Property & Casualty Insurance Market Update · 2015. 12. 3. · Tornado Losses Sandy Low CATs Modestly ... NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK

Property & Casualty Insurance Market Update

Trends, Challenges & Opportunities for 2016 and Beyond

Casualty Actuaries of Greater New York

New York, NY

December 3, 2015

Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist

Insurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org

2

Insurance Industry Financial Performance

2014 Was a Reasonably Good Year

2015: A Repeat of 2014?

2

P/C Industry Net Income After Taxes1991–2015:Q3 (Est.) 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 ROAS1 = 10.2%

2014 ROAS1 = 8.4%

2015:H1 ROAS = 9.2%

•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 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

$6

3,7

84

$5

5,5

01

$4

3,0

00

$3

8,5

01

$2

0,5

59

$4

4,1

55

$6

5,7

77

-$6,970

$2

8,6

72

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15:Q

3

Net income fell modestly

(-12.5%) in 2014 vs. 2013

$ Millions

4

ROE: Property/Casualty Insurance by Major Event, 1987–2015E

* Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO, Fortune; Insurance Information Institute.

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E

P/C Profitability Is Both by Cyclicality and Ordinary Volatility

Hugo

Andrew

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

Record Tornado Losses

Sandy

Low CATs

Modestly higher CATs

5

P/C Insurance Industry Combined Ratio, 2001–2015:Q3 (Est.)*

* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0.

Sources: A.M. Best, ISO.

95.7

99.3100.8

106.3

102.4

96.7 97.2 96.7

101.0

92.6

100.8

98.4100.1

107.5

115.8

90

100

110

120

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15:Q3

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

Higher CAT

Losses, Shrinking Reserve

Releases, Toll of Soft

Market

Cyclical Deterioration

Sandy Impacts

Lower CAT

Losses

Best Combined Ratio Since 1949 (87.6)

Avg. CAT Losses,

More Reserve Releases

6

Auto & Home vs. All Lines, Net WrittenPremium Growth, 2000–2018F

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

13%

15%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F

Private Passenger Auto

Homeowners

All Lines

Sources: A.M. Best (2000-2014); Conning/Insurance Information Institute (2015F-2018F); Insurance Information Institute.

Average 2000-2014

Auto = 3.0%

Home = 6.4%

All Lines = 3.8%

While homeowners insurance has grown faster than auto for many years, auto is

generally more profitable, though not recently

7

Distribution of Direct Premiums Written by Segment/Line, 2013

Sources: A.M. Best; Insurance Information Institute research.

Personal/Commercial lines split has been about 50/50 for many years

Pvt. Passenger Auto is by far the largest line of insurance and is currently the most important source of industry profits

Billions of additional dollars in homeowners insurance premiums are written by state-run residual market plans

Distribution Facts

Commercial Lines$269.2B/51%

2013

Pvt. Pass Auto$180.8B/34%

Homeowners$80.7B/15%

8

RNW All Lines by State, 2004-2013 Average:Highest 25 States

20

.5

18

.4

14

.6

14

.3

13

.4

13

.3

12

.3

12

.1

12

.0

12

.0

11

.7

11

.4

11

.1

11

.1

10

.9

10

.8

10

.7

10

.7

10

.5

10

.5

10

.3

9.9

9.8

9.8

9.6

9.5

0

2

4

6

8

10

12

14

16

18

20

22

24

HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD

The most profitable states over the past decade are

widely distributed geographically, though none

are in the Gulf region

Source: NAIC; Insurance Information Institute.

Profitability Benchmark: All P/C

US: 7.9%

9

9.2

8.6

8.4

8.3

8.2

8.2

8.1

8.0

7.9

7.7

7.7

7.5

7.4

6.8

6.6

6.4

6.1

5.7

5.3

5.2

5.0

4.3

2.5

1.9

-6.9

-9.3

-14

-12-10

-8

-6

-4-2

0

2

46

8

10

NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA

RNW All Lines by State, 2004-2013 Average:

Lowest 25 States

Source: NAIC; Insurance Information Institute.

Some of the least profitable states over the past decade

were hit hard by catastrophes

10

19

.0

14

.3

14

.2

13

.9

13

.7

13

.5

12

.4

12

.1

11

.3

11

.3

10

.8

10

.7

10

.5

9.9

9.9

9.9

9.7

9.6

9.5

9.3

9.2

9.2

9.1

9.0

8.9

8.8

0

2

4

6

8

10

12

14

16

18

20

22

HI ME DC ID VT ND AK NH IA WY OH MN WV AZ OR VA CA RI CO KS CT WI NM MT UT IN

RN

W P

PA

*Latest available.

Sources: NAIC.

Hawaii was the most profitable state for auto insurers from 2004-2013

Return on Net Worth: Pvt. Passenger Auto,

10-Year Average (2004-2013*)

Top 25 States(Percent)

11

Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2012 (1)

RankMost

expensive statesAverage

expenditure RankLeast

expensive statesAverage

expenditure

1 New Jersey $1,219.93 1 Idaho $534.56

2 D.C. 1,154.91 2 South Dakota 556.51

3 New York 1,152.45 3 Iowa 561.26

4 Florida 1,127.93 4 North Dakota 576.08

5 Louisiana 1,112.53 5 Maine 582.43

6 Delaware 1,065.37 6 Wisconsin 598.84

7 Michigan 1,048.87 7 North Carolina 611.48

8 Rhode Island 1,034.50 8 Nebraska 616.78

9 Connecticut 986.73 9 Wyoming 618.81

10 Massachusetts 976.65 10 Kansas 632.07

(1) Based on average automobile insurance expenditures.

Source: © 2014 National Association of Insurance Commissioners.

Florida ranked 4th as the most expensive state in 2012, with an average expenditure for auto insurance of $1,127.93.

12

8.8

8.6

8.6

8.6

8.5

8.3

8.1

7.8

7.7

7.6

7.5

7.5

7.4

7.1

6.3

6.2

6.1

5.9

5.8

5.6

5.0

4.5

4.4

3.8

3.3

-2.5

-3

-1

1

3

5

7

9

NE

MD

SD

WA IL NY

MA

TX

PA

AL

AR

MO

SC

US

NC

TN

NJ

DE

GA

KY

OK

MS

FL

NV

LA MI

RN

W A

uto

Return on Net Worth: Pvt. Passenger Auto,

10-Year Average (2004-2013*)

*Latest available.

Sources: NAIC

Michigan was the least profitable state for auto insurers from

2004-2013

(Percent) Bottom 25 States

13

42

.6

23

.6

21

.0

20

.9

20

.2

20

.0

19

.3

18

.4

17

.6

15

.9

15

.8

15

.6

15

.3

14

.7

14

.6

13

.8

13

.0

12

.2

11

.0

11

.0

10

.8

10

.7

10

.6

19

.0

18

.0

14

.00

5

10

15

20

25

30

35

40

45

50

HI DC DE RI NV CA SC VA AK OR MA NY VT WA UT ME MD CT ID NH NC AZ PA WY MI TX

RN

W H

O

*Latest available.

Sources: NAIC.

