P/C Industry Outlook:
2013 and Beyond
IIABSC Annual Meeting
October 14, 2013
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5540  Cell: 917.494.5945  stevenw@iii.org  www.iii.org
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
2
Yearly Nominal U.S. GDP vs.
P/C Net Written Premiums: 2000-2012
Index: 2000 = 100
NWP
Nominal GDP
“Soft” market:
NWP slipped
before the overall
economy did
“Hard” market:
NWP grew much
faster than the
overall economy
160
Recession
150
140
Post recession:
comparable
growth rates
130
120
110
100
2000
2001
2002
2003
2004
2005
2006
2007
Sources: http://www.bea.gov/national/xls/gdplev.xls ; SNL Financial; I.I.I. calculations
2008
2009
2010
2011
2012
US Real GDP, Quarterly, 2013-14
October 2013 Forecasts
Real GDP Growth Rate
4%
3%
3.3%
3.4%
3.5%
3.6%
3.1%
2.8%
2.4%
2.9%
2.9%
2.2%
2.2%
2.6%
2%
2.0%
2.0%
1.6%
10 Most Pessimistic
Median
10 Most Optimistic
1%
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
Despite the sequester and other challenges to the U.S. economy,
virtually every forecast in the Blue Chip universe in early September
sees improvement ahead
Sources: Blue Chip Economic Indicators (10/13); Insurance Information Institute
5
Federal Spending as a Share of State GDP:
Vulnerability to Sequestration Varies
Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute.
6
State-by-State Leading Indicators
through 2013:Q4
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.
7
Projected Population Growth Rates (2010-2020)
Vary Widely by State and Region*
24%
South Carolina’s
population is projected
to grow less than
neighboring states
21.6%
20%
14.6%
16%
13.1%
11.3%
12%
8.8%
8.5%
8%
3.7%
4%
0%
-1.5%
-4%
FL
GA
SC
NC
VA
TN
KY
WV
U.S. population growth overall, 2010-2020, is projected to be 8.7%
*based on 2000 census.
Source: http://www.census.gov/population/projections/data/state/projectionsagesex.html (Table 7)
8
July 2013 Unemployment Rates Vary
Widely by State within the Region*
U.S. unemployment
rate in July was 7.4%
10%
Unemployment Rate (%)
8.9%
8.8%
8.5%
8.5%
8.1%
8%
7.1%
6.2%
6%
5.7%
4%
NC
GA
TN
KY
SC
FL
WV
VA
*Provisional figures for July 2013, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
9
P/C Insurance:
Forces Affecting Personal
Lines
Brighter Days Ahead,
but Not Without Challenges
10
Homeownership Rates* in the South** and
the U.S., Quarterly, 2007:Q1-2013:Q2
71%
The gap was 2.2
percentage points
70%
69%
U.S.
South
The gap is
narrowing:
now 1.5
percentage
points
68%
67%
66%
65%
Increasing percent
of renters
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
64%
*Homeownership Rates are the owner-occupied homes as a percent of total occupied housing units. **The Census Bureau defined the
South as including Alabama, Arkansas, Delaware, the District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland,
Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia.. The data are not seasonally
adjusted.
Sources: US Census Bureau, Residential Vacancies & Home Ownership in the Second Quarter of 2013 (released July 30, 2013) and
earlier issues; Insurance Information Institute.
14
Single Family Housing Unit Starts: South
vs. US, Monthly, July 2012-July 2013*
Thousands
of Units
350
South
US
675
650
625
325
600
575
300
550
525
500
275
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
The spurt in February 2013 occurred in the South and Northeast regions,
not in the West or Midwest.
*at annualized rate, seasonally adjusted; July 2013 numbers are preliminary.
Source: US Census Bureau at www.census.gov/construction/nrc/pdf/newresconst.pdf.
Auto/Light Truck Sales, 1999-2014F
13
10.4
12
11
12.7
14
11.6
13.2
15
16.1
Lowest level
since the late
1960s
15.6
05
16
Forecast range
for 2013 is 15.3
to 15.8 million
units
14.4
16.9
04
16.5
16.9
17
16.6
17.1
17.5
18
17.8
19
17.4
(Millions of Units)
16.1
Truck purchases by
contractors are
especially strong
10
9
99
00
01
02
03
06
07
08
09
10
11
12 13F 14F
Job growth and improved credit market conditions will boost auto sales
in 2013 and beyond, bolstering the manufacturing sector and the
economy generally.
Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (10/13); Insurance Information Institute.
16
But Something Unusual is Happening:
Miles Driven*, 1990–2013
Billions
3,100
3,000
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
Miles Driven Growth per 5-Yr Span
1997 vs. 1992: 13.9%
2002 vs. 1997: 11.5%
2007 vs. 2002: 6.1%
2012 vs. 2007: -3.0%
Some of the growth in
miles driven is due to
population growth:
1997 vs. 1992: +5.1%
2002 vs. 1997: +7.4%
2007 vs. 2002: +4.7%
2012 vs. 2007: +3.4%
Peak in November 2007
A record: miles driven
has been below the prior
peak for 67 straight
months. Previous record
below peak was in the
early 1980s (39 months)
Will the trend toward
hybrid and non-gasolinepowered vehicles affect
miles driven? What
about the aging and
retirement of the baby
boomers?
2,100
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
*Moving 12-month total. The latest data is for June 2013.
Note: Recessions indicated by gray shaded columns..
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm );
National Bureau of Economic Research (recession dates); Insurance Information Institute.
17
Miles Driven* in South Carolina,
2010–2013
Millions
50
49
48
47
46
*Moving 12-month total. The latest data is for June 2013.
Note: Recessions indicated by gray shaded columns..
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm );
National Bureau of Economic Research (recession dates); Insurance Information Institute.
7/1/2013
5/1/2013
3/1/2013
1/1/2013
11/1/2012
9/1/2012
7/1/2012
5/1/2012
3/1/2012
1/1/2012
11/1/2011
9/1/2011
7/1/2011
5/1/2011
3/1/2011
1/1/2011
11/1/2010
9/1/2010
7/1/2010
5/1/2010
3/1/2010
1/1/2010
45
18
P/C Insurance:
Forces Affecting
Commercial Lines
Brighter Days Ahead,
but Not Without Challenges
19
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2013:Q2
Billions
$7,250
Latest (2013:Q2) was
$7.09 trillion, a new
peak -- $860B above
2009 trough
$7,000
$6,750
Prior Peak was
2008:Q1 at $6.54 trillion
$6,500
Payrolls are
12.1% above
their 2009
trough
$6,250
$6,000
$5,750
Recent trough (2009:Q1)
was $6.23 trillion, down
4.7% from prior peak
04:Q4
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
$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.
20
Commercial & Industrial Loans Outstanding
at FDIC-Insured Banks, Quarterly, 2006-2013*
$1.18
$1.17
$1.17
$1.21
$1.18
$1.27
$1.51
$1.53
$1.56
$1.42
$1.46
$1.37
$1.43
$1.37
$1.49
08;Q2
08:Q3
$1.25
$1.44
$1.48
$1.1
$1.13
$1.16
$1.2
$1.18
$1.22
$1.3
$1.30
$1.39
$1.4
07:Q4
08:Q1
$1.5
$1.50
$1.49
Recession
$1.20
$1.24
$1.6
$1.28
$1.35
In nominal dollar
terms, this is an
all-time high.
$Trillions
13:Q2
12:Q4
13:Q1
12:Q3
12:Q1
12:Q2
11:Q3
11:Q4
11:Q2
10:Q4
11:Q1
10:Q2
10:Q3
10:Q1
09:Q3
09:Q4
09:Q1
09:Q2
08:Q4
07:Q3
07:Q1
07:Q2
06:Q3
06:Q4
06:Q2
06:Q1
$1.0
Outstanding loan volume has been growing for over two years
and (as of year-end 2012) surpassed previous peak levels.
*Latest data, released 8/29/2013.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
21
Percent of Non-current Commercial & Industrial
Loans Outstanding at FDIC-Insured Banks,
0.97%
0.87%
0.80%
0.74%
12:Q4
13:Q1
1.09%
12:Q2
12:Q3
1.17%
12:Q1
1.65%
1.49%
3.05%
3.43%
2.80%
2.44%
1.89%
1.69%
Almost back to “normal”
levels of noncurrent
industrial & commercial
loans
1.29%
0.63%
0.67%
07:Q3
2.73%
0.62%
07:Q2
10:Q3
0.63%
07:Q1
2.83%
0.64%
06:Q4
10:Q2
0.74%
06:Q3
1.07%
0.70%
06:Q2
0.81%
0.71%
1%
06:Q1
2%
1.18%
3%
2.25%
Recession
4%
3.57%
Quarterly, 2006-2013:Q2*
13:Q2
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q1
09:Q3
09:Q4
09:Q2
09:Q1
08:Q4
08:Q3
08;Q2
08:Q1
07:Q4
0%
Non-current loans (those past due 90 days or more or in nonaccrual status)
are back to early-recession levels, fueling bank willingness to lend.
