Upload
sinbad1999
View
218
Download
0
Embed Size (px)
Citation preview
8/3/2019 2011 Hart Wig Texas
1/125
Is the World Becoming
P/C Insurance Industry in theInsurance Council of Texas Annual Symposium
,July 15, 2011
Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
8/3/2019 2011 Hart Wig Texas
2/125
Presentation Outline
Review of Recent Events What in the World is Going On?
Summar of P/C Financial Performance
Catastrophe Loss Developments & Trends
Global
US
Will the Market Turn? Four Necessary Criteria:
Underwriting Loss Trends
Capital/Capacity
Reinsurance Markets
Pricing Discipline
Texas Markets: Performance Overview Profitability and Growth
Other Contributing Factors to the Underwriting Cycle
Investment Environment
2
Tort/Casualty Environment Inflation
Economic Growth
8/3/2019 2011 Hart Wig Texas
3/125
What in the World Is
Going On?Is the World Becoming a
What Are the Implications for
3
Insurance and Risk Management?
8/3/2019 2011 Hart Wig Texas
4/125
Uncertainty, Risk and Fear Abound
Japan, New Zealand, Haiti, Chile Earthquakes Nuclear Fears
Record Tornado Floodin in the US TX Wildfires
Cyber Attacks
Resurgent Terrorism Risk (e.g., Bin Laden Killing)
Political U heaval in the Middle East
Echoes of the Financial Crisis
Housing Crisis
US Debt and Budget Crisis
Sovereign Debt & Currency Crises
Runaway Energy & Commodity Prices
Era of Fiscal Austerity Are Black Swans
4
China Becomes #2 Economy in the World
Manmade Disasters (e.g., Deepwater Horizon)
does it just seemthat way?
8/3/2019 2011 Hart Wig Texas
5/125
P/C Insurance IndustryFinancial Overview
Profit Recovery Will Be Setac y g s, ow
Interest Rates, Diminishing
5
Reserve Releases
8/3/2019 2011 Hart Wig Texas
6/125
P/C Net Income After Taxes19912011:Q1 ($ Millions)
,496
5,7
77$80,000 2005 ROE*= 9.6%
2006 ROE = 12.7%
P-C Industry 2011:Q1 profits weredown 12.2% to $7.8B vs. $8.9B in2010:Q1 as underwritin results
9
$62$
4,1
55
01
$60,000
, 2007 ROE = 10.9%
2008 ROE = 0.3%
2009 ROAS1 = 5.9%
2010 ROAS = 6.5%
deteriorated
316
,598 4,4
04 $
36,8
1
$3
0,7
73
,865
$30,0
29
$34,6
7
$28,6
72
$4
,559
$38,
$30,000
$40,000
, : = .
$14,1
7
$5,8
40
$19,
$10,8
70
$20 $
$2
,046
,043
$7,8
07
$20
$10,000
$20,000
$
-$6,970-$10,000
$0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.5% ROAS for2011:Q1, 7.5% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
8/3/2019 2011 Hart Wig Texas
7/125
A 100 Combined Ratio Isnt What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
15.9%110 18%
A combined ratio of about 100generated ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
97.5
100.6 100.1 100.7 99.3100.8 102.2101.0
14.3%
12.7%
100
105
12%
15%
92.66.5%
7.5%7.4%
.
8.9%
90
95
6%
9%
4.4%
80
85
0%
3%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Todays Depressed
* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guarantyinsurers
Source: Insurance Information Institute from A.M. Best and ISO data.
Investment Environment to Generate Risk Appropriate ROEs
8/3/2019 2011 Hart Wig Texas
8/125
Profitability Peaks & Troughs in the P/CInsurance Industry, 1975 2011*
25%1977:19.0% 1987:17.3%
History suggests next ROEpeak will be in 2016-2017
ROE
20%1997:11.6%
2007:12.3%
2011:*
10%
10 Years.
5%
-5%
0%
1984: 1.8% 1992: 4.5% 2001: -1.2%1975: 2.4%
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
*
*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for Q1 data.Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
8/3/2019 2011 Hart Wig Texas
9/125
Profitability and Growth inexas nsurance ar e s
Anal sis b Line and NearbState Comparisons
9
8/3/2019 2011 Hart Wig Texas
10/125
RNW All Lines: TX vs. U.S., 2000-2009
25%
(Percent)
10%
15%
0%
5%
P/C Insurer profitability inTX is hi hl variable and
-
-10%
-5% below that of the US overallover the past decade
US: 7.0%
-20%00 01 02 03 04 05 06 07 08 09
US All Lines TX All Lines
TX: 3.7%
10Sources: NAIC.
8/3/2019 2011 Hart Wig Texas
11/125
RNW PP Auto: TX vs. U.S., 2000-2009
25%Pvt. Passenger Auto
profitability in TX is has
15%
20%
US in recent years
5%
10%
-5%
0%Average 2000-2009
US: 7.2%
TX: 6.1%
-10%00 01 02 03 04 05 06 07 08 09
US PP Auto TX PP Auto
11Sources: NAIC.
8/3/2019 2011 Hart Wig Texas
12/125
RNW Comm. Auto: TX vs. U.S.,2000-2009
20%
(Percent)Commercial Auto
profitability in TX is
10%
15%genera y e ow e
average
5%
-5%
0% -
US: 8.5%
TX: 5.6%
-10%00 01 02 03 04 05 06 07 08 09
US Comm Auto TX Comm Auto
12Sources: NAIC.
8/3/2019 2011 Hart Wig Texas
13/125
RNW Comm. Multi-Peril: TX vs. U.S.,2000-2009
30%
(Percent) Hurricane Ike put a bigdent in CMP profitability
10%
20%
-
-10%
-40%
-30%
-
US: 8.0%
TX: 0.4%
-50%00 01 02 03 04 05 06 07 08 09
US Comm M-P TX Comm M-P
13Sources: NAIC.
8/3/2019 2011 Hart Wig Texas
14/125
RNW Homeowners: TX vs. U.S.,2000-2009
(Percent)Homeowners Profitability: Mold,
Hurricanes, Hail & Tornadoes
30%40%
ee ay ore
0%
10%
20%
-30%
-20%
-10%
Average 2000-2009
US: 4.7%
-60%
-50%
-40% TX: -2.3%
14Sources: NAIC.
US HO TX HO
8/3/2019 2011 Hart Wig Texas
15/125
RNW Workers Comp: TX vs. U.S.,2000-2009
20%
(Percent)Workers comp
profitability in TX has
15%
genera youtperformed the US
5%
10%
0%
-
US: 6.4%
TX: 9.2%
-5%00 01 02 03 04 05 06 07 08 09
US WComp TX WComp
15Sources: NAIC.
8/3/2019 2011 Hart Wig Texas
16/125
All Lines: 10-Year Average RNW TX &Nearby States
2000-2009
7.0%10.5% New Mexico
U.S.
Texas All Lines profitabilityis below the US and
6.0%
6.9% Arkansas
Oklahoma
-9.3%
3.7%Texas
Mississippi- .
-15% -10% -5% 0% 5% 10% 15%
Louisiana
Source: NAIC, Insurance Information Institute
8/3/2019 2011 Hart Wig Texas
17/125
PP Auto: 10-Year Average RNW TX &Nearby States
2000-2009
7.2%11.1% New Mexico
U.S.
7.6%
6.8% Arkansas
Oklahoma
4.7%
6.1%Texas
Mississippi
Texas PP Autoprofitability is belowthe US and regional
average.
0% 2% 4% 6% 8% 10% 12%
Louisiana
Source: NAIC, Insurance Information Institute
8/3/2019 2011 Hart Wig Texas
18/125
Top Ten Most Expensive And Least ExpensiveStates For Automobile Insurance, 2008 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 D.C. $1,126 1 North Dakota $503
2 Louisiana 1,105 2 Iowa 5193 New Jersey 1,081 3 South Dakota 520
4 Florida 1,055 4 Nebraska 547
5 New York 1,044 5 Idaho 562
6 Delaware 1,007 6 Kansas 576
7 Rhode Island 986 7 Wisconsin 5818 Nevada 970 8 North Carolina 595
9 Connecticut 950 9 Maine 600
10 Maryland 922 10 Indiana 612
Texas ranked 15th in 2008, with an average expenditure for autoinsurance of $854.
18
(1) Based on average automobile insurance expenditures.
Source: 2010 National Association of Insurance Commissioners.
8/3/2019 2011 Hart Wig Texas
19/125
Comm. Auto: 10-Year Average RNW TX &Nearby States
2000-2009
8.5%
11.1%New Mexico
U.S.
7.2%
6.1%Arkansas
Oklahoma
3.1%
-3.8%
5.6%Texas
Mississippi
Texas CommercialAuto profitability isbelow the US and
regional average
-5% 0% 5% 10% 15%
Louisiana
Source: NAIC, Insurance Information Institute
8/3/2019 2011 Hart Wig Texas
20/125
Comm. M-P: 10-Year Average RNW TX &Nearby States
2000-2009
8.0%13.3% New Mexico
U.S.
