Economic Trends, Challenges, and Opportunities Affecting
the P/C and Surety LOBNew Jersey Surety Association
September 13, 2012
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5540 Cell: 917.494.5945 [email protected] www.iii.org
2
Economics 2012:Most Signs Are Weak
but Positive
Favorable Consequencesfor P/C Insurers,
if Current Trends Continue
2
3
The US Economy is Forecastto Keep Growing*, but Slowly
* Estimates/Forecasts from Blue Chip Economic IndicatorsSources: US Department of Commerce, http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm ;Blue Chip Economic Indicators 8/2012 issue (forecasts); Insurance Information Institute.
1.4%
4.0%
2.3%
2.2% 2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.7%
1.7%
1.9%
1.8% 2.4% 2.7%
2.9%
-1.8
%
1.3%
-3.7
%
-8.9
%
-5.3
%
-0.3
%
-12%
-9%
-6%
-3%
0%
3%
6%
08:1
Q
08:2
Q
08:3
Q
08:4
Q
09:1
Q
09:2
Q
09:3
Q
09:4
Q
10:1
Q
10:2
Q
10:3
Q
10:4
Q
11:1
Q
11:2
Q
11:3
Q
11:4
Q
12:1
Q
12:2
Q
12:3
Q
12:4
Q
13:1
Q
13:2
Q
13:3
Q
13:4
Q
Demand for insurance continues to be affected by a sluggish economy
Real GDP Growth (%)
Not reflected here: Some economists worry that as of Jan 1, 2013, planned
federal spending cuts, the expiration of income tax rate reductions, and the end
of some unemployment benefits will sap growth and could trigger another
recession in 2013.
Worst quarterly drop since
1958:q1 (-11.1%)
Recession
4
August 2012 Forecasts of Quarterly US Real GDP for 2012-13
2.0% 2.1%
2.7%2.9%
3.5%3.8%
1.6%
1.1%
0.6%
1.1%
2.4%
1.7%1.9% 1.8%
3.3%
2.9%2.7%
2.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
12:Q3 12:Q4 13:Q1 13:Q2 13:Q3 13:Q4
10 Most PessimisticMedian10 Most Optimistic
Sources: Blue Chip Economic Indicators (8/12); Insurance Information Institute
Real GDP Annual Growth Rate
As of early August 2012, virtually every forecast predicts improving growththroughout the 6-quarter period, except for 2013:Q1. But this might change.
5
A Look Back: August 2011 Forecastof US Real GDP for Next 4 Quarters
2.0%1.8% 1.8%
1.4%
2.6%
2.2%2.5% 2.4%
3.1%3.1%3.3%
3.0%
1.0%
2.0%
3.0%
4.0%
5.0%
11:Q3 11:Q4 12:Q1 12:Q2
10 Most Pessimistic Median 10 Most Optimistic
Sources: Blue Chip Economic Indicators (8/11); Insurance Information Institute
Real GDP Annual Growth Rate
6
Off Target: August 2011 Forecasts forNext 4 Quarters vs. Actual US Real GDP
1.3%
4.1%
2.0%
1.5%
2.0%1.8% 1.8%
1.4%
2.6%
2.2%2.5% 2.4%
3.1%3.1%3.3%
3.0%
1.0%
2.0%
3.0%
4.0%
5.0%
11:Q3 11:Q4 12:Q1 12:Q2
10 Most Pessimistic Median 10 Most Optimistic Actual
Sources: Blue Chip Economic Indicators (8/11 and 8/12 issues); Insurance Information Institute
Real GDP Annual Growth Rate
State-by-State Leading Indicatorsfor 2d Half of 2012
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 7
5 Fastest Growing StatesOhio 3.2%Idaho 2.5%California 2.4%Indiana 1.7%Rhode Island 1.6%5 Slowest Growing StatesWest Virginia -4.1%
Alaska -3.9%Michigan -3.4%Alabama -3.0%Nevada -2.0%
8
Leading Indicator Indexes Vary Widely by State and Region*
0.71
0.45
0.32
0.26
0.14
0.02
0.02
-0.0
8-0
.22
-0.3
1-2
.98
-4.1
4
0.76
0.13
-0.3
7-0
.49
-0.8
3
1.55
1.31
0.21
-0.1
5-0
.79
-1.5
6
-3.8
6
0.95
-5
-4
-3
-2
-1
0
1
2
3
4V
A TN FL AR KY
GA LA MS
NC
SC AL
WV NY NJ
DE
MD
PA RI
MA
ME
VT
CT
NH
AK HI
*Data for July-December; next release to be posted October 2, 2012.
