The Rough and Tumble Recovery
How the Great Recession Upset the
Workers Comp Apple Cart
NCCI Annual Issues Symposium
Orlando, FL
May 8, 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
Lower CATs, Strong Markets
Workers Comp Improvement
Helped Too
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.
P/C Insurance Industry
Combined Ratio, 2001–2013*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
Cyclical
Deterioration
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Avg. CAT
Losses,
More
Reserve
Releases
107.5
Sandy
Impacts
Lower
CAT
Losses
106.3
101.0
100.8
100.1
99.3
98.4
100
102.4
100.8
96.7
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1;
2012:=103.2; 2013: = 96.1.
Sources: A.M. Best, ISO.
5
Underwriting Gain (Loss)
1975–2013*
($ Billions)
$35
$25
Underwriting
profit in 2013
totaled
$15.5B
Cumulative
underwriting deficit
from 1975 through
2013 is $493B
$15
$5
-$5
-$15
-$25
High cat losses
in 2011 led to
the highest
underwriting
loss since 2002
-$35
-$45
-$55
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Large Underwriting Losses Are NOT Sustainable
in Current Investment Environment
* Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best, ISO; Insurance Information Institute.
Policyholder Surplus,
2006:Q4–2013:Q4
($ 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.
7
Net Premium Growth (All P/C Lines):
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.
8
Direct Premiums Written: Workers’ Comp
Percent Change by State, 2007-2012*
-10.2
-10.8
-11.6
TX
MD
-5.4
PA
NM
-4.7
VA
-9.7
-3.9
IL
AK
-3.6
MN
-9.2
-2.7
MI
US
-2.5
NJ
-9.1
-1.8
WI
VT
-1.1
IN
NH
-0.3
0.2
CA
NE
0.8
CT
KS
NY
SD
4.0
12.4
18.8
21.7
IA
-6.8
Only 5 states showed positive
growth in the workers comp line
from 2007 – 2012, the result of
large job and payroll losses and
a soft market. Even through
2013, fewer than half the states
will have recouped DPW losses
27.9
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
OK
Pecent change (%)
Top 25 States
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
9
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2007-2012*
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
NV
DE
HI
FL
OR
UT
AZ
-49.1
-43.4
-38.3
-35.1
-33.9
-26.0
KY
MO
AL
SC
NC
ME
LA
ID
AR
GA
MS
RI
MA
DC
States with the poorest
performing economies also
produced the most negative
net change in premiums of
the past 5 years
-31.8
-25.5
CO
-27.4
-24.6
MT
-21.9
-20.8
-19.9
-18.3
-17.8
-16.9
-16.6
-16.0
-15.9
-15.5
-15.4
-14.3
-12.9
-12.1
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
-60
TN
Pecent change (%)
Bottom 25 States
10
Winners, Losers and the
“Great Recession”
Reshuffling the Workers Comp
Exposure Deck
11
Labor Force Participation Rate,
Jan. 2002—April 2014*
Labor Force Participation as a % of Population
68
Labor force
participation
continues to shrink
despite a falling
unemployment rate
67
66
65
64
Large numbers of
people are exiting (or
not returning to the
labor force)
63
62
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
*Defined as the percentage of working age persons in the population who are employed or actively seeking work.
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/; National Bureau of Economic Research (recession dates);
Insurance Information Institute.
'14
12
Labor Force Participation Rate by
Gender, 1948—2013
(Percent)
86.6% or working age
men participated in the
labor force in 1948
compared to 32.7% or
women
100%
90%
By 2013, the labor force
participation rate for men had
declined to 69.7% while the
participation rate for women
had risen to 57.2%
80%
70%
60%
50%
40%
30%
20%
10%
Men
Women
By 2013, 57.2% of working age
women participated in the
labor force, up from 32.7% in
1948 but down from its all time
high of 60.0% in 1999
48
49
50
51
52
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
0%
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
14
Gender Wage Gap: Ratio of Median Annual
Earnings of Women to Men, 1955 – 2012*
Full-Time, Year-Round Workers
In 2012, women
earned 76.5% of what
men earned on an
annual basis
(Percent)
80%
75%
70%
In 1955, women
earned 63.9%
of what men
earned
65%
60%
55%
But by 1975,
women were
earning just
58.8% of what
men earned
Over the next 20+ years the
gender gap narrowed
substantially but reached a
plateau of about 77% of
men’s earnings where it
remains today
50%
55 60 65 70 75 80 85 90 95 00 01 02 03 04 05 06 07 08 09 10 11 12
*Latest available.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
15
Unemployment Rates by Gender and
Education: 2006, 2010 and 2013
Unemployment Rate (%)
2006
2010
2013
Men were hit harder and
continue to do worse than
women in the job market.