Texas CommercialMulti-Peril profitabilityis below the US and
11.0%
6.4% Arkansas
Oklahoma
reg ona average
-10.0%
0.4%Texas
Mississippi- .
-30% -20% -10% 0% 10% 20%
Louisiana
Source: NAIC, Insurance Information Institute
8/3/2019 2011 Hart Wig Texas
21/125
Homeowners: 10-Year Average RNW TX& Nearby States
2000-2009
4.7%12.0% New Mexico
U.S.
-1.6%
-6.9% Arkansas
Oklahoma
-29.0%
-2.3%Texas
Mississippi
Texas Homeownersprofitability is belowthe US and regional
average- .
-40% -30% -20% -10% 0% 10% 20%
Louisiana
Source: NAIC, Insurance Information Institute
8/3/2019 2011 Hart Wig Texas
22/125
Top Ten Most Expensive And Least ExpensiveStates For Homeowners Insurance, 2008 (1)
Texas ranked as the most expensive state for homeowners insurance in2008, with an average expenditure of $1,460.
Rankos
expensive statesverage
expenditure Rankeas
expensive statesverage
expenditure
1 Texas (3) $1,460 1 Idaho $387
2 Florida (4) 1,390 2 Utah 432
,
4 Oklahoma 1,048 4 Washington 471
5 Massachusetts 1,026 5 Wisconsin 503
6 New York 983 6 Delaware 535
onnec cu o
8 Mississippi 980 8 Maine 572
9 D.C. 926 9 Pennsylvania 586
10 Kansas 916 10 Kentucky 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.
22
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. TheNAIC 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 strictlyprohibited without written permission of NAIC.
8/3/2019 2011 Hart Wig Texas
23/125
Workers Comp: 10-Year Average RNWTX & Nearby States
2000-2010
6.4%8.7% New Mexico
U.S.
3.7%
13.2% Arkansas
OklahomaTexas WorkersComp profitability is
9.5%
9.2%Texas
Mississippi
above the USaverage but similar
to the regionalaverage
.
0% 5% 10% 15%
Louisiana
Source: NAIC, Insurance Information Institute
All Li DWP G th TX U S
8/3/2019 2011 Hart Wig Texas
24/125
All Lines DWP Growth: TX vs. U.S.,2001-2010
0.5
%25%
(Percent)
2.0
%14.3
%
15
.7%
2
15%
20%
1
9.8
7.4
%
% .4%
7.9
%
6
.2%
.7% 9%
10%
2. 3
0.5
%
%
0.0
%
0.3
%1
.4 2.
%
0.7
0%
-2.1
-3.3
%-1.
-10%
-5%
24Source: SNL Financial.
US DWP: All Lines TX DWP: All Lines
C Li DWP G th TX U S
8/3/2019 2011 Hart Wig Texas
25/125
Comm. Lines DWP Growth: TX vs. U.S.,2001-2010
(Percent)
.0%
.2%
27
.2%
25%30%
15
.3 1
1
1.4
%
% 4%
1
9.2
%
10
.4%
%10%
15%
20%
4.
3. 3 5
.
0.2
%
%
0.1
%2
.3 4.1
0.0
%
9
%-
0%
5%
-1.
-7.3
% -2
.5
-7.4
%-0
.
-15%
-10%
25Source: SNL Financial.
US DWP: Comm. Lines TX DWP: Comm. Lines
P l Li DWP G th TX U S
8/3/2019 2011 Hart Wig Texas
26/125
Personal Lines DWP Growth: TX vs. U.S.,2001-2010
6.8
%20%
(Percent)
11
.1%
11
.3%
1
15%
8.2
%9
.2
5.4
%7.2
%
%5.
4%
.3%
10%
2.3
2.3
1.2
%
-0.1
%1
.1% 2
.5
1.3
%
0.5
% 2.4 3
.0
2.2
0%
-5%
US DWP: Personal Lines TX DWP: Personal Lines
26Source: SNL Financial.
P i t P A t DWP G th TX
8/3/2019 2011 Hart Wig Texas
27/125
Private Passenger Auto DWP Growth: TXvs. U.S., 2001-2010
20%
(Percent)
2 % 1
0.2%
9%
11.3% 1
3.6
%10%
15%
8.
7.
3
.6%
.6%
5% % 1
%1
.5%
7.
.4% 1.8
%
2.0%
6.3
3
.5%
1.4%
5%
0 0.
0.
-0.
.4%
0
.4%
-5%
0%
01 02 03 04 05 06 07 08 09 10
--
-10%
US DWP: Personal Lines TX DWP: Personal Lines
27Source: SNL Financial.
H MP DWP G th TX
8/3/2019 2011 Hart Wig Texas
28/125
Homeowners MP DWP Growth: TX vs.U.S., 2001-2010
5.7
%30%
(Percent)
2
20%
25%
%
14
.4%
13
.5%
11.1
%
11
.5%15%
8.3
7.3
7.4
4.2
%
%3
.9%
4.9
%6
.3%
%
2
.6%
3.5
% 5.3
%
3.5
% 6.0
%
3.6
%5%
10%
0.0.
0%
01 02 03 04 05 06 07 08 09 10
US DWP: Personal Lines TX DWP: Personal Lines
28Source: SNL Financial.
8/3/2019 2011 Hart Wig Texas
29/125
Catastro he LossDevelopments and Trends
2011 and 2010 Are Rewritinga as rop e oss anInsurance History
29
Global Catastrophe Loss Summary:
8/3/2019 2011 Hart Wig Texas
30/125
Global Catastrophe Loss Summary:First Half 2011
2011 Is Already (as of June 30) the HighestLoss Year on Record Globally
Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods
$260 Billion in EconomicLosses 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 InsuredLosses Globally
More than double the first half 2010 amount
Over 4 times the 10-year average
$27 Billion in EconomicLosses in the US
Represents a 129% increase over the $11.8 billion amount through the first half of 2010
$17.3 Billion in InsuredLosses in the US Arising from 100 CAT Events
Represents a 162% increase over the $6.6 billion amount through the first half of 2010
30
Insured Loss Estimates for Selected Major
8/3/2019 2011 Hart Wig Texas
31/125
Insured Loss Estimates for Selected MajorCatastrophes in 2011
JapanEarthquake
AprilTornadoes
May(Joplin)
Tornadoes
Eqecat $22 to $39 $5 billion to $1 billion to
RMS$21 to 34
billion$3.5 to $6
billion$2 to $6billion
AIR on o$30 billion
on o$7 billion
obillion
31
US Second Quarter Insured Catastrophe
8/3/2019 2011 Hart Wig Texas
32/125
US Second Quarter Insured CatastropheLosses, 20002011
$ Billions
2011:Q2 CATlosses totaled
$15.09
$12
$14
$16Q2 CAT losses from 2000-2010
average $4.0 billion. 2011:Q2CAT losses were nearly 4 times
$15.09 billion andare the highest on
record
$7.11 $6.38$6.24$8
$10
.
$5.04
$2.30
$4.47
0.93
$2.33
$5.05
$2.79
$1.46$2
$4
$6
$02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
32Sources: ISO/PCS; Insurance Information Institute.
Results in 2011
Top 15 Most Costly World Insurance
8/3/2019 2011 Hart Wig Texas
33/125
Top 15 Most Costly World InsuranceLosses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
$72.3$70$80
Three of the top 15 most
expensive catastrophes inworld histor have occurred in
23.1 $24.9
$35.0
$30
$40
$50 the past 18 months
$11.3 $14.0$14.9
. .
$10.0$9.3$9.0$8.0$8.0$7.8
$0
$10
$20
Winter Chile Hu o T hoonCharle New Rita Wilma Ivan Ike Northrid e WTC Andrew Ja an KatrinaStormDaria(1991)
Quake(2010)
(1989) Mirielle(1991)
(2004) ZealandQuake(2011)
(2005) (2005) (2004) (2008) (1994) TerrorAttack(2001)
(1992) Quake,Tsunami(2011)*
(2005)
33
*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.
Top 16 Most Costly World Insurance
8/3/2019 2011 Hart Wig Texas
34/125
Top 16 Most Costly World InsuranceLosses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)3 of the top 15 most
expensivecatastrophes in world
$72.3$70$80
Taken as a single event, the
Spring 2011 tornado seasonwould likely become the 9th
history have occurredin the past 18 months
$24.9
$35.0
$30
$40
$50costliest event in global
insurance history
$11.3 $14.0 $14.0$14.9
. . .
