Workers Compensation Overview and Outlook for 2011 & Beyond Insurance Information Institute Hot Springs, VA July 29, 2011 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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Workers Compensation Overview and Outlook for 2011 & Beyond
Workers Compensation Overview and Outlook for 2011 & Beyond. Insurance Information Institute Hot Springs, VA July 29, 2011. Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 - PowerPoint PPT Presentation
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Workers Compensation Overview and Outlook for 2011 & Beyond
Insurance Information Institute
Hot Springs, VAJuly 29, 2011
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
P-C Industry 2011:Q1 profits were down 12.2% to $7.8B vs. $8.9B in 2010:Q1, as underwriting results
deteriorated
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.5% ROAS for 2011:Q1, 7.5% 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
* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty insurersSource: 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 generated ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
-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
*
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*
*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for Q1 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2007:12.3%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years10 Years
2011:6.1%*
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
The BIG Question:When Will the Market Turn?
7
Insurance Cycle Dynamics
8
Criteria Necessary for a “Market Turn”:All Four Criteria Must Be Met
Criteria Status Comments
Sustained Period of
Large Underwriting
LossesNot Yet
Happened
•Apart from Q2:2011, overall p/c underwriting losses remain modest•Combined ratios (ex-Q2 CATs) still in low 100s (vs. 110+ at onset of last hard market)•Prior-year reserve releases continue reduce u/w losses, boost ROEs
Material Decline in Surplus/ Capacity
Surplus is At/Near
Record High
•Surplus hit a record $565B as of 3/31/11•Analysts est. excess surplus of $75-$100B•Some excess capacity may still remain in reinsurance markets•Weak growth in demand for insurance is insufficient to absorb much excess capacity
Tight Reinsurance
MarketSomewhat in
Place•Higher prices in Asia/Pacific•Modestly improved pricing for US risks
Renewed Underwriting
& Pricing Discipline
Not Broadly Evident
•Commercial lines pricing trends remain negative•Competition remains intense as many seek to maintain market share•Terms & conditions—no broad tightening
Sources: Barclays Capital; Insurance Information Institute.
10
Workers Compensation and the Economy
Workers Comp Exposure and Performance is Intimately Linked to
the Economy and Labor Market
11
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 7/11; Insurance Information Institute.
2.7
%
0.9
%
3.2
%
2.3
%
2.9
%
-0.7
%
0.6
%
-4.0
%
-6.8
% -4.9
%
-0.7
%
1.6
%
5.0
%
3.7
%
1.7
%
2.6
%
3.1
%
0.4
%
1.3
% 3.2
%
3.2
%
2.2
%
2.1
%
2.3
%2
.2%4
.1%
1.1
%
1.8
%
2.5
% 3.6
%
3.1
%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
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
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 has
been severe but modest recovery is underway
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
2011 got off to a sluggish start, but growth is expected
to accelerate in the remainder of the year. This is a major
positive for insurance demand and exposure growth.
2011 Financial Overview State Economic Growth Varied in 2010
12
Texas had one of the stronger economies in 2010 and has
generally outperformed during the economic
downturn
Hard hit Midwest and Northeast states finally
entering recovery in 2010
15
Direct Premiums Written: All P/C Lines Percent Change by State, 2005-2010
44
.8
25
.4
19
.8
17
.3
16
.6
14
.2
13
.9
12
.4
12
.3
11
.9
9.1
8.1
8.1
7.1
6.8
5.4
5.2
4.7
3.8
3.7
3.1
3.0
1.5
1.2
1.1
0
5
10
15
20
25
30
35
40
45
ND
SD LA
WY
OK
WV
KS IA TX
MT
NE
DE
MS
NM SC
DC
UT
AR
NC ID WA
AL
WI
AK
TN
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
North Dakota is the growth juggernaut of the P/C
insurance industry—too bad nobody lives there…
16
0.7
0.6
0.1
-0.1
-0.3
-0.5
-0.8
-1.4
-1.6
-1.7
-2.5
-2.8
-2.9
-3.4
-3.6
-4.1
-4.5
-4.7
-4.8
-5.7
-5.8
-8
-8.2
-8.3
-13
.5
-14
.2
-15
.5
-20
-15
-10
-5
0
5M
D
MO
KY IN NY
GA
MN
VA
US
PA
OR FL IL CT
VT
OH RI
CO
NJ HI
ME
NH
MA
AZ
NV MI
CA
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC; Insurance Information Institute.
