2015, 2016 and beyond:
Financial Results From An Actuarial
Point of View
Casualty Actuaries of Greater New York
May 23, 2016
Download at www.iii.org/presentations
James Lynch, Vice President and Chief Actuary
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5533  Cell: 917.359.3908 jamesl@iii.org  www.iii.org
2015 Industry Results
Almost a Carbon Copy of 2014
L:
2
$55,870
$56,622
14
15E
$63,784
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
Net income in
2015 was on par
with 2014; ROE
unchanged at
8.4%
$44,155
$38,501
$30,029
$20,559
$21,865
$30,773
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$36,819
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.2%
2014 ROAS1 = 8.4%
2015 ROAS = 8.4%
$24,404
$ Millions 


$80,000


$70,000


$60,000


$50,000


$65,777
P/C Industry Net Income After Taxes
1991–2015
$0
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
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013,
6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009; 2015E is annualized figure based actual figure through Q3 of $44.0
Sources: A.M. Best, ISO; Insurance Information Institute
Commercial Lines NPW Premium Growth:
1975-2015E
ROE
35%
30%
Commercial NPW Growth
Nominal GDP Growth
Economic Shocks,
Inflation:
1976: 22.2%
NPW Δ > Nominal GDP Δ
Implies Hard Market
Tort Crisis
1986: 30.5%
25%
Post-9/11
2002: 22.4%
20%
15%
1988-2000:
Period of
inter-cycle
stability
Post-Hurricane
Andrew Bump:
1993: 6.3%
10%
Post Katrina
Bump:
2006: 7.7%
NGDP
2015
+4.0%
2015E
3.3%
5%
0%
Note: Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
15E
13
11
09
07
05
03
Great
Recession:
2009: -9.0%
01
99
97
95
93
91
89
85
NPW Δ < Nominal GDP Δ
Implies Soft Market
83
81
79
-15%
75
-10%
77
Recessions:
1982: 1.1%
87
-5%
201020XX?
Stable
Growth
P/C Direct Written Premium by Line
(Billions of Dollars)
LOB
2014
2015
% Chg From Year Earlier
Personal Auto
190.6
199.9
Homeowners
90.7
93.3
GL (incl Products)
62.6
65.7
WC
55.4
57.6
Fire & Allied Lines
43.5
42.2
CMP
39.2
39.7
Comm Auto
29.3
31.3
Other
59.6
61.9
3.9%
Total
570.8
591.8
3.7%
4.9%
2.9%
5.0%
4.0%
-2.9%
1.2%
7.1%
Sources: NAIC Data, sourced from S&P Global Market Intelligence, Insurance Information Institute.
5
P/C Insurance Industry
Combined Ratio, 2001–2015*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
Cyclical
Deterioration
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Sandy
Impacts
106.5
102.5
101.1
99.3
98.4
100
Avg. CAT
Losses,
More
Reserve
Releases
101.0
100.8
100.1
Relatively
Low CAT
Losses,
Reserve
Releases
3
Consecutive
Years of U/W
Profits: First
Time Since
1971-73
Lower
CAT
Losses
97.8
96.4 97.0
95.7
92.6
90
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013: = 96.1; 2014: = 97.0.
Sources: A.M. Best, ISO (2014-2015); Figure for 2010-2013 is from A.M. Best P&C Review and Preview, Feb. 16, 2016.
6
P/C Net Combined Ratio by LOB
LOB
2014
2015
Personal Auto
103
105
Homeowners
93
92
GL (incl Products)
99
103
WC
100
94
CMP
100
95
88
86
104
109
Other
84
84
Total
97
98
Fire & Allied Lines
Comm Auto
Change From Year Earlier
2
(1)
4
(6)
Positive Number = Bad
News
(5)
(2)
5
0
1
Source: National Council on Compensation Insurance.
7
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975-2015
ROE
25%
1977:19.0%
2016 Forecast: 6.3%
1987:17.3%
20%
1997:11.6%
15%
9 Years
2006:12.7%
2013
9.8%
2015:
8.4%
10%
5%
0%
2014
8.4%
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
15
-5%
*Profitability = P/C insurer ROEs. 2011-15 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
Return on Equity by Financial Services
Sector vs. Fortune 500, 2004-2015*
(Percent)
Fortune 500
P/C Insurers
Life Insurers
Commercial Banks
18%
16%
14%
12%
10%
8%
6%
Average: 2004 - 2014
4%
Fortune 500: 13.9%
Commercial Banks: 9.8%
Life: 8.2%
P/C: 7.1%
2%
0%
-2%
04
05
06
07
08
09
10
11
12
13
14
15E
Banks and Insurers Have Substantially Underperformed the Fortune 500
Since the Financial Crisis
*GAAP basis.
Sources: ISO, Fortune; Insurance Information Institute.
10
Return on Net Worth (RNW)
Largest Lines: 2005-2014 Average
Commercial lines have tended to
be more profitable than personal
lines over the past decade
Percent
16
15.6
12.8
11.9
12
8
8.0
6.3
6.2
6.4
6.9
6.7
3.8
4
2.2
2.8
Source: NAIC; Insurance Information Institute.
