the challenge of communicating flood risk · robert p. hartwig, ph.d., cpcu, senior vice president...

The Challenge of Communicating Flood

Risk2006 National Flood Conference

National Flood Insurance Program

May 9, 2006

Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief EconomistInsurance Information Institute ♦ 110 William Street ♦ New York, NY 10038

Tel: (212) 346-5520 ♦ Fax: (212) 732-1916 ♦ [email protected] ♦ www.iii.org

Presentation Outline

• The Media & Flood Insurance• Flood Facts Review• The Flood Insurance Purchase Decision• Summary of I.I.I. Actions to Promote Flood

Awareness, Preparedness & Flood InsuranceQUESTIONS• What Should Have Been Done to Communicate Flood

Risk Pre-Katrina?• What Should be Done to Communicate Risk & Reduce

Loss Going Forward?

• APPENDIX 1: Key Flood Program Statistics• APPENDIX 2: Key Hurricane Statistics

The Media & Flood Insurance

Better Late than Never

Property Damage from Hurricane Katrina Flood & Storm Surge ($ Millions)*

LA Storm Surge Loss, $16,200 , 36.8%

New Orleans Flood Loss, $22,600 , 51.3%

FL Storm Surge Loss, $32 , 0.1%

AL Storm Surge Loss, $793 , 1.8%

MS Storm Surge Loss, $4,400 , 10.0%

*Value of property damage by flood and storm surge whether or not insured.Source: AIR Worldwide, September 29, 2005.

Hurricane Katrina caused $44 billion in flood and storm

surge damage, most of it uninsured, 88.1% of it in

Louisiana

Media Coverage of Flood Insurance, 2000-2006E*

10,526

4,647

146

655

349

479

2005

13,242

5,772

171

456

804

1,518

2006E

3,368

2,177

36

231

55

124

2003

6,377

2,994

65

463

45

122

2004

3,1282,7142,761

US-All Print Media**

1,9191,8821,961US*

343864NY161227215FL

262020MS108111 76LA

200220012000State

*Newspaper coverage as of May 8, 2006. 2006 is III estimate.**Includes newspapers, magazines, wire services, etc.Source: Insurance Information Institute analysis based on Nexis search.

1,96

1

1,88

2

1,91

9

2,17

7

2,99

4 4,64

7 5,77

2

2,76

1

2,71

4

3,12

8

3,36

8

6,37

7

10,5

26

13,242

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2000 2001 2002 2003 2004 2005 2006E

US* US-All Print Media**

Media Coverage of Flood Insurancein the US Overall, 2000-2006E*

US newspaper coverage of flood insurance rose an

estimated 165% between 2003 and 2006 and rose 293%

across all print media

*Newspaper coverage as of May 8, 2006. 2006 is III estimate. **Includes newspapers, magazines, wire services, etc. Source: Insurance Information Institute analysis based on Nexis search.

76 111 108 124 122

479

1,518

20 20 26 55 45

349

804

0

200

400

600

800

1,000

1,200

1,400

1,600

2000 2001 2002 2003 2004 2005 2006E

LA MS

Media Coverage of Flood Insurancein LA & MS, 2000-2006E*

*Newspaper coverage as of May 8, 2006. 2006 is III estimate. Source: Insurance Information Institute analysis based on Nexis search.

Media coverage of flood insurance in Louisiana rose an

estimated 1,144% between 2003 and 2006 and 1,362% in

Mississippi. Coverage rose 165% for the US overall.

215 227161

231

463

655

456

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006E

Media Coverage of Flood Insurancein Florida, 2000-2006E*


Media coverage of flood insurance in Florida rose an

estimated 184% between 2003 and 2005 but may fall

by 30% in 2006

64

38 34 36

65

146

171

0

20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005 2006E

Media Coverage of Flood Insurancein New York State, 2000-2006E*


Media coverage of flood insurance in New York State

rose an estimated 175% between 2003 and 2006

27% 29

%

44%

28% 32

%

48%

31%34

%

34%

49%

34%

25%

22%

17%

24%

19%

33%

32%

43%

33%

42%

18%

19%

25%

25%

21%

44%47

%

33% 35

%

0%

10%

20%

30%

40%

50%

60%

Los Angeles Bay Area Sacramento San Diego CentralValley

Flood Earthquake WildfireSlides Storms Tsunami

California Hazards: % People Stating Prepared/Very Prepared

Source: Insurance Information Network of California Survey, February 2006.

