Overview and Outlook for the P-C
Insurance Industry:
Challenges & Opportunities
for 2011 & Beyond
Golden Gate RIMS
Annual Bay Area Conference
San Francisco, CA
November 17, 2010
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
Presentation Outline
 Reasons for Optimism, Causes for Concern
 Insurance Industry Financial Overview & Outlook





Profitability
Premium Growth
Capital & Capacity
Underwriting Performance: Commercial Lines
Financial/Investment Review & Outlook
 Financial Strength Overview
 Financial Services Reform: Impacts on the Insurance Industry
 Tort System Review: Overview and Causes for Concern
 Performance by Segment/Line
 Personal & Commercial Lines
 The Global Economic Storm: Financial Crisis & Recession
 Crisis-Driven Exposure Issues: Commercial Lines
 Exposure, Growth & Profitability
 Catastrophe Losses
 Q&A
2
Reasons for Optimism, Causes for
Concern in the P/C Insurance Industry
 Economic Recovery in US is Self-Sustaining: No Double Dip Recession
 Pessimism “Bubble” Persists; Negative Economic News Amplified; Positive
News is Discounted
 Financial market volatility will remain a reality
 Era of Mass P/C Insurance Exposure Destruction Has Ended
 But restoration of destroyed exposure will take 3+ years in US
 No Secondary Spike in Unemployment or Swoon in Payrolls/WC Exposure
 But job and wage growth remains sluggish
 Exposure Growth Beginning in 2nd Half 2010, Accelerate in 2011
 Increase in Demand for Commercial Insurance is in its Earliest Stages and
Will Accelerate in 2011
 Includes workers comp, commercial auto, marine, many liability coverages, D&O
 Laggards: Property, inland marine, aviation
 Personal Lines: Auto leads, homeowners lags
 P/C Insurance Industry Will See Growth in 2011 for the First Time Since 2006
 Investment Environment Is/Remains Much More Favorable
 Volatility, however, will persist and yields remain low
 Both are critical issues in long-tailed commercial lines like WC, Med Mal, D&O
Source: Insurance Information Institute.
3
Reasons for Optimism, Causes for
Concern in the P/C Insurance Industry
 P/C Insurance Industry Capacity as of 6/30/10 Is at Record Levels and Has
Recovered 100%+ of the Capital Lost During the Financial Crisis
 As of 12/31/09 capacity was within 2% of pre-crisis high
 Record Capacity, Depressed Exposures Mean that Generally Soft Market
Conditions Will Persist through 2010 and Potentially into 2011
 There is No Catalyst for a Robust Hard Market at the Current Time
 High Global First Half 2010 CAT Losses Insufficient to Trigger Hard Market
 Localized insurance and reinsurance impacts are occurring, especially earthquake
coverage in Latin/South America, Offshore Energy Markets, European Wind Cover
 Inflation Outlook for US and Major European Economies and Japan is Tame
 Will temper claims inflation
 Deflation is highly unlikely
 Financial Strength & Ratings of Global (Re)Insurance Industries Remained
Strong Throughout the Financial Crisis in Sharp Contrast With Banks
 Insurers Avoided the Most Draconian Outcomes in Financial Services
Reform Legislation
 Tort Environment in US is Beginning to Deteriorate; No Tort Reform in US
 Major Transformation of US Economy Underway with Major Opportunities
for Insurers through 2020 in Health, Tech, Natural Resources, Ag., Energy
Source: Insurance Information Institute.
4
11 Industries for the Next 10 Years:
Insurance Solutions Needed
Health Care
Health Sciences
Energy (Traditional)
Alternative Energy
Agriculture
Natural Resources
Environmental
Technology (incl. Biotechnology)
Light Manufacturing
Export-Oriented Industries
Shipping (Rail, Marine)
5
Profitability
Historically Volatile
6
$65,777
$16,531
$3,043
$28,311
$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
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.3%
2009 ROAS1 = 5.8%
2010:H1 ROAS = 6.3%
P-C Industry 2010:H1 profits rose
$10.6B from $6.0B in 2009:H1,
due mainly to $2.2B in realized
capital gains vs. -$11.1B in
previous realized capital losses
$36,819
$70,000






$24,404
$80,000
$62,496
P/C Net Income After Taxes
1991–2010:H1 ($ Millions)
$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00 01
02
03
04
05
06
07
08
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.5% ROAS for
2010:H1 and 4.6% for 2009. 2009:H1 net income was $19.2 billion and $10.2 billion in 2008:H1 excluding M&FG.
Sources: A.M. Best, ISO, Insurance Information Institute
09 10:H1
ROE: P/C vs. All Industries
1987–2009*
(Percent)
P/C Profitability Is
Cyclical and Volatile
20%
Katrina,
Rita, Wilma
15%
10%
Sept. 11
Hugo
5%
4 Hurricanes
Lowest CAT
Losses in
15 Years
Andrew
0%
Northridge
Financial
Crisis*
-5%
87
88
89
90
91
92
93
94
95
96
97
US P/C Insurers
* Excludes Mortgage & Financial Guarantee in 2008 and 2009.
Sources: ISO, Fortune; Insurance Information Institute.
98
99
00
01
02
03
04
05
06
07
08
09
All US Industries
8
A 100 Combined Ratio Isn’t What It
Once Was: 90-95 Is Where It’s At Now
A combined ratio of about 100
generated a 7% ROE in 2009,
10% in 2005 and 16% in 1979
Combined Ratio / ROE
110
105
15.9%
14.3%
100.6
100
100.1
97.5
100.7
12.7%
15%
101.0
99.5
100.1
7.3%
7.5%
12%
9.6%
95
18%
92.6
9%
8.9%
6%
90
4.4%
85
3%
0%
80
1978
1979
2003
2005
Combined Ratio
2006
2008*
2009*
2010:H1*
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2009 and 2010:Q1 figures are return on average statutory surplus. 2008, 2009 and 2010:H1figures exclude mortgage and financial
guaranty insurers
Source: Insurance Information Institute from A.M. Best and ISO data.
Return of Net Worth: 10-Year Average,
1999-2008*: All Lines
Top 25 States
25
10.8
10.8
10.7
10.6
10.4
10.2
9.9
9.8
9.7
9.4
MA
NM
NH
VA
CO
WA
SC
SD
KS
OR
8.5
10.9
NC
NE
11.1
ID
8.6
11.1
CT
NJ
11.2
IA
8.9
11.4
VT
10
MD
11.8
RI
12.9
WY
12.4
13.2
AK
15
14.2
20.1
15.6
Pecent change (%)
20
Hawaii had the highest RNW in
the US form 1999-2008
UT
ME
DC
0
HI
5
*Latest available.
Source: 2009 NAIC Report on Profitability.
12
Return of Net Worth: 10-Year Average,
1999-2008: All Lines
3.5
3.6
4.1
3.2
0
Mississippi and Louisiana
were the least profitable states
from 1999-2008 due to
Hurricanes Katrina and Rita
-5
-13.8
LA
ND
AL
TX
DE
NY
NV
OK
KY
TN
PA
FL
AR
MI
MN
GA
WV
IL
MT
MO
AZ
WI
IN
CA
OH
-15
-10.2
-10
MS
Pecent change (%)
5
4.4
5.3
5.6
6.2
6.3
6.3
6.3
6.3
6.4
6.5
6.6
6.7
6.7
6.9
7.4
7.7
7.9
7.9
8.4
10
8.5
Bottom 25 States
Sources: 2009 NAIC Report on Profitability.
13
Will the 2010 Midterm Election
Results Impact P/C Insurer
Profitability & Performance?
Yes, But Most Impact is on
Structure, Legislation and
Regulation
14
The 2010 Midterm Elections:
What do the results mean for insurers?
 Catastrophe Financing
 Supporters of Homeowners Defense Act (e.g., Rep. Neil, D-FL) defeated; Act
proposed a larger role for the federal govt. in financing natural catastrophe losses
 Rep. Gene Taylor (D-MS) defeated: He supported adding wind to NFIP
 Unclear if flood program once again winds up in limbo
 Health Care Reform (Obamacare)
 Promises to “repeal and replace” aren’t credible (Senate and White House still
Democratically controlled); Object is to starve implementation via low/no funding
 Obamacare and Boehnercare will do little to control the trajectory of costs
 Impacts on benefits business
 Republicans need plan to deal with entitlement (Medicare) to cut budget
 Dodd-Frank
 Likely few major and provisions impact insurers the most (e.g., creation of FIO)
unlikely to be affected
Source: Insurance Information Institute research.
