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P/C Insurance Industry Overview & Outlook A Story of Growth and Strength in an Uncertain World. Barclays Insurance Forum New York, NY March 18, 2013 Download at www.iii.org/presentations. Robert P. Hartwig, Ph.D., CPCU, President & Economist - PowerPoint PPT Presentation
Citation preview
P/C Insurance Industry Overview & Outlook
A Story of Growth and Strength in an Uncertain World
Barclays Insurance ForumNew York, NY
March 18, 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
2
P/C Insurance Industry Financial Overview
Profit Recovery in 2012 After High CAT Losses; Ultimate
Impact of Sandy Still Unclear
2
P/C Net Income After Taxes1991–2012:Q3 ($ Millions)
$14,
178
$5,8
40
$19,
316
$10,
870 $20,
598
$24,
404 $3
6,81
9
$30,
773
$21,
865
$3,0
46
$30,
029
$62,
496
$3,0
43
$35,
204
$19,
150
$26,
981
$28,
672
-$6,970
$65,
777
$44,
155
$20,
559
$38,
501
-$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:Q3
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:Q3 ROAS1 = 6.3%
P-C Industry 2012:Q3 profits were up 222% from 2011:Q3, due primarily to lower catastrophe losses
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.6% ROAS through 2012:Q3, 4.6% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEsCombined Ratio / ROE
* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012:Q3 combined ratio including M&FG insurers is 100.9, ROAS = 6.3%; 2011 combined ratio including M&FG insurers is 108.2, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO data.
97.5100.6 100.1 100.8
92.7
101.099.3
100.9 100.0
106.4
95.7
6.6%4.6%
7.6%7.4%4.4%
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 2012:9M0%
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 ~6.6% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Year Ago2011:Q3 = 108.1,
3.1% ROE
-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:
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2012:Q3*
*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2012 exclude mortgage and financial guaranty insurers. 2012:Q3 ROAS = 6.2% including M&FG.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
2011:4.6%*
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2012:Q3: 6.6%
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
6
Growth Will Expand Insurer Exposure Base Across Most Lines
6
7
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 3/13; 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%
2.1%
2.0% 2.5% 2.7%
2.6% 2.8%
2.9%
3.0%
0.1%
-8.9%
4.1%
1.1% 1.
8% 2.5% 3.
6%3.
1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
07:1
Q07
:2Q
07:3
Q07
:4Q
08:1
Q08
:2Q
08:3
Q08
:4Q
09:1
Q09
:2Q
09:3
Q09
:4Q
10:1
Q10
:2Q
10:3
Q10
:4Q
11:1
Q11
:2Q
11:3
Q11
:4Q
12:1
Q12
:2Q
12:3
Q12
:4Q
13:1
Q13
:2Q
13:3
Q13
:4Q
14:1
Q14
:2Q
14:3
Q14
: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 initially slow
growth, then gradually accelerate throughout the year and into 2014
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. 8
NY has relatively little exposure to sequester cuts
State-by-State Leading Indicatorsthrough 2013:Q1
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 10
5 Fastest Growing StatesSouth Carolina 6.97%Michigan 4.32%West Virginia 3.59%Idaho 3.14%Georgia 3.04%
5 Slowest Growing StatesWyoming -1.09%
Delaware -0.24%North Dakota -0.19%Vermont 0.09%Minnesota 0.18%
Near-term growth forecasts vary widely by state
74.4
73.6
73.6
72.2 73.6 76
67.8
68.9
68.2
67.7 71
.6 74.5
74.2 77
.567
.5 69.8 74
.371
.563
.755
.7 59.5 60.9 64
.169
.9 75.0
75.3
76.2
76.4 79
.373
.272
.3 74.3
82.6
82.7
74.5
73.8 77
.671
.8
40
45
50
55
60
65
70
75
80
85
90
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12Fe
b-12
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13Fe
b-13
Mar
-13
Consumer Sentiment Survey (1966 = 100)
January 2010 through March 2013
Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact
consumers, but improved substantially in late 2011 and in 2012Source: University of Michigan; Insurance Information Institute
Optimism among consumers has
remained fairly strong despite tax hike, federal
budget concerns
11
12
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4 15
.3 15.8
16.0
16.2
16.2
16.2
16.216
.9
16.617
.117.517.8
17.4
910
11121314
151617
1819
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 (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.
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2013-14 is
still far 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
13
16%
18%
20%
22%
24%
26%
28%
30%
01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F$125
$135
$145
$155
$165
$175
$185
$195
% of registered cars under 3 years old Auto Ins Direct Pms $ Billions
Personal Auto Insurance Direct Written Premiums vs. Recently-Registered Cars
Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and Analysis, First Quarter 2012; Insurance Information Institute.
PP DWP, flat from 2004-2009, is rising again.Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.
Average age of registered cars rose as fewer new cars were bought (and
insured)
In 2004-07 no growth in
PP DWP despite
strong new car/truck
sales New car/truck sales grow to 14-15M/year
4%/yr growth forecast for PP
DWP from recovering
new car/truck sales
14
Monthly Change* in Auto Insurance Prices, 1991–2013*
*Percentage change from same month in prior year; through Feb. 2013; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Cyclical peaks in PP Auto tend to occur
approximately every 10 years (early 1990s, early
2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
The Feb. 2013 reading of 5.2% is
up from 3.6% a year earlier; Highest since Dec. 2010
16
(Millions of Units)
New Private Housing Starts, 1990-2019F
1.48
1.47 1.