The Flood Insurance Purchase

& Retention Decision

Flood Insurance is a Tough Sell

$756

.7

$756

.7

$768

.5

$773

.4

$784

.7

$792

.3

$801

.9

$811

.1 $828

.5 $851

.5

$860

.6

$870

.2

4.58 4.59 4.60 4.60

4.65 4.664.68

4.73

4.78 4.804.83

4.85

$680

$700

$720

$740

$760

$780

$800

$820

$840

$860

$880

Mar-05

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Insu

ranc

e in

For

ce ($

Bill

ions

)

4.40

4.45

4.50

4.55

4.60

4.65

4.70

4.75

4.80

4.85

4.90

Polic

ies

in F

orce

(Mill

ions

)

Insurance in Force ($B)

Number of Policies

Flood Insurance in Force,March 2005-February 2006

Source: FEMA/NFIP web site accesses 5/8/06: http://www.fema.gov/business/nfip/statistics/stats.shtm.

NFIP policy count is up 6% Mar. 2005 – Feb. 2006. Exposure is up 15.0%

88.3

% 90.8

%

91.0

%

91.6

%

90.6

%

92.0

%

91.9

%

87.5

%

88.8

%

89.3

% 92.1

%

92.0

%

93.2

%

92.7

%

93.2

%

93.1

%

90.6

% 92.5

%

84.6

%

75%

80%

85%

90%

95%

100%

Aug-04Sep

-04Oct-

04Nov-0

4Dec

-04Ja

n-05Feb

-05Mar-

05Apr-0

5May

-05Ju

n-05Ju

l-05

Aug-05Sep

-05Oct-

05Nov-0

5Dec

-05Ja

n-06Feb

-06Flood Insurance Retention Rates,

March 2005-February 2006

Flood insurance retention rates are a problem. Program lapse rate is too

high. Customer acquistion is expensive.

Source: FEMA/NFIP web site accesses 5/8/06: http://www.fema.gov/business/nfip/statistics/stats.shtm.

28%

61%

22%

60%

49%

1%1%3%

0.6% 0.4%0%

10%

20%

30%

40%

50%

60%

70%

Northeast South Midwest West Overall US

In SFHA*Out of SFHA

NFIP Flood PolicyPenetration Rates, by Region

*Special Flood Hazard Areas.Source: The National Flood Insurance Program’s Market Penetration Rate:Estimates and Policy Implications, RAND, 2006.

While nearly half of people

outside SFHAspurchase flood coverage, only

1% outside SFHAs do

Flood Insurance Penetration Rates:Top 25 Counties/Parishes in US*

81.5%80.0%

78.7%77.1%

74.1%69.6%

68.4%68.1%

66.7%65.9%65.5%

62.4%59.0%

56.2%51.6%

49.6%48.0%

46.3%44.4%

42.8%42.8%42.0%41.9%

40.1%

84.0%

0% 20% 40% 60% 80% 100%

JEFFERSON/LAWALTON/FL

BROWARD/FLCOLLIER/FL

LEE/FLGALVESTON/TX

GLYNN/GAST. BERNARD/LAMIAMI-DADE/FL

ORLEANS/LACARTERET/NC

ST. CHARLES/LAST. JOHNS/FL

CHARLOTTE/FLST. TAMMANY/LA

HORRY/SCINDIAN RIVER/FL

BAY/FLBRUNSWICK/NC

NASSAU/FLBERKELEY/SC

PINELLAS/FLBRAZORIA/TXCHATHAM/GA

TERREBONNE/LA

Highest flood insurance penetration rates are in LA and FL, but most

are underinsured

No counties in the Northeast

are represented in Top 25

*As of 12/31/05.Source: New Orleans Times-Picayune, 3/19/06, from NFIP and US Census Bureau data.

