alabama homeowners insurance: history and trends for catastrophic loss and impacts on profitability...
TRANSCRIPT
Alabama Homeowners Insurance:History and Trends for Catastrophic
Loss and Impacts on ProfitabilityGovernor’s Affordable Homeowners
Insurance CommissionMontgomery, AL
December 12, 2011Download at www.iii.org/presentationsRobert 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
Presentation Outline
Catastrophe Loss Analysis for Alabama Insurance Markets Total Losses vs. Homeowners Insurance Line Claim Values and Claim Counts 2011 Catastrophe Claim Analysis 1998-2011 Analysis
Federal Disaster Declarations: 1953—2011 Alabama’s Long-Run Catastrophe Exposure History
Spring 2011 Tornado and Severe Story Summary Quantification of Alabama’s Coastal Exposure Problem Profitability and Performance in Alabama’s Insurance Markets
Homeowners Insurance: Return on Net Worth, Loss Ratios & Premium Growth Catastrophe Insurance Markets: Alabama Impacts World Markets
Global & US Catastrophe loss Trends Reinsurance Market Overview
Higher Catastrophe Losses Can Pressure Pricing Property/Casualty Insurance Markets & Catastrophic Loss
Profitability Underwriting Performance Capital, Capacity and Financial Strength
Q&A
3
Summary of Key Points
Between 1998 and 2011, Insured Catastrophe Losses Across the State of Alabama Totaled $8.4 Billion Arising from Nearly 1.1 Million Claims Home/Condos/Renters’ policies accounted for 67% ($5.6 bn) of dollars paid and 73% of the total
number of claims; Commercial property accounts for the remainder.
2011 Was the Worst Year in AL History for Catastrophe Losses Insured catastrophe losses totaled $3.2 bn arising from nearly 175,000 claims
Homeowners losses accounted for $1.826 bn (66%) of the total from 114,200 claims
Homeowners losses paid exceeded estimated premiums collected of by more than $400 million in 2011
The average cost of a homeowners catastrophe claim reached a record $15,989 in 2011
Alabama’s Homeowners Insurance Market is Unprofitable Return on Net Worth (RNW) from 1990-2009 average -5.6%
RNW from 2000-2009 averaged -7.9%, ranking the state 43rd out the 50 states
Inclusion of the 2011 storms could make AL close to the least profitable state
AL Has the 7th Highest Total Federal Disaster Declarations Since 1953
April 2011 Tornadoes Were the Most Expensive/Deadly in US History Aggregated, this year’s spring storms are the 5th largest insurance loss in US history
AL Losses Have Impacted Overall US and Global (Re)Insurance Markets
4
Insured Catastrophe Analysis for Alabama Insurance Markets:
Focus on Homeowners’ ClaimsAlabama Has a Long History
of Experience of Catastrophic Loss; Loss
Data Are Trending Adversely
2011 Catastrophe Losses in Alabama’s Homeowners Market Dwarf Premiums Paid
Sources: Homeowners DPW for AL is III estimated based on assumed 5% growth over 2010 actual of $1.323 bn.; Catastrophe loss data is from PCS as of Dec. 7, 2011.
$1.389
$1.826
$1.0
$1.1
$1.2
$1.3
$1.4
$1.5
$1.6
$1.7
$1.8
$1.9
2011 Homeowners Insurance DirectPremiums Written*
2011 Insured Homeowners CatastropheLosses
($ Billions)
Insurers ROE in the AL Homeowners Line in 2011 Will be Negative by Several Hundred Percent
5
Catastrophe losses paid to homeowners in AL are
estimated to exceed premiums collected for the line by $437
million or 31.5% in 2011
6
Value of Insured Catastrophe Losses in Alabama, by Segment, 1998–2011*
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute.
($ Millions)
$1,8
26$1
,331
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
98 99 00 01 02 03 04 05 06 07 08 09 10 11
Commercial LinesHomeowners
2011 set a new record for catastrophe losses at $3.157 billion. 58% ($1.826B) of the
losses paid went to homeowners, 42% to businesses
Alabama is No Stranger to Catastrophe, but 2011 Was Far More Devastating Than Any Year in History
$3,157
$76
$512
$206$200$197
$1,478
$1,775
$185$125$100$91$33$225
From 1998-2011 insurers paid $8.4 billion to nearly 1.1 million AL victims of catastrophes for damage
to their homes and businesses
7
Number of Insured Catastrophe Claims in Alabama, by Segment, 1998–2011*
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute.
