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Overview & Outlook for the Commercial P/C Insurance
Industry for 2014 and BeyondTrends, Challenges & Opportunities
Aon Property SymposiumMiami, FL
February 4, 2014Robert 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
3
P/C Insurance Industry Financial Overview
2013: Best Year in the Post-Crisis Era
Performance Improved with Lower CATs, Strong Markets
3
P/C Net Income After Taxes1991–2013:Q3 ($ Millions)
2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013:9M ROAS1 = 9.5%
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.9% ROAS through 2013:Q3, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
$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
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$4
3,0
29
$2
8,6
72
-$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 09 10 11 12 13:9M
2013:9M ROAS
was 9.5%
Net income is up substantially
(+54.7%) from 2012:Q3 $27.8B
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
:Q3
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013:Q3*
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2006:12.7%
1984: 1.8% 1992: 4.5%2001: -1.2%
10 Years
10 Years9 Years
2011: 4.7%
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013:Q3 8.9%
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2013 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2013:9M combined ratio including M&FG insurers is 95.8; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0
96.6
102.4
106.5
95.7
14.3%
15.9%
12.7%
10.9%
7.4% 7.9%
4.7%6.2%9.6%
8.8%
4.3%
8.9%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013:9M0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generates an ROE of ~7.0% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Lower CATs are improved ROEs
in 2013
9
RNW All Lines by State, 2003-2012 Average:Highest 25 States
21
.0
17
.7
15
.1
14
.8
13
.4
13
.3
13
.1
12
.6
12
.0
11
.7
11
.4
11
.4
11
.4
11
.1
11
.0
11
.0
11
.0
10
.9
10
.9
10
.7
10
.7
10
.5
10
.3
10
.3
9.9
9.4
02468
1012141618202224
HI AK ND ME WY UT VT ID WA NH IA NE SC DC MA OR VA NC RI CA CT OH NM SD WV MT
Source: NAIC.
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
10
9.2
9.1
8.9
8.9
8.6
8.5
8.3
8.1
7.9
7.7
7.7
7.6
7.4
6.5
6.5
6.1
6.1
5.5
5.2
4.9
4.9
4.2
3.2
2.0
-6.5
-9.4
-14-12-10-8-6-4-202468
10
KS MD CO WI FL MN TX IN US AR PA IL AZ MO NV KY NJ GA NY MI TN DE OK AL MS LA
RNW All Lines by State, 2003-2012 Average: Lowest 25 States
Source: NAIC.
Some of the least profitable states over the past decade were hit hard
by catastrophes
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
11
Growth Will Expand Insurer Exposure Base Across Most Lines
11
12
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 1/14; Insurance Information Institute.
2.7%
0.5%
3.6%
3.0%
1.7%
-1.8
%1.
3%-3
.7%
-5.3
%-0
.3%
1.4%
5.0%
2.3%
2.2% 2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
1.1% 2.
5%4.
1%3.
2%2.
5% 2.8%
2.9%
3.0%
3.0%
3.0%
3.0%
2.9%
0.4%
-8.9%
4.1%
1.1% 1.
8% 2.5% 3.
6%3.
1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
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
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
:4Q
15
:1Q
15
:2Q
15
:3Q
15
:4Q
Demand for Insurance Should Increase in 2014/15 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor market contraction
was severe
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
2014/15 are expected to see a
modest acceleration in growth
13
GDP: Q4 2013 Growth by Major Component*
3.8%
-9.8%-12.6%
0.5%
11.4%
2.4%3.1% 3.3%5.9%
4.4%2.5%
-15%
-10%
-5%
0%
5%
10%
15%
To
tal
Rea
lG
DP
Per
son
alC
on
sum
pti
on
Exp
.
Du
rab
leG
oo
ds
No
nd
ura
ble
Go
od
s
Ser
vice
s
No
nre
sid
enti
alF
ixed
Inve
stm
ent
Res
iden
tial
Fix
edIn
vest
men
t
Fed
eral
Go
vt.
Exp
.
Sta
te &
Lo
cal
Go
vt.
Exp
Exp
ort
s
Imp
ort
s
The U.S. economy showed broad-based growth across many sectors in Q4 2013, suggesting momentum heading into 2014
Growth (%) Personal consumption accounts for 2/3 of GDP
*seasonally adjustedSource: U.S. Bureau of Economic Analysis, http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm; Insurance Information Institute.
Consumption Investment Exports/ImportsGovernment
14
Real GDP by State Percent Change, 2012:Highest 25 States
13
.4
4.8
3.9
3.6
3.5
3.5
3.4
3.3
3.3
3.3
2.7
2.7
2.6
2.4
2.4
2.4
2.4
2.2
2.2
2.2
2.2
2.1
2.1
2.1
2.1
2.0
0
2
4
6
8
10
12
14
ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO
Pe
rce
nt
Ch
an
ge
(%
)
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2012—by far
Only 10 states experienced growth in excess of 3%, which is what we would see nationally in
a more typical recovery
15
1.9
1.7
1.6
1.5
1.5
1.5
1.5
1.4
1.4
1.4
1.3
1.3
1.3
1.2
1.2
1.1
1.1
0.7
0.5
0.5
0.4
0.2
0.2
0.2
0.2
-0.1
-0.4-0.20.00.20.40.60.81.01.21.41.61.82.0
IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT
Pe
rce
nt
Ch
an
ge
(%
)
Real GDP by State Percent Change, 2012: Lowest 25 States
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
Connecticut was the only state to shrink in 2012
Growth rates in 8 states (and DC) were still below
1% in 2012
74
.47
3.6
73
.67
2.2
73
.6 76
67
.86
8.9
68
.26
7.7 7
1.6 74
.57
4.2 77
.56
7.5 69
.8 74
.37
1.5
63
.75
5.7 5
9.5
60
.9 64
.16
9.9
75
.07
5.3
76
.27
6.4 79
.37
3.2
72
.3 74
.38
2.6
82
.77
4.5
73
.8 77
.67
8.6
84
.58
4.1
85
.18
2.1
77
.57
3.2 75
.18
2.5
81
.2
76
.4
40
45
50
55
60
65
70
75
80
85
90
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2O
ct-1
2N
ov-
12
De
c-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-1
3N
ov-
13
De
c-1
3Ja
n-1
4
Consumer Sentiment Survey (1966 = 100)
January 2010 through January 2014
Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact consumers, but improved substantially over the past 2+ years, though
uncertainty in Washington sometimes takes a toll.Source: University of Michigan; Insurance Information Institute
Optimism among consumers dropped in Q3 2013 as the
government shutdown created uncertainty but is now
rebounding
17
Impact of 2011 budget impasse
20
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4
15.5 16
.1 16.5
16.2
16.2
16.2
16.216
.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E14F15F 16F17F18F 19F
(Millions of Units)
Auto/Light Truck Sales, 1999-2019F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (1/14 and 3/13); Insurance Information Institute.
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector Along
With Workers Comp Exposures
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2013-14 is
still below 1999-2007 average of 17 million units, but a robust recovery is well underway.
Job growth and improved credit market conditions will boost auto sales in
2014 and beyond
Truck purchases by contractors are especially strong
28
(Millions of Units)
New Private Housing Starts, 1990-2019F
1.4
8
1.4
7 1.6
21
.64
1.5
71
.60 1.7
1 1.8
5 1.9
6 2.0
71
.80
1.3
6
0.9
10
.55
0.5
9
0.6
1 0.7
8 0.9
2 1.1
0 1.3
0 1.4
41
.50
1.5
11
.50
1.3
51.4
61
.29
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 10 11 12 13F14F15F16F17F18F19F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (1/14 and 3/13); Insurance Information Institute.
