The P/C Insurance Industry:
Overview and Outlook
May 14, 2013
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
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand
the Insurer Exposure Base
Across Most Lines
2
Real GDP Growth: Past Recessions
and Recoveries, Yearly, 1970-2012
Real GDP
Growth (%)
In the current recovery,
real yearly GDP growth
has been 2.4% or less
But, following the 1991 and 2001
recessions, real yearly GDP
growth was weaker than 4%
1970
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
2008
2009
2010
2011
2012
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
In most recoveries, real
yearly GDP growth is
often 4% or more
Source: (GDP) U.S. Department of Commerce at http://www.bea.gov/national/xls/gdpchg.xls.
3
April 2013 Forecasts of Quarterly
US Real GDP for 2013-14
Real GDP Growth Rate
4%
3.6%
3.3%
3%
2.6%
2%
2.4%
2.6%
1.8%
3.4%
2.7%
2.0%
1.5%
1%
3.6%
3.7%
2.8%
2.9%
3.0%
2.2%
2.3%
2.0%
1.7%
10 Most Pessimistic
Currently, the
sequester will have
greatest effect here
0.8%
3.9%
Median
10 Most Optimistic
0%
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
Despite the sequester and other challenges to the U.S. economy,
virtually every forecast in the Blue Chip universe in early April sees
improvement ahead
Sources: Blue Chip Economic Indicators (4/13); Insurance Information Institute
4
State-by-State Leading Indicators,
2013:Q2-Q3
Near-term growth
forecasts vary
widely by state.
Strongest growth
= dark green;
weakest = beige
Sources: Federal Reserve Bank of Philadelphia at www.philadelphiafed.org/index.cfm; Insurance Information Institute.
Next release is May 28, 2013
5
Leading Indicator Indexes Vary
Widely by State and Region
Great Plains
0.6%
2.2%
2.2%
1.4%
1.1%
0.9%
0.2%
TX
AZ
OK
NM
Far West
2.4%
2.2%
3.7%
0.4%
0.4%
1.1%
0.9%
MI
IL
OH
WI
IN
4%
2%
Mountain
1.7%
1.5%
1.4%
1.4%
0.8%
0.8%
0.7%
Southwest
3.8%
Great Lakes
4.2%
6%
-0.2%
-0.3%
UT
ID
CO
MT
WY
OR
WA
CA
NV
0%
MN
SD
IA
ND
MO
NE
KS
-2%
Data from March 2013
Sources: Federal Reserve Bank of Philadelphia at www.philadelphiafed.org/index.cfm; Insurance Information Institute.
6
0.38%
1.75%
New England
3.02%
2.58%
2.52%
2.45%
1.51%
2%
Mid-Atlantic
2.78%
2.44%
1.90%
1.71%
1.04%
4%
Southeast
3.01%
2.93%
2.87%
2.67%
2.49%
2.00%
1.27%
0.95%
0.90%
0.49%
0.38%
6%
4.72%
Leading Indicator Indexes Vary
Widely by State and Region
-0.14%
0%
HI
AK
RI
VT
MA
ME
NH
CT
NJ
PA
NY
MD
DE
NC
SC
GA
WV
VA
FL
AL
TN
AR
MS
KY
LA
-2%
Data for March 2013
Sources: Federal Reserve Bank of Philadelphia at www.philadelphiafed.org/index.cfm; Insurance Information Institute.
7
(50)
Seasonally adjusted. Mar 2013 and Apr 2013 are preliminary data
Sources: US Bureau of Labor Statistics; Insurance Information Institute
131
118
177
208
265
249
Apr-13
Mar-13
Feb-13
Jan-13
Dec-12
154
176
164
256
224
78
120
152
174
197
256
Nov-12
0
217
50
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
129
183
177
206
300
Sep-11
Aug-11
Jul-11
Jun-11
May-11
243
223
319
323
303
350
Apr-11
Mar-11
80
114
188
154
250
Feb-11
Jan-11
Dec-10
Nov-10
Oct-10
Sep-10
Aug-10
Jul-10
Jun-10
102
94
103
129
113
100
May-10
200
170
Thousands
Apr-10
111
150
Mar-10
Feb-10-26
Jan-10 -17
Monthly Change in Private Employment,
2010 - 2013
Average Monthly Gain Since Jan 2011: 196,500 jobs
Private employers added 1.2 million jobs in just the last six months.
