p/c insurance in the post-crisis world: opportunities and challenges in u.s. and texas markets...
TRANSCRIPT
P/C Insurance in the Post-Crisis World:
Opportunities and Challenges in U.S. and Texas Markets
Insurance Council of TexasAnnual Insurance Symposium
Austin, TXJuly 18, 2013
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
P/C Insurance Industry Financial Overview
Profit Recovery in 2012 After High CAT Losses; Ultimate
Impact of Sandy Still Unclear
2
P/C Net Income After Taxes1991–2013:Q1 ($ Millions)
2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013:Q1 ROAS1 = 9.6%
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.7% ROAS in 2013:Q1, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$1
4,3
94
$2
8,6
72
-$6,970
$6
5,7
77
$4
4,1
55
$2
0,5
59
$3
8,5
01
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13:Q1
2012:Q1 ROAS
was 7.2%Net income is up
substantially (+40.9%) from 2012:Q1 $10.2B
-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
:Q1
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013:Q1*
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2006:12.7%
1984: 1.8% 1992: 4.5%2001: -1.2%
10 Years
10 Years9 Years
2012: 5.9%
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013:Q1 9.7%
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012 combined ratio including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0
94.8
102.4
106.5
95.79.7%
6.2%4.7%
7.9%7.4%
4.3%
9.6%
15.9%
14.3%
12.7% 10.9%
8.8%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013:Q10%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generates an ROE of ~7.0% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Catastrophes and lower investment
income pulled down ROE in 2012
6
Profitability and Growth in the Texas P/C Insurance
Markets
Analysis by Line and Nearby State Comparisons
7
RNW All Lines: TX vs. U.S., 2002-2011
Sources: NAIC.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
02 03 04 05 06 07 08 09 10 11
US All Lines TX All Lines
(Percent)
Average 2002-2011US: 7.7%TX: 6.9%
Hurricane Ike
8
RNW PP Auto: TX vs. U.S., 2002-2011
Sources: NAIC.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
02 03 04 05 06 07 08 09 10 11
US PP Auto TX PP Auto
Average 2002-2011US: 7.7%TX: 8.3%
9
RNW Comm. Auto: TX vs. U.S., 2002-2011
Sources: NAIC.
0%
2%
4%
6%
8%
10%
12%
14%
16%
02 03 04 05 06 07 08 09 10 11
US Comm Auto TX Comm Auto
(Percent)
Average 2002-2011US: 9.8%TX: 7.9%
10
RNW Comm. Multi-Peril: TX vs. U.S., 2002-2011
Sources: NAIC.
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
02 03 04 05 06 07 08 09 10 11
US Comm M-P TX Comm M-P
(Percent)
Average 2002-2011US: 9.1%TX: 3.1% Hurricane Ike
11
RNW Homeowners: TX vs. U.S., 2002-2011
Sources: NAIC.
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
02 03 04 05 06 07 08 09 10 11
US HO TX HO
(Percent)
Average 2002-2011US: 5.4%TX: 4.2%
Hurricane Ike
12
Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2010
Rank (1)
Most expensive states
HO average premium (2) Rank
Least expensive states
HO average premium (2)
1 Texas (2) $1,560 1 Idaho $500
2 Louisiana (3) 1,546 2 Oregon 535
3 Florida (4) 1,544 3 Utah 558
4 Oklahoma 1,246 4 Wisconsin 563
5 Mississippi 1,217 5 Washington 595
6 Rhode Island 1,092 6 Ohio 614
7 Kansas 1,066 7 Delaware 636
8 District Of Columbia 1,065 8 Arizona 666
9 Connecticut 1,052 9 Maine 676
10 Alabama 1,050 10 South Dakota 678
(1) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.
(3) Policies written by Citizens Property Insurance (Louisiana), are not included. (4) Policies written by Citizens Property Insurance (Florida), are not included.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank state average expenditures and does not endorse any conclusions drawn from this data.
Source: © 2012 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.
Texas ranked as the most expensive state for homeowners insurance in 2010, with an average expenditure of $1,560.
13
RNW Workers Comp: TX vs. U.S., 2002-2011
Sources: NAIC.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
02 03 04 05 06 07 08 09 10 11
US WComp TX WComp
(Percent)
Average 2002-2011US: 6.7%TX: 10.9%
All Lines: 10-Year Average RNW TX & Nearby States
3.9%
7.1%
7.7%
11.1%
-10.8%
6.9%
-15% -10% -5% 0% 5% 10% 15%
New Mexico
U.S.
Arkansas
Texas
Oklahoma
Louisiana
Source: NAIC, Insurance Information Institute
2002-2011
Texas All Lines profitability is below the
US and above the regional average
21
All Lines DWP Growth: TX vs. U.S., 2002-2011
Source: SNL Financial.
-5%
0%
5%
10%
15%
20%
25%
02 03 04 05 06 07 08 09 10 11
US All Lines TX All Lines
(Percent)
Average 2002-2011US: 3.6%TX: 4.7%
22
Comm. Lines DWP Growth: TX vs. U.S., 2002-2011
Source: SNL Financial.
-5%
0%
5%
10%
15%
20%
25%
30%
02 03 04 05 06 07 08 09 10 11
US All Lines TX All Lines
(Percent)
Average 2002-2011US: 4.0%TX: 5.5%
23
Personal Lines DWP Growth: TX vs. U.S., 2002-2011
Source: SNL Financial.
-5%
0%
5%
10%
15%
20%
02 03 04 05 06 07 08 09 10 11
US All Lines TX All Lines
(Percent)
Average 2002-2011US: 3.7%TX: 4.5%
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
26
Growth Will Expand Insurer Exposure Base Across Most Lines
26
27
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 7/13; Insurance Information Institute.
