Overview & Outlook for the P/C Insurance Industry Is the World Becoming a Riskier Place? Independent...
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- Slide 1
- Slide 2
- Overview & Outlook for the P/C Insurance Industry Is the
World Becoming a Riskier Place? Independent Insurance Agents of
Houston Houston, TX May 17, 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
- Slide 3
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 2 Presentation Outline Review of Recent Events: What in
the World is Going On? Reasons for Optimism, Causes for Concern in
the P/C Insurance Industry P/C Profitability Overview & Outlook
Catastrophe Loss Review Q&A
- Slide 4
- 3 What in the World Is Going On? Is the World Becoming a
Riskier Place? Are We Really Crawling Out of the Abyss or Falling
Into a New One?
- Slide 5
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 4 Uncertainty, Risk and Fear Abound Resurgent Terrorism
Risk (e.g., Bin Laden Killing) Record Tornado Activity &
Flooding in the US Japan, New Zealand, Haiti, Chile Earthquakes
Political Upheaval in the Middle East Echoes of the Financial
Crisis Housing Crisis US Debt and Budget Crisis Sovereign Debt
& Currency Crises Inflation Runaway Energy & Commodity
Prices Era of Fiscal Austerity Reshuffling the Global Economic Deck
China Becomes #2 Economy in the World Nuclear Fears Manmade
Disasters (e.g., Deepwater Horizon) Are Black Swans everywhere or
does it just seem that way?
- Slide 6
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 5 Mississippi River Floods: A Threat to Navigation
Memphis (May 5, 2011)with the swollen Mississippi flooding fields
in Arkansas across the river. The river is normally mile across but
is now 3 miles wide in places. Mississippi River just south of
Memphis (May 5, 2011). TN is to the right, AR to the left. The was
expected to crest on May at 47 ft., 14 ft. above flood stage and
near the record of 47.8 ft. set in 1937 Sources: Photos by Robert
Hartwig, Insurance Information Institute, May 5, 2011.
- Slide 7
- 6 Recent Events Illustrate the Importance of Insurance
Uncertainty, Volatility and Catastrophe
- Slide 8
- 7 Terrorism, P/C Insurance and the Killing of Osama bin Laden
Do We Still Need the Terrorism Risk Insurance Program?
- Slide 9
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 8 Bin Laden, Justice and the Future of Terrorism, Risk
and Insurance Sources: Insurance Information Institute. Property-
WTC Property - Other Bin Laden is Dead and Justice Is Served, But
What Are the Implications for the P/C Insurance Industry?
- Slide 10
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 9 Distribution of Insured September 11 Losses by Line ($
Billions, 2009 Dollars) Sources: Insurance Information Institute
research. Property- WTC Industrial Property - Other 9/11 remains
the largest WC loss in US history ($2.2 bn), even though 9/11
property losses were surpassed by Hurricane Katrina in 2005
- Slide 11
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 10 Thwarted and Failed Terrorism Attempts Against the US
in 2009 and 2010 Sources: Terrorism Risk: A Reemergent Threat,
Insurance Information Institute
(http://www.iii.org/white_papers/terrorism-risk-a-reemergent-threat-2011.html);
Federal Bureau of
Investigation.http://www.iii.org/white_papers/terrorism-risk-a-reemergent-threat-2011.html
Property- WTC Property - Other 9/11 remains the largest WC loss in
US history ($2.2 bn), even though 9/11 property losses were
surpassed by Hurricane Katrina in 2005 There Have Been Numerous
Unsuccessful Attempts by Terrorists to Attack the US Over the Past
2 Years
- Slide 12
- Insured Loss Estimates: Large CNBR Terrorist Attack ($ Bill)
Type of CoverageNew YorkWashington San Francisco Des Moines Group
Life $82.0$22.5$21.5$3.4 General Liability 14.42.93.20.4 Workers
Comp 483.7126.787.531.4 Residential Prop. 38.712.722.62.6
Commercial Prop. 158.331.535.54.1 Auto 1.00.60.80.4
TOTAL$778.1$196.8$171.2$42.3 Source: American Academy of Actuaries,
Response to Presidents Working Group, Appendix II, April 26, 2006.
Workers Comp is and Remains the Most Vulnerable of All P/C Lines,
Despite Killing of Bin Laden
- Slide 13
- Insured Loss Estimates: Truck Bomb Terrorist Attack ($ Bill)
Type of CoverageNew YorkWashington San Francisco Des Moines Group
Life $0.3$0.2$0.3$0.1 General Liability 1.20.40.70.2 Workers Comp
3.52.83.91.5 Residential Prop. 0.0 Commercial Prop. 6.82.13.91.2
Auto 0.0 TOTAL$11.8$5.5$8.8$3.0 Source: American Academy of
Actuaries, Response to Presidents Working Group, Appendix II, April
26, 2006. Workers Comp is and Remains the Most Vulnerable of All
P/C Lines, Despite Killing of Bin Laden
- Slide 14
- Potential Insured Losses from Terrorist Attack on Major
Corporate HQ in Houston *Break down is based on $10 billion loss
estimate. Range of estimates is $10 - $12 billion. Source: RMS.
Potential workers comp losses in all major cities are large
- Slide 15
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 14 Terrorism Risk Insurance and Bin Ladens Death Bin
Ladens Killing, at Least in the Short Run, Could Actually Increase
Risk as Al Qaedas Sympathizers Seek to Avenge His Death US State
Department: Enhanced potential for anti-American violence.
Longer-Run Impact is Unclear Al Qaeda has many splinter groups
Current Mideast conflicts (e.g., Libya/Qaddafi attack) could
increase risk Domestic/Home Grown Terror Risk Looms Large Today
than in 2001 Several potentially severe attacks have been thwarted
Challenge to Maintain Terrorism Risk Insurance Program through 2014
Will the Administration try to scale TRIPRA back under budget
pressure using bin Ladens death as the rationale? Will a Lack of
Attacks, Death of bin Laden Influence Terrorism Risk Insurance
Program Renewal Debate Ahead of 2014 Expiration? Narrowing of
coverage (WC is the least likely of lines to be excluded) Increased
private insurer retention relative to federal government backstop
TRIA and Its Successors: Economic Stimulus Programs that Have Cost
the Government Nothing Programs promote employment, construction
and investment
- Slide 16
- 15 Summary of April 2011 Tornado Outbreak 2011 Will Be Among
the Most Deadly and Expensive for Tornadoes in History
- Slide 17
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 16 Summary of Recent Tornado Activity There Have Been
1,042 Tornadoes Through May 6 in the US At least 361 People Have
Been Killed The April 27 Tornado Outbreak Killed at Least 342
People Now the 2 nd deadliest outbreak in US history (747 killed in
march 1925 event) States impacted: AR, TN, LA, MS, GA and
especially AL Insured Losses Estimated at $2B to $5B (Eqecat);
$3.7B - $5.5B (AIR) Economic Losses Likely in the $4 Bill to $10
Bill Range P/C Insurers (and their Reinsurers) Will Settle Tens of
Thousands of Home, Business and Auto Claims P/C Insurance Industry
is Very Strong and Will Encounter No Difficulties in Paying these
Claims
- Slide 18
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 17 *2011 is preliminary data through May 6. Source: U.S.
Department of Commerce, Storm Prediction Center, National Weather
Service. Number of Tornadoes and Related Deaths, 1990 2011*
Tornadoes have already claimed nearly 400 lives There were already
1.042 tornadoes in the US by May 6
- Slide 19
- U.S. Tornado Count, 2010 Source: NOAA 18 There were 1483
tornadoes in the US in 2010, slightly above average 2011 is shaping
to be a deadlier version of 2008
- Slide 20
- Location of Tornadoes in the US, January 1April 29, 2011
Source: NOAA Storm Prediction Center;
http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
19 877 tornadoes had killed more than 400 people through late
April, including at least 340 on April 26, the second deadliest
tornado outbreak in US history
- Slide 21
- Severe Wind Reports, January 1April 29, 2011 20 There have been
7,136 severe wind reports through April 29; 5,280 of those (74%)
were in April; There have also been 1,992 Large Hail reports
Source: NOAA Storm Prediction Center;
http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
- Slide 22
- 21 Summary of Japan Earthquake The March 11 Quake is Just the
Most Recent of Several Large Catastrophe Losses
- Slide 23
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 22 Location of March 11, 2011 Earthquake Near Sendai,
Honshu, Japan Source: US Geological Service; Insurance Information
Institute. Magnitude 9.0 earthquake struck Japan at 2:46PM local
time (2:46AM Eastern) off northeast coast of Honshu, 80 miles east
of Sendai Quake is among the 5 strongest in recorded history and
the strongest in the 140 years for which records have been kept in
Japan 12,000+ fatalities Economic loss: $100 - $300 bn Insured
losses up to $45 bn Fukushima Nuclear Plant threat level raised to
Category 7 on April 11 (highest, same as Chernobyl) Significant
tsunami damage was recorded in Japan; relatively minor damage on
the U.S. West Coast March 11 Earthquake Facts as of 3/24/2011
LOCATION 130 km (80 miles) E of Sendai, Honshu, Japan 178 km (110
miles) E of Yamagata, Honshu, Japan 178 km (110 miles) ENE of
Fukushima, Honshu, Japan 373 km (231 miles) NE of TOKYO, Japan
- Slide 24
- Insured Japan Earthquake Loss Estimates* 12/01/09 - 9pmeSlide
P6466 The Financial Crisis and the Future of the P/C 23 *As of
April 21, 2011. Towers Watson estimate includes $3.0 (low) to $4.9
billion (high) in life insurance losses. RMS estimate includes
insured life/health losses of $3 to $8 billion. Sources: AIR
Worldwide, Eqecat, RMS, Towers Perrin; Insurance Information
Institute. (Insured Losses, $ Billions) Economic losses are likely
to total in the $200-$300 billion range, meaning only a fraction of
the loss is insured
- Slide 25
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 24 Top 20 Nonlife Insurance Companies in Japan by DPW,