$10.0$9.3$9.0$8.0$8.0$7.8
$0
$10
$20
Storm
Daria
(1991)
Quake
(2010)
(1989) Mirielle
(1991)
(2004) Zealand
Quake
(2011)
(2005) Tornadoes
(2011)
(2005)
(2004)
(2008) (1994) Terror
Attack
(2001)
(1992) Quake,
Tsunami
(2011)*
(2005)
34
*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.
Worldwide Natural Disasters
8/3/2019 2011 Hart Wig Texas
35/125
Worldwide Natural Disasters,1980 2011*
600
Number of Events Already 355 eventsthrough the first 6
400
500
300
100
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
*2011 figure is through June 30.Source: MR NatCatSERVICE 35
(Storm) (Flood, massmovement)
(Extreme temperature,drought, forest fire)
(Earthquake, tsunami,volcanic eruption)
Worldwide Natural Disasters 1980 2011
8/3/2019 2011 Hart Wig Texas
36/125
Worldwide Natural Disasters 19802011,Overall and Insured Losses*
300
First Half 2011
Overall Losses: $265 Bill
250
Insured Losses: $60 Bill
$bn150
200
U
100
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
36
Overall losses (in 2011 values) Insured losses (in 2011 values)
*2011 figure is through June 30.Source: MR NatCatSERVICE 2011 Munich Re
8/3/2019 2011 Hart Wig Texas
37/125
NUCLEAR DISASTER
March 11 Quake/Tsunami Is Just the Most Recent of
evera arge o a a as rop e osses
37
Insured Japan Earthquake Loss
8/3/2019 2011 Hart Wig Texas
38/125
Insured Japan Earthquake LossEstimates*
(Insured Losses, $ Billions)
Eqecat $22
$39bn
RMS $21 - $34 bn
are likely to total in
the $200-$300
billion range,
AIRWorldwide $20 $35bn
fraction of the loss
is insured
TowersWatson $20 $45bn
38
*As of June 17, 2011. Towers Watson estimate includes $3.0 (low) to $4.9 billion (high) in life insurance losses. RMS estimateincludes insured life/health losses of $3 to $8 billion.
Sources: AIR Worldwide, Eqecat, RMS, Towers Perrin; Insurance Information Institute.
Recent Major Non-US Catastrophe
8/3/2019 2011 Hart Wig Texas
39/125
Recent Major Non-US CatastropheLosses
(Insured Losses, $US Billions)
The March 2011 earth uake in Ja an will$35.0
$25
$30
$35become among the most expensive in world
history in terms of insured losses (currentleader is the 1994 Northridge earthquake with$22.5B in insured losses in 2010 dollars
$10.0$8.0
$5.0$10
$15
$20
$2.0$0.5
$0
$5
Cyclone Yasi
(Australia) Feb
2011
Australia Floods
(Dec - Feb 2011)
New Zealand
Quake (Sep 2010)
Chile Earthquake
(Feb 2010)
New Zealand
Quake (Feb 2011)
Japan Earthquake
(Mar 2011)
Insured Losses from Recent Major Catastrophe Events Exceed$60 Billion, an Estimated $53 Billion of that from Earthquakes
39Sources: Insurance Council of Australia, Munich Re, AIR Worldwide; Insurance Information Institute.
Nonlife (P/C) Insurance Market Impacts
8/3/2019 2011 Hart Wig Texas
40/125
Nonlife (P/C) Insurance Market Impactsof Japan Earthquake
No Direct Impact for US Domestic Primary Insurers BUT: $2 - $5 Billion in Assumed Loss from Foreign Catastrophes Will Wind Up on
the Books of US Insurers, Most with No Direct Exposure to Japan/Australia/NZ
Retrocessional market
Blanket property insurance covers 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
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
Supply Chain Disruption Concern (Now Waning)
Currently an Earnings Event for Global Reinsurers
Not a capital event: Global reinsurance markets entered 2011 with record capital
40
, ,
Up for all; Magnitude of increase is sensitive to size of loss
Impact on Cost of US Property-Cat Reinsurance is Possible/Likely
Market remains well capitalized and competitive
8/3/2019 2011 Hart Wig Texas
41/125
SPRING 2011 TORNADO OUTBREAK
2011 Will Be Among the Most Deadly andExpensive for Tornadoes In History
41
Insured Loss Estimates from April 2011
8/3/2019 2011 Hart Wig Texas
42/125
Insured Loss Estimates from April 2011Tornadoes*
(Insured Losses, $ Billions)
Eqecat $5
7bn The April
tornadoes killed
RMS $3.5 - $6.0 bn
more that 300people and
caused as much
insured losses
AIRWor w e 5
7bn
42
*As of June 17, 2011.
Sources: AIR Worldwide, Eqecat, RMS; Insurance Information Institute research.
Insured Loss Estimates from May 2011
8/3/2019 2011 Hart Wig Texas
43/125
Insured Loss Estimates from May 2011(Joplin) Tornadoes*
(Insured Losses, $ Billions)
Eqecat $1
$3 bn The Maytornadoes killed
RMS $2 - $6 bn
more that 125people and
caused as much
insured losses
AIRWor w e $2 $6bn
43
*As of June 17, 2011.
Sources: AIR Worldwide, Eqecat, RMS; Insurance Information Institute research.
S f R t T d A ti it
8/3/2019 2011 Hart Wig Texas
44/125
Summary of Recent Tornado Activity
There Have Been 1,585 Tornadoes Through June 30 in the US
537 People Have Been Killed
The April 27 Tornado Outbreak Killed at Least 342 People
Now the 2nd 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 $3.5B to $7B
The May 22 Tornado in Joplin, MO, Killed at Least 130 People
Insured Losses Estimated at $1B to $6B
P/C Insurance Industry is Very Strong and Will Encounter No
44
Difficulties in Paying these Claims
Number of Tornadoes and Related
8/3/2019 2011 Hart Wig Texas
45/125
Number of Tornadoes and RelatedDeaths, 1990 2011*
921,819 537
2,000 600Number of Tornadoes
Number of Deaths
Tornadoes have alreadyclaimed more than 500 lives
33
32 1
,297
173
2 1,2
34
173
48
1,4
24
1,3
45
,216 1
,37
6
1,2
64
3 8
1,
56 1
,282
1,5
8
1,400
1,600
,
does
400
500
Nu
1,1
1,1 1
,
1,0
8 1,
1,1
1,0
71
941
1,1
1,0 1
,
800
1,000
1,200
ero
fTorna
300
berofDeaThere were alread
400
600Num
100
200ths1,585 tornadoes in
the US by June 30
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
0
45
*2011 is preliminary data through June 30.
Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
,
April 2011 Tornadoes in the Birmingham and Tuscaloosa Areas
Insurers Making a Difference in
8/3/2019 2011 Hart Wig Texas
46/125
Insurers Making a Difference inImpacted Communities
Destroyed home inTuscaloosa. Insurers
,claims totaling $2 billion
in the Tuscaloosa/Birmingham areas alone.
resentat on o a c ecto Tuscaloosa MayorWalt Maddox to theTuscaloosa Storm
Source: Insurance Information Institute 46
Recovery Fund
8/3/2019 2011 Hart Wig Texas
47/125
U.S. Tornado Count, 2005-2011*
There were 1,585 tornadoesTornadoin the US in 2010, slightly
above averageactivity was off
its record paceby mid-year
Deadly andcostly April/May spike
47Source: http://www.spc.noaa.gov/wcm/ *Through July 2.
Location of Tornadoes in the US
8/3/2019 2011 Hart Wig Texas
48/125
Location of Tornadoes in the US,January 1June 30, 2011
,killed 537 peoplethrough June 30,
including at least
mostly in theTuscaloosa area,and 130 in Joplin
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 48
Location of Large Hail Reports in the
8/3/2019 2011 Hart Wig Texas
49/125
Location of Large Hail Reports in theUS, January 1June 30, 2011
There were 7,176Large Hail
reports throughJune 30, causing
extensive damageto homes,
businesses and
vehicles
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 49
Location of Wind Damage Reports in
8/3/2019 2011 Hart Wig Texas
50/125
Location of Wind Damage Reports inthe US, January 1June 30, 2011
There were 11,283Wind Damage
reports through,
extensive damageto homes and,
businesses
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 50
Severe Weather Reports,
8/3/2019 2011 Hart Wig Texas
51/125
Severe Weather Reports,January 1June 30, 2011
There havebeen 20,044
severe weather
reports throughJune 30including 1,585
tornadoes;7,176 Large
Hail re ortsand 11,283 highwind events
51Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
Number of Severe Weather Reports in US,
8/3/2019 2011 Hart Wig Texas
52/125
p ,by Type: January 1June 30, 2011
Tornadoes
1,585 , 8%
,
7,176 , 36%Wind
,11,283 , 56%
Tornadoes accountedfor just 8% of allSevere WeatherReports throughune ut morethan 500 deaths
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
8/3/2019 2011 Hart Wig Texas
53/125
US CATASTROPHE INSURED LOSS UPDATE
First Half 2011 CAT Losses Already Exceed All of
2010 and Could Become One of the MostExpensive Years on Record
53
US Insured Catastrophe Losses
8/3/2019 2011 Hart Wig Texas
54/125
US Insured Catastrophe Losses
100.0$120
$100 Billion CAT Year isComing Eventually
($ Billions)
$61.9$80
$100 Record TornadoLosses Caused
H1 CAT Losses toSurge
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
0.1 $
26.5
2.9 $
27.5
2 $
27.1
0.6 3.6 17
.3
$2
2.9
16.9
$40
60
$8.
