robert p. hartwig, ph.d., cpcu

31
7/27/2016 1 President & Economist Insurance Information Institute ROBERT P. HARTWIG, PH.D., CPCU INSURANCE INDUSTRY Financial Update & Outlook P / C INDUSTRY Net Income After Taxes 19912016:Q1 $5,840 $19,316 $10,870 $20,598 $24,404 $36,819 $30,773 $21,865 $20,559 ($6,970) $3,046 $30,029 $38,501 $44,155 $65,777 $62,496 $3,043 $28,672 $35,204 $19,456 $33,522 $63,784 $55,870 $56,622 $13,313 -$10,000 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16:Q1 $14,178 ROE figures are GAAP; 1Return on avg. surplus. 2016 data are for Q1. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009; 2015E is annualized figure based actual figure through Q3 of $44.0 Sources: A.M. Best, ISO; Insurance Information Institute Millions Net income in Q1:2016 was down 26.6% from Q1:2015 in part due to higher CATs 2005 ROE*= 9.6% 2011 ROAS1 = 3.5% 2006 ROE = 12.7% 2012 ROAS1 = 5.9% 2007 ROE = 10.9% 2013 ROAS1 = 10.2% 2008 ROE = 0.1% 2014 ROAS1 = 8.4% 2009 ROE = 5.0% 2015 ROAS = 8.4% 2010 ROE = 6.6% 2016:Q1 ROAS = 7.9%

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Page 1: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

1

President & Economist Insurance Information Institute

R O B E R T P . H A R T W I G ,

P H . D . , C P C U

I N S U R A N C E I N D U S T R Y Financial Update & Outlook

P / C I N D U S T R Y Net Income After Taxes 1991–2016:Q1

$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

$2

0,5

59

($6,970)

$3

,04

6

$3

0,0

29

$3

8,5

01

$4

4,1

55

$65,7

77

$6

2,4

96

$3

,04

3

$2

8,6

72

$3

5,2

04

$1

9,4

56

$3

3,5

22

$6

3,7

84

$5

5,8

70

$5

6,6

22

$1

3,3

13

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16:Q1

$14,178

ROE figures are GAAP; 1Return on avg. surplus. 2016 data are for Q1. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009; 2015E is annualized figure based actual figure through Q3 of $44.0

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

Millions

Net income in Q1:2016 was down 26.6% from Q1:2015 in part due to higher

CATs

2005 ROE*= 9.6% 2011 ROAS1 = 3.5%

2006 ROE = 12.7% 2012 ROAS1 = 5.9%

2007 ROE = 10.9% 2013 ROAS1 = 10.2%

2008 ROE = 0.1% 2014 ROAS1 = 8.4%

2009 ROE = 5.0% 2015 ROAS = 8.4%

2010 ROE = 6.6% 2016:Q1 ROAS = 7.9%

Page 2: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

2

-5%

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*

P R O F I T A B I L I T Y P E A K S & T R O U G H S in the P/C Insurance Industry 1975 – 2016*

*2016 data through Q1. Profitability = P/C insurer ROEs. 2011-15 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.

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

ROE

1977: 19.0% 1987: 17.3%

1997: 11.6% 2006: 12.7%

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

9 Years

History suggests next ROE peak

should be in 2016-2017

1975: 2.4%

2013 9.8%

2014-15 8.4%

2016:Q1 7.9%

R O E Property/Casualty Insurance by Major Event 1987–2016:Q1

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16*

US P/C Insurers

* Data for 2016 through Q1. Excludes Mortgage & Financial Guarantee in 2008 – 2014

Sources: ISO, Fortune; Insurance Information Institute

P/C profitability is both by cyclicality and ordinary volatility

Hugo

Andrew, Iniki Northridge

Lowest CAT losses in 15 years

Sept. 11

Katrina, Rita, Wilma

4 hurricanes

Financial crisis*

Record tornado losses

Sandy

Low CATs

Modestly higher CATs

Percent

Page 3: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

3

-5%

0%

5%

10%

15%

20%

50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16*

US P/C Insurers

P / C I N S U R A N C E I N D U S T R Y R O E Magnitude of Cyclicality, Volatility Changes Over Time 1950-2016:Q1

*Through Q1 2016.

Source: Insurance Information Institute

Percent

1950 - 1970

Low Volatility

1971 - 1992

Extreme Volatility

1993 - 2008

Moderate Volatility

2009 - Present

Modest Volatility

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16*

N P W P R E M I U M G R O W T H Peaks & Troughs in the P/C Insurance Industry 1926 – 2016:Q1

*Q1 data.

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

Source: A.M. Best; Insurance Information Institute

ROE

Economic shocks,

inflation

1976: 22.0%

Tort crisis

1985/86: 22.2% Post-9/11

2002:15.3%

Twin recessions;

interest rate

hikes

1987: 3.7%

Great

Recession:20

10: -4.9%

2015 3.4%

Great Depression

1932: -15.9% max drop

Post WW II peak

1947: 26.2%

Start of WW II

1941: 15.8%

1950-70: Extended period of stability in growth and profitability. Low interest rates, low inflation,

“Bureau” rate regulation all played a role

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

Rapid inflation, economic volatility, high interest rates, tort environment all played roles

1988-2000: Period of inter-cycle stability

2010-20XX? Post-

recession period of

stable growth?

