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Excess Casualty Insurance Markets in the Post-Crisis World:
A Looming Tort Crisis?
March 9, 2010
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
Presentation Outline
I. Insurance Industry Financial Overview & Outlook Profitability Premium Growth Underwriting Performance Financial Market (Investment) Overview Financial Strength
II. Tort Environment/Casualty Risk Assessment Profitability Premium Growth
III. The Economic Storm: Financial Crisis, Recession & Recovery Exposure Overview & Outlook
IV. Public Policy Initiatives Affecting Casualty Insurance Markets
Financial Service Regulation/Systemic Risk
Terrorism Risk Insurance Program in Jeopardy
Q&A
I.P/C (Re)Insurance Financial
Performance
3
Profitability, Premiums, Investment Performance,
Capacity & Financial Strength
4
Profitability
A Profit Recovery is Underway, But Is it Enough
and Can it Endure?
P/C Net Income After Taxes1991–2009P ($ Millions)
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$2
,37
9
$3
0,6
00
-$6,970
$6
5,7
77
$4
4,1
55
$2
0,5
59
$3
8,5
01
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09P
2005 ROE*= 9.4% 2006 ROE = 12.2% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009:Q3 ROAS1 = 4.5%
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 4.5% ROAS for 2008 and 5.9% for the first 9 months of 2009. 2009:Q3 net income was $20.5 billion excluding M&FG.Sources: A.M. Best, ISO, Insurance Information Institute
P-C Industry profits for full-year 2009 were up sharply from 2008, but are still well
below pre-crisis levels
6
ROE: P/C vs. AllIndustries1987–2009:Q3*
* Excludes Mortgage & Financial Guarantee in 2008 and 2009 through Q3.Sources: ISO, Fortune; Insurance Information Institute.
-5%
0%
5%
10%
15%
20%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09:Q3
US P/C Insurers All US Industries
P/C Profitability isCyclical and Volatile
Hugo
Andrew
Northridge
Lowest CAT Losses in 15 Years
Sept. 11
Katrina, Rita, Wilma
4 Hurricanes
Financial Crisis*
(Percent)
7
ROE vs. Equity Cost of Capital:US P/C Insurance:1991-2009:Q3*
* Excludes mortgage and financial guarantee insurersSource: The Geneva Association, Insurance Information Institute
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08*09Q3*
ROE Cost of Capital
-13
.2 p
ts
-1.7
pts
+2
.3 p
ts
-9.0
pts
-7.1
pts
-4.6
pts
The P/C Insurance Industry Fell WellShort of Its Cost of Capital in 2008/09
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, but Fell Well Short in 2008/09
The Cost of Capital is the Rate of Return Insurers Need to
Attract and Retain Capital to the Business
(Percent)
A 100 Combined Ratio Isn’t What ItOnce Was: 90-95 is Where It’s At Now
Combined Ratio / ROE
* 2009 figure is return on average statutory surplus. 2008 and 2009 figures exclude mortgage and financial guarantee insurersSource: Insurance Information Institute from A.M. Best and ISO data
97.5
100.6 100.1 100.7
92.6
99.5101.0
5.9%
9.6%
15.9%
14.3%
12.7%
4.5%
8.9%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2008* 2009:Q30%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
Combined ratio of about 100 generated a 6% ROE in 2009, 10%
in 2005 and16% in 1979
11
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance only.Source: A.M. Best; Insurance Information Institute.
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
-3.1%-3.3%-3.3%-3.7%
-4.3%
-5.2%-5.7%
-7.3%
-1.8%-1.8%-2.0%
-3.6%
-1.9%-2.1%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
12
2.3
-2.1
-8.3
-2.6-6.6
-9.9 -9.8
-4.1
1
11.7
23.2
13.79.9
7.3
-6.7-9.5
-14.6-16 -15
-5
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
E
11
E
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
B)
-6
-4
-2
0
2
4
6
8 Imp
ac
t on
Co
mb
ine
d R
atio
(Po
ints
)
Prior Yr. ReserveDevelopment ($B)
Impact onCombined Ratio(Points)
P/C Reserve Development, 1992–2011E
Reserve Releases Will Expected to Taper Off in 2010 and Drop Significantly in 2011
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: Barclay’s Capital; A.M. Best.
13
Net Prior Year Reserve Development by Line, 2008
Sources A.M. Best, ISO, Barclay’s Capital Research.
Reserve release have contributed to the bottom line for several years,
but pace will eventually slow
14
Calendar Year vs. Accident Year P/C Combined Ratio: 1992–2010E1
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: Barclay’s Capital; A.M. Best.
10
5.6
10
7.8
11
0.1 1
15
.9
10
7.3
10
0.1
98
.3 10
0.9
92
.4 95
.5
10
5.1
10
1.9 10
5.9
11
4.7
10
7.8 11
1.8
10
7.4
10
8.3
10
5.3 10
9.2
10
9.2
11
0.0
11
2.3
10
0.8
96
.6
96
.0
10
0.6
93
.9 97
.4
10
5.5
10
5.7 10
9.4
11
5.7
10
6.9
10
8.4
10
6.4
10
5.8
10
1.6
80
85
90
95
100
105
110
115
120
92 93 94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09E 10E
Calendar Year Accident Year
Accident Year Results Show a More Significant Deterioration in Underwriting Performance. Calendar Year Results Are Helped by Reserve Releases
16
Number of Years with Underwriting Profits by Decade, 1920s–2000s
0 0
3
54
8
10
76
0
2
4
6
8
10
12
1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s*
* 2000 through 2009. 2009 combined ratio was 100.7 through Q3.Note: Data for 1920–1934 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
17
Performance by Segment:Commercial/Personal Lines &
Reinsurance
18
Calendar Year Combined Ratios by Segment: 2008-2010P
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
101.0 101.2
92.2
100.3
103.7
100.599.8
107.2
103.6
9092949698
100102104106108110
Personal Lines Commercial Lines US Reinsurance
2008 2009E 2010P
Overall deterioration in 2010 underwriting performance is due to expected return to normal catastrophe activity along with deteriorating underwriting
performance related to the prolonged commercial soft market
Commercial lines and reinsurance combined ratios are expected to
deteriorate in 2010 while personal lines is expected to improve
Number of Top 10 Jury Awards, 1995 - 2007
22 2220
17
8 75 4 3 2 2 2 2 1 1 1
6
0
5
10
15
20
25
TX, NY and CA lead the U.S. in jumbo-size jury
awards
Source: LawyersWeekly USA,, January 22, 2008. *All against Iran for terrorist activity
21
After-Tax Return on Surplus (ROE) by Segment: 2008-2010P
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
5.3%
7.3%
5.2%
6.6%7.1%
5.3%
3.9%
-1.3%
1.7%
-2%-1%0%1%2%3%4%5%6%7%8%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
Profitability will rise or stabilize across most p/c lines, barring a financial crisis relapse or major catastrophic losses
Personal lines ROEs should improve in 2010 and remain flat in commercial lines and
reinsurance
23
Net Written Premium Growth by Segment: 2008-2010P
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
-1.1%
-7.9%
-1.5%
1.8%
-5.6%
-2.0%
3.5%
-4.0%
-0.7%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
Rate and exposure are more favorable in personal lines, whereas a prolonged soft market and sluggish recovery from the recession weigh on commercial lines. Low catastrophe losses and ample
capacity are holding down reinsurance prices while higher insurer retentions impact premiums
Personal lines will return to growth in 2010 while commercial lines and reinsurance are
expected to continue to shrink
24
Change in Net Investment Income by Segment: 2008-2010P*
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
-4.1%
-16.1%
1.9%3.4% 1.9%
10.7%
-13.4%
-0.8%
-12.8%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
Investment income consists primarily of interest on bonds and stock dividends. Both were hit hard during the financial crisis as the Fed slashed
interest rates to near zero and corporations cut dividends. A recovery in investment asset values beginning in Q2 2009—which reduced realized capital
losses—has helped offset some of the decrease in investment income.