Flood Insurance Penetration Rates:Counties/Parishes Ranked 26-50*

39.7%39.2%39.1%38.7%

37.2%36.5%36.2%

34.2%33.0%

32.1%30.6%

28.3%27.6%

27.0%26.8%26.4%26.1%

25.4%25.3%25.2%

23.4%23.3%

22.1%21.7%

39.8%

0% 10% 20% 30% 40% 50%

BALDWIN/ALSARASOTA/FL

PALM BEACH/FLCHARLESTON/SC

MANATEE/FLMARTIN/FL

ATLANTIC/NJLAFOURCHE/LA

OKALOOSA/FLGEORGETOWN/SC

FLAGLER/FLMAUI/HI

LIVINGSTON/LABREVARD/FL

SUSSEX/DEVOLUSIA/FL

ST. LUCIE/FLJEFFERSON/TX

HAMPTON CITY/VAOCEAN/NJ

HARRIS/TXPASCO/FL

BOSSIER/LANEW HANOVER/NC

BRONX/NY

Mid-Atlantic/Northeast Counties are

underrepresented

People along the eastern

seaboard have not gotten the

message


Flood Insurance Penetration Rates:Counties/Parishes Ranked 51-75*

20.9%20.1%

19.1%18.3%

17.8%17.7%17.5%

16.7%16.3%

15.8%15.6%15.4%

14.5%14.0%

13.3%12.9%

12.6%11.7%11.6%

11.3%10.2%

9.3%9.1%

8.5%

21.6%

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

CAMERON/TXFORT BEND/TX

SANTA ROSA/MSHARRISON/MSJACKSON/MS

NORFOLK CITY/VAHILLSBOROUGH/FL

LAFAYETTE/LAEAST BATON ROUGE/LA

VIRGINIA BEACHESCAMBIA/FLHONOLULU/HI

SACRAMENTO/CACALCASIEU/LA

MONTGOMERY/TXCITRUS/FL

MERCED/CACHESAPEAKE,

OSCEOLA/FLHUDSON/NJ

DUVAL/FLBARNSTABLE/MA

MARIN/CATULARE/CA

MONMOUTH/NJ


MS coastal counties

rank abysmally

low

Barnstable is only county in all of New England among Top 75

16%

56%

66%

0%

10%

20%

30%

40%

50%

60%

70%

Under 500 501 - 5,000 More Than 5000

Proportion of Homes Buying Flood Insurance by No. of Homes in SFHA*

Communities with few SFHAs are the most likely to not

buy flood insurance

*Special Flood Hazard Areas.Source: The National Flood Insurance Program’s Market Penetration Rate:Estimates and Policy Implications, RAND, 2006.

Factors Influencing NFIP Flood Penetration Rates

• Price• Change in Price• Number of Homes in a Community’s Special Flood

Hazard Area (SFHA)Mandatory purchase requirements less vigorously enforced in communities with fewer structures in SFHAsQuestions about enthusiasm in selling or knowledge of agents regarding program

• Coastal Flooding PotentialPenetration rate much higher for coastal communities subject to flooding versus those that are not (63% vs. 35%)

• Mandatory Purchase RequirementSource: The National Flood Insurance Program’s Market Penetration Rate:Estimates and Policy Implications, RAND, 2006.

Reasons Why People BuyFlood Insurance

Mortgage Lender Requirement, 27%

Not Near Water, But Don't Want to Take

Chances, 29%

Agent/Broker Recommendation,

20%

House Near Body of Water, 24%

Source: Poll of 700 conducted by Opinion Research Corporation by Chubb Group of Insurance Companies, summarized in March 2006 press release “Katrina Doesn’t Motivate Many Homeowners to Protect Their Investment.”

Risk aversion and compulsion are the two most important

direct factors influencing the

purchase decision. Educational

attainment & income are also factors.

Additional Factors Influencing NFIP Flood Penetration Rates

• Education/Income of Homeowner• Tendency to Decline Most Optional Coverages

Only 13% of CA homeowners buy earthquake insurance• Lack of Understanding of Actual Risk

Most people do not understand the meaning or implications of 1-in-100 year flood riskMost people have never looked at a flood map

• Coverage Limits (e.g., $250K cap)• Expectation of Post-Event Aid

Potentially a more important factor for future events• Litigation Suggesting that Flood is Covered Under

Standard Homeowners Insurance PoliciesMS Attorney General Hood, Attorney Richard Scruggs, etc.

Source: Insurance Information Institute

Percentage of California Homeowners with Earthquake

Insurance, 1994-2004*

32.9% 33.2%

19.5%17.4%

14.6% 13.3% 13.8%15.8%15.7%

16.8%

0%

5%

10%

15%

20%

25%

30%

35%

94 96 97 98 99 00 01 02 03 04*Includes CEA policies beginning in 1996.Source: California Department of Insurance; Insurance Information Institute.

Selling any type of voluntary catastrophe insurance is tough. The vast majority of

California homeowners forego earthquake coverage & play Russian

Roulette with their most valuable asset.

