P/C Insurance Industry Overview & Outlook Focus in Insurance Markets in the Northwest US: WA, OR, ID Northwest Insurance Council Annual Reception Seattle, WA May 30, 2013 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]
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P/C Insurance Industry Overview & Outlook Focus in Insurance Markets in the Northwest US: WA, OR, ID Northwest Insurance Council Annual Reception Seattle,
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P/C Insurance Industry Overview & Outlook
Focus in Insurance Markets in the Northwest US: WA, OR, ID
Northwest Insurance Council Annual ReceptionSeattle, WA
May 30, 2013Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
P/C Insurance Industry Financial Overview
Profit Recovery in 2012 After High CAT Losses; Ultimate
P-C Industry 2012:Q3 profits were up 222% from 2011:Q3, due primarily to lower catastrophe losses
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 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
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012 combined ratio including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO data.
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generates an ROE of ~7.0% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Catastrophes and lower investment
income pulled down ROE in 2012
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
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89
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01
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12
13
F
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013F*
*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers. 2012:Q3 ROAS = 6.2% including M&FG.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years9 Years
2012: 5.9%
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013F: 6.2%
6
Profitability and Growth in Washington, Oregon & Idaho
P/C Insurance Markets
Analysis by Line and Nearby State Comparisons
7
RNW All Lines: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
02 03 04 05 06 07 08 09 10 11
US All Lines WA All Lines OR All Lines ID All Lines
(Percent)
Average 2002-2011
US: 7.7%
WA: 11.7%
OR: 10.3%
ID: 12.1%
8
RNW PP Auto: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
0%
5%
10%
15%
20%
25%
02 03 04 05 06 07 08 09 10 11
US PP Auto WA PP Auto OR PP Auto ID PP Auto
Average 2002-2011
US: 7.7%
WA: 8.9%
OR: 10.5%
ID: 14.6%
9
RNW Comm. Auto: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
-5%
0%
5%
10%
15%
20%
25%
30%
02 03 04 05 06 07 08 09 10 11
US Comm Auto WA Comm Auto OR Comm Auto ID Comm Auto
(Percent)Average 2002-2011
US: 9.8%
WA: 11.5%
OR: 17.1%
ID: 15.4%
10
RNW Comm. Multi-Peril: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
-5%
0%
5%
10%
15%
20%
25%
30%
02 03 04 05 06 07 08 09 10 11
US Comm M-P WA Comm M-P OR Comm M-P ID Comm M-P
(Percent) Average 2002-2011
US: 9.1%
WA: 9.1%
OR: 9.9%
ID: 15.6%
11
RNW Homeowners: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
02 03 04 05 06 07 08 09 10 11
US HO WA HO OR HO ID HO
(Percent)Average 2002-2011
US: 5.4%
WA: 15.7%
OR: 17.9%
ID: 14.1%
All Lines: 10-Year Average RNW WA & Nearby States
9.8%
11.7%
12.1%
16.9%
21.3%
7.7%
10.3%
0% 5% 10% 15% 20% 25%
Hawaii
Alaska
Idaho
Washington
Oregon
California
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
Washington All Lines profitability is above the US average and below the regional average
PP Auto: 10-Year Average RNW WA & Nearby States
8.9%
10.5%
11.0%
14.6%
18.3%
7.7%
10.2%
0% 5% 10% 15% 20%
Hawaii
Idaho
Alaska
Oregon
California
Washington
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
Washington PP Auto profitability is above the US average and below the regional
average
14
Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2010 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 New Jersey $1,157.30 1 South Dakota $525.16
2 District of Columbia 1,133.87 2 North Dakota 528.81
3 Louisiana 1,121.46 3 Iowa 546.59
4 New York 1,078.88 4 Idaho 547.78
5 Florida 1,036.76 5 Maine 582.29
6 Delaware 1,030.98 6 Nebraska 592.69
7 Rhode Island 984.95 7 North Carolina 599.90
8 Connecticut 965.22 8 Wisconsin 613.37
9 Maryland 947.70 9 Ohio 619.46
10 Michigan 934.60 10 Wyoming 621.08
(1) Based on average automobile insurance expenditures.
Washington ranked 16th most expensive state in 2010, with an average expenditure for auto insurance of $815.27.
