Challenges and
Opportunities for the P/C
Insurance Industry
Professional Insurance Wholesalers Association
Annual Dinner
New York, NY
October 25, 2011
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Office: 212.346.5540  Cell: (917) 494-5945  stevenw@iii.org  www.iii.org
What in the World Is
Going On?
Is the World Becoming a
Riskier Place?
What Are the Implications for
Insurance and Risk Management?
2
Uncertainty, Risk, and Fear Abound
 US Debt/Budget Crisis and S&P Downgrade
 Short-term: Slow Growth/A Double Dip Recession?
 Long-term: Era of Fiscal Austerity?






Housing Crisis
Persistently High Unemployment
European Sovereign Debt Crises
Earthquakes/Nuclear Reactor Meltdowns
Record Tornadoes, Floods, Wildfires, in the US
Manmade Disasters
 Deepwater Horizon, “Fracking”
 Resurgent Terrorism Risk?
 Political Upheaval in the Middle East
 China on Track to Be #1 Economy in the World
 Is the U.S. era over?
Are “Black Swans”
everywhere or
does it just seem
that way?
3
1.9%
2.2%
2.5%
2.7%
12:1Q
12:2Q
12:3Q
12:4Q
1.9%
1.9%
1.0%
0.4%
2.3%
2.5%
3.8%
3.9%
1.7%
Worst quarterly
drop since
1958:q1 (-11.1%)
1.3%
1.7%
3%
0.5%
6%
3.0%
3.6%
Real GDP Growth (%)
3.8%
US Real GDP Growth, quarterly*
-0.7%
11:4Q
11:3Q
11:2Q
11:1Q
10:4Q
10:3Q
10:2Q
10:1Q
09:4Q
09:3Q
09:2Q
08:3Q
08:2Q
08:1Q
07:4Q
07:3Q
07:2Q
07:1Q
-12%
08:4Q
-8.9%
-9%
2011 started slowly,
but somewhat
higher growth is
expected in the rest
of the year.
-6.7%
-6%
09:1Q
-3%
-3.7%
-1.8%
0%
Demand for insurance continues to be affected by a sluggish economy
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 10/2011 issue (forecasts); Insurance Information Institute.
4
Unemployment and Underemployment
Rate “Normality”: Years to Go
January 2000 through September 2011,
Seasonally Adjusted (%)
18
U-6 hit 17.5%
in Oct 2009
U-6 is now
16.5%
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
16
Gap between
U-3 and U-6 is
normally 4
percentage
points but is
now 7.4 points
14
12
Recession
10
8
September 2011
unemployment
rate (U-3) was
9.1%. Peak rate
in the last 30
years: 10.8% in
Nov - Dec 1982
6
4
Recession
2
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Source: U.S. Bureau of Labor Statistics; Insurance Information Institute.
Jan
08
Jan
09
Jan
10
Jan
11
6
Monthly Change in Private Employment
January 2007 through September 2011
(Thousands)
158
241
16
62
75
-334
-452
-297
-215
-186
-262
Private employers added 2.88 million jobs in 2010-2011,
after having shed 4.66 million jobs in 2009 and 3.81 million in 2008.
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
Mar-10
Jan-10
May-10
Not Enough: We need to
average about 125,000 new
jobs (private and public) per
month just to absorb labor
force growth
Nov-09
Sep-09
Jul-09
May-09
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
(1,000)
Jan-07
(800)
Mar-09
(600)
-734
-667
-806
-707
-744
-649
Monthly Losses in
Dec. 08–Mar. 09 Were
the Largest in the
Post-WW II Period
Jan-09
(400)
Nov-08
(200)
-83
-12
-85
-58
-161
-253
-230
-257
-347
-456
-547
-109
-14
0
65
97
23
213
65
127
42
15
79
200
186
400
51
61
117
143
109
193
128
167
94
261
219
241
99
75
173
42
137
Private employers added jobs in
every one of the last 21 months
Monthly Change in Government Employment
January 2009 through September 2011
(Thousands)
410
500
Census
400
300
-46
-34
Jul-11
Sep-11
-55
-46
-24
-25
-26
-26
-15
-35
May-11
Mar-11
Jan-11
Nov-10
-138
Sep-10
-169
-142
Jul-10
May-10
-257
Mar-10
Jan-10
Nov-09
May-09
Mar-09
Jan-09
(200)
(300)
15
17
48
-14
-26
-39
Sep-09
-11
-49
Jul-09
-63
(100)
-53
-19
0
-9
3
3
28
38
27
100
121
200
Employment by government at all levels
dropped every month in 2011 except August.