I.I.I. Actions to Promote Flood

Risk Awareness & Preparedness

Refer people/media to NFIP resources. Echo message that everyone is at risk.

I.I.I. Initiatives onFlood Insurance

• Thousands of Media InterviewsStressing importance of purchasing floodProviding media with key information

• Video News Release (VNR) on Flood InsurancePre-packaged segment for new broadcasts (needs update)

• VNR on Hurricane Preparedness• VNR on Disaster Preparedness• Presentations to Agents, Insurer Groups & Others

Potentially a more important factor for future eventsTestimony before regulatory/legislative bodies

• Home Inventory Software (FREE!!)Download at www.knowyourstuff.org

• Northeast Insurance Summit: July 19, 2006 in NYC

Source: Insurance Information Institute

What Should & Could be Done?

Lessons from the Past

What Should Have Been Done Pre-Katrina: Carrots or Sticks?

• Levees should have been strengthened or land use policies revised decades ago

• Offer incentives to mitigate many years agoLevees and homes/businessesWould have been cost effective

• Update of flood maps• Actuarially sound rates—Send Market Signal on Risk

Stop subsidizing coastal development; burdening taxpayers• Reduce lapse rates: Keep the customers you have!• Experience: Stepped-up marketing is of limited value• Expand Mandatory Purchase Requirement???• Require written affirmation if flood is declined with

waiver of rights to federal and state aid???

What Can be Done?Pick the Low Hanging Fruit First

• Target communities with small numbers of structures in Special Flood Hazard Areas (SFHAs)

• Target inland communities vs. coastal: More Potential

• Increase coverage carried by coastal dwellers

• Increase compliance with mandatory purchase requirement

• Expand Mandatory Purchase Requirement???Expand mandate beyond 1-in-100 year flood plain??

Make coverage mandatory irrespective of mortgage status??Source: The National Flood Insurance Program’s Market Penetration Rate:Estimates and Policy Implications, RAND, 2006; Insurance Information Institute.

APPENDIX 1 Flood Facts

Key Flood Program Statistics

NFIP: Policies in Force and Total Coverage (Exposure)

2.5 2.6 2.8 3.03.5 3.7

4.1 4.2 4.3 4.4 4.5 4.6 4.8 4.94.5 4.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05* Feb-06

Polic

ies

in F

orce

(Mill

ions

)

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Total C

overage ($ Billions)

Policies in Force Total Coverage (Exposure)

*As of December 2005.Sources: FEMA, National Flood Insurance Program (NFIP)

Nearly 5 million property owners per year buy

NFIP policies

The NFIP insured property with a total value of $870.2 billion as of Feb. 2006

NFIP: Total Policies in Force by Calendar Year, 1978-Feb. 2006

1.45 1.

84 2.10

1.92

1.90 1.98

1.93 2.02 2.12

2.12

2.15 2.29 2.48

2.53 2.62 2.83

3.48 3.

69 4.10 4.24 4.33

4.37 4.46 4.52

4.57 4.67 4.80

4.85

3.04

0

1

2

3

4

5

6

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*

Feb-

06

*As of December 2005Source: FEMA, National Flood Insurance Program (NFIP)

Millions

No.

of P

olic

ies (

Mill

ions

)

Nearly 5 million property owners per

year buy NFIP policies

NFIP: Total Premium by Calendar Year 1978-Feb. 2006

$0.1

1$0

.14

$0.1

6$0

.26

$0.3

5$0

.38

$0.4

2$0

.45

$0.5

2$0

.57

$0.5

9$0

.63

$0.6

7$0

.74

$0.8

0$0

.89 $1

.14

$1.2

8 $1.5

1$1

.67

$1.7

2$1

.72

$1.7

4$1

.80

$1.9

0$2

.05

$2.2

3

$1.0

0$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

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 04Fe

b-06

Source: FEMA, National Flood Insurance Program (NFIP)

$ BillionsThe NFIP now collects more than $2.2 billion annually in premiums

NFIP: Total Coverage (Exposure) by Calendar Year 1978-Feb. 2006

$50.

5$7

4.4

$99.