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction
for several more years
29
Average Premium forHome Insurance Policies**
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Sources: NAIC; Insurance Information Institute estimates for 2012-2014 based on CPI data and other data.
$508$536
$593
$668
$822 $830$880
$909
$978$1,017
$1,058$1,100
$804$764
$729
$400
$600
$800
$1,000
$1,200
00 01 02 03 04 05 06 07 08 09 10 11 12* 13* 14*
Across the U.S., home insurance expenditures rose by an estimated 4.0% in 2012-2014
Annual Pct Changes
2001: 5.5%2002: 10.6%2003: 12.7%2004: 9.1%2005: 4.8%2006: 5.2%2007: 2.2%2008: 1.0%2009: 6.0%2010: 3.3%2011: 7.6%
32
Commercial & Industrial Loans Outstandingat FDIC-Insured Banks, Quarterly, 2006-2013*
$1.1
6$1
.18
$1.2
2
$1.4
4$1
.48
$1.4
9$1
.50
$1.4
9$1
.43
$1.3
7$1
.27
$1.2
1$1
.18
$1.1
7$1
.17
$1.1
8$1
.20
$1.2
4 $1.2
8 $1.3
5$1
.37 $1
.42
$1.4
6 $1.5
1$1
.53
$1.5
6$1
.57
$1.1
3
$1.2
5 $1.3
0$1
.39
$1.0
$1.1
$1.2
$1.3
$1.4
$1.5
$1.6
06:Q
106
:Q2
06:Q
306
:Q4
07:Q
107
:Q2
07:Q
307
:Q4
08:Q
108
;Q2
08:Q
308
:Q4
09:Q
109
:Q2
09:Q
309
:Q4
10:Q
110
:Q2
10:Q
310
:Q4
11:Q
111
:Q2
11:Q
311
:Q4
12:Q
112
:Q2
12:Q
312
:Q4
13:Q
113
:Q2
13:Q
3
Outstanding loan volume has been growing for over two yearsand (as of year-end 2012) surpassed previous peak levels.
*Latest data as of 2/2/2014.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
$Trillions In nominal dollar terms, this is an
all-time high.
Recession
35
$200,000
$300,000
$400,000
$500,000
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Nov. 2013
*seasonally adjusted; Nov. 2013 is preliminary; data published January 6, 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments in Nov. 2013 exceeded the pre-crisis (July 2008) peak. Manufacturing is energy-intensive and growth leads to gains in many commercial
exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
$ Millions
35
The value of Manufacturing Shipments in Nov. 2013 was $494.6B—a new record high.
36
Manufacturing Employment,Jan. 2010—December 2013*
11
,46
01
1,4
60
11
,46
61
1,4
97
11
,53
11
1,5
39
11
,55
81
1,5
48
11
,55
41
1,5
55
11
,57
71
1,5
90
11
,62
41
1,6
62
11
,68
21
1,7
07
11
,71
51
1,7
24
11
,74
71
1,7
60
11
,76
21
1,7
70
11
,76
91
1,7
97
11
,84
11
1,8
70
11
,91
01
1,9
20
11
,92
61
1,9
35
11
,95
71
1,9
43
11
,92
51
1,9
31
11
,93
81
1,9
51
11
,96
51
1,9
88
11
,98
41
1,9
77
11
,97
21
1,9
65
11
,94
81
1,9
63
11
,97
11
1,9
88
12
,01
91
2,0
28
11,250
11,500
11,750
12,000
12,250Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-1
0A
ug
-10
Se
p-1
0O
ct-1
0N
ov-
10
De
c-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-1
1A
ug
-11
Se
p-1
1O
ct-1
1N
ov-
11
De
c-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
Jul-
13
Au
g-1
3S
ep
-13
Oct
-13
No
v-1
3D
ec-
13
Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted; Dec and Nov 2013 are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands) Since Jan 2010, manufacturing employment
is up (+550,000 or +4.6%)and still growing.
37
2.5%
4.9%
6.3%
7.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2013 2014F 2015F 2016F
Business Investment: Expected to Accelerate, Fueling Commercial Exposure Growth
Accelerating business investment will be a potent driver of
commercial property and liability insurance exposures and should drive employment and WC payroll
exposures as well (with a lag)
Source: IHS Global Insights as of Jan. 13, 2014; Insurance Information Institute.
38
Manufacturing Growth for Selected Sectors, 2013 vs. 2013*
3.0%
0.0%
-3.4%
8.1%
0.2%2.7%
-1.8%-0.5%
3.1%
6.9%
1.7%3.1%
14.0%
0.4% 1.3%
-6%-4%-2%0%2%4%6%8%
10%12%14%16%
All
Ma
nu
fact
uri
ng
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ryM
eta
ls
Fa
bri
cate
dM
eta
ls
Ma
chin
ery
Ele
ctri
cal
Eq
uip
.
Co
mp
ute
rs &
Ele
ctro
nic
s
Tra
nsp
ort
atio
nE
qu
ip.
No
n-D
ura
ble
Mfg
.
Fo
od
Pro
du
cts
Pe
tro
leu
m &
Co
al
Ch
em
ica
l
Pla
stic
s &
Ru
bb
er
Te
xtile
Pro
du
cts
Manufacturing Is Expanding—Albeit Slowly—Across a Number of Sectors that Will Contribute to Growth in Insurable Exposures Including: WC, Commercial
Property, Commercial Auto and Many Liability Coverages
Growth (%)
Manufacturing of durable goods was especially
strong in 2012 but weakened in 2013
*Seasonally adjusted; Date are YTD comparing data through November 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Durables: +3.4% Non-Durables: +0.2%
41
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013:Q4
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,50005
:Q1
05:Q
205
:Q3
05:Q
406
:Q1
06:Q
206
:Q3
06:Q
407
:Q1
07:Q
207
:Q3
07:Q
408
:Q1
08:Q
208
:Q3
08:Q
409
:Q1
09:Q
209
:Q3
09:Q
410
:Q1
10:Q
210
:Q3
10:Q
411
:Q1
11:Q
211
:Q3
11:Q
412
:Q1
12:Q
212
:Q3
12:Q
413
:Q1
13:Q
213
:Q3
13:Q
4
Prior Peak was 2008:Q1 at $6.60 trillion
Latest (2013:Q4) was $7.23 trillion, a new peak--$980B
above 2009 trough
Recent trough (2009:Q3) was $6.25 trillion, down
5.3% from prior peak
Payrolls are 15.7% above
their 2009 trough and up 2.0% over
the past year
41
50
.7 52
.7 54
.15
4.6
54
.85
3.5
53
.75
2.8 53
.95
4.6 56 5
7.1 5
9.4
59
.75
6.3
54
.45
3.3
53
.45
3.8
52
.65
2.6
52
.65
2.6
53
.05
6.8
56
.15
5.0
53
.75
4.1
52
.75
2.9 54
.3 55
.25
4.8
54
.85
5.7
55
.25
6.0
53
.15
3.7
52
.25
6.0
58
.65
4.4 55
.45
3.9
53
.054
.4
40
45
50
55
60
65
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
Jul-
13
Au
g-1
3S
ep
-13
Oct
-13
No
v-1
3D
ec-
13
ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through December 2013
Non-manufacturing industries have been expanding and adding jobs. This trend is likely to continue in 2014.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
Optimism among non-manufacturers was hurt by
the uncertainty in Washington, but remains
resilient
42
43
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
,837
56,2
8247
,806
40,0
7533
,212
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 10 11 12 13
Business Bankruptcy Filings,1980-2013
Sources: American Bankruptcy Institute (1980-2012) at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013 data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2013 bankruptcies totaled 33,212, down 17.1% from 2012—the fourth
consecutive year of decline. Business bankruptcies more than tripled during the financial crisis.
