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Overview & Outlook for the P/C Insurance Industry:
Trends, Challenges and Opportunitiesin 2013 and Beyond
International Association of Claims ProfessionalsTucson, AZ
October 1, 2013Download at www.iii.org/presentations
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
3
CLAIMS GURU QUIZ
QUIZ: What is the significance of this number?
$7,932,848,563,867
4
$7,932,848,563,867
ANSWER: This is the dollar value of claims paid by P/C
insurers since 1925*
*Not adjusted for inflation.
5
Dollar Value of Claims Paid by P/C Insurers to Policyholders, 1925–2012E*
*1925 – 1934 stock companies only. Includes workers compensation state funds beginning in 1998.Note: Data are not adjusted for inflation.Sources: Insurance Information Institute research and calculations from A.M. Best data.
$0
$50
$100
$150
$200
$250
$300
$350
$400
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Since 1925, P/C insurers have paid more than $7.9 trillion in
claims to policyholders
Claim payouts increased
exponentially for decades
Claim payouts in recent years are volatile but have resumed
their climb due to higher catastrophes and post-
recession exposure growth
Catastrophe losses,
underwriting cycle contributed to recent volatility
$ Billions
6
Cumulative Value of Claims Paid by P/C Insurers to Policyholders, 1925–2012E*
*1925 – 1934 stock companies only. Includes workers compensation state funds beginning in 1998.Note: Data are not adjusted for inflation.Sources: Insurance Information Institute research and calculations from A.M. Best data.
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
It took 60 years for the industry to pay its first $1 trillion in claims in the years since 1925. Today, the industry pays
$1 trillion in claims every 3 to 4 years.
60 years (1925 – 1984)
$ Billions
7 years (1991)
4 years (1995)
5 years (2000)
3 years (2003)
3 years (2006)
4 years (2010)
20
12
E
<3 years to hit $8 Tr.
7
P/C Insurance Industry Financial Overview
So Far, So Good:Profit Recovery in 2013 After High CAT Losses in 2011-12
7
P/C Net Income After Taxes1991–2013:H1 ($ 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:H1 ROAS1 = 8.5%E
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.5% ROAS in 2013:H1, 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
$2
5,0
00
$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 1213:H1E
Net income is up substantially (+64%) from
2012:H1 $16.4B
-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
:H1
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013:H1*
*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
2012: 5.9%
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013:H1 8.5%(est)
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. 2012 combined ratio including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0
97.0
102.4
106.5
95.7
8.5%6.2%4.7%
7.9%7.4%
4.3%
9.6%
15.9%
14.3%
12.7% 10.9%
8.8%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013:H1E0%
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
Low CATs are improving ROEs
in 2013
13
RNW All Lines by State, 2002-2011 Average:Highest 25 States
21
.3
16
.9
14
.8
13
.4
12
.8
12
.8
12
.5
12
.1
12
.0
11
.7
11
.2
11
.1
11
.1
11
.1
11
.1
11
.1
11
.0
10
.9
10
.8
10
.7
10
.5
10
.3
10
.1
9.8
9.8
9.4
02468
1012141618202224
HI AK ME UT IA WY VT ID NE WA ND NH NM RI SC VA NC SD DC MA CT OR OH CA KS CO
Source: NAIC.
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
14
9.0
8.9
8.9
8.5
8.2
8.0
7.8
7.7
7.5
7.1
7.1
7.1
6.9
6.9
6.9
6.0
6.0
5.9
5.4
5.2
4.8
3.9
3.4
1.5
-8.3
-10
.8
-14-12-10-8-6-4-202468
10
WI IN WV MD MN MT FL US NJ AR IL MO AZ PA TX KY NV NY GA MI TN OK DE AL MS LA
Un
em
plo
ym
en
t R
ate
(%
)
RNW All Lines by State, 2002-2011 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
15
Growth Will Expand Insurer Exposure Base Across Most Lines
15
16
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 9/13; 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
%2
.1%
2.6
%2
.7%
2.8
%2
.9%
3.0
%
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
Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor market contraction
was severe
The Q4:2008 decline was the steepest since the Q1:1982
drop of 6.8%
2013 is expected to see uneven growth,
then gradually accelerate throughout the year and into 2014
17
The Federal Government Budget Debacle: Shutdown, Debt Ceiling & More Congress Failed to Approve a CR Oct. 1 Shutdown 800,000 Federal Workers to Be Furloughed Estimated Economic Impact to the Economy
Modest at first: $1B in first week Mushroom to $55 billion after a month Could hurt consumer confidence, car and home sales if persists
Impacts to P/C Insurers Are Minimal Fire, police funded locally so will continue to function Insurer disaster response unaffected even if govt. shuts down Market volatility impacts asset values, but is manageable
Impact on FEMA Unclear Aid for new disaster occuring during shutdown? Pre-existing disaster aid (e.g., Sandy, CO floods)
Upcoming Debt Ceiling Debate (Oct. 17) More Dangerous Federal debt rating at risk; Impacts on interest rates
Affordable Care Act (ObamaCare): Grand Opening Today!
