Homeowners Insurance:
Is a Minnesota Meltdown Coming?
Insurance Federation of Minnesota
Minneapolis, MN
November 1, 2011
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
What in the World Is
Going On?
Is the World (Including Minnesota)
Becoming a Riskier Place?
What Are the Implications for the
Insurance Industry and Policyholders?
2
Uncertainty, Risk and Fear Abound
ECONOMIC & POLITICAL CONCERNS
 Global Economic Slowdown
 European Sovereign Debt, Bank & Currency Crises
 US Debt and Budget Crisis and S&P Downgrade
 Echoes of the Financial Crisis
 Housing Crisis
 Persistently High Unemployment
 Inflation/Deflation
 Runaway Energy & Commodity Prices
 Political Upheaval in the Middle East
 2012 US Elections
CATASTROPHIC LOSS
 Japan, New Zealand, Turkey, Haiti, Chile Earthquakes
 Nuclear Fears
 US: Tornadoes, Flooding, Wildfires, Hurricanes, Winter Storms
 Manmade Disasters (e.g., Deepwater Horizon)
 Cyber Attacks
 Resurgent Terrorism Risk (e.g., Bin Laden, Gadhafi Killings)
Are “Black
Swans”
everywhere
or does it
just seem
that way?
3
Minnesota’s Homeowners
Insurance Market
Profitability and Growth in MN vs.
Other Lines and States
4
Return of Net Worth, All Lines:
MN vs. U.S., 2000-2009*
(Percent)
MN profitability is
about average
since 2000 but
has lagged in
recent years
20%
15%
10%
5%
Average 2000-2009
0%
US: 7.0%
-5%
MN: 6.8%
-10%
00
01
02
US All Lines
*Latest available.
Sources: NAIC; Insurance Information Institute.
03
04
05
06
07
08
09
MN All Lines
5
Return on Net Worth, Homeowners:
MN vs. U.S., 2000-2009*
(Percent)
Average 2000-2009
US: 4.7%
60%
MN: -14.4%
40%
20%
0%
MN profitability in the
Homeowners line—at
14.4% on avg. since 2000,
is far worse than the US
average and is more like
that of a coastal,
hurricane-exposed state
-20%
-40%
-60%
-80%
00
01
02
US HO
*Latest available.
Sources: NAIC; Insurance Information Institute.
03
04
05
06
07
08
09
MN HO
6
Return on Net Worth, Pvt. Passenger Auto:
MN vs. U.S., 2000-2009
MN profitability in the
private passenger auto
is above the US average,
but in this era of direct
auto-only marketers
selling home as a loss
leader won’t work
25%
20%
15%
10%
Average 2000-2009
US: 7.2%
5%
MN: 11.3%
0%
00
01
02
US PP Auto
*Latest available.
Sources: NAIC; Insurance Information Institute.
03
04
05
06
07
08
09
MN PP Auto
7
All Lines: 10-Year Average RNW MN &
Nearby States
2000-2009
10.4%
8.2%
Indiana
8.0%
Wisconsin
7.6%
7.0%
6.8%
6.3%
South Dakota
North Dakota
Minnesota All
Lines profitability
is below the US
and regional
average
U.S.
Minnesota
Illinois
0%
2%
4%
6%
Source: NAIC, Insurance Information Institute
8%
10%
12%
Homeowners: 10-Year Average RNW MN
& Nearby States
2000-2009
4.7%
Minnesota Homeowners
profitability is below the US
average and the regional
average
U.S.
2.2%
South Dakota
1.6%
Illinois
0.4%
Wisconsin
-5.5%
Indiana
-10.8%
North Dakota
-14.4%
Minnesota
-20%
-15%
-10%
-5%
Source: NAIC, Insurance Information Institute
0%
5%
10%
715
721
749
788
788
789
791
814
842
845
845
856
862
897
911
926
980
980
1,026
916
808
800
MN ranks as the
14th most
expensive state
for homeowners
insurance
983
1,000
1,048
1,200
1,155
1,400
1,390
1,600
1,460
Homeowners Average Expenditure by
State, 2008: Highest 25 States
600
400
200
0
TX FL LA OK MA NY CT MS DC KS CA RI HI AK AL MN CO NE ND US SC AR MO GA MT MI
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling.
The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.
Source: © 2010 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly
prohibited without written permission of NAIC.
