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Industry Overview

Mar 19, 2016




Industry Overview. Moderator: Matthew Dolan, President OneBeacon Professional Partners Panelists: Paul F. Sherbine, Managing Director Marsh Inc. James D. Hurley, Principal Tillinghast, Towers Perrin Daryl Douglas, Hospital Claims Manager Employers Reinsurance Corporation. - PowerPoint PPT Presentation

  • Industry OverviewModerator: Matthew Dolan, PresidentOneBeacon Professional Partners

    Panelists: Paul F. Sherbine, Managing DirectorMarsh Inc.

    James D. Hurley, PrincipalTillinghast, Towers Perrin

    Daryl Douglas, Hospital Claims ManagerEmployers Reinsurance Corporation

  • 2003 U.S InsuranceIndustry Results

    Its About Time!

    Paul F. Sherbine

    March 30, 2004

  • What has the industry done since 9/11? Raised CapitalRaised RatesRaised Loss ReservesRaised Questions About its Viability

  • Net Result 2002* vs. 2001An improvement, but...Net Underwriting Loss$26 billion $53 billionNet Income After Taxes$11 billion -$7billionNet Unrealized Capital Losses$18 billion $18 billionPolicyholders Surplus Decline**$ 5 billion $27 billionCombined Ratio106% 116%Commercial Lines 108% 117%U.S. Reinsurers 123% 146%Personal Lines 105% 112%

    ** Includes $9.5 billion ($11 billion) in new capital invested into the industry20022001

  • Eventually Something Had to Give BecauseTwenty seven months of price increasesInvestment market ralliedCatastrophe losses lowNew capital In Bad capital outEnd game for 2003 is...

  • Year end Results 2003 vs. 2002BIG DIFFERENCENet Underwriting Loss$9.6 billion $32 billionNet Income After Taxes$31 billion $9 billionNet Unrealized Capital Gains$13 billion -$24 billionPolicyholders Surplus Change**$39.6 billion -$4.2 billionCombined Ratio 101.1 107.4%Commercial Lines 104% 108%U.S. Reinsurers 98% 123%Personal Lines 99% 105%

    ** Includes $8 billion ($18.7 billion) in new capital invested into the industry20032002

  • Major Points on 2003 ResultsNet Income of $31 billion despite nearly $17 billion in loss reserve strengtheningCombined ratio of 101% is after 3.2 points for cat losses and 2.1 points for A&E reserve additionsRate increases of 2003 will not show up until 2004 resultsInvestment yield climate still bad with no end in sightUnderwriting results something to write home about for the first time since the eighties

  • U.S. P&C Policyholders Surplus($ in billions)

  • U.S. P&C Combined Ratios

  • A Look BackSurplus Increase, 2003 ($ in billions)Beginning surplus, 2002Underwriting gain/lossInvestment incomeRealized GainsOtherOperating gain/lossUnrealized gain/loss Taxes DividendsNew Capital Surplus ChangeEnding surplus, 2003$291.9(9.6)42.36.5(.5) 32.213.1 (8.3)(10.9)839.6$330.8

  • Despite 2003 healthy returnsHistorical industry returns on equity remain poor

    Source: ISO, Goldman Sachs Research Estimates

  • Despite Historically Poor Returns Insurance Remains a Magnet For New Capital. Why?Alternative investment vehicles available post 2001 not appealingVenture capital firms are big player in 2001 and later following success of KKR and others in late 1990sEase of entrance and exit-Theres a sucker born every minute!Results of Bermuda companies in this marketplace are excellent just like in 1994Consequently;$15 billion invested in 2002 in US and Bermuda insurers$14.7 billion invested in 2003 in US and Bermuda insurers

  • New Insurers, Capitalization and Major Investors 2002 and 2003

    Arch Re-$1 Billion-Warburg Pincus-$500 Million,Hellman & Friedman-$250 Million, Arch Capital $250 millionAWAC-$1.5 Billion AIG-$291 million,Chubb-$250 million,Goldman Sachs-$250 millionAXIS Specialty-$1.65 billion-Trident(MMC Capital)-$250 million,MMC- $100 million,J.P. Morgan-$200 million,T.H.Lee Prtnrs-$200 million,Blackstone Grp-$200 million,CSFB-$200 millionDa Vinci Re-$500 million-State Farm-$200 million,Ren Re-$100 millionEndurance Specialty-$1.2 Billion-Aon-$200 million,Zurich-$200 millionGoshawk Re-$100 million-Goshawk Ins HoldingsMontpelier Re-$1 billion-White Mountains-$200 million Olympus Re-$500 million-Leucadia National,Gilbert Global Equity Prtnrs,Franklin Mutual AdvisorsQuanta-$500 million

  • Established Insurers Also Added Capital to Replace Losses and Increase Capacity ACE-$1.1 Billion- AIG-$1 BillionAlea-$150 Million- KKR InvestmentAmerican Re-$1 BillionAVIVA-$1.43 BillionChubb-$600 MillionCNA-$1.4 BillionEverest Re-$575 MillionFairfax Finl -$150 Million-Private PlacementHannover Re- $700 MillionHartford-$2.4 BillionIPC Re-$547 MillionMarkel-$220 MillionPartner Re-$400 MillionPMA-$158 MillionPX Re-$150 MillionQBE- $323 MillionRen Re-$233 MillionSCOR - $1.4 BillionSwiss Re- $3.3 BillionW.R. Berkley-$175 MillionXL- $1.5 BillionWhite Mountain- $1 Billion