18
Health Insurance Marketplaces Are Open
Sources: Screen capture on Oct. 1, 2013 from www.HealthCare.gov; Insurance Information Institute.
19
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
20
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
Federal Spending as a Share of State GDP: Vulnerability to Sequestration Varies
Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute. 21
Some Mid-Atlantic and Southern state are more
vulnerable to the effects of sequestration
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
76
.8
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
3
Consumer Sentiment Survey (1966 = 100)
January 2010 through August 2013
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 two years, though
uncertainty in Washington is taking a toll.Source: University of Michigan; Insurance Information Institute
Optimism among consumers dropped in September as a
looming government shutdown created uncertainty
24
Impact of 2011 budget impasse
25
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4
15.6 16
.1
16.0
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 13F 14F15F 16F17F18F 19F
(Millions of Units)
Auto/Light Truck Sales, 1999-2019F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (9/13 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
2013 and beyond
Truck purchases by contractors are especially strong
30
(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
5
1.1
7 1.3
5
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 (9/13 and 3/13); Insurance Information Institute.
Insurers Are Starting to See Meaningful Exposure Growth for the First Time Since 2005 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 are stimulating new home construction
for the first time in years
31
Average Premium forHome Insurance Policies**
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Source: NAIC, Insurance Information Institute estimates for 2011-2013 based on CPI data and other data.
$508$536
$593
$668
$822 $830
$880$909
$945$983
$1,022
$804$764
$729
$400
$500
$600
$700
$800
$900
$1,000
$1,100
00 01 02 03 04 05 06 07 08 09 10 11* 12* 13*
Countrywide Home Insurance Expenditures Increased by an Estimated 4.0% in 2011-2013
32
Construction Employment,Jan. 2010—August 2013*
*Seasonally adjustedSources: 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,
797
5,79
25,
791
5,80
15,
798
5,79
8
5,400
5,450
5,500
5,550
5,600
5,650
5,700
5,750
5,800
5,850
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-
132/
30/2
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Construction employment growth accelerated in the second half of
2012 but flattened out by mid-2013. Construction is a key driver of
workers comp exposure growth.
(Thousands)
33
Construction Employment, Jan. 2003–August 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 2013 and 2014 as the Housing Market and Private Investment 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
33
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of July 2013 totaled 5.798 million, an
increase of 358,000 jobs or 6.6% from the
Jan. 2011 trough
39
Value of Construction Put in Place, July 2013 vs. July 2012*
-3.7%-2.4%
-3.7%
5.2%
9.5%
17.2%
2.0%
-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: +9.5% Public: -3.7%
Public sector construction activity remains depressed
58
.35
7.1
60
.45
9.6
57
.85
5.3
55
.15
5.2
55
.3 56
.9 58
.25
8.5 6
0.8
61
.45
9.7
59
.75
4.2 55
.85
1.4 52
.55
2.5
51
.85
2.2 53
.1 54
.15
1.9 53
.35
4.1
52
.55
0.2
50
.55
0.7
51
.65
1.7
49
.95
0.2
53
.1 54
.2
50
.74
9.0 5
0.9
55
.45
5.7
51
.3
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
3
ISM Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through August 2013
The manufacturing sector expanded for 42 of the 44 months from Jan. 2010 through June 2013. Recent weakness stems largely from woes in
Europe and a Slowdown in China.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
Manufacturing expanded in August, albeit modestly
42
49
Private Sector Business Starts, 1993:Q2 – 2012:Q4*
17
51
86
17
41
80
18
61
92
18
81
87 18
91
86 1
90 1
94
19
11
99 2
04
20
21
95
19
61
96
20
62
06
20
11
92
19
82
06
20
62
03
21
12
05
21
22
00 2
05
20
42
04
19
72
03
20
92
01
19
21
92
19
32
01 20
42
02
21
0 21
22
09
21
6 22
0 22
32
20
22
02
10
22
12
12
20
42
18
20
92
07
20
71
99
19
1 19
31
72 1
76
16
91
84
17
5 17
91
88
20
01
83 1
87 1
91
19
71
93
19
1 19
31
92
20
3
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 09 10 11 12
Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly* Data through Dec. 30, 2012 are the latest available as of Aug. 16, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
Business starts were up 2.8% in 2012 to 769,000 following a 2.2% gain to
748,000 in 2011. Start-ups could accelerate in 2013.
Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 742,000 2011: 748,000 2012: 769,000
49
NFIB Small Business Optimism Index
January 1985 through July 2013
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 50
Small business optimism is off crisis lows but still suffering
from economic and regulatory uncertainty. Confidence today is basically where it was when the crisis began in Dec. 2007.