Total (net) government jobs lost through September: 267,000.
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
U.S. Employment in the Direct
P/C Insurance Industry: 1990–2011*
Thousands
520
500
480
460
As of August 2011, P/C insurance industry
employment was down by 37,300 or 7.6% to 453,800
since the recession began in Dec. 2007 (compared to
overall US employment decline of 5.2%).
440
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
*As of August 2011; Not seasonally adjusted; Does not including agents & brokers.
Note: Recessions indicated by gray shaded columns.
Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
9
U.S. Employment in the
Reinsurance Industry: 1990–2011*
Thousands
48
44
40
As of August 2011, US employment
in the reinsurance industry was up
by 900 or 3.3% to 27,800 since the
recession began in Dec. 2007
(compared to overall US
employment decline of 5.2%).
36
32
28
24
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
*As of August 2011; Not seasonally adjusted; Does not including agents & brokers.
Note: Recessions indicated by gray shaded columns.
Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
10
U.S. Employment in Insurance
Agencies & Brokerages: 1990–2011*
Thousands
700
650
600
550
As of August 2011, employment at
insurance agencies and brokerages
was down by 38,300 or 5.6% to
641,300 since the recession began in
Dec. 2007 (compared to overall US
employment decline of 5.2%).
500
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
*As of August 2011; Not seasonally adjusted. Includes all types of insurance.
Note: Recessions indicated by gray shaded columns.
Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
11
U.S. Employment in Insurance
Claims Adjusting: 1990–2011*
Thousands
Katrina, Rita, Wilma
60
55
50
As of August 2011, claims adjusting
employment was down by 4,000 or 7.7% to
48,200 since the recession began in Dec.
2007 (compared to overall US employment
decline of 5.2%).
45
Jan-11
Apr-10
Jul-09
Oct-08
Jan-08
Apr-07
Jul-06
Oct-05
Jan-05
Apr-04
Jul-03
Oct-02
Jan-02
Apr-01
Jul-00
Oct-99
Jan-99
Apr-98
Jul-97
Oct-96
Jan-96
Apr-95
Jul-94
Oct-93
Jan-93
Apr-92
Jul-91
Oct-90
Jan-90
40
*As of August 2011; Not seasonally adjusted.
Note: Recessions indicated by gray shaded columns.
Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
12
Economic Drivers of P/C
Insurance Exposures
13
Private Housing Starts, 1990-2012F
Through
August 2011
we’re slightly
behind this
pace
(Millions of Units)
2.07
2.1
1.96
1.85
1.8
1.62 1.64
1.48 1.47
1.46
1.5
1.20
1.19
1.2
1.80
1.71
1.57 1.60
1.35
1.29
1.36
1.01
0.90
0.9
0.70
0.55 0.59 0.59
0.6
12F
11F
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
0.0
90
0.3
Weak home construction forecast implies little exposure growth likely for
Homeowners insurers for the next few years,
but multi-family housing starts are picking up.
Sources: U.S. Department of Commerce (history) ; Blue Chip Economic Indicators (10/2011), forecasts; Insurance Information Institute.
14
Single vs. Multi-Family Housing Starts,
Annually, 2001-2011*
units in multi-family buildings
Thousands of
Units, Multi-Family
450
single family units
Single family
plunge began
in 2006
400
Thousands of Units,
Single Family
1800
Multi-family-unit starts
are rising in 2011, but
single-family starts
are still hitting lows.
350
300
1600
1400
1200
250
1000
200
800
Multi-family plunge
didn’t begin until 2009
150
600
100
400
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011*
The slump is mainly in single-family housing,
but starts of multi-family units also plunged in 2009-10.
*seasonally-adjusted annual rate, through Sept 2011
Source: US Census Bureau at http://www.census.gov/const/newresconst.pdf
The Car-Buying Slump Means Roads
With More Aging Vehicles
(Millions
of Units)
19
17.8 17.5
17.4
18
17.1
17
16.6 16.9 16.9 16.5
2011 AAA Survey: 1 in 4
drivers have neglected
repairs and maintenance
because of the economy
16.1
16
15
14
13.3
13.2
12.6
13
11.6
12
11
10.4
10
9
99
00
01
02
03
04
05
06
07
08
09
10
11F
12F
In what once was a “normal” 3-year span,
new cars would replace about 35 million old cars,
but in 2008-10 only about 27 million old cars were replaced
Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11); Insurance Information Institute; USA Today
8/10/2011 edition (AAA Survey).
