Overview and Outlook for the
P/C Insurance Industry
Behind the Numbers
Verisk Insurance Solutions Client Summit
Orlando, FL
May 19, 2014
Download at www.iii.org/presentations
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 Overview
2013: Best Year in the
Post-Crisis Era
Performance Improved with
Lower CATs, Strong Markets
2
$63,784
$35,074
$19,456
$3,043
$28,672
$35,204
$62,496
Net income in
2013 was up
substantially
(+81.9%) from
2012
$44,155
$38,501
$30,029
$20,559
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$21,865
$50,000
$30,773
$60,000
2013 ROAS
was 10.3%
$36,819
$70,000
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 6.1%
2013 ROAS1 = 10.3%
$24,404
$80,000









$65,777
P/C Net Income After Taxes
1991–2013 ($ Millions)
$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.8% ROAS in 2013,
6.3% 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
13
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013*
ROE
25%
1977:19.0%
1987:17.3%
20%
2006:12.7%
1997:11.6%
2013:
9.8 %
15%
9 Years
10%
5%
2011:
4.7%
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
-5%
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
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, ~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%
9.6%
7.4%
92.7
7.9%
6.2%
9.8%
4.7%
90
4.3%
85
18%
9%
6%
Lower CATs
helped ROEs
in 2013
3%
0%
80
1978
1979
2003
2005
2006
2007
Combined Ratio
2008
2009
2010
2011
2012
2013
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2013 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2013 combined ratio
including M&FG insurers is 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
ROE: Property/Casualty Insurance vs.
Fortune 500, 1987–2013E*
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Katrina,
Rita, Wilma
15%
Low
CATs
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
Northridge
4 Hurricanes
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 13E
* Excludes Mortgage & Financial Guarantee in 2008 – 2013. 2013 Fortune 500 figure is I.I.I. estimate.
Sources: ISO, Fortune; Insurance Information Institute.
6
RNW for Major P/C Lines,
2003-2012 Average
10-year returns for some lines are
excellent, though homeowners is a major
laggard, largely due to major
catastrophes. WC returns slipped.
30%
26.5%
25%
18.9%
20%
15%
13.3%
12.1%
9.8%
10%
9.0%
7.9% 7.6% 7.1% 7.1%
6.0%
5%
1.1%
0%
Fire
Inland
All
Med Comm CMP
Marine Other Mal
Auto
Source: NAIC; Insurance Information Institute
All
Lines
PP
Auto
WC
Other
Liab
HO
Allied
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.
9
2.0
-9.4
-6.5
Some of the least
profitable states over the
past decade were hit hard
by catastrophes
3.2
4.2
4.9
4.9
5.2
5.5
6.1
6.1
6.5
6.5
7.4
7.6
7.7
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.
10
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.
11
Growth by Major P/C Line, 2013
10%
Other Liability and
Homeowners were
the fastest growing
lines in 2013
9.0%
9%
7.2%
8%
7%
5.4%
6%
5%
5.0%
4.2%
4.0%
4.6%
4.1%
4%
3%
2%
0.6%
1%
0%
Personal
Auto
Home
Other
Liability*
WC
CMP
Fire &
Allied
Comm.
Auto
All Other Total P/C
Lines
*Includes Products Liability.
Source: Annual Statement data for by line statistics; NCCI for WC; ISO for Total P/C; Insurance Information Institute.
12
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
13
US Real GDP Growth*
-7%
5.0%
-0.3%
2014/15 are expected
to see a modest
acceleration in
growth
-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%
0.1%
3.0%
3.0%
3.1%
3.0%
3.0%
3.0%
2.9%
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 4/14; Insurance Information Institute.
14
Real GDP by State Percent Change, 2012:
Highest 25 States
North Dakota was
the economic growth
juggernaut of the US
in 2012—by far
13.4
10
Only 10 states experienced
growth in excess of 3%, which is
what we would see nationally in
a more typical recovery
8
2.0
2.1
2.1
2.1
2.2
2.2
2.2
2.2
2.4
2.4
2.4
2.1
2
2.4
2.7
2.7
3.3
3.3
3.3
3.4
3.5
3.5
3.6
4
3.9
6
4.8
Percent Change (%)
12
2.6
14
0
ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
15
Connecticut was
the only state to
shrink in 2012
-0.1
0.2
0.2
0.2
0.2
0.4
0.5
0.5
0.7
1.1
1.1
1.2
1.2
1.3
1.3
1.4
1.4
1.4
1.5
1.5
1.5
1.5
1.6
1.7
1.9
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
Growth rates in 8 states
(and DC) were still below
1% in 2012
1.3
Percent Change (%)
Real GDP by State Percent Change, 2012:
Lowest 25 States
IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
16
Auto/Light Truck Sales, 1999-2019F
14.4
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
16.4
16.0
16
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 (5/14 and 3/13); Insurance Information Institute.
22
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 Apr. 2014
reading of 4.4% is
up from 4.2%
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 April 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.
25
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.
30
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
1.27
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.92
1.05
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 (5/14 and 3/13); Insurance Information Institute.
31
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.
32
CONSTRUCTION,
MANUFACTURING & ENERGY
OUTLOOK
Key Sectors Critical to the
Economy and the P/C
Insurance Industry
37
Value of New Private Construction:
Residential & Nonresidential, 2003-2013*
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
2013: Value of new
pvt. construction
hits $667.5B, up
33% from the 2010
trough but still
27% below 2006
peak
$613.7
$700
$600
$500
$311.5
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$356.0
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2013 figure is a seasonally adjusted annual rate as of December.