8
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2013:Q1
Billions
$7,250
$7,000
Prior peak was 2008:Q1
at $6.60 trillion
Latest (2013:Q1)
was $7.01 trillion, a
new peak—$761B
above 2009 trough
$6,750
$6,500
$6,250
$6,000
$5,750
Recent trough (2009:Q3)
was $6.25 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
$5,500
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance
Information Institute.
9
Commercial & Industrial Loans Outstanding
at FDIC-Insured Banks, Quarterly, 2006-2012*
$Trillions
$1.24
$1.17
10:Q3
$1.20
$1.17
10:Q2
$1.18
$1.18
10:Q1
$1.51
$1.46
$1.42
$1.37
$1.35
$1.49
08:Q4
$1.21
$1.50
08:Q3
$1.27
$1.49
08;Q2
$1.37
$1.48
$1.39
08:Q1
$1.25
$1.18
$1.16
$1.1
$1.13
$1.2
$1.22
$1.3
$1.30
$1.4
$1.44
$1.5
$1.43
$1.6
$1.28
In dollar terms,
this is an alltime high.
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
09:Q4
09:Q3
09:Q2
09:Q1
07:Q4
07:Q3
07:Q2
07:Q1
06:Q4
06:Q3
06:Q2
06:Q1
$1.0
Outstanding loan volume has been growing for over two years
and (as of year-end 2012) has surpassed previous peak levels.
*Latest data as of 5/2/2013.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
10
Percent of Non-current Commercial & Industrial
Loans Outstanding at FDIC-Insured Banks,
Quarterly, 2006-2012*
0.97%
0.87%
12:Q4
1.09%
12:Q2
12:Q3
1.17%
12:Q1
1.29%
11:Q4
1.49%
11:Q3
1.65%
11:Q2
1.89%
11:Q1
2.44%
2.73%
10:Q3
10:Q4
2.83%
2.80%
10:Q2
1.69%
3.05%
10:Q1
0.81%
08:Q1
09:Q4
3.57%
0.67%
07:Q4
09:Q3
0.63%
07:Q3
09:Q2
0.62%
07:Q2
09:Q1
0.63%
07:Q1
08:Q4
0.64%
06:Q4
1.18%
0.74%
06:Q3
08:Q3
0.70%
06:Q2
08;Q2
0.71%
06:Q1
1%
1.07%
2%
2.25%
3%
3.43%
Recession
4%
0%
Almost back to “normal”
levels of noncurrent
industrial & commercial
loans
Non-current loans (those past due 90 days or more or in nonaccrual status)
are back to early-recession levels, fueling bank willingness to lend.
*Latest data as of 5/2/2013.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
11
P/C Insurance Industry
Financial Overview
High catastrophe losses
in 2011 and 2012 affected
the industry’s profit performance
16
20%
5%
-5%
-10%
Most recent
“hard market”
Sources: ISO; Insurance Information Institute.
1.3%
2.3%
1.7%
3.5%
1.6%
3.2%
3.8%
3.1%
4.2%
5.1%
4.8%
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
P/C Net Premiums Written: % Change,
Quarter vs. Year-Prior Quarter, 2002–2012
It looks like we have an
upward trend here.
Will it continue as the
economy’s recovery
strengthens?
Finally! A sustained period (11 quarters) of growth in net premiums
written (vs. same quarter, prior year).
17
Underwriting is Rarely a Profit Source
Gain (Loss)* 1975–2012
$ Billions
$40
$20
In historical context,
2006-07 underwriting
results were an
anomaly
Net
underwriting
losses in
2012 totaled
$14.6B
$0
-$20
High cat losses
in 2011 led to
the worst
underwriting
year since 2002
-$40
-$60
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
Average yearly underwriting loss in the 2008-2012 low-interest-rate
environment? $17.2B. With interest rates this low,
large persistent underwriting losses are not a recipe for success.
*Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best; ISO; Insurance Information Institute.