11
Homeowners Average Expenditure by
State, 2008: Lowest 25 States
432
471
439
387
400
565
572
601
609
586
535
503
500
604
600
612
628
628
637
638
647
650
658
676
683
691
692
692
700
703
800
300
200
100
0
NM NV TN NJ NC WY IN VT NH WV MD AZ IL
IA SD VA KY PA ME OH DE WI WA OR UT ID
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling.
The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.
Source: © 2010 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly
prohibited without written permission of NAIC.
12
MN Homeowners Average Expenditure,
1998-2008*
$900
$800
The average expenditure on
homeowners insurance in MN
was $54 or 6.8% above the US
avg. of $791 in 2008, 14thh
highest in the country.
$845
Avg. expenditure climbed
125% between 1998 and 2008.
$767
$790
$788
$800
2005
2006
2007
$733
$700
$590
$600
$500
$400
$464
$375
$390
1998
1999
$420
$300
2000
2001
2002
2003
2004
2008
*Latest available.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling.
The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.
Source: © 2010 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly
prohibited without written permission of NAIC.
13
PP Auto: 10-Year Average RNW MN &
Nearby States
2000-2009
11.6%
South Dakota
11.3%
Minnesota
10.3%
North Dakota
8.9%
8.7%
7.6%
Wisconsin
Minnesota PP Auto
profitability is
above the US and
regional average
7.2%
Indiana
Illinois
U.S.
0%
5%
Source: NAIC, Insurance Information Institute
10%
15%
All Lines DWP Growth: MN vs. U.S.,
2001-2010
All Lines Direct
Written Premium
(DPW) growth in MN
is little different from
the US overall since
over the past decade
1.5%
-2.1%
-0.3%
-5%
0.5%
2.1%
3.4%
-0.4%
0%
2.2%
3.9%
5%
0.0%
-0.1%
MN: 4.2%
-3.3%
-3.9%
US: 4.4%
7.4%
10%
Average 2001-2010
9.8%
11.4%
15%
12.0%
12.2%
20%
14.3%
15.4%
(Percent)
-10%
01
Source: SNL Financial.
02
03
US DWP: All Lines
04
05
06
07
08
MN DWP: All Lines
09
10
16
Personal Lines DWP Growth: MN vs.
U.S., 2001-2010
(Percent)
2.5%
3.4%
09
10
-0.4%
-5%
-1.9%
-1.2%
0%
-0.1%
0.4%
1.2%
2.3%
5.4%
2.6%
5%
2.3%
MN: 3.9%
1.1%
3.1%
US: 4.3%
9.2%
9.8%
11.1%
13.5%
8.2%
9.4%
15%
10%
Personal Lines DPW
growth has been
slower, on average,
in MN relative to the
US overall
Average 2001-2010
20%
-10%
01
02
03
04
US DWP: Personal Lines
Source: SNL Financial.
05
06
07
08
MN DWP: Personal Lines
17
Homeowner’s MP DWP Growth: MN vs.
U.S., 2001-2010
(Percent)
Average 2001-2010
25.2%
US: 9.7%
8.9%
3.9%
4.2%
3.5%
5%
0.8%
7.4%
3.0%
7.3%
13.5%
11.1%
8.1%
10%
8.3%
15%
14.4%
13.9%
20%
4.9%
7.7%
Homeowners DPW
growth has generally
been higher in MN
compared to the US
overall
MN: 7.6%
5.2%
20.5%
25%
0.5%
30%
0%
01
Source: SNL Financial.
02
03
04
US DWP: HO Lines
05
06
07
08
09
MN DWP: HO Lines
10
18
Private Passenger Auto DWP Growth:
MN vs. U.S., 2001-2010
(Percent)
Average 2001-2010
PP Auto DPW
growth from
2001-2010 in MN
was half the US
average
MN: 1.6%
01
Source: SNL Financial.
02
03
US DWP: PP Auto
04
05
-0.1%
0.3%
06
07
MN DWP: PP Auto
-0.4%
-1.9%
-5%
-3.2%
-3.0%
0%
-2.2%
0.0%
0.5%
0.6%
0.6%
3.6%
5%
1.5%
1.0%
10.2%
10.2%
US: 3.2%
7.9%
6.3%
10%
8.2%
8.2%
15%
08
09
10
19
Minnesota’s Catastrophe
Loss History
It May Not Be a Coastal State, but
MN is No Stranger to Catastrophe
22
Severe Weather Reports in Minnesota,
January 1—October 25, 2011
There were 552
severe weather
reports in MN
through Oct. 25
MN
Total Reports = 552
Tornadoes = 30 (Red)
Hail Reports = 192 (Green)
Wind Reports = 330 (Blue)
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
23
States With Highest Insured
Catastrophe Losses, 2007 ($ millions)
State
Estimated insured
loss (1)
California
Minnesota
Texas
Georgia
Illinois
Oklahoma
Kansas
Missouri
New York
Colorado
Alabama
$1,427
747
677
320
272
270
262
223
202
200
200
(1) Does not include flood damage covered by the federally administered National Flood Insurance Program.