Sources: US Department of Commerce; Insurance Information Institute.
38
Value of Private Construction Put in Place,
by Segment, March 2014 vs. March 2013*
Growth (%)
40%
30.4%
30%
20% 12.5%
10%
Led by the Residential
Construction, Lodging and
Communication segments, Private
sector construction activity is
rising after plunging during the
33.5%
“Great Recession.”
19.8%
16.0%
13.5%
8.6%
10.7%
9.3%
2.8%
2.1%
7.9%
0%
-3.2%
-10%
-20%
-19.0%
Manufacturing
Power
Communication
Transportation
Amusement &
Rec.
Religious
Educational
Health Care
Commercial
Office
Lodging
Total
Nonresidential
Residential
Total Private
Construction
-30%
Private Construction Activity is Up in Most Segments, Including the Key
Residential Construction Sector; Bodes Well for the Remainder of 2014
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
39
Value of New Federal, State and Local
Government Construction: 2003-2014*
($ Billions)
$350
Austerity Reigns
Construction
across all levels
of government
peaked at $314.9B
in 2009
Govt. construction is still
shrinking, down $52.0B or
16.5% since 2009 peak
$308.7
$314.9
$289.1
$300
$304.0
$286.4
$279.0
$271.4
$255.4
$250
$216.1
$220.2
2003
2004
$262.9
$234.2
$200
$150
$100
$50
$0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014*
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 March; http://www.census.gov/construction/c30/historical_data.html
Sources: US Department of Commerce; Insurance Information Institute.
40
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
(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
5,968
6,000
Construction Employment,
Jan. 2010—April 2014*
Construction employment
is +565,000 above
Jan. 2011 (+10.4%) 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.
41
MANUFACTURING SECTOR
A Potent Driver of Jobs and
Commercial Lines Exposure
America’s Manufacturing Renaissance
43
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
4/31/2
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
12,088
12,100
Manufacturing Employment,
Jan. 2010—April 2014*
(Thousands)
Since Jan 2010,
manufacturing employment
is up (+640,000 or +5.6%)
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.
44
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—Mar. 2014
$ Millions
$500,000
The value of Manufacturing
Shipments in Mar. 2014 was
$494.9B—a new record high.
$400,000
$300,000
Ja
n92
Ja
n9
Ja 3
n94
Ja
n95
Ja
n9
Ja 6
n97
Ja
n9
Ja 8
n99
Ja
n00
Ja
n
01
Ja
n
0
Ja 2
n
03
Ja
n
0
Ja 4
n
05
Ja
n
0
Ja 6
n
07
Ja
n
0
Ja 8
n
09
Ja
n
1
Ja 0
n
1
12 1
-J
a
13 n
-J
an
14
-J
an
$200,000
Monthly shipments in Mar. 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 May 2, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 45
Business Investment: Expected to Accelerate,
Fueling Commercial Exposure Growth
Accelerating business investment
will be a potent driver of
commercial property and liability
insurance exposures and should
drive employment and WC payroll
exposures as well (with a lag)
9%
8%
7.8%
6.3%
7%
6%
4.9%
5%
4%
3%
2.5%
2%
1%
0%
2013
2014F
Source: IHS Global Insights as of Jan. 13, 2014; Insurance Information Institute.
2015F
2016F
48
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)
49
ENERGY SECTOR
America’s Energy Boom Is Potentially
the Most Transformative Economic
Force in the Country Today
Commercial Insurers Will Generate
Billions in Premiums as Exposures
Mushroom
50
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
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
207.8
208.9
Oil & Gas Extraction Employment,
Jan. 2010—April 2014*
(Thousands)
Oil and gas extraction employment
is up 33.6% 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
51
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
Trends in the Healthcare
Industry
Growth of the Health Sector and
Health Sector Employment
Will Continue to Outpace
55
U.S. Health Care Expenditures,
1965–2022F
$ Billions
$5,000
$4,000
$3,000
$2,000
$1,000
$0
From 1965 through 2013, US
health care expenditures had
increased by 69 fold.
Population growth over the
same period increased by a
factor of just 1.6. By 2022,
health spending will have
increased 119 fold.
65 $42.0
66 $46.3
67 $51.8
68 $58.8
69 $66.2
70 $74.9
71 $83.2
72 $93.1
73 $103.4
74 $117.2
75 $133.6
76 $153.0
77 $174.0
$195.5
78
$221.7
79
$255.8
80
$296.7
81
$334.7
82
$369.0
83
$406.5
84
$444.6
85
$476.9
86
$519.1
87
$581.7
88
$647.5
89
$724.3
90
$791.5
91
$857.9
92
$921.5
93
$972.7
94
$1,027.4
95
$1,081.8
96
$1,142.6
97
$1,208.9
98
$1,286.5
99
$1,377.2
00
$1,493.3
01
$1,638.0
02
$1,775.4
03
$1,901.6
04
$2,030.5
05
$2,163.3
06
$2,298.3
07
$2,406.6
08
$2,501.2
09
$2,600.0
10
$2,700.7
11
$2,806.6
12
$2,914.7
13
$3,093.2
14
$3,273.4
15
$3,458.3
16
$3,660.4
17
$3,889.1
18
$4,142.4
19
$4,416.2
20
$4,702.0
21
$5,008.8
22
$6,000
Healthcare is a labor
intensive industry.