Net investment income is expected to begin to recover in all segments in 2010
25
Investment Yield by Segment: 2008-2010P*
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
3.5%3.7%
3.9%
3.3%3.6%
3.8%3.9%
4.6%
3.8%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
The Fed slashed interest rates in 2008 and has kept them low since, eroding the yield on all types of bonds, especially US Treasury securities. Yields will
not recover until the Fed begins monetary policy tightening.
Investment yields are shrinking across all segments—down 10 to 100 bases points since 2008
Commercial Multi-Peril Combined Ratio: 1995–2010P
11
9.0
11
9.8
10
8.5
12
5.0
11
6.2
11
6.1
10
4.9
10
1.9
10
5.4
95
.1 97
.610
0.7
11
6.8
11
3.6
11
5.3 1
22
.4
11
5.0
11
7.0
97
.3
89
.0
97
.7
93
.8
83
.8
89
.8
10
8.0
97
.0 99
.5
11
3.1
11
5.0 12
1.0
80
85
9095
100
105
110
115120
125
130
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09E* 10P*
CMP-Liability CMP-Non-Liability
Commercial Multi-Peril is Expected to Continue to Perform Reasonably Well
*2009E and 2010P figures are for the combined liability and non-liability components.Sources: A.M. Best; Insurance Information Institute.
P/C Premium Growth Primarily Driven by the
Industry’s Underwriting Cycle, Not the Economy
30
33
-10%
-5%
0%
5%
10%
15%
20%
25%
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 0910
F
Strength of Recent HardMarkets by NWP Growth
(Percent)1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: 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
During the Great Depression. Expected decline of 1.6% in 2010.
34
Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2009)
-3.2
%
-5.9
%
-7.0
%
-9.4
%
-9.7
% -8.2
%
-4.6
%
-2.7
%
-3.0
%
-5.3
%
-9.6
%
-11
.3%
-11
.8%
-13
.3%
-12
.0%
-13
.5%
-12
.9% -1
1.0
%
-6.4
% -5.1
%
-4.9
%
-5.8
%
-6.0
%
-0.1
%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
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)
Market Remains Soft as Capital Restored and Underwriting Losses Fall
35
Change in Commercial Rate Renewals, by Line: 2009:Q4
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Most Major Commercial Lines Renewed Down in Q4:2009 by Roughly the Same Margin as a Year Earlier
Percentage Change (%)
-3.9% -3.7%
-2.3%-1.9%
0.2%
-5.6%-6.0% -5.8%
-5.0%-4.6%
-4.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%All C
omm
ercia
l
GL
Comm
l Pro
p
Umbr
ella
Comm
l Aut
o
Const
ructi
on
Bus. I
nter
rupt
ion
WC
EPLD&O
Suret
y
36
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2009:Q4
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Percentage Change (%)
Market has Been Soft for 6 years
and Remains Soft as Capital is Restored and Underwriting Losses Fall
KRW Effect
Peak = 2004:Q4 +28.5%
Trough = 2004:Q4 -13.6%
37
Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2009:Q4
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
1999:Q4 = 100
KRW Effect
Pricing today is where is was in
Q2:2001 (pre-9/11)
Investment Performance
38
Investments Drove Profit Decline in 2008 and Improvement in 2009
Property/Casualty Insurance Industry Investment Gain: 1994–2009P1
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.4$35.1
$58.0
$51.9$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09P
Investment Gains Fell by 51% In 2008 Due to Lower Yields,Poor Equity Market Conditions. In 2009, the Return of Realized Capital
Losses Helped Offset Lower Investment Income
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)
41
Treasury Yield Curves: Pre-Crisis (July 2007) vs. Dec. 2009
0.03% 0.05% 0.17%0.37%
0.87%
1.38%
2.34%
3.07%
3.59%
4.40% 4.49%4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00%
5.19%
0%
1%
2%
3%
4%
5%
6%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
December 2009 Yield CurvePre-Crisis (July 2007)
Treasury yield curve is near its most depressed level in at least 45 years. Investment
income is falling as a result
Stock Dividend Cuts Will Further Pressure Investment Income
Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
Capital/PolicyholderSurplus (US)
44
Shrinkage, but Not Enoughto Trigger Hard Market
46
Policyholder Surplus, 2006:Q4–2009:Q4P
Source: ISO, AM Best.
($ Billions)
$487.1$496.6
$512.8$521.8
$478.5
$455.6
$437.1
$463.0
$490.8
$519.3$505.0
$515.6$517.9
$380
$400
$420
$440
$460
$480
$500
$520
$540
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:Q4P
Capacity Peaked at $521.8 as of 9/30/07
Declines Since 2007:Q3 Peak
08:Q2: -$16.6B (-3.2%) 08:Q3: -$43.3B (-8.3%) 08:Q4: -$66.2B (-12.9%)09:Q1: -$84.7B (-16.2%)
09:Q2: -$58.8B (-11.2%)09:Q3: -$31.8B (-5.9%)09:Q4: -$2.5B (-0.5%)
Capacity as of 12/31/09 was just 0.5% below the 2007 peak and will likely set a new record in 2010
47
Global Reinsurance Capacity Source of Decline
Global Reinsurance Capacity Shrankin 2008, Mostly Due to Investments
$360
$300
$270
$290
$310
$330
$350
$370
2007 2008
55% 14%
31%
Source: AonBenfield Reinsurance Market Outlook 2009; Insurance Information Institute.
Global Reinsurance CapacityFell by an Estimated 17% in 2008
Change inUnrealizedCapital Losses
RealizedCapitalLosses
Hurricanes
49
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
3.3%
9.6%
6.9%
10.9%
6.2%
13.8%
16.2%
0%
3%
6%
9%
12%
15%
18%
6/30/1989Hurricane
Hugo
6/30/1992HurricaneAndrew
12/31/93NorthridgeEarthquake
6/30/01 Sept.11 Attacks
6/30/04Florida
Hurricanes
6/30/05Hurricane
Katrina
FinancialCrisis as of3/31/09**
The Financial Crisis at its Peak Ranks as the Largest
“Capital Event” Overthe Past 20+ Years
(Percent)
50
* 2009 NWP and Surplus figures are % changes as of Q4:09P vs Q4:08Sources: A.M. Best, ISO, Insurance Information Institute
Historically, Hard Markets FollowWhen Surplus “Growth” is Negative*
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
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 09E10P
NWP % change Surplus % change
(Percent)
Sharp Decline in Capacity is a Necessary butNot Sufficient Condition for a True Hard Market
Surplus growth is now positive but premiums
continue to fall, a departure from the historical pattern
Financial Strength & Ratings
51
Industry Has Weathered the Storms Well
P/C Insurer Impairments, 1969–2009p8
15
12
71
19
34
91
31
21
99
16
14
13
36
49
31 3
45
04
85
56
05
84
12
91
61
23
11
8 19
49 50
47
35
18
14 15
71
1
5
0
10
20
30
40
50
60
70
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
p
Source: A.M. Best; Insurance Information Institute.
