It’s a Mad, Mad, Mad, Mad World:
The Past, Present and Future of
P/C Insurance in the US and Texas
Insurance Council of Texas Mid-Year Symposium
Austin, TX
July 17, 2014
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
P/C Insurance Industry:
Financial Update
2013 Was the Industry’s Best Year
in the Post-Crisis Era
2014 Is Off to a Good Start
2
$63,784
$13,654
$33,522
$19,456
$28,672
$3,043
$35,204
$62,496
Net income rose
strongly (+81.9%)
in 2013 vs. 2012
on lower cats,
capital gains
$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 = 10.3%
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:Q1
2014 is off to a
slower start
$0
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields an 8.2% ROAS through
2014:Q1, 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:Q1
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 – 2014:Q1*
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%
2014:Q1
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
-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.
ROE: Property/Casualty Insurance by
Major Event, 1987–2014:Q1
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Katrina,
Rita, Wilma
Low
CATs
15%
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
4 Hurricanes
Northridge
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. 2014 figure is through Q1:2014.
Sources: ISO, Fortune; Insurance Information Institute.
5
P/C Insurance Industry
Combined Ratio, 2001–2014:Q1*
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
101.0
100.8
100.1
Cyclical
Deterioration
99.3
98.4
100
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Sandy
Impacts
106.3
102.4
100.8
Lower
CAT
Losses
96.7
95.7
97.4
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
* 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:Q1 = 97.3.
Sources: A.M. Best, ISO.
6
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
97.4
9%
9.8%
8.2%
Lower CATs
helped ROEs
in 2013
4.3%
85
18%
6%
3%
0%
80
1978
1979
2003
2005
2006
2007
2008
Combined Ratio
2009
2010
2011
2012
2013 2014:Q1
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:Q1 combined ratio
including M&FG insurers is 97.3; 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.
RNW All Lines by State, 2003-2012 Average:
Highest 25 States
9.4
9.9
10.3
10.3
10.5
10.7
10.7
10.9
10.9
11.0
11.0
11.0
11.1
11.4
11.4
11.4
11.7
12.0
12.6
13.1
13.3
13.4
14.8
15.1
17.7
21.0
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 ND ME WY UT VT ID WA NH IA NE SC DC MA OR VA NC RI CA CT OH NM SD WV MT
Source: NAIC; Insurance Information Institute.
8
2.0
-9.4
3.2
4.2
4.9
4.9
5.2
5.5
6.1
6.1
6.5
6.5
7.4
7.7
7.6
Some of the least
profitable states over the
past decade were hit hard
by catastrophes
-6.5
Profitability in TX
was close to the US
average over the
past decade
7.7
7.9
8.1
8.3
8.5
8.6
8.9
8.9
9.1
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
9.2
RNW All Lines by State, 2003-2012 Average:
Lowest 25 States
KS MD CO WI FL MN TX IN US AR PA IL AZ MO NV KY NJ GA NY MI TN DE OK AL MS LA
Source: NAIC; Insurance Information Institute.
9
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$490.8
$624.4
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 3/31/14 stood at
a record high $662.0B
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)
$653.3
Policyholder Surplus,
2006:Q4–2014:Q1
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 2014
in very strong financial condition.
10
Catastrophe Bonds: Issuance and
Outstanding, 1997- 2014:Q1*
99
00
01
11
$18,516.7
7,083.0
10
5,852.9$14,835.7
$12,508.8
$12,139.1
07
$12,185.0
06
1,410.0
966.9
98
1,991.1
1,729.8
1,219.5
1,142.8
4,108.8
1,130.0
97
Financial crisis
depressed issuance
4,600.3
984.8
$2,000
846.1
$4,000
633.0
$6,000
$4,040.4
$2,950.0
$8,000
$3,450.0
$10,000
3,391.7
$12,000
2,729.2
$14,000
6,996.3
$16,000
$4,904.2
Risk capital
outstanding
reached a record
high in 2013
4,693.4 $8,541.6
$18,000
$14,024.2
$20,000
$12,043.6
Risk Capital Amount ($ Millions)
$0
02
Risk Capital Issued
Risk Capital Outstandng at Year End
03
04
05
08
09
12
13 14:Q1
CAT bond issuance reached a
record high in 2013
Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk
Capital Outstanding Stands at an All-Time Record
*Through Jan. 31, 2014.
Source: Guy Carpenter; Insurance Information Institute.
Net Premium Growth: Annual Change,
1971—2014F
(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%
2014F: 4.0%
15%
2013: 4.6%
2012: +4.3%
10%
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
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
13
Growth Analysis by State and
Business Segment
Post-Crisis Paradox?
Premium Growth Rates Vary
Tremendously by State
14
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2013
80
74.6
Top 25 States
North Dakota was the country’s
growth leader over the past 6
years with premiums written
expanding by 74.6%
60
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
27.4
40
31.9
50
36.9
Pecent change (%)
70
NE
OK
SD
0
ND
10
Sources: SNL Financial LC.; Insurance Information Institute.
15
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
16
0
Sources: SNL Financial LC.; Insurance Information Institute.
10.6
10.5
10.4
WY
AL
13.5
NY
MO
13.5
SC
10.7
13.6
VA
MT
13.7
UT
10.9
13.8
DE
US
14.1
WI
11.4
14.2
KY
AR
14.3
IA
12.3
14.4
FL
LA
14.6
KS
16.8
18.7
14.9
5
CO
10
15.5
15
TN
NJ
NE
19.7
20
SD
25.8
24.0
25
OK
MI
26.7
30
TX
34.1
35
ND
Pecent change (%)
Direct Premiums Written: PP Auto
Percent Change by State, 2007-2013
Top 25 States
40
17
0
Sources: SNL Financial LLC.; Insurance Information Institute.