2008 Direct premiums written, 2008 RankCompaniesJPY (millions) U.S.
($ millions) Market share Cumulative Market Share 1Tokio &
Marine Nichido$2,032,131.2$19,660.924.0% 2Sompo
Japan1,504,262.714,553.817.841.8% 3Mitsui
Sumitomo1,455,161.814,078.717.259.0% 4Aioi897,182.68,680.310.669.6%
5Nipponkoa728,262.97,046.08.678.2% 6Nisay
Dowa361,530.73,497.84.382.5% 7Fuji329,345.73,186.43.986.4%
8AIU253,522.82,452.83.089.4% 9Kyoei199,393.11,929.12.491.8%
10Nisshin149,735.81,448.71.893.6% 11American
Home82,889.8802.01.094.6% 12Asahi73,600.1712.10.995.5%
13Sony60,868.3588.90.796.2% 14ACE54,876.2530.90.796.9%
15Zurich45,471.3439.90.597.4% 16SECOM44,245.0428.10.597.9% 17Sumi
Sei33,594.0325.00.498.3% 18AXA30,418.9294.30.498.7% 19Mitsui
Direct29,471.9285.10.499.1% 20Daido15,690.4151.80.299.3% Source:
AXCO 2011.
- Slide 26
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 25 Recent Major Catastrophe Losses (Insured Losses, $US
Billions) Sources: Insurance Council of Australia, Munich Re, AIR
Worldwide; Insurance Information Institute. Insured Losses from
Recent Major Catastrophe Events Exceed $55 Billion, an Estimated
$53 Billion of that from Earthquakes The March 2011 earthquake in
Japan will become among the most expensive in world history in
terms of insured losses (current leader is the 1994 Northridge
earthquake with $22.5B in insured losses in 2010 dollars)
- Slide 27
- 26 Potential Impacts of Japan Quake & Other Major CATs on
P/C (Re)Insurance Markets Impacts Could Be Felt Well Beyond
Japan
- Slide 28
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 27 Nonlife (P/C) Insurance Market Impacts of Japan
Earthquake No Direct Impact for US Domestic Primary Insurers
Primary Insurance: Domestic Japanese Insurers Take Big Losses Few
US/Foreign Insurers Had Direct Exposure to Japanese P/C Market Low
single-digit market share for a small number of companies Not a
capital event for any non-Japanese primary insurer Significant
Absorption of Loss by Japanese Government Residential earthquake
damage Nuclear-related property and liability damage Significant
Impacts for Global Reinsurers Property-Catastrophe covers on
Commercial Lines Business Interruption/Contingent Business
Interruption Currently an Earnings Event for Global Reinsurers Not
a capital event: Global reinsurance markets entered 2011 with
record capital Cost of Property/Cat Reinsurance Rising in Japan,
New Zealand, Australia Up for all; Magnitude of increase is
sensitive to size of loss Reinsurance Coverage Remains Available in
Affected Regions Impact on Cost of US Property-Cat Reinsurance is
Possible Market remains well capitalized and competitive Elevated
global cat activity could halt/hike price declines for property/cat
reinsurance
- Slide 29
- Percentage of California Homeowners with Earthquake Insurance,
1994-2010* *Includes CEA policies beginning in 1996. **2006/10
estimates from Insurance Information Network of CA. Source:
California Department of Insurance; Insurance Information
Institute. The vast majority of California homeowners forego
earthquake coverage and play Russian Roulette with their most
valuable asset
- Slide 30
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 29 % of Residences in MO Quake-Prone Areas with
Earthquake Coverage, 2009 vs. 2002 Sources: Missouri Department of
Insurance news release, Feb. 11, 2011; Insurance Information
Institute. Residential Take-Up Rates in Missouri Quake-Prone
Counties Have Fallen Significantly in Recent Years, but Compare
Favorably to California (12%) Between 32% and 63% of MO homeowners
buy quake coverage in vulnerable areas compared to 12% of CA
homeowners and about 50% in Japan.
- Slide 31
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 30 Estimated Insured Losses for the Top 10 Historical
Earthquakes Based on Current Exposures (1) ($ Billion) (1) Modeled
loss to property, contents, and business interruption and
additional living expenses for residential, mobile home, commercial
and auto exposures as of December 31, 2008. Losses include demand
surge and fire following earthquake. Policy conditions and
earthquake insurance take up rates are based on estimates by state
insurance departments and client claims data. Source: AIR Worldwide
Corporation. RankDateLocationMagnitude Insured loss (current
exposures) 1Feb. 7, 1812New Madrid, MO 7.7$100 2Apr. 18, 1906San
Francisco, CA 7.896 3Aug. 31, 1886Charleston, SC 7.337 4Jun. 1,
1838San Francisco, CA 7.427 5Jan. 17, 1994Northridge, CA 6.721
6Oct. 21, 1868Hayward, CA 7.021 7Jan. 9, 1857Fort Tejon, CA 7.98
8Oct. 17, 1989Loma Prieta, CA 6.36 9Mar. 10, 1933Long Beach, CA
6.45 10Jul. 1, 1911Calaveras, CA 6.44
- Slide 32
- 31 Reinsurance Market Overview Reinsurers Will Bear a
Significant Share of Recent Major Catastrophes Losses
- Slide 33
- 32 Change in Reinsurer Capital, 2007- 2010:Q3
- Slide 34
- Source: Holborn; RAA. * 2011 events are as of March 31 and are
preliminary and may change as loss estimates are refined further.
Significant Market Losses, 1985-2011*
- Slide 35
- Source: Holborn, RAA. *2011 events as of March 31 are
preliminary and may change as loss estimates are refined further.
Significant Market Losses by Event, 1985-2011* Reinsurers are
bearing a very high share of recent catastrophe losses Losses are
putting pressure on property cat reinsurance prices in affected
regions. The impact for US property catastrophe pricing is
uncertain.
- Slide 36
- 35 Change in Reinsurer Capital by Component,
FY2009-2010:Q3
- Slide 37
- 36 ROE and Growth in NPW Combined Ratio U.S. P&C Insurance
Cycle U.S. P&C Reinsurance Cycle
- Slide 38
- 37 Outstanding Catastrophe Bond Volume & Cumulative
Issuance, 2008:Q1-2010:Q4 To date, only one catastrophe bond
appears to have been impacted by losses from the Japan quake.
- Slide 39
- 38 Source: Reinsurance Association of America, Offshore
Reinsurance in the U.S. Market 2009 Data U.S. Market Share of U.S.
vs. Offshore Reinsurers Unaffiliated Reinsurance Premium (Excl.
Pools)
- Slide 40
- 39 Source: Reinsurance Association of America, Offshore
Reinsurance in the U.S. Market 2009 Data Premiums Ceded To
Unaffiliated Alien Reinsurers ($ In Millions)
Domicile20052006200720082009 Bermuda8,9088,98211,10211,42010,013
United Kingdom4,8274,6304,5784,4284,706
Germany2,5292,5822,5692,7932,490 Cayman
Islands1,7801,8062,0232,0032,086 Switzerland9507978579551,129 Turks
& Caicos382398481518500 Ireland788532419485489
Barbados837652495553413 France600352424434378 Canada211256326255277
TOTAL21,81220,98723,27423,84422,481 Premium Ceded to Unaffiliated
Alien Reinsurers, 2005-2009 ($ Millions)
- Slide 41
- 40 Source: Reinsurance Association of America, Offshore
Reinsurance in the U.S. Market 2009 Data Premiums Ceded To
Affiliated Alien Reinsurers ($ In Millions)
Domicile20052006200720082009 Bermuda18,59018,47419,37120,81322,612
Switzerland7,6647,9918,9427,5788,361 Germany9,4012,0051,4631,222781
United Kingdom252346777823765 Sweden90518427411433 Cayman
Islands646435409389398 France293338357296228 Ireland165451101155227
Japan222220192191199 Turks & Caicos157156102111141
TOTAL37,48030,93432,14131,98934,145 Premium Ceded to Affiliated
Alien Reinsurers, 2005-2009 ($ Millions)
- Slide 42
- 41 YearPHS 1981 4,310,150,000 1982 5,251,394,000 1983
5,549,546,000 1984 4,973,353,000 1985 6,062,233,000 1986
9,019,976,000 1987 10,474,946,000 1988 12,419,836,000 1989
15,825,413,000 1990 16,275,073,000 1991 19,407,090,000 1992
24,644,773,000 1993 27,106,020,000 1994 29,668,489,000 1995
39,716,840,000 1996 43,727,021,000 1997 53,263,940,000 1998
54,613,772,000 1999 53,022,948,000 2000 52,364,595,000 2001
41,900,400,000 2002 46,681,286,000 2003 62,147,549,000 2004
64,278,516,000 2005 70,034,981,000 2006 77,009,008,000 2007
79,650,016,000 2008 69,008,945,000 2009 82,571,467,000 Policyholder
Surplus of US Reinsurers Reporting to the RAA ($ Billions) Source:
Reinsurance Association of America.