Spending will rise
from $3 trillion today
to $5 trillion in 2022
U.S. health care expenditures have been on a relentless climb for
most of the past half century, far outstripping population growth,
inflation of GDP growth
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
57
National Health Care Expenditures as a
Share of GDP, 1965 – 2022F*
% of GDP
20%
18%
16%
Health care expenditures as a share
of GDP rose from 5.8% in 1965 to
18.0% in 2013 and are expected to
reach 19.9% of GDP by 2022
2022
19.9%
2010:
17.9%
14%
12%
10%
1990:
12.5%
8%
6%
2%
0%
1965
5.8%
Since 2009, heath
expenditures as a %
of GDP have
flattened out at
about 18%--the
question is why and
will it last?
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
15
16
17
18
19
20
21
22
4%
1980:
9.2%
2000:
13.8%
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
Projected Number of People with No
Health Insurance, 2013—2022*
Millions
By 2018 the number of
people under age 65 without
insurance is expected to
drop by 25 million (~45%)
65
55
55
44
45
37
35
30
31
2018F
2022F
25
15
5
2013E
2014F
2015F
The projected decline in the uninsured population is very
sensitive to the enrollment rate under the Affordable Care Act
*Under age 65.
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
61
Occupations Ranked by Projected
Percentage Growth, 2012-2022F (%)
28.1
Healthcare Support
21.5
21.4
20.9
Healthcare Practitioners
Construction
Personal Care and Service
18
17.2
Computer and Math
Social Service
12.5
12.5
11.1
10.8
10.7
10.1
9.6
9.4
8.6
7.9
7.3
7.3
7.2
7
6.8
Business & Financial
Groundskeeping/Janitorial
Education
All Occupations
Legal
Life, Phys and Social Science
Repair
Food Preparation
Transportation
Fire, Police, Etc.
Architects and Engineers
Sales
Management
Arts and Media
Administrative Support
Production
Farming
Healthcare professions are
expected to grow at 2 to
nearly 3 times employment
growth overall
0.8
-3.4
Source: Bureau of Labor Statistics, Insurance Information Institute.
63
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend is
Improving
65
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through March 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 12.7%
in Mar. 2014.
8% to 10% is
“normal.”
14
12
10
8
6
4
As the unemployment
rate approaches 6%,
the Fed will begin
signaling on shortterm rates
2
“Headline”
unemployment
was 6.7% in
March 2014. 4%
to 6% is
“normal.”
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.
66
US Unemployment Rate Forecast
2007:Q1 to 2015:Q4F*
8%
7%
6%
5%
Unemployment
peaked at 10%
in late 2009.
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%
6.4%
6.3%
6.1%
6.0%
5.9%
5.8%
5.7%
9%
Jobless figures
have been revised
slightly 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.
Unemployment forecasts
have been revised slightly
downwards. Optimistic
scenarios put the
unemployment as low as
6.9% 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 (5/14 edition); Insurance Information Institute.
67
(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)
-232
-272
-232
-141
-271
-294
-15
-38
-115
-106
-221
-215
-206
-261
-258
-71
32
64
81
55
231
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
188
192
20
3
3
0
170
52
126
57
52
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
Monthly Change in Private Employment
January 2007 through March 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
192,000 private
sector jobs were
created in March.
As of March 2014,
all the jobs lost in
the Great Recession
have been
recovered
Private Employers Added 8.88 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)
68
Unemployment Rates by State, April 2014:
Highest 25 States*
6.0
6.0
6.0
6.2
6.2
6.1
6
6.3
6.3
6.4
6.6
6.6
6.7
6.8
6.9
6.9
6.9
6.9
7.0
7.4
7.5
7.5
7.7
7.8
8.0
8
7.9
Unemployment Rate (%)
8.3
10
6.9
In April, 43 states had over-the-month
unemployment rate decreases, 2 states
had increases, and 5 states and the
District of Columbia had no change.
4
2
*Provisional figures for April 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
FL
N
C
W
A
C
O
M
A
W
V
S
U
TN
K
A
L
A
Z
C
T
N
J
O
R
N
M
N
Y
A
R
M
O
A
I
A
G
M
IL
C
A
K
Y
D
C
M
S
V
N
R
I
0
73
Unemployment Rates by State, April 2014:
Lowest 25 States*
3.3
3.6
2.6
3
3.7
4
3.8
3.8
4.3
4.4
4.4
4.5
4.6
4.7
4.8
4.9
5.2
5.7
5.7
5.7
5.8
5.7
5.3
5.0
5
5.8
6
5.5
Unemployment Rate (%)
7
4.8
In April, 43 states had over-the-month
unemployment rate decreases, 2 states
had increases, and 5 states and the
District of Columbia had no change.
2
1
0
DE WI IN ME OH PA MD SC TX ID VA KS MT MN OK LA HI NH IA SD UT WY NE VT ND
*Provisional figures for April 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
74
U.S. Insured Catastrophe
Loss Update
2013 Was a Welcome Respite from the
High Catastrophe Losses in Recent Years
75
U.S. Insured Catastrophe Losses
$73.4
($ Billions, $ 2012)
$33.6
$35.0
$10.9
$7.5
$10.5
$29.2
$33.7
$16.3
$7.6
$6.1
$11.6
$14.3
$3.8
$11.0
$12.6
$8.8
$10
$8.0
$20
$4.8
$30
$14.0
$40
$26.4
$37.8
$50
$34.7
$60
$14.4
$70
2012 was the third
most expensive year
ever for insured CAT
losses
$11.5
$80
$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*
2012 Was the 3rd Highest Year on Record for Insured
Losses in U.S. History on an Inflation-Adj. Basis. 2011
Losses Were the 6th Highest. YTD 2013 Running Well
Below 2011 and 2012 YTD Totals.
