overview & outlook for the p/c insurance industry: trends, challenges & opportunities...
TRANSCRIPT
Overview & Outlook for theP/C Insurance Industry:
Trends, Challenges & OpportunitiesIndependent Insurance Agents of Westchester County
Tarrytown, NYMarch 5, 2015
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
2
Insurance Industry:Financial Update & Outlook
2014 Was a Reasonably Good Year2015: A Repeat of 2014?
2
P/C Industry Net Income After Taxes1991–2014E 2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013 ROAS1 = 10.3% 2014 ROAS1 = 7.6%
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.7% ROAS through 2014:Q2, 9.8% ROAS in 2013, 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
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$6
3,7
84
$5
0,2
03
$3
8,5
01
$2
0,5
59
$4
4,1
55
$6
5,7
77
-$6,970
$2
8,6
72
-$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 12 13
14E
Net income rose strongly (+81.9%) in 2013 vs. 2012 on lower cats, capital gains
$ Millions
-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
12
13
14
15
F1
6F
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2016F
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
1977:19.0%1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years
9 Years
History suggests next ROE peak will be in 2016-2017, but that seems unlikely
ROE
1975: 2.4%
2013 10.4%
2014E 7.6%
2015F=6.5%
2016F=6.3%
7
ROE: Property/Casualty Insurance by Major Event, 1987–2014E
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 2014 figure is through Q3:2014. Sources: ISO, Fortune; Insurance Information Institute.
-5%
0%
5%
10%
15%
20%
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 12 13 14*
P/C Profitability Is Both by Cyclicality and Ordinary Volatility
Hugo
Andrew
Northridge
Lowest CAT Losses in 15 Years
Sept. 11
Katrina, Rita, Wilma
4 Hurricanes
Financial Crisis*
(Percent)
Record Tornado Losses
Sandy
Low CATs
Modestly higher CATs
-5%
0%
5%
10%
15%
20%
25%
50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
14E
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers. 2014 figure is through Q3.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%
ROE
1975: 2.4%
2013 10.4%
2014:H1 7.6%
Back to the Future: Profitability Peaks & Troughs in the P/C Insurance Industry, 1950 – 2014*
1969: 3.9%
1965: 2.2%1957: 1.8%
1972:13.7%
1966-67: 5.5%1959:6.8%
1950:8.0%
1950-70: ROEs were lower in this period. Low interest rates,
low inflation, “Bureau” rate regulation all played a role
1970-90: Peak ROEs were much higher in this period while troughs
were comparable. High interest rates, rapid inflation, economic
volatility all played roles
1990-2010s: Déjà vu. Excluding mega-
CATs, this period is very similar to the 1950-1970 period
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.Source: A.M. Best; Insurance Information Institute.
Economic Shocks, Inflation:
1976: 22.0%
Tort Crisis1985/86: 22.2%
Post-9/112002:15.3%
Twin Recessions; Interest Rate
Hikes1987: 3.7% Great
Recession:2010: -4.9%
ROE
2014E 4.0%
NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926 – 2014E
Great Depression1932: -15.9% max drop
Post WW II Peak:1947: 26.2%
Start of WW II1941: 15.8%
1950-70: Extended period of stability in growth and
profitability. Low interest rates, low inflation, “Bureau”
rate regulation all played a role
1970-90: Peak premium growth was much higher in this period while troughs were comparable. Rapid inflation, economic
volatility, high interest rates, tort environment all played roles
1988-2000: Period of
inter-cycle stability
2010-20XX? Post-
recession period of
stable growth?
11
P/C Insurance Industry Combined Ratio, 2001–2014:Q3*
* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014:9M = 97.7. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
96.797.9
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 2012 2013 2014
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
PremiumsRelatively Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
Best Combined
Ratio Since 1949 (87.6)
13
Return on Net Worth (RNW) All Lines:2004-2013 Average
25
.6
18
.4
13
.4
13
.2
9.2
8.9
7.9
7.8
7.1
7.1
6.6
4.9
-1.0
-5
0
5
10
15
20
25
30
Fire
Inla
nd Mar
ine
All O
ther
Med
ical
Pro
f Lia
bility
Comm
Auto
Tota
l
Comm
erci
al MP
All Lin
es
Oth
er L
iabili
ty
Work
ers
Comp
PP Auto
Tota
l
Homeow
ners
MP
Farmow
ners
MP
Allied L
ines
Source: NAIC; Insurance Information Institute.
Commercial lines have tended to be more profitable than
personal lines over the past decade
14
RNW All Lines by State, 2004-2013 Average:Highest 25 States
20
.5
18
.4
14
.6
14
.3
13
.4
13
.3
12
.3
12
.1
12
.0
12
.0
11
.7
11
.4
11
.1
11
.1
10
.9
10
.8
10
.7
10
.7
10
.5
10
.5
10
.3
9.9
9.8
9.8
9.6
9.5
02468
1012141618202224
HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
Source: NAIC; Insurance Information Institute.
Profitability Benchmark: All P/C
US: 7.9%
15
9.2
8.6
8.4
8.3
8.2
8.2
8.1
8.0
7.9
7.7
7.7
7.5
7.4
6.8
6.6
6.4
6.1
5.7
5.3
5.2
5.0
4.3
2.5
1.9
-6.9
-9.3
-14-12-10
-8-6-4-202468
10
NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA
RNW All Lines by State, 2004-2013 Average: Lowest 25 States
Source: NAIC; Insurance Information Institute.
Some of the least profitable states over the past decade were hit hard
by catastrophes
Source: A.M. Best; Barclays research for estimates.
Reserve Change
P/C Insurance Loss Reserve Development, 1992 – 2016E*
Reserve releases are expected to gradually taper off, but will
continue to benefit the bottom line and combined ratio through
at least 2016
17
Profitability and Growth in New York P/C Insurance
Markets
Analysis by Line and Nearby State Comparisons
18
RNW All Lines: NY vs. U.S., 2004-2013
Source: NAIC, Insurance Information Institute
-15%
-10%
-5%
0%
5%
10%
15%
20%
04 05 06 07 08 09 10 11 12 13
US All Lines NY All Lines
(Percent)
Average 2004-2013US: 7.9%NY: 5.2%
Great Recession
Sandy
19
RNW PP Auto: NY vs. U.S., 2004-2013
Source: NAIC, Insurance Information Institute
-5%
0%
5%
10%
15%
20%
25%
04 05 06 07 08 09 10 11 12 13
US PP Auto NY PP Auto
Average 2004-2013US: 7.1%NY: 8.3%
Sandy
20
NY No-Fault (PIP) Claim Severity Has Trended Up Sharply Upward, 2004-2014*
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*$5,000
$5,500
$6,000
$6,500
$7,000
$7,500
$8,000
$8,500
$9,000
$9,500
$10,000
$5,873$6,129
$6,853
$7,492
$8,269
$8,714 $8,694
$7,913$8,299
$8,573
$9,331
*2014 figure is for the four quarters ending in 2014:Q3 (latest available).Sources: Insurance Information Institute from ISO/PCI Fast Track data.