Note: Catastrophes are assigned serial numbers by the Property Claim Services (PCS) unit of ISO when the insured loss to the
industry resulting from an occurrence reaches at least $25 million and affects a significant number of policyholders and insurers.
Source: ISO’s Property Claims Services (PCS) unit.
24
Top Ten States By Highest Insured
Catastrophe Losses, 2008 ($ millions)
Rank
1
2
3
4
5
6
7
8
9
10
State
Estimated insured loss
Texas
Louisiana
Minnesota
Ohio
Georgia
Arkansas
Indiana
Kentucky
Illinois
Kansas
$11,669.0
2,228.0
1,583.0
1,459.0
1,040.0
786.5
785.0
743.0
640.0
638.0
Note: Catastrophes are assigned serial numbers by the Property Claim Services (PCS) unit of ISO when the insured loss to the
industry resulting from an occurrence reaches at least $25 million and affects a significant number of policyholders and insurers.
Source: ISO's Property Claims Services (PCS) unit.
25
MN & U.S. Homeowners Loss Ratio,
2001-2010
40
157.3
75.3
60.6
71.0
50.4
53
59.3
127.9
83.7
47.8
34.6
60
59.2
80
74.8
65.9
100
77.2
120
76.5
75.6
140
31.8
143.2
160
66.4
Minnesota had
some very bad
years in the home
insurance line,
with loss ratios
well over 100%
180
20
0
01
Source: SNL Financial.
02
03
MN
04
05
06
07
U.S.
08
09
10
26
158.4
Homeowners Insurance Combined
Ratio: 1990–2011P
170
160
115.0
106.7
105.7
116.8
95.6
100.3
109.3
94.4
88.9
90
98.2
100
121.7
111.4
108.2
109.4
118.4
112.7
101.0
110
113.6
120
117.7
130
113.0
140
121.7
150
80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Homeowners Line Could Deteriorate in 2011 Due to Large Cat
Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).
Number of Federal Disaster
Declarations In Minnesota, 1953-2011*
2
3
3
4
2
2
2.0
2
2.5
2
3.0
2
3.5
3 federal disaster
declarations were made
through Oct. 31 in MN for
severe storms, tornadoes
and flooding between
May and July.
2
4.0
There have been 48
federal disaster
declarations in MN since
1953. The average
number of declarations
per year is 0.8 from 19532011, though the number
has been higher in
recent years
2
2
4.5
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1.0
1
1.5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
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*
0.0
0
0
0
0
0.5
The Number of Federal Disaster Declarations Spike in 2010 and 2011 with
Three Events Each Year, Second Only to 1997
*Through October 31, 2011.
Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ;
Insurance Information Institute.
Average Number of Tornadoes per
Year, 2000-2010
Minnesota averaged 51
tornadoes per year from
2000-2010, but
experiences only 30 in
2011 through Oct. 25
Source: NOAA at http://www.spc.noaa.gov/wcm/ustormaps/2001-2010-states.png
29
Tornado by County, 1952-2010
MN is on the
northern
edge of
tornado alley
Source: NOAA at http://www.spc.noaa.gov/wcm/ustormaps/tornadoes-by-county.png
30
Tornado Tracks by EF Scale,
1950-2010
Minnesota has
experiences every
strength of tornado,
including EF-5 storms
Source: NOAA at: http://www.spc.noaa.gov/gis/svrgis/images/EF_tracks.gif
31
2010 Tornado and Severe Thunderstorm
Watches & Departure from Average
MN tornado
activity was
well above
average in 2010
Source: NOAA at http://www.spc.noaa.gov/wcm/2010-wbc-anoms.png
32
U.S. Insured Catastrophe
Loss Update
2011 CAT Losses Already Greatly
Exceed All of 2010 and Will Become One
of the Most Expensive Years on Record
33
US Insured Catastrophe Losses
($ Billions)
$120
$100
$80
Record Tornado
Losses Caused
2011 CAT Losses
to Surge
$61.9
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
$100.0
$100 Billion CAT Year is
Coming Eventually
$24.0
$13.6
$10.6
$6.7
$9.2
$27.1
$27.5
$12.9
$5.9
$26.5
$4.6
$8.3
$10.1
$2.6
$7.4
$8.3
$16.9
$4.7
$2.7
$20
$7.5
$40
$5.5
$22.9
$60
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??
