insurance catastrophe loss reviewinsurance catastrophe ... · insurance catastrophe loss...
TRANSCRIPT
Insurance Catastrophe Loss ReviewInsurance Catastrophe Loss ReviewFirst Quarter 2010 Webinar Update
Intermediaries & Reinsurance Underwriters AssociationApril 30 2010April 30, 2010
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute ♦ 110 William Street ♦ New York, NY 10038
Tel: 212.346.5520 ♦ Cell: 917.453.1885 ♦ [email protected] ♦ www.iii.org
Presentation Outline
Catastrophe Loss Trends in Q1 2010: US and Global Review
Unusual Catastrophe Activity in April 2010Unusual Catastrophe Activity in April 2010Icelandic Volcano
Deepwater Horizon Sinking an Oil Spill
Historical Review of US Catastrophe Losses
Industry Capital and Financial Strength
Ins rance Ind str Financial O er ieInsurance Industry Financial Overview
Q&A
2
Catastrophe Losses Trends AreCatastrophe Losses Trends Are Trending Adversely in the US and
Gl b llGlobally
The Trend is Continuing in 2010
3
Global Natural Catastrophes 1980–2009Overall and insured losses with trend
300MEGATREND
Global natural catastrophe loss trends are ominous and
200
250loss trends are ominous and
portend an even more disastrous decade ahead.
Terrorism, environmental and other man made disasters
150US$
bn
other man-made disasters could exacerbate the trend.
50
100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Overall losses (in 2009 values) Insured losses (in 2009 values)Overall losses (in 2009 values) Insured losses (in 2009 values)
Trend insured lossesTrend overall losses
Source: Munich Re NatCatSERVICE; Insurance Information Institute.
Natural catastrophes 2009- Jan 2010Worldmap
China is also exposed to many large-
l t lscale natural catastrophes, but still has
relatively low levels of
i
Fast growing India is
insurance penetration
exposed to many large-scale natural catastrophes, though still a
“ ll”
2010: Catastrophe losses were relatively light due to the lack of hurricane activity
Longer-run: An increasing share of insured “small”
insurance market
Source: Munich Re NatCatSERVICE; Insurance Information Institute.
g gcatastrophe losses will come from the
developing world, especially China, India
Natural Catastrophes: Jan – Mar 2010Worldmap
4
53
1
6
12The 12 Jan. Haiti
quake killed 225,500 people, caused $8B+ in economic damage, but little in the way of
insured losses
7
8
Chilean earthquake (mag. 8.8) on 27 Feb. produced at least $4 billion in insured losses, $20
billion in economic losses. Most Severe winter weather in the Eastern US produced at least
Winter Storm Xynthia produced at least $2B in insured
insured losses
Geophysical events(earthquake, tsunami, volcanic activity)
Hydrological events(flood, mass movement)
Global natural catastrophes
billion in economic losses. Most costly insurance event in 2010 Eastern US produced at least
$1B in insured losses and $2B in economic losses
least $2B in insured losses and $4B in economic losses
Meteorological events (storm)
Climatological events(extreme temperature, drought, wildfire)
Selection of significant natural catastrophes (see table)
© 2010 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As of 29 March 2010
Natural Catastrophes: January – March 2010Selection of Significant Events
No. Period Event Affected Area
Overall losses*
Insuredlosses* Fatal-
ities*S$US$ m, original values
1 7–12 January Winter damage, cold wave
United States: Midwest (MO, IA); South (AR, LA, OK, TX); Southeast (FL, AL, GA, MS, NC, SC, TN)
800 160 5
2 12 January Earthquake Haiti: South (esp. Port-au-Prince) >8,000 222,500
3 18–22 January Severe storms United States: Southwest (CA, AZ, UT) 180 120 203 18 22 January Severe storms United States: Southwest (CA, AZ, UT) 180 120 20
4 4–6 February Winter storm, blizzards United States: Northeast (DC, DE, MD, NJ, PA); Southeast (NC, VA, WV)
180 135 2
5 9–14 February Winter storm, blizzards, winter damage
United States. Canada 800 560
6 26–28 February Winter storm Xynthia, Belgium. France. Germany. Netherlands. Portugal. 4,500 >2,000 636 26 28 February Winter storm Xynthia, storm surge
Belgium. France. Germany. Netherlands. Portugal. Spain. Switzerland. United Kingdom
4,500 >2,000 63
7 27 February Earthquake, tsunami Chile: Central; South >20,000 >4,000 507
8 6–7 March Hailstorm, severestorms
Australia: Southeast (Victoria) 1,200 780
*Preliminary figures
First Quarter 2010 Insured Major Catastrophe Losses Were Among the Highest on Record for Q1, Totaling at least $7.755 Billion. Economic L T t l t L t $35 66 Billi M th 223 000 P l W
© 2010 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As of 29 March 2010
Losses Total at Least $35.66 Billion. More than 223,000 People Were Killed in These Events.