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%
43
46
12 Industries for the Next 10 Years: Insurance Solutions Needed
Export-Oriented Industries
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Light Manufacturing
Insourced Manufacturing
Many industries are
poised for growth, though
insurers’ ability to
capitalize on these
industries varies widely
Shipping (Rail, Marine, Trucking, Pipelines)
CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK
47
The Construction Sector Is Critical to the Economy and the P/C Insurance Industry
47
48
Value of New Private Construction: Residential & Nonresidential, 2003-2013*
Billions of Dollars
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
03 04 05 06 07 08 09 10 11 12 13*
Non ResidentialResidential
Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates
$298.1
$15.0
$613.7
New Construction peaks at $911.8. in 2006
Trough in 2010 at $500.6B,
after plunging 55.1% ($411.2B)
2013: Value of new pvt. construction hits $659.4B, up
32% from the 2010 trough but still
28% below 2006 peak
48
$261.8
$238.8
$332.1
$290.8
*2013 figure is a seasonally adjusted annual rate as of November.Sources: US Department of Commerce; Insurance Information Institute.
51
Value of Construction Put in Place, November 2013 vs. November 2012*
-0.2%
-13.4%
0.1%
5.9%8.6%
16.6%
1.0%
-15%
-10%
-5%
0%
5%
10%
15%
20%
TotalConstruction
Total PrivateConstruction
Residential--Private
Non-Residential--
Private
Total PublicConstruction
Residential-Public
Non-Residential--
Public
Overall Construction Activity is Up, But Growth Is Entirely in the Private Sector as State/Local Government Budget Woes Continue
Growth (%)
Private sector construction activity is now up in the
residential and nonresidential segments
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +8.6% Public: -0.2%
Public sector construction activity remains depressed
52
Value of Private Construction Put in Place, by Segment, Nov. 2013 vs. Nov. 2012*
20.7%
3.0%6.7%
-5.8%
18.3%
-10.5%
-24.2%
15.6%12.1%
8.6%
16.6%
1.0%
32.7%
11.5%
-30%
-20%
-10%
0%
10%
20%
30%
40%
To
tal
Pri
vate
Co
nst
ruct
ion
Res
iden
tial
To
tal
No
nre
sid
enti
al
Lo
dg
ing
Off
ice
Co
mm
erci
al
Hea
lth
Car
e
Ed
uca
tio
nal
Rel
igio
us
Am
use
men
t &
Rec
.
Tra
nsp
ort
atio
n
Co
mm
un
icat
ion
Po
wer
Man
ufa
ctu
rin
g
Private Construction Activity is Up in Most Segments, Including the Key Residential Construction Sector; Bodes Well for Early 2014
Growth (%) Led by the Residential Construction, Lodging, Power and Transportation segments, Private
sector construction activity is rising after plunging during the “Great Recession.”
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
54
$314.9$304.0
$286.4 $279.0 $275.0
$216.1 $220.2$234.2
$255.4
$289.1$308.7
$0
$50
$100
$150
$200
$250
$300
$350
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
($ Billions)
Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Continues to Contract As State/Local Governments
Grapple with Deficits and Federal Sequestration Takes Hold
Value of New Federal, State and Local Government Construction: 2003-2013*
*2013 figure is a seasonally adjusted annual rate as of November.Sources: US Department of Commerce; Insurance Information Institute.
Construction across all levels of government
peaked at $314.9B in 2009
Austerity Reigns
Govt. construction is still shrinking, down $39.9B or
12.7% since 2009 peak
55
Value of Public Construction Put in Place, by Segment, Nov. 2013 vs. Nov. 2012*
-9.1%
0.0% 1.0% 1.0%5.2% 4.6%
-4.6%
0.1%
-0.1%-2.2%-0.2%
-13.4%
0.1%
-12.9%
-27.7%-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
To
tal
Pu
bli
cC
on
stru
ctio
n
Res
iden
tial
To
tal
No
nre
sid
enti
al
Off
ice
Co
mm
erci
al
Hea
lth
Car
e
Ed
uca
tio
nal
Pu
bli
c S
afet
y
Am
use
men
t &
Rec
.
Tra
nsp
ort
atio
n
Po
wer
Hig
hw
ay &
Str
eet
Sew
age
&W
aste
Dis
po
sal
Wat
er S
up
ply
Co
nse
rvat
ion
&D
evel
op
.
Public Construction Activity is Down in Many Segments as State and Local Budgets Remain Under Stress; Improvement Possible in 2014.
Growth (%)
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Public sector construction activity is down substantially in most segments, a situation that will likely persist, dragging
on public entity risk exposures
Transportation and Power projects lead
public sector construction
57
Surety, Net Premiums Written, 1990-2013E, ($ millions)
$2
,61
0
$2
,74
9
$2
,88
1
$3
,25
2
$3
,33
2
$3
,06
0
$3
,28
8
$3
,39
4
$3
,83
6
$3
,84
0
$4
,41
7
$4
,80
7
$4
,92
2
$4
,81
3
$4
,82
3
$4
,85
4
$4
,69
4
$4
,69
0
$2
,45
8
$2
,64
4
$2
,96
2
$2
,15
8
$2
,35
6
$2
,52
8
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
Note: 1990-1992 includes Financial Guaranty.
Source: A.M. Best; Insurance Information Institute estimate for 2013 based on 9-month data from SNL Financial.
Surety premium growth has been negative/flat ever since the “Great
Recession” began
58
Surety Combined Ratio, 1990-2012*
84
.1
82
.7
84
.2
83
.8
86
.7
12
2.7
11
7.0
12
2.0
11
9.5
10
1.8
81
.6
70
.4
66
.6 79
.5
70
.5
72
.7
76
.887
.0
75
.9 83
.8
84
.7 91
.5
88
.2
0
20
40
60
80
100
120
140
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
*Net basis.Note: 1990-1992 includes Financial Guaranty.
Source: A.M. Best; Insurance Information Institute.
Underwriting performance in the surety line has been
strong since 2006
59
Construction Employment,Jan. 2010—December 2013*
*Seasonally adjusted; Dec and Nov 2013 are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,58
15,
522
5,54
25,
554
5,52
75,
512
5,49
75,
519
5,49
95,
501
5,49
75,
468
5,43
5 5,47
85,
485
5,49
75,
524
5,53
05,
547
5,54
6 5,58
35,
576
5,57
7 5,61
25,
629
5,64
45,
640
5,63
65,
615
5,62
25,
627
5,63
05,
633
5,64
95,
673 5,
711
5,73
5 5,78
35,
799
5,79
25,
791
5,80
15,
804
5,80
55,
822
5,83
05,
849
5,83
3
5,400
5,500
5,600
5,700
5,800
5,900
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
2O
ct-1
3N
ov-1
3D
ec-1
3
Construction employment is +398,000 above
Jan. 2011 (+7.4%) but flat in the last few months.
(Thousands)
Construction and manufacturing employment constitute 1/3 of all payroll exposure.
60
Construction Employment, Jan. 2003–December 2013
Note: Recession indicated by gray shaded column.Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Could Be a Growth Leader in 2014 as the Housing Market, Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Construction employment
troughed at 5.435 million in Jan.