The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets
5 of the 11 are Florida companies (1 of these
5 is a title insurer)
53
P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2009p
90
95
100
105
110
115
1206
97
07
17
27
37
47
57
67
77
87
98
08
18
28
38
48
58
68
78
88
99
09
19
29
39
49
59
69
79
89
90
00
10
20
30
40
50
60
70
80
9*
Co
mb
ine
d R
ati
o
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Imp
airm
en
t Ra
te
Combined Ratio after Div P/C Impairment Frequency
*Combined ratio of 101.7 is through Q3:09; 0.36% 2009 impairment rate is III estimate based on preliminary A.M. Best data.Source: A.M. Best; Insurance Information Institute
2009 estimated impairment rate rose to 0.36% up from a near record low of 0.23% in 2008 and the 0.17% record low in 2007; Rate is still less than one-half the 0.79% average since 1969
Impairment Rates Are Highly Correlated With Underwriting Performance and Reached Record Lows in 2007/08
54
Summary of A.M. Best’s P/C Insurer Ratings Actions in 2009
3.8%
2.9%3.2%
2.4%
11.9%75.7%
.Source: A.M. Best.
P/C Insurance is by Design a Resilient Business. The Dual Threat of Financial Disasters and Catastrophic Losses
Are Anticipated in the Industry’s Risk Management Strategy
Despite financial market turmoil and a soft market
in 2009, 76% of ratings actions by A.M. Best were affirmations;
just 2.9% were downgrades and 3.2%
were upgrades
Affirm – 1,375
Downgraded – 53
Upgraded – 59Initial – 44
Under Review – 69
Other – 216
56
Reasons for US P/C Insurer Impairments, 1969–2008
3.7%4.2%
9.1%
7.0%
7.9%
7.6%
8.1% 14.3%
38.1%
Source: A.M. Best: 1969-2008 Impairment Review, Special Report, Apr. 6, 2008
Deficient Loss Reserves and Inadequate Pricing Are the Leading Cause of Insurer Impairments, Underscoring the Importance of Discipline.
Investment Catastrophe Losses Play a Much Smaller Role
Deficient Loss Reserves/In-adequate Pricing
Reinsurance Failure
Rapid GrowthAlleged Fraud
Catastrophe Losses
Affiliate Impairment
Investment Problems
Misc.
Sig. Change in Business
57
II.
Tort Environment Overview
Is the Pendulum Swinging Against Casualty Risks and their Insurers?
58
Over the Last Three Decades, Total Tort Costs* as a % of GDP Appear Somewhat Cyclical
$0
$50
$100
$150
$200
$250
$300
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10E
To
rt S
ys
tem
Co
sts
1.50%
1.75%
2.00%
2.25%
2.50%
To
rt Co
sts
as
% o
f GD
P
Tort Sytem Costs Tort Costs as % of GDP
($ Billions)
* Excludes the tobacco settlement, medical malpracticeSources: Tillinghast-Towers Perrin, 2009 Update on US Tort Cost Trends, Appendix 1A; I.I.I. calculations/estimates for 2009 and 2010 and 2011
2009–2010 Growth in Tort Costs as % of GDP is Due in
Part to Shrinking GDP
Cost of US Tort System ($ Billions)$1
29
$130
$141
$144
$148 $1
59
$156
$156
$167
$169
$180 $2
05 $233 $2
46 $260
$261
$247
$252
$255
$263
$273 $2
89.5
$0
$50
$100
$150
$200
$250
$300
$350
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
09E
10E
11E
Source: Tillinghast-Towers Perrin, 2009 Update on US Tort Cost Trends.
Per capita “tort tax” was $? in 2009, up from $838 in 2008
and $636 in 2000
Tort costs consumed 1.79% of GDP in 2008, down from 2.24% in 2003
60
The Nation’s Judicial Hellholes (2008/2009)
Source: American Tort Reform Association; Insurance Information Institute
AlabamaMacon and
Montgomery Counties South Florida
New JerseyAtlantic County (Atlantic City)
West VirginiaIllinoisCook County
NevadaClark County (Las Vegas)
CaliforniaLos Angeles
County
Watch List
Rio Grande Valley & Gulf Coast, TX
Madison County, IL Baltimore, MD St Louis (the city of),
St Louis and Jackson Counties, MO
Dishonorable Mention
MA Supreme Judicial Court
MO Supreme Court
61
The Nation’s Judicial Hellholes: 2010
Source: American Tort Reform Association; Insurance Information Institute
South Florida
West VirginiaIllinoisCook County
New MexicoAppellate
Courts
Watch List
California Alabama Madison County, IL Jefferson County, MS Texas Gulf Coast Rio Grande Valley,
TX
Dishonorable Mention
AR Supreme Court MN Supreme Court ND Supreme Court PA Governor MA Supreme
Judicial Court Sacramento County
New JerseyAtlantic County (Atlantic City)
New York City
Average Jury Awards 1998 - 2007
$6
02
$7
25
$7
47
$7
56 $
83
4
$8
27
$1
,06
2
$1
,05
2
$9
86
$1
,22
4
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Jury Verdict Research; Insurance Information Institute.
The average jury award more than doubled from
1998 to 2007
Average Jury Awards 1998 vs. 2002 and 2007
$6
02
$1
70
$5
64
$2
,33
8
$2
,73
1
$2
,85
4
$8
34
$2
19
$5
90
$4
,16
4
$4
,42
6
$1
,22
4
$4
72 $
1,3
75
$3
,71
7
$4
,04
3 $5
,48
7
$4
,84
4
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
Overall VehicularLiability
PremisesLiability
WrongfulDeath*
MedicalMalpractice
ProductsLiability
1998 2002 2007
*Award trends in wrongful deaths of adult males.Source: Jury Verdict Research; Insurance Information Institute.
Sum of Top 10 Jury Awards 2004-2008
Millions
$1,344.0 $1,511.2
$615.5$815.0
$2,953.7
$5,158.8
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2004 2005 2006 2007 2008 2009
Source: Insurance Information Institute from Lawyers USA, January 2005, 2006, 2007, 2008, 2009 and 2010.
Total of Top 10 awards has more than doubled in the
last three years.
2009 Top Ten Verdicts
Source: Lawyers USA, January 15, 2010.
Value Issue State
$370 Million Defamation California
$330 Million Personal Injury (Drunk driving case) Florida
$300 Million Personal Injury (Tobacco verdict) Florida
$89 Million Personal Injury (Drunk driving case) Missouri
$78.75 Million Personal Injury (Prempro) New Jersey
$77.4 Million Medical Malpractice New York
$71 Million Conversion and Breach of Fiduciary Duty Texas
$70 Million Workers Comp Case Texas
$65 Million Personal Injury Florida
$60 Million Medical Malpractice New York
Trends in Million Dollar Verdicts*1
3%
4%
11
%
13
%
29
%
37
%
48
%
59
%
5%
17%
11%
41%
53%
17
%
6%
14
%
15
%
33
%
51
% 57
%
65
%
60%
15%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
All Liabilities VehicularLiability
PersonalNegligence
PremisesLiability
BusinessNegligence
GovernmentNegligence
MedicalMalpractice
ProductsLiability
2001-2003 2004-2005 2006-2007
*Verdicts of $1 million or more.Source: Jury Verdict Research; Insurance Information Institute.
The frequency of multi-million dollar awards is
increasing across virtually all types of defendants.
Across all liability types, million dollar-plus awards
rose from 13% of all awards from 2001-2003 to 17% in
2006-2007.