Number of Claims
114,
200
60,2
50
0
50,000
100,000
150,000
200,000
250,000
98 99 00 01 02 03 04 05 06 07 08 09 10 11
Commercial LinesPersonal Lines
2011 was the costliest year on record and ranked 3rd in terms of number of claims paid at 174,450. Nearly two-
thirds (114,200) of the claims paid were to homeowners, 1/3 to businesses
Insurers in Alabama Paid More than 55,000 Catastrophe Claims on Average Annually Between 1998 and 2011, Most to Homeowners
174,450
$76
122,700
21,50016,000
53,750
179,400
226,000
52,900
26,30032,000
12,40018,805
115,470
8
Value of Alabama Insured Catastrophe Losses: Homeowners, 1998–2011*
($ Millions)
$37
$380
$151$140$134
$944
$1,500
$90$93$53$52$24$163
$1,826
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
98 99 00 01 02 03 04 05 06 07 08 09 10 11
2011 homeowners claims set a new record at $1.826 billion in 2011
Insurers Paid an Average of $400 million per Year to More than 55,000 Homeowners in Alabama from 1998-2011
From 1998-2011 insurers paid $5.6 billion to nearly
775,000 AL victims of catastrophes for damage
to their homes
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute.
9
Number of Homeowners Catastrophe Losses Paid by Insurers in AL, 1998-2011*
96
,50
0
14
,35
5
8,5
00
23
,00
0
19
,00
0
30
,00
0
20
0,0
00
12
7,3
00
31
,50
0
9,0
00
14
,20
0
83
,00
0
4,0
00
11
4,2
00
0
50,000
100,000
150,000
200,000
250,000
98 99 00 01 02 03 04 05 06 07 08 09 10 11*
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.
2011 saw the 3rd largest number of homeowners claims since 1998 even though 2011 was the costliest year ever ($1.826 Bill). 2011 claims were more than double the 55,000 annual
average since 1998.
(Number of Claims Paid)
Insurers in Alabama Paid Nearly 775,000 Catastrophe Claims Between 1998 and 2011 to Homeowners Across the State
10**Through Dec, 7, 2011. Source: PCS Division of ISO.
2011 Catastrophic Homeowners* Claim Activity in Alabama, by Event**
Date Perils Avg. Pmt $ Total $ Pd. # Claims HO $ % HO # %
*Includes all categories of dwelling policies, such as home, condo and renters’ policies
2011 YTD Totals
Event Total
2011:Q1 Total
Event Total
Event Total
Event Total
2011:Q2 Total
2011:Q3 Total
Event Total
2011 has been the most expensive in history for insured catastrophe losses
paid to Alabama homeowners.
Payments totaled $1.826 billion arising from 114,200 claims
11
Average Value of Insured Homeowners Catastrophe Loss Claims in AL, 1998-2011*
$1
,68
7
$1
,68
6
$6
,11
8
$2
,30
4 $4
,89
5
$3
,00
0
$7
,50
0
$7
,41
6
$4
,25
4
$1
5,5
56
$1
0,6
48
$4
,57
8
$9
,25
0
$15,989
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
98 99 00 01 02 03 04 05 06 07 08 09 10 11*
Insured Catastrophe Losses to Homes in Alabama Are Volatile and Are Trending Upward
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.
The average homeowners catastrophe claim
reached a new record of $15,989 in 2011, more
than double the average of $6,069 (+163%) from
1998-2010
(Cost of Average Personal Lines Claim
12
Cumulative Value of Catastrophe LossesPaid by Insurers in Alabama, 1998-2011*
$2
25
$2
58
$3
49
$4
49
$5
74
$7
59
$2
,53
4 $4
,01
2
$4
,20
9
$4
,40
9
$4
,61
4
$5
,12
6
$5
,20
2
$8,359
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
98 99 00 01 02 03 04 05 06 07 08 09 10 11*
Catastrophe Losses in Alabama Are High Relative to the Size of the State’s Economy and Population
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.
Insurers have paid nearly $8.4 billion on almost 1.1 million
catastrophe claims in Alabama since 1998. The trend in
catastrophe losses began to accelerate in 2004.