Page 4: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

4

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

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 12 13 14 15E

C O M M E R C I A L L I N E S NPW Premium Growth 1975 – 2015E

Note: Data include state funds beginning in 1998.

Source: A.M. Best; Insurance Information Institute

ROE

Economic Shocks,

Inflation:

1976: 22.2%

Tort Crisis

1986: 30.5% Post-9/11

2002: 22.4%

Great

Recession:20

09: -9.0%

2015E 3.3%

Recessions:

1982: 1.1%

Commercial lines prone to more cyclical volatility that personal lines. Recently, growth has stabilized in the

4% to 5% range.

1988-2000: Period of

inter-cycle stability

2010-20XX? Post-recession period of stable

growth?

Post-Hurricane

Andrew Bump:

1993: 6.3% Post Katrina Bump:

2006: 7.7%

P / C I N S U R A N C E I N D U S T R Y Combined Ratio 2001–2016:Q1*

90

95

100

105

110

115

120

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16:Q1

$110

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

Sources: 2016 figure from ISO/Verisk; A.M. Best, ISO (2014-2015); Figure for 2010-2013 is from A.M. Best P&C Review and Preview, Feb. 16, 2016.

Millions

As recently as 2001, insurers paid out nearly

$1.16 for every $1 in earned premiums Relatively low

CAT losses, reserve releases

Heavy use of reinsurance lowered

net losses

Relatively low CAT losses,

reserve releases

Higher CAT losses,

shrinking reserve

releases, toll of soft market

Sandy impacts

Lower CAT losses

Best combined ratio since 1949

(87.6)

Average CAT losses,

more reserve releases

3 consecutive years of U/W profits: first time since

1971-73

Cyclical deterioration Elevated

CATs

Page 5: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

5

C A P A C I T Y / I N D U S T R Y C A P I T A L R E M A I N S

A T R E C O R D H I G H S B U T H A S

S T A B I L I Z E D

C A P I T A L / C A P A C I T Y

P O L I C Y H O L D E R S U R P L U S 2016 Q4–2016:Q1

$4

87

.1

$4

96

.6

$5

12

.8

$5

21

.8

$5

17

.9

$5

15

.6

$5

05

.0

$478.5

$4

55

.6

$4

37

.1

$4

63

.0

$4

90

.8

$5

11

.5

$5

40

.7

$5

30

.5

$5

44

.8

$5

59

.3

$5

66

.5

$5

59

.1

$5

38

.6

$5

50

.3

$5

70

.7

$5

67

.8

$5

83

.5

$5

86

.9

$60

7.7

$6

14

.0

$6

24

.4

$6

53

.4

$6

62

.0

$6

71

.6

$6

73

.9

$6

75

.2

$6

71

.9

$6

72

.4

$6

73

.7

$6

76

.3

$400

$500

$600

$700

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

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09:Q

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12:Q

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13:Q

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14:Q

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14:Q

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14:Q

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1

15:Q

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15:Q

3

15:Q

4

Surplus

Billions 2007:Q3

Pre-Crisis Peak

Surplus as of 3/31/16 stood at a record high of $676.3B

2010:Q1 data includes $22.5B of paid-in capital from a

holding company parent for one insurer’s investment in

a non-insurance business .

The industry now has $1 of surplus for every $0.77 of NPW, close to the strongest claims-paying status in its history

Drop due to near-record 2011 CAT losses

The P/C insurance industry entered 2016 in very strong financial condition

Sources: ISO, A.M .Best

Page 6: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

6

A R E C A P I T A L A C C U M U L A T I O N ,

D R I V E F O R G R O W T H A N D S C A L E

S T I M U L A T I N G M & A A C T I V I T Y ?

M & A U P D A T E A Path to Growth

U S I N S U R A N C E M E R G E R S A N D A C Q U I S I T I O N S P/C Sector 1994-2015 (1)

Millions

$5,100

$11,534

$8,059

$30,873

$55,825

$19,118

$40,032

$1,249 $486

$20,353

$425

$9,264

$35,221

$13,615

$16,294

$3,507

$6,419

$12,458

$4,651 $4,397

$6,723

$39,607

0

20

40

60

80

100

120

140

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

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

Transaction value Number of transactions

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

Source: Conning proprietary database

M&A activity in the P/C sector in 2015

totaled $39.6 billion, its highest level

since 2000

Page 7: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

7

$45,958

$5,142

$23,595 $21,267

$11,813 $9,872

$11,321

$17,823 $18,857

0

20

40

60

80

$0

$10,000

$20,000

$30,000

$40,000

$50,000

07 08 09 10 11 12 13 14 15

Transaction value Number of transactions

Non-US M&A activity in the P/C

sector in 2015 totaled $18.9

billion, its highest level since

2011 but still less than half the

$39.6 billion involving US

companies

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

Source: Conning proprietary database

N O N - U S I N S U R A N C E M E R G E R S A N D A C Q U I S I T I O N S P/C Sector 2007-2015 (1)

$ Millions

H U G E S H I F T F R O M D O M E S T I C M & A A C T I V I T Y T O C R O S S - B O R D E R

12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and

the Future of the P/C

14

.

The share of M&A deal volume that was cross-border

more than doubled in 2015

Source: Thomson Reuters as of Oct. 2015 from Geneva Association Newsletter Insurance and Finance,

Jan. 2016, presentation “Facts vs. Sentiment: Deals in the Insurance Sector,” by Aviva CEO Mark Wilson.