62 1.64
1.57 1.60 1.
71 1.85 1.
96 2.07
1.80
1.36
0.91
0.55 0.59 0.61
0.78
1.00
1.21 1.
35 1.44 1.
501.
511.
50
1.351.
461.
291.
201.
011.
19
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 (3/13); Insurance Information Institute.
Homeowners Insurers Are Starting to See Meaningful Exposure Growth for the First Time Since 2005. Commercial Insurers with Construction Risk
Exposure, Surety, Workers Comp Also Benefit
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
17
Average Premium forHome Insurance Policies**
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Source: NAIC, Insurance Information Institute estimates for 2011-2012 based on CPI data and other data.
$508$536
$593
$668
$822 $830$880
$909$945
$988
$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*
Countrywide Home Insurance Expenditures Increased by an Estimated 4.0%in 2011 and 4.5% in 2012
18
Construction Employment,Jan. 2010—February 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
6 5,78
4
5,400
5,450
5,500
5,550
5,600
5,650
5,700
5,750
5,800
5,850
5,900
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-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
Construction employment growth accelerated in the second half of 2012. Stronger growth in this key
sector is possible in 2013.
(Thousands)
Construction for the new $4B
Tappan Zee Bridge will create
thousands of jobs
19
Construction Employment, Jan. 2003–Feb. 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. Commercial 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
19
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of Feb. 2013 totaled 5.784 million, an
increase of 349,000 jobs or 6.4% from the
Jan. 2011 trough
20
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2012: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
$7,25005
: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
4
Prior Peak was 2008:Q1 at $6.60 trillion
Latest (2012:Q4) was $6.96 trillion, a new peak--$708B
above 2009 trough
Recent trough (2009:Q3) was $6.25 trillion, down
5.3% from prior peak
Growth rates in 2012Q1:12 over Q4:11: 1.8%Q2 over Q1: 1.4% Q3 over Q2: 0.3%
Q4 over Q3: 1.0%
Pace of payroll growth
accelerated in late 2012
20
21
Commercial & Industrial Loans Outstandingat FDIC-Insured Banks, Quarterly, 2006-2012:Q4*
$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
.46 $1
.51
$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
1
06:Q
3
07:Q
1
07:Q
3
08:Q
1
08:Q
3
09:Q
1
09:Q
3
10:Q
1
10:Q
3
11:Q
1
11:Q
3
12:Q
1
12:Q
3
12:Q
4
Outstanding Commercial Loan Volume Has Been Growing for Over Two Years and Is Now Nearly Back to Early Recession Levels. Bodes Very Well for the Creation of Current and Future Commercial Insurance Exposures
*Latest data as of 3/18/2013.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
$Trillions
Commercial lending plunged by 21.2% ($330B) during the financial crisis and ensuing
period of tight credit
Commercial lending activity is exceeds pre-crisis levels
(+29.1% or $340B above mid-2010 trough)
22
Percent of Non-current Commercial & Industrial Loans Outstanding at FDIC-Insured Banks,Quarterly, 2006-2012:Q4*
0.70
%0.
74%
0.64
%
0.67
%0.
81%
1.07
%1.
18% 1.
69% 2.
25% 2.
80%
3.57
%3.
43%
3.05
%2.
83%
2.73
%2.
44%
1.89
%1.
65%
1.49
%1.
29%
1.17
%1.
09%
0.97
%0.
87%
0.71
%
0.63
%0.
62%
0.63
%
0%
1%
2%
3%
4%
06:Q
1
06:Q
2
06:Q
3
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
Non-current loans (those past due 90 days or more or in nonaccrual status) are back to early-recession levels, fueling bank willingness to lend.
*Latest data as of 3/18/2013.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.
Almost back to “normal” levels of noncurrent
industrial & commercial loans
Recession
23
Value of Construction Put in Place, January 2013 vs. January 2012*
-3.0%
-11.7%
-2.7%
7.1% 7.1%
21.1%
0.8%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
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 up in both the residential and nonresidential segments
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +12.2% Public: -3.0%
Public sector construction activity remains depressed
24
Value of Private Construction Put in Place, by Segment, Jan. 2013 vs. Jan. 2012*
3.0%
-1.9%
5.8%
-9.4%
4.4%
-0.5% -2.7%
13.1%
-6.1%
12.2%
22.0%
4.0%
13.3%
26.2%
-15%-10%
-5%0%5%
10%15%20%25%30%
Tota
l Priv
ate
Cons
truct
ion
Resi
dent
ial
Tota
lNo
nres
iden
tial
Lodg
ing
Offi
ce
Com
mer
cial
Heal
th C
are
Educ
atio
nal
Relig
ious
Amus
emen
t &Re
c.