P/C Insurance Industry
Combined Ratio, 2001–2012
As recently as
2001, insurers paid
out nearly $1.16 for
every $1 in Earned
Premiums
Relatively
Low CAT
Losses,
Reserve
Releases
Heavy Use of
Reinsurance
Lowered Net
Losses
Best
Combined
Ratio Since
1949 (87.6)
120
Relatively
Low CAT
Losses,
Reserve
Releases
Avg. CAT
Losses,
Reserve
Releases
115.8
110
Cyclical
Deterioration
107.5
Higher
CAT
Losses,
Reserve
Releases,
Toll of Soft
Market
Avg. CAT
Losses,
Reserve
Releases
106.4
101.0
100.8
100.1
102.4
100.8
100
99.3
98.4
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008*
2009*
2010*
2011*
2012*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.2; 2012=103.2.
Sources: A.M. Best; ISO.
19
$33,522
$19,456
$3,043
$28,672
$35,204
$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
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%
$30,773
$70,000








$36,819
$80,000
$24,404
$ Millions
$62,496
P/C Net Income After Taxes
1991–2012
$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.2% ROAS for
2012:H1, 4.6% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best; ISO; Insurance Information Institute.
11
12
-$10.0
-$15.0
2012:Q4
-$3.4
$6.4
$6.2
$3.4
$11.1
$12.2
$11.2
$8.3
$8.2
$11.0
$9.0
Spring 2011
tornadoes
2012:Q3
2012:Q2
2012:Q1
2011:Q4
2011:Q3
2011:Q2
211:Q1
2010:Q4
2010:Q3
2010:Q2
2010:Q1
$13.1
$10.8
$10.7
$7.0
Financial
crisis,
Hurricane
Ike
2009:Q4
2009:Q3
2009:Q2
-$1.0
-$5.0
2009:Q1
$0.0
-$0.1
$5.0
2008:Q4
2008:Q3 -$10.3
$5.8
$Billions
2008:Q2
$8.6
$10.0
2008:Q1
$16.4
$14.6
$15.0
2007:Q4
2007:Q3
$15.6
$16.2
$20.0
2007:Q2
2007:Q1
P/C Industry Net Income,
Quarterly, 2007:Q1-2012:Q4
Sandy
Virtually a year
without any profits
Sources: SNL Financial; Insurance Information Institute
21
$5
-$15
-$3.4
Financial
crisis,
Hurricane Ike
1st Quarter
2d Quarter
-$10.3
-$10
-$1.0
$0
-$5
$8.2
$11.2
$6.4
$13.1
-$0.1
$3.4
$14.6
$11.1
$10.7
$11.0
$6.2
$5.8
$7.0
$9.0
$10
$8.6
$15
Spring 2011
tornadoes
$15.6
$10.8
$8.3
$12.2
$16.2
$Billions
$20
$16.4
P/C Industry Net Income,
Quarterly, 2007:Q1-2012:Q4
2007
2008
2009
2010
2011
2012
Hurricane
Irene
3rd Quarter
4th Quarter
Over the past 6 years, no calendar quarter has been consistently profitable.
Sources: SNL Financial; Insurance Information Institute
22
Profitability (ROE) Peaks & Troughs,
P/C Insurance Industry, 1975 – 2012
ROE
25%
1977:19.0%
1987:17.3%
2006:12.7%
History suggests
next ROE peak will
be in 2016-2017
1997:11.6%
20%
15%
9 Years
6+ years so far
10%
5%
0%
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*
-5%
1975: 2.4%
*Profitability = P/C insurer ROEs. 2012 is an estimate based on ROAS data. Note: Data for 2008-2012 exclude mortgage and
financial guaranty insurers. 2012 ROAS = 5.9% including M&FG.
Sources: Insurance Information Institute; NAIC; ISO; A.M. Best.
Policyholder Surplus,
Quarterly, 2006:Q4–2012:Q4
$583.5
$583.5
$586.9
12:Q3
12:Q3
12:Q4
$570.7
$553.8
$538.6
$530.5
$540.7
$511.5
$490.8
$463.0
$437.1
$455.6
$515.6
08:Q1
$400
$478.5
$517.9
07:Q4
$505.0
$521.8
07:Q3
$512.8
$450
$487.1
$500
$496.6
$550
$559.2
$600
$544.8
$650
$559.1
Up $150 Billion from
the 2009:Q1 trough,
a new peak
Down $84
Billion from the
previous peak,
due to the
financial crisis,
CATs
$566.5
($ Billions)
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
09:Q3
09:Q2
09:Q1
08:Q4
08:Q3
08:Q2
07:Q2
07:Q1
06:Q4
$350
The industry now (at year-end 2012) has $1 of surplus for every
$0.78 of NPW, the strongest claims-paying status in its history.
