A Quantitative Overview of
US Casualty Insurance and
Reinsurance:
Trends and Conclusions
Presented by:
Isaac Mashitz
May 20, 2008
CARE Boston Meeting
Isaac Mashitz
CARe Meeting - Boston
May 20, 2008
A Quantitative Overview of US Casualty
Insurance and Reinsurance:
Trends and Conclusions
– Neither the author nor Swiss Reinsurance America Corporation
("Swiss Re America") make any warranty or representation
concerning the completeness or accuracy of the Paper or the
information contained therein. Swiss Re America and the author
disclaim all responsibility for liability, cost or expense arising out
of reliance upon the Paper or its contents. This Paper is not
intended to replace the Recipient’s own analysis, procedures and
controls, in whole or in part, or to modify any reinsurance
agreement or other legal obligation.
– By accepting this document, the recipient acknowledges and
accepts the foregoing.
Page 2
Copyright 2008, Swiss Reinsurance America Corporation. Swiss Re
America reserves all rights in and to the paper and its contents.
US P&C Primary Industry
Commercial Auto/ Truck
Liability/ Medical
1. Losses grew less than
3% per year over last
20 years.
2. Premium remained
static from 1987
to1999 as losses
grew more than 50%
3. Commissions appear
remarkably stable.
4. 2006 was still very
profitable. Premium
and loss static since
2003.
Page 3
Accident
Gross Earned Commission
Estimated
Estimated
Discounted
Year
Premium
Ratio
Ultimate Loss Ultimate LR Loss & Comm Ratio
1984
6.46
8.41
130%
109%
1985
8.66
9.65
111%
91%
1986
13.11
9.88
75%
69%
1987
14.99
10.80
72%
71%
1988
14.76
11.41
77%
74%
1989
15.04
12.18
81%
76%
1990
15.02
11.83
79%
74%
1991
14.75
12.2%
10.80
73%
70%
1992
14.87
11.4%
10.95
74%
72%
1993
15.23
11.3%
11.78
77%
77%
1994
15.75
11.3%
13.15
83%
85%
1995
15.12
12.1%
12.54
83%
81%
1996
15.27
12.2%
13.22
87%
84%
1997
15.34
12.7%
14.05
92%
90%
1998
15.13
13.0%
14.58
96%
94%
1999
15.54
12.7%
16.44
106%
104%
2000
17.00
12.5%
17.09
101%
98%
2001
18.54
12.9%
16.75
90%
88%
2002
21.83
12.6%
16.30
75%
79%
2003
23.96
12.3%
15.99
67%
73%
2004
24.59
12.7%
15.88
65%
73%
2005
25.14
12.3%
16.47
66%
73%
2006
24.85
16.96
68%
73%
Total
380.94
307.12
81%
Annual Growth
1987-2006
(Exp. Fit)
3.0%
2.7%
1987-2006
2.7%
2.4%
Source: AM Bests Averages and Averages and primary company Annual Statements
US P&C Primary Industry
Commercial Auto/ Truck
Liability/ Medical
1. Restated Loss Ratio
is remarkably stable.
2. Only a small residual
cyclical effect.
Conclusion:
Soft market u/w
losses were driven
by inadequate
premium rather than
extraordinary
growth in losses.
Page 4
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Annual Growth
Gross Earned
Premium
6.46
8.66
13.11
14.99
14.76
15.04
15.02
14.75
14.87
15.23
15.75
15.12
15.27
15.34
15.13
15.54
17.00
18.54
21.83
23.96
24.59
25.14
24.85
380.94
Estimated
Ultimate Loss
8.41
9.65
9.88
10.80
11.41
12.18
11.83
10.80
10.95
11.78
13.15
12.54
13.22
14.05
14.58
16.44
17.09
16.75
16.30
15.99
15.88
16.47
16.96
307.12
Estimated
Ultimate LR
130%
111%
75%
72%
77%
81%
79%
73%
74%
77%
83%
83%
87%
92%
96%
106%
101%
90%
75%
67%
65%
66%
68%
81%
Smoothed
Premium
14.99
15.43
15.89
16.35
16.84
17.34
17.85
18.37
18.92
19.48
20.05
20.64
21.25
21.88
22.53
23.20
23.88
24.59
25.31
26.06
3.0%
Source: AM Bests Averages and Averages and primary company Annual Statements
Restated
Loss Ratio
72%
74%
77%
72%
64%
63%
66%
72%
66%
68%
70%
71%
77%
78%
74%
70%
67%
65%
65%
65%
US P&C Primary Industry
Commercial Auto/ Truck
Liability/ Medical
1. It is astounding that
from 1989 to 2001
original12 month LR
was always
between 80 and 85
while the ultimate
LR varied between
73 and 106.