Unusual Events Occurring in April 2010
Iceland Volcanic Eruption
Deep Water Horizon Sinking & Spill
8
Iceland Volcanic Eruption
9
Insurance Implications of Eruption of Iceland’s Eyjafjallajokull Volcano
Continuing Eruption of Icelandic Volcano in April 2010 Caused Little Property Damage in a Remote Region of SE Iceland
Major Issue Was One of the Near Total 6 Day Closure of Northern EuropeanMajor Issue Was One of the Near Total 6-Day Closure of Northern European Airspace by Aviation Authorities from 15 April – 20 April Due to Spread of Ash Plume Over Much of Europe
Airlines and Other Industries Sustained Several Billion Dollars in EconomicAirlines and Other Industries Sustained Several Billion Dollars in Economic Loss, Virtually None of Which is Insured
Economic Losses Were Caused Not by Property Damage Caused by the Volcano but by Decisions Made by Aviation Authorities in EuropeVolcano but by Decisions Made by Aviation Authorities in Europe
Because There Was No Physical Damage Caused by Volcanic Action, Insurance Coverage is NOT Triggered
B i I i i NOT T i d Ei h Si BI R iBusiness Interruption is NOT Triggered Either, Since BI Requires as a Trigger Damage from a Covered Peril: No Damage No Insurable BI Loss
No Aircraft Were Damaged, So No Aviation Losses Occurred
10
The Only Segment of the Global Insurance Industry to Sustain Notable Losses Will Be Travel Insurers, Where Losses Globally Will Be Measured in the Millions Source: Insurance Information Institute.
Sinking of Deepwater Horizon Platform and Gulf of Mexico Oil Spill
11
Platform and Gulf of Mexico Oil Spill
Insurance Implications of Sinking of Deepwater Horizon Platform and Oil Spill
Insurance Losses from the Sinking of the Deepwater Horizon Offshore Oil Platform Will Be Significant and One of the Largest Losses Ever for Global Offshore Energy Insurance and Reinsurance Markets
Early Loss Estimates Put the Insured Loss in Excess of $1B to $1.25B*Includes $560 million as replacement cost of sunken oil platform
Loss Appears to Be Well Syndicated With a Global Spectrum of Insurers andLoss Appears to Be Well Syndicated With a Global Spectrum of Insurers and Reinsurers Sharing in the Losses
Significant retentions/self-insurance may be in play
Insurance Issues Are Complex*Fractional Ownership of Project: BP (65%), Anadarko Petroleum (25%) and Mitsui Oil Exploration (10%); Each has own insurance arrangements and retentions
Transocean (Drilling Contractor) has its own insurance arrangements
There Are Numerous Insurance Coverages that Could Be Triggered
12Source: Insurance Information Institute.
Deepwater Horizon Oil Rig Loss: Types of Coverage That Might Apply
Physical Damage: provides coverage for physical damage or loss to a company’s offshore property and equipment, including offshore fixed platforms, pipelines and production and accommodation facilities.
B i I t ti /L f P d ti I id fBusiness Interruption/Loss of Production Income: provides coverage for energy businesses against loss due to temporary interruption in oil/gas supply from an offshore facility as a result of physical loss or damage to an offshore facility.
Operators’ Extra Expense (Control of Well): provides coverage for costs p p ( ) p gincurred by energy businesses when regaining control of a well after a “blowout”. Coverage may include: redrilling expenses incurred in restoring or redrilling well after blowout; seepage and pollution liability coverage to pay third party bodily injury, damage to and loss of third party property.
Offshore Construction: provides coverage for the many different risks energy businesses face during construction projects, from project inception through completion and beyond.
Liability: C h i l li bilit id f l iLiability: Comprehensive general liability: provides coverage for claims an energy business is legally obligated to pay as a result of bodily injury or property damage to a third party. Workers compensation/employers liability: covers energy businesses for losses from injury or death of employees.