($ Millions)
13
Cumulative Number of Catastrophe LossesPaid by Insurers in Alabama, 1998-2011*
11
5,4
70
13
4,2
75
14
6,6
75
17
8,6
75
20
4,9
75
25
7,8
75 4
83
,87
5 66
3,2
75
71
7,0
25
73
3,0
25
75
4,5
25
87
7,2
25
88
3,2
75
1,0
57
,72
5
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
98 99 00 01 02 03 04 05 06 07 08 09 10 11*
The Number of Catastrophe Losses in Alabama Is High Relative to the Size of the State’s Economy and Population
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.
Insurers have paid nearly 1.1 million catastrophe claims in Alabama
valued at nearly $8.4 billion since 1998. The trend in catastrophe
losses began to accelerate in 2004.
(Number of Claims Paid)
14
Distribution of Catastrophe Insured Claims in AL, by Segment, 1998–2011*
Value of Claims Paid
Commercial26.8%
(283,170 Claims)
Homeowners73.2%
(774,555 Claims)
Number of Claims Paid
Commercial33.2%
($2.77 Bill)Homeowners66.8%
($5.59 Bill)
*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.
2/3 of the catastrophe claim dollars paid since
1998 were for damage to homes
Nearly 3/4 of the catastrophe claims paid
since 1998 were for damage to homes
15
Federal Disaster Declarations: Trending Adversely
Alabama Has the 7th Highest Number of Federal Disaster
Declarations From 1953 - 2011
Number of Federal Disaster Declarations, 1953-2011*
13 1
7 18
16
16
7 71
21
22
22
0 25
25
11
11
19
29
17
17
48
46
46
38
30
22 25
42
23
15
24
21
34
27 28
23
11
31
38
45
32 3
63
27
54
46
55
04
54
5 49
56
69
48 5
26
37
55
98
19
8
43
0
20
40
60
80
100
120
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
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
*
*Through December 11, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
The Number of Federal Disaster Declarations Is Rising and Set a New Record in 2011
The number of federal disaster declarations set a new record in 2011, with 98
declarations through Dec 11.
There have been 2,048 federal disaster
declarations since 1953. The average
number of declarations per year is 34 from
1953-2010, though that few haven’t been
recorded since 1995.
17
Federal Disasters Declarations by State, 1953 – Dec. 11, 2011: Highest 25 States
86
78
70
65 63
58
55 55 53 53 51 50 50 48 48 47 47 47 46 45 45 44 42 40 39
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY AR MO IL MS TN IA MN KS NE PA WV OH VA WV ND NC IN
Dis
aste
r Dec
lara
tions
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Over the past nearly 60 years,
Texas has had the highest number of Federal Disaster
Declarations
AL has had 55 federal disaster
declarations since 1953, nearly one per year, and has had 1
so far in 2011
18
Federal Disasters Declarations by State, 1953 – Dec. 11, 2011: Lowest 25 States*
39 39
36 35 35
33 33
28 27 26 26 25 25 24 24 23 22
20
17 17 16 15 14
11
9 9 9
0
10
20
30
40
50
ME SD GA AK WI VT NJ NH OR MA PR HI MI AZ NM ID MD MT NV CT CO SC DE DC RI UT WY
Dis
aste
r Dec
lara
tions
*Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Over the past nearly 60 years, Wyoming, Utah and Rhode Island had the fewest number of
Federal Disaster Declarations
Number of Federal Disaster Declarations In Alabama, 1953-2011*
0 0 0 0 0 0 0 01
0 0 0 0 0 0 01 1
0 02
13
01 1
21
20
10
10 0 0
12
0 03
2 21
31
32 2
1 12
01 1
51 11
0.0
1.0
2.0
3.0
4.0
5.0
6.0
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
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
*
*Through December 11, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
The Number of Federal Disaster Declarations Spike in 2009 Was the Highest Ever, Mostly Associated with Tornadoes, Severe Storms, Straight Line
Winds, Floods and Tropical Storm Ida
The one federal disaster declaration in 2011 was
associated with the severe tornado and severe storm
outbreak in April
There have been 55 federal disaster
declarations in AL since 1953. The average