16
Miles Driven*, 1990–2011
Billions
3,100
3,000
2,900
2,800
2,700
Growth per Decade
1999 vs. 1989: 27.2%
2009 vs. 1999: 9.4%
Some of the growth in
miles driven is due to
population growth:
1999 vs. 1989: 10.5%
2009 vs. 1999: 12.6%
Sharp rise in gas
prices, then pullback
2,600
2,500
2,400
2,300
2,200
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
*Moving 12-month total
Notes: Recessions indicated by gray shaded columns. Latest data (as of 10/24/2011) is for 12 months ended August 2011.
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm );
National Bureau of Economic Research (recession dates); Insurance Information Institute.
17
Recent History of Crude Oil Prices*
Monthly, 2006-2011
$ per barrel
$150
2008
$140
Is this another
2007-08-like spurt
in gas prices?
Gas/oil prices
began rising a
year before the
Great Recession
started
$130
$120
$110
$100
$90
$80
$70
$60
Sep-11
Jun-11
Mar-11
Dec-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
$40
Sep-10
Or is it headed
down again?
$50
Note: Recession indicated by gray shaded column.
*per barrel of light, sweet crude oil for future delivery as traded on the New York Mercantile Exchange (NYMEX); last weekly close in
each month, except Decembers (which are 12/31 closing prices)
Sources: NYSE at http://www.nyse.tv/crude-oil-price-history.htm NBER (recession dates)
18
Do Changes in Miles Driven Affect
Auto Collision Claim Frequency?
Paid Claim Frequency = (# of paid
claims)/(Earned Car Years) x 100
3050
6.91
3000
Paid Claim Freq
6.65
6.5
2950
6.32
2900
6.02
The frequency
drop is slowing
5.94
6.0
5.85
5.71
5.70
5.62
5.60
5.62
5.5
2850
2800
2750
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 2011*
“Pay-As-You-Go” Auto Insurance: Fluctuations in miles driven will affect exposure
*data for 2011 covers 12 months ending 6/30/2011
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm; ISO Fast Track Monitoring System,
Private Passenger Automobile Fast Track Data: 2d Qtr. 2011, published September 30, 2011, and earlier reports.
Billions of Miles Driven
7.0
Collision Claim Frequency
Billions of Vehicle Miles
Number of Private Business
Establishments, 2001:Q1-2011:Q1*
9.00
8.75
8.50
8.25
8.00
7.75
7.50
7.67
7.70
7.75
7.79
7.78
7.80
7.86
7.92
7.92
7.94
7.97
8.02
8.03
8.04
8.12
8.19
8.20
8.25
8.34
8.39
8.41
8.45
8.54
8.62
8.57
8.65
8.72
8.78
8.74
8.77
8.81
8.84
8.67
8.69
8.73
8.75
8.63
8.66
8.72
8.77
8.78
9.25
No net growth in number of businesses
from 2007:Q3 to 2011:Q1.
2001:Q1
2001:Q2
2001:Q3
2001:Q4
2002:Q1
2002:Q2
2002:Q3
2002:Q4
2003:Q1
2003:Q2
2003:Q3
2003:Q4
2004:Q1
2004:Q2
2004:Q3
2004:Q4
2005:Q1
2005:Q2
2005:Q3
2005:Q4
2006:Q1
2006:Q2
2006:Q3
2006:Q4
2007:Q1
2007:Q2
2007:Q3
2007:Q4
2008:Q1
2008:Q2
2008:Q3
2008:Q4
2009:Q1
2009:Q2
2009:Q3
2009:Q4
2010:Q1
2010:Q2
2010:Q3
2010:Q4
2011:Q1
Millions
The number of employees in new businesses is typically lower
than the number in formerly-operating businesses that closed.
*data for 2011:Q1 are preliminary
Note: quarters when the economy was in recession are indicated by orange bars
Sources: U.S. Bureau of Labor Statistics “Quarterly Census of Employment and Wages”; Insurance Information Institute
20
Catastrophe Loss
Developments and Trends
2011 is Rewriting Catastrophe
Loss and Insurance History
21
Number of Federal Disaster
Declarations, 1953-2011*
The average
number from 19962010 was 58.4.
81
75
63
59
69
48
52
56
45
45
49
32
36
32
There have been 2,039* federal disaster declarations since 1953.
Note that 2005 was a relatively low year for number of disaster
declarations in the 1996-2010 period,
but that year included Hurricanes Katrina, Rita, and Wilma.
