Trends, Challenges and Opportunities in the P/C Insurance ... · Twin Recessions; Interest Rate Hikes 1987: 3.7% Great Recession: 2010: -4.9% ROE 2015 3.4% NPW Premium Growth: Peaks

Trends, Challenges and Opportunities in the P/C Insurance

Industry in 2017 & BeyondThe Institutes’ Management Development Program

University of Wisconsin

Madison, WI

October 18, 2016

Robert P. Hartwig, Ph.D., CPCU, Special Consultant Insurance Info. Inst.

Co-Director, Center for Risk and Uncertainty Mgmt. University of South Carolina

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

2

P/C (Re)Insurance Industry Financial Overview

The Past Few Years Have Been Very Similar and Reasonably

Good

2

P/C Industry Net Income After Taxes1991–2016:Q2 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 ROAS = 8.4%

2016:H1 ROAS = 6.4%*

•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; 2015E is annualized figure based actual figure through Q3 of $44.0

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

5,8

70

$5

6,6

22

$2

1,6

85

$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

16:Q

1

Net income in Q2:2016 on an

annualized basis was on track to fall

short of full-year 2015

$ Millions

-5%

0%

5%

10%

15%

20%

25%

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2016:H1

*Profitability = P/C insurer ROEs. 2011-15 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude

mortgage and financial guaranty insurers.

Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning

1977:19.0%1987:17.3%

1997:11.6% 2006:12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%

9 Years

History suggests next ROE

peak will be in 2016-2017

ROE

1975: 2.4%

2013 9.8%

2016:H1 6.4%

2015: 8.4%

5

ROE: Property/Casualty Insurance by Major Event, 1987–2016:H1

* Through 2016:H1. 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 15 16*

P/C Profitability Is Both by Cyclicality and Ordinary Volatility

Hugo

Andrew, Iniki

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%

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

1950 - 1970

Low

Volatility

P/C Insurance Industry ROE: Magnitude of Cyclicality, Volatility Changes Over Time, 1950-2015

.

Source: Insurance Information Institute

1971 - 1992

Extreme

Volatility

1993 - 2008

Moderate

Volatility

2009 - Present

Modest

Volatility

7

P/C Insurance Industry Combined Ratio, 2001–2016:Q2*

* 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 (2014-2015); Figure for 2010-2013 is from A.M. Best P&C Review and Preview, Feb. 16, 2016.

95.7

99.3101.1

106.5

102.5

96.4 97.0 97.899.8

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 16:Q2

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

Sandy Impacts

Lower CAT

Losses

Best Combined Ratio Since 1949 (87.6)

Avg. CAT Losses,

More Reserve Releases

3 Consecutive Years of U/W Profits: First Time Since

1971-73Cyclical Deterioration

Elevated CATs

8

Number of Years with Underwriting Profits by Decade, 1920s–2010s

0 0

3 3

5

4

8

10

7

6

0

2

4

6

8

10

12

1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s* 2010s**

* 2009 combined ratio excl. mort. and finl. guaranty insurers was 99.3, which would bring the 2000s total to 4 years with an u/w profit.

**Data for the 2010s is for the period 2010 through 2015.

Note: Data for 1920–1934 based on stock companies only.

Sources: Insurance Information Institute research from A.M. Best Data.

Number of Years with Underwriting Profits

Underwriting Profits Were Common Before the 1980s (40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –

But Then They Vanished. Not a Single Underwriting Profit Was Recorded in the 25 Years from 1979 Through 2003

8

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

10

Policyholder Surplus, 2006:Q4–2016: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

$675.2

$672.4

$673.7

$676.3

$680.6

$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

15:Q

4

16:Q

1

16:Q

2

2007:Q3Pre-Crisis Peak

Surplus as of 6/30/16 stood at a record high $680.64B

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 $0.76 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 2016in very strong financial condition.

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

$650

$700

$750

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

US Policyholder Surplus:1975–2016*

* As of 6/3016.

Source: A.M. Best, ISO, Insurance Information Institute.

“Surplus” is a measure of underwriting capacity. It is

analogous to “Owners Equity” or “Net Worth” in non-

insurance organizations

($ Billions)

The Premium-to-Surplus Ratio Stood at $0.76:$1 as of12/31/15, a Near Record Low (at Least in Recent History)

Surplus as of 6/30/16 was a record $680.6, up 1.0% from $673.7 of 12/31/15, and up 55.7% ($243.5B) from

the crisis trough of $437.1B at 3/31/09

12

RNW All Lines, 2005-2014 Average:Highest 25 States

19

.9

19

.0

14

.0

13

.3

13

.2

13

.0

11

.9

11

.7

11

.7

11

.5

11

.3

11

.1

11

.0

10

.9

10

.8

10

.6

10

.6

10

.5

10

.3

10

.0

9.9

9.6

8.9

8.9

8.8

8.3

0

2

4

6

8

10

12

14

16

18

20

22

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

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: 7.7%

(Percent)

13

7.8

7.8

7.7

7.5

7.5

7.4

7.3

7.3

7.1

7.1

7.0

6.9

6.8

6.5

6.3

6.2

6.1

5.5

5.1

5.1

4.7

4.1

3.4

1.7

-7.4

-9.4

-11

-9

-7

-5

-3

-1

1

3

5

7

9

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

RNW All Lines, 2005-2014 Average:

Lowest 25 States

Source: NAIC; Insurance Information Institute.

Some of the least profitable states over the past decade

were hit hard by catastrophes

(Percent)

14

-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

16

Net Premium Growth (All P/C Lines): Annual Change, 1971—2016:Q2

(Percent)

1975-78 1984-87 2000-03

Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014-16).

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.

2016 Q2: 3.0%

2015: 3.4%

2014: 4.2

2013: 4.4%

2012: +4.2%

Outlook

2016F: 3.0%

2017F: 2.9%

-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

2015 3.4%

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

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?

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

75

77

79

81

83

85

87

89

91

93

95

97

99

01

03

05

07

09

11

13

15E

Economic Shocks,

Inflation:

1976: 22.2%Tort Crisis

1986: 30.5%

Post-9/11

2002: 22.4%

Great

Recession:

2009: -9.0%

ROE

2015E 3.3%

Commercial Lines NPW Premium Growth:1975 – 2015E

Recessions:

1982: 1.1%

Commercial lines is prone to more cyclical volatility that personal

lines. Recently, growth has stabilized in the 4% to 5% range.

1988-2000: Period of

inter-cycle stability

2010-20XX? Post-

recession period of

stable growth?

Note: Data include state funds beginning in 1998.