15
The 2010 Midterm Elections:
What do the results mean for insurers?
T
 Tort Reform
 Tort was not a major issue in the 2010 campaign, but the new House can be expected
to receptive to the idea of federal tort reform, unlike prior Congresses since 2006
 Fewer new pieces of legislation likely to spawn tort actions (e.g., climate change)
 State legislatures and governorships more receptive to tort reforms
 Taxes/Fiscal Policy
 Odds of an across-the-board continuation of Bush tax cuts more likely; Benefits small
business and high net worth individuals and their insurers.
 Immediate expensing of new investment in 2011?? Good for p/c exposures.
 Regulatory/Business Policy
 More pro-business stance
 Should help stimulate commercial exposures (WC payrolls, property & liability)
 Ohio monopolistic state fundMove to competitive structure?
Source: Insurance Information Institute research.
16
Financial Services Reform
Insurers Are Impacted,
But Not Significantly
17
Financial Services Reform:
What does it mean for insurers?
The Dodd Frank Wall Street Reform and Consumer Protection Act
 Systemic Risk and Resolution Authority
 Creates the Financial Stability Oversight Council and the Office of Financial Research
 Imposes heightened federal regulation on large bank holding companies and
“systemically risky” nonbank financial companies, including insurers
 Federal Insurance Office (FIO)
 Establishes the FIO (while maintaining state regulation of insurance) within the
Department of Treasury, headed by a Director appointed by the Secretary of Treasury
 FIO will have authority to monitor the insurance industry, identify regulatory gaps that
could contribute to systemic crisis
 CONCERN: FIO morphs into quasi/shadow or actual regulator
 Surplus Lines/Reinsurance
 Title V of the Dodd-Frank bill includes, as a separate subtitle, the Nonadmitted and
Reinsurance Reform Act (NRRA), which eliminates regulatory inefficiencies
associated with surplus lines insurance and reinsurance
Source: Insurance Information Institute (I.I.I.) updates and research; The Financial Services Roundtable; Adapted from summary
by Dewey & LeBoeuf LLP
18
2010 Property and Casualty Insurance
Report Card
C AK
AL
A
WA
B-
MT
ND
BSD
A
C+
B
C+
A-
IL
CO
D
B- KS
MO
HI
NM
C
B+
MD
OH
KY
D- A-VA
BTN
C- AR
BSource: James Madison Institute, February
2008. AL
BGA
MS
A
B+
B
NG
LA
AZ
C-
RI
NJ
B-
NC
SC
B-
TX
NG
Not Graded: District of Columbia
Mississippi
Louisiana
D
B
FL
F
Source: Heartland Institute, May 2010
C
C-
DE
WV
B
B-
OK
CT
IN
B
D+
A-
MA
NY
PA
B+
UT
A
CA
B- IA
NH
MI
B-
BNV
D+
WI
WY
NE
F
MN
ID
B-
=A
=B
=C
=D
=F
= NG
B
VT
BOR
ME
CDD+
Financial Strength & Ratings
Industry Has Weathered
the Storms Well
29
P/C Insurer Impairments, 1969–2009
5 of the 11 are Florida
companies (1 of these
5 is a title insurer)
18
19
16
18
14
15
35
31
29
12
16
14
13
5
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
0
7
6
9
13
12
9
11
9
7
8
10
15
12
20
19
30
31
34
34
40
36
41
50
49
50
47
49
50
48
55
60
60
58
70
The Number of Impairments Varies Significantly Over the P/C Insurance
Cycle, With Peaks Occurring Well into Hard Markets
Source: A.M. Best; Insurance Information Institute.
Reasons for US P/C Insurer
Impairments, 1969–2008
Deficient Loss Reserves and Inadequate Pricing Are the Leading Cause
of Insurer Impairments, Underscoring the Importance of Discipline.
Investment Catastrophe Losses Play a Much Smaller Role
Reinsurance Failure
Sig. Change in Business
3.7%
4.2%
Misc.
9.1%
Investment
Problems
Affiliate Impairment
7.0%
38.1%
Deficient Loss Reserves/
Inadequate Pricing
7.9%
7.6%
Catastrophe Losses
8.1%
Alleged Fraud
14.3%
Rapid Growth
Source: A.M. Best: 1969-2008 Impairment Review, Special Report, Apr. 6, 2009
33
Critical Differences Between
P/C Insurers and Banks
Superior Risk Management Model and
Low Leverage Make a Big Difference
34
How P/C Insurance Industry Stability
Has Benefitted Consumers
Bottom Line:
 Insurance markets – unlike banking – are operating normally
 The basic function of insurance – the orderly transfer of risk from
client to insurer – continues uninterrupted
 This means that insurers continue to:
 Pay claims (whereas 307 banks have gone under as of 10/22/10)
– The promise is being fulfilled
 Renew existing policies (banks are reducing and eliminating lines
of credit)
 Write new policies (banks are turning away people and businesses who
want or need to borrow)
 Develop new products (banks are scaling back the products they offer)
 Compete intensively (banks are consolidating, reducing consumer choice)
Source: Insurance Information Institute
35
Shifting Legal Liability &
Tort Environment
Is the Tort Pendulum
Swinging Against Insurers?
39
Important Issues & Threats
Facing Insurers: 2010–2015
Emerging Tort Threat
 No tort reform (or protection of recent reforms) is forthcoming from the
current Congress or Administration
 Erosion of recent reforms is a certainty (already happening)
 Innumerable legislative initiatives will create opportunities to undermine
existing reforms and develop new theories and channels of liability
 Torts twice the overall rate of inflation
 Influence personal and commercial lines, esp. auto liability
 Historically extremely costly to p/c insurance industry
 Leads to reserve deficiency, rate pressure
Bottom Line: Tort “crisis” is on the horizon and will be
recognized as such by 2012–2014
Source: Insurance Information Institute
40
Trial Bar Priorities
 Reverse U.S.
Supreme
Court
decisions on
pleadings
 Eliminate
pre-dispute
arbitration
 Erode federal
preemption
 Expand
securities
litigation
Source: Institute for Legal Reform.
 Confirm pro Pass Foreign
trial lawyer
Manufactures
judges –
Legal
“Federalize
Accountability
Madison
Act
County”
 Grant
 Roll back
enforcement
existing
authorities to
legal reforms
state AGs
Over the Last Three Decades, Total Tort Costs*
as a % of GDP Appear Somewhat Cyclical
($ Billions)
$300
Tort Sytem Costs
2.50%
Tort Costs as % of GDP
$250
Tort System Costs
$200
$150
2.00%
$100
1.75%
2009–2010 Growth in Tort
Costs as % of GDP is Due in
Part to Shrinking GDP
$50
$0
Tort Costs as % of GDP
2.25%
1.50%
80
82
84
86
88
90
92
94
96
98
00
02
04
06 08E 10E
* Excludes the tobacco settlement, medical malpractice
Sources: Tillinghast-Towers Perrin, 2008 Update on US Tort Cost Trends, Appendix 1A; I.I.I. calculations/estimates
for 2009 and 2010
44
Tort Cost Growth & Medical Cost Inflation
vs. Overall Inflation (CPI-U), 1961-2009E*
14%
Tort costs move with inflation
but at twice the rate of inflation
12%
Tort system is an inflation
amplifier
Avg. Ann. Change: 1961-2009E*
Tort costs: +8.4%
Med costs: +5.9%
Overall inflation: +4.2%
10%
8%
6%
4%
Are there healthcare
reform spillover effects?
2%
Tort Costs
Medical Costs
1971-80
1981-90
CPI
0%
1961-70
1991-2000
2001-09E
* CPI-U and medical costs as of Sept 2009; Tort figure is for full-year 2009 from Tillinghast.
Source: U.S. Bureau of Labor Statistics; Tillinghast-Towers Perrin, 2008 Update on U.S. Tort Costs; I.I.I.
Business Leaders Ranking of Liability
Systems in 2009*

Worst States
41.
New Mexico
42.
Florida
Nebraska
43.
Montana
4.
Indiana
44.
Arkansas
5.
Iowa
45.
Illinois
6.
Virginia
46.
California
 Texas
47.
Alabama
 South Carolina
 Hawaii
48.
Mississippi
49.
Louisiana

Best States
1.
Delaware
2.
North Dakota
3.
7.
Utah
8.
Colorado
9.
Massachusetts
10.
South Dakota
New in 2009
 North Dakota
 Massachusetts
 South Dakota
Drop-offs
 Maine
 Vermont
 Kansas
Midwest/West has mix of
good and bad states.