Comm. Auto: 10-Year Average RNW WA & Nearby States
11.0%
15.2%
15.4%
17.1%
9.8%
11.5%
21.0%
0% 5% 10% 15% 20% 25%
Hawaii
Oregon
Idaho
Alaska
Washington
California
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
WA, ID, OR Commercial Auto profitability is above the US average and below
the regional average
Comm. M-P: 10-Year Average RNW WA & Nearby States
9.1%
12.8%
15.6%
17.8%
9.1%
9.9%
28.3%
0% 5% 10% 15% 20% 25% 30%
Hawaii
Alaska
Idaho
California
Oregon
U.S.
Washington
Source: NAIC, Insurance Information Institute
2002-2011
Washington Commercial Multi-Peril profitability is
the same as the US average while ID and OR
are above
Homeowners: 10-Year Average RNW WA & Nearby States
14.1%
16.8%
17.9%
20.3%
45.7%
5.4%
15.7%
0% 10% 20% 30% 40% 50%
Hawaii
Alaska
Oregon
California
Washington
Idaho
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
WA, OR and ID Homeowners
profitability is above the US average
18
Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2010 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 Texas (2) $1,560 1 Idaho $500
2 Louisiana (3) 1,546 2 Oregon 535
3 Florida (4) 1,544 3 Utah 558
4 Oklahoma 1,246 4 Wisconsin 563
5 Mississippi 1,217 5 Washington 595
6 Rhode Island 1,092 6 Ohio 614
7 Kansas 1,066 7 Delaware 636
8 District Of Columbia 1,065 8 Arizona 666
9 Connecticut 1,052 9 Maine 676
10 Alabama 1,050 10 South Dakota 678
Washington ranked as the 5th least expensive state for homeowners insurance in 2010, with an average expenditure of $595.
(1) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.
(3) Policies written by Citizens Property Insurance (Louisiana), are not included. (4) Policies written by Citizens Property Insurance (Florida), are not included.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank state average expenditures and does not endorse any conclusions drawn from this data.
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
24
Growth Will Expand Insurer Exposure Base Across Most Lines
24
25
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 5/13; Insurance Information Institute.
2.7
%0
.5%
3.6
%3
.0%
1.7
%-1
.8%
1.3
%-3
.7%
-5.3
%-0
.3%
1.4
%5
.0%
2.3
%2
.2%
2.6
%2
.4%
0.1
%2
.5%
1.3
%4
.1%
2.0
%1
.3% 3
.1%
2.5
%1
.7%
2.3
%2
.6%
2.7
%2
.8%
2.9
%2
.9%
0.4
%
-8.9%
4.1
%1
.1%
1.8
%2
.5% 3.6
%3
.1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
07
:1Q
07
:2Q
07
:3Q
07
:4Q
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
:4Q
Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor market contraction
was severe
The Q4:2008 decline was the steepest since the Q1:1982
drop of 6.8%
2013 is expected to see uneven growth,
then gradually accelerate throughout the year and into 2014
Federal Spending as a Share of State GDP: Vulnerability to Sequestration Varies
Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute. 26
WA and ID are more vulnerable to the effects of
sequestration
27
Defense and Non-Defense Federal Spending as a Share of State GDP: Top 10 States*
14
.6
10
.5
9.8
9.8
9.8
8.0
7.0
5.9
5.3
5.2
10
.0
10
.0
10
.0
9.2
4.9
3.8
3.1
2.8
2.7
2.6
0
2
4
6
8
10
12
14
16
HI AK DC MD VA KY AL MO CT AZ DC MD VA NM ID WV TN AK MT SC
Sh
are
of
Sta
te G
DP
(%
)
Federal defense spending accounts for approximately 10%+ of
GDP in 5 states
*As of 2010.Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo Securities; Insurance Information Institute.
Defense Spending Non-Defense Spending
Federal non-defense spending accounts for 10%+ of GDP in 3 states
Sequestration Could Adversely Impact Commercial Insurance Exposures Directly at Defense Contractors and Indirectly in Impacted Communities
State-by-State Leading Indicatorsthrough 2013:Q2
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 28
The economic outlook for most of
New England is relatively strong, suggesting future
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/13 and 3/13); Insurance Information Institute.
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector Along
With Workers Comp Exposures
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2013-14 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
2013 and beyond
31
16%
18%
20%
22%
24%
26%
28%
30%
01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F$125
$135
$145
$155
$165
$175
$185
$195
% of registered cars under 3 years old Auto Ins Direct Pms$ Billions
Personal Auto Insurance Direct Written Premiums vs. Recently-Registered Cars
Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and Analysis, First Quarter 2012; Insurance Information Institute.