Farm MP
A&H
Med Prof
Liab
Fire
Allied Lines
Inland Marine
Comm Auto
Total
Commercial
MP
Workers
Comp
Other
Liability
Homeowners
MP
PP Auto Total
0
11
RNW All Lines, 2005-2014 Average:
Highest 25 States
The most profitable states
over the past decade are
widely distributed
geographically, though none
are in the Northeast
19.0
Profitability Benchmark: All P/C
8.3
8.8
8.9
8.9
9.6
9.9
10.0
10.3
10.5
10.6
10.6
10.8
10.9
11.0
11.1
11.3
11.5
11.7
11.7
11.9
13.0
13.2
13.3
US: 7.7%
14.0
22
20
18
16
14
12
10
8
6
4
2
0
19.9
(Percent)
HI AK VT ME ND FL WY NH VA ID UT NC WA MA SC OH WV OR DC CA RI CT MD NM SD MT
Source: NAIC; Insurance Information Institute.
12
RNW All Lines, 2005-2014 Average:
Lowest 25 States
-9.4
Some of the least profitable
states over the past decade
were hit hard by catastrophes
-7.4
1.7
3.4
4.1
4.7
5.1
5.1
5.5
6.1
6.2
6.3
6.5
6.8
7.0
7.1
7.1
7.3
7.3
7.4
7.5
7.5
7.7
7.8
9
7
5
3
1
-1
-3
-5
-7
-9
-11
7.8
(Percent)
6.9
NY, NJ Hit Hard by both
Hurricane Irene (2011) and
superstorm Sandy (2012)
PA WI US IL TX IA KS MN AR NE IN CO AZ KY MO TN NV NJ GA NY DE AL MI OK MS LA
Source: NAIC; Insurance Information Institute.
13
Policyholder Surplus,
2006:Q4–2015:Q4E
Higher Dividends, Drop
in Unrealized Cap Gains
Kept Surplus Flat
$674.7
$672.4
$673.7
15:Q2
15:Q4
$673.9
$671.6
$662.0
14:Q4
$624.4
$614.0
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$566.5
$544.8
$530.5
$540.7
$511.5
14:Q3
14:Q2
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
Surplus as of 12/31/15 stood
at a near-record high $673.7B
09:Q4
$490.8
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
$650
$607.7
2007:Q3
Pre-Crisis Peak
$700
$653.4
($ Billions)
The industry now has $1 of surplus for every $0.73 of NPW,
close to the strongest claims-paying status in its history.
The P/C Industry Entered 2016 in Strong Financial Condition, But
Low Leverage Inhibits Investment Returns.
Sources: ISO, A.M .Best.
14
2016: So Far, A Lot of Mini-Cats in USA
TX Hailstorms Costliest in
TX History
$1,600
$1,200
$1,000
Auto
$560
Prop
erty
$800
$800
$400
$700
$600
$200
$16- 23- 12Mar Mar Apr
Source: Aon Benfield, Insurance Council of
Texas, A.M. Best, Insurance Information Institute.
Insured Loss ($ millions)
$1,360
Avg. Year:
$859M
$600
Insured Loss ($ millions)
$1,400
4/12 TX Hailstorm
Events Elsewhere in USA:
- Jan NE Winter Storm
- Feb (CA, SE) Winter Weather
- March (CA, SE) CV Storm
- Incl. Florida tornadoes
- Total Insured Loss > $1 B
Q2 Event
15
AY vs. CY Combined Ratio,
(Excl. Guaranty Lines) 1996-2015
120
Higher AY →
Favorable
115 DOP
113.2
110.8
104.9
106.5
101.0
98.3
97.6
94.8
93.3
95.0
100.1
99.8
96.9
97.1
98.5
102.4
101.0
99.3
101.1
101.5
96.4
95
90
105.4
102.7
102.2
99.1
97.3
110.0
104.2
101.0
102.1
Combined Ratio
Accident Year
108.4
106.3
106.2
100
108.8
108.5
105.8
111.2
110
116.9
109.5
108.8
105
Hurricane Ike
Calendar Year
Tuscaloosa,
Joplin Tornadoes
2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.
Three Consecutive Years of Deteriorating Combined Ratios, Despite
Light Cat Losses. AY2015 Above 100.
22
Personal Lines Combined Ratio,
1996-2015
Higher AY →
115
Favorable DOP
106.1
99.7
101.4
102.7
94.1
94.3
96.4
97.6
99.5
98.3
98.5
97.2
100.7
102.6
102.7
100.1
99.0
106.5
105.8
102.6
96.9
95
2005: Last Year of
Adverse Development
107.8
105.3
100.2
104.7
105.3
102.9
100
104.6
104.3
99.9
Combined Ratio
111.7
107.0
105.1
105
106.5
Accident Year
111.0
110.9
110
111.7
107.1
109.4
Calendar Year
113.3
Tuscaloosa,
Joplin Tornadoes
90
2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.