$7.
$2.6 $
1$8.
$4.6
$5. $
$9.
$6.
$1 $
$7.
$2.7
$4.7
$5.
$089 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 of2010. Even Modest Hurricane Losses Will Make 2011 Among the
Most Expensive Ever for CATs
54
*First half 2011.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personalproperty claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.
Sources: Property Claims Service/ISO; Insurance Information Institute.
Natural Disaster Losses in the
8/3/2019 2011 Hart Wig Texas
55/125
Natural Disaster Losses in theUnited States: First 6 Months 2011
As of July 6, 2011
Number of
Events Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm43 593 23,573 16,350
Winter Storm 8 15 1,900 1,425
Flood 8 15 2,100 in progress
Earthquake 2 1 105 in progress
Tropical Cyclone 0 0 0 0
55Source: MR NatCatSERVICE
Top 12 (13?) Most Costly Disasters
8/3/2019 2011 Hart Wig Texas
56/125
p ( ) yin U.S. History
(Insured Losses, 2010 Dollars, $ Billions)
$45.8
$40
$45
$50Taken as a single event, the
Spring 2011 tornado seasonwould likel become 5th costliest
$17.5
$22.6 $23.1
20$25
$30
$35 event in US insurance history
$11.5 $12.8$14.0
$8.6$8.2$6.7$6.3$5.3$4.3$5
$10
$15
Jeanne(2004)
Frances(2004)
Rita(2005)
Hugo(1989)
Ivan(2004)
Charley(2004)
Wilma(2005)
Ike(2008)
SpringTornadoes*
(2011)
Northridge(1994)
Andrew(1992)
9/11 Attack(2001)
Katrina(2005)
56
*Losses will actually be broken down into several events as determined by PCS.
Sources: PCS; Insurance Information Institute inflation adjustments.
Combined Ratio Points Associated with
8/3/2019 2011 Hart Wig Texas
57/125
Catastrophe Losses: 1960 2011:H1*
10
Avg. CAT LossComponent of theCombined Ratio
Combined Ratio Points
8.
.9
8.1
78
9
1960s: 1.041970s: 0.851980s: 1.31
3.0
.33
.3
2.8
3.6
2.9
5.
3
.3
3
.3
2.7
5.0
.6 3
.3
5.0
3.6
4
5
6 1990s: 3.392000s: 3.522010s: 4.15*
0.4
1.2
0.4 0
.8 1.3
0.30
.40.7
1.5
1.0
0.40
.40.7
1.8
1.1
0.6
1.4
2.
1.3
2.
0.50
.50.7 1
.22
. 2
1.0
1.6
1.6
1.6
0.9
0.1
1.1
1.1
0.8
0
1
2
196
196
196
196
196
197
197
197
197
197
198
198
198
198
198
199
199
199
199
199
200
200
200
200
200
2010
The Catastrophe Loss Component of Private Insurer Losses Has
57
*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 forlosses ultimately paid by foreign insurers and reinsurers.
Source: ISO; Insurance Information Institute.
Natural Disasters in the United States,1980 2011*
8/3/2019 2011 Hart Wig Texas
58/125
1980 2011*Number of Events Annual Totals 1980 2010 and First Half 2011
300
200
250
disaster events in the first
half of 2011
Number
150
50
10037
8
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
51
2
eop ys ca
(earthquake, tsunami,volcanic activity)
(temperature extremes,drought, wildfire)
Hydrological(flood, mass movement)
*Through June 30.Source: MR NatCatSERVICE 58
U.S. Thunderstorm Loss Trends,
8/3/2019 2011 Hart Wig Texas
59/125
U S u de sto oss e ds,1980 2011*
Thunderstorm losses in the first halfof 2011 totaled $16.4 billion, a new
annual record through just 6 months
Hurricanes get all the headlines,but thunderstorms are consistent
Average thunderstorm
.2008-2011 are the most expensive
years on record.
than 8 fold since the
early 1980s
59
*Through June 30, 2011.Source: Property Claims Service, MR NatCatSERVICE
U.S. Winter Storm Loss Trends,
8/3/2019 2011 Hart Wig Texas
60/125
,1980 2010 (Annual Totals) vs. First Half 2011
Insured winter storm lossesin 2011 totaled $1.4 billion
.
Source: Property Claims Service, MR NatCatSERVICE 60
U.S. Acreage Burned by Wildfires,
8/3/2019 2011 Hart Wig Texas
61/125
g y1980 2010 (Annual Totals) vs. First Half 2011
2011 could be a severe year
burned through June 30
already exceed all of 2010.
Source: National Forest Service, MR NatCatSERVICE 61
8/3/2019 2011 Hart Wig Texas
62/125
Notable Wildfires in 2011
April JuneApril June
Texas: Over 3 million
acres burned in westTexas from 12 major
Texas: Over 3 million
acres burned in westTexas from 12 majorseats of fire. Over 200homes and businesses
destroyed, $50 million
seats of fire. Over 200homes and businesses
destroyed, $50 millioninsured loss.
Arizona and New Mexico:
insured loss.
Arizona and New Mexico:Wallow fire largest in AZhistory at 538,000 acres,Las Conchas fire near Los
Wallow fire largest in AZhistory at 538,000 acres,Las Conchas fire near Los
Alamos, 30 buildingsdestroyed.Alamos, 30 buildingsdestroyed.Source: NASA
62Source: Munich Re.
Inflation Adjusted U.S. Catastrophe
8/3/2019 2011 Hart Wig Texas
63/125
Losses by Cause of Loss, 19902011:H11
2.4%
Fires (4), $9.0
Geological Events, $18.5
Wind/Hail/Flood (3), $12.7Other (5), $0.6
0.2%3.4%4.9%
6.6%
Terrorism, $24.9
8.0%42.7%
Hurricanes & Tropical Storms,$160.5
Winter Storms, $30.0
Tornado share of
31.8%
Wind losses are byfar cause the mostcatastrophe losses,
osses srising
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.
orna oes , . even urr canesare excluded.
63
. xc u es snow.
3. Does not include NFIP flood losses4. 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.
Number of Federal Disaster
8/3/2019 2011 Hart Wig Texas
64/125
Declarations, 1953-2011*
5 81
80
90 The number of federaldisaster declarations is ontrack to set a new record in
There have been 1,998federal disaster
declarations since
65
0 9
56
69
52
63
5960
702011, with 48 declarations
through July 1.
.number of declarations
per year is 34 from1953-2010, though that
few havent been
5 5 29
446
46
38
30
5
42
4
34
2728 3
1
38
45
32
36
32
44 4
545 4 4 4
43
30
40
50 .
13
171
816
16
7 7
12
12
22
20
11
11
19
17
17
22 2
15
22 1 2
11
10
20
05354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899000102030405060708091011*
The Number of Federal Disaster Declarations Is Risin
*Through July 1, 2011.
Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ;Insurance Information Institute.
Federal Disasters Declarations by State,
8/3/2019 2011 Hart Wig Texas
65/125
y ,1953 June 30, 2011: Highest 25 States
Over the pastnearly half
85
78
80
90
,has led the US in
Federal DisasterDeclarations
7
63
63
56
5
5
5
4
52 52 51 0 9
60
70
cla
ration
4 4 4 45
45
44
44
44
42
42
39
39
30
40
sasterDe
10
20Di
65
0 TX CA OK FL NY LA AL KY AR MO IL MS TN MN IA WV KS NE OH PA WA ND VA IN NC
Source: FEMA.
Federal Disasters Declarations by State,
8/3/2019 2011 Hart Wig Texas
66/125
y1953 June 30, 2011: Lowest 25 States
39
38
640
3 3 3
30
29
2
7
25
25
25
25 4
30
cla
ration
223
23
20
20
17
16
15
15
3
20
sasterDe
9 8 8 810
Di
66
0 SD M E GA AK WI VT NJ OR HI MA M I NH AZ ID NM MD MT NV CO C T SC DE DC RI UT WY
Source: FEMA.
8/3/2019 2011 Hart Wig Texas
67/125
The BIG Question:When Will the Market Turn?
