Reinsurance Market Trends and Perspectives

Reinsurance in the Age of Black Swans

Reinsurance Association of America Underwriting Seminar

New York, NYJuly 20, 2011

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

Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

3

What in the World Is Going On?

Is the World Becoming a Riskier Place?

What Are the Implications for Insurance and Risk Management?

4

Uncertainty, Risk and Fear Abound

Japan, New Zealand, Haiti, Chile Earthquakes Nuclear Fears Record Tornado, Flooding in the US, TX Wildfires Cyber Attacks Resurgent Terrorism Risk (e.g., Bin Laden Killing) Political Upheaval in the Middle East Echoes of the Financial Crisis Housing Crisis Persistently High Unemployment US Debt and Budget Crisis Sovereign Debt & Currency Crises Inflation/Deflation Runaway Energy & Commodity Prices Era of Fiscal Austerity Reshuffling the Global Economic Deck China Becomes #2 Economy in the World Manmade Disasters (e.g., Deepwater Horizon) Are “Black Swans”

everywhere or does it just seem

that way?

5

P/C Insurance Industry Financial Overview

Profit Recovery Will Be Set Back by High CATs, Low

Interest Rates, Diminishing Reserve Releases

P/C Net Income After Taxes1991–2011:Q1 ($ Millions)

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $

36

,81

9

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

4,6

70

$7

,80

7

$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*

2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009 ROAS1 = 5.9% 2010 ROAS = 6.5% 2011:Q1 ROAS = 5.6%

P-C Industry 2011:Q1 profits were down 12.2% to $7.8B vs. $8.9B in 2010:Q1, as underwriting results

deteriorated

* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.5% ROAS for 2011:Q1, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty insurersSource: Insurance Information Institute from A.M. Best and ISO data.

97.5

100.6 100.1 100.7

92.6

99.3100.8

102.2101.0

6.5%7.5%7.4%

9.6%

15.9%

14.3%

12.7%

4.4%

8.9%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2008* 2009* 2010* 2011*0%

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 generated ~7.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

-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

*

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*

*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for Q1 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

1977:19.0% 1987:17.3%

1997:11.6%2007:12.3%

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

10 Years

10 Years10 Years

2011:6.1%*

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

Catastrophe Loss Developments and Trends

9

2011 and 2010 Are Rewriting Catastrophe Loss and

Insurance History, Pressuring Reinsurance Markets

10

Global Catastrophe Loss Summary: First Half 2011

2011 Is Already (as of June 30) the Highest Loss Year on Record Globally

Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods and tornadoes are the primary causes of loss

$260 Billion in Economic Losses Globally

New record for the first six months, exceeding the previous record of $220B in 2005

Economy is more resilient than most pundits presume

$55 Billion in Insured Losses Globally

More than double the first half 2010 amount

Over 4 times the 10-year average

$27 Billion in Economic Losses in the US

Represents a 129% increase over the $11.8 billion amount through the first half of 2010

$17.3 Billion in Insured Losses in the US Arising from 100 CAT Events

Represents a 162% increase over the $6.6 billion amount through the first half of 2010

Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)

Hydrological events(flood, mass movement)

Selection of significant loss events (see table)

Natural catastrophes

Earthquake, tsunami Japan, 11 March

EarthquakeNew Zealand, 22 Feb

Cyclone Yasi Australia, 2 Feb

Landslides, flash floodsBrazil, 12/16 Jan

Floods, flash floods Australia, Dec 2010-Jan 2011

Severe storms, tornadoesUSA, 22–28 April

Severe storms, tornadoesUSA, 20–25 May

WildfiresUSA, May–June

EarthquakeNew Zealand, 13 June

FloodsUSA, April–June

Climatological events(extreme temperature, drought, wildfire)

Number of Events: 355Number of Events: 355

Natural Loss Events,January – June 2011

World Map

11Source: MR NatCatSERVICE

12Source: MR NatCatSERVICE

Worldwide Natural Disasters 2011 Significant Natural Disasters (January – June only)

Insured losses 2011 (January – June only): US$ 60bnInsured losses 2011 (January – June only): US$ 60bn

Worldwide Natural Disasters 2011% Distribution of Insured Losses Per Continent (January – June only)

13

21%21%

49%49%

<1%

29%29% <1%

<1%

Source: MR NatCatSERVICE

Insured losses 1980 - 2011 (January – June only): US$ 389bn Insured losses 1980 - 2011 (January – June only): US$ 389bn

14Source: MR NatCatSERVICE © 2011 Munich Re

58%58%

2%

21%21%

<1%

12%12%

6%

Worldwide Natural Disasters, 1980-2011% Distribution of Insured Losses Per Continent (January – June only)

16

US Second Quarter Insured Catastrophe Losses, 2000–2011

$5.04

$2.30

$7.11

$4.47

$6.38

$15.09

$0.93

$2.33

$5.05

$2.79

$6.24

$1.46

$0

$2

$4

$6

$8

$10

$12

$14

$16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sources: ISO/PCS; Insurance Information Institute.

