P/C Insurance Industry
Overview & Outlook for
2014 and Beyond
Midwest Actuarial Forum
Northridge, IL
April 11, 2014
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
2013: Best Year (So Far)
in the Post-Crisis Era
Performance Improved with
Lower CATs, Firming Markets
2
20%
5%
-5%
-10%
Sources: ISO, Insurance Information Institute.
1.3%
2.3%
1.7%
3.5%
1.6%
4.1%
3.8%
3.0%
4.2%
5.1%
4.8%
4.1%
4.7%
4.2%
0.5%
2.1%
0.0%
0%
10.3%
10.2%
13.4%
6.6%
15.1%
16.8%
16.7%
12.5%
10.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
10%
10.2%
15%
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 -4.6%
2005:Q2
-4.1%
2005:Q3 -5.8%
2005:Q4
-1.6%
2006:Q1
2006:Q2
2006:Q3
2006:Q4
2007:Q1
-1.6%
2007:Q2
2007:Q3
2007:Q4
-1.9%
2008:Q1
2008:Q2
-1.8%
2008:Q3
-0.7%
2008:Q4 -4.4%
2009:Q1
-3.7%
2009:Q2 -5.3%
2009:Q3 -5.2%
2009:Q4
-1.4%
2010:Q1
-1.3%
2010:Q2
2010:Q3
2010:Q4
2011:Q1
2011:Q2
2011:Q3
2011:Q4
2012:Q1
2012:Q2
2012:Q3
2012:Q4
2013:Q1
2013:Q1
2013:Q3
P/C Net Premiums Written: % Change,
Quarter vs. Year-Prior Quarter
Premium growth in Q3
2013 was up 4.2% over
Q3 2012, marking the
14th consecutive quarter
of y-o-y growth
Sustained growth in written premiums
(vs. the same quarter, prior year) should continue through 2014.
3
Underwriting Gain (Loss)
1975–2013:Q3*
Underwriting
profit through
2013:Q3
totaled
$10.5B
($ Billions)
$35
$25
Cumulative
underwriting deficit
from 1975 through
2012 is $510B
$15
$5
-$5
-$15
-$25
High cat losses
in 2011 led to
the highest
underwriting
loss since 2002
-$35
-$45
-$55
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 1213:Q3
Large underwriting losses are NOT sustainable
in the current investment environment.
* Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best, ISO; Insurance Information Institute.
P/C Net Income After Taxes
1991–2013:Q3 ($ Millions)
$43,029
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
$65,777
Net income is up
substantially
(+54.7%) from
2012:Q3 $27.8B
$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
2013:9M
ROAS
was 9.5%
$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%
2013:9M ROAS1 = 9.5%
$24,404
$80,000









$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12 13:9M
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.9% ROAS through
2013:Q3, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013:Q3*
ROE
History suggests next ROE
peak will be in 2016-2017
25%
1977:19.0%
1987:17.3%
20%
2006:12.7%
1997:11.6%
2013:Q3
8.9%
15%
9 Years
10%
5%
0%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13:Q3
-5%
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
P/C Insurance Industry
Combined Ratio, 2001–2013:Q3*
Heavy Use of
Reinsurance
Lowered Net
Losses
120
Relatively
Low CAT
Losses,
Reserve
Releases
115.8
110
Avg. CAT
Losses,
More
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
107.5
101.0
100.8
100.1
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Sandy
106.3
102.4
100.8
Lower
CAT
Losses
100
99.3
98.4
95.7
Best Combined
Ratio Since
1949 (87.6)
90
2001
2002
2003
92.6
2004
2005
2006
2007
96.6
Cyclical
Deterioration
2008
2009
2010
2011
2012 2013:Q3
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013:Q3 = 95.8.
Sources: A.M. Best, ISO.