Women are likely to do
better than men for the
indefinite future.
16%
Workers lacking a college
degree suffer from much
higher rates of
unemployment
13.9%
14%
11.5%
12%
10%
9.6%
8%
10.5%
7.6%
7.4%
9.7%
8.6%
7.1%
7.9%
5.9%
6% 4.6%
4%
4.6%
4.6%
4.1%
6.0%
5.0%
2.2%
2%
0%
All
Men
Women
Source: U.S. Bureau of Labor Statistics; Insurance Information Institute.
Less than HS HS Diploma,
Diploma
No College
Bachelor's
Degree or
Higher
17
Labor Force Participation Rate by Age:
2006, 2010 and 2013
7.9%
7.4%
10%
6.4%
19.2%
32.1%
18.0%
20%
17.0%
30%
31.5%
81.0%
74.6%
Labor force
participation rates
have increased for
older workers
29.0%
40%
34.4%
50%
35.0%
43.7%
60%
63.2%
70%
64.7%
80%
66.2%
90%
82.2%
2013
82.9%
2010
82.0%
2006
71.4%
Labor force
participation rates
remain below prerecession levels for
young and middleage workers
Labor Force
Participation Rate (%)
0%
All
16-19
20-24
25-54
65-69
70-74
75+
Age
Source: U.S. Bureau of Labor Statistics; Insurance Information Institute.
18
Labor Force Participation Rates for Workers
Age 62-74 by Gender and Education*
A worker with an
professional or doctoral
degree is twice as likely
likely to be working
Participation Rate
Women
Men
65%
70%
60%
49%
50%
39%
40%
30%
52%
32%
25%
A worker with a
bachelors degree is
about 50% more
likely to be working
20%
10%
0%
HS Diploma
Bachelors Degree
Professional Degree or Doctorate
Better educated workers are far more likely to work in their 60s and 70s
*Data are for 2009-10.
Source: Gary Burtless, Brookings Institution and The Economist, April 24, 2014.
19
Unemployment Rates by Age and Race:
2006, 2010 and 2013
Unemployment
among younger
workers remains
a chronic
problem
6.5%
4.0%
8.7%
9.1%
12.5%
16.0%
9.0%
5.2%
5%
4.6%
10%
9.6%
15%
7.4%
20%
10.0%
15.3%
25%
18.0%
30%
13.5%
2013
22.9%
2010
24.9%
2006
Unemployment among
some minority groups
remains far above prerecession levels
13.1%
Unemployment Rate (%)
0%
All
16-19
16-24
Source: U.S. Bureau of Labor Statistics; Insurance Information Institute.
Black or
African
American
Hispanic or
Latino
White
20
The BIG Picture
Labor Market Trends
RECOVERY MODE
The Last Job Lost During the
Recession Was Recouped in March
Where Do the Economy and
Workers Comp Go From Here?
21
US Real GDP Growth*
-7%
5.0%
-0.3%
The remainder of 2014
into 2015 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.
23
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through April 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
14
12
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 12.3%
in Apr. 2014.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 6.3% in April
2014. 4% to 6% is
“normal.”
6
4
2
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Stubbornly high unemployment and underemployment constrain overall
economic growth, but the job market is now clearly improving.
Source: US Bureau of Labor Statistics; Insurance Information Institute.
24
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%
6.5%
6.4%
6.2%
6.1%
6.0%
5.9%
5.8%
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
6.0% 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 (4/14 edition); Insurance Information Institute.
25
(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)
-38
-294
-272
-232
-141
-271
-15
-232
-115
-106
-221
-215
-206
-261
-258
-71
32
64
81
55
231
170
400
113
192
94
110
120
117
107
199
149
94
72
223
231
320
166
186
219
125
268
177
191
222
364
228
246
102
131
75
172
136
159
255
211
215
219
263
164
188
222
201
170
180
153
247
272
86
166
201
202
273
20
3
3
0
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
Apr-14
Monthly Change in Private Employment
January 2007 through April 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
842,000 jobs
created so far
in 2014
273,000 private
sector jobs were
created in April.