Return on Net Worth: Homeowners Insurance,

10-Year Average (2004-2013*)

Hawaii was the most profitable state for home insurers from 2004-2013 due to the absence

of hurricanes during this period

(Percent)Top 25 States

14

10

.2

9.9

7.8

7.1

6.6

6.3

5.8

4.2

-0.3

8.0

6.0

-2.8

-3.3

-4.0

-4.3

-5.9

-8.2

-10

.2

-13

.1

-16

.0

-19

.6

-25

.8

-2.4

-2.4-0

.5

-0.4

-30

-25

-20

-15

-10

-5

0

5

10

15

WV NM ND IA NJ US MT WI IL SD NE FL CO MO OH KS IN AR KY MN GA TN AL OK LA MS

RN

W H

O

*Latest available.

Sources: NAIC

Hurricanes Katrina and Rita made Louisiana and Mississippi the least profitable states for home insurers

from 2004-2013

Bottom 25 States(Percent)

Return on Net Worth: Homeowners Insurance,

10-Year Average (2004-2013*)

15

Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2012 (1)

Rank Most

expensive statesHO average

premium RankLeast

expensive statesHO average

premium

1 Florida $2,084 1 Idaho $538

2 Louisiana 1,742 2 Oregon 567

3 Texas 1,661 3 Utah 580

4 Oklahoma 1,501 4 Wisconsin 631

5 Mississippi 1,314 5 Washington 648

6 Alabama 1,248 6 Nevada 674

7 Rhode Island 1,233 7 Delaware 678

8 Kansas 1,213 8 Arizona 691

9 Connecticut 1,160 9 Ohio 721

10 New York 1,158 10 Maine 741

(1) Includes policies written by Citizens Property Insurance Corp. (Florida) and Citizens Property Insurance Corp. (Louisiana), Alabama Insurance

Underwriting Association, Mississippi Windstorm Underwriting Association, North Carolina Joint Underwriting Association and South Carolina

Wind and Hail Underwriting Association. Other southeastern states have wind pools in operation and their data may not be included in this chart.

Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those

specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.

(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. In addition,

due to the Texas Windstorm Association (which writes wind-only policies) classifying HO-1, 2 and 5 premiums as HO-3, the average premium for

homeowners insurance is artificially high.

Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC

does not rank state average expenditures and does not endorse any conclusions drawn from this data.

Source: ©2014 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited

without written permission of NAIC.

Florida ranked as the most expensive state for homeowners insurance in 2012, with an average expenditure of $2,084.

Source: A.M. Best; Barclays research for estimates.

Reserve Change

P/C Insurance Loss Reserve Development, 1992 – 2017E*

Reserve releases are expected to gradually taper off slowly, but

will continue to benefit the bottom line and combined ratio

through at least 2017

Profitability & Politics

1717

How Is Profitability Affected by the President’s Political Party?

15.10%

9.00%

8.93%

8.65%

8.35%

8.33%

7.98%

7.68%

6.98%

6.97%

5.43%

5.03%

4.83%

4.68%

4.43%

3.55%

16.43%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Carter

Reagan II

Obama II

Nixon

Clinton I

G.H.W. Bush

G.W. Bush II

Clinton II

Reagan I

Nixon/Ford

Truman

Eisenhower I

Eisenhower II

G.W. Bush I

Obama I

Johnson

Kennedy/Johnson

*Truman administration ROE of 6.97% based on 3 years only, 1950-52;.

Source: Insurance Information Institute

OVERALL RECORD: 1950-2014*

Democrats 7.72%Republicans 7.85%

Party of President has marginal bearing on profitability of P/C insurance industry

P/C Insurance Industry ROE by Presidential Administration, 1950-2014*

-5%

0%

5%

10%

15%

20%

25%

50

52

54

56

58

60

62

64

66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12

14

BLUE = Democratic President RED = Republican President

Tru

ma

n Nixon/Ford

Ke

nn

ed

y/

Jo

hn

so

n

Eis

en

ho

wer

Ca

rte

r

Reagan/Bush I Clinton Bush II

P/C insurance Industry ROE by Presidential Party Affiliation, 1950- 2014

Obama

.

Source: Insurance Information Institute

Source: James Madison Institute, February 2008.

ME

NH

MA

CT

PA

WV

VA

NC

LA

TX

OK

NE

ND

MN

MI

IL

IA

ID

WA

OR

AZ

HI

NJ

RI C+

DE

AL

VT

NY

MD

SC

GA

TN

AL

FL

MS

ARNM

KYMOKS

SDWI

IN

OH

MT

CA

NV

UT

WY

CO

AK

= A= B= C= D= F= NG

Source: R Street Insurance Regulation Report Card, December 2015

B+ A

B

A-

B+

B

A

A-

C

C

BB

D

F

C

C+

A C-

B

D

C

C

BC

A

B

B

A

B

B

C+

B

B

B+

C

B

B

A-

C+

C

C

CD

B

D+

D

D D

D

2015 Property and Casualty InsuranceRegulatory Report Card

Not Graded: District of Columbia

CURRENT ISSUES IN AUTO INSURANCE

21

Price Optimization

Attacks on Underwriting Criteria

21

22

Price Optimization: The Latest

Significant Discussion of Price Optimization Issue in Recent Months

15 States Have Issued Bulletins Addressing Its Use (as of 12/1/15)

Requests for information in several other states

Each State Defines Price Optimization Differently

At least 10 definitions from states; NAIC, vendors and others

States’ Concerns Come Despite Absence of Any Discernable or Detectable Market Disruptions

Competition in auto insurance markets is intense, healthy and vigorous

More than 99% of drivers are insured through the voluntary market

Absence of consumer complaints

High degree of consumer satisfaction with auto insurers

Empowered Consumers: Have more tools available today than ever before to help them shop, collect and compare prices

Rates are not inadequate, excessive or unfairly discriminatory

I.I.I. Actions: NCOIL Hearing Testimony

23

Testified as industry’s

witness at July 17

National Conference of

Insurance Legislators’

hearing on Price

Optimization;

Worked very closely

with PCI, AIA, NAMIC

and independent

companies.

Consumer Reports - #fixcarinsurance

CR’s complaint

Analyzed 2 billion quotes

Price-setting is “shrouded in secrecy and rife with inequities”

– Credit Scoring

– Price Optimization

“Little transparency and not enough fairness”

24

September Consumer Reports, Released July 30.

Consumer Reports: I.I.I Response

25

Non-Driving Factors Proved Effective, Have Been Used for Decades

– Gender

– Territory

– Age

– Grades

Hundreds of Class Plan Filings Annually Reconfirm Their Value

26

Recent Attacks on the Insurance Industry

Why Are Critics Suddenly More Aggressive?

CFA’s Conclusion: The ‘Widow Penalty’

27

“a change in marital status from married to unmarried (through divorce or the death of a spouse) can cause a

woman’s auto insurance premiums to rise as much as 226%—suggesting a ‘widow penalty’ that CFA director of

insurance Bob Hunter said in a press teleconference Monday with executive director Stephen Brobeck is ‘immoral

and should be stopped at once.’”

28

What’s Driving Attacks on the Insurance Industry?

Recent Surge in Attacks is Associated with Income Inequality Debate in the

United States

Attacks not confined to auto insurance (e.g., Workers Comp, Health)

Not confined to insurance (banks, lending in general, student loans)

Politics, Economics, Regulation & Demographics Are Principal Drivers

CFA/CR and others (ProPublica) emboldened in current environment

Dodd-Frank Act stuffed with income inequality mandates and studies

FIO now studying auto insurance affordability; Wants to create index.