2.7
%0
.5%
3.6
%3
.0%
1.7
%-1
.8%
1.3
%-3
.7%
-5.3
%-0
.3%
1.4
%5
.0%
2.3
%2
.2%
2.6
%2
.4%
0.1
%2
.5%
1.3
%4
.1%
2.0
%1
.3% 3
.1%
1.8
%1
.7%
2.3
%2
.7%
2.7
%2
.8%
2.8
%2
.9%
0.4
%
-8.9%
4.1
%1
.1%
1.8
%2
.5% 3.6
%3
.1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
07
:1Q
07
:2Q
07
:3Q
07
:4Q
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
:4Q
Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor market contraction
was severe
The Q4:2008 decline was the steepest since the Q1:1982
drop of 6.8%
2013 is expected to see uneven growth,
then gradually accelerate throughout the year and into 2014
28
Real GDP by State Percent Change, 2012:Highest 25 States
13.4
4.8
3.9
3.6
3.5
3.5
3.4
3.3
3.3
3.3
2.7
2.7
2.6
2.4
2.4
2.4
2.4
2.2
2.2
2.2
2.2
2.1
2.1
2.1
2.1
2.0
0
2
4
6
8
10
12
14
ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO
Per
cent
Cha
nge
(%)
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2012—by far
Only 10 states experienced growth in excess of 3%, which is what we would see nationally in
a more typical recovery
Texas has had the 2nd fastest growing economy in the US
in 2012
29
1.9
1.7
1.6
1.5
1.5
1.5
1.5
1.4
1.4
1.4
1.3
1.3
1.3
1.2
1.2
1.1
1.1
0.7
0.5
0.5
0.4
0.2
0.2
0.2
0.2
-0.1
-0.4-0.20.00.20.40.60.81.01.21.41.61.82.0
IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT
Pe
rce
nt
Ch
an
ge
(%
)
Real GDP by State Percent Change, 2012: Lowest 25 States
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
Connecticut was the only state to shrink in 2012
Growth rates in 8 states (and DC) were still below
1% in 2012
74
.47
3.6
73
.67
2.2
73
.6 76
67
.86
8.9
68
.26
7.7 7
1.6 74
.57
4.2 77
.56
7.5 69
.8 74
.37
1.5
63
.75
5.7 5
9.5
60
.9 64
.16
9.9
75
.07
5.3
76
.27
6.4 79
.37
3.2
72
.3 74
.38
2.6
82
.77
4.5
73
.8 77
.67
8.6
84
.58
2.7
76
.4
40
45
50
55
60
65
70
75
80
85
90
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2O
ct-1
2N
ov-
12
De
c-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3
Consumer Sentiment Survey (1966 = 100)
January 2010 through June 2013
Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact
consumers, but improved substantially over the past two years
Source: University of Michigan; Insurance Information Institute
Optimism among consumers has remained fairly strong
despite tax hikes, federal budget concerns. May’s reading was
the highest since July 2007
33
34
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4 15
.4 15.8
16.0
16.2
16.2
16.2
16.216
.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F15F 16F17F18F 19F
(Millions of Units)
Auto/Light Truck Sales, 1999-2019F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (7/13 and 3/13); Insurance Information Institute.
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector Along
With Workers Comp Exposures
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2013-14 is
still below 1999-2007 average of 17 million units, but a robust recovery is well underway.
Job growth and improved credit market conditions will boost auto sales in
2013 and beyond
Truck purchases by contractors are especially strong
35
16%
18%
20%
22%
24%
26%
28%
30%
01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F$125
$135
$145
$155
$165
$175
$185
$195
% of registered cars under 3 years old Auto Ins Direct Pms$ Billions
Personal Auto Insurance Direct Written Premiums vs. Recently-Registered Cars
Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and Analysis, First Quarter 2012; Insurance Information Institute.
PP DWP, flat from 2004-2009, is rising again.Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.
Average age of registered cars rose as fewer new cars were bought (and
insured)
In 2004-07 no growth in
PP DWP despite
strong new car/truck
sales New car/truck sales grow to 14-15M/year
4%/yr growth forecast for PP
DWP from recovering
new car/truck sales
36
Monthly Change* in Auto Insurance Prices, 1991–2013*
*Percentage change from same month in prior year; through June 2013; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Cyclical peaks in PP Auto tend to occur
approximately every 10 years (early 1990s, early
2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
The June 2013 reading of 3.9% is
up from 3.0% a year earlier
38
(Millions of Units)
New Private Housing Starts, 1990-2019F
1.4
8
1.4
7 1.6
21
.64
1.5
71
.60 1.7
1 1.8
5 1.9
6 2.0
71
.80
1.3
6
0.9
10
.55
0.5
9
0.6
1 0.7
80
.99
1.2
2 1.3
5
1.4
41
.50
1.5
11
.50
1.3
51.4
61
.29
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F14F15F16F17F18F19F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (7/13 and 3/13); Insurance Information Institute.
Insurers Are Starting to See Meaningful Exposure Growth for the First Time Since 2005 Associated with Home Construction: Construction Risk Exposure,
Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, low mortgage
rates and demographics are stimulating new home construction
for the first time in years
40
Construction Employment,Jan. 2010—June 2013*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,58
15,
522
5,54
25,
554
5,52
75,
512
5,49
75,
519
5,49
95,
501
5,49
75,
468
5,43
5 5,47
85,
485
5,49
75,
524
5,53
05,
547
5,54
6 5,58
35,
576
5,57
7 5,61
25,
629
5,64
45,
640
5,63
65,
615
5,62
25,
627
5,63
05,
633
5,64
95,
673 5,
711
5,73
5 5,78
35,
797
5,79
25,
799
5,81
2
5,400
5,450
5,500
5,550
5,600
5,650
5,700
5,750
5,800
5,850
5,900
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
132/
30/2
Mar
-13
Apr
-13
May
-13
Jun-
13
Construction employment growth accelerated in the second half of
2012. Continued growth in this key sector is possible through 2013.
Construction is a key driver of workers comp exposure growth.
(Thousands)
41
Construction Employment, Jan. 2003–June 2013
Note: Recession indicated by gray shaded column.Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Could Be a Growth Leader in 2013 and 2014 as the Housing Market and Private Investment Recover. WC Insurers Will Benefit.
Construction employment
troughed at 5.435 million in Jan.