Record Q2 (and First Half) CAT Losses Will Adversely Impact Insurer Results in 2011

$ Billions

Q2 CAT losses from 2000-2010 average $4.0 billion. 2011:Q2

CAT losses were nearly 4 times that amount at $15.09 billion

2011:Q2 CAT losses totaled

$15.09 billion and are the highest on

record

18

Top 16 Most Costly World Insurance Losses, 1970-2011*

(Insured Losses, 2010 Dollars, $ Billions)

*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.

$11.3$14.0 $14.0$14.9$20.5$20.8 $23.1$24.9

$35.0

$72.3

$10.0$9.3$9.0$8.0$8.0$7.8

$0

$10

$20

$30

$40

$50

$60

$70

$80

WinterStormDaria(1991)

ChileQuake(2010)

Hugo (1989)

TyphoonMirielle(1991)

Charley(2004)

NewZealandQuake(2011)

Rita (2005)

SpringTornadoes

(2011)

Wilma(2005)

Ivan (2004)

Ike (2008)

Northridge(1994)

WTCTerrorAttack(2001)

Andrew(1992)

JapanQuake,

Tsunami(2011)*

Katrina(2005)

Taken as a single event, the Spring 2011 tornado season would likely become the 9th

costliest event in global insurance history

3 of the top 15 most expensive

catastrophes in world history have occurred in the past 18 months

100

200

300

400

500

600

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Worldwide Natural Disasters,1980 – 2011*

Number of Events

*2011 figure is through June 30.Source: MR NatCatSERVICE 19

Meteorological events(Storm)

Hydrological events(Flood, mass movement)

Climatological events(Extreme temperature, drought, forest fire)

Geophysical events(Earthquake, tsunami, volcanic eruption)

Already 355 events through the first 6

months of 2011

US

$bn

Worldwide Natural Disasters 1980–2011,Overall and Insured Losses*

20

Overall losses (in 2011 values) Insured losses (in 2011 values)

*2011 figure is through June 30.Source: MR NatCatSERVICE © 2011 Munich Re

50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

First Half 2011

Overall Losses: $265 Bill

Insured Losses: $60 Bill

21

JAPAN EARTHQUAKE/TSUNAMI & NUCLEAR DISASTER

March 11 Quake/Tsunami Is Just the Most Recent of Several Large Global Catastrophe Losses

23

Recent Major Non-US Catastrophe Losses

(Insured Losses, $US Billions)

Sources: Insurance Council of Australia, Munich Re, AIR Worldwide; Insurance Information Institute.

$35.0

$10.0$8.0

$5.0$2.0$0.5

$0

$5

$10

$15

$20

$25

$30

$35

$40

Cyclone Yasi(Australia) Feb

2011

Australia Floods(Dec - Feb 2011)

New ZealandQuake (Sep 2010)

Chile Earthquake(Feb 2010)

New ZealandQuake (Feb 2011)

Japan Earthquake(Mar 2011)

Insured Losses from Recent Major Catastrophe Events Exceed $60 Billion, an Estimated $53 Billion of that from Earthquakes

The March 2011 earthquake in Japan will become among the most expensive in world history in terms of insured losses (current

leader is the 1994 Northridge earthquake with $22.5B in insured losses in 2010 dollars)

25

SPRING 2011 TORNADO OUTBREAK

2011 Will Be Among the Most Deadly and Expensive for Tornadoes In History

29

1,1

33

1,1

32 1

,29

7

1,1

73

1,0

82 1,2

34

1,1

73

1,1

48

1,4

24

1,3

45

1,0

71 1,2

16

94

1

1,3

76

1,2

64

1,1

03

1,0

98

1,6

92

1,1

56 1,2

82

1,819

1,5

85

537

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

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

Nu

mb

er

of

To

rna

do

es

0

100

200

300

400

500

600

Nu

mb

er o

f De

ath

s

Number of Tornadoes

Number of Deaths

*2011 is preliminary data through June 30.Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.