*Latest data, released 8/29/2013.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
22
10
8
6
4
12.9
9.2
12
Recessions in orange
11.5
14
New Bankruptcy
Law Takes Effect
9.7
16
Quarterly average for
2001:Q1-2005:Q3 was 8,915
4.1
4.9
5.3
5.6
6.3
6.7
7.2
8.0
8.7
18
13.9
13.6
12.9
12.0
13.1
12.2
12.6
12.9
13.4
14.0
13.2
12.9
13.8
14.0
13.5
12.7
12.4
11.6
10.3
9.9
9.2
10.4
9.0
9.0
9.5
9.2
8.2
8.4
10.0
10.3
9.5
10.0
9.8
9.7
9.4
9.5
8.8
9.3
8.4
8.3
10.6
8.2
7.6
7.8
8.1
8.7
9.5
12.8
(Thousands)
14.3
16.0
14.2
15.0
14.6
14.5
14.0
13.0
12.4
12.3
11.7
11.1
11.0
10.4
Business Bankruptcy Filings: Falling
but Still High in 2012 (1994:Q1 – 2012:Q3)
0
94:Q1
94:Q3
95:Q1
95:Q3
96:Q1
96:Q3
97:Q1
97:Q3
98:Q1
98:Q3
99:Q1
99:Q3
00:Q1
00:Q3
01:Q1
01:Q3
02:Q1
02:Q3
03:Q1
03:Q3
04:Q1
04:Q3
05:Q1
05:Q3
06:Q1
06:Q3
07:Q1
07:Q3
08:Q1
08:Q3
09:Q1
09:Q3
10:Q1
10:Q3
11:Q1
11:Q3
12:Q1
12:Q3
2
Business bankruptcies were down 42% in 2012:Q3 vs. recent peak in 2009:Q2 but
were still higher than 2008:Q1, the first full quarter of the Great Recession.
Bankruptcies restrict exposure growth in all commercial lines.
Sources: American Bankruptcy Institute at
www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance
Information Institute.
23
Private Sector Business Starts,
1993:Q2 – 2012:Q3*
(Thousands)
210
200
190
180
170
185
182
187
193
184
189
189
185
188
195
191
199
204
203
195
196
195
206
206
200
189
199
206
206
199
213
204
209
200
206
204
204
194
204
208
199
201
193
191
193
200
207
203
209
210
209
216
221
221
220
221
210
221
214
206
216
208
207
201
191
188
172
177
169
183
175
179
188
200
189
192
198
202
193
191
193
220
Recessions in orange
175
173
230
Business Starts
2006: 861,000
2007: 844,000
2008: 787,000
2009: 701,000
2010: 742,000
2011: 781,000
12:Q1
11:Q1
10:Q1
09:Q1
08:Q1
07:Q1
06:Q1
05:Q1
04:Q1
03:Q1
02:Q1
01:Q1
00:Q1
99:Q1
98:Q1
97:Q1
96:Q1
95:Q1
94:Q1
150
93:Q2
160
Business starts were down nearly 20% in the Great Recession,
holding back most types of commercial insurance exposure,
but now are recovering.
* Data through Sept 30, 2012 are the latest available (posted May 1, 2013); Seasonally adjusted.
Sources: Bureau of Labor Statistics, www.bls.gov/news.release/cewbd.t08.htm; NBER (recession dates).
24
Severe Weather Reports in South
Carolina, 2013 (through Aug. 30)
Through August,
there were 402
severe weather
reports in South
Carolina in 2013:
8 tornadoes (in red),
43 “Large Hail”
reports (in green),
and
351 high wind events
(in blue).
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
25
If They Hit Today, the Dozen Costliest
(to Insurers) Hurricanes in U.S. History
Insured Losses,
2012 Dollars, $ Billions
$140
$120
$100
Storms that hit long ago had less property and
businesses to damage, so simply adjusting their
actual claims for inflation doesn’t capture their
destructive power.
Karen Clark’s analysis aims to overcome that.