2. 1991 had a 12 mo LR
of 82 and 1999 had
a 12 mo LR of 85!!!!!
Page 5
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Gross Earned
Premium
6.46
8.66
13.11
14.99
14.76
15.04
15.02
14.75
14.87
15.23
15.75
15.12
15.27
15.34
15.13
15.54
17.00
18.54
21.83
23.96
24.59
25.14
24.85
380.94
Estimated
Ultimate Loss
8.41
9.65
9.88
10.80
11.41
12.18
11.83
10.80
10.95
11.78
13.15
12.54
13.22
14.05
14.58
16.44
17.09
16.75
16.30
15.99
15.88
16.47
16.96
307.12
Estimated
Ultimate LR
130%
111%
75%
72%
77%
81%
79%
73%
74%
77%
83%
83%
87%
92%
96%
106%
101%
90%
75%
67%
65%
66%
68%
81%
Original 12 Mo
Ultmate LR
Source: AM Bests Averages and Averages and primary company Annual Statements
82%
83%
82%
81%
81%
82%
83%
81%
84%
85%
85%
84%
80%
73%
69%
67%
67%
US P&C Primary Industry
Commercial Auto/ Truck
Liability/ Medical
1. Ceded LR/Gross LR
is over 100% in and
only in soft markets.
2. Over last ten years
claim frequency
trend is negative
and claim severity
trend about 4%.
How does this
compare to ISO?
Accident Gross Earned
Estimated
Estimated
Year
Premium
Ultimate Loss Ultimate LR
1984
6.46
8.41
130%
1985
8.66
9.65
111%
1986
13.11
9.88
75%
1987
14.99
10.80
72%
1988
14.76
11.41
77%
1989
15.04
12.18
81%
1990
15.02
11.83
79%
1991
14.75
10.80
73%
1992
14.87
10.95
74%
1993
15.23
11.78
77%
1994
15.75
13.15
83%
1995
15.12
12.54
83%
1996
15.27
13.22
87%
1997
15.34
14.05
92%
1998
15.13
14.58
96%
1999
15.54
16.44
106%
2000
17.00
17.09
101%
2001
18.54
16.75
90%
2002
21.83
16.30
75%
2003
23.96
15.99
67%
2004
24.59
15.88
65%
2005
25.14
16.47
66%
2006
24.85
16.96
68%
Total
380.94
307.12
81%
Ceded LR/
Gross LR
129%
106%
87%
90%
94%
93%
100%
92%
98%
96%
99%
95%
98%
105%
114%
118%
116%
119%
104%
97%
101%
100%
97%
# of Reported
Claims
2,236,205
2,360,143
2,298,522
2,330,799
2,506,967
2,553,366
2,323,254
2,146,880
2,021,454
1,981,776
1,941,306
1,666,291
Annual Growth
1995-2005
(Exp. Fit)
Page 6
Source: AM Bests Averages and Averages and primary company Annual Statements
-1.8%
Average
5,609
5,602
6,111
6,254
6,557
6,693
7,212
7,595
7,910
8,015
8,485
10,176
4.4%
US P&C Primary Industry
Other Liability - Occurrence +
Products Occ & CLM Md
1.
No growth in premium
1989 to 2000 while
losses nearly doubled.
2.
Premium doubled
2000 to 2006 and still
growing.
3. Commission ratio
declining ’02-’05.
4. Twenty year avg loss
trend under 5%. Large
increase in ’05,’06.
But ’05, ’06 still
profitable
5. Radical loss drop ’85’87 & premium drop
’87-’89.