7
Policyholder Surplus,
2006:Q4–2013:Q3
($ Billions)
Drop due to near-record
2011 CAT losses
2007:Q3
Pre-Crisis Peak
$624.4
$600
$559.2
$521.8$517.9
$515.6
$512.8
$505.0
$496.6
$487.1
$478.5
13:Q3
12:Q4
12:Q3
12:Q2
11:Q4
11:Q3
11:Q2
11:Q1
10:Q3
10:Q2
10:Q1
09:Q4
09:Q3
10:Q4
Surplus as of 9/30/13 stood
at a record high $624.4B
09:Q2
09:Q1
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
$550.3
$538.6
$463.0
$437.1
07:Q1
$567.8
$490.8
$450
06:Q4
$559.1
$511.5
$455.6
$400
$570.7
$544.8
$540.7
$530.5
$550
$500
$583.5$586.9
$566.5
12:Q1
$650
The industry now has $1 of surplus for every $0.78 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 shape.
8
Profitability and Growth in
the Midwest
P/C Insurance Markets
Analysis by Line and State
9
Unemployment Rates Vary Widely
by State within MAF Region*
Just a few years ago
Michigan had the highest
unemployment rate in the
nation. Now it’s not even
the highest in this region!
10%
Unemployment Rate (%)
8.7%
7.8%
8%
6.9%
6.6%
6.4%
6.1%
6%
4.7%
4%
2%
0%
IL
MI
OH
US
IN
WI
MN
*Provisional figures for January 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute
10
Return on Net Worth, All Lines:
2002-2011
MI
WI
MN
20%
Wisconsin: least variable
15%
10%
5%
0%
Minnesota: most variable
-5%
02
Source: NAIC.
03
04
05
06
07
08
09
10
11
11
Return on Net Worth, All Lines:
2002-2011
IL
IN
OH
20%
Profit in Ohio is
often higher than
in Illinois
15%
10%
5%
Profit in Indiana is
more volatile than
in neighboring
states
0%
-5%
02
Sources: NAIC.
03
04
05
06
07
08
09
10
11
12
Return on Net Worth, All Lines:
2002-2011 Average, by State
12%
10.1%
10%
9.0%
8.9%
8.2%
8%
7.7%
7.1%
6%
5.2%
4%
2%
0%
OH
Sources: NAIC.
WI
IN
MN
US
IL
MI
13
RNW PP Auto: MAF States,
2002-2011, 10-year average
14%
12.2%
12%
11.6%
10.1%
10%
9.8%
8.7%
8%
6%
4%
2%
0%
-2%
-2.0%
-4%
MN
Sources: NAIC.
OH
WI
IN
IL
MI
14
RNW HO: MAF States,
2002-2011, 10-year average
12%
10.1%
10%
8%
5.7%
6%
4.8%
4%
2%
0%
-2%
-1.5%
-4%
-4.5%
-6%
MI
Sources: NAIC.
WI
IL
IN
OH
-5.0%
MN
15
RNW CMP: MAF States,
2002-2011, 10-year average
16%
14.7%
14%
11.4%
12%
10.0%
10%
9.1%
8%
5.4%
6%
3.5%
4%
2%
0%
MI
Sources: NAIC.
OH
IL
WI
IN
MN
16
RNW WC: MAF States,
2002-2011, 10-year average
12%
10%
9.7%
9.5%
8%
6.6%
6%
4.3%
4%
3.4%
2%
0%
IN
Sources: NAIC.
MI
MN
OH
WI
IL
17
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
18
Real Quarterly GDP Growth Since
the “Great Recession, and Forecast
Even 3% real growth in a quarter
has rarely been achieved since
the Great Recession ended
2.4%
2.4%
15:3Q
15:4Q
1.1%
2.6%
15:2Q
1.0%
2.4%
15:1Q
1.2%
2.3%
14:4Q
1.5%
2.4%
14:3Q
1.2%
2.4%
14:2Q
1.4%
14:1Q
13:4Q
13:3Q
1.0%
2.6%
4.1%
2.5%
13:2Q
13:1Q
0.4%
12:4Q
12:3Q
1.1%
3.1%
1.3%
12:2Q
12:1Q
11:4Q
1.3%
11:3Q
2.5%
11:2Q
2.4%
10:4Q
09:4Q
09:3Q
0%
11:1Q 0.1%
2.6%
2.2%
10:2Q
10:3Q
2.3%
10:1Q
1%
1.4%
2%
2.0%
4.1%
5.0%
3%
1.3%
4%
1.0%
5%
Additional
growth forecast
by average of 10
most optimistic
models
Growth
forecast
by average
of 10 least
optimistic
models
Demand for insurance continues to be affected by sluggish economic
conditions, but the benefits of even slow growth will compound and
gradually benefit the economy broadly.