number of declarations per year is 0.9 from 1953-2011, though the number
has been higher in recent years
21
1,1
33
1,1
32 1
,29
7
1,1
73
1,0
82 1,2
34
1,1
73
1,1
48
1,4
24
1,3
45
1,0
71 1,2
16
94
1
1,3
76
1,2
64
1,1
03
1,0
98
1,6
92
1,1
56 1,2
82
1,819 1,8
80
546
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Nu
mb
er
of
To
rna
do
es
0
100
200
300
400
500
600
Nu
mb
er o
f De
ath
s
Number of Tornadoes
Number of Deaths
*2011 is preliminary data through December 4.Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
Number of Tornadoes and Related Deaths, 1990 – 2011*
Tornadoes have already claimed more than 500 lives
There were 1,880 tornadoes recorded in the US by Dec. 4
Insurers Expect to Pay Approximately $2 Billion Each for the April 2011 Tornadoes in Alabama and a Similar Amount for the May Storms in Joplin
Location of Tornadoes in the US, January 1—December 5, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 23
1,880 tornadoes killed 546 people through Dec. 5,
including at least 340 on April 26 mostly in the
Tuscaloosa area, and 130 in Joplin
on May 22
Tornado Tracks by Enhanced Fujita (EF) Scale, January – July 2011
24Source: NOAA at: http://www.spc.noaa.gov/wcm/2011-jan-jul.png
Alabama averaged 59 tornadoes per year from 2000-2010, but 128 from Jan. – July
2011, the highest in the country
AL had the highest concentration of EF-3, 4 and 5 storms in 2011
Average Number of Tornadoes per Year, 2000-2010
25
Alabama averaged 59 tornadoes per
year from 2000-2010
Source: NOAA at http://www.spc.noaa.gov/wcm/ustormaps/2001-2010-states.png
Tornado by County, 1952-2010
26Source: NOAA at http://www.spc.noaa.gov/wcm/ustormaps/tornadoes-by-county.png *Through October 29.
AL is quite vulnerable to
tornadoes
Tornado Tracks by EF Scale,1950-2010
27Source: NOAA at: http://www.spc.noaa.gov/gis/svrgis/images/EF_tracks.gif
Alabama has experiences every
strength of tornado, including EF-5 storms
Location of Large Hail Reports in the US, January 1—December 5, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 28
There were 9,413 “Large Hail”
reports through Dec. 5, causing
extensive damage to homes,
businesses and vehicles
Location of Wind Damage Reports in the US, January 1—December 5, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 29
There were 18,580 “Wind Damage” reports through Dec. 5, causing
extensive damage to homes and,
businesses
Severe Weather Reports,January 1—December 5, 2011
30Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
There have been 29,885
severe weather reports through
Dec. 5; including 1,881
tornadoes; 9,413 “Large Hail” reports
and 18,580 high wind events
Large Hail, 9,413 , 32%
Wind Damage,
18,580 , 62%
Tornadoes, 1,885 , 6%
Tornadoes accounted for just 6% of all Severe Weather
Reports through October 13 but more
than 500 deaths
Number of Severe Weather Reports in US, by Type: January 1—December 5, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
32
Alabama’s 2011 Severe Loss Summary
Tornadoes, Hail and Severe Thunderstorms Took their Toll
Severe Weather Reports in Alabama,January 1—December 5, 2011
33Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
ALABAMA
Total Reports = 1,288
Tornadoes = 170 (Red)
Hail Reports = 217 (Green)
Wind Reports = 901 (Blue)
There were 1,288 severe weather reports in AL
through Dec. 5
Insurers Making a Difference in Impacted Communities
Source: Insurance Information Institute 34
Destroyed home in Tuscaloosa. Insurers will pay some 133,000 claims totaling $3 billion across
AL for Q2 damage, concentrated in the Tuscaloosa/
Birmingham areas
Presentation of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm
Recovery Fund
35
Coastal Exposure in Alabama Remains a Primary Concern
Alabama’s Coastal Exposure Is Considerable Despite Its
Small Coast
$14.9
$54.1
$51.8
$60.6
$85.6
$92.5
$132.8
$146.9
$158.8
$191.9
$224.4
$479.9
$635.5
$772.8
$895.1
$2,378.9$2,458.6
$55.7