50. West Virginia
Source: US Chamber of Commerce 2009 State Liability Systems Ranking Study; Insurance Info. Institute.
Newly Notorious
 New Mexico
 Montana
 Arkansas
Rising Above
The Nation’s Judicial Hellholes: 2010
Illinois
Watch List
Cook County






West Virginia
New York City
California
Alabama
Madison County, IL
Jefferson County, MS
Texas Gulf Coast
Rio Grande Valley, TX
Dishonorable
Mention





AR Supreme Court
MN Supreme Court
ND Supreme Court
PA Governor
MA Supreme
Judicial Court
 Sacramento County
New Jersey
Atlantic County
(Atlantic City)
New Mexico
Appellate
Courts
Source: American Tort Reform Association; Insurance Information Institute
South Florida
47
Average Jury Awards 1999 - 2008
$1,200
$1,077
$1,100
$1,018 $1,022
$1,000
$1,046
$950
$900
$800
$725
$747
$756
2000
2001
$800
$799
2002
2003
$700
$600
$500
1999
Source: Jury Verdict Research; Insurance Information Institute.
2004
2005
2006
2007
2008
Avg. Jury Awards 1999 vs. 2003 and 2008
$2,338
$4,000
$4,885
$5,446
$849
$901
$589
$327
$208
$201
$799
$1,000
$644
$2,000
$1,046
$3,000
$3,722
2008
$3,499
2003
$2,887
1999
$3,717
$5,000
$4,164
$6,000
$4,838
$7,000
$0
Overall
Vehicular
liability
*Award trends in wrongful deaths of adult males.
Source: Jury Verdict Research; Insurance Information Institute.
Premises
liability
Wrongful
death*
Medical
malpractice
Products
liability
Sum of Top 10 Jury Awards 2004-2009
$6,000
$5,159
$5,000
$4,000
$2,954
$3,000
$2,000
$1,344
$815
$1,000
$1,511
$616
$0
2004
2005
2006
2007
2008
Source: Insurance Information Institute from Lawyers USA, January 2005, 2006, 2007, 2008, 2009 and 2010.
2009
2009 Top Ten Jury Verdicts
Value
Issue
State
$370 Million
Defamation
California
$330 Million
Personal Injury (Drunk driving case)
Florida
$300 Million
Personal Injury (Tobacco verdict)
Florida
$89 Million
Personal Injury (Drunk driving case)
Missouri
$78.75 Million
Personal Injury (Prempro)
New Jersey
$77.4 Million
Medical Malpractice
New York
$71 Million
Conversion and Breach of Fiduciary Duty
Texas
$70 Million
Workers Comp Case
Texas
$65 Million
Personal Injury
Florida
$60 Million
Medical Malpractice
New York
Source: Lawyers USA, January 15, 2010.
Discrimination Charges Filed with EEOC
by Type: Percent Change FY06-FY09
Change in Charges Filed (%)
Retaliation and age
discrimination suits are up
substantially
60%
49.0%
50%
40%
30%
37.6%
33.7%
23.1%
23.3%
37.7%
33.3%
20.6%
20%
9.4%
10%
ay
Eq
ua
lP
is
ab
ilit
y
D
Ag
e
et
al
ia
tio
n
R
el
ig
io
n
R
rig
in
N
at
io
na
lO
Se
x
ac
e
R
Al
l
0%
The Financial Crisis and Poor Labor Market Conditions Have Contributed
to a Surge Employment Discrimination Charges
Source: Equal Opportunity Employment Commission; Insurance Information Institute.
60
P/C Premium Growth
Primarily Driven by the
Industry’s Underwriting Cycle,
Not the Economy
Personal and Commercial Lines
Pricing Trends
61
Soft Market Appears to Persist in 2010
but May Be Easing: Relief in 2011?
(Percent)
25%
1975-78
1984-87
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 3-Year Decline Since 1930-33.
20%
15%
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
10F
-5%
NWP was flat with 0.0% growth
in 10:H1 vs. -4.4% in 09:H1
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
62
Direct Premiums Written: All Lines
Percent change by State, 2004-2009
Top 25 States
12.3
12.2
11.5
10.7
NE
KS
NC
ID
4.6
12.8
TX
HI
12.9
DC
5.0
13.0
SC
AR
13.0
WV
5.1
13.5
MS
GA
14.0
NM
5.5
14.1
IA
WA
14.2
DE
10
5.8
14.8
OK
7.9
15.4
15
UT
20
17.2
25
18.8
30
22.0
35
23.8
Pecent change (%)
40
FL
North Dakota is the growth
juggernaut of the p/c
insurance industry—too
bad nobody lives there…
42.9
45
AL
MT
WY
SD
LA
0
ND
5
Sources: SNL Financial LC.; Insurance Information Institute.
63
Direct Premiums Written: All Lines
Percent change by State, 2004-2009
-15.2
CA
-8.2
NH
OH
-14.8
-3.7
ME
MI
-3.5
IL
-9.2
-3.1
NJ
MA
-2.8
RI
CO
-5.2
-2.4
CT
-1.8
-1.6
VT
MN
PA
IN
NY
NV
WI
OR
MD
KY
TN
VA
AK
-15
AZ
States with the poorest
performing economies also
produced the most negative
net change in premiums of
the past 5 years
-10
-20
-1.2
-0.5
-0.1
-5
MO
Pecent change (%)
0
0.0
0.5
0.6
0.7
0.9
2.0
2.4
2.5
2.6
4.2
5
4.5
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
64
Direct Premiums Written: Commercial Lines
Percent Change by State, 2004-2009
65.0
1.2
0.3
AR
MO
5.8
ID
1.6
6.2
FL
AL
6.7
CO
2.1
7.2
NY
NC
8.0
SC
2.6
8.7
TX
AK
8.8
NM
11.5
UT
13.1
20.2
IA
MS
20.6
NE
13.6
20.6
WY
DC
21.0
OK
KS
22.2
MT
15.1
27 states and DC had
positive premium growth
over the past 5 years
29.7
32.2
WV
LA
33.0
North Dakota led the way—
by far—with a 65% increase
in premiums written over
the past 5 years
SD
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
ND
Pecent change (%)
Top 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
65
Direct Premiums Written: Commercial Lines
Percent Change by State, 2004-2009
Bottom 25 States
-10.6
RI
NH
NV
OR
ME
HI
CA
NJ
MD
VT
TN
PA
GA
IN
WA
MN
VA
WI
-30
KY
-25
MI
-20
-22.7
23 states had negative
commercial premium growth
over the past 5 years
-16.0
-10.4
DE
-15
-12.6
-10.2
OH
-8.5
MA
-9.7
-8.3
AZ
CT
-7.8
IL
-7.3
-7.1
-6.9
-6.5
-10
-6.2
-4.4
-4.4
-4.0
-3.8
-3.1
-2.3
-2.2
-0.1
-0.1
-5
-1.9
Pecent change (%)
0
0.0
5
Sources: SNL Financial LC.; Insurance Information Institute.
66
Average Commercial Rate Change,
All Lines, (1Q:2004–3Q:2010)
3Q10
-5.2%
1Q10
-5.3%
2Q10
4Q09
-5.6%
-6.4%
3Q09
-5.8%
2Q09
-4.9%
1Q09
-5.1%
-6.4%
-11.0%
-12.9%
-13.5%
-12.0%
-13.3%
-11.8%
-11.3%
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
-5.3%
-3.0%
-2.7%
-4.6%
KRW Effect
-16%
2Q06
1Q06
4Q05
3Q05
2Q05
1Q05
4Q04
3Q04
2Q04
-14%
Magnitude of Price
Declines Shrank
During Crisis,
Reflecting Shrinking
Capital, Reduced
Investment Gains,
Deteriorating
Underwriting
Performance, Higher
Cat Losses and
Costlier Reinsurance
-9.6%
-12%
-8.2%
-10%
-9.7%
-8%
-9.4%
-6%
-7.0%
-4%
-5.9%
-2%
-3.2%
0%
-0.1%
1Q04
(Percent)
Market Remains
Soft as Capital
Restored and
Underwriting Losses
Remain Modest
67
Change in Commercial Rate Renewals,
by Line: 2010:Q3
1.0%
Su
re
ty
In
te
rru
pt
EP
io
n
L
Bu
s.