Record tornado
losses caused
2011 CAT losses
to surge
*Through 8/31/13. Includes $9.7B for 2013:H1 (PCS) and $1.2B I.I.I. estimate for the period 7/1 – 8/31/13.
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.
76
76
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.
77
Top 10 States for Insured
Catastrophe Losses, 2013
$ Millions
Texas had the 2nd
highest CAT losses
in the US in 2013
(none of it from
tropical activity)
$1,995
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
$1,509
$1,190
$909
$907
$677
In
di
an
a
eo
rg
ia
G
eb
ra
sk
a
$762
$593
Lo
ui
si
an
a
M
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
$773
N
is
si
ss
ip
pi
do
ol
or
a
C
Ill
in
oi
s
Te
xa
s
in
ne
so
ta
M
O
kl
ah
om
a
$805
78
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1993–20121
Wind/Hail/Flood (3), $14.9
Fires (4), $6.5
Other (5), $0.2
1.7%
Geological Events, $18.4
4.7% 3.8%0.1%
Terrorism, $24.8
6.3%
Winter Storms, $27.8
7.1%
Tornado share of
CAT losses is
rising
Tornadoes (2), $140.9
Insured cat losses
from 1993-2012
totaled $391.7B, an
average of $19.6B
per year or $1.6B
per month
40.4%
Hurricanes & Tropical Storms,
$158.2
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 $25 million or more in 2012 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.
Source: ISO’s Property Claim Services Unit.
82
Winter Storm and Winter Damage Events in
the US and Canada, 1980-2013 (2013 US$)
Insured Losses (Millions, $ 2013)
5-year
running
average
Three of the four most costly
years ever for insured losses
from winter storms and damage
occurred in the 1990s, led by the
“Storm of the Century” in 1993.
Insured
losses from
severe winter
events
totaled $2
billion in
2013.
Insured winter storm and damage losses in Jan. 2014 already totaled
$1.5 billion. Continued severe weather since then makes it likely that
2014 will become one of the top 5 costliest winters since 1980.
Sources: Munich Re NatCatSERVICE; Insurance Information Institute.
84
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
Hurricane Sandy
became the 5th
costliest event in US
insurance history
$60
$50
$48.7
$40
$30
Includes
Tuscaloosa, AL,
tornado
Includes
Joplin, MO,
tornado
$23.9 $24.6 $25.6
$18.8
$20
$10
$0
$9.2 $11.1
$8.7
$7.8
$7.5
$7.1
$6.7
$4.4 $5.6 $5.6
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Hurricane Irene became the
12th most expense hurricane
in US history in 2011
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.4
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
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
85
Top 16 Most Costly World Insurance
Losses, 1970-2013*
(Insured Losses, 2012 Dollars, $ Billions)
2012 insured CAT Losses totaled
$60B; Economic losses totaled
$140B, according to Swiss Re
$60
$50
$40
$30
$20
$10
5 of the top 14 most
expensive catastrophes in
world history have occurred
within the past 3 years
(2010-2012)
$48.7
Hurricane Sandy is now the
6th costliest event in global
insurance history
$11.1 $13.4 $13.4
$9.6
$9.2
$8.7
$8.5
$8.1
$7.8
$38.6
$23.9 $24.6 $25.6
$18.8
$13.4
$0
Hugo
(1989)
Winter
Storm
Daria
(1991)
Chile
Quake
(2010)
Ivan
Charley Typhoon Wilma Thailand New Ike
Sandy Northridge WTC
(2004) (2004) Mirielle (2005) Floods Zealand (2008) (2012)** (1994) Terror
(1991)
(2011) Quake
Attack
(2011)
(2001)
*Figures do not include federally insured flood losses.
**Estimate based on PCS value of $18.75B as of 4/12/13.
Sources: Munich Re; Swiss Re; Insurance Information Institute research.
Andrew Japan Katrina
(1992) Quake, (2005)
Tsunami
(2011)**
86
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)
87
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)
88
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)
92
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
94
Florida Citizens Total Policies In-Force,
2002 – 2014*
(Thousands)
1,600
1,400
1,200
6+ hurricane
impact Florida in
2004-2005
causing more
than $25 billion in
insured losses
The combined ratios for
both personal and
commercial lines 1,472.4
1,299.0 1,304.9
1,283.5
1,314.8
improved substantially
in 2013:H1
1,084.2 1,029.2
1,021.7
938.4
1,000
820.3 874.0
810.0
2003
2005
FL Citizen’s
policies in-force
is now below
1 million for the
first time since
2005
800
600
400
200
0
2004
2006
2007
2008
2009
2010
2011
2012
2013
2014*
Florida Citizens is experiencing meaningful depopulation
*Year-end figures 2003-2013 and as of 3/31/14 for 2014 accessed at https://www.citizensfla.com/about/bookofbusiness/.
Source: PIPSO; Florida Citizens, Insurance Information Institute
99
Florida Citizens Exposure to Loss,
2002 – 2014* ($ Billions)
$600
$510.7
$485.1
$500
$460.7
$421.9
$408.8
$429.4
$406.0
$400
$318.9
$298.4
$300
$200
$210.6
$195.5 $206.7
$154.6
$100
$0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Total exposure to loss in Florida Citizens since its 2002 inception increased
by 230 percent, from $154.6 billion to $510.7 billion in 2011 but has now
dropped by $212.3 billion or 41.6% through 3/31/14
*As of March 31, 2014 from Florida Citizens accessed at: https://www.citizensfla.com/about/bookofbusiness/
Source: PIPSO; Insurance Information Institute (I.I.I.).