Lack of Catastrophes Let Personal Lines Writers Post Underwriting
Profit Two Years In a Row. CY15>100, Despite Lack of Cats.
23
Commercial Lines Combined Ratio,
1996-2015
120
119.8
112.6
111.8
112.9
110.1
113.0
110.0
103.6
103.0
107.4
105.4
100.4
103.8
98.1
97.8
96.6
96.8
97.3
99.1
92.8
95.4
92.1
94.6
100.8
93.0
95
97.8
97.4
97.4
104.4
95.4
100.9
99.1
102.4
102.9
104.8
100
113.6
105
108.3
111.3
110
10 Consecutive
Years of Favorable
Development.
Accident Year
108.5
107.8
Combined Ratio
115
Calendar Year
90
Low Cat Losses Contribute to Favorable Combined Ratios.
2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.
24
Development on Prior, 1996-2015
DoP ($ billions)
DoP (% of NEP)
25
8.0%
20
All Year DoP
Dop/NEP
6%
4%
15
2%
(1.9)
-2%
-3% -3% -3%
(7.3)
(9.4)
(14.5)
(12.2)
-2%
(12.7)
-2% -2%
(10.5)
0%
4.0%
2.0%
(18.5)
(8.3)
0%
(7.0)
-20
-3% -4%
0.6
-15 -3%
10.5
-2%
14.1
-10
22.3
(9.9)
(9.1)
(6.4)
0%
11.1
0
0.3
(4.6)
5
-5
10 Consecutive
Years of Favorable
Development.
4%
10
6.0%
0.0%
-1% -2.0%
-4.0%
-4%
-25
-6.0%
Reserve Releases Keep Getting Smaller. 2015 Affected by a Single
Company’s $3B Reserve Hit.
2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.
25
CY Development on Prior by LOB
24.0%
1,655.1
1,500
604.5
DoP ($ millions)
1,000
500 151.6 204.9
0
-500
-1,000
18.0%
1,217.1
398.5
40.1
12.0%
516.0
6.0%
3.5 84.0
(505.1)
0.0%
(114.7)
(271.1)
-6.0%
-12.0%
-1,500
(773.3)
(670.9)
(839.8)
(863.2)
-2,000
2014 DoP
-24.0%
-2,500
2015 DoP
(2,352.8)-30.0%
2015 DoP/NEP
(883.3)
(1,230.6)
-18.0%
-3,000
% of 2015 NEP
2,000
-36.0%
Several Liability Lines (Auto, GL, Products) Had Reserve Spikes.
WC Was an Exception.
2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.
26
Interest Rates and Investments
Investment Performance
Is a Key Driver of Profitability
27
Property/Casualty Insurance Industry
Investment Income: 2000–20151
Investment earnings
are still below their
2007 pre-crisis peak
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1 $47.6
$38.9
$38.7
$48.0 $47.3
$46.4
$47.2
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Due to persistently low interest rates,
investment income fell in 2012, 2013 and 2014 but showed a small
(1.9%) increase in 2015—a trend that may continue
1
Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.
Net Yield on P/C Insurer Invested
Assets, Year-end 2007-2015
5.0%
4.5%
4.49%
4.20%
3.93%
4.0%
3.73%
3.83%
3.68%
3.65%
3.43%
3.5%
3.18%
3.0%
2.5%
2007
2008
2009
2010
2011
2012
2013
2014
2015
From 2007 to 2015, P/C Insurer net yields dropped by 131 basis points.
Sources: National Association of Insurance Commissioners, sourced from S&P Global Market Intelligence.
29
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2016*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for more than a decade.
8%
7%
6%
Despite the Fed’s
December 2015
rate hike, yield
remain low
though shortterm yields have
seen some gains
5%
4%
3%
2%
1%
Recession
2-Yr Yield
10-Yr Yield
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 '15 '16
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 2016.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
30
New Money vs. Embedded Yields,
U.S. Insurers, 1985-2015
10%
9.2%
9%
Falling yields means less
investment income, putting
upward pressure on rates.
8%
7%
6%
9.6%
3.5%
5%
4%
3%
Recession
2%
Pre-Tax New Money Yield
1%
Pre-Tax Embedded Yield
1.7%
Yields Fall Sharply With Recession,
Then Recover as Economy Does.
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
2015p
0%
As long as new money rates are below the rates of maturing bonds,
the portfolio yield will continue to sink.
Sources: NCCI, Insurance Information Institute.
31
Interest Rate Forecasts: 2016 – 2021
Yield (%)
3-Month Treasury
10-Year Treasury
5%
4%
3.7%
3.8%
3.9%
3.4%
3%
2.7%
2.9%
3.0%
2.3%
2.8%
2.1%
2%
The end of the Fed’s QE
program in 2014 and a
stronger economy have
yet to push longer-term
yields much higher
1.3%
1%
0.5%
0%
16F
17F
18F
19F
20F
21F
16F
17F
18F
19F
20F
21F
A full normalization of interest rates is unlikely until 2019, more than a
decade after the onset of the financial crisis.