Post-Hurricane

Andrew Bump:

1993: 6.3%

Post Katrina

Bump:

2006: 7.7%

17

U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 1994-2015 (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

$39,6

07

$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 15

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 in

2015 totaled $39.6B, its highest

level since 2000

18

Non-Life Insurance: Global Real (Inflation Adjusted) Premium Growth, 2015

Source: Swiss Re, sigma, No. 3/2016.

Market Life Non-Life Total

Advanced 2.5 2.6 2.5

Emerging 12.0 7.8 9.8

World 4.0 3.6 3.8

Real non-life premium

growth was stronger in the

US in 2015 than in most of

Europe

INVESTMENTS: THE NEW REALITY

19

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

19

-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

16*

*Through Oct. 12 2016.

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

2016*:

+6.5%

S&P 500 Index Returns, 1950 – 2016*

Fed Raises Rate

Stock market is off to its worst start ever but 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

Property/Casualty Insurance Industry Investment Income: 2000–2016:Q21

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$48.0 $47.3$46.4

$47.1

$44.1

$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 15 16*

Due to persistently low interest rates, investment income fell in 2012, 2013 and 2014 but showed a small (1.9%) increase in 2015—

another drop in 2016 seems likely.

1 Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.

($ Billions) Investment earnings are still 19% below their

2007 pre-crisis peak

*Annualized figure based on actual Q2:2016 net investment income earned of $22.067B.

22

U.S. Treasury Security Yields:A Long Downward Trend, 1990–2016*

*Monthly, constant maturity, nominal rates, through August 2016.

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 '16

Recession2-Yr Yield10-Yr Yield

Yields on 10-Year U.S. Treasury Notes have been essentially

below 5% for more than a 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.

Despite the Fed’s December 2015 rate hike, yields

remain low though short-

term yields have seen some gains;

Yield curve is flattening.

22

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

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

Net Investment Yield on Property/ Casualty Insurance Invested Assets, 2007–2016P*

4.5

4.2

4.0

3.8

3.4

3.6

3.1

3.73.8

3.6

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 15E 16P

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

Sources: A.M. Best; 2015E-2016P figures from A.M. Best P/C Review and Preview, Feb. 2016; Insurance Information Institute

(Percent) Estimated book yield in 2016 is down about 140

BP from pre-crisis levels

25

Interest Rate Forecasts: 2016 – 2021F

2.7% 2.7%

2.2%

1.7%

2.1%

2.8%

3.1%

3.4%3.6%

3.5%

0.1%0.3%

0.8%

1.7%

2.2%

2.5%

0%

1%

2%

3%

4%

15 16F 17F 18F 19F 20F 21F 22F 15 16F 17F 18F 19F 20F 21F 22F

A full normalization of interest rates is unlikely until 2019, more than a decade after the onset of the financial crisis.

Yield (%)

Sources: Blue Chip Economic Indicators (10/16 for 2016 and 2017; for 2018-2021 10/16 issue); Insurance Info. Institute.

3-Month Treasury 10-Year Treasury

10-year yields are actually down

in 2016

26

Annual Inflation Rates, (CPI-U, %),1990–2017F

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

1.5 1.6

0.1

1.3

2.3

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 15 16F17F

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 10/16 (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

27

P/C Insurer Net Realized Capital Gains/Losses, 1990-2016:Q2

*Annualized based on actual of $4.438B through Q2 2016Sources: A.M. Best, ISO; 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

0.2

8

$9

.41

$8

.88

-$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 16*

Insurers Posted Net Realized Capital Gains in 2010 - 2015 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 are down from their 2013 peak

Property/Casualty Insurance Industry Investment Gain: 1994–2016: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$56.6

$53.0

$56.6

$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* 16*

Total Investment Gains Were Flat in 2015 as Investment Income Rose Marginally and Realized Capital Gains Fell Slightly

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; 2016 figure is annualized based on actual Q2 2016 figure of $26.505B.Sources: ISO, SNL; Insurance Information Institute.

($ Billions)

Investment gains in 2015 were unchanged from 2014; 2016 is

running slightly behind 2015 and 17% below the pre-crisis peak

29

-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

Fidel

ity/S

uret

y

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


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

29

THE ECONOMY

30

The Strength of the Economy Will Greatly

Influence Insurer Exposure Base

Across Most Lines

30

31

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.

Source: US Department of Commerce, Blue Economic Indicators 10/16; Insurance Information Institute.

2.7

%1.8

%-1

.8%

1.3

%-3

.7%

-5.3

%-0

.3%

5.0

%2.3

%2.2

%2.6

%2.4

%0.1

%2.5

%1.3

%4.1

%2.0

%1.3

% 3.1

%0.4

%2.7

%1.8

% 3.5

%-0

.9%

4.6

%4.3

%2.1

%2.0

%2.6

%2.0

%0.9

%0.8

%1.4

% 2.7

%2.3

%2.2

%2.0

%2.1

%2.1

%

-8.9%

4.5

%

1.4%

4.1

%1.1

%1.8

%2.5

% 3.6

%3.1

%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

2

00

0

2

00

1

2

00

2

2

00

3

2

00

4

2

00

5

2

00

6

2

00

7

08

:1Q

08

:2Q

08

:3Q

08

:4Q

09

:1Q

09

:2Q

09

:3Q

09

:4Q

10

:1Q

10

:2Q

10

:3Q

10

:4Q

11

:1Q

11

:2Q

11

:3Q

11

:4Q

12

:1Q

12

:2Q

12

:3Q

12

:4Q

13

:1Q

13

:2Q

13

:3Q

13

:4Q

14

:1Q

14

:2Q

14

:3Q

14

:4Q

15

:1Q

15

:2Q

15

:3Q

15

:4Q

16

:1Q

16

:2Q

16

:3Q

16

:4Q

17

:1Q

17

:2Q

17

:3Q

17

:4Q

Demand for Insurance Should Increase in 2016 as GDP Growth Continues at a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly

Real GDP Growth (%)

Recession began in Dec, 2007

The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%

Q1 2014/15 GDP data were hit hard by this year’s “Polar Vortex”

and harsh winter

32

US Unemployment Rate Forecast4

.5%

4.5

%4

.6%

4.8

%4

.9% 5.4

% 6.1

%6

.9%

8.1

%9

.3%

9.6

% 10

.0%

9.7

%9

.6%

9.6

%

8.9

%9

.1%

9.1

%8

.7%

8.3

%8

.2%

8.0

%7

.8%

7.7

%7

.6%

7.3

%7

.0%

6.6

%6

.2%

6.1

%5

.7%

5.6

%5

.4%

5.2

%5

.0%

4.9

%4

.9%

4.9

%4

.8%

4.7

%4

.6%

4.6

%4

.5%

9.6

%

4%

5%

6%

7%

8%

9%

10%

11%

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

15

:Q2

15

:Q3

15

:Q4

16

:Q1

16

:Q2

16

:Q3

16

:Q4

17

:Q1

17

:Q2

17

:Q3

17

:Q4

Rising unemployment eroded payrolls

and WC’s exposure base.