In March 2014, the
last of the jobs lost
in the Great
Recession were
recovered
Private Employers Added 9.18 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)
26
Cumulative Change in Private
Employment: Dec. 2007—Apr. 2014
-0.163
-0.384
-0.599
-0.805
-1.066
-1.324
-1.746
-2.232
-3.008
-3.701
-4.522
-5.220
-6.030
-6.831
-7.125
-7.551
-7.823
-8.055
-8.196
-8.467
-8.482
-8.714
-8.694
-8.732
-8.619
-8.427
-8.333
-8.223
-8.103
-7.986
-7.879
-7.680
-7.531
-7.437
-7.365
-7.142
-6.911
-6.591
-6.425
-6.239
-6.020
-5.895
-5.627
-5.450
-5.259
-5.037
-4.673
-4.445
-4.199
-4.097
-3.966
-3.891
-3.719
-3.583
-3.424
-3.169
-2.958
-2.743
-2.524
-2.261
-2.097
-1.909
-1.687
-1.486
-1.316
-1.136
-0.983
-0.736
-0.464
-0.378
-0.212
-2
Cumulative job losses
peaked at 8.765 million
in February 2010
-4
Apr-14
Dec-13
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Apr-10
Dec-09
Aug-09
Apr-09
Dec-08
-10
Dec-07
-8
Aug-08
It took more than 6 ½
years (79 months) to
recover all of the
private sector jobs lost
in the Great Recession
-6
Apr-08
0
0.055
0.058
-0.057
Millions
2
-0.011
0.191
0.464
Pvt. employment hit 116.4
million in April 2014—
580,000 above its pre-crisis
peak of 115.8 million
December 2007 through April 2014 (Millions)
Private Employers Added 9.18 million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
27
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
0.020
-0.018
0.095
0.287
0.381
0.491
0.611
0.728
0.835
1.034
1.183
1.277
1.349
1.572
1.803
2.123
2.289
2.475
2.694
2.819
3.087
3.264
3.455
3.677
4.041
4.269
4.515
4.617
4.748
4.823
4.995
5.131
5.290
5.545
5.756
5.971
6.190
6.453
12.0
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
Job gains and pay
increases have added more
than $750 billion to payrolls
since Jan. 2010
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
6.805
7.027
7.228
7.398
7.578
7.731
7.978
8.250
8.336
8.502
8.703
8.905
9.178
6.617
Cumulative Change in Private Sector
Employment: Jan. 2010—Apr. 2014
(Millions)
Cumulative job gains
through Apr. 2014
totaled 9.18 million
Private Employers Added 9.18 million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
28
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2014:Q1
Billions
$7,500
Latest (2014:Q1) was
$7.29 trillion, a new
peak--$1.04 trillion
above 2009 trough
$7,250
$7,000
$6,750
Prior Peak was
2008:Q1 at $6.60 trillion
$6,500
Payrolls are
16.6% above
their 2009 trough
and up 3.6% over
the past year
$6,250
$6,000
$5,750
Recent trough (2009:Q3)
was $6.25 trillion, down
5.3% from prior peak
05:Q1
05:Q2
05:Q3
05:Q4
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
$5,500
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance
Information Institute.
29
Net Change in Government
Employment: Jan. 2010—Apr. 2014
State government employment fell by
1.5% since the end of 2009 but is
recovering while Federal employment
is down by 5.3% and deteriorating
(Thousands)
0
-100
-79
-200
-300
-400
-380
-500
-600
-152
Local government employment
shrank by 380,000 from Jan.
2010 through Apr. 2014,
accounting for 62% of all
government job losses,
negatively impacting WC
exposures for those cities and
counties that insure privately
-611
-700
Total
Local
State
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Federal
30
Unemployment Rates by State, March 2014:
Highest 25 States*
6.2
6.3
6.3
6.3
6.1
6
6.3
6.6
6.7
6.7
6.7
6.7
6.9
6.9
6.9
7.0
7.0
7.2
7.3
7.5
7.5
7.6
8.1
8.4
8.5
8
7.9
Unemployment Rate (%)
8.7
10
7.0
In March, 21 states had over-themonth unemployment rate
decreases, 17 states and the
District of Columbia had increases,
and 12 states had no change.