13
Source: http://www.iii.org/insuranceindustryblog/; http://www.iii.org/articles/offshore_energy_facilities_insurance_considerations.html
Environmental/Pollution Liability: provides coverage for bodily injury, property damage, and clean up costs as a result of a pollution incident from a designated site.
Top 10 Worst Oil Spills: By Volume of Oil Spilled
Date Spill Name Location Size of Spill
An estimated 5,000 barrels, or 210,000 gallons, a day of oil are flowing into the Gulf of Mexico after the explosion, fire and sinking of BP’s Deepwater Horizon oil rig
(Tons)January 1991 Gulf War Oil Spill Persian Gulf 1,500,000*
June 1979 Ixtoc I oil well Gulf of Mexico 454,000June 1979 Ixtoc I oil well Gulf of Mexico 454,000
July 1979 Atlantic Empress/Aegean Captain
Caribbean Sea 287,000
March 1992 Fergana Valley Uzbekistan 285,000g y ,
February 1983 Nowruz oil field Persian Gulf 260,000
May 1991 ABT Summer Angolan coast 260,000
August 1983 Castillo de Bellver Cape Town, South Africa 252,000
March 1978 Amoco Cadiz Off the coast of Brittany, France 223,000
April 1991 The Haven Off the coast of Italy 145,000
November 1988 The Odyssey Off the coast of Nova Scotia 132,000
*Top end of estimated tons of oil spilled.
Sources: http://www.msnbc.msn.com/id/36852827/ns/us_news-environment
Sample of Most Costly Oil Tanker Spills*
Date Spill Name Location Estimated Size of Loss
1989 EXXON VALDEZ Alaska Clean up: $2 5 billion1989 EXXON VALDEZ Alaska Clean up: $2.5 billion.
Total costs (incl. fines, penalties and claims settlements): $7 billion.
C t ti fi l t kCourt cases continue, final costs unknown.1978 AMOCO CADIZ France Est. cost $282 million, of which about half
for legal fees and accrued interest.1993 BRAER UK Est. cost $83 million. Clean up costs
extremely low Some $61 million paid out inextremely low. Some $61 million paid out in fishery-related damages.
1996 SEA EMPRESS UK Clean up: $37 million. Total costs: more than $60 million.
1997 NAKHODKA Japan Compensation settled at approx $2191997 NAKHODKA Japan Compensation settled at approx. $219 million.
1999 ERIKA France Claims still being processed. Likely to exceed the $180 million available under ’92 Civil Liability and Fund Conventions.
*Where published data is available, caution is advised, as certain notoriously expensive cases can easily skew the analysis
Sources: International Tank Owners Pollution Federation; http://www.itopf.com/spill-compensation/cost-of-spills/
Top 10 Offshore Platform Losses, as of August 2004
Year Description Total Claim ($ Million)
This list does not include the offshore energy impact of Hurricane Katrina in 2005.
1988 Piper Alpha Platform, North Sea 1,480
1992 Hurricane Andrew (various) Gulf of 5501992 Hurricane Andrew (various), Gulf of Mexico
550
1989 South Pass Platforms, Gulf of Mexico 520
1991 Sleipner Platform, North Sea 363
1988 Enchova Platform, Brazil 325
1992 Goodwyn A Platform, Australia 231
1987 Bourbon Platform, Gulf of Mexico 200
1982 Nigg Bayjacket loss (BI), Scotland 170
1999 North Nemba Indonesia 1601999 North Nemba, Indonesia 160
1989 Sidki Platform, Gulf of Suez 127
Sources: Willis Energy Loss Database, August 2004
Number of Oil Tanker Spills Over 7 Tons1970-79:
25.4 spills per year
on
1980-89: 9.3 spills per year
on
1990-99: 7.9 spills per year
on
2000-09: 3.3 spills per year
120
140average on
averageon
averageon
average
80
100
r of s
pills
>700 Tonnes7-700 Tonnes
20
40
60
Num
ber
0
20
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