Tran
spor
tatio
n
Com
mun
icat
ion
Pow
er
Man
ufac
turin
g
Private Construction Activity is Up in Most Segments, Including the Key Residential Construction Sector
Growth (%) Led by the Residential Construction, Lodging, Office, and Manufacturing industries, Private sector
construction activity is up across many segments after plunging during the “Great Recession”
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
58.3
57.1
60.4
59.6
57.8
55.3
55.1
55.2
55.3 56
.9 58.2
58.5 60
.8 61.4
59.7
59.7
54.2 55
.851
.4 52.5
52.5
51.8
52.2 53
.1 54.1
51.9 53
.3 54.1
52.5
50.2
50.5
50.7 51
.651
.749
.950
.253
.1 54.2
40
45
50
55
60
65
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12Fe
b-12
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13Fe
b-13
ISM Manufacturing Index(Values > 50 Indicate Expansion)January 2010 through February 2013
The manufacturing sector expanded for 33 of the 38 months from Jan. 2010 through Feb. 2013. The expectation is that this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
Manufacturing activity expanded in 3 of the past 4 months, but only
slightly. The recent trend is basically flat.
26
27
$200,000
$300,000
$400,000
$500,000
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Jan. 2013
*seasonally adjustedSource: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments are nearly back to peak (in July 2008, 8 months into the recession). Trough in May 2009. Growth from trough to Jan. 2013 was 35%. Manufacturing is an
energy intensive activity and growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine, Property and Various Liability Coverages
ENERGY INTENSIVEThe value of Manufacturing
Shipments in Jan. 2013 were up 35% to $481.8B from its May 2009 trough.
June figure is only 0.7% below its previous record high in July 2008.
$ Millions
27
28
Manufacturing Growth for Selected Sectors, 2013 vs. 2012*
10.2%
2.7%
6.0%
2.5%3.8% 3.9%
-0.2%
3.6% 2.9%3.1% 3.8%
11.4%
1.4% 1.6%
-2%
0%
2%
4%
6%
8%
10%
12%
All
Man
ufac
turin
g
Dur
able
Mfg
.
Woo
dP
rodu
cts
Prim
ary
Met
als
Fabr
icat
edM
etal
s
Mac
hine
ry
Ele
ctric
alE
quip
.
Tran
spor
tatio
nE
quip
.
Non
-Dur
able
Mfg
.
Food
Pro
duct
s
Pet
role
um &
Coa
l
Che
mic
al
Pla
stic
s &
Rub
ber
Text
ileP
rodu
cts
Manufacturing Is Expanding Across a Wide Range 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
*Seasonally adjusted; Date are YTD comparing data through January 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: +3.8% Non-Durables: +2.5%
66%
68%
70%
72%
74%
76%
78%
80%
82%
Mar
01
Jun
01Se
p 01
Dec
01
Mar
02
Jun
02Se
p 02
Dec
02
Mar
03
Jun
03Se
p 03
Dec
03
Mar
04
Jun
04Se
p 04
Dec
04
Mar
05
Jun
05Se
p 05
Dec
05
Mar
06
Jun
06Se
p 06
Dec
06
Mar
07
Jun
07Se
p 07
Dec
07
Mar
08
Jun
08Se
p 08
Dec
08
Mar
09
Jun
09Se
p 09
Dec
09
Mar
10
Jun
10Se
p 10
Dec
10
Mar
11
Jun
11Se
p 11
Dec
11
Mar
12
Jun
12Se
p 12
Dec
12
Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 29
Percent of Industrial Capacity
Hurricane Katrina
March 2001-November 2001
recession
“Full Capacity”
The closer the economy is to operating at “full
capacity,” the greater the inflationary pressure
The US operated at 79.6% of industrial capacity in Feb. 2013, well above the June
2009 low of 68.3% and highest level since Mar. 2008
December 2007-June 2009 Recession
March 2001 through February 2013
29
30
Manufacturing Employment,Jan. 2010—February 2013*
11,4
6011
,460
11,4
6611
,497
11,5
3111
,539
11,5
5811
,548
11,5
5411
,555
11,5
7711
,590
11,6
2411
,662
11,6
8211
,707
11,7
1511
,724
11,7
4711
,760
11,7
6211
,770
11,7
6911
,797
11,8
4111
,870
11,9
1011
,920
11,9
2611
,935
11,9
5711
,943
11,9
2511
,931
11,9
3811
,951
11,9
6311
,977
11,000
11,200
11,400
11,600
11,800
12,000
12,200
12,400
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-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-
13Fe
b-13
Manufacturing employment is up by more than 500,000 or 4.5% since Jan. 2010—a surprising source of strength
in the economy. Employment in the sector is close to a multi-year high.