*Through October 24, 2011. Sources: Federal Emergency Management Administration at
http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
11*
09
07
05
01
99
97
95
93
91
89
87
85
83
81
79
77
75
73
71
69
67
65
63
61
59
57
55
53
44
43
45
38
31
11
15
24
21
23
22
25
27
28
23
34
38
29
17
17
19
11
11
The number of federal
disaster declarations set
a new record in 2011.
7
7
10
12
12
13
17
18
16
16
22
20
25
25
30
30
40
0
42
48
46
46
50
20
50
60
03
70
The average
number from
1972-1995 was
31.7.
65
80
From 1953-71, the
average number
of declarations
per year was 16.5.
75
90
89
100
US Insured Catastrophe Losses
($ Billions)
$70
$60
CAT Losses
Surged on NearRecord Tornado
Activity
$61.9
2000s: A Decade of Disaster
2001-2010: $202B (up 122%)
1991-2000: $91B
$24.0
$13.6
$10.6
$27.1
$6.7
$9.2
$12.9
$5.9
$26.5
$4.6
$8.3
$10.1
$2.6
$7.4
$5.5
$4.7
$2.7
$10
$7.5
$20
$8.3
$30
$16.9
$22.9
$40
$27.5
$50
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
First half 2011 US CAT losses already exceed losses from all of 2010. Even
modest hurricane losses will put 2011 among the worst ever for CATs
*First three quarters of 2011 (est).
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.
24
15 Costliest World Insurance Losses,
1970-2011*
Insured Losses,
2010 Dollars,
$ Billions
$80
$70
$60
Taken as a single event, the
Spring 2011 tornado season
would be the 7th costliest
event in global insurance
history
3 of the 11 most
expensive catastrophes
in world history occurred
in the past 9 months
$72.3
$50
$35.0
$40
$30
$20
$10
$8.0 $8.0 $9.0 $9.3 $10.0
$14.9 $16.3
$14.0
$11.3
$20.5 $20.8 $23.1
$24.9
$0
Chile Hugo Typhoon Charley New
Rita
Quake (1989) Mirielle (2004) Zealand (2005)
(2010)
(1991)
Quake
(2011)
Wilma
(2005)
Ivan
Spring Ike
Northridge WTC
(2004) Tornadoes (2008) (1994) Terror
(2011)
Attack
(2001)
Andrew Japan Katrina
(1992) Quake, (2005)
Tsunami
(2011)*
*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.
Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.
25
P/C Insurance Industry
Financial Overview
Profit Recovery Will Be Slowed
by High CATs,
Low Interest Rates,
Diminishing Reserve Releases
26
Soft Market Persisted in 2010 but
Growth Returned: More in 2011?
(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%
15%
2011:1H
growth
was
+2.6%
10%
5%
0%
NWP was up
0.9% in 2010
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*
-5%
*2011 figure is an estimate based on 1H data.
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
27
P/C Insurance Industry
Combined Ratio, 2001–2011: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
120
115.8
110
Cyclical
Deterioration
Best
Combined
Ratio Since
1949 (87.6)
Avg. CAT
Losses,
More
Reserve
Releases
108.0
107.5
100.1
100
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
101.0
100.8
98.4
99.3
100.8
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011*
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=109.1
Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
29
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 remained strong in 2010
but are expected 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.
30
A 100 Combined Ratio Isn’t What It
Once Was: Investment Impact on ROEs
A combined ratio of about 100
generated ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Combined Ratio / ROE
110
105
15.9%
14.3%
100.6
100
108.0
100.1
97.5
100.7
12.7%
15%
101.0
99.3
100.8
12%
9.6%
95
18%
7.4%
92.6
9%
7.5%
8.9%
6%
90
2.5%
4.4%
85
3%
0%
80
1978
1979
2003
2005
2006
Combined Ratio
2008*
2009*
2010*
2011:H1*
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty
insurers. 2011 figure is estimate through first half.
Source: Insurance Information Institute from A.M. Best and ISO data.
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2011*
ROE
25%
1977:19.0%
1987:17.3%
20%
History suggests next ROE
peak will be in 2016-2017
2007:12.3%
1997:11.6%
15%
2011:
2.3%*
10 Years
10%
5%
0%
-5%
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*
1975: 2.4%
*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for H1 data.
Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers. For 2011:H1 ROAS = 1.7% including M&FG.
Sources: Insurance Information Institute; NAIC, ISO, A.M. Best.