No-fault claim severity (average cost per claim) increased by 17.9%
($1,418) between 2011 and 2014* and 58.7% ($3,458) since 2004
21
RNW Comm. Auto: NY vs. U.S.,2004-2013
Source: NAIC, Insurance Information Institute
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
04 05 06 07 08 09 10 11 12 13
US Comm Auto NY Comm Auto
(Percent)
Average 2004-2013US: 9.2%NY: 7.6%
Sandy
Great Recession
22
RNW Comm. Multi-Peril: NY vs. U.S.,2004-2013
Sources: NAIC, Insurance Information Institute
-10%
-5%
0%
5%
10%
15%
20%
25%
04 05 06 07 08 09 10 11 12 13
US Comm M-P NY Comm M-P
(Percent)
Average 2004-2013US: 8.9%NY: 10.6%
Sandy
23
RNW Homeowners: NY vs. U.S.,2004-2013
Source: NAIC, Insurance Information Institute
-10%
-5%
0%
5%
10%
15%
20%
25%
04 05 06 07 08 09 10 11 12 13
US HO NY HO
(Percent)
Average 2004-2013US: 6.6%NY: 15.9%
Sandy
24
RNW Workers Comp: NY vs. U.S.,2004-2013
Source: NAIC.
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
04 05 06 07 08 09 10 11 12 13
US WComp NY WComp
(Percent)
Average 2004-2013US: 7.1%NY: 4.9%
All Lines: 10-Year Average RNW NY & Nearby States
5.7%
8.0%
10.3%
11.1%
14.6%
5.2%
7.9%
0% 5% 10% 15% 20%
Vermont
Massachusets
Connecticut
Pennsylvania
U.S.
New Jersey
New York
2004-2013
New York All Lines profitability is below the US and regional
average
Source: NAIC, Insurance Information Institute
PP Auto: 10-Year Average RNW NY & Nearby States
7.1%
8.1%
8.3%
9.2%
13.7%
6.1%
7.7%
0% 5% 10% 15%
Vermont
Connecticut
New York
Massachusets
Pennsylvania
U.S.
New Jersey
2004-2013
New York PP Auto profitability is above the US average and below the regional
average
Source: NAIC, Insurance Information Institute
27
Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2012 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 New Jersey $1,219.93 1 Idaho $534.56
2 D.C. 1,154.91 2 South Dakota 556.51
3 New York 1,152.45 3 Iowa 561.26
4 Florida 1,127.93 4 North Dakota 576.08
5 Louisiana 1,112.53 5 Maine 582.43
6 Delaware 1,065.37 6 Wisconsin 598.84
7 Michigan 1,048.87 7 North Carolina 611.48
8 Rhode Island 1,034.50 8 Nebraska 616.78
9 Connecticut 986.73 9 Wyoming 618.81
10 Massachusetts 976.65 10 Kansas 632.07
(1) Based on average automobile insurance expenditures.
Source: © 2014 National Association of Insurance Commissioners.
New York ranked 3rd as the most expensive state in 2012, with an average expenditure for auto insurance of $1,152.45.
Comm. Auto: 10-Year Average RNW NY & Nearby States
7.6%
9.2%
12.1%
14.6%
18.0%
5.7%
9.1%
0% 5% 10% 15% 20%
Vermont
Massachusets
Connecticut
U.S.
Pennsylvania
New York
New Jersey
Source: NAIC, Insurance Information Institute
2004-2013
New York Commercial Auto profitability is below the US and regional average
Homeowners: 10-Year Average RNW NY & Nearby States
7.1%
14.6%
15.8%
15.9%
17.6%
6.6%
11.0%
0% 5% 10% 15% 20%
Massachusets
New York
Vermont
Connecticut
Pennsylvania
New Jersey
U.S.
Source: NAIC, Insurance Information Institute
2004-2013
New York Homeowners profitability is above the US and regional average
31
Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2012 (1)
Rank Most
expensive statesHO average
premium RankLeast
expensive statesHO average premium
1 Florida $2,084 1 Idaho $538
2 Louisiana 1,742 2 Oregon 567
3 Texas 1,661 3 Utah 580
4 Oklahoma 1,501 4 Wisconsin 631
5 Mississippi 1,314 5 Washington 648
6 Alabama 1,248 6 Nevada 674
7 Rhode Island 1,233 7 Delaware 678
8 Kansas 1,213 8 Arizona 691
9 Connecticut 1,160 9 Ohio 721
10 New York 1,158 10 Maine 741
(1) Includes policies written by Citizens Property Insurance Corp. (Florida) and Citizens Property Insurance Corp. (Louisiana), Alabama Insurance Underwriting Association, Mississippi Windstorm Underwriting Association, North Carolina Joint Underwriting Association and South Carolina Wind and Hail Underwriting Association. Other southeastern states have wind pools in operation and their data may not be included in this chart. 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. In addition, due to the Texas Windstorm Association (which writes wind-only policies) classifying HO-1, 2 and 5 premiums as HO-3, the average premium for homeowners insurance is artificially high.
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.Source: ©2014 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.
New York ranked as the 10th most expensive state for homeowners insurance in 2012, with an average expenditure of $1,158.
Workers Comp: 10-Year Average RNW NY & Nearby States
4.8%
6.7%
7.1%
7.6%
7.8%
4.1%
4.9%
0% 2% 4% 6% 8% 10%
Massachusets
Vermont
U.S.
Pennsylvania
New York
Connecticut
New Jersey
Source: NAIC, Insurance Information Institute
2004-2013
New York Workers Comp profitability is
below the US average and regional
average
33
All Lines DWP Growth: NY vs. U.S., 2004-2013
Source: SNL Financial.
7.5%
2.3% 3.
4%
0.5%
-2.1
%
-3.3
%
0.0%
3.7% 4.