Unemployment peaked at 10% in late 2009.

* = actual; = forecasts

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (10/16 edition); Insurance Information Institute.

2007:Q1 to 2017:Q4F*

Unemployment forecasts have been revised modestly

downwards. Optimistic scenarios put the

unemployment as low as 4.3% by Q4 of 2017.

Jobless figures have been revised

downwards for 2016

33

9.0%

3.5%

6.0%

2.1%

-0.5%

2.7%

3.4% 3.4% 3.2% 3.1% 3.1%

-2%

0%

2%

4%

6%

8%

10%

2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F

Continued Business Investment WillSpur Modest Commercial Exposure Growth

Business investment was a major drag on the economy in 2016 and adversely impacts commercial property and liability insurance exposures.

Growth should begin a modest recovery in 2017.

Sources: Blue Chip Economic Indicators, 10/2016 (history and forecasts for 2016 and 2017, 10/2016 for forecasts for 2018-2022;

Insurance Information Institute.

The level and direction of interest rates is likely to

affect these growth rates.

Profitability & Politics

3434

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

15.10%

8.93%

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: 1950-2015*

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, 1950-2015*

36

Trump vs. Clinton:Issues that Matter to P/C Insurers

Issue Trump Clinton

Economy Supply Side-Like Philosophy:Lower taxesFaster real GDP

growth; Deficits likely grow as tax cuts are combined with targeted increased spending on Homeland Security, Defense, etc.

Keynesian Philosophy: More government spending on infrastructure, education, social services; Deficits likely increase as tax increases likely difficult to pass

Interest Rates May trend higher with larger deficits; Shift from monetary policy to fiscal focus (tax cuts, government spending)

Status quo at the Fed; Net impact on interest rates unclear

Taxes Favors lower tax rates for corporate and personal income tax rates; Tax code overhaul?

Unlikely to reduce taxes or embark on major overhaul of tax code

International Trade

Protectionist Tendencies (appeal primarily to manufacturing sector)

Has criticized Trans-PacificPartnership but is a realist on international matters

Tort System Doesn’t like trial lawyers butseems to like filing lawsuits

Status Quo

Health Care ACA should be repealed & replaced Incremental Change

37

Auto & Home Insurance:

State of the Personal Lines Market

Auto Frequency and Severity Are an Immediate Challenge

Dearth of Major CATs (Until Recently), Pricing Discipline Has Helped Home

37

38

Return on Net Worth: All P-C Lines vs. Homeowners & Pvt. Pass. Auto, 1990-2014*

*Latest available.**Excludes 1992, the year of Hurricane Andrew. If 1992 is included the resulting homeowners RNW is 1.9%Sources: NAIC; Insurance Information Institute.

-10%

-5%

0%

5%

10%

15%

20%

25%

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

US All Lines

US Home

US PP Auto

(Percent)Average RNW: 1990-2013*

All P-C Lines: 7.8% PP Auto: 8.1%

Homeowners: 4.3%**

Pvt.Pass. Auto Has Consistently Outperformed the P-C Industry as a Whole. Homeowners Volatility is Associated Primarily With Coastal Exposure Issues

Excluding 1992’s Hurricane Andrew

39

18

.7

13

.3

13

.0

12

.8

12

.7

12

.7

11

.7

11

.5

10

.5

10

.1

10

.0

9.9

9.4

9.2

9.0

9.0

8.8

8.6

8.6

8.3

8.2

8.1

7.9

7.8

7.8

7.8

0

2

4

6

8

10

12

14

16

18

20

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

Sources: NAIC; Insurance Information Institute

Hawaii was the most profitable state for auto insurers from 2005-2014

RNW Pvt. Passenger Auto, 2005-2014

Average: Highest 25 States

(Percent)

40

7.7

7.7

7.5

7.5

7.0

6.9

6.9

6.9

6.7

6.6

6.4

6.4

6.2

5.8

5.8

5.8

5.5

5.5

5.0

4.7

4.5

4.0

3.9

3.6

2.2

-2.9-3

-1

1

3

5

7

9

IN

MD

CO

MA

PA

AR

MO

NY

AL

NE

NC

TX

US

DE

SC

TN

NJ

SD

KY

GA

OK

NV

FL

MS

LA MI

RNW Pvt. Passenger Auto,

2005-2014 Average: Lowest 25 States


Michigan was the least profitable state for auto insurers from

2005-2014

(Percent)

41

41

.7

22

.2

21

.1

20

.9

19

.0

18

.4

18

.4

18

.2

18

.0

16

.9

15

.6

14

.7

14

.1

13

.9

13

.8

12

.7

12

.6

11

.5

11

.5

9.4

9.3

9.1

9.1

19

.0

18

.0

14

.00

5

10

15

20

25

30

35

40

45

HI DC RI FL NV DE AK SC VA CA MA OR NY UT ME VT WA CT NH MD ID NC PA NM AZ WV


RNW Homeowners Insurance,

2005-2014 Average: Highest 25 States

Hawaii was the most profitable state for home insurers from 2005-2014 due to the absence

of hurricanes during this period

(Percent)

42

8.4

8.0

7.6

7.5

6.8

4.7

4.6

1.7

-1.7

8.0

6.0

-4.7

-4.8

-4.8

-5.8

-6.0

-7.5

-8.4

-11

.2

-13

.8

-20

.1

-26

.8

-4.0

-3.6-2.6

-2.1

-30

-25

-20

-15

-10

-5

0

5

10

ND TX MI US NJ WY WI IA IL KS OH MT MO CO KY IN AL SD AR NE MN GA TN OK LA MS

RN

W H

O


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

from 2005-2014

(Percent)

RNW Homeowners Insurance,

2005-2014 Average: Lowest 25 States

Personal Lines Underwriting Performance

4343

Auto, Home Underwriting Performance Exhibit Periods of

Both Stability and Volatility

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

4.9

10

5.3

10

5.4

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 15E 16F 17F

Private Passenger Auto Underwriting Performance Is Showing the Strains of Rising Frequency (and Severity) Trends in Many States

44Sources: A.M. Best (1990-2014); Conning (2015E-17F); Insurance Information Institute.