D
&O
ct
io
n
on
st
ru
m
U
C
br
el
la
lA
C
om
m
lP
om
C
G
L
m
om
Al
lC
ut
o
ro
p
m
er
ci
al
Percentage Change (%)
0.3%
0.0%
-1.0%
-2.0%
-3.0%
-2.8%
-4.0%
-3.7%
-5.0%
-6.0%
-2.7%
-5.2%
-4.7%
-5.6%
-4.4%
-4.2%
-5.3%
Most Major Commercial Lines Renewed Down in Q3:2010 at a Pace
Similar to that of a Year Earlier
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
68
Change in Commercial Rate Renewals,
by Account Size: 1999:Q4 to 2010:Q3
Percentage Change (%)
Peak = 2001:Q4
+28.5%
Pricing Turned
Negative in Early
2004 and Has
Been Negative
Ever Since
Market has Been Soft for
6+ years and Remains Soft
as Capital is Restored and
Underwriting Losses
Remain Modest
KRW
Effect
Trough = 2007:Q3
-13.6%
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
69
Cumulative Qtrly. Commercial Rate Changes,
by Account Size: 1999:Q4 to 2010:Q3
1999:Q4 = 100
Pricing today is
where is was in
Q3:2000 (pre-9/11)
Downward pricing
pressure is most
pronounced for
larger risks
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
70
Insurance Industry
Employment Trends
Soft Market, Difficult Economy,
Outsourcing, Productivity
Enhancements and
Consolidation Have Contributed
to Industry’s Job Losses
78
U.S. Employment in the Direct
P/C Insurance Industry: 1990–2010*
Thousands
520
500
480
As of September 2010, P/C insurance industry
employment was down by 28,900 or 5.9% to 462,200
since the recession began in Dec. 2007 (compared to
overall US employment decline of 7.2%)
460
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
*As of September 2010; Not seasonally adjusted; Does not including agents & brokers
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
81
U.S. Employment in Insurance
Agencies & Brokerages: 1990–2010*
Thousands
700
650
600
550
As of September 2010, employment at
insurance agencies and brokerages was
down by 53,100 or 7.8% to 626,500 since
the recession began in Dec. 2007
(compared to overall US employment
decline of 7.2%)
500
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
*As of September 2010; Not seasonally adjusted. Includes all types of insurance.
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
85
Capital/Policyholder
Surplus (US)
Shrinkage, but Not Enough
to Trigger Hard Market
88
Policyholder Surplus,
2006:Q4–2010:Q2
($ Billions)
2007:Q3
Previous Surplus Peak
Surplus set a new
record in 2010:Q1*
$560
$540.7
$540
$530.5
$521.8 $517.9
$515.6
$512.8
$520
$511.5
$505.0
$500 $487.1
$496.6
$490.8
$478.5
$480
$463.0
$455.6
$460
$437.1
$440
$420
06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2
Quarterly Surplus Changes Since 2009:Q1 Trough
*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.
09:Q1: -$84.7B (-16.2%)
09:Q2: -$58.8B (-11.2%)
09:Q3: -$31.8B (-5.9%)
09:Q4: -$10.3B (-2.0%)
10:Q1: +$18.9B (+3.6%)
10:Q2: -$10.2B (-1.9%)
90
Ratio of Insured Loss to Surplus for
Largest Capital Events Since 1989*
(Percent)
The Financial Crisis at its
Peak Ranks as the Largest
“Capital Event” Over
the Past 20+ Years
18%
15%
16.2%
13.8%
12%
10.9%
9.6%
9%
6.9%
6.2%
6%
3.3%
3%
0%
6/30/1989
Hurricane
Hugo
6/30/1992
Hurricane
Andrew
12/31/93
Northridge
Earthquake
6/30/01 Sept.
11 Attacks
6/30/04
Florida
Hurricanes
6/30/05
Hurricane
Katrina
* Ratio is for end-of-quarter surplus immediately prior to event. Date shown is end of quarter prior to event
** Date of maximum capital erosion; As of 9/30/09 (latest available) ratio = 5.9%
Source: PCS; Insurance Information Institute
Financial
Crisis as of
3/31/09**
93
Historically, Hard Markets Follow
When Surplus “Growth” is Negative*
Surplus growth is now
positive but premiums
continue to fall, a departure
from the historical pattern
(Percent)
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
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*
NWP % change
Surplus % change
Sharp Decline in Capacity is a Necessary but
Not Sufficient Condition for a True Hard Market
* 2010 NWP and Surplus figures are % changes as of H1:10 vs H1:09.
Sources: A.M. Best, ISO, Insurance Information Institute
94
Merger & Acquisition
Barriers to Consolidation Will
Diminish in 2010
95
U.S. P/C Insurance-Related
M&A Activity, 1988–2009
$50
140
$56
Transaction Values
Number of Transactions
120
100
$40
$40
$35
80
$31
$30
$19
$20
60
$20
$16
$14
$12
$10
$0
$6 $3 $3 $5
$2
$5
$2
40
$9
$8
$1 $0
$4
Number of Transactions
Transaction Value ($ Billion)
$60
20
$0
0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
$ Value of Deals Down 78%
in 2009, Volume Up 7%
Note: U.S. Company was the acquirer and/or target.
Source: Conning Research & Consulting.
2010: No Mega Deals So Far, Despite
Record Capital, Slow Growth and Improved
Financial Market Conditions
96
Investment Performance
Investments Are a Principle
Source of Declining Profitability
97
Property/Casualty Insurance Industry
Investment Gain: 1994–2010:H11
2009:H1
gain was
$12.5B
($ Billions)
$70
$64.0
$58.0
$56.9
$52.3
$51.9
$47.2
$60
$50
$42.8
$59.4
$55.7
$48.9
$45.3
$44.4
$40 $35.4
$39.0
$36.0
$31.7
$30
$25.8
Investment gains in
2010 are on track to be
their best since 2007
$20
$10
$0
94
95
96
97
98
99
00
01
02
03
04
05*
06
07
08
09 10:H1
In 2008, Investment Gains Fell by 50% Due to Lower Yields and
Nearly $20B of Realized Capital Losses
2009 Saw Smaller Realized Capital Losses But Declining Investment Income
Investment Gains Are Recovering So Far in 2010
1
Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.
* 2005 figure includes special one-time dividend of $3.2B.
Sources: ISO; Insurance Information Institute.
Treasury Yield Curves:
Pre-Crisis (July 2007) vs. October 2010
6%
5%
4.82%
4%
4.96%
5.04%
4.96%
4.82%
4.82%
4.88%
5.00%
5.19%
3.87%
Treasury yield curve is near its
most depressed level in at
least 45 years. Investment
income is falling as a result.
3%
4.93%
5.00%
3.52%
2.54%
1.85%
2%
QE2 Target
1.18%
1%
0.14%
0.13%
0.18%
0.23%
1M
3M
6M
1Y
0.38%
0.57%
October 2010 Yield Curve*
Pre-Crisis (July 2007)
0%
2Y
3Y
5Y
7Y
10Y
20Y
30Y
The Fed’s Announced Intention to Pursue Additional Quantitative Easing
Could Further Depress Rates in the 7 to 10-Year Maturity Range
Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
100
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.
102
Underwriting Trends –
Financial Crisis Does Not
Directly Impact Underwriting
Performance: Cycle, Catastrophes
Were 2008’s Drivers
104
P/C Insurance Industry
Combined Ratio, 2001–2010:H1*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
Cyclical
Deterioration
120
115.8
110
Lower CAT
Losses,
More
Reserve
Releases
Best
Combined
Ratio Since
1949 (87.6)
107.5
100.1
100
101.0
100.8
98.4
99.3
100.1
2009*
2010:H1
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
* Excludes Mortgage & Financial Guaranty insurers in 2008, 2009 and 2010. Including M&FG, 2008=105.1, 2009=100.7, 2010:H1=101.7
Sources: A.M. Best, ISO.
105
Underwriting Gain (Loss)
1975–2010:H1*
($ Billions)
Cumulative
underwriting deficit
from 1975 through
2009 is $445B
$35
$25
$15
$5
-$5
-$15
-$25
The industry recorded
a $5.1B underwriting
loss in 2010:H1
compared to $2.1B in
2009:H1
-$35
-$45
-$55
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
Large Underwriting Losses Are NOT Sustainable
in Current Investment Environment
* Includes mortgage and financial guarantee insurers.
Sources: A.M. Best, ISO; Insurance Information Institute.