2011, after a loss of 2.291 million jobs, a 29.7%
plunge from the April 2006 peak
41
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of June 2013 totaled 5.812 million, an
increase of 377,000 jobs or 6.9% from the
Jan. 2011 trough
42
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013:Q1
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,25005
:Q1
05:Q
2
05:Q
305
:Q4
06:Q
1
06:Q
206
:Q3
06:Q
407
:Q1
07:Q
207
:Q3
07:Q
408
:Q1
08:Q
2
08:Q
308
:Q4
09:Q
109
:Q2
09:Q
309
:Q4
10:Q
110
:Q2
10:Q
310
:Q4
11:Q
111
:Q2
11:Q
311
:Q4
12:Q
112
:Q2
12:Q
3
12:Q
413
:Q1
Prior Peak was 2008:Q1 at $6.60 trillion
Latest (2013:Q4) was $7.01 trillion, a new peak--$762B
above 2009 trough
Recent trough (2009:Q3) was $6.25 trillion, down
5.3% from prior peak
Payrolls are 12.2% above
their 2009 trough and up 2.7% over
the past year
42
45
Value of Construction Put in Place, May 2013 vs. May 2012*
-4.7%
4.1%
-4.9%
5.4%
10.6%
23.1%
-0.9%
-10%
-5%
0%
5%
10%
15%
20%
25%
TotalConstruction
Total PrivateConstruction
Residential--Private
Non-Residential--
Private
Total PublicConstruction
Residential-Public
Non-Residential--
Public
Overall Construction Activity is Up, But Growth Is Entirely in the Private Sector as State/Local Government Budget Woes Continue
Growth (%)
Private sector construction activity is up in the
residential segment but down in nonresidential
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +10.6% Public: -4.7%
Public sector construction activity remains depressed
58
.35
7.1
60
.45
9.6
57
.85
5.3
55
.15
5.2
55
.3 56
.9 58
.25
8.5 6
0.8
61
.45
9.7
59
.75
4.2 55
.85
1.4 52
.55
2.5
51
.85
2.2 53
.1 54
.15
1.9 53
.35
4.1
52
.55
0.2
50
.55
0.7
51
.65
1.7
49
.95
0.2
53
.1 54
.2
50
.74
9.0 5
0.9
51
.3
40
45
50
55
60
65
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
ISM Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through June 2013
The manufacturing sector expanded for 39 of the 42 months from Jan. 2010 through June 2013. Recent weakness stems largely from woes in
Europe and a Slowdown in China.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
Manufacturing expanded in May, albeit modestly
48
50
Manufacturing Growth for Selected Sectors, 2013 vs. 2013*
5.1%
-0.8%
7.2%
-0.2%
3.1%
-1.0%-2.1%
2.7%5.1%
1.1%2.6%
15.2%
-2.8%
0.6%
-4%-2%0%2%4%6%8%
10%12%14%16%18%
All
Ma
nu
fact
uri
ng
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ryM
eta
ls
Fa
bri
cate
dM
eta
ls
Ma
chin
ery
Ele
ctri
cal
Eq
uip
.
Tra
nsp
ort
atio
nE
qu
ip.
No
n-D
ura
ble
Mfg
.
Fo
od
Pro
du
cts
Pe
tro
leu
m &
Co
al
Ch
em
ica
l
Pla
stic
s &
Ru
bb
er
Te
xtile
Pro
du
cts
Manufacturing Is Expanding—Albeit More Slowly—Across a Number of Sectors that Will Contribute to Growth in Insurable Exposures Including: WC,
Commercial Property, Commercial Auto and Many Liability Coverages
Growth (%)
Manufacturing of durable goods was especially
strong in 2012 but weakened in 2013
*Seasonally adjusted; Date are YTD comparing data through May 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Durables: +2.6% Non-Durables: -0.2%
52
Manufacturing Employment,Jan. 2010—June 2013*
11,4
6011
,460
11,4
6611
,497
11,5
3111
,539
11,5
5811
,548
11,5
5411
,555
11,5
7711
,590
11,6
2411
,662
11,6
8211
,707
11,7
1511
,724
11,7
4711
,760
11,7
6211
,770
11,7
6911
,797
11,8
4111
,870
11,9
1011
,920
11,9
2611
,935
11,9
5711
,943
11,9
2511
,931
11,9
3811
,951
11,9
6511
,988
11,9
8411
,977
11,9
7011
,964
11,000
11,200
11,400
11,600
11,800
12,000
12,200
12,400
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Manufacturing employment is up by more than 500,000 or 4.4% since Jan.
2010—a surprising source of strength in the economy. The sector has weakened
recently as US corporations remains cautious and Europe, China slow.
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands)
50
.7 52
.7 54
.15
4.6
54
.85
3.5
53
.75
2.8 53
.95
4.6 56 5
7.1 5
9.4
59
.75
6.3
54
.45
3.3
53
.45
3.8
52
.65
2.6
52
.65
2.6
53
.05
6.8
56
.15
5.0
53
.75
4.1
52
.75
2.9 54
.3 55
.25
4.8
54
.85
5.7
55
.25
6.0
53
.15
3.7
52
.254
.4
40
45
50
55
60
65
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through June 2013
Non-manufacturing industries have been expanding and adding jobs. The question is whether this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
Optimism among non-manufacturers is stable
and remains expansionary in 2013
53
54
43,6
9448
,125
69,3
0062
,436
64,0
04 71,2
77 81,2
3582
,446
63,8
5363
,235
64,8
5371
,549
70,6
4362
,304
52,3
7451
,959
53,5
4954
,027
44,3
6737
,884
35,4
7240
,099
38,5
4035
,037
34,3
1739
,201
19,6
95 28,3
2243
,546
60,8
3756
,282
47,8
0630
,620
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112
:Q3
Business Bankruptcy Filings,1980-2012:Q3
Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance Information Institute
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2011 bankruptcies totaled 47,806, down 15.1% from 56,282 in 2010—the second consecutive year of decline. Business bankruptcies more
than tripled during the financial crisis. Through Q3:2012, filings were down 15.8% vs. Q3:2011
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%*
54
55
Private Sector Business Starts, 1993:Q2 – 2012:Q3*
17
51
86
17
41
80
18
61
92
18
81
87 18
91
86 1
90 1
94
19
11
99 2
04
20
21
95
19
61
96
20
62
06
20
11
92
19
82
06
20
62
03
21
12
05
21
22
00 2
05
20
42
04
19
72
03
20
92
01
19
21
92
19
32
01 20
42
02
21
0 21
22
09
21
6 22
0 22
32
20
22
02
10
22
12
12
20
42
18
20
92
07
20
71
99
19
1 19
31
72 1
76
16
91
84
17
5 17
91
88
20
01
83 1
87 1
91
19
71
93
19
1 19
3
20
3
150
160
170
180
190
200
210
220
230
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly* Data through Sep. 30, 2012 are the latest available as of June 21, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
Business starts were up an estimated 2.8% in 2012 to 769,000 following a 2.2% to 748,000 in 2011. Start-ups
could accelerate in 2013.
Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 742,000 2011: 748,000 2012E: 769,000*
55
57
12 Industries for the Next 10 Years: Insurance Solutions Needed
Export-Oriented Industries
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Light Manufacturing
Insourced Manufacturing
Many industries are
poised for growth, though
insurers’ ability to
capitalize on these
industries varies widely
Shipping (Rail, Marine, Trucking, Pipelines)
58
U.S. Insured Catastrophe Loss Update
Catastrophe Losses in Recent Years Have Been Very High
58
59
$1
2.6
$1
1.0
$3
.8
$1
4.3
$1
1.6
$6
.1
$3
4.7
$7
.6
$1
6.3
$3
3.7
$7
3.4
$1
0.5
$7
.5
$2
9.2
$1
1.5
$1
4.4
$3
3.6
$3
5.0
$7
.9$1
4.0
$4
.8
$8
.0
$3
7.8
$8
.8
$2
6.4
$0
$10
$20
$30
$40
$50
$60
$70
$80
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13*
U.S. Insured Catastrophe Losses
*Through 6/2/13. Includes $2.6B for 2013:Q1 (PCS) and $5.32B for the period 4/1 – 6/2/13 (Aon Benfield Monthly Global Catastrophe Recap).Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Below
Average But Q3 Is Typically the Costliest Quarter.