51
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)
52
Questionable Claims: On the Rise
More Questionable Claims in Most State and Across Most
Lines of Insurance
52
53
Questionable Claims, Top 10 Loss States, All Lines: 2010–2012
Source: National Insurance Crime Bureau, ForeCAST Report, May 10, 2013; Insurance Information Institute
17
,09
2
8,7
23
7,5
20
7,0
15
2,4
85
2,9
61
2,8
12
3,5
11
2,1
87
2,1
93
19
,38
8
9,6
70
8,0
16
7,3
28
3,5
35
3,6
14
3,1
63
3,2
55
2,6
17
2,6
21
21
,93
5
10
,69
3
10
,36
8
9,0
59
4,2
96
4,1
26
3,8
55
3,5
38
3,3
53
3,2
89
0
5,000
10,000
15,000
20,000
25,000
CA FL TX NY MD GA NC IL PA OH
2010 2011 2012
(Number of Questionable Claims)
California had the largest number of Questionable
Claims in 2012, but Maryland led the way in growth, with the number of QCs up by 72.9% from 2010 to 2012
+28.3%
+22.6% +37.9%
+29.1%
+72.9% +39.3% +37.1% +0.8 +53.3 +50.0
54
Total Number of Questionable Claims by State, 2012: Highest 25 States
21,9
35
10,6
93
10,3
68
9,05
9
4,29
6
4,12
6
3,85
5
3,53
8
3,35
3
3,28
9
3,13
4
2,52
1
2,34
6
2,30
0
2,13
3
1,97
9
1,91
3
1,66
3
1,59
6
1,58
5
1,52
3
1,45
3
1,40
8
1,37
5
1,36
6
0
6,000
12,000
18,000
24,000
CA FL TX NY MD GA NC IL PA OH MI VA MA NJ AZ SC WA CO KY MO TN CT IN MN LA
Sources: NICB; Insurance Information Institute.
California had the largest number of
Questionable Claims in 2012
55
1,24
9
1,14
7
1,06
7
1,02
4
933
869
755
688
643
636
587
522
434
430
383
378
348
209
206
195
172
147
96 89 89 68
0
200
400
600
800
1,000
1,200
1,400
OR AL NV OK WI NM AR KS MS HI RI DC UT WV DE IA NE NH AK ID ME MT VT SD WY ND
Total Number of Questionable Claims by State, 2012: Highest 25 States
Sources: NICB; Insurance Information Institute.
North Dakota had the fewest number of
Questionable Claims in 2012
56
Total Number of Questionable Claims by State, per 100K Persons, 2012: Highest 25 States
83
73
58 56 55
46 46
42 42 42 42 40 40 40 39
36 35 33 32 32 32 31 30 28 28
0
10
20
30
40
50
60
70
80
90
100
DC MD CA RI FL NY HI GA SC NM DE TX NC CT NV KY MA AZ MI CO OR VA LA OH WA
Sources: NICB; Insurance Information Institute.
DC followed by Maryland California had the highest rate
of Questionable Claims in 2012
57
Total Number of Questionable Claims by State, per 100K Persons, 2012: Lowest 25 States
28
27 27
26 26 26 26 26
24 24 24
23
22 22
19
16 16
15 15 15 15
13
12 12
11
10
0
5
10
15
20
25
30
AK IL OK PA NJ MO MN AR TN AL KS WV IN MS NE WI NH UT MT VT WY ME IA ID SD ND
Sources: NICB; Insurance Information Institute.
North and South Dakota had the lowest rate of
Questionable Claims in 2012
58Source: National Insurance Crime Bureau, ForeCAST Report, May 10, 2013; Insurance Information Institute
3,9
99
2,0
93
1,1
95 1,6
93
80
1 1,1
67
1,5
48
62
9
48
8 86
7
4,4
25
2,4
40
1,9
99
1,7
61
1,2
95
1,2
40
1,3
41
75
0
57
4 85
8
5,1
40
3,2
46
2,3
09
2,0
10
1,5
94
1,3
98
1,1
19
1,0
30
89
2
87
7
0
1,000
2,000
3,000
4,000
5,000
6,000
New York LosAngeles
Miami Houston Baltimore Chicago Detroit Philadelphia Dallas Orlando
2010 2011 2012
(Number of Questionable Claims)
New York City had the largest number of Questionable Claims in 2012, but Miami and Baltimore led the way in growth, with the number of QCs nearly doubling
from 2010 to 2012
+28.5%
+55.1%
+93.2%
+18.7% +99.0%
+19.8% -27.7%+63.8
+82.8 +1.2
Questionable Claims, Top 10 Loss Cities, All Lines: 2010–2012
59Source: National Insurance Crime Bureau, ForeCAST Report, May 10, 2013; Insurance Information Institute
62
,48
1
11
,67
7
3,2
22
2,8
66
2,2
98
85
9
69
8
35
7
45
7
38
3
69
,21
9
11
,87
7
3,4
70
3,0
52
2,5
71
1,0
90
69
8
38
7
48
8
32
5
78
,02
4
17
,18
3
4,4
59
3,5
54
2,6
50
2,6
21
94
1
46
4
41
1
40
6
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Pvt. Pass.Auto
PersonalProp.: HO
WC & EL Comm.Auto
CGL PersonalProp:Other
Comm.Prop:CMP
Comm.Liab: Bus.