Page 8: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

8

M & A A C T I V I T Y H A S S H I F T E D A W A Y F R O M E U R O P E A N D T O W A R D S A S I A

A N D N O R T H A M E R I C A

12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and

the Future of the P/C

15

.

Asian, North American deal volumes were up sharply in 2015

Source: Thomson Reuters as of Oct. 2015 from Geneva Association Newsletter Insurance and Finance,

Jan. 2016, presentation “Facts vs. Sentiment: Deals in the Insurance Sector,” by Aviva CEO Mark Wilson.

I N V E S T M E N T P E R F O R M A N C E I S A K E Y

D R I V E R O F P R O F I T A B I L I T Y

D E P R E S S E D Y I E L D S W I L L N E C E S S A R I L Y

I N F L U E N C E U N D E R W R I T I N G & P R I C I N G

I N V E S T M E N T S The New Reality

Page 9: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

9

$38.9 $37.1 $36.7

$38.7 $39.6

$49.5

$52.3

$54.6

$51.2

$47.1 $47.6 $49.2

$48.0 $47.3 $46.2

$43.6

$30.00

$40.00

$50.00

$60.00

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

Category 1

Due to persistently low interest rates, investment income fell in 2012, 2013 and 2014 but showed a small (1.9%) increase in 2015—another drop in 2016 seems likely

Investment earnings are

still below their 2007

pre-crisis peak

P / C I N S U R A N C E I N D U S T R Y Investment Income 2000–2016:Q1

Billions

1 Investment gains consist primarily of interest and stock dividends.

*2014 figure is estimated based on annualized data through Q3.

Sources: ISO; Insurance Information Institute

U S T R E A S U R Y S E C U R I T Y Y I E L D S A Long Downward Trend

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

Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research

(recession dates); Insurance Information Institute

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

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1/3

1/1

99

0

1/3

1/1

99

1

1/3

1/1

99

2

1/3

1/1

99

3

1/3

1/1

99

4

1/3

1/1

995

1/3

1/1

99

6

1/3

1/1

99

7

1/3

1/1

99

8

1/3

1/1

99

9

1/3

1/2

00

0

1/3

1/2

00

1

1/3

1/2

00

2

1/3

1/2

00

3

1/3

1/2

00

4

1/3

1/2

00

5

1/3

1/2

00

6

1/3

1/2

00

7

1/3

1/2

00

8

1/3

1/2

00

9

1/3

1/2

01

0

1/3

1/2

01

1

1/3

0/2

012

1/3

1/2

01

3

1/3

1/2

01

4

1/3

1/2

01

5

1/3

1/2

01

6

Recession 2-Yr Yield 10-Yr Yield

Yields on 10-year US Treasury Notes have been

essentially below 5% for more than a decade

Despite the Fed’s

December 2015 rate hike,

yields remain low though

short-term yields have seen

some gains; yield curve is

flattening

1990–2016*

Page 10: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

10

4.5

4.2

4

3.8 3.7

3.8

3.6

3.4

3.6

3.1

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

07 08 09 10 11 12 13 14 15E 16P

Estimated book

yield in 2016 is

down about 140 BP

from pre-crisis

levels

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

*2015 figure is the average of the four quarters ending in 2015:Q1.

Sources: SNL Financial; Insurance Information Institute

Percent

N E T I N V E S T M E N T Y I E L D O N P / C I N S U R A N C E Invested Assets 2007–2016P*

I N T E R E S T R A T E F O R E C A S T S

0.2%

1.2%

2.7%

3.2% 3.3% 3.4% 3.4%

2.3%

3.0%

3.9% 4.2% 4.3% 4.3% 4.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

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

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

Concerns about global growth, low

yields aborad, Brexit, have pushed

yields lower in 2016

3-Month Treasury 10-Year Treasury

Sources: Blue Chip Economic Indicators (6/16 for 2016 and 2017; for 2018-2021 3/16 issue); Insurance Information Institute.

Yield %

2016–2021

Page 11: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

11

H O W I S P R O F I T A B I L I T Y A F F E C T E D B Y

T H E P R E S I D E N T ’ S P O L I T I C A L P A R T Y ?

P R O F I T A B I L I T Y & P O L I T I C S

P / C I N S U R A N C E I N D U S T R Y ROE by Presidential Administration

16.43%

15.10%

8.93%

8.80%

8.65%

8.35%

8.33%

7.98%

7.68%

6.98%

6.97%

5.43%

5.03%

4.83%

4.68%

4.43%

3.55%

Carter

Reagan II

Nixon

Obama II

Clinton I

G.H.W. Bush

G.W. Bush II

Clinton II

Reagan I

Nixon/Ford

Truman

Eisenhower I

Eisenhower II

G.W. Bush I

Obama I

Johnson

Kennedy/Johnson

Axis Title

Axi

s Ti

tle

1950-2015*

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

Source: Insurance Information Institute

Overall record: 1950-2015* Democrats 7.72% Republicans 7.85%

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

insurance industry

Page 12: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

12

-5%

0%

5%

10%

15%

20%

25%

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

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75

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77

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79

80

81

82

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84

85

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99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

P / C I N S U R A N C E I N D U S T R Y ROE by Presidential Party Affiliation 1950-2015*

*2015 data is through Q3.