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands)
50.7 52
.7 54.1
54.6
54.8
53.5
53.7
52.8 53
.9 54.6 56
57.1 59
.459
.756
.354
.453
.353
.453
.852
.652
.652
.652
.653
.056
.856
.155
.053
.754
.152
.752
.9 54.3 55
.254
.854
.8 55.7
55.2 56
.0
40
45
50
55
60
65
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12Fe
b-12
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13Fe
b-13
ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)January 2010 through February 2013
Non-manufacturing industries have been expanding and adding jobs. The question is whether this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
Optimism among non-manufacturers is stable
and remains expansionary in 2013
31
32
43,6
9448
,125
69,3
0062
,436
64,0
04 71,2
77 81,2
3582
,446
63,8
5363
,235
64,8
5371
,549
70,6
4362
,304
52,3
7451
,959
53,5
4954
,027
44,3
6737
,884
35,4
7240
,099
38,5
4035
,037
34,3
1739
,201
19,6
95 28,3
2243
,546
60,8
3756
,282
47,8
0630
,620
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 1112
:Q3
Business Bankruptcy Filings,1980-2012:Q3
Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance Information Institute
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2011 bankruptcies totaled 47,806, down 15.1% from 56,282 in 2010—the second consecutive year of decline. Business bankruptcies more
than tripled during the financial crisis. Through Q3:2012, filings were down 15.8% vs. Q3:2011
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%*
32
33
Private Sector Business Starts, 1993:Q2 – 2012:Q2*
175
186
174
180 18
619
218
818
7 189
186 19
0 194
191
199 20
420
219
519
619
620
620
620
119
2 198
206
206
203
211
205
212
200 20
520
420
419
720
3 209
201
192
192
193
201 20
420
221
0 212
209
216 22
0 223
220
220
210
221
212
204
218
209
207
207
199
191 19
317
2 176
169
184
175 17
918
820
018
3 187 19
119
719
319
1
203
150
160
170
180
190
200
210
220
230
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 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 Jun. 30, 2012 are the latest available as of Feb. 6, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
Business starts were up 2.2% to 748,000 in 2011 vs. 2010. In 2012, starts are likely to be up by about
2.7% over 2011 levels.
Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 742,000 2011: 748,000*
33
NFIB Small Business Optimism Index
January 1985 through February 2013
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 34
Small business optimism is returning after taking a big hit
over “Fiscal Cliff” fears
35
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)
Hurricane Sandy Summary
36
Sandy Will Become One of the Most Expensive Events in
Insurance History
36
37
2012 Catastrophe Summary
Catastrophe Communications: US & GlobalU.S. Focus: ~$37-$42B = 2nd Most Costliest Year Ever for
Insured Catastrophe Loss (Behind 2005) Economic Losses = $101B Crop = Additional ~$16B ($7B-$8B privately insured) NFIP Flood = Additional $9B+ Flood losses/NFIP/FEMA has been the #1 communications
“issue” in the wake of SandyGlobal Focus: $65B in Insured LossesWell Below $105B in
2011 but Above 10-Yr. Avg. of $50B Cats abroad did not drive media cycle in 2012, save
ongoing Fukishima issues; Climate change Market Consequences: Primary & Reinsurance
Impacts on price, availability
38
Top 12 Most Costly Hurricanesin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
$9.2 $11.1 $13.4
$22.0$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 could become 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)
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
39
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. 40
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. 41
Total Claim Value = $18.75 Billion*
New Jersey, $2,500 , 36% New York,
$2,700 , 38%
All Other, $1,797 , 26%
Hurricane Sandy: Value of Homeowners Claims Paid, by State* ($ Millions)
*Preliminary as of 1/18/13.Source: PCS. 42
Hurricane Sandy• Estimated
1,067,000 homeowners
claims**• $7.0 billion in insured losses.
• Average loss per claim is $6,558
• Claims in NJ estimated at $2.5 billion (36%) and $2.7 billion in NY
(38%)
New Jersey, 60,000 , 24%
All Other, 40,500 , 16%
New York, 150,000 ,
60%
Hurricane Sandy• Estimated 250,500
vehicle claims• $2.729 billion in
insured losses.• Average loss per
claim is $10,894• 60% of the claims
occurred in NY state.
Hurricane Sandy: Number of Auto Claims by State*
*Preliminary as of 1/18/13.Source: PCS. 43
New Jersey, $250 , 32%
All Other, $129 , 17%
New York, $400 , 51%
Hurricane Sandy• Estimated 250,500
vehicle claims• $2.729 billion in
insured losses.• Average loss per
claim is $10,894• About 50% of the
claim dollars will be paid in NY, 32%
in NJ.
Hurricane Sandy: Value of Auto Claims Paid, by State* ($ Millions)
*Preliminary as of 1/18/13.Source: PCS. 44
Hurricane Sandy: Loss Distribution by Commercial/Personal Lines and Reinsurance vs. Primary Insurer
*Fitch Ratings assigns a range of 60-65% commercial and 35-40% personal lines., Hurricane Sandy Update, January 8, 2013.**Source: Insurance Information Institute rough estimate based on company reports as of January 13, 2013. Actual number will vary. 45
Personal Lines45%
Commercial Lines55%
Primary70%
Reinsurance30%
Personal vs. Commercial Lines* Primary vs. Reinsurer Share**
~55% of Sandy losses appear to be commercial lines, and ~45% personal, the opposite of the
norm for hurricane losses
Reinsurers’ share of Sandy losses appears to be in the 30% range, though this is highly preliminary
Hurricane Sandy: Average Claim Payment by Type of Claim
$6,558$10,894
$43,056 $44,563
$0
$5,000
$10,000$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Home* Vehicle NFIP Flood** Commercial
Commercial (Business) Claims Were Nearly Seven Times More Expensive than Homeowners Claims; Vehicle Claims Were Unusually Expensive
Due to Extensive Flooding
46
Commercial (i.e., business claims) are more expensive
because the value of property is often higher as well as the impact of insured business
interruption losses
*Includes rental and condo policies (excludes NFIP flood). **As of Feb. 20, 2013.Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of Jan. 18, 2013; Insurance Information Institute .