Source: The International Tanker Owners Pollution Federation Limited; Insurance Information Institute. 17
Top 20 Major Oil Tanker Spills by Size of Spill Since 1967, Plus Exxon Valdez
Position Shipname Year Location Spill size (tons)
1 Atlantic Empress 1979 Off Tobago, West Indies 287,000
2 ABT Summer 1991 700 nautical miles off Angola 260,000
3 Castillo de Bellver 1983 Off Saldanha Bay South Africa 252 0003 Castillo de Bellver 1983 Off Saldanha Bay, South Africa 252,000
4 Amoco Cadiz 1978 Off Brittany, France 223,000
5 Haven 1991 Genoa, Italy 144,000
6 Odyssey 1988 700 nautical miles off Nova Scotia, Canada 132,000
7 Torrey Canyon 1967 Scilly Isles, UK 119,000
This table gives a brief summary of 20 major oil spills since 1967
8 Sea Star 1972 Gulf of Oman 115,000
9 Irenes Serenade 1980 Navarino Bay, Greece 100,000
10 Urquiola 1976 La Coruna, Spain 100,000
11 Hawaiian Patriot 1977 300 nautical miles off Honolulu 95,000
oil spills since 1967. EXXON VALDEZ is
included for comparison although
this incident falls somewhere outside
12 Independenta 1979 Bosphorus, Turkey 95,000
13 Jakob Maersk 1975 Oporto, Portugal 88,000
14 Braer 1993 Shetland Islands, UK 85,000
15 Khark 5 1989 120 nautical miles off Atlantic coast of Morocco 80,000
16 A S 1992 L C S i 74 000
somewhere outside the group.
16 Aegean Sea 1992 La Coruna, Spain 74,000
17 Sea Empress 1996 Milford Haven, UK 72,000
18 Nova 1985 Off Kharg Island, Gulf of Iran 70,000
19 Katina P 1992 Off Maputo, Mozambique 66,700
20 Prestige 2002 Off Galicia, Spain 63,000
18
20 Prestige 2002 Off Galicia, Spain 63,000
35 Exxon Valdez 1989 Prince William Sound, Alaska, USA 37,000
Source: The International Tanker Owners Pollution Federation Limited; Insurance Information Institute.
Annual Quantity of Oil Spilled by Tankers, 1970-2009
700 Castillo de Bellver
ABT Summer260,000 tons
500
600Atlantic Empress
287,000 tons
252,000 tons
Khark V
300
400
500
0s o
f ton
s)
Sea Empress72,000 tons
Erika
80,000 tons
Hebei Spirit
Exxon Valdez37,000 tons
100
200
300
(000 20,000 tons
Prestige63,000 tons
10,500 tons
0
100
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
Source: The International Tanker Owners Pollution Federation Limited. 19
Historical Review of Recent US CAT LossesUS CAT Losses
2009 Was a Quiet Year in a Loud Decade
20
US Insured Catastrophe Losses
$100
.0$120
$100 Billion CAT Year is Coming Eventually($ Billions)
2000 A D d f Di t
$61.
9
$
$80
$100 2009 CAT Losses
Were Down 61% from
2008
2000s: A Decade of Disaster2000s: $193B (up 117%)
1990s: $89B
3 4 0.1
3
$26.
5
2.9 $2
7.5
$
2
$27.
1
0.6
5 $22.
9
16.9
$40
$60$8
.3
$7.4
$2.6 $1
0
$8.3
$4.6
$5.9 $1 $9. 2
$6.7 $10
$7.5
$2.7
$4.7
$5.5 $
$0
$20
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 20??
2009 CAT Losses Were Less than Half of 2008. 2005 Was by Far the Worst Year Ever for Insured Catastrophe.
Losses in the Decade of the 2000s Were More than Double the 1990s, But C
21
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 = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.
the Worst Has Yet to Come.
States with Highest Insured Catastrophe Losses in 2009($ Millions)
US insured catastrophe
Texas led the US with $2.458 billion in catastrophe losses
in 2009 even with no
$2,458.0$2,500
$3,000catastrophe
losses totaled $10.57 billion
from 28 events in 2009, down
$
in 2009 even with no hurricanes hitting the state. Texas also led the US with
$10.2 billion in insured losses in 2008 due largely to
$1,319.0$1,500
$2,000from $27.1
billion in 2008.Hurricane Ike.
