18
$1.17
$1.17
$1.18
$1.20
$1.24
$1.28
$1.35
$1.37
$1.42
$1.45
$1.50
$1.52
$1.55
$1.57
$1.60
$1.61
$1.7
Commercial lending activity
exceeds pre-crisis levels
(+36.75% or $430B above
mid-2010 trough)
Commercial lending plunged
by 21.2% ($330B) during the
financial crisis and ensuing
period of tight credit
$1.1
14:Q1
13:Q3
13:Q1
12:Q3
12:Q1
11:Q3
11:Q1
10:Q3
10:Q1
09:Q3
09:Q1
08:Q3
08:Q1
07:Q3
07:Q1
06:Q3
06:Q1
$1.0
Outstanding Commercial Loan Volume Has Been Growing for Over Two
Years and Is Now Nearly Back to Early Recession Levels. Bodes Very Well
for the Creation of Current and Future Commercial Insurance Exposures
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
36
Percent of Non-current Commercial & Industrial
Loans Outstanding at FDIC-Insured Banks,
Quarterly, 2006-2014:Q1
3%
2%
1%
Recession
0.71%
0.70%
0.74%
0.64%
0.63%
0.62%
0.63%
0.67%
0.81%
1.07%
1.18%
1.69%
2.25%
2.80%
3.57%
3.43%
3.05%
2.83%
2.73%
2.44%
1.89%
1.65%
1.49%
1.29%
1.17%
1.09%
0.98%
0.88%
0.80%
0.74%
0.72%
0.62%
0.60%
4%
Back to “normal” levels
of noncurrent industrial
& commercial loans
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08;Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
0%
Non-current loans (those past due 90 days or more or in nonaccrual status)
are below even pre-recession levels, fueling bank willingness to lend.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
37
Tornados and
Other Natural Catastrophes
2013 Was a Welcome Respite from the High
Catastrophe Losses in Recent Years
2014 Winter Storm Losses Manageable
38
Natural Disasters in the United States
Number of Events (Annual Totals 1980 – 2013)
2013 was the first year
since 2005 with fewer
than 150 natural disaster
events (it had 128)
250
Number
200
150
100
22
50
19
81
6
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Geophysical
(earthquake, tsunami,
volcanic activity)
Source: MR NatCatSERVICE
Meteorological (storm)
Hydrological
(flood, mass movement)
Climatological
(temperature extremes,
drought, wildfire)
39
U.S. Insured Catastrophe Losses
($ Billions, $ 2013)
$90
$80
$74.5
In 6 of the last 13
years, CAT claims
exceeded $29 billion
(in 2012 dollars)
$70
$9.1
$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*
Longer-term trend is for more costly years.
$9.1 billion in
insured CAT
losses through
June 30
*Through 6/30/14.
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.
40
40
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2013*
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
8.7
8.9
8.1
3.4
2012
2010
2008
2006
1.6
2.6
2.7
3.3
3.3
1.6
2002
2004
1.6
2000
1.0
1998
3.4
5.0
5.4
3.6
2.9
3.3
2.8
1996
1992
1990
2.1
2.3
3.0
1.2
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1.2
0.4
0.8
1.3
0.3
0.4
0.7
1.5
1.0
0.4
0.4
0.7
1.8
1.1
0.6
1.4
2.0
1.3
2.0
0.5
0.5
0.7
1968
0.4
1966
1964
1962
0.8
1.1
1.1
0.1
0.9
1
0
1960
3
2
3.6
6
5
4
5.9
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 6.1E*
8
7
1994
10
9
Catastrophe losses as a
share of all losses reached
a record high in 2012
8.8
Combined
Ratio Points
The catastrophe loss component of private insurer losses
has increased sharply in the last 20 years.
*2010s represent 2010-2013.
Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for
losses ultimately paid by foreign insurers and reinsurers.
Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.