Source: Insurance Information Institute

BLUE = Democratic President RED = Republican President

Nixon/Ford Kennedy/Johnson Eisenhower Carter Reagan/Bush I Clinton Bush II Obama

Tru

man

T R U M P V S . C L I N T O N Issues that Matter to P/C Insurers

Issue Trump Clinton

Economy Supply Side-Like Philosophy: Lower

taxesfaster real GDP growth; deficits likely grow

as tax cuts are combined with targeted increased

spending on Homeland Security, defense, etc.

Keynesian Philosophy: More government

spending on infrastructure, education, social

services; deficits likely increase as tax increases

likely difficult to pass

Interest Rates May trend higher with larger deficits; shift from

monetary policy to fiscal focus (tax cuts, government

spending)

Status quo at the Fed; net impact on interest rates

unclear

Taxes Favors lower tax rates for corporate and personal

income tax rates; tax code overhaul?

Unlikely to reduce taxes or embark on major

overhaul of tax code

International

Trade

Protectionist tendencies (appeal primarily to

manufacturing sector)

Has criticized Trans-Pacific Partnership but is a

realist on international matters

Tort System Doesn’t like trial lawyers but seems to like filing

lawsuits

Status quo

Energy Laissez-faire; less “green” Status quo

Page 13: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

13

T R U M P V S . C L I N T O N Differences on Energy Policy Are Large, but Energy Is Not a Major

Issue this Election Cycle

• “America First” energy plan: “American energy

dominance will be declared a strategic economic

and foreign policy goal of the United States.”

• Supports fracking, coal, nuclear, XL / Keystone

pipeline

• Not a big supporter of “green” energy…but

renewables are okay so long as they’re not to the

exclusion of other forms of energy

• Climate change not one of our “big problems”

TRUMP

• Views green / renewable energy investment as job stimulus

• Staunch supporter of Obama climate change initiatives

• “Utilities should not be allowed to penalize consumers with retroactive rule changes that cause financial hardship and slow the transition to a clean energy economy” - Feb. 12, 2016

• Speaks frequently about a “bridge” to clean energy

• Suggests a pragmatic, gradual approach

CLINTON

U N D E R W R I T I N G P E R F O R M A N C E

C O M M E R C I A L L I N E S

Page 14: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

14

C O M M E R C I A L L I N E S Combined Ratio 1990-2017F*

10

9.4

11

0.2

11

8.8

10

9.5

11

2.5

11

0.2

10

7.6

10

4.1

10

9.7

11

2.3

111

.1

12

2.3

11

0.2

102

102

.5 10

5.4

91

.1 9

3.6

10

4.2

98

.9

10

2.4

10

7.9

10

3.5

94

.8

94

.3

93

.6

97

.3

98

.1

90

95

100

105

110

115

120

125

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E 16F 17F

Commercial Combined Ratio

Figures exclude mortgage and financial guaranty segments

Source: A.M. Best (1990-2014); Conning (2015E-17F) Insurance

Information Institute

*2007-2012 figures exclude mortgage and financial guaranty segments.

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

72.4

105.8

83.3

86.5

106.5 105.8

82.7

85.8 86.3

90.6 90.6

70.0

80.0

90.0

100.0

110.0

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

Commercial property underwriting performance has improved in recent years, largely due to diminished CAT activity

Source: Conning Research and Consulting

C O M M E R C I A L P R O P E R T Y Combined Ratio 2007–2017F

Page 15: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

15

112.9

95.1

99

94.2

107.1

110.8

99.6

104.1

99.7 101.6

103.9 103.6 104.5

80

85

90

95

100

105

110

115

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

Commercial general liability underwriting performance has been volatile in recent years

Source: Conning Research and Consulting

G E N E R A L L I A B I L I T Y Combined Ratio 2005–2017F

112.1 112 113

115.9 118.1

115.7 116.2

102.7

95.2 92.9 92.1 92.4

94.1 96.8

99.1 97.8

103.4

106.8 106.7

103.4

106.6 108.2 108.8

80

85

90

95

100

105

110

115

120

125

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E 16F 17F

Commercial auto results are challenged as rate gains barely have yet to offset adverse frequency and severity trends

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

C O M M E R C I A L A U T O Combined Ratio 1993–2017F

Page 16: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

16

102.0

97.0

100.0 101.0

107.0

115.3

118.2

121.7

112.6

108.6

105.1 102.7

98.5

103.5 104.5

110.6

115.0 115.0

109.0

102.0 100.0

94.0

80

85

90

95

100

105

110

115

120

125

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

Workers’ comp results began to improve in 2012. Underwriting results deteriorated markedly from 2007-2010/11 and were the worst they had been in a decade.