Insurer Defense & Cost Containment Expenses as a % of Incurred Losses, 2005-2008*
15
.9%
70
.0%
48
.0%
42
.2%
28
.3%
11
.1%
10
.0%
6.6
%15
.2%
56
.6%
36
.7%
27
.1%
9.9
%
6.6
%14
.5%
78
.6%
55
.1%
41
.2%
24
.5%
12
.0%
11
.6%
6.1
%13
.6%
65
.4%
58
.1%
34
.3%
24
.4%
11
.6%
10
.7%
5.9
%
13
4.5
%
11
.0%
0%
50%
100%
150%
All Lia
bility
Lin
es
Produ
cts
Liab
ility
Med
ical
Mal
prac
tice
Comm
. M-P
**
Gener
al L
iabili
ty**
*
Work
ers
Comp
Comm
. Auto
Lia
bilit
y
PPA Lia
bility
Pe
rce
nt
of
Inc
urr
ed
Lo
ss
es
2005 2006 2007 2008
*Net of reinsurance, excl. state funds. **Liability portion only. ***Excludes products liability.Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC; Insurance Information Institute.
Shareholder Class Action Lawsuits*
*Securities fraud suits filed in U.S. federal courts as of March 1, 2010.Source: Stanford University School of Law (securities.stanford.edu); Insurance Information Institute
164202
163
231188
111
173
241209216
498
266227238
182
119
176223
178
19
0
100
200
300
400
500
600
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10*
After surging in 2007 and 2008, litigation activity related to the financial crisis began
to ebb after financial markets began to recover in the 2nd
quarter of 2009
Business Leaders Ranking of Liability Systems*
Best States
1. Delaware
2. Nebraska
3. Maine
4. Indiana
5. Utah
6. Virginia
7. Iowa
8. Vermont
9. Colorado
10. Kansas
Worst States
41. Texas
42. Florida
43. South Carolina
44. California
45. Hawaii
46. Illinois
47. Alabama
48. Mississippi
49. Louisiana
50. West Virginia
Source: US Chamber of Commerce 2008 State Liability Systems Ranking Study; Insurance Info. Institute.
New in 2008
Colorado Indiana Kansas Virginia Vermont
Drop-offs
Minnesota New Hampshire Tennessee Wisconsin
Newly Notorious
Florida South Carolina
Rising Above
Arkansas Alaska
Midwest/West has mix of good and bad states.
Average Total Limits Purchased by All U.S. Firms* ($ Millions)
*Includes underlying primary limitsSource: Limits of Liability 2008, Marsh, Inc.
$77.9
$85.8$83.2
$85.9$88.7
$99.1
$105.0$101.8
$95.7
$87
$77$75
$66 $66
$58
$50
$60
$70
$80
$90
$100
$110Limits fell by 45%
between 2000 and 2008. Price/capacity are issues.
Excess Liability Market CapacityNorth America ($ Billions)
Source: Marsh, 2008 Limits of Liability Report
$2
.01
5
$1
.66
0
$1
.64
5
$1
.57
0
$1
.53
5
$1
.42
5
$1
.57
5
$1
.71
0
$2
.04
5
$1
.94
1
$2
.01
1
$1
.72
1
$1
.40
5
$1
.33
4
$1
.43
2
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
In 2008, capacity is back to 2000 levels.
How the Risk Dollar is Spent (2008)
Source: 2009 RIMS Benchmark Survey; Insurance Information Institute
Firms w/Revenues < $1 Billion
Prof. Liability Costs, 9%
Other Costs, 21%
Retained Property
Losses, 1%
Property Premiums,
15%
Admin Costs, 9%
Liability Premiums,
13%
WC Premiums,
7%
Liability Retained
Losses, 9%Total Mgmt.
Liab., 5%
Retained WC Losses, 10%
Firms w/Revenues > $1 Billion
Retained WC Losses, 22%
Other Costs, 15%
Property Premiums,
12%
Retained Property
Losses, 5%
Liability Premiums,
11%
Total Mgmt. Liab., 6%
WC Premiums, 6%
Retained Liability
Losses, 12%
Admin Costs, 7%
Prof. Liability Costs, 4%
Total liability costs account for about 30% of the risk dollar
74
Discrimination Charges Filed with EEOC by Type: Percent Change FY06-FY09
37.6% 37.7%
9.4%
23.1% 23.3%20.6%
33.7% 33.3%
49.0%
0%
10%
20%
30%
40%
50%
60%
All
Race
Sex
Nation
al O
rigin
Religi
on
Retali
atio
nAge
Disabi
lity
Equal
Pay
Source: Equal Opportunity Employment Commission; Insurance Information Institute.
Change in Charges Filed (%)
The Financial Crisis and Poor Labor Market Conditions Have Contributed to a Surge Employment Discrimination Charges
Retaliation and age discrimination suits are up
substantially
Rising Medical/Health Care Costs
75
Medical Costs Will Rise Steeply in the Years Ahead, Pressuring
Many Casualty Lines
76
* Through June 30, 2009Sources: Bureau of Labor Statistics, Insurance Information Institute
Consumer Price Index for Medical for All Items vs. Medical Care, 1960-2009*
0
50
100
150
200
250
300
350
400
60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
All Items Medical Care
(1982-1984 = 100)
Medical costs Will Continue to Rise Relatively Rapidly Irrspective of Outcome of US Healthcare Reform Debate
Medical Care inflation has been surging ahead of general inflation (CPI) for 25
years. Since 1982-84, the cost of medical care has more than tripled.
77
National Health Expenditures and Expenditures as a Share of GDP, 1960-2018E
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
60 80 93 98 00 02 04 06 08E 10E 12E 14E 16E 18E
To
rt S
ys
tem
Co
sts
0%
5%
10%
15%
20%
25%
To
rt Co
sts
as
% o
f GD
P
National Health Expenditures
National Health Expenditures as % of GDP
($ Billions)
Sources: Centers for Medicare and Medicaid, Office of the Actuary; Insurance Information Institute.
Healthcare expenditures as a share of GDP consumed an estimated 16.6% of GDP in 2008 and are
expected to rise to 20.3% by 2018
Average Annual Growth in US Per Capita Health Care Costs, 1960-2018F
14.1%
20.9%
15.6%
7.0%7.9%
6.2%
0%
5%
10%
15%
20%
25%
1960-1970 1970-1980 1980-1990 1990-2000 2000-2007 2007-2018
Source: Insurance Information Institute calculations based on data from the Centers for Medicare & Medicaid Services, Office of the Actuary.
The 1970s were the most inflationary decade for
medical costs, rising at nearly 21% per year Over the decade,
health expenditures will likely increase well
ahead of the general pace of inflation
79
III.
The Economic Storm
What the Financial Crisis, Recession and Recovery Mean for the Industry’s Exposure Base
80
Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 2/10; Insurance Information Institute.
2.9
%
0.1
%
4.8
%
4.8
%
-0.2
%
-0.7
%
1.5
%
-2.7
%
-5.4
%
-6.4
%
-0.7
%
2.2
%
5.7
%
2.8
%
2.8
%
2.8
%
3.0
%
3.0
%
3.2
%
3.3
%
3.2
%
3.7
%
0.8
%
1.6
%
2.5
% 3.6
%
3.1
%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
07
:1Q
07
:2Q
07
:3Q
07
:4Q
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
Personal and Commercial Lines Exposure Base Have Been Hit Hardand Will Be Slow to Come Back
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 Q1:2009 decline was the steepest since the Q1:1982 drop of 6.4%
Economic growth up sharply in Q4:09 with rebuilding of inventories and stimulus.