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

94

.4 10

0.3

89

.0 95

.6

11

6.6

10

5.8

10

6.9

12

2.1

10

3.9

90

.5

92

.7

91

.5 95

.3

95

.5

11

8.4

11

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E16F17F

1

Homeowners Performance Has Improved Markedly Since the 2011/12’s Large Cat Losses. Extreme Regional Variation Can Be Expected Due to Local Catastrophe Loss Activity. Results

in 2016 Will Be Impacted by Severe Spring Weather

45

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

Sources: A.M. Best (1990-2014); Insurance Information Institute (2015E-17F).

Loss Ratio Comparisons

4646

Auto, Home Exhibit Wide Variety Across States

47

Claim Trends in Private Passenger Auto Insurance

Rising Frequencies and Severities in Many Coverages

Will that Pattern Be Sustained?

Return on Net Worth: Personal Auto, 2005–2014

Source: National Association of Insurance Commissioners.

Auto Insurance Profitability Has Been Stuck at Low Levels.

14.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Personal Auto Fortune 500

4.3%

Auto Insurance Net Combined Ratios,Yearly, 2005-2015

Sources: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; Insurance Information Institute.

Loss Ratios Have Been Rising for A Decade. 2015 Return on Net Worth Is Likely Close to Zero or Negative.

92

.1%

92

.5%

94

.3%

96

.8%

99

.5%

98

.1%

10

3.6

%

10

7.0

%

10

6.9

% 10

3.4

%

10

8.8

%

95

.1%

95.6

%

98

.3%

10

0.2

%

10

1.3

%

10

1.0

%

10

2.0

%

10

2.1

%

10

1.6

%

10

2.5

%

10

4.6

%

85%

90%

95%

100%

105%

110%

115%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Commercial Personal

A Half Century of Auto Insurance:Frequency vs. Severity

In the Long Run, Frequency Falls. Severity Increases.

Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.

Frequency Severity

7.92

2.61

4.22

1.23

3.55

0.95

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Property Damage Bodily Injury

Cla

ims p

er 1

00

In

su

red

Veh

icle

s

$183$1,143$1,288

$7,553

$3,231

$15,443

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

PropertyDamage

Bodily Injury

Cla

im S

everit

y

1963 1988 2013

Why Personal Auto Loss Ratios are Rising:Severity & Frequency by Coverage, 2015 vs. 2014

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

4.1%

6.4%

3.5%

5.7%

-1.7%

2.2%1.1%

10.2%

0.8%

-2.5%-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Bodily Injury PropertyDamageLiability

PIP Collision Comprehensive

Severity Frequency

Annual Change, 2015 Over 2014

Across All Personal Coverage Types (Except Comprehensive) in 2015, Frequency and Severity Rose. This Pattern is Likely to Continue in 2016.

52

Collision Coverage: Severity & Frequency Trends Are Both Higher in 2016

2.8%

1.3%

4.1%

1.3%

5.7% 5.6%

-1.8%

-3.6%

2.5%

-2.4%-1.8%

4.4%

0.8% 0.8%

3.9%3.1%

0.1% 0.5%

-2.3%

-0.1%-1.4%

-0.5%

0.9%

2.4%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Severity Frequency

Annual Change, 2005 through 2016*

The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with

Experience from Past Recoveries

*Four quarters ending with 2016 Q1.

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

53

Collision Loss Ratio Trending Upward:Private Passenger Auto, 2010 – 2016*

79.1%

67.7%

69.3% 69.4%

73.4%74.8%

76.6%

62%

64%

66%

68%

70%

72%

74%

76%

78%

80%

2010 2011 2012 2013 2014 2015 2016*

Loss Ratio

Collision Loss Ratios are Trending Steadily Upward

*2016 figure is for Q1.


54

Bodily Injury: Severity Trend Is Up, Frequency Decline Has Ended—Rising?

2.1%1.7%

3.7%

1.8%

4.1% 4.3%

-5.4%

-3.8% -4.0% -4.2%

-2.2%

0.0%

-1.1%

2.2% 2.2%3.0%

2.0%

5.9%5.7%4.7%

2.9%

1.1%

0.0% 0.0%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Severity Frequency


Cost Pressures Will Increase if BI Frequency and Severity Trends Persist



55

Property Damage Liability: Severity and Frequency Are Up

1.8% 1.9%

4.0%3.4%

6.4% 6.8%

-1.6%

-3.5% -3.4%

0.6% 0.6%0.0%

1.4% 1.1%

2.3%2.9%

3.6%

2.0% 2.0%

-0.4%

0.4%0.9% 1.2%0.3%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Severity Frequency


Severity/Frequency Trends Have Been Volatile, But Rising Severity since 2011 Is a Concern



56

Comprehensive Coverage: Frequency and Severity Trends Are Volatile

15.4% 15.3%

-14.5%

7.3%

-1.7%

0.0%

-9.8%

-6.3%

1.3%

5.8%

-8.9%-7.0%

2.6%

15.5%

-1.4% -1.5%

12.6%

-8.1%-5.9%

-2.5%

0.0%

-3.1%

1.8%

6.2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Severity Frequency


Weather Creates Volatility for Comprehensive Coverage

Severe weather is a principal cause of the spikes in both

frequency and severity



57

A Few Factors Driving Adverse Private Passenger Auto Loss Trends

More People Driving, Lower Gas Prices, Higher Speed Limits…

58

Why Are PeopleDriving More Miles? Jobs? 2006 - 2015

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Seasonally Adjusted Employed from Bureau of Labor Statistics; Insurance Institute for Highway Safety; Insurance Information Institute.

Billions of Miles Driven in Prior Year

132

134

136

138

140

142

144

146

148

150

152

2850

2900

2950

3000

3050

3100

3150

06:Q

1

06:Q

3

07:Q

1

07:Q

3

08:Q

1

08:Q

3

09

:Q1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12:Q

3

13:Q

1

13:Q

3

14:Q

1

14:Q

3

15:Q

1

15:Q

3

Miles Driven (left axis) # EmployedMillions Employed

People Drive To and From Work and Drive to Entertainment. Out of Work, They Curtail Their Movement.

Recession

http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm

59

More People Working and Driving=> More Collisions, 2006-2016

Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Information Institute.

Number Employed,Millions

138

140

142

144

146

148

150

152

06

:Q1

06

:Q3

07

:Q1

07

:Q3

08

:Q1

08

:Q3

09

:Q1

09

:Q3

10

:Q1

10

:Q3

11

:Q1

11

:Q3

12

:Q1

12

:Q3

13

:Q1

13

:Q3

14

:Q1

14

:Q3

15

:Q1

15

:Q3

16

:Q1

5.5

5.6

5.7

5.8

5.9

6.0

Number Employed (left scale) Collision Claim Frequency (right scale)

Overall Collision Claims Per 100 Insured

Vehicles

When people are out of work, they drive less. When they get jobs,they drive to work, helping drive claim frequency higher.