First Half 2011 US CAT Losses Already Exceed Losses from All of
2010. Even Modest Hurricane Losses Will Make 2011 Among the
Most Expensive Ever for CATs
*Estimate through Sept. 30, 2011.
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; Insurance Information Institute.
34
Top 12 (13?) Most Costly Disasters
in U.S. History
(Insured Losses, 2010 Dollars, $ Billions)
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Taken as a single event, the
Spring 2011 tornado season
would likely become 5th costliest
event in US insurance history
$45.8
$22.6 $23.1
$17.5
$6.3
$6.7
Jeanne Frances Rita
(2004) (2004) (2005)
Hugo
(1989)
$4.3
$5.3
$8.2
$8.6
Ivan
(2004)
Charley
(2004)
$14.0
$11.5 $12.8
Wilma
(2005)
Ike
Spring Northridge Andrew 9/11 Attack Katrina
(2008) Tornadoes* (1994) (1992) (2001) (2005)
(2011)
*Losses will actually be broken down into several “events” as determined by PCS.
Sources: PCS; Insurance Information Institute inflation adjustments.
35
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2011:H1*
5.0
2.6
3.3
2010E
2008
1.6
2.7
2006
1.6
2002
2004
1.6
2000
1998
1.0
1996
3.3
3.3
3.6
2.9
3.3
2.8
1994
5.0
5.4
5.9
8.1
8.8
1990
2.1
2.3
3.0
1.2
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1.2
0.4
0.8
1.3
0.3
0.4
0.7
1.5
1.0
0.4
0.4
0.7
1.8
1.1
0.6
1.4
2.0
1.3
2.0
0.5
0.5
0.7
0.4
1966
1962
1964
3.6
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 4.15*
0.8
1.1
1.1
0.1
0.9
1960
10
9
8
7
6
5
4
3
2
1
0
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1992
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
*Insurance Information Institute estimates for 2010 and 2011:H1
Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for
losses ultimately paid by foreign insurers and reinsurers.
Source: ISO; Insurance Information Institute.
36
Natural Disasters in the United States,
1980 – 2011*
Number of Events (Annual Totals 1980 – 2010 and First Half 2011)
300
There were 98 natural
disaster events in the first
half of 2011
250
Number
200
150
100
37
8
50
51
2
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
*Through June 30.
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
Meteorological (storm)
Hydrological
(flood, mass movement)
2000
2002
2004
2006
2008
2010
Climatological
(temperature extremes,
drought, wildfire)
37
U.S. Thunderstorm Loss Trends,
1980 – 2011*
Thunderstorm losses in the first half
of 2011 totaled $16.4 billion, a new
annual record through just 6 months
Average thunderstorm
losses are up more
than 8 fold since the
early 1980s
*Through June 30, 2011.
Source: Property Claims Service, MR NatCatSERVICE
Hurricanes get all the headlines,
but thunderstorms are consistent
producers of large scale loss.
2008-2011 are the most expensive
years on record.
38
U.S. Winter Storm Loss Trends,
1980 – 2010 (Annual Totals) vs. First Half 2011
Insured winter storm losses
in 2011 totaled $1.4 billion
and are up 50% since 1980.
Source: Property Claims Service, MR NatCatSERVICE
39
U.S. Acreage Burned by Wildfires,
1980 – 2010 (Annual Totals) vs. First Half 2011
2011 could be a severe year
for wildfire damage. Acres
burned through June 30
already exceed all of 2010.
Source: National Forest Service, MR NatCatSERVICE
40
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1990–2011:H11
Wind/Hail/Flood (3), $12.7
Fires (4), $9.0
Other (5), $0.6
Geological Events, $18.5
2.4%
4.9% 3.4%0.2%
Terrorism, $24.9
6.6%
42.7%
Winter Storms, $30.0
8.0%
Hurricanes & Tropical Storms,
$160.5
Tornado share of
CAT losses is
rising
31.8%
Tornadoes (2), $119.5
Wind losses are by
far cause the most
catastrophe losses,
even if hurricanes/TS
are excluded.
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.
Source: ISO’s Property Claim Services Unit.