05
07
09
P/C Reserve Development, 1992–2011E
$25
$20
Impact on
Combined Ratio
(Points)
$15
$10
$5
23.2
13.7
11.7
2.3
9.9
7.3
1
-2.1
-$10
-2.6
-4.1
-6.6
-8.3
-5
-6.7
-9.5
-9.9 -9.8
-$15
-2
-6
11E
10E
09
07
06
05
04
03
02
01
00
99
98
97
96
95
94
-$20
93
4
-4
-14.6-16 -15
92
6
0
$0
-$5
8
2
08
Prior Yr. Reserve Release ($B)
Prior Yr. Reserve
Development ($B)
Impact on Combined Ratio (Points)
$30
Prior year reserve
releases totaled
$8.8 billion in the
first half of 2010, up
from $7.1 billion in
the first half of 2009
Reserve Releases Are Continuing Strong in
2010 But Should Begin to Taper Off in 2011
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: Barclay’s Capital; A.M. Best.
107
Number of Years with Underwriting
Profits by Decade, 1920s–2000s
Number of Years with Underwriting Profits
12
10
10
8
8
7
6
6
5
4
4
3
2
0
0
1980s
1990s
0
1920s
1930s
1940s
1950s
1960s
1970s
2000s*
Underwriting Profits Were Common Before the 1980s
(40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –
But Then They Vanished. Not a Single Underwriting Profit Was
Recorded in the 25 Years from 1979 Through 2003
* 2000 through 2009. 2009 combined ratio excluding mortgage and financial guaranty insurers was 99.3, which
would bring the 2000s total to 4 years with an underwriting profit.
Note: Data for 1920–1934 based on stock companies only.
Sources: Insurance Information Institute research from A.M. Best Data.
109
Performance by Segment:
Commercial/Personal Lines
110
Calendar Year Combined Ratios
by Segment: 2008-2012F
Personal lines combined ratio is expected to remain stable in
2010 while commercial lines and reinsurance deteriorate
106
104
104.5
102.4
103.5 103.8 103.8
104.2
103.5 103.7
103.8
102
98.9
100
98
96
94
92
90
Personal Lines
2008
Commercial Lines
2009
2010P
2011F
2012F
Overall deterioration in 2010 underwriting performance is due to expected
return to normal catastrophe activity along with deteriorating underwriting
performance related to the prolonged commercial soft market
Sources: A.M. Best (historical); Insurance Information Institute forecasts for 2010 – 2012.
111
Direct Written Premium Growth
by Segment: 2008-2012F
Personal lines will show growth in 2010 while
commercial lines is expected to continue to shrink
6%
2.9%
4%
2%
0.1%
3.3%
3.8%
3.0%
4.0%
0.7%
0%
-2%
-1.0%
-4%
-4.0%
-6%
-8%
-10%
-9.0%
Commercial Lines
Personal Lines
2008
2009
2010P
2011F
2012F
Rate and exposure are more favorable in personal lines, whereas a
prolonged soft market and sluggish recovery from the recession
weigh on commercial lines.
Sources: A.M. Best (historical); Insurance Information Institute forecasts for 2010 – 2012.
112
Commercial Multi-Peril Combined Ratio:
1995–2012F*
96
97
98
99
00
01
02
03
04
05
06
07
103.6
08 09E* 10F* 11F* 12F*
Commercial Multi-Peril is Expected to Continue to
Perform Reasonably Well
*2009E and 2010P figures are for the combined liability and non-liability components.
Sources: A.M. Best (history); Conning (forecasts) Insurance Information Institute.
104.6
103.0
97.0
108.0
CMP-Non-Liability
95.1
89.8
97.6
83.8
89.0
95
104.9
97.7
101.9
93.8
105.4
116.1
97.3
119.8
116.8
108.5
113.6
125.0
115.3
113.1
122.4
115.0
115.0
121.0
117.0
116.2
100.7
130
125
120
115
110
105
100
95
90
85
80
119.0
CMP-Liability
117.0
117.0
116.0
109.8
03
104.3
02
103.5
01
98.4
00
102.7
97
107.0
96
110.0
101.0
100
100.0
105
97.0
110
102.0
115
107.0
120
121.7
110.9
115.3
125
118.2
Workers Compensation Combined
Ratio: 1994–2012F
07
08 09E 10F 11F 12F
95
90
85
80
94
95
98
99
04
05
06
Workers Comp Underwriting Results Are
Deteriorating Markedly
Sources: A.M. Best (history); Conning (forecasts); Insurance Information Institute.
Workers Compensation
Operating Environment
The Weak Economy and Soft Market Have
Made the Workers Comp Operating
Increasingly Challenging
121
Workers Compensation Premium
Continues Its Sharp Decline
Net Written Premium
$ Billions
50
State Funds ($ B)
46.5
47.8
46.5
44.3
Private Carriers ($ B)
42.3
40
39.3
37.7
34.1
31.0 31.3
30
32.1
29.8 30.5 29.1
28.2
26.3
26.9 25.9
25.0
28.6
20
31.0 31.3 29.8 30.5 29.1
10
26.3 25.2
26.1
24.2 23.3 22.3 25.0
29.2 31.1
34.7
37.8 38.6 37.6
33.8
29.8
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
p Preliminary
Calendar Year
Source: 1990–2008 Private Carriers, Best's Aggregates & Averages; 2009p, NCCI
1996–2009p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
Workers Compensation Medical &
Indemnity Claim Cost Trends
Rising Medical Costs Exert Pressure While
Indemnity Costs Rise Well Ahead of
Wage Inflation
129
Workers Comp Medical Claim Costs
Continue to Rise
Medical
Claim Cost ($000s)
$30
$25
Annual Change 1991–1993:
Annual Change 1994–2001:
Annual Change 2002-2009:
$20
$15
$10 $8.5 $8.6 $8.4 $9.2
+1.9%
+8.9%
+6.6%
$27.2
$25.9
$24.3
$23.0
$21.9
$20.3
$19.2
$18.0
$16.6
$14.6
$13.6
$12.3
$11.4
Cumulative Change = 224%
$9.6$10.3
(1993-2009p)
$5
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09p
Accident Year
2009p: Preliminary based on data valued as of 12/31/2009
1991-2008: Based on data through 12/31/2008, developed to ultimate
Based on the states where NCCI provides ratemaking services; Excludes the effects of deductible policies
WC Medical Severity Rising
at Twice the Medical CPI Rate
16%
13.5%
14%
12%
10.6%
10.1%
10%
8.8%
8.3%
7.4%
8%
6%
4%
2%
0%
Average annual increase in WC medical
severity form 1995 through 2009 was
nearly twice the medical CPI (7.6% vs.
3.9%). New healthcare reform
legislation is unlikely to have any
impact on the gap.
7.3%
7.4%
7.3%
6.7%
5.6%
5.1%
4.5%
3.5%
2.8%
3.2% 3.5%
4.1%
4.6% 4.7%
4.0%
5.4% 5.4%
5.0%
4.4% 4.2%
4.4%
4.0%
3.7% 3.4%
Change in Medical CPI
Change Med Cost per Lost Time Claim
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
WC Insurers Experience Inflation More
Intensely than 2009 CPI Suggests
(Percent increase Dec 08 to Dec 09)
8%
Inpatient Services
Rose 6.7%;
Outpatient Services
Rose 7.4%
6.9%
Excludes
Food and
Energy
6%
4%
2.7%
3.0%
3.0%
Physicians'
Services
Dental
Services
3.4%
3.1%
3.4%
1.8%
2%
0%
Overall CPI
"Core" CPI
Hospital
Services
Prescription Medical Care Medical CPI
Drugs
Commodities
Healthcare Costs Are a Major WC Insurance Cost Driver. They Are
Likely to Increase Faster than the CPI for the Next Few Years, at Least
Source: Bureau of Labor Statistics; Insurance Information Institute.
132
Where Will the Growth in WC
Exposure Come From?