3$1

02.1

$107

.3$1

17.8

$124

.4$1

39.9

$155

.7$1

65.1

$175

.8$2

65.2

$213

.6$2

23.1

$236

.8$2

67.9

$349

.1$4

00.7

$462

.6$4

97.6

$534

.1$5

67.6

$611

.9$6

53.8

$691

.8$7

64.5

$851

.5$8

70.2

$295

.9$0

$100$200$300$400$500$600$700$800$900

$1,000

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*

Feb-

06

*As of December 2005.Source: FEMA, National Flood Insurance Program (NFIP)

$ BillionsThe NFIP insured property with a total value of $870.2

billion as of Feb. 2006

NFIP: Policies in Force By Coverage Type (As of July 31, 2005)

Building Coverage Only,

39.7%

Contents Coverage Only,

1.5%

Both Bldg. & Cont. Cvg,

58.7%


2,729,267Both Bldg & Cont Cvg

4,646,756All Policies

72,008Contents Coverage Only

1,845,481Building Coverage Only

Policies in ForceCoverage Type

NFIP: Policies in Force By Occupancy Type (As of July 31, 2005)

2 to 4 Family Unit3.4%

Other Residential

3.0%

Non-Residential

4.6%

Single Family Home68.5%

Condos 20.5%


138,583Other Residential

214,799Non-Residential

951,240Condominiums

--Unknown Occupancy

4,646,756All Policies

158,1242 to 4 Family Unit

3,184,010Single Family Home

Policies in ForceOccupancy Type

NFIP: No. of Losses Paid by Calendar Year 1978-2004

37,6

5936

,271

25,2

2043

,503

16,3

4747

,22057

,338

30,3

3352

,67862

,440

36,0

4444,6

5128

,554

14,7

6636

,247

7,75

813

,399

13,7

8938

,675

27,6

8851

,584

32,8

3123

,261

41,9

1870

,613

29,1

22

21,5

83

01000020000300004000050000600007000080000

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


No. of Losses

NFIP: Loss Dollars Paid by Calendar Year 1978-2004

$147

.7$4

83.3

$230

.4$1

27.1

$198

.3 $439

.5$2

54.6

$368

.2$1

26.4

$105

.4$5

1.0

$661

.7$1

67.9 $3

53.7

$710

.2$6

59.1

$1,2

95.5

$828

.0$5

19.5

$886

.0$7

54.8

$251

.5$1

,276

.4$4

32.5 $7

59.8

$1,2

07.2

$411

.1$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

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


$ MillionsThe NFIP will pay an estimated $10 billion in

flood claims in 2005, indicating a need for a

taxpayer-financed bailout of at least $7.5 billion

Average Premium Preferred Risk Policy* For Buildings with Basement Under NFIP

$136$162

$204$231

$262 $278 $293$330

$351

$0

$50

$100

$150

$200

$250

$300

$350

$400

$20,000 $30,000 $50,000 $75,000 $100,000 $125,000 $150,000 $200,000 $250,000

Building deductible: $500. Contents deductible: $500. Deductibles applied separately.

*Under the NFIP a low-cost Preferred Risk Policy is available to homeowners located in low- to moderate-risk areas.Sources: FEMA, National Flood Insurance Program (NFIP)

Average Premium

Average Premium Preferred Risk Policy* For Buildings without Basement

Under NFIP

$111$137

$179$206

$232$248 $263

$295$316

$0

$50

$100

$150

$200

$250

$300

$350

$20,000 $30,000 $50,000 $75,000 $100,000 $125,000 $150,000 $200,000 $250,000

Building deductible: $500. Contents deductible: $500. Deductibles applied separately.

*Under the NFIP a low-cost Preferred Risk Policy is available to homeowners located in low- to moderate-risk areas.Sources: FEMA, National Flood Insurance Program (NFIP)

Average Premium

Total Claim Payments by State (Top 11) Jan 1, 1978 - Dec. 2004

$ Millions

$2,702.0

$2,226.7

$1,727.3

$687.2$419.9 $384.4 $377.8 $276.6

$422.6$473.4$598.2

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

TX FL LA NC NJ PA SC MO VA AL MS


Louisiana and Alabama rank 3rd and 10th

respectively in terms of total claims payments. Mississippi ranks 11th.

Total Claim Payments by State (Top 11) Jan 1, 1978 - Feb. 2006

$ Millions

$3,2

28.8

$2,7

75.0

$2,5

54.6

$600

.0

$426

.0

$425

.5

$423

.2

$14,309.1

$655

.2

$721

.2

$851

.6

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

LA FL TX MS AL NC NJ PA NY SC CA


Louisiana and Mississippi rank 1st and 4th respectively

in terms of total claims payments (up from 3rd and 11th pre-Katrina). Florida ranks 2nd and Texas 3rd.