The average insured flood loss was 6.5 times larger than the average non-flood insured loss
(mostly wind)
53
Federal Disaster Declarations Patterns:
1953-2012
53
Despite 11 Sandy Declarations, Fewer Disasters Were Declared in 2012 than the Record Number of
Declarations in 2010 and 2011
Number of Federal Disaster Declarations, 1953-2013*
1317 18 16 16
7 712 12
22 2025 25
11 1119
2917 17
48 46 4638
3022 25
4223
1524 21
3427 28
2311
3138
4532
3632
7544
6550
45 4549
5669
4852
6375
5981
9947
5
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
*Through Mar. 16, 2013.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. Hurricane Sandy Produced 13 Declarations 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 2,101 federal disaster
declarations since 1953. The average
number of declarations per year is 35 from 1953-2012, though
there few haven’t been recorded since 1995.
47 federal disasters were declared in 2012
54
57
U.S. Insured Catastrophe Loss Update
2012 Catastrophe Losses Were Close to “Average” Until Sandy Hit
2011 Was the 5th Most Expensive Year on Record
57
Num
ber
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2012Number of Events (Annual Totals 1980 – 2012)
Source: MR NatCatSERVICE 60
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 184 natural disaster events in the
US in 2012
U.S. Thunderstorm Loss Trends, 1980 – 2012
62Source: 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.
Thunderstorm losses in 2012 totaled $14.9 billion, the 2nd
highest on record
63
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1 $13.4
$22.0$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*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
64
$12.
6
$11.
0
$3.8
$14.
3
$11.
6
$6.1
$34.
7
$7.6 $1
6.3
$33.
7
$73.
4
$10.
5
$7.5
$29.
2
$11.
5
$14.
4
$33.
1
$39.
0
$14.
0
$4.8 $8
.0
$37.
8
$8.8
$26.
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*
US Insured Catastrophe Losses
*As of 1/2/13. Includes $20B gross loss estimate for Hurricane Sandy.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 ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
US CAT Losses in 2012 Will Likely Become the 2nd or 3rd Highest in US History on An Inflation-Adjusted
Basis (Pvt Insured). 2011 Losses Were the 5th Highest
2012 was likely the second most expensive
year ever for insured CAT losses
Record Tornado Losses Caused
2011 CAT Losses to Surge
($ Billions, 2012 Dollars)
64
65
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 1/18/13 and assumption of upward development based on catastrophe modeler estimates ranging as high as $25B.Sources: Swiss Re sigma 1/2011; Munich Re; Insurance Information Institute research.
$11.1$13.4 $13.4$13.4
$22.0$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
Hurricane Sandy could become the 6th costliest event
in global insurance history
2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re
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. 68
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
69
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 0.7
1.5
1.0
0.4
0.4 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
0123456789
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
Homeowners Insurance Combined Ratio: 1990–2014F
113.
011
7.7
158.
411
3.6
101.
0 109.
410
8.2
111.
4 121.
710
9.3
98.2
94.4 10
0.3
89.0 95
.711
6.9
105.
810
6.7
122.
211
8.0
105.
510
6.811
8.4
112.
7 121.
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 12F13F14F
1
Homeowners Performance Deteriorated in 2011/12 Due to Large Cat Losses. Extreme Regional Variation Can Be
Expected Due to Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute. 70
Hurricane Ike
Hurricane Sandy
Record tornado activity
71
Growth Analysis by State and Business Segment
Premium Growth Rates Vary Tremendously by State
71
72
Direct Premiums Written: Total P/CPercent Change by State, 2006-2011*
71.5
41.8
26.4
22.8
22.6
20.8
18.2
11.8
10.5
6.6
6.3
6.1
5.8
4.9
4.7
4.2
3.9
2.4
2.2
2.1
2.1
2.1
0.9
0.9
0.7
0.4
0
1020
3040
50
6070
80
ND SD MT IA NE
KS
OK
WY
TX MN LA AR WI
TN IN AK
DE
NM NC KY
SC WA
DC
MO VT MS
Pece
nt c
hang
e (%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
A limited number of states showed strong growth over
the past 5 years
73
Direct Premiums Written: Total P/CPercent Change by State, 2006-2011*
0.4
-0.6
-0.8
-0.8
-1.1
-1.3
-1.4
-1.6
-1.9
-2.0
-2.5
-3.1
-3.2
-3.5
-4.1
-4.4
-5.2
-5.8
-6.0
-10.
3
-10.
5
-10.
8
-11.
7
-12.
0
-13.
5
-19.