$821.9 $776.9$604.5
$500
$1,000
$0Texas Colorado Georgia Kentucky Oklahoma
22
*As of February 22, 2010.Source: PCS/ISO
Natural Catastrophe Losses in the U.S. in 2009
Fatalities Estimated Estimated Overall Losses (US $m)
Insured Losses (US $m)
Tropical 8 Minor Minor
As of January 2010
Tropical Cyclones
8 Minor Minor
Severe Th d t
21 13,710 9,625†
Thunderstorms
Winter Storms 70 1,600 770† 2009 was a near record
fWildfires 6 280 185
Floods 22 1,600 232
year for thunderstorm
losses
Sources: (unmarked) - MR NatCatSERVICE, † - Property Claims Services (PCS)
U.S. Significant Natural Catastrophes in 2009
Date Event Est. Economic Estimated
$1+ billion economic loss and/or 50+ fatalities (as of Jan. 2010)
Losses (US $m) Insured Losses (US $m)
January 26 - 28 Winter Storm 1,100 565†
February 10 - 13 Thunderstorms 2,500 1,350†
March 25 - 26 Thunderstorms 1,500 995†
March – April Flood 1,000 75
April 9 -11 Thunderstorms 1,700 1,150†
June 10 -18 Thunderstorms 2,000 1,100†
July 20 -21 Thunderstorms 1,000 800†
Sources: (unmarked) - MR NatCatSERVICE, † - Property Claims Services (PCS)
U.S. Significant Natural Catastrophes, 1950 – 2009
Number of Events ($1+ billion economic loss and/or 50+ fatalities)
There were 7 Significant Natural Catastrophes in
Sthe United States in 2009
Sources: MR NatCatSERVICE
Losses from U.S. Significant Natural Catastrophes 1950 – 2009
($1+ billion economic loss and/or 50+ fatalities)
Overall losses from U.S. significant catastrophes totaled $10 8 billion; totaled $10.8 billion; insured losses totaled $5.9 billion
Sources: MR NatCatSERVICE
Insured Losses Due to Weather Perils in the U.S.: 1980 – 2009
(Tropical Cyclone, Thunderstorm, and Winter Storm only)
Insured losses due to weatherInsured losses due to weather perils in the U.S. in 2009 were
the highest on record for a year without a hurricane landfall
Sources: MR NatCatSERVICE, Property Claims Services
Distribution of US Insured CAT Losses: TX, FL, LA vs. US, 1980-2008*($ Billions)
$
Texas
$31.20 , 10%
$33.60 , 11%
Louisiana
$176 , 60% $57 10
Rest of US60% $57.10 ,
19%Florida
Florida Accounted for 19% of All US Insured CAT Losses
28
* All figures (except 2006-2008 loss) have been adjusted to 2005 dollars.Source: PCS division of ISO.
from 1980-2008: $57.1B out of $297.9B
Top 12 Most Costly Disastersin US History(Insured Losses, 2009 $ billions)
$45 3$50 Hurricane Katrina Remains, By Far, the
$23 8
$45.3
$30$35$40$45$50 Hurricane Katrina Remains, By Far, the
Most Expensive Insurance Event in US and World History
$11.3 $12.5$18.2
$22.8 $23.8
$8.5$8.1$7.3$6.2$5.2$4 2$10$15$20$25$
$5.2$4.2
$0$5
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo(1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Northridge(1994)
9/11Attacks(2001)
Andrew(1992)
Katrina(2005)
(2001)
8 of the 12 Most Expensive Disasters in US History Have Occurred Since 2004;
8 f th T 12 Di t Aff t d FL
29Sources: PCS; Insurance Information Institute inflation adjustments.