Sources: A.M. Best (1994-2009); NCCI (2010-2015P) and are for private carriers only; Insurance Information Institute

W O R K E R S C O M P E N S A T I O N Combined Ratio 1994–2015P

WC results have improved

markedly since 2011

P R I C I N G T R E N D S

S U R V E Y R E S U L T S S U G G E S T C O M M E R C I A L

P R I C I N G H A S F L A T T E N E D O U T

C O M M E R C I A L L I N E S

Page 17: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

17

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 and Brokers; Barclay’s Capital; Insurance Information Institute

C H A N G E I N C O M M E R C I A L R A T E R E N E W A L S by Account Size 1999:Q4 to 2016:Q1

Trough = 2007:Q3 -13.6%

KRW : no lasting impact

Pricing turned positive in Q3:2011, the first inrease in

nearly 8 years; Q1:2015 renewals were down 2.8%;

Some insurers posted stronger numbers

Peak = 2001:Q4 +28.5%

Pricing turned negative in early 2004

and remained that way for 7 ½ years

Percentage Change %

-0.1

%

-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

% -0

.1%

0.9

%

2.7

%

4.4

%

4.3

%

3.9

%

5.0

%

5.2

%

4.3

%

3.4

%

2.1

%

1.5

%

-0.5

%

0.1

%

-0.7

%

-2.3

%

-3.3

%

-3.1

%

-2.8

%

-3.7

%

-20%

-15%

-10%

-5%

0%

5%

10%

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

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

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

C I A B Average Commercial Rate Change, All Lines 1Q:2004–1Q:2016

Percent

KRW effect Pricing as of Q1:2016 remained

somewhat negative

Q2 2011 marked the last of 30th consecutive quarter of

price declines

Page 18: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

18

-5.2

%

-3.2

%

-2.5

%

-3.0

%

-2.2

%

-2.0

% -0

.3%

0.3

%

0.7

%

3.6

%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Commercial

Property

General Liability Umbrella Workers Comp Construction Business

Interruption

Surety D&O EPL Commercial

Auto

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 and Brokers; Insurance Information Institute

C H A N G E I N C O M M E R C I A L R A T E R E N E W A L S by Line 2016:Q1

Percentage Change (%)

Commercial Auto rate increases are larger than any other line,

followed by EPL and D&O

2 0 1 3 / 1 4 / 1 5 E X P E R I E N C E D B E L O W

A V E R A G E C A T A C T I V I T Y A F T E R V E R Y

H I G H C A T L O S S E S I N 2 0 1 1 / 1 2

2 0 1 6 C A T L O S S E S Y T D R U N N I N G H I G H E R

I N S U R E D C A T A S T R O P H E L O S S E S

Page 19: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

19

$1

4.4

$5

.0

$8

.2

$3

8.9

$9.1

$2

7.2

$1

3.0

$11

.3

$3

.9

$1

4.8

$11

.9

$6

.3

$3

5.8

$7

.8 $

16

.8

$3

4.7

$7

5.7

$1

0.9

$7

.7

$3

0.1

$11

.8

$1

4.9

$3

4.6

$3

6.1

$1

3.1

$1

5.5

$1

5.2

$11

.0

0

10

20

30

40

50

60

70

80

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16*

2013/14/15 were welcome respites from 2011/12, among the costliest years for insured disaster losses in us history. 2016 is off to a costlier start.

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

Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims.

Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)

Sources: Property Claims Service/ISO; Insurance Information Institute

U S I N S U R E D C A T A S T R O P H E L O S S E S 1989–2016

$ Billions, $2015 2012 was the third most expensive year ever for insured

CAT losses

$11.0B in insured CAT

losses through 6/30/16

0.8

1.1

1.1

0.1

0.9

3.6

0.4

1.2

0.4

0.8

1.3

0.3

0.4

0.7

1.5

1

0.4

0.4

0.7

1.8

1.1

0.6

1.4

2

1.3

2

0.5

0.5

0.7

3

1.2

2.1

8.8

2.3

5.9

3.3

2.8

1

3.6

2.9

1.6

5.4

1.6

3.3

3.3

8.1

2.7

1.6

5

2.6

4.6

9.6

8

3.5

4

3.1

4.5

0

2

4

6

8

10

12

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

F

The catastrophe loss component of private insurer losses has increased sharply in recent decades

*2010s represent 2010-2015E.

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 (1960-2009); A.M. Best (2010-15E) Insurance Information Institute (2016F).

C O M B I N E D R A T I O P O I N T S A S S O C I A T E D W I T H C A T A S T R O P H E L O S S E S 1960 – 2016F*

Combined Ratio Points

Average 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: 5.46*

Catastrophe losses as a share of all losses reached a

record high in 2011

Page 20: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

20

4.6 5.7 5.8 6.9 7.3 7.7 8.1 9.0 9.4 11.4

13.8

19.3

24.6 25.3 26.4

50.2

0

10

20

30

40

50

60

Iren

e (

20

11)

Jean

ne (

20

04

)

Fra

nce

s (2

00

4)

Rit

a (

2005

)

To

rnad

oes

/T-S

torm

s

(20

11

)

To

rnad

oes

/T-S

torm

s

(20

11

)

Hu

go

(

19

89

)

Ivan

(20

04

)

Ch

arle

y (

20

04

)

Wil

ma

(20

05)

Ike

(2

008

)

San

dy

* (

20

12)

No

rth

rid

ge

(19

94)

9/1

1 A

ttac

k (

20

01)

An

dre

w (

19

92)

Kat

rin

a (2

00

5)

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

T O P 1 6 M O S T C O S T L Y D I S A S T E R S I N U S H I S T O R Y Katrina Still Ranks #1 Insured Losses

$ Billions, 2014 Dollars

Storm Sandy in 2012 was the last mega-CAT to hit the US

Includes Tuscaloosa, AL,

tornado

Includes Joplin, MO,

tornado

12 of the 16 Most expensive events in US history have occurred since 2004

I N F L A T I O N A D J U S T E D U S C A T A S T R O P H E L O S S E S by Cause of Loss 1995–20141

Hurricane &

Tropical Storms

40.7%

Events Involving Tornado

39.2%

Geological

0.1%

Terrorism

6.2%

Winter Storm

6.8%

1. Catastrophes are defined as events causing direct

insured losses to property of $25 million or more in

2014 dollars.