Bottom 25 States
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
Direct Premiums Written: All P/C Lines Percent Change by State, 2005-2010
US Direct Premiums Written declined by 1.6% between 2005
Wage and Salary Disbursements (Payroll Base) vs. Workers Comp Net Written Premiums
*Private employment; Shaded areas indicate recessions. Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
29% of NPW has been eroded away by the soft market and weak economy
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
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
2010 bankruptcies totaled 56,282, down 7.5% from 60,837 in 2009—which were up 40%
from 2008 and the most since 1993. 2011:Q1 filings are down 14.4% from 2010:Q1.
Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure
* Data through September 30, 2010 are the latest available as of July 25, 2011; Seasonally adjustedSource: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
344,000 new business starts were recorded through the first half of 2010, which was likely the slowest year for
new business starts since 1993.
Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010:Q3 526,000
Sources: US Bureau of Labor Statistics: Occupational Outlook Handbook, 2010-2011 Edition; Insurance Information Institute
Numeric Change in Wage and Salary Employment in Service-Providing Industries: 2008-2018P
45
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
46
Unemployment and Underemployment Rates: Falling in 2011
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment rate rose to 9.2%
in June
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 16.2%
in June 2011
January 2000 through June 2011, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemploymentwill constrain payroll growth, which directly affects WC exposure
Jun 11
18
67
92
13
65 1
27
42
15
-10
9-1
46
5 97
23
-12
-85 -58
-16
1-2
53
-23
0-2
57
-34
7-4
56
-54
7-7
34 -66
7-8
06 -7
07
-74
4 -64
9-3
34
-45
2-2
97 -2
15
-18
6-2
62
75
-83
16 6
2
22
95
1 61 1
17
14
31
12 1
93
12
8 16
79
42
61
21
92
41
73
57
14
4
(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
Monthly Change in Private Employment
January 2008 through June 2011* (Thousands)
Private Employers Added 2.368 million Jobs Since Jan. 2010 After Having Shed 4.66 Million Jobs in 2009 and 3.81 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
Private employers added jobs in every month in 2010 for a total of
Calendar Year* States approved through 4/23/2010Countrywide approved changes in advisory rates, loss costs, and assigned risk rates as filed by the applicable rating organization
Cumulative1990–1993
+36.3%
Cumulative 2000–2003
+17.1%
Cumulative 2004–2011
-26.2%
Cumulative 1994–1999
-27.8%
*States approved through 4/8/11.Note: Countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by applicable rating organization.Source: NCCI.
History of Average WC Bureau Rate/Loss Cost Level Changes
Current NCCI Voluntary MarketFiled Rate/Loss Cost ChangesExcludes Law-Only Filings
71
Ratio
States filed through 4/15/2011
•IN and NC filed in cooperation with state rating bureauSource: NCCI
Impact of Discounting on Workers Compensation Premium
72
Policy Yearp PreliminaryDividend ratios are based on calendar year statisticsNCCI benchmark level does not include an underwriting contingency provisionBased on data through 12/31/2010 for the states where NCCI provides ratemaking servicesSource: NCCI
Percent NCCI States—Private Carriers
73
Final Premium vs. Estimated Premium by Policy Effective Quarter: 2006:Q1 – 2009:Q3
Note: WC Statistical Plan audited premium compared to policy-estimated premium. Based on states where NCCI provides ratemaking services, including state funds; excludes high deductible policies and mid-term cancellations.Source: NCCI
The recession led to negative premium audit adjustments
Recession
Workers Compensation Combined Ratio: 1973–2012P
96
.8 99
.91
01
.1 10
4.2
10
3.6
99
.49
6.4
10
1.4
10
2.8
10
3.9
11
2.5
12
1.9
11
8.8
12
1.1
11
7.6
11
8.4
11
8.2
11
7.4 12
2.6
12
1.5
10
9.1
10
2.0
97
.0 10
0.0
10
1.0
10
7.0
11
5.3 11
8.2
12
1.7
11
0.9
11
0.0
10
7.0
10
2.7
98
.41
03
.51
04
.31
09
.8 11
5.0
11
7.0
11
9.0
80
85
90
95
100
105
110
115
120
125
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
P1
1P
12
P
Workers Comp Underwriting Results Are Deteriorating Markedly
Sources: A.M. Best; Insurance Information Institute. 2010 is NCCI figure for private carriers.