2014*
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 $10.3 billion, the 6th
highest on record
102
Convective Loss Events in the U.S.
Overall and insured losses 1980 – 2012 and First Half 2013
(Bill. US$)
The insured and total
economic cost of
convective events has
rising tremendously
over the past 30+ years
50
40
30
Convective events
are those caused by
straight-line winds,
tornadoes, hail,
heavy precipitation,
flash floods and
lightning
20
10
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Analysis contains: straight-line winds, tornadoes, hail, heavy precipitation, flash floods, lightning.
Overall losses (in 2013 values)
Source: Geo Risks Research, NatCatSERVICE.
Insured losses (in 2013 values)
104
Number of Acres Burned in
Wildfires, 1980 – 2013
TX experienced significant
wildfire losses in 2011
(Bastrop fire insured
losses ~$500 million)
Source: National Interagency Fire Center
105
Homeowners Insurance Catastrophe-Related
Claim Frequency and Severity, 1997—2012*
Avg. catastrophe
claim cost rose
approximately 200%
from 1997-2011
Cat claim frequency in
2011 was at historic
highs and more than
double the rate in 1997
*All policy forms combined, countrywide.
Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data.
106
Homeowners Insurance Combined
Ratio: 1990–2015F
Hurricane
Sandy
122.2
106.7
104.1
95.7
100.3
94.4
105.8
116.9
109.3
121.7
111.4
108.2
109.4
112.7
118.4
1
89.0
90
Hurricane
Ike
98.2
100
101.0
110
113.6
120
117.7
130
113.0
140
121.7
150
100.7
160
Record
tornado
activity
101.2
170
90.0
158.4
Hurricane
Andrew
80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E 14F 15F
Low Cat Losses Led to 2013 Improvement. Homeowners
Performance in 2011/12 Impacted by Large Cat Losses.
Extreme Regional Variation Can Be Expected Due to Local
Catastrophe Loss Activity
Sources: A.M. Best (1990-2012);Conning (2014E-2015F); Insurance Information Institute.
107
Natural Loss Events:
Full Year 2013
World Map
Winter Storm Christian (St. Jude)
Europe, 27–30 October
Flash floods
Canada, 8–9 July
Floods
Meteorite impact
Europe,
30 May–19 June
Russian Federation, 15
February
Earthquake
Floods
China, 20 April
Canada, 19–24 June
Hailstorms
Germany,
27–28 July
Floods
Typhoon Fitow
China, Japan,
5–9 October
Severe storms,
tornadoes
USA, 9–16 September
USA, 18–22 May
Typhoon Haiyan
Philippines,
8–12 November
Severe storms, tornadoes
USA, 28–31 May
Floods
India, 14–30 June
Hurricanes Ingrid &
Manuel
Australia,
21–31 January
Mexico, 12–19 September
880
Loss events
Floods
Earthquake (series)
Pakistan, 24–28 September
Heat wave
India, April–June
Natural catastrophes
Selection of significant
Natural catastrophes
Geophysical events
(earthquake, tsunami, volcanic activity)
Meteorological events
(storm)
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014.
Hydrological events
(flood, mass movement)
Climatological events
(extreme temperature, drought, wildfire)
Extraterrestrial events
(Meteorite impact)
109
Losses Due to Natural Disasters Worldwide,
1980–2013 (Overall & Insured Losses)
(Overall and Insured Losses)
(2013 Dollars, $ Billions)
10-Yr. Avg. Losses
US$ bn
400
Overall : $184B
2013 Losses
Insured: $56B
Overall : $125B
Insured: $34B
300
200
There is a clear
upward trend in both
insured and overall
losses over the past
30+ years
100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Overall losses (in 2013 values)
Source: MR NatCatSERVICE
Insured losses (in 2013 values)
111
Federal Disaster
Declarations Patterns:
1953-2014
Disaster Declarations Set New
Records in Recent Years
112
Number of Federal Major Disaster
Declarations, 1953-2014*
99
81
75
55
47
59
63
48
52
56
44
23
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
23 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 2,163
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 May 18, 2014.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
113
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
75
43
47
47
48
44
40
40
48
50
50
51
52
52
53
55
56
58
56
53
50
50
60
60
67
70
67
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 May 18, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
114
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
37
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 May 18, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
115
SEVERE WEATHER REPORT UPDATE: 2014
Damage from Tornadoes, Large Hail
and High Winds Keep Insurers Busy
116
Severe Weather Reports: 2014*
Severe weather reports
are concentrated east
of the Rockies
There were
3,911 severe
weather reports
so far in 2014;
including 358
tornadoes;
1,496 “Large
Hail” reports
and 2,056 high
wind events
*Through May 13.
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
121
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
The YTD tornado
count in 2014 is well
below average
*Through May 17, 2014.
Source: http://www.spc.noaa.gov/wcm/.
2013 count
was the
lowest in a
decade
122
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
142
Loss Distribution by Type of Insurance
from Sept. 11 Terrorist Attack ($ 2013)
($ Billions)
Other
Liability
$4.9 (12%)
Property Life
WTC 1 & 2*
$1.2 (3%)
$4.4 (11%)
Aviation
Liability
$4.3 (11%)
Event
Cancellation
$1.2 (3%)
Aviation Hull
$0.6 (2%)
Workers
Comp
$2.2 (6%)
Property Other
$7.4 (19%)
Biz
Interruption
$13.5 (33%)
Total Insured Losses Estimate: $42.9B**
*Loss total does not include March 2010 New York City settlement of up to $657.5 million to compensate approximately 10,000
Ground Zero workers or any subsequent settlements.