Number of Tornadoes and Related Deaths, 1990 – 2011*

Tornadoes have already claimed more than 500 lives

There were already 1,585 tornadoes in the US by June 30

Insurers Expect to Pay $2 Billion on 165,000 Claims Arising from the April 2011 Tornadoes in the Birmingham and Tuscaloosa Areas

Insurers Making a Difference in Impacted Communities

Source: Insurance Information Institute 30

Destroyed home in Tuscaloosa. Insurers will pay some 165,000

claims totaling $2 billion in the Tuscaloosa/

Birmingham areas alone.

Presentation of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm

Recovery Fund

U.S. Tornado Count, 2005-2011*

31

There were 1,585 tornadoes in the US in 2010, slightly

above average

Deadly and costly April/ May spike

Source: http://www.spc.noaa.gov/wcm/ *Through July 2.

Tornado activity was off its record pace

by mid-year

Location of Tornadoes in the US, January 1—June 30, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 32

1,585 tornadoes killed 537 people through June 30, including at least 340 on April 26 mostly in the

Tuscaloosa area, and 130 in Joplin

on May 22

Location of Large Hail Reports in the US, January 1—June 30, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 33

There were 7,176 “Large Hail”

reports through June 30, causing extensive damage

to homes, businesses and

vehicles

Location of Wind Damage Reports in the US, January 1—June 30, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 34

There were 11,283 “Wind Damage” reports through

June 30, causing extensive damage

to homes and, businesses

Severe Weather Reports,January 1—June 30, 2011

35Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

There have been 20,044

severe weather reports through

June 30; including 1,585

tornadoes; 7,176 “Large Hail” reports

and 11,283 high wind events

Large Hail, 7,176 , 36%

Wind Damage,

11,283 , 56%

Tornadoes, 1,585 , 8%

Tornadoes accounted for just 8% of all Severe Weather

Reports through June 30 but more than 500 deaths

Number of Severe Weather Reports in US, by Type: January 1—June 30, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

37

US CATASTROPHE INSURED LOSS UPDATE

First Half 2011 CAT Losses Already Exceed All of 2010 and Could Become One of the Most

Expensive Years on Record

Natural Disaster Losses in the United States: First 6 Months 2011

38Source: MR NatCatSERVICE

39

$8

.3

$7

.4

$2

.6 $1

0.1

$8

.3

$4

.6

$2

6.5

$5

.9 $1

2.9 $

27

.5

$6

1.9

$9

.2

$6

.7

$2

7.1

$1

0.6

$1

3.6

$1

7.3

$1

00

.0

$7

.5

$2

.7

$4

.7

$2

2.9

$5

.5 $1

6.9

$0

$20

$40

$60

$80

$100

$120

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??

US Insured Catastrophe Losses

*First half 2011.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.

First Half 2011 US CAT Losses Already Exceed Losses from All of 2010. Even Modest Hurricane Losses Will Make 2011 Among the

Most Expensive Ever for CATs

$100 Billion CAT Year is Coming Eventually

Record Tornado Losses Caused

H1 CAT Losses to Surge

($ Billions)

2000s: A Decade of Disaster

2000s: $193B (up 117%)

1990s: $89B

40

Top 12 (13?) Most Costly Disastersin U.S. History

(Insured Losses, 2010 Dollars, $ Billions)

*Losses will actually be broken down into several “events” as determined by PCS.Sources: PCS; Insurance Information Institute inflation adjustments.

$11.5 $12.8 $14.0$17.5

$22.6 $23.1

$45.8

$8.6$8.2$6.7$6.3$5.3$4.3

$0$5

$10$15$20$25

$30$35$40

$45$50

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

SpringTornadoes*

(2011)

Northridge(1994)

Andrew(1992)

9/11 Attack(2001)

Katrina(2005)

Taken as a single event, the Spring 2011 tornado season

would likely become 5th costliest event in US insurance history

41

Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2011:H1*

*Insurance Information Institute estimates for 2010 and 2011:H1Notes: 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; 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.

35.

0

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

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: 4.15*

Combined Ratio Points

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 – 2011*Number of Events (Annual Totals 1980 – 2010 and First Half 2011)

*Through June 30.Source: MR NatCatSERVICE 42

50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

There were 98 natural disaster events in the first

half of 2011

37

8

51

2

U.S. Thunderstorm Loss Trends, 1980 – 2011*

43

Average thunderstorm losses are up more

than 8 fold since the early 1980s

Hurricanes get all the headlines, but thunderstorms are consistent

producers of large scale loss. 2008-2011 are the most expensive

years on record.