WC was the worst performing of the major commercial lines in 2010.
Workers CompensationInvestment Returns
76
Percent
Calendar Yearp=Preliminary
Source: 1990–2009, Annual Statement Data; 2010p, NCCIInvestment Gain on Insurance Transactions includes Other Income•Adjusted to include realized capital gains to be consistent with 1992 and afterSource: NCCI
Average (1990–2009): 14.6%
Investment Gain on Insurance Transactions-to-Premium RatioPrivate Carriers
Calendar Year
Workers Compensation ResultsModest Operating Loss
77
Percent
Calendar Yearp Preliminary
Source: 1990–2009, Annual Statement Data; 2010p, NCCIOperating Gain Equals 1.00 minus (Combined Ratio Less Investment Gain on Insurance Transactions and Other Income)•Adjusted to include realized capital gains to be consistent with 1992 and afterSource: NCCI
Average (1990–2009): 6.3%
Pre-Tax Operating Gain RatioPrivate Carriers
78
WC Combined Ratio Necessary to Achieve Cost of Capital
Assumptions: 3.8% Pre-Tax Investment Yield; 2.8% Post-Tax Investment Yield; WC R/S ratio = 2.07;Based on NCCI’s 2011 Internal Rate of Return ModelSource: NCCI.
104
10199
9795
9392
9089
8887
75
80
85
90
95
100
105
110
5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
WC combined ratios need to improve substantially (115 in 2010) in order generate a risk
Considers all reserve discounts as deficienciesLoss and LAE figures are based on NAIC Annual Statement data for each valuation date and NCCI latest selectionsSource: NCCI analysis
WC Loss and LAE Reserve Deficiency: Private Carriers
Calendar Year Reserve Deficiency Increased in 2010
Workers Compensation Medical & Indemnity Claim Cost Trends
81
Rising Medical Costs Exert Pressure While Indemnity Costs Rise Well Ahead of
2010p: Preliminary based on data valued as of 12/31/20101991-2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services; Excludes the effects of deductible policies
Cumulative Change = 238%(1991-2010p)
Workers Comp Medical Claim Costs Continue to Rise
+2.0%+5.4%
+5.0%+6.1%
+6.1%+9.1%
+5.4%+7.7%
+8.8%+13.5%
+7.3%+10.6%
+8.3%+10.1%
+7.4%+5.1%+9.0%
-2.1%+1.3%+6.8%
Average Medical Cost per Lost-Time Claim
Does smaller pace of increase suggest that small
med-only claims are becoming lost-time claims?
4.5%
3.5%2.8%
3.2% 3.5%4.1%
4.6% 4.7%4.0%
4.4% 4.2% 4.0%4.4%
3.7%3.2% 3.4%
5.1%
7.4%
10.1%10.6%
13.5%
5.4%
9.1%
6.1%
5.0%5.4%
2.0%
6.1%
8.8%
7.7%
7.3%
8.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1995 1997 1999 2001 2003 2005 2007 2009
Change in Medical CPI
Change Med Cost per Lost Time Claim
WC Medical Severity Generally Outpaces the Medical CPI Rate—Not in 2010
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 form 1995 through 2009 was nearly twice the medical CPI (7.6% vs. 3.9%). But in 2010, WC med severity figure plunged. Are small (low severity) med-only claims
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 3/11 and 7/11 (forecasts).
The slack in the U.S. economy suggests that inflation should not heat upbefore 2012, but other forces (commodity prices, inflation in countries from which we import, etc.), plus U.S. debt burden, remain longer-run concerns
Annual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
commodity bubble reduced inflationary pressures in 2009/10
Higher energy, commodity and food prices are pushing up inflation in 2011, but not longer turn
inflationary expectations.
P/C Insurance Claim Cost Drivers Grow Faster than even the Medical CPI Suggests
Source: Bureau of Labor Statistics; Insurance Information Institute.