More moderate growth expected in 2010/11
82
Real GDP Growth vs. Real P/CPremium Growth: Modest Association
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 2/10; Insurance Information Institute
4.3
%1
8.6
%2
0.3
%5
.8%
0.3
%-1
.6%
-1.0
%-1
.8%
-1.0
%3
.1%
1.1
%0
.8%
0.4
%0
.6%
-0.4
%-0
.3%
1.6
% 5.6
%1
3.7
%7
.7%
1.2
%-2
.9%
-0.5
%-3
.8%
-4.4
%-3
.8%
-3.8
%
5.2
%-0
.9%
-7.4
%-6
.5% -1
.5%
1.8
%
-10%
-5%
0%
5%
10%
15%
20%
25%
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
E
Re
al N
WP
Gro
wth
-4%
-2%
0%
2%
4%
6%
8%
Re
al G
DP
Gro
wth
Real NWP Growth Real GDP
P/C Insurance Industry’s Growth is Influenced Modestlyby Growth in the Overall Economy
Real GDP Growth vs. Real P/C (%)
83
Regional Differences Will Significantly Impact P/C Markets
Recovery in Some Areas Will Begin Years Ahead of Others
and Speed of Recovery Will Differ by Orders of Magnitude
84
State Economic Growth Varied Tremendously in 2008
US Bureau of Economic Analysis
Highest Quintile
Fourth Quintile
Third Quintile
Second Quintile
Lowest Quintile
Far West0.6
Rocky Mountain2.2
Southwest1.7
Plains2.0 Great Lakes
-0.4
New England1.0
Mideast1.3
Southeast0.0
US = 0.7
WA2.0
OR1.6
CA0.4
NV-0.6
ID0.0
MT1.8
WY4.4
UT1.4 CO
2.9
AZ-0.6 NM
2.0
TX2.0
OK2.7
KS2.2
NE1.3
SD3.5
ND7.3 MN
2.0
IA2.1
MO1.3
WI0.7
IL0.3
MI-1.5
IN-0.6
OH-0.7
NY1.6
PA1.1
NJ0.6
MD1.3
DE-1.6
DC3.0VA
1.3
WV2.5
KY-0.1
NC0.1
SC0.6
TN0.5
AR0.7
LA0.3
MS1.7
AL0.7
GA-0.6
FL-1.6
AK-2.0
HI0.7
ME1.4
NH1.8
VT1.7 MA
1.9
RI-0.9CT
-0.4
Mountain, Plains States Growing the Fastest
Percent Change in Real GDP by State, 2007–2008
85
Fastest Growing States in 2008:Plains, Mountain States Lead
2.1% 2.0%
7.3%
4.4%
3.5%2.9% 2.7% 2.5%
0%
1%
2%
3%
4%
5%
6%
7%
8%
ND WY SD CO OK WV IA TX, MN,NM, WA
Source: US Bureau of Economic Analysis; Insurance Information Institute.
Real State GDP Growth (%)
Natural Resource and Agricultural States Have Done Better Than Most Others Recently, Helping Insurance Exposure in Those Areas
86
Slowest Growing States in 2008: Diversity of States Suffering
Source: US Bureau of Economic Analysis; Insurance Information Institute.
States in the North, South, East and West All Represented Among Hardest Hit, But for Differing Reasons
Real State GDP Growth (%)
-0.9%
-1.5%-1.6% -1.6%
-1.7%
-2.0%
-0.1%
-0.4%-0.6% -0.6% -0.6% -0.6%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%KY CT AZ GA IN NV RI MI DE FL OH AK
87
Labor Market Trends
Fast & Furious:Massive Job Losses Sap the
Economy and Commercial/Personal Lines Exposure
89
Unemployment and UnderemploymentRates: Rocketing Up in 2008-09
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Feb10
10.1% Oct 2009 unemployment rate (U-3) was
the highest monthly rate since 1983.
Peak rate in the last 30 years: 10.8% in Nov -
Dec 1982
Stood at 9.7% in Feb. 2010.
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in Oct 2009; Stood at 16.8% in Feb.
2010
January 2000 through February 2010, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
92
Unemployment Rates by State, December 2009: Highest 25 States*
10.9
10.3
10.110
.6
10.7
10.9
9.5
9.19.4
9.09.
6
9.0
9.19.
9
11.812
.4
11.0
11.0
11.1
11.212
.113.0
12.9
12.6
14.6
0
2
4
6
8
10
12
14
16
MI NV RI SC CA DC FL NC IL OR AL OH TN KY MS GA NJ IN MO WA MA ID AZ WV NY
Une
mpl
oym
ent R
ate
(%)
*Provisional figures for December 2009, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
The unemployment rate has been rising across the country (up in 43 out of 50 states in Dec.), but some states are
doing much better than others.
93
6.9
6.9
6.7
6.6
6.66.
97.5
7.5
4.7
4.7
6.67.
07.4
4.4
6.7
8.38.
7
7.5
7.57.78.
3
8.38.
9
8.9
8.89.0
0
2
4
6
8
10
DE PA CT AK WI TX ME NM AR CO LA MD WY MN NH HI VA VT MT UT OK IA KS SD NE ND
Une
mpl
oym
ent R
ate
(%)
Unemployment Rates By State, December 2009: Lowest 25 States*
*Provisional figures for December 2009, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
The unemployment rate has been rising across the country (up in 43 out of 50 states in Dec.), but some states are
doing much better than others.
94
US Unemployment Rate
4.5
%
4.5
%
4.6
%
4.8
%
4.9
% 5.4
% 6.1
%
6.9
%
8.1
%
9.3
%
9.6
% 10
.0%
10
.2%
10
.0%
9.9
%
9.5
%
9.3
%
9.1
%
8.9
%
9.7
%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
Rising unemployment is eroding payrolls
and workers comp’s exposure base.
Unemployment is expected to peak above
10% in early 2010.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/10); Insurance Information Institute
2007:Q1 to 2011:Q4F*
95
Monthly Change Employment*-7
2
-14
4
-12
2
-16
0
-13
7
-16
1
-12
8
-17
5
-32
1
-38
0
-59
7
-68
1
-77
9
-72
6
-75
3
-52
8 -38
7
-51
5
-34
6 -21
2
-22
5
-22
4
64
-10
9 -26
-36
-900
-800
-700
-600
-500
-400-300
-200
-100
0
100
200
Jan
08
Fe
b 0
8
Ma
r 0
8
Ap
r 0
8
Ma
y 0
8
Jun
08
Jul 0
8
Au
g 0
8
Se
p 0
8
Oct
08
No
v 0
8
De
c 0
8
Jan
09
Fe
b 0
9
Ma
r 0
9
Ap
r 0
9
Ma
y 0
9
Jun
09
Jul 0
9
Au
g 0
9
Se
p 0
9
Oct
09
No
v 0
9
De
c 0
9
Jan
10
Fe
b 1
0
Monthly Losses in Dec–May Were the Largest in the Post-WW II Period but
Pace of Loss is Diminishing
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Job Losses Since the Recession Began in Dec. 2007 Total 8.4 Million; 14.9 Million People are Now Defined as Unemployed
January 2008 through February 2010 (Thousands)
February’s loss of 36,000 jobs was a better
than expected; Labor market recoveries are
often erratic.