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
Maryland
Rhode Island
Mississippi
New Hampshire
Delaware
Georgia
Alabama
North Carolina
Maine
Virginia
S. Carolina
Louisiana
Connecticut
New Jersey
Massachusetts
Texas
New York
Florida
Total Value of Insured Coastal Exposure in 2007($ Billions)
Source: AIR Worldwide
Even though Alabama’s coast is small, the total value of insured coastal
exposure was $92.5 billion in 2007
1.0%
5.0%
9.0%
12.0%
13.0%
23.0%
26.0%
28.0%
29.0%
34.0%
35.0%
36.0%
54.0%
59.0%
62.0%
64.0%79.0%
11.0%
0% 20% 40% 60% 80% 100%
Maryland
Georgia
NC
Virginia
Alabama
Mississippi
NH
Texas
S. Carolina
Rhode Island
New Jersey
Louisiana
Delaware
Massachusetts
Maine
New York
Connecticut
Florida
Insured Coastal Exposure As a % Of Statewide Insured Exposure In 2007
Source: AIR Worldwide
Even though Alabama’s coast is small, coastal exposure accounts for
12.0% of all insured exposure in the state
Value of Insured Residential Coastal Exposure In 2007 ($ Billions)
$660.4$388.3
$373.0
$319.5$250.8
$96.9
$90.1$81.1$78.4
$72.6$46.5$38.1
$36.7$31.9$30.8
$25.7$7.2
$1,238.6
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Maine
North Carolina
Virginia
Alabama
Georgia
Delaware
Rhode Island
New Hampshire
Mississippi
Maryland
Source: AIR Worldwide
Residential coastal exposure totaling $46.5 bill
in Alabama accounts for about half the $92.5 billion in total coastal exposure
333.7
283.1
427.1
104.6
662.9
136.2
1,388.1
254.5
1,136.6
229.1
1,725.8
410.7
2,746.5
3,831.4
4,178.4
12,465.912,703.4
501.0
247.8
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000
New York
Louisiana
Connecticut
Mississippi
Alabama
Rhode Island
Massachusetts
Maine
New Jersey
Hawaii
South Carolina
Delaware
Maryland
New Hampshire
Virginia
Georgia
North Carolina
Texas
Florida
Population Growth Projections for Hurricane Exposed States (2000 to 2030) (000)
Source: U.S. Census Bureau, accessed at http://www.census.gov/population/projections/PressTab1.xls
By 2030, Alabama is expecting a population
increase of 427,000
Value Of Insured Commercial Coastal Exposure 2007 ($ Billions)
$1,220.0$506.8
$399.8
$316.0$229.1
$127.5
$101.8$86.2
$65.9
$54.4$47.5$46.0
$26.1$24.9$23.8
$22.2$7.7
$1,718.6
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000
New York
Florida
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Georgia
Alabama
Mississippi
New Hampshire
Delaware
Rhode Island
Maryland
Source: AIR Worldwide
Commercial coastal exposure totaling $46.0 bill
in Alabama accounts for about half the $92.5 billion in total coastal exposure
41
Profitability & Performance Analysis: Alabama Homeowners
Insurance Markets
Alabama’s Home Insurance Market is Highly Volatile
42
8.8%
5.6%
11.8%
7.8%
12.6%
10.0%
5.3%
-2.9%
15.7%
12.0%
-1.0%
4.6%
1.0%
6.5%
-7.0%
1.2%
6.3%
2.4%
14.4%
-0.5%
6.6%7.7%
13.6%
-7.3%
0.1%
7.7%
-10%
-5%
0%
5%
10%
15%
20%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
US All Lines AL All Lines
*Latest available as of December 11, 2011.Source: NAIC; Insurance Information Institute.
RNW All Lines: AL vs. U.S., 1990-2009*
Average 1990-2009
US: 8.0% AL: 4.9%
2004/05 hurricane seasons
43
-54.3%
2.5% 3.8%
-45.0%
3.7%
-10.1%
-67.1%
-16.0%
-24.1%
6.2%
-2.6%
18.5%
-2.8%
9.7%
-7.2%
12.4%
-4.2%
3.7%-0.9%
17.8%
11.5%5.8%11.3%
-18.1%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
US HO AL HO
RNW Homeowners: AL vs. U.S.,1990-2009*
Average 1990-2009
US: 0.4%
AL: -5.6%
Return on Net Worth fluctuates wildly in AL’s home insurance market
*Latest available as of December 11, 2011.Source: NAIC; Insurance Information Institute.
44
0%
20%
40%
60%
80%
100%
120%
140%
160%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
US HO AL HO
Losses Incurred as a Percent of Premiums HO: AL vs. U.S., 1990-2009*
Average 1990-2009
US: 68.9% AL: 76.3%
2004/05 hurricane seasons
*Latest available as of December 11, 2011.Source: NAIC; Insurance Information Institute.