PP DWP, flat from 2004-2009, is rising again.Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.
Average age of registered cars rose as fewer new cars were bought (and
insured)
In 2004-07 no growth in
PP DWP despite
strong new car/truck
sales New car/truck sales grow to 14-15M/year
4%/yr growth forecast for PP
DWP from recovering
new car/truck sales
32
Monthly Change* in Auto Insurance Prices, 1991–2013*
*Percentage change from same month in prior year; through Apr. 2013; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
Note: Recession indicated by gray shaded column.Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Could Be a Growth Leader in 2013 and 2014 as the Housing Market and Private Investment Recover. WC Insurers Will Benefit.
Construction employment
troughed at 5.435 million in Jan.
2011, after a loss of 2.291 million jobs, a 29.7%
plunge from the April 2006 peak
37
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of
Apr. 2013 totaled 5.79 million, an increase of 355,000 jobs or 6.5% from the Jan.
2011 trough
38
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013: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
$7,25005
:Q1
05:Q
2
05:Q
305
:Q4
06:Q
1
06:Q
206
:Q3
06:Q
407
:Q1
07:Q
207
:Q3
07:Q
408
:Q1
08:Q
2
08:Q
308
:Q4
09:Q
109
:Q2
09:Q
309
:Q4
10:Q
110
:Q2
10:Q
310
:Q4
11:Q
111
:Q2
11:Q
311
:Q4
12:Q
112
:Q2
12:Q
3
12:Q
413
:Q1
Prior Peak was 2008:Q1 at $6.60 trillion
Latest (2013:Q4) was $7.01 trillion, a new peak--$762B
Value of Private Construction Put in Place, by Segment, Mar. 2013 vs. Mar. 2012*
-0.1%
-2.1%
-6.8%-4.3%
19.1%
-4.2%
4.3% 3.4%
-12.9%
9.8%
17.8%
-1.2%
11.6%
2.9%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
To
tal
Pri
vate
Co
nstr
ucti
on
Resid
en
tial
To
tal
No
nre
sid
en
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Lo
dg
ing
Off
ice
Co
mm
erc
ial
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are
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Reli
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usem
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Rec.
Tra
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Co
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Po
wer
Man
ufa
ctu
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g
Private Construction Activity is Up Some Segments, Including the Key Residential Construction Sector, But Weakening in Early 2013
Growth (%) Led by the Residential Construction, Lodging, Office, and Transportation industries, Private sector construction activity is mixed up across many segments after plunging during the “Great Recession.” Most segments
expanded in 2012 but weakened in Q1:2013.
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Manufacturing Growth for Selected Sectors, 2013 vs. 2013*
6.0%
-0.1%
6.7%
-0.3%
3.1%
0.4%
-4.1%
-0.1%
4.4%
1.1%2.7%
13.8%
-1.4%-0.4%
-6%-4%-2%0%2%4%6%8%
10%12%14%16%
All
Ma
nu
fact
uri
ng
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ryM
eta
ls
Fa
bri
cate
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eta
ls
Ma
chin
ery
Ele
ctri
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qu
ip.
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Fo
od
Pro
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Pe
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Ru
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Pro
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cts
Manufacturing Is Expanding—Albeit More Slowly—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 was especially
strong in 2012 but weakened in 2013
*Seasonally adjusted; Date are YTD comparing data through February 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance Information Institute
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2011 bankruptcies totaled 47,806, down 15.1% from 56,282 in 2010—the second consecutive year of decline. Business bankruptcies more
than tripled during the financial crisis. Through Q3:2012, filings were down 15.8% vs. Q3:2011
Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly* Data through Sep. 30, 2012 are the latest available as of May 13, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
Business starts were up an estimated 2.8% in 2012 to 769,000 following a 2.2% to 748,000 in 2011. Start-ups
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 ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in US History on An Inflation-Adjusted Basis.
2011 Losses Were the 6th Highest.
2012 was likely the third most expensive year ever for insured
CAT losses
Record Tornado Losses Caused
2011 CAT Losses to Surge
($ Billions, 2012 Dollars)
55
56
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1$13.4$18.8
$23.9 $24.6$25.6
$48.7
$7.5$7.1$6.7$5.6$5.6$4.4
$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)
Hurricane Sandy could become the 4th or 5th costliest event in US
insurance history
Hurricane Irene became the 12th most expense hurricane
in US history in 2011
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
57
Top 16 Most Costly World Insurance Losses, 1970-2012*
(Insured Losses, 2012 Dollars, $ Billions)
*Figures do not include federally insured flood losses.**Estimate based on PCS value of $18.75B as of 4/12/13.Sources: Munich Re; Swiss Re; Insurance Information Institute research.