Residual impacts of the
housing collapse, weak
economies are holding
back several states
4
2
*Provisional figures for March 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
FL
M
A
N
C
W
A
C
O
O
H
K
A
O
TN
M
L
A
R
U
S
O
Y
N
R
A
T
G
A
N
M
C
J
N
Z
A
I
M
IL
C
A
K
Y
M
S
D
C
V
N
R
I
0
31
Unemployment Rates by State, March 2014:
Lowest 25 States*
3.4
3.7
3.7
2.6
3
4.0
4
4.1
4.5
4.5
4.5
4.5
4.8
4.9
5.1
5.5
5.9
5.9
5.9
5.9
5.5
5.2
5.0
5
6.0
6
5.6
Unemployment Rate (%)
6.1
7
4.9
In March, 21 states had over-themonth unemployment rate
decreases, 17 states and the
District of Columbia had increases,
and 12 states had no change.
Energyfueled
employment
boom in ND
2
1
0
WV PA DE IN ME WI MD SC TX ID MT VA KS OK MN HI IA LA NH UT WY NE SD VT ND
*Provisional figures for March 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
32
Payroll vs. Workers Comp Net Written
Premiums, 1990-2013P
Payroll Base*
$Billions
$7,000
$6,000
7/90-3/91
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
12/07-6/09
$45
WC premium
volume dropped
two years before
the recession began
$40
$5,000
$4,000
$3,000
$50
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$2,000
$35
$30
$25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow
Again in 2014; +8.6% Growth Estimated for 2013
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2013 actuals.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
33
POSITIVE LABOR MARKET DEVELOPMENTS
Key Factors Driving Workers
Compensation Exposure
34
Business Bankruptcy Filings,
1980-2013
1980-82
1980-87
1990-91
2000-01
2006-09
90,000
80,000
40,000
30,000
20,000
10,000
0
58.6%
88.7%
10.3%
13.0%
208.9%
2013 bankruptcies totaled 33,212,
down 17.1% from 2012—the fourth
consecutive year of decline. Business
bankruptcies more than tripled during
the financial crisis.
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
50,000
43,694
48,125
70,000
60,000
69,300
62,436
64,004
71,277
81,235
82,446
63,853
63,235
64,853
71,549
70,643
62,304
52,374
51,959
53,549
54,027
44,367
37,884
35,472
40,099
38,540
35,037
34,317
39,201
19,695
28,322
43,546
60,837
56,282
47,806
40,075
33,212
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
Sources: American Bankruptcy Institute (1980-2012) at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013
data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
35
Mass Layoff Announcements,
Jan. 2002—May 2013*
3,500
Mass layoff
announcements peaked
at more than 3,000 per
month in Feb. 2009
3,000
There were 1,301
mass layoffs
announced in May
2013, similar to precrisis levels
2,500
2,000
1,500
1,000
500
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
*BLS discontinued series effective May 2013. Data are seasonally adjusted.
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/mls/; National Bureau of Economic Research (recession dates);
Insurance Information Institute.
'13
36
Average Weekly Hours of All Private
Workers, Mar. 2006—Apr. 2014
(Hours Worked)
34.8
34.7
34.6
34.5
34.4
34.3
Hours worked
plunged during
the recession,
impacting payroll
exposures
34.2
34.1
34.0
33.9
Hours worked totaled
34.5 per week in April,
just shy of the 34.6
hours typically worked
before the “Great
Recession”
33.8
33.7
33.6
33.5
'06
'07
'08
'09
'10
'11
'12
'13
'14
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession
dates); Insurance Information Institute.
37
Average Hourly Wage of All Private
Workers, Mar. 2006—Apr. 2014
(Hourly Wage)
$30.00
$25.00
$20.00
$15.00
The average hourly wage
was $24.31 in Apr. 2013,
up 14.4% from $21.25
when the recession
began in Dec. 2007
$10.00
Wage gains
continued during the
recession, despite
massive job losses
$5.00
$0.00
'06
'07
'08
'09
'10
'11
'12
'13
'14
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession
dates); Insurance Information Institute.