97
US Nonfarm Private Employment1
38
.0
13
8.1
13
8.0
13
7.9
13
7.8
13
7.8
13
7.7
13
7.6
13
7.6
13
7.4
13
7.0
13
6.7
13
6.2
13
5.1
13
3.5
13
2.8
13
2.1
13
1.5
13
1.2
13
0.6
13
0.3
13
0.1
12
9.9
12
9.6
12
9.7
12
9.6
12
9.6
12
9.5
129130131132133134135136137138139
No
v 0
7
De
c 0
7
Jan
08
Fe
b 0
8
Ma
r 0
8
Ap
r 0
8
Ma
y 0
8
Jun
e 0
8
Jul 0
8
Au
g 0
8
Se
p 0
8
Oct
08
No
v 0
8
De
c 0
8
Jan
09
Fe
b 0
9
Ma
r 0
9
Ap
r 0
9
Ma
y 0
9
Jun
09
Jul 0
9
Au
g 0
9
Se
p 0
9
Oct
09
No
v 0
9
De
c 0
9
Jan
10
Fe
b 1
0
Monthly, Nov 2007 – Feb 2010 (Millions)
The US Economy Lost About 8.4 Million Jobs in
Just Over 2 Years
Employment Peak; Recession Starts
Seasonally adjusted. Source: US Bureau of Labor Statistics
98
US Unemployment Rate Forecasts
10.1% 10.0% 9.9%9.7%
9.5%9.3%
9.1%8.9%8.9%
8.7%8.4%
7.9%
10.3%10.3% 10.3%10.3%
9.7%
10.2%
10.0% 9.9%
9.2%9.4%
9.6%
10.0%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4
10 Most PessimisticConsensus/Midpoint10 Most Optimistic
Unemployment will remain high even under the most optimistic of scenarios
Sources: Blue Chip Economic Indicators (2/10); Insurance Information Institute
Stubbornly High Unemployment Will Hurt theWorkers Comp’s Exposure Base
Quarterly, 2010:Q1 to 2011:Q4
99
Unemployment and Educational Attainment: More Education = Less Unemployment
17.6%
11.5%10.0%
7.3%
5.1%
14.4%
9.3%7.5%
5.7%4.1%
0%2%
4%6%8%
10%
12%14%16%
18%20%
Less than HSDiploma
HS Graduate Some College, No Degree
Associate Degree Bachelor'sDegree or Higher
Jan. 2009 Unemployment Rate
Jan. 2010 Unemployment Rate
Source: US Bureau of Labor Statistics accessed at ftp://ftp.bls.gov/pub/suppl/empsit.cpseea17.txt .
Unemployment Rate (%), January 2009 vs. January 2010
A Higher (Record) Proportion of WC Exposure Base is Associated With Employment of Women
101
Wage & Salary Disbursement (Private Employment) vs. WC NWP ($ Billions)
Wage & Salary Disbursements (Payroll Base) vs. Workers Comp Net Written Premiums
* Average Wage and Salary data as of 10/1/2009. Shaded areas indicate recessionsSource: US Bureau of Economic Analysis; Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; I.I.I. Fact Books
Weakening Payrolls Have Eroded $2B+ in Workers Comp Premiums
7/90-3/91 3/01-11/01 12/07-?
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09*
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Wage & SalaryDisbursements
WC NPW
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 dataSource: Insurance Information Institute research; Federal Reserve Bank of St. Louis (wage and salary data); National Bureau of Economic Research (recession dates).
-4.4%
-2.0%-1.1%
1.1%
3.7%4.6%
8.5%
3.5%
2.1%
-0.5%
-3.6%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1948-1949
1953-1954
1957-1958
1960-1961
1969-1970
1973-1975
1980 1981-1982
1990-1991
2001 2007-2009
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)
103
Frequency: 1926–2008A 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 CasesRate of Injury and Illness Cases per 100 Full-Time Workers
0
5
10
15
20
25
30
'26 '29 '32 '35 '39 '42 '45 '48 '52 '55 '58 '61 '65 '68 '71 '74 '78 '81 '84 '87 '91 '94 '97 '00 '04 '07
106
When Might All of the Lost JobsBe Regained? 2016?
Source: Wall Street Journal, October 9, 2009, p. A3
107
Insurance Industry Employment Trends
Soft Market, Difficult Economy, Consolidation and Outsourcing
Have All Contributed to Industry’s Job Losses
108
U.S. Employment in the DirectP/C Insurance Industry: 1990–2010*
*As of January 2010; Not seasonally adjusted; Does not including agents & brokersNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
Thousands
460
480
500
520
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
As of Jan. 2010, P/C insurance industry employment was down
by 24,200 or 4.9% to 466,900 since the recession began in Dec.
2007 (compared to overall US employment decline of 6.1%)
109
U.S. Employment in the Reinsurance Industry: 1990–2010*
Thousands
24
28
32
36
40
44
48
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10*As of January 2010; Not seasonally adjusted; Does not including agents & brokersNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
As of Jan. 2010, US employment in the reinsurance industry was down by 1,600 or 5.9% to 25,300
since the recession began in Dec. 2007 (compared to overall US employment decline of 6.1%)
110
U.S. Employment in Insurance Agencies & Brokerages: 1990–2010*
Thousands
500
550
600
650
700
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10*As of January 2010; Not seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
As of Jan. 2010, employment at insurance agencies and
brokerages was down by 44,200 or 6.5% to 635,400 since the
recession began in Dec. 2007 (compared to overall US
employment decline of 6.1%)
111
U.S. Employment in Insurance Claims Adjusting: 1990–2010*
Thousands
40
45
50
55
60
'90 '90 '91 '92 '93 '94 '95 '95 '96 '97 '98 '99 '00 '00 '01 '02 '03 '04 '05 '05 '06 '07 '08 '08 '10*As of January 2010; Not 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.
As of Jan. 2010, claims adjusting employment was down by 7,200
or 13.8% to 44,800 since the recession began in Dec. 2007
(compared to overall US employment decline of 6.1%)
Crisis-Driven Exposure Drivers
112
Economic Obstaclesto Growth in P/C Insurance
113
(Millions of Units)
New Private Housing Starts, 1990-2011F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
0
0.5
6 0.7
1
0.9
6
1.3
51.4
6
1.2
9
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/10); Insurance Information Institute.
Weak Construction Risk Exposure Forecast for 2010-2011.
New home starts plunged 34% from 2005-2007; drop through 2009 is 72% (est.); A net annual decline of 1.49 million units,
lowest since records began
in 1959
115
43,6
9448
,125
69,3
0062
,436
64,0
04 71,2
77 81,2
3582
,446
63,8
5363
,235
64,8
53 71,5
4970
,643
62,3
0452
,374
51,9
5953
,549
54,0
2744
,367
37,8
8435
,472
40,0
9938
,540
35,0
3734
,317
39,2
0119
,695 28
,322
43,5
4660
,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
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
Business Bankruptcy Filings,1980-2009*
*2009 is annualized estimate based on actual business bankruptcies in first three quarters of 2009Source: American Bankruptcy Institute,http://www.abiworld.org/AM/Template.cfm?Section=Business_Bankruptcy_Filings1&Template=/TaggedPage/TaggedPageDisplay.cfm&TPLID=59&ContentID=36301.
Significant Implications for all Commercial Lines
There were 45,510 business bankruptcies during the first three quarters of 2009, up 52% from 2008:Q3 and
on track for about 60,000 for all of 2009, the most since 1993. Current recession will generate 200%+ surge
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 204.2%*
117
Private Sector Business Starts,1993:Q2 – 2009:Q2*
175
186
174
180
186
192
188
187 18
918
6 190 19
419
119
9 204
202
195
196
196
206
206
201
192
198
206
206
203
211
205
212
200 20
520
420
419
720
320
920
1
192
192
193
201 20
420
221
0 212
209
216 22
0 223
220
220
210
221
212
204
218
209
207
199
191 19
317
117
7
203
150
160
170
180
190
200
210
220
230
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Business Starts Are Down Nearly 20% in the Current Downturn, Holding Back Most Types of Commercial Insurance Exposure
*Latest available as of March 2010, seasonally adjustedSource: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t07.htm.