Insurance Cycle Dynamics
67
Criteria Necessary for a Market Turn:C
8/3/2019 2011 Hart Wig Texas
68/125
All Four Criteria Must Be Met
Criteria Status Comments
Sustained Apart from Q2:2011, overall p/c underwriting losses remain
Period ofLarge
UnderwritingLosses
Not Yet
mo esCombined ratios (ex-Q2 CATs) still in low 100s (vs. 110+ at
onset of last hard market)Prior-year reserve releases continue reduce u/w losses,
oos s
Material
Decline in
Surplus hit a record $565B as of 3/31/11Analysts est. excess surplus of $75-$100B
Some excess capacity may still remain in reinsurance
Capacity
At/Near
Record High
mar e sWeak growth in demand for insurance is insufficient toabsorb much excess capacity
Tighte nsurance
MarketSomewhat in
PlaceHigher prices in Asia/PacificModestly improved pricing for US risks
Renewed Commercial lines pricing trends remain negative
68
& PricingDiscipline Not BroadlyEvident
market shareTerms & conditionsno broad tightening
Sources: Barclays Capital; Insurance Information Institute.
Do the Property Catastrophe Events of20 I C l M k ?
8/3/2019 2011 Hart Wig Texas
69/125
2011 Impact Casualty Markets?
Unlikely that Record 2011 Property CAT Loss Will Impact CasualtyMarkets in Any Material Way
Events so far in 2011 are earnings events, rather than capital events
Natural Catastrophe and Casualty Risks Are Largely Uncorrelated
Risks are different
Geographically, mostly distinct primary carriers: Japan-Australia-NZ-US
Casualty markets generally dont influence property markets
Property and Casualty Risks Are Largely Siloed
. Casualty Markets Have Their Own Issues
Tort environment
69
Inflation
Public policy
8/3/2019 2011 Hart Wig Texas
70/125
.
Have Underwriting LossesBeen Large Enough for Long
70
P/C Insurance IndustryC bi d R ti 2001 2011 H1*
8/3/2019 2011 Hart Wig Texas
71/125
Combined Ratio, 20012011:H1*
As Recently as 2001,Insurers Paid Out
RelativelyLow CAT
Heavy Use ofReinsurance
RelativelyLow CAT
HigherCAT
Losses,Shrinking
.$1 in EarnedPremiums
osses,ReserveReleases
Losses
osses,ReserveReleases
ReserveReleases,
Toll of SoftMarket
115.8
120
BestCombined
Ratio Since
CyclicalDeterioration
vg.Losses,
MoreReserve
Releases
100.8
107.5
101.0100.8100.1
107.5110.
95.7
.
92.6
98.4100
71
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=109.1
Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
90
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
Underwriting Gain (Loss)1975 2011*
8/3/2019 2011 Hart Wig Texas
72/125
19752011*
$35 Cumulativeunderwriting deficit
($ Billions) Underwritinglosses in2011 will be
much larger:
$5$15
$25 rom roug2009 is $445B
.based on
annualizedQ1 data
-$15
-$5
-$45
-$35
-
The industry recordeda $10.4B underwritingloss in 2010 compared
Large Underwriting Losses Are NOTSustainable
-$55
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011*
.
* Includes mortgage and financial guaranty insurers in all years. 2011 figure is annualized based on actual Q1underwriting losses of $4.463 billion.
Sources: A.M. Best, ISO; Insurance Information Institute.
in Current Investment Environment
Number of Years with UnderwritingP fit b D d 1920 2010
8/3/2019 2011 Hart Wig Texas
73/125
Profits by Decade, 1920s2010s
12Number of Years with Underwriting Profits
8
7
6
8
10
3
5
44
6
0 0 00
2
1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s* 2010s**
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
73
* 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.**Data for the 2010s includes 2010 and 2011.
Note: Data for 19201934 based on stock companies only.
Sources: Insurance Information Institute research from A.M. Best Data.
P/C Reserve Development, 19922011E
8/3/2019 2011 Hart Wig Texas
74/125
P/C Reserve Development, 1992 2011E
23.2$25
$30
B)
8 Impa
Prior Yr. ReserveDevelopment ($B)
Prior year reservereleases totaled $8.8
billion in the first
11.7
13.7
9.97.3$10
$15
$20
Rele
ase(
2
4
ton
Comb
Impact onCombined Ratio
,$7.1 billion in thefirst half of 2009
2.3
-2.1 -2.6-
-4.1
1
-5-$5
$0
$5
Yr.
Reserv
-2
0
inedRa
tio(
-8.3.
-9.9 -9.8- .
-9.5
-14.6-16 -15-$20
-$15
-
2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 E E
Prior
-6
-4
Points)
9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 010
11
Reserve Releases Are Remained Strong in2010 But Should Begin to Taper Off in 2011
74
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including thistransaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludesdevelopment from financial guaranty and mortgage insurance.
Sources: Barclays Capital; A.M. Best.
8/3/2019 2011 Hart Wig Texas
75/125
.
Have Large Global Losses Reduced
apac y n e n us ry, e ngthe Stage for a Market Turn?
75
US Policyholder Surplus:1975 2011*
8/3/2019 2011 Hart Wig Texas
76/125
19752011*
$600
($ Billions)
Surplus as of 3/31/11 was a record $564.7B, up
$450
$500
$550. .
peak was $521.8 as of 9/30/07. Surplus as of 3/31/11was 8.2% above 2007 peak; Crisis trough was as of
3/31/0916.2% below 2007 peak.
$250
$300
$350
Surplus is a measure of
$100
$150
$200 underwriting capacity. It isanalogous to Owners
Equity or Net Worth innon-insurance
$0
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11*
- -
* As of 3/31/11.
Source: A.M. Best, ISO, Insurance Information Institute.
.
3/31/11, A Near Record Low (at Least in Recent History)**
Policyholder Surplus,2006 Q4 2011 Q1
8/3/2019 2011 Hart Wig Texas
77/125
2006:Q42011:Q1
($ Billions)
$580
2007:Q3Previous Surplus Peak Surplus set a newrecord in 2011:Q1*
$512.8$521.8
$511.5
$540.7
$530.5
$544.8
$556.9.
$515.6$517.9$520
$540
$560
$487.1$496.6
$478.5
$455.6 $463.0
$490.8
.
$480
$500
The Industry now has $1 ofsurplus for every $0.77 of
$437.1
$420
$440
06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1
t e strongest c a ms-paying status in its history.
Quarterly Surplus Changes Since 2007:Q3 Peak
09:Q1: -$84.7B (-16.2%)
- -
10:Q1: +$18.9B (+3.6%)
10:Q2: + 8.7B +1.7%
*Includes $22.5B of paid-incapital from a holdingcompany parent for one
77Sources: ISO, A.M .Best.
09:Q3: -$31.0B (-5.9%)09:Q4: -$10.3B (-2.0%)
10:Q3: +$23.0B (+4.4%)10:Q4: +$35.1B (+6.7%)
11:Q4: +$42.9B (+8.2%)
insurers investment in a
non-insurance business inearly 2010.
Implied Excess (Deficit) CapitalAss ming Premi m/S rpl s Ratio 0 9 1
8/3/2019 2011 Hart Wig Texas
78/125
Assuming Premium/Surplus Ratio = 0.9:1
Excess/(Deficit) Capital (Policyholder Surplus)
$81.921.6%100 25%
Annual Change inPolicyholder Surplus2000-2002: Techbubble bursts,
2006/07: Low CAT losses,strong underwritingresults since 1940s
2009-10: End of
financial crisis,rising asset
prices. modestu/w losses
$22.9
$41.714.4%13.4%5015%
20%9/11, high
underwritinglosses erode
capital base
ncrease cap a pus cap a orecord levels
($10.6) ($10.8)($32.7)
($49.2)
8.9%12.3%
6.2%
-5.1%
8.2%
-50
0
0%
5%
2008: Financial($65.4)
($124.6)
($103.0)
($76.5)
-12.0%-8.8%
-1.5%
-150
-100
-15%
-10%
-5%
2005: Katrina, Rita, Wilmaproduce record CAT losses
crisis causessharp drop in
capital
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Capital Excess (Deficit) Annual Change in Capital
Record Policyholder Surplus (Capital) Has Resulted Significant Excess Capital in the. ,
CAT Activity, More Modest Market Returns Will Likely Shrink Excess Capital in 2011.Note: The assumption of a 0.9:1 P/S ratio is derived from a Feb. 2011 announcement by Advisen, Ltd., that the US P/C insurance industry has
$74 billion in excess capital. The implied P/S ratio (calculated by III) is 0.88:1, which was rounded to 0.9:1.Source: Insurance Information Institute calculations from A.M. Best and ISO data. * Net Premiums Written
M&A Activity Globally Among P/C InsurersR i S bd d Littl C it L i
8/3/2019 2011 Hart Wig Texas
79/125
Remains Subdued: Little Capacity Leaving
.1 .2. 4 .9.5
Property-Casualty Life-Annuity Health/Managed Care Distribution Services
4
$4 $
1$2
$1
0
$1
$24
$5.