Page 7
Accident
Gross Earned Commission
Estimated
Estimated
Discounted
Year
Premium
Ratio incl PL Ultimate Loss Ultimate LR Loss & Comm Ratio
1984
9.43
19.81
210%
154%
1985
14.55
19.40
133%
99%
1986
25.49
15.16
59%
55%
1987
26.15
13.59
52%
54%
1988
23.64
13.93
59%
58%
1989
21.58
14.36
67%
63%
1990
21.12
14.83
70%
66%
1991
20.18
10.7%
14.45
72%
63%
1992
19.64
11.0%
14.17
72%
65%
1993
19.66
11.5%
14.75
75%
71%
1994
20.82
11.4%
15.97
77%
74%
1995
19.77
12.2%
15.72
79%
74%
1996
19.16
12.4%
16.32
85%
79%
1997
19.55
12.2%
18.56
95%
87%
1998
20.76
11.6%
22.25
107%
96%
1999
21.82
11.3%
26.06
119%
109%
2000
22.06
11.8%
26.95
122%
110%
2001
27.59
11.6%
28.11
102%
92%
2002
32.79
12.0%
25.71
78%
78%
2003
39.33
11.7%
25.55
65%
68%
2004
43.93
11.2%
25.63
58%
63%
2005
45.15
10.8%
28.26
63%
65%
2006
47.51
31.40
66%
72%
Total
581.68
460.94
79%
0%
Annual Growth
1987-2006
(Exp. Fit)
3.9%
4.9%
1987-2006
3.2%
4.5%
*OL and Products (CM and Occ.)
Source: AM Bests Averages and Averages and primary company Annual Statements
US P&C Primary Industry
Other Liability - Occurrence +
Products Occ & CLM Md
1. Restated Loss Ratio
is stable.
2. Residual cyclical
effect.
Conclusion:
Soft market u/w
losses were driven
by inadequate
premium rather than
extraordinary
growth in losses.
Page 8
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Annual Growth
Gross Earned
Premium
9.43
14.55
25.49
26.15
23.64
21.58
21.12
20.18
19.64
19.66
20.82
19.77
19.16
19.55
20.76
21.82
22.06
27.59
32.79
39.33
43.93
45.15
47.51
581.68
Estimated
Ultimate Loss
19.81
19.40
15.16
13.59
13.93
14.36
14.83
14.45
14.17
14.75
15.97
15.72
16.32
18.56
22.25
26.06
26.95
28.11
25.71
25.55
25.63
28.26
31.40
460.94
Estimated
Ultimate LR
210%
133%
59%
52%
59%
67%
70%
72%
72%
75%
77%
79%
85%
95%
107%
119%
122%
102%
78%
65%
58%
63%
66%
79%
Smoothed
Premium
Source: AM Bests Averages and Averages and primary company Annual Statements
26.15
26.96
27.80
28.66
29.55
30.46
31.41
32.38
33.38
34.42
35.48
36.58
37.72
38.88
40.09
41.33
42.61
43.93
45.29
46.69
3.1%
Restated
Loss Ratio
52%
52%
52%
52%
49%
47%
47%
49%
47%
47%
52%
61%
69%
69%
70%
62%
60%
58%
62%
67%
US P&C Primary Industry
Other Liability - Occurrence +
Products Occ & CLM Md
1. It is astounding that
from 1991 to 2001
original12 month LR
was always
between 77 and 84
while the ultimate
LR varied between
72 and 122.
2. 1991 had a 12 mo LR
of 77 and 2000 had
a 12 mo LR of 84!!!!!
Page 9
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Gross Earned
Premium
9.43
14.55
25.49
26.15
23.64
21.58
21.12
20.18
19.64
19.66
20.82
19.77
19.16
19.55
20.76
21.82
22.06
27.59
32.79
39.33
43.93
45.15
47.51
581.68
Estimated
Ultimate Loss
19.81
19.40
15.16
13.59
13.93
14.36
14.83
14.45
14.17
14.75
15.97
15.72
16.32
18.56
22.25
26.06
26.95
28.11
25.71
25.55
25.63
28.26
31.40
460.94
Estimated
Ultimate LR
210%
133%
59%
52%
59%
67%
70%
72%
72%
75%
77%
79%
85%
95%
107%
119%
122%
102%
78%
65%
58%
63%
66%
79%
Original 12 Mo
Ultmate LR
Source: AM Bests Averages and Averages and primary company Annual Statements
77%
77%
79%
78%
78%
78%
78%
82%
84%
84%
78%
71%
67%
68%
65%
US P&C Primary Industry
Other Liability - Occurrence +
Products Occ & CLM Md
1. Ceded LR/Gross
LR is over 100%
in and only in
soft markets.