Thunderstorm losses in the first half of 2011 totaled $16.4 billion, a new

annual record through just 6 months

*Through June 30, 2011.Source: Property Claims Service, MR NatCatSERVICE

Source: Property Claims Service, MR NatCatSERVICE

U.S. Winter Storm Loss Trends, 1980 – 2010 (Annual Totals) vs. First Half 2011

44

Insured winter storm losses in 2011 totaled $1.4 billion and are up 50% since 1980.

Source: National Forest Service, MR NatCatSERVICE

U.S. Acreage Burned by Wildfires, 1980 – 2010 (Annual Totals) vs. First Half 2011

45

2011 could be a severe year for wildfire damage. Acres

burned through June 30 already exceed all of 2010.

46

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990–2011:H11

0.2%

2.4%

3.4%4.9%

6.6%

8.0%

31.8%

42.7%

1.Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2.Excludes snow.3.Does not include NFIP flood losses4.Includes wildland fires5.Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.

Hurricanes & Tropical Storms, $160.5

Fires (4), $9.0

Tornadoes (2), $119.5

Winter Storms, $30.0

Terrorism, $24.9

Geological Events, $18.5

Wind/Hail/Flood (3), $12.7

Other (5), $0.6

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Number of Federal Disaster Declarations, 1953-2011*

13 1

7 18

16

16

7 71

21

22

22

02

52

51

11

11

92

91

71

74

84

64

63

83

02

2 25

42

23

15

24

21

34

27 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

14

8

43

0

10

20

30

40

50

60

70

80

90

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

*

*Through July 1, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising

The number of federal disaster declarations is on track to set a new record in 2011, with 48 declarations

through July 1.

There have been 1,998 federal disaster

declarations since 1953. The average

number of declarations per year is 34 from

1953-2010, though that few haven’t been

recorded since 1995.

48

Federal Disasters Declarations by State, 1953 – June 30, 2011: Highest 25 States

85

78

70

63 63

56 55 54 52 52 51 50 49 47 46 46 45 45 44 44 44 42 42

39 39

0

10

20

30

40

50

60

70

80

90

100

TX CA OK FL NY LA AL KY AR MO IL MS TN MN IA WV KS NE OH PA WA ND VA IN NC

Dis

aste

r Dec

lara

tions

Source: FEMA.

Over the past nearly half

century, Texas has led the US in Federal Disaster

Declarations

49

Federal Disasters Declarations by State, 1953 – June 30, 2011: Lowest 25 States

39 38

36 35 35

30 29

27

25 25 25 25 24 23 23

20 20

17 16 15 15

13

9 8 8 8

0

10

20

30

40

50

SD ME GA AK WI VT NJ OR HI MA MI NH AZ ID NM MD MT NV CO CT SC DE DC RI UT WY

Dis

aste

r Dec

lara

tions

Source: FEMA.

The BIG Question:When Will the Market Turn?

50

Insurance Cycle Dynamics

51

Criteria Necessary for a “Market Turn”:All Four Criteria Must Be Met

Criteria Status Comments

Sustained Period of

Large Underwriting

LossesNot Yet

Happened

•Apart from Q2:2011, overall p/c underwriting losses remain modest•Combined ratios (ex-Q2 CATs) still in low 100s (vs. 110+ at onset of last hard market)•Prior-year reserve releases continue reduce u/w losses, boost ROEs

Material Decline in Surplus/ Capacity

Surplus is At/Near

Record High

•Surplus hit a record $565B as of 3/31/11•Analysts est. excess surplus of $75-$100B•Some excess capacity may still remain in reinsurance markets•Weak growth in demand for insurance is insufficient to absorb much excess capacity

Tight Reinsurance

MarketSomewhat in

Place•Higher prices in Asia/Pacific•Modestly improved pricing for US risks

Renewed Underwriting

& Pricing Discipline

Not Broadly Evident

•Commercial lines pricing trends remain negative•Competition remains intense as many seek to maintain market share•Terms & conditions—no broad tightening

Sources: Barclays Capital; Insurance Information Institute.