- Slide 43
- 42 Reasons for Optimism, Causes for Concern in the P/C
Insurance Industry The Outlook for the Economy Has Brightened, But
the Outlook for P/C Insurance Is Mixed
- Slide 44
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 43 Reasons for Optimism, Causes for Concern in the P/C
Insurance Industry Economic Recovery in US is Self-Sustaining and
Strengthening No Double Dip or Second Recession Economy is more
resilient than most pundits presume Consumer Confidence is
Gradually Improving Consumer Spending is Recovering Gradually
Consumer and Business Lending Are Expanding Housing Market Remains
Weak, but Some Improvement Expected in 2011 Inflation Remains Under
Control Runaway inflation is highly unlikely; Fed has things under
control Deflationthreat has disappeared Private Sector Hiring is
Consistently Positive for 16 Months Acceleration in hiring in 2011
compared to 2010 No significant secondary spike in unemployment
Japan Threat to Global Economy Overstated Sovereign Debt, Muni Bond
Crises Overblown Current Middle East Turmoil Poses Only Moderate
Risk to US Economy Interest Rates Are Rising but Remain Low by
Historical Standards Stock and Bond Markets More Stable, Less
Volatile Political Environment Is More Hospitable to Business
Interests
- Slide 45
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 44 Reasons for Optimism, Causes for Concern in the P/C
Insurance Industry Era of Mass P/C Insurance Exposure Destruction
Has Ended Personal and commercial exposure growth is virtually
certain in 2011 But restoration of destroyed exposure will take 3-5
years in US Exposure Growth Returned in in 2 nd Half 2010, Will
Accelerate in 2011 P/C Industry Saw Growth in 2010 (+0.9%) for the
First Time Since 2006 Increasing Private Sector Hiring Will Drive
Payrolls/WC Exposures Wage growth is also positive and could
modestly accelerate Increase in Demand for Commercial Insurance Is
in its Earliest Stages and Will Accelerate in 2011 Includes workers
comp, commercial auto, marine, many liability coverages, D&O
Laggards: Property, inland marine, aviation Personal Lines: Auto
leads, homeowners lags Investment Environment Is/Remains Much More
Favorable Return of realized capital gains as a profit driver
Interest rates are low but are rising Boost to investment income
Agent Commissions Should Begin to Rise in 2011 Demand, Capital
Management Strategies Will Temper Overcapitalization
- Slide 46
- 45 P/C Insurance Industry Financial Overview Profit Recovery
Continues Early Stage Growth Begins
- Slide 47
- P/C Net Income After Taxes 19912010 ($ Millions) 2005 ROE*=
9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009 ROAS 1
= 5.9% 2010 ROAS = 6.5% P-C Industry 2010 profits were$34.7B
vs.$28.7B in 2009, due mainly to $5.7B in realized capital gains
vs. -$7.9B in previous realized capital losses * ROE figures are
GAAP; 1 Return on avg. surplus. Excluding Mortgage & Financial
Guaranty insurers yields a 7.5% ROAS for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
- Slide 48
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 47 ROE: Property/Casualty Insurance, 19872010* *
Excludes Mortgage & Financial Guarantee in 2008 - 2010.
Sources: ISO, Fortune; P/C Profitability Is Both by Cyclicality and
Ordinary Volatile Hugo Andrew Northridge Lowest CAT Losses in 15
Years Sept. 11 Katrina, Rita, Wilma 4 Hurricanes Financial Crisis*
(Percent)
- Slide 49
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 48 ROE vs. Equity Cost of Capital: U.S. P/C
Insurance:1991-2010* * Return on average surplus in 2008-2010
excluding mortgage and financial guaranty insurers. Source: The
Geneva Association, Insurance Information Institute -13.2 pts +1.7
pts +2.3 pts -9.0 pts -6.4 pts -3.1 pts The P/C Insurance Industry
Fell Well Short of Its Cost of Capital in 2008 but Narrowed the Gap
in 2009 and 2010 US P/C Insurers Missed Their Cost of Capital by an
Average 6.7 Points from 1991 to 2002, but on Target or Better
2003-07, Fell Short in 2008-2010 The Cost of Capital is the Rate of
Return Insurers Need to Attract and Retain Capital to the Business
(Percent) -2.9 pts
- Slide 50
- A 100 Combined Ratio Isnt What It Once Was: Investment Impact
on ROEs Combined Ratio / ROE * 2009 and 2010 figures are return on
average statutory surplus. 2008, 2009 and 2010 figures exclude
mortgage and financial guaranty insurers Source: Insurance
Information Institute from A.M. Best and ISO data. Combined Ratios
Must Be Lower in Todays Depressed Investment Environment to
Generate Risk Appropriate ROEs A combined ratio of about 100
generated ~7.5% ROE in 2009/10, 10% in 2005 and 16% in 1979
- Slide 51
- RNW for Major P/C Lines, 2000-2009 Average Source: NAIC;
Insurance Information Institute 10-year returns for some lines are
excellent, though homeowners is a major laggard, largely due to
major catastrophes. WC returns are slipping.
- Slide 52
- 51 Profitability and Growth in Texas P/C Insurance Markets
Analysis by Line and Nearby State Comparisons
- Slide 53
- 52 RNW All Lines: TX vs. U.S., 2000-2009 Sources: NAIC. P/C
Insurer profitability in TX is highly variable and below that of
the US overall over the past decade US: 7.0% TX: 3.7%
(Percent)
- Slide 54
- 53 RNW PP Auto: TX vs. U.S., 2000-2009 Sources: NAIC. Pvt.
Passenger Auto profitability in TX is has been somewhat below the
US in recent years Average 2000-2009 US: 7.2% TX: 6.1%
- Slide 55
- 54 RNW Comm. Auto: TX vs. U.S., 2000-2009 Sources: NAIC.
(Percent) Commercial Auto profitability in TX is generally below
the US average Average 2000-2009 US: 8.5% TX: 5.6%
- Slide 56
- 55 RNW Comm. Multi-Peril: TX vs. U.S., 2000-2009 Sources: NAIC.
(Percent) Hurricane Ike put a big dent in CMP profitability in 2008
Average 2000-2009 US: 8.0% TX: 0.4%
- Slide 57
- 56 RNW Homeowners: TX vs. U.S., 2000-2009 Sources: NAIC.
(Percent) Homeowners Profitability: Mold, Hurricanes, Hail &
Tornadoes (Need I Say More?) Average 2000-2009 US: 4.7% TX:
-2.3%
- Slide 58
- 57 RNW Workers Comp: TX vs. U.S., 2000-2009 Sources: NAIC.
(Percent) Workers comp profitability in TX has generally
outperformed the US Average 2000-2009 US: 6.4% TX: 9.2%
- Slide 59
- All Lines: 10-Year Average RNW TX & Nearby States Source:
NAIC, Insurance Information Institute 2000-2009 Texas All Lines
profitability is below the US and regional average
- Slide 60
- PP Auto: 10-Year Average RNW TX & Nearby States Source:
NAIC, Insurance Information Institute 2000-2009 Texas PP Auto
profitability is below the US and regional average
- Slide 61
- 60 Top Ten Most Expensive And Least Expensive States For
Automobile Insurance, 2008 (1) Rank Most expensive states Average
expenditureRank Least expensive states Average expenditure
1D.C.$1,1261North Dakota$503 2Louisiana1,1052Iowa519 3New
Jersey1,0813South Dakota520 4Florida1,0554Nebraska547 5New
York1,0445Idaho562 6Delaware1,0076Kansas576 7Rhode
Island9867Wisconsin581 8Nevada9708North Carolina595
9Connecticut9509Maine600 10Maryland92210Indiana612 (1)Based on
average automobile insurance expenditures. Source: 2010 National
Association of Insurance Commissioners. Texas ranked 15th in 2008,
with an average expenditure for auto insurance of $854.