2011, after a loss of 2.291 million jobs, a 29.7%
plunge from the April 2006 peak
60
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of Dec. 2013 totaled 5.833 million, an
increase of 398,000 jobs or 7.3% from the
Jan. 2011 trough
61
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
61
62
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 6.7% in December 2013.
4% to 6% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 13.1% in Dec. 2013.8% to 10% is
“normal.”
January 2000 through December 2013, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.
62
As the unemployment rate approaches 6%,
the Fed will begin signaling on short-
term rates
22
75
41
68
50
12
36
61
-79
24 6
8 74
51
2-1
14
-10
5-2
22
-21
9-2
03
-26
7-2
69
-42
9-4
84
-78
6 -70
1-8
21
-69
2-8
12
-82
1-2
88
-44
2-2
82 -2
22 -1
62
-23
3-3
4-1
67
-17
-26
17
01
02
94 10
31
29
11
3 18
81
54
11
48
02
43
22
3 30
31
83
17
72
06
12
92
56
17
41
97 24
9 32
32
65
20
81
20 15
27
81
77
13
11
18
21
7 25
62
24
16
43
19
15
4 18
81
87
19
41
00
20
71
68 21
72
26
8711
1
(1,000)
(800)
(600)
(400)
(200)
0
200
400
Jan
-07
Fe
b-0
7M
ar-
07
Ap
r-0
7M
ay-
07
Jun
-07
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
Jul-
13
Au
g-1
3S
ep
-13
Oct
-13
No
v-1
3D
ec-
13
Monthly Change in Private Employment
January 2007 through December 2013 (Thousands, Seasonally Adjusted)
Private Employers Added 8.14 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar. 09
were the largest in the
post-WW II period
87,000 private sector jobs were
created in December
64
Jobs Created2013: 2.211 Mill2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill
69
Unemployment Rates by State, December 2013:Highest 25 States*
9.1
8.8
8.6
8.4
8.3
8.1
8.0
8.0
7.8
7.6
7.4
7.4
7.4
7.3
7.2
7.1
7.0
7.0
6.9
6.9
6.9
6.7
6.6
6.6
6.4
6.4
6.2
0
2
4
6
8
10
12
RI NV IL MI CA DC KY MS TN AZ AR CT GA NJ OH NY MA OR IN NC PA US SC WA AK NM CO
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for December 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In December, 39 states and the District of Columbia had over-the-month
unemployment rate decreases, 2 states had increases, and 9 states had no
change.
70
6.2
6.2
6.2
6.2
6.1
6.1
6.0
5.9
5.9
5.7
5.7
5.4
5.2
5.2
5.1
4.9
4.6
4.5
4.4
4.2
4.2
4.1
3.6
3.6
2.6
0
2
4
6
8
DE FL ME WI AL MD TX MO WV ID LA OK MT VA NH KS MN HI WY IA VT UT NE SD ND
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, December 2013: Lowest 25 States*
*Provisional figures for December 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In December, 39 states and the District of Columbia had over-the-month unemployment rate decreases, 2
states had increases, and 9 states had no change.
71
Oil & Gas Extraction Employment,Jan. 2010—Dec. 2013*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.
415
6.4
156.
715
7.6
158.
715
7.8
158.
015
9.5
160.
016
1.5
161.
216
1.2
163.
116
4.4
166.
616
9.3
170.
117
1.0
172.
517
3.6
176.
317
8.2
178.
518
0.9
181.
918
3.1
184.
818
5.2
185.
718
6.8
187.
618
8.0
188.
018
8.2
190.
019
1.7
191.
919
3.4
192.
419
2.6
193.
119
3.3
195.
019
6.5
197.
419
9.1
200.
120
1.9
150
160
170
180
190
200
210
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
3O
ct-1
3N
ov-1
3D
ec-1
3
Oil and gas extraction employment is up 29.1% since Jan. 2010 as the energy sector booms. Domestic energy production is essential to any robust economic recovery in
the US.
(Thousands) Highest since Nov.
1986
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
74
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2013E
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2013 actuals.Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow Again in 2014; +8.6% Growth Estimated for 2013
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
+8.5% in 2013E
75
U.S. Insured Catastrophe Loss Update
2013 Was a Welcome Respite from the High Catastrophe Losses in Recent Years
75
76
$1
2.6
$1
1.0
$3
.8
$1
4.3
$1
1.6
$6
.1
$3
4.7
$7
.6
$1
6.3
$3
3.7
$7
3.4
$1
0.5
$7
.5
$2
9.2
$1
1.5
$1
4.4
$3
3.6
$3
5.0
$1
2.8
$1
4.0
$4
.8
$8
.0
$3
7.8
$8
.8
$2
6.4
$0
$10
$20
$30
$40
$50
$60
$70
$80
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13*
U.S. Insured Catastrophe Losses
*Through 12/31/13.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Well
Below 2011 and 2012 YTD Totals.
2012 was the third most expensive year ever for insured CAT
losses
Record tornado losses caused
2011 CAT losses to surge
($ Billions, $ 2012)
76
77
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2013*
*2010s represent 2010-2013.Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.
0.4
1.2
0.4 0.
8 1.3
0.3
0.4 0.
71.
51.
00.
40.
4 0.7
1.8
1.1
0.6
1.4 2.
01.
3 2.0
0.5
0.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6
3.4
8.7 8.9
3.43.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of the Combined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 6.1E*
Combined Ratio Points Catastrophe losses as a share of all losses reached
a record high in 2012
78
Top 8 States for InsuredCatastrophe Losses, 2013
$1,995
$1,509
$907$845
$773 $762$661
$593
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Oklahoma Texas Colorado Minnesota Nebraska Georgia Illinois Louisiana
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
$ Millions
Oklahoma let the country in insured CAT losses in 2013
As of December 31, 2013
Number of Events Fatalities
Estimated Overall Losses (US $m)
Estimated Insured Losses (US $m)
SevereThunderstorm
69 110 16,341 10,274
Winter Storm 11 43 2,935 1,895
Flood 19 23 1,929 240
Earthquake & Geophysical
6 1 Minor Minor
Tropical Cyclone 1 1 Minor Minor
Wildfire, Heat, & Drought
22 29 620 385
Totals 128 207 21,825 12,794
Natural Disaster Losses in the United States, by Type, 2013
80Source: Munich Re NatCatSERVICE 80
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2013Number of Events (Annual Totals 1980 – 2013)
Source: MR NatCatSERVICE 82
22
19
81
6
50
100
150
200
250
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 128 natural disaster events in 2013
Losses Due to Natural Disasters in the US, 1980–2013
83
Overall losses (in 2012 values) Insured losses (in 2013 values)
Source: MR NatCatSERVICE
(2013 Dollars, $ Billions) (Overall and Insured Losses)
50
100
150
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
2013 CAT Losses
Overall : $21.8B
Insured: $12.8B
Indicates a great deal of losses are uninsured (~40%-50% in the US) =
Growth Opportunity
2013 losses were far below 2011 and 2012 and were 44% lower
than the average from 2000-2012
84
Top States by Inflation-Adjusted Insured Catastrophe Losses, 1983–2012
9.0%
10.4%
14.3%66.3%
Source: PCS unit of ISO, Verisk Company.; Insurance Information Institute.