52

Do the Property Catastrophe Events of 2011 Impact Casualty Markets? Unlikely that Record 2011 Property CAT Loss Will Impact Casualty Markets in Any

Material Way

Global P/C & Reinsurance Industries Entered 2011 w/ Record Capital

Events so far in 2011 are earnings events, rather than capital events

Natural Catastrophe and Casualty Risks Are Largely Uncorrelated

Risks are different

Geographically, mostly distinct primary carriers: Japan-Australia-NZ-US

Casualty markets generally don’t influence property markets

Property and Casualty Risks Are Largely Siloed

Record Property Losses in 2004/2005 Did Not Impact Casualty Mkts.

Casualty Markets Have Their Own Issues

Tort environment

Inflation

Public policy

1. UNDERWRITING

53

Have Underwriting Losses Been Large Enough for Long Enough to Turn the Market?

54

P/C Insurance Industry Combined Ratio, 2001–2011:H1*

* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=109.1 Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).

95.7

99.3100.8

107.5

101.0

92.6

100.898.4

100.1

107.5

115.8

90

100

110

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Best Combined

Ratio Since 1949 (87.6)

As Recently as 2001, Insurers Paid Out

Nearly $1.16 for Every $1 in Earned

Premiums

Relatively Low CAT Losses, Reserve Releases

Cyclical Deterioration

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

Underwriting Gain (Loss)1975–2011*

* Includes mortgage and financial guaranty insurers in all years. 2011 figure is annualized based on actual Q1 underwriting losses of $4.463 billion.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 1011*

The industry recorded a $10.4B underwriting loss in 2010 compared

to $3.0B in 2009

Cumulative underwriting deficit from 1975 through

2009 is $445B

($ Billions)Underwriting losses in 2011 will be much larger:

$17.9B based on

annualized Q1 data

57

2.3

-2.1

-8.3

-2.6-6.6

-9.9 -9.8

-4.1

1

11.7

23.2

13.79.9

7.3

-6.7-9.5

-14.6-16 -15

-5

-$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

E

11

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, 1992–2011E

Reserve Releases Are Remained Strong in 2010 But Should Begin to Taper Off in 2011

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: Barclay’s Capital; A.M. Best.

Prior year reserve releases totaled $8.8

billion in the first half of 2010, up from

$7.1 billion in the first half of 2009

2. SURPLUS/CAPITAL/CAPACITY

58

Have Large Global Losses Reduced Capacity in the Industry, Setting

the Stage for a Market Turn?

60

Policyholder Surplus, 2006:Q4–2011: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$556.9

$564.7

$505.0$515.6$517.9

$420

$440

$460

$480

$500

$520

$540

$560

$580

06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1

2007:Q3Previous Surplus Peak

Quarterly Surplus Changes Since 2007:Q3 Peak

09:Q1: -$84.7B (-16.2%) 09:Q2: -$58.8B (-11.2%)09:Q3: -$31.0B (-5.9%)09:Q4: -$10.3B (-2.0%)

10:Q1: +$18.9B (+3.6%)10:Q2: +$8.7B (+1.7%)10:Q3: +$23.0B (+4.4%)10:Q4: +$35.1B (+6.7%)11:Q4: +$42.9B (+8.2%)

Surplus set a new record in 2011:Q1*

*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 $0.77 of

NPW—the strongest claims-paying status in its history.

Implied Excess (Deficit) Capital Assuming Premium/Surplus Ratio = 0.9:1

Excess/(Deficit) Capital (Policyholder Surplus)

($10.6)

($65.4)

($124.6)

($103.0)

($76.5)

($10.8)

$22.9

($32.7)

$81.9

$41.7

($49.2)

8.9%12.3%

-12.0%

6.2%

14.4%

21.6%

-8.8%

-5.1%

13.4%

8.2%

-1.5%

-150

-100

-50

0

50

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Capital Excess (Deficit) Annual Change in CapitalRecord Policyholder Surplus (Capital) Has Resulted Significant Excess Capital in the

P/C Insurance Sector As of Year End 2010. Deteriorating Underwriting Losses, Higher CAT Activity, More Modest Market Returns Will Likely Shrink Excess Capital in 2011.