45.4
44.7
44.0
43.5
42.9
42.5
42.1
41.9
KY
KS
WI
WY
NE
IA
GA
MT
38.1
37.1
37.1
35.7
34.9
34.1
33.6
33.0
32.6
NM
OH
IN
AL
IL
SC
DE
UT
ID
40.3
45.4
CO
TX
46.3
MO
49.2
SD
53.3
50.5
10
TN
20
50.7
30
AR
40
50.7
50
MN
ND
60
60.5
70
OK
Pecent change (%)
Direct Premiums Written: Homeowners
Percent Change by State, 2007-2013
Top 25 States
21
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2013
91.1
4.1
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
MA
CT
NM
LA
MS
NJ
NY
US
MO
6.5
WI
OH
6.7
TN
9.8
IN
6.8
10.0
MN
AR
11.3
14.0
TX
WY
15.6
AK
19.1
ID
23.6
25.8
IA
KS
26.3
NE
33.7
41.4
SD
VT
42.1
Only 30 states showed any
commercial lines growth
from 2007 through 2013
OK
100
90
80
70
60
50
40
30
20
10
0
ND
Pecent change (%)
Top 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
23
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
-4.9
DC
-11.7
-4.3
UT
HI
-3.7
CA
-11.4
-3.3
GA
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
MT
-2.7
AL
-10
-10.7
-2.1
SC
-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
OR
Nearly half the states have yet to
see commercial lines premium
volume return to pre-crisis levels
Sources: SNL Financial LLC.; Insurance Information Institute.
24
Profitability and Growth in
the Texas P/C Insurance
Markets
Analysis by Line and Nearby
State Comparisons
27
RNW All Lines: TX vs. U.S., 2003-2012
(Percent)
25%
20%
15%
10%
5%
0%
Average 2003-2012
-5%
US: 7.9%
-10%
TX: 8.3%
Hurricane Ike
-15%
03
04
05
US All Lines
Sources: NAIC.
06
07
08
09
10
11
12
TX All Lines
28
RNW PP Auto: TX vs. U.S., 2003-2013
20%
Average 2003-2013
18%
US: 7.6%
16%
TX: 8.2%
14%
12%
10%
8%
6%
4%
2%
0%
03
04
05
US PP Auto
Sources: NAIC.
06
07
08
09
10
11
12
TX PP Auto
29
RNW Comm. Auto: TX vs. U.S.,
2003-2012
(Percent)
Average 2003-2012
16%
US: 9.8%
14%
TX: 7.7%
12%
10%
8%
6%
4%
2%
0%
03
04
05
US Comm Auto
Sources: NAIC.
06
07
08
09
10
11
12
TX Comm Auto
30
RNW Comm. Multi-Peril: TX vs. U.S.,
2003-2012
(Percent)
30%
20%
10%
0%
-10%
Average 2003-2012
-20%
US: 9.0%
-30%
TX: 3.0%
Hurricane Ike
-40%
-50%
03
04
05
US Comm M-P
Sources: NAIC.
06
07
08
09
10
11
12
TX Comm M-P
31
RNW Homeowners: TX vs. U.S.,
2003-2012
(Percent)
Average 2003-2012
50%
US: 6.0%
40%
TX: 9.8%
30%
20%
10%
0%
-10%
-20%
-30%
Hurricane Ike
-40%
-50%
-60%
03
04
05
US HO
Sources: NAIC.
06
07
08
09
10
11
12
TX HO
32
RNW Workers Comp: TX vs. U.S.,
2003-2012
(Percent)
20%
Average 2003-2012
18%
US: 7.1%
16%
TX: 11.7%
14%
12%
10%
8%
6%
4%
2%
0%
03
04
05
US WComp
Sources: NAIC.
06
07
08
09
10
11
12
TX WComp
33
All Lines: 10-Year Average RNW TX &
Nearby States
2003-2012
New Mexico
10.3%
Texas All Lines
profitability is above
the US and the
regional average.
8.3%
U.S.
7.9%
Arkansas
7.7%
Texas
3.2%
Oklahoma
-9.4%
Louisiana
-15%
-10%
-5%
0%
Source: NAIC, Insurance Information Institute.
5%
10%
15%
PP Auto: 10-Year Average RNW TX &
Nearby States
2003-2012
New Mexico
10.2%
Texas Private Passenger
Auto profitability is
above the US and
regional average.
8.2%
Texas
8.0%
U.S.
7.6%
Arkansas
6.4%
Oklahoma
3.9%
Louisiana
0%
2%
4%
6%
Source: NAIC, Insurance Information Institute.
8%
10%
12%
Homeowners: 10-Year Average RNW TX &
Nearby States
2003-2012
Texas Homeowners
profitability is above
the US and regional
average.
New Mexico
11.8%
9.8%
Texas
6.0%
U.S.
-4.7%
Arkansas
-10.6%
Oklahoma
-19.2%
Louisiana
-30%
-20%
-10%
0%
Source: NAIC, Insurance Information Institute.
10%
20%
Top Ten Most Expensive And Least Expensive
States For Homeowners Insurance, 2011 (1)
Texas ranked as the 3rd most expensive state for homeowners insurance
in 2011, with an average expenditure of $1,578.
Rank
Most
expensive states
HO average
premium
Rank
Least
expensive states
HO average
premium
1
Florida
$1,933
1
Idaho
$518
2
Louisiana
1,672
2
Oregon
559
3
Texas (2)
1,578
3
Utah
563
4
Mississippi
1,409
4
Wisconsin
592
5
Oklahoma
1,386
5
Washington
626
6
Alabama
1,163
6
Ohio
644
7
Rhode Island
1,139
7
Delaware
664
8
Kansas
1,103
8
Arizona
675
9
New York
1,097
9
Nevada
689
10
Connecticut
1,096
10
Iowa
713
(1) Includes policies written by Citizens Property Insurance Corp. (Florida) and Citizens Property Insurance Corp. (Louisiana), Alabama Insurance
Underwriting Association, Mississippi Windstorm Underwriting Association, North Carolina Joint Underwriting Association and South Carolina
Wind and Hail Underwriting Association. Other southeastern states have wind pools in operation and their data may not be included in this chart.
Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those
specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. In addition,
due to the Texas Windstorm Association (which writes wind-only policies) classifying HO-1, 2 and 5 premiums as HO-3, the average premium for
homeowners insurance is artificially high.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC
does not rank state average expenditures and does not endorse any conclusions drawn from this data.
Source: ©2013 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited
without written permission of NAIC.
40
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
Texas Remains a Growth Leader
46
US Real GDP Growth*
-7%
3.3%
3.2%
3.1%
2.9%
2.9%
2.9%
2.9%
-2.9%
5.0%
-0.3%
Q1 2014 GDP data
were hit hard by this
year’s “Polar Vortex”
and harsh winter
-8.9%
2000
2001
2002
2003
2004
2005
2006
07:1Q
07:2Q
07:3Q
07:4Q
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
-9%
-5.3%
-5%
Recession began in
Dec. 2007. Economic
toll of credit crunch,
housing slump, labor
market contraction
was severe
-3.7%
-3%
-1.8%
-1%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
1.1%
2.5%
4.1%
2.4%
1%
1.4%
3%
1.3%
5%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
0.5%
3.6%
3.0%
1.7%
7%
4.1%
Real GDP Growth (%)
Demand for Insurance Should Increase in 2014/15 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 7/14; Insurance Information Institute.
47
Texas vs. US Real GDP Growth
US
Texas
The Texas economy has
been growing at a pace
much faster than the US
overall
6%
5%
4.8%
4.1%
2.5%
2.4%
3%
3.7%
3.6%
4%
1.6%
2%
1.9%
1%
0%
-1%
-0.5%
-2%
-3%
-4%
-3.3%
2009
2010
2011
Source: US Department of Commerce; Insurance Information Institute.
2012
2013
48
State-by-State Leading Indicators
through 2014:Q3
The economic
outlook for most of
the US is generally
positive, though
negative for 9 states
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.
49
Real GDP by State Percent Change, 2013:
Highest 25 States
9.7
10
North Dakota was
the economic growth
juggernaut of the US
in 2013—by far
7
1.8
1.8
1.9
1.9
1.9
2.0
2.0
2.1
2.2
2.3
2.4
2.7
2.8
2.9
3.0
3.0
3.7
3.8
2
2.7
The TX economy grew by 3.7% in
2013 (8th fastest in the US), down
from 4.8% (2nd fastest) in 2012
3.1
3
3.8
4
4.1
5
4.2
6
5.1
Percent Change (%)
8
7.6
9
Only 9 states experienced
growth in excess of 3%, which is
what we would see nationally in
a more typical recovery
1
0
ND WY WV OK ID CO UT TX SD NE MT IA MN OR WA AR NC FL IN MI CA VT KS HI GA US
Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
50
Real GDP by State Percent Change, 2013:
Lowest 25 States
-2.5
-0.5
DC and Alabama
were the only
states to shrink in
2013
0.0
0.1
0.7
0.7
0.8
0.8
0.8
0.9
0.9
0.9
0.9
1.1
1.1
1.2
1.3
1.4
1.5
1.6
1.6
1.6
1.6
1.7
1.8
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
1.0
Percent Change (%)
Growth rates in 11 states
were still below 1% in
2013
OH WI MA DE KY MS NM RI LA SC NJ AZ NV CT ME NH IL MO AL TN NY PA VA MD DC AL
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
51
Percent Change in Real GDP by State, 2013
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
52
75
70
65
55
50
45
40
60
55.7
59.5
60.9
64.1
90
85
Impact of 2011
budget impasse
Source: University of Michigan; Insurance Information Institute
75.0
75.3
76.2
76.4
79.3
73.2
72.3
74.3
82.6
82.7
74.5
73.8
77.6
78.6
76.4
84.5
84.1
85.1
82.1
77.5
73.2
75.1
82.5
81.2
81.6
80.0
84.1
81.9
82.5
69.9
74.4
73.6
73.6
72.2
73.6
76
67.8
68.9
68.2
67.7
71.6
74.5
74.2
77.5
67.5
69.8
74.3
71.5
63.7
80
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
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
Consumer Sentiment Survey (1966 = 100)
January 2010 through June 2014
Optimism among consumers
improved in the first part of 2014
Consumer confidence has been low for years amid high
unemployment, falling home prices and other factors adversely impact
consumers, but improved substantially over the past 2+ years, though
uncertainty in Washington sometimes takes a toll.
53
Net Worth of Households*
Recently Hit A Historic High
2008-09
recession: -15.7%
$ Trillions
Housing
“bubble”
$80
$70
2001
recession
$60
$50
$40
$30
$20
$10
1992
recession
1982
recession
Rising net worth fuels a “wealth
affect” that helps fuel consumer
spending, which accounts for 70%
of spending in the U.S. economy
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
2013
2014:Q1
$0
*Includes nonprofit organizations. Data are not seasonally adjusted or inflation-adjusted.
Source: Federal Reserve Board: http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf ; Insurance Information Institute.
Auto/Light Truck Sales, 1999-2019F
14.4
16
12
11
10
12.7
11.6
13
New auto/light truck sales fell to
the lowest level since the late
1960s. Forecast for 2014-15 is
still below 1999-2007 average of
17 million units, but a robust
recovery is well underway.
10.4
14
13.2
15
16.2
16.2
16.2
16.2
16.6
16.2
15.5
16.5
16.9
16.9
17.1
17.5
16.6
17
17.8
18
17.4
19
16.1
Job growth and improved
credit market conditions
will boost auto sales in
2014 and beyond
(Millions of Units)
Truck purchases
by contractors are
especially strong
9
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F 16F 17F 18F 19F
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point,
Bolstering the Auto Insurer Growth and the Manufacturing Sector Along
With Workers Comp Exposures
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (7/14 and 3/13); Insurance Information Institute.