- Slide 62
- Comm. Auto: 10-Year Average RNW TX & Nearby States Source:
NAIC, Insurance Information Institute 2000-2009 Texas Commercial
Auto profitability is below the US and regional average
- Slide 63
- Comm. M-P: 10-Year Average RNW TX & Nearby States Source:
NAIC, Insurance Information Institute 2000-2009 Texas Commercial
Multi-Peril profitability is below the US and regional average
- Slide 64
- Homeowners: 10-Year Average RNW TX & Nearby States Source:
NAIC, Insurance Information Institute 2000-2009 Texas Homeowners
profitability is below the US and regional average
- Slide 65
- 64 Top Ten Most Expensive And Least Expensive States For
Homeowners Insurance, 2008 (1) Rank Most expensive states Average
expenditureRank Least expensive states Average expenditure 1Texas
(3)$1,4601Idaho $387 2Florida (4)1,3902Utah 432 3Louisiana
1,1553Oregon 439 4Oklahoma1,0484Washington471 5Massachusetts
1,0265Wisconsin 503 6New York 9836Delaware 535 7Connecticut9807Ohio
565 8Mississippi 9808Maine572 9D.C. 9269Pennsylvania 586
10Kansas91610Kentucky 601 (1)States with the same premium receive
the same rank. (2)Based on the HO-3 homeowner package policy for
owner-occupied dwellings, 1 to 4 family units. Provides all risks
coverage (except those specifically excluded in the policy) on
buildings and broad named-peril coverage on personal property, and
is the most common package written. (3)The Texas Department of
Insurance developed home insurance policy forms that are similar
but not identical to the standard forms. (4)Florida data excludes
policies written by Citizen's Property Insurance Corporation, the
state's insurer of last resort, and therefore are not directly
comparable to other states. 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. Texas ranked as the most expensive state for homeowners
insurance in 2008, with an average expenditure of $1,460.
- Slide 66
- Workers Comp: 10-Year Average RNW TX & Nearby States
Source: NAIC, Insurance Information Institute 2000-2010 Texas
Workers Comp profitability is above the US average but similar to
the regional average
- Slide 67
- Percentage of Subprime Mortgages in Foreclosure, as of April
2010* *Or at least 90 days delinquent Source: New York Federal
Reserve; Wall Street Journal, Housings Fragile States, 06/30/10
Foreclosures on subprime mortgages in TX are running well below the
US and regional average
- Slide 68
- 67 All Lines DWP Growth: TX vs. U.S., 2000-2009 Source: SNL
Financial. Texas DWP growth is generally higher than for the US
overall. Average: 2000-2009 US: 4.9% TX: 6.2% (Percent)
- Slide 69
- 68 Comm. Lines DWP Growth: TX vs. U.S., 2000-2009 Source: SNL
Financial. (Percent) Texas Commercial Lines DWP growth is generally
higher than for the US overall. Average: 2000-2009 US: 5.5% TX:
7.3%
- Slide 70
- 69 Personal Lines DWP Growth: TX vs. U.S., 2000-2009 Source:
SNL Financial. (Percent) Texas Commercial Lines DWP growth is
generally higher than for the US overall. Average: 2000-2009 US:
4.3% TX: 5.5%
- Slide 71
- PRICING TRENDS 70 Winds of Change or Moving Sideways?
- Slide 72
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 71 Soft Market Persisted in 2010 but Growth Returned:
More in 2011? (Percent) 1975-781984-872000-03 Shaded areas denote
hard market periods Sources: A.M. Best (historical and forecast),
ISO, Insurance Information Institute. Net Written Premiums Fell
0.7% in 2007 (First Decline Since 1943) by 2.0% in 2008, and 4.2%
in 2009, the First 3-Year Decline Since 1930-33. NWP was up 0.9% in
2010 with forecast growth of 1.4% in 2011
- Slide 73
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 72 P/C Net Premiums Written: % Change, Quarter vs.
Year-Prior Quarter Sources: ISO, Insurance Information Institute.
Finally! Back-to-back quarters of net written premium growth (vs.
the same quarter, prior year) The long- awaited uptick: mainly
personal lines
- Slide 74
- P/C Net Written Premiums by Line: 2008-2010P Line of Business
200820092010P 2009- 2010P Change Personal
Auto$150.0B$156.6B$159.1B+1.6% Homeowners$55.6$56.9$61.2+7.6% Other
Liab (incl. Prod Liab) $42.0$39.1$38.2-2.4% Workers
Compensation$33.8$30.3$29.9-1.3% Commercial Multi
Peril$30.1$28.5$28.7+0.8% Commercial Auto$23.7$21.8$20.9-4.3% Fire
& Allied Lines (incl EQ) $24.2$23.4$22.6-3.4% All Other
Lines$67.7$61.9$61.6-0.5% Total P/C
Industry$434.9B$418.4B$422.1B+0.9 Source: All lines except WC for
2008-09, A.M. Best; Worker Comp., NCCI; 2010P data, ISO; Private
carriers only.
- Slide 75
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 74 Net Written Premium Growth by Segment: 2008-2011F
Rate and exposure are more favorable in personal lines, whereas a
prolonged soft market and sluggish recovery from the recession
weigh on commercial lines. Personal lines growth resumed in 2010
and will continue in 2011, while commercial lines contracted again
in 2010 and but will stabilize in 2011 Sources: A.M. Best;
Insurance Information Institute.
- Slide 76
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 75 Auto & Home vs. All Lines, Net Written Premium
Growth, 20002010E Sources: A.M. Best; Insurance Information
Institute. Average 2000-2009 Auto = 2.9 Home = 6.5% All Lines =
3.4% While homeowners insurance has grown faster than auto over the
past decade, auto is generally more profitable
- Slide 77
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 76 Average Commercial Rate Change, All Lines,
(1Q:20041Q:2011) Source: Council of Insurance Agents & Brokers;
Insurance Information Institute KRW Effect Magnitude of Price
Declines Shrank During Crisis, Reflecting Shrinking Capital,
Reduced Investment Gains, Deteriorating Underwriting Performance,
Higher Cat Losses and Costlier Reinsurance (Percent) Q1 2011
decreases were the smallest since 2006, perhaps signaling a market
firming
- Slide 78
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 77 Change in Commercial Rate Renewals, by Account Size:
1999:Q4 to 2010:Q3 Source: Council of Insurance Agents and Brokers;
Insurance Information Institute. Percentage Change (%) Peak =
2001:Q4 +28.5% Trough = 2007:Q3 -13.6% Pricing Turned Negative in
Early 2004 and Has Been Negative Ever Since KRW Effect Market has
Been Soft for 6+ years and Remains Soft as Capital is Restored and
Underwriting Losses Remain Modest
- Slide 79
- UNDERWRITING 78 Cyclicality is Driven Primarily by the
Industrys Underwriting Cycle, Not the Economy
- Slide 80
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 79 P/C Insurance Industry Combined Ratio, 20012010* *
Excludes Mortgage & Financial Guaranty insurers in 2008, 2009
and 2010. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4
Sources: A.M. Best, ISO. Best Combined Ratio Since 1949 (87.6) As
Recently as 2001, Insurers Paid Out Nearly $1.16 for Every $1 in
Earned Premiums Relatively Low CAT Losses, Reserve Releases
Cyclical Deterioration Heavy Use of Reinsurance Lowered Net Losses
Relatively Low CAT Losses, Reserve Releases Avg. CAT Losses, More
Reserve Releases
- Slide 81
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 80 Calendar Year Combined Ratios by Segment: 2008-2011F
Sources: A.M. Best. Insurance Information Institute. Overall
deterioration in 2011 underwriting performance is due to expected
return to normal catastrophe activity along with deteriorating
underwriting performance related to the prolonged commercial soft
market Personal lines combined ratio is expected to remain stable
in 2010 while commercial lines and reinsurance deteriorate
- Slide 82
- Underwriting Gain (Loss) 19752010* * Includes mortgage and
financial guaranty insurers. Sources: A.M. Best, ISO; Insurance
Information Institute. Large Underwriting Losses Are NOT
Sustainable in Current Investment Environment The industry recorded
a $10.4B underwriting loss in 2010 compared to $3.0B in 2009
Cumulative underwriting deficit from 1975 through 2009 is $445B ($
Billions)
- Slide 83
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 82 Number of Years with Underwriting Profits by Decade,
1920s2000s * 2000 through 2009. 2009 combined ratio excluding
mortgage and financial guaranty insurers was 99.3, which would
bring the 2000s total to 4 years with an underwriting profit. Note:
Data for 19201934 based on stock companies only. Sources: Insurance
Information Institute research from A.M. Best Data. Number of Years
with Underwriting Profits Underwriting Profits Were Common Before
the 1980s (40 of the 60 Years Before 1980 Had Combined Ratios Below
100) But Then They Vanished. Not a Single Underwriting Profit Was
Recorded in the 25 Years from 1979 Through 2003
- Slide 84
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 83 P/C Reserve Development, 19922011E Reserve Releases
Are Remained Strong in 2010 But Should Begin 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: Barclays Capital; A.M. Best. 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
- Slide 85
- INVESTMENTS: THE NEW REALITY 84 Investment Performance is a Key
Driver of Profitability Does It Influence Underwriting or
Cyclicality?