2. Excludes snow.

3. Does not include NFIP flood losses

4. Includes wildland fires

5. Includes civil disorders, water damage, utility

disruptions and non-property losses such as those

covered by workers compensation.

Source: ISO’s Property Claim Services Unit.

Wind losses by far cause the most

catastrophe losses, even if hurricanes/TS

are excluded

Tornado share of CAT losses is rising

Insured CAT losses from 1995-2014 totaled

$395.6 billion, an average of $19.8 billion

per year or $1.65 billion per month

Winter storm losses were much above average in 2014/15 and will push this

share up

Wind/Hail/Flood

5.4%

Fires

1.5%

Other

0.1%

Page 21: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

21

Overall losses

(in 2015 values)*

Insured losses

(in 2015 values)*

Analysis contains:

severe storm,

tornado, hail, flash

flood and lightning

C O N V E C T I V E L O S S E V E N T S I N T H E U S Overall and Insured Losses 1980–2015

$ Billions

The period from 2008-2015 has been the most expensive on record for insured losses from “convective events” (severe thunderstorms,

tornado, hail, lightning and flash flood)

*Losses adjusted to inflation based on CPI

Source: Geo Risks Research, NatCatSERVICE

$735.5

$819.6 $882.2

$942.4

$1,065.5

$798.0

$1,033.5

$952.5 $969.0

$673.5 $739.0

$790.0

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

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

The increased number and value of expensive electronic devices in homes has pushed total lightning claim costs to about $1 billion in many years even

as the number of lightning claims falls

Sources: Insurance Information Institute

I N S U R E D H O M E O W N E R S L O S S E S Due to Lightning 2004 - 2015 Insurers paid $790 million in

lightning claims in 2015, a 6.9% increase over 2014 $ Millions

Page 22: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

22

S E L E C T E D L A R G E O U T A G E S A S S O C I A T E D W I T H T R O P I C A L S Y S T E M S

by State

0.63

0.78

0.81

0.91

0.94

1

1.07

1.27

1.6

2.1

2.47

2.62

3.25

3.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Connecticut: Sandy (2012)

Texas: Rita (2005)

New Jersey: Irene (2011)

Katrina: Katrina (2005)

New York: Irene (2011)

Mississippi: Katrina (2005)

Alabama: Ike (2008)

Pennsylvania: Sandy (2012)

Florida: Charley (2004)

New York: Sandy (2012)

Texas: Ike (2008)

New Jersey: Sandy (2012)

Florida: Wilma (2005)

Florida: Frances (2004)

Sources: US Dept. of Energy, Vertyx, AP analysis; Insurance Information Institute

Millions of Customers

Hurricanes and tropical

storms have produced

significant losses for

insurers in recent years,

including with Sandy in 2012

Overall losses

(in 2015 values)*

Insured losses

(in 2015 values)*

*Winter storms

include also winter

damages, blizzards

and cold waves

W I N T E R S T O R M L O S S E S I N T H E U S Overall and Insured Losses* 1980–2015

$ Billions

Winter storm losses have been increasing rapidly in recent years

*Losses adjusted to inflation based on CPI.

Source: Property Claim Services, MR NatCatSERVICE

Page 23: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

23

F I R S T H A L F 2 0 1 6 C A T L O S S E S by Type Severe Thunderstorms Lead the Way

As of

July 12, 2016

Number of

Events

Fatalities Estimated Overall

Losses

(US $million)

Estimated Insured

Losses

(US $million)*

Severe Thunderstorm 21 25 11,600 8,500

Winter Storms & Cold Waves 8 55 2,300 1,500

Flood, Flash Flood 60 3,300 3,300 1,000

Earthquake & Geophysical - - - -

Tropical Cyclone - - - -

Wildfire, Heat Waves &

Drought (ongoing drought conditions without loss

estimation for half the year)

5 10 200 Minor Losses

Totals 40 150 17,4000 11,000

Source: ISO’s Property Claims Services (PCS) Unit

Severe thunderstorms and hail drove up losses in the first half of 2016

F I R S T H A L F 2 0 1 6 C A T L O S S E S

Insured CAT losses in Texas in 2016 H1 totaled $6.6 billion

Meteorological events

(Tropical storm, extratropical

storm, convective storm,

local storm)

Hydrological events

(Flood, mass movement)

Climatological events

(Extreme temperature,

drought, forest fire)

Geophysical events

(Earthquake, tsunami,

volcanic activity)