56
Monthly Change* in Auto Insurance
Prices, 1991–2014*
10%
8%
Cyclical peaks in PP Auto
tend to occur roughly
every 10 years (early
1990s, early 2000s and
likely the early 2010s)
Pricing peak
occurred in late
2010 at 5.3%, falling
to 2.8% by Mar. 2012
6%
4%
2%
0%
“Hard” markets
tend to occur
during
recessionary
periods
The May. 2014
reading of 4.8% is
down from 4.1%
a year earlier
-2%
'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
*Percentage change from same month in prior year; through May 2014; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
57
Average Expenditures on Auto Insurance
The average expenditure on auto insurance is
lower today than it was in 2004
$950
$900
$857
$842
$832
$831
$830
$816
$795$789$787$791$803
$786
$850
$800
$750
803
$726
$705$703
$691
$685$690
$700
$668
$651
$650
$600
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10 11* 12* 13F
Countrywide Auto Insurance Expenditures Decreased by 0.8% in 2008 and
0.5% in 2009 and Increased 0.5% in 2010, 1.5% in 2011 (est.), 2.0% in 2012 and
2.2% in 2013 (forecast)
* Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute estimate for 2011-2013 based on CPI and other data.
58
New Private Housing Starts, 1990-2019F
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
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.92
1.04
1.23
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 14F15F16F17F18F19F
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 (7/14 and 3/13); Insurance Information Institute.
66
Average Premium for
Home Insurance Policies**
$1,100
$1,022
$983
$1,000
$945
$909
$880
$900
$804
$800
$822
$830
07
08
$764
$729
$700
$668
$593
$600
$508
$536
$500
$400
00
01
02
03
04
05
06
09
10
11*
12*
13*
Countrywide Home Insurance Expenditures Increased by an
Estimated 4.0% in 2011-2013
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.
Source: NAIC, Insurance Information Institute estimates for 2011-2013 based on CPI data and other data.
67
Interest Rate on Convention 30-Year
Mortgages: Up a Bit, 1990–2014*
12%
10%
Mortgages rates plunged to nearrecord lows in early 2013 but rose
as the Fed initiated tapering in its
QE program, but have come down
a bit through mid-2014
8%
6%
4%
2%
Yields on 30-Year mortgages have
been below 6% for a six years
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
Rising mortgage interest rates have impacted home sales but are unlikely to derail
the recovery on housing
*Monthly, through June 2014.
Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
68
NFIB Small Business Optimism Index
January 1985 through June 2014
Small business optimism
in June was nearly at its
level since the crisis
began in Dec. 2007.
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIBoptimism-index.gif ; Insurance Information Institute.
72
Business Bankruptcy Filings,
1980-2013
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%
2013 bankruptcies totaled 33,212,
down 17.1% from 2012—the fourth
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
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
% 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
data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
73
12 Industries for the Next 10 Years:
Insurance Solutions Needed
Health Care
Health Sciences
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Many
industries are
poised for
growth,
though
insurers’
ability to
capitalize on
these
industries
varies widely
Light Manufacturing
Insourced Manufacturing
Export-Oriented Industries
Shipping (Rail, Marine, Trucking, Pipelines)
75
CONSTRUCTION INDUSTRY
OVERVIEW & OUTLOOK
The Construction Sector Is
Critical to the Economy and
the P/C Insurance Industry
76
Value of New Private Construction:
Residential & Nonresidential, 2003-2014*
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
$15.0
2014: Value of new
pvt. construction
hits $686.5B as of
Apr. 2014, up 37%
from the 2010
trough but still 25%
below 2006 peak
$613.7
$700
$600
$308.0
$500
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$378.5
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13
14*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2014 figure is a seasonally adjusted annual rate as of April.
Sources: US Department of Commerce; Insurance Information Institute.
77
Value of Construction Put in Place,
April 2014 vs. April 2013*
Growth (%)
Private: +11.7%
17.2%
20%
10%
Public: +1.2%
8.6%
11.7%
5.6%
2.0%
1.2%
0%
-10%
-20%
-30%
Private sector construction
activity is up in the
residential and
nonresidential segments
Public sector
construction activity
remains depressed
but better than a year
ago (-5.2%)
-29.3%
-40%
Total
Construction
Total Private Residential-Construction
Private
NonResidential-Private
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth Is Almost Entirely in the
Private Sector as State/Local Government Budget Woes Continue
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
78
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
$1.0
Outstanding Commercial Loan Volume Has Been Growing for Over Two
Years and Is Now Nearly Back to Early Recession Levels. Bodes Very Well
for the Creation of Current and Future Commercial Insurance Exposures
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
82
Value of New Federal, State and Local
Government Construction: 2003-2014*
($ Billions)
$350
Austerity Reigns
Construction
across all levels
of government
peaked at $314.9B
in 2009
Govt. construction is still
shrinking, down $47.9B or
15.2% since 2009 peak
$308.7
$314.9
$289.1
$300
$304.0
$286.4
$279.0
$271.4
$267.0
2012
2013
2014*
$255.4
$250
$216.1
$220.2
2003
2004
$234.2
$200
$150
$100
$50
$0
2005
2006
2007
2008
2009
2010
2011
Government Construction Spending Peaked in 2009, Helped by Stimulus
Spending, but Continues to Contract As State/Local Governments
Grapple with Deficits and Federal Sequestration Takes Hold
*2014 figure is a seasonally adjusted annual rate as of April; http://www.census.gov/construction/c30/historical_data.html
Sources: US Department of Commerce; Insurance Information Institute.
85
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-12
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
(Thousands)
6,100
6,000
5,900
5,800
5,700
5,600
5,500
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
5,644
5,640
5,636
5,615
5,622
5,627
5,630
5,633
5,649
5,673
5,711
5,735
5,783
5,799
5,792
5,791
5,801
5,804
5,805
5,822
5,830
5,849
5,876
5,927
5,927
5,964
6,000
6,009
6,015
Construction Employment,
Jan. 2010—June 2014*
Construction employment
is +580,000 above
Jan. 2011 (+10.7%) trough
5,400
Construction and manufacturing employment constitute 1/3 of all payroll exposure.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
88
Construction Jobs: Largest Gains & Losses
by Metro Area, May 2014 vs. May 2013*
9,300
+4%
7,300
7,200
7,100
6,000
4,000
2,000
0
(2,000)
(4,000)
(6,000)
Construction employment
expanded in 218 out of the
339 metro areas in the US
in May 2014
-2,800
-2,000
-1,700
-1,200
Rochester,
NY
11,100
Largest Losses
Gary, IN
Atlanta
Santa
Ana/
Anaheim
Houston
Los
Angeles
Dallas
-4,200
Bethesda/
Rockville,
MD
12,000
10,000
8,000
Largest Increases
Newark
+10%
Virginia
Beach
Change
Construction Employment Is Expanding—Albeit Modestly—in Much of the US
*Seasonally adjusted;
Source: Associated General Contractors: http://www.agc.org/galleries/news/Metro_Empl_1404_Rank.pdf; Ins. Information Institute.