2
-25
-20
-15
-10
-5
0
5
AL
OH IL VA NY
UT
US
GA
CT PA NJ
CO
MD
MA ID OR RI
ME MI
HI
NH
WV FL CA AZ
NV
Pece
nt c
hang
e (%
)
Bottom 25 States
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
Sources: SNL Financial LC.; Insurance Information Institute.
NY’s change in premium growth
was similar to the US average
78
Direct Premiums Written: Comm. LinesPercent Change by State, 2006-2011*
100.
9
60.8
38.9
28.9
27.9
25.6
14.9
8.3
4.0
2.9
2.7
0.9
0.2
0.0
-0.5
-1.5
-2.5
-3.0
-6.3
-6.4
-6.6
-6.6
-6.7
-7.6
-7.8
-7.9
-20
0
20
40
60
80
100
120
ND SD MT IA NE
KS
OK
WY
MN TX AK WI
VT IN AR LA TN DC IL OH
MA
NM MS
WA
NY
NC
Pece
nt c
hang
e (%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Only 12 states showed any commercial lines growth
2006 and 2011
NY’s decline in commercial lines
premiums written was less than the US overall
79
Direct Premiums Written: Comm. LinesPercent Change by State, 2006-2011*
-7.9
-8.0
-8.1
-9.0
-10.
0
-10.
1
-10.
8
-11.
4
-11.
6
-12.
2
-12.
7
-12.
9
-13.
2
-13.
2
-13.
6
-14.
7
-15.
0
-16.
0
-16.
7
-19.
4
-19.
8
-19.
9
-23.
7
-24.
4
-26.
4
-33.
0
-40
-35-30
-25
-20
-15-10
-5
0
KY PA MO US
ME
CT
SC AL
VA GA ID MD NJ RI
CO UT
OR MI
DE CA
NH HI
FL AZ
WV
NV
Pece
nt c
hang
e (%
)
Bottom 25 States
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
Sources: SNL Financial LC.; Insurance Information Institute.
82
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
82
83
Unemployment and Underemployment Rates: Stubbornly High in 2012, 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 7.7% in
Feb. 2013—lowest in 4 years.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 14.3%
in Feb. 2013
January 2000 through Feb. 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
83
227
5416
850
123
661
-79
2468 74 51
2-1
14-1
05-2
22-2
19 -203
-267
-269
-429
-484
-786
-701
-821
-692
-812
-821
-288
-442
-282 -2
22 -162
-233
-34
-167
-17
-26
170
102
94 103 12
911
3 188
154
114
8024
322
3 303
183
177 20
612
925
617
4 197 24
9 323
265
208
120 15
278
177
131
118
217 25
622
414
024
6
111
(1,000)
(800)
(600)
(400)
(200)
0
200
400
Jan-
07Fe
b-07
Mar
-07
Apr
-07
May
-07
Jun-
07Ju
l-07
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08Fe
b-08
Mar
-08
Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09Fe
b-09
Mar
-09
Apr
-09
May
-09
Jun-
09Ju
l-09
Aug
-09
Sep
-09
Oct
-09
Nov
-09
Dec
-09
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12Fe
b-12
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13Fe
b-13
Monthly Change in Private Employment
January 2007 through Feb. 2013 (Thousands)
Private Employers Added 6.31million 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
246,000 private sector jobs were
created in February
84
Jobs Created2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill
-0.0
17-0
.043
0.06
80.
238
0.34
00.
434
0.53
70.
666
0.77
90.
967
1.12
11.
235
1.31
51.
558
1.78
12.
084
2.26
72.
444
2.65
02.
779
3.03
53.
209
3.40
63.
655
3.97
84.
243
4.45
14.
571
4.72
34.
801
4.97
85.
109
5.22
75.
444
5.70
05.
924
6.06
46.
310
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
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
Mill
ions
Cumulative Change in Private Sector Employment: Jan. 2010—Feb. 2013January 2010 through February 2013* (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job gains through Feb. 2013 totaled 6.31 million
86
Job gains and pay increases have added more than $600 billion to payrolls
since Jan. 2010
Private Employers Added 6.31million 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)
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
-627
-637
-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
Cumulative Change in Government Employment: Jan. 2010—Feb. 2013January 2010 through Feb. 2013* (Millions)
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Cumulative job losses through Feb. 2013 totaled 637,000
87
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 more than half a million jobs since Jan. 2010 even as
private employers created 6.31 million jobs, though
losses may now be ending.
Temporary Census hiring distorted 2010
figures
91
Oil & Gas Extraction Employment,Jan. 2010—February 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.
6 169.
317
0.1
171.
017
2.5
173.
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
192.
219
3.3
150
155
160
165
170
175
180
185
190
195
200
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-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-
13Fe
b-10
Oil and gas extraction employment is up 24.4%
since Jan. 2010 as the energy sector booms.
Domestic energy production is essential to
any robust economic recovery in the US.
(Thousands)
$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
95
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
The BIG Question:Where Is the Market Heading?