41
Number of Federal Disaster
Declarations, 1953-2011*
0
90
81
75
59
48
52
45
45
49
50
56
63
65
69
75
44
32
36
32
43
45
38
11
31
34
24
21
15
29
17
17
19
11
11
12
12
7
7
10
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*
20
13
17
18
16
16
30
22
20
25
25
40
27
28
23
38
50
42
60
23
70
22
25
80
30
90
48
46
46
100
The number of federal
disaster declarations set a
new record in 2011, with 86
declarations through Sept.
30. It is no wonder that
FEMA is broke!
There have been 2,036
federal disaster
declarations since
1953. The average
number of declarations
per year is 34 from
1953-2010, though that
few haven’t been
recorded since 1995.
The Number of Federal Disaster Declarations Is Rising and Set a New
Record in 2011
*Through October 31, 2011.
Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ;
Insurance Information Institute.
Federal Disasters Declarations by State,
1953 – Oct. 31, 2011: Highest 25 States
Over the past nearly 60
years, Texas has had
the highest number of
Federal Disaster
Declarations
30
20
10
39
42
43
44
45
46
47
47
47
48
48
50
51
53
53
55
55
63
MN has had 48 federal
disaster declarations since
1953, less than one per year,
on average (1 declaration
about every 1.2 years)
40
40
50
50
58
60
65
70
70
Disaster Declarations
80
78
90
86
100
0
TX CA OK NY FL LA AL KY AR MO IL MS TN IA MN KS NE PA WV OH WA VA ND NC IN
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
43
Federal Disasters Declarations by State,
1953 – Oct. 31, 2011: Lowest 25 States*
Over the past nearly 60
years, Wyoming, Utah
and Rhode Island had
the fewest number of
Federal Disaster
Declarations
9
9
10
9
10
14
15
16
16
17
23
23
25
25
26
27
26
24
22
20
20
27
30
32
32
35
35
39
36
Disaster Declarations
40
39
50
0
ME SD GA AK WI VT NJ NH OR MA PR HI MI AZ ID NM MD MT NV CO CT SC DE DC RI UT WY
*Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
44
SPRING 2011 TORNADO &
SEVERE STORM OUTBREAK
2011 Will Be Among the Most Deadly and
Expensive for Tornadoes In History
45
Number of Tornadoes and Related
Deaths, 1990 – 2011*
800
600
1,805
1,282
1,098
1,103
1,376
1,216
1,148
1,173
1,234
1,082
1,297
1,173
1,071
941
1,000
1,132
1,200
1,133
1,400
546
There were 1,805
tornadoes recorded
in the US by Oct. 13
400
600
500
400
300
200
Number of Deaths
Number of Tornadoes
1,600
1,345
1,424
Number of Deaths
1,800
1,692
1,819
1,156
Number of Tornadoes
1,264
2,000
Tornadoes have already
claimed more than 500 lives
100
200
0
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Insurers Expect to Pay at Least $2 Billion Each for the April 2011
Tornadoes in Alabama and a Similar Amount for the May Storms in Joplin
*2011 is preliminary data through October 13.
Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
46
U.S. Tornado Count, 2005-2011*
There were 1,819 tornadoes
in the US in 2011 through
Oct. 29, far above average,
but well below 2008’srecord
Deadly and
costly April/
May spike
Source: http://www.spc.noaa.gov/wcm/
*Through October 29.
47
Insurers Making a Difference in
Impacted Communities
Destroyed home in
Tuscaloosa. Insurers
will pay some 165,000
claims totaling $2 billion
in the Tuscaloosa/
Birmingham areas alone.