Owners
Pers.Prop.:Fire
Comm.Prop:Bus.
Owners
2010 2011 2012
(Number of Questionable Claims)
Private Passenger Auto had the largest number of
Questionable Claims in 2012, but Personal Property (Other) led the way in growth, with the
number of QCs more than tripling from 2010 to 2012
+24.9%
+47.1%
+38.4% +2.4% +15.3% +205.1%
+34.8% +30.0% -10.1% +6.0%
Questionable Claims, Top 10 Policy Types: 2010–2012
60
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
60
61
Unemployment and Underemployment Rates: Stubbornly 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
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment stood at 7.3% in Aug. 2013—its
lowest level since Dec. 2008.
Unemployment peaked at 10.1% in
October 2009, highest monthly rate since 1983.
Peak rate in the last 30 years: 10.8% in
November - December 1982
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 13.7% in August 2013
January 2000 through August 2013, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving
61
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
27
15
2
11
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
Jul-
13
Monthly Change in Private Employment
January 2007 through August 2013 (Thousands, Seasonally Adjusted)
Private Employers Added 7.41 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
152,000 private sector jobs were created in July
62
Jobs Created2013 YTD: 1.485 Mill
2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill
4-1
033
9251
128
798
-68
-224 -1
84-1
94-2
13-2
24-2
71-2
89-2
88-3
56 -324
-452
-449
-480
-488
-511
-530
-542
-536
-539
-547
-574
-565
-589 -555
-535
-592
-601
-606
-622
-609
-610
-621
-643
-666
-649-6
21
-800
-600
-400
-200
0
200
400
600
Jan-
10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10
Jul-1
0
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11
Jul-1
1
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Jul-1
3
Cumulative Change in Government Employment: Jan. 2010—August 2013
January 2010 through August 2013* (Millions)
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Cumulative job losses through June 2013 totaled 649,000
65
Governments at All Levels are Under Severe Fiscal Strain As Tax Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Government at all levels has shed nearly 650,000 jobs since
Jan. 2010 even as private employers created 7.41 million jobs, though losses may now
be stabilizing.
Temporary Census hiring distorted 2010
figures
66
Net Change in Government Employment: Jan. 2010—August 2013*
-649
-418
-143-88
-700
-600
-500
-400
-300
-200
-100
0
Total Local State Federal
(Thousands)
Local government employment shrank by 418,000 from Jan.
2010 through Aug. 2013, accounting for 64% of all government job losses,
negatively impacting WC exposures for those cities and counties that insure privately
*Cumulative change from prior month; Base employment date is Dec. 2009.Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
State government employment fell by 2.4% since the end of 2009 while
Federal employment is down by 2.9%
67
Unemployment Rates by State, August 2013:Highest 25 States*
9.5
9.2
9.1
9.0
8.9
8.7
8.7
8.7
8.5
8.5
8.5
8.4
8.3
8.1
8.1
8.1
8.1
7.7
7.6
7.4
7.3
7.3
7.2
7.2
7.0
0
2
4
6
8
10
12
NV IL RI MI CA DC GA NC MS NJ TN KY AZ CT IN OR SC PA NY AR DE OH MA MO CO
Une
mpl
oym
ent R
ate
(%)
*Provisional figures for August 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In August, 18 states and the District of Columbia had over-the-month
unemployment rate increases, 17 states had decreases, and 15 states had no
change.
68
7.0
7.0
7.0
7.0
7.0
6.8
6.8
6.7
6.5
6.4
6.3
6.3
5.9
5.8
5.3
5.3
5.1
5.0
4.9
4.7
4.6
4.6
4.3
4.2
3.8
3.0
0
2
4
6
8
FL LA ME MD WA ID NM WI AK TX AL WV KS VA MT OK MN NH IA UT VT WY HI NE SD ND
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, August 2013: Lowest 25 States*
*Provisional figures for August 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In August, 18 states and the District of Columbia had over-the-month
unemployment rate increases, 17 states had decreases, and 15 states
had no change.
Nebraska has th e 3rd lowest unemployment rate in the US!
70
US Unemployment Rate Forecast
4.5
%4
.5%
4.6
%4
.8%
4.9
% 5.4
% 6.1
%6
.9%
8.1
%9
.3%
9.6
% 10
.0%
9.7
%9
.6%
9.6
%
8.9
%9
.1%
9.1
%8
.7%
8.3
%8
.2%
8.0
%7
.8%
7.7
%7
.6%
7.4
%7
.3%
7.2
%7
.1%
7.0
%6
.8%
9.6
%
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
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
Rising unemployment
eroded payrolls
and workers comp’s
exposure base.