96
Catastrophes and Other Factors Are Pressuring Insurance Markets
96
New Factor: Record Low Interest Rates Are Contributing to
Underwriting and Pricing Pressures
INVESTMENTS: THE NEW REALITY
97
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
97
Property/Casualty Insurance Industry Investment Income: 2000–2012E1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.0
$46.8
$39.6
$49.5$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12E
Investment Income Fell in 2012 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1 Investment gains consist primarily of interest and stock dividends.*2012F is based on annualized 9M:2012 actual figure of $35.131B.Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings in 2012 were running 14% below their 2007 pre-crisis peak
Property/Casualty Insurance Industry Investment Gain: 1994–2012F1
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$53.4$56.2$50.8
$58.0$51.9
$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12F
Investment Gains Are Slipping in 2012 as Low Interest Rates Reduce Investment Income and Lower Realized Investment Gains; The Financial
Crisis Caused Investment Gains to Fall by 50% in 20081 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; 2012F figure is III estimate based on annualized actual 9M:2012 result of
$38.089B.Sources: ISO; Insurance Information Institute.
($ Billions)
Investment gains in 2012 are running approximately 20% below their pre-crisis peak
104
Average Maturity of Bonds Held by US P/C Insurers, 2006—2011*
6.456.536.89
7.307.467.32
5.0
5.5
6.0
6.5
7.0
7.5
8.0
2006 2007 2008 2009 2010 2011
*Year-end figures. Latest available.Sources: Insurance Information Institute calculations based on A.M. Best data.
Average Maturity (Years)
Falling Average Maturity (and Duration) of the P/C Industry’s Bond Portfolio is Contributing to the Drop in Investment
Income Along With Lower Yields
The average bond maturity is down by a full year between
2007 and 2011
104
105
Distribution of Bond Maturities,P/C Insurance Industry, 2006-2011
16.2%
16.3%
15.2%
29.5%
30.0%
32.4%
36.2%
39.5%
41.4%
34.1%
33.8%
31.2%
28.7%
26.7%
26.8%
13.1%
12.9%
12.7%
11.7%
11.1%
10.3%
7.4%
8.1%
8.1%
7.3%
6.4%
6.3%
16.0%
15.7%
15.2%
0% 20% 40% 60% 80% 100%
2006
2007
2008
2009
2010
2011
Under 1 year1-5 years5-10 years10-20 yearsover 20 years
Sources: A.M. Best; Insurance Information Institute.
The main shift over these 6 years has been from bonds with 5-10 years of maturity to bonds with 1-5 years of maturity. The industry also slightly
trimmed it holdings of bonds in the 10-20-year maturity categoryand bonds in the longest-maturity category.
107
-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%
Persona
l Line
s
Pvt Pass
Auto
Pers P
rop
Commerc
ial
Comml A
uto
Credit
Comm P
rop
Comm C
as
Fidelity
/Sure
ty
Warra
nty
Surplus
Line
s
Med M
al
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*
107
1. UNDERWRITING
108
Underwriting Losses in 2011 and 2012 Are Elevated by High
Catastrophe Losses108
109
P/C Insurance Industry Combined Ratio, 2001–2012:Q3*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.2; 2012:Q3=100.0. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.4
100.0101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012:Q3
Best Combined
Ratio Since 1949 (87.6)
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
Premiums
Relatively Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
LossesRelatively 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
Financial Strength & Underwriting
114
Cyclical Pattern is P-C Impairment History is Directly Tied to
Underwriting, Reserving & Pricing
114
P/C Insurer Impairments, 1969–20128
1512
711 9
349
13 1219
916 14 13
3649
3134
50 4855
60 5841
2916
1231
18 1949 50
4735
1814 15 16
19 2134
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
115
Impairments among P/C insurers remain infrequent
120
Performance by Segment
120
Private Passenger Auto Combined Ratio: 1993–2014F
101.
7
101.
3
101.
3
101.
0
109.
5
107.
9
104.
2
98.4
94.3
95.1
95.5 98
.3 100.
3
101.
3
101.
0
101.
9
99.6
98.5 10
0.2
99.5 10
1.1
103.
5
80
85
90
95
100
105
110
115
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F 14F
Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry
121Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.
Homeowners Insurance Combined Ratio: 1990–2014F
113.
011
7.7
158.
411
3.6
101.
0 109.
410
8.2
111.
4 121.
710
9.3
98.2
94.4 10
0.3
89.0 95
.711
6.9
105.
810
6.7
122.
211
8.0
105.
510
6.811
8.4
112.
7 121.
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 12F13F14F
1
Homeowners Performance Deteriorated in 2011/12 Due to Large Cat Losses. Extreme Regional Variation Can Be
Expected Due to Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute. 122
Hurricane Ike
Hurricane Sandy
Record tornado activity
109.4110.2
118.8
109.5
112.5110.2
107.6
104.1
109.7 110.2
102.5
105.4
91.1
93.6
104.2
98.9
102.1
106.7109.0
102.9102.0
111.1112.3
122.3
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 12F
13F
Com
mer
cial
Lin
es C
ombi
ned
Rat
io
*2007-2013F figures exclude mortgage and financial guaranty segments.Source: A.M. Best; Insurance Information Institute
Commercial Lines Combined Ratio, 1990-2013F*
Commercial lines underwriting
performance in 2012 was the worst since 2002 due
to heavy impact from Sandy
125
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 10
3.5
104.