Over the Past 30 Years Florida Has Accounted for the Largest Share of Catastrophe Losses in the U.S., Followed by Texas and Louisiana
Rest of the U.S.$309.9BFlorida
$66.7B
Texas$48.8B
Louisiana$42.0B
Total: $467.5 Billion, an average of
$16.6B per year or $1.3B per month
FL is the most costly state for
CATs, with nearly $67B in insured losses
over the past 30 years
85
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1993–20121
0.1%
1.7%
3.8%4.7%
6.3%
7.1%
36.0%
40.4%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2012 dollars.2. Excludes snow.3. Does not include NFIP flood losses4. Includes wildland fires5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $158.2
Fires (4), $6.5
Tornadoes (2), $140.9
Winter Storms, $27.8
Terrorism, $24.8
Geological Events, $18.4
Wind/Hail/Flood (3), $14.9
Other (5), $0.2
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
Insured cat losses from 1993-2012
totaled $391.7B, an average of $19.6B per year or $1.6B
per month
86
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1$13.4$18.8
$23.9 $24.6$25.6
$48.7
$7.5$7.1$6.7$5.6$5.6$4.4
$0
$10
$20
$30
$40
$50
$60
Irene (2011) Jeanne(2004)
Frances(2004)
Rita (2005)
Tornadoes/T-Storms
(2011)
Tornadoes/T-Storms
(2011)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Sandy*(2012)
Northridge(1994)
9/11 Attack(2001)
Andrew(1992)
Katrina(2005)
Hurricane Sandy became the 5th
costliest event in US insurance history
Hurricane Irene became the 12th most expense hurricane
in US history in 2011
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
87
Top 16 Most Costly World Insurance Losses, 1970-2013*
(Insured Losses, 2012 Dollars, $ Billions)
*Figures do not include federally insured flood losses.**Estimate based on PCS value of $18.75B as of 4/12/13.Sources: Munich Re; Swiss Re; Insurance Information Institute research.
$11.1$13.4 $13.4$13.4$18.8
$23.9 $24.6$25.6
$38.6
$48.7
$7.8 $8.1 $8.5 $8.7 $9.2 $9.6
$0
$10
$20
$30
$40
$50
$60
Hugo (1989)
WinterStormDaria(1991)
ChileQuake(2010)
Ivan (2004)
Charley(2004)
TyphoonMirielle(1991)
Wilma(2005)
ThailandFloods(2011)
NewZealandQuake(2011)
Ike (2008)
Sandy(2012)**
Northridge(1994)
WTC TerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)**
Katrina(2005)
5 of the top 14 most expensive catastrophes in
world history have occurred within the past 3 years
(2010-2012)
Hurricane Sandy is now the 6th costliest event in global
insurance history
2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re
88
Top 12 Most Costly Hurricanesin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
$9.2 $11.1$13.4
$18.8
$25.6
$48.7
$8.7$7.8$6.7$5.6$5.6$4.4
$0
$10
$20
$30
$40
$50
$60
Irene(2011)
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Sandy*(2012)
Andrew(1992)
Katrina(2005)
Hurricane Sandy became the 3rd costliest hurricane in US
insurance historyHurricane Irene
became the 12th most expensive hurricane in US history in 2011
10 of the 12 most costly hurricanes in insurance history occurred over the past 9 years (2004—2012)
The current 5-year average (2008 - 2013) insured tropical cyclone loss is $5.6 billion per year.
Insured US Tropical Cyclone Losses, 1980 - 2013
Sources: Property Claims Service, Munich Re NatCatSERVICE, NFIP 89
90
Total Value of Insured Coastal Exposure in 2012
(2012, $ Billions)
Source: AIR Worldwide
$293.5$239.3
$182.3$164.6$163.5
$118.2$106.7$81.9$64.0$60.6$58.3
$17.3
$567.8$713.9
$849.6$1,175.3
$2,862.3$2,923.1
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500
New YorkFloridaTexas
MassachusettsNew JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
In 2012, New York Ranked as the #1 Most Exposed State to Hurricane Loss, Overtaking Florida with $2.862 Trillion. Texas is very exposed too, and
ranked #3 with $1.175 Trillionin insured coastal exposure
The Insured Value of All Coastal Property Was $10.6 Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and
Up 48% from $7.2 Trillion in 2004
NY and FL lead the US in the value of insured coastal exposure at $2.9 Trillion
92
U.S. Residual Market Exposure to Loss(1990-2012) ($ Billions)
Source: PIPSO; Insurance Information Institute (I.I.I.).
$281.8
$884.7
$757.9$818.1
$430.5$372.3
$54.7
$150.0
$292.0$244.2$221.3
$419.5
$656.7 $696.4
$771.9
$703.0
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
($ Billions)
In the 23-year period between 1990 and 2012, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7
billion in 1990 to $818.1 billion in 2012.
Hurricane Andrew
4 Florida Hurricanes
Katrina, Rita and Wilma
Hurricane Sandy
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 95
Geophysical events(earthquake, tsunami, volcanic activity)
Meteorological events (storm)
Hydrological events(flood, mass movement)
Climatological events(extreme temperature, drought, wildfire)
Extraterrestrial events(Meteorite impact)
880Loss events
EarthquakeChina, 20 April
Severe storms, tornadoesUSA, 18–22 May
FloodsIndia, 14–30 June
HailstormsGermany, 27–28 July
Winter Storm Christian (St. Jude)Europe, 27–30 October
Typhoon HaiyanPhilippines, 8–12 NovemberSevere storms, tornadoes
USA, 28–31 May
Hurricanes Ingrid & ManuelMexico, 12–19 September
FloodsCanada, 19–24 June
FloodsEurope, 30 May–19 June
Heat waveIndia, April–June
Typhoon FitowChina, Japan, 5–9 October
Earthquake (series)Pakistan, 24–28 September
FloodsAustralia, 21–31 January
Meteorite impactRussian Federation, 15 February
Flash floodsCanada, 8–9 July
FloodsUSA, 9–16 September
Geophysical events(earthquake, tsunami, volcanic activity)
Meteorological events (storm)
Selection of significant Natural catastrophes
Natural catastrophes Hydrological events(flood, mass movement)
Climatological events(extreme temperature, drought, wildfire)
Natural Loss Events:Full Year 2013
World Map
Losses Due to Natural Disasters Worldwide, 1980–2013 (Overall & Insured Losses)
97
Overall losses (in 2013 values) Insured losses (in 2013 values)
Source: MR NatCatSERVICE
(2013 Dollars, $ Billions)(Overall and Insured Losses)
100
200
300
400
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
US$ bn
2013 Losses
Overall : $125B
Insured: $34B
There is a clear upward trend in both insured and overall losses over the past
30+ years
10-Yr. Avg. Losses
Overall : $184B
Insured: $56B
Flood Insurance
98
Flood Exposure: Reforms in Danger?• Flood Should Reflect True Risk
• Keep the Subsidies• Would Prefer to Purchase from
Private Insurers
99
Total Potential Home Value Exposure to Storm Surge Risk in 2013*
($ Billions)
*Insured and uninsured property. Based on estimated property values as of April 2013.Source: Storm Surge Report 2013, CoreLogic.
$65.2$51.0$50.3
$35.0$22.4$20.5
$15.9$10.4$7.2$4.7$3.1$2.7$2.6$0.6
$65.6$72.0$78.0
$118.8$135.0
$386.5
$0 $50 $100 $150 $200 $250 $300 $350 $400 $450
FloridaNew York
New JerseyVirginia
LouisianaS. CarolinaN. Carolina
TexasMassachusetts
ConnecticutMarylandGeorgia
DelawareMississippi
Rhode IslandAlabama
MaineNew
PennsylvaniaDC
The Value of Homes Exposed to Storm Surge was $1.147 Trillion in 2013.* Only a fraction of this is insured, hence the huge demand for federal aid
following major coastal flooding events.