All Lines: 10-Year Average RNW AL & Nearby States
-9.3%
3.7%
5.3%
6.7%
7.0%
10.8%
-13.0%
3.3%
-15% -10% -5% 0% 5% 10% 15%
South Carolina
U.S.
Florida
Georgia
Texas
Alabama
Mississippi
Louisiana
Source: NAIC, Insurance Information Institute
2000-2009
Alabama All Lines profitability is below the US and above the
regional average
Homeowners: 10-Year Average RNW AL & Nearby States
-29.0%
-7.1%
-2.3%
0.5%
4.7%
20.8%
-32.4%
-7.9%
-40% -30% -20% -10% 0% 10% 20% 30%
South Carolina
U.S.
Florida
Texas
Georgia
Alabama
Mississippi
Louisiana
Source: NAIC, Insurance Information Institute
2000-2009Alabama Homeowners
profitability is below the US and above the regional average
47
45.0
20.8
20.1
20.0
18.7
18.6
18.5
17.4
17.2
15.7
15.5
15.2
14.7
14.4
14.3
13.9
13.7
13.5
12.0
11.9
11.9
11.2
19.0
18.0
14.0
0
5
10
15
20
25
30
35
40
45
50
HI SC RI DC CT AK UT NY NV MA DE AZ OR NC CA MT WY PA WA NJ CO NM ME VT ID
RN
W H
O
*Latest available.
Sources: NAIC.
Return on Net Worth: Homeowners Insurance, 10-Year Average (2000-2009*)
Hawaii was the most profitable state for home insurers from
2000-2009 due to the total absence of hurricanes during
this period
(Percent) Top 25 States
48
10
.3
9.3
5.3
5.1
4.7
4.3
2.2
1.6
0.5
-32
.4
8.0
1.0
-4.9
-5.5
-6.7
-6.9
-7.1
-7.9 -8.6
-10
.8
-11
.8
-14
.4
-29
.0
-3.7-2.3
-1.6
0.4
-40-35-30-25-20-15-10-505
1015
VAM
D NH WV M
IU.S
.KS SD IL IA FL W
IO
K TX OH TN IN NE AR
GA AL
KYND
MO M
N MS LA
RN
W H
O
*Latest available.Sources: NAIC
Hurricane Katrina and other storms made Alabama among the least
profitable states for home insurers from 2000-2009, ranking 43rd out of
the 50 state. 2011 catastrophe losses will likely push the state to
48th position.
Bottom 25 States(Percent)
Return on Net Worth: Homeowners Insurance, 10-Year Average (2000-2009*)
49
51.5
46.7
36.8
36.4
36.4
35.5
35.3
35.1
33.4
32.2
32.1
32.1
32.0
31.5
31.2
29.9
29.6
29.6
29.2
28.8
28.8
28.6
28.2
27.2
26.7
05
1015202530354045505560
HI
LA ID
MO DE
AR
NM SC
MS
NC RI
UT
GA AL
WY
ND
TN KY
CT
OK
MN
MT
ME
NH
NY
Pec
ent c
hang
e (%
)
Sources: SNL Financial LC.; Insurance Information Institute.
While premium growth in the Alabama
homeowners line has been above average, it hasn’t kept pace with
losses, especially after considering record
2011 losses.
Percent Change in DPW: Homeowners, by State, 2005-2010
Top 25 States
50
26.1
25.6
25.0
24.5
24.3
24.0
23.9
23.6
23.2
22.4
22.4
22.2
22.1
21.1
20.8
20.3
19.2
18.9
18.1
16.2
14.2
12.2
9.6
8.4
7.0
0.0
0
5
10
15
20
25
30
NJ
KS VA
MA
WA FL TX IL WI IA
OR
SD
CO IN NE
OH VT
AK
DC PA
MD
WV AZ
NV
CA MI
Pec
ent c
hang
e (%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Michigan was the slowest growing state
between 2005 and 2010
Percent Change in DPW: Homeowners, by State, 2005-2010
Bottom 25 States
Global Catastrophe Loss Developments and Trends
51
2011 Will Rewrite Global Catastrophe Loss and Insurance History
52Source: MR NatCatSERVICE
Natural Loss Events,January – September 2011
World Map
53
Top 16 Most Costly World Insurance Losses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.