Forecasts from Blue Chip Economic Indicators; data are quarterly changes at annualized rates
Sources: (history) US Department of Commerce, Blue Chip Economic Indicators 4/14; Insurance Information Institute.
19
Private Housing Unit Starts, 1990-2015F
0.5
2.07
1.31
1.08
0.93
0.78
0.61
1.96
1.80
1.71
1.60
1.57
1.64
1.47
1.48
1.36
0.59
0.7
Housing unit starts
plunged 72% from 20052009, down 1.5 million, to
lowest level since records
began in 1959
0.55
0.9
Job growth,
improved credit
market conditions
and demographics
are boosting home
construction
0.91
1.1
1.29
1.3
1.19
1.01
1.5
1.20
1.7
1.46
1.35
1.9
1.62
2.1
1.85
Millions
of Units
0.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F
Housing starts are rising, but this could be retarded by rising mortgage
interest rates. Recently, the fastest growth is in multi-unit residences.
Personal lines exposure will grow, and commercial insurers with Workers
Comp, Construction risk exposure, and Surety also benefit.
Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (4/14); Insurance Information Institute.
20
US: Pct. Of Private Housing Unit Starts
In Multi-Unit Projects, 1990-2013
Units in Multiple-Unit Projects
as Percent of Total
Housing unit starts
plunged 67% from 20052009, down 128 thousand,
to lowest level since
records began in 1959
40%
20.3%
18.9%
17.7%
17.0%
18.6%
00
01
02
03
04
05
06
09
10
33.3%
20.6%
99
31.4%
21.5%
98
29.3%
20.6%
97
19.7%
21.4%
96
19.7%
23.1%
95
22.8%
21.4%
93
20.5%
12.6%
92
17.7%
14.2%
17.1%
10%
25.0%
20%
31.3%
30%
0%
90
91
94
07
08
11
12
13
For the U.S. as a whole, the trend toward multi-unit housing projects (vs.
single-unit homes) is recent. Commercial insurers with Workers Comp,
Construction risk exposure, and Surety benefit.
Sources: U.S. Census Bureau; Insurance Information Institute.
21
Net Worth of Households*
Recently Hit A Historic High
$ Trillions
$90
$80
$70
Rising net worth feeds a “wealth
effect” that spurs consumer
spending, which accounts for
70% of the U.S. economy
$60
$50
2001
recession
1992
recession
$40
$30
Housing
“bubble”
2008-09
recession:
-15.7%
1982
recession
$20
$10
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$0
*and nonprofit organizations. Data are as of year-end, not seasonally-adjusted or inflation-adjusted
Source: Federal Reserve Board
Household Financial Obligations
Ratio Recently Hit A Historic Low
Financial
Obligations
Ratio
Financial Obligations Ratio: debt service (mortgage and
consumer debt), auto lease, residence rent, HO insurance, and
property tax payments as % of personal disposable income.
18.5%
18.0%
17.5%
Household balance sheets are
stronger than they’ve been in
many years, setting the stage
for more consumer spending
17.0%
16.5%
Decline began
in 2008:Q1.
16.0%
15.5%
15.23% in 2012:Q4
is lowest ratio since
1980:Q4 (15.09%).
1990:Q1
1990:Q3
1991:Q1
1991:Q3
1992:Q1
1992:Q3
1993:Q1
1993:Q3
1994:Q1
1994:Q3
1995:Q1
1995:Q3
1996:Q1
1996:Q3
1997:Q1
1997:Q3
1998:Q1
1998:Q3
1999:Q1
1999:Q3
2000:Q1
2000:Q3
2001:Q1
2001:Q3
2002:Q1
2002:Q3
2003:Q1
2003:Q3
2004:Q1
2004:Q3
2005:Q1
2005:Q3
2006:Q1
2006:Q3
2007:Q1
2007:Q3
2008:Q1
2008:Q3
2009:Q1
2009:Q3
2010:Q1
2010:Q3
2011:Q1
2011:Q3
2012:Q1
2012:Q3
2013:Q1
2013:Q3
15.0%
*through 2013:Q4 (data posted on March 18, 2013)
Source: Federal Reserve Board, at http://www.federalreserve.gov/releases/housedebt
Auto/Light Truck Sales, 1999-2015F
14.4
16
13
11
10
10.4
New auto/light truck sales fell
to the lowest level since the
late 1960s. Forecast for 201415 is even with the1999-2007
average of 16-17 million units.