6% 5.5%
9.0%
0.3%
4.0%
1.5%
-2.0
%
-3.6
%
0.0%
3.2%
5.3% 6.
0%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
04 05 06 07 08 09 10 11 12 13
US DWP: All Lines NY DWP: All Lines
(Percent)
Average 2004-2013US: 2.2%NY: 2.4%
34
Comm. Lines DWP Growth: NY vs. U.S., 2004-2013
Source: SNL Financial.
9.7
%
3.2
%
4.9
%
-0.3
%
-3.8
%
-7.3
% -2.5
%
5.1
%
5.1
%
6.1
%
13
.5%
2.0
% 7.3
%
2.1
%
-3.8
%
-7.3
% -1.7
%
3.1
% 6.1
%
7.8
%
-20%
-10%
0%
10%
20%
30%
04 05 06 07 08 09 10 11 12 13
US DWP: Comm. Lines NY DWP: Comm. Lines
(Percent)
Average 2004-2013US: 2.0%NY: 2.9%
35
Personal Lines DWP Growth: NY vs. U.S., 2004-2013
Source: SNL Financial.
5.2
%
2.0
%
2.6
%
1.2
%
-0.1
%
1.1
% 2.5
%
2.2
% 4.2
%
5.1
%
3.3
%
-1.5
%
-0.6
%
0.7
%
1.2
%
2.2
%
2.2
%
3.1
%
3.9
%
3.2
%
-10%
-5%
0%
5%
10%
15%
20%
04 05 06 07 08 09 10 11 12 13
US DWP: Personal Lines NY DWP: Personal Lines
(Percent)
Average 2004-2013US: 2.6%NY: 1.8%
36
Private Passenger Auto DWP Growth:NY vs. U.S., 2004-2013
Source: SNL Financial.
3.7%
0.1% 0.
8%
0.0%
-0.4
%
-0.1
% 1.5%
3.5% 4.
6%
1.6%
-4.3
% -2.6
%
-2.0
%
-0.1
% 1.6% 2.0% 2.
8% 3.6%
2.8%
1.5%
-10%
-5%
0%
5%
10%
15%
04 05 06 07 08 09 10 11 12 13
US DWP: PP Auto NY DWP: PP Auto
(Percent)
Average 2004-2013US: 1.5%NY: 0.5%
37
Homeowner’s MP DWP Growth: NY vs. U.S., 2004-2013
Source: SNL Financial.
10
.4%
7.4
%
7.4
%
4.2
%
0.5
%
3.8
% 4.9
%
3.8
% 5.7
%
6.2
%
9.7
%
7.7
%
5.5
%
8.2
%
4.4
%
3.5
%
2.8
%
3.7
%
4.5
%
4.2
%
0%
5%
10%
15%
20%
25%
04 05 06 07 08 09 10 11 12 13
US DWP: HO Lines NY DWP: HO Lines
(Percent)
Average 2004-2013US: 5.4%NY: 5.4%
INVESTMENTS: THE NEW REALITY
45
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
45
Property/Casualty Insurance Industry Investment Income: 2000–20141
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.4$45.7
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. *2014 figure is estimated based on annualized data through Q3.Sources: ISO; Insurance Information Institute.
($ Billions) Investment earnings are still below their 2007 pre-crisis peak
Book Yield on Property/Casualty Insurance Invested Assets, 2007–2016F
4.42
4.19
3.95
3.71
3.283.20
3.13
3.74
3.523.38
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
07 08 09 10 11 12 13 14E 15F 16F
The yield on invested assets continues to decline as returns on maturing bonds generally still exceed new money yields. The end of the Fed’s QE program in Oct. 2014 should allow some increase
in longer maturities while short term interest rate increases are unlikely until mid-to-late 2015
Sources: Conning.
(Percent)
Book yield in 2014 is down 114 BP from pre-crisis levels
CAPITAL/CAPACITY
57
Capital Accumulation Has Multiple Impacts
57
58
Policyholder Surplus, 2006:Q4–2014:Q3
Sources: ISO, A.M .Best.
($ Billions)$4
87.1
$496
.6
$512
.8
$521
.8
$478
.5
$455
.6
$437
.1 $463
.0 $490
.8 $511
.5 $540
.7
$530
.5
$544
.8
$559
.2
$559
.1
$538
.6
$550
.3
$567
.8
$583
.5
$586
.9 $607
.7
$614
.0
$624
.4 $653
.3
$671
.6
$673
.9
$662
.0
$570
.7
$566
.5
$505
.0
$515
.6
$517
.9
$400
$450
$500
$550
$600
$650
$700
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
13:Q
4
14:Q
1
14:Q
2
14:Q
3
2007:Q3Pre-Crisis Peak
Surplus as of 9/30/14 stood at a record high $673.9B
2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .
The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.
Drop due to near-record 2011 CAT losses
The P/C insurance industry entered 2015in very strong financial condition.
63
Alternative Capital
63
New Investors Continue to Change the Reinsurance Landscape
First I.I.I. White Paper on Issue Will Be Released Q1 2015
Global Reinsurance Capital (Traditional and Alternative), 2006 - 2014
2014 data is as of June 30, 2014.Source: Aon Benfield Analytics; Insurance Information Institute.
Total reinsurance capital reached a record $570B in 2013, up 68% from
2008.
But alternative capacity has grown 210% since 2008, to $50B. It has more than doubled in the past three years.
Alternative Capital as a Percentage of Traditional Global Reinsurance Capital
2014 data is as of June 30, 2014.Source: Aon Benfield Analytics; Insurance Information Institute.
Alternative Capital’s Share of Global Reinsurance Capital Has More Than Doubled Since 2010.
Catastrophe Bond Issuance and Outstanding: 1997-2014
67
Risk Capital Amount ($ Millions)
2014 Has Seen the Largest Cat Bond Ever - $1.5 Billion (Florida Citizens). Bond Issuance Set a Record.
Source: Guy Carpenter.
Reinsurance Pricing: Change in Rate on Line for Cat Business
2014 reflects change through June 30 from prior year end. 2015 is for January 1 renewals..Source: Guy Carpenter; Insurance Information Institute.
Catastrophe Prices Fell 11 Percent on January 1 Renewals, Driven by Emergence of New Capital, Mild Catastrophe Losses.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-20%
-10%
0%
10%
20%
30%
40%
14% 14%
-11%
-6%
76%
-9%
-16%
10%
-12%
-3%
7%
-7%
-17%
-11%
(Change from Previous Year)
Japan, NZ Quakes, US Tornadoes.