Unemployment peaked at 10%
in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (9/13 edition); Insurance Information Institute.
2007:Q1 to 2014:Q4F*
Unemployment forecasts have been revised slightly
downwards. Optimistic scenarios put the
unemployment as low as 6.5% by Q4 of next year.
Jobless figures have been revised
slightly downwards for 2013/14
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
73
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2012E
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2012 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 2012; +7.9% Growth in 2011 Was the First Gain Since 2005
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
+9% in 2012E
74
U.S. Insured Catastrophe Loss Update
Catastrophe Losses in Recent Years Have Been Very High
74
75
$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
$7
.9$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 6/2/13. Includes $2.6B for 2013:Q1 (PCS) and $5.32B for the period 4/1 – 6/2/13 (Aon Benfield Monthly Global Catastrophe Recap).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 ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Below
Average But Q3 Is Typically the Costliest Quarter.
2012 was likely the third most expensive year ever for insured
CAT losses
Record tornado losses caused
2011 CAT losses to surge
($ Billions, $ 2012)
75
76
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 could become the 4th or 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.
77
Top 16 Most Costly World Insurance Losses, 1970-2012*
(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
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 – June 2013*Number of Events (Annual Totals 1980 – June 2013*)
*Through June 30, 2013.Source: MR NatCatSERVICE 78
41
19
121
3
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 68 natural disaster events in the
first half of 2013
Losses Due to Natural Disasters in the US, 1980–2013 (Jan.-June Only)
79
Overall losses (in 2012 values) Insured losses (in 2012 values)
Source: MR NatCatSERVICE
(2012 Dollars, $ Billions)(Overall and Insured Losses)
10
20
30
40
50
60
70
80
90
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
First Half 2013 losses were running below 2011 and 2012 but
were consistent with the decade prior.
Approximately 57% of the overall cost of
catastrophes in the US was covered by
insurance in 2013:H1
2013 First Half Losses
Overall : $13.8B
Insured: $7.9B
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters Worldwide,1980 – 2013* (Number of Events)
*Through June 30, 2013.Source: MR NatCatSERVICE 80
41
19
121
3
200
400
600
800
1 000
1 200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Nu
mb
er
There were 460 natural disaster events globally in the first half of 2013
and 905 for full-year 2012
Losses Due to Natural Disasters Worldwide, 1980–2013* (Overall & Insured Losses)
81
Overall losses (in 2012 values) Insured losses (in 2012 values)
*Through June 30, 2013.Source: MR NatCatSERVICE
(2012 Dollars, $ Billions)(Overall and Insured Losses)
50
100
150
200
250
300
350
400
450
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
2012 Losses
Overall : $101.1B
Insured: $57.9B
There is a clear upward trend in both insured and overall losses over the past
30+ years
2013: 1st Half Losses
Overall : $45B
Insured: $13B
85
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)
86
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
The value of insured coastal exposure in NY is now highest in the US for
the first time.
U.S. Thunderstorm Loss Trends, 1980 – June 30, 2013
88Source: Property Claims Service, MR NatCatSERVICE
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. 2008-2012 are the most expensive
years on record.
1st Half 2013 thunderstorm losses total $6.325B; The
system that included the EF-5 tornado in Moore, OK, accounted for $1.575B
Hurricane Sandy Summary
93
Sandy Became One of the Most Expensive Events in
Insurance History
93
Hurricane Sandy: Claim Payments to Policyholders, by State
$9,600
$6,300
$700 $500 $410 $295 $292 $210 $103 $84 $57 $55 $37 $36 $13$58$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
NY NJ PA CT MD VA OH MA RI DE WV NC NH DC ME VT
Insurers Will Pay at Least $18.75 Billion to 1.52 Million Policyholders Across 15 States and DC in the Wake of Hurricane Sandy
94
At $9.6B and $6.6B, respectively, NY and NJ suffered, by far, the largest losses
from Hurricane Sandy
TOTAL = $18.75 BILLION($ Thousands)
Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of Jan. 18, 2013; Insurance Information Institute .
Auto, 250,500 ,
16%
Commercial, 202,500 ,
13%
Homeowner, 1,067,000 ,
71%
Hurricane Sandy resulted in an
estimated 1.52 million privately insured
claims resulting in an estimated $18.75 to
$25 billion in insured losses. Hurricane
Katrina produced 1.74 million claims and
$48.7B in losses (in 2012 $)
Hurricane Sandy: Number of Claims by Type*
*PCS claim count estimate s as of 1/18/13. Loss estimate represents PCS total ($18.75B) and upper end of range estimates by risk modelers RMS, Eqecat and AIR. All figures exclude losses paid by the NFIP.Source: PCS; AIR, Eqecat, AIR Worldwide; Insurance Information Institute. 95
Sandy is a high HO frequency, (relatively
low) severity event (avg. severity <50% Katrina)
Total Claims = 1.52 Million*
Auto, $2,729 , 15%
Commercial, $9,024 ,
48%
Homeowner, $6,997 ,
37%
Although Commercial Lines accounted for
only 13% of total claims, they account for 48% of all claim
dollars paid. In most hurricanes,
Commercial Lines accounts for about
1/3 of insured losses.