Presentation of a check
to Tuscaloosa Mayor
Walt Maddox to the
Tuscaloosa Storm
Recovery Fund
Source: Insurance Information Institute
48
Location of Tornadoes in the US,
January 1—October 13, 2011
1,805 tornadoes
killed 546 people
through Oct. 13,
including at least
340 on April 26
mostly in the
Tuscaloosa area,
and 130 in Joplin
on May 22
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
49
Location of Large Hail Reports in the
US, January 1—October 13, 2011
There were 9,287
“Large Hail”
reports through
Oct. 13, causing
extensive damage
to homes,
businesses and
vehicles
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
50
Location of Wind Damage Reports in
the US, January 1—Oct. 13, 2011
There were 18,293
“Wind Damage”
reports through
Oct. 13, causing
extensive damage
to homes and,
businesses
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
51
Severe Weather Reports,
January 1—October 13, 2011
There have
been 29,385
severe weather
reports through
Oct. 13;
including 1,805
tornadoes;
9,287 “Large
Hail” reports
and 18,293 high
wind events
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
52
Number of Severe Weather Reports in US,
by Type: January 1—October 13, 2011
Tornadoes,
1,805 , 6%
Large Hail,
9,287 , 32%
Wind
Damage,
18,293 , 62%
Tornadoes accounted
for just 6% of all
Severe Weather
Reports through
October 13 but more
than 500 deaths
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
Global Catastrophe Loss
Developments and Trends
2011 and 2010 Are Rewriting
Catastrophe Loss and
Insurance History
54
Global Catastrophe Loss Summary:
First Half 2011
 2011 Is Already (as of June 30) the Highest Loss Year on Record Globally
 Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods
and tornadoes are the primary causes of loss
 $260 Billion in Economic Losses Globally
 New record for the first six months, exceeding the previous record of $220B in 2005
 Economy is more resilient than most pundits presume
 $55 Billion in Insured Losses Globally
 More than double the first half 2010 amount
 Over 4 times the 10-year average
 $27 Billion in Economic Losses in the US
 Represents a 129% increase over the $11.8 billion amount through the first half of 2010
 $17.3 Billion in Insured Losses in the US Arising from 100 CAT Events
 Represents a 162% increase over the $6.6 billion amount through the first half of 2010
55
Natural Loss Events,
January – September 2011
World Map
Source: MR NatCatSERVICE
56
Worldwide Natural Disasters 2011
% Distribution of Insured Losses Per Continent (January – June only)
Insured losses 2011 (January – June only): US$ 60bn
49%
<1%
29%
<1%
<1%
Continent
Africa
America
Asia
Australia/Oce
ania
Europe
Source: MR NatCatSERVICE
Insured losses [US$ m] in 2011
Jan - June
minor
17,800
30,080
21%
12,900
100
58
US Second Quarter Insured Catastrophe
Losses, 2000–2011
$ Billions
$16
$14
$12
2011:Q2 CAT
losses totaled
$15.09 billion and
are the highest on
record
Q2 CAT losses from 2000-2010
average $4.0 billion. 2011:Q2
CAT losses were nearly 4 times
that amount at $15.09 billion
$15.09
$10
$7.11
$8
$6
$5.05
$4
$2
$6.38
$6.24
$2.79
$5.04
$2.33
$1.46
$4.47
$2.30
$0.93
$0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Record Q2 (and First Half) CAT Losses Will Adversely Impact Insurer
Results in 2011
Sources: ISO/PCS; Insurance Information Institute.
60
Top 16 Most Costly World Insurance
Losses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
$80
$70
$60
$50
$40
$30
$20
$10
Taken as a single event, the
Spring 2011 tornado and
thunderstorm season would
likely become the 7th
costliest event in global
insurance history
$11.3 $14.0
$10.0
$9.3
$9.0
$7.8 $8.0 $8.0
3 of the top 15 most
expensive
catastrophes in world
history have occurred
in the past 18 months
$14.9 $16.3
$72.3
$35.0
$20.5 $20.8 $23.1
$24.9
$0
Winter
Storm
Daria
(1991)
Chile Hugo
Typhoon Charley New
Rita
Quake (1989) Mirielle (2004) Zealand (2005)
(2010)
(1991)
Quake
(2011)
Wilma
(2005)
Ivan
Spring Ike
Northridge
WTC TerrorAndrew Japan Katrina
(2004) Tornadoes/ (2008) (1994) Attack (1992) Quake, (2005)
Storms
(2001)
Tsunami
(2011)
(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.
62
Worldwide Natural Disasters,
1980 – 2011*
Number of Events
There were 355 events
through the first 6
months of 2011
600
500
400
300
200
100
1980
1982
1984
1986
Geophysical events
(Earthquake, tsunami,
volcanic eruption)
*2011 figure is through June 30.
Source: MR NatCatSERVICE
1988
1990
1992
1994
Meteorological events
(Storm)
1996
1998
2000
2002
Hydrological events
(Flood, mass
movement)
2004
2006
2008
2010
Climatological events
(Extreme temperature,
drought, forest fire)
63
Global Property Catastrophe Rate on
Line Index, 1990-2011 YTD (6/1/11)
A modest increase in global property
catastrophe reinsurance pricing was
evident in June 1 renewals in the
wake of record global catastrophe
losses. Larger increase could occur
for the Jan.1, 2012 renewals
Source: Guy Carpenter, GC Capital Ideas.com, September 26, 2011.