90
ENERGY SECTOR: OIL & GAS
INDUSTRY FUTURE IS BRIGHT
US Is Becoming an Energy
Powerhouse; Domestic Demand
and Exports Are Key
Need Infrastructure Investment
96
U.S. Natural Gas Production, 2000-2013
Trillions of Cubic Ft. per Year
28
25.3 25.6
26
24.0
24
22
20
20.2 20.6 19.9 20.0
19.5
21.1
18.9
19.4
21.6
22.4
20.2
18
The U.S. is already the world’s
largest natural gas producer—
recently overtaking Russia. This
is a potent driver of commercial
insurance exposures
16
14
12
10
00
01
02
03
04
05
06
07
08
09
10
11
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
12
13
U.S. Crude Oil Production, 2005-2015P
Millions of Barrels per Day
10
Crude oil production in the
U.S. is expected to increase
by 82.6% from 2008 through
2015—and could overtake
Saudi Arabia as the world’s
largest oil producer
9
8
7
6
5.19
5.09
5.08
5.00
2005
2006
2007
2008
9.13
8.37
7.44
6.49
5.35
5.47
5.65
2009
2010
2011
5
4
3
2
1
0
2012
2013 2014F 2015F
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
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
220
210
200
190
180
170
160
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
181.9
183.1
184.8
185.2
185.7
186.8
187.6
188.0
188.0
188.2
190.0
191.7
191.9
193.4
192.4
192.6
193.1
193.3
195.0
196.5
199.7
200.6
203.0
204.1
205.3
207.8
207.5
207.9
210.2
211.5
Oil & Gas Extraction Employment,
Jan. 2010—June 2014*
(Thousands)
Oil and gas extraction employment
is up 35.2% since Jan. 2010 as the
energy sector booms. Domestic
energy production is essential to
any robust economic recovery in
the US.
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Highest
since Aug.
1986
150
100
World Primary Energy Consumption,
1990-2040P
Quadrillion BTUs
900
800
700
600
Growth in worldwide
energy consumption will
create more risk and
vulnerabilities (natural and
manmade); Innovations in
risk management and
insurance are needed.
729.2
629.8
523.9
500
400
819.6
406.0
354.8
Between 2010 and 2040,
energy consumption in
projected to increase by
56.4% worldwide
300
200
100
0
1990
2000
2010
2020P
2030P
Source: Energy Information Administration, 2013 International Energy Outlook, Insurance Information Institute.
2040P
MANUFACTURING SECTOR
OVERVIEW & OUTLOOK
The U.S. Is Experiencing a Mini
Manufacturing Renaissance That
Is Benefitting the US Economy
and the P/C Insurance Industry
107
Manufacturing Growth for Selected
Sectors, 2014 vs. 2013*
Growth (%)
Non-Durables: +0.9%
Durables: +3.9%
10%
7.9%
8%
6%
4%
4.8%
4.5%
3.9%
2.3%
5.7%
4.1%
1.8% 1.8%
2%
3.1%
0.9%
0%
Plastics &
Rubber
Chemical
Petroleum &
Coal
Food
Products
Non-Durable
Mfg.
Transportation
Equip.
Textile
Products
-0.7%
-1.0%
-1.7%
Computers &
Electronics
Electrical
Equip.
-0.8%
Machinery
Fabricated
Metals
Primary
Metals
Wood
Products
All
Manufacturing
-4%
Durable Mfg.
Manufacturing of durable
goods was stronger than
nondurables in 2013
-2%
Manufacturing Is Expanding—Albeit Slowly—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 May 2014 to the same period in 2013.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 108
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—Apr. 2014
$ Millions
$500,000
The value of Manufacturing
Shipments in Apr. 2014 was
$497.6B—a new record high.
$400,000
$300,000
Ja
n92
Ja
n9
Ja 3
n94
Ja
n9
Ja 5
n9
Ja 6
n97
Ja
n9
Ja 8
n99
Ja
n00
Ja
n
0
Ja 1
n
02
Ja
n
0
Ja 3
n
04
Ja
n
0
Ja 5
n
0
Ja 6
n
07
Ja
n
0
Ja 8
n
09
Ja
n
1
Ja 0
n
1
12 1
-J
an
13
-J
a
14 n
-J
an
$200,000
Monthly shipments in Apr. 2014 exceeded the pre-crisis (July 2008) peak.
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 June 3, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 109
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
12,250
12,000
11,750
11,500
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
11,841
11,870
11,910
11,920
11,926
11,935
11,957
11,943
11,925
11,931
11,938
11,951
11,965
11,988
11,984
11,977
11,972
11,965
11,948
11,963
11,993
12,011
12,046
12,053
12,061
12,081
12,085
12,094
12,105
12,121
Manufacturing Employment,
Jan. 2010—June 2014*
(Thousands)
Since Jan 2010,
manufacturing employment
is up (+661,000 or +5.8%)
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.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
110
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend is
Improving
114
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through June 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
14
12
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 12.1%
in Apr. 2014.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 6.1% in June
2014. 4% to 6% is
“normal.”
6
4
2
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
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.
115
US Unemployment Rate Forecast
9%
8%
7%
6%
5%
Unemployment
peaked at 10%
in late 2009.