Annual Change in Policyholder Surplus

2000-2002: Tech bubble bursts,

9/11, high underwriting losses erode capital base

2005: Katrina, Rita, Wilma produce record CAT losses

2006/07: Low CAT losses, strong underwriting results since 1940s

increase capital

2008: Financial crisis causes sharp drop in

capital

2009-10: End of financial crisis,

rising asset prices. modest

u/w losses push capital to record levels

Note: The assumption of a 0.9:1 P/S ratio is derived from a Feb. 2011 announcement by Advisen, Ltd., that the US P/C insurance industry has $74 billion in excess capital. The implied P/S ratio (calculated by III) is 0.88:1, which was rounded to 0.9:1.Source: Insurance Information Institute calculations from A.M. Best and ISO data. * Net Premiums Written

62

M&A Activity Globally Among P/C Insurers Remains Subdued: Little Capacity Leaving

$5

1.8

$5

.5

$2

4.4

$4

5.1

$1

3.8

$2

.3

$5

.8

$1

.2

$1

5.3

$9

.8$

0.8

$2

.4

$6

.9

$7

.6$

9.4

$1

3.9

$5

0.6

$3

0.3

$1

5.0

$1

6.5

$0 $35 $70 $105 $140

2007

2008

2009

2010

Property-Casualty Life-Annuity Health/Managed Care Distribution Services

Sources: Conning Research; Insurance Information Institute.

$ Billions

67

3. REINSURANCE MARKET CONDITIONS

Has Record Global Catastrophes Activity

Erased Enough Capacity to Turn Markets?

US Reinsurance and Bermuda Market Combined Ratio and ROEs, 2006-2010

Combined Ratio / ROE

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

87.0 86.7

93.6

85.8

92.7

16.0%15.6%

19.4%

11.9%

-0.7%80

85

90

95

100

2006 2007 2008 2009 2010-1%

4%

9%

14%

19%

Combined Ratio ROE*

The 2011 combined ratio will spike due to very high first half catastrophe losses

Reinsurer results were good in 4 of the past 5 years. 2011 will likely

be the worst year since 2005.

69

($US Billions)

$70.9$79.9

$67.6

$88.4$96.1

$52.6$50.3$51.6$51.6$51.7

$0

$20

$40

$60

$80

$100

$120

2006 2007 2008 2009 2010

NPW Shareholder Equity

The rapid growth of surplus relative to premiums written suggests that reinsurance markets were overcapitalized

entering 2011. Some, but not all, of that excess capital has been removed by the high US CAT losses in 2011

US reinsurer and Bermuda market participants entered 2010 with record capital—$96.1 billion—up 35.5% from 2006. Net Premiums Written over

the same period were up just 1.7%.

US Reinsurance and Bermuda Market NPW and Shareholder Equity, 2006-2010

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

Source: Holborn; RAA.

* 2011 events are as of March 31 and are preliminary and may change as loss estimates are refined further.

Significant Market Losses, 1985-2011*

Source: Holborn, RAA. *2011 events as of March 31 are preliminary and may change as loss estimates are refined further.

Significant Market Losses by Event, 1985-2011*

Reinsurers are bearing a very high

share of recent catastrophe losses

Losses are putting pressure on property cat reinsurance prices in affected

regions. The impact for US property catastrophe pricing is uncertain.

Percent of Authorized Capacity Used at Renewal

Source: Guy Carpenter & Co., GC Briefing, July 2011. 72

Nearly 95% of authorized

capacity was necessary to fill out April – June

2011 renewals, up from 89.2% a year earlier. This does

not imply a shortage of

capacity, but rather a market in

transition with more leverage tipping toward

reinsurers.

US Property Catastrophe Rate on Line, 1989 – 2011* (excludes FL)

73

Reinsurance prices (ex-FL) were up 10%-15% in June/July 2011 but were

down for Jan. 1 renewals and down 3% on net through July 1

*Through July 1.Source: Guy Carpenter & Co., GC Briefing, July 2011.

National Carrier Risk Adjusted Reinsurance Pricing (excl. FL-only renewals)

74*Through July 1.Source: Guy Carpenter & Co., GC Briefing, July 2011.

2011 quotes for national carriers

are running ahead of 2010

Regional Carrier Risk Adjusted Reinsurance Pricing (excl. FL-only renewals)

75*Through July 1.Source: Guy Carpenter & Co., GC Briefing, July 2011.

2011 quotes for regional carriers

are running ahead of 2010

June and July 2011 Reinsurer Quoting Behavior (excludes FL)

76Source: Guy Carpenter & Co., GC Briefing, July 2011.

A+ rated reinsurers tended to quote higher, on average, than lesser

rated companies

2011 Florida Renewal Reinsurer Quoting Behavior

77Source: Guy Carpenter & Co., June 2, 2011.

There was considerably more variability in Florida renewals in 2011, ranging

from -15% to +16%

2010 Florida Renewal Reinsurer Quoting Behavior

78Source: Guy Carpenter & Co., June 2, 2011.

There was considerably less variability in Florida

renewals in 2010 vs. 2011, ranging from -3% to +3%

Source: Holborn; RAA.