8 of the Top 12 Disasters Affected FL
Total Value of Insured Coastal Exposure
(2007, $ Billions)
$2,458.6Florida
$635.5$772.8
$895.1$2,378.9
$2,458.6FloridaNew York
TexasMassachusetts
New Jersey $522B Increase$224.4
$191.9$158.8$146 9
$479.9ConnecticutLouisiana
S. CarolinaVirginia
M i
$522B Increase Since 2004,
Up 27%
$146.9$132.8
$92.5$85.6$60 6
MaineNorth Carolina
AlabamaGeorgia
Delaware
In 2007, Florida Still Ranked as the #1 Most Exposed State to Hurricane Loss, with
$2.459 Trillion Exposure, an Increase of $522B or 27% from $1.937 Trillion in 2004$60.6
$55.7$51.8$54.1
$14.9
DelawareNew Hampshire
MississippiRhode Island
Maryland
The Insured Value of All Coastal Property Was $8.9 Trillion in 2007, Up 24% from $7.2 Trillion in 2004
30Source: AIR Worldwide
$
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
y
US Residual Market Exposure to Loss
$900
Katrina, Rita, and Wilma
($ Billions)
$656.7
$771.9$696.4
$600
$700
$800
$900
4 Florida Hurricanes
$372.3$430.5 $419.5
$292.0$281 8$400
$500
$600Hurricane Andrew
$292.0$244.2$221.3
$281.8
$150.0
$54.7$100
$200
$300
$01990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
In the 19-year Period Between 1990 and 2008, Total Exposure to Loss in the Resid al Market (FAIR & Beach/Windstorm) Plans Has S rged from
31Source: PIPSO; Insurance Information Institute
the Residual Market (FAIR & Beach/Windstorm) Plans Has Surged from $54.7B in 1990 to $696.4B in 2008
Capital/Policyholderp ySurplus (US)
Shrinkage, but Not Enoughto Trigger Hard Market
32
US Policyholder Surplus:1975–2009*
$550
($ Billions)
Surplus as of 12/31/09 was $511.5B, up from $437 1B as of 3/31/09 Recent peak was $521 8
$
$400
$450$500
$437.1B as of 3/31/09. Recent peak was $521.8 as of 9/30/07. Surplus as of 12/31/09 is now
only 2.0% below 2007 peak; Crisis trough was as of 3/31/09 16.2% below 2007 peak.
$200
$250$300
$350
“Surplus” is a measure of
$50$100
$150
$200 underwriting capacity. It is analogous to “Owners
Equity” or “Net Worth” in non-insurance organizations
$0
$
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09*
organizations
The Premium-to-Surplus Ratio Stood at $0.82:$1 as of
* As of 9/30/09Source: A.M. Best, ISO, Insurance Information Institute.
The Premium to Surplus Ratio Stood at $0.82:$1 as of12/31/09, A Record Low (at Least in Recent History)
Policyholder Surplus, 2006:Q4–2009:Q4($ Billions)
$521 8 $$540
Capacity Peaked at $521.8 as of 9/30/07
Capacity as of 12/31/09 was just 2.0% below the 2007 peak and will likely
set a new record in
$487.1$496.6
$512.8$521.8
$478.5$463 0
$490.8
$511.5$505.0$515.6$517.9
$480
$500
$520set a new record in
2010
$455.6$437.1
$463.0
$420
$440
$460
$380
$400
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
Declines Since 2007:Q3 Peak
08:Q2: -$16.6B (-3.2%) 08:Q3: $43 3B ( 8 3%)
09:Q2: -$58.8B (-11.2%)09:Q3: $31 8B ( 5 9%)
34Source: ISO, AM Best.
08:Q3: -$43.3B (-8.3%) 08:Q4: -$66.2B (-12.9%)09:Q1: -$84.7B (-16.2%)
09:Q3: -$31.8B (-5.9%)09:Q4: -$2.5B (-0.5%)
Global Reinsurance Capacity Shrankin 2008, Mostly Due to Investments
Global Reinsurance Capacity Source of Decline in 2008
$360
$345$350
$370 RealizedCapitalLosses
$310
$33031%
$300
$290
$310 55% 14%
Change inUnrealizedCapital Losses
Hurricanes
$2702007 2008 2009
Global Reinsurance Capacity
Capital Losses
35Source: AonBenfield Reinsurance Market Outlook 2009; Insurance Information Institute estimate for 2009.