Definition of “fairness” is shifting

CFA Has Been Able to Attack Certain Rating Factors Based on New Perception

of Fairness (which is independent of actual risk)

Education Occupation Marital Status Gender

Age Credit Profile Location “Price Optimization”

All of These Are Vulnerable to Attack in the Current Environment

Infinite Number of Quotes OnlineCFA Uses to Highlight Perceived Inequities

Handout for Government Affairs Staff Attending NAIC Meeting

29

INVESTMENTS: THE NEW REALITY

30

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

30

Property/Casualty Insurance Industry Investment Income: 2000–2015E1

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$48.0 $47.3$46.2

$46.9

$39.6

$49.5

$52.3

$30

$40

$50

$60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E

Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.

1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q3.Sources: ISO; Insurance Information Institute.

($ Billions)Investment earnings are still below their 2007 pre-crisis peak

Distribution of Invested Assets: P/C Insurance Industry, 2013

Stocks, 22%

Bonds, 62%

All Other, 10%

Cash, Cash Equiv. &

ST Investments, 6%

Source: Insurance Information Institute Fact Book 2015, A.M. Best.

Total Invested Assets = $1.5

Trillion

$ Billions

33

U.S. Treasury Security Yields:A Long Downward Trend, 1990–2015*

*Monthly, constant maturity, nominal rates, through October 2015.

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 '14 '15

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 yields plunged to historic lows in 2013. Longer-

term yields rebounded then sank fell again.

33

http://www.federalreserve.gov/releases/h15/data.htm

34

Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2015

0.01% 0.02% 0.09%0.28%

0.69%

2.10%2.36%

4.82%4.96% 5.04% 4.96%

4.82% 4.82% 4.88%5.00% 4.93% 5.00%

5.19%

1.68%

1.07%

3.11%2.85%

0%

1%

2%

3%

4%

5%

6%

1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

June 2015 Yield Curve

Pre-Crisis (July 2007)

Treasury yield curve remains near its most depressed level

in at least 45 years. Investment income is falling as a result. Even when the Fed begins to raise rates, yields unlikely to return to

pre-crisis levels anytime soon

The Fed Is Actively is Signaling that it Is Likely to Begin Raising Rates Later in 2015 but Only Very Gradually

Source: Federal Reserve Board of Governors; Insurance Information Institute.

Net Yield on Property/Casualty Insurance Invested Assets, 2007–2015*

4.38

4.17

4.02

3.87

3.63 3.61

3.743.82

3.44

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

07 08 09 10 11 12 13 14 15*

The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to raise interest rates in late 2015 has already pushed up some yields, albeit quite modestly.

*2015 figure is the average of the four quarters ending in 2015:Q2.Sources: SNL Financial; Insurance Information Institute

(Percent) Book yield in 2015 is down 77 BP from pre-crisis levels

36

Interest Rate Forecasts: 2015 – 2021

3.1%

2.2%

2.7%

3.4%

3.8%4.0% 4.0% 4.0%

0.1%

0.7%

2.0%

2.8%

3.1% 3.1%

0%

1%

2%

3%

4%

5%

15F 16F 17F 18F 19F 20F 21F 15F 16F 17F 18F 19F 20F 21F

A full normalization of interest rates is unlikely until the 2020s, more than a decade after the onset of the financial crisis.

Yield (%)

Sources: Blue Chip Economic Indicators (11/15 for 2015 and 2016; for 2017-2021 10/15 issue); Insurance Info. Institute.

3-Month Treasury 10-Year Treasury

The end of the Fed’s QE program in 2014 and a

stronger economy have yet to push longer-term

yields much higher

37

Annual Inflation Rates, (CPI-U, %),1990–2016F

2.82.6

1.51.9

3.3 3.4

1.3

2.52.3

3.0

3.8

2.8

3.8

-0.4

1.6

3.2

2.1

1.51.7

0.2

1.8

2.9

2.4

3.23.0

5.14.9

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 11/15 (forecasts).

Slack in the U.S. economy and falling energy prices suggests that inflationary pressures should remain subdued for an extended

period of times

Annual Inflation Rates (%)

Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the

commodity bubble reduced inflationary pressures in 2009/10

Inflationary expectations have slipped

(due in part to falling energy

costs) allowing the Fed to

maintain low interest rates

38

P/C Insurer Net Realized Capital Gains/Losses, 1990-2015:Q3*

*Through Q3 2015 (preliminary)Sources: A.M. Best, ISO, SNL, Insurance Information Institute.

$2

.88

$4

.81

$9

.89

$9

.82

$1

0.8

1 $1

8.0

2

$1

3.0

2

$1

6.2

1

$6

.63

-$1

.21

$6

.61

$9

.13

$9

.70

$3

.52 $8

.92

-$7

.90

$5

.85

$7

.04

$6

.18

$1

1.3

7

$1

0.0

6

$9

.03

-$1

9.8

1

$9

.24

$6

.00

$1

.66

-$25

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*

Insurers Posted Net Realized Capital Gains in 2010 - 2014 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital

Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE.

($ Billions) Realized capital gains rose sharply as equity markets

rallied in 2013-14

Property/Casualty Insurance Industry Investment Gain: 1994–2015:Q21

$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

$54.2

$58.7

$31.6

$56.2

$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 12 13 14 15*

Total Investment Gains Were Down Slightly in 2014 as Low Interest Rates Pressured Investment Income but Realized Capital Gains Remained

Robust

1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; 2015 figure is through Q2 2015.Sources: ISO, SNL; Insurance Information Institute.

($ Billions)

Investment gains in 2014 will rival the post-crisis

high reached in 2013

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

50

52

54

56

58

60

62

64

66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12

14

*Through Dec. 1, 2015.

Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Ins. Info. Inst.

Tech Bubble

Implosion

Financial

Crisis

Annual Return

Energy Crisis

2015*:

+2.1%

S&P 500 Index Returns, 1950 – 2015*

Fed Raises Rate

Volatility is endemic to stock markets—and may be increasing—but there is no persistent

downward trend over long periods of time

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

41

-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%

Per

sona

l Lin

es

Pvt P

ass

Aut

o

Per

s Pro

p

Com

mer

cial

Com

ml A

uto

Cre

dit

Com

m P

rop

Com

m C

as

Fide

lity/

Sure

ty

War

rant

y

Sur

plus

Lin

es

Med

Mal

WC

Rei

nsur

ance

**

Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline

*Based on 2008 Invested Assets and Earned Premiums

**US domestic reinsurance only

Source: A.M. Best; Insurance Information Institute.

Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*

41

42

Distribution of Bond Maturities,P/C Insurance Industry, 2003-2013

14.4%

15.4%

16.0%

16.0%

15.2%

15.7%

15.6%

16.0%

14.9%

16.6%

16.5%

29.8%

29.2%

28.8%

29.5%

30.0%

32.4%

36.4%

39.5%

41.2%

40.4%

38.8%

31.3%

32.5%

34.1%

34.1%

33.8%

31.2%

29.0%

27.1%

27.3%

27.6%

29.3%

15.4%

15.4%

13.6%

13.1%

12.9%

12.7%

11.9%

11.2%

10.4%

9.8%

9.8%

9.2%

7.6%

7.6%

7.4%

8.1%

8.1%

7.1%

6.2%

6.2%

5.7%

5.7%

0% 20% 40% 60% 80% 100%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Under 1 year

1-5 years

5-10 years

10-20 years

over 20 years

Sources: SNL Financial; Insurance Information Institute.

The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds

(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s

bond portfolio is contributing to a drop in investment income along with lower yields.

CAPITAL/CAPACITY

43

Capital Accumulation Has Multiple Impacts

Alternative Capital Impacts?