Jobless figures have
been revised
modestly downwards
for 2014/15
8.1%
10%
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
11%
Rising
unemployment
eroded
payrolls
and WC’s
exposure base.
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%
6.7%
6.2%
6.2%
6.0%
5.9%
5.8%
5.7%
5.6%
2007:Q1 to 2015:Q4F*
Unemployment forecasts
have been revised modestly
downwards. Optimistic
scenarios put the
unemployment as low as
5.8% by Q4 of this year.
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
4%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (7/14 edition); Insurance Information Institute.
116
Unemployment Rates by State, May 2014:
Highest 25 States*
5.8
5.9
6.3
6.1
6
6.3
6.3
6.4
6.4
6.4
6.4
6.5
6.6
6.7
6.8
6.8
6.9
6.9
7.2
7.5
7.5
7.5
7.6
7.7
8
7.7
7.9
Unemployment Rate (%)
8.2
10
6.8
In May, 20 states had over-the-month
unemployment rate decreases, 16
states had increases, and 14 states
and the District of Columbia had no
change.
4
2
*Provisional figures for May 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
FL
W
V
W
A
D
E
C
O
S
U
TN
C
N
R
A
K
A
L
A
Z
N
J
N
Y
M
O
N
M
A
R
O
T
C
I
A
G
M
IL
Y
M
S
C
A
D
C
K
V
N
R
I
0
117
3.3
3.6
2.6
3
3.6
4
3.8
3.8
4.4
4.4
4.4
4.6
4.6
4.6
4.9
5.1
5.5
5.6
5.6
5.7
5.7
5.6
5.3
5.1
4.9
5
In May, 20 states had over-the-month
unemployment rate decreases, 16
states had increases, and 14 states
and the District of Columbia had no
change.
4.8
Unemployment Rate (%)
6
5.7
Unemployment Rates by State, May 2014:
Lowest 25 States*
The unemployment
rate in TX was 1.2
points below the US in
May 2014
2
1
0
IN ME WI MA MD PA OH SC TX VA ID LA KS MN MT OK HI
*Provisional figures for May 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
IA NH SD WY NE UT VT ND
118
(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
166
201
200
278
224
262
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
Monthly Change in Private Employment
January 2007 through June 2014 (Thousands, Seasonally Adjusted)
600
Jobs Created
2013: 2.368 Mill
2012: 2.294 Mill
2011: 2.400 Mill
2010: 1.277 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
1,331,000 jobs
created so far
in 2014
262,000 private
sector jobs were
created in June. In
March 2014, the last
of the private jobs
lost in the Great
Recession were
recovered
Private Employers Added 9.67 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)
119
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2014:Q1
Billions
$7,500
Latest (2014:Q1) was
$7.29 trillion, a new
peak--$1.04 trillion
above 2009 trough
$7,250
$7,000
$6,750
Prior Peak was
2008:Q1 at $6.60 trillion
$6,500
Payrolls are
16.6% above
their 2009 trough
and up 3.6% over
the past year
$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
13:Q2
13:Q3
13:Q4
14:Q1
$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.
126
Payroll vs. Workers Comp Net Written
Premiums, 1990-2013P
Payroll Base*
$Billions
$7,000
$6,000
7/90-3/91
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
12/07-6/09
$45
WC premium
volume dropped
two years before
the recession began
$40
$5,000
$4,000
$3,000
$50
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$2,000
$35
$30
$25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow
Again in 2014; +8.6% Growth Estimated for 2013
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2013 actuals.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
127
Workers Compensation
Operating Environment
Workers Comp Results Have Improved
Substantially in Recent Years
128
Workers Compensation Combined
Ratio: 1994–2015F
98.0
99.0
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 13E 14F 15F
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 (2010-2013P) and are for private carriers only; Insurance Information Institute (2014-15).
129
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
2013 Workers Compensation Direct Written
Premium Growth, by State*
PRIVATE CARRIERS: Overall 2013 Growth = +5.4%
While growth rates varied widely, all states
experienced positive growth in 2013
*Excludes monopolistic fund states (in white): OH, ND, WA and WY.
Source: NCCI.
131
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.
132
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
133funds, excluding WV; Excludes high deductible policies.
U.S. Insured Catastrophe
Loss Update
2013 Was a Welcome Respite from the
High Catastrophe Losses in Recent Years
2014 Is Off to a Modest Beginning
134
U.S. Insured Catastrophe Losses
$74.5
($ Billions, $ 2013)
$80
$70
2012 was the 3rd most
expensive year ever for
insured CAT losses
$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*
2013 Was a Welcome Respite from 2012, the 3rd
Costliest Year for Insured Disaster Losses in US
History. Longer-term Trend is for more—not
fewer—Costly Events
$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.
135
135
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2013*
8.7
8.9
8.1
3.4
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
1996
5.0
5.4
3.6
2.9
3.3
2.8
2.3
2.1
1990
1992
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
1966
3.0
3.6
0.4
1964
1962
0.8
1.1
1.1
0.1
0.9
1960
1
0
5.9
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 6.1E*
8
7
3
2
8.8
10
9
6
5
4
Catastrophe losses as a
share of all losses reached
a record high in 2012
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1994
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
*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.
136
Top 8 States for Insured
Catastrophe Losses, 2013
$ Millions
2,000
$1,995
Texas is almost
always one of the
top 5 states for
insured CAT losses
1,800
1,600
$1,509
1,400
1,200
1,000
$907
$845
800
$773
$762
$661
600
$593
400
200
0
Oklahoma
Texas
Colorado
Minnesota
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
Nebraska
Georgia
Illinois
Louisiana
137
Top 5 States by Insured Catastrophe
Losses in 2012*
(2012, $ Billions)
$12,000
$10,000
$9,756
$8,000
Texas is almost
always one of the
top 5 states for
insured CAT losses
$6,369
$6,000
$4,000
$2,318
$2,000
$1,511
$1,440
$0
New York
New Jersey
*Includes catastrophe losses of at least $25 million.
Sources: PCS unit of ISO; Insurance Information Institute.