Sources: Blue Chip Economic Indicators (4/16 for 2016 and 2017; for 2018-2021 3/16 issue); Insurance Info. Institute.
32
Commercial Rates
Steady Going
L:
36
-5%
-10%
-1%
-1%
-1%
-1%
-1%
-1%
-2%
-2%
-2%
-2%
-1%
-1%
-3%
-4%
-5%
-5%
-6%
-6%
-5%
-4%
-3%
-1%
0%
3%
9%
20%
5%
6%
6%
7%
7%
6%
6%
5%
4%
3%
3%
2%
2%
1%
1%
1%
1%
2%
2%
3%
1%
0%
0%
0%
5%
5%
10%
13%
12%
15%
2003:Q2
2003:Q3
2003:Q4
2004:Q1
2004:Q2
2004:Q3
2004:Q4
2005:Q1
2005:Q2
2005:Q3
2005:Q4
2006:Q1
2006:Q2
2006:Q3
2006:Q4
2007:Q1
2007:Q2
2007:Q3
2007:Q4
2008:Q1
2008:Q2
2008:Q3
2008:Q4
2009:Q1
2009:Q2
2009:Q3
2009:Q4
2010:Q1
2010:Q2
2010:Q3
2010:Q4
2011:Q1
2011:Q2
2011:Q3
2011:Q4
2012:Q1
2012:Q2
2012:Q3
2012:Q4
2013:Q1
2013:Q1
2013:Q3
2013:Q4
2014:Q1
2014:Q2
2014:Q3
2014:Q4
2015:Q1
2015:Q2
2015:Q3
2015:Q4
Commercial Lines Rate Change by Qtr
(vs. Year Earlier)
20 consecutive quarters
of rate increases
Decreases: WC, Property, D&O. ‘Meaningful’ Increases:
Commercial Auto.
Sources: Willis Towers Watson Commercial Lines Insurance Pricing Survey, Insurance Information Institute.
37
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
15-Jun
15-Aug
15-Oct
15-Dec
16-Feb
16-Apr
-6%
-5%
-5%
-5%
-5%
-4%
-4%
-4%
-4%
-4%
-4%
-5%
-4%
-5%
-5%
-4%
-4%
-5%
-4%
-4%
-3%
-3%
-3%
-3%
-4%
-6%
-6%
-4%
-4%
-4%
September 2015: First
Overall Decrease Since
August 2011.
-3%
-2%
-1%
-2%
2%
0%
0%
1%
0%
1%
1%
1%
1%
1%
1%
3%
3%
3%
3%
2%
3%
2%
3%
2%
2%
2%
2%
2%
4%
0%
0%
0%
0%
5%
5%
4%
5%
5%
5%
4%
5%
5%
5%
5%
4%
4%
5%
4%
4%
4%
4%
4%
6%
-3%
-2%
-2%
-2%
Commercial Lines Rate Change by
Month (vs. Year Earlier) Since 6/09
Are Decreases
Already
Moderating?
0%
-8%
Early Indication: The ‘Soft Market’ May Have Been Brief.
SOURCE: MarketScout, Insurance Information Institute.
39
Commercial Property Rate Change by
Month (vs. Year Earlier)
Sep-12, 6%
8%
6%
4%
2%
0%
Four Years of Rates >=0%
-2%
-4%
-6%
-8%
Feb-09, -7%
16-Feb
15-Nov
Aug-15
May-15
Feb-15
Nov-14
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Nov-10
Aug-10
May-10
Feb-10
Nov-09
Aug-09
May-09
Feb-09
-10%
Soft Reinsurance Market Holding Rates Down, But Not
Significantly More Than Rest of P/C Market.
SOURCE: MarketScout, Insurance Information Institute.
Interpolated Commercial Property Estimates for May, August, September 2010.
41
-2%
-4%
-6%
0%
0%
1%
0%
0%
1%
1%
1%
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
3%
3%
3%
3%
3%
3%
4%
1%
1%
1%
1%
1%
4%
4%
4%
4%
5%
5%
6%
5%
4%
4%
5%
4%
5%
5%
4%
4%
4%
5%
5%
5%
4%
6%
0%
0%
0%
0%
2%
Jun-09 -5%
-5%
-4%
Aug-09
-3%
-3%
Oct-09
-4%
-3%
Dec-09
-2%
-2%
Feb-10
-4%
-1%
Apr-10
-2%
Jun-10
-4%
Aug-10
-4%
-3%
Oct-10
-3%
Dec-10
-4%
-2%
Feb-11
-1%
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
15-Oct
15-Dec
-1%
-1%
16-Feb
-1%
-2%
16-Apr
BOP Rate Change by Month
(vs. Year Earlier)
8%
0%
Rate Change on Businessowners Policies Can Be A Bellwether for
Small Commercial Risks.