2012 was likely the third most expensive year ever for insured
CAT losses
Record tornado losses caused
2011 CAT losses to surge
($ Billions, 2012 Dollars)
59
Source: 2013 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – as at June 2013
60
Natural Catastrophes January – June 2013 World map with significant events
Severe storms, tornadoesUSA, 18–20 March
FloodsEurope, June
FloodsCanada, June
FloodsIndia, June
FloodsIndonesia, 15–22 January
FloodsAustralia, 21–31 January
Heat waveIndia, June
Earthquake China,20 April
Severe storms, tornadoesUSA, 18–19 March
Winter stormUSA, 7–11 April
Number of events: 460
Geophysical events(earthquake, tsunami, volcanic activity)
Meteorological events (storm)
Hydrological events(flood, mass movement)
Natural catastrophes
Climatological events(extreme temperature, drought, wildfire)
Selection of significant loss events
61
Moore, OK, Tornado: Media Coverage Was Generally Favorable
Industry had a highly visible, rapid response as Catastrophe Response Teams massed at the “Command Center” at the First Baptist Church in Moore within 48 hours
Developed good working relationship with OK Insurance Commissioner John Doak
62
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1$13.4$18.8
$23.9 $24.6$25.6
$48.7
$7.5$7.1$6.7$5.6$5.6$4.4
$0
$10
$20
$30
$40
$50
$60
Irene (2011) Jeanne(2004)
Frances(2004)
Rita (2005)
Tornadoes/T-Storms
(2011)
Tornadoes/T-Storms
(2011)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Sandy*(2012)
Northridge(1994)
9/11 Attack(2001)
Andrew(1992)
Katrina(2005)
Hurricane Sandy could become the 4th or 5th costliest event in US
insurance history
Hurricane Irene became the 12th most expense hurricane
in US history in 2011
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – June 2013*Number of Events (Annual Totals 1980 – June 2013*)
*Through June 30, 2013.Source: MR NatCatSERVICE 64
41
19
121
3
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 68 natural disaster events in the
first half of 2013
Losses Due to Natural Disasters in the US, 1980–2012 (Overall & Insured Losses)
67
Overall losses (in 2012 values) Insured losses (in 2012 values)
Source: MR NatCatSERVICE
(2012 Dollars, $ Billions)(Overall and Insured Losses)
20
40
60
80
100
120
140
160
180
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
2012 was the 2nd or 3rd most expensive year on record for insured catastrophe losses in
the US.
Approximately 57% of the overall cost of
catastrophes in the US was covered by insurance in 2012
2012 Losses
Overall : $101.1B
Insured: $57.9B
As of July 1, 2013
Number of Events Fatalities
Estimated Overall Losses (US $m)
Estimated Insured Losses (US $m)
SevereThunderstorm
29 66 10,180 6,325
Winter Storm 13 17 2,434 1,255
Flood 10 9 500 Minor
Earthquake & Geophysical
5 0 Minor Minor
Tropical Cyclone 1 1 Minor Minor
Wildfire, Heat, & Drought
11 23 700 365
Totals 68 116 13,814 7,945
70Source: MR NatCatSERVICE
Natural Disaster Losses in the United States: First Half 2013
20
40
60
80
100
120
140
160
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Number
Convective Loss Events in the U.S. Number of events 1980 – 2012 and First Half 2013
Source: Geo Risks Research, NatCatSERVICE – As at July 2013 72
Convective events are those caused by straight-line winds,
tornadoes, hail, heavy precipitation,
flash floods and lightning
The frequency of convective events has rising tremendously
over the past 30+ years
U.S. Thunderstorm Loss Trends, 1980 – June 30, 2013
73Source: Property Claims Service, MR NatCatSERVICE
Average thunderstorm
losses are up 7 fold since the early
1980s. The 5- year running average
loss is up sharply.
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2012 are the most expensive
years on record.
1st Half 2013 thunderstorm losses total $6.325B; The
system that included the EF-5 tornado in Moore, OK, accounted for $1.575B
New Research Suggests Increase in Convective Activity Is Costly for Insurers
• Study examines convective (hail, tornado, thundersquall and heavy rainfall) events in the US with losses exceeding US$ 250m in the period 1970–2009 (80% of all losses)
• Past losses are normalized (i.e., adjusted) to currently exposed values
• After normalization there are still increases of losses
• Increases are correlated with the increase in the meteorological potential for severe thunderstorms and its variability
For the first time research shows that climatic changes have already influenced US thunderstorm losses
75Source: Munich Re research paper, Marhc 18, 2013: Rising Variability in Thunderstorm-Related U.S. Losses as a Reflection of Changes in Large-Scale Thunderstorm Forcing.
77
Top 12 Most Costly Hurricanesin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
$9.2 $11.1$13.4
$18.8
$25.6
$48.7
$8.7$7.8$6.7$5.6$5.6$4.4
$0
$10
$20
$30
$40
$50
$60
Irene(2011)
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Sandy*(2012)
Andrew(1992)
Katrina(2005)
Hurricane Sandy became the 3rd costliest hurricane in US
insurance historyHurricane Irene
became the 12th most expensive hurricane in US history in 2011
10 of the 12 most costly hurricanes in insurance history occurred over the past 9 years (2004—2012)
Outlook for 2013 Hurricane Season: 75% Worse Than Average
Forecast Parameter Median(1981-2010)
2013F
Named Storms 12.0 18
Named Storm Days 60.1 95
Hurricanes 6.5 9
Hurricane Days 21.3 40
Major Hurricanes 2.0 4
Major Hurricane Days 3.9 9
Accumulated Cyclone Energy 92.0 165
Net Tropical Cyclone Activity 103% 175%
Source: Philip Klotzbach and Dr. William Gray, Colorado State University, June 2013, accessed at http://tropical.atmos.colostate.edu/forecasts/2013/apr2013/apr2013.pdf ; Insurance Information Institute..
Landfall Probabilities for 2013 Hurricane Season: Above Average
Average* 2013F
Entire US East & Gulf Coasts
52% 72%
US East Coast Including Florida Peninsula
31% 48%
Gulf Coast from Florida Panhandle to Brownsville
30% 47%
Caribbean 42% 61%
*Average over the past century.Source: Philip Klotzbach and Dr. William Gray, Colorado State University, June 2013.