12
16.4
12.7
14
11.6
13.2
15
16.0
16.1
16.5
16.9
16.9
17
16.6
17.1
17.5
17.8
17.4
18
15.5
It seems likely that we’re back
to new vehicle sales levels
last seen pre-recession
(Millions of Units)
19
9
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13 14F 15F
Yearly car/light truck sales will keep rising, in part replacing cars that
were held onto in 2008-12. New vehicles will generate more physical
damage insurance coverage but will be more expensive to repair.
PP Auto premium might grow by 6%.
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/14); Insurance Information Institute.
25
Index of Total Industrial Production:*
A New Peak at Year-end 2013
110
Many economists
expect business
investment to
rise in 2014
100
90
80
70
Peak at 100.82 in
December 2007
(officially the 1st
month of the Great
Recession)
Recession
60
December 2013
Index at 101.36,
a new peak
1/31/2013
1/30/2012
1/31/2011
1/31/2010
1/31/2009
1/31/2008
1/31/2007
1/31/2006
1/31/2005
1/31/2004
1/31/2003
1/31/2002
1/31/2001
1/31/2000
1/31/1999
1/31/1998
1/31/1997
1/31/1996
1/31/1995
1/31/1994
1/31/1993
1/31/1992
1/31/1991
1/31/1990
50
Insurance exposures for industrial production will continue growing in 2014, and
commercial insurance premium volume with them. Y-o-Y growth to October 2013 was
3.2%. Both production and premium volume growth for 2014 should exceed this.
*Monthly, seasonally adjusted, through January 2014 (which is preliminary). Index based on year 2007 = 100
Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt .
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
26
Business Investment* is Expected to Accelerate
in 2014-16, Fueling Commercial Exposure Growth
9%
8%
Accelerating business
investment will be a potent driver
of commercial property and
liability insurance exposures
7.8%
6.3%
7%
6%
4.9%
5%
4%
3%
2.5%
2%
1%
0%
2013
2014F
2015F
2016F
Accelerating business investment should also drive employment
and WC payroll exposures (with a lag).
*consists of new orders of non-defense capital goods, excluding aircraft, plus buildings and software
Sources: IHS Global Insights as of Jan.13, 2014; Insurance Information Institute.
27
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—Jan. 2014
$ Millions
$500,000
The value of Manufacturing
Shipments in Nov. 2013 was
$493.9B—a new record high.
$400,000
$300,000
Ja
n92
Ja
n93
Ja
n94
Ja
n95
Ja
n9
Ja 6
n97
Ja
n98
Ja
n99
Ja
n00
Ja
n
01
Ja
n
02
Ja
n
03
Ja
n
04
Ja
n
0
Ja 5
n
06
Ja
n
07
Ja
n
08
Ja
n
0
Ja 9
n
10
Ja
n
1
12 1
-J
an
Ja
n
13
Ja
n
14
$200,000
Monthly shipments in Nov. 2013 exceeded the pre-crisis (July 2008) peak; Dec.
2013 and Jan. 2014 slipped a bit. Manufacturing is energy-intensive and growth
leads to gains in many commercial exposures: WC, Commercial Auto, Marine,
Property, and various Liability Coverages.
*seasonally adjusted; Jan. 2014 is preliminary; data published March 6, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 28
Value of Private Construction Put in Place,
by Segment, Jan. 2014 vs. Jan. 2013*
Growth (%)
Construction activity is strong in
several sectors and overall
47.8%
41.0%
14.9% 17.0%
14.6%
7.9%
7.8%
1.7%
0.9%
Transportation
Lodging
Educational
Communication
Health Care
Office
Commercial
Manufacturing
Power
-3.9%
Residential
Total Private
Construction
60%
50%
40%
30%
20% 12.3%
10%
0%
-10%
Categories are arranged from largest dollar amounts (at left) to smaller.
The drop in “power” construction is misleading since it follows a prioryear surge. Hotel and home construction are up sharply.