38
ADVERSE LONG-TERM
LABOR MARKET DEVELOPMENTS
Key Factors Harming Workers
Compensation Exposure and the
Overall Economy
39
Labor Force Participation Rate,
Jan. 2002—April 2014*
Labor Force Participation as a % of Population
68
Labor force
participation
continues to shrink
despite a falling
unemployment rate
67
66
65
64
Large numbers of
people are exiting (or
not returning to the
labor force)
63
62
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
*Defined as the percentage of working age persons in the population who are employed or actively seeking work.
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/; National Bureau of Economic Research (recession dates);
Insurance Information Institute.
'14
40
Number of “Discouraged Workers,”
Jan. 2002—April 2013
Thousands
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
'94
“Discouraged Workers” are
people who have searched
for work for so long in vain
that they actually stop
searching and drop out of
the labor force
Large numbers of
people are exiting
(or not returning to)
the labor force
There were
783,000
discouraged
workers in
Apr. 2014
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
In recent good times, the number of discouraged workers ranged from
200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.
Sources: Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.a.htm ; NBER (recession dates); Ins. Info. Inst.
41
Change in Number of Discouraged
Workers: Apr. 2013 vs. Apr. 2014
(Percent Change)
0%
-2%
-1.6%
-4%
-6%
-8%
-10%
-12%
-14%
-16%
-6.2%
The number of
discouraged
workers fell by
52,000 over the
past year to
783,000, a
decline of 6.2%
-18%
-20%
Overall
Men remain
much more
discouraged
about their job
prospects
-8.5%
-12.7%
Younger workers
remain more
discouraged than
older workers
16 to 24
25 to 54
AGE
-13.0%
-18.0%
55+
Men
Women
GENDER
Source: US Bureau of Labor Statistics at http://www.bls.gov/cps/tables.htm#pnilf_m; Insurance Information Institute.
42
Discouraged Workers by Gender
(as of April 2014)
The overwhelming majority of discouraged workers are male, for a variety of reasons
Male = 488,000
Female = 295,000
Reasons for Lower Female
Discouragement Rate
•Less likely to work in
heavily impacted industries
such as construction
38%
62%
•More likely to retrain
•More likely to retrain quickly
•Better educated
TOTAL = 783,000
Source: Bureau of Labor Statistics: at http://www.bls.gov/web/empsit/cpseea38.htm; Insurance Information Institute.
Men account
for 62% of
discouraged
workers today,
up from 59% a
year ago
43
CONSTRUCTION,
MANUFACTURING & ENERGY
OUTLOOK
Key Sectors Critical to the
Economy and the P/C
Insurance Industry
45
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.
46
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.
47
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
1.31
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.92
1.08
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 13F14F15F16F17F18F19F
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 (4/14 and 3/13); Insurance Information Institute.
48
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.
49
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.
50
Construction Employment,
Jan. 2003–April 2014
(Thousands)
Construction
employment as of
Apr. 2014 totaled 6.0
million, an increase
of 565,000 jobs or
10.4% from the Jan.
2011 trough
Construction
employment
peaked at
7.726 million
in April 2006
8,000
7,500
Gap between prerecession
construction
peak and today:
1.7 million jobs
7,000
The “Great Recession” and
housing bust destroyed 2.3
million constructions jobs
6,500
6,000
Construction employment
troughed at 5.435 million in
Jan. 2011, after a loss of 2.291
million jobs, a 29.7% plunge
from the April 2006 peak
5,500
5,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
The Construction Sector Could Be a Growth Leader in 2014 as the Housing Market,
Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
51
MANUFACTURING SECTOR
A Potent Driver of Jobs, Workers Comp
Payroll Exposure
America’s Manufacturing Renaissance
52
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.
53
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/ 54
55
45
40
51.4
52.5
52.5
51.8
52.2
53.1
54.1
51.9
53.3
54.1
52.5
50.2
50.5
50.7
51.6
51.7
49.9
50.2
53.1
54.2
51.3
50.7
49.0
50.9
55.4
55.7
56.2
56.4
57.0
56.5
51.3
53.2
53.7
54.9
50
58.3
57.1
60.4
59.6
57.8
55.3
55.1
55.2
55.3
56.9
58.2
58.5
60.8
61.4
59.7
59.7
54.2
55.8
60
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
ISM Manufacturing Index
(Values > 50 Indicate Expansion)
January 2010 through April 2014
65
Manufacturing continues
to expand in 2014
The manufacturing sector expanded for 50 of the 52 months from Jan.