43
-2%
-4%
-6%
0%
0%
0%
1%
2%
2%
2%
2%
2%
2%
2%
3%
3%
3%
3%
3%
3%
3%
4%
2%
2%
2%
4%
5%
4%
5%
5%
5%
6%
5%
5%
5%
5%
5%
6%
5%
4%
5%
5%
5%
4%
4%
4%
4%
6%
1%
1%
0%
1%
0%
1%
1%
1%
2%
-4%
Jun-09
-5%
Aug-09 -5%
-4%
-4%
Oct-09
-4%
-3%
Dec-09
-4%
-4%
Feb-10
-3%
-3%
Apr-10
-3%
-2%
Jun-10
-3%
-3%
Aug-10
-3%
-3%
Oct-10
-2%
-1%
Dec-10
-3%
-3%
Feb-11
-2%
-3%
Apr-11
-1%
Jun-11
-2%
-1%
Aug-11
-1%
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
15-Oct
15-Dec
-1%
16-Feb
-1%
-1%
16-Apr
Commercial Auto Rate Change by
Month (vs. Year Earlier)
8%
0%
Willis Towers Watson Notes ‘Meaningful’ Increases in This Line.
47
-15%
-7%
-6%
-7%
-5%
-4%
-4%
-5%
-5%
-4%
-4%
-4%
-3%
-4%
-4%
-3%
-3%
-3%
-2%
-3%
-3%
-3%
-3%
-2%
-1%
-3%
-3%
-2%
-3%
-1%
-2%
-1%
-1%
-9%
-9%
-9%
-8%
-7%
-6%
-8%
-7%
-7%
-6%
-9%
-10%
-14%
Jan-08
-12%
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Willis Towers Watson Notes
‘Meaningful’ Increases in This Line.
-2%
-4%
-3%
-3%
-2%
-1%
5%
0%
1%
0%
1%
1%
1%
2%
3%
4%
5%
4%
5%
5%
6%
5%
5%
5%
5%
5%
6%
5%
4%
5%
5%
5%
4%
4%
4%
4%
3%
3%
3%
3%
2%
2%
3%
3%
0%
0%
0%
0%
0%
0%
1%
1%
0%
0%
0%
Workers Comp Rate Change by Month
(vs. Year Earlier)
10%
0%
Willis Towers Watson Notes Decreases in This Line.
Sources: MarketScout, Insurance Information Institute.
48
2015 Premium Change-NCCI States
Chg in Carrier Est. Payroll
Bureau LC, Mix of Biz
4.8%
-4.0%
Carrier Discounting
-0.3%
Other Factors
2.2%
Chg in DPW
-6.0%
2.5%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Premium Volume in Workers Comp Helped by Increase in Payroll,
but Rates Trended Lower.
Other factors include: Change in audit impacts; change in average experience mod; change in mix of policy types; change in
deductible credits; change in mix between private carrier and state fund markets.
Sources: Annual Statement data, NCCI.
49
-1%
-2%
-3%
-4%
0%
0%
0%
0%
0%
1%
1%
2%
2%
2%
2%
2%
2%
2%
2%
2%
3%
3%
3%
3%
3%
3%
4%
1%
1%
1%
3%
2%
2%
2%
4%
4%
4%
4%
4%
4%
4%
4%
4%
4%
5%
1%
1%
1%
1%
1%
1%
5%
6%
0%
0%
0%
0%
0%
0%
2%
1%
2%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
1%
Jun-09 -3%
-2%
Aug-09
Oct-09
Dec-09
-2%
-1%
Feb-10
Apr-10
-1%
Jun-10
-1%
Aug-10
-2%
Oct-10
-1%
Dec-10
-1%
-1%
Feb-11
-1%
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
15-Oct
15-Dec
-2%
-2%
16-Feb
-2%
-2%
16-Apr
D&O Liability Rate Change by Month
(vs. Year Earlier)
0%
Willis Towers Watson Notes Decreases in This Line.
Sources: MarketScout, Insurance Information Institute.
51
Monoline D&O:
Premium Growth, Loss Ratios
DPW ($ Billions)
8.0
6.9%
7.5
5.9%
7.0
6.5
% Chg from PY
8.0%
7.0%
7.0%
6.0%
Monoline DPW
% Change
5.0%
6.4
6.4
CY Loss & ALAE Ratio
68.0%
66.2%
66.0%
64.0%
4.0%
62.0%
3.0%
60.0%
2.0%
58.0%
4.5
1.0%
56.0%
4.0
0.0%
2011 2012 2013 2014 2015 0.1%
54.0%
6.0
6.0
5.5
5.0
5.7
5.3
61.0%
58.7%
58.2% 58.4%
2011 2012 2013 2014 2015
CY Loss & ALAE Ratio
Monoline D&O Growth Slowed in 2015. Experience
Appears to
Have Deteriorated.
SOURCE: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.
52
Rates in The Northeast, Q4 2015*
By Account Size
Small (<25K)
Medium (25-100K)
Large (100K+)
Down > 10% Down 1-10% No Change Up 1-10% Up > 10%
0.00%
42.11%
47.36%
0.00%
0.00%
10.53%
63.16%
26.32%
0.00%
0.00%
10.53%
73.68%
10.53%
0.00%
0.00%
N/A
10.53%
0.00%
5.26%
This Survey is
Based on
Agent
Estimates.