Recession

Change in Auto Fatalities by State: Especially Severe in Georgia

7%

11%

12%

16%

22%

-1%

8%

-5% 0% 5% 10% 15% 20% 25%

GA (1,394)

SC (954)

KY (748)

NC (1,396)

USA (38,300)

VA (755)

TN (961)

SOURCE: Estimates from National Safety Council.

2015 vs. 2014

Fatalities in Southeast Rising Faster Than USA

as a Whole

GA’s auto fatality rate has increased at a pace nearly 3 times that of the US overall

and far in excess of any other state in the region

61

Personal Lines Growth Drivers

Rate and Exposure are Both Presently Important

Growth Drivers

62

Monthly Change in Auto Insurance Prices, 1991–2016*

*Percentage change from same month in prior year; through July 2016; 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 '16

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

Jul. 2016 reading of 6.3% is up from 5.4%

a year earlier. Current rate trend is strongest

since 2002-03.

63

Average Expenditures* on Auto Insurance, 1994-2015E

$6

51

$6

68

$6

91

$7

05

$7

26

$7

86

$8

30

$8

42

$8

31

$8

16

$7

99

$7

91

$7

87

$7

92

$7

97

$8

15 $8

41 $8

70 $8

99

$6

90

$6

85

$7

03

$600

$650

$700

$750

$800

$850

$900

$950

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

E

15

E

Across the U.S., auto insurance expenditures fell by 0.8% in 2008and 0.5% in 2009 but rose 0.5% in 2010, 0.8% in 2011, 2.3% in 2012 and 3.3% in 2013; I.I.I.

estimate is for +3.4% in 2014 and 2015.* The NAIC data are per-vehicle (actually, per insured car-year)Sources: NAIC for 1994-2013; Insurance Information Institute estimates for 2014-2015 based on CPI and other data.

The average expenditure on auto insurance now finally exceeds the pre-crisis high of

$842 recorded in 2004, taking a full decade to recover, but on an inflation-adjusted

basis premiums are still below 2004 levels

Annual Pct Changes

2001: 5.2%

2002: 8.6%

2003: 5.6%

2004: 1.5%

2005: -1.3%

2006: -1.8%

2007: -2.1%

2008: -1.0%

2009: -0.5%

2010: 0.6%

2011: 0.6%

2012: 2.3%

2013: 3.3%

64

$119.7

$128.0 $

139.7 $

151.2

$159.6

$158.5

$157.2

$160.1

$163.3

$168.1

$174.6 $183.5

$191.2

$197.7

$204.0

$160.3

$159.6

$157.3

$100

$120

$140

$160

$180

$200

$220

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

PP Auto premiums written continue to recover from a period of flat growth attributable to the weak economy impacting new vehicle sales, car choice, and increased

price sensitivity among consumers

Sources: A.M. Best (1990-2014); Conning (2015-17F); Insurance Information Institute.

Private Passenger Auto InsuranceNet Written Premium, 2000–2017F

$ Billion

PPA NWP volume in 2014 was up $26.3B or 16.7%

since the 2009 trough; By 2017 the gain is expected to

be $46.8B or 29.7%

PPA will generate $6B - $8B in new

premiums annually through 2017

65

Homeowners InsuranceNet Written Premium, 2000–2016F

$45.8

$49.5$52.2

$54.8 $55.2

$61.1$63.5

$66.9

$71.9

$77.0

$80.9

$84.9

$57.5$56.2

$32.4

$40.0

$35.2

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

$90

$95

$100

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

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

$ Billions Homeowners insurance NWP continues to rise (up 150% 2000-2015F) despite very little unit

growth during the real estate crash. Reasons include rate increases, especially in coastal

zones, ITV endorsements (e.g., “inflation guards”), compulsory for mortgaged properties

and resumption of home building activity

The Homeowners line will generate about

$4B in new premiums annually through 2016

Personal Lines: Economic and Demographic Considerations

6666

Auto, Home Are Sensitive to Underlying Economic

Conditions

67

(Millions of Units)

New Private Housing Starts, 1990-2022F

1.4

8

1.4

7 1.6

2

1.6

4

1.5

7

1.6

0 1.7

1 1.8

5 1.9

6 2.0

7

1.8

0

1.3

6

0.9

1

0.5

5

0.5

9

0.6

1 0.7

8 0.9

2

1.0

0 1.1

1

1.1

8 1.2

8

1.3

7

1.4

3

1.4

7

1.4

81

.48

1.3

51.4

6

1.2

9

1.2

0

1.0

11.1

9

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16F17F18F19F20F21F22F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/16 for 2016-17; 10/16 for 2018-22F; Insurance Information Institute.

Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk

Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure

New home starts plunged 72% from 2005-2009; A net

annual decline of 1.49 million units, lowest since records began

in 1959

Job growth, low inventories of existing homes, still-low mortgage

rates and demographics should continue to stimulate new home

construction for several more years

68

16

.9

16

.5

16

.1

13

.2

10

.4

11

.6

12

.7

14

.4

15

.5 16

.4

17

.4

17

.2

17

.1

16

.8

16

.8

16

.7

16

.7

16

.7

16

.9

16

.617

.1

17

.5

17

.8

17

.4

9

10

11

12

13

14

15

16

17

18

19

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16F 17F 18F 19F 20F 21F 22F

(Millions of Units)

Auto/Light Truck Sales, 1999-2022F

New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is

still below 1999-2007 average of 17 million units, but a robust recovery is well underway.

Job growth and improved credit market conditions will boost auto sales in

2015 and beyond

Truck, SUV purchases are

especially strong

Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. PP Auto premium

might grow by 3.5% - 5%.

Sales have returned to pre-

crisis levels

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/16 for 2016-17; 10/16 for 2018-21F; Insurance Information Institute.

Number of Registered Passenger Vehicles in US, 1999 – 2015E

Sources: Bureau of Transportation Statistics; Barclays Capital estimates, August 2015.69

Vehicle registrations are growing once

again and now finally exceed pre-crisis

peak

Vehicle registrations are expected to increase at an

annual rate of about 1.5% per year in 2015 and 2016

Auto Loans and Other Non-Housing Debt, 2004 – 2015*

70

Banks are becoming increasingly aggressive in marketing auto loans

*As of Q1 2015.Source: Federal Reserve Bank of NY Consumer Credit Panel/Equifax; l. I.I.