2. Over last ten
years claim
frequency trend
and claim
severity trend is
about 4% & 2%
but data is very
erratic. What is
going on?
How does this
compare to ISO?
Page 10
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Gross Earned
Premium
9.43
14.55
25.49
26.15
23.64
21.58
21.12
20.18
19.64
19.66
20.82
19.77
19.16
19.55
20.76
21.82
22.06
27.59
32.79
39.33
43.93
45.15
47.51
581.68
Estimated
Ultimate Loss
19.81
19.40
15.16
13.59
13.93
14.36
14.83
14.45
14.17
14.75
15.97
15.72
16.32
18.56
22.25
26.06
26.95
28.11
25.71
25.55
25.63
28.26
31.40
460.94
Estimated
Ultimate LR
210%
133%
59%
52%
59%
67%
70%
72%
72%
75%
77%
79%
85%
95%
107%
119%
122%
102%
78%
65%
58%
63%
66%
79%
Ceded LR/
Gross LR
132%
114%
86%
82%
87%
87%
94%
91%
94%
91%
93%
92%
97%
101%
105%
115%
123%
94%
89%
89%
92%
95%
96%
Annual Growth
1995-2005
(Exp. Fit)
Source: AM Bests Averages and Averages and primary company Annual Statements
# of Reported
Claims
4,937,584
4,859,856
4,761,191
6,875,710
4,911,344
5,256,146
8,973,351
5,211,799
9,432,271
6,057,983
5,780,622
4,820,277
3.5%
Average
3,183
3,357
3,897
3,236
5,307
5,127
3,133
4,934
2,709
4,231
4,890
6,513
2.1%
US P&C Primary Industry
Worker’s Compensation
1. Data anomaly ’94-’95.
Trends only from ’95.
Premium drop ’91-’94
& ’95-’00.
Continuous increases
since ’99.
2. Losses decreased
dramatically ‘90-’94.
Why?
3. Loss increase in ’06
but still profitable.
Premium still
increasing.
4. Commission Ratio
declining ’01-’05
Page 11
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Annual Growth
1995-2006
(Exp. Fit)
1995-2006
Gross Earned
Premium
17.82
20.99
26.12
29.75
34.00
38.03
43.39
46.47
44.51
42.62
42.67
33.00
31.70
29.62
29.32
28.53
31.22
34.93
39.68
44.51
46.80
50.02
51.76
837.46
5.6%
4.2%
Commission
Ratio
6.0%
5.4%
4.5%
4.3%
4.4%
4.4%
4.1%
3.7%
4.0%
4.2%
4.7%
5.9%
6.1%
6.9%
7.7%
8.5%
8.6%
9.0%
8.5%
8.1%
8.2%
7.2%
Estimated
Ultimate Loss
19.57
22.28
25.63
28.35
33.27
37.55
41.39
39.45
32.43
27.89
28.30
22.56
23.51
25.51
29.49
31.69
34.14
34.62
31.54
30.91
31.25
33.90
38.02
703.28
Estimated
Discounted
Ultimate LR
Loss & Comm Ratio
110%
88%
106%
81%
98%
79%
95%
82%
98%
83%
99%
82%
95%
79%
85%
71%
73%
64%
65%
60%
66%
63%
68%
63%
74%
68%
86%
79%
101%
92%
111%
104%
109%
102%
99%
92%
79%
79%
69%
71%
67%
71%
68%
70%
73%
82%
84%
3.8%
4.9%
Source: AM Bests Averages and Averages and primary company Annual Statements
US P&C Primary Industry
Worker’s Compensation
1. It is astounding that
from 1989 to 2001
original12 month LR
was always
between 76 and 90
while the ultimate
LR varied between
65 and 111.
2. 1992 had a 12 mo LR
of 89 and 1999 had
a 12 mo LR of 88!!!!!