Florida is by the state most vulnerable to storm surge.
100
Total NFIP Policies in Force, 2012
Source: U.S. Department of Homeland Security, Federal Emergency Management Agency; Insurance Information Institute.
Florida
Texas
Louisana
California
New Jersey
South Carolina
New York
North Carolina
Virginia
Georgia
0 500,000 1,000,000 1,500,000 2,000,000 2,500,000
2,058,201
645,911
486,525
256,836
238,738
204,895
173,312
138,378
115,703
96,847
Florida has almost three times as much flood
insurance in force as any other state, accounting for
37% of all policies in the US
What kind of Buildings Does Flood Insurance Protect?
Other0.4%
Principal Res-idence74.5%
Secondary/ Vacation19.5%
Non-residential5.6%
102
One-fourth of all flood policies are written on commercial (non-residential) risks or on secondary homes.
Sources: Congressional Budget Office (2007), Insurance Information Institute.
Median Value of Flood Properties
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000 $402,768
$223,692
$339,842 $306,107
All U.S. Homes;
$165,344
Media
n H
om
e V
alu
es,
2006
103
A CBO survey indicated the typical home with flood insurance is worth significantly more than the typical home. The typical
subsidized coastal risk was worth more than unsubsidized risks.
Congressional Budget Office 2007 survey of coastal risks, with U.S. owner-occupied home median from Bureau of Census, 2005 American Housing Survey; Insurance Information Institute.
113
I.I.I. Poll: Flood Insurance
Q. Do you think flood insurance premiums should reflect the risk of flooding no matter what the cost or do you think the government should subsidize the cost of flood insurance with taxpayers’ dollars?
Source: Insurance Information Institute Annual Pulse Survey (Nov. 2013).
Almost two-thirds of Americans think flood insurance premiums should be raised to reflect the risk of flooding.
9%
63%
28%
Don’t know
Premiums should reflect flood risk
Government should subsidize cost with taxpayers’ dollars
114
I.I.I. Poll: Flood Insurance
Q. The federal government provides insurance coverage at taxpayer-subsidized rates for damage from floods through the National Flood Insurance Plan. A new law eliminates the subsidy and raises rates. Do you think the rate increase should be repealed?
Source: Insurance Information Institute Annual Pulse Survey.
More than half of Americans polled for the November 2013 Pulse thought that hikes in National Flood Insurance premiums
should be repealed.
10%
55%36%
Don’t know
YesNo
It is inconsistent for the public to
support full-risk rates but maintain subsidies, but this
exactly mirrors Congressional
sentiments, with supporters of BW-12 and even Tea
Party conservatives supporting
continuation of the subsidies
115
I.I.I. Poll: Flood Insurance
Q. If the costs were similar, would you prefer to buy flood insurance from a private insurance company or from the federal government through the National Flood Insurance Program?
Source: Insurance Information Institute Annual Pulse Survey.
Six out of 10 Americans would prefer to buy flood insurance from a private insurance company as opposed to the federal government, if
costs were similar.
10%
64%
26%
Don’t know
Private insurance company
The federal government
through the NFIP
116
Federal Disaster Declarations Patterns:
1953-2013
116
Disaster Declarations Set New Records in Recent Years
Number of Federal Major Disaster Declarations, 1953-2014*
13 1
7 18
16
16
7 71
21
22
22
0 25
25
11
11
19
29
17
17
48
46
46
38
30
22 2
54
22
31
52
42
13
42
7 28
23
11
31
38
45
32 3
63
27
54
46
55
04
54
5 49
56
69
48 5
26
37
55
98
19
94
75
56
43
0
20
40
60
80
100
120
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
*Through February 2, 2014.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011 Before Dropping in 2012/13
The number of federal disaster declarations set a new record in 2011, with 99, shattering 2010’s
record 81 declarations.
There have been 2,150 federal disaster
declarations since 1953. The average
number of declarations per year is 35 from 1953-2013, though
there few haven’t been recorded since 1995.
6 federal disasters were declared so far in 2014*
117
118
Federal Disasters Declarations by State, 1953 – 2014: Highest 25 States*
88
79
75
67
66
60
57
56
55
55
53
52
52
51
51
50
50
49
48
47
47
46
44
43
40
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY MO AR IL MS IA TN WV MN KS PA NE VA OH WA ND SD ME
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Texas has had the highest
number of Federal Disaster
Declarations
*Through Feb. 2, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
119
Federal Disasters Declarations by State, 1953 – 2014: Lowest 25 States*
42
40
39
37
37
36
35
33
29
28
26
26
26
26
24
24
23
23
22
19
17
15
15
13
11
11
9
0
10
20
30
40
50
NC AK IN WI VT GA NJ NH MA OR PR HI MI NM AZ MD ID MT CO CT NV DE SC DC UT RI WY
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Wyoming and Rhode Island had the fewest
number of Federal Disaster Declarations
*Through Feb. 2, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
120
SEVERE WEATHER REPORT UPDATE: 2013
Damage from Tornadoes, Large Hail and High Winds Keep Insurers Busy
120
Location of Tornado Reports in 2013
121Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#; PCS.
There were 943 tornadoes
through Dec. 31, causing
extensive property
damage in several states
A deadly EF-5 tornado in May in
Moore, OK, produced insured losses of $1.575
billion. November tornadoes in the
Midwest like produced $1B in insured losses.
U.S. Tornado Count, 2005-2013*
122
*Through Dec. 31, 2013.Source: http://www.spc.noaa.gov/wcm/.
There were 1,897 tornadoes in the U.S. in 2011 far
above average, but well below 2008’s record
2013 count was the
lowest in a decade
U.S. Thunderstorm Insured Loss Trends, 1980 – 2013
123Source: Property Claims Service, and MR NatCatSERVICE
Thunderstorm losses in 2013 totaled $10.3 billion, the 6th
highest on record
Average thunderstorm
losses are up 7 fold since the early
1980s. The 5-year running average
loss is up sharply
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2013 are the most expensive
years on record.
Location of Large Hail Reports: 2013
127Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
There were 5,457 “Large
Hail” reports in 2013, causing
extensive property and
vehicle damage
Location of High Wind Reports: 2013
128Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
There were 12,942 “Wind Damage” in
2013, causing extensive property damage
Severe Weather Reports: 2013
129Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
Severe weather reports are
concentrated east of the Rockies
There were 19,342 severe
weather reports in 2013;
including 942 tornadoes;
5,457 “Large Hail” reports
and 12,942 high wind events
Terrorism Update
130
Boston Marathon Bombings Underscore the Need for Extension of the Terrorism
Risk Insurance ProgramDownload III’s Terrorism Insurance Report at: http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2013.html
130
135
Terrorism Risk Insurance Program
Testified before Senate Banking Cmte. in Sept. 2013 Testified before House Financial Services Nov. 2013 Provided testimony at NYC hearing on June 2013 I.I.I. Accelerated Planned Study on Terrorism Risk and
Insurance in the Wake of Boston and Hearings; Was Well Received and Widely Circulated
Working with Trades, Congressional Staff, GAO & Others
Senate Banking Committee, 9/25/13House Financial Services Subcommittee, 11/13/13
136
TRIA Outlook
3 TRIA Reauthorization Bills Introduced in 2013
Bumpy Road to Reauthorization Ahead Senate: Generally supportive based on 9/25 hearing House: Democrats supportive; Republicans skeptical but some
seem willing to support reauthorization based on 11/13 hearing– Analogies to Affordable Care Act often mentioned by Republicans
House Committee Proposals Likely to Involve: Increase in trigger (from current $100 million) Increasing individual comp. retentions (from current 20% of DPE) Also possible: Simple industry aggregate or NBCR only proposal
I.I.I.: Success of Current Structure & Taxpayer Protections
Also Focused on Importance of Small/Medium Insurers
Limitations of Capacity in the Absence of TRIA
Media in 2014 Wants Stories of Economic Disruption
143
Growth Analysis by State and Business Segment
Premium Growth Rates Vary Tremendously by State
143
144
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
58
.4
25
.4
24
.5
21
.0
19
.2
17
.6
16
.3
13
.2
13
.2
12
.4
9.9
9.2
9.2
8.5
8.0
6.2
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
0
10
20
30
40
50
60
70
ND
SD
OK
NE IA KS
VT
AK
TX
WY
MN
AR
TN IN W
I
KY
MT
OH LA
VA
NJ
MI
SC
CO
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
North Dakota was the country’s growth leader over the past 5 years with premiums written
expanding by 58.4%
145
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
3.6
3.1
3.0
2.9
2.7
2.2
2.1
2.1
2.0
1.8
1.1
0.0
-0.1
-0.3
-0.7
-0.9
-2.8
-5.6
-6.0
-7.2
-7.2
-9.3
-10
.1
-11
.2
-12
.5
-17
.3
-20
-15
-10
-5
0
5
CT
MS
NC AL
MD PA
U.S
.