2001-02: WTC Losses, Falling
Stock, Bond Prices Dry Up Capital.
2006: Higher Rates After Record Hurri-
canes.
76%Alternative
Capital, Low Levels of
Catastrophe Drive Rates
Down.
74
Commercial Lines Pricing Trends
Survey Results Suggest Commercial Pricing Has
Flattened Out
74
75
Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2014)
-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%
-11
.0%
-6.4
%-5
.1%
-4.9
%-5
.8%
-5.6
%-5
.3%
-6.4
%-5
.2%
-5.4
% -2.9
%
2.7
% 4.4
%4
.3%
3.9
%5
.0%
5.2
%4
.3%
3.4
%2
.1%
1.5
%-0
.5%
0.1
%-0
.7%
-0.1
%0
.9%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
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
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Pricing as of Q4:2014 had turned (slightly) negative for only the 2nd time in 3 years
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
76
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2014:Q4
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Percentage Change (%)
Trough = 2007:Q3 -13.6%
Pricing Turned Negative in Early
2004 and Remained that
way for 7 ½ years
KRW : No Lasting Impact
Pricing turned positive in Q3:2011, the first increase in
nearly 8 years; Q1:2014 renewals were up 1.5%; Some insurers posted
stronger numbers.
Peak = 2001:Q4 +28.5%
79
Change in Commercial Rate Renewals, by Line: 2014:Q4
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewals Were Mixed to Flat in Q4:2014; Commercial Auto and EPL Led the Way
Percentage Change (%)
0.7%
2.3%2.8% 3.0%
-2.2%
-1.3%
-0.4% -0.3%
0.0% 0.1%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
Co
mm
erc
ial
Pro
pe
rty
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Co
nst
ruct
ion
Su
rety
Wo
rke
rsC
om
p
D&
O
EP
L
Co
mm
erc
ial
Au
to
Commercial Auto rate increases are large than any other line, followed
by Employment Practices
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
80
Performance by Segment
80
Private Passenger Auto Combined Ratio: 1993–2016F
10
1.7
10
1.3
10
1.3
10
1.0
10
9.5
10
7.9
10
4.2
98
.4
94
.3
95
.1
95
.5 98
.3 10
0.2
10
1.3
10
1.0
10
2.0
10
2.1
10
1.6
10
2.2
10
1.0
10
0.8
99
.5 10
1.1
10
3.5
80
85
90
95
100
105
110
115
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E15F16F
Private Passenger Auto Accounts for 37% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry
81Sources: A.M. Best (1990-2013); Insurance Information Institute (2014F – 2015F).
Homeowners Insurance Combined Ratio: 1990–2015F
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
89
.0 95
.6
11
6.6
10
5.8
10
6.9
12
2.3
10
4.1
94
.0
97
.5
99
.5
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 11 12 13 14E 15F
1
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
82
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.
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
2.4
10
7.9
10
3.4
98
.3 99
.9
98
.9
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 (1990-2014F); Conning (2015F) Insurance Information Institute.
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
83
Commercial Auto Combined Ratio: 1993–2015F
11
2.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4
94
.1 96
.8 99
.1
97
.8
10
3.4 10
6.8
10
6.5
10
6.4
10
5.2
11
8.1
11
5.7
11
6.2
80
85
90
95
100
105
110
115
120
125
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E 15F
Commercial Auto is Expected to Improve Only Slowly as Rate Gains Barely Offset Adverse Frequency and Severity Trends
84Sources: A.M. Best (1990-2014E);Conning (2015F); Insurance Information Institute.
Commercial Property Combined Ratio: 2007–2016F
72.4
105.
8
83.3 86
.5
85.4 89
.4
90.1
106.
5
105.
8
82.7
70
75
80
85
90
95
100
105
110
07 08 09 10 11 12 13 14E 15F 16F
Commercial Property Underwriting Performance Has Been Volatile in Recent Years, Largely Due to
Fluctuations in CAT Activity
Source: Conning Research and Consulting. 85
General Liability Combined Ratio: 2005–2015F
112.
9
95.1 99
.0
94.2
104.
1
101.
4
103.
0
103.
9107.
1 110.
8
99.8
80
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13F 14F 15F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting. 86
89
Growth Analysis by State and Business Segment
Post-Crisis Paradox? Premium Growth Rates Vary
Tremendously by State
89
90
-5%
0%
5%
10%
15%
20%
25%
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 12 13 1415
F14
F
Net Premium Growth: Annual Change, 1971—2016F
(Percent)1975-78 1984-87 2000-03
*Actual figure based on data through Q3 2014.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.