2010 through April 2014. Pace of recovery has been uneven due to
economic turbulence in the U.S., Europe and China
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
55
Manufacturing Growth for Selected
Sectors, 2014 vs. 2013*
Growth (%)
Non-Durables: +0.1%
Durables: +3.5%
5.3%
6%
2%
3.7%
3.5%
4%
4.9%
4.3% 4.0%
3.9%
2.9%
1.8%
1.7%
0.1%
0%
-2%
Textile
Products
Plastics &
Rubber
Chemical
Petroleum &
Coal
Food
Products
Non-Durable
Mfg.
Transportation
Equip.
Computers &
Electronics
Electrical
Equip.
-3.8%
Machinery
Fabricated
Metals
Primary
Metals
Wood
Products
All
Manufacturing
-6%
Durable Mfg.
Manufacturing of durable
goods was stronger than
nondurables in 2013
-4%
-0.5%
-0.9%
-1.1%
Manufacturing Is Expanding—Albeit Slowly—Across a Number of Sectors that
Will Contribute to Growth in Insurable Exposures Including: WC, Commercial
Property, Commercial Auto and Many Liability Coverages
*Seasonally adjusted; Date are YTD comparing data through March 2014 to the same period in 2013.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 56
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
57
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)
58
ENERGY SECTOR
America’s Energy Boom Is Potentially
the Most Transformative Economic
Force in the Country Today
Workers Comp and Commercial Insurers
in General Will Generate Billions in
Premiums as Exposures Mushroom
59
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
60
U.S. Natural Gas Production, 2000-2013
Trillions of Cubic Ft. per Year
28
25.3 25.6
26
24.0
24
22
20
20.2 20.6 19.9 20.0
19.5
21.1
18.9
19.4
21.6
22.4
20.2
18
The U.S. is already the world’s
largest natural gas producer—
recently overtaking Russia. This
is a potent driver of commercial
insurance exposures
16
14
12
10
00
01
02
03
04
05
06
07
08
09
10
11
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
12
13
U.S. Crude Oil Production, 2005-2015P
Millions of Barrels per Day
10
Crude oil production in the
U.S. is expected to increase
by 82.6% from 2008 through
2015—and could overtake
Saudi Arabia as the world’s
largest oil producer
9
8
7
6
5.19
5.09
5.08
5.00
2005
2006
2007
2008
9.13
8.37
7.44
6.49
5.35
5.47
5.65
2009
2010
2011
5
4
3
2
1
0
2012
2013 2014F 2015F
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
Employment Trends in the
Healthcare Industry
Health Sector Employment
Will Continue to Outpace
Increasing Opportunities for
Workers Comp Insurers
63
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.
65
Rate of Health Care Expenditure Increase
Compared to Population, CPI and GDP
8000%
Health care expenditures
increased 68 fold since
1965—about 3 times the
pace of GDP growth
1965: $42.0 Bill
2013: $2,914.7 Bill
6839.8%
7000%
1965: $719.1 Bill
6000%
2013: $16,797.5 Bill
5000%
4000%
3000%
1965: 194.3 Mill
2235.9%
2013: 317.0 Mill
2000%
1000%
650.7%
63.1%
0%
Population
Source: Insurance Information Institute research.
CPI
GDP
Health Care
Expenditures
66
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.
Medical Cost Inflation vs. Overall CPI,
1995 - 2013
Though moderating, medical
inflation will continue to exceed
inflation in the overall economy
5%
4%
3%
2%
1%
Average Annual Growth Average
Healthcare: 3.8%
Total Nonfarm: 2.4%
0%
Change in Medical CPI
CPI-All Items
-1%
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
10
11
12
13
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.
69
Growth in Health Professions,
1991-2013
(Percent Annual Change)
Average Annual Growth Average
Healthcare: 2.5%
Total Nonfarm: 1.0%
7.0
5.0
3.0
1.0
-1.0
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1993
1992
-5.0
1991
-3.0
1994
The U.S. economy lost more than
8 million jobs during the Great
Health care
Recession, but health sector
Total nonfarm
employment expanded
Healthcare employment has continued to grow in good times
and bad - including the Great Recession.
