A Firm Foundation The Insurance Industry & Its Contributions to Society Robert P. Hartwig, Ph.D., CPCU, President Insurance Information Institute 110.

A Firm Foundation The Insurance Industry &Its Contributions to Society

Robert P. Hartwig, Ph.D., CPCU, PresidentInsurance Information Institute 110 William Street New York, NY 10038

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

St. John’s UniversitySchool of Risk Management, Insurance &

Actuarial Science

New York, NYApril 10, 2008

Key Roles Insurers Play in Society

• Insurers as Claims Payers

• Philanthropists

• Contributors to the Economy

• Employers

• Taxpayers

• Investors

• Educators

• Promoters of Public Safety

• Builders in Times of Greatest Need: Catastrophes

INSURERS AS CLAIMS PAYERS

Trillions and Trillions Paid(& Counting)

Incurred Losses, Property/Casualty Insurance 2000-2007*

$218.7

$273.1 $266.9 $267.7 $277.6

$316.9

$283.8$298.6

$0

$50

$100

$150

$200

$250

$300

$350

00 01 02 03 04 05 06 07

*Losses occurring within a fixed period whether or not adjusted or paid during the same period, on a direct basis before reinsurance.Sources: NAIC Annual Statement Database, via Highline Data, LLC, ISO. Insurance Info. Institute; http://www.iii.org/economics/toc/

$ billions

P/C insurers paid out $275 billion each year on average to millions of people and businesses since 2000.

Cumulative Incurred Losses, P/C Insurance 2000-2007*

$218.7

$491.8

$758.7

$1,026.4

$1,304.0

$1,620.9

$1,904.8

$2,203.4

$0

$500

$1,000

$1,500

$2,000

$2,500

00 01 02 03 04 05 06 07*Losses occurring within a fixed period whether or not adjusted or paid during the same period, on a direct basis before reinsurance.Sources: NAIC Annual Statement Database, via Highline Data, LLC, ISO. Insurance Info. Institute; http://www.iii.org/economics/toc/

$ BillionsP/C insurers paid more that $2.2

trillion in claims to tens of millions

of people and businesses since

2000

Life Insurance Claims & Benefits Paid, 2000-2006*

$319.4

$282.8 $288.7$301.5

$331.2

$370.1

$426.9

$200

$250

$300

$350

$400

$450

$500

00 01 02 03 04 05 06

*On a direct basis before reinsurance.Sources: NAIC Annual Statement Database, via Highline Data, LLC; Insurance Info. Institute.

$ Billions

Life insurers paid more than $2.3 trillion in claims and benefits

between 2000 and 2006

Share of Losses Paid by Reinsurers, by Disaster*

30%25%

60%

20%

45%

0%

10%

20%

30%

40%

50%

60%

70%

Hurricane Hugo(1989)

Hurricane Andrew(1992)

Sept. 11 TerrorAttack (2001)

2004 HurricaneLosses

2005 HurricaneLosses

*Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer, which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at $3.85 billion for 2004 and $4.5 billion for 2005.Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.

Reinsurance is playing an increasingly

important role in the financing of mega-CATs; Reins. Costs

are skyrocketing

INSURERS AS PHILANTHROPISTS

Insurers are Generous withTheir Money and Time

Insurance Industry Charitable Contributions to U.S. Beneficiaries, 2006

$921.6

$147.1$67.8

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Banks Insurance Finance

Sources: The Conference Board; Insurance Info. Institute; http://www.iii.org/economics/toc/

$ Millions

In 2006, the insurance industry’s donations to U.S. beneficiaries totaled $147.1

million, placing it among the top 15 contributors among

large U.S. corporations.