2015-16F: 4.0%
2014E: 3.9%*
2013: 4.6%
2012: +4.3%
92
Direct Premiums Written: Total P/CPercent Change by State, 2007-2013
74
.6
36
.9
31
.9
27
.4
25
.2
24
.9
22
.5
22
.2
16
.6
15
.9
15
.7
14
.5
14
.5
14
.3
12
.6
11
.9
11
.8
11
.2
10
.5
10
.3
9.9
9.8
9.3
9.1
9.0
8.6
0
10
20
30
40
50
60
70
80
ND
SD
OK
NE
KS IA VT
TX
WY
TN
MN
AR
AK IN WI
CO MI
KY
OH NJ
LA
SC VA
AL
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 StatesNorth Dakota was the country’s growth leader over the past 6 years with premiums written
expanding by 74.6%, fueled by the state’s energy boom
Growth Benchmarks: Total P/C
US: 7.9%
93
Direct Premiums Written: Total P/CPercent Change by State, 2007-2013
8.5
8.2
7.9
7.8
7.6
7.3
7.0
6.9
6.2
5.9
5.6
5.3
4.2
4.1
3.5
1.6
1.0
0.4
-0.7
-1.7
-1.9
-4.1
-5.7
-6.7
-12
.6
-15
.3
-20
-15
-10
-5
0
5
10
MS
CT
US
NC
GA
NY
MD
MA
UT
WA
PA IL RI
NH ID MT
ME
OR
CA
FL
DC AZ
WV HI
NV
DE
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 7 states and DC between
2007 and 2013
94
Direct Premiums Written: PP AutoPercent Change by State, 2007-2013
34
.1
26
.7
25
.8
24
.0
19
.7
18
.7
16
.8
15
.5
14
.9
14
.6
14
.4
14
.3
14
.2
14
.1
13
.8
13
.7
13
.6
13
.5
13
.5
12
.3
11
.4
10
.9
10
.7
10
.6
10
.5
10
.4
0
5
10
15
20
25
30
35
40
ND
TX MI
OK
SD
NE
NJ
TN
CO
KS FL IA KY WI
DE
UT VA
SC
NY LA
AR
US
MT
MO
WY
AL
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Growth Benchmarks: PPA
US: 10.9%
98
Direct Premiums Written: HomeownersPercent Change by State, 2007-2013
60.5
53.3
50.7
50.7
50.5
49.2
46.3
45.4
45.4
44.7
44.0
43.5
42.9
42.5
42.1
41.9
40.3
38.1
37.1
37.1
35.7
34.9
34.1
33.6
33.0
32.6
0
10
20
30
40
50
60
70
OK
ND
MN
AR
TN
SD
MO
CO
KY
KS WI
WY
NE IA GA
MT
TX
NM
OH IN AL IL SC
DE
UT ID
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
Growth Benchmarks: HO
US: 26.8%
99
Direct Premiums Written: HomeownersPercent Change by State, 2007-2013
32
.6
32
.5
31
.4
30
.6
30
.4
30
.3
29
.8
29
.6
27
.5
27
.2
26
.8
26
.4
25
.3
24
.6
22
.5
22
.3
20
.8
19
.7
19
.2
17
.2
16
.1
15
.4
8.3
8.0
2.1
0.5
0
5
10
15
20
25
30
35
40
MS
NC VA
NJ
CT RI
LA
PA
WV
WA
US
NH
ME
MD
NY
OR
MA
AK
DC AZ
VT MI
HI
CA
FL
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
The collapse of the housing bubble hit CA, FL and NV hard, leading
to the slowest growth rates in the US between
2007 and 2013
100
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
91
.1
42
.1
41
.4
33
.7
26
.3
25
.8
23
.6
19
.1
15
.6
14
.0
11
.3
10
.0
9.8
6.8
6.7
6.5
4.1
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
0
10
20
30
40
50
60
70
80
90
100
ND
OK
SD VT
NE IA KS ID AK
TX
WY
MN IN AR
TN W
I
OH
MA
CT
NM LA
MS
NJ
NY
US
MO
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
Only 30 states showed any
commercial lines growth from 2007
through 2013
Growth Benchmarks: Commercial
US: 1.3%
101
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
0.5
0.4
0.2
0.1
-0.5
-0.8
-0.9
-1.0
-1.1
-1.1
-1.9
-2.0
-2.1
-2.7
-3.3
-3.7
-4.3
-4.9
-10
.7
-11
.4
-11
.7
-12
.6
-12
.7
-13
.6
-22
.4
-25
.1
-30
-25
-20
-15
-10
-5
0
5
MD
NH PA
CO IL
WA
VA
KY
NC
ME RI
MI
SC AL
GA
CA
UT
DC
OR
MT HI
DE FL AZ
WV
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
States with the poorest performing economies also produced the most negative
net change in premiums of the past 6 years
Nearly half the states have yet to see commercial lines premium
volume return to pre-crisis levels
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
106
Growth Will Expand Insurer Exposure Base Across Most Lines
106
107
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 2/15; Insurance Information Institute.
2.7%
1.8%
-1.8
%1.
3%-3
.7%
-5.3
%-0
.3%
5.0%
2.3%
2.2% 2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
2.7%
1.8%
3.5%
-2.1
%4.
6% 5.0%
2.2% 2.7%
2.9%
3.0%
2.9%
2.8%
2.8%
2.8%
2.7%
-8.9%
4.5%
1.4%
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
2
00
7
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
15
:1Q
15
:2Q
15
:3Q
15
:4Q
16
:1Q
16
:2Q
16
:3Q
16
:4Q
Demand for Insurance Should Increase in 2015 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in in June
2009
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
Q1 2014 GDP data were hit hard by this
year’s “Polar Vortex” and harsh
winter
State-by-State Leading Indicatorsthrough 2015:Q2
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 108
The economic outlook for most of the US is generally
positive, though flat-to-negative for
2 states
Growth in the West is
finally beginning to pick up
109
Real GDP by State Percent Change, 2013:Highest 25 States
9.7
7.6
5.1
4.2
4.1
3.8
3.8
3.7
3.1
3.0
3.0
2.9
2.8
2.7
2.7
2.4
2.3
2.2
2.1
2.0
2.0
1.9
1.9
1.9
1.8
1.8
0
1
2
3
4
5
6
7
8
9
10
ND WY WV OK ID CO UT TX SD NE MT IA MN OR WA AR NC FL IN MI CA VT KS HI GA US
Pe
rce
nt
Ch
an
ge
(%
)
Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2013—by far
Only 9 states experienced growth in excess of 3% in 2013, which is what we would see nationally in a
more typical recovery
Growth Benchmarks: Real GDP
US: 1.8%
110
1.8
1.7
1.6
1.6
1.6
1.6
1.5
1.4
1.3
1.2
1.1
1.1
1.0
0.9
0.9
0.9
0.9
0.8
0.8
0.8
0.7
0.7
0.1
0.0
-0.5
-2.5
-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.5
OH WI MA DE KY MS NM RI LA SC NJ AZ NV CT ME NH IL MO AL TN NY PA VA MD DC AL
Pe
rce
nt
Ch
an
ge
(%
)Real GDP by State Percent Change, 2013: Lowest 25 States
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
DC and Alabama were the only
states to shrink in 2013
Growth rates in 11 states were still below 1% in
2013
113
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4
15.5 16
.4 16.9
17.1
16.9
16.8
16.9
16.8
16.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F 20F
(Millions of Units)
Auto/Light Truck Sales, 1999-2020F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/15 and 10/14); Insurance Information Institute.
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 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
2014 and beyond
Truck purchases by contractors are
especially strong
Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. New vehicles will generate more physical damage insurance coverage but will be more expensive to
repair. PP Auto premium might grow by 5% - 6%.
Sales have returned to pre-
crisis levels
114
Monthly Change in Auto Insurance Prices, 1991–2015*
*Percentage change from same month in prior year; through January 2015; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '14
Cyclical peaks in PP Auto tend to occur roughly every 10 years (early
1990s, early 2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
The Jan. 2015 reading of 5.0% is
up from 3.4%a year earlier
115
Average Expenditures on Auto Insurance
$651$668
$691$705
$726
$786
$830$842
$831$816
$795$789 $787 $792 $798$815
$835$856
$877
$690$685$703
$600
$650
$700
$750
$800
$850
$900
$950
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E
14E
15F
Countrywide Auto Insurance Expenditures decreased by 6.5% from 2004 through 2009, rising gradually since the with annual increases
in the 2.0% to 2.5% range* Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute estimate for 2013-2015 based on CPI and other data.