Hurricane Sandy: Insured Loss byClaim Type* ($ Millions)
*PCS insured loss estimates as of 1/18/13. Catastrophe modeler estimates range up to $25 billion. All figures exclude losses paid by the NFIP.Source: PCS; Insurance Information Institute. 96
Total Claim Value = $18.75 Billion*
97
Total Value of Insured Coastal Exposure in 2007
(2007, $ Billions)
Source: AIR Worldwide
$224.4$191.9
$158.8$146.9$132.8
$92.5$85.6$60.6$55.7$51.8$54.1
$14.9
$479.9$635.5
$772.8$895.1
$2,378.9$2,458.6
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
FloridaNew York
TexasMassachusetts
New JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
In 2007, Florida Still Ranked as the #1 Most Exposed State to Hurricane Loss, with
$2.459 Trillion Exposure, but Texas is very exposed too, and ranked #3 with $895B
in insured coastal exposure
The Insured Value of All Coastal Property Was $8.9 Trillion in 2007, Up 24% from $7.2 Trillion in 2004
100
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1992–20111
0.4%
1.6%
3.8%4.7%
6.3%
7.3%
33.9%
42.0%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2. Excludes snow.3. Does not include NFIP flood 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, $161.3
Fires (4), $6.0
Tornadoes (2), $130.2
Winter Storms, $28.2
Terrorism, $24.4
Geological Events, $18.2
Wind/Hail/Flood (3), $14.8
Other (5), $1.4
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 1992-2011
totaled $384.3B, an average of $19.2B per year or $1.6B
per month
Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*
*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 101
Avg. catastrophe claim cost rose
approximately 200% from 1997-2011
Cat claim frequency in 2011 was at historic highs and more than
double the rate in 1997
102
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2012*
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 9.
4
3.6
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
E
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: 7.20*
Combined Ratio Points Catastrophe losses as a share of all losses reached
a record high in 2012
Terrorism Update
115
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
115
Life$1.2 (3%)
Aviation Liability
$4.3 (11%)
Other Liability
$4.9 (12%)
Biz Interruption $13.5 (33%)
Property -WTC 1 & 2*$4.4 (11%) Property -
Other$7.4 (19%)
Aviation Hull$0.6 (2%)
Event Cancellation
$1.2 (3%)Workers Comp
$2.2 (6%)
Total Insured Losses Estimate: $40.0B***Loss total does not include March 2010 New York City settlement of up to $657.5 million to compensate approximately 10,000 Ground Zero workers or any subsequent settlements.
**$32.5 billion in 2001 dollars.
Source: Insurance Information Institute.
Loss Distribution by Type of Insurancefrom Sept. 11 Terrorist Attack ($ 2011)
($ Billions)
119
TRIA Outlook
Difficult Reauthorization Battle Ahead Very difficult to overcome antigovernment/small government, Tea
Party forces in the House
Most Committee members in both houses weren’t around in 2007
House Hearings in 2012; House and Senate in Sept. 2013 If Reauthorized, Insurer Participation Likely Increased Some Have Attacked TRIA as “Corporate Welfare”
In reality the taxpayer is 100% protected NFIP, Crop programs have led to miscomprehensions
Emphasizing Benefits to Employees Under WC is Key Misperception by Some that Terrorism is Urban Issue Certification Process Needs Clarification
Public Opinion Survey
126
Industry Favorability RatingsPolicy Forms & Disclosure
Disaster Preparedness
126
128
I.I.I. Poll: Homeowners Insurance
Q. Do you think that it is fair that people who live in areas affected by record storms in 2011 and 2012 should pay more for their homeowners insurance in the future?
Source: Insurance Information Institute Annual Pulse Survey.
Nearly 60 percent of Americans believe that homeowners insurance premiums should not be raised as a result of recent storms in their areas.
4%
37%
59%
Don’t know
Yes
No
Public believes it is not fair to raise
premiums of homeowners due
to events they cannot control
129
I.I.I. Poll: Flood Insurance
Source: Insurance Information Institute Annual Pulse Survey.
55%46% 47%
58% 61%
0%
20%
40%
60%
80%
Total U.S. Northeast West Midwest South
Q. The federal government plans to raise the price of flood insurance so it reflects the costs of paying claims. Do you believe this is fair? [% Responding “NO”]
More than one-half of Americans do not think it is fair for the federal government to raise its flood insurance premiums to better reflect claims
payouts.