Sources: Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute
Southeast Mid-Atlantic New England
9
Leading Indicator Indexes Vary Widely by State and Region*(cont’d)
2.38
3.21
1.07
0.95
0.89
-0.0
4
-1.9
7-0
.14
0.97
-0.3
3-3
.35
1.20
-0.1
3
1.33
1.361.
65
1.53
0.580.
860.94
2.45
0.55
-0.7
9-0
.96
1.18
-4
-3
-2
-1
0
1
2
3
4
AZ
TX OK
NM ID UT
CO
MT
WY
CA
WA
OR
NV
OH IN WI IL MI
MN
SD
ND IA KS NE
MO
*Data for July-December; next release to be posted October 2, 2012.
Sources: Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute
Southwest Mountain Far West Great PlainsGreat Lakes
10
Construction Trends
10
The Architecture Billings Index is a Leading Indicator of Construction
11
A score over 50 indicates an increase in billings. June 2012
score was 45.9
There is roughly a 9-12-month lag between architecture billings and
construction spending
12
PRIVATE CONSTRUCTION
12
13
Value* of Private Construction “Put In Place”
*Seasonally adjusted annual rate Source: http://www.census.gov/const/C30/release.pdf
Since the recession started in Dec 2007, private nonresidential construction activity plunged by 41% (as of Jan 2011), then rose by 26% (as of July 2012),
but is still down 25% vs. Dec 2007.
$200
$225
$250
$275
$300
$325
$350
$375
$400
$425
Nov
'08
Dec
Jan
'09
Feb
'09
Mar
'09
Apr
'09
May
'09
Jun
'09
Jul '
09A
ug '0
9S
ep '0
9O
ct '0
9N
ov '0
9D
ecJa
n '1
0Fe
b '1
0M
ar '1
0A
pr '1
0M
ay '1
0Ju
n '1
0Ju
l '10
Aug
'10
Sep
'10
Oct
'10
Nov
'10
Dec
Jan
'11
Feb
'11
Mar
'11
Apr
'11
May
'11
Jun
'11
Jul '
11A
ug '1
1S
ep '1
1O
ct '1
1N
ov '1
1D
ecJa
n '1
2Fe
b '1
2M
ar '1
2A
pr '1
2M
ay '1
2Ju
n '1
2Ju
l '12
Residential Private Nonresidential PrivateBillions Official Recession Months
14
$25
$35
$45
$55
$65
$75
$85
$95
Jan
2010 Feb Mar
Apr
201
0
May Ju
n
Jul 2
010
Aug
Sep
Oct
201
0
Nov
Dec
Jan
2011 Feb Mar
Apr
201
1
May Ju
n
Jul 2
011
Aug
Sep
Oct
201
1
Nov
Dec
Jan
2012 Feb Mar
Apr
201
2
May Ju
n
Jul 2
012
PowerManufacturingCommercial
Value* of Nonresidential Private Construction “Put In Place,” by Sector
*Seasonally-adjusted annual rate Sources: U.S. Census Bureau; Insurance Information Institute
Power-related construction rose in 2010-11 but since then dropped off. Manufacturing construction took an opposite path.
$ Millions
15
$12
$15
$18
$21
$24
$27
$30
$33
Jan
2010 Feb Mar
Apr
201
0
May Ju
n
Jul 2
010
Aug
Sep
Oct
201
0
Nov
Dec
Jan
2011 Feb Mar
Apr
201
1
May Ju
n
Jul 2
011
Aug
Sep
Oct
201
1
Nov
Dec
Jan
2012 Feb Mar
Apr
201
2
May Ju
n
Jul 2
012
Health Care Office Educational
Value* of Nonresidential Private Construction “Put In Place,” by Sector
*Seasonally-adjusted annual rate Sources: U.S. Census Bureau; Insurance Information Institute
Private health-care construction has been virtually flat since July 2010, but private educational construction rose 37.7% in that time.