5 110.
6 116.
8
116.
9
117.
3
115.
0
111.
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 12E 13F 14F
Workers Comp Results Should Begin to Improve in 2013. Underwriting Results Deteriorated Markedly from 2007-2012 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2013F); Insurance Information Institute (2014F). 133
2. SURPLUS/CAPITAL/CAPACITY
143
How Will Large Catastrophe Losses Impact Capacity?
143
145
Policyholder Surplus, 2006:Q4–2012: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$570.7$566.5
$505.0$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3
2007:Q3Pre-Crisis Peak
Surplus as of 9/30/12 was up $12.8B or 2.2% from the
previous record high of $570.7B set as of 3/31/12.
*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. There is No Insurance Industry “Fiscal Cliff”
146
3. REINSURANCE MARKET CONDITIONS
Record Global Catastrophes Activity is
Pressuring Pricing
146
148
Regional Property Catastrophe Rate on Line Index, 1990—2013 (as of January 1)
Sources: Guy Carpenter; Insurance Information Institute.
Property-Cat reinsurance pricing was up in the US as
of 1/1/13 but was down in Europe/UK
4. RENEWED PRICING DISCIPLINE
149
Evidence of a Broad and Sustained Shift in Pricing
149
151
-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 12
Net Premium Growth: Annual Change, 1971—2012: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.
2012:Q3 growth
was +4.2%
152
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
Sources: ISO, Insurance Information Institute.
Sustained Growth in Written Premiums(vs. the same quarter, prior year) Will Continue into 2013
10.2
%15
.1%
16.8
%16
.7%
12.5
%10
.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
-4.6
%-4
.1%
-5.8
%-1
.6%
10.3
%10
.2% 13
.4%
6.6%
-1.6
%2.
1%0.
0%-1
.9%
0.5%
-1.8
%-0
.7%
-4.4
%-3
.7%
-5.3
%-5
.2%
-1.4
%-1
.3%
1.3% 2.
3%1.
7% 3.5%
1.6%
4.1%
3.8%
3.1% 4.
2% 5.1%
-10%
-5%
0%
5%
10%
15%
20%
2002
:Q1
2002
:Q2
2002
:Q3
2002
:Q4
2003
:Q1
2003
:Q2
2003
:Q3
2003
:Q4
2004
:Q1
2004
:Q2
2004
:Q3
2004
:Q4
2005
:Q1
2005
:Q2
2005
:Q3
2005
:Q4
2006
:Q1
2006
:Q2
2006
:Q3
2006
:Q4
2007
:Q1
2007
:Q2
2007
:Q3
2007
:Q4
2008
:Q1
2008
:Q2
2008
:Q3
2008
:Q4
2009
:Q1
2009
:Q2
2009
:Q3
2009
:Q4
2010
:Q1
2010
:Q2
2010
:Q3
2010
:Q4
2011
:Q1
2011
:Q2
2011
:Q3
2011
:Q4
2012
:Q1
2012
:Q2
2012
:Q3
Premium growth in Q3 2012 was up 5.1% over Q3 2011, the strongest growth since Q4 2006
153
Growth in Net Written Premium by Segment, 2012:9 Mos. vs. 2011:9 Mos.*
*Excludes mortgage and financial guaranty insurers.Source: ISO/PCI; Insurance Information Institute
3.2% 3.2%
4.0%
2.4%
4.2%
3.3%
6.1%
3.8%
0%
1%
2%
3%
4%
5%
6%
7%
All Lines Personal LinesPredominating
Commercial LinesPredominating
Diversified Insurers
2011: 9 Mos. 2012: 9 Mos.
(Percent)
154
Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2012)
-3.2
%-5
.9%
-7.0
%-9
.4%
-9.7
% -8.2
%-4
.6% -2.7
%-3
.0%
-5.3
%-9
.6%
-11.
3%-1
1.8%
-13.
3%-1
2.0%
-13.
5%-1
2.9% -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%
-0.1
% 0.9%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
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 Q4:2012 was positive for the 6th consecutive
quarter. Gains are likely to continue through 2013.
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
159
Change in Commercial Rate Renewals, by Line: 2012:Q4
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Uniformly Upward in Q4:2012 for the Sixth Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Percentage Change (%)
4.4% 4.4% 4.9%5.7%
9.0%
1.3%
3.2% 3.3% 3.4% 3.5% 3.4%
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
10.0%
Sur
ety
Bus
ines
sIn
terru
ptio
n
Gen
eral
Liab
ility
Com
mer
cial
Aut
o
Um
brel
la
Com
mer
cial
Aut
o EP
L
Con
stru
ctio
n
D&
O
Com
mer
cial
Pro
perty
Wor
kers
Com
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
162
Is the Tort PendulumSwinging Against Insurers?
162
163
Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical, 1980-2013E
$0
$50
$100
$150
$200
$250
$300
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12E
Tort
Syst
em C
osts
1.50%
1.75%
2.00%
2.25%
2.50%
Tort Costs as %
of GD
P
Tort Sytem Costs Tort Costs as % of GDP
($ 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
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168