Sources: ISO; A.M .Best.
24
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2012
Top 25 States
Just 10 states showed double-digit
DPW growth over the 5-year period
2007-2012, which includes the
“Great Recession”
50
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
OH
LA
VA
NJ
MI
SC
CO
MO
NM
8.0
WI
MT
8.5
IN
6.2
9.2
TN
KY
9.2
AR
12.4
WY
Sources: SNL Financial LC.; Insurance Information Institute.
9.9
13.2
TX
VT
KS
IA
NE
0
ND
10
MN
13.2
AK
16.3
17.6
20
19.2
21.0
24.5
OK
30
25.4
40
SD
Pecent change (%)
60
58.4
70
26
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2012
Sources: SNL Financial LC.; Insurance Information Institute.
NV -17.3
-12.5
DE
-11.2
OR
-10.1
-9.3
HI
WV
NY
AZ
-6.0
CA
-7.2
-5.6
-0.9
ME
FL
-0.7
ID
NH
UT
GA
WA
IL
MA
U.S.
PA
MD
MS
CT
-15
AL
13 states lost DPW over the
5-year period 2007-2012,
including New York,
California, and Florida
-10
-20
-2.8
-0.3
RI
-0.1
-5
NC
Pecent change (%)
0
0.0
1.1
1.8
2.0
2.1
2.1
2.2
2.7
2.9
3.0
3.1
5
3.6
Bottom 25 States
27
-20
14.6
ID
-2.6
-2.6
-3.2
-3.3
-3.5
-3.7
PA
CT
MS
NM
IL
WA
0.0
MT
-2.4
1.2
TN
MA
1.5
AR
-2.3
2.8
WI
LA
3.3
IN
-1.5
4.6
MN
OH
6.3
TX
8.8
15.0
AK
WY
16.0
KS
20.2
25.7
28.8
IA
0
21.0
20
NE
VT
SD
35.2
40
OK
72.2
80
ND
Pecent change (%)
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2012
Top 25 States
60
Sources: SNL Financial LC.; Insurance Information Institute.
28
Pecent change (%)
-5.9
-6.2
-6.5
-6.8
-6.9
-6.9
-7.3
KY
VA
RI
CO
MI
SC
AL
NV
OR
WV
-30.3
-22.3
-20.2
-16.9
FL
AZ
-16.2
DE
-15.3
-13.2
DC
HI
-12.8
-11.1
-10.2
NY
UT
CA
-27.8
-5.4
NC
-9.1
-5.1
ME
GA
-5.0
U.S.
-40
-4.9
-35
MO
-30
-4.9
-25
NJ
-20
-4.6
-15
NH
-10
-4.5
-5
MD
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2012
Bottom 25 States
0
Sources: SNL Financial LC.; Insurance Information Institute.
29
Commercial Lines Combined Ratio,
1990-2013F*
Commercial Lines Combined Ratio
125
122.3
118.8
120
115
110
Commercial lines
underwriting
performance in 2012 was
the worst since 2002
due to heavy impact
from Sandy
112.5
110.2
109.4
112.3
111.1
109.7
110.2
109.5
110.2
109.0
107.6
106.7
105.4
104.2
104.1
105
102.5
102.0
102.9
102.1
100
98.9
95
93.6
90
13F
12F
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
91.1
*2007-2013F figures exclude mortgage and financial guaranty segments.
Sources: A.M. Best; Insurance Information Institute
32
101.2
102.7
103.6
01 02
105
107.1
00
110
104.6
97
116.2
96
115.7
95
115.9
113.0
115
112.0
120
112.1
125
118.1
Commercial Auto Combined Ratio:
1993–2014F
05
06
98.0
99.4
96.8
04
94.3
92.4
90
92.1
95.2
95
92.9
100
85
98
99
03
07 08
09
10
11 12F 13F 14F
Commercial Auto is Expected to Improve as Rate Gains
Outpace Any Adverse Frequency and Severity Trends
Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.
33
Commercial Multi-Peril Combined Ratio:
1995–2013F
CMP-Liability
CMP-Non-Liability
130
120
110
100
90
80
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11 12E 13F
Commercial Multi-Peril Underwriting Performance is Expected to
Improve in 2013 Assuming Normal Catastrophe Loss Activity
*2012-2013 figures are A.M. Best estimate/forecast for the combined liability and non-liability components.