$11.1$13.4 $13.4$13.4$18.8
$23.9 $24.6$25.6
$38.6
$48.7
$7.8 $8.1 $8.5 $8.7 $9.2 $9.6
$0
$10
$20
$30
$40
$50
$60
Hugo (1989)
WinterStormDaria(1991)
ChileQuake(2010)
Ivan (2004)
Charley(2004)
TyphoonMirielle(1991)
Wilma(2005)
ThailandFloods(2011)
NewZealandQuake(2011)
Ike (2008)
Sandy(2012)**
Northridge(1994)
WTC TerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)**
Katrina(2005)
5 of the top 14 most expensive catastrophes in
world history have occurred within the past 3 years
(2010-2012)
Hurricane Sandy is now the 6th costliest event in global
insurance history
2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2012 are the most expensive
years on record.
Thunderstorm losses in 2012 totaled $14.9 billion, the 2nd
highest on record
Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*
*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 68
Avg. catastrophe claim cost rose
approximately 200% from 1997-2011
Cat claim frequency in 2011 was at historic highs and more than
double the rate in 1997
69
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2012*
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 (1960-2011); A.M. Best (2012E) 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
1.4 2.
01.
3 2.0
0.5
0.5 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
8.7 9.
4
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
E
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Federal Disasters Declarations by State, 1953 – 2013: Highest 25 States*
86
78
74
67
65
60
57
56
54
53
52
51
51
50
49
48
48
48
47
47
47
46
42
40
39
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY AR MO MS IL TN WV KS IA MN PA NE VA OH WA ND NC IN
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Texas has had the highest
number of Federal Disaster
Declarations
*Through May 28, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Federal Disasters Declarations by State, 1953 – 2013: Lowest 25 States*
40
39
38
36
36
35
34
32
29
28
26
26
25
24
24
24
23
22
19
17
17
15
15
13
11
11
9
0
10
20
30
40
50
ME SD AK GA WI NJ VT NH MA OR PR HI MI AZ MD NM ID MT CT NV CO DE SC DC UT RI WY
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Wyoming and Rhode Island had the fewest
number of Federal Disaster Declarations
*Through May 28, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
58
.4
25
.4
24
.5
21
.0
19
.2
17
.6
16
.3
13
.2
13
.2
12
.4
9.9
9.2
9.2
8.5
8.0
6.2
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
0
10
20
30
40
50
60
70
ND
SD
OK
NE IA KS
VT
AK
TX
WY
MN
AR
TN IN W
I
KY
MT
OH LA
VA
NJ
MI
SC
CO
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
104
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
3.6
3.1
3.0
2.9
2.7
2.2
2.1
2.1
2.0
1.8
1.1
0.0
-0.1
-0.3
-0.7
-0.9
-2.8
-5.6
-6.0
-7.2
-7.2
-9.3
-10
.1
-11
.2
-12
.5
-17
.3
-20
-15
-10
-5
0
5
CT
MS
NC AL
MD PA
U.S
.
MA IL
WA
GA
UT
NH RI
ID ME
NY FL
CA
DC
WV HI
AZ
OR
DE
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.
111
Direct Premiums Written: Comm. LinesPercent Change by State, 2006-2011*
10
0.9
60
.8
38
.9
28
.9
27
.9
25
.6
14
.9
8.3
4.0
2.9
2.7
0.9
0.2
0.0
-0.5
-1.5
-2.5
-3.0
-6.3
-6.4
-6.6
-6.6
-6.7
-7.6
-7.8
-7.9
-20
0
20
40
60
80
100
120
ND
SD
MT IA NE
KS
OK
WY
MN
TX
AK WI
VT IN AR
LA
TN
DC IL
OH
MA
NM
MS
WA
NY
NC
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Only 12 states showed any commercial lines growth
2006 and 2011
112
Direct Premiums Written: Comm. LinesPercent Change by State, 2006-2011*
-7.9
-8.0
-8.1
-9.0
-10
.0
-10
.1
-10
.8
-11
.4
-11
.6
-12
.2
-12
.7
-12
.9
-13
.2
-13
.2
-13
.6
-14
.7
-15
.0
-16
.0
-16
.7
-19
.4
-19
.8
-19
.9
-23
.7
-24
.4
-26
.4
-33
.0
-40
-35
-30
-25
-20
-15
-10
-5
0
KY
PA
MO
US
ME
CT
SC AL
VA
GA ID
MD NJ RI
CO
UT
OR MI
DE
CA
NH HI
FL AZ
WV
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
Sources: SNL Financial LC.; Insurance Information Institute.