$0.
$9.
$152009
$5.5
$2.3
$9.8
$7.6
$30.
2008
$51.8
$13.8
$15.3
$6.9
$50.6
2007
79
$0 $35 $70 $105 $140
Sources: Conning Research; Insurance Information Institute.
$ Billions
Paid-in Capital, 20052010
8/3/2019 2011 Hart Wig Texas
80/125
p ,
($ Billions)
$30Paid-in capital for insurance
$27.4
$22.5
$20
$25operations rose by 27.4B
in 2010, the largest on
record dating back to 1959
$10
$15
$14.4
$3.8 $3.2
$12.3
$4.9$6.6$5
2005 2006 2007 2008 2009 2010:Q3
In 2010 One Insurers Paid-in Capital Rose by $22.5B
80Source: ISO; Insurance Information Institute.
as Part of an Investment in a Non-insurance Business
Ratio of Insured Loss to Surplus forLargest Capital Events Since 1989*
8/3/2019 2011 Hart Wig Texas
81/125
Largest Capital Events Since 1989*
The Financial Crisis at itsPeak Ranks as the Largest
Ca ital Event Over
(Percent)
13.8%
16.2%
15%
the Past 20+ Years
9.6%
6.9%
10.9%
9%
12%
3.3%
.
3%
6%
0%
6/30/1989
Hurricane
6/30/1992
Hurricane
12/31/93
Northridge
6/30/01 Sept.
11 Attacks
6/30/04
Florida
6/30/05
Hurricane
Financial
Crisis as of
**
81
* 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
Historically, Hard Markets FollowWhen Surplus Growth is Negative*
8/3/2019 2011 Hart Wig Texas
82/125
When Surplus Growth is Negative*
30%
(Percent) Surplus growth still exceedspremium growth, suggesting anongoing build-up of capacity in
15%
20%
25%ear y
5%
10%
-10%
-5%
- 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
NWP % change Surplus % change
82
* 2011 NWP and Surplus figures are % changes as of Q1:11 vs. Q1:10.
Sources: A.M. Best, ISO, Insurance Information Institute
Not Sufficient Condition for a True Hard Market
Ratio of Net Premiums Writtento Policyholder Surplus 1970-2011*
8/3/2019 2011 Hart Wig Texas
83/125
to Policyholder Surplus, 1970 2011
2.7
.52.52
.5
3.0 The premium-to-surplus ratio (a measureof leverage) hit a record low at just 0.76:1in 2010. It has decreased as PHS grows
Record High P-SRatio was 2.7:1
in 1974
2.1
1.9
2.3
1.8
.7 .71.9
1.9
1.9
1.9
.7
2
.0 2.1
2.0
2.5 more quickly than NPW, with the effect ofholding down profitability.
1 1 11.
1.
1.4
1.4
1.3
1.3
1.1
1.1
.9 7
1.1
3
0.94
8684
1.2
9
1.1
7
1
.07
0.9
9
84.91 0.95
2
1.6
1.8
1.5
0.700
.0.
0.70
.
0.5
.
Record Low P-S Ratio was0.76:1 as of 12/31/10, rising
0.0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98 0
02
04
06
08
10
The Premium-to-Surplus Ratio in 2011:Q1 Implies that P/C Insurers Held
.
83
. . ,
of Surplus Backed $2.70 in Premium.*2011 data are as of 3/31/11.
Sources: Insurance Information Institute calculations from A.M. Best data.
8/3/2019 2011 Hart Wig Texas
84/125
3. REINSURANCE MARKETCONDITIONS
as ecor o aCatastrophes Activity
Erased Enough CapacityT rn M rk ?
84
Significant Market Losses, 1985-2011*
8/3/2019 2011 Hart Wig Texas
85/125
90
$100
$70
$80Reinsurers share of major
market losses wasexceptionally high in 2010
and earl 2011
REINSURANCEPRICING TRENDS
Property/CATreinsurance rices
$40
$50
$60
Billions
are up substantially inAsia/Pacific markets
US pricing is up 10-
15%, but ex-Florida
$10
$20
$30
$0
1985 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1998 1999 2001 2002 2003 2004 2005 2007 2008 2009 2010 2011
Source: Holborn; RAA.
* 2011 events are as of March 31 and are preliminary and may change as loss estimates are refined further.
Significant Market Losses by Event,1985-2011*
8/3/2019 2011 Hart Wig Texas
86/125
1985 2011
Reinsurers areLosses are putting pressure on propertycat reinsurance prices in affected
regions. The impact for US property
share of recentcatastrophe losses
.
Source: Holborn, RAA. *2011 events as of March 31 are preliminary and may change as loss estimates are refined further.
8/3/2019 2011 Hart Wig Texas
87/125
Outlook for the 2011 AtlanticHurricane Season
Activity Produces Costly
an a s, e nsuranceMarkets Could Harden
87
Significantly
Outlook for 2011 Hurricane Season:75% More Active Than Average
8/3/2019 2011 Hart Wig Texas
88/125
75% MoreActive Than Average
Average* 2005Katrina Year
2011F
Named Storms 9.6 28 16
Named Storm Days 49.1 115.5 80
Hurricanes 5.9 14 9
Hurricane Days 24.5 47.5 35Intense Hurricanes 2.3 7 5
Intense Hurricane Days 5.0 7 10
Accumulated Cyclone Energy 96.1 NA 160
Net Tro ical C clone Activit 100% 275% 175%
*Average over the period 1950-2000.Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 1, 2011.
Probability of Major Hurricane Landfall(CAT 3 4 5) in 2011
8/3/2019 2011 Hart Wig Texas
89/125
(CAT 3, 4, 5) in 2011
*
Entire US Coast 52% 72%
US East Coast Including
Florida Peninsula
31% 48%
Gulf Coast from FLPanhandle to Brownsville, TX
30% 47%
ALSOAbove Average Major Hurricane
Landfall Risk in Caribbean for 2011 (61% vs. 42%)
*Average over the period 1950-2000.Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 1, 2011.
8/3/2019 2011 Hart Wig Texas
90/125
US Property Residual Markets
Most States Fail to Address
Catastrophic Coastal Loss
90
U.S. Residual Market Exposure to Loss($ Billions)
8/3/2019 2011 Hart Wig Texas
91/125
($ Billions)
$757.9$771.9$800
$900($ Billions)Katrina,Rita and
$656.7$696.4
.
$600
$7004 Florida
Hurricanes
ma
$281.8
$430.5
$372.3
$292.0
$419.5
$300
$400
$500
HurricaneAndrew
$54.7
$150.0
.$221.3
$100
$200
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
In the 21-year period between 1990 and 2010, total exposure to loss in the
91Source: PIPSO; Insurance Information Institute (I.I.I.); http://www.iii.org/pr/last-resort-2010.
.
billion in 1990 to $757.9 billion in 2010.
U.S. Residual Market: Total Policies In-Force(1990-2010) (000)
8/3/2019 2011 Hart Wig Texas
92/125
(1990 2010) (000)
2,841.42,780.6
2,840.43,000(000)
4 Florida
Katrina, Ritaand Wilma
2,479.4
, .
2,209.32,203.9
2,000
2,500Hurricanes
, .
1,458.1
1,196.5
1,741.7
1,319.7
1,642.3
1,500
HurricaneAndrew
931.6
500
1,000
01990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-
Source: PIPSO; Insurance Information Institute; http://www.iii.org/pr/last-resort-2010.
,
in-force in the residual market (FAIR & Beach/Windstorm) Plans has morethan tripled.
92
Texas Windstorm Insurance Association (TWIA):Exposure to Loss (Building & Contents Only) ($ Billions)
8/3/2019 2011 Hart Wig Texas
93/125
posu e to oss ( u d g & Co te ts O y) ($ o s)
$80
TWIAs exposure to loss for building &contents has surged by more than 400
$67.8$67.4$64.4
$58.6$58.6$60
$70
.billion in 2000 to $67.8 billion in 2011.
$38.3$40
$50
$23.3$20.8$18.8
$16.0$13.2$12.1
$10
$20
$02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 May
31-
Source: TWIA at 05/31/11, Texas Department of Insurance, Southwestern Insurance Information Services (SIIS)
Texas Windstorm Insurance Association (TWIA)Total Exposure to Loss (Millions of Dollars)
8/3/2019 2011 Hart Wig Texas
94/125
p ( )
By May 31, 2011, TWIAs total exposure
$67,765.8$70,000
$80,000 had surged to $74.4 billion.