Investments
Interest-Based Investments
Benefit from Higher Inflation
33
Bond Yields Tend to Follow Inflation
CPI-U % Change
U.S. Treasury 10-Year Note Yield
9%
Recession
6%
3%
0%
Sources: US Bureau of Labor Statistics (history); Blue Chip Economic Indicators, 10/11 issue (forecast)
12F
11F
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
-3%
U.S. 10-Year Treasury Note Yields:
A Long Downward Trend, 1990–2011*
9%
8%
Yields on 10-Year U.S.
Treasury Notes have
been essentially below
4% since January 2008.
7%
6%
5%
4%
3%
2%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for nearly a decade.
1%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
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, through September 2011
Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data/Monthly/H15_TCMNOM_Y10.txt
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
35
Daily Yields, 10-Year U.S. T-Notes vs.
Moody’s Seasoned AAAs, 2010-2011*
5.50%
5.00%
We saw a slump
like this in March
- August 2010
4.50%
4.00%
3.50%
3.00%
2.50%
10/14/11
09/23/11
09/02/11
08/12/11
07/22/11
07/01/11
06/10/11
05/20/11
04/29/11
04/08/11
03/18/11
02/25/11
02/04/11
01/14/11
12/24/10
12/03/10
11/12/10
10/22/10
10/01/10
09/10/10
08/20/10
07/30/10
07/09/10
06/18/10
05/28/10
05/07/10
04/16/10
03/26/10
03/05/10
01/22/10
1.50%
01/01/10
2.00%
02/12/10
UST 10-Yr
Moody's AAA
The spread between the two yields reflects confidence (or lack of it) in the
economy’s prospects. A wider spread indicates worry; narrower = confidence.
*through 10/20/2011
Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/h15/data/Business_day/H15_TCMNOM_Y10.txt
and http://www.federalreserve.gov/releases/h15/data/Business_day/H15_AAA_NA.txt
36
Property/Casualty Insurance Industry
Investment Gain: 1994–2011:Q21
($ Billions)
$70
$64.0
$58.0
$60
$52.3
$55.7
$51.9
$52.9
$48.9
$47.2
$50
$59.4
$56.9
$45.3
$44.4
$42.8
$40 $35.4
$39.2
$36.0
$31.7
$28.4
$30
Investment gains in
2010 were the best
since 2007
$20
$10
$0
94
95
96
97
98
99
00
01
02
03
04
05*
06
07
08
09
10 11:1H
Investment Gains Recovered Significantly in 2010 Due to Realized
Capital Gains; 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.
37
$3,043
$4,758
$28,672
$34,670
$65,777
$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 = 5.9%
2010 ROAS = 6.5%
2011:H1 ROAS = 1.7%
P-C Industry 2011:H1 profits were
down 71.6% to $4.8B vs. 2010:H1,
due to high catastrophe losses
and as non-cat underwriting
results deteriorated
$36,819
$70,000







$24,404
$80,000
$62,496
P/C Net Income After Taxes
1991–2011:H1 ($ Millions)
$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 2.3% ROAS for
2011:H1, 7.5% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
10
11*
Policyholder Surplus,
2006:Q4–2011:Q2
($ Billions)
Surplus as of 6/30/11 fell 1%
below its 3/31/11 $564.7B record
high. Further declines are likely.
2007:Q3
Previous Peak
$580
$564.7
$556.9
$544.8
$560
$559.1
$540.7
$530.5
$540
$521.8$517.9
$515.6
$512.8
$520
$505.0
$496.6
$500 $487.1
$478.5
$511.5
$490.8
$480
$455.6
$460
$463.0
$437.1
$440
The Industry now has $1 of
surplus for every $0.78 of
NPW—the strongest claimspaying status in its history.
$420
06:Q4 07:Q1 07:Q207:Q3 07:Q4 08:Q108:Q2 08:Q3 08:Q4 09:Q109:Q2 09:Q3 09:Q410:Q1*10:Q2 10:Q310:Q4 11:Q1 11:Q2
*Includes $22.5B of paid-in
capital from a holding
company parent for one
insurer’s investment in a
non-insurance business in
early 2010.
Sources: ISO, A.M .Best.
Quarterly Surplus Changes Since 2007:Q3 Peak
09:Q1: -$84.7B (-16.2%)
09:Q2: -$58.8B (-11.2%)
09:Q3: -$31.0B (-5.9%)
09:Q4: -$10.3B (-2.0%)
10:Q1: +$18.9B (+3.6%)
10:Q2: +$8.7B (+1.7%)
10:Q3: +$23.0B (+4.4%)
10:Q4: +$35.1B (+6.7%)
11:Q1: +$42.9B (+8.2%)
11:Q2: +37.3B (+7.1%)
39
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!