*seasonally adjusted; Nov and Dec are preliminary; Next release is Apr 1, 2014
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
29
Commercial & Industrial Loans Outstanding
at FDIC-Insured Banks, Quarterly, 2006-2013:Q4*
$Trillions
$1.6
$1.5
$1.4
$1.3
$1.2
$1.13
$1.16
$1.18
$1.22
$1.25
$1.30
$1.39
$1.44
$1.48
$1.49
$1.50
$1.49
$1.43
$1.37
$1.27
$1.21
$1.18
$1.17
$1.17
$1.18
$1.20
$1.24
$1.28
$1.35
$1.37
$1.42
$1.45
$1.50
$1.52
$1.55
$1.57
$1.60
$1.7
Commercial lending activity
exceeds pre-crisis levels
(+36.75% or $430B above
mid-2010 trough)
Commercial lending plunged
by 21.2% ($330B) during the
financial crisis and ensuing
period of tight credit
$1.1
13:Q3
13:Q1
12:Q3
12:Q1
11:Q3
11:Q1
10:Q3
10:Q1
09:Q3
09:Q1
08:Q3
08:Q1
07:Q3
07:Q1
06:Q3
06:Q1
$1.0
Outstanding Commercial Loan Volume Has Been Growing for Over Two
Years and Is Now Nearly Back to Early Recession Levels. Bodes Very Well
for the Creation of Current and Future Commercial Insurance Exposures
*Latest data as of 3/4/2014.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
30
Percent of Non-current Commercial & Industrial
Loans Outstanding at FDIC-Insured Banks,
Quarterly, 2006-2013:Q4*
3%
2%
1%
Back to “normal” levels
of noncurrent industrial
& commercial loans
0.71%
0.70%
0.74%
0.64%
0.63%
0.62%
0.63%
0.67%
0.81%
1.07%
1.18%
1.69%
2.25%
2.80%
3.57%
3.43%
3.05%
2.83%
2.73%
2.44%
1.89%
1.65%
1.49%
1.29%
1.17%
1.09%
0.98%
0.88%
0.80%
0.74%
0.72%
0.62%
4%
Recession
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
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 as of 3/4/2014.
Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
31
State-by-State Leading Indicators
through 2014:Q2
Near-term growth
forecasts vary
widely by state.
Strongest growth
= blue,
then dark green;
weakest = beige
32
Labor Market Trends
Massive Job Losses Sapped the
Economy and
Commercial/Personal Lines
Exposure, But Trend is Improving
33
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through March 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
14
12
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 12.7%
in Mar. 2014.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 6.7% in
March 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.
34
Feb. 2014 Unemployment Rates
in Midwest States Vary Widely*
10%
8.7%
7.7%
8%
6.7%
6.5%
6.1%
6.1%
4.8%
5%
3%
0%
IL
MI
US
OH
*State data are provisional, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
IN
WI
MN
35
Nonfarm Employment, Monthly Change,
2011 - 2014
Average Monthly Gain
2011: 173,600 2012: 186,300 2013: 194,250
Thousands
322
360
400
197
192
237
144
164
202
149
84
96
110
88
141
160
150
161
203
199
201
225
203
214
197
226
243
70
100
102
150
106
122
200
183
164
196
217
168
212
250
221
300
274
280
350
Mar 14
Feb 14
Jan 14
Dec 13
Oct-13
Nov-13
Sep-13
Aug-13
Jul-13
Jun-13
May 13
Apr-13
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
0
Jan-11
50
The pace of job growth varies considerably from month to month
but, on average, has been rising in each of the past three years.
Seasonally adjusted. February 2014 and March 2014 are preliminary data.
Sources: US Bureau of Labor Statistics; Insurance Information Institute
36
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2013
Billions
$7,500
$7,250
$7,000
Prior Peak was
2008:Q3 at $6.54 trillion
Latest (2013:Q4)
was $7.23 trillion, a
new peak--$1T
above 2009 trough
$6,750
$6,500
$6,250
$6,000
$5,750
Recent trough (2009:Q1)
was $6.23 trillion, down
5.3% from prior peak
Growth rates
2011:Q4 over 2010:Q4: 2.7%
2012:Q4 over 2011:Q4: 6.0%
2013:Q3 over 2012:Q3: 3.6%
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
$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.