P/C Insurance Industry
Financial Overview
Profit Recovery Will Be Set
Back by High CATs, Low
Interest Rates, Diminishing
Reserve Releases
66
$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*
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
15.9%
110
109.4
14.3%
100.6
100
15%
12.7%
105
100.1
97.5
95
101.0
100.7
9.6%
99.3
7.4%
92.6
8.9%
18%
100.8
12%
9%
7.5%
6%
90
2.3%
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. 2011H1 combined ratio including M&FG insurers is 110.5 , ROAS = 2.3%.
Source: Insurance Information Institute from A.M. Best and ISO data.
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)
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Avg. CAT
Losses,
More
Reserve
Releases
109.4
107.5
100.1
100
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=110.5
Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
69
Underwriting Gain (Loss)
1975–2011*
Underwriting
losses in
2011 will be
much larger:
$24.1B
based on H1
data
($ Billions)
$35
$25
Cumulative
underwriting deficit
from 1975 through
2010 is $455B
$15
$5
-$5
-$15
-$25
-$35
-$45
-$55
The industry recorded
a $10.4B underwriting
loss in 2010 compared
to $3.0B in 2009
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 1011*
Large Underwriting Losses Are NOT Sustainable
in Current Investment Environment
* Includes mortgage and financial guaranty insurers in all years. 2011 figure is actual H1 underwriting losses of
$24.098 billion.
Sources: A.M. Best, ISO; Insurance Information Institute.
Financial Strength &
Underwriting
Cyclical Pattern is P-C Impairment
History is Directly Tied to
Underwriting, Reserving & Pricing
71
P/C Insurer Impairments, 1969–2010
8 of the 18 in 2009 were small
Florida carriers. Total also
includes a few title insurers.
0
11
16
18
18
19
12
18
14
15
35
31
29
16
5
9
13
12
9
9
11
7
8
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
10
15
12
20
16
14
13
19
30
31
34
34
40
36
41
50
49
50
47
49
50
48
55
60
60
58
70
The Number of Impairments Varies Significantly Over the P/C Insurance
Cycle, With Peaks Occurring Well into Hard Markets
Source: A.M. Best Special Report “1969-2010 Impairment Review,” June 21, 2010; Insurance Information Institute.
Reasons for US P/C Insurer
Impairments, 1969–2010
Historically, Deficient Loss Reserves and Inadequate Pricing Are
By Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Reinsurance Failure
Sig. Change in Business
3.6%
4.0%
Misc.
8.6%
Investment Problems
(Overstatement of Assets)
7.3%
40.3%
Affiliate Impairment
Deficient Loss Reserves/
Inadequate Pricing
7.8%
7.1%
Catastrophe Losses
7.8%
Alleged Fraud
13.6%
Rapid Growth
Source: A.M. Best: 1969-2010 Impairment Review, Special Report, April 2011.
74
SURPLUS/CAPITAL/CAPACITY
Have Large Global Catastrophe
Losses Reduced Capacity in the
Industry, Setting the Stage for a
Market Turn?
76
Policyholder Surplus,
2006:Q4–2011:Q2
($ Billions)
2007:Q3
Previous Surplus Peak
$580
Surplus as of 6/30/11 fell by 1% below
its all time record high of $564.7B set
as of 3/31/11. Further declines are likely
$559.1
$556.9
$544.8
$560
$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
$460
$440
The Industry now has $1 of
surplus for every $0.78 of
NPW—the strongest claimspaying status in its history.
$455.6
$463.0
$437.1
$420
06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 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%)
78
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Would Also Help Absorb
Excess Capital
79
2%
0.6%
4%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
0.9%
3.2%
2.3%
2.9%
4.1%
6%
1.6%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
Real GDP Growth (%)
5.0%
3.9%
3.8%
2.5%
2.3%
0.4%
1.3%
2.5%
1.9%
1.9%
2.2%
2.5%
2.7%
US Real GDP Growth*
-0.7%
12:4Q
12:3Q
12:2Q
12:1Q
11:4Q
11:3Q
11:2Q
11:1Q
10:4Q
10:3Q
10:1Q
09:4Q
09:3Q
09:2Q
10:2Q
2011 got off to a sluggish
start, but growth is expected
to proceed at a more modest,
though still relatively weak
pace through 2012
-4.9%
09:1Q
08:4Q-6.8%
-4.0%
08:3Q
08:2Q
08:1Q
07:4Q
07:3Q
07:2Q
07:1Q
2006
2005
2004
2000
-8%
2003
-6%
2002
-4%
Recession began in Dec.