Auto loan debt outstanding

reached $1T for the first time ever

in Q1 2015

71

Commercial Lines Underwriting Performance

71

10

9.4

11

0.2

11

8.8

10

9.5 1

12

.5

11

0.2

10

7.6

10

4.1

10

9.7

11

0.2

10

2.5 1

05

.4

91

.1

93

.6

10

4.2

98

.9

10

2.4

10

7.9

10

3.5

94

.8

94

.3

93

.6

97

.3

98

.1

10

2.0

11

1.1

11

2.3

12

2.3

90

95

100

105

110

115

120

125

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

E

16

F

17

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 (2015E-17F) Insurance Information Institute.

Commercial Lines Combined Ratio, 1990-2017F*

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

72

Commercial Property Combined Ratio: 2007–2017F

72

.4

10

5.8

83

.3 86

.5

85

.8

86

.3 90

.6

90

.6

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 Improved in Recent Years, Largely Due to

Diminished 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

3.9

10

3.6

10

4.5

10

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 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

6.6

10

8.2

10

8.8

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 15E16F17F

Commercial Auto Results Are Challenged as Rate Gains Barely Have Yet to Offset Adverse Frequency and Severity Trends

75Sources: A.M. Best (1990-2014);Conning (2015E-2017F); Insurance Information Institute.

Workers Compensation Combined Ratio: 1994–2015P

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

9.0

10

2.0

10

0.0

94

.0

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 14 15P

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 (2010-2015P) and are for private carriers only; Insurance Information Institute.76

WC results have improved markedly

since 2011

Workers Compensation Premium: Fifth 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 39.7

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

44.245.5

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 14 15p

State Funds ($ B)

Private Carriers ($ B)

Pvt. Carrier NWP growth was +2.9% in 2015, +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.

Workers Compensation Lost-Time Claim Frequency Declined in 2015

78

-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

-3.9

-5.4

-3

-1.7

-3.0

3.6

-0.9

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

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

Indicated

Adjusted*

Percent

Accident Year*Adjustments primarily due to significant audit activity.

2015p: Preliminary based on data valued as of 12/31/2015.

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

policies; 1994-2014: Based on data through 12/31/14. 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

Average Annual Change = –3.6%

(1994–2014)

Workers Compensation Medical Severity:Small Decrease in 2015

79

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

6.2

$2

6.3

$2

6.8

$2

7.3

$2

8.0

$2

8.8

$2

8.5

+6.8%+1.3%-2.1%+9.0%+5.1%

+7.4%+10.1%

+8.3%

+10.6%+7.3%

+13.5%

+8.8%

+7.7%+5.4%

+7.8%

+5.8%

+5.9%

+7.0%+4.5%+0.4%

+2.2%+2.0%

+2.3%+3.0%

-1%

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 14 15p

2015p: Preliminary based on data valued as of 12/31/2015.

1991-2013: Based on data through 12/31/2014, developed to ultimate

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

Cumulative Change = 252%

(1991-2015p)

Accident Year

Medical severity for lost time claims was down 1% in 2015, the first decline in

at least 20 years

80

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 201580

81

$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

5.2

$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 16*

U.S. Insured Catastrophe Losses

*Through 6/30/16. 2016 figure stated in 2016 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.

2013/14/15 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster

Losses in US History. 2016 Is Off to a Costlier Start.

2012 was the 3rd most expensive year ever for

insured CAT losses

$11.0B in insured CAT losses though

6/30/16

($ Billions, $ 2015)

81

82

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1996–20151

0.2%1.8%

4.9%

6.1%

7.5%

40.2%

39.2%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2015 dollars.

2. Excludes snow.

3. Does not include NFIP flood losses

4. Includes wildland fires

5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.

Source: ISO’s Property Claim Services Unit.

Hurricanes & Tropical Storms, $158.6

Fires (4), $7.3

Events Involving Tornadoes (2), $158.6

Winter Storms, $30.4

Terrorism, $24.6

Other Wind/Hail/Flood (3), $19.9

Other (5), $0.8

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Insured cat losses from 1996-2015

totaled $404.1B, an average of $20.2B per year or $1.68B

per month

Winter storm losses were much above average in 2014/15 pushing

this share up

Top 3 States for Insured Catastrophe Losses, 1996-2005 (in 2015 Dollars)

83

Texas, Florida and New York lead the country in insured catastrophe losses over the past 20 years. These 3 states accounted for nearly 1/3 of

all insured catastrophe losses over the past two decades

Source: PCS/Verisk for 2016 Insurance Fact Book, Insurance Information Institute.

84

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.

Convective Loss Events in the USOverall and insured losses, 1980 – 2015

85

$ Billions

Analysis contains:

severe storm, tornado, hail, flash

flood and lightning

*Losses adjusted to inflation based on CPI

Source: Geo Risks Research, NatCatSERVICE

Overall losses

(in 2015 values)*

Insured losses

(in 2015 values)* The period from 2008-2015 has

been the most expensive on record for insured losses from “Convective Events” (severe thunderstorms, tornado, hail,

lightning and flash flood)

Winter Storm Losses in the US1980 – 2015 (Overall and Insured Losses)*

86

Overall losses

(in 2015 values)*

Insured losses

(in 2015 values)*

*Losses adjusted to

inflation based on CPI.Source: Property Claim Services, MR NatCatSERVICE.

$ Billions

Winter storm losses have been increasing rapidly in recent years

*Winter storms

include also winter

damages, blizzards

and cold waves

Regional Property Catastrophe ROL Index: 1990 – 2016

87

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

Source: Guy Carpenter; Insurance Information Institute.

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.

89

INDUSTRY DISRUPTORS

Technology, Society and the Economy Are All

Changing at a Rapid Pace

Thoughts on the Future

89

90

Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance

By 2035, it is estimated that 25% of new vehicle

sales could be fully autonomous models

Source: Boston Consulting Group.

Questions

Are auto insurers monitoring these trends?

How are they reacting?

Will Google take over the industry?

Will the number of auto insurers shrink?

How will liability shift?

91

On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance

The “On-Demand” Economy is or will impact many segments of the economy important to P/C insurers

Auto (personal and commercial)

Homeowners/Renters

Many Liability Coverages

Professional Liability

Workers Comp

Many unanswered insurance questions

Insurance solutions are increasingly available to fill the many insurance gaps that arise

The Sharing Economy: An Update

The On-Demand Economy Will Transform the American

Workforce and the P/C Insurance Industry Too

92

93

The Sharing Economy Has Grown—And Attracted Political Scrutiny

94

Political Skepticism About the‘Gig’ Economy

"Many Americans are

making extra money renting

out a spare room, designing

a website ... even driving

their own car. This on

demand or so called 'gig'

economy is creating

exciting opportunities and

unleashing innovation, but

it's also raising hard

questions about

workplace protections

and what a good job will

look like in the future."