Sources: Bureau of Labor Statistics, Insurance Information Institute.
70
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.
71
Growth in Healthcare Profession by
Skill Level, 2012 – 2022F
(Thousands of Jobs)
2,000
2,196
3,242
+425,000
+24.0%
1,771
3,000
2,492
2,893
4,000
+750,000
+30.1%
3,590
5,000
+697,000
+24.1%
5,005
6,000
+1.015 Mill
+20.3%
6,020
7,000
Nearly 3 million new healthcare jobs
are projected through 2022!
1,000
0
Practitioners, including
RNs
Technicians, including
LPNs
2012
Source: Bureau of Labor Statistics, Insurance Information Institute.
Aides
Other
2022
72
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Low Yields Have an Especially
Large Influence on Profitability of
Long-Tailed Lines Like WC
73
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
$30
00
03
04
05
06
07
08
09
10
11
Investment Income Fell in 2012 and 2013 Due to Persistently Low Interest
Rates, Putting Additional Pressure on (Re) Insurance Pricing
1
Investment gains consist primarily of interest and stock dividends...
Sources: ISO; Insurance Information Institute.
Property/Casualty Insurance Industry
Investment Gain: 1994–20131
($ Billions)
$70
$64.0
$59.4
$55.7
$58.0
$56.9
$52.3
$51.9
$60
$47.2
$42.8
$50
$48.9
$45.3
$44.4
$40 $35.4
$58.8
$56.2
$54.2
$53.4
$39.2
$36.0
$31.7
$30
$20
Investment gains in 2013
were their highest in the
post-crisis era
$10
$0
94
95
96
97
98
99
00
01
02
03
04 05* 06
07
08
09
10
11
12
13
Investment Income Continued to Fall in 2013 Due to Low Interest Rates
but Realized Investment Gains Were Up Sharply; The Financial Crisis
Caused Investment Gains to Fall by 50% in 2008
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.
$11.43
$6.18
-$7.90
-$19.81
-$5
-$10
-$15
-$20
-$25
$7.04
$5.85
$8.92
$3.52
$9.70
$9.13
-$1.21
$6.63
$6.61
Realized capital gains were up
sharply as equity markets rallied
$16.21
$13.02
$10.81
$9.24
$6.00
$1.66
$9.82
$9.89
$4.81
$20
$15
$10
$5
$0
$2.88
($ Billions)
$18.02
P/C Insurer Net Realized
Capital Gains/Losses, 1990-2013
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Insurers Posted Net Realized Capital Gains in 2010 - 2013 Following Two
Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were the Primary Cause of 2008/2009’s Large Drop in Profits and ROE
Sources: A.M. Best, ISO, Insurance Information Institute.
76
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 March 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institute.
77
Treasury Yield Curves:
Pre-Crisis (July 2007) vs. March 2014
6%
5%
4%
3%
2%
4.82%
4.96%
5.04%
4.96%
4.82%
4.82%
Treasury yield curve remains
near its most depressed level in
at least 45 years. Investment
income is falling as a result.
Even as the Fed “tapers” rates
are unlikely to return to pre-crisis
levels anytime soon
4.88%
5.00%
4.93%
5.00%
3.35%
5.19%
3.62%
2.72%
2.23%
1.64%
0.82%
1%
0.40%
0.05%
0.05%
0.08%
0.13%
1M
3M
6M
1Y
March 2014 Yield Curve
Pre-Crisis (July 2007)
0%
2Y
3Y
5Y
7Y
10Y
20Y
30Y
The Fed Is Actively Signaling that it Is Determined to Keep Rates Low
Until Unemployment Drops Below 6.5% or Until Inflation Expectations
Exceed 2.5%; Low Rates Add to Pricing Pressure for Insurers.
Source: Federal Reserve Board of Governors; Insurance Information Institute.