The average expenditure on auto insurance remained below 2004 until 2013
116
(Millions of Units)
New Private Housing Starts, 1990-2020F
1.4
81
.47 1
.62
1.6
41
.57
1.6
0 1.7
1 1.8
5 1.9
6 2.0
71
.80
1.3
60
.91
0.5
50
.59
0.6
1 0.7
8 0.9
21
.01 1
.16 1.3
0 1.4
21
.46
1.4
81
.50
1.3
51.4
61
.29
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F16F17F18F19F20F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/15 and 10/14); Insurance Information Institute.
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction
for several more years
NFIB Small Business Optimism Index
January 1985 through December 2014
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 119
Small business optimism remains near its post-
crisis highs
121
43,6
9448
,125
69,3
0062
,436
64,0
04 71,2
77 81,2
3582
,446
63,8
5363
,235
64,8
53 71,5
4970
,643
62,3
0452
,374
51,9
5953
,549
54,0
2744
,367
37,8
8435
,472
40,0
9938
,540
35,0
3734
,317
39,2
0119
,695 28
,322
43,5
4660
,837
56,2
8247
,806
40,0
7533
,212
26,9
83
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
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 12 13 14
Business Bankruptcy Filings,1980-2014
Sources: American Bankruptcy Institute (1980-2012) at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013-14 data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2014 bankruptcies totaled 26,983, down 18.8% from 2013—the 5th consecutive year of decline.
Business bankruptcies more than tripled during the financial crisis.
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%
121
CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK
125
The Construction Sector Is Critical to the Economy and the P/C Insurance Industry
125
126
Value of New Private Construction: Residential & Nonresidential, 2003-2014*
Billions of Dollars
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
03 04 05 06 07 08 09 10 11 12 13 14*
Non ResidentialResidential
Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates
$298.1
$15.0
$613.7
New Construction peaks at $911.8. in 2006
Trough in 2010 at $500.6B,
after plunging 55.1% ($411.2B)
2014: Value of new pvt. construction hits $698.6B as of Nov. 2014, up 40%
from the 2010 trough but still 23% below 2006 peak
126
$261.8
$238.8
$349.6
$349.0
*2014 figure is a seasonally adjusted annual rate as of December.Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
127
Value of Construction Put in Place, Dec. 2014 vs. Dec. 2013*
6.7%
3.2%
6.8%
2.2%
0.4%
-4.0%
5.3%
-6%
-4%
-2%
0%
2%
4%
6%
8%
TotalConstruction
Total PrivateConstruction
Residential--Private
Non-Residential--
Private
Total PublicConstruction
Residential-Public
Non-Residential--
Public
Overall Construction Activity is Up, But Growth In the Private Sector Slowed in Late 2014 While Picking in the State/Local Sector Government
Sector as Budget Woes Ease in Some Jurisdictions
Growth (%)
Private sector construction activity is up in the
residential and nonresidential segments but
growth is sluggish
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +0.4% Public: +6.7%
Public sector construction activity is finally beginning to pick up after years of
decline
131
$314.9$304.0
$286.4 $279.0 $271.4$281.1
$216.1 $220.2$234.2
$255.4
$289.1$308.7
$0
$50
$100
$150
$200
$250
$300
$350
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
($ Billions)
Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Contracted As State/Local Governments Grappled with
Deficits and Federal Sequestration
Value of New Federal, State and Local Government Construction: 2003-2014*
*2014 figure is a seasonally adjusted annual rate as of December; http://www.census.gov/construction/c30/historical_data.html Sources: US Department of Commerce; Insurance Information Institute.
Construction across all levels of government
peaked at $314.9B in 2009
Austerity Reigns
Govt. construction MAY be turning a corner; still down
$33.8B or 10.7% since 2009 peak
133
Construction Employment,Jan. 2010—December 2014*
*Seasonally adjusted.Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,58
15,
522
5,54
25,
554
5,52
75,
512
5,49
75,
519
5,49
95,
501
5,49
75,
468
5,43
55,
478
5,48
55,
497
5,52
45,
530
5,54
75,
546
5,58
35,
576
5,57
75,
612
5,62
95,
644
5,64
05,
636
5,61
55,
622
5,62
75,
630
5,63
35,
649
5,67
35,
711
5,73
5 5,78
35,
799
5,79
25,
791
5,80
15,
804
5,80
55,
822
5,83
05,
849
5,87
6 5,92
75,
927
5,96
46,
000
6,00
96,
017
6,04
76,
064
6,08
26,
098
6,11
8 6,16
6
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
6,200
6,300
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13Fe
b-13
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Sep
-12
Oct
-13
Nov
-13
Dec
-13
Jan-
14Fe
b-14
Mar
-14
Apr
-14
May
-14
Jun-
14Ju
l-14
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Construction employment is +731,000 above
Jan. 2011 (+13.4%) trough
(Thousands)
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.
ENERGY SECTOR: OIL & GAS INDUSTRY FUTURE IS BRIGHT
BUT VOLATILE
135
US Is Becoming an Energy Powerhouse but Fall in Prices
Will Have Negative Impact
135
20.2 19.9 20.0 19.518.9 19.4
20.221.1
21.622.4
24.0
25.3 25.6
20.6
10
12
14
16
18
20
22
24
26
28
00 01 02 03 04 05 06 07 08 09 10 11 12 13
U.S. Natural Gas Production, 2000-2013
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
Trillions of Cubic Ft. per Year
The U.S. is already the world’s largest natural gas producer—
recently overtaking Russia. This is a potent driver of commercial
insurance exposures
138
Employment in Oil & Gas Extraction,Jan. 2010—Dec. 2014*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Feb
-10
Apr
-10
Jun-
10
Aug
-10
Oct
-10
Dec
-10
Feb
-11
Apr
-11
Jun-
11
Aug
-11
Oct
-11
Dec
-11
Feb
-12
Apr
-12
Jun-
12
Aug
-12
Oct
-12
Dec
-12
Feb
-13
Apr
-13
Jun-
13
Aug
-13
Oct
-13
Dec
-13
Feb
-14
Apr
-14
Jun-
14
Aug
-14
Oct
-14
Dec
-14
150
160
170
180
190
200
210
220
156.
615
6.9
157.