80
Total Value of Insured Coastal Exposure in 2012
(2012, $ Billions)
Source: AIR Worldwide
$293.5$239.3
$182.3$164.6$163.5
$118.2$106.7$81.9$64.0$60.6$58.3
$17.3
$567.8$713.9
$849.6$1,175.3
$2,862.3$2,923.1
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500
New YorkFloridaTexas
MassachusettsNew JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
$1.175 Trillion Insured Coastal Exposure in Texas in 2012, up
$280.2 bill or 33.1% since 2007—well above the 20% for overall
coastal exposure growth
In 2012, New York Ranked as the #1 Most Exposed State to Hurricane Loss, Overtaking Florida with $2.862 Trillion. Texas is very exposed too, and
ranked #3 with $1.175 Trillionin insured coastal exposure
The Insured Value of All Coastal Property Was $10.6 Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and
Up 48% from $7.2 Trillion in 2004
82
Total Potential Home Value Exposure to Storm Surge Risk in 2013*
($ Billions)
*Insured and uninsured property. Based on estimated property values as of April 2013.Source: Storm Surge Report 2013, CoreLogic.
$65.2$51.0$50.3
$35.0$22.4$20.5
$15.9$10.4$7.2$4.7$3.1$2.7$2.6$0.6
$65.6$72.0$78.0
$118.8$135.0
$386.5
$0 $50 $100 $150 $200 $250 $300 $350 $400 $450
FloridaNew York
New JerseyVirginia
LouisianaS. CarolinaN. Carolina
TexasMassachusetts
ConnecticutMarylandGeorgia
DelawareMississippi
Rhode IslandAlabama
MaineNew
PennsylvaniaDC
Texas has $51 billion in home value is exposed
to storm surge
The Value of Homes Exposed to Storm Surge was $1.147 Trillion in 2013.* Only a fraction of this is insured, hence the huge demand for federal aid
following major coastal flooding events.
Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*
*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 87
Avg. catastrophe claim cost rose
approximately 200% from 1997-2011
Cat claim frequency in 2011 was at historic highs and more than
double the rate in 1997
88
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2012*
Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.
0.4
1.2
0.4 0.
8 1.3
0.3 0.4 0.
71.
51.
00.
40.
4 0.7
1.8
1.1
0.6
1.4 2.
01.
3 2.0
0.5
0.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6
3.4
8.7 9.
4
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
E
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of the Combined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 7.20*
Combined Ratio Points Catastrophe losses as a share of all losses reached
a record high in 2012
Homeowners Insurance Combined Ratio: 1990–2015F
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
94
.4 10
0.3
89
.0 95
.7
11
6.9
10
5.8
10
6.7
12
2.2
10
4.4
10
1.7
10
1.2
10
0.7
11
8.4
11
2.7 12
1.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E13F 14F 15F
1
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute. 89
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
90
Federal Disaster Declarations Patterns:
1953-2013
90
Disaster Declarations Set New Records in Recent Years
Number of Federal Disaster Declarations, 1953-2013*
13 1
7 18
16
16
7 71
21
22
22
0 25
25
11
11
19
29
17
17
48
46
46
38
30
22 2
54
22
31
52
42
13
42
7 28
23
11
31
38
45
32 3
63
27
54
46
55
04
54
5 49
56
69
48 5
26
37
55
98
19
94
72
8
43
0
20
40
60
80
100
120
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
*Through July 10, 2013.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011. Hurricane Sandy Produced 13 Declarations in 2012/13.
The number of federal disaster declarations set a
new record in 2011, with 99, shattering 2010’s record 81
declarations.
There have been 2,118 federal disaster
declarations since 1953. The average
number of declarations per year is 35 from 1953-2012, though
there few haven’t been recorded since 1995.
28 federal disasters were declared so far in 2013*
91
92
Federal Disasters Declarations by State, 1953 – 2013: Highest 25 States*
86
78
74
67
65
60
57
56
54
53
52
52
51
51
50
49
49
48
47
47
47
46
43
40
39
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY AR MO MS IL TN IA WV KS MN PA NE VA OH WA ND NC IN
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Texas has had the highest
number of Federal Disaster
Declarations
*Through July 10, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
93
Federal Disasters Declarations by State, 1953 – 2013: Lowest 25 States*
41
40
38
36
36
35
35
32
29
28
26
26
26
24
24
24
23
23
19
19
17
15
15
13
11
11
9
0
10
20
30
40
50
SD ME AK GA WI NJ VT NH MA OR PR HI MI AZ MD NM ID MT CT CO NV DE SC DC UT RI WY
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Wyoming and Rhode Island had the fewest
number of Federal Disaster Declarations
*Through July 10, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
94
SEVERE WEATHER REPORT UPDATE: 2013
Damage from Tornadoes, Large Hail and High Winds Keep Insurers Busy
94
Location of Tornado Reports:Through July 3, 2013
95Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#; PCS.
There were 630 tornadoes
through July 3, causing
extensive property
damage in several states
The storm system that spawned the deadly EF-5
tornado on May 19 in Moore, OK,
produced insured losses of $1.575 billion
U.S. Tornado Count, 2005-2013*
96
2013 count is running well
below average
*Through July 6, 2013.Source: http://www.spc.noaa.gov/wcm/.
There were 1,897 tornadoes in the U.S. in 2011 far
above average, but well below 2008’s record
Location of Large Hail Reports:Through July 3, 2013
97Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
There were 3,716 “Large Hail” reports
through July 3, causing
extensive property and
vehicle damage
Large hail reports were
heavily concentrated in the Plains states
Location of High Wind Reports:Through July 3, 2013
98Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
Wind damage reports were more heavily
concentrated in the Southeast
There were 7,371 “Wind
Damage” reports through July 3, causing
extensive property damage
Severe Weather Reports:Through July 3, 2013
99Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
There were 11,717 severe
weather reports through July 3; including 630
tornadoes; 3,716 “Large Hail” reports
and 7,371 high wind events
More than 1,200 severe weather reports in TX so far in 2013, more than any other
state by far
Severe Weather Reports in Texas: January 1—July 10, 2013
101Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
Texas
Total Reports = 1,212
Tornadoes = 56 (Red)
Hail Reports = 613 (Green)
Wind Reports = 542 (Blue)
There have been a combined 1,212 severe
weather reports so far in 2013 in TX, more than any other state by far (OK is
#2 with 695 reports)
Public Opinion Survey
110
Disaster Preparedness
110
112
I.I.I. Poll: Homeowners Insurance
Q. Do you think that it is fair that people who live in areas affected by record storms in 2011 and 2012 should pay more for their homeowners insurance in the future?
Source: Insurance Information Institute Annual Pulse Survey.
Nearly 60 percent of Americans believe that homeowners insurance premiums should not be raised as a result of recent storms in their areas.
4%
37%
59%
Don’t know
Yes
No
Public believes it is not fair to raise
premiums of homeowners due
to events they cannot control
113
I.I.I. Poll: Flood Insurance
Source: Insurance Information Institute Annual Pulse Survey.