Fell by an Estimated 17% in 2008, but Most Has Been Restored
Ratio of Insured Loss to Surplus for Largest Capital Events Since 1989*
18%
The Financial Crisis at its Peak Ranks as the Largest
“Capital Event” Over
(Percent)
13.8%
16.2%
15%
18% pthe Past 20+ Years
9.6%
6.9%
10.9%
6 2%
9%
12%
3.3%
6.2%
3%
6%
0%6/30/1989Hurricane
Hugo
6/30/1992HurricaneAndrew
12/31/93NorthridgeEarthquake
6/30/01 Sept.11 Attacks
6/30/04Florida
Hurricanes
6/30/05Hurricane
Katrina
FinancialCrisis as of3/31/09**
36
* Ratio is for end-of-quarter surplus immediately prior to event. Date shown is end of quarter prior to event** Date of maximum capital erosion; As of 9/30/09 (latest available) ratio = 5.9%Source: PCS; Insurance Information Institute
Hugo Andrew Earthquake Hurricanes Katrina 3/31/09**
Historically, Hard Markets FollowWhen Surplus “Growth” is Negative*
30%
(Percent)Surplus growth is now positive but premiums
continue to fall, a departure from the historical pattern
15%
20%
25%p
0%
5%
10%
15%
-10%
-5%
0%
-15%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 09E10P
NWP % change Surplus % change
Sharp Decline in Capacity is a Necessary but
37
* 2009 NWP and Surplus figures are % changes as of Q4:09 vs Q4:08Sources: A.M. Best, ISO, Insurance Information Institute
Sharp Decline in Capacity is a Necessary butNot Sufficient Condition for a True Hard Market
Financial Strength & RatingsFinancial Strength & Ratings
Industry Has Weathered the Storms Well
38
P/C Insurer Impairments, 1969–2009p
60 5860
70 5 of the 11 are Florida companies (1 of these
5 is a title insurer)
649 50 48
55
541
49 5047
40
50
6034
19 6
36
3134
296
3118 19
351820
30
40
815
127
11 9 913 12
19
16 14 13
1 612
1 1 114 15
711
5
0
10
20
0
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 09p
The Number of Impairments Varies Significantly Over the P/C Insurance
Source: A.M. Best; Insurance Information Institute.
p g yCycle, With Peaks Occurring Well into Hard Markets
P/C Premium GrowthP/C Premium GrowthPrimarily Driven by the
I d t ’ U d iti C lIndustry’s Underwriting Cycle, Not the Economy
40
Strength of Recent HardMarkets by NWP Growth
25%
(Percent)1975-78 1984-87 2000-03
Good News
15%
20%
Good NewsP/C insurance
industry should see positive
growth in 2011
10%
15% growth in 2011 for the first time
since 2006
0%
5%
Net Written Premiums Fell 0.7% in 2007 (First Decline Since 1943) b 2 0% in 2008 and 3 7%
-10%
-5%
1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 F
Decline Since 1943) by 2.0% in 2008, and 3.7% in 2009, the First 3-Year Decline Since 1930-33
During the Great Depression. Expected decline of 1.6% in 2010.
41
7 72 73 74 75 76 77 78 79 80 8 8 2 83 84 85 86 87 88 89 90 9 9 2 93 94 95 96 97 98 99 00 0 0 2 03 04 05 06 07 08 09 10F
Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute
Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2009)
Q04
Q04
Q04
Q04
Q05
Q05
Q05
Q05
Q06
Q06
Q06
Q06
Q07
Q07
Q07
Q07
Q08
Q08
Q08
Q08
Q09
Q09
Q09
Q09
(Percent)-0
.1%
-2%
0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Magnitude of Price Declines Shrank
During Crisis
-3.2
%
% -4.6
%
-2.7
%
-3.0
%
3% .1%
4.9% % %
-6%
-4%
During Crisis, Reflecting Shrinking
Capital, Reduced Investment Gains,
Deteriorating Underwriting
-5.9
%-7
.0%
4% 7%
-8.2
%-
-5.
6%
-6.4
% -5 - 4
-5.8
%-6
.0%
-10%
-8%
Underwriting Performance, Higher
Cat Losses and Costlier Reinsurance
-9.
-9.7
-9.6
-11.
3%
-11.
8%
.3% -12.
0%
5% 2.9% -1
1.0%
-14%
-12%
KRW EffectMarket Remains Soft as Capital
42
-13
-13. -1
2
-16%
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
pRestored and Underwriting Losses Fall
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2009:Q4Percentage Change (%)
Peak = 2004:Q4
Market has Been Soft for 6 years
Peak 2004:Q4 +28.5%
Soft for 6 years and Remains Soft
as Capital is Restored and Underwriting Losses FallLosses Fall
KRW Effect
Trough = 2004:Q4 -13.6%
43Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Investment PerformanceInvestment Performance
Investments Are a PrincipleS f D li i P fi biliSource of Declining Profitability
44
Property/Casualty Insurance Industry Investment Gain: 1994–20091
$64.0$70
($ Billions)
$42.8$47.2
$52.3
$44.4 $45.3$48.9
$59.4$55.7
$39 0
$58.0$51.9
$56.9
$50
$60
$35.4 $36.0$31.7
$39.0
$20
$30
$40
$0
$10
$20
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09P
Investment Gains Fell by 50% In 2008 Due to Lower Yields,Poor Equity Market Conditions. In 2009, the Lower Realized Capital Losses
Helped Offset Lo er In estment IncomeHelped Offset Lower Investment Income1 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.