- Slide 86
- Property/Casualty Insurance Industry Investment Gain: 19942010
1 Investment Gains Recovered Significantly in 2010 Due to Realized
Investment 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 $3.2B. Sources:
ISO; Insurance Information Institute. ($ Billions) Investment gains
in 2010 were the best since 2007
- Slide 87
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 86 P/C Insurer Net Realized Capital Gains, 1990-2010
Sources: A.M. Best, ISO, Insurance Information Institute. Realized
Capital Losses Were the Primary Cause of 2008/2009s Large Drop in
Profits and ROE and Were a Major Driver of Its Recovery in 2010 ($
Billions) Capital losses have turned to capital gains, aiding
earnings
- Slide 88
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 87 Treasury Yield Curves: Pre-Crisis (July 2007) vs.
April 2011 Treasury yield curve is near its most depressed level in
at least 45 years, though longer yields rose in late 2010/early
2011 as economy improved. Investment income is falling as a result.
The Feds Announced Intention to Pursue Additional Quantitative
Easing Could Depress Rates in the 7 to 10-Year Maturity Range
through June Sources: Board of Governors of the United States
Federal Reserve Bank; Insurance Information Institute. QE2
Target
- Slide 89
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 88 The Recession Changed the Distribution of Bond
Maturities in P-C Investment Portfolios Source: SNL Financial Since
the Recession Began, Insurers Increased the Percentage of Bonds
With Maturities of 1-5 Years and Lowered the Percentage With
Maturities Over 5 Years
- Slide 90
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 89 Lower Investment Earnings Place a Greater Burden on
Underwriting and Pricing Discipline *Based on 2008 Invested Assets
and Earned Premiums **US domestic reinsurance only Source: A.M.
Best; Insurance Information Institute. Reduction in Combined Ratio
Necessary to Offset 1% Decline in Investment Yield to Maintain
Constant ROE, by Line*
- Slide 91
- Financial Strength & Underwriting 90 Cyclical Pattern is
P-C Impairment History is Directly Tied to Underwriting, Reserving
& Pricing
- Slide 92
- P/C Insurer Impairments, 19692010 Source: A.M. Best Special
Report 1969-2010 Impairment Review, June 21, 2010; Insurance
Information Institute. The Number of Impairments Varies
Significantly Over the P/C Insurance Cycle, With Peaks Occurring
Well into Hard Markets 8 of the 18 in 2009 were small Florida
carriers. Total also includes a few title insurers.
- Slide 93
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 92 P/C Insurer Impairment Frequency vs. Combined Ratio,
1969-2010 Source: A.M. Best; Insurance Information Institute 2010
impairment rate was 0.35%, down from 0.65% in 2009 and near the
record low of 0.17% in 2007; Rate is still less than one-half the
0.81% average since 1969 Impairment Rates Are Highly Correlated
With Underwriting Performance and Reached Record Lows in 2007
- Slide 94
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 93 Reasons for US P/C Insurer Impairments, 19692010
Source: A.M. Best: 1969-2010 Impairment Review, Special Report,
April 2011. 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
Deficient Loss Reserves/ Inadequate Pricing Reinsurance Failure
Rapid Growth Alleged Fraud Catastrophe Losses Affiliate Impairment
Investment Problems (Overstatement of Assets) Misc. Sig. Change in
Business
- Slide 95
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 94 Top 10 Lines of Business for US P/C Impaired
Insurers, 20002010 Source: A.M. Best: 1969-2010 Impairment Review,
Special Report, April 2011. Workers Comp and Pvt. Passenger Auto
Account for Nearly Half of the Premium Volume of Impaired Insurers
Over the Past Decade Workers Comp Financial Guaranty Pvt. Passenger
Auto Homeowners Commercial Multiperil Commercial Auto Liability
Other Liability Med Mal Surety Title
- Slide 96
- 95 Performance by Segment: Commercial/Personal Lines &
Reinsurance
- Slide 97
- P/C Underwriting Results: 2008-2010P Line of Business
200820092010P Personal Auto100.3101.3101 Homeowners117.0105.6107
Other Liability (incl. Prod Liab)95105110 Workers
Compensation101110.5115 Commercial Multi Peril10497101 Commercial
Auto96.899.598 Fire & Allied Lines (incl. EQ)998083 All Other
Lines11396101 Total P/C Industry104101102 Source: All lines except
WC for 2008-09, A.M. Best; Worker Comp., NCCI; 2010P data, ISO.
Private carriers only.
- Slide 98
- Homeowners Insurance Combined Ratio: 19902011P Homeowners Line
Could Deteriorate in 2011 Due to Large Q2 Cat Losses. Extreme
Regional Variation Can Be Expected Due to Local Catastrophe Loss
Activity Sources: A.M. Best (1990-2010P); Insurance Information
Institute (2011F).
- Slide 99
- Private Passenger Auto Combined Ratio: 19932011P Private
Passenger Auto Accounts for 34% of Industry Premiums and Remains
the Profit Juggernaut of the P/C Insurance Industry Sources: A.M.
Best; Insurance Information Institute.
- Slide 100
- Commercial Multi-Peril Combined Ratio: 19952011P Commercial
Multi-Peril Underwriting Performance is Expected to Deteriorate
Modestly *2010Eand 2011P figures are for the combined liability and
non-liability components. Sources: A.M. Best; Insurance Information
Institute.
- Slide 101
- Commercial Auto Combined Ratio: 19932011P Sources: A.M. Best;
Insurance Information Institute. Commercial Auto Underwriting
Performance is Expected to Deteriorate Modestly
- Slide 102
- Inland Marine Combined Ratio: 19992011P Inland Marine is
Expected to Remain Among the Most Profitable of All Lines Sources:
A.M. Best; Insurance Information Institute.
- Slide 103
- Workers Compensation Combined Ratio: 19942011P Workers Comp
Underwriting Results Are Deteriorating Markedly and the Worst They
Have Been in a Decade Sources: A.M. Best (1994-2009); NCCI (2010E);
Insurance Information Institute (2011P).
- Slide 104
- EXPENSES 103 Expense Ratios Are Highly Cyclical and Contribute
Deteriorating Underwriting Performance
- Slide 105
- Underwriting Expense Ratio* All P/C Lines, 1994-2010E** *Ratio
of expenses incurred to net premiums written. **2010 figure based
on data through 2010:Q3. Source: A.M. Best; Insurance Information
Institute. Underwriting expense ratios are up significantly as
premiums fall faster than expenses during generally soft market
conditions
- Slide 106
- Underwriting Expense Ratio*: Personal vs. Commercial Lines,
1990-2010E** *Ratio of expenses incurred to net premiums written.
**2010 figures are estimates. Source: A.M. Best; Insurance
Information Institute. Commercial lines expense ratios are highly
cyclical
- Slide 107
- Underwriting Expense Ratio* Personal Lines (Auto & Home),
1994-2010E** *Ratio of expenses incurred to net premiums written.
**2010 figures are estimates. Source: A.M. Best; Insurance
Information Institute. Expenses ratios for both auto and home are
up from their lows in 2003/04
- Slide 108
- CAPITAL MANAGEMENT & LEVERAGE 107 Excess Capital is a Major
Obstacle to a Market Turn; Capital Management Decisions Will Impact
Market Direction
- Slide 109
- US Policyholder Surplus: 19752010* * As of 12/31/10. Source:
A.M. Best, ISO, Insurance Information Institute. Surplus is a
measure of underwriting capacity. It is analogous to Owners Equity
or Net Worth in non-insurance organizations ($ Billions) The
Premium-to-Surplus Ratio Stood at $0.76:$1 as of 12/31/10, A Record
Low (at Least in Recent History)** Surplus as of 12/31/10 was a
record $556.9B, up from $437.1B at the crisis trough at 3/31/09.
Prior peak was $521.8 as of 9/30/07. Surplus as of 12/31/10 is now
6.7% above 2007 peak; Crisis trough was as of 3/31/09 16.2% below
2007 peak.
- Slide 110
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 109 Policyholder Surplus, 2006:Q42010:Q4 Sources: ISO,
A.M.Best. ($ Billions) 2007:Q3 Previous Surplus Peak 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%) Surplus set a new record in 2010:Q4*
*Includes $22.5B of paid-in capital from a holding company parent
for one insurers investment in a non-insurance business in early
2010. The Industry now has $1 of surplus for every $0.76 of NPWthe
strongest claims- paying status in its history.
- Slide 111
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 110 Paid-in Capital, 20052010:Q3 Source: ISO. ($
Billions) Paid-in capital for insurance operations in 2009:H1 was
$2.3B. In 2010:H1 it was a record $23.8B In 2010:Q3 One Insurers
Paid-in Capital Rose by $22.5B as Part of an Investment in a
Non-insurance Business $23.8
- Slide 112
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 111 Global Reinsurance CapacitySource of Decline in 2008
Global Reinsurance Capacity Shrank in 2008, Mostly Due to
Investments Source: AonBenfield Reinsurance Market Outlook 2009;
Insurance Information Institute estimate for 2009. Global
Reinsurance Capacity Fell by an Estimated 17% in 2008 Change in
Unrealized Capital Losses Realized Capital Losses Hurricanes
- Slide 113
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 112 Ratio of Insured Loss to Surplus for Largest Capital
Events Since 1989* * Ratio is for end-of-quarter surplus
immediately prior to event. Date shown is end of quarter prior to
event ** Date of maximum capital erosion; As of 9/30/09 (latest
available) ratio = 5.9% Source: PCS; Insurance Information
Institute The Financial Crisis at its Peak Ranks as the Largest
Capital Event Over the Past 20+ Years (Percent)
- Slide 114
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 113 * 2010 NWP and Surplus figures are % changes as of
Q3:10 vs Q3:09. Sources: A.M. Best, ISO, Insurance Information
Institute Historically, Hard Markets Follow When Surplus Growth is
Negative* (Percent) Sharp Decline in Capacity is a Necessary but
Not Sufficient Condition for a True Hard Market Surplus growth is
now positive but premiums continue to fall, a departure from the
historical pattern
- Slide 115
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 114 The Premium-to-Surplus Ratio in 2010 Implies that
P/C Insurers Held $1 in Surplus Against Each $0.76 Written in
Premiums. In 1974, Each $1 of Surplus Backed $2.70 in Premium.