By Line of Business
Commercial Auto
Commercial Property
D&O
Flood Insurance
General Liability
Terrorism
Umbrella
Workers Compensation
Down > 10% Down 1-10%
0.00%
10.53%
15.79%
63.16%
0.00%
26.32%
5.26%
10.53%
5.26%
52.63%
5.26%
10.53%
10.53%
47.37%
0.00%
52.63%
No Change
52.63%
10.52%
42.11%
52.62%
36.85%
63.16%
31.58%
36.85%
Up 1-10%
Up > 10%
31.58%
0.00%
10.53%
0.00%
15.78%
5.26%
10.53%
10.53%
0.00%
0.00%
5.26%
5.26%
5.26%
0.00%
5.26%
0.00%
N/A
5.26%
0.00%
10.53%
10.53%
5.26%
10.53%
5.26%
5.26%
Rate Changes Can Vary Significantly Within States, Lines of
Business or Individual Markets.
* CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI.
SOURCE: Council of Insurance Agents & Brokers.
57
Auto Insurance
Rising Frequency, Severity Pinching
the Largest P/C Line
L:
58
Return on Net Worth: Personal &
Commercial Auto, 2005-2014
18%
16%
14.3%
14%
12%
10%
8%
4.3%
6%
3.1%
4%
2%
0%
2005
2006
2007
2008
2009
Commercial
2010
Personal
2011
2012
2013
2014
Fortune 500
Auto Insurance Profitability Has Been Falling for A Decade.
SOURCE: National Association of Insurance Commissioners.
59
Net Combined Ratio, 2005-2015
110%
Personal
102.0%
103.6%
102.1%
107.0%
101.6%
106.9%
102.5%
103.4%
2011
2012
2013
2014
105%
101.0%
98.1%
2006
101.3%
99.5%
2005
98.3%
94.3%
95.6%
92.5%
90%
95.1%
92.1%
95%
100.2%
96.8%
100%
2009
2010
104.6%
108.8%
Commercial
85%
80%
2007
2008
2015
Loss Ratios Have Been Rising for A Decade. 2015 Return on Net
Worth Is Likely Close to Zero or Negative.
SOURCE: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; Insurance
Information Institute.
60
Why Personal Auto Loss Ratios Are Rising:
Severity & Frequency by Coverage, 2015 vs. 2014
Annual Change, 2015 Over 2014
Severity
Frequency
12%
10.2%
10%
8%
6%
4%
6.4%
5.7%
4.1%
3.5%
2.2%
1.1%
2%
0.8%
0%
-2%
-1.7%
-4%
Bodily Injury
Property Damage
Liability
PIP
Collision
-2.5%
Comprehensive
Across All Personal Coverage Types (Except Comprehensive) in 2015,
Frequency and Severity Rose. This Pattern is Likely to Continue in 2016
Source: ISO/PCI Fast Track data; Insurance Information Institute
61
Auto Insurance: Frequency vs. Severity
In the Long Run, Frequency Falls. Severity Increases.
Severity
9.0
8.0
18,000
7.92
7.0
14,000
6.0
5.0
4.0
15,443
16,000
4.22
3.55
2.61
3.0
2.0
1.23
0.95
1.0
0.0
Claim Severity
Claims per 100 Insured Vehicles
Frequency
12,000
10,000
7,553
8,000
6,000
3,231
4,000
2,000
1,288
183
1,143
0
Property
Damage
1963
1988
Bodily Injury
2013
Property
Damage
1963
1988
Bodily Injury
2013
Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.
62
Claim Trends by Coverage
Focus on Collision
63
Collision Claims: Frequency Trending
Higher in 2015
Annual Change,
2005 through 2015
5%
4.4%
4%
2.5%
3%
2.4%
2%
0.9%
1%
0.8%
0%
-1%
-1.4%
-1.8%
2015
2014
2013
2012
2011
2010
2009
2007
-3.6%
2006
-4%
-1.8%
-2.4%
2005
-3%
2008
-2%
-0.5%
For a long time, claim frequency has been falling,
but since 2009 this trend seems to have reversed.