APPENDIX 2 Catastrophe Facts

Key Hurricane Statistics

U.S. InsuredCatastrophe Losses ($ Billions)*

$7.5

$2.7

$4.7

$22.

9

$5.5 $1

6.9

$8.3

$7.4

$2.6 $1

0.1

$8.3

$4.6

$26.

5

$5.9 $1

2.9 $2

7.5

$57.

7

$100

$0

$20

$40

$60

$80

$100

$120

89 91 93 95 97 99 01 03 05

*Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita.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.Source: Property Claims Service/ISO; Insurance Information Institute

$ Billions

2005 was by far the worst year ever for insured

catastrophe losses in the US, but the worst has yet to come.

$100 Billion CAT year is coming soon

Global Number of Catastrophic Events, 1970–2005

0

50

100

150

200

250

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Natural catastrophes Man-made disasters

Man-made disasters: without road disasters. Source: Swiss Re, sigma No. 1/2005 and 2/2006.

The number of natural and man-made

catastrophes has been increasing on a global

scale for 20 years

Record 248 man-made CATs &

record 149 natural CATs in 2005

Insured Property Catastrophe Losses as % Net Premiums Earned, 1983–2005E

0%

2%

4%

6%

8%

10%

12%

14%

16%

84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05E

USWorldwideUS average: 1984-2004

*Insurance Information Institute figure of 13.8% for 2005 based estimated 2005 DPE of $417.7B and insured CAT losses of $57.7B.

Sources: ISO, A.M. Best, Swiss Re Economic Research & Consulting; Insurance Information Institute.

US CAT losses were a record 13.8% of

net premiums earned in 2005 and were 4.2 times the 1984-2004 average

of 3.3%

2005 Was a Busy, Destructive, Deadly & Expensive Hurricane Season

Source: WeatherUnderground.com, January 18, 2006.

All 21 names were used for the first

time ever, so Greek letters were used for the final 6

storms: Alpha though Zeta

2005 set a new record for the number of hurricanes &

tropical storms at 27, breaking the old record set in 1933.

Number of Major (Category 3, 4, 5) Hurricanes Striking the US by Decade

4

6

65

4

6

88

5

8

6

9

1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s

*Figure for 2000s is extrapolated based on data for 2000-2005 (6 major storms: Charley, Ivan, Jeanne (2004) &Katrina, Rita, Wilma (2005)).

Source: Tillinghast from National Hurricane Center: http://www.nhc.noaa.gov/pastint.shtm.

10

1930s – mid-1960s:Period of Intense Tropical

Cyclone Activity

Mid-1990s – 2030s?New Period of Intense

Tropical Cyclone Activity

Tropical cyclone activity in the mid-1990s entered the active

phase of the “multi-decadal signal” that could last into the 2030s

Already as many major storms in

2000-2005 as in all of the 1990s

Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005)

$3.5 $3.8 $4.8 $5.0$6.6 $7.4 $7.7

$9.4

$21.6

$40.0

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Georges(1998)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo(1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Andrew(1992)

Katrina(2005)

$ B

illio

ns

Sources: ISO/PCS; Insurance Information Institute.

Seven of the 10 most expensive hurricanes in US history

occurred in the 14 months from Aug. 2004 – Oct. 2005:

Katrina, Rita, Wilma, Charley, Ivan, Frances & Jeanne

Insured Loss & Claim Count for Major Storms of 2005*

$1.1

$38.1

$9.4$5.0

104381

1,025

1,752

$0.000$5.000

$10.000$15.000$20.000$25.000$30.000$35.000$40.000$45.000

Dennis Rita Wilma KatrinaSize of Industry Loss ($ Billions)

Insu

red

Loss

($ B

illio

ns)

02004006008001,0001,2001,4001,6001,8002,000

Cla

ims

(thou

sand

s)

Insured Loss Claims

*Property and business interruption losses only. Excludes offshore energy & marine losses.Source: ISO/PCS as of February 8, 2006 for Dennis, Rita, Katrina and March 27, 2006 for Wilma; Insurance Information I tit t

Hurricanes Katrina, Rita, Wilma & Dennis produced a record 3.3

million claims

Inflation-Adjusted U.S. Insured Catastrophe Losses By Cause of Loss,

1985-2004¹

Utility Disruption0.1%

Terrorism9.7% All Tropical Cyclones3

34.6%

Tornadoes2

30.4%

Water Damage0.2%

Civil Disorders0.5%

Fire6

2.9%

Wind/Hail/Flood5

3.4%

Earthquakes4

8.4%

Winter Storms9.7%

Source: Insurance Information Institute estimates based on ISO data.