515
8.7
158.
215
8.3
159.
716
0.1
161.
216
1.4
160.
816
2.8
164.
416
6.8
169.
217
0.1
171.
117
2.6
173.
917
6.4
177.
917
8.6
180.
418
1.4
182.
418
4.9
185.
218
6.2
187.
818
8.6
189.
018
9.2
189.
019
0.6
192.
419
3.2
194.
819
4.2
194.
919
5.7
196.
019
7.5
198.
719
9.7
200.
620
3.1
204.
320
5.3
207.
820
7.5
207.
921
0.1
211.
321
2.2
212.
221
3.1
215.
121
5.7
216.
1
Oil and gas extraction employment is up 37.7% since Jan. 2010 as the energy sector
booms. (Previous boom in 1979-81, employment peak at
267,000 in March 1982.)
(000)
Highest employment in this sector since July 1986.
MANUFACTURING SECTOR OVERVIEW & OUTLOOK
139
The U.S. Is Experiencing a Mini Manufacturing Renaissance but Headwinds from Weak Export
Markets and Strong Dollar139
140
$200,000
$300,000
$400,000
$500,000
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—November 2014
* Seasonally adjusted; Data published Jan. 6, 2015.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments in Nov. 2014 exceeded the pre-crisis (July 2008) peak but has declined in recent months. Manufacturing is energy-intensive and growth leads to
gains in many commercial exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
$ Millions
140
The value of Manufacturing Shipments in Nov. 2014 was
$495.7B—down slightly since the July 2014 record high of $508.1B
142
Manufacturing Employment,Jan. 2010—December 2014*
11,4
6011
,460
11,4
6611
,497
11,5
3111
,539
11,5
5811
,548
11,5
5411
,555
11,5
7711
,590
11,6
2411
,662
11,6
8211
,707
11,7
1511
,724
11,7
4711
,760
11,7
6211
,770
11,7
6911
,797
11,8
4111
,870
11,9
1011
,920
11,9
2611
,935
11,9
5711
,943
11,9
2511
,931
11,9
3811
,951
11,9
6511
,988
11,9
8411
,977
11,9
7211
,965
11,9
4811
,963
11,9
9312
,011
12,0
4612
,053
12,0
6112
,081
12,0
8512
,094
12,1
0912
,130
12,1
5412
,157
12,1
6912
,193
12,2
2212
,239
11,250
11,500
11,750
12,000
12,250
12,500Ja
n-10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-Ja
n-12
2/30
/2M
ar-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2A
ug-1
2S
ep-1
2O
ct-1
2N
ov-1
2D
ec-
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
3O
ct-1
3N
ov-1
3D
ec-
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-1
4Ju
n-14
Jul-1
4A
ug-1
4S
ep-1
4O
ct-1
4N
ov-1
4D
ec-
Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted. Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands) Since Jan 2010, manufacturing
employment is up (+877,000 or +7.7%)and still growing.
147
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend Has Greatly Improved
147
148
Unemployment and Underemployment Rates: Still Too High, 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
Jan14
Jan14
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 5.7% in Jan. 2015. 4.5% to
5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through January 2015, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.
148
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 11.3% in Jan. 2015.8% to 10% is
“normal.”
149
US Unemployment Rate Forecast4
.5%
4.5
%4
.6%
4.8
%4
.9% 5.4
% 6.1
%6
.9%
8.1
%9
.3%
9.6
% 10
.0%
9.7
%9
.6%
9.6
%
8.9
%9
.1%
9.1
%8
.7%
8.3
%8
.2%
8.0
%7
.8%
7.7
%7
.6%
7.3
%7
.0%
6.6
%6
.2%
6.1
%5
.7%
5.6
%5
.4%
5.3
%5
.2%
5.2
%5
.1%
5.0
%5
.0%
9.6
%
4%
5%
6%
7%
8%
9%
10%
11%
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
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
15
:Q2
15
:Q3
15
:Q4
16
:Q1
16
:Q2
16
:Q3
16
:Q4
Rising unemployment eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10% in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/15 edition); Insurance Information Institute.
2007:Q1 to 2016:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 5.0% by Q4 of 2015.
Jobless figures have been revised
downwards for 2015/16
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
81
92
94 11
01
20
11
71
07
19
91
49
94
72
22
32
31 3
20
16
61
86 21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
82
22
20
11
70
18
01
53
24
72
72
86
18
31
75 22
33
13
23
8 27
22
43
20
92
35
21
84
14
32
02
67
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan-
07F
eb-0
7M
ar-0
7A
pr-0
7M
ay-0
7Ju
n-07
Jul-0
7A
ug-0
7S
ep-0
7O
ct-0
7N
ov-0
7D
ec-0
7Ja
n-08
Feb
-08
Mar
-08
Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09F
eb-0
9M
ar-0
9A
pr-0
9M
ay-0
9Ju
n-09
Jul-0
9A
ug-0
9S
ep-0
9O
ct-0
9N
ov-0
9D
ec-0
9Ja
n-10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11F
eb-1
1M
ar-1
1A
pr-1
1M
ay-1
1Ju
n-11
Jul-1
1A
ug-1
1S
ep-1
1O
ct-1
1N
ov-1
1D
ec-1
1Ja
n-12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
3O
ct-1
3N
ov-1
3D
ec-1
3Ja
n-14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14Ju
l-14
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Monthly Change in Private Employment
January 2007 through Jan. 2015 (Thousands, Seasonally Adjusted)
Private Employers Added 11.20 million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 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
320,000 private sector jobs were
created in Jan. In March 2014, the last of the private jobs lost in the Great Recession were
recovered
150
Jobs Created2014: 2.723 Mill2013: 2.368 Mill2012: 2.294 Mill2011: 2.400 Mill2010: 1.277 Mill
2,723,000 jobs were created
in 2014
151
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2014:Q3
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
$7,250
$7,500
$7,75005
:Q1
05:Q
205
:Q3
05:Q
406
:Q1
06:Q
206
:Q3
06:Q
407
:Q1
07:Q
207
:Q3
07:Q
408
:Q1
08:Q
208
:Q3
08:Q
409
:Q1
09:Q
209
:Q3
09:Q
410
:Q1
10:Q
210
:Q3
10:Q
411
:Q1
11:Q
211
:Q3
11:Q
412
:Q1
12:Q
212
:Q3
12:Q
413
:Q1
13:Q
213
:Q3
13:Q
414
:Q1
14:Q
214
:Q3
Prior Peak was 2008:Q3 at $6.54 trillion
Recent trough (2009:Q1) was $6.23 trillion, down
5.3% from prior peak
Growth rates2011:Q3 over 2010:Q3: 4.1%2012:Q3 over 2011:Q3: 3.2%2013:Q3 over 2012:Q3: 3.6%2014:Q3 over 2013:Q3: 4.4%
151
Latest (2014:Q3) was $7.46 trillion, a new peak--$1.21 trillion above 2009 trough
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
152
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2014P
*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are I.I.I. estimates..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 Gains Suggest WC NWP Will Grow Again in 2015
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
$33.8B in 2010 after peaking at $47.8B
in 2005
Workers Compensation Operating Environment
157
Workers Comp Results Have Improved Substantially in Recent Years
157
Workers Compensation Combined Ratio: 1994–2014E
102.