**$32.5 billion in 2001 dollars.
Source: Insurance Information Institute.
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.
144
Terrorism Insurance Take-Up Rates by
State for 2013*
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)
*Data for 27 states with sufficient data.
Source: Marsh 2014 Terrorism Risk Insurance Report; Insurance Information Institute.
145
I.I.I. White Paper (March 2014):
Terrorism Risk: A Constant Threat
 Detailed history of TRIA
 How TRIA works
 Assessing the threat of
terrorism
 Terrorism market
conditions
 Global perspective
 Download at
http://www.iii.org/white_papers/
terrorism-risk-a-constantthreat-2014.html
146
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
147
Summary of President’s Working Group
Report on TRIA (April 2014)
 Insurance for terrorism risk is available and affordable
 Availability/affordability have has not changed appreciably since 2010
 Prices for terrorism risk insurance vary considerably depending on the
policyholder’s industry and location of risk
 Prices have declined since TRIA was enacted
 Currently ~3% to 5% of commercial property insurance premiums
 Take-up rates have improved since adoption of TRIA
 Overall take-up rate is steady at ~60% (62% in 2013 per Marsh)
 Market capacity is currently tightening given uncertainty over TRIA
reauthorization
 The private market does not have the capacity to provide reinsurance for
terror risk to the extent currently provided by TRIA
 In the absence of TRIA, terrorism risk insurance would likely be less
available. Coverage that would be available likely would be more costly
and/or limited in scope
Source: Report of the President’s Working Group on Financial Markets,The Long-Term Availability and Affordability of Insurance for Terrorism Risk,
148
April 2014.
CAT OF THE FUTURE?
CYBER RISK
Cyber Risk is a Rapidly Emerging
Exposure for Businesses Large
and Small in Every Industry
NEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf
149
Data Breaches 2005-2013, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
700
656
222.5
Millions
662
619
220
200
600
180
498
500
160
446
127.7
419
447
400
300
140
87.9
66.9
321
157
100
80
35.7
200
120
60
16.2
19.1
22.9
40
17.3
20
100
0
2005
2006
2007
2008
# Data Breaches
2009
2010
2011
2012
2013*
# Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records
Exposed (+408%) in 2013 Soared
* 2013 figures as of Jan. 1, 2014 from the ITRC updated to an additional 30 million records breached (Target) as disclosed in Jan. 2014.
Source: Identity Theft Resource Center.
Growth Analysis by State and
Business Segment
Premium Growth Rates Vary
Tremendously by State
153
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2012*
Top 25 States
North Dakota was the country’s
growth leader over the past 5
years with premiums written
expanding by 58.4%
50
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
OH
LA
VA
NJ
MI
SC
CO
MO
NM
8.0
WI
MT
8.5
IN
6.2
9.2
TN
KY
9.2
AR
12.4
WY
Sources: SNL Financial LC.; Insurance Information Institute.
9.9
13.2
TX
IA
NE
0
ND
10
MN
13.2
16.3
VT
AK
17.6
KS
20
19.2
21.0
24.5
OK
30
25.4
40
SD
Pecent change (%)
60
58.4
70
154
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2012*
Sources: SNL Financial LC.; Insurance Information Institute.
NV -17.3
-12.5
DE
-11.2
OR
-9.3
HI
-10.1
-7.2
WV
NY
AZ
-7.2
-6.0
CA
DC
-5.6
-0.9
ME
NH
UT
GA
WA
IL
MA
U.S.
PA
NC
MS
CT
MD
Growth was negative in 13
states and DC between
2007 and 2012
-15
-20
FL
-0.7
ID
-10
-2.8
-0.3
RI
-0.1
-5
AL
Pecent change (%)
0
0.0
1.1
1.8
2.0
2.1
2.1
2.2
2.7
2.9
3.0
3.1
5
3.6
Bottom 25 States
155
Direct Premiums Written: PP Auto
Percent Change by State, 2007-2012*
8.1
8.0
7.9
7.6
7.1
7.0
6.5
6.3
CO
AR
WY
SC
DC
MO
WV
MD
9.0
UT
8.4
9.0
TN
AK
9.1
VA
10.1
KS
9.1
10.2
KY
DE
10.4
NY
9.3
10.7
IA
Sources: SNL Financial LC.; Insurance Information Institute.
WI
11.2
12.4
SD
FL
12.7
13.6
NJ
MI
NE
18.5
TX
14.4
18.8
OK
24.8
26
24
22
20
18
16
14
12
10
8
6
4
2
0
ND
Pecent change (%)
Top 25 States
156
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2012*
-2.6
-2.6
-3.2
-3.3
-3.5
-3.7
PA
CT
MS
NM
IL
WA
0.0
MT
-2.4
1.2
TN
MA
1.5
AR
-2.3
2.9
WI
LA
3.3
IN
-1.5
4.6
MN
WY
VT
SD
OK
-20
ND
0
OH
6.3
TX
14.6
ID
8.8
15.1
20.2
IA
AK
21.0
20
NE
25.7
40
28.8
35.2
Pecent change (%)
60
16.0
Only 16 states showed any
commercial lines growth
2007 and 2012
KS
80
72.2
Top 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
161
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2012*
Bottom 25 States
NV
WV
AZ
-30.3
-22.2
-16.8
FL
-20.2
-16.2
-15.3
HI
DE
-14.5
-13.2
DC
UT
CA
GA
AL
SC
MI
CO
RI
VA
KY
NC
NH
MD
NY
US
-35
ME
-30
MO
States with the poorest
performing economies also
produced the most negative
net change in premiums of
the past 5 years
-25
-40
OR
-20
-11.1
-15
-10.2
-9.1
-7.3
-6.9
-6.8
-6.8
-6.5
-6.2
-5.9
-5.4
-5.1
-4.9
-4.9
-4.6
-4.5
-4.2
-10
NJ
Pecent change (%)
-5
-4.1
0
Sources: SNL Financial LLC.; Insurance Information Institute.