Texas
Kentucky
Colorado
138
Top States by Inflation-Adjusted
Insured Catastrophe Losses, 1983–2012
Over the Past 30 Years Florida Has Accounted for the Largest Share of
Catastrophe Losses in the U.S., Followed by Texas and Louisiana
TX is the 2nd
costliest state
for CATs, with
nearly $50B in
insured losses
over the past 30
years
Louisiana
$42.0B
Texas
$48.8B
Florida
$66.7B
9.0%
10.4%
Rest of the U.S.
$309.9B
14.3%
66.3%
Total: $467.5 Billion,
an average of
$16.6B per year or
$1.3B per month
Source: PCS unit of ISO, Verisk Company.; Insurance Information Institute.
139
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1994–20131
Wind/Hail/Flood (3), $14.6
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.
140
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2013 Dollars, $ Billions)
Hurricane Ike and
other storms have hot
TX hard over the past
decade
$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.
141
Natural Disasters in the United States,
1980 – 2013
Number of Events (Annual Totals 1980 – 2013)
250
There were 128 natural
disaster events in 2013
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)
142
Losses Due to Natural Disasters in the US,
1980–2013
(2013 Dollars, $ Billions)
200
150
(Overall and Insured Losses)
2013 losses were far
below 2011 and 2012
and were 44% lower
than the average from
2000-2012
Indicates a great
deal of losses are
uninsured (~40%50% in the US) =
Growth
Opportunity
2013 CAT Losses
Overall : $21.8B
Insured: $12.8B
100
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Overall losses (in 2012 values)
Source: MR NatCatSERVICE
Insured losses (in 2013 values)
143
Natural Disaster Losses in the
United States, by Type, 2013
As of December 31,
2013
Number of
Events
Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm
69
110
16,341
10,274
Winter Storm
11
43
2,935
1,895
Flood
19
23
1,929
240
Earthquake &
Geophysical
6
1
Minor
Minor
Tropical Cyclone
1
1
Minor
Minor
Wildfire, Heat, &
Drought
22
29
620
385
Totals
128
207
21,825
12,794
Source: Munich Re NatCatSERVICE
150
Top 12 Most Costly Hurricanes
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
10 of the 12 most costly hurricanes in insurance
history occurred over the past 9 years (2004—2012)
Hurricane Sandy became
the 3rd costliest
hurricane in US
insurance history
$60
$50
$40
$30
Hurricane Irene
became the 12th most
expensive hurricane
in US history in 2011
$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)
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
152
Total Value of Insured Coastal Exposure
in 2012
(2012, $ Billions)
New York
$2,923.1
$2,862.3
Florida
Texas
$1,175.3
Massachusetts
$849.6
The value of insured
New Jersey
$713.9
Connecticut
$567.8
coastal exposure in TX is
$293.5
Louisiana
3rd highest in US.
S. Carolina
$239.3
Virginia
$182.3
In 2012, New York Ranked as the #1 Most
Maine
$164.6
Exposed State to Hurricane Loss, Overtaking Florida
North Carolina
$163.5
with $2.862 Trillion. Texas is very exposed too, and
Alabama
$118.2
ranked #3 with $1.175 Trillion
Georgia
$106.7
in insured coastal exposure
Delaware
$81.9
New Hampshire $64.0
The Insured Value of All Coastal Property Was $10.6
Mississippi $60.6
Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and
Rhode Island $58.3
Up 48% from $7.2 Trillion in 2004
Maryland $17.3
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
154
U.S. Thunderstorm Insured Loss Trends,
1980 – 2013
Hurricanes get all the headlines,
but thunderstorms are consistent
producers of large scale loss.
2008-2013 are the most expensive
years on record.
Average
thunderstorm
losses are up 7 fold
since the early
1980s. The 5-year
running average
loss is up sharply
Source: Property Claims Service, MR NatCatSERVICE
Thunderstorm losses in 2013
totaled $10.3 billion, the 6th
highest on record
158
Wildfire Outlook for the Western US
is Grave but Improving in TX
Much of the
West and
Northwest US
is at an
elevated risk
for wildfire
due to
prolonged
drought and
high
temperatures
Recent rains
have helped
reduce wildfire
risk in TX
Source: National Interagency Fire Center
165
Federal Disaster
Declarations Patterns:
1953-2014
Disaster Declarations Set New
Records in Recent Years
169
Number of Federal Major Disaster
Declarations, 1953-2014*
99
81
75
55
29
47
59
63
48
52
56
44
32
36
32
38
43
45
11
31
34
24
21
15
23
22
25
27
28
23
38
30
29
17
17
19
11
11
22
20
25
25
12
12
29 federal disasters were
declared so far in 2014*
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
7
7
13
17
18
16
16
40
0
42
48
46
46
60
20
69
65
80
The number of federal disaster
declarations set a new record in
2011, with 99, shattering 2010’s
record 81 declarations.
50
45
45
49
100
There have been 2,165
federal disaster
declarations since
1953. The average
number of declarations
per year is 35 from
1953-2013, though
there few haven’t been
recorded since 1995.
75
120
The Number of Federal Disaster Declarations Is Rising and Set New Records
in 2010 and 2011 Before Dropping in 2012/13
*Through July 16, 2014.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
170
Federal Disasters Declarations by State,
1953 – 2014: Highest 25 States*
Over the past 60 years,
Texas has had the highest
number of Federal Disaster
Declarations (none so far in
2014; 2 in in 2013)
75
43
47
47
48
44
40
40
49
50
50
51
52
53
53
55
56
58
56
53
50
50
60
60
67
70
68
Disaster Declarations
80
79
90
88
100
30
20
10
0
TX CA OK NY FL LA AL KY AR MO IL MS IA TN WV MN KS PA NE WA OH VA ND SD ME
*Through July 16, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
171
Federal Disasters Declarations by State,
1953 – 2014: Lowest 25 States*
Over the past 60 years,
Wyoming and Rhode
Island had the fewest
number of Federal
Disaster Declarations
11
11
13
15
17
9
10
17
22
23
24
24
25
26
26
26
26
29
33
35
38
38
40
19
20
29
30
37
Disaster Declarations
40
40
43
50
0
NC AK IN GA VT WI NJ NH MA OR PR HI MI NM MD AZ MT ID CO CT NV SC DE DC UT RI WY
*Through July 16, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
172
SEVERE WEATHER REPORT UPDATE: 2014
Damage from Tornadoes, Large Hail
and High Winds Keep Insurers Busy
173
Location of Tornado Reports in 2014:
Through July 14, 2014
There have been
53 tornadoes so
far in TX in 2014,
compared to 65 for
all of 2013
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#; PCS.