$80
$125
$65
$60
$35
$40
$20
$20
$20
Sandy*
(2012)
Betsy
(1965)
Hazel
(1954)
$40
$40
Katrina
(2005)
Galveston
(1915)
$50
$50
$50
Andrew
(1992)
southFlorida
(1947)
Galveston
(1900)
$25
$20
$0
Donna
(1960)
New
England
(1938)
midFlorida
(1928)
Miami
(1926)
When you adjust for the damage prior storms could have done if they
occurred today, Hurricane Katrina slips to a tie for 6th among the most
devastating storms.
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: Karen Clark & Company, Historical Hurricanes that Would Cause $10 Billion or More of Insured LossesToday, August 2012; I.I.I.
29
P/C Industry Homeowners Claim Frequency,
US, 1997-2011
Claims Paid per
100 Exposures
CAT-related claims
Non-CAT-related claims
8
6.99
6.71
6.45
6
6.26
6.53
5.83
4.63
4
3.83
2.82
2.34
2
1.57
2.67
2.32
1.84
1.69
3.64
3.77
3.94
4.03
4.16
4.17 4.31
3.68
2.39
2.35
3.42
2.97
2.57
2.28
1.32
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008 2010 2011
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” p.29; Insurance Information Institute
P/C Industry Homeowners Average Claim
Severity, 1997-2011
non-cat claims
cat claims
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
HO average claim
severity is now
three times what it
was in 1997.
$3,000
$2,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” p. 29, BLS inflation calculator,
and Insurance Information Institute
P/C Insurance Industry
Financial Overview
36
$24,509
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
Net income is up
substantially
(+42.4%) from
2012:1H $17.2B
$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
$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 = 5.9%
2013:Q1 ROAS1 = 9.6%
$24,404
$80,000









$65,777
P/C Net Income After Taxes
1991–2013:1H ($ 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
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.7% ROAS in
2013:Q1, 6.2% 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
12 13:1H
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013:1H*
ROE
History suggests next ROE
peak will be in 2016-2017
25%
1977:19.0%
1987:17.3%
20%
2006:12.7%
1997:11.6%
2013:1H
8.2%
15%
9 Years
10%
5%
2012:
5.9%
0%
1975: 2.4%
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
13:1H
-5%
1984: 1.8%
*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.
Underwriting Profit* on Selected Lines
in SC vs. US, 2011
South Carolina
US
60%
40%
20%
0%
-20%
-40%
-60%
PP Auto
HO
WC
CMP
Comm
Auto
FMP
Other
Liab
Med Mal
Prod
Liab
IM
Fire
Allied
South Carolina outperformed the US overall in many lines – sometimes
with smaller losses (e.g. PP Auto, HO, CMP, WC) and sometimes with more
profit (e.g. Inland Marine, Fire, & Allied Lines)
*As percent of earned premiums.
Source: NAIC “Report on Profitability by Line by State in 2011, pp. 146 and 314
Policyholder Surplus,
Quarterly, 2006:Q4–2013:1H
$586.9
12:Q4
$614.0
$583.5
12:Q3
$605.0
$583.5
12:Q3
$570.7
$553.8
$566.5
$530.5
$540.7
$511.5
$490.8
$463.0
$437.1
$455.6
$515.6
08:Q1
$400
$478.5
$517.9
07:Q4
$505.0
$521.8
07:Q3
$512.8
$450
$487.1
$500
$496.6
$550
$559.2
$600
$544.8
$650
$538.6
Up nearly $175 Billion
from the 2009:Q1
trough, a new peak
Down $84
Billion from the
previous peak,
due to the
financial crisis,
CATs
$559.1
($ Billions)
13:Q2
13:Q1
12:Q1
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
07:Q2
07:Q1
06:Q4
$350
The industry at year-end 2012 had $1 of surplus for every $0.78 of
NPW, the strongest claims-paying status in its history.
2013:Q1 is estimated
Sources: ISO; A.M .Best.
41
I.I.I. Mobile Apps
Our apps are designed to provide guidance to consumers in making
informed decisions about their insurance and preparing for a disaster.
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Sharing the I.I.I. Mobile Apps
Sharing our apps is as easy as hitting the copy-paste keys…
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The I’s on Insurance:
New Consumer Education Video Series
The first in a series of animated videos on insurance basics starts with
homeowners; next up: auto insurance and small business insurance.
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Insurance Information Institute
www.iii.org
Thank you for your time
and your attention!