Page 12
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Gross Earned
Premium
17.82
20.99
26.12
29.75
34.00
38.03
43.39
46.47
44.51
42.62
42.67
33.00
31.70
29.62
29.32
28.53
31.22
34.93
39.68
44.51
46.80
50.02
51.76
837.46
Estimated
Ultimate Loss
19.57
22.28
25.63
28.35
33.27
37.55
41.39
39.45
32.43
27.89
28.30
22.56
23.51
25.51
29.49
31.69
34.14
34.62
31.54
30.91
31.25
33.90
38.02
703.28
Estimated
Ultimate LR
110%
106%
98%
95%
98%
99%
95%
85%
73%
65%
66%
68%
74%
86%
101%
111%
109%
99%
79%
69%
67%
68%
73%
84%
Original 12 Mo
Ultmate LR
Source: AM Bests Averages and Averages and primary company Annual Statements
90%
90%
90%
89%
81%
78%
78%
76%
79%
87%
88%
87%
89%
79%
74%
74%
74%
US P&C Primary Industry
Worker’s Compensation
1. Restated Loss Ratio
is remarkably stable.
2. Only a small residual
cyclical effect.
Conclusion:
Soft market u/w
losses were driven
by inadequate
premium rather than
extraordinary
growth in losses.
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Gross Earned
Premium
17.82
20.99
26.12
29.75
34.00
38.03
43.39
46.47
44.51
42.62
42.67
33.00
31.70
29.62
29.32
28.53
31.22
34.93
39.68
44.51
46.80
50.02
51.76
837.46
Estimated
Ultimate Loss
19.57
22.28
25.63
28.35
33.27
37.55
41.39
39.45
32.43
27.89
28.30
22.56
23.51
25.51
29.49
31.69
34.14
34.62
31.54
30.91
31.25
33.90
38.02
703.28
Estimated
Ultimate LR
110%
106%
98%
95%
98%
99%
95%
85%
73%
65%
66%
68%
74%
86%
101%
111%
109%
99%
79%
69%
67%
68%
73%
84%
Smoothed
Premium
33.00
34.30
35.66
37.07
38.54
40.07
41.66
43.31
45.02
46.80
48.66
50.58
4.0%
Page 13
Source: AM Bests Averages and Averages and primary company Annual Statements
Restated
Loss Ratio
68%
69%
72%
80%
82%
85%
83%
73%
69%
67%
70%
75%
US P&C Primary Industry
Worker’s Compensation
1. Ceded LR/Gross LR
is signif over 100%
in and only in
unprofitable years.
2003 is very low.
Trend is up but
data is not mature.
2. Over last ten years
claim frequency
trend is signif neg
and claim severity
trend is almost
10%.
How does this
compare to NCCI?
Page 14
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Gross Earned
Premium
17.82
20.99
26.12
29.75
34.00
38.03
43.39
46.47
44.51
42.62
42.67
33.00
31.70
29.62
29.32
28.53
31.22
34.93
39.68
44.51
46.80
50.02
51.76
837.46
Estimated
Ultimate Loss
19.57
22.28
25.63
28.35
33.27
37.55
41.39
39.45
32.43
27.89
28.30
22.56
23.51
25.51
29.49
31.69
34.14
34.62
31.54
30.91
31.25
33.90
38.02
703.28
Estimated
Ultimate LR
110%
106%
98%
95%
98%
99%
95%
85%
73%
65%
66%
68%
74%
86%
101%
111%
109%
99%
79%
69%
67%
68%
73%
84%
Ceded LR/
Gross LR
109%
105%
104%
109%
112%
110%
106%
101%
100%
95%
96%
97%
101%
102%
115%
118%
121%
123%
105%
88%
95%
96%
99%
Annual Growth
1995-2005
(Exp. Fit)
Source: AM Bests Averages and Averages and primary company Annual Statements
# of Reported
Claims
6,008,530
6,078,534
5,512,491
5,680,676
5,562,682
5,747,657
5,341,648
4,806,807
4,029,974
3,815,603
3,676,448
3,219,391
-5.0%
Average
3,754
3,868
4,628
5,192
5,696
5,941
6,480
6,561
7,670
8,190
9,222
11,810
9.1%
US P&C Primary Industry
Other Liability - Claims Made
Professional Liability/E&O/D&O
1. Much greater growth in
both premium & loss
(8%-10% vs 2%-5%)
2. From ’87 to ’01
premium doubled
while loss grew sixfold. Losses grew
dramatically 19972001. (21% p.a.)