$11.3$14.0 $14.9$16.3$20.5$20.8 $23.1$24.9
$30.0
$72.3
$10.0$9.3$9.0$8.0$8.0$7.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
WinterStormDaria(1991)
ChileQuake(2010)
Hugo (1989)
TyphoonMirielle(1991)
Charley(2004)
NewZealandQuake(2011)
Rita (2005)
Wilma(2005)
Ivan (2004)
SpringTornadoes/
Storms(2011)
Ike (2008)
Northridge(1994)
WTC TerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)*
Katrina(2005)
Taken as a single event, the Spring 2011 tornado and
thunderstorm season would likely become the 7th
costliest event in global insurance history
3 of the top 15 most expensive
catastrophes in world history have occurred in the past 18 months
100
200
300
400
500
600
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Worldwide Natural Disasters,1980 – 2011*
Number of Events
*2011 figure is through June 30.Source: MR NatCatSERVICE 54
Meteorological events(Storm)
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami, volcanic eruption)
There were 355 events through the first 6
months of 2011
55
U.S. Insured Catastrophe Loss Update
2011 CAT Losses Already Greatly Exceed All of 2010 and Will Become One of the Most Expensive Years on Record
56
$8
.3
$7
.4
$2
.6 $1
0.1
$8
.3
$4
.6
$2
6.5
$5
.9 $1
2.9 $
27
.5
$6
1.9
$9
.2
$6
.7
$2
7.1
$1
0.6
$1
3.6 $
27
.0
$1
00
.0
$7
.5
$2
.7
$4
.7
$2
2.9
$5
.5 $1
6.9
$0
$20
$40
$60
$80
$100
$120
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??
US Insured Catastrophe Losses
*Estimate through Nov. 30, 2011.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.
2011 Will Become the 5th or 6th Most Expensive Year in History for Insured Catastrophe Losses in the US
$100 Billion CAT Year is Coming Eventually
Record Tornado Losses Caused
2011 CAT Losses to Surge
($ Billions)
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
57
Top 13 (14?) Most Costly Disastersin U.S. History
(Insured Losses, 2010 Dollars, $ Billions)**
*Losses will actually be broken down into several “events” as determined by PCS.**Hurricane Irene losses stated in 2011 dollars.Sources: PCS; Insurance Information Institute inflation adjustments.
$8.6$11.5 $12.8
$16.3 $17.5$22.6 $23.1
$45.8
$8.2$6.7$6.3$5.3$4.3$4.3
$0$5
$10$15$20$25$30$35$40$45$50
Irene(2011)
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
SpringTornadoes& Storms*
(2011)
Northridge(1994)
Andrew(1992)
9/11 Attack(2001)
Katrina(2005)
Taken as a single event, the Spring 2011 tornado season
would likely become 5th costliest event in US insurance history
58
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2011:H1*
*Insurance Information Institute estimates for 2010 and 2011:H1Notes: 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; 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.
35.
0
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
E
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of the Combined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 4.15*
Combined Ratio Points
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2011*Number of Events (Annual Totals 1980 – 2010 and First Half 2011)
*Through June 30.Source: MR NatCatSERVICE 59
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
There were 98 natural disaster events in the first
half of 2011
37
8
51
2
U.S. Thunderstorm Loss Trends, 1980 – 2011*
60
Average thunderstorm losses are up more
than 8 fold since the early 1980s
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2011 are the most expensive
years on record.
Thunderstorm losses in the first half of 2011 totaled $16.4 billion, a new
annual record through just 6 months
*Through June 30, 2011.Source: Property Claims Service, MR NatCatSERVICE
62
REINSURANCE MARKET CONDITIONS
Record Global Catastrophes Activity is Pressuring Pricing, But Capacity is Adequate
Global Reinsurance Capital, 2007-2011:H1
Reinsurer Capital%
Change
Source: Aon Reinsurance Market Outlook, September 2011 from Individual Company and AonBenfield Analytics; Insurance Information Institute.
$411
$342
$402
$445$470
17%
-17%
-5%
18%
$300
$320
$340
$360
$380
$400
$420
$440
$460
$480
$500
2007 2008 2009 2010 2011:H1-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Reinsurer Capital Change
High Global Catastrophe Losses Have Had a Modest Adverse Impact on Global Reinsurance Market Capacity
Global reinsurance market capacity is down in mid-2011 due to large
catastrophe losses
Source: Guy Carpenter, GC Capital Ideas.com, November 23, 2011.