Most people believe it is unfair for government to raise flood insurance premiums, even though
they are subsidized by taxpayers
132
I.I.I. Poll: Disaster Preparedness
Q. If you expect some relief from the government, do you purchase less insurance coverage against these natural disasters than you would have otherwise?
Source: Insurance Information Institute Annual Pulse Survey.
Seventy-two percent of Americans would not purchase less insurance if they expect some relief from the government—but 22% would.
6%
22%
72%
Don’t know
Yes
No
More than 20 percent cut back
on insurance coverage in
expectation of government disaster aid
133
Growth Analysis by State and Business Segment
Premium Growth Rates Vary Tremendously by State
133
134
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%
135
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
140
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 LC.; Insurance Information Institute.
Top 25 States
Only 16 states showed any commercial lines growth
2007 and 2012
141
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 LC.; 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?
149
Catastrophes and Other Factors Are Pressuring Insurance Markets
149
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$45.5
$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 Q1:2013 investment income of $11.385B.Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings are running below their 2007
pre-crisis peak
156
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2013*
*Monthly, constant maturity, nominal rates, through August 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
156
163
-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*
163
1. UNDERWRITING
165
Underwriting Losses in 2011 and 2012 Are Elevated by High
Catastrophe Losses
165
166
P/C Insurance Industry Combined Ratio, 2001–2013:H1*
* Excludes Mortgage & Financial Guaranty insurers 2008--2013. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
97.0
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
Lower CAT
Losses Before Sandy
Underwriting Gain (Loss)1975–2013:Q1*
* Includes mortgage and financial guaranty insurers in all years.Sources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
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:Q1
Cumulative underwriting deficit from 1975 through
2012 is $510B
($ Billions)Underwriting
profit in 2013:Q1
totaled $4.6B
High cat losses in 2011 led to the highest
underwriting loss since 2002
170
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).
Financial Strength & Underwriting
171
Cyclical Pattern is P-C Impairment History is Directly Tied to
Underwriting, Reserving & Pricing
171
P/C Insurer Impairments, 1969–20128
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 16 1
9 21
34
18
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
10
11
12
Source: A.M. Best Special Report “1969-2011 Impairment Review,” June 2012 and March 6, 2013 update; Insurance Info. Institute.
The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets
172
Impairments among P/C insurers remain infrequent
174
Reasons for US P/C Insurer Impairments, 1969–2010
3.6%4.0%
8.6%
7.3%
7.8%
7.1%
7.8%13.6%
40.3%
Source: A.M. Best: 1969-2010 Impairment Review, Special Report, April 2011.
Historically, Deficient Loss Reserves and Inadequate Pricing AreBy Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Deficient Loss Reserves/Inadequate Pricing
Reinsurance Failure
Rapid GrowthAlleged Fraud
Catastrophe Losses
Affiliate Impairment
Investment Problems (Overstatement of Assets)
Misc.
Sig. Change in Business
177
Performance by Segment
177
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
.7
11
6.9
10
5.8
10
6.7
12
2.2
10
4.4
10
1.7
10
1.2
10
0.7
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 12E13F 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
Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute. 179
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
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
2.1
10
6.7
10
4.9
10
2.1
10
1.4
10
1.3
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 (1990-2011); Conning (2012-2015F) Insurance Information Institute
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
182
General Liability Combined Ratio: 2005–2015F
112.
9
95.1 99
.0
94.2
101.
4
104.
4
105.
8
108.
3
107.
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. 185
Workers Compensation Combined Ratio: 1994–2012P
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
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
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. 190
WC showed a better-than-expected
improvement for private carriers in 2012
Workers Compensation Medical SeverityModerate Increase in 2012
191
Accident Year
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2010: +6.0%
Average Medical Cost per Lost-Time ClaimMedicalClaim Cost ($000s)
$8
.1
$8
.2
$8
.1
$8
.8
$9
.2
$9
.9
$1
0.9
$11
.8
$1
3.1
$1
4.0
$1
5.9
$1
7.3
$1
8.7
$1
9.7
$2
1.2
$2
2.3
$2
3.7
$2
5.3
$2
6.4
$2
6.7
$2
7.7
$2
8.5
+6.8%+1.3%-2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%+10.6%
+7.3%
+13.5%+8.8%
+7.7%+5.4%
+7.8%+5.4%
+6.3%
+6.6%+4.1%+1.4%
+3.6%+3%
5
10
15
20
25
30
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20112012p
2012p: Preliminary based on data valued as of 12/31/2012.1991-2011: Based on data through 12/31/2011, developed to ultimateBased on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Cumulative Change = 252%(1991-2012p)
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2011: +5.7%
Accident Year
4.5%
3.5%2.8%
3.2%3.5%4.1%
4.6%4.7%4.0%
4.4%4.2%4.0%4.4%
3.7%3.2%3.4%
3.0%
5.1%
7.4%
10.1%10.6%
13.5%
5.4%
7.8%
6.3%6.6%
4.1%3.6% 4%
3%
1.4%
5.4%
8.8%
7.7%
7.3%
8.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12P
Change in Medical CPI
Change Med Cost per Lost Time Claim
WC Medical Severity Generally Outpaces the Medical CPI Rate
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average annual increase in WC medical severity form 1995 through 2011 was well above the medical CPI (6.8% vs. 3.8%), but
the gap is narrowing.