$ Millions
16
PUBLIC CONSTRUCTION
16
17
Value* of Nonresidential Public Construction “Put In Place”
*Seasonally adjusted annual rate Source: http://www.census.gov/const/C30/release.pdf
Since the recession started, private residential and nonresidential construction together are down $300 billion (annual rate), a drop of 38%.
Public construction has hardly moved.
$260
$270
$280
$290
$300
$310
$320
Nov
'08
Dec
Jan
'09
Feb
'09
Mar
'09
Apr
'09
May
'09
Jun
'09
Jul '
09A
ug '0
9S
ep '0
9O
ct '0
9N
ov '0
9D
ecJa
n '1
0Fe
b '1
0M
ar '1
0A
pr '1
0M
ay '1
0Ju
n '1
0Ju
l '10
Aug
'10
Sep
'10
Oct
'10
Nov
'10
Dec
Jan
'11
Feb
'11
Mar
'11
Apr
'11
May
'11
Jun
'11
Jul '
11A
ug '1
1S
ep '1
1O
ct '1
1N
ov '1
1D
ecJa
n '1
2Fe
b '1
2M
ar '1
2A
pr '1
2M
ay '1
2Ju
n '1
2Ju
l '12
Billions
18
$60
$65
$70
$75
$80
$85
$90
Jan
2010 Feb Mar
Apr
201
0
May Ju
n
Jul 2
010
Aug
Sep
Oct
201
0
Nov
Dec
Jan
2011 Feb Mar
Apr
201
1
May Ju
n
Jul 2
011
Aug
Sep
Oct
201
1
Nov
Dec
Jan
2012 Feb Mar
Apr
201
2
May Ju
n
Jul 2
012
Highway & Street Educational
Value* of Nonresidential Public Construction “Put In Place,” by Sector
*Seasonally-adjusted annual rate Sources: U.S. Census Bureau; Insurance Information Institute
In 2010, Highway & Street construction rose with federal stimulus,but was virtually flat since then. Since the start of 2010, public spending
for Educational construction is down $12.6B (-16.0%).
$ Millions
19
$10
$15
$20
$25
$30
$35
Jan
2010 Feb Mar
Apr
201
0
May Ju
n
Jul 2
010
Aug
Sep
Oct
201
0
Nov
Dec
Jan
2011 Feb Mar
Apr
201
1
May Ju
n
Jul 2
011
Aug
Sep
Oct
201
1
Nov
Dec
Jan
2012 Feb Mar
Apr
201
2
May Ju
n
Jul 2
012
Transportation Sewage & Waste Disposal Office
Value* of Nonresidential Public Construction “Put In Place,” by Sector
*Seasonally-adjusted annual rate Sources: U.S. Census Bureau; Insurance Information Institute
Since July 2010, public Sewage & Waste construction is down significantly (-$5.2B, or -19.7%), public Office construction is down $2.4B
(-17.7%), and Transportation construction is down $3.8B (-12.4%).
$ Millions
20
The Labor Market
20
47
41
-13
6-1
12
-21
5-2
16
-23
1-2
59
-29
4-4
25
-48
0-7
97
-65
8-8
39 -7
25
-78
7-8
02
-31
2-4
26 -2
96 -2
19
-18
4-2
32
-42
-12
0 -40
-27
14
1 19
38
4 92
92 12
81
15 1
96
13
41
40
11
9
26
12
64
10
81
02 1
75
52
21
61
39 17
8 23
4 27
72
54
14
78
5 11
66
31
62
10
3
25
7
(1,000)
(800)
(600)
(400)
(200)
0
200
400
De
c-0
7
Fe
b-0
8
Ap
r-0
8
Jun
-08
Au
g-0
8
Oct
-08
De
c-0
8
Fe
b-0
9
Ap
r-0
9
Jun
-09
Au
g-0
9
Oct
-09
De
c-0
9
Fe
b-1
0
Ap
r-1
0
Jun
-10
Au
g-1
0
Oct
-10
De
c-1
0
Fe
b-1
1
Ap
r-1
1
Jun
-11
Au
g-1
1
Oct
-11
De
c-1
1
Fe
b-1
2
Ap
r-1
2
Jun
-12
Au
g-1
2
Monthly Change in Private Employment*December 2007 through August 2012
(Thousands)
At the rate of private-sector employment growth in the last six months, the “headline” unemployment rate could be under 8% by 2012 year-end.