*2010 data are as of 12/31/10. Sources: Insurance Information
Institute calculations from A.M. Best data. Ratio of Net Premiums
Written to Policyholder Surplus, 1970-2010* The premium-to-surplus
ratio (a measure of leverage) hit a record low at just 0.76:1 in
2010. It has decreased as PHS grows more quickly than NPW, with the
effect of holding down profitability. Record High P-S Ratio was
2.7:1 in 1974 Record Low P-S Ratio was 2.7:1 in 2010*
- Slide 116
- Merger & Acquisition 115 Capital Cycles Can Drive
Consolidation
- Slide 117
- 2010: U.S. Insurance M&A Bounces Back (All Segments) U.S.
activity rebounded from lows recorded in 2009. M&A also made a
comeback worldwide, with global activity rising 20%. Sources:
Conning Research Consulting; Insurance Information Institute. 436
transactions, up 36%
- Slide 118
- Type of acquisition is shifting There were 16 mutual targets in
2008-2010, up from 10 in the three prior years. Sources: SNL
Financial; Insurance Information Institute.
- Slide 119
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 118 # of Mergers & Acquisitions, Worldwide: Will
Reform Stifle or Boost Them? Sources: Conning Research; Insurance
Information Institute. Number of Transactions
- Slide 120
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 119 $ Value of Mergers & Acquisitions, Worldwide:
Will Reform Stifle or Boost Them? Sources: Conning Research;
Insurance Information Institute. $ Billions
- Slide 121
- Shifting Legal Liability & Tort Environment 120 Is the Tort
Pendulum Swinging Against Insurers?
- Slide 122
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 121 Important Issues & Threats Facing Insurers:
20102015 Source: Insurance Information Institute Bottom Line: Tort
crisis is on the horizon and will be recognized as such by 20122014
No tort reform (or protection of recent reforms) is forthcoming
from the current Congress or Administration Erosion of recent
reforms is a certainty (already happening) Innumerable legislative
initiatives will create opportunities to undermine existing reforms
and develop new theories and channels of liability Torts twice the
overall rate of inflation Influence personal and commercial lines,
esp. auto liability Historically extremely costly to p/c insurance
industry Leads to reserve deficiency, rate pressure Emerging Tort
Threat
- Slide 123
- Cost of US Tort System ($ Billions) * Restated in 2009 dollars,
based on CPI. Source: Towers Watson, 2010 Update on US Tort Cost
Trends. Per capita tort tax was $808 in 2009, up from $793 in 2000*
Tort costs consumed 1.74% of GDP in 2009, down from 2.21% in
2003
- Slide 124
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 123 Over the Last Three Decades, Total Tort Costs as a %
of GDP Appear Somewhat Cyclical ($ Billions) Sources: Towers
Watson, 2010 Update on US Tort Cost Trends, Appendix 1A Tort Costs
Have Remained High but Relatively Stable Since the mid-2000s. As a
Share of GDP they Should Fall as the Economy Expands
- Slide 125
- Business Leaders Ranking of Liability Systems in 2010 Best
States 1.Delaware 2.North Dakota 3.Nebraska 4.Indiana 5.Iowa
6.Virginia 7.Utah 8.Colorado 9.Massachusetts 10.South Dakota Worst
States 41.New Mexico 42.Florida 43.Montana 44.Arkansas 45.Illinois
46.California 47.Alabama 48.Mississippi 49.Louisiana 50.West
Virginia Source: US Chamber of Commerce 2010 State Liability
Systems Ranking Study; Insurance Info. Institute. New in 2010 North
Dakota Massachusetts South Dakota Drop-offs Maine Vermont Kansas
Newly Notorious New Mexico Montana Arkansas Rising Above Texas
South Carolina Hawaii Midwest/West has mix of good and bad
states.
- Slide 126
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 125 The Nations Judicial Hellholes: 2010 Source:
American Tort Reform Association; Insurance Information Institute
South Florida West Virginia Illinois Cook County Nevada Clark
County Watch List Madison County, IL Atlantic County, NJ St. Landry
Parish, LA District of Columbia NYC and Albany, NY St. Clair
County, IL Dishonorable Mention MI Supreme Court City of St. Louis
CO Supreme Court California Los Angeles and Humboldt Counties
Philadelphia
- Slide 127
- Inflation 126 Is it a Threat to Claim Cost Severities
- Slide 128
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 127 Annual Inflation Rates, (CPI-U, %), 19902014F
Sources: US Bureau of Labor Statistics; Blue Chip Economic
Indicators, 3/11 and 5/11 (forecasts). The slack in the U.S.
economy suggests that inflation should not heat up before 2012, but
other forces (commodity prices, inflation in countries from which
we import, etc.), plus U.S. debt burden, remain longer-run concerns
Annual Inflation Rates (%) Inflation peaked at 5.6% in August 2008
on high energy and commodity crisis. The recession and the collapse
of the commodity bubble reduced inflationary pressures in 2009/10
Higher energy, commodity and food prices are pushing up inflation
in 2011, but not longer turn inflationary expectations.
- Slide 129
- P/C Insurance Claim Cost Drivers Grow Faster than even the
Medical CPI Suggests Source: Bureau of Labor Statistics; Insurance
Information Institute. Price Changes in 2010 Healthcare costs are a
major liability, med pay, and PIP claim cost driver. They are
likely to grow faster than the CPI for the next few years, at least
128 Excludes Food and Energy
- Slide 130
- Financial Services Reform 129 Insurers Not as Impacted as
Banks, But Dodd-Frank Implementation Has Been a Concern for
Insurers
- Slide 131
- 130 Financial Services Reform: What does it mean for insurers?
Systemic Risk and Resolution Authority Creates the Financial
Stability Oversight Council and the Office of Financial Research
Regulator representative is MO Insurance Commissioner Huff No
industry representative has been appointed yet Imposes heightened
federal regulation on large bank holding companies and systemically
risky nonbank financial companies, including insurers Concern some
insurers may be labeled as systemically risky based on size alone
Federal Insurance Office (FIO) Establishes the FIO (while
maintaining state regulation of insurance) within the Department of
Treasury, headed by a Director appointed by the Secretary of
Treasury FIO will have authority to monitor the insurance industry,
identify regulatory gaps that could contribute to systemic crisis
IL Insurance Director Michael McGraith will become first FIO
Director on June 1 Creation of Federal Advisory Committee on
Insurance to Advise FIO CONCERN: FIO morphs into quasi/shadow or
actual regulator The Dodd Frank Wall Street Reform and Consumer
Protection Act Source: Insurance Information Institute (I.I.I.)
updates and research; The Financial Services Roundtable; Adapted
from summary by Dewey & LeBoeuf LLP
- Slide 132
- Source: James Madison Institute, February 2008. ME NH MA CT PA
WV VA NC LA TX OK NE ND MN MI IL IA ID WA OR AZ HI NJ RI C DE AL VT
NY MD SC GA TN AL FL MS AR NM KY MO KS SD WI IN OH MT CA NV UT WY
CO AK = A = B = C = D = F = NG Source: Heartland Institute, May
2010 A- B- C- D- A A A A B+ B B B B B B C+ C D+ D NG D F F 2010
Property and Casualty Insurance Report Card Not Graded: District of
Columbia Mississippi Louisiana
- Slide 133
- Economic Issues for the Next 3-5 Years 132 P/C Insurance
Industry Growth in the Wake of the Great Recession
- Slide 134
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 133 US Real GDP Growth* *Estimates/Forecasts from Blue
Chip Economic Indicators. Source: US Department of Commerce, Blue
Economic Indicators 5/11; Insurance Information Institute. 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 Real GDP Growth (%) Recession
began in Dec. 2007. Economic toll of credit crunch, housing slump,
labor market contraction has been severe but modest recovery is
underway The Q4:2008 decline was the steepest since the Q1:1982
drop of 6.8% 2011 got off to a sluggish start, but growth is
expected to accelerate in the remainder of the year. This is a
major positive for insurance demand and exposure growth.