162
The BIG Question:
Where Is the Market Heading?
Catastrophes and Other Factors Are
Pressuring Insurance Markets
New Factor: Record Low Interest
Rates Are Contributing to
Underwriting and Pricing Pressures
169
Property/Casualty Insurance Industry
Investment Income: 2000–20131
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1
$38.9
$38.7
$37.1
$36.7
01
02
$39.6
$47.6
$48.0
$47.4
12
13
Investment earnings are
running below their 2007
pre-crisis peak
$30
00
03
04
05
06
07
08
09
10
11
Investment Income Fell in 2012 and 2013 Due to Persistently Low Interest
Rates, Putting Additional Pressure on (Re) Insurance Pricing
1
Investment gains consist primarily of interest and stock dividends...
Sources: ISO; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset
1% Decline in Investment Yield to Maintain
Constant ROE, by Line*
s
ne
i
L
-5.7%
-5.2%
-4.3%
-3.7%
-3.3%
-3.3%
-3.1%
-2.1%
-1.9%
-3.6%
-2.0%
-1.8%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-1.8%
s
ty
l
e
e
o
p
t
r
a
s
n
i
a
ro
p
l
Li
y
rc
Su
Au
s
o
t
P
C
a
/
al
r
e
l
s
s
n
y
n
t
a
t
P
u
M
m
m
m
m
li
P
di
so
s
pl
rra
d
e
m
m
m
m
r
r
r
t
e
C
a
e
d
o
o
r
o
o
Pe
Pv
Pe
C
C
C
C
C
Fi
W
Su
M
W
to
u
A
R
a
ur
s
n
ei
**
e
nc
-7.3%
Lower Investment Earnings Place a Greater Burden on
Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
174
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. Only
longer-term
yields have
rebounded.
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 April 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institute.
176
P/C UNDERWRITING
Underwriting Losses in 2013
Much Improved After High
Catastrophe Losses in 2011/12
183
P/C Insurance Industry
Combined Ratio, 2001–2013*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
Cyclical
Deterioration
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Avg. CAT
Losses,
More
Reserve
Releases
107.5
Sandy
Impacts
Lower
CAT
Losses
106.3
101.0
100.8
100.1
99.3
98.4
100
102.4
100.8
96.7
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013: = 96.1.
Sources: A.M. Best, ISO.
184
Combined Ratios by Predominant Business
Segment, 2013 vs. 2012*
The combined ratios for
both personal and
commercial lines improved
substantially in 2013
(Percent)
106
104
2012
2013
104.8
102.3
102.3
101.1
102
100
98
98.7
97.6
96.7
96
94.3
94
92
90
All Lines
Personal Lines
Predominating
*Excludes mortgage and financial guaranty insurers.
Source: ISO/PCI; Insurance Information Institute
Commercial Lines
Predominating
Diversified Insurers
186
Underwriting Gain (Loss)
1975–2013*
($ Billions)
$35
$25
Underwriting
profit in 2013
totaled
$15.5B
Cumulative
underwriting deficit
from 1975 through
2012 is $510B
$15
$5
-$5
-$15
-$25
High cat losses
in 2011 led to
the highest
underwriting
loss since 2002
-$35
-$45
-$55
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Large Underwriting Losses Are NOT Sustainable
in Current Investment Environment
* Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best, ISO; Insurance Information Institute.
P/C Reserve Development, 1992–2015E
Prior Yr. Reserve Release ($B)
$25
$20
24
6
Impact on
Combined Ratio
(Points)
$15
$10
$5
8
Prior Yr. Reserve
Development ($B)
15
12
11
4
10
2
2
0
$0
(2)
-$5
-$10
(0)
(3)
(4)
(7)
(8)
(9)
(10)(10)
-$15
-2
(4)
(7) (7)
(10)
(11)(10)
(12)
(13)
(14)
-4
15E
14E
13E
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
-6
92
-$20
Impact on Combined Ratio (Points)
$30
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this
transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes
development from financial guaranty and mortgage insurance.
Sources: A.M. Best, ISO, Barclays Research (estimates for 2013-2015).
188
P/C Insurer Impairment Frequency vs.
Combined Ratio, 1969-2012
120
Combined Ratio after Div
P/C Impairment Frequency
2.0
1.8
1.6
1.4
110
1.2
1.0
105
0.8
100
0.6
Impairment Rate
Combined Ratio
115
0.4
95
2012 impairment rate was 0.69%, down from 1.11% in 2011; the
rate is lower than the 0.82% average since 1969
0.0
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
90
0.2
Impairment Rates Are Highly Correlated With Underwriting Performance
and Reached Record Lows in 2007; Recent Increase Was Associated
Primarily With Mortgage and Financial Guaranty Insurers and Not
Representative of the Industry Overall
Source: A.M. Best; Insurance Information Institute
200
Reasons for US P/C Insurer
Impairments, 1969–2012
Historically, Deficient Loss Reserves and Inadequate Pricing Are
By Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Reinsurance Failure
Sig. Change in Business
Misc.