Source: ISO/PCI Fast Track data; Insurance Information Institute
65
Collision Claims:
Severity Trending Higher in 2009-2015
Annual Change,
2005 through 2015
7%
5.7%
6%
5%
4%
4.1%
3.9%
3.1%
2.8%
3%
2%
1.3%
1%
0.1%
1.3%
0.5%
0%
-1%
-0.1%
-2%
-3%
2005
2006
2007
2008
-2.3%
2009
2010
2011
2012
2013
2014
2015
The Great Recession and high fuel prices helped to
temper claim severity, but these forces have clearly reversed,
consistent with experience from past recoveries
Source: ISO/PCI Fast Track data; Insurance Information Institute
66
$198
$194
$192
$188
2015:Q4
2015:Q2
2015:Q1
2014:Q4
2014:Q3
2014:Q2
$179
$186
2014:Q1
2013:Q4
6.6%
5.8%
2013:Q3
$176
8%
5.3%
4.3%
5.8%
2013:Q2
$174
10%
6%
6.2%
6.3%
6.7%
2012:Q4
12%
4%
6.6%
3.8%
2.9%
-0.3%
$160
3.0%
$170
2013:Q1
$180
$170
$190
$182
$200
$190
Pure Premium (left scale)
2015:Q3
$210
$201
% Chg from Prior Yr (right scale)
$205
Collision Claims: Pure Premium (Losses
per Insured Unit), 2011:Q4-2015:Q4
2%
0%
-2%
Over the latest four years,
the collision pure premium rose by 19.75%.
Note: Number of claims is for four quarters ending in quarter shown
Source: ISO/PCI Fast Track data; Insurance Information Institute
67
What’s Driving These Trends?
Frequency; Severity
68
America is Driving More Again:
Total Miles Driven*, 1990-2016
Billions of Miles Driven
3,200
3,000
2,800
2,600
2,400
2,200
Some of the 1990-2007
growth in miles driven
(+43.9%) is due to
population growth
(+20.7%)…
…but the population
grew by 6.6% from
2007-2015 and miles
driven didn’t grow at
all.
From November 2007 until January
2015, miles driven was below the
prior peak for 87 straight months—
over 7 years! Previous record was in
the early 1980s (39 months).
Records
in 2015/6
Jan-90
Nov-90
Sep-91
Jul-92
May-93
Mar-94
Jan-95
Nov-95
Sep-96
Jul-97
May-98
Mar-99
Jan-00
Nov-00
Sep-01
Jul-02
May-03
Mar-04
Jan-05
Nov-05
Sep-06
Jul-07
May-08
Mar-09
Jan-10
Nov-10
Sep-11
Jul-12
May-13
Mar-14
Jan-15
Nov-15
2,000
*Moving 12-month total. Data through February 2016, the latest available.
Note: Recessions indicated by shaded columns.
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm );
National Bureau of Economic Research (recession dates); Insurance Information Institute.
69
More Miles Driven
=> More Collisions, 2006–2015
Billions of
Miles Driven
in Prior Year
Miles Driven (left axis)
Collision Claim Frequency (right axis)
3150
Overall Collision
Claims Per 100
Insured Vehicles
6.0
Recession
3100
5.9
3050
5.8
3000
5.7
2950
15:Q3
15:Q1
14:Q3
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
5.5
07:Q1
2850
06:Q3
5.6
06:Q1
2900
The more miles people drive, the more likely they are to get in an accident,
helping drive claim frequency higher.
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Rolling Four-Qtr Avg.
Frequency from Insurance Services Office; Insurance Institute for Highway Safety; Insurance Information Institute.
70
Why Are People
Driving More Miles? Cheap Gas?
Billions of
Miles Driven
in Prior Year
Miles Driven (left axis)
Avg. Price Per
Gallon
Gas Prices
Recession
3150
$4.0
3100
$3.5
3050
$3.0
3000
$2.5
2950
15:Q3
15:Q1
14:Q3
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
$1.5
07:Q1
2850
06:Q3
$2.0
06:Q1
2900
Gas Prices Don’t Seem Correlated With Miles Driven.
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Energy Information
Administration; Insurance Institute for Highway Safety; Insurance Information Institute.
71
Why Are People
Driving More Miles? Jobs?
Billions of
Miles Driven
in Prior Year
Miles Driven (left axis)
Millions
Employed
# Employed
Recession
3150
152
150
148
146
3100
3050
144
142
140
3000
2950
138
136
134
132
2900
15:Q3
15:Q1
14:Q3
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
2850
People Drive To and From Work and Drive to Entertainment. Out of Work,
They Curtail Their Movement.
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Seasonally Adjusted
Employed from Bureau of Labor Statistics; Insurance Institute for Highway Safety; Insurance Information Institute.
72
Comparing Gas Prices, Employment on
Collision Frequency
Gas price vs. Collision
Frequency
Number Employed vs.
Collision Frequency
6
5.95
5.9
5.85
5.8
5.75
5.7
5.65
5.6
5.55
5.5
6
5.95
5.9
5.85
5.8
5.75
5.7
5.65
5.6
5.55
5.5
-
1.00
2.00
3.00
4.00
5.00
135
140
145
150
155
Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Energy Information Administration; Rolling Four-Qtr Avg.
Frequency from Insurance Services Office; Insurance Information Institute.
73
More People Working and Driving
=> More Collisions, 2006-2016
Number
Employed,
Millions
152
Number Employed (left scale)
Collision Claim Frequency (right scale)
Overall
Collision Claims
Per 100 Insured
Vehicles
6.0
Recession
150
5.9
148
146
5.8
144
5.7
142
5.6
140
138
16:Q1
15:Q3
15:Q1
14:Q3
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
5.5
When people are out of work, they drive less. When they get jobs,
they drive to work, helping drive claim frequency higher.
Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services
Office; Insurance Information Institute.
74
Severity: Driving Fatalities Are Rising
Driving Has Been Getting Safer For Decades, But Recent Trend Is
Discouraging—38,300 Deaths in 2015
Sources: National Safety Council, Insurance Information Institute.
Economic Forecast:
Slow and Steady
90
US Real GDP Growth*
Q4:2008 decline was
Real GDP Growth (%) The
the steepest since the
-7%
-0.3%
Q1 2014/15 GDP data
were hit hard by this
year’s “Polar Vortex”
and harsh winter
-8.9%
2000
2001
2002
2003
2004
2005
2006
2007
08:1Q
08:2Q
08:3Q
08:4Q
09:1Q
09:2Q
09:3Q
09:4Q
10:1Q
10:2Q
10:3Q
10:4Q
11:1Q
11:2Q
11:3Q
11:4Q
12:1Q
12:2Q
12:3Q
12:4Q
13:1Q
13:2Q
13:3Q
13:4Q
14:1Q
14:2Q
14:3Q
14:4Q
15:1Q
15:2Q
15:3Q
15:4Q
16:1Q
16:2Q
16:3Q
16:4Q
17:1Q
17:2Q
17:3Q
17:4Q
-9%
-5.3%
-5%
Recession
began in
Dec, 2007
-3.7%
-3%
-1.8%
-1%
4.6%
4.3%
2.1%
0.6%
3.9%
2.0%
1.4%
0.5%
2.3%
2.4%
2.4%
2.3%
2.3%
2.2%
2.1%
1%
-0.9%
5.0%
1.4%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
2.7%
1.8%
4.5%
3.5%
3%
1.3%
5%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
1.8%
7%
4.1%
Q1:1982 drop of 6.8%
Demand for Insurance Should Increase in 2016 as GDP Growth Continues at
a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 5/16; Insurance Information Institute.
91
State-by-State Leading Indicators
through September 2016
Growth in
the West is
finally
beginning
to pick up
The economic
outlook for most of
the US is generally
positive, though
oil and coal states
are hurting
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.
92
Cyber Insurance
By the Numbers
New Data from the Annual
Statement
107
About the Data
 New Reporting
Requirement for Annual
Statement
 Only U.S. Carriers (No
Bermuda, Lloyd’s
Business)
 Cyber Insurance vs. ID
Theft
 Direct Only
 Calendar Year
 I.I.I. Cyber White Paper To
Be Updated in Fall:
http://www.iii.org/whitepaper/cyber-risks-threatand-opportunities-100715
108
About the Data
 Monoline Results
 Premium: Earned/Written
 Loss
– Paid vs. Incurred
– Indemnity/A&O/DCC
 In Force Policy Counts
 Package Results
 Premium
– Earned/Written
– Quantified/Estimated
 Loss
– Paid/Reserve (No IBNR)
– Indemnity/A&O/DCC
 In Force Policy Counts
109
Reported 2015 Cyber Writings
Direct Premiums
Written:
Est. Avg. Policy
Stand-alone: $7,477
Package: $368
Policy Counts
1.46 million
$996 million
Stand-alone
C-M
4%
Pkg Quantif
ied
40%
Standalone
48%
Pkg Estima
te
12%
Standalone
Occ
1%
Pkg CM
35%
Pkg
Occ
60%
Stand-alone Policies Are Half the Written Premium but
Only 5% of the Policies in Force
2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.
110
Reported 2015 ID Theft Writings
Direct Premiums
Written:
$239 million
Policy Counts
17 million
Stand-alone
3%
Standalone
9%
Pkg Quantif
ied
66%
Est. Avg. Policy
Stand-alone: $43
Package: $13
Pkg Estima
te
25%
Pkg Occ
97%
Many Small Policies in This Add-on Personal Lines
Coverage, Often Added to HO
2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.
111
Cyber Combined Ratio, Frequency
Stand-alone
Cyber CR
94.1
UW
Profit
5.9%
Expens
es
(est.)
28.1%
A&O
1.7%
DCC
12.9%
Claims Per 100
Policies
2
Package Data
1.8
Lack IBNR; CR
Understated. 1.6
1.8
1.4
1.2
Indemn
ity
51.4%
1
Stand-alone
Covers Larger
Business,
Which Are More
Frequently
Targeted.
0.8
0.6
0.4
0.2
0.2
0
Stand-alone
Package
SOURCE: Aon Benfield Analytics.
112
Summary
 Industry Results Mimic Last Year
 Low Interest Rates Remain a Drag on Earnings
 Rates Have Been Flat
 Auto Insurance – Loss Costs Are Rising Fast
 Frequency: Increase in Employment
 Severity: Trendline Returns to Normal + Rise in Fatalities
 Economic Outlook: Slow but Steady Growth
 U.S. Companies Cyber Market Data
 $1B Written in U.S. 2015; 94.1 C.R on Monoline Product
113
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
114