- Slide 135
- 2011 Financial Overview State Economic Growth Varied in 2009
12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future of
the P/C 134 Mountain, Plains states still growing the fastest Some
Southeast states growing well, but others among the weakest
- Slide 136
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 135 Real GDP Growth vs. Real P/C NWP Growth: 1978-2010
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip
Economic Indicators, 4/11; Insurance Information Institute When
real GDP grows by about 3%, as is forecast for 2011-2012, real NWP
growth has ranged from -2.9% to +5.8% Real GDP Growth Trend line 3%
real GDP forecast for 2011-12 1986: 3.5% real GDP growth and a very
different environment from today
- Slide 137
- 136 Direct Premiums Written: All P/C Lines Percent Change by
State, 2005-2010 Sources: SNL Financial LC.; Insurance Information
Institute. Top 25 States North Dakota is the growth juggernaut of
the P/C insurance industrytoo bad nobody lives there
- Slide 138
- 137 Sources: SNL Financial LC; Insurance Information Institute.
Bottom 25 States States with the poorest performing economies also
produced the most negative net change in premiums of the past 5
years Direct Premiums Written: All P/C Lines Percent Change by
State, 2005-2010 US Direct Premiums Written declined by 1.6%
between 2005 and 2010
- Slide 139
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 138 (Millions of Units) New Private Housing Starts,
1990-2016F Source: U.S. Department of Commerce; Blue Chip Economic
Indicators (10/10 and 5/11); Insurance Information Institute.
Little Exposure Growth Likely for Homeowners Insurers Until 2013.
Also Affects Commercial Insurers with Construction Risk Exposure,
Surety New home starts plunged 72% from 2005-2009; A net annual
decline of 1.49 million units, lowest since records began in 1959
The plunge and lack of recovery in homebuilding and in construction
in general is holding back payroll exposure growth Job growth,
improved credit market conditions and demographics will eventually
boost home construction
- Slide 140
- Recovery in Capacity Utilization is a Positive Sign for
Commercial Exposures Source: Federal Reserve Board statistical
releases at
http://www.federalreserve.gov/releases/g17/Current/default.htm.http://www.federalreserve.gov/releases/g17/Current/default.htm
139 Percent of Industrial Capacity Hurricane Katrina March 2001-
November 2001 recession Full Capacity The closer the economy is to
operating at full capacity, the greater the inflationary pressure
The US operated at 77.4% of industrial capacity in Mar. 2011, above
the June 2009 low of 68.3% December 2007- June 2009 Recession
- Slide 141
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 140 (Millions of Units) Auto/Light Truck Sales,
1999-2016F Source: U.S. Department of Commerce; Blue Chip Economic
Indicators (10/10 and 5/11); Insurance Information Institute.
Car/Light Truck Sales Will Continue to Recover from the 2009 Low
Point. It is Too Soon to Assess the Impact of Higher Gas Prices.
New auto/light truck sales fell to the lowest level since the late
1960s. Forecast for 2011-12 is still far below 1999-2007 average of
17 million units, but a recovery is underway. Job growth and
improved credit market conditions will boost auto sales in 2011 and
beyond
- Slide 142
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 141 Number of Private Business Establishments,
2001:Q1-2010:Q3 Sources: U.S. Bureau of Labor Statistics; Insurance
Information Institute In 2009:Q1 a net of 165,000 businesses
disappeared. By 2010:Q3 73,000 new ones appeared, returning us to
the level first attained three years before, in 2007:Q3. Millions
No net growth in number of businesses since 2007
- Slide 143
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 142 Business Bankruptcy Filings, 1980-2010 Sources:
American Bankruptcy Institute at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633
; Insurance Information Institute
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline 2010 bankruptcies totaled
56,282, down 7.5% from 60,837 in 2009which were up 40% from 2008
and the most since 1993. % Change Surrounding Recessions 1980-82
58.6% 1980-87 88.7% 1990-91 10.3% 2000-01 13.0% 2006-09
208.9%*
- Slide 144
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 143 Private Sector Business Starts, 1993:Q2 2010:Q3*
Business Starts Were Down Nearly 20% in the Recession, Holding Back
Most Types of Commercial Insurance Exposure * Data through
September 30, 2010 are the latest available as of May 3, 2011;
Seasonally adjusted Source: Bureau of Labor Statistics,
http://www.bls.gov/news.release/cewbd.t08.htm.http://www.bls.gov/news.release/cewbd.t08.htm
(Thousands) 344,000 new business starts were recorded through the
first half of 2010, which was likely the slowest year for new
business starts since 1993. Business Starts 2006: 872,000 2007:
843,000 2008: 790,000 2009: 697,000 2010:Q3 526,000
- Slide 145
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 144 11 Industries for the Next 10 Years: Insurance
Solutions Needed Shipping (Rail, Marine, Trucking) Health Sciences
Health Care Energy (Traditional) Alternative Energy Agriculture
Natural Resources Environmental Technology (incl. Biotechnology)
Light Manufacturing Export-Oriented Industries Many industries are
poised for growth, but many insurers do not write in these economic
segments
- Slide 146
- 145 Labor Market Trends Massive Job Losses Sapped the Economy
and Commercial/Personal Lines Exposure, But Trend is Improving
- Slide 147
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 146 Unemployment and Underemployment Rates: Falling in
2011 Unemployment rate rose to 9.0% in April Unemployment peaked at
10.1% in October 2009, highest monthly rate since 1983. Peak rate
in the last 30 years: 10.8% in November - December 1982 Source: US
Bureau of Labor Statistics; Insurance Information Institute. U-6
went from 8.0% in March 2007 to 17.5% in October 2009; Stood at
15.9% in April 2011 January 2000 through April 2011, Seasonally
Adjusted (%) Recession ended in November 2001 Unemployment kept
rising for 19 more months Recession began in December 2007
Stubbornly high unemployment and underemployment will constrain
payroll growth, which directly affects WC exposure Mar 11
- Slide 148
- Monthly Change in Private Employment January 2008 through April
2011* (Thousands) Private Employers Added 2.269 million Jobs Since
Jan. 2010 After Having Shed 4.66 Million Jobs in 2009 and 3.81
Million in 2008 (Local Govt. Employment is Down 416,000 Since Sept.
2008 Peak) Source: US Bureau of Labor Statistics:
http://www.bls.gov/ces/home.htm; Insurance Information
Institutehttp://www.bls.gov/ces/home.htm Monthly Losses in Dec.
08Mar. 09 Were the Largest in the Post-WW II Period Private
employers added jobs in every month in 2010 for a total of 1.435
million for the year 268,000 private sector jobs were created in
April
- Slide 149
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 148 Monthly Change Employment* Monthly Losses in Dec.
08Mar. 09 Were the Largest in the Post-WW II Period *Estimate based
on Reuters poll of economists. Source: US Bureau of Labor
Statistics: http://www.bls.gov/ces/home.htm; Insurance Information
Institutehttp://www.bls.gov/ces/home.htm Job Losses Since the
Recession Began in Dec. 2007 Peaked at 8.4 Mill in Dec. 09; Stands
at 6.2 Million Through March 2011; 13.5 Million People are Now
Defined as Unemployed January 2008 through April 2011* (Thousands)
The job gain and loss figures in 2010 were severely distorted by
the hiring and termination of temporary Census workers. In 2010,
1.178 million nonfarm jobs were created. 216,000 nonfarm jobs were
created in March
- Slide 150
- 149 Unemployment Rates by State, March 2011: Highest 25 States*
*Provisional figures for March 2011, seasonally adjusted. Sources:
US Bureau of Labor Statistics; Insurance Information Institute. In
March, 34 states reported over-the- month unemployment rate
decreases, 7 had increases, and 9 states and the District of
Columbia had no change. 23 states + DC had unemployment rates above
the US average in Mar. 2011, 17 states were below.
- Slide 151
- 150 Unemployment Rates By State, March 2011: Lowest 25 States*
*Provisional figures for March 2011, seasonally adjusted. Sources:
US Bureau of Labor Statistics; Insurance Information Institute. In
March 34 states reported over-the- month unemployment rate
decreases, 7 had increases, and 9 states and the District of
Columbia had no change.
- Slide 152
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 151 Labor Underutilization: Broader than Just
Unemployment % of Labor Force Marginally Attached and Unemployed
Persons Account for 15.9% of the Labor Force in April 2011 (1 Out
Every 6.4 People). Unemployment Rate Alone was 8.8%.
Underutilization Shows a Broader Impact on WC and Other Commercial
Exposures NOTE: Marginally attached workers are persons who
currently are neither working nor looking for work but indicate
that they want and are available for a job and have looked for work
sometime in the recent past. Discouraged workers, a subset of the
marginally attached, have given a job-market related reason for not
looking currently for a job. Persons employed part time for
economic reasons are those who want and are available for full-time
work but have had to settle for a part-time schedule. Source: US
Bureau of Labor Statistics; Insurance Information Institute.
- Slide 153
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 152 US Unemployment Rate Rising unemployment eroded
payrolls and workers comps exposure base. Unemployment peaked at
10% in late 2009. * = actual; = forecasts Sources: US Bureau of
Labor Statistics; Blue Chip Economic Indicators (5/11); Insurance
Information Institute 2007:Q1 to 2012:Q4F* Unemployment forecasts
remain stubbornly high through 2011, but still imply millions of
new jobs will created. Jobless figures have been revised downwards
for 2011/12
- Slide 154
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 153 US Unemployment Rate Forecasts Unemployment will
remain high even under the most optimistic of scenarios, but
forecasts are being revised downwards Sources: Blue Chip Economic
Indicators (4/11); Insurance Information Institute Stubbornly High
Unemployment Will Slow the Recovery of the Workers Comp Exposure
Base, But Momentum Is Moving in the Right Direction Quarterly,
2011:Q2 to 2012:Q4
- Slide 155
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 154 Change in Number Employed in Select Industries, Mar.
2011 vs. Mar. 2010 Sources: US Bureau of Labor Statistics
Employment Situation, March 2011; Insurance Information Institute.
There is a great deal of variation in employment growth by
industry, indicating a very uneven and slow recovery Thousands
Professional Business Services, Health Care, and Manufacturing (!)
were the job growth leaders in the last twelve months.
- Slide 156
- Estimated Effect of Recessions* on Payroll (Workers Comp
Exposure) *Data represent maximum recorded decline over 12-month
period using annualized quarterly wage and salary accrual data
Source: Insurance Information Institute research; Federal Reserve
Bank of St. Louis (wage and salary data); National Bureau of
Economic Research (recession dates). Recessions in the 1970s and
1980s saw smaller exposure impacts because of continued wage
inflation, a factor not present during the 2007-2009 recession The
Dec. 2007 to mid- 2009 recession caused the largest impact on WC
exposure in 60 years (Percent Change) (All Post WWII Recessions)
Recession Dates (Beginning/Ending Years)
- Slide 157
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 156 Payroll Base* WC NWP Wage and Salary Disbursements
(Payroll Base) vs. Workers Comp Net Written Premiums *Private
employment; Shaded areas indicate recessions. Sources: NBER
(recessions); Federal Reserve Bank of St. Louis at
http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI;
I.I.I.http://research.stlouisfed.org/fred2/series/WASCUR 29% of NPW
has been eroded away by the soft market and weak economy
7/90-3/913/01-11/01 12/07-6/09 $Billions WC premium volume dropped
two years before the recession began WC net premiums written were
down $14B or 29.3% to $33.8B in 2010 after peaking at $47.8B in
2005
- Slide 158
- 157 Direct Premiums Written: Workers Comp Percent Change by
State, 2005-2010* *Excludes monopolistic fund states: ND, OH, WA,
WY as well as WV, which transitioned to a competitive structure
during this period. Sources: SNL Financial LC.; Insurance
Information Institute. Top 25 States 5,807.1 Only 9 (small) states
showed growth in workers comp premium volume between 2005 and
2010
- Slide 159
- 158 Direct Premiums Written: Workers Comp Percent Change by
State, 2005-2010* Bottom 25 States States with the poorest
performing economies also produced the most negative net change in
premiums of the past 5 years *Excludes monopolistic fund states:
ND, OH, WA, WY as well as WV, which transitioned to a competitive
structure during this period. Sources: SNL Financial LC.; Insurance
Information Institute. Workers Comp DPW plunged 28.7% from between
2005 and 2010
- Slide 160
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 159 Frequency: 19262008 A Long-Term Drift Downward Note:
Recessions indicated by gray bars. Sources: NCCI from US Bureau of
Labor Statistics; National Bureau of Economic Research
Manufacturing Total Recordable Cases Rate of Injury and Illness
Cases per 100 Full-Time Workers
- Slide 161
- 160 Catastrophic Loss Catastrophe Losses Trends Are Trending
Adversely
- Slide 162
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 161 US Insured Catastrophe Losses *First quarter 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; Munich Re; Insurance
Information Institute. 2010 CAT Losses Were Close to Average
Figures Do Not Include an Estimate of Deepwater Horizon Loss $100
Billion CAT Year is Coming Eventually 2010 CAT Losses Were About
Average ($ Billions) 2000s: A Decade of Disaster 2000s: $193B (up
117%) 1990s: $89B Tornado losses could total $2B+ in 2011
- Slide 163
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 162 U.S. Insured Catastrophe Losses** *First quarter
2011. **converted to 2010 dollars 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. 2010 CAT
losses were below the 2001-2010 average of $22.5 billion, but the
$13.8 billion figure doesnt include an estimate of losses
associated with the Deepwater Horizon explosion and oil spill
Average yearly insured loss for 2001-2010: $22.5 B $ Billions
Average yearly insured loss for 1991-2000: $13.2 B
- Slide 164
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 163 Combined Ratio Points Associated with Catastrophe
Losses: 1960 2010E 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
estimate for 2010. The Catastrophe Loss Component of Private
Insurer Losses Has Increased Sharply in Recent Decades Avg. CAT
Loss Component of the Combined Ratio by Decade 1960s: 1.04 1970s:
0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 Combined Ratio Points
- Slide 165
- Number Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm) Hydrological (flood, mass movement) Natural
Disasters in the United States, 1980 2010 Number of Events (Annual
Totals 1980 2010) Source: MR NatCatSERVICE 164 There were a record
247 natural disaster events in the US in 2010
- Slide 166
- U.S. Thunderstorm Loss Trends, 1980 2010 (Annual Totals)
Source: Property Claims Service, MR NatCatSERVICE 165 Thunderstorm
losses in 2010 totaled $9.5 billion, the 3 rd highest ever Average
thunderstorm losses have now quintupled since the early 1980s
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss
- Slide 167
- Source: Property Claims Service, MR NatCatSERVICE U.S. Winter
Storm Loss Trends, 1980 2010 (Annual Totals) 166 Insured winter
storm losses in 2010 are one of the top five in US history,
totaling $2.6 billion in 2010
- Slide 168
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 167 Inflation Adjusted US Catastrophe Losses by Cause of
Loss, 19902009 1 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: ISOs Property Claim Services Unit.
Hurricanes & Tropical Storms, $152.4 Fires (4), $8.0 Tornadoes
(2), $97.8 Winter Storms, $25.0 Terrorism, $23.6 Geological Events,
$17.6 Wind/Hail/Flood (3), $11.1 Other (5), $0.5 Wind losses are by
far cause the most catastrophe losses, even if hurricanes/TS are
excluded.
- Slide 169
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 168 Distribution of US Insured CAT Losses: TX, FL, LA
vs. US, 1980-2010* ($ Billions) * Adjusted to 2010 dollars. Source:
PCS division of ISO; Insurance Information Institute. Louisiana
Accounted for 10% of All US Insured CAT Losses from 1980-2010:
$36.7B out of $237.5B Florida Texas Louisiana Rest of US
- Slide 170
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 169 Top 12 Most Costly Disasters in US History (Insured
Losses, 2009, $ Billions) Sources: PCS; Insurance Information
Institute inflation adjustments. 8 of the 12 Most Expensive
Disasters in US History Have Occurred Since 2004; 8 of the Top 12
Disasters Affected FL Hurricane Katrina Remains, By Far, the Most
Expensive Insurance Event in US and World History
- Slide 171
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 170 Total Value of Insured Coastal Exposure (2007, $
Billions) Source: AIR Worldwide $895B Insured Coastal Exposure in
Texas in 2007 In 2007, Florida Still Ranked as the #1 Most Exposed
State to Hurricane Loss, with $2.459 Trillion Exposure, but Texas
is very exposed too, and ranked #3 with $895B in insured coastal
exposure The Insured Value of All Coastal Property Was $8.9
Trillion in 2007, Up 24% from $7.2 Trillion in 2004
- Slide 172
- 12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future
of the P/C 171 US Residual Market Exposure to Loss Source: PIPSO;
Insurance Information Institute Hurricane Andrew 4 Florida
Hurricanes Katrina, Rita, and Wilma In the 19-year Period Between
1990 and 2008, Total Exposure to Loss in the Residual Market (FAIR
& Beach/Windstorm) Plans Has Surged from $54.7B in 1990 to
$696.4B in 2008 ($ Billions)
- Slide 173
- 172 Outlook for the 2011 Atlantic Hurricane Season Above
Average Activity, More Landfalls Expected
- Slide 174
- Outlook for 2011 Hurricane Season: 75% More Active Than Average
Average*2005 (Katrina Year) 2011F Named Storms9.62816 Named Storm
Days49.1115.580 Hurricanes5.9149 Hurricane Days24.547.535 Intense
Hurricanes2.375 Intense Hurricane Days5.0710 Accumulated Cyclone
Energy96.1NA160 Net Tropical Cyclone Activity100%275%175% *Average
over the period 1950-2000. Source: Dr. Philip Klotzbach and Dr.
William Gray, Colorado State University, April 6, 2011.
- Slide 175
- Probability of Major Hurricane Landfall (CAT 3, 4, 5) in 2011
Average*2011F Entire US Coast52%72% US East Coast Including Florida
Peninsula 31%48% Gulf Coast from FL Panhandle to Brownsville, TX
30%47% ALSOAbove-Average Major Hurricane Landfall Risk in Caribbean
for 2011 (61% vs. 42%) *Average over the period 1950-2000. Source:
Dr. Philip Klotzbach and Dr. William Gray, Colorado State
University, April 6, 2011.
- Slide 176
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