--Hillary Clinton,

July 13, 2015

95

Americans Who Offer Services in the Sharing/Gig Economy Are Statistically More Prone to Workplace Injury

Sources: The SelfEmployed.com accessed at https://www.theselfemployed.com/gig-economy/infographic-inside-the-new-

economy/ based on a poll by Time magazine, Bursten-Marsteller and The Aspen Institute; Insurance Information Institute.

Young, urban minority males are the most likely to offer their services in the sharing economy.

https://www.theselfemployed.com/gig-economy/infographic-inside-the-new-economy/

Data Breaches 2005-2015, by Number of Breaches and Records Exposed

# Data Breaches/Millions of Records Exposed

*Figures as of June 30, 2015, from the Identity Theft Resource Center,http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf

157

321

446

656

498

419

470

614

400

783

662

117.6

85.692.0

17.522.9

35.7

19.1

66.9

222.5

16.2

127.7

100

200

300

400

500

600

700

800

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

0

20

40

60

80

100

120

140

160

180

200

220

# Data Breaches # Records Exposed (Millions)

The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million records. Through June 30, this year has

seen 117.6 million records exposed in 400 breaches.*

Millions

97

The Road to Fully Autonomous Vehicles: Long, Dark and Full of Potholes

Tales of the Death of Auto Insurance Are Greatly Exaggerated

AUTO TECHNOLOGY &

THE FUTURE OF AUTO INSURANCE

98


By 2035, it is estimated that 25% of new vehicle

sales could be fully autonomous models

Source: Boston Consulting Group.

Questions

Are auto insurers monitoring these trends?

How are they reacting?

Will Google take over the industry?

Will the number of auto insurers shrink?

How will liability shift?

99


Source: Autonomous Consulting as cited in the Financial Times: “Cost of Car Insurance to Plunge With Rise of Driverless

Vehicles, June 28, 2016.

Some are predicting that the rise of autonomous

vehicles will reduce claim frequency by 75% or

more…

,,,and that this technology will cause average auto insurance

premiums to plunge

I.I.I. Poll: Auto Insurance

Q. Would you be willing to ride in a driverless car?

Source: Insurance Information Institute Annual Pulse Survey.

The Percentage Willing to Ride in a Driverless Car Rose Slightly. 71 Percent of People Over 64 Were Unwilling to Ride.

The Percentage Willing to Ride in a Driverless Car Rose Slightly; 71% of People Over 64 Were Unwilling to Ride.

40

%58

%

2%

May 2015 May 2016

No

Don’t Know

Yes43

%55

%

2%

No

Don’t Know

Yes

I.I.I. Poll: Driverless Cars


Source: Insurance Information Institute Annual Pulse Survey

The Percentage Willing to Ride in a Driverless Car Remains at 43%; 71% of People Over 64 Were Unwilling to Ride.

40% 40% 43% 43%

59% 58% 56% 55%

1% 2% 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

May 2014 May 2015 Nov 2015 May 2016

Yes No Don't Know




The Percentage Willing to Ride in a Driverless Car Remains at 43%; 71% of People Over 64 Were Unwilling to Ride.

40% 40%43% 43%

59% 58%56% 55%

1% 2% 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

May 2014 May 2015 November 2015 May 2016

Yes No Don't Know


Why Americans Would Not Want to Ride in a Driverless Car, May 20161

1 Based on those who would not ride in a driverless car. Respondents could give more than one answer.


84%

74% 72%

62%59%

42%36%

1% 1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Would NotFeel Safe

Don't Wantto Give Up

Control

ComputerCould BeHacked

Cars WouldBe Too

Expensive

Would BeLiable for

AnyAccident

WouldCollect

PersonalData

Would BeBoring

None ofThese

Don’t Know

Safety Concerns Are Paramount Among Those Who Would Avoid Driverless Cars.

I.I.I. Poll: Telematics—Consumers Still Hesitant

1Asked of those who have auto insurance.


More Than Half of Auto Policyholders Would Allow Their Insurer toCollect Their Driving Information in Order to Set Premiums.

Q Would you allow your auto insurer to collect information about how and when you drive in order to set your auto insurance premium?

39%

18%

42%

1%

Allow if Premium Went Down

Allow Whether or Not Premium Went Down

NotAllow

Don’t Know

105

Telematics for Your Home:The Internet of Things

The home is the next frontier for telematics

Rapidly becoming a crowded space

How and with whom will insurers partner?

Can control increasing array of household systems remotely

Heat, A/C

Fire, CO detection

Security Systems

Cameras/Monitors

Appliances

Lighting

Technology is adaptive

Uses sensors and algorithms to learn about you

106

THE ‘INTERNET OF THINGS’

Capturing Economic Value Amid a

Shifting Insurer Value Chain

107

The Internet of Things and the Insurance Industry

The “Internet of Things” will create trillions in economic value throughout the global economy by 2025

What opportunities, challenges will this create for insurers?

What are the impact on the insurance industry “value chain”?Sources: McKinsey Global Institute, The Internet of Things: Mapping the Value Beyond the Hype,

June 2015; Insurance Information Institute.

108

Wearables Show Significant Potential to Reduce Workplace Injury, Death

Wearables Today Can Monitor:

Location

Heart rate

Temperature

Steps/Exertion

Sweat

Sleep

In the Near Future Could Monitor:

Glucose level

Oxygen levels

Pain

Nausea

109

The Internet of Things and the Insurance Industry Value Chain

Source: Willis Capital Markets & Advisory; Insurance Information Institute.

The Insurance Industry Value Chain Is Changing for Many Reasons

110

The Internet of Things and the Insurance Industry Value Chain

Source: Willis Capital Markets & Advisory; Insurance Information Institute.

Who owns the data? Where does It flow? Who does the analytics? Who is the capital provider?