78
Distribution of Bond Maturities,
P/C Insurance Industry, 2003-2013
2013
16.5%
2012
16.6%
2011
14.9%
41.2%
27.3%
10.4% 6.2%
2010
16.0%
39.5%
27.1%
11.2% 6.2%
2009
15.6%
2008
15.7%
2007
15.2%
30.0%
2006
16.0%
2005
38.8%
29.3%
9.8% 5.7%
27.6%
9.8% 5.7%
40.4%
36.4%
29.0%
12.7%
8.1%
33.8%
12.9%
8.1%
29.5%
34.1%
13.1%
7.4%
16.0%
28.8%
34.1%
13.6%
7.6%
2004
15.4%
29.2%
2003
14.4%
29.8%
32.4%
31.2%
11.9% 7.1%
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
32.5%
31.3%
15.4%
15.4%
7.6%
9.2%
20% these years
40%has been 60%
80% longer maturities
100%
The0%
main shift over
from bonds with
to bonds
with shorter maturities. The industry first trimmed its holdings of over-10-year bonds
(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category
(from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s
bond portfolio is contributing to a drop in investment income along with lower yields.
Sources: SNL Financial; Insurance Information Institute.
79
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.
80
Outlook for U.S. Treasury Bond Yields
Through 2015
Long-term yields should
begin to normalize in 2014
but short-term yields will
remain very low until 2015
% Yield
4.0
3.5
3.70
3.40
3-Month
5-Year
3.10
10-Year
3.0
2.35
2.5
1.80
2.0
1.5
1.17
0.76
1.0
0.5
2.30
0.50
0.09
0.06
0.10
0.0
2012
2013
2014F
2015F
Longer-tail lines like MPL and workers comp will benefit the
most from the normalization of yields
Source: Federal Reserve Board of Governors (2012-2013), Blue Economic Forecasts (2014-2015 3-month and 10yr; 4/14) Swiss Re (2014-2015, 5-yr yield; 4/14); Insurance Information Institute.
81
LOW YIELDS—A REINSURANCE ASIDE
Surge in Alternative Capital Is
Fundamentally Transforming
Reinsurance Markets
82
Global Reinsurance Capital (Traditional
and Alternative), 2007 - 2013
Total reinsurance capital reached
a record $540B in 2013, up 58.8%
from 2008. Of that, $50B (9.3%) is
alternative capacity, up 163% from
$19B since 2008
Source: Aon Benfield Reinsurance Market Outlook, April 1, 2014; Insurance Information Institute.
Alternative Capacity as a Percentage of Global
Property Catastrophe Reinsurance Limit
(As of Year End)
Alternative Capacity accounted for
approximately 14% or $45 billion
of the $316 in global property
catastrophe reinsurance capital as
of mid-2013 (expected to rise to
~15% by year-end 2013)
Source: Guy Carpenter
Reinsurance Pricing: Rate-on-Line Index
by Region, 1990 – 2014*
Lower CATs and a
flood of new
capital has pushed
reinsurance
pricing down in
most regions,
including the US
*As of Jan. 1.
Source: Guy Carpenter
Terrorism Update
TRIA: An Unqualified Success
Expiration or Scaling Back Will Result in
Impacts on the Workers Comp Market
86
Loss Distribution by Type of Insurance
from Sept. 11 Terrorist Attack ($ 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.
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
 Take-up rates have improved since adoption of TRIA
 Overall take-up rate is steady at ~60% (62% in 2013 per Marsh)
 Effectively 100% for workers compensation
 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, April 2014.
88
Terrorism Risk Insurance Program
 Industry Is Working Hard for Reauthorization
 At Least 4 Congressional Hearings in House & Senate
 3 House Bills Introduced in 2013
 Senate Bill 2244 Introduced in April
 Increases mandatory recoupment from $27.5B to $37.5B
 Increase insurer co-share 20% from 15%
Senate Banking Committee, 9/25/13
House Financial Services
Subcommittee, 11/13/13
89
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
90
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
The Take-Up Rate for Workers Compensation is 100%
Source: Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014 and earlier editions.
91
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 low 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.
92
Top 3 Key Facts About TRIA
1. TRIA costs taxpayers virtually nothing
2. TRIA as currently structured continues to provide tangible
benefits to the U.S. economy in the form of:
 Terrorism insurance market stability, affordability and availability
 Smooth functioning of commercial lending activity
 Employment stimulus
3. TRIA is now clearly a critical part of the U.S. national
economic security infrastructure
 A primary goal of terrorism is to destabilize the U.S. economy
 Terrorism risk insurance is critical to ensure a swift recovery in
the event of future attacks
 Bottom Line: TRIA is an unambiguous, unmitigated success
93
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
94