Source: Munich Re

Everything Is Bigger in Texas

Page 24: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

24

Source: Barclays PLC from Guy Carpenter; Insurance Information Institute

U S P R O P E R T Y C A T R A T E on Line Index & Global Reinsurance ROE

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

US Property CAT ROL Global Reinsurance ROE

Source: Munich Re, NatCatSERVICE, 2016

Drought USA, Jan–Oct

Earthquake Nepal, 25 Apr

Winter Storm Niklas Europe, 30 Mar–1 Apr

Severe storms USA, 7–10 Apr

Typhoon Mujigae China, 1–5 Oct

Severe storms USA, 23–28 May

Earthquake Pakistan, Afghanistan, 26 Oct

Heat wave India, Pakistan May–Jun

Tornado China, 1 Jun

Winter storm Australia, 19–24 Apr

Flash floods Chile, 23–26 Mar

Flash floods Ghana, 2–5 Jun

Floods Malawi, Mozambique Jan–Mar

Landslide Guatemala, 1 Oct

Flash floods USA, 2–6 Oct

Winter storm USA, Canada, 16–25 Feb

Severe storms USA, 18–21 Apr

Wildfires USA, 12 Sep–8 Oct

Heat wave Europe, Jun–Aug

Typhoon Soudelor China, Taiwan, 2–13 Aug

1,060 Loss events

Global insured CAT losses totaled $27 billion in 2015, 21% below the $31 billion average over the past 30 years (1985-2014, adj. for inflation)

Source: Munich Re.

L O S S E V E N T S Worldwide 2015

Meteorological events

(Tropical storm, extratropical

storm, convective storm,

local storm)

Hydrological events

(Flood, mass movement)

Climatological events

(Extreme temperature,

drought, forest fire)

Geophysical events

(Earthquake, tsunami,

volcanic activity)

Page 25: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

25

C Y B E R R I S K I S A R A P I D L Y E M E R G I N G

E X P O S U R E F O R B U S I N E S S E S L A R G E

A N D S M A L L I N E V E R Y I N D U S T R Y

C Y B E R R I S K & C Y B E R I N S U R A N C E

D A T A B R E A C H E S by Number of Breaches and Records Exposed

157

321

446

656

498

662

419

470

614

783 780

66.9

19.1

127.7

35.7

222.5

16.2 22.9

17.5

92

85.6

177.9

0

20

40

60

80

100

120

140

160

180

200

220

100

200

300

400

500

600

700

800

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

# Data Breaches # Records Exposed (Millions)

# Data Breaches Millions of Records Exposed

The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million record through June 30; this year has seen 117.6 million records exposed in 400 breaches*

2005 ̶ 2015

Source: Identity Theft Resource Center,

http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf

*2007-2012 figures exclude mortgage and financial guaranty segments.

Page 26: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

26

M A R S H Percentage of US Companies Purchasing Cyber Insurance Increased in 2014

*Take-up rate refers to the overall percentage of clients that purchased standalone cyber insurance.

Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015

8%

12%

18%

21%

21%

22%

26%

32%

50%

16%

6%

11%

13%

14%

17%

17%

16%

22%

45%

13%

Manufacturing

Communications, Media and Tech

Retail/Wholesale

Power and Utilities

Financial Institutions

Services

Hospitality and Gaming

Education

Health Care

All Industries

Take-up rate 2013

Take-up rate 2014*

Ever larger numbers of insureds seek financial protection via cyber insurance. The percentage of US companies buying cyber insurance rose to 16 percent in 2014.

C Y B E R I N S U R A N C E Growth Rates by Industry 2015

*Marsh clients.

Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015

63%

41%

30%

28%

28%

13%

15%

37%

6%

27%

Manufacturing

Communications, Media and Tech

Retail/Wholesale

Power and Utilities

Financial Institutions

Services

Hospitality and Gaming

Education

Health Care

All Industries

Ever larger numbers of insureds seek financial protection via cyber insurance. The growth rate in cyber premiums written was 27% percent in 2015.*

Page 27: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

27

M A R S H Total Limits Purchased, by Industry – Cyber Liability All Revenue Size

Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015

Average limits purchased for cyber risk rose 15% to $16.9 million for all industries and all company sizes in 2015. Power and utility companies witnessed a sharper

percentage increase in average limits, at 22 percent.

$14.7

$39.0

$4.0

$25.1

$11.0 $12.6 $12.6

$20.4

$17.0

$9.3

$16.9

$43.3

$4.1

$29.7

$13.1 $12.0

$24.9 $24.9

$15.0 $13.3

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

All Industries Comms, Media

& Technology

Education Financial

Institutions

Health Care Hospitality &

Gaming

Manufacturing Power and

Utilities

Retail/Wholesale Services

Avg. 2014 Limits Avg. 2015 Limits

Limits purchased for the power & utility sector were

up 22.1% in 2015

$ Millions

M A R S H Total Limits Purchased, by Industry – Cyber Liability Revenue > $1 Billion

Source: Benchmarking Trends: Operational Risks Drive Cyber Insurance Purchases, Marsh Management Research Briefing, March 2016.

Among larger companies, average cyber insurance limits purchased increased by 14.6 percent to $39.2 million in 2015, from $34.2 million in 2014; Power and Utility

purchases were up 21.8%

$34.2

$86.4

$8.2

$51.8

$22.9 $27.3

$20.0

$30.8 $26.5 $28.5

$39.2

$56.7

$10.0

$61.0

$27.2 $27.9

$19.2

$37.5

$29.0

$37.3

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

All Industries Comms, Media

& Technology

Education Financial

Institutions

Health Care Hospitality &

Gaming

Manufacturing Power and

Utilities

Retail/Wholesale Services

Avg. 2014 Limits Avg. 2015 Limits

$ Millions

Page 28: ROBERT P. HARTWIG, PH.D., CPCU

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28

C Y B E R L I A B I L I T Y Historical Rate Changes Price per Million

Source: Benchmarking Trends: Operational Risks Drive Cyber Insurance Purchases, Marsh Management Research Briefing, March 2016.