43

44

Policyholder Surplus, 2006:Q4–2015:Q2

Sources: ISO, A.M .Best.

($ Billions)

$487.1

$496.6

$512.8

$521.8

$478.5

$455.6

$437.1 $463.0 $

490.8 $511.5 $

540.7

$530.5

$544.8

$559.2

$559.1

$538.6

$550.3

$567.8

$583.5

$586.9 $607.7

$614.0

$624.4 $

653.4

$671.6

$673.9

$674.7

$672.4

$662.0

$570.7

$566.5

$505.0

$515.6

$517.9

$400

$450

$500

$550

$600

$650

$700

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

13:Q

4

14:Q

1

14:Q

2

14:Q

3

14:Q

4

15:Q

2

2007:Q3Pre-Crisis Peak

Surplus as of 6/30/15 stood at a near-record high $672.4B

2010:Q1 data includes $22.5B of

paid-in capital from a holding

company parent for one insurer’s

investment in a non-insurance

business .

The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.

Drop due to near-record 2011 CAT losses

The P/C insurance industry entered 2015in very strong financial condition.

45

Alternative Capital

45

New Investors Continue to Change the Reinsurance Landscape

First I.I.I. White Paper on Issue Was Released in March 2015

Global Reinsurance Capital (Traditional and Alternative), 2006 - 2014

2014 data is as of June 30, 2014.

Source: Aon Benfield Analytics; Insurance Information Institute.

Total reinsurance capital reached a record $570B in 2013, up 68% from

2008.

But alternative capacity has grown 210% since 2008, to $50B. It has more than doubled in the past three years.

Alternative Capital as a Percentage of Traditional Global Reinsurance Capital

2014 data is as of June 30, 2014.

Source: Aon Benfield Analytics; Insurance Information Institute.

4.6%

5.7% 5.9% 5.8% 5.4%

6.5%

8.4%

10.2%

11.5%

0%

2%

4%

6%

8%

10%

12%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Alternative Capital’s Share of Global Reinsurance Capital Has More Than Doubled Since 2010.

Catastrophe Bond Issuance and Outstanding: 1997-2015:Q2

948.2

874.2

1,062.5

1,142.0

966.9

989.5

1,988.2

1,142.8

1,499.0

4,614.7

7,187.0 3,009.9

3,396.0

4,599.9

4,107.1

5,855.3

7,083.0

8,026.7 3,842.2

4,289.0

5,085.0

7,677.0

13,416.4

12,538.6

12,508.2

12,195.7

12,342.8

14,839.3

18,576.9

22,867.8

21,559.6

0

5,000

10,000

15,000

20,000

25,000

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*

New Issuance Outstanding

48

Risk Capital Amount ($ Millions)

Cat Bond Issuance Appears to Be Slowing Down in 2015 from 2014’s Record Pace. Lower Yields on Bonds Explain Some of the Contraction.

Source: Guy Carpenter.

US Property CAT Rate on Line Index & Global Reinsurance ROE

49

Record traditional capacity, alternative capital and low CAT activity have pressured reinsurance prices; ROEs are own only very modestly

Source: Barclays PLC from Guy Carpenter; Insurance Information Institute.

US Property CAT ROL Global Reinsurance ROE

M&A UPDATE:A PATH TO GROWTH?

50

Are Capital Accumulation, Drive for Growth and Scale Stimulating

M&A Activity?

50

51

U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 1994-2014 (1)

$5,1

00

$11,5

34

$8,0

59

$30,8

73

$19,1

18

$40,0

32

$1,2

49

$486

$20,3

53

$425

$9,2

64

$35,2

21

$13,6

15

$16,2

94

$3,5

07

$6,4

19 $

12,4

58

$4,6

51

$4,3

97

$6,7

23

$55,825

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Tra

ns

ac

tio

n v

alu

es

0

20

40

60

80

100

120

140

Nu

mb

er o

f tran

sa

ctio

ns

($ Millions)

(1) Includes transactions where a U.S. company was the acquirer and/or the target.

Source: Conning proprietary database.

M&A activity in the P/C sector was up sharply in 2014 but remains well

below pre-crisis or late 1990s levels.

M&A activity in 2015 will

likely reach its highest level since 1998

52

Growth

Premium Growth Rates Vary Tremendously by State and

Over Time, But…

52

53

-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

13

14

15*

Net Premium Growth (All P/C Lines): Annual Change, 1971—2015:Q3P

(Percent)

1975-78 1984-87 2000-03

Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014-15).

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.

2015:Q3: 3.1%

2014: 4.1%

2013: 4.4%

2012: +4.2%

Outlook

2016F: 4.0%

2017F: 3.8%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

26

28

30

32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

62

64

66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12

14

Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.

Source: A.M. Best; Insurance Information Institute.

Economic Shocks,

Inflation:

1976: 22.0%

Tort Crisis

1985/86: 22.2%

Post-9/11

2002:15.3%

Twin

Recessions;

Interest Rate

Hikes

1987: 3.7% Great

Recession:

2010: -4.9%

ROE

2015E 4.1%

NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926 – 2015E

Great Depression

1932: -15.9% max drop

Post WW II Peak:

1947: 26.2%

Start of WW II

1941: 15.8%

1950-70: Extended period of stability in growth and

profitability. Low interest rates, low inflation, “Bureau” rate regulation all played a role

1970-90: Peak premium growth was much higher in this period while troughs were comparable. Rapid inflation, economic

volatility, high interest rates, tort environment all played roles

1988-2000: Period of

inter-cycle stability

2010-20XX? Post-

recession period of

stable growth?

55

Direct Premiums Written: Total P/CPercent Change by State, 2007-2014

70

.7

36

.7

36

.2

30

.3

29

.4

26

.8

24

.7

23

.7

21

.6

20

.7

19

.2

19

.2

18

.6

18

.1

18

.0

17

.0

15

.2

15

.1

15

.0

14

.9

14

.8

14

.7

14

.4

14

.2

13

.8

13

.5

0

10

20

30

40

50

60

70

80

ND

OK

SD

TX

NE

KS IA VT

WY

CO

MN IN MI

TN

AR

WI

GA

SC

NJ

OH

AK

KY

VA

LA

CT

MT

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 StatesNorth Dakota was the country’s growth leader over the past 7 years with premiums written

expanding by 70.7%, fueled by the state’s energy boom

Growth Benchmarks: Total P/C

US: 13.0%

56

Direct Premiums Written: Total P/CPercent Change by State, 2007-2014

13

.4

13

.1

13

.1

13

.0

13

.0

12

.9

12

.4

12

.2

11

.7

11

.0

10

.5

9.4

9.4

9.2

9.1

8.2

6.3

6.0

4.7

2.2

1.3

-0.8

-1.6

-4.3

-7.3

-12

.9

-15

-10

-5

0

5

10

15

MO

NY

UT

US

NM

MS

MA

AL

NC

MD

WA RI

NH IL PA ID

ME

CA

OR FL

AZ

DC HI

WV

NV

DE

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LC.; Insurance Information Institute.