(Thousands)
177,000 businesses started in 2009:Q2, the lowest level
since 1993
118
Amount of Outstanding Loans byFDIC-Insured Institutions, 2009 vs. 2008
Source: FDIC Quarterly Banking Profile, Fourth Quarter 2009, Table I-A
FDIC-Insured Institutions Had $541.1B (-13.1%) Less in Outstanding Loans in These Three Categories at Year-end 2009 vs. 2008
$Billions
$451.5
$1,220.8
$1,916.7
$590.9
$1,494.0
$2,045.2
$0
$500
$1,000
$1,500
$2,000
$2,500
Construction andDevelopment Secured by
Real Estate
Commercial and Industrial 1-4 Family ResidentialMortgages
2008
2009
Down $139.4B (-13.1%)
Down $273.2B (-18.3%)
Down $128.5B (-6.3%)
66%
68%
70%
72%
74%
76%
78%
80%
82%
Ma
r 0
1
Ju
n 0
1
Se
p 0
1
De
c 0
1
Ma
r 0
2
Ju
n 0
2
Se
p 0
2
De
c 0
2
Ma
r 0
3
Ju
n 0
3
Se
p 0
3
De
c 0
3
Ma
r 0
4
Ju
n 0
4
Se
p 0
4
De
c 0
4
Ma
r 0
5
Ju
n 0
5
Se
p 0
5
De
c 0
5
Ma
r 0
6
Ju
n 0
6
Se
p 0
6
De
c 0
6
Ma
r 0
7
Ju
n 0
7
Se
p 0
7
De
c 0
7
Ma
r 0
8
Ju
n 0
8
Se
p 0
8
De
c 0
8
Ma
r 0
9
Ju
n 0
9
Oct 0
9
Ja
n 1
0
Capacity Utilization, monthly, Mar 2001-Jan 2010
Source: Federal Reserve Board statistical releases 119
Recession began December 2007
Index
Hurricane Katrina
March 2001-November 2001
recession
“Full Capacity”
The closer the economy is to operating at “full
capacity,” the greater the inflationary pressure
95
98
101
104
107
110
113
Ma
r 0
1
Ju
n 0
1
Se
p 0
1
De
c 0
1
Ma
r 0
2
Ju
n 0
2
Se
p 0
2
De
c 0
2
Ma
r 0
3
Ju
n 0
3
Se
p 0
3
De
c 0
3
Ma
r 0
4
Ju
n 0
4
Se
p 0
4
De
c 0
4
Ma
r 0
5
Ju
n 0
5
Se
p 0
5
De
c 0
5
Ma
r 0
6
Ju
n 0
6
Se
p 0
6
De
c 0
6
Ma
r 0
7
Ju
n 0
7
Se
p 0
7
De
c 0
7
Ma
r 0
8
Ju
n 0
8
Se
p 0
8
De
c 0
8
Ma
r 0
9
Ju
n 0
9
Oct 0
9
10
-Ja
n
Total Industrial Production, monthly, Mar 2001-Jan 2010 (Index 2002=100)*
Source: http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt. *seasonally adjusted 120
Recession began December 2007
Index
Hurricane Katrina
March 2001-November 2001
recession
There is a lot of unused capacity in the economy. This might hold inflation down.
121
Total Industrial Production
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/10); Insurance Information Institute
-9.0%
-13.0%
-19.0%
-10.4%
6.9% 7.0%5.3% 4.7% 4.5% 4.5% 4.2% 4.1% 4.2% 3.8%
1.5%3.2% 3.6%
0.3% 0.2%
-4.6%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
End of Recession in mid-2009, Stimulus Program Are Benefiting Industrial Production and Therefore Insurance Exposure Both
Directly and Indirectly, Albeit Very Modestly
2007:Q1 to 2011:Q4F (%)
Industrial Production is Aided by a Rebuild of Inventories, Gradual Economic Recovery
and Stimulus Program (Q2:09 through 2010)
Industrial Production Began to Contract Sharply in Late 2008 and Plunged
in 2009:Q1
123
Year-Over-Year Change in Quarterly USState Tax Revenues, Inflation Adjusted
Source: US Census Bureau; Nelson A. Rockefeller Institute of Government: http://www.rockinst.org/pdf/government_finance/state_revenue_report/2010-01-07-SRR_78.pdf
2.4
%4
.7%
5.6
% 9.9
%9
.5%
4.4
%1
.8%
0.4
%-1
.3%
-1.7
%-3
.0%
-7.6
%-1
0.7
%0
.0%
1.6
%-0
.6%
0.1
% 4.0
%4
.7%
5.7
% 8.2
%3
.4% 6.0
%7
.0%
12
.4%
6.6
%4
.2%
3.7
% 6.3
%2
.6%
1.3
%1
.9%
2.3
%0
.4%
0.8
%0
.4% 3.0
%0
.2%
-5.8
%
-10
.9%
-17
.6%
-13
.3%
2.4
%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1Q
99
3Q
99
1Q
00
3Q
00
1Q
01
3Q
01
1Q
02
3Q
02
1Q
03
3Q
03
1Q
04
3Q
04
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
States Revenues Were Down 10.9% in Q3 2009, the Second Consecutive Quarter of Record Revenue Decline. This Will Impact Public Infrastructure
Spending Significantly.
Nationwide, state-tax collections for fiscal year 2009 declined by a record
$63 billion, or 8.2 percent from the previous year. That loss is roughly twice the amount states gained in fiscal relief
from the federal stimulus package
128
Green Shoots
The Recession May Have Ended, but Is it
Self-Sustaining?
129
Hopeful Signs That the Economic Recovery is Underway
Recession appears to have ended, freefall of 2008/09 is over GDP shrinkage has ended; Economy is expanding Pace of job losses is slowing, despite setbacks Major stock market indices well off record lows, anticipating recovery Some signs of retail sales stabilization are evident
Financial sector is stabilizing Banks are reporting quarterly profits Many banks expanding lending to very credit worthy people
and businesses
Housing sector seems to be bottoming out Home are much more affordable (attracting buyers) Mortgage rates are still low relative to pre-crisis levels (attracting buyers) Freefall in housing starts and existing home sales is ending in
many areas
Inflation and energy prices are under control
Consumer and business debt loads are shrinking
Source: Insurance Information Institute.
130
10 Industries for the Next 10 Years: Insurance Solutions Needed
Government
Health Care
Energy (Traditional)
Alternative Energy
Agriculture
Natural Resources
Environmental
Technology
Light Manufacturing
Export-Oriented Industries
131
Mounting Pressure on Claim Cost Severities?
Inflation Trends:Concerns Over Stimulus Spending
and Monetary Policy
132
Annual Inflation Rates(CPI-U, %), 1990–2011F
2.8 2.6
1.51.9
3.3 3.4
1.3
2.5 2.3
3.0
3.8
2.8
3.8
-0.4
2.2 2.0
2.92.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, Feb. 10, 2010 (forecasts).
There is So Much Slack in the US Economy That Inflation Should Not Be a Concern Through 2010/11, but Depreciation of Dollar is Concern Longer Run
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 have reduced inflationary pressures
133
Forecasts of Annual Inflation Rates(CPI-U, %), 2010–2015F
2.1 2.0 2.1 2.2 2.3 2.4
1.6
1.1 1.21.4
1.6 1.7
3.13.03.03.02.92.8
0.0
1.0
2.0
3.0
4.0
2010 2011 2012 2013 2014 2015
Blue Chip AvgPessimistic
Blue Chip AvgMedian
Blue Chip AvgOptimistic
Sources: Blue Chip Economic Indicators, Oct 2009 and Feb 2010.