*seasonally adjustedSources: U.S. Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute.
Nov. ‘08.–Apr. 09 monthly losses were
the largest in the Post-WW II period
Private employers added jobs in every
one of the last 30 months
Official Recession Months
22
This Looks Good: Increasing Job Openings in the Private Sector*
*Monthly, December 2000 through July 2012; data published Sept. 11, 2012. Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics http://www.bls.gov ; National Bureau of Economic Research (recession dates);Insurance Information Institutes.
1500
2000
2500
3000
3500
4000
4500
5000
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Low point reached in July 2009 at 1.9 million openings.
July 2012 openings were 3.28 million. In the 3 years since the
recession’s end, openings grew by
57%.
22
Thousands Most recent peak reached in Nov 2006
at 4.27 million openings.
23
Unemployment and UnderemploymentRate “Normality”: Years to Go
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Traditional Unemployment Rate U-3Unemployment + Underemployment Rate U-6
August 2012 unemployment rate (U-3) was
8.1%. Peak rate in the last 30
years: 10.8% in Nov - Dec 1982
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
U-6 is now 14.7%,
down 2.8 percentage points from
its peak
January 2000 through August 2012, Seasonally Adjusted (%)
Gap between U-3 and U-6 is
normally 4 percentage
points but is now 6.6
points; at peak, 7.5
points
U-6 hit 17.5% in Oct 2009
Recession
Recession
24
Number of “Discouraged Workers”:Elevated, but Dropping Jan 1994 – August 2012
Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.Sources: Bureau of Labor Statistics; National Bureau of Economic Research (recession dates).
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
In recent good times, the number of discouraged workers ranged from 200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
Latest reading: 844,000
in Aug. 2012.
ThousandsA “discouraged worker” in a month did not actively look for work in the prior monthfor reasons such as--thinks no work available,--could not find work,--lacks schooling or training,--thinks employer thinks too young or old, and other types of discrimination.
25
Average Hourly Earnings,* Private Sector Workers, Monthly, March 2006—August 2012
*Seasonally adjusted Recession indicated by gray shaded column.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
Mar
06
Jun
06
Sep
06
Dec
06
Mar
07
Jun
07
Sep
07
Dec
07
Mar
08
Jun
08
Sep
08
Dec
08
Mar
09
Jun
09
Sep
09
Dec
09
Mar
10
Jun
10
Sep
10
Dec
10
Mar
11
Jun
11
Sep
11
Dec
11
Mar
12
Jun
12
The average hourly wage in August 2012 was $23.52,
up 10.7% from $21.25 when the recession began
in Dec. 2007
Wage gains continued during the recession,
despite massive job losses
Hourly Wage
Annual Growth Rates2008: 3.1%2009: 2.7%2010: 1.7%2011: 2.1%
26
Average Weekly Hours,All Private Workers, March 2006—August 2012
*Seasonally adjustedNotes: Recessions indicated by gray shaded columns. This BLS data set starts in March 2006.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
33.7
33.8
33.9
34.0
34.1
34.2
34.3
34.4
34.5
34.6
34.7
'06 '07 '08 '09 '10 '11 '12
…we’re nearly back to the pre-
recession workweek.
Hours worked plunged during the recession, affecting payroll exposures,
but…
Hours Worked
27
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2012:Q2
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
$7,00005
:Q1
05:Q
2
05:Q
3
05:Q
4
06:Q
1
06:Q
2
06:Q
3
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
Peak was 2008:Q1 at $6.60 trillion
Latest (2012:Q2) was $6.87 trillion,
a new peak
Recent trough (2009:Q3) was $6.25 trillion, down
5.3% from prior peak
Pace of payroll growth is
accelerating
27
28
Manufacturing Employment,Dec. 2007—August 2012*
*Seasonally adjusted; the July and August 2012 data are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
13,7
4313
,723
13,6
9513
,656
13,6
0013
,569
13,5
1013
,435
13,3
5613
,272
13,1
4213
,028
12,8
4912
,252
12,3
8612
,214
12,0
3511
,868
11,7
2511
,664
11,6
2311
,579
11,5
3011
,496
11,4
6611
,458
11,4
6211
,470
11,5
0211
,536
11,5
4611
,566
11,5
4911
,551
11,5
5111
,560
11,5
7511
,627
11,6
6411
,690
11,7
1811
,726
11,7
3811
,768
11,7
7111
,768
11,7
7711
,780
11,8
0811
,860
11,8
9011
,932
11,9
4211
,955
11,9
6211
,985
11,9
70
11,000
11,500
12,000
12,500
13,000
13,500
14,000
14,500
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Manufacturing employment grew every month from January 2010 through July
2012. At the end of that span a half million more were working in
manufacturing.