Growth was negative in 4 states and DC between

2007 and 2014

57

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014

80

.4

36

.8

33

.3

29

.4

24

.8

22

.5

21

.0

20

.6

15

.2

14

.6

13

.9

11

.8

10

.3

8.7

8.5

8.4

8.0

7.9

7.6

7.1

6.6

5.9

5.9

5.8

5.4

4.5

0

10

20

30

40

50

60

70

80

90

ND

SD

VT

OK

NE IA

KS

TX

WY

AK IN

MN WI

MA

AR

CT

NY

NJ

CO

NM

OH LA

US

MS

NH

MO

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top 25 States

43 states showed commercial lines growth from 2007

through 2014

Growth Benchmarks: Commercial

US: 5.9%

58

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014

4.5

4.4

4.2

4.1

3.9

3.8

3.7

3.3

3.3

3.2

3.1

2.8

2.8

2.2

2.1

1.4

0.9

-1.3

-3.2

-5.3

-6.5

-6.9

-9.2

-10

.7

-19

.9

-22

.2

-25

-20

-15

-10

-5

0

5

10

MI

TN

MD

MT

CA RI

WA

GA

PA

UT IL

KY

VA

NC

ME

SC ID AL

DC HI

FL

OR AZ

DE

NV

WV

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LLC.; Insurance Information Institute.

Nearly half the states have yet to see commercial lines premium

volume return to pre-crisis levels

59

Pricing Trends

Personal Lines Pricing Is Up

Survey Results Suggest Commercial Pricing Has

Flattened Out59

60

Monthly Change in Auto Insurance Prices, 1991–2015*

*Percentage change from same month in prior year; through Sept. 2015; seasonally adjusted

Note: Recessions indicated by gray shaded columns.

Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

-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 '14 '15

Cyclical peaks in PP Auto tend to occur roughly 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

Sept. 2015 reading of 5.5% is up from 4.2%

a year earlier

Commercial Lines Rate Change by Month (vs. Year Earlier), July 2001 – Oct. 2015

Jul-02, 33%

Feb-05, 0%

Dec-07, -16%

Oct-11, 0%

Sep-13, 5%

Dec-14, 0%

Jul-15, 1%

-20%

-10%

0%

10%

20%

30%

40%

Jul-

01

Dec-0

1

May-0

2

Oct-

02

Mar-

03

Aug-0

3

Jan-0

4

Jun-0

4

Nov-0

4

Apr-

05

Sep-0

5

Feb-0

6

Jul-

06

Dec-0

6

May-0

7

Oct-

07

Mar-

08

Aug-0

8

Jan-0

9

Jun-0

9

Nov-0

9

Apr-

10

Sep-1

0

Feb-1

1

Jul-

11

Dec-1

1

May-1

2

Oct-

12

Mar-

13

Aug-1

3

Jan-1

4

Jun-1

4

Nov-1

4

Apr-

15

Sep-1

5

79 Months of Rates < 0%

61

SOURCE: MarketScout, Insurance Information Institute.

Commercial Insurance Rate Changes Are Flat to Slightly Down

Not Much of A Hard Market,

By Historic Standards

Oct. 2015:

-2.0%

62

Change in Commercial Rate Renewals, by Line: 2015:Q3

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

Major Commercial Lines Renewals Were Mixed to Down in Q3:2015; EPL, D&O and Commercial Saw Gains

Percentage Change (%)

-0.3%

0.4%0.8%

1.3%

-5.2%

-3.0% -2.9%-2.7% -2.5% -2.5%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

Co

mm

erc

ial

Pro

pe

rty

Um

bre

lla

Bu

sin

ess

Inte

rru

ptio

n

Ge

ne

ral

Lia

bili

ty

Co

nstr

uctio

n

Wo

rke

rs

Co

mp

Su

rety

D&

O

EP

L

Co

mm

erc

ial

Au

to

Commercial Auto rate increases are larger than any other line, followed

by EPL and D&O

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

63

How the Risk Dollar is Spent (U.S. Firms with Revenues Under $1 Bill)

Total Property Premiums, 21%

Property Retained Losses, 1%

Total Liability Premium, 19%

Liability Retained Losses, 4%

Total Management Liability Costs, 6%

Total Workers Comp. Premiums, 10%

Workers Comp Retained Losses, 9%

Total Professional Liability Costs, 9%

Total Med. Mal. Costs, 10%

Total Marine and Aviation Costs, 4%

Total Administrative Costs, 6%

Total Fidelity, Surety & Crime Costs, 1%

Source: 2015 RIMS Benchmark Survey; Insurance Information Institute.

64

Underwriting Performance

64

Homeowners Insurance Combined Ratio: 1990–2017F

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

91

.7 96

.4

85

.4 91

.7

11

4.5

10

3.1

10

3.8

11

9.4

10

1.4

87

.7

90

.4

92

.1 96

.5

96

.0

11

8.4

11

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F16F17F

1

Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to

Local Catastrophe Loss Activity

65

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

Sources: A.M. Best (1990-2014);Conning (2015F-2017F).

66

Homeowners Multi-Peril Loss & ALAE Ratio, 2014:Highest 25 States

14

2.8

13

2.6

11

6.0

10

2.5

80

.4

80

.2

74

.6

69

.2

66

.8

66

.8

65

.8

62

.4

60

.7

59

.3

59

.2

58

.7

58

.2

58

.0

56

.4

55

.5

54

.1

52

.4

51

.7

51

.2

51

.1

50

.3

0

20

40

60

80

100

120

140

160

MT NE SD CO IA MI IL VT PA ID WY GA DE MD AR WV WA MO MS WI IN SC OR TN US AZ

Lo

ss &

AL

AE

Rati

o

(%)


MT had the worst loss ratio in 2014, followed by

NE and SD…

67

Homeowners Multi-Peril Loss & ALAE Ratio, 2014:Lowest 25 States and DC

50

.1

49

.3

48

.9

48

.3

48

.1

47

.7

47

.3

46

.0

45

.8

45

.6

45

.2

44

.1

43

.2

42

.0

41

.0

40

.8

40

.2

37

.7

37

.5

37

.1

36

.2

32

.8

32

.3

28

.0

27

.3

25

.7

0

10

20

30

40

50

60

CA NJ OH TX AL ME KY NC NM NH NY NV UT MN KS DC CT VA AK RI MA ND LA HI FL OK

Lo

ss &

AL

AE

Rati

o (

%)


OK and FL had the best performances in 2014. Traditionally

high cat-loss states did well last year due to unusually low cat activity

Florida Citizens Policy Count, 2003 – 2015* (Thousands)

*As of October 6, 2015. All other figures are as of Dec. 31.

Source: Florida Citizens https://www.citizensfla.com/about/bookofbusiness/; Insurance Information Institute (I.I.I.).

820.3874.0

810.0

1,298.9 1,304.9

1,084.21,029.3

1,283.5

1,472.4

1,314.8

661.2

574.1

1,021.7

0

200

400

600

800

1,000

1,200

1,400

1,600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

A lack of major hurricanes, ample private sector/reinsurer capital and capital market interest—combined with structural changes to Citizens—have combined to take Citizens policy count and exposure to their lowest levels in many years

Florida Citizen’s policy count is down by nearly

900,000 (61%) from its 2011 peak

https://www.citizensfla.com/about/bookofbusiness/

Private Passenger Auto Combined Ratio: 1993–2017F

10

1.7

10

1.3

10

1.3

10

1.0

10

9.5

10

7.9

10

4.2

98

.4

94

.3

95

.1

95

.5 98

.3 10

0.2

10

1.3

10

1.0

10

2.0

10

2.1

10

1.6

10

2.3

10

3.2

10

2.3

10

2.4

99

.5 10

1.1

10

3.5

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 12 13 14 15F 16F 17F

Private Passenger Auto Underwriitng Performance Is Exhibiting Remarkable Stability

69Sources: A.M. Best (1990-2014); Conning (2015F – 2017F); Insurance Information Institute.