There have
been 813
tornadoes so far
in 2014, causing
extensive
property
damage in
several states
174
U.S. Tornado Count, 2005-2014*
There were 1,897 tornadoes
in the U.S. in 2011 far
above average, but well
below 2008’s record
2014 count (816
though July 15) is
running below avg.
*Through July 15, 2014.
Source: http://www.spc.noaa.gov/wcm/.
2013 count
was the
lowest in a
decade
175
Location of Large Hail Reports:
Through July 14, 2014
473 reports of large
hail in TX so far in
2014 compared to
651 in all of 2013
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
There have
been 4,091
“Large Hail”
reports in the
US so far in
2014, causing
extensive
property and
vehicle damage
176
Location of High Wind Reports:
Through July 14, 2014
There have
been 7,822
“Wind Damage”
so far in 2014,
causing
extensive
property
damage
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
177
Severe Weather Reports:
Through July 14, 2014
Severe weather reports
are concentrated east
of the Rockies
Significant hail
activity in TX
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
There were
12,727 severe
weather reports
so far in 2013;
including 813
tornadoes;
4,091 “Large
Hail” reports
and 7,822 high
wind events
178
Severe Weather Reports in Texas:
Through July 14, 2014
939 severe weather
reports through 7/14/14
53 Tornadoes
473 Large Hail Reports
413 High Wind Events
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
179
I.I.I. Poll: Homes Near Hazards
Q. If you were to purchase a home today, which of the following summarizes your views
on that home’s risk of damage from natural disasters . . . and your decision to purchase
that home?
Don’t Know
Willing to
Accept Risk
3%
17%
Risk Not a Major
Consideration
28%
53%
Risk a
Significant
Influence
on
Purchase
More Than Half of the Public Would Be Significantly Influenced by
Risk of Damage from Natural Disasters. Close to a Third Do Not
Regard Such a Risk To Be a Major Consideration.
Source: Insurance Information Institute Annual Pulse Survey.
180
I.I.I. Poll: Flood Insurance Rates
Q. Congress recently passed a law that will roll back some of the rate increases it put in
place for homeowers who purchase subsidized flood insurance from the government . .
. . Do you think the recent rate rollback and subsidies should remain in place for most
homeowners who purchase flood insurance; or the rollbacks and subsidies should be
eliminated; or don’t know?
Don’t Know
10%
Eliminated
27%
62%
Remain in
Place
Most Americans Support the Flood Insurance Rate Rollback.
Source: Insurance Information Institute Annual Pulse Survey.
181
Outlook for the 2014 Atlantic
Hurricane Season
Somewhat Below Average
Activity, Fewer Landfalls
Expected
182
Outlook for 2014 Hurricane Season:
30% Less Active Than Typical Year
Median*
2005
2014F
(Katrina Year)
Named Storms
12.0
28
10
Named Storm Days
60.1
115.5
40
Hurricanes
Hurricane Days
6.5
21.3
14
47.5
4
15
Major Hurricanes
2.0
7
1
Major Hurricane Days
3.9
7
3
Accumulated Cyclone Energy
92.0
NA
65
Net Tropical Cyclone Activity
103%
275%
70%
*Over the period 1981-2010.
Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 2, 2014.
Terrorism Update
TRIA’s Success
Consequences of Expiration
Download III’s Terrorism Insurance Report at:
http://www.iii.org/white_papers/terrorismrisk-a-constant-threat-2014.html
187
Terrorism Insurance Take-up Rates,
By Year, 2003-2013
80%
70%
58%
60%
59%
59%
61%
62%
64%
62%
62%
57%
49%
50%
40%
30%
TRIA’s high take-up rates, availability and
affordability have benefitted businesses,
workers and the entire US economy
since the program’s enactment
27%
20%
10%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
In 2003, the first year TRIA was in effect, the terrorism take-up rate
was 27 percent. Since then, it has increased steadily, remaining in the
low 60 percent range since 2009.
Source: Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014 and earlier editions.
189
Terrorism Risk Insurance Program
 Testified before House Financial Services Nov. 2013
 Testified before Senate Banking Cmte. in Sept. 2013
 Provided testimony at NYC hearing in June 2013
 Provided Capitol Hill Joint House/Senate Staff Briefing in
April 2014
 I.I.I. Published Several Updates to its Study on Terrorism
Risk and Insurance
 Working with Trades, Congressional Staff, GAO & Others
Senate Banking Committee, 9/25/13
House Financial Services
Subcommittee, 11/13/13
190
Terrorism Insurance Take-Up Rates by
State for 2013*
Take-up rate
for terrorism
insurance in
TX is 54%
*Data for 27 states with sufficient data.
Source: Marsh 2014 Terrorism Risk Insurance Report; Insurance Information Institute.
The overall US takeup rate for terrorism
coverage was 62% in
2013 and ranged from
a lows of 41% in
Michigan to a high of
84% in Massachusetts
(where demand likely
increased due to the
April 2013 Boston
Marathon bombing)
191
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
198
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 $47.4
$45.8
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Due to persistently low interest rates,
investment income fell in 2012 and in 2013
and is falling again in 2014.
1
Investment gains consist primarily of interest and stock dividends.
Sources: ISO; Insurance Information Institute.
*2014 investment income is estimated Q1, annualized.
14*
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2014*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
6%
U.S. Treasury
yields plunged to
historic lows in
2013. Longerterm yields have
rebounded a bit.
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 '14
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 June 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
204
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
213