2. SURPLUS/CAPITAL/CAPACITY
205
How Will Large Catastrophe Losses Impact Capacity?
205
207
Policyholder Surplus, 2006:Q4–2013:Q1
Sources: ISO, A.M .Best.
($ 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
$570.7$566.5
$505.0$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
$600
$620
06:Q407:Q107:Q207:Q307:Q408:Q108:Q208:Q308:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q413:Q1
2007:Q3Pre-Crisis Peak
Surplus as of 3/31/13 stood at a record high $607.7B
*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.
The Industry now has $1 of surplus for every $0.80
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 Both Entered and Emerged from the 2012 Hurricane
Season Very Strong Financially.
209
3. REINSURANCE MARKET CONDITIONS
Ample Capacity as Alternative Capital is
Transforming the Market
209
210
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%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q1360
80
100
120
140
160
180
200
US
D b
n
Soft market
Hard market
Hard market softening
Crisis
Excess capital
Long-Term Evolution of Shareholders’ Funds for the Guy Carpenter Global Reinsurance Composite
Source: Guy Carpenter
Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit
Source: Guy Carpenter
(As of Year End)
Alternative Capacity accounted for approximately 14% or $45 billion
of the $316 in global property catastrophe reinsurance capital as
of mid-2013 (expected to rise to ~15% by year-end 2013)
Catastrophe Bonds: Issuance and Outstanding, 1997- 2013*Risk Capital Amount ($ Millions)
*Through July 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
4,76
7.6
1,991.11,142.8
1,729.8
6,99
6.3
4,69
3.4
1,219.5$3
,450
.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
$16,
617.
3
$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 7M13
Risk Capital IssuedRisk Capital Outstandng at Year End
Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk Capital Outstanding Stands at an All-Time Record
CAT bond issuance will likely reach a record high in 2013v
Risk capital outstanding
reached a record high in 2013
Financial crisis depressed issuance
4. RENEWED PRICING DISCIPLINE
229
Evidence of a Broad and Sustained Shift in Pricing
229
231
-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
:Q1
Net Premium Growth: Annual Change, 1971—2013:Q1
(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:Q1 = 4.1%
2012 growth was +4.3%
234
Average Commercial Rate Change,All Lines, (1Q:2004–2Q: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%
-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
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 Q2:2013 was positive for the89th consecutive
quarter. Gains are likely to continue through 2013.
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
Shifting Legal Liability & Tort Environment
242
Is the Tort PendulumSwinging Against Insurers?
242
243
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
Business Leaders Ranking of Liability Systems in 2012
Best States
1. Delaware
2. Nebraska
3. Wyoming
4. Minnesota
5. Kansas
6. Idaho
7. Virginia
8. North Dakota
9. Utah
10. Iowa
Worst States
41. Florida
42. Oklahoma
43. Alabama
44. New Mexico
45. Montana
46. Illinois
47. California
48. Mississippi
49. Louisiana
50. West Virginia
Source: US Chamber of Commerce 2012 State Liability Systems Ranking Study; Insurance Info. Institute.
New in 2012
Wyoming Minnesota Kansas Idaho
Drop-offs
Indiana Colorado Massachusetts South Dakota
Newly Notorious
Oklahoma
Rising Above
Arkansas
246
247
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
248
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
248
Data Breaches 2005-2013, By Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed
* 2013 figures as of March 19, 2013.Source: Identity Theft Resource Center
157
321
446
656
498
419447
662
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 20120
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The total number of data breaches and number of records exposed fluctuates from year to year and over time.
Millions
254
External Cyber Crime Costs: Fiscal Year 2012
2%5%
19%
30%
44%
* Other costs include direct and indirect costs that could not be allocated to a main external cost categorySource: 2012 Cost of Cyber Crime: United States, Ponemon Institute.
Information loss (44%) and business disruption or lost productivity (30%) account for the majority of external costs due to cyber crime.
Information loss
Equipment damagesOther costs*
Revenue loss
Business disruption
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262
Losses Due to Natural Disasters in the US, 1980–2012 (Overall & Insured Losses)
263
Overall losses (in 2012 values) Insured losses (in 2012 values)
Source: MR NatCatSERVICE
(2012 Dollars, $ Billions)(Overall and Insured Losses)
20
40
60
80
100
120
140
160
180
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
2012 was the 2nd or 3rd most expensive year on record for insured catastrophe losses in
the US.
Approximately 57% of the overall cost of
catastrophes in the US was covered by insurance in 2012
2012 Losses
Overall : $101.1B
Insured: $57.9B