Inflation Will Accelerate Modestly through 2015 but Should Is Not Expected to Become a Major Concern or Threat
Annual Inflation Rates (%)Even the pessimistic forecasts don’t see the CPI rising much
above 3% in the next five years
P/C Insurers Experience Inflation More Intensely than 2009 CPI Suggests
Source: CPI is Blue Chip Economic Indicator 2009 estimate, 12/09; Legal services, medical care and motor vehicle body work are avg. monthly year-over-year change from BLS. Tort costs is 2009 Towers-Perrin estimate. WC figure is I.I.I. estimate based on historical NCCI data.
-0.4%
2.7% 3.0% 3.1%3.8%
4.3%
5.5%
-2%
0%
2%
4%
6%
8%
Overall CPI LegalServices
US TortCosts
MedicalCare
MotorVehicleBodyWork
BodilyInjury
Severity
WC MedSeverity
(Percent)
Healthcare and Legal/Tort Costs Are a Major P/C Insurance Cost Driver. These Are Expected to Increase Above the Overall Inflation Rate (CPI) Indefinitely
134
135
Top Concerns/Risks for Insurersif Inflation Is Reignited
Source: Insurance Information Institute.
What are the potential impacts for insurers?
What can/should insurers do to protect themselves from the risks of inflation?
ConcernsThe Federal Reserve Has Flooded Financial System with Cash (Turned on the Printing Presses), the Federal Gov’t Has Approved a $787B Stimulus and the Deficit is Expected to Mushroom to $1.8 Trillion. All Are Potentially Inflationary.
Rising Claim Severities Cost of claims settlement rises across the board (property and liability)
Rate Inadequacy Rates inadequate due to low trend assumptions arising from use of historical data
Reserve Inadequacy Reserves may develop adversely and become inadequate (deficient)
Burn Through on Retentions Retentions, deductibles burned through more quickly
Reinsurance Penetration/Exhaustion Higher costs risks burn through their retentions more quickly, tapping into reinsurance
more quickly and potentially exhausting their reinsurance more quickly
Key Risks From Sustained/Accelerating Inflation
Tort Cost Growth & Medical Cost Inflation vs. Overall Inflation (CPI-U), 1961-2009E*
0%
2%
4%
6%
8%
10%
12%
14%
1961-70 1971-80 1981-90 1991-2000 2001-09E
Tort Costs Medical Costs CPI
* CPI-U and medical costs as of Sept 2009; Tort figure is for full-year 2009 from Tillinghast.
Tort system is an inflation amplifier
Avg. Ann. Change: 1961-2009E*
Tort costs: +8.4%Med costs: +5.9%
Overall inflation: +4.2%
Source: U.S. Bureau of Labor Statistics; Tillinghast-Towers Perrin, 2008 Update on U.S. Tort Costs; I.I.I.
Tort costs move with inflation but at twice the rate of inflation
Are there healthcare reform spillover effects?
137
IV.
Public Policy IssuesGovernment Action (Direct &
Indirect) Will Shape the Casualty Insurance Enviroment for Many
Years to Come
138
Financial Services Regulation
Any Change to the Status Quo Will Be Felt for Decades
139
Important Issues & Threats Facing Insurers: 2010–2???
Principle danger is that P/C insurers get swept into vast federal regulatory overhaul and subjected to inappropriate, duplicative and costly regulation (Dual Regulation)
Systemic Risk Regulator (Too Big To Fail/Too Interconnected to Fail) Is any insurer systemically important?
Federal Insurance Office Creation Within Treasury? Eventual “mission creep”?; Activist director?
Consumer Financial Protection Agency Will it be limited to banks/creditors
Federal Trade Commission: All Lines Study Authority? McCarran-Ferguson Rollback
Will it be limited to Health/Med Mal lines? OFC/State Regulation Debate Lingers Taxation/Offshore Domiciles
Regulatory Overreach
Bottom Line: Regulatory Outcome is Uncertain and Risk of Adverse Outcome Exists. Ultimate Regulation Structure Will Be in Place for Decades
Source: Insurance Information Institute.
145
Terrorism: Insurance Concerns Resurface
Reasons Why Concerns Are Mounting in 2010
Perception (Reality) that U.S. vulnerability is rising Thwarted Christmas Day attack by “underwear bomber”
And new bin Laden tape claiming al Qaeda is responsible
Foiled NYC Subway Bomber Plot (Zazi case) Trials of Guantanamo 9/11 suspects in Manhattan Court (?) U.K. in January Raised Terror Alert Status to 2nd Highest Level Increased anti-terror efforts, including full-body scans Effort by government to appear more vigilant, prepared Rise of groups such al Qaeda in the Arabian Peninsula U.S. military surge in Afghanistan operations Most buyers, producers have not thought about coverage
issues recently Obama Administration’s Intent to Reduce Support for TRIA
146
Obama Administration Proposal to Scale Back Terrorism Risk Insurance Program
Administration’s Budget Proposal for FY 2011:
Includes proposal to scale back federal support for terrorism risk insurance program
Proposal projects savings of $249 million from 2011-2020
Administration’s justification is that this would “encourage the private sector to better mitigate terrorism risk through other means, such as developing alternative reinsurance options and building safer buildings.”
Source: Budget of the U.S. Government Fiscal Year 2011
Key Concerns Among Industry Observers Over Proposed Reduction in Federal Support
Suggestion of changes to law would have detrimental effect on availability and affordability of terrorism insurance
A 2009 Aon study estimated some 70-80 percent of the commercial property insurance market would revert to absolute exclusions for terrorism, if TRIA is changed.
147
Terrorism Risk Insurance Program Faces Reduced Support Under 2011 Proposed Federal Budget
Sources: U.S. federal budget for FY 2011 as proposed in February 2010; Insurance Information Institute.
($26) ($42)($102)
($134)($74)
$206
$320$321
$193$147
($200)
($100)
$0
$100
$200
$300
$400
2011 2012 2013 2014 2015
Baseline Net Costs Proposed Change from Current Law
The availability of terrorism coverage is threatened by the proposal in the FY 2011 federal budget. Coverage will likely be less available and more expensive.
By shifting more costs to insurers and insureds in the event of a major terrorist
attack, the Administration believes that it can save $378 million from 2011 through 2015
$ Millions
153
Catastrophic Loss –How Big of a CAT Would it
Take to Turn the Market Hard?
154
$8
.3
$7
.4
$2
.6 $1
0.1
$8
.3
$4
.6
$2
6.5
$5
.9 $1
2.9 $
27
.5
$6
1.9
$9
.2
$6
.7
$2
6.0
$1
0.6
$1
00
.0
$7
.5
$2
.7
$4
.7
$2
2.9
$5
.5 $1
6.9
$0
$20
$40
$60
$80
$100
$120
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09*20??
US Insured Catastrophe Losses
* 2009 figure is Munich Re estimate.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.
2009 CAT Losses Were Less than Half of 2008. 2005 Was by Far the Worst Year Ever for Insured Catastrophe
Losses in the Decade of the 2000s Were More than Double the 1990s, But the Worst Has Yet to Come
$100 Billion CAT Year is Coming Eventually
2009 CAT Losses
Were Down 48% though
Q3 from $21.1B 2008
($ Billions)
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
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