Investment Problems
3.1%
3.5%
8.4%
6.6%
Deficient Loss Reserves/
Inadequate Pricing
(Overstatement of Assets)
43.4%
8.0%
Affiliate Impairment
7.1%
Catastrophe Losses
7.2%
Alleged Fraud
12.6%
Rapid Growth
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
201
Top 10 Lines of Business for US P/C
Impaired Insurers, 2000–2012
Workers Comp and Pvt. Passenger Auto Account for More Than 40 Percent
of the Impaired Insurers Since 2000
Other
Title
Surety
8.6%
4.0%
19.7%
Workers Comp
4.8%
Med Mal
6.7%
22.2%
Other Liability
8.6%
Pvt. Passenger Auto
7.3%
Commercial Auto Liability
8.8%
Commercial Multiperil
9.2%
Homeowners
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
.
203
Performance by Segment
204
97.3
98.2
98.9
98.8
102.1
102.0
101.0
100.2
98.3
95.5
95.1
98.4
101.1
101.0
101.3
104.2
94.3
95
99.5
100
101.3
105
101.7
110
103.5
109.5
115
107.9
Private Passenger Auto Combined
Ratio: 1993–2015F
90
85
80
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F15F
Private Passenger Auto Accounts for 34% of Industry Premiums and
Remains the Profit Juggernaut of the P/C Insurance Industry
Sources: A.M. Best (1990-2012);Conning (2013F-15F); Insurance Information Institute.
205
Commercial Lines Combined Ratio,
1990-2015F*
122.3
99.5
99.6
14F
15F
91.1
95
93.6
100
101.2
98.9
102.4
103.4
107.9
105.4
104.2
102.0
105
102.5
110.2
111.1
112.3
109.7
104.1
107.6
110.2
109.5
112.5
118.8
115
110.2
120
109.4
Commercial Lines Combined Ratio
125
110
Commercial lines
underwriting
performance is expected
to improve as
improvement in pricing
environment persists
*2007-2012 figures exclude mortgage and financial guaranty segments.
Source: A.M. Best (1990-2012); Conning (2013F-2015F) Insurance Information Institute
13F
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
90
209
99.8
100.3
101.7
106.8
103.4
97.8
96.8
94.3
92.4
99.1
115.7
118.1
116.2
92.1
95
92.9
100
95.2
105
102.7
110
113.0
115
112.0
120
112.1
125
115.9
Commercial Auto Combined Ratio:
1993–2015F
90
85
80
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F
Commercial Auto is Expected to Improve as Rate Gains
Outpace Any Adverse Frequency and Severity Trends
Sources: A.M. Best (1990-2012);Conning (2013F-2015F); Insurance Information Institute.
210
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).
216
SURPLUS/CAPITAL/CAPACITY
2013 Recorded Yet Another
Record High in the Primary
and Reinsurance Sectors
217
Policyholder Surplus,
2006:Q4–2013:Q4
($ Billions)
Drop due to near-record
2011 CAT losses
2007:Q3
Pre-Crisis Peak
$700
$653.3
$650
$624.4
$614.0
$607.7
$600
$559.2
$521.8$517.9$515.6
$512.8
$505.0
$496.6
$487.1
$478.5
$490.8
$463.0
13:Q4
13:Q3
13:Q2
13:Q1
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
09:Q1
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
06:Q4
11:Q3
Surplus as of 12/31/13 stood
at a record high $653.3B
$437.1
11:Q2
$450
11:Q1
$455.6
$400
$550.3
$538.6
$511.5
09:Q3
$500
$559.1
$544.8
$540.7
$530.5
09:Q2
$550
$583.5$586.9
$570.7 $567.8
$566.5
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 $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2014
in very strong financial condition.
218
U.S. INSURANCE MERGERS AND ACQUISITIONS,
P/C SECTOR, 2002-2013 (1)
($ Millions)
M&A activity in the P/C
sector remains below
pre-crisis levels.
$40,000
$35,221
80
$35,000
60
$25,000
50
$20,353
$20,000
$16,294
40
$13,615
$15,000
$12,458
30
$9,264
$10,000
20
$6,419
$3,507
$5,000
$486
Number of transactions
70
$30,000
Transaction values
90
$4,651 $4,397
10
$425
$0
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
221
REINSURANCE MARKET
CONDITIONS
Ample Capacity as
Alternative Capital is
Transforming the
Market—And Pushing
Down Prices
223
Global Reinsurer Capital, 2007-2013:H1*
($ Billions)
$600
+18%
$500
$410
$400
-17%
+18%
-3%
$470
$455
2010
2011
+1%
+11%
$505
$510
2012
2013:H1
$400
$340
$300
$200
$100
$0
2007
2008
2009
Global Reinsurance Capital Has Been Trending Generally Upward Since
the Global Financial Crisis, a Trend that Seems Likely to Continue
*Includes both traditional and non-traditional forms of reinsurance capital.
Source: Aon Benfield Aggregate study for the 6 months ending June 2013; Insurance Information Institute.
225
Reinsurance Pricing: Rate-on-Line Index
by Region, 1990 – 2014*
Lower CATs and a
flood of new
capital has pushed
reinsurance
pricing down in
most regions,
including the US
*As of Jan. 1.
Source: Guy Carpenter
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.
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
260