55%46% 47%
58% 61%
0%
20%
40%
60%
80%
Total U.S. Northeast West Midwest South
Q. The federal government plans to raise the price of flood insurance so it reflects the costs of paying claims. Do you believe this is fair? [% Responding “NO”]
More than one-half of Americans do not think it is fair for the federal government to raise its flood insurance premiums to better reflect claims
payouts.
Most people believe it is unfair for government to raise flood insurance premiums, even though
they are subsidized by taxpayers
114
I.I.I. Poll: Disaster Preparedness
1Asked of those who have homeowners insurance and who responded “yes”.
Source: Insurance Information Institute Annual Pulse Survey.
16%
12%
32%
9%
20%23%
14%
32%
12%
22%24%
16%
29%
10%
21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Northeast Midwest South West Total U.S.
May-11 May-12 May-13
Q. Does your homeowners policy cover damage from flooding during a hurricane?1
The proportion of homeowners who believe their homeowners policy covers damage from flooding during a hurricane stands at 21 percent. This proportion rises eight percentage points in the South, to 29 percent.
About 20 percent of the public still believes flooding from a hurricane
is covered
115
I.I.I. Poll: Disaster Preparedness
1Asked of those who have homeowners insurance but not flood insurance.
Source: Insurance Information Institute Annual Pulse Survey.
4% 1%5%
0% 3%
96% 99%93%
100% 96%
0%
20%
40%
60%
80%
100%
Northeast Midwest South West Total U.S.
Yes No
Q. Have recent flooding events such as Hurricane Sandy or Hurricane Irene motivated you to buy flood coverage?1
Recent storms have not motivated people to buy flood insurance coverag.e
Despite recent major flood events, few people see the need to buy coverage
116
I.I.I. Poll: Disaster Preparedness
Q. If you expect some relief from the government, do you purchase less insurance coverage against these natural disasters than you would have otherwise?
Source: Insurance Information Institute Annual Pulse Survey.
Seventy-two percent of Americans would not purchase less insurance if they expect some relief from the government—but 22% would.
6%
22%
72%
Don’t know
Yes
No
More than 20 percent cut back
on insurance coverage in
expectation of government disaster aid
117
Growth Analysis by State and Business Segment
Premium Growth Rates Vary Tremendously by State
117
118
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
58
.4
25
.4
24
.5
21
.0
19
.2
17
.6
16
.3
13
.2
13
.2
12
.4
9.9
9.2
9.2
8.5
8.0
6.2
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
0
10
20
30
40
50
60
70
ND
SD
OK
NE IA KS
VT
AK
TX
WY
MN
AR
TN IN W
I
KY
MT
OH LA
VA
NJ
MI
SC
CO
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Texas was a growth leader over the past 5 years with premiums
written expanding by 13.2%
119
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
3.6
3.1
3.0
2.9
2.7
2.2
2.1
2.1
2.0
1.8
1.1
0.0
-0.1
-0.3
-0.7
-0.9
-2.8
-5.6
-6.0
-7.2
-7.2
-9.3
-10
.1
-11
.2
-12
.5
-17
.3
-20
-15
-10
-5
0
5
CT
MS
NC AL
MD PA
U.S
.
MA IL
WA
GA
UT
NH RI
ID ME
NY FL
CA
DC
WV HI
AZ
OR
DE
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.
130
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
130
131
Unemployment and Underemployment Rates: Stubbornly High in 2012, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment stood at 7.6% in
June 2013—nearly its lowest level in 4 years.
Unemployment peaked at 10.1% in October 2009, highest monthly rate since 1983.
Peak rate in the last 30 years:
10.8% in November -
December 1982
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 14.3%
in June 2013
January 2000 through June 2013, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving
131
22
75
41
68
50
12
36
61
-79
24 6
8 74
51
2-1
14
-10
5-2
22
-21
9-2
03
-26
7-2
69
-42
9-4
84
-78
6 -70
1-8
21
-69
2-8
12
-82
1-2
88
-44
2-2
82 -2
22 -1
62
-23
3-3
4-1
67
-17
-26
17
01
02
94 10
31
29
11
3 18
81
54
11
48
02
43
22
3 30
31
83
17
72
06
12
92
56
17
41
97 24
9 32
32
65
20
81
20 15
27
81
77
13
11
18
21
7 25
62
24
16
43
19
15
4 18
82
07
20
2
11
1(1,000)
(800)
(600)
(400)
(200)
0
200
400
Jan
-07
Fe
b-0
7M
ar-
07
Ap
r-0
7M
ay-
07
Jun
-07
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
Monthly Change in Private Employment
January 2007 through June 2013 (Thousands)
Private Employers Added 7.16 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly Losses in Dec. 08–Mar. 09 Were
the Largest in the Post-WW II Period
202,000 private sector jobs were created in June
132
Jobs Created2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill
-0.0
17-0
.043
0.06
80.
238
0.34
00.
434
0.53
70.
666
0.77
90.
967
1.12
11.
235
1.31
51.
558
1.78
12.
084
2.26
72.
444
2.65
02.
779
3.03
53.
209
3.40
63.
655
3.97
84.
243
4.45
14.
571
4.72
34.
801
4.97
85.
109
5.22
75.
444
5.70
05.
924
6.08
86.
407
6.74
96.
956
7.15
8
6.56
1
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jan-
10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10
Jul-1
0
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11
Jul-1
1
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Mill
ion
sCumulative Change in Private Sector Employment: Jan. 2010—June 2013
January 2010 through June 2013* (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job gains through June 2013 totaled 7.16 million
134
Job gains and pay increases have added more than $600 billion to payrolls
since Jan. 2010
Private Employers Added 7.16 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
4-1
033
9251
128
798
-68
-224 -1
84-1
94-2
13-2
24-2
71-2
89-2
88-3
56 -324
-452
-449
-480
-488
-511
-530
-542
-536
-539
-547
-574
-565
-589 -555
-535
-592
-601
-606
-622
-609
-610
-622
-629
-621
-800
-600
-400
-200
0
200
400
600
Jan-
10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10
Jul-1
0
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11
Jul-1
1
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Cumulative Change in Government Employment: Jan. 2010—June 2013
January 2010 through June 2013* (Millions)
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Cumulative job losses through June 2013 totaled 629,000
135
Governments at All Levels are Under Severe Fiscal Strain As Tax Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Government at all levels has shed more than 625,000 jobs
since Jan. 2010 even as private employers created 7.16 million jobs, though losses may now
be stabilizing.