Sources: A.M. Best; Insurance Information Institute.
34
General Liability Combined Ratio:
2005–2014F
115
112.9
110.8
110
107.1
105
103.3
103.7
13F
14F
100.7
100
99.6
99.0
95
95.1
94.2
90
05
06
07
08
09
10
11
12F
Commercial General Liability Underwriting Performance Has
Been Volatile in Recent Years
Source: Conning Research and Consulting.
35
Inland Marine Combined Ratio:
1999–2014F
105
101.9
100.2
100
97.7 97.7
95
93.3
92.8
90
89.9
89.7 89.7
89.3
85
86.2
83.8
80
82.5
80.8
79.5
77.3
75
99
00
01
02
03
04
05
06
07
08
09
10
11
12F 13F 14F
Inland Marine is Expected to Remain Among the Most
Profitable of All Lines
Sources: A.M. Best (1999-2011); Insurance Information Institute (2012F); Conning (2013F-2014F)
36
Surety Bonds Combined Ratio,
2002–2011
125
116.9
122.0
119.5
101.8
100
81.6
75
79.5
70.4
66.6
70.5
72.5
2010
2011
50
2002
2003
2004
2005
Source: A.M. Best Aggregates & Averages, 2012, p. 376.
2006
2007
2008
2009
37
Workers Compensation
Combined Ratio: 1994–2014F
90
111.0
115.0
117.3
116.9
116.8
110.6
104.5
103.5
98.5
102.7
105.1
108.6
121.7
112.6
107.0
97.0
100
101.0
100.0
110
102.0
120
118.2
115.3
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F
Workers Comp underwriting results are expected to begin
improving in 2013. They deteriorated markedly since 2007 and in
2012 are estimated to have hit their worst level in a decade.
Sources: A.M. Best (1994-2013F); Insurance Information Institute (2014F).
38
Catastrophes
39
US Insured Catastrophe Losses
($ Billions, 2012 Dollars)
2012 CAT losses
were down nearly 50%
from 2011 until Sandy
struck in late October
$73.4
$90
$80
$70
$32.1
$38.0
$14.4
$11.5
$29.2
$7.5
$10.5
$16.3
$7.6
$33.7
$34.7
$6.1
$11.6
$14.3
$11.0
$12.6
$3.8
$10
$8.0
$20
$4.8
$30
$14.0
$40
$8.8
$50
$26.4
$37.8
$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
US CAT losses in 2012 marked the sixth year in the past 12 that privatelyinsured CAT claims topped $29 billion (on an inflation-adjusted basis).
That happened only once in the prior dozen years (1989-2000).
*As of 1/2/13. Includes $20B gross loss estimate for Hurricane Sandy.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and
personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)
Sources: Property Claims Service/ISO; Insurance Information Institute.
40
40
Natural Disasters in the United States,
1980 – 2012
Number of Events (Annual Totals 1980 – 2012)
There were 184 natural
disaster events in the
US in 2012
300
There were over 150 natural
disaster events in the US every
year since 2006. That hadn’t
happened in any year before.
250
Number
200
150
100
41
19
50
121
3
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
2000
Meteorological (storm)
Hydrological
(flood, mass movement)
2002
2004
2006
2008
2010
2012
Climatological
(temperature extremes,
drought, wildfire)
41
The Dozen Most Costly Hurricanes
in U.S. History
Insured Losses,
2012 Dollars,
$ Billions
Sandy will likely become
the 3rd costliest hurricane
in US insurance history
$60
$50
$40
$30
Irene became the
12th most expensive
hurricane in US
history
$25.6
$18.8
$20
$10
$48.7
$5.6
$6.7
$7.8
$8.7
$9.2
$4.4
$5.6
Irene
(2011)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$11.1
$13.4
$0
Wilma
(2005)
Ike
(2008)
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
10 of the 12 most costly hurricanes in insurance history
occurred in the past 9 years (2004—2012)
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
42
If They Hit Today, the Dozen Costliest
(to Insurers) Hurricanes in U.S. History
Insured Losses,
2012 Dollars, $ Billions
$140
$120
$100
Storms that hit long ago had less property and
businesses to damage, so simply adjusting their
actual claims for inflation doesn’t capture their
destructive power.
Karen Clark’s analysis aims to overcome that.