(Thousands)
The “Great Recession.”
29
Manufacturing Employment,June 2009—August 2012*
*Seasonally adjusted; the July and August 2012 data are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
11,7
2511
,664
11,6
2311
,579
11,5
3011
,496
11,4
6611
,458
11,4
6211
,470
11,5
0211
,536
11,5
4611
,566
11,5
4911
,551
11,5
5111
,560
11,5
7511
,627
11,6
6411
,690
11,7
1811
,726
11,7
3811
,768
11,7
7111
,768
11,7
7711
,780
11,8
0811
,860
11,8
9011
,932
11,9
4211
,955
11,9
6211
,985
11,9
70
11,250
11,500
11,750
12,000
12,250
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Manufacturing employment grew every month from January 2010 through July
2012. At the end of that span a half million more were working in
manufacturing.
(Thousands)June 2009: official final month of the
“Great Recession.”
Construction Employment,Jan. 1969—Aug. 2012*
30
32
Construction Employment,June 2009—August 2012*
*Seasonally adjusted; July and August 2012 are preliminary dataSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
6,00
75,
925
5,84
65,
775
5,71
75,
687
5,65
45,
593
5,52
95,
552
5,55
95,
518
5,50
75,
491
5,51
15,
492
5,49
95,
488
5,47
75,
456
5,48
95,
496
5,49
55,
498
5,49
55,
508
5,49
85,
528
5,51
95,
520
5,54
65,
564
5,56
35,
549
5,54
25,
510
5,51
45,
514
5,51
5
5,250
5,500
5,750
6,000
6,250
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Construction employment has been essentially flat (at about 5.5 million)
since January 2010. In a normal recovery, construction employment
would be growing robustly
(Thousands) June 2009: official final month of the
“Great Recession.”
66%
68%
70%
72%
74%
76%
78%
80%
82%
Mar
01
Sep
Mar
02
Sep
Mar
03
Sep
Mar
04
Sep
Mar
05
Sep
Mar
06
Sep
Mar
07
Sep
Mar
08
Sep
Mar
09
Sep
Mar
10
Sep
Mar
11
Sep
Mar
12
Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 33
Percent of Industrial Capacity
Hurricane Katrina
March 2001-November 2001
recession
“Full Capacity”
The closer the economy is to operating at “full
capacity,” the greater the inflationary pressure
The US operated at 79.3% of industrial capacity in May 2012, above the June 2009
low of 68.3% and close to its post-crisis peak
December 2007-June 2009 Recession
March 2001 through July 2012
33
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
34
Growth Will Expand the Exposure Base and Fuel Confidence
34
35
Housing Starts, Millions of Units
Construction of Private HousingIs Picking Up
1.481.47
1.621.641.571.60
1.711.85
1.962.07
1.80
1.36
0.90
0.550.590.610.75
0.89
1.351.46
1.291.20
1.01
1.19
0.0
0.3
0.6
0.9
1.2
1.5
1.8
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
F
13
F
Sources: U.S. Census Bureau and Department of Housing and Urban Development (history) at http://www.census.gov/const/newresconst.pdf ; Blue Chip Economic Indicators (8/2012), forecasts; Insurance Information Institute.
Weak home construction forecast implies little exposure growth likely for Homeowners insurers and insurers with a residential construction book of
business for the next few years.
Forecast range for
2012: 660,000 to
800,000
Forecast range for
2013: 730,000 to 1,200,000
But the Pickup is Mostlyin Multi-Family Housing Starts
100
150
200
250
300
350
400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*400
600
800
1000
1200
1400
1600
1800
units in multi-family buildings single family units
*January-July 2012 data, annualized, seasonally-adjusted, preliminary (July)Source: US Census Bureau at http://www.census.gov/construction/nrc/pdf/newresconst.pdf
Thousands of Units, Multi-Family
Multi-unit starts, currently at a seasonally-adjusted annual rate of 215,000,are double the 2009 rate. Average annual rate for 2001-2006: 339,000.