Industry and Occupation
Growth Analysis
141
Occupations with Largest Numerical Growth,
2008–2018: Health, Services Dominate
Dollar growth in WC exposures should grow the most (at current
rate levels) in the health and services industries
Occupations
Registered nurses
Home health aides
Customer service representatives
Number
of
new jobs
(in thousands)
581.5
460.9
399.5
Percent change
22
50
18
394.3
15
16,430
Short-term on-the-job training
375.8
374.7
358.7
279.4
46
8
12
22
19,180
20,510
25,320
59,430
Short-term on-the-job training
Short-term on-the-job training
Short-term on-the-job training
Bachelor's degree
Nursing aides, orderlies, and attendants
276.0
19
23,850
Postsecondary vocational award
Postsecondary teachers
Construction laborers
256.9
255.9
15
20
58,830
28,520
Doctoral degree
Moderate-term on-the-job training
Elementary school teachers, except
special education
244.2
16
49,330
Bachelor's degree
Truck drivers, heavy and tractor-trailer
232.9
13
37,270
Short-term on-the-job training
217.1
18
23,150
Short-term on-the-job training
212.4
10
32,510
Moderate-term on-the-job training
Executive secretaries and administrative
assistants
204.4
13
40,030
Work experience in a related occupation
Management analysts
178.3
24
73,570
Bachelor's or higher degree, plus work
experience
175.1
34
85,430
Bachelor's degree
24,550
38,940
Short-term on-the-job training
Long-term on-the-job training
Combined food preparation and serving
workers, including fast food
Personal and home care aides
Retail salespersons
Office clerks, general
Accountants and auditors
Landscaping and groundskeeping
workers
Bookkeeping, accounting, and auditing
clerks
Computer software engineers,
applications
Receptionists and information clerks
Carpenters
SOURCE: BLS Occupational Employment Statistics
172.9
15
165.4
13
and Division of Occupational Outlook
Wages (May 2008 median)
Education/training category
$ 62,450
Associate degree
20,460
Short-term on-the-job training
29,860
Moderate-term on-the-job training
Sources: US Bureau of Labor Statistics: Occupational Outlook Handbook, 2010-2011 Edition; Insurance Information Institute
143
The Economic Storm
What the Financial Crisis and
Recession Mean for the Industry’s
Exposure Base, Growth and
Profitability
145
3.2%
3.0%
2.7%
2.5%
2.3%
2.0%
3.7%
1.7%
0.6%
1.6%
2.9%
2.3%
3.2%
2.7%
3.1%
3.6%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
0.9%
2%
2.5%
1.1%
4%
1.8%
6%
4.1%
Real GDP Growth (%)
5.0%
US Real GDP Growth*
11:4Q
11:3Q
11:2Q
11:1Q
10:4Q
10:3Q
10:2Q
10:1Q
09:4Q
09:3Q
09:2Q
09:1Q
08:4Q-6.8%
-4.0%
08:3Q
08:2Q
Economic growth up sharply
in late 2009 with rebuilding of
inventories and stimulus.
More moderate growth
expected in 2010/11 but no
“double dip”
-4.9%
-0.7%
07:4Q
07:3Q
07:2Q
07:1Q
2006
2005
2004
2000
-8%
2003
-6%
2002
-4%
2001
Recession began in Dec.
2007. Economic toll of credit
crunch, housing slump,
labor market contraction has
been severe but modest
recovery is underway
08:1Q
-2%
-0.7%
0%
Demand Commercial Insurance Continues To Be Impacted by Sluggish
Economic Conditions, but the Benefits of Even Slow Growth Will
Compound and Gradually Benefit the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 10/10; Insurance Information Institute.
146
Real GDP Growth vs. Real P/C
Premium Growth: Modest Association
18.6%
20.3%
Real GDP Growth vs. Real P/C (%)
4%
7.7%
2%
1.2%
1.6%
5.6%
6%
0%
-2.9%
-0.5%
-3.8%
-4.4%
-3.3%
-1.6%
-1.6%
-1.0%
-1.8%
-1.0%
8%
-2%
-4%
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
10E
-10%
-7.4%
-6.5%
-1.5%
-5%
-0.9%
0%
-0.4%
-0.3%
3.1%
1.1%
0.8%
0.4%
0.6%
0.3%
5%
5.8%
1.8%
4.3%
5.2%
15%
10%
Real GDP
Real GDP Growth
Real NWP Growth
20%
Real NWP Growth
13.7%
25%
P/C Insurance Industry’s Growth is Influenced Modestly
by Growth in the Overall Economy
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 10/10; Insurance Information Institute
148
Regional Differences Will
Significantly Impact P/C Markets
Recovery in Some Areas Will
Begin Years Ahead of Others
and Speed of Recovery Will Differ
by Orders of Magnitude
152
State Economic Growth Varied
Tremendously in 2008
Percent Change in Real GDP by State, 2007–2008
Rocky Mountain
2.2
WA
2.0
MT
1.8
OR
1.6
WY
4.4
NV
-0.6
UT
1.4
CA
0.4
Plains
2.0
ND
7.3
ID
0.0
Mountain, Plains States
Growing the Fastest
Great Lakes
-0.4
MN
2.0
IA
2.1
CO
2.9
KS
2.2
MI
-1.5
IL
0.3
IN
-0.6
NY
1.6
OH
-0.7
AZ
-0.6
OK
2.7
NM
2.0
TX
2.0
WV
2.5
AR
0.7
LA
0.3
MS
1.7
AL
0.7
VA
1.3
NC
0.1
TN
0.5
SC
0.6
GA
-0.6
Southwest
1.7
RI
CT -0.9
-0.4
NJ
0.6
DE
-1.6
Mideast
1.3
DC
3.0
US = 0.7
Highest Quintile
Fourth Quintile
FL
-1.6
HI
0.7
MA
1.9
Third Quintile
AK
-2.0
US Bureau of Economic Analysis
PA
1.1
MD
1.3
MO
1.3
KY
-0.1
Far West
0.6
ME
1.4
VT
NH
1.7
1.8
WI
0.7
SD
3.5
NE
1.3
New England
1.0
Southeast
0.0
Second Quintile
Lowest Quintile
153
Fastest Growing States in 2008:
Plains, Mountain States Lead
Real State GDP Growth (%)
8%
7.3%
7%
6%
5%
4.4%
4%
3.5%
2.9%
3%
2.7%
2.5%
2.1%
2.0%
IA
TX, MN,
NM, WA
2%
1%
0%
ND
WY
SD
CO
OK
WV
Natural Resource and Agricultural States Have Done Better Than Most
Others Recently, Helping Insurance Exposure in Those Areas
Source: US Bureau of Economic Analysis; Insurance Information Institute.
154
Slowest Growing States in 2008:
Diversity of States Suffering
Real State GDP Growth (%)
KY
CT
AZ
GA
IN
NV
RI
MI
DE
FL
OH
AK
0.0%
-0.1%
-0.5%
-0.4%
-0.6% -0.6% -0.6% -0.6%
-1.0%
-0.9%
-1.5%
-1.5%
-1.6% -1.6%
-1.7%
-2.0%
-2.0%
-2.5%
States in the North, South, East, Midwest and West All Represented
Among Hardest Hit, But for Differing Reasons
Source: US Bureau of Economic Analysis; Insurance Information Institute.
155
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend is
Improving
156
Unemployment and Underemployment Rates:
Rocketed Up in 2008-09; Stabilized in 2010
January 2000 through October 2010, Seasonally Adjusted (%)
18
16
14
12
Traditional Unemployment Rate U-3
U-6 went from
8.0% in March
2007 to 17.5% in
Oct 2009; Stood
at 17.0% in Oct.
2010
Unemployment + Underemployment Rate U-6
Recession
ended in
November
2001
Unemployment
kept rising for
19 more
months
Recession
began in
December
2007
Unemployment
rate was 9.6% in
October
10
Unemployment
peaked at 10.1%
in Oct. 2009,
highest monthly
rate since 1983.
8
6
4
Oct.
10
Peak rate in the
last 30 years:
10.8% in Nov Dec 1982
2
Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10
Source: US Bureau of Labor Statistics; Insurance Information Institute.
157
US Unemployment Rate
Unemployment likely
peaked at 10% in late 2009.
4.9%
08:Q1
4.6%
07:Q3
4.8%
4.5%
07:Q2
07:Q4
4.5%
5.0%
07:Q1
6.0%
5.4%
7.0%
6.1%
8.0%
9.1%
9.3%
9.4%
9.6%
9.6%
9.6%
9.7%
9.7%
10.0%
6.9%
9.0%
8.1%
10.0%
9.3%
Rising unemployment
eroded payrolls
and workers comp’s
exposure base.
11.0%
9.6%
2007:Q1 to 2011:Q4F*
Unemployment
forecasts remain
stubbornly high
through 2011
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (10/10); Insurance Information Institute
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
09:Q3
09:Q2
09:Q1
08:Q4
08:Q3
08:Q2
4.0%
158
8.9
9.0
9.0
9.0
9.1
9.2
9.3
9.4
9.4
9.6
9.7
9.8
9.8
9.9
10.0
10.0
10.1
10.6
11.0
In September, state and regional
unemployment rates were little changed.
Some 29 states and DC reported
unemployment rate decreases from a
year earlier, 16 states had increases and
5 had no change.