Top 10 Total Contributions Per Worldwide Employee By Industry, 2005*

$339

$367

$547

$560

$629

$713

$784

$818

$1,549

$5,585

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000

Computers & Technology

Food, beverage & tobacco

Other manufacturing**

Insurance

Utilities

Banks

Finance

Petroleum, gas & mining

Printing, publishing & media

Pharmaceuticals

*Companies not reporting worldwide employee figures are excluded. **Includes other diversified manufacturing.Sources: The Conference Board; Insurance Info. Institute; http://www.iii.org/economics/toc/

Charitable contributions per employee totaled $560 in 2005,

7th highest of any industry

INSURERS AS CONTRIBUTORS TO

THE ECONOMY

Insurers are an Important Segment of the Economy

$234.4 $237.4

$255.0

$295.6 $296.1

2.3% 2.3% 2.3%2.5% 2.4%

$200

$220

$240

$260

$280

$300

$320

01 02 03 04 05

0%

1%

2%

3%

% o

f T

ota

l G

DP

Insurer GDP% of Total GDP

Insurance Sector’s Share of Gross Domestic Product (GDP), 2001-2005

The insurance industry accounted for nearly $300 billion or 2.4% of

US GDP in 2005

Source: Insurance Information Institute: http://www.iii.org/economics/toc/

Insu

ran

ce

GD

P

INSURERS AS EMPLOYERS

Good Jobs, Good Pay

Insurance Carriers Employment and Payroll, 2000-2007

2,220.6 2,233.2 2,266.0 2,308.12,258.6

2,259.3 2,303.72,233.7

$128.9$137.0

$143.6$154.0

$166.5$173.2

$183.4

1,500

2,000

2,500

3,000

00 01 02 03 04 05 06 07

No. of

Em

plo

yee

s (0

00)

$0

$50

$100

$150

$200

An

nu

al

Payro

ll (

$ b

illi

on

s)

No. of Employees Annual Payroll

Source: U.S. Dept. of Labor, Bureau of Labor Statistics; U.S. Dept. of Commerce, Bureau of Economic Analysis; Insurance Information Institute.

Insurers employed more than 2.3 million people in 2007, with total wages approaching $200 billion.

INSURERS AS TAXPAYERS

Insurers are a Major Source of Government Revenue

Insurance Industry Taxes Paid and Incurred, 2002-2006*

$20.0 $19.6

$22.4 $22.2

$28.5

$12.6$11.0 $11.1 $11.3

$15.2

$0

$5

$10

$15

$20

$25

$30

02 03 04 05 06

Property/Casualty Life

*Based on page 3, Annual Statement, Liabilities, Surplus and Other Funds.Sources: Insurance Info. Institute; http://www.iii.org/economics/toc/

P/C and Life insurers paid $174 billion in taxes between

2002 and 2006

INSURERS AS INVESTORS

Insurers are a Among theLargest Investors in the World

Insurance IndustryTotal Financial Assets, 2002-2006

$939.8 $1,059.7 $1,160.9 $1,250.4 $1,365.4

$3,335.0$3,772.8

$4,130.3$4,350.7

$4,708.8

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

02 03 04 05 06

Property/Casualty Life

Sources: Board of Governors of the Federal Reserve System; Insurance Info. Institute; http://www.iii.org/economics/toc/

$ billions

Insurers are among the largest investors in the world,

facilitating global growth in the private and public sectors

Selected Insurance IndustryFinancial Assets, 2006

$278.6 $232.5$335.2

$197.3

$1,881.8

$1,405.2

$33.2

$470.5

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

Corporate andforeign bonds

Corporatestocks

Municipalsecurities

U.S.governmentsecurities

Property/Casualty Life

Sources: Board of Governors of the Federal Reserve System; Insurance Info. Institute; http://www.iii.org/economics/toc/

$ billions

As the world’s largest muni bond investor, insurers fund hundreds of billions of dollars in state and

local projects such as schools, roads and health care

INSURERS AS EDUCATORS

Educated Consumers Makethe Best Customers

Free Home Inventory Software

400,000+ downloads

and counting!

Helping businesses learn their insurance

needs

Spanish language

information

Information & Research

INSURERS AS PROMOTERS OF PUBLIC SAFETY

Investments in Public Safety& Security

INSURERS AS BUILDERS IN

TIMES OF GREATEST NEED

Catastrophic Losses: Insurers Most Critical Job

Most of US Population & Property Has Major CAT Exposure

Is Anyplace

Safe?

U.S. Insured Catastrophe Losses*$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

$6.7

$100

.0

$61.

9

$9.2

$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

20??

*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

2006/07 were welcome respites. 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

Catastrophe Claims and Lossesin the U.S., 2000-2007*

$4.6 $5.9

$12.9

$6.5

$27.5

$61.9

$9.2

$26.51.4

1.8

2.6

3.4

2.3

1.21.6

4.0

$0

$10

$20

$30

$40

$50

$60

$70

00 01 02 03 04 05 06 07

Los

ses

($ m

illi

ons)

0

1

1

2

2

3

3

4

4

5

Cla

ims

(000

)

Losses ($ millions) Claims (000)

Source: ISO’s Property Claim Services Unit; Insurance Information Institute; http://www.iii.org/economics/toc/

Insurers paid $155 billion in catastrophe losses on

18.3 million claims arising from 192 events between 2000 and 2007

States With Largest Insured Catastrophe Losses in 2007

$ Millions

$1,230

$747$677

$320$223 $202 $200 $200

$262$270$272

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

CA MN TX GA IL OK KS MO NY CO ALSource: PCS/ISO; Insurance Information Institute.

2007 CAT STATS

•1.18 million CAT claims across 41 states arising

•23 catastrophic events

Distribution of 2007 US CAT Losses, by Type and Insured Loss

Personal, $4.4 , 68%

Commercial, $1.3 , 20%

Vehicle, $0.8 , 12%Personal (home, condo, rental, contents etc.)

accounted for 68% of all US insured

CAT losses paid in 2007. CAT claim

count was 1.18 million.

Source: PCS division of ISO.

$ Billions

$14.3

$34.4

$40.2

$47.7

$63.6

$68.4

$108.3

$132.6

$138.4

$154.4

$168.7

$420.7

$502.5

$538.4

$2,260.0

$2,294.4

$2,589.3

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Sep. 12-18, 1979 Hollywood Hills, CA

Oct. 9-10, 1982 Los Angeles, Ventura, Orange Cos., CA

Nov. 16-17, 1980 Bradbury, Pacific Palisades, Malibu, Sunland,Carbon Canyon, Lake Elsinore, CA

Oct. 23-25, 1978 Los Angeles, Ventura Cos., CA

May 17-20, 1985 Florida

Jul. 26-27, 1977 Santa Barbara, Montecito, CA

Nov. 24-30, 1980 Los Angeles, San Bernardino, Orange,Riverside, San Diego Cos., CA

Sep. 22-30, 1970 Oakland-Berkeley Hills, CA

Jun. 23-28, 2002 Rodeo-Chediski Complex, AZ

July 2007: Lake Tahoe, CA**

May 10-16, 2000 Cerro Grande, NM

Jun. 27-Jul. 2, 1990 Santa Barbara County, CA

Oct. 27-28, 1993 Orange Co., CA

Nov. 2-3, 1993 Los Angeles Co., CA

Oct. 2007: Southern CA Fires*

Oct. 2003: Southern CA Fires

Oct. 20-21, 1991: Oakland, Alameda Cos., CA

Insured Losses (Millions 2007 $)

Top Catastrophic Wildland Fires In The United States, 1970-2007

Fourteen of the top 17

catastrophic wildfires since

1970 occurred in California

*Estimate from CA Insurance Dept., Jan. 10, 2008. Source: ISO's Property Claim Services Unit; California Department of Insurance; Insurance Information Institute.

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

1987-2006¹

Fire, $6.6 , 2.2%

Tornadoes, $77.3 , 26.0%

All Tropical Cyclones, $137.7 ,

46.3%

Civil Disorders, $1.1 , 0.4%

Utility Disruption, $0.2 , 0.1%

Water Damage, $0.4 , 0.1%Wind/Hail/Flood,

$9.3 , 3.1%

Earthquakes, $19.1 , 6.4%

Winter Storms, $23.1 , 7.8%

Terrorism, $22.3 , 7.5%

Source: Insurance Services Office (ISO)..

1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 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 $297.3 billion from

1987-2006 (in 2006 dollars). Wildfires accounted for

approximately $6.6 billion of these—2.2% of the total.

Catastrophic Hurricane Claims and Losses in the U.S., 1998-2005*

$3,315$430 $1,775

$22,900

$58,337

$2,315

730 696

134

528

2,259

3,316

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

98 99 02 03 04 05

Los

ses

($ m

illi

ons)

0

500

1000

1500

2000

2500

3000

3500

Cla

ims

(000

)

Losses ($ millions) Claims (000)

Source: ISO’s Property Claim Services Unit; Insurance Information Institute; http://www.iii.org/economics/toc/

Insurers paid $89.1 billion in hurricane losses on 7.7 million claims between 1998 and 2005

Global Insured Catastrophe Losses by Region, 2001-2007

0

10

20

30

40

50

60

70

80

90

2001 2002 2003 2004 2005 2006 2007

Seas/SpaceAfricaOceania/AustraliaSouth AmericaAsiaEuropeNorth America*

Notes: 2001-03 figures for N. America include US only. 2001 figure includes only property losses from 9/11. Source: Insurance Information Institute compiled from Swiss Re sigma issues.

North America accounted for 70% of global

catastrophe losses 2001-2007

$ Billions

HURRICANE KATRINA

Rebuilding Communities & Lives

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

$10.3

$21.6

$41.1

$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

illi

ons

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

$41.1

$10.3$5.0

104

383

1,047

1,744

$0$5

$10$15$20

$25$30$35

$40$45

Dennis Rita Wilma Katrina

Size of Industry Loss ($ Billions)

Insu

red

Lo

ss ($ B

illio

ns)

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

Cla

ims (th

ou

san

ds)

Insured Loss Claims

*Property and business interruption losses only. Excludes offshore energy & marine losses.

Source: ISO/PCS as of June 8, 2006; Insurance Information Institute.

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

million claims

Hurricane Katrina Claim Status on Storm’s 1st Anniversary*

In Process, 3%

Mediation/ Litigation, 2%

Settled, 95%

95% of the 1.2 million

homeowners insurance claims in Louisiana & Mississippi are

settled, with just 2% in dispute

*Hurricane Katrina made its north Gulf coast landfall August 29, 2005.Source: Insurance Information Institute survey, August 2006.

Hurricane Katrina Claim Status on Storm’s 2nd Anniversary*

Unsettled**, 1%

Settled, 99%

99% of the 1.2 million homeowners insurance claims in

Louisiana & Mississippi were settled as of the storm’s second

anniversary in 2007

*Hurricane Katrina made its north Gulf coast landfall August 29, 2005.**Unsettled implies that the claim is in the process of settlement, involved in mediation or litigated.Source: Insurance Information Institute survey, August 2007.

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

Mississippi, $13,605 , 33.5%

Louisiana, $25,275 , 62.3%

Tennessee, $59.0 , 0.1%Florida, $572.0 , 1.4%

Georgia, $36.0 , 0.1%Alabama, $1,032 ,

2.5%

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

Mississippi accounted for 33.5% of the insured losses

paid and 29.5% of the claims filed

Total Insured Losses =

$40.579 Billion

$2,879 $2,917 $2,889 $2,894$3,159 $3,046 $3,121

$3,702

$4,281

16.8%

1.3%0.2%

9.2%

-3.6%

2.5%

18.6%

15.6%

-1.0%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

98 99 00 01 02 03 04 05 06

Val

ue

of

Co

nst

ruct

ion

GD

P

-5%

0%

5%

10%

15%

20%

Gro

wth

in

Co

nst

ruct

ion

GD

P

Value of Construction GDP

% Growth in Construction GDP

Growth in Mississippi Construction Component of GDP Pre/Post-Katrina

Insurance dollars helped construction

spending surge in MS

Sources: US Bureau of Economic Analysis; Insurance Information Inst.

Insured Offshore Energy Losses for Recent Major Gulf Storms

$2.0$2.25

$3.0

$0.0

$1.0

$2.0

$3.0

$4.0

Katrina (2005) Ivan (2004)* Rita (2005)

$ B

illi

ons

Hurricanes Katrina, Rita and Ivan cost energy

insurers at least $7 billion

Sources: Insurance Information Institute research estimates. *Midpoint of estimated range for $2.0 to $2.5 billion)

Insurance Information Institute On-Line

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