20.3% 20.0%

18.7%

16.9%

18.5%

16.1% 15.3%

12.1%

10%

12%

14%

16%

18%

20%

22%

15:Q1 15:Q2 15:Q3 15:Q4

Average Total Price Per Million Change Average Primary Price Per Million Change

Cyber insurance premiums trended lower in 2015 despite

increased frequency and severity of losses in some sectors

T H E S T R E N G T H O F T H E E C O N O M Y

W I L L G R E A T L Y I N F L U E N C E I N S U R E R

E X P O S U R E B A S E A N D D R I V E E N E R G Y

D E M A N D

T H E E C O N O M Y

Page 29: ROBERT P. HARTWIG, PH.D., CPCU

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29

4.1

%

1.1

%

1.8

%

2.5

%

3.6

%

3.1

%

2.7

%

1.8

%

-1.8

%

1.3

%

-3.7

%

-8.9

% -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

%

0.4

%

2.7

%

1.8

%

4.5

%

3.5

%

-0.9

%

4.6

%

4.3

%

2.1

%

0.6

% 3.9

%

2.0

%

1.4

%

1.1

%

2.5

%

2.2

%

2.2

%

2.2

%

2.3

%

2.2

%

2.1

%

-20%

-15%

-10%

-5%

0%

5%

10%

   2

00

0

   2

00

1

   2

00

2

   2

003

   2

00

4

   2

00

5

   2

00

6

   2

00

7

08

:1Q

08

:2Q

08

:3Q

08

:4Q

09

:1Q

09

:2Q

09

:3Q

09

:4Q

10:1

Q

10

:2Q

10

:3Q

10

:4Q

11

:1Q

11

:2Q

11

:3Q

11

:4Q

12:1

Q

12

:2Q

12

:3Q

12

:4Q

13

:1Q

13

:2Q

13

:3Q

13

:4Q

14

:1Q

14

:2Q

14

:3Q

14

:4Q

15

:1Q

15:2

Q

15

:3Q

15

:4Q

16

:1Q

16

:2Q

16

:3Q

16

:4Q

17

:1Q

17

:2Q

17

:3Q

17

:4Q

* Estimates/Forecasts from Blue Chip Economic Indicators.

Source: US Department of Commerce, Blue Economic Indicators 7/16; Insurance Information Institute

U S R E A L G D P G R O W T H *

Percent

Demand for energy should increase in 2016-17 as GDP growth continues at a steady, albeit moderate pace and gradually benefits the economy broadly

Recession began in Dec. 2007

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

Q1 2014/15 GDP data were hit hard by the “Polar Vortex” and

harsh winter

4.7

%

4.6

%

4.7

%

4.5

%

4.5

%

4.5

%

4.6

%

4.8

%

4.9

% 5.4

% 6

.1%

6.9

%

8.1

%

9.3

%

9.6

%

10

.0%

9.7

%

9.6

%

9.6

%

9.6

%

8.9

%

9.1

%

9.1

%

8.7

%

8.3

%

8.2

%

8.0

%

7.8

%

7.7

%

7.6

%

7.3

%

7.0

%

6.6

%

6.2

%

6.1

%

5.7

%

5.6

%

5.4

%

5.2

%

5.0

%

4.9

%

4.9

%

4.8

%

4.7

%

4.6

%

4.6

%

4.5

%

4.5

%

4%

5%

6%

7%

8%

9%

10%

11%

06:Q

1

06:Q

2

06:Q

3

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

13:Q

4

14:Q

1

14:Q

2

14:Q

3

14:Q

4

15:Q

1

15:Q

2

15:Q

3

15:Q

4

16:Q

1

16:Q

2

16:Q

3

16:Q

4

17:Q

1

17:Q

2

17:Q

3

17:Q

4

Unemployment forecasts have been revised modestly

downward. Optimistic scenarios put unemployment as low as

4.4% by Q4 of 2016.

* = actual; = forecasts

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (7/16 edition); Insurance Information Institute

U S U N E M P L O Y M E N T R A T E F O R E C A S T

Percent

Rising unemployment eroded payrolls and WC’s

exposure base

Unemployment peaked at 10% in late 2009

Jobless figures have been revised

downwards for 2016

2007:Q1 to 2017:Q4F*

Page 30: ROBERT P. HARTWIG, PH.D., CPCU

7/27/2016

30

59

B R E X I T Potential Impacts on the Global (Re)insurance Industry

• Brexit is a net negative for the global (re)insurance industry

• Fundamentally, Brexit is a protectionist measure and antithetical to free trade; economic negatives:

• Dollar appreciates weakening US exports

• Delays Fed rate hikes

• Uncertainty

• Free flow of financial capital, human capital and coordinated regulatory policy

across EU states is on net good for Europe’s economy

• Concern that UK’s action could initiate a domino effect

• Economic integration is the cornerstone of keeping (most of) Europe free of war

• Does Brexit weaken Solvency II and efforts to implement European-like regulations in the US?

W W W . I I I . O R G

T H A N K Y O U F O R Y O U R T I M E

A N D Y O U R A T T E N T I O N !

T W I T T E R : T W I T T E R . C O M / B O B _ H A R T W I G

D O W N L O A D A T W W W . I I I . O R G / P R E S E N T A T I O N S

I N S U R A N C E I N F O R M A T I O N I N S T I T U T E O N L I N E

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31