3. Premium is static since
2004. Loss appears to
be growing.
4. 2006 still appears
profitable.
Page 15
Accident
Gross Earned
Estimated
Estimated
Discounted
Year
Premium
Ultimate Loss
Ultimate LR
Loss Ratios
1984
0.60
1.79
300%
223%
1985
1.14
2.18
191%
136%
1986
2.42
1.60
66%
50%
1987
5.55
2.50
45%
37%
1988
5.88
3.01
51%
41%
1989
6.17
3.71
60%
47%
1990
6.33
4.16
66%
51%
1991
6.63
4.01
60%
48%
1992
6.44
4.31
67%
55%
1993
6.96
3.94
57%
48%
1994
7.26
4.66
64%
56%
1995
7.40
4.54
61%
51%
1996
7.91
5.01
63%
53%
1997
8.00
6.02
75%
63%
1998
8.66
8.61
100%
83%
1999
8.80
10.18
116%
100%
2000
10.07
12.27
122%
104%
2001
10.89
14.10
130%
108%
2002
15.66
15.67
100%
89%
2003
19.88
12.76
64%
59%
2004
22.44
12.58
56%
53%
2005
22.88
13.64
60%
55%
2006
22.49
14.79
66%
59%
Total
220.46
166.05
75%
0%
Annual Growth
1987-2006 (Exp.
Fit)
8.0%
10.4%
1987-2006
7.6%
9.8%
*Other Liability (CM & Occ.)
Source: AM Bests Averages and Averages and primary company Annual Statements
US P&C Primary Industry
Other Liability - Claims Made
Professional Liability/E&O/D&O
1. Restated Loss Ratio is
profitable but varies
from 42 to 82. Need
two separate premium
growth patterns due
to loss surge.
2. Only a small residual
cyclical effect.
Conclusion:
Soft market u/w
losses were driven
largely by an
extraordinary surge in
losses with premium
growth lagging.
Page 16
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total
Annual Growth
Gross Earned
Premium
0.60
1.14
2.42
5.55
5.88
6.17
6.33
6.63
6.44
6.96
7.26
7.40
7.91
8.00
8.66
8.80
10.07
10.89
15.66
19.88
22.44
22.88
22.49
220.46
Estimated
Ultimate Loss
1.79
2.18
1.60
2.50
3.01
3.71
4.16
4.01
4.31
3.94
4.66
4.54
5.01
6.02
8.61
10.18
12.27
14.10
15.67
12.76
12.58
13.64
14.79
166.05
Estimated
Ultimate LR
300%
191%
66%
45%
51%
60%
66%
60%
67%
57%
64%
61%
63%
75%
100%
116%
122%
130%
100%
64%
56%
60%
66%
75%
Smoothed
Premium
*Other Liability (CM & Occ.)
Source: AM Bests Averages and Averages and primary company Annual Statements
5.55
6.02
6.54
7.10
7.71
8.37
9.09
9.87
10.71
11.63
12.62
13.71
14.88
16.16
17.54
19.04
20.67
22.44
24.37
26.45
8.6%
Restated
Loss Ratio
0.45
0.50
0.57
0.59
0.52
0.51
0.43
0.47
0.42
0.43
0.48
0.63
0.68
0.76
0.80
0.82
0.62
0.56
0.56
0.56
US P&C Primary Industry
Other Liability - Claims Made
Professional Liability/E&O/D&O
1. Ceded LR/Gross
LR is significantly
over 100% in
and only in soft
markets.
2. Over last ten
years claim
frequency trend
and claim
severity trend is
about 5% & 8%.
How does this
compare to ISO?