1.6%1.0%
3.4%
8.8%
6.1%
3.3%
4.3%
3.1%
0%
3%
6%
9%
Overall CPI "Core" CPI Medical CPI InpatientHospitalServices
OutpatientHospitalServices
Physicians'Services
PrescriptionDrugs
Medical CareCommodities
Price Changes in 2010
Healthcare costs are a major claim cost driver in WC. They are likely to grow faster than the CPI in most years.
85
Excludes Food and Energy
Inpatient Services Rose 8.8%;
Outpatient Services Rose 6.1%
Medical Cost Inflation Has Outpaced Overall Inflation Over 50 Years
719.8
1589.8
0
300
600
900
1200
1500
1800
61 66 71 76 81 86 91 96 01 06 11*
Inde
x V
alue
(196
1=10
0)
All ItemsMedical Care
*Based on change from Feb. 2011 to Feb. 2010 (latest available) Source: Department of Labor (Bureau of Labor Statistics)
A claim that cost $1,000 in 1961 would cost nearly $16,000 based on
medical cost inflation trends over the past 50 years.
87
Workers Compensation Lost-Time Claim Frequency Increased in 2010*
2010p: Preliminary based on data valued as of 12/31/2010; *Frequency is defined as the number of lost-time claims per 100,000 workers.1991-2009: Based on data through 12/31/2009, developed to ultimate 2010 figure is adjusted by NCCI. Unadjusted figure is +9%.Based on the states where NCCI provides ratemaking services including state funds; Excludes the effects of deductible policies
Indemnity Claim Cost Trends
91
Indemnity Costs Continue to Rise at a Pace Above Wage Inflation
2010p: Preliminary based on data valued as of 12/31/20101991–2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
Accident Year
-3%
Workers Comp Indemnity Claim Costs Decline in 2010
+8.2%+0.8%
Claiming behavior has changed significantly. Large numbers of lost time,
low severity claims have entered the system—claims that previously were medical only, driving down average
indemnity costs per claim.
Average Indemnity Cost per Lost-Time Claim
4.2%
5.2%5.6%
4.7%
6.3%
2.3%
1.1%
2.7%
4.3%4.7% 4.6%
2.3%
5.9%
7.7%
9.0%
10.1%
4.6%
3.4%
5.6% 5.9%
8.2%
2.0%
-0.6%
3.5%
3.6%
0.8%
-3.0%
1.6%1.7%
10.1%
9.2%
3.1%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1995 1997 1999 2001 2003 2005 2007 2009
Change in CPS Wage Change in Indemnity Cost per Lost-Time Claim
WC Indemnity Severity vs. Wage Inflation, 1995 -2010p
2010p: Preliminary based on data valued as of 12/31/2010; 1991-2009: Based on data through 12/31/2009, developed to ultimate. Based on the states where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey.Source: NCCI
P-C Industry 2010 profits were$34.7B vs.$28.7B in 2009, due mainly to $5.7B in realized capital
gains vs. -$7.9B in previous realized capital losses
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.5% ROAS 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
* 2009 and 2010 figures are return on average statutory surplus. 2008, 2009 and 2010 figures exclude mortgage and financial guaranty insurersSource: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.7
92.6
99.3100.8101.0
7.5%7.4%
9.6%
15.9%
14.3%
12.7%
4.4%
8.9%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2008* 2009* 2010*0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generated ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
RNW for Major P/C Lines,2000-2009 Average
19.1%
8.5% 8.0% 7.4% 7.0% 6.4%4.7% 4.7%
-3.9%
19.8%
12.2%
7.2%
-5%
0%
5%
10%
15%
20%
Fire InlandMarine
AllOther
CommAuto
CMP MedMal
PPAuto
AllLines
WC OtherLiab
HO Allied
Source: NAIC; Insurance Information Institute
10-year returns for some lines are excellent, though homeowners is a major
laggard, largely due to major catastrophes. WC returns are slipping.
Investment Performance
107
Investments Are a PrincipleSource of Declining Profitability
Property/Casualty Insurance Industry Investment Gain: 1994–2011:Q11
Investment Gains Recovered Significantly in 2010 Due to 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 2010 were the best
since 2007
109
Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2011*
Soft Market Persisted in 2010 but Growth Returned: More in 2011?