  • New Capital, Both for New Ventures And Existing Insurers was Substantial But... Capital Lost Since 1999 is $49 Billion In US Alone Capital Lost Since 2000 is $32 Billion In US Alone2003 results takes capital back to about 1998 levelsHard market leveling off despite many tough issues facing the industry including:Loss Reserve Strengthening for Recent Losses and Old A&E Issues Other Legacy Issues Investment portfolio problemsRatings still fall

  • Rating Changes Since 9-11(Through 02/29/04)Major insurer groups used by Marsh which maintained their rating by all rating agencies ACE, AIG, Berkshire Hathaway, FM, Old Republic Major group upgradesA.M. Best: 4Standard & Poors: 4Major group downgradesA.M. Best: 30Standard & Poors: 402004- Negative outlook

  • Major Reserve Additions 2003Chubb-$625 MillionCNA- $2.3 billionEmployers Re-$540 millionEquitas -$666 millionGulf-$252 millionHartford- $2.6 billion

    Liberty-$331 millionPMA- $160 millionRoyal Sun Alliance-$1 billionSCOR-$421 millionSt Paul-$350 millionXL-$694 million

  • Current Operating EnvironmentEstimated reserve deficienciesStandard & Poors - $60 billion -Excluding asbestos A.M. Best - $65 billion at year end 2003 with $36.6 billion for A&E and $24 billion for Commercial lines businessFitch- $45-$77 Billion under reserved at year end 2002 includes $9 billion to $29 billion in asbestosMoodys-$30 billion as of September 200390% of these deficiencies are in commercial lines and reinsuranceEstimated 2003 PHS of commercial insurers and reinsurers: $180 billionDespite good year in 2003 old problems will not go away.Not the time to fight for market share

  • What is a buyer to do in 2004?Another cycle like the last one will kill a lot more companies-Solvency mattersLegacy issues will not go away.New ones will emerge. Which companies are best suited to survive these issues?New companies have no legacy issues but do have ownership issues. What are the venture capital firms exit strategy?Pick your partners well.Follow your markets carefully- Use Marshs My Insurer Monitor

  • Medical Malpractice

    Financial Overview

    James D. Hurley

  • *Medical Malpractice - Financial OverviewSource: Bests Aggregates and Averages

  • *Medical Malpractice - Financial Overview

  • *Medical Malpractice - Financial OverviewSource: Bests Aggregates and Averages

  • *Medical Malpractice - Financial OverviewSource: Bests Aggregates and Averages

  • *Medical Malpractice - Financial OverviewSource: Bests Aggregates and Averages

  • Source: Bests Aggregates and Averages*Medical Malpractice - Financial Overview

  • Medical Malpractice Financial OverviewOBSERVATIONSRatiosCombined improve to sub 130%Operating improve to sub 110%TrendsFrequencySeverity

  • Medical Malpractice Financial OverviewOBSERVATIONS (contd)Investment Income2003 helps, but...Interest rates still lowImpact growsRatesStill up, but slowed

  • Medical Malpractice Claims Trends A View From the TrenchesDaryl DouglasMarch 30, 2004

  • Discussion Good NewsTort Reform SuccessesPublic Awareness of Med Mal CrisisBad News Severity is Still RisingNational and Regional Loss DataTrend DriversWhat Can We Do?

  • Tort Reform Successes and Legal Victories

    Texas Meaningful reforms likely to be upheld for nowOH (caps, j/s), FL (caps), PA, AR also enacted reformMany others considering reformsNJ, OK, W.VA, IL, WA, NC, KY, AZ, MDCampbell v. State Farm limits punitive awardsOhio docs suing plaintiffs for frivolous lawsuitsDebates are raising publics awareness of crisis

  • Importance of the ProblemIn Jan 03, three-quarters (74%) said the issue of med malpractice insurance was at least a major problemSource: Gallup Poll Jan 22, 2003








    Major ProblemMinor ProblemNo OpinionCrisisNo Problem





    FavorOpposeNo Opinion



  • Support for Limiting Jury AwardsNearly three-quarters (72%) of the public say they would favor putting limits on amount patients can recover for emotional pain and suffering.Source: Jan 2003 Kaiser Family Foundation Health Poll Report






    Major ProblemMinor ProblemNo OpinionCrisisNo Problem





    FavorOpposeNo Opinion



  • The Bad News

    Despite Some In-Roads with Tort Reform and Legal Opinions, Severity and Loss Costs Are Still Rising in Claims againstDoctorsHospitalsNursing Home Cases

  • Physician Professional LiabilityHistorical Loss Costs Per Class One PhysicianLimited to $2 Million per OccurrenceSource: Aon Risk Services 2003 Benchmark AnalysisBased on the annual physician liability loss costs for years 1995 through 2002, the annual loss cost trend rate is 9.7%.

    Projected loss costs for 2003 and 2004 are $12,230 and $13,600, respectively.

  • # PaymentsSource: National Practitioners Data Bank Public Use Files; AON HealthLine Special Edition 2003Claims Per 1,000 Hospital BedsClaims Per

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