70

Collision Coverage: Severity & Frequency Trends Are Both Higher in 2015*

2.8%

1.3%

4.2%

1.6%

4.7%

-1.8%

-3.6%

2.5%

-2.4%

-1.4%

4.2%

1.4%

3.9%3.1%

0.1%0.5%

-2.3%

-0.1%

-1.4%-0.5%

0.9%

2.3%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Severity Frequency

Annual Change, 2005 through 2015*

The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Will Likely Be Reversed Based on

Evidence from Past Recoveries

*2015 figure is for the 4 quarters ending with 2015:Q2.

Source: ISO/PCI Fast Track data; Insurance Information Institute

10

9.4

11

0.2

11

8.8

10

9.5

11

2.5

11

0.2

10

7.6

10

4.1

10

9.7

11

0.2

10

2.5 1

05

.4

91

.1

93

.6

10

4.2

98

.9

10

2.4

10

7.9

10

3.5

94

.8

94

.3

98

.3 99

.210

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

14

15

F

16

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 (1990-2014); Conning (2015-16F) Insurance Information Institute.

Commercial Lines Combined Ratio, 1990-2016F*

Commercial lines underwriting performance improved in 2013/14 but higher cats, diminishing prior year reserves and rising loss cost trends in some lines could push

combined ratios higher

71

Commercial Auto Combined Ratio: 1993–2017F

11

2.1

11

2.0

11

3.0

11

5.9

10

2.7

95

.2

92

.9

92

.1

92

.4

94

.1 96

.8 99

.1

97

.8

10

3.4 10

6.8

10

6.7

10

3.4

10

4.7

10

5.5

10

7.5

11

8.1

11

5.7

11

6.2

80

85

90

95

100

105

110

115

120

125

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F16F17F

Commercial Auto is Expected to Improve Only Slowly as Rate Gains Barely Offset Adverse Frequency and Severity Trends

72Sources: A.M. Best (1990-2014);Conning (2015F-2017F); Insurance Information Institute.

Commercial Property Combined Ratio: 2007–2017F

72

.4

10

5.8

83

.3 86

.5

85

.8 88

.9

90

.3

90

.9

10

6.5

10

5.8

82

.7

70

75

80

85

90

95

100

105

110

07 08 09 10 11 12 13 14 15F 16F 17F

Commercial Property Underwriting Performance Has Been Volatile in Recent Years, Largely Due to

Fluctuations in CAT Activity

Source: Conning Research and Consulting.73

General Liability Combined Ratio: 2005–2017F

11

2.9

95

.1 99

.0

94

.2

10

4.1

99

.7 10

1.6

10

3.3

10

3.1

10

3.510

7.1 11

0.8

99

.680

85

90

95

100

105

110

115

05 06 07 08 09 10 11 12 13 14 15F 16F 17F

Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years

Source: Conning Research and Consulting.74

Commercial Multi-Peril Combined Ratio: 1995–2016F

11

9.0

11

9.8

10

8.5

12

5.0

11

6.2

11

6.1

10

4.9

10

1.9

10

5.5

95

.4 97

.6

94

.2 96

.1

10

2.1

94

.1

10

3.0

10

3.5

10

0.7

11

6.8

11

3.6

11

5.3

12

2.4

11

5.0

11

7.0

97

.3

89

.0

97

.7

93

.8

83

.8

89

.8

10

8.4

98

.7 10

2.5

12

0.1

11

1.9

94

.4 96

.7

10

1.3

10

1.8

11

3.1

11

5.0 1

21

.0

80

85

90

95

100

105

110

115

120

125

130

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F

CMP-Liability CMP-Non-Liability

Commercial Multi-Peril Underwriting Performance is Expected to Remains Stable in 2015 Assuming Normal

Catastrophe Loss Activity

*2015F-2016F figures are Conning figures for the combined liability and non-liability components.Sources: A.M. Best; Conning; Insurance Information Institute.

75

Inland Marine Combined Ratio: 2004–2017F

82

.5

89

.9

77

.3 79

.5

97

.1

96

.1

83

.7

83

.3

82

.2

83

.3

83

.7

93

.3

89

.3

86

.2

70

75

80

85

90

95

100

04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F

Inland Marine Underwriting Performance Has Been Consistently Strong for Many Years

Source: A.M. Best (2004-2014); Conning Research and Consulting (2015F-2017F).76

Workers Compensation Combined Ratio: 1994–2015F

10

2.0

97

.0 10

0.0

10

1.0

11

2.6

10

8.6

10

5.1

10

2.7

98

.5

10

3.5

10

4.5 1

10

.6 11

5.0

11

5.0

10

8.0

10

1.0

98

.0

98

.5

12

1.7

10

7.0

11

5.3

11

8.2

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 13 14P15F

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 (2010-2014P) and are for private carriers only; Insurance Information Institute (2015F).77

WC results have improved markedly

since 2011

Workers Compensation Operating Environment

78

Workers Comp Results Have Improved Substantially in Recent Years

78

Workers Compensation Combined Ratio: 1994–2015F

10

2.0

97

.0 10

0.0

10

1.0

11

2.6

10

8.6

10

5.1

10

2.7

98

.5

10

3.5

10

4.5 1

10

.6 11

5.0

11

5.0

10

8.0

10

1.0

98

.0

98

.5

12

1.7

10

7.0

11

5.3

11

8.2

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 13 14P15F

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 (2010-2014P) and are for private carriers only; Insurance Information Institute (2015F).79

WC results have improved markedly

since 2011

80

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2015:Q1

Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.

Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.

Billions

$5,500

$5,750

$6,000

$6,250

$6,500

$6,750

$7,000

$7,250

$7,500

$7,7500

5:Q

1

05

:Q2

05

:Q3

05

:Q4

06

:Q1

06

:Q2

06

:Q3

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

12

:Q4

13

:Q1

13

:Q2

13

:Q3

13

:Q4

14

:Q1

14

:Q2

14

:Q3

14

:Q4

15

:Q1

Prior Peak was 2008:Q3 at $6.54 trillion

Recent trough (2009:Q1) was $6.23 trillion, down

5.3% from prior peak

Growth rates2011:Q1 over 2010:Q1: 5.5%2012:Q1 over 2011:Q1: 4.2%2013:Q1 over 2012:Q1: 2.5%2014:Q1 over 2013:Q1: 4.3%2015:Q1 over 2014:Q1: 4.4%

80

Latest (2015:Q1) was $7.66 trillion, a new peak--$1.34 trillion above 2009 trough

http://research.stlouisfed.org/fred2/series/WASCUR

$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 13 14

$25

$30

$35

$40

$45

$50Wage & Salary DisbursementsWC NPW

81

Payroll Base* WC NWP

Payroll vs. Workers Comp Net Written Premiums, 1990-2014P

*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are from NCCI.

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 Gains Suggest WC NWP Will Grow Again in 2015

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

http://research.stlouisfed.org/fred2/series/WASCUR

Workers Compensation Premium: Fourth Consecutive Year of IncreaseNet Written Premium

31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3

25.0 26.129.2

31.134.7

37.8 38.6 37.633.8

30.3 29.932.3

35.136.9 38.5

35.3 35.734.3

35.433.6

30.128.5

26.9 25.9 25.0

28.6

32.1

37.7

42.3

46.547.8

46.544.3

39.3

34.6 33.8

36.4

39.541.8

44.2

0

10

20

30

40

50

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P

State Funds ($ B)

Private Carriers ($ B)

Pvt. Carrier NWP growth was +4.3% in 2014, +5.1% in 2013 and 8.7% in 2012

$ Billions

Calendar Yearp Preliminary

Source: NCCI from Annual Statement Data.

Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT.

Each calendar year total for State Funds includes all funds operating as a state fund that year.

83

2014 Workers Compensation Direct Written Premium Growth, by State*

PRIVATE CARRIERS: Overall 2014 Growth = +4.6%

*Excludes monopolistic fund states (in gray): OH, ND, WA and WY.

Source: NCCI.

While growth rates

varied widely, most

states experienced

positive growth in

2014

84

2013 Workers Compensation Direct Written Premium Growth, by State*

PRIVATE CARRIERS: Overall 2013 Growth = +5.4%

*Excludes monopolistic fund states (in white): OH, ND, WA and WY.

Source: NCCI.

While growth rates varied widely, all states

experienced positive growth in 2013

85

Workers Compensation Components of Written Premium Change, 2013 to 2014

Written Premium Change from 2013 to 2014

Net Written Premium—Countrywide +4.6%

Direct Written Premium—Countrywide +4.6%

Direct Written Premium—NCCI States +4.5%

Components of DWP Change for NCCI States

Change in Carrier Estimated Payroll +4.7%

Change in Bureau Loss Costs and Mix -1.4%

Change in Carrier Discounting +0.4%

Change in Other Factors +0.8%

Combined Effect +4.5%

Sources: Countrywide: Annual Statement data.

NCCI States: Annual Statement Statutory Page 14 for all states where NCCI provides ratemaking services.

Components: NCCI Policy data.

Growth is now almost entirely payroll driven

WC Approved Changes in Bureau Premium Level (Rates/Loss Costs)

12.1

7.4

10.0

2.9

-6.4

-3.2

-6.0

-8.0

-5.4

-2.6

3.5

1.2

4.9

6.6

-6.0-6.5

-8.8-7.8

-3.2-2.1

-1.2

0.4

8.4

2.2

0.5

-2.2

-10

-5

0

5

10

15

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p

Percent

Calendar Year

Cumulative

1990–1993

+36.3%

Cumulative 2000–2003

+17.1%


-30.8%


-27.8%

*States approved through 4/24/15.

Note: Bureau premium level changes are countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by applicable

rating organization, relative to those previously approved.

Source: NCCI.

By Effective Date for Total Market

Approved rates/loss costs are down for the first time since 2010


+11.8%

87

WC Approved or Filed and Pending Change in NCCI Premium Level by State

Latest Change for Voluntary Market

*Excludes monopolistic fund states (in gray): OH, ND, WA and WY.

Source: NCCI.

While growth rates

varied widely, most

states experienced

positive growth in

2014

88

WC Approved or Filed and Pending Change in NCCI Premium Level by State

Note: Premium level changes are approved changes are approved or filed and pending changes in advisory rates, loss costs and rating values as of

4/24/15 as filed by applicable rating organization, relative to those previously approved. SC is filed and pending. IN and NC are in cooperation with

state rating bureaus.

Source: NCCI.

Latest Change for Voluntary Market

Excludes Law-Only Filings

The majority of states experienced decreases in

rates/loss costs over

Workers Compensation Lost-Time Claim Frequency Declined in 2014

89

-4.4

-9.2

0.3

-6.5

-4.5

0.5

-3.9

-2.3

-4.5

-6.9

-4.5 -4.1-3.7

-6.6

-4.5

-2.2

-4.3-4.9

10.6

-3.8

-6

-2.9-2.0

3.6

-0.8

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p

Indicated

Adjusted*

Frequency Change: 2007—2012

Contracting: 7.97.1 -9.3%

Manufacturing: 13.612.0 -11.8%

Percent

Accident Year*Adjustments primarily due to significant audit activity.2014p: Preliminary based on data valued as of 12/31/2014.

Source: NCCI Financial Call data, developed to ultimate and adjusted to current wage an voluntary loss cost level; Excludes high deductible

policies; 1994-2013: Based on data through 12/31/13. Data for all states where NCCI provides ratemaking services, excluding WV.

Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level

Cumulative Change of –51.1%

(1994–2013 adj.)

$9

.8

$9

.5

$9

.2

$9

.7

$9

.8

$1

0.4

$1

1.2

$1

2.2

$1

3.5

$1

4.8

$1

6.1

$1

6.6

$1

7.4

$2

2.3

$2

2.5

$2

2.2

$2

2.2

$2

2.6

$2

3.6

$1

8.1

$1

7.5

$1

9.2

$2

0.8

$2

1.9

+0.0%

-2.5%+1.0%+9.1% +1.3%

+5.9%+3.1%

+1.0%+4.6%+3.1%

+9.2%

+10.1%

+10.1%

+9.0%

+7.7%+5.9%

+1.7%+4.9%-2.8%-3.1%

+1.0%

+6.6%

5

7

9

11

13

15

17

19

21

23

25

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p

Indemnity

Claim Cost ($ 000s)

Accident Year

Workers Comp Indemnity Claim Costs: Modest Increase in 2014

Average indemnity costs per claim were up 4% in

2014 to $23,600, the largest increase since 2008

Average Indemnity Cost per Lost-Time Claim

+4%+1.9%

Cumulative Change = 141%

(1991-2014p)

2014p: Preliminary based on data valued as of 12/31/2014.

1991-2013: Based on data through 12/31/2013, developed to ultimate

Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.

4.2%

5.2%5.6%

4.7%

6.3%

2.3%

1.1%

4.7% 4.6%

2.7%

1.1%

5.9%

7.7%

9.0%

10.1%

4.6%

5.9%

6.6%

9.1%

1.9%4.3%

2.7%

3.0%3%2.9%

2.3%

1.1%3.5%

3.6% 3.1%

1.0%

0%

1.3%1.0%

-2.5%

1.0%

1.7%

10.1%

9.2%

3.1%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

95 97 99 01 03 05 07 09 11 13

Change in CPS Wage Change in Indemnity Cost per Lost-Time Claim

WC Indemnity Severity vs. Wage Inflation, 1995 -2014p

2014p: Preliminary based on data valued as of 12/31/2014; 1991-2010: Based on data through 12/31/2010, developed to ultimate. Based on the states

where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey.

Source: NCCI

Annual Change 1994–2014

Indemnity Claim Sev.: +4.6

US Avg. Weekly Wage: +3.4%

Indemnity severities usually

outpace wage gains

WC indemnity severity turned

positive again in 2011

Workers Compensation Medical Severity:Moderate Increase in 2014

92

Accident Year

Annual Change 1991–1993: +1.9%



Average Medical Cost per Lost-Time ClaimMedical

Claim Cost ($000s)

$8

.1

$8

.2

$8

.1

$8

.8

$9

.1

$9

.8

$1

0.8

$11

.7

$1

2.9

$1

3.9

$1

5.7

$1

7.1

$1

8.4

$1

9.4

$2

0.9

$2

2.1

$2

3.4

$2

5.0

$2

6.0

$2

6.1

$2

6.8

$2

7.4

$2

8.3

$2

9.4

+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%

+5.8%

+5.9%

+6.9%+4.0%+0.5%

+2.4%+2.4%

+3.2%+4%

5

10

15

20

25

30

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p


1991-2013: Based on data through 12/31/2013, developed to ultimate


Cumulative Change = 263%

(1991-2014p)

Accident Year

Medical severity for lost time claims was up 4% in 2014, the

largest increase since 2009

93

Workers Comp Change in Medical Severity by State, Avg. Annual Change, 2009-2013

Percent

Source: NCCI’s Analysis of Frequency and Severity of Claims Across the Country as of 12/31/13 on ncci.com.