111

INSURANCE TECHNOLOGY:

FIN TECH ZEROES IN

Number and Value of Deals Is Increasing

In Search of the Elusive Insurance ‘Unicorn’

112

$62 $29 $22 $18

$240

$31 $44 $71 $37$107

$29

$133

$415

$148$82

$171

$1,848

$369

$272

$650

$32

6

10

54

13

1011

13

18

11

20

9

1820

27

19

22

27

34

30

47

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

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

1

15:Q

2

15:Q

3

15:Q

4

16:Q

1

Inv

es

tme

nt

0

5

10

15

20

25

30

35

40

45

50

Nu

mb

er o

f De

als

($ Millions)

Investment in insurance

tech is rising

Insurance tech deals reached a new record

in 2016:Q1

Source: CB Insights at https://www.cbinsights.com/blog/insurance-tech-overview-q1-2016/; Insurance Information Institute.

Insurance Technology Financing Trend: Change Is Coming

https://www.cbinsights.com/blog/insurance-tech-overview-q1-2016/

Source: Lemonade.com accessed June 24, 2016.

Lemonade: Peer-to-Peer (P2P) Insurance

113

Source: Email from Lemonade CEO Danieal Schreibeir, May 17, 2016.

Lemonade: Sour Words About Insurance

114

Daniel Schreiber here, with updates from Lemonade.

I’m thrilled to report that a few days ago, by unanimous vote of our board and shareholders, Lemonade became a Public Benefit Corporation, and was also awarded provisional ‘B-Corp’ certification. Both are firsts for an insurance carrier, and are points of tremendous pride for our team.

Rebuilding insurance as a social good, rather than a necessary evil, is now part of our legal mission. Our Chief Behavioral Officer, Professor Dan Ariely, says that “If you tried to create a system to bring out the worst in humans, it would look a lot like the insurance of today.” Working in partnership with nonprofits, and baking giving-back into our business model, holds the promise of a better insurance experience, and a more valuable insurance company.

In other news, I’m happy to say that we’re putting finishing touches on our product and will be ready to launch in New York within weeks. The final step is for us to get our license, and if all goes to plan, we’ll have that shortly. Be sure to follow us on Twitter, Facebook, and LinkedIn to stay in the know.

Until next time, Daniel@daschreiber

http://mandrillapp.com/track/click/30844816/www.bcorporation.net?p=eyJzIjoiTzJRQmFMSTZQeFVzeVVxRTFmRGhyVXRLNzBBIiwidiI6MSwicCI6IntcInVcIjozMDg0NDgxNixcInZcIjoxLFwidXJsXCI6XCJodHRwczpcXFwvXFxcL3d3dy5iY29ycG9yYXRpb24ubmV0XFxcL1wiLFwiaWRcIjpcImE0YmI3OWU4N2Q0ZTRmYzg4ZTRjNzg3ZDU0MTBiYzg3XCIsXCJ1cmxfaWRzXCI6W1wiMGI5ZWFhNWI3MGE2ZGY3MDNiMmExODY0NGE2ZTEzNThkNTlmODAzNFwiXX0ifQ

http://mandrillapp.com/track/click/30844816/twitter.com?p=eyJzIjoia24tV09jQ2JVc19YLXl5eUtPUy0yQnNYbmE0IiwidiI6MSwicCI6IntcInVcIjozMDg0NDgxNixcInZcIjoxLFwidXJsXCI6XCJodHRwczpcXFwvXFxcL3R3aXR0ZXIuY29tXFxcL2xlbW9uYWRlX2luY1wiLFwiaWRcIjpcImE0YmI3OWU4N2Q0ZTRmYzg4ZTRjNzg3ZDU0MTBiYzg3XCIsXCJ1cmxfaWRzXCI6W1wiM2E5M2FhMGYxNWJlNzVjNDNhOTFmMTliNTRkYjgxY2NkOWQzOWVkZVwiXX0ifQ

http://mandrillapp.com/track/click/30844816/www.facebook.com?p=eyJzIjoiTzBsXzJmdkNKclBQUGNFMG1sR3hfeV93SkNvIiwidiI6MSwicCI6IntcInVcIjozMDg0NDgxNixcInZcIjoxLFwidXJsXCI6XCJodHRwczpcXFwvXFxcL3d3dy5mYWNlYm9vay5jb21cXFwvbGVtb25hZGVpbmNcXFwvXCIsXCJpZFwiOlwiYTRiYjc5ZTg3ZDRlNGZjODhlNGM3ODdkNTQxMGJjODdcIixcInVybF9pZHNcIjpbXCI5ZjNhMzg0YmEwYWY1YmUwMzZkZGQ4M2NiMGM4YTYzODg5ZjZiMWU3XCJdfSJ9

http://mandrillapp.com/track/click/30844816/www.linkedin.com?p=eyJzIjoiSzMxY2Z4TjUyNDRncjFLZjRTQ3o2RnJUeDFnIiwidiI6MSwicCI6IntcInVcIjozMDg0NDgxNixcInZcIjoxLFwidXJsXCI6XCJodHRwczpcXFwvXFxcL3d3dy5saW5rZWRpbi5jb21cXFwvY29tcGFueVxcXC9sZW1vbmFkZS1pbmMtXCIsXCJpZFwiOlwiYTRiYjc5ZTg3ZDRlNGZjODhlNGM3ODdkNTQxMGJjODdcIixcInVybF9pZHNcIjpbXCI1YTBlNjRiZTg3MTA0NDRlNjU1ZWM4MWRhMmMyOWQxM2NkM2IyMjE4XCJdfSJ9

115

Distribution Trends

Distribution by Channel Type Continues to Evolve Around

the World

116

All P/C Lines Distribution Channels,Direct vs. Independent Agents, 1983-2014

Source: Insurance Information Institute; based on data from Conning and A.M. Best.

0%

10%

20%

30%

40%

50%

60%

70%

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

Direct Independent Agents

Independent agents steadily lost market share from the early 1980s through the early 2000s

across all P/C lines, made some games in the mid-2000s, but then lost share again in the late 2000s.

Loss rate has slowed in in the 2010s. Direct channels include exclusive agency companies, direct marketers and direct sales (e.g., internet)

117

Personal Lines Distribution Channels, Direct vs. Independent Agents, 1972-2014

Source: Insurance Information Institute; based on data from Conning and A.M. Best.

0%

10%

20%

30%

40%

50%

60%

70%

80%

72 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

Direct Independent Agents

Independent agents have lost significant personal lines market share since the early 1970s.

Although the trend slowed from 2000-2007, it may be accelerating again.

www.iii.org

Thank you for your timeand your attention!

Twitter: twitter.com/bob_Hartwig

Download at www.iii.org/presentations

Insurance Information Institute Online:

118

http://www.iii.org/presentations

Documents

Trends, Challenges and Opportunities in the P/C Insurance ... · Twin Recessions; Interest Rate Hikes 1987: 3.7% Great Recession: 2010: -4.9% ROE 2015 3.4% NPW Premium Growth: Peaks