$40,000
$50,000
,
$20,000
$30,000
$6,613.3
$0
$10,000
Buildin & Contents ALE/Business Income
Source: TWIA at 05/31/11, Texas Department of Insurance
Texas Windstorm Insurance Association (TWIA)New Financial Structure
8/3/2019 2011 Hart Wig Texas
95/125
ew nanc ngstructure made availableup to $2.5 billion to fund
losses via three post-event bondin la ers.The new structure
eliminated the unlimitedassessment on TWIAmember insurers and
oes not ca or topurchase reinsurance.
Source: Southwestern Insurance Information Institute (SIIS)
8/3/2019 2011 Hart Wig Texas
96/125
DISCIPLINE
Is There Evidence of a Broadand Sustained Shift in Pricing?
96
Soft Market Persisted in 2010 butGrowth Returned: More in 2011?
8/3/2019 2011 Hart Wig Texas
97/125
Growth Returned: More in 2011?
(Percent)1975-78 1984-87 2000-03
20%
Net Written Premiums Fell0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008,and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
15% 2011:Q1growth was+3.5%; First
Q1 growth
5%
-
0%
NWP was up0.9% in 2010
97
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
1
1*
*2011 figure is an estimate based on Q1 data.Shaded areas denote hard market periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
P/C Net Premiums Written: % Change,Quarter vs. Year-Prior Quarter
8/3/2019 2011 Hart Wig Texas
98/125
Quarter vs. Year Prior Quarter
.1%
16
.8%
16
.7%
%
20%The long-awaited uptick. In2011:Q1 occurring in
personal linespredominating cos. (+3.8%)
10
.2%
1
12
.5
10
.1%
9.7%
7.8
%
.2%
% %
10
.3%
10
.2% 1
3.4
.6%10%
15%and commercial lines
predominating cos. (+3.5%)
5.
2.9
% 5. 6
2.1
%
0.0
%
0.5
%1
.3%
2.3
%
1.3
% 3.5
%
0%
5%
-4.6
%
-4.1
%
5.8
%-1
.6%
-1.6
%
-1.9
%
-1.8
%
-0.7
%
-4.4
%
-3.7
%
-5.3
%
-5.2
%-1
.4%
-1.3
%
-
-5%
2002:Q
1
2002:Q
2
2002:Q
3
2002:Q
4
2003:Q
1
2003:Q
2
2003:Q
3
2003:Q
4
2004:Q
1
2004:Q
2
2004:Q
3
2004:Q
4
2005:Q
1
2005:Q
2
2005:Q
3
2005:Q
4
2006:Q
1
2006:Q
2
2006:Q
3
2006:Q
4
2007:Q
1
2007:Q
2
2007:Q
3
2007:Q
4
2008:Q
1
2008:Q
2
2008:Q
3
2008:Q
4
2009:Q
1
2009:Q
2
2009:Q
3
2009:Q
4
2010:Q
1
2010:Q
2
2010:Q
3
2010:Q
4
2011:Q
1
98Sources: ISO, Insurance Information Institute.
na y ac - o- ac quar ers o ne wr en prem um grow
(vs. the same quarter, prior year)
Average Commercial Rate Change,All Lines, (1Q:20041Q:2011)
8/3/2019 2011 Hart Wig Texas
99/125
All Lines, (1Q:2004 1Q:2011)
04
04
04
04
05
05
05
05
06
06
06
06
07
07
07
07
08
08
08
08
09
09
09
09
10
10
10
10
11
(Percent)
-0.1%
-2%
0% 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
Magnitude of PriceDeclines ShrankDurin Crisis
-3.2
%
4.6%
-2.7
%
-3.0
%
3% .1% .9
%
% % 3% .2% %
-2.9
%
-6%
-4%
Reflecting Shrinking
Capital, ReducedInvestment Gains,
DeterioratingUnderwritin
-5.9
-7.0
%
4%% -
8.2
%
-5.
%
-6.4
% -5 -
-5.8
-5.
-5.
-6.4
% -5 -5.
-10%
-8%Performance, Higher
Cat Losses andCostlier Reinsurance
-9.
-9. -9.
-11
.3%
-11
.8%
.3%
-12
.0%
5%
2.9
% -11
.0%
-14%
-12% Q1 2011 decreaseswere the smallest
since 2006, perhapssignaling a market
99
-13
-13
.-1
-16%
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
ec
Change in Commercial Rate Renewals,by Account Size: 1999:Q4 to 2011:Q1
8/3/2019 2011 Hart Wig Texas
100/125
by Account Size: 1999:Q4 to 2011:Q1Percentage Change (%)
Market has Been Soft for 7years and Remains Soft as
Peak = 2001:Q4+28.5%
But Is Softness
Moderating?
Pricin TurnedNegative in Early
2004 and HasBeen Negative
Ever SinceKRW Effect: No
Lasting Impact
Trough = 2007:Q3-13.6%
100Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Cumulative Qtrly. Commercial Rate Changes,by Account Size: 1999:Q4 to 2011:Q1
8/3/2019 2011 Hart Wig Texas
101/125
y
1999:Q4 = 100
Pricing today iswhere is was in
Q3:2000 (pre-9/11)
Downward pricingpressure is mostpronounced for
101Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Monthly Change* in Auto InsurancePrices 19912011*
8/3/2019 2011 Hart Wig Texas
102/125
Prices 19912011
10%Cyclical peaks in PPAuto tend to occur
a roximatel ever 10
8%years (early 1990s, early
2000s and likely the
early 2010s)
4%
6% may have
occurred in 2010
2% Hard marketstend to occur
durin
May 2011change
was 3.8%,down from
5.4% in
-2%
0% recessionaryperiods
Nov. 2010
102
*Percentage change from same month in prior year; through May 2011; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
8/3/2019 2011 Hart Wig Texas
103/125
Other Cycle-InfluencingFactors
Could Other Factors Act asa Catalyst to Turn the
103
8/3/2019 2011 Hart Wig Texas
104/125
THE NEW REALITY
Investment Performance is a
Does It Influence
104
n erwr t ng or yc ca ty
Property/Casualty Insurance IndustryInvestment Gain: 19942011:Q11
8/3/2019 2011 Hart Wig Texas
105/125
$64.0$70
($ Billions)
$42.8$47.2
$52.3
$44.4 $45.3$48.9
$59.4$55.7
$52.9
$58.0
$51.9
$56.9
$50
$60
$35.4 $36.0$31.7
.
$30
$40
$13.5
$0
$10
2010 were the best
since 2007
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11:Q1
Investment Gains Recovered Significantly in 2010 Due to RealizedInvestment 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.
Treasury Yield Curves:Pre-Crisis (July 2007) vs. June 2011*
8/3/2019 2011 Hart Wig Texas
106/125
( y )
4.96% 5.04% 4.96% 5.00% 5.00%5.19%
6%
. . . . .
4.23%
3.91%4%
5%
Treasury yield curve remains
2.29%
3.00%
3%
in at least 45 years.
Investment income is falling
as a result. Fed is unlikely to QE2 Target
0.18%0.41%
.
0.71%1%
June 2011 Yield Curve*
.
. ..
0%1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
Pre-Crisis (July 2007)
106
Rates Up Substantially Given Ongoing Economic Weakness*Average of daily rates.
Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset1% Decline in Investment Yield to MaintainConstant ROE, by Line*
8/3/2019 2011 Hart Wig Texas
107/125
Constant ROE, by Line
ines
uto ial to op s rety
nes
ce**
Perso
na
PvtP
ass
PersPr
o
Comm
er
Comm
l
Credit
Comm
P
Comm
C
Fidelity/
Warr
ant
Surpl
us
MedM
a
WC
Reins
ura
.8%
.8%
.0% .9%
1%-3%
-2%
-1%
0%
-1 -1 -2
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
.7%
-1 -2.
-3.1
-7%
-6%
-5%
-4%
- -7.3%-8%
Lower Investment Earnings Place a Greater Burden on
107
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
8/3/2019 2011 Hart Wig Texas
108/125
Shiftin Le al Liabilit &Tort Environment
Is the Tort Pendulumwinging Against Insurers?
108
Over the Last Three Decades, Total Tort Costsas a % of GDP Appear Somewhat Cyclical
8/3/2019 2011 Hart Wig Texas
109/125
$300 2.50%Tort S tem Costs Tort Costs as % of GDP
($ Billions)
$250
2.25%To
$150
$200
te
mC
osts
2.00%
rtCosts
as
$100TortSy
1.75%
%ofGDP
Tort Costs Have Remained Hi h but
$0
$50
1.50%
Relatively Stable Since the mid-2000s.As a Share of GDP they Should Fall as
the Economy Expands
109
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Sources: Towers Watson, 2010 Update on US Tort Cost Trends, Appendix 1A
Business Leaders Ranking of LiabilitySystems in 2010
8/3/2019 2011 Hart Wig Texas
110/125
y
Best States Worst StatesNew in 2010
.
2. North Dakota
.
42. Florida
43. Montana
North Dakota
Massachusetts
South Dakota
ew y o or ous
New Mexico Montana.