MA IL
WA
GA
UT
NH RI
ID ME
NY FL
CA
DC
WV HI
AZ
OR
DE
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 13 states and DC between
2007 and 2012
149
Direct Premiums Written: HomeownersPercent Change by State, 2007-2012*
44
.5
41
.2
40
.5
39
.7
39
.0
38
.3
36
.4
35
.7
34
.2
32
.4
32
.4
32
.2
32
.0
31
.3
31
.0
30
.5
29
.8
29
.7
28
.8
28
.7
27
.9
26
.9
26
.7
26
.5
26
.4
26
.0
0
5
10
15
20
25
30
35
40
45
OK
ND
MN
AR
TN
MO
KY
SD WI
KS
GA IA
WY
CO
MT
NE
OH
NM AL IN IL VA
DE
SC ID UT
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
150
Direct Premiums Written: HomeownersPercent Change by State, 2007-2012*
25
.6
25
.3
24
.8
24
.5
24
.3
23
.7
23
.6
23
.3
22
.0
21
.4
21
.3
20
.4
20
.0
19
.4
18
.6
16
.4
16
.2
15
.6
15
.1
12
.5
10
.5
10
.4
8.7
8.0
-1.9
-2.3-5
0
5
10
15
20
25
30
35
40
MS
ME LA
CT
TX NJ
NH RI
NC PA
WA
NY
U.S
.
WV
OR
MA
MD
DC
AK
VT MI
AZ
CA HI
NV
FL
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
151
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*
72
.2
35
.2
28
.8
25
.7
21
.0
20
.2
16
.0
15
.1
14
.6
8.8
6.3
4.6
3.3
2.9
1.5
1.2
0.0
-1.5
-2.3
-2.4
-2.6
-2.6
-3.2
-3.3
-3.5
-3.7
-20
0
20
40
60
80
ND
OK
SD VT
NE IA KS
AK ID WY
TX
MN IN WI
AR
TN
MT
OH LA
MA
PA
CT
MS
NM IL
WA
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
Only 16 states showed any commercial lines growth
2007 and 2012
152
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*
-4.1
-4.2
-4.5
-4.6
-4.9
-4.9
-5.1
-5.4
-5.9
-6.2
-6.5
-6.8
-6.8
-6.9
-7.3
-9.1
-10
.2
-11
.1
-13
.2
-14
.5
-15
.3
-16
.2
-16
.8
-20
.2
-22
.2
-30
.3
-40
-35
-30
-25
-20
-15
-10
-5
0
US
NY
MD
NH NJ
MO
ME
NC
KY VA RI
CO MI
SC AL
GA
CA
UT
DC
OR HI
DE FL AZ
WV
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
The BIG Question:Where Is the Market Heading?
159
Catastrophes and Other Factors Are Pressuring Insurance Markets
159
New Factor: Record Low Interest Rates Are Contributing to
Underwriting and Pricing Pressures
Property/Casualty Insurance Industry Investment Income: 2000–2013*1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$47.7$45.8
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13*
Investment Income Fell in 2012 and is Falling in 2013 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1 Investment gains consist primarily of interest and stock dividends..*Estimate based on annualized actual 9M:2013 investment income of $34.338B.Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings are running below their 2007
pre-crisis peak
164
-1.8
%
-1.8
%
-2.0
%
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
-5.7
%
-7.3%
-1.9
%
-2.1
%
-3.1
%
-8%-7%-6%-5%-4%-3%-2%-1%0%
Perso
nal L
ines
Pvt Pass
Aut
o
Pers P
rop
Comm
ercia
l
Comm
l Auto
Credit
Comm
Pro
p
Comm
Cas
Fidelity
/Sure
ty
Warra
nty
Surplu
s Line
s
Med
Mal
WC
Reinsu
rance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
164
166
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2013*
*Monthly, constant maturity, nominal rates, through December 2013.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Recession2-Yr Yield10-Yr Yield
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
U.S. Treasury security yields
recently plunged to record lows
166
1. UNDERWRITING
171
Underwriting Losses in 2011 and 2012 Are Elevated by High
Catastrophe Losses
171
172
P/C Insurance Industry Combined Ratio, 2001–2013:Q3*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013:Q3 = 95.8. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
96.6
101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120Best
Combined Ratio Since 1949 (87.6)
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
Premiums
Relatively Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
175
Combined Ratios by Predominant Business Segment, 2013:9M vs. 2012:9M*
*Excludes mortgage and financial guaranty insurers.Source: ISO/PCI; Insurance Information Institute
99.899.3
98.8
102.7
96.697.6
93.3
99.2
90
92
94
96
98
100
102
104
All Lines Personal LinesPredominating
Commercial LinesPredominating
Diversified Insurers
2012:9M 2013:9M
(Percent)
The combined ratios for both personal and commercial lines
improved substantially through 2013:Q3
176
2
(2)
(8)
(3)
(7)(10)(10)
(4)
(0)
11
24
1411 9
(5)
(9)
(13)(12)
(10)
(14)(12)
(10)(7) (7)
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
E
14
E
15
E
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
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, 1992–2015E
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: A.M. Best, ISO, Barclays Research (estimates).
190
Performance by Segment
190
Homeowners Insurance Combined Ratio: 1990–2015F
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
94
.4 10
0.3
89
.0 95
.6
11
6.6
10
5.8
10
6.9
12
2.3
10
4.1
94
.0 97
.5
99
.5
11
8.4
11
2.7 12
1.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F
1
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
192
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.4
10
7.9
10
3.4
98
.3 99
.9
98
.9
10
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
F
14
F
15
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2014F); Conning (2015F) Insurance Information Institute.
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
193
General Liability Combined Ratio: 2005–2015F
112.
9
95.1 99
.0
94.2
104.
1
101.
4
103.
0
103.
9107.
1 110.
8
99.8
80
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13F 14F 15F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting. 196
Workers Compensation Combined Ratio: 1994–2014F
102.
0
97.0 10
0.0
101.
0
112.
6
108.
6
105.
1
102.
7
98.5
103.
5
104.
5 110.
6 115.
0
115.
0
109.
0
104.
0
103.
5
121.
7
107.
0
115.
3
118.