Multi-family-unit starts rose in 2011, and more in 2012.
Thousands of Units, Single Family
Multi-family plunge didn’t begin until 2009
Single family plunge began
in 2006
37
Price Index for Residential Maintenance & Repair, Monthly, 2002-2012
Sources: US Bureau of Labor Statistics, Producer Price Index; Insurance Information Institute
154.
515
6.3
158.
315
9.4
159.
016
0.3
161.
916
2.9
166.
216
8.8
166.
116
8.7
168.
617
0.5
173.
417
5.0
176.
117
6.9
177.
417
4.6
173.
017
2.9
173.
317
3.2
174.
317
6.5
178.
618
0.1
180.
018
1.4
179.
618
0.1
180.
018
3.0
182.
118
3.2
184.
218
7.8
190.
2 194.
719
8.2 20
2.7
201.
820
3.0
196.
719
0.1
184.
918
5.4
183.
618
2.5
183.
418
4.7
186.
518
5.5
187.
118
6.9
185.
818
7.0
187.
218
9.6
189.
319
1.6
193.
819
5.1
193.
819
3.5
194.
019
3.6
194.
619
5.5
196.
819
9.0
200.
9 205.
020
7.9
209.
920
9.6
210.
720
9.1
209.
720
8.4
208.
420
7.7
209.
421
0.6 214.
121
4.0
213.
021
1.7
165.
4
150
175
200
225
Jan
05
Jul 0
5
Jan
06
Jul 0
6
Jan
07
Jul 0
7
Jan
08
Jul 0
8
Jan
09
Jul 0
9
Jan
10
Jul 1
0
Jan
11
Jul 1
1
Jan
12
The effect of repair costs on claims
depends on when the work is priced.12.7% increase in Sept. 2008
vs. Sept. 2007— during the “Great Recession”!)
Price Index
Prices for residential maintenance & repair rose by nearly 40% since December 2004 (through June 2012).
Annual Price Changes
2005: +7.9%2006: +7.3%2007: +3.3%2008: +7.8%2009: -3.9%2010: +4.3%2011: +7.1%
38
Business Bankruptcy Filings: Fallingbut Still High in 2012 (1994:Q1 – 2012:Q1)
13.9
13.6
12.9
12.0 13
.112
.2 12.6
12.9 13
.4 14.0
13.2
12.9 13
.814
.013
.512
.712
.411
.610
.39.
99.
210
.49.
09.
0 9.5
9.2
8.2 8.4
10.0
10.3
9.5 10
.09.
89.
79.
49.
58.
8 9.3
8.3
10.6
8.2
7.6 7.8 8.1 8.
7 9.5
12.8
4.1 4.
9 5.3 5.6 6.
3 6.7 7.
2 8.0 8.
79.
711
.512
.914
.316
.014
.2 15.0
14.6
14.5
14.0
13.0
12.4
12.3
11.7
11.1
11.0
8.4
0
2
4
6
8
10
12
14
16
18
94
:Q1
94
:Q3
95
:Q1
95
:Q3
96
:Q1
96
:Q3
97
:Q1
97
:Q3
98
:Q1
98
:Q3
99
:Q1
99
:Q3
00
:Q1
00
:Q3
01
:Q1
01
:Q3
02
:Q1
02
:Q3
03
:Q1
03
:Q3
04
:Q1
04
:Q3
05
:Q1
05
:Q3
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
Business bankruptcies were down 46.5% in 2012:Q1 vs. recent peak in 2009:Q2 but were still higher than 2008:Q2, early in the Great Recession.
Bankruptcies restrict exposure growth in all commercial lines.
Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633 ; Insurance Information Institute
(Thousands) New Bankruptcy Law Takes
Effect
Recessions in orange
39
Private Sector Business Starts, 1993:Q2 – 2011:Q4*
175
186
174
180
186
192
188
187 18
918
6 190 19
419
119
9 204
202
195
196
196
206
206
201
192
198
206
206
203
211
205
212
200 20
520
620
420
419
420
4 208
201
193
191 19
320
020
720
320
921
020
921
6 221
221
220
221
210
221
214
206
216
208
207
200
191
188
172 17
716
918
217
5 179
188
200
183 18
7 191
19719
9
150
160
170
180
190
200
210
220
230
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Business starts were down nearly 20% in the Great Recession, holding back most types of commercial insurance exposure,
but now are recovering.* Data through Dec 31, 2011 are the latest available as of August 2, 2012; Seasonally adjusted.Sources: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm. NBER (recession dates)
(Thousands) Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 722,000 2011: 758,000
39
Recessions in orange
40
Surety Industry Trends
40
41
$ Billions
Surety: Net Premiums Written
$3
.28
$3
.38 $
3.8
2
$3
.87
$4
.44 $4
.81
$4
.96
$4
.84
$4
.85
$4
.85
$3
.04$3
.33
$3
.27
$2
.86
$2
.75
$2
.60
2.0
2.5
3.0
3.5
4.0
4.5
5.0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Sources: NAIC Annual Statements, via SNL Financial; Insurance Information Institute.
Within two years after the 2001 recession, surety NPW surpassed its prior peak. The 2007-09 recession has had a much more persistent lid on surety
premiums.
NPW Avg. Ann. Growth rate2001-2007: 7.75%2008-2011: 0%
Recession, March-
November 2001.
Recession, Dec. 2007-June 2009.
42
Surety: Expense Ratios
39
.9
37
.7
35
.2
35
.7
35
.6
35
.6
32
.7
35
.0
34
.5
34
.1
13
.31
13
.37
13
.33
12
.26
11
.87 1
2.7
12
.2
11
.9
11
.9
11
.9
13
.4
13
.3
11
.9 12
.2
13
.5
15
.4
42
.6
38
.5
38
.6
40
.3
38
.0
37
.7
20
30
40
50
60
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Acquisition Expenses Other Expenses
Sources: NAIC Annual Statements, via SNL Financial; Insurance Information Institute.
Since 2003, total expenses have been consistently below 50%,mainly because of a drop in acquisition expenses.
%
43
Surety: Combined Ratio
116.9122.1119.8
101.5
81.7
72.366.9
79.5
70.6 72.6
124.1
87.083.784.582.784.0
60
80
100
120
140
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: NAIC Annual Statements, via SNL Financial; Insurance Information Institute.
Remarkable: profitable combined ratios throughout the most severe recession since the 1930s.
Recession, March-
November 2001.
Recession, Dec. 2007-June 2009.
Investments: The New Reality
44
Investment Performance is a Key Driver of Profitability
44
45
U.S. 10-Year Treasury Note Yields:A Long Downward Trend, 1990–2012*
*Monthly, through August 2012. Note: Recessions indicated by gray shaded columns.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.
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
Yields on 10-Year U.S. Treasury Notes have been essentially
below 5% for 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.
Yields on 10-Year U.S. Treasury Notes have
been essentially below 4% since January 2008 and below 3% for the
last year.
45
Property/Casualty Insurance Industry Investment Gain1: 1994–2011
$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
$58.0
$51.9
$56.9
$25
$50
$75
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11
Investment Gains Recovered Significantly in 2011Due to Realized Investment Gains;
The Financial Crisis Caused Investment Gains to Fall by 50% in 20081 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.
($ Billions) Investment gains in 2011 were $2.8B above 2010 levels — a surprise given falling interest rates and flat stock markets
47
Key Takaways
47
48
P/C Insurance Exposures Will Grow With the U.S. Economy Personal and commercial exposure growth is certain in 2012 But restoration of destroyed exposure will take until mid-decade Wage growth is also positive and could modestly accelerate
P/C Industry Growth in 2012 Will Be Strongest Since 2004 Growth likely to exceed A.M. Best projection of +3.8% for 2012 No traditional “hard market” emerges in 2012
Underwriting Fundamentals Deteriorate Modestly Some pressure from claim frequency, severity in some key lines But WC will be tough to fix
Industry Capacity Hits a New Record by Year-End 2012 (Barring Meg-CAT)
Investment Environment Is/Remains Much More Favorable Return of realized capital gains But Interest rates remain low
Takeaways:Insurance Industry Predictions for 2012
www.iii.org
Thank you for your timeand your attention!
Insurance Information Institute Online:
49