Temporary Census hiring distorted 2010
figures
137
Unemployment Rates by State, May 2013:Highest 25 States*
9.5
9.1
9.1
8.9
8.8
8.6
8.6
8.5
8.4
8.3
8.3
8.3
8.1
8.0
8.0
7.8
7.8
7.6
7.5
7.3
7.2
7.1
7.0
7.0
6.9
0
2
4
6
8
10
12
NV IL MS RI NC CA NJ DC MI GA IN TN KY CT SC AZ OR NY PA AR DE FL OH WI CO
Une
mpl
oym
ent R
ate
(%)
*Provisional figures for May 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In May, 25 states had over-the-month unemployment rate decreases, 17 had
increases, and 8 and the District of Columbia had no change.
138
6.8
6.8
6.8
6.8
6.8
6.7
6.7
6.6
6.5
6.2
6.2
5.9
5.7
5.4
5.3
5.3
5.3
5.0
4.7
4.6
4.6
4.6
4.1
4.0
3.8
3.2
0
2
4
6
8
AL LA ME MO WA MD NM MA TX ID WV AK KS MT MN NH VA OK HI IA UT WY VT SD NE ND
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, May 2013: Lowest 25 States*
*Provisional figures for May 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In May, 25 states had over-the-month unemployment rate decreases, 17 had
increases, and 8 and the District of Columbia had no change.
139
Oil & Gas Extraction Employment,Jan. 2010—June 2013*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.
415
6.4
156.
715
7.6
158.
715
7.8
158.
015
9.5
160.
016
1.5
161.
216
1.2
163.
116
4.4
166.
6 169.
317
0.1
171.
017
2.5
173.
6 176.
317
8.2
178.
518
0.9
181.
918
3.1
184.
818
5.2
185.
718
6.8
187.
618
8.0
188.
018
8.2
190.
019
1.7
191.
919
3.4
192.
419
2.6
192.
819
2.1
150
155
160
165
170
175
180
185
190
195
200
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Oil and gas extraction employment is up 22.8%
since Jan. 2010 as the energy sector booms.
Domestic energy production is essential to any robust economic
recovery in the US.
(Thousands)
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
143
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2012E
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2012 actuals.Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow Again in 2012; +7.9% Growth in 2011 Was the First Gain Since 2005
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
+9% in 2012E
The BIG Question:Where Is the Market Heading?
144
Catastrophes and Other Factors Are Pressuring Insurance Markets
144
New Factor: Record Low Interest Rates Are Contributing to
Underwriting and Pricing Pressures
INVESTMENTS: THE NEW REALITY
145
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
145
Property/Casualty Insurance Industry Investment Income: 2000–2013*1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$47.7$45.5
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13*
Investment Income Fell in 2012 and is Falling in 2013 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1 Investment gains consist primarily of interest and stock dividends..*Estimate based on annualized actual Q1:2013 investment income of $11.385B.Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings are running below their 2007
pre-crisis peak
147
P/C Insurer Net Realized Capital Gains/Losses, 1990-2013:Q1
Sources: A.M. Best, ISO, Insurance Information Institute.
$2.8
8
$4.8
1 $9.8
9
$9.8
2
$10.
81 $18.
02
$13.
02
$16.
21
$6.6
3
-$1.
21
$6.6
1
$9.1
3
$9.7
0
$3.5
2 $8.9
2
-$7.
90
$5.8
5
$7.0
4
$6.2
1
$1.3
8
-$19
.81
$9.2
4
$6.0
0
$1.6
6
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 1213:Q1
Insurers Posted Net Realized Capital Gains in 2010, 2011 and 2012 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were the Primary Cause of 2008/2009’s Large Drop in Profits and ROE
($ Billions) Realized capital gains in 2012 were down 12% from 2011
Property/Casualty Insurance Industry Investment Gain: 1994–2013:Q11
$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
$53.9
$12.8
$58.0
$51.9$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13:Q1
Investment Gains Are Slipping in 2012 as Low Interest Rates Reduce Investment Income and Lower Realized Investment Gains; The Financial
Crisis Caused Investment Gains to Fall by 50% in 2008
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; Sources: ISO; Insurance Information Institute.
($ Billions)
Investment gains in 2012 were approximately 16%
below their pre-crisis peak
151
U.S. Treasury Security Yields*:A Long Downward Trend, 1990–2013
*Monthly, constant maturity, nominal rates, through May 2013.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Recession2-Yr Yield10-Yr Yield
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
U.S. Treasury security yields
recently plunged to record lows
151
158
-1.8
%
-1.8
%
-2.0
%
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
-5.7
%
-7.3%
-1.9
%
-2.1
%
-3.1
%
-8%-7%-6%-5%-4%-3%-2%-1%0%
Perso
nal L
ines
Pvt Pass
Aut
o
Pers P
rop
Comm
ercia
l
Comm
l Auto
Credit
Comm
Pro
p
Comm
Cas
Fidelity
/Sure
ty
Warra
nty
Surplu
s Line
s
Med
Mal
WC
Reinsu
rance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
158
161
P/C Insurance Industry Combined Ratio, 2001–2013:Q1*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
94.8
101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120Best
Combined Ratio Since 1949 (87.6)
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
Premiums
Relatively Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Lower CAT
Losses Before Sandy
Underwriting Gain (Loss)1975–2013:Q1*
* Includes mortgage and financial guaranty insurers in all years.Sources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 1213:Q1
Cumulative underwriting deficit from 1975 through
2012 is $510B
($ Billions)Underwriting
profit in 2013:Q1
totaled $4.6B
High cat losses in 2011 led to the highest
underwriting loss since 2002
164
2
(2)
(8)
(3)
(7)(10)(10)
(4)
(0)
11
24
1411 9
(5)
(9)
(13)(12)
(10)
(14)(12)
(10)(7) (7)
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
E
14
E
15
E
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
B)
-6
-4
-2
0
2
4
6
8 Imp
ac
t on
Co
mb
ine
d R
atio
(Po
ints
)
Prior Yr. ReserveDevelopment ($B)
Impact onCombined Ratio(Points)
P/C Reserve Development, 1992–2015E
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: A.M. Best, ISO, Barclays Research (estimates).
172
Performance by Segment
172
Private Passenger Auto Combined Ratio: 1993–2015F
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
0.3
10
1.3
10
1.0
10
1.9
99
.6
99
.4
98
.6
98
.3
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 12E13F14F15F
Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry
173Sources: A.M. Best (1990-2012E);Conning (2013F-15F); Insurance Information Institute.
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.1
10
6.7
10
4.9
10
2.1
10
1.4
10
1.3
10
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
F
14
F
15
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2011); Conning (2012-2015F) Insurance Information Institute
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
177
Commercial Auto Combined Ratio: 1993–2015F
11
2.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4 94
.3 96
.8 99
.4
98
.0
10
4.6
10
7.1
10
1.7
10
0.3
99
.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 12E 13F 14F 15F
Commercial Auto is Expected to Improve as Rate Gains Outpace Any Adverse Frequency and Severity Trends
178Sources: A.M. Best (1990-2012E);Conning (2012-2015F); Insurance Information Institute.