2007. Economic toll of credit
crunch, housing slump,
labor market contraction has
been severe but modest
recovery is underway
2001
-2%
-0.7%
0%
Demand for Insurance Continues To Be Impacted by Sluggish Economic
Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 10/11; Insurance Information Institute.
80
Real GDP Growth: Minnesota vs. US,
1998-2010
8%
6%
MN’s economy
underperformed the US prior
to the recession, in part
because it did not experience
a home building bubble
6.80%
5.30%
4.50%
4%
4.4%
4.10%
3.40%
4.8%
2.8%
4.2%
2.30%
3.4%
1.3%
2%
1.7%
0.80%
2.1%
-2%
-4%
99
00
1.9%
0.20%
0.30%
01
02
Minnesota GDP Growth
US GDP Growth
03
1.40%
1.70%
0%
98
2.6%
3.20%
2.7%
04
05
06
MN’s economy has
closely tracked the US
economy overall in
recent years
07
-0.3%
08
-2.5%
09
10
-2.90%
Florida’s Dependence on the Construction Sector Will Cause it to Lag
the Economic Recovery in the US Overall
Source: Bureau of Economic Analysis; Insurance Information Institute.
81
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
The plunge and lack of recovery in
homebuilding and in construction in general is
holding back payroll exposure growth
0.55
0.59
0.59
0.70
0.91
2.1
New home
starts plunged
72% from
2005-2009; A
net annual
decline of 1.49
million units,
lowest since
records began
in 1959
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
(Millions of Units)
1.34
1.23
1.32
1.38
1.42
New Private Housing Starts, 1990-2022F
Job growth,
improved credit
market conditions
and demographics
will eventually boost
home construction
0.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F12F13F14F15F16F17F1822F
Little Exposure Growth Likely for Homeowners Insurers Until 2014.
Also Affects Commercial Insurers with Construction Risk Exposure, Surety
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11); Insurance Information Institute.
82
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend is
Improving
83
Unemployment and Underemployment
Rates: Stubbornly High in 2011
January 2000 through September 2011, Seasonally Adjusted (%)
18
Traditional Unemployment Rate U-3
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 16.5%
in Sept. 2011
Unemployment + Underemployment Rate U-6
16
Recession
ended in
November
2001
14
12
Unemployment
kept rising for
19 more
months
Recession
began in
December
2007
Unemployment
stood at 9.1% in
September
10
Unemployment
peaked at 10.1%
in October 2009,
highest monthly
rate since 1983.
8
6
4
Sep
11
2
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Peak rate in the
last 30 years:
10.8% in
November December 1982
Jan
11
Stubbornly high unemployment and underemployment
will constrain overall economic growth
Source: US Bureau of Labor Statistics; Insurance Information Institute.
84
Unemployment Rates by State, September 2011:
Highest 25 States*
8.3
8.5
8.7
8.9
8.9
9.0
9.1
9.1
9.1
9.1
9.2
9.6
9.7
9.8
9.8
10.3
10.5
10.5
10.6
10.6
11.1
11.9
11.1
10.0
10
11.0
Unemployment Rate (%)
12
13.4
14
In September, 25 states reported overthe-month unemployment rate
decreases, 14 had increases, and 11 and
the District of Columbia had no change.
8
6
4
2
0
NV CA DC MI SC FL MS NC RI GA IL AL TN KY OR NJ AZ OH WA US ID CT IN MO TX AR
*Provisional figures for September 2011, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
86
Unemployment Rates By State, September 2011:
Lowest 25 States*
The unemployment rate in
MN at 6.9% is well below
the 9.1% for the US overall
3.5
4
4.2
4.6
5.4
5.8
5.8
5.9
6.4
6.5
6.7
6.9
6.6
6.0
6
6.9
7.4
7.4
7.5
7.6
7.7
7.8
8.2
8.3
8.1
8
8.0
Unemployment Rate (%)
8.3
10
7.3
In September, 25 states reported overthe-month unemployment rate
decreases, 14 had increases, and 11 and
the District of Columbia had no change.
2
0
CO PA WV DE NY WI MT AK ME MD UT MA LA MN KS NM VA HI IA OK VT WY NH SD NE ND
*Provisional figures for September 2011, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
87
Insurance Information Institute Online:
www.iii.org
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