10.1
10
11.5
12
11.9
Unemployment Rate (%)
14
12.4
16
14.4
13.0
Unemployment Rates by State, September 2010:
Highest 25 States*
8
6
4
The US unemployment
rate was 9.6% in
September
2
0
NV MI CA FL RI SC OR KY IN OH GA IL MS DC AZ NC TN NJ MO WV CT WA PA ID AL
*Provisional figures for September 2010, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
160
Unemployment Rates By State, September 2010:
Lowest 25 States*
The US unemployment
rate was 9.6% in
September
3.7
4
4.4
4.6
5.5
6.6
6.8
6.8
6.8
6.3
5.8
6
6.9
7.0
7.5
7.5
7.7
7.7
7.8
7.8
8.2
8.3
8.2
8.1
8
7.8
Unemployment Rate (%)
8.4
8.4
10
7.4
In September, state and regional
unemployment rates were little
changed. Some 29 states and DC
reported unemployment rate decreases
from a year earlier, 16 states had
increases and 5 had no change.
2
0
MA DE NY NM CO TX WI LA AK ME AR UT MD MT MN OK WY VA IA KS HI VT NH NE SD ND
*Provisional figures for September 2010, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
161
Monthly Change Employment
600
400
200
0
(200)
(400)
(600)
(800)
(1,000)
-72
Jan-08
-144
Feb-08
Mar-08
-122
-160
Apr-08
-137
May-08
-161
Jun-08
Jul-08
-128
-175
Aug-08
-321
Sep-08
-380
Oct-08
-597
Nov-08
-681
Dec-08
Jan-09 -779
Feb-09 -726
Mar-09 -753
-528
Apr-09
-387
May-09
-515
Jun-09
-346
Jul-09
Aug-09
-212
-225
Sep-09
-224
Oct-09
64
Nov-09
Dec-09
-109
14
Jan-10
39
Feb-10
208
Mar-10
313
Apr-10
432
May-10
-175
Jun-10
-66
Jul-10
-1
Aug-10
-41
Sep-10
151
Oct-10
January 2008 through October 2010* (Thousands)
The job gain and loss figures for much of 2010
were severely distorted by the hiring and
termination of temporary Census workers. So far
in 2010, 874,000 nonfarm jobs have been created.
Monthly Losses in
Dec. 08–Mar. 09 Were
the Largest in the
Post-WW II Period
151,000 jobs were created
in October and losses in
Sept. and Aug. were
revised sharply downward
Job Losses Since the Recession Began in Dec. 2007 Peaked at
8.4 Mill in Dec. 09; Stands at 7.5 Million Through October 2010;
14.8 Million People are Now Defined as Unemployed
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Change in Employment Level for Select
Industries, Oct. 2010 vs. Sept. 2010
Change in Thousands
Health, Leisure, Professional
Business Services and Retail Trade
are the job growth leaders today.
50
40
46.0
34.0
27.9
30
24.4
20
10
7.0
5.0
-0.1
Food Service
& Drinking
Places
-5.0
Leisure &
Hosp.
Health Care
-1.0
Prof.
Business
Serv.
-1.0
Financial
Transportation
Retail Trade
Manufacturing
Construction
-3.0
Mining &
Logging
-10
Information
0
There is a great deal of variation in employment growth by industry,
indicating a very uneven and slow recovery
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
164
Estimated Effect of Recessions* on
Payroll (Workers Comp Exposure)
(Percent
Change)
10%
8%
6%
(All Post WWII Recessions)
Recessions in the 1970s and 1980s
saw smaller exposure impacts
because of continued wage
inflation, a factor not present
during the 2007-2009 recession
The Dec. 2007 to mid2009 recession
caused the largest
impact on WC
exposure in 60 years
8.5%
4.6%
3.7%
4%
3.5%
2.1%
2%
1.1%
0%
-0.5%
-1.1%
-2%
-2.0%
-4%
-6%
-3.6%
-4.4%
19481949
19531954
19571958
19601961
19691970
19731975
1980
19811982
19901991
2001
20072009
Recession Dates (Beginning/Ending Years)
*Data represent maximum recorded decline over 12-month period using annualized quarterly wage and salary accrual data
Source: Insurance Information Institute research; Federal Reserve Bank of St. Louis (wage and salary data); National Bureau of
Economic Research (recession dates).
Inflation Trends:
Benign Inflation Tempers
Claim Severity
Fed Efforts to Stimulate Inflation Will
Ultimately Pressure Claim
Cost Severities
168
Annual Inflation Rates
(CPI-U, %), 1990–2016F
Inflation peaked at 5.6% in August 2008
on high energy and commodity crisis.
The recession and the collapse of the
commodity bubble have reduced
inflationary pressures
Annual Inflation Rates (%)
6.0
5.0
4.9
5.1
3.8
4.0
3.0
3.0
2.0
3.3 3.4
3.2
2.9 2.8
2.4
3.0
2.6
2.5
3.8
2.8
2.3
2.0
1.9
1.5
2.2 2.2 2.2 2.2
1.6 1.5
1.3
1.0
0.0
-0.4
-1.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F 11F 12F 13F 14F 15F 16F
There is So Much Slack in the US Economy Inflation Should Not Be a
Concern Through 2010-12 Despite Fed’s Quantitative Easing Efforts.
Deficits and Monetary Policy Remain Longer Run Concerns
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 10/10 (forecasts).
169
P/C Insurers Experience Inflation More
Intensely than 2009 CPI Suggests
(Percent)
8%
6.2%
5.5%
6%
3.8%
4%
2.7%
3.0%
3.1%
Legal
Services
US Tort
Costs
Medical
Care
4.3%
2%
0%
-0.4%
-2%
Overall
CPI
Motor
Vehicle
Body
Work
Bodily WC Med No-Fault
Injury
Severity
Claim
Severity
Severity
Healthcare and Legal/Tort Costs Are a Major P/C Insurance Cost Driver. These Are
Expected to Increase Above the Overall Inflation Rate (CPI) Indefinitely
Source: CPI is Blue Chip Economic Indicator 2009 estimate, 12/09; Legal services, medical care and motor vehicle body work are avg.
monthly year-over-year change from BLS; BI and no-fault figures from ISO Fast Track data for 4 quarters ending 09:Q3. Tort costs is 2009
Towers-Perrin estimate. WC figure is I.I.I. estimate based on historical NCCI data.
170
WC Insurers Experience Inflation More
Intensely than 2009 CPI Suggests
(Percent increase Dec 08 to Dec 09)
8%
Inpatient Services
Rose 6.7%;
Outpatient Services
Rose 7.4%
6.9%
Excludes
Food and
Energy
6%
4%
2.7%
3.0%
3.0%
Physicians'
Services
Dental
Services
3.4%
3.1%
3.4%
1.8%
2%
0%
Overall CPI
"Core" CPI
Hospital
Services
Prescription Medical Care Medical CPI
Drugs
Commodities
Healthcare Costs Are a Major WC Insurance Cost Driver. They Are
Likely to Increase Faster than the CPI for the Next Few Years, at Least
Source: Bureau of Labor Statistics; Insurance Information Institute.
171
Crisis-Driven Exposure
Drivers
Economic Obstacles
to Growth in P/C Insurance Will
Slowly Be Cleared Away
174
0.9
0.7
0.5
I.I.I. estimates that each incremental 100,000
decline in housing starts costs home insurers
$87.5 million in new exposure (gross premium).
The net exposure loss in 2009 vs. 2005 is
estimated at about $1.3 billion
1.02
1.20
1.33
1.43
1.50
1.1
0.90
1.3
1.20
1.29
1.5
1.19
1.01
1.7
New home
starts plunged
72% from
2005-2009; A
net annual
decline of 1.49
million units,
lowest since
records began
in 1959
0.56
0.60
0.76
1.9
1.46
1.35
1.48
1.47
1.62
1.64
1.57
1.60
1.71
2.1
1.36
(Millions of Units)
1.85
1.96
2.07
1.80
New Private Housing Starts, 1990-2016F
Job growth,
improved credit
market conditions
and demographics
will eventually boost
home construction
0.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F12F13F14F15F16F
Little Exposure Growth Likely for Homeowners Insurers Until 2012.
Also Affects Commercial Insurers with Construction Risk Exposure, Surety
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/10); Insurance Information Institute.