2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E 14F
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-
2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2012P) and are for private carriers only; Insurance Information Institute (2013E-
2014F). 201
WC results are improving steadily
4.5%
3.5%2.8%
3.2%3.5%4.1%
4.6%4.7%4.0%
4.4%4.2%4.0%4.4%
3.7%3.2%3.4%
3.0%
5.1%
7.4%
10.1%10.6%
13.5%
5.4%
7.8%
6.3%6.6%
4.1%3.6% 4%
3%
1.4%
5.4%
8.8%
7.7%
7.3%
8.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12P
Change in Medical CPI
Change Med Cost per Lost Time Claim
WC Medical Severity Generally Outpaces the Medical CPI Rate
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average annual increase in WC medical severity form 1995 through 2011 was well above the medical CPI (6.8% vs. 3.8%), but
the gap is narrowing.
2. SURPLUS/CAPITAL/CAPACITY
216
2013 Recorded Yet Another Record High
216
217
Policyholder Surplus, 2006:Q4–2013:Q3
Sources: ISO, A.M .Best.
($ Billions)
$487.1$496.6
$512.8$521.8
$478.5
$455.6
$437.1
$463.0
$490.8
$511.5
$540.7$530.5
$544.8
$559.2 $559.1
$538.6$550.3
$567.8
$583.5$586.9
$607.7$614.0
$624.4
$570.7$566.5
$505.0$515.6$517.9
$400
$450
$500
$550
$600
$650
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
2007:Q3Pre-Crisis Peak
Surplus as of 9/30/13 stood at a record high $624.4B
2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .
The industry now has $1 of surplus for every $0.78 of NPW,close to the strongest claims-paying status in its history.
Drop due to near-record 2011 CAT losses
The P/C insurance industry entered 2014in very strong financial condition.
220
3. REINSURANCE MARKET CONDITIONS
Ample Capacity as Alternative Capital is
Transforming the Market
220
221
Global Reinsurer Capital, 2007-2013:H1*
$510
$410
$340
$400
$470 $455$505
$0
$100
$200
$300
$400
$500
$600
2007 2008 2009 2010 2011 2012 2013:H1
*Includes both traditional and non-traditional forms of reinsurance capital.Source: Aon Benfield Aggregate study for the 6 months ending June 2013; Insurance Information Institute.
($ Billions)
Global Reinsurance Capital Has Been Trending Generally Upward Since the Global Financial Crisis, a Trend that Seems Likely to Continue
-17%+18%
+18% -3%+11% +1%
Catastrophe Bonds: Issuance and Outstanding, 1997- 2013*Risk Capital Amount ($ Millions)
*Through Dec. 31, 2013.Source: Guy Carpenter; Insurance Information Institute.
633.
0
846.
1
984.
8
1,13
0.0
966.
9 2,72
9.2
3,39
1.7
4,60
0.3
4,10
8.8
5,85
2.9
7,08
3.0
1,991.11,142.8
1,729.8
6,99
6.3
4,69
3.4
1,219.5
$3,4
50.0
$4,0
40.4
$4,9
04.2
$8,5
41.6
$14,
024.
2
$12,
043.
6
$12,
508.
8
$12,
185.
0
$12,
139.
1
$14,
835.
7
$18,
576.
9
$2,9
50.0
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13Risk Capital IssuedRisk Capital Outstandng at Year End
Catastrophe Bond Issuance and Risk Capital Outstanding Reached All-Time Record Highs in 2013
CAT bond issuance reached a record $7.1B in 2013
Risk capital outstanding
reached a record high $18.6B in 2013
Financial crisis depressed issuance
4. RENEWED PRICING DISCIPLINE
227
Evidence of a Broad and Sustained Shift in Pricing
227
228
-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 09 10 11 1213
:9M
Net Premium Growth: Annual Change, 1971—2013:Q3
(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.
2013:9M = 4.2%
2012 growth was +4.3%
231
Growth in Net Written Premium by Segment, 2013:9M vs. 2012:9M*
*Excludes mortgage and financial guaranty insurers.Source: ISO/PCI; Insurance Information Institute
4.1%
5.3%
2.9%
4.0%4.2%
3.1%
5.8%
4.2%
0%
1%
2%
3%
4%
5%
6%
7%
All Lines Personal LinesPredominating
Commercial LinesPredominating
Diversified Insurers
2012:9M 2013:9M
(Percent)
232
Average Commercial Rate Change,All Lines, (1Q:2004–3Q:2013)
-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%
-11
.0%
-6.4
%-5
.1%
-4.9
%-5
.8%
-5.6
%-5
.3%
-6.4
%-5
.2%
-5.4
% -2.9
%
2.7
% 4.4
%4
.3%
3.9
%5
.0%
5.2
%4
.3%
3.4
%
-0.1
% 0.9
%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
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
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Pricing as of Q3:2013 was positive for the 9th consecutive
quarter. Gains are likely to continue into 2014.
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
233
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2013:Q3
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Percentage Change (%)
Peak = 2001:Q4 +28.5%
Pricing Turned Negative in Early
2004 and Remained that
way for 7 ½ years
Pricing turned positive in Q3:2011, the first increase in
nearly 8 years; Q3:2013 renewals were up 3.4%. Some insurers posted
stronger numbers.
Trough = 2007:Q3 -13.6%
KRW : No Lasting Impact
237
Change in Commercial Rate Renewals, by Line: 2013:Q3
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Uniformly Upward in Q3:2013 for the 9th Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Percentage Change (%)
3.5%
4.7%5.4%
5.8%
1.0%
2.9% 2.7% 2.9% 2.9%3.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Su
rety
Co
nst
ruct
ion
Bu
sin
ess
Inte
rru
ptio
n
Um
bre
lla
Ge
ne
ral
Lia
bili
ty
Co
mm
erc
ial
Au
to
Co
mm
erc
ial
Pro
pe
rty
D&
O
EP
L
Wo
rke
rsC
om
p
Workers Comp rate increases are large than any other line, followed
by Property lines
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Shifting Legal Liability & Tort Environment
240
Is the Tort PendulumSwinging Against Insurers?
240
241
Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical, 1980-2013E
$0
$50
$100
$150
$200
$250
$300
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12E
To
rt S
ys
tem
Co
sts
1.50%
1.75%
2.00%
2.25%
2.50%
To
rt Co
sts
as
% o
f GD
P
Tort Sytem Costs Tort Costs as % of GDP
($ Billions)
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A
Tort costs in dollar terms have remained high but relatively stable
since the mid-2000s., but are down substantially as a share of GDP
Deepwater Horizon Spike
in 2010
1.68% of GDP in 2013
2.21% of GDP in 2003
= pre-tort reform peak
245
The Nation’s Judicial Hellholes: 2012/2013
Source: American Tort Reform Association; Insurance Information Institute
West VirginiaIllinoisMadison County
New YorkAlbany and
NYC
Watch List
Philadelphia, Pennsylvania
South Florida Cook County, Illinois New Jersey Nevada Louisiana
Dishonorable Mention
MO Supreme Court WA Supreme Court
California
MarylandBaltimore
CYBER RISK
246
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large
and Small in Every IndustryNEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf
246
Data Breaches 2005-2013, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed
* 2013 figures as of Jan. 1, 2014 from the ITRC updated to an additional 30 million records breached (Target) as disclosed in Jan. 2014.Source: Identity Theft Resource Center.
157
321
446
656
498
419447
619662
87.9
17.322.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
2005 2006 2007 2008 2009 2010 2011 2012 2013*0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records Exposed (+408%) in 2013 Soared
Millions
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260