* 2011 events are as of March 31 and are preliminary and may change as loss estimates are refined further.

Significant Market Losses, 1985-2011*

4. RENEWED PRICING DISCIPLINE

84

Is There Evidence of a Broad and Sustained Shift in Pricing?

85

-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*

Soft Market Persisted in 2010 but Growth Returned: More in 2011?

(Percent)1975-78 1984-87 2000-03

*2011 figure is an estimate based on Q1 data. 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.

NWP was up 0.9% in 2010

2011:Q1 growth was +3.5%; First Q1 growth since 2007

86

P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter

Sources: ISO, Insurance Information Institute.

Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)

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.

3%3.

5%

-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

The long-awaited uptick. In 2011:Q1 occurring in

personal lines predominating cos.

(+3.8%) and commercial lines predominating cos.

(+3.5%)

87

Average Commercial Rate Change,All Lines, (1Q:2004–1Q:2011)

-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% -1

1.0

%

-6.4

% -5.1

%

-4.9

%

-5.8

%

-5.6

%

-5.3

%

-6.4

% -5.2

%

-5.4

%

-2.9

%

-0.1

%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

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

Source: Council of Insurance Agents & Brokers; Insurance Information Institute

KRW Effect

Magnitude of Price Declines Shrank

During Crisis, Reflecting Shrinking

Capital, Reduced Investment Gains,

Deteriorating Underwriting

Performance, Higher Cat Losses and

Costlier Reinsurance

(Percent)

Q1 2011 decreases were the smallest

since 2006, perhaps signaling a market

firming

88

Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2011:Q1

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

Percentage Change (%)

Market has Been Soft for 7 years and Remains Soft as Capital Hits Record Levels;

But Is Softness Moderating?

Peak = 2001:Q4 +28.5%

Pricing Turned Negative in Early

2004 and Has Been Negative

Ever SinceKRW Effect: No Lasting Impact

Trough = 2007:Q3 -13.6%

89

Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2011:Q1

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

1999:Q4 = 100

Pricing today is where is was in

Q3:2000 (pre-9/11)

Downward pricing pressure is most pronounced for

larger risks

90

The Unfortunate Nexus: Opportunity, Risk & Instability

Most of the Global Economy’s Future Gains Will be Fraught with Much

Greater Risk and Uncertainty than in the Past—Reinsurance Will Insurers

Manage These Risks

(4.0)

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

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

Advanced economies Emerging and developing economies World

Source: International Monetary Fund, World Economic Outlook Update, January 2011; Ins. Info. Institute.

Emerging economies (led by China) are expected to grow by 6.5% in 2011 and

2012. Role of FDI in exposure growth key.

GDP Growth: Advanced & Emerging Economies vs. World, 1970-2012F

Advanced economies are expected to grow at a relative modest 2.5% in

both 2011 and 2012.

World output is forecast to grow by 4.4% in 2011 and 4.5% in 2011,

following growth of 3.0% in 2010 and a 0.6% drop in 2009.

GDP Growth (%)

92

Relative Shares of Global Output,Advanced vs. Developing Economies, 2009

Developing Economies

47.1%

Advanced Economies

52.9%

Source: EDC Economics, “The Moment of Truth: Global Export Forecast Fall 2010, at http://www.edc.ca/english/docs/gef_e.pdf

The gap is closing quickly. China became the world’s second largest economy in 2010 and before long

the developing world’s share of GDP will exceed that of advanced

economies.

95

Distribution of Nonlife Premium: Industrialized vs. Emerging Markets, 2009

Sources: NAIC; Insurance Information Institute research.

Although premium growth throughout the industrialized world was negative in 2009, its share of global nonlife premiums remained very high at nearly 86%--accounting for nearly $1.5 trillion in premiums.

The financial crisis and sluggish recovery in the major insurance markets will accelerate the expansion of the emerging market sector

Premium Growth Facts

14.3%85.7%

Industrialized Economies

$1, 485.8

Emerging Markets$248.8

2009, $Billions

Developing markets now account for 47% of global

GDP but just 14% of nonlife premiums

96

Nonlife Real Premium Growth in 2009

Source: Swiss Re, sigma, No. 2/2010.

Latin and South American markets performed

relatively well during the global financial crisis in

terms of growth

There was also growth in East and South Asia

and well as Australia and New

Zealand

97

Political Risk in 2010: Greatest Business Opportunities Are Often in Risky Nations

Source: Maplecroft

The fastest growing markets are generally

also among the politically riskiest

Heightened risk has insurance implications

98

Other Cycle-Influencing Factors

Could Other Factors Act as a Catalyst to Turn the

Market?