Treasury Yield Curves: Pre-Crisis (July 2007) vs. Dec. 2009
4 82% 4.96% 5.04% 4.96% 4 82% 4 82% 4 88% 5.00% 4 93% 5.00% 5.19%6%
3.59%
4.40% 4.49%4.82% 4.96% 4.96% 4.82% 4.82% 4.88% 4.93%
4%
5%
Treasury yield curve is near its most depressed level in at
2.34%
3.07%
2%
3%
most depressed level in at least 45 years. Investment
income is falling as a result
0 03% 0 05% 0.17% 0.37%0.87%
1.38%
1%
2%
December 2009 Yield CurvePre-Crisis (July 2007)
0.03% 0.05%0%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
St k Di id d C t Will F th P I t t I
46
Stock Dividend Cuts Will Further Pressure Investment Income
Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
A 100 Combined Ratio Isn’t What ItOnce Was: 90-95 is Where It’s At NowCombined Ratio / ROE
15.9%110 18%
Combined ratio of about 100 generated a 6% ROE in 2009, 10%
in 2005 and16% in 1979
97.5100.6 100.1 100.7
99.3101.0
9 6%
5 9%14.3%
12.7%
100
105
12%
15%
92.6 7.3%
9.6%
8.9%90
95
6%
9%
4.4%
80
85
1978 1979 2003 2005 2006 2008* 2009*0%
3%
1978 1979 2003 2005 2006 2008* 2009*
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s Depressed
* 2009/2008 figures are return on average statutory surplus. 2008 and 2009 figures exclude mortgage and financial guaranty insurersSource: Insurance Information Institute from A.M. Best and ISO data
Investment Environment to Generate Risk Appropriate ROEs
Underwriting Trends –Underwriting Trends Financial Crisis Does Not
Directly Impact UnderwritingDirectly Impact Underwriting Performance: Cycle, Catastrophes
Were 2008’s DriversWere 2008’s Drivers
48
P/C Insurance Industry Combined Ratio, 2001–2009*
Best C bi d
As Recently as 2001, Insurers Paid Out
Relatively Low CAT C li l
2005 Ratio Benefited from H U f Combined
Ratio Since 1949 (87.6)
Insurers Paid Out Nearly $1.16 for Every
$1 in Earned Premiums
Low CAT Losses, Reserve Releases
Cyclical Deterioration
Heavy Use of Reinsurance
Which Lowered Net Losses
115.8120
99 3101.0100.8100.1
107.5110
95.7
99.3
92.6
98.4
90
100
49
* Excludes Mortgage & Financial Guaranty insurers in 2008/2009. Including M&FG, 2008=105.0, 2009=101.0 Sources: A.M. Best, ISO.
902001 2002 2003 2004 2005 2006 2007 2008 2009
ProfitabilityProfitability
Historically Volatiley
50
P/C Net Income After Taxes1991–2009 ($ Millions)
,496
65,7
77
$70 000
$80,000 2005 ROE*= 9.6%2006 ROE = 12.7%
P-C Industry profits for full-year 2009 were up sharply from 2008, but are still well
below pre crisis levels
19
$62$6
44,1
55
501
$50,000
$60,000
$70,000 2007 ROE = 10.9%2008 ROE = 0.3%2009 ROAS1 = 5.8%
below pre-crisis levels
78 ,316
0,59
8
$24,
404 $3
6,81
$30,
773
1,86
5
$30,
029
$28,
311$4
0,55
9
$38,
5
$30,000
$40,000
$50,000
$14,
17
$5,8
40
$19,
$10,
870 $20 $ $2
$3,0
46
$3,0
43
$20
$10,000
$20,000
$ $
-$6,970-$10,000
$0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.3% ROAS for 2009 and 4.4% for 2008. 2009 net income was $34.5 billion and $20.8 billion in 2008 excluding M&FG.Sources: A.M. Best, ISO, Insurance Information Institute
Insurance Information Institute Online:
www iii orgwww.iii.org
Thank you for your timed tt ti !and your attention!
Download at www.iii.org/presentationsg pTwitter: twitter.com/bob_hartwig