41
12 States with Most Growth in Total Value
of Insured Coastal Exposure, 2012 vs. 2007
$ Billions
$600
Texas added $280
billion after
Hurricanes Gustav
and Ike in 2008
$544.4
$500
$403.7
$400
$280.2
$300
Alabama added
$36 billion in
insured value after
Hurricanes Katrina
and Rita
$200
$87.9 $78.4 $76.8
$69.1
$100
$47.7 $35.7 $30.7
$23.5 $21.3
Vi
rg
in
ia
D
el
aw
ar
e
se
tts
Lo
ui
si
an
So
a
ut
h
C
ar
ol
in
a
Al
ab
am
N
or
a
th
Ca
ro
lin
a
M
as
sa
ch
u
Je
rs
ey
N
ew
tic
ut
C
on
ne
c
Te
xa
s
a
Fl
or
id
N
ew
Yo
rk
$0
The insured value of all coastal property was $10.6 trillion in 2012,
up 20% from $8.9 trillion in 2007, and up 48% from $7.2 trillion in 2004
Source: AIR Worldwide; I.I.I.
44
U.S. Tornado Count, EF-1 and Stronger,
(through May each year), 1953-2014
Tornado occurrence
is very variable
2014 count was 152,
lowest since 2005
Source: http://www.spc.noaa.gov/wcm/
45
U.S. Tornado Count, 2005-2013
There were 1,897 tornadoes in the
U.S. in 2011—far above average,
but well below 2008’s record
2013 count
was the lowest
in a decade
Source: http://www.spc.noaa.gov/wcm/.
46
Reports of Severe Weather* in AL
through Sept 2, 2014
Almost all of
the tornados
are in the
northern half
of the state
*excluding floods, wildfires, droughts
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
47
Investment Performance:
a Key Driver of Profitability
Depressed Yields Influence
Underwriting & Pricing
48
Net Yield on Insurer Invested Assets,
2007-2014:1H
6.0%
5.75%
5.41%
5.0%
4.49%
4.20%
4.0%
5.14%
3.93%
5.24%
3.73%
5.10%
3.83%
4.93%
3.68%
4.87%
3.43%
3.0%
2.0%
1.0%
0.0%
2007
2008
2009
2010
2011
2012
2013
P/C Insurer net yields to date dropped by 106 basis points
since year-end 2007.
Sources: NAIC, via SNL Financial; I.I.I.
49
U.S. Treasury 2- and 10-Year Note
Yields*: 1990–2014
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
U.S. Treasury
10-year note
yields recently
“spiked” up
7%
6%
5%
4%
3%
2%
1/31/2014
1/31/2013
1/30/2012
1/31/2011
1/31/2010
1/31/2009
1/31/2008
1/31/2007
1/31/2006
1/31/2005
1/31/2004
1/31/2003
1/31/2002
1/31/2001
1/31/2000
1/31/1999
1/31/1998
1/31/1997
1/31/1996
1/31/1993
1/31/1992
1/31/1991
1/31/1990
0%
1/31/1995
1%
1/31/1994
Recession
2-Yr Yield
10-Yr Yield
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations,
most P/C insurer portfolios will have low-yielding bonds for years to come.
*Monthly, constant maturity, nominal rates, through August 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
50
Bonds Rated NAIC Quality Category 3-6
as a Percent of Total Bonds, 2003–2013
From 2006-07 to year-end 2012, the
percentage of lower-quality bonds
in P/C industry portfolios doubled
5.0%
4.07%
3.99%
2012
2013
4.0%
3.0%
2.69%
3.07%
3.10%
2010
2011
2.58%
2.10%
2.17%
2004
2005
2.0%
1.98%
2.04%
2006
2007
2.27%
1.0%
0.0%
2003
2008
2009
There are many ways to capture higher yields on bond portfolios.
One is to accept greater risk, as measured by NAIC bond ratings.
The ratings range from 1 to 6, with the highest quality rated 1.
Even in 2012-13, over 95% of the industry’s bonds were rated 1 or 2.
Sources: SNL Financial; Insurance Information Institute.
Property/Casualty Insurance Industry
Investment Gain: 1994–2014:Q11
$ Billions
$70
$60
$50
$64.0
$58.0
$56.9
$52.3
$51.9
$47.2
$44.4
$42.8
$40 $35.4
$59.4
$55.7
$58.8
$56.2
$54.2
$53.4
$48.9
$45.3
$39.2
$36.0
$31.7
$30
$20
$10
Investment gains in
2013 were the highest
in the post-crisis era
$14.1
$0
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14:Q1
Low interest rates in 2013 caused investment income to keep falling
but realized investment gains were up sharply.
The financial crisis caused investment gains to fall by 50% in 2008.
1
Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.
* 2005 figure includes special one-time dividend of $3.2B;
Sources: ISO; Insurance Information Institute.
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
53