37
Full-time vs. Part-time Employment,
Quarterly, 2003-2013: WC Implications
Full-time
Part-time
Recession
Millions
122
119
Millions
Pre-recession,
most new jobs
were full-time
28
27
Recession shifted
employment growth from
full-time to part-time
26
113
25
110
24
2003.1
2003.2
2003.3
2003.4
2004.1
2004.2
2004.3
2004.4
2005.1
2005.2
2005.3
2005.4
2006.1
2006.2
2006.3
2006.4
2007.1
2007.2
2007.3
2007.4
2008.1
2008.2
2008.3
2008.4
2009.1
2009.2
2009.3
2009.4
2010.1
2010.2
2010.3
2010.4
2011.1
2011.2
2011.3
2011.4
2012.1
2012.2
2012.3
2012.4
2013.1
2013.2
2013.3
2013.4
116
The Great Recession shifted employment from full-time to part-time, and the
recovery to date hasn’t changed that. Full-time employment is still 4.2 million
below its pre-recession peak, but part-time recently reached a new peak.
Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
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
2/29/2
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-12
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
(Thousands)
6,000
5,900
5,800
5,700
5,600
5,500
5,587
5,508
5,536
5,555
5,524
5,512
5,502
5,525
5,503
5,507
5,504
5,462
5,432
5,464
5,475
5,496
5,520
5,524
5,551
5,553
5,590
5,584
5,585
5,606
5,627
5,622
5,627
5,630
5,613
5,620
5,635
5,647
5,648
5,666
5,687
5,720
5,743
5,789
5,813
5,811
5,816
5,829
5,830
5,836
5,849
5,864
5,896
5,876
5,926
5,941
Construction Employment,
Jan. 2010—February 2014*
Construction employment
is now +509,000 above
Jan. 2011 (+9.4%).
5,400
Construction and manufacturing employment constitute 1/3 of all payroll exposure.
*Seasonally adjusted; Jan. and Feb. 2014 are preliminary
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
39
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
12,250
12,000
11,750
11,500
11,462
11,453
11,458
11,493
11,527
11,543
11,571
11,550
11,557
11,557
11,581
11,592
11,620
11,653
11,675
11,704
11,711
11,723
11,755
11,763
11,766
11,773
11,771
11,798
11,837
11,859
11,901
11,916
11,928
11,939
11,979
11,956
11,942
11,947
11,951
11,965
11,982
12,004
12,007
12,001
11,994
11,991
11,982
11,990
11,993
12,011
12,046
12,053
12,059
12,065
Manufacturing Employment,
Jan. 2010—February 2014*
(Thousands)
Since Jan 2010,
manufacturing employment
is up (+550,000 or +4.6%)
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; Jan.and Feb 2013 are preliminary
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
40
Winter Storms and Other
Natural Catastrophes
Have You Noticed It’s Been Cold
and Snowy Lately?
41
Significant Natural Catastrophes in 2013
($1 billion economic loss and/or 50 fatalities)
Date
Event
February 24 – 25
Winter Storm
March 18 – 19
Thunderstorms
April 7 – 11
Winter Storm
April 16 – 18
Estimated
Economic
Losses (US $m)
Estimated
Insured
Losses (US $m)
1,300
690
2,200
1,600
1,600
1,200
Thunderstorms
1,100
560
May 18 – 20
Thunderstorms
3,100
1,800
May 28 – 31
Thunderstorms
2,800
1,400
August 6 – 7
Thunderstorms
1,300
740
September 9 – 16
Flooding
1,500
160
November 17 - 18
Thunderstorms
1,300
931
Source: Munich Re NatCatSERVICE
© 2014 Munich Re
42
Natural Disaster Losses
in the United States, 2013
Number of
Events
Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm
69
110
16,341
10,274
Winter Storm
11
43
2,935
1,895
Flood
19
23
1,929
240
Earthquake &
Geophysical
6
1
Minor
Minor
Tropical Cyclone
1
1
Minor
Minor
Wildfire, Heat, &
Drought
22
29
620
385
Totals
128
207
21,825
12,794
As of December 31,
2013
Source: Munich Re NatCatSERVICE
© 2014 Munich Re
43
Largest Insured Claims, Individual
Winter Storms, US & Canada, 1980-2013
Storm Dates
Economic Loss Insured Loss
($2013, mil)
($2013, mil)
Deaths
Mar. 11-14, 1983
$8,061
$3,224
270
Dec. 17-30, 1983
$2,339
$2,058
500
Apr. 13-17, 2007
$2,247
$1,775
23
Dec. 10-13, 1992
$4,981
$1,660
19
Jan. 5-12, 1998
$4,146
$1,644
45
Feb. 10-12, 1994
$4,716
$1,258
9
Jan. 17-20, 1994
$1,572
$1,258
70
Apr. 7-11, 2013
$1,600
$1,200
N/A
Jan. 1-4, 1999
$1,398
$1,084
25
Jan 31-Feb 2, 2011
$1,346
$1,010
36
Sources: Munich Re NatCatSERVICE, Insurance Information Institute
44
Winter Storm and Winter Damage Events in
the US and Canada, 1980-2013 (2013 US$)
Insured Losses (Millions, $ 2013)
5-year
running
average
1993, ‘94, & ‘96: 3 of the 4
costliest years for insured losses
from winter storms and damage.