Accident
Gross Earned
Estimated
Estimated
Ceded LR/
# of Reported
Year
Premium
Ultimate Loss
Ultimate LR
Gross LR
Claims
Average
1984
0.60
1.79
300%
121%
1985
1.14
2.18
191%
127%
1986
2.42
1.60
66%
116%
1987
5.55
2.50
45%
94%
1988
5.88
3.01
51%
100%
1989
6.17
3.71
60%
103%
1990
6.33
4.16
66%
103%
1991
6.63
4.01
60%
98%
1992
6.44
4.31
67%
96%
1993
6.96
3.94
57%
92%
1994
7.26
4.66
64%
105%
1995
7.40
4.54
61%
100%
122,688
37,015
1996
7.91
5.01
63%
106%
119,563
41,878
1997
8.00
6.02
75%
111%
118,387
50,884
1998
8.66
8.61
100%
119%
126,656
68,013
1999
8.80
10.18
116%
107%
138,287
73,583
2000
10.07
12.27
122%
117%
148,272
82,783
2001
10.89
14.10
130%
130%
165,327
85,291
2002
15.66
15.67
100%
105%
178,200
87,952
2003
19.88
12.76
64%
94%
181,343
70,336
2004
22.44
12.58
56%
95%
172,033
73,132
2005
22.88
13.64
60%
96%
161,527
84,443
2006
22.49
14.79
66%
93%
120,104 123,129
Total
220.46
166.05
75%
Annual Growth
1995-2004 (Exp. Fit)
Page 17
*Other Liability (CM & Occ.)
Source: AM Bests Averages and Averages and primary company Annual Statements
5.5%
8.4%
Ultimate Losses Compared to GDP
US Gross Domestic Product
CA/GL/WC/PL
1. Insured loss as a
% of GDP grew
by about 25% in
soft market and
returned to
normal levels as
market hardened.
2. I believe this
explains residual
cyclical effect
after premium
smoothing in
earlier exhibits.
Page 18
Accident
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Ultimate Losses
Primary
Industry
55.36
58.06
64.14
74.93
84.36
90.46
93.58
89.23
85.21
85.34
92.28
101.16
Annual Growth
Exponential Fit
Amounts in USD Billions
5.6%
4.9%
GDP
7,398
7,817
8,304
8,747
9,268
9,817
10,128
10,470
10,971
11,734
12,455
13,246
5.4%
5.2%
Ultimate losses
As a % of GDP
0.75%
0.74%
0.77%
0.86%
0.91%
0.92%
0.92%
0.85%
0.78%
0.73%
0.74%
0.76%
Average
1995 - 2006
0.81%
US Reinsurance Industry
Reserve Development
All Lines - Net - $ Billions
1. Historically for
reinsurers, adverse
development only
occurred during soft
market accident
years.
2. Historically for
reinsurers, hard
market years
develop favorably.
3. For reinsurers, the
years 1989-1996
are remarkably
stable
Source: Bests Aggregates and Averages
Page 19
Accident
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Original
Reserves
3.6
4.2
6.2
6.7
6.0
6.1
6.4
7.2
7.7
8.3
8.9
9.6
10.1
10.1
10.0
12.2
13.0
17.2
13.7
14.8
15.4
18.0
12.8
Developed
Reserves
6.0
5.6
5.5
5.1
4.9
5.8
6.1
6.8
7.7
7.8
8.5
9.0
10.6
11.5
14.2
18.5
19.8
20.3
14.3
13.0
14.3
17.9
12.8
Adv/ (Fav)
Dev
2.4
1.4
(0.7)
(1.6)
(1.1)
(0.3)
(0.3)
(0.4)
(0.5)
(0.4)
(0.6)
0.5
1.3
4.3
6.3
6.8
3.1
0.6
(1.8)
(1.2)
(0.1)
Percent
Develop
67%
33%
-11%
-24%
-18%
-5%
-5%
-6%
0%
-6%
-4%
-6%
5%
13%
43%
52%
52%
18%
4%
-12%
-8%
-1%
1984-85
1986-88
7.8
18.9
11.6
15.5
3.8
(3.4)
49%
-18%
1989-96
1997-2001
2002-2006
64.3
62.5
74.8
62.3
84.3
72.3
(2.0)
21.9
(2.5)
-3%
35%
-3%
Soft Market
Hard Market
Stable Market
70.3
93.7
64.3
95.9
87.8
62.3
25.7
(5.9)
(2.0)
37% 84-85 & 97-01
-6% 86-88 & 02-06
-3% 89-96
after
10 years
10 years
10 years
10 years
10 years
9 years
10 years
10 years
10 years
9 years
10 years
10 years
10 years
10 years
9 years
8 years
7 years
6 years
5 years
4 years
3 years
2 years
1 year