Values reflect methodology and state data underlying the most recent rate/lost cost filing.

TX changes are for the years 2010-2013.

While growth rates

varied widely, most

states experienced

positive growth in

2014

The change in lost-time medical severities from 2009-2013 ranged from a low of -6% to a high of 9%

94

Annual Inflation Rates, (CPI-U, %),1990–2016F

2.82.6

1.51.9

3.3 3.4

1.3

2.52.3

3.0

3.8

2.8

3.8

-0.4

1.6

3.2

2.1

1.51.7

0.2

2.2

2.9

2.4

3.23.0

5.14.9

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 5/15 (forecasts).

Slack in the U.S. economy and falling energy prices suggests that inflationary pressures should remain subdued for an extended

period of times

Annual Inflation Rates (%)

Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the

commodity bubble reduced inflationary pressures in 2009/10

Inflationary expectations have slipped

(due in part to falling energy

costs) allowing the Fed to

maintain low interest rates

Workers CompensationChange in Medical Severity Comparison to Change in Medical Consumer Price Index (CPI)

5.1

7.4

10.1

8.3

10.6

7.3

13.5

8.8

7.7

5.4

7.8

5.8 5.9

6.9

4.0

0.5

2.4 2.4

34.0

4.5

3.5

2.83.2

3.54.1

4.6 4.7

4.04.4 4.2 4.0

4.4

3.73.2 3.4 3.0

3.7

3 2.4

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 12 13 14p

Change in Lost-Time Medical Claim Severity

Change in US Medical CPI

Percent Change

Year

Average Annual Change: 1994—2014

Lost-Time Medical Severity: +6.4%

US Medical CPI: +3.7%


Sources: Severity: 995-2013: Based on data through 12/31/2013, developed to ultimate


US Medical CPI: US Bureau of Labor Statistics.

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%

2.5% 2.4%

5.1%

7.4%

10.1%10.6%

13.5%

5.4%

7.8%

5.9%

6.8%

4.0% 4.0%

3.0%3.7%

3.2%

2.4%2.4%

0.5%

5.8%

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 12 13 14p

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 from 1995 through 2014 was well above the medical CPI (6.4% vs. 3.7%), but the gap has narrowing. Lost-time medical

severities appear to on the rise again.

-1%

0%

1%

2%

3%

4%

5%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*

Change in Medical CPI CPI-All Items

Medical Cost Inflation vs. Overall CPI, 1995 – 2014*

*July 2014 compared to July 2013.

Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.

Average Annual Growth Average

1995 – 2013

Healthcare: 3.8%

Total Nonfarm: 2.4%

Though moderating, medical inflation will continue to exceed inflation in the overall economy

U.S. Health Care Expenditures,1965–2022F

$42

.0$

46

.3$

51

.8$

58

.8$

66

.2$

74

.9$83.2

$93

.1$

10

3.4

$11

7.2

$13

3.6

$15

3.0

$17

4.0

$195.5

$22

1.7

$25

5.8

$29

6.7

$33

4.7

$36

9.0

$40

6.5

$444.6

$47

6.9

$51

9.1

$58

1.7

$64

7.5

$72

4.3

$79

1.5

$857.9

$92

1.5

$97

2.7

$1,0

27

.4$

1,0

81

.8$

1,1

42

.6$

1,2

08

.9$1,2

86.5

$1,3

77

.2$

1,4

93

.3$

1,6

38

.0$

1,7

75

.4$

1,9

01

.6$

2,0

30

.5$2,1

63.3

$2,2

98

.3$

2,4

06

.6$

2,5

01

.2$

2,6

00

.0$

2,7

00

.7$

2,8

06

.6$2,9

14.7

$3,0

93

.2$

3,2

73

.4$

3,4

58

.3$

3,6

60

.4$

3,8

89

.1$

4,1

42

.4$

4,4

16

.2$

4,7

02

.0$

5,0

08

.8

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

22

U.S. health care expenditures have been on a relentless climb for most of the past half century, far outstripping population growth,

inflation of GDP growth

98

From 1965 through 2013, US health care expenditures had

increased by 69 fold. Population growth over the same period increased by a factor of just 1.6. By 2022, health spending will have

increased 119 fold.

$ Billions

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-

Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

22

National Health Care Expenditures as a Share of GDP, 1965 – 2022F*

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-

Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.

1965

5.8%

Health care expenditures as a share

of GDP rose from 5.8% in 1965 to

18.0% in 2013 and are expected to

reach 19.9% of GDP by 2022

% of GDP

2022 19.9%

1980:

9.2%

1990:

12.5%

2000:

13.8%

2010:

17.9%

Since 2009, heath expenditures as a %

of GDP have flattened out at about 18%--the

question is why and will it last?

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html

100

Insured Catastrophe Losses

2013/14 and YTD 2015 Experienced Below

Average CAT Activity After Very High CAT

Losses in 2011/12

Winter Storm Losses Far Above Average in

2014 and 2015100

101

$1

3.0

$1

1.3

$3

.9

$1

4.8

$1

1.9

$6

.3

$3

5.8

$7

.8

$1

6.8

$3

4.7

$1

0.9

$7

.7

$3

0.1

$1

1.8

$1

4.9

$3

4.6

$3

6.1

$1

3.1

$1

5.5

$1

1.0

$75.7

$1

4.4

$5

.0 $8

.2

$3

8.9

$9

.1

$2

7.2

$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 14 15*

U.S. Insured Catastrophe Losses

*Through 9/30/15 in 2015 dollars.

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.

2013/14 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster Losses in US History. Longer-term Trend is for

more—not fewer—Costly Events

2012 was the 3rd most expensive year ever for

insured CAT losses

$11.0B in insured CAT losses though

9/30/15

($ Billions, $ 2014)

101

102

Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2015F*

*2010s represent 2010-2014.

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 (1960-2010); A.M. Best (2011-15E) 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

1.42

.01

.32

.00

.50

.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

9.4

8.0

3.9 4

.4 4.5

3.6

0.9

0.1

1.1

1.1

0.8

0

1

2

3

4

5

6

7

8

9

10

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades

Avg. CAT Loss Component of theCombined Ratio

by Decade

1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 5.82*

Combined Ratio Points Catastrophe losses as a share of all

losses reached a record high in 2011

103

Top 16 Most Costly Disastersin U.S. History—Katrina Still Ranks #1

(Insured Losses, 2014 Dollars, $ Billions)

$8.1 $9.0 $9.4$11.4

$13.8

$19.3

$24.6 $25.3$26.4

$50.2

$7.7$7.3$6.9$5.8$5.7$4.6

$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)

Storm Sandy in 2012 was the last mega-CAT

to hit the US

Includes Tuscaloosa, AL,

tornado

Includes Joplin, MO, tornado

12 of the 16 Most Expensive Events in US History Have Occurred Since 2004

Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.

104

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1995–20141

0.1%

1.5%5.4%

0.1%

6.2%

6.8%

39.2%

40.7%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2014 dollars.

2. Excludes snow.

3. Does not include

Documents

Property & Casualty Insurance Market Update · 2015. 12. 3. · Tornado Losses Sandy Low CATs Modestly ... NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK