Florida Property & Casualty Insurance Market Update Trends, Challenges & Opportunities Florida Chamber of Commerce Insurance Summit Orlando, FL October 27, 2015 Download at www.iii.org/presentations Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5520 Cell: 917.453.1885 [email protected]www.iii.org
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Florida Property & Casualty Insurance Market Update Property & Casualty Insurance Market Update ... 7 P/C Insurance Industry ... P s p lPP Source: NAIC; Insurance Information Institute.
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P/C Industry Net Income After Taxes1991–2015:H1 2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.2%
2014 ROAS1 = 8.4%
2015:H1 ROAS = 9.2%
•ROE figures are GAAP; 1Return on avg. surplus. 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.
Sources: A.M. Best, ISO; Insurance Information Institute
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$6
3,7
84
$5
5,5
01
$3
0,9
72
$3
8,5
01
$2
0,5
59
$4
4,1
55
$6
5,7
77
-$6,970
$2
8,6
72
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15:H
1
Net income fell modestly
(-12.5%) in 2014 vs. 2013
$ Millions
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
E
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2015E
*Profitability = P/C insurer ROEs. 2011-14 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
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 will be in 2016-2017
ROE
1975: 2.4%
2013 9.8%
2014 8.2%
2015E: 8.8%
5
ROE: Property/Casualty Insurance by Major Event, 1987–2015E
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO, Fortune; Insurance Information Institute.
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
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
Best Combined Ratio Since 1949 (87.6)
Avg. CAT Losses,
More Reserve Releases
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014 combined ratio including M&FG insurers is 97.0; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
Florida ranked as the most expensive state for homeowners insurance in 2012, with an average expenditure of $2,084.
Workers Comp: 10-Year Average RNW FL & Nearby States
4.6%
7.3%
7.9%
10.5%
3.1%
7.1%
0% 2% 4% 6% 8% 10% 12%
Florida
Alabama
Mississippi
U.S.
Georgia
South Carolina
Source: NAIC, Insurance Information Institute
2004-2013
Florida Workers Comp profitability is above the US average and above the regional
average
38
All Lines DWP Growth: FL vs. U.S., 2005-2014
Source: SNL Financial.
2.3
%
3.4
%
0.5
%
-2.1
%
-3.3
%
0.0
%
3.7
%
4.6
%
5.5
%
4.4
%
10
.3% 1
3.9
%
-1.2
%
-9.1
% -6.5
%
1.3
% 3.7
% 5.8
%
4.3
%
3.7
%
-15%
-10%
-5%
0%
5%
10%
15%
20%
05 06 07 08 09 10 11 12 13 14
US DWP: All Lines FL DWP: All Lines
(Percent)Average 2005-2014
US: 1.9%
FL: 2.6%
39
Comm. Lines DWP Growth: FL vs. U.S., 2005-2014
Source: SNL Financial.
2.6
% 4.6
%
-0.1
%
-4.0
%
-7.3
%
-2.5
%
5.1
%
5.1
%
6.1
%
4.3
%
12
.6%
15
.3%
-3.3
%
-11
.7%
-9.7
%
-3.4
%
2.2
%
5.6
%
5.5
%
6.7
%
-17%
-12%
-7%
-2%
3%
8%
13%
18%
05 06 07 08 09 10 11 12 13 14
US DWP: Comm. Lines FL DWP: Comm. Lines
(Percent)
Average 2005-2014
US: 1.4%
FL: 2.0%
40
Personal Lines DWP Growth: FL vs. U.S., 2005-2014
Source: SNL Financial.
2.2
%
2.3
%
1.2
%
-0.1
%
1.1
% 2.5
%
2.2
% 4.2
%
5.1
%
4.8
%
8.5
%
1.0
%
-6.5
%
-3.5
%
5.4
%
4.9
%
5.9
%
3.5
%
1.7
%
12
.8%
-11%
-6%
-1%
4%
9%
14%
05 06 07 08 09 10 11 12 13 14
US DWP: Pers. Lines FL DWP: Pers. Lines
(Percent)
Average 2005-2014
US: 2.6%
FL: 3.4%
41
Private Passenger Auto DWP Growth: FL vs. U.S., 2005-2014
Source: SNL Financial.
0.5
%
0.4
%
0.0
%
-0.3
%
-0.1
%
1.5
%
1.5
%
3.5
% 4.6
%
4.9
%
-2.9
%
-2.8
%
-3.2
%
3.2
%
0.3
%
2.6
%
-3.3
%
-3.1
%
-5.2
%
-5.2
%
-6%
-4%
-2%
0%
2%
4%
6%
05 06 07 08 09 10 11 12 13 14
US DWP: PP Auto FL DWP: PP Auto
(Percent)
Average 2005-2014
US: 1.6%
FL: -2.0%
42
Homeowner’s MP DWP Growth: FL vs. U.S., 2005-2014
Source: SNL Financial.
7.4
%
7.4
%
4.2
%
0.5
% 3.8
%
4.9
%
3.8
%
5.7
%
6.2
%
4.4
%
21
.1%
31
.9%
6.7
%
-4.3
%
9.2
%
3.9
%
6.6
%
4.6
%
-0.6
%
-15
.6%
-20%
-10%
0%
10%
20%
30%
40%
05 06 07 08 09 10 11 12 13 14US DWP: HO Lines FL DWP: HO Lines
(Percent)
Average 2005-2014
US: 4.8%
FL: 6.3%
INVESTMENTS: THE NEW REALITY
43
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
43
Property/Casualty Insurance Industry Investment Income: 2000–2015E1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.3$46.2 $46.8
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q2.Sources: ISO; Insurance Information Institute.
($ Billions)Investment earnings are still below their 2007 pre-crisis peak
Distribution of Invested Assets: P/C Insurance Industry, 2013
Stocks, 22%
Bonds, 62%
All Other, 10%
Cash, Cash Equiv. &
ST Investments, 6%
Source: Insurance Information Institute Fact Book 2015, A.M. Best.
Total Invested Assets = $1.5
Trillion
$ Billions
46
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2015*
*Monthly, constant maturity, nominal rates, through August 2015.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
U.S. Treasury yields plunged to historic lows in 2013. Longer-
Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2015
0.01% 0.02% 0.09%0.28%
0.69%
2.10%2.36%
4.82%4.96% 5.04% 4.96%
4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%
1.68%
1.07%
3.11%2.85%
0%
1%
2%
3%
4%
5%
6%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
June 2015 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. Even when the Fed begins to raise rates, yields unlikely to return to
pre-crisis levels anytime soon
The Fed Is Actively is Signaling that it Is Likely to Begin Raising Rates Later in 2015 but Only Very Gradually
Source: Federal Reserve Board of Governors; Insurance Information Institute.
Net Yield on Property/Casualty Insurance Invested Assets, 2007–2015*
4.38
4.17
4.02
3.87
3.63 3.61
3.743.82
3.44
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 15*
The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to raise interest rates in late 2015 has already pushed up some yields, albeit quite modestly.
*2015 figure is the average of the four quarters ending in 2015:Q2.Sources: SNL Financial; Insurance Information Institute
(Percent) Book yield in 2015 is down 77 BP from pre-crisis levels
Total Investment Gains Were Down Slightly in 2014 as Low Interest Rates Pressured Investment Income but Realized Capital Gains Remained
Robust
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; 2015 figure is through Q2 2015.Sources: ISO, SNL; Insurance Information Institute.
($ Billions)
Investment gains in 2014 will rival the post-crisis
high reached in 2013
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
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
*Through Oct. 9, 2015.
Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Ins. Info. Inst.
Tech Bubble
Implosion
Financial
Crisis
Annual Return
Energy Crisis
2015*:
-2.1%
S&P 500 Index Returns, 1950 – 2015*
Fed Raises Rate
Volatility is endemic to stock markets—and may be increasing—but there is no persistent
Distribution of Bond Maturities,P/C Insurance Industry, 2003-2013
14.4%
15.4%
16.0%
16.0%
15.2%
15.7%
15.6%
16.0%
14.9%
16.6%
16.5%
29.8%
29.2%
28.8%
29.5%
30.0%
32.4%
36.4%
39.5%
41.2%
40.4%
38.8%
31.3%
32.5%
34.1%
34.1%
33.8%
31.2%
29.0%
27.1%
27.3%
27.6%
29.3%
15.4%
15.4%
13.6%
13.1%
12.9%
12.7%
11.9%
11.2%
10.4%
9.8%
9.8%
9.2%
7.6%
7.6%
7.4%
8.1%
8.1%
7.1%
6.2%
6.2%
5.7%
5.7%
0% 20% 40% 60% 80% 100%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
Sources: SNL Financial; Insurance Information Institute.
The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds
(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s
bond portfolio is contributing to a drop in investment income along with lower yields.
CAPITAL/CAPACITY
56
Capital Accumulation Has Multiple Impacts
Alternative Capital Impacts?
56
57
Policyholder Surplus, 2006:Q4–2015:Q2
Sources: ISO, A.M .Best.
($ Billions)
$487.1
$496.6
$512.8
$521.8
$478.5
$455.6
$437.1 $463.0 $
490.8 $511.5 $
540.7
$530.5
$544.8
$559.2
$559.1
$538.6
$550.3
$567.8
$583.5
$586.9 $607.7
$614.0
$624.4 $
653.4
$671.6
$673.9
$674.7
$672.4
$662.0
$570.7
$566.5
$505.0
$515.6
$517.9
$400
$450
$500
$550
$600
$650
$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
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
2
2007:Q3Pre-Crisis Peak
Surplus as of 6/30/15 stood at a near-record high $672.4B
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 $0.73 of NPW,close to the strongest claims-paying status in its history.
Drop due to near-record 2011 CAT losses
The P/C insurance industry entered 2015in very strong financial condition.
Source: A.M. Best, ISO, Insurance Information Institute.
“Surplus” is a measure of underwriting capacity. It is analogous to “Owners Equity” or “Net Worth” in
non-insurance organizations
($ Billions)
The Premium-to-Surplus Ratio Stood at $0.76:$1 as of6/30/15, a Near Record Low (at Least in Recent History)
Surplus as of 6/30/15 was a near-record $672.4, down 0.3% from the record $674.7 of 12/31/14 but up 53.8% ($235.3B) from the crisis trough of $437.1B at 3/31/09
(Canada) Brit Insurance Holdings NV (Netherlands) 1,880
Desjardins Financial Corp. (Canada)
State Farm's property/casualty and life insurance
operations in Canada (Canada) 1,500
TPG Capital LP The Warranty Group, Inc. (Canada) 1,500
Fosun International Ltd. (China) Caixa Seguros e Saude SGPA SA (Portugal) 1,360
Progressive Corp. ARX Holding Corp. 875
Assured Guaranty Ltd. (Bermuda) Radian Asset Assurance, Inc. 810
Mapfre S.A. (Spain)
German and Italina operations of Direct Line
Insurance Group plc (Germany/Italy) 701
Validus Holdings Ltd. (Bermuda) Western World Insurance Group, Inc. 690
ACE Ltd. (Switzerland) P&C business from Itau Seguros S.A. (Brazil) 685
Recent M&A Transactions Involving Lloyd's and Bermuda Re/Insurers
Date Acquirer TargetDeal Value
$ BillionDec 2012 Aquiline Equity Redstar 0.1Jun 2013 Enstar/Stone Point Atrium 0.2Jul 2013 Enstar/Stone Point Torus 0.7Aug 2013 Ian Beaton and Management Ark Syndicate Management 0.4Aug 2013 Lancashire Cathedral 0.4Aug 2013 AmTrust Sagicor 0.1Sep 2013 ANV Jubilee Managing Agency N/ADec 2013 Sompo Canopius 1.0Feb 2014 Qatar Insurance Company Antares 0.2Jul 2014 BTG Pactual Ariel Re 0.4Nov 2014 RenaissanceRe Platinum Underwriters 1.9
Dec 2014 XL Group Catlin 4.1Jan 2015 PartnerRe AXIS 11.0*Feb 2015 Fairfax Financial Holdings Brit 1.9
*Deal was not complete as of 6/4/15 and a rival bid from Italian investment firm Exor was still under consideration.
Source: Swiss Re sigma 3/2015; Insurance information Institute.
74
What’s Driving Global Insurance M&A Activity and Will It Continue?
Excess Capital in Global Reinsurance and Primary Commercial Insurance in US
(Re)Insurers, like corporations in many industry, are sitting are large amounts of cash accumulated since the Global Financial Crisis that earns very little
Alternative Capital
Slow Top Line (Premium) Growth
Slowdown in Pace of Earnings Growth/ROE
Low Interest Rates Make Debt Financing for Acquisitions Attractive
Concern that interest rates in US may soon rise so best to act now
Desire to Achieve Economies of Scale
Peer Pressure/Momentum
Management concerns about being “left out”
75
Growth
Premium Growth Rates Vary Tremendously by State and
Over Time, But…
75
76
-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
12
13
14
15*
Net Premium Growth (All P/C Lines): Annual Change, 1971—2015:H1
(Percent)
1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014-15).
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.
2015:H1: 4.1%
2014: 4.1%
2013: 4.4%
2012: +4.2%
-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
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
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:
2010: -4.9%
ROE
2015E 4.1%
NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926 – 2015E
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?
78
Direct Premiums Written: Total P/CPercent Change by State, 2007-2014
70
.7
36
.7
36
.2
30
.3
29
.4
26
.8
24
.7
23
.7
21
.6
20
.7
19
.2
19
.2
18
.6
18
.1
18
.0
17
.0
15
.2
15
.1
15
.0
14
.9
14
.8
14
.7
14
.4
14
.2
13
.8
13
.5
0
10
20
30
40
50
60
70
80
ND
OK
SD
TX
NE
KS IA VT
WY
CO
MN IN MI
TN
AR
WI
GA
SC
NJ
OH
AK
KY
VA
LA
CT
MT
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 StatesNorth Dakota was the country’s growth leader over the past 7 years with premiums written
expanding by 70.7%, fueled by the state’s energy boom
Growth Benchmarks: Total P/C
US: 13.0%
79
Direct Premiums Written: Total P/CPercent Change by State, 2007-2014
13
.4
13
.1
13
.1
13
.0
13
.0
12
.9
12
.4
12
.2
11
.7
11
.0
10
.5
9.4
9.4
9.2
9.1
8.2
6.3
6.0
4.7
2.2
1.3
-0.8
-1.6
-4.3
-7.3
-12
.9
-15
-10
-5
0
5
10
15
MO
NY
UT
US
NM
MS
MA
AL
NC
MD
WA RI
NH IL PA ID
ME
CA
OR FL
AZ
DC HI
WV
NV
DE
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 4 states and DC between
2007 and 2014
Florida experienced almost no net growth
between 2007 and 2014
80
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014
80
.4
36
.8
33
.3
29
.4
24
.8
22
.5
21
.0
20
.6
15
.2
14
.6
13
.9
11
.8
10
.3
8.7
8.5
8.4
8.0
7.9
7.6
7.1
6.6
5.9
5.9
5.8
5.4
4.5
0
10
20
30
40
50
60
70
80
90
ND
SD
VT
OK
NE IA
KS
TX
WY
AK IN
MN WI
MA
AR
CT
NY
NJ
CO
NM
OH LA
US
MS
NH
MO
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
43 states showed commercial lines growth from 2007
through 2014
Growth Benchmarks: Commercial
US: 5.9%
81
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014
4.5
4.4
4.2
4.1
3.9
3.8
3.7
3.3
3.3
3.2
3.1
2.8
2.8
2.2
2.1
1.4
0.9
-1.3
-3.2
-5.3
-6.5
-6.9
-9.2
-10
.7
-19
.9
-22
.2
-25
-20
-15
-10
-5
0
5
10
MI
TN
MD
MT
CA RI
WA
GA
PA
UT IL
KY
VA
NC
ME
SC ID AL
DC HI
FL
OR AZ
DE
NV
WV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
Commercial lines premium volumes in
FL will likely note return to pre-crisis
levels until 2016
Nearly half the states have yet to see commercial lines premium
volume return to pre-crisis levels
82
Direct Premiums Written: Workers’ CompPercent Change by State, 2007-2014*
35
.1
27
.1
27
.1
24
.4
22
.3
20
.6
18
.7
14
.6
11
.7
9.4
7.5
7.1
6.7
4.2
3.9
3.8
2.7
1.7
0.5
0.1
0.1
0.0
-1.1
-1.1
-1.3
-5
0
5
10
15
20
25
30
35
40
IA CA
SD
NY
OK
NJ
CT
KS
NE MI
MS IN
MN
US
NM TX WI
IL
CO
GA
VA
NH
PA RI
MD
Pe
ce
nt
ch
an
ge
(%
)
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Only 21 states have seen works comp premium volume
return to pre-crisis levels
83
Direct Premiums Written: Worker’s CompPercent Change by State, 2007-2014*
-2.6
-2.9
-3.6
-4.8
-6.0
-8.5
-9.1
-9.2
-9.2
-11
.7
-12
.2
-13
.5
-14
.4
-17
.1
-17
.9
-19
.4
-19
.5
-23
.4
-25
.2
-29
.5
-30
.3
-34
.9
-80-75-70-65-60-55-50-45-40-35-30-25-20-15-10-50
VT
DC
MA ID NC AZ
MO LA
TN
AR
SC
ME
AK
AL
FL
KY
UT
MT HI
DE
OR
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
States with the poorest performing economies also produced some of the most
negative net change in premiums of the past 7 years
Florida’s construction dependent economy was
devastated when the housing bubble collapsed, causing payrolls and WC
premium volumes to plunge
84
Pricing Trends
Survey Results Suggest Commercial Pricing Has
Flattened Out but Personal Lines Are Up
84
Commercial Lines Rate Change by Month (vs. Year Earlier), July 2001 – Sep. 2015
Jul-02, 33%
Feb-05, 0%
Dec-07, -16%
Oct-11, 0%
Sep-13, 5%
Dec-14, 0%
Jul-15, 1%
-20%
-10%
0%
10%
20%
30%
40%
Jul-
01
Dec-0
1
May-0
2
Oct-
02
Mar-
03
Aug-0
3
Jan-0
4
Jun-0
4
Nov-0
4
Apr-
05
Sep-0
5
Feb-0
6
Jul-
06
Dec-0
6
May-0
7
Oct-
07
Mar-
08
Aug-0
8
Jan-0
9
Jun-0
9
Nov-0
9
Apr-
10
Sep-1
0
Feb-1
1
Jul-
11
Dec-1
1
May-1
2
Oct-
12
Mar-
13
Aug-1
3
Jan-1
4
Jun-1
4
Nov-1
4
Apr-
15
Sep-1
5
79 Months of Rates < 0%
85
SOURCE: MarketScout, Insurance Information Institute.
Commercial Insurance Rate Changes Are Fairly Stable
Not Much of A Hard Market,
By Historic Standards
Sept. 2015:
-1.5%
86
CIAB: Average Commercial Rate Change, All Lines, (1Q:2004–2Q:2015)
-3.2
%-5
.9%
-7.0
%-9
.4%
-9.7
% -8.2
%-4
.6% -2
.7%
-3.0
%-5
.3%
-9.6
%-1
1.3
%-1
1.8
%-1
3.3
%-1
2.0
%-1
3.5
%-1
2.9
%-1
1.0
%-6
.4%
-5.1
%-4
.9%
-5.8
%-5
.6%
-5.3
%-6
.4%
-5.2
%-5
.4% -2
.9%
2.7
% 4.4
%4
.3%
3.9
% 5.0
%5
.2%
4.3
%3
.4%
2.1
%1
.5%
-0.5
%0
.1%
-0.7
%-1
.5%
-2.5
%
-0.1
%0
.9%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
1Q
15
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Pricing as of Q2:2015 had remained (slightly) negative
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
87
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2015:Q1
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Percentage Change (%)
Peak = 2001:Q4 +28.5%
KRW : No Lasting Impact
Pricing turned positive in
Q3:2011, the first increase in nearly 8 years
Trough = 2007:Q3 -13.6%
Pricing Turned Negative in Early
2004 and Remained that
way for 7 ½ years
Rate trends are roughly flat, some carriers
reporting small gains, others flat, others small
declines
88
Change in Commercial Rate Renewals, by Line: 2015:Q2
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewals Were Mixed to Flat in Q2:2015; EPL, D&O and Commercial Auto Led the Way
Percentage Change (%)
-0.2%
0.5% 0.7%
1.5%
-5.4%
-3.0%-2.7% -2.6%
-2.0% -1.9%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
Co
mm
erc
ial
Pro
pe
rty
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Bu
sin
ess
Inte
rru
ptio
n
Co
nstr
uctio
n
Wo
rke
rs
Co
mp
Su
rety
Co
mm
erc
ial
Au
to D&
O
EP
L
Employment Practices rate increases are large
than any other line, followed by D&O and
Commercial Auto
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
89
How the Risk Dollar is Spent (U.S. Firms with Revenues Under $1 Bill)
Total Property Premiums, 21%
Property Retained Losses, 1%
Total Liability Premium, 19%
Liability Retained Losses, 4%
Total Management Liability Costs, 6%
Total Workers Comp. Premiums, 10%
Workers Comp Retained Losses, 9%
Total Professional Liability Costs, 9%
Total Med. Mal. Costs, 10%
Total Marine and Aviation Costs, 4%
Total Administrative Costs, 6%
Total Fidelity, Surety & Crime Costs, 1%
Source: 2015 RIMS Benchmark Survey; Insurance Information Institute.
90
Monthly Change in Auto Insurance Prices, 1991–2015*
*Percentage change from same month in prior year; through July 2015; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
FL Citizens exposure to loss is down 66% ($337.3B) from its
2011 peak)
A lack of major hurricanes, ample private sector/reinsurer capital and capital market interest—combined with structural changes to Citizens—have combined to take Citizens policy count and exposure to their lowest levels in many years
A lack of major hurricanes, ample private sector/reinsurer capital and capital market interest—combined with structural changes to Citizens—have combined to take Citizens policy count and exposure to their lowest levels in many years
The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Will Likely Be Reversed Based on
Evidence from Past Recoveries
*2015 figure is for the 4 quarters ending with 2015:Q2.
Source: ISO/PCI Fast Track data; Insurance Information Institute
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
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.4
10
7.9
10
3.5
94
.8
94
.3
98
.3 99
.210
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
F
16
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.
Source: A.M. Best (1990-2014); Conning (2015-16F) Insurance Information Institute.
Commercial Lines Combined Ratio, 1990-2016F*
Commercial lines underwriting performance improved in 2013/14 but higher cats, diminishing prior year reserves and rising loss cost trends in some lines could push
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 (2010-2014P) and are for private carriers only; Insurance Information Institute.105
Commercial Multi-Peril Underwriting Performance is Expected to Remains Stable in 2015 Assuming Normal
Catastrophe Loss Activity
*2015F-2016F figures are Conning figures for the combined liability and non-liability components.Sources: A.M. Best; Conning; Insurance Information Institute.
106
Inland Marine Combined Ratio: 2004–2015F
82
.5
89
.9
77
.3 79
.5
97
.1
96
.1
83
.7
83
.3
82
.2
93
.3
89
.3
86
.2
70
75
80
85
90
95
100
04 05 06 07 08 09 10 11 12 13 14E 15F
Inland Marine Underwriting Performance Has Been Consistently Strong for Many Years
Source: A.M. Best (2004-2014E); Conning Research and Consulting (2015F).107
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.
2013/14 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster Losses in US History. Longer-term Trend is for
more—not fewer—Costly Events
2012 was the 3rd most expensive year ever for
insured CAT losses
$11.0B in insured CAT losses though
9/30/15
($ Billions, $ 2014)
109
US Insured CAT Losses Through Q3to Date: 30 Events =$11 Billion in Claims
Source: PCS; Insurance information Institute.
Top 10 Insured CAT Losses Through 2015 Q3: 30 Events = $11 Bill. in Claims
Source: PCS; Insurance information Institute.
Top 10 Largest NFIP Flood Claim Payout Events
Source: NFIP; Insurance information Institute http://www.iii.org/issue-update/flood-insurance
Sources: CA Earthquake (WSJ, http://www.wsj.com/articles/california-pushes-homeowners-to-insure-against-earthquakes-1440980138 ); Flood and Renters (I.I.I. June 2015 Pulse Survey); Cyber (Advisen, 2015); Terrorism (Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014; data for 2013); Pvt. Passenger Auto (Insurance Research Council, Uninsured Motorists, 2014 Edition, data for 2012); Home and Workers Comp (I.I.I. estimates); Insurance Information Institute research.
Take-Up Rates for Various Types of Insurance in the U.S.
Top 16 Most Costly Disastersin U.S. History—Katrina Still Ranks #1
(Insured Losses, 2014 Dollars, $ Billions)
$8.1 $9.0 $9.4 $11.4$13.8
$19.3
$24.6 $25.3$26.4
$50.2
$7.7$7.3$6.9$5.8$5.7$4.6
$0
$10
$20
$30
$40
$50
$60
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Tornadoes/
T-Storms
(2011)
Tornadoes/
T-Storms
(2011)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
Ike
(2008)
Sandy*
(2012)
Northridge
(1994)
9/11 Attack
(2001)
Andrew
(1992)
Katrina
(2005)
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
Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.
117
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2015F*
*2010s represent 2010-2014.
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 (1960-2010); A.M. Best (2011-15E) 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
1.42
.01
.32
.00
.50
.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6
3.4
9.4
8.0
3.9 4
.4 4.9
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
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
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
2015 insured winter storm losses totaled $2.3B, similar to 2014 and about double the
long-run average
Three of the four most costly years ever for insured losses from winter storms and
damage occurred in the 1990s, led by the “Storm of the Century” in 1993.
5-year running average
Winter Storm and Winter Damage Events in the US, 1980-2015 (2014 US$)
Natural Disaster Losses in the U.S.,First Half 2015
As of July 1, 2015
Number
of
Events Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)*
Severe Thunderstorm 38 66 7,000 5,100
Winter Storms & Cold Waves 11 80 3,800 2,900
Flood, Flash Flood 10 4 500 150
Earthquake & Geophysical 1 - - -
Tropical Cyclone 2 4 Loss est. in progress Loss est. in progress
Wildfire, Heat Waves, &
Drought18 - 1,300 Minor market loss
Totals 80 154 12,600 8,200
121
*Source: Property Claim Services (PCS) as of 7/7/2015; Munich Re.
As of January, 2015
Number of
Events Fatalities
Estimated Overall Losses
(US $m)
Estimated Insured Losses
(US $m)
Severe
Thunderstorm62 98 17,000 12,300
Winter Storm, winter
damage, cold wave,
snow storm
13 115 3,700 2,300
Flood, flash flood, storm
surge20 5 1,800 500
Earthquake &
Geophysical, landslides11 45 750 150
Tropical Cyclone 2 1 95 Minor market losses
Wildfire, Heat, & Drought 11 2 1,700 Minor market losses
Totals 119 266 25,000 15,300
122
Natural Disaster Losses in the US, 2014Based on perils
Source: Munich Re.
123
The World is Warmer...With One Big Exception!
HIGHLIGHTS
• 2014 was the warmest year
across global land and
ocean surfaces since
records began in 1880.
• 9 of the 10 warmest years in
the 135-year period of
record have occurred in the
21st century. 1998 currently
ranks as the fourth warmest
year on record.
• January to May 2015
warmest first five months on
record!
Source: NOAA; Munich Re.
124
Top 11 Insured Loss Events from Riots and Civil Commotion
*As of 6/10/15.
Source: PCS unit of Verisk Analytics; Insurance Information Institute
Year Deaths Date StateInsured Loss When
Occurred
Insured Losses
(2014 $MM)
1992 14 Apr 29 - May 4 CA 775,000,000 1,307.7
1980 62 May 17 - 19 FL 65,250,000 187.5
1967 48 Jul 23 - 31 MI 41,500,000 294.2
1965 87 11-Aug CA 38,000,000 285.6
1977 99 Jul 13 - 14 NY 28,000,000 109.4
1967 47 Jul 12 - 21 NJ 11,000,000 78.0
1966 20 12-Jul IL 4,000,000 29.2
2015 0 Apr 18 – May 1 MD 23,900,000 23.9*
1971 63 Jun 13 - 15 NM 3,000,000 17.5
1977 11 Jul 13 - 14 NY 2,000,000 7.8
1968 77 Jul 23 - 24 OH 1,500,000 10.2April 2015 Baltimore riots were designated a PCS CAT event on April 29 (first PCS designation for a riot in 23 years) as of 6/10/15 insured losses
totaled $23.9 million (2014 Ferguson riots did not receive PCS designation)
125
Insurance Coverage for Riots and Civil Commotions: Home, Auto and Business Auto, homeowners, and business insurance policies generally include
coverage for property losses caused by riots and civil commotions
Homeowners policies pay to repair, or rebuild, an insured home if its structure is damaged or destroyed as the result of a riot or civil commotion, as well as to replace the homeowner’s personal belongings if they are damaged or stolen during the event.
If the home is rendered uninhabitable by the damage caused by a riot or civil commotion, policyholders can file an additional living expenses (ALE) claim to finance their temp. housing expenses until the residence has been repaired.
The optional comprehensive coverage on an auto insurance policy reimburses losses to a vehicle due to damage caused by falling objects, fire, riots and vandalism, among other things.
Standard business property insurance policies provide coverage for the structure of the building as well as the contents inside, and cover losses arising from riots or civil commotion. Business interruption (BI) coverage, whereby the policyholder can file a claim for lost income, is usually only triggered when the insured business incurs direct physical damage.
Source: Insurance Information Institute, www.iii.org .
FL RI LA CA MA KS CT OK SC DE OR NJ IA TX NC MO DC MS AR NH ID MD CO NE IL
Ha
za
rd R
isk
Sc
ore
Note: Score is based on data on 9 natural hazards: flood, wildfire, tornado, storm surge, earthquake, straight-line wind, hurricane, wind, hail and sinkhole.
*Analysis Includes DC. Excludes Alaska and Hawaii due to limited natural hazard risk data.
Sources: CoreLogic release “CoreLogic Identifies US States at Highest Risk of Property Damage Loss from Natural Hazards,” Sept. 10, 2014; Insurance Information Institute.
Florida received the highest Natural Hazard
Risk Score
133
Natural Hazard Risk Scores, 2014Bottom 24 States*
50
.7
50
.6
50
.1
49
.4
47
.3
46
.5
45
.2
43
.8
42
.8
42
.4
42
.3
38
.5
38
.2
37
.9
36
.4
34
.5
31
.5
30
.2
28
.8
28
.3
27
.5
25
.0
20
.7
20
.2
0
10
20
30
40
50
60
IN GA NV AL KY TN UT NM AZ VA WA WI SD MT MN OH ME WY PA VT ND NY WV MI
Ha
za
rd R
isk
Sc
ore
Note: Score is based on data on 9 natural hazards: flood, wildfire, tornado, storm surge, earthquake, straight-line wind, hurricane, wind, hail and sinkhole.
*Analysis Includes DC. Excludes Alaska and Hawaii due to limited natural hazard risk data.
Sources: CoreLogic release “CoreLogic Identifies US States at Highest Risk of Property Damage Loss from Natural Hazards,” Sept. 10, 2014; Insurance Information Institute.
Michigan and West Virginia received the lowest Natural
Hazard Risk Score
Workers Compensation Operating Environment
134
Workers Comp Results Have Improved Substantially in Recent Years
134
135
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2015:Q1
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,500
$7,7500
5:Q
1
05
:Q2
05
:Q3
05
:Q4
06
:Q1
06
:Q2
06
:Q3
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
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
Prior Peak was 2008:Q3 at $6.54 trillion
Recent trough (2009:Q1) was $6.23 trillion, down
5.3% from prior peak
Growth rates2011:Q1 over 2010:Q1: 5.5%2012:Q1 over 2011:Q1: 4.2%2013:Q1 over 2012:Q1: 2.5%2014:Q1 over 2013:Q1: 4.3%2015:Q1 over 2014:Q1: 4.4%
135
Latest (2015:Q1) was $7.66 trillion, a new peak--$1.34 trillion above 2009 trough
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 (2010-2014P) and are for private carriers only; Insurance Information Institute.137
WC results have improved markedly
since 2011
Workers Compensation Premium: Fourth Consecutive Year of IncreaseNet Written Premium
WC Medical Severity Generally Outpaces the Medical CPI Rate
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average annual increase in WC medical severity from 1995 through 2014 was well above the medical CPI (6.4% vs. 3.7%), but the gap has narrowing. Lost-time medical
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend Has Greatly Improved
162
163
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 5.1% in Sep. 2015. 4.5% to
5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through September 2015, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is continuing to improve.
163
U-6 soared from 8.0% in March
2007 to 17.5% in October 2009; Stood at 10.0% in Sept. 2015.8% to 10% is
“normal.”
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
8
19
29
4 11
01
20
11
71
07
19
91
49
94
72
22
32
313
20
16
61
86
21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
82
22
20
11
70
18
01
53
24
72
72
86
18
31
75 22
33
13
23
82
72
24
32
09
23
52
18
41
43
19
20
2 26
11
17 1
89 2
52
21
81
95
10
01
18
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan-0
7F
eb-0
7M
ar-
07
Apr-
07
May-
Jun-0
7Jul-07
Aug-
Sep-
Oct-
07
Nov-
Dec-
Jan-0
8F
eb-0
8M
ar-
08
Apr-
08
May-
Jun-0
8Jul-08
Aug-
Sep-
Oct-
08
Nov-
Dec-
Jan-0
9F
eb-0
9M
ar-
09
Apr-
09
May-
Jun-0
9Jul-09
Aug-
Sep-
Oct-
09
Nov-
Dec-
Jan-1
0F
eb-1
0M
ar-
10
Apr-
10
May-
Jun-1
0Jul-10
Aug-
Sep-
Oct-
10
Nov-
Dec-
Jan-1
1F
eb-1
1M
ar-
11
Apr-
11
May-
Jun-1
1Jul-11
Aug-
Sep-
Oct-
11
Nov-
Dec-
Jan-1
2F
eb-1
2M
ar-
12
Apr-
12
May-
Jun-1
2Jul-12
Aug-
Sep-
Oct-
12
Nov-
Dec-
Jan-1
3F
eb-1
3M
ar-
13
Apr-
13
May-
Jun-1
3Jul-13
Aug-
Sep-
Oct-
13
Nov-
Dec-
Jan-1
4F
eb-1
4M
ar-
14
Apr-
14
May-
Jun-1
4Jul-14
Aug-
Sep-
Oct-
14
Nov-
Dec-
Jan-1
5F
eb-1
5M
ar-
15
Apr-
15
May-
Jun-1
5Jul-15
Aug-
Sep-
Monthly Change in Private Employment
January 2007 through Sept. 2015 (000s, Seasonally Adj.)
Private Employers Added 13.03 Million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar.
09 were the largest in the post-WW II
period
118,000 private sector jobs were created in Sept.
164
Jobs Created
2014: 3.042 Mill
2013: 2.452 Mill
2012: 2.315 Mill
2011: 2.396 Mill
2010: 1.282 Mill
3,042,000 jobs were created in 2014, the most since 1997
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (10/15 edition); Insurance Information Institute.
2007:Q1 to 2016:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 5.0% by Q4 of 2015.
Jobless figures have been revised
downwards for 2015/16
166
Unemployment Rates by State, September 2015:Highest 25 States*
7.3
6.8
6.7
6.7
6.4
6.3
6.2
6.1
6.0
6.0
5.9
5.8
5.8
5.7
5.7
5.6
5.4
5.4
5.3
5.3
5.2
5.2
5.2
5.2
5.1
5.1
5.1
0
2
4
6
8
WV NM DC NV AK AZ OR MS AL LA CA GA NC SC TN NJ IL RI MO PA AR CT FL WA MD NY US
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for September 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In September, 37 states and the District of Columbia had over-the-month unemployment rate decreases, 6 states had increases, and 7 states had no change.
In
167
5.1
5.0
5.0
4.9
4.6
4.5
4.5
4.4
4.4
4.4
4.3
4.3
4.2
4.2
4.1
4.0
4.0
3.8
3.7
3.6
3.6
3.5
3.4
3.4
2.9
2.8
0
1
2
3
4
5
6
US KY MI DE MA IN OH KS ME OK VA WI ID TX MT CO WY MN VT IA UT SD HI NH NE ND
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, September 2015:
Lowest 25 States*
*Provisional figures for September 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In September, 37 states and the District of Columbia had over-the-month unemployment rate decreases, 6 states had increases, and 7 states had no change.
CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK
168
The Construction Sector Is Critical to the Economy and the P/C Insurance Industry
168
169
Value of New Private Construction: Residential & Nonresidential, 2003-2015*
Billions of Dollars
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
03 04 05 06 07 08 09 10 11 12 13 14 15*
Non Residential
Residential
Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates
$298.1
$15.0
$613.7
New Construction peaks at $911.8. in 2006
Trough in 2010 at $500.6B,
after plunging 55.1% ($411.2B)
2015: Value of new pvt. construction hits $788.0B as of
Aug. 2015, up 57.5% from the 2010 trough but still 13.5% below
2006 peak
169
$261.8
$238.8
$404.7
$383.3
*2015 figure is a seasonally adjusted annual rate as of August.
Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
*January through April 2015; April is preliminary; calculations based on seasonally adjusted at annual ratesSources: U.S. Census Bureau, New Residential Construction in April 2015 and earlier releases; next release June 16, 2015; Insurance Information Institute calculations.
For the U.S. as a whole, the trend toward multi-unit housing projects (vs. single-unit homes) is recent. Commercial insurers with Workers Comp,
Construction risk exposure, and Surety benefit.
A NEW NORMAL?In 5 of the last 7 years, over 30% of housing
unit starts were in 5+-unit projects
178
Rental-Occupied Housing Units as % of Total Occupied Units, Quarterly, 1990:Q1-2015:Q1
30%
31%
32%
33%
34%
35%
36%
37%
90
:Q1
91
:Q1
92
:Q1
93
:Q1
94
:Q1
95
:Q1
96
:Q1
97
:Q1
98
:Q1
99
:Q1
00
:Q1
01
:Q1
02
:Q1
03
:Q1
04
:Q1
05
:Q1
06
:Q1
07
:Q1
08
:Q1
09
:Q1
10
:Q1
11
:Q1
12
:Q1
13
:Q1
14
:Q1
15
:Q1
Sources: US Census Bureau, Residential Vacancies & Home Ownership in the First Quarter of 2015 (released April 28, 2015) and earlier issues; Insurance Information Institute. Next Census Bureau report to be released on July 28, 2015.
Trough in 2004:Q2 and Q4 at 30.8%
Since the Great Recession ended in June 2009, renters occupied 5.7 million more units (+15.6%).
178
Latest was 36.3% in 2015:Q1
Trend down began in 1994:Q3 from
36.2% in Q2
Increasing percent of
owners
Increasing percent of
renters
179
I.I.I. Poll: Renter’s Insurance
Source: Insurance Information Institute Annual Pulse Survey.
29% 31%35%
37%40%
10%
20%
30%
40%
50%
60%
70%
2011 2012 2013 2014 2015
The Percentage of Renters Who Have Renters Insurance Has Been Rising Since 2011.
Q. Do you have renters insurance? 1
1Asked of those who rent their home.
Americans are increasingly choosing to rent, but are slow to understand the
need to insure, exacerbating the underinsurance gap
180
Rental Vacancy Rates, Quarterly,1990:Q1-2015:Q1
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
90
:Q1
91
:Q1
92
:Q1
93
:Q1
94
:Q1
95
:Q1
96
:Q1
97
:Q1
98
:Q1
99
:Q1
00
:Q1
01
:Q1
02
:Q1
03
:Q1
04
:Q1
05
:Q1
06
:Q1
07
:Q1
08
:Q1
09
:Q1
10
:Q1
11
:Q1
12
:Q1
13
:Q1
14
:Q1
15
:Q1
Sources: US Census Bureau, Residential Vacancies & Home Ownership in the First Quarter of 2015 (released April 28, 2015) and earlier issues; Insurance Information Institute. Next Census Bureau report to be released on July 28, 2015.
Peak vacancy rate 11.1% in
2009:Q3
Before the 2001 recession, rental vacancy rates were 8% or less.We’re below those levels now. => More multi-unit construction?
180
Percent vacant
Latest vacancy rate was 7.1%
in 2015:Q1
Vacancy rate 10.4% in 2004:Q1
ENERGY SECTOR: OIL & GAS INDUSTRY FUTURE IS BRIGHT
BUT VOLATILE
181
US Is Becoming an Energy Powerhouse but Fall in Prices
Will Have Negative Impact
181
5.19 5.08 5.005.35 5.47 5.65
6.49
7.44
8.679.31 9.53
5.09
0
2
4
6
8
10
12
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015F
2016F
U.S. Crude Oil Production, 2005-2016P
Source: Energy Information Administration, Short-Term Energy Outlook (January 15, 2015) , Insurance Information Institute.
Millions of Barrels per Day
Crude oil production in the U.S. is expected to increase by 90.6% from 2008 through 2016—and could overtake
Saudi Arabia as the world’s largest oil producer
20.2 19.9 20.019.5
18.919.4
20.221.1
21.622.4
24.0
25.3 25.6
20.6
10
12
14
16
18
20
22
24
26
28
00 01 02 03 04 05 06 07 08 09 10 11 12 13
U.S. Natural Gas Production, 2000-2013
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
Trillions of Cubic Ft. per Year
The U.S. is already the world’s largest natural gas producer—
recently overtaking Russia. This is a potent driver of commercial
insurance exposures
184
Employment in Oil & Gas Extraction,Jan. 2010—Sept. 2015*
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.7
157.6
158.7
158.1
158.4
159.7
160.2
161.5
161.4
161.0
162.7
164.3
166.6 169.2
170.1
171.2
172.6
174.0 176.6
178.2
178.7
180.6
181.3
182.3
184.7
185.2
186.2
187.8
188.6
189.3
189.4
189.4
190.5
192.2
193.1
194.6
194.0
193.8
193.1
192.5
193.0
193.4
193.3
193.1
194.0
194.0
194.0
195.4
193.7
194.6
196.4
197.6
198.6
198.4
199.4
201.5
201.0
201.2
199.4
197.6
197.7
194.4
194.2
193.2
193.6
192.1
191.0
150
160
170
180
190
200
210
Ma
r-10
Ma
y-1
0
Ju
l-1
0
Se
p-1
0
Nov-1
0
Ja
n-1
1
Ma
r-11
Ma
y-1
1
Ju
l-1
1
Se
p-1
1
Nov-1
1
Ja
n-1
2
Ma
r-12
Ma
y-1
2
Ju
l-1
2
Se
p-1
2
Nov-1
2
Ja
n-1
3
Ma
r-13
Ma
y-1
3
Ju
l-1
3
Se
p-1
3
Nov-1
3
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Se
p-1
4
Nov-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Se
p-1
5
Oil and gas extraction employment was up
28.8% by Oct. 2014 but falling energy prices have taken their toll
Manufacturing Growth for Selected Sectors, 2015 vs. 2014*
-0.5%
2.0%
-2.2%
6.3%
-9.7%
2.3%
-34.0%
-4.1%-2.4%
8.8%
-3.7%
3.0%
9.7%
0.1%3.1%
-40%-35%-30%-25%-20%-15%-10%
-5%0%5%
10%15%
All
Ma
nu
factu
rin
g
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ry
Me
tals
Fa
bri
ca
ted
Me
tals
Ma
ch
ine
ry
Ele
ctr
ica
l
Eq
uip
.
Co
mp
ute
rs &
Ele
ctr
on
ics
Tra
nsp
ort
atio
n
Eq
uip
.
No
n-D
ura
ble
Mfg
.
Fo
od
Pro
du
cts
Pe
tro
leu
m &
Co
al
Ch
em
ica
l
Pla
stics &
Ru
bb
er
Te
xtile
Pro
du
cts
Manufacturing Is Expanding in Many Sectors But Declining Energy Prices Are Dragging Down Industry Figures. Continued Gortwh Across a Number of
Sectors that Will Contribute to Growth in Insurable Exposures Including: WC, Commercial Property, Commercial Auto and Many Liability Coverages
Growth (%)
Manufacturing of durable goods is stronger than
nondurables in 2015
*Seasonally adjusted; Date are YTD comparing data through February 2015 to the same period in 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/15); Insurance Information Institute.
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is
still below 1999-2007 average of 17 million units, but a robust recovery is well underway.
Job growth and improved credit market conditions will boost auto sales in
2014 and beyond
Truck, SUV purchases by
contractors are especially strong
Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. New vehicles will generate more physical damage insurance coverage but will be more expensive to
repair. PP Auto premium might grow by 5% - 6%.
Sales have returned to pre-
crisis levels
189
Manufacturing Employment,Jan. 2010—Sept. 2015*
11,4
60
11,4
60
11,4
66
11,4
97
11,5
31
11,5
39
11,5
58
11,5
48
11,5
54
11,5
55
11,5
77
11,5
90
11,6
24
11,6
62
11,6
82
11,7
07
11,7
15
11,7
24
11,7
47
11,7
60
11,7
62
11,7
70
11,7
69
11,7
97
11,8
34
11,8
57
11,8
99
11,9
16
11,9
30
11,9
41
11,9
65
11,9
61
11,9
48
11,9
51
11,9
47
11,9
61
11,9
80
12,0
02
12,0
06
12,0
06
12,0
07
12,0
05
11,9
83
12,0
11
12,0
22
12,0
40
12,0
72
12,0
86
12,1
02
12,1
22
12,1
31
12,1
42
12,1
54
12,1
77
12,1
91
12,2
05
12,2
14
12,2
37
12,2
82
12,3
01
12,3
18
12,3
21
12,3
27
12,3
27
12,3
33
12,3
34
12,3
45
12,3
27
12,3
18
11,250
11,500
11,750
12,000
12,250
12,500
Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-1
0A
ug
-10
Se
p-1
0O
ct-
10
No
v-1
0D
ec-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-1
1A
ug
-11
Se
p-1
1O
ct-
11
No
v-1
1D
ec-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3Ju
n-1
3Ju
l-1
3A
ug
-13
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb
-14
Ma
r-1
4A
pr-
14
Ma
y-1
4Ju
n-1
4Ju
l-1
4A
ug
-14
Se
p-1
4O
ct-
14
No
v-1
4D
ec-1
4Ja
n-1
5F
eb
-15
Ma
r-1
5A
pr-
15
Ma
y-1
5Ju
n-1
5Ju
l-1
5A
ug
-15
Se
p-1
5
Manufacturing employment has been a surprising source of strength in the economy. Employment was at a multi-year high until recently.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands) Since Jan 2010, manufacturing employment is up (+858,000 or +7.5%) but has slipped in recent months as economies abroad weaken, hurting
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—March 2015
* Seasonally adjusted; Data published May 4, 2015.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments in March 2015 are similar to pre-crisis (July 2008) peak but has declined in recent months due to the strong US dollar and weakness abroad.
Manufacturing is energy-intensive and growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
$ Millions
190
The value of Manufacturing Shipments in March 2015 was $482.2B—down 5.1% since the
Index of Total Industrial Production:*A Near Peak as of December 2014
*Monthly, seasonally adjusted, through December 2014 (which is preliminary). Index based on year 2007 = 100
Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institute.
Peak at 100.82 in December 2007 (officially the 1st
month of the Great Recession)
Insurance exposures for industrial production will continue growing in 2015, and commercial insurance premium volume with them. Y-o-Y growth to December 2014
was 4.6%. Both production and premium volume growth for 2015 should exceed this.
Index of Total Industrial Production:*Strong Dollar Is a Headwind
*Monthly, seasonally adjusted, through March 2015 (which is preliminary). Index based on year 2007 = 100
Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institute.
Peak at 100.82 in December 2007 (officially the 1st
month of the Great Recession)
Insurance exposures for industrial production will continue growing in 2015, and commercial insurance premium volume with them. Y-o-y growth to December 2014
was 4.6%. Both production and premium volume growth for 2015 should exceed this.
The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million records. Through June 30, this year has
seen 117.6 million records exposed in 400 breaches.*
Millions
High Profile Data Breaches, 2014-2015
Date Company Description of Breach
May 2015 OPM Hackers broke into U.S. Government Personnel Office stealing personal identifying information of as many as 14 million civilian U.S. government employees.
Mar 2015 Premera Blue Cross Data breach compromises financial and medical records of 11 million customers.
Feb 2015 Anthem, Inc Massive data breach after hackers gained access to corporate data base containing personal information of as many as 80 million current and former U.S. customers and employees.
Dec 2014 Sony Pictures Entertainment
Hacker break-in involving theft of unreleased motion pictures, and theft of more than 25 gigabytes of sensitive data on tens of thousands of Sony employees, including social security numbers, medical and salary information.
Nov 2014 Staples Point-of-sale (POS) malware attack and breach exposing customer data, and resulting in compromise of 1.2 million records.
Sept 2014 Home Depot Huge data breach exposes 56 million credit and debit cards and 53 million email addresses.
Aug 2014 Community Health Systems
Cyber attack originating in China resulted in data breach, compromising 4.5 million patient
records. Hackers broke into company’s computer system by exploiting Heartbleed bug.
June/July 2014
JP Morgan Chase Massive data breach compromised data associated with 76 million household and 7 million small business accounts. Hackers obtained personal identifying nformation.
June 2014 PF Changs Security breach affected customers at 33 restaurants located in 16 states, with potential credit and debit card data stolen.
May 2014 eBay Massive data breach exposed records of site’s 233 million customers, including names, email addresses, physical addresses, phone numbers and birthdates.
Feb 2014 Michaels Stores Possible fraudulent activity on some U.S. payment cards used at Michaels stores suggests it may have experienced data security attack, exposing 2.6 million records.
Jan 2014 Snapchat Security breach compromises phone numbers and usernames for 4.6 million accounts.
Jan 2014 Neiman Marcus Hacker break-in exposed unknown no. of customer cards, compromising est. 1.1 million records.
Nov/Dec 2013
Target Malware stored on Target’s checkout registers led to theft of data from about 40 million credit
and debit card accounts and the personal information of up to 70 million customers.
Sources: Identity Theft Resource Center; Insurance Information Institute (I.I.I.) research.
Worldwide Cybersecurity Spending, 2011- 2016F
($ Billions)
$55.0
$60.0
$65.9
$71.1
$76.9
$83.2
7.9%8.4%8.2%
8.2%
9.8%
$50
$55
$60
$65
$70
$75
$80
$85
2011 2012 2013 2014F 2015F 2016F
0%
2%
4%
6%
8%
10%
12%
Worldwide Cybersecurity Spending % Change from Previous Year
Cybersecurity Spending Is Rising Sharply, Up by About 8%+ Annually through 2016—a Projected Increase of $12.1 Billion from 2014 to 2016
Cybersecurity spending increased by an estimated $5.2B in 2014, $5.8B in 2015 and $6.3B in 2016
Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.
197
198
Top 10 Global Business Risks for 2015
Source: Allianz Risk Barometer on Business Risks 2015
9%
11%
13%
15%
16%
17%
18%
27%
30%
46%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Theft, fraud, corruption
Political, social upheaval, war
Intensified competition
Market stagnation or decline
Loss of reputation or brand value (e.g. from social media)
Cyber crime, IT failures, espionage
Changes in legislation and regulation
Fire, explosion
Natural catastrophes
Business interruption, supply chain risk
Cyber is one of the most significant movers in this year’s Risk Barometer rankings, gaining five percentage points to move into the top 5 global business
risks for the first time.
199
2014 Data Breaches By Business Category, By Number of Breaches
5.5%
11.7%
7.3%
42.5%
33.3%
Source: Identity Theft Resource Center, http://www.idtheftcenter.org/ITRC-Surveys-Studies/2014databreaches.html
The majority of the 783 data breaches in 2014 affected business and medical/healthcare organizations, according to the Identity Theft Resource Center.
Business, 258 (33.3%)Govt/Military, 92 (11.7%)
Banking/Credit/Financial, 43 (5.5%)
Educational, 57 (7.3%)
Medical/Healthcare, 333 (42.5%)
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State sponsored groups: Foreign government sponsored
Sophisticated and well-funded
Organized cyber criminals: Traditional organized crime groups
Loosely organized global hacker crews
Hacktivists: Politically-motivated hackers
Increasing capabilities
Insiders: Easy access to sensitive information
Difficult to detect
Terrorists: Destruction of physical and digital assets
Evolving Threats: Cyber Crime and Cyber Terrorism
Source: Lewis Brisbois, Practical Strategies to Address Cyber Risk in Your Business, November 2014
201
Main Causes of Data Breach Globally
30%
29%
42%
*The most common types of malicious or criminal attacks include malware infections, criminal insiders, phishing/social engineering and SQL injection.
Source: 2014 Cost of a Data Breach Study: Global Analysis, the Ponemon Institute, sponsored by IBM, May 2014
Malicious or criminal attacks are most often the cause of data breach globally. Some 42 percent of incidents concern a malicious or criminal attack, while 30
percent concern a negligent employee or contractor (human factor).
Malicious or criminal attack*
Human error
System glitch
202
US: Most Costly Types of Cyber Crimes, Fiscal Year 2014
4%4%
6%
8%
10%
13%
14%
18%
23%
Source: 2014 Cost of Cyber Crime: United States, Ponemon Institute.
Malicious code, denial of service and web-based attacks account for more than 55 percent of the total annualized cost of cyber crime experienced by 59 U.S. companies.
Malicious code
Viruses, Worms, Trojans
Denial of service
Botnets
Malware
Malicious insiders
Stolen devices
Phishing + social engineering
Web-based attacks
203
US: External Cyber Crime Costs: Fiscal Year 2014
2%2%
18%
38%
40%
* Other costs include direct and indirect costs that could not be allocated to a main external cost category
Source: 2014 Cost of Cyber Crime: United States, Ponemon Institute.
Information theft (40%) and business disruption or lost productivity (38%) account for the majority of external costs due to cyber crime.
Information theft
Equipment damagesOther costs*
Revenue loss
Business disruption
Data/Privacy Breach:Many Potential Costs Can Be Insured
Source: Zurich Insurance; Insurance Information Institute
Data Breach Event
Costs of notifying affecting
individuals Defense and settlement
costs
Lost customers and damaged
reputation
Cyber extortion payments
Business Income Loss
Regulatory fines at home & abroad
Costs of notifying
regulatory authorities
Forensic costs to discover
cause
204
Source: Insurance Information Institute research.
The Three Basic Elements of Cyber Coverage: Prevention, Transfer, Response
Loss Prevention
Post-Breach Response
(Insurable)
Loss Transfer
(Insurance)
Cyber risk management today involves
three essential components, each designed
to reduce, mitigate or avoid loss. An
increasing number of cyber risk products
offered by insurers today provide all three.
205
206
I.I.I.’s New Cyber Risk Report (Oct. 2015): Cyber Risks Threat and Opportunity
I.I.I.’s 3rd report on cyber risk:
Cyber Risk: Threat and Opportunity
Provides information on cyber
threats and insurance market
solutions
Global cyber risk overview
Quantification of threats by
type and industry
Cyber security and cost of attacks
Cyber terrorism
Cyber liability
Insurance market for cyber riskhttp://www.iii.org/white-paper/cyber-risks-
PWC Survey: Cybercrime Costs Greater for U.S. Companies
Source: 2014 Global Economic Crime Survey, PWC.
19%
7%
8%
3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Lost $50,000 to $1
million
Lost $1 million or
more
2014Global 2014 USA
U.S. organizations are more at risk of suffering financial losses in
excess of $1 million due to cybercrime.
208
Marsh: Percentage of U.S. 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%
11%
13%
14%
17%
17%
16%
22%
45%
13%
6%Manufacturing
Communications, Media and Tech
Retail/Wholesale
Power and Utilities
Financial Institutions
Services
Hospitality and Gaming
Education
Health Care
All Industries
Take-up rate 2014* Take-up rate 2013
Ever larger numbers of insureds seek financial
protection via cyber insurance. The
percentage of U.S. companies buying cyber
insurance rose to 16 percent in 2014.
209
Marsh: 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
$22.0
$4.2
$9.9 $10.5$9.5
$11.1$10.2
$13.2
$19.7
$6.7
$23.5
$10.5$12.0
$14.9
$21.0
$4.4
$22.2
$12.8
All Industries Comms, Media
& Technology
Education Financial
Institutions
Health Care Manufacturing Power and
Utilities
Retail/Wholesale Services
Avg. 2013 Limits Avg. 2014 Limits
Average limits purchased for cyber risk rose to $12.8 million for all industries and all company sizes in 2014. Power and utility companies witnessed the sharpest
percentage increase in average limits, at 59 percent.
($ Millions)
210
Marsh: Total Limits Purchased, By Industry –Cyber Liability, Revenue $1 Billion+
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
$27.8
$40.3
$7.6
$26.4
$44.4
$31.4
$53.5
$20.8$17.6
$40.4
$35
$11.2
$41.2
$25
$57
$9
$43.7
$34.1
All Industries Comms, Media
& Technology
Education Financial
Institutions
Health Care Manufacturing Power and
Utilities
Retail/Wholesale Services
Avg. 2013 Limits Avg. 2014 Limits
Among larger companies, average cyber insurance limits purchased increased by 22 percent to $34.1 million in 2014, from $27.8 million in 2013.
($ Millions)
211
Cyber Liability: Historical Rate (price per million) Changes
4.2%
2.8%
2.3%
2.9%
2.7%
2.1%
2.7%
3.6%
14:Q1 14:Q2 14:Q3 14:Q4
Average Total Price Per Million Change
Average Primary Price Per Million Change
Cyber insurance premiums were generally volatile in 2014 due to increased frequency and severity of losses.
Average rate increases at renewal for both primary layers and total programs were lower in Q4 2014 than in Q1.
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
212
INDUSTRY DISRUPTORS
Technology, Society and the Economy Are All
Changing at a Rapid Pace
Will Insurers Keep Pace?
212
213
Technology and Insurance
213
Rapid Technological Innovations Are Impacting Many Segments of the
P/C Insurance Industry
214
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance
By 2035, it is estimated that 25% of new vehicle
sales could be fully autonomous models
Source: Boston Consulting Group.
Questions
Are auto insurers monitoring these trends?
How are they reacting?
Will Google take over the industry?
Will the number of auto insurers shrink?
How will liability shift?
215
On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance
The “On-Demand” Economy is or will impact many segments of the economy important to P/C insurers
Auto (personal and commercial)
Homeowners/Renters
Many Liability Coverages
Professional Liability
Workers Comp
Many unanswered insurance questions
Insurance solutions are increasingly available to fill the many insurance gaps that arise
216
A Few Thoughts on the Future of Auto Insurance
Global auto insurance premiums written total about $600B
~80% personal, 20% commercial
US accounts for more than 1/3 of this total (about $210B in 2014)
Innovations in automobile safety will, over time, reduced claim frequency but severities could still rise as repair costs escalate
Claim activity clearly not immune to economy
Frequency declines could lead price declines, aiding profitability
More cars, not fewer will be on highways in the US, world
Exposure (insured car years) grows even as frequency declines
Timeline for large numbers of mass produced autonomous vehicles on American highways is wildly optimistic
Mid-2030s is more likely timeframe; Transition occurring through mid-century
Tech media is enamored with anything involving Google, Apple
Auto insurance will be the largest, most important of all P/C lines for many years to come
217
Labor on Demand: Huge Implications for the US Economy, Workers & Insurers
*From publically available sources as of June 2, 2015.