$80
$125
$65
$60
$35
$40
$20
$20
$20
Sandy*
(2012)
Betsy
(1965)
Hazel
(1954)
$40
$40
Katrina
(2005)
Galveston
(1915)
$50
$50
$50
Andrew
(1992)
southFlorida
(1947)
Galveston
(1900)
$25
$20
$0
Donna
(1960)
New
England
(1938)
midFlorida
(1928)
Miami
(1926)
When you adjust for the damage prior storms could have done if they
occurred today, Hurricane Katrina slips to a tie for 6th among the most
devastating storms.
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: Karen Clark & Company, Historical Hurricanes that Would Cause $10 Billion or More of Insured LossesToday, August 2012; I.I.I.
43
Location of Tornadoes, Large Hail, and
Wind Reports in OH, 2012
18 tornadoes in OH in 2012,
195 large hail reports, and
533 high wind reports.
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2012_annual_summary.html#
44
Location of Severe Weather Reports
in OH, 2013 (through May 1)
No tornadoes in OH
so far in 2013, but
34 large hail reports
and 33 high wind
reports.
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/states.php?month=00&year=2013&state=OH#
45
P/C Industry Homeowners Claim Frequency,
US, 1997-2011
Claims Paid per
100 Exposures
CAT-related claims
Non-CAT-related claims
8
6.99
6.71
6.45
6
6.26
6.53
5.83
4.63
4
3.83
2.82
2.34
2
1.57
2.67
2.32
1.84
3.64
3.77
3.94
4.03
4.16
4.17 4.31
3.68
2.39
2.35
3.42
2.97
2.57
2.28
1.69
1.32
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008 2010 2011
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” p.29; Insurance Information Institute
P/C Industry Homeowners Average Claim
Severity, 1997-2011
non-cat claims
cat claims
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
HO average claim
severity is now
three times what it
was in 1997.
$3,000
$2,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” p. 29, BLS inflation calculator,
and Insurance Information Institute
Inflation and Claims Trends
52
Change* in the Consumer Price Index, 2004–2013
14%
Recession
CPI
Core CPI
For two months in 2008,
led by gasoline, the
general price level was
rising at a 5.5% pace
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Over the last decade, prices generally rose about 2% per year.
*Monthly, year-over-year, through March 2013. Not seasonally adjusted.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
53
Prices for Hospital Services:
12-Month Change,* 1998–2013
Recession
Outpatient Services
Inpatient Services
14%
12%
10%
8%
6%
4%
2%
0%
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
54
Forces that Drive Car Repair Costs:
12-Month Change,* 2001–2013
Recession
Auto repair
Auto body work
14%
12%
10%
8%
6%
4%
2%
0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
55
Change* in Price Index for Lumber: A Downward
Trend but Sudden Spikes, 2004–2013
40%
35%
The price of
lumber dropped
before and during
the recession…
30%
25%
But 30%
spikes can
happen with
no warning
Recession
Hardwood
Softwood Lumber
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
'12
'11
'10
'09
'08
'07
'06
'05
The prices of building materials vary wildly and change levels rapidly.
Prices for hardwood have been much less variable than softwood lumber.
'04
*Monthly, year-over-year, through March 2013. Not seasonally adjusted. Dec. 2012 and Jan., Feb., and Mar. prices are preliminary.
Sources: US Bureau of Labor Statistics, Producer Price Index series WPS0811; National Bureau of Economic Research (recession
dates); Insurance Information Institutes.
'13
56
Change* in Price Index for Plywood: A
Downward Trend but Sudden Spikes, 2004–2013
60%
The price of
plywood rose by
50% in late
Spring 2004 over
the prior year
50%
40%
30%
Recession
Plywood
March 2013:
+8.4%
20%
10%
0%
-10%
-20%
-30%
'13
'12
'11
'10
'09
'08
'07
'06
'05
From the end of the recession (June 2009) to March 2013, the effect
of the ups and downs of the price of plywood has resulted in a rise of 25.6%.
'04
*Monthly, year-over-year, through March 2013. Not seasonally adjusted. Dec. 2012 and Jan., Feb., and Mar. prices are preliminary.
Sources: US Bureau of Labor Statistics, Producer Price Index series WPU083; National Bureau of Economic Research (recession
dates); Insurance Information Institutes.
57
Investments:
How Long will Rates Stay
This Low?