Historical Capital Levels of Guy Carpenter Reinsurance Composite, 1998—2Q11
Most excess reinsurance capacity was
removed from the market in 2011,
leaving uncertainty as to the direction of
2012 reinsurance renewals
Source: Guy Carpenter, GC Capital Ideas.com, September 26, 2011.
Global Property Catastrophe Rate on Line Index, 1990-2011 YTD (6/1/11)
A modest increase in global property catastrophe reinsurance pricing was
evident in June 1 renewals in the wake of record global catastrophe
losses. Larger increase could occur for the Jan.1, 2012 renewals
66
Underwriting Trends: Cycle, Catastrophes Are Among
2011 and 2012 Drivers
67
P/C Insurance Industry Combined Ratio, 2001–2011:H1*
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=110.5 Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
95.7
99.3100.8
109.4
101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
Best Combined
Ratio Since 1949 (87.6)
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
Premiums
Relatively Low CAT Losses, Reserve Releases
Cyclical Deterioration
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses,
Underwriting Gain (Loss)1975–2011*
* Includes mortgage and financial guaranty insurers in all years. 2011 figure is III estimate based on actual H1 underwriting losses of $24.098 billion.Sources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011*
($ Billions)
Underwriting losses in 2011 will be much larger: ~$40B due
to big CATs
Homeowners Insurance Combined Ratio: 1990–2011P
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
94
.4 10
0.3
88
.9 95
.6
11
6.8
10
5.7
10
6.7 1
18
.0
11
8.4
11
2.7 12
1.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Homeowners Line Will Deteriorate in 2011 Due to Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).
70
P/C Insurance Industry Financial Overview
Profit Recovery Will Be Set Back by High CATs, Low
Interest Rates, Diminishing Reserve Releases
P/C Net Income After Taxes1991–2011:H1 ($ Millions)
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $
36
,81
9
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
4,6
70
$4
,75
8
$2
8,6
72
-$6,970
$6
5,7
77
$4
4,1
55
$2
0,5
59
$3
8,5
01
-$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*
2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009 ROAS1 = 5.9% 2010 ROAS = 6.5% 2011:H1 ROAS = 1.7%
P-C Industry 2011:H1 profits were down 71.6% to $4.8B vs. 2010:H1,
due to high catastrophe losses and as non-cat underwriting
results deteriorated
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 2.3% ROAS for 2011:H1, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute
Capital/PolicyholderSurplus (US)
72
Have Large Global Losses Reduced Capacity in the Industry, Setting
the Stage for a Market Turn?
74
Policyholder Surplus, 2006:Q4–2011:Q2
Sources: ISO, A.M .Best.
($ 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$556.9
$559.1
$505.0$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
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:Q2
2007:Q3Previous Surplus Peak
Quarterly Surplus Changes Since 2007:Q3 Peak
09:Q1: -$84.7B (-16.2%) 09:Q2: -$58.8B (-11.2%)09:Q3: -$31.0B (-5.9%)09:Q4: -$10.3B (-2.0%)10:Q1: +$18.9B (+3.6%)
10:Q2: +$8.7B (+1.7%)10:Q3: +$23.0B (+4.4%)10:Q4: +$35.1B (+6.7%)11:Q1: +$42.9B (+8.2%)11:Q2: +37.3B (+7.1%)
Surplus as of 6/30/11 fell by 1% below its all time record high of $564.7B set
as of 3/31/11.
*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.
The Industry now has $1 of surplus for every $0.78 of
NPW—the strongest claims-paying status in its history.
Financial Strength & Underwriting
75
P-C Impairments Remain Low Despite High Catastrophe Losses and Poor Economic Environment
P/C Insurer Impairments, 1969–20108
15
12
71
19
34
91
31
21
99
16
14
13
36
49
31 3
45
04
85
56
05
84
12
91
61
23
11
8 19
49 50
47
35
18
14 15 16 18
11
5
0
10
20
30
40
50
60
70
69
70
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
Source: A.M. Best Special Report “1969-2010 Impairment Review,” June 21, 2010; Insurance Information Institute.
The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets
8 of the 18 in 2009 were small Florida carriers. Total also
includes a few title insurers.
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