INVESTMENTS: THE NEW REALITY

99

Investment Performance is a Key Driver of Profitability

Does It Influence Underwriting or Cyclicality?

Property/Casualty Insurance Industry Investment Gain: 1994–2011: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

$52.9

$13.5

$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:Q1

Investment Gains Recovered Significantly in 2010 Due to 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 2010 were the best

since 2007

101

Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2011*

0.02% 0.04% 0.10% 0.18%0.41%

2.29%

3.00%

4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%

1.58%

0.71%

4.23%3.91%

0%

1%

2%

3%

4%

5%

6%

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

June 2011 Yield Curve*Pre-Crisis (July 2007)

Treasury yield curve remains near its most depressed level

in at least 45 years. Investment income is falling as a result. Fed is unlikely to hike rates until well into 2012.

The End of the Fed’s Quantitative Easing Is Unlikely to Push Interest Rates Up Substantially Given Ongoing Economic Weakness

*Average of daily rates.Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.

QE2 Target

102

-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*

Shifting Legal Liability & Tort Environment

103

Is the Tort PendulumSwinging Against Insurers?

104

Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical

$0

$50

$100

$150

$200

$250

$300

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10E 12E

To

rt S

ys

tem

Co

sts

1.50%

1.75%

2.00%

2.25%

2.50%

To

rt Co

sts

as

% o

f GD

P

Tort Sytem Costs Tort Costs as % of GDP

($ Billions)

Sources: Towers Watson, 2010 Update on US Tort Cost Trends, Appendix 1A

Tort Costs Have Remained High but Relatively Stable Since the mid-2000s. As a Share of GDP they Should Fall as

the Economy Expands

Business Leaders Ranking of Liability Systems in 2010

Best States

1. Delaware

2. North Dakota

3. Nebraska

4. Indiana

5. Iowa

6. Virginia

7. Utah

8. Colorado

9. Massachusetts

10. South Dakota

Worst States

41. New Mexico

42. Florida

43. Montana

44. Arkansas

45. Illinois

46. California

47. Alabama

48. Mississippi

49. Louisiana

50. West Virginia

Source: US Chamber of Commerce 2010 State Liability Systems Ranking Study; Insurance Info. Institute.

New in 2010

North Dakota Massachusetts South Dakota

Drop-offs

Maine Vermont Kansas

Newly Notorious

New Mexico Montana Arkansas

Rising Above

Texas South Carolina Hawaii

Midwest/West has mix of good and bad states.

106

The Nation’s Judicial Hellholes: 2010

Source: American Tort Reform Association; Insurance Information Institute

South Florida

West VirginiaIllinoisCook County

NevadaClark County

Watch List

Madison County, IL Atlantic County, NJ St. Landry Parish,

LA District of Columbia NYC and Albany,

NY St. Clair County, ILDishonorable

Mention

MI Supreme Court City of St. Louis CO Supreme Court

CaliforniaLos Angeles

and Humboldt Counties

Philadelphia

Inflation

109

Is it a Threat to Claim Cost Severities

110

Annual Inflation Rates, (CPI-U, %),1990–2014F

2.8 2.6

1.51.9

3.3 3.4

1.3

2.5 2.3

3.0

3.8

2.8

3.8

-0.4

1.6

3.0

2.2 2.1 2.2

2.92.4

3.23.0

5.14.9

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

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

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 3/11 and 6/11 (forecasts).

The slack in the U.S. economy suggests that inflation should not heat upbefore 2012, but other forces (commodity prices, inflation in countries from which we import, etc.), plus U.S. debt burden, remain longer-run concerns

Annual Inflation Rates (%)

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

commodity bubble reduced inflationary pressures in 2009/10

Higher energy, commodity and food prices are pushing up inflation in 2011, but not longer turn

inflationary expectations.

Medical Cost Inflation Has Outpaced Overall Inflation Over 50 Years

719.8

1589.8

0

300

600

900

1200

1500

1800

61 66 71 76 81 86 91 96 01 06 11*

Inde

x V

alue

(196

1=10

0)

All ItemsMedical Care

*Based on change from Feb. 2011 to Feb. 2010 (latest available) Source: Department of Labor (Bureau of Labor Statistics)

A claim that cost $1,000 in 1961 would cost nearly $16,000 based on

medical cost inflation trends over the past 50 years.

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