General Liability Combined Ratio: 2005–2015F
112.
9
95.1 99
.0
94.2
101.
4
104.
4
105.
8
108.
3
107.
1 110.
8
99.8
80
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13F 14F 15F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting. 180
Workers Compensation Combined Ratio: 1994–2012P
102.
0
97.0 10
0.0
101.
0
112.
6
108.
6
105.
1
102.
7
98.5
103.
5
104.
5 110.
6 115.
0
115.
0
109.
0
121.
7
107.
0
115.
3
118.
2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-
2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2012P) and are for private carriers only; Insurance Information Institute. 185
WC showed a better-than-expected
improvement for private carriers in 2012
Workers Compensation Premium: Second Consecutive Year of IncreaseNet Written Premium
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012p
0
10
20
30
40
50
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2 31.1
34.737.8 38.6 37.6
33.830.3 29.9
32.335.2
31.0 31.329.8 30.5
29.126.3
28.226.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.6 33.836.4
39.6
State Funds ($ B)
Private Carriers ($ B)
Pvt. Carrier NWP growth was +9.0% in 2012, the
best since 2005
$ Billions
Calendar Yearp Preliminary
Source: 1990–20102p Private Carriers, Annual Statement Data, NCCI.1996–2012p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
Workers Comp Rate Changes,2008:Q4 – 2013:Q1
Source: Council of Insurance Agents and Brokers; Information Institute.
-5.5%-4.6%-4.0%-4.6%
-3.7%-3.9%
-5.4%
-3.7%-3.4%
-1.6%
2.6%4.1%
7.5%7.4%8.3%8.1%
9.0%9.8%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
08:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q413:Q1
WC rate changes have been positive for 8
consecutive quarters, longer than any other
commercial line
(Percent Change)
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
2. SURPLUS/CAPITAL/CAPACITY
200
How Will Large Catastrophe Losses Impact Capacity?
200
202
Policyholder Surplus, 2006:Q4–2013:Q1
Sources: ISO, A.M .Best.
($ Billions)
$487.1$496.6
$512.8$521.8
$478.5
$455.6
$437.1
$463.0
$490.8
$511.5
$540.7$530.5
$544.8
$559.2 $559.1
$538.6
$550.3
$567.8
$583.5$586.9
$607.7
$570.7$566.5
$505.0$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
$600
$620
06:Q407:Q107:Q207:Q307:Q408:Q108:Q208:Q308:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q413:Q1
2007:Q3Pre-Crisis Peak
Surplus as of 3/31/13 stood at a record high $607.7B
*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.
The Industry now has $1 of surplus for every $0.80
of NPW, close to the strongest claims-paying
status in its history.
Drop due to near-record 2011 CAT losses
The P/C Insurance Industry Both Entered and Emerged from the 2012 Hurricane
Season Very Strong Financially.
203
U.S. INSURANCE MERGERS AND ACQUISITIONS, 2002-2012 (1)
$9,704
$59,925
$14,878
$50,793
$43,022
$50,417
$31,435
$14,373
$46,509
$54,724
$43,152
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Tra
ns
ac
tio
n v
alu
es
0
100
200
300
400
500
600
Nu
mb
er o
f tran
sa
ctio
ns
($ Millions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
M&A activity has returned to its pre-crisis levels.
4. RENEWED PRICING DISCIPLINE
211
Evidence of a Broad and Sustained Shift in Pricing
211
213
-5%
0%
5%
10%
15%
20%
25%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 1213
:Q1
Net Premium Growth: Annual Change, 1971—2013:Q1
(Percent)1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
2013:Q1 = 4.1%
2012 growth was +4.3%
214
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
Sources: ISO, Insurance Information Institute.
Sustained Growth in Written Premiums(vs. the same quarter, prior year) Will Continue through 2013
10.2
%15
.1%
16.8
%16
.7%
12.5
%10
.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
-4.6
%-4
.1%
-5.8
%-1
.6%
10.3
%10
.2% 13
.4%
6.6%
-1.6
%2.
1%0.
0%-1
.9%
0.5%
-1.8
%-0
.7%
-4.4
%-3
.7%
-5.3
%-5
.2%
-1.4
%-1
.3%
1.3% 2.
3%1.
7% 3.5%
1.6%
4.1%
3.8%
3.0% 4.
2% 5.1%
4.8%
4.1%
-10%
-5%
0%
5%
10%
15%
20%
2002
:Q1
2002
:Q2
2002
:Q3
2002
:Q4
2003
:Q1
2003
:Q2
2003
:Q3
2003
:Q4
2004
:Q1
2004
:Q2
2004
:Q3
2004
:Q4
2005
:Q1
2005
:Q2
2005
:Q3
2005
:Q4
2006
:Q1
2006
:Q2
2006
:Q3
2006
:Q4
2007
:Q1
2007
:Q2
2007
:Q3
2007
:Q4
2008
:Q1
2008
:Q2
2008
:Q3
2008
:Q4
2009
:Q1
2009
:Q2
2009
:Q3
2009
:Q4
2010
:Q1
2010
:Q2
2010
:Q3
2010
:Q4
2011
:Q1
2011
:Q2
2011
:Q3
2011
:Q4
2012
:Q1
2012
:Q2
2012
:Q3
2012
:Q4
2013
:Q1
Premium growth in Q1 2013 was up 4.1% over Q1 2012, marking the
12th consecutive quarter of growth
216
Average Commercial Rate Change,All Lines, (1Q:2004–1Q:2013)
-3.2
%-5
.9%
-7.0
%-9
.4%
-9.7
%-8
.2%
-4.6
% -2.7
%-3
.0%
-5.3
%-9
.6%
-11
.3%
-11
.8%
-13
.3%
-12
.0%
-13
.5%
-12
.9%
-11
.0%
-6.4
%-5
.1%
-4.9
%-5
.8%
-5.6
%-5
.3%
-6.4
%-5
.2%
-5.4
% -2.9
%
2.7
% 4.4
%4
.3%
3.9
%5
.0%
5.2
%
-0.1
% 0.9
%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Pricing as of Q1:2013 was positive for the 8th consecutive
quarter. Gains are likely to continue through 2013.
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
221
Change in Commercial Rate Renewals, by Line: 2013:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Uniformly Upward in Q1:2013 for the 8th Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Percentage Change (%)
5.5% 5.8%6.8%
9.8%
1.3%
4.1% 4.3% 4.6% 4.6%5.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Su
rety
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Co
mm
erc
ial
Au
to
Co
nst
ruct
ion
D&
O
EP
L
Co
mm
erc
ial
Pro
pe
rty
Wo
rke
rsC
om
p
Workers Comp rate increases are large than any other line, followed
by Property lines
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
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