4. Indiana
5. Iowa
44. Arkansas
45. IllinoisDrop-offs
Arkansas
Rising Above
6. Virginia
7. Utah
46. California
47. Alabama
Maine
Vermont
Kansas
Texas South Carolina
Hawaii
8. Colorado
9. Massachusetts
48. Mississippi
49. LouisianaMidwest/West has mix of
10. South Dakota 50. West Virginia
Source: US Chamber of Commerce 2010 State Liability Systems Ranking Study; Insurance Info. Institute.
good and bad states.
The Nations Judicial Hellholes: 2010
8/3/2019 2011 Hart Wig Texas
111/125
West VirginiaIllinoisCook County
Watch List
Madison County, IL
Philadelphia
Atlantic County, NJ
St. Landry Parish,
LA District of Columbia
California
NYC and Albany,NY
St. Clair County, IL
Dishonorable
and HumboldtCounties
MI Supreme Court
City of St. Louis
CO Su reme Court
Nevada
Clark County
111Source: American Tort Reform Association; Insurance Information Institute
South Florida
Avg. Jury Awards 1999 vs. 2003 and 2008
8/3/2019 2011 Hart Wig Texas
112/125
$7,000
4,8
38
64
$4,8
85
$
5,4
46
$6,000
38 2,
887
$4,1
$3,4
99
$3,7
17
$3,7
22
$4,000
,1999 2003 2008
4 9
$2,3
99 0
11,0
46
49
$2,000
$3,000
$6
$201
$58$7
$208 $$
$327 $8
$0
$1,000
liability liability death* malpractice liability*Award trends in wrongful deaths of adult males.Source: Jury Verdict Research; Insurance Information Institute.
Sum of Top 10 Jury Awards 2004-2010
8/3/2019 2011 Hart Wig Texas
113/125
$6,000
$5,159
$5,000
$2,9543 000
$4,000
$1,344$1,511 $1,568
$2,000
$815$616$1,000
2004 2005 2006 2007 2008 2009 2010
Source: Insurance Information Institute from Lawyers USA, January 2005, 2006, 2007, 2008, 2009, and 2010.
8/3/2019 2011 Hart Wig Texas
114/125
Is it a Threat to Claim Cost
everities
114
Annual Inflation Rates, (CPI-U, %),19902014F
8/3/2019 2011 Hart Wig Texas
115/125
AnnualInflationRates (%)
Inflation peaked at 5.6% in August 2008on high energy and commodity crisis.The recession and the collapse of the
Higher energy,commodity and foodprices are pushing
5.14.9
5.0
6.0 commo ty u e re uce n at onarypressures in 2009/10
,but not longer turn
inflationary
expectations.
2.82.6
1.9
3.3 3.4
2.52.3
3.02.8
3.0
2.2 2.1 2.2
2.9
2.4
3.23.0
2.0
3.0
.
.1.3
0.0
1.0
-0.4-1.090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F 12F 13F 14F
The slack in the U.S. economy suggests that inflation should not heat up
115Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 3/11 and 6/11 (forecasts).
before 2012, but other forces (commodity prices, inflation in countries from
which we import, etc.), plus U.S. debt burden, remain longer-run concerns
Medical Cost Inflation Has OutpacedOverall Inflation Over 50 Years
8/3/2019 2011 Hart Wig Texas
116/125
1589.81800
All Items
Medical Care
1500
100) A claim that cost $1,000 in 1961
would cost nearl 16 000 based on
719.8900
1200
lu
e(1961=
medical cost inflation trends over the
past 50 years.
600
IndexV
0 1 6 1 6 1 6 1 6 1 6 1
*
1
*Based on change from Feb. 2011 to Feb. 2010 (latest available)Source: Department of Labor (Bureau of Labor Statistics)
8/3/2019 2011 Hart Wig Texas
117/125
Regulatory Environment& Financial Services Reform
Insurers Not as Impacted as
, -Implementation Has Been a
117
Financial Services Reform:What does it mean for insurers?
8/3/2019 2011 Hart Wig Texas
118/125
Systemic Risk and Resolution AuthorityThe Dodd Frank Wall Street Reform and Consumer Protection Act
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 thatcould contribute to systemic crisis
IL Insurance Director Michael McGraith will become first FIO Director on June 1
118
Creation of Federal Advisory Committee on Insurance to Advise FIO
CONCERN: FIO morphs into quasi/shadow or actual regulatorSource: Insurance Information Institute (I.I.I.) updates and research; The Financial Services Roundtable; Adapted from summaryby Dewey & LeBoeuf LLP
2010 Property and Casualty InsuranceReport Card
8/3/2019 2011 Hart Wig Texas
119/125
ME
ND
WA
AL
VTMT
AK
C-
D
A+
A
MA
CT
PA
NE
MN
MI
IA
IDOR
NJ
RI B
DE
NY
MD
SDWI
OH
WY
=A=B=C=
B+
B
B+C-
B-D-
B+
A+B
B
C+
-
C+
C
FD-
WV
VA
NC
OKAZ
SC
TN
AR
KYMOKS
CA
UT
CO
=F=NG B B+
D
B- C+
-
C-
B
-
C-C+
B+A
B-D+F
D+
Source:JamesMadisonInstitute,February2008.LA
TX
HIGAAL
FL
MSC- +F B+ C- C+B
C+
Source:HeartlandInstitute, May2011
F Fot r a e : str cto o um a
8/3/2019 2011 Hart Wig Texas
120/125
The Strength of the Economy
Growth OpportunitiesGrowth Would Also Hel Absorb
Excess Capital
120
US Real GDP Growth*
8/3/2019 2011 Hart Wig Texas
121/125
%
Real GDP Growth (%) The Q4:2008 decline wasthe steepest since theQ1:1982 drop of 6.8%
2.7
%
0.9
%3
.2%
2.3
%2
.9%
0.6% 1.
6%
5.
3.7
1.
7%
2.6
%3
.1%
1.9
%
2
.0% 3
.2%
3.2
%
2
.2%
2
.1%
2.3
%
2
.2%
4.1
1.1
%
1.8
%2
.5%3
.6
3.1
%
2%
4%
-0.7
%
-0.7
%
-4%
-2%
0%
Recession began in Dec.2007. Economic toll of credit
2011 got off to a sluggish
start, but growth is expected
-4.0
-6.8
% -4
.9%
-8%
-6%
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
labor market contraction has
been severe but modestrecovery is underway
of the year. This is a major
positive for insurance demandand exposure growth.
200
200
1
200
200
200
200
200 0
7:1
07:
07:
07:
08:1
08:
08:
08:
09:1
09:
09:
09:
10:1
10:
10:
10:
11:1
11:
11:
11:
12:1
12:
12:
12:
Demand for Insurance Continues To Be Impacted by Sluggish Economic
121
* Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 7/11; Insurance Information Institute.
,
Gradually Benefit the Economy Broadly
2011 Financial OverviewState Economic Growth Varied in 2010
8/3/2019 2011 Hart Wig Texas
122/125
Hard hit Midwest andNortheast states finallyentering recovery in 2010
122
Texas had one of the stronger
economies in 2010 and hasgenerally outperformed during
the economic downturn
Unemployment Rates by State, May 2011:Highest 25 States*
8/3/2019 2011 Hart Wig Texas
123/125
In May, 24 states reported over-the-month unemployment rate
12.1
11.7
10.9
10.6
10.3
10.3
0.0
8 8 812)
decreases, 13 states and theDistrict of Columbia had
increases, and 13 had no change.
1 9.
9.
9.
9.
9.
9.
9.4
9.4
9.3
9.1
9.1
9.1
8.9
8.9
8.7
8.6
8.6
8.2
8
10
n
tRate(
6
mploym
2
Un
123
0NV CA RI FL MI MS SC DC GA KY NC TN AL ID NJ OR AZ CT WA IL MO CO OH WV IN
*Provisional figures for May 2011, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
Unemployment Rates By State, May 2011:Lowest 25 States*
8/3/2019 2011 Hart Wig Texas
124/125
In May, 24 states reported over-the-month unemployment rate
8
.2
8.0
8.0
7.9 7.8
7.7
7.6
.4 .4 .4 .3 .38)
,of Columbia had increases, and 13
had no change.
6.
6.8
6.6
6.6
6.0
6.0
6.0
6.0
5.4
5.3
.8 .8
6
n
tRate(
4.1
3.24
employm The unemployment
rate in Texas was 8.0%in May, below the 9.0%
2Un
124
LA DE T X NY AR ME MA AK PA WI MT UT N M MD K S MN HI IA VA WY VT OK NH SD NE N D
*Provisional figures for May 2011, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
8/3/2019 2011 Hart Wig Texas
125/125
Insurance Information Institute Online:
. .
Thank you for your time
an your a en on Twitter: twitter.com/bob hartwi