In 2013,
insured
losses
from
severe
winter
events:
$2 billion.
Insured winter storm and damage losses in Jan. 2014 already totaled
$1.5 billion. Continued severe weather since then makes it likely that
2014 will become one of the top 5 costliest winters since 1980.
Sources: Munich Re NatCatSERVICE; Insurance Information Institute.
45
US Thunderstorm Loss Trends
Insured Annual Totals 1980 – 2013
Average insured thunderstorm losses have increased sevenfold since 1980.
2013 Total:
$10.3 bn
Source: Property Claims Service
Munich Re NatCatSERVICE
© 2014 Munich Re
46
Investment Performance:
a Key Driver of Profitability
Depressed Yields Influence
Underwriting & Pricing
47
Property/Casualty Insurance Industry
Net Investment Gain: 1994–2013:Q31
($ Billions)
$70
$59.4
$55.7
$58.0
$60
$56.9
$51.9
$52.3
$47.2
$42.8
$50
$53.4
$56.2
$53.9
$53.9
$64.0
$48.9
$45.3
$44.4
$40 $35.4
$39.2
$36.0
$31.7
$30
$20
Investment gains in 2013 are
running an estimated 16%
below their pre-crisis peak
$10
$0
94
95
96
97
98
99
00
01
02
03
04 05* 06
07
08
09
10
11
12 13E
Investment gains are expected to show a modest growth in 2013 with higher
realized capital gains more than offsetting declining investment income. The
financial crisis caused net 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.
U.S. Treasury 2- and 10-Year Note
Yields*: 1990–2014
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
U.S. Treasury
10-year note
yields recently
“spiked” up
7%
6%
5%
4%
3%
2%
1/31/2013
1/30/2012
1/31/2011
1/31/2010
1/31/2009
1/31/2008
1/31/2007
1/31/2006
1/31/2005
1/31/2004
1/31/2003
1/31/2002
1/31/2001
1/31/2000
1/31/1999
1/31/1998
1/31/1997
1/31/1996
1/31/1993
1/31/1992
1/31/1991
1/31/1990
0%
1/31/1995
1%
1/31/1994
Recession
2-Yr Yield
10-Yr Yield
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 February 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
49
Distribution of Bond Maturities,
P/C Insurance Industry, 2003-2012
2012
16.5%
40.4%
27.6%
9.8% 5.7%
2011
15.2%
41.4%
26.8%
10.3% 6.3%
2010
16.3%
39.5%
2009
16.2%
2008
15.7%
36.2%
32.4%
26.7%
28.7%
31.2%
11.1% 6.4%
11.7% 7.3%
12.7%
8.1%
Under 1 year
1-5 years
5-10 years
2007
15.2%
30.0%
33.8%
12.9%
8.1%
10-20 years
2006
16.0%
29.5%
34.1%
13.1%
7.4%
over 20 years
2005
16.0%
28.8%
34.1%
13.6%
7.6%
2004
15.4%
29.2%
2003
14.4%
29.8%
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.
50
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
53