176
Average Square Footage of Completed
New Homes in U.S., 1973-2010:Q2
2,700
2,500
2,300
2,100
1,900
1,700
1,660
1,695
1,645
1,700
1,720
1,755
1,760
1,740
1,720
1,710
1,725
1,780
1,785
1,825
1,905
1,995
2,035
2,080
2,075
2,095
2,095
2,100
2,095
2,120
2,150
2,190
2,223
2,266
2,324
2,320
2,330
2,349
2,462
2,492
2,509
2,463
2,367
2,362
2,398
Square Ft
Average size of completed new
homes often falls in recessions
(yellow bars), but historically
bounces back in expansions
The trend to building larger homes
reversed in 2008, affecting exposure
growth beyond the decline in number of
units built. Trend may now be reversing.
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:Q1
10:Q2
1,500
Source: U.S. Census Bureau: http://www.census.gov/const/www/quarterly_starts_completions.pdf; Insurance Information
Institute.
177
Business Bankruptcy Filings,
1980-2010:H1
90,000
60,000
50,000
40,000
30,000
20,000
10,000
0
1980-82
1980-87
1990-91
2000-01
2006-09
58.6%
88.7%
10.3%
13.0%
208.9%*
There were 60,837 business bankruptcies in 2009, up
40% from 2008 and the most since 1993. 2010:H1
bankruptcies totaled 29,059, down 4% from H1:2009, but
still very high by historical standards.
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:H1
70,000
43,694
48,125
80,000
69,300
62,436
64,004
71,277
81,235
82,446
63,853
63,235
64,853
71,549
70,643
62,304
52,374
51,959
53,549
54,027
44,367
37,884
35,472
40,099
38,540
35,037
34,317
39,201
19,695
28,322
43,546
60,837
29,059
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines.
There Are Some Preliminary Indications that Business
Bankruptcies Are Beginning to Decline.
Source: American Bankruptcy Institute; Insurance Information Institute
178
Private Sector Business Starts,
1993:Q2 – 2009:Q4*
(Thousands)
192
188
187
189
186
190
194
191
199
204
202
195
196
196
206
206
201
192
198
206
206
203
211
205
212
200
205
204
204
197
203
209
201
203
192
192
193
201
204
202
210
212
209
216
220
223
220
220
210
221
212
204
218
209
207
199
191
193
230
220
210
170
160
171
180,000 businesses started in
2009:Q4, the best quarter in 2009.
2009 was the slowest year for new
business starts since 1993.
180
169
177
180
186
174
180
175
190
186
200
150
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Business Starts Are Down Nearly 20% in the Current Downturn,
Holding Back Most Types of Commercial Insurance Exposure
*Latest available as of September 12, 2010, seasonally adjusted
Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t07.htm.
179
Recovery in Capacity Utilization is a
Positive Sign for Insurance Exposure
Percent of Capacity Utilized
(Manufacturing, Mining, Utilities)
“Full Capacity”
82%
Hurricane
Katrina
80%
Recession began
December 2007
78%
Manufacturing
capacity stood at
74.7% in Sept. 2010,
above the June 2009
low of 68.2% but well
below the pre-crisis
peak of 80%+
76%
74%
72%
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm.
181
Sep 10
Jun 10
Mar 10
Dec 09
Sep 09
Jun 09
Mar 09
Dec 08
Sep 08
Jun 08
Mar 08
Dec 07
Sep 07
Jun 07
Mar 07
Dec 06
Sep 06
Jun 06
Mar 06
Dec 05
Sep 05
Jun 05
Mar 05
Dec 04
Sep 04
Jun 04
Dec 03
Sep 03
Jun 03
Mar 03
Dec 02
Sep 02
Jun 02
Mar 02
Dec 01
Sep 01
Jun 01
Mar 01
68%
66%
The closer the economy is
to operating at “full
capacity,” the greater the
demand for insurance
March 2001November 2001
recession
Mar 04
70%
Catastrophic Loss –
Catastrophe Losses Trends Are
Trending Adversely
186
US Insured Catastrophe Losses
$9.2
$27.1
$27.5
$12.9
$5.9
$26.5
$4.6
$8.3
$10.1
$2.6
$7.4
$8.3
$16.9
$4.7
$2.7
$20
$7.5
$40
$5.5
$22.9
$60
$12.5
$80
Estimated
2010 CAT
Losses Are
About
Average
$61.9
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
$10.6
$100
$6.7
$120
$100.0
$100 Billion CAT Year is
Coming Eventually
($ Billions)
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10*20??
2010 CAT Losses Are Running Below 2009, So Far
Figures Do Not Include an Estimate of Deepwater Horizon Loss
*Estimate through December 31, 2010.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal
property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.
Sources: Property Claims Service/ISO; Munich Re; Insurance Information Institute.
187
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2009
Combined Ratio Points
8.1
2008
1.6
2.6
2.7
2006
1.6
2002
2004
1.6
2000
1.0
1998
3.3
3.3
3.6
2.9
3.3
2.8
1996
5.0
5.4
5.9
1994
1990
2.1
2.3
3.0
1.2
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
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
1.2
1966
3.6
0.4
1964
1962
0.8
1.1
1.1
0.1
0.9
1
0
1960
5
4
3
2
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
1992
8
7
6
8.8
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
10
9
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
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; Insurance Information Institute.
188
Global Natural Catastrophes:
January – June 2010
6
12
3
8
11
The 12 Jan. Haiti
quake killed 225,500
people, caused $8B+
in economic damage,
but little in the way of
insured losses
9
2
10
1
Chilean earthquake (mag. 8.8) on4
27 Feb. produced at least $4
billion in insured losses, $20
billion in economic losses. Most
costly insurance event in 2010
Global natural catastrophes
Selection of significant natural
catastrophes (see table)
Severe winter weather in the
Eastern US produced insured
losses of produced at least
$1B in insured losses and $2B
in economic losses
Winter Storm
Xynthia produced
at least $2B in 7
insured losses
and $4B in
economic losses
Geophysical events
(earthquake, tsunami, volcanic activity)
Meteorological events
(storm)
5
Hydrological events
(flood, mass movement)
Climatological events
(extreme temperature, drought, wildfire)
© 2010 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at 16 June 2010
Largest International Oil Well Blowouts by
Volume, as of July 12, 2010*
Date
Well
Location
Bbl Spilled
April 20 2010July 12, 2010
Deepwater Horizon
Gulf of Mexico, USA
est. 4,900,000
June 1979-April
1980
Ixtoc I
Bahia del Campeche, Mexico
3,300,000
October 1986
Abkatun 91
Bahia del Campeche, Mexico
247,000
April 1977
Ekofisk Bravo
North Sea, Norway
202,381
January 1980
Funiwa 5
Forcados, Nigeria
200,000
October 1980
Hasbah 6
Gulf, Saudi Arabia
105,000
December 1971
Iran Marine International
Gulf, Iran
100,000
January 1969
Alpha Well 21 Platform A
Pacific, CA, USA
100,000
March 1970
Main Pass Block 41
Platform C
Gulf of Mexico
65,000
October 1987
Yum II/Zapoteca
Bahia del Campeche, Mexico
58,643
December 1970
South Timbalier B-26
Gulf of Mexico, USA
53,095
*Date well was capped. Federal government estimate as of August 2, 2010. Does not include offset for any amounts recovered.
Source: American Petroleum Institute (API), 09/18/2009; http://www.api.org/ehs/water/spills/upload/356-Final.pdf and updates
from the Insurance Information Institute.
Natural Disasters in the United States,
1980 – 2010
Number of Events (Annual Totals 1980 – 2009 vs. First Half 2010)
Number of events in first half of 2010 is close to the annual totals from five of past ten years.
250
First Half 2010
95 Events
Number
200
150
100
50
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
Meteorological (storm)
Hydrological
(flood, mass movement)
© 2010 Munich Re
2000
2002
2004
2006
2008
2010
Climatological
(temperature extremes,
drought, wildfire)
191
Top 12 Most Costly Disasters
in US History
(Insured Losses, 2009, $ Billions)
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Hurricane Katrina Remains, By Far, the
Most Expensive Insurance Event in US
and World History
$45.3
$22.8
$23.8
$11.3
$12.5
Wilma
(2005)
Ike
Northridge 9/11
(2008)
(1994) Attacks
(2001)
Andrew
(1992)
$18.2
$4.2
$5.2
Jeanne Frances
(2004) (2004)
$6.2
$7.3
$8.1
$8.5
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
Katrina
(2005)
8 of the 12 Most Expensive Disasters in US History
Have Occurred Since 2004;
8 of the Top 12 Disasters Affected FL
Sources: PCS; Insurance Information Institute inflation adjustments.
196
Insurance Information Institute Online:
www.iii.org
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and your attention!
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