1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2004 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires.

Insured disaster losses totaled $221.3 billion from

1984-2004 (in 2004 dollars). After 2005 season, tropical cyclones will account for about 45% of the total.

The 2006 Hurricane Season:

Preview to Disaster?

Outlook for 2006 Hurricane Season

13713Intense Hurricane Days195%275%100%Net Tropical Cyclone Activity

572.3Intense Hurricanes4547.524.5Hurricane Days9145.9Hurricanes

85115.549.1Named Storm Days17269.6Named Storms

2006F2005Average*

*Average over the period 1950-2000.Source: Dr. William Gray, Colorado State University, April 4, 2006.

Probability of Major Hurricane Landfall (CAT 3, 4, 5) in 2006

ALSO…Above-Average Major HurricaneLandfall Risk in Caribbean for 2006

47%30%Gulf Coast from FL Panhandle to Brownsville, TX

64%31%US East Coast Including Florida Peninsula

81%52%Entire US Coast

2006FAverage*

*Average over past century. Source: Dr. William Gray, Colorado State University, April 4, 2006.

Hurricanes Katrina, Rita & Wilma:

Their Place in History

Hurricane Katrina Insured Loss Distribution by State ($ Millions)*

Mississippi, $12,105 , 31.8%

Louisiana, $24,275 , 63.7%

Tennessee, $59.0 , 0.2%Florida, $543.0 , 1.4%

Georgia, $27.0 , 0.1%Alabama, $1,102 ,

2.9%

*As of February 8, 2006Source: PCS division of ISO.

Louisiana accounted for

64% of the insured losses

paid and 56% of the claims filedTotal Insured

Losses = $38.111 Billion

Hurricane Katrina Loss Distribution by Line ($ Billions)*

Homeowners, $17,694.0 , 46%

Commercial Property & BI, $18,278.0 , 48%

Vehicle, $2,139.0 , 6%

Total insured losses are

estimated at $38.1 billion from 1.7518

million claims. Excludes $2-

$3B in offshore energy losses


Hurricane Katrina Claim Count Distribution by State*

Mississippi, 515,000 , 29.4%

Tennessee, 15,000 , 0.9%

Louisiana, 975,000 , 55.7%

Florida, 115,000 , 6.6% Georgia, 7,800 , 0.4%

Alabama, 124,000 , 7.1%


Louisiana accounted for 64%of insured

losses paid and 56% of claims filed

Total # Claims = 1,751,800

Hurricane Rita Loss Distribution, by Line ($ Millions)*

Homeowners, $2,944.0 , 59%

Commercial Property & BI, $1,846.2 , 37%

Vehicles, $186.0 , 4%Total insured

losses are estimated at $5.0

billion (excl. offshore energy of $2-$3B) from 381,000 claims.


Hurricane Rita Claim Count Distribution by State*

Texas, 169,000 , 44.4%

Tennessee, 3,500 , 0.9%

Louisiana, 185,000 , 48.6%

Arkansas, 5,500 , 1.4%Florida, 6,000 , 1.6%

Alabama, 5,000 , 1.3%

Mississippi, 7,000 , 1.8%


Louisiana accounted for 48.6% of the

insured losses, Texas 44.4%.

Excludes offshore energy losses of $2-3BTotal # Claims

= 381,000

Hurricane Wilma Loss Distribution by Line ($ Millions)*

Homeowners, $6,600 , 71%

Commercial Property & BI, $2,000 , 21%

Vehicle, $750 , 8%Total insured

losses are estimated at $9.35 billion from 1.025

million claims

*As of March 27, 2006. All losses are in FL.Source: PCS division of ISO.

Hurricane Wilma Claim Count Distribution by Line ($ Millions)*

Homeowners, 680,000 , 66% Commercial

Property & BI, 80,000 , 8%

Vehicle, 265,000 , 26%

Total insured losses are

estimated at $9.35 billion from 1.025

million claims

*As of March 27, 2006. All losses are in FL.Source: PCS division of ISO.

Insurance Information Institute On-Line

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