115
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
115
116
Unemployment and Underemployment Rates: Stubbornly High in 2012, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment stood at 7.5% in
Apr. 2013—lowest in 4 years.
Unemployment peaked at 10.1% in October 2009, highest monthly rate since 1983.
Peak rate in the last 30 years:
10.8% in November -
December 1982
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 13.7%
in Apr. 2013
January 2000 through Apr. 2013, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving
116
22
75
41
68
50
12
36
61
-79
24 6
8 74
51
2-1
14
-10
5-2
22
-21
9-2
03
-26
7-2
69
-42
9-4
84
-78
6 -70
1-8
21
-69
2-8
12
-82
1-2
88
-44
2-2
82 -2
22 -1
62
-23
3-3
4-1
67
-17
-26
17
01
02
94 10
31
29
11
3 18
81
54
11
48
02
43
22
3 30
31
83
17
72
06
12
92
56
17
41
97 24
9 32
32
65
20
81
20 15
27
81
77
13
11
18
21
7 25
62
24
16
43
19
15
41
76
11
1(1,000)
(800)
(600)
(400)
(200)
0
200
400
Jan
-07
Fe
b-0
7M
ar-
07
Ap
r-0
7M
ay-
07
Jun
-07
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3
Monthly Change in Private Employment
January 2007 through Apr. 2013 (Thousands)
Private Employers Added 6.74 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 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
176,000 private sector jobs were created in April
117
Jobs Created2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill
sCumulative Change in Private Sector Employment: Jan. 2010—Apr. 2013
January 2010 through April 2013* (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job gains through Apr. 2013 totaled 6.74 million
119
Job gains and pay increases have added more than $600 billion to payrolls
since Jan. 2010
Private Employers Added 6.74 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Payroll vs. Workers Comp Net Written Premiums, 1990-2012E
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2012 actuals.Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow Again in 2012; +7.9% Growth in 2011 Was the First Gain Since 2005
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
Investment Gains Are Slipping in 2012 as Low Interest Rates Reduce Investment Income and Lower Realized Investment Gains; The Financial
Crisis Caused Investment Gains to Fall by 50% in 2008
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; Sources: ISO; Insurance Information Institute.
($ Billions)
Investment gains in 2012 are running approximately 16% below their pre-crisis peak
137
Distribution of Bond Maturities,P/C Insurance Industry, 2006-2011
16.2%
16.3%
15.2%
29.5%
30.0%
32.4%
36.2%
39.5%
41.4%
34.1%
33.8%
31.2%
28.7%
26.7%
26.8%
13.1%
12.9%
12.7%
11.7%
11.1%
10.3%
7.4%
8.1%
8.1%
7.3%
6.4%
6.3%
16.0%
15.7%
15.2%
0% 20% 40% 60% 80% 100%
2006
2007
2008
2009
2010
2011
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
Sources: A.M. Best; Insurance Information Institute.
The main shift over these 6 years has been from bonds with 5-10 years of maturity to bonds with 1-5 years of maturity. The industry also slightly
trimmed it holdings of bonds in the 10-20-year maturity categoryand bonds in the longest-maturity category.
138
-1.8
%
-1.8
%
-2.0
%
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
-5.7
%
-7.3%
-1.9
%
-2.1
%
-3.1
%
-8%-7%-6%-5%-4%-3%-2%-1%0%
Perso
nal L
ines
Pvt Pass
Aut
o
Pers P
rop
Comm
ercia
l
Comm
l Auto
Credit
Comm
Pro
p
Comm
Cas
Fidelity
/Sure
ty
Warra
nty
Surplu
s Line
s
Med
Mal
WC
Reinsu
rance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute. 154
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.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
2.1
10
6.7
10
4.9
10
2.1
10
1.4
10
1.3
10
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
F
14
F
15
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 (1990-2011); Conning (2012-2015F) Insurance Information Institute
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 (2010-2012P) and are for private carriers only; Insurance Information Institute. 165
WC showed a better-than-expected
improvement for private carriers in 2012
2. SURPLUS/CAPITAL/CAPACITY
175
How Will Large Catastrophe Losses Impact Capacity?