Investment Performance is a
Key Driver of Insurer
Profitability
58
U.S. Treasury Security Yields*:
A Long Downward Trend, 1990–2013
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
U.S. Treasury
security yields
recently plunged
to record lows
6%
5%
4%
3%
2%
1%
0%
Recession
2-Yr Yield
10-Yr Yield
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
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 March 2013.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
59
Distribution of Bond Maturities,
P/C Insurance Industry, 2003-2011
2011
15.2%
41.4%
2010
16.3%
39.5%
2009
16.2%
2008
15.7%
2007
15.2%
30.0%
2006
16.0%
2005
36.2%
10.3% 6.3%
26.7%
28.7%
11.7% 7.3%
8.1%
33.8%
12.9%
8.1%
29.5%
34.1%
13.1%
7.4%
16.0%
28.8%
34.1%
13.6%
7.6%
2004
15.4%
29.2%
2003
14.4%
29.8%
20%
31.2%
11.1% 6.4%
12.7%
0%
32.4%
26.8%
32.5%
31.3%
40%
60%
15.4%
15.4%
80%
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
7.6%
9.2%
100%
The main shift over these years has been from bonds with longer maturities to bonds
with shorter maturities. The industry first trimmed its holdings of over-10-year bonds
(from 24.6% in 2003 to 16.9% in 2011) and then trimmed bonds in the 5-10-year category.
Falling average maturity of the P/C industry’s bond portfolio is contributing to a drop in
investment income along with lower yields.
Sources: A.M. Best; Insurance Information Institute.
60
Property/Casualty Insurance Industry
Investment Gain: 1994–2012F1
This trend
line should
be rising
($ Billions)
$70
$64.0
$58.0
$60
$52.3
$55.7
$51.9
$53.4
$56.2
$53.9
$48.9
$47.2
$50
$59.4
$56.9
$45.3
$44.4
$42.8
$40 $35.4
$39.2
$36.0
$31.7
$30
$20
$10
$0
94
95
96
97
98
99
00
01
02
03
04
05* 06
07
08
09
10
11
12
In 2012 investment gains were roughly the same as in 1997—15 years
earlier. Adjusted for inflation, 2012 gains were equivalent in purchasing
power to the $35 billion in 1994.
1Investment
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.
Reinsurance**
WC
-5.7%
Warranty
-3.7%
Med Mal
Fidelity/Surety
-3.3%
-5.2%
Comm Cas
-3.3%
Surplus Lines
Comm Prop
Credit
-2.1%
-3.1%
Comml Auto
-1.9%
Commercial
To Maintain Constant ROE, Combined Ratio Drop
Needed to Offset 1% Decline in Investment Yield,
by Line*
-6%
-8%
-10%
-7.3%
-4%
-3.6%
-2%
-4.3%
0%
Lower Investment Earnings Place a Greater Burden on
Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
62
Unemployment and Underemployment
Rates: Stubbornly High in 2012, But Falling
January 2000 through Mar. 2013, Seasonally Adjusted (%)
18.5
"Headline" Unemployment Rate U-3
17.0
Unemployment + Underemployment Rate U-6
15.5
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 13.8%
in Mar. 2013
14.0
12.5
Unemployment
“Headline”
unemployment
stood at 7.6% in
Mar. 2013.
11.0
9.5
8.0
6.5
5.0
3.5
Nov.
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 1312
The Federal
Reserve’s target
for ending “easy
money” is 6.5%
(assuming
inflation remains
within its 2%
target).
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.
63
Key Take-aways
65
Take-aways:
Insurance Industry Predictions for 2013
 P/C Insurance Exposures Will Grow With the U.S.
Economy
 Personal and commercial exposure growth is likely in 2013
– But restoration of destroyed exposure will take until mid-decade
 Wage growth is also positive and could modestly accelerate
 P/C Industry Growth in 2013 Will Be Strongest Since 2004
 Growth likely to exceed A.M. Best projection of +3.8% for 2012
 No traditional “hard market” emerges in 2013
 Underwriting Fundamentals Weak But Improving
 Some pressure from claim frequency, severity in some key lines
 But WC will be tough to fix
 Industry Capacity Hits a New Record by Year-End 2013
(Barring Meg-CAT)
 Investment Environment Is/Remains Challenging
 Interest rates remain low
66
Insurance Information Institute
www.iii.org
Thank you for your time
and your attention!