(Percent)1975-78 1984-87 2000-03
*2011 figure is an estimate based on Q1 data. Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
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.
NWP was up 0.9% in 2010
2011:Q1 growth was +3.5%; First Q1 growth since 2007
125
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
Sources: ISO, Insurance Information Institute.
Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)
10.2
%15
.1%
16.8
%16
.7%
12.5
%10
.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
-4.6
%-4
.1%
-5.8
%-1
.6%
10.3
%10
.2% 13
.4%
6.6%
-1.6
%2.
1%0.
0%-1
.9%
0.5%
-1.8
%-0
.7%
-4.4
%-3
.7%
-5.3
%-5
.2%
-1.4
%-1
.3%
1.3% 2.
3%1.
3%3.
5%
-10%
-5%
0%
5%
10%
15%
20%
2002
:Q1
2002
:Q2
2002
:Q3
2002
:Q4
2003
:Q1
2003
:Q2
2003
:Q3
2003
:Q4
2004
:Q1
2004
:Q2
2004
:Q3
2004
:Q4
2005
:Q1
2005
:Q2
2005
:Q3
2005
:Q4
2006
:Q1
2006
:Q2
2006
:Q3
2006
:Q4
2007
:Q1
2007
:Q2
2007
:Q3
2007
:Q4
2008
:Q1
2008
:Q2
2008
:Q3
2008
:Q4
2009
:Q1
2009
:Q2
2009
:Q3
2009
:Q4
2010
:Q1
2010
:Q2
2010
:Q3
2010
:Q4
2011
:Q1
The long-awaited uptick. In 2011:Q1 occurring in
personal lines predominating cos.
(+3.8%) and commercial lines predominating cos.
(+3.5%)
P/C Net Written Premiums by Line:2008-2010P
Line of Business 2008 2009 2010P 2009-2010P
Change
Personal Auto $150.0B $156.6B $159.1B +1.6%
Homeowners $55.6 $56.9 $61.2 +7.6%
Other Liab (incl. Prod Liab) $42.0 $39.1 $38.2 -2.4%
Workers Compensation $33.8 $30.3 $29.9 -1.3%
Commercial Multi Peril $30.1 $28.5 $28.7 +0.8%
Commercial Auto $23.7 $21.8 $20.9 -4.3%
Fire & Allied Lines (incl EQ) $24.2 $23.4 $22.6 -3.4%
All Other Lines $67.7 $61.9 $61.6 -0.5%
Total P/C Industry $434.9B $418.4B $422.1B +0.9
Source: All lines except WC for 2008-09, A.M. Best; Worker Comp., NCCI; 2010P data, ISO; Private carriers only.
129
Average Commercial Rate Change,All Lines, (1Q:2004–2Q:2011)
-3.2
%
-5.9
%
-7.0
%
-9.4
%
-9.7
% -8.2
%
-4.6
%
-2.7
%
-3.0
%
-5.3
%
-9.6
%
-11
.3%
-11
.8%
-13
.3%
-12
.0%
-13
.5%
-12
.9% -1
1.0
%
-6.4
% -5.1
%
-4.9
%
-5.8
%
-5.6
%
-5.3
%
-6.4
% -5.2
%
-5.4
%
-2.9
%-0
.1%
-0.1
%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
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
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Pricing is flat for the first time in more than
7 years
(Percent)
Q2 2011 decreases were the smallest
since 2004, perhaps signaling a market
firming
130
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2011:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Percentage Change (%)
Market has Been Soft for 7 years and Remains Soft as Capital Hits Record Levels;
But Is Softness Moderating?
Peak = 2001:Q4 +28.5%
Pricing Turned Negative in Early
2004 and Has Been Negative
Ever SinceKRW Effect: No Lasting Impact
Trough = 2007:Q3 -13.6%
131
Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2011:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
1999:Q4 = 100
Pricing today is where is was in
Q3:2000 (pre-9/11)
Downward pricing pressure is most pronounced for
larger risks
132
Change in Commercial Rate Renewals, by Line: 2011:Q2
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Mixed in Q2:2011, With Workers Up More than Any Other Line