0
97.0 10
0.0
101.
0
112.
6
108.
6
105.
1
102.
7
98.5
103.
5
104.
5 110.
6 115.
0
115.
0
108.
0
101.
0
96.0
121.
7
107.
0
115.
3
118.
2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-
2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2014F) and are for private carriers only; Insurance Information Institute. 158
WC results have improved markedly
since 2011
Workers Compensation Premium: Third Consecutive Year of IncreaseNet Written Premium
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 130
10
20
30
40
50
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2 31.1
34.737.8 38.6 37.6
33.830.3 29.9
32.335.1 37.0
35.3 35.734.3 35.4
33.6
30.128.5
26.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.6 33.836.4
39.641.9
State Funds ($ B)
Private Carriers ($ B)
Pvt. Carrier NWP growth was +5.4% in 2013 and
8.7% in 2012
$ Billions
Calendar Yearp Preliminary
Source: 1990–2013p Private Carriers, Annual Statement Data, NCCI.1996–2013p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
Workers Compensation Lost-Time Claim Frequency Declined in 2013Lost-Time Claims
161
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13P-10
-8
-6
-4
-2
0
2
4
6
8
10
12
-4.2 -4.4
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5 -4.1 -3.7
-6.6
-4.5
-2.2
-4.3
-5.7
11
-4
-6.1
-2.0
3.5
-1
AdjustedIndicated
Frequency Change: 2007—2012
Contracting: 7.97.1 -9.3%
Manufacturing: 13.612.0 -11.8%
Percent
Accident Year*Adjustments primarily due to significant audit activity.2013p: Preliminary based on data valued as of 12/31/20131991–2012: Based on data through 12/31/2012, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesFrequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost levelSource: NCCI.
Cumulative Change of –55.4%(1991–2011 adj.)
Workers Compensation Medical SeverityModerate Increase in 2013
162
Accident Year
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2010: +6.0%
Average Medical Cost per Lost-Time ClaimMedicalClaim Cost ($000s)
$8
.1
$8
.2
$8
.1
$8
.8
$9
.1
$9
.8
$1
0.8
$11
.7
$1
2.9
$1
3.9
$1
5.7
$1
7.1
$1
8.4
$1
9.4
$2
1.0
$2
2.2
$2
3.5
$2
5.1
$2
6.1
$2
6.4
$2
7.1
$2
7.9
$2
8.8
+6.8%+1.3%-2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%+10.6%
+7.3%
+13.5%
+8.8%+7.7%
+5.4%
+7.8%+5.8%
+6.1%
+6.8%+4.0%+1.2%
+2.6%+3.0%
+3%
5
10
15
20
25
30
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13p
2013p: Preliminary based on data valued as of 12/31/2013.1991-2012: Based on data through 12/31/2012, developed to ultimateBased on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Cumulative Change = 256%(1991-2013p)
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2013: +5.2%
Accident Year
U.S. Health Care Expenditures,1965–2022F
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$42.
0$4
6.3
$51.
8$5
8.8
$66.
2$7
4.9
$83.
2$9
3.1
$103
.4$1
17.2
$133
.6$1
53.0
$174
.0$1
95.5
$221
.7$2
55.8
$296
.7$3
34.7
$369
.0$4
06.5
$444
.6$4
76.9
$519
.1$5
81.7
$647
.5$7
24.3
$791
.5$8
57.9
$921
.5$9
72.7
$1,0
27.4
$1,0
81.8
$1,1
42.6
$1,2
08.9
$1,2
86.5
$1,3
77.2
$1,4
93.3
$1,6
38.0
$1,7
75.4
$1,9
01.6
$2,0
30.5
$2,1
63.3
$2,2
98.3
$2,4
06.6
$2,5
01.2
$2,6
00.0
$2,7
00.7
$2,8
06.6
$2,9
14.7
$3,0
93.2
$3,2
73.4
$3,4
58.3
$3,6
60.4
$3,8
89.1
$4,1
42.4
$4,4
16.2
$4,7
02.0
$5,0
08.8
U.S. health care expenditures have been on a relentless climb for most of the past half century, far outstripping population growth,
inflation of GDP growth
165
From 1965 through 2013, US health care expenditures had
increased by 69 fold. Population growth over the same period increased by a factor of just 1.6. By 2022, health spending will have
increased 119 fold.
$ Billions
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
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 12 13 14 15 16 17 18 19 20 21 22
National Health Care Expenditures as a Share of GDP, 1965 – 2022F*
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
1965 5.8%
Health care expenditures as a share of GDP rose from 5.8% in 1965 to 18.0% in 2013 and are expected to
reach 19.9% of GDP by 2022
% of GDP
2022 19.9%
1980: 9.2%
1990: 12.5%
2000: 13.8%
2010: 17.9%
Since 2009, heath expenditures as a %
of GDP have flattened out at about 18%--the
question is why and will it last?
174
U.S. Insured Catastrophe Loss Update
2014 Experiencing Below Average CAT Activity Following a Welcome Respite in
2013 from Very High CAT Losses in 2011/12
174
175
$1
2.8
$1
1.1
$3
.8
$1
4.5
$1
1.7
$6
.2
$3
5.2
$7
.7
$1
6.5
$3
4.2
$7
4.5
$1
0.7
$7
.6
$2
9.6
$1
1.6
$1
4.6
$3
4.1
$3
5.5
$1
2.9
$1
5.3
$1
4.2
$4
.9 $8
.1
$3
8.3
$8
.9
$2
6.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
U.S. Insured Catastrophe Losses
*Through 12/31/14.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.
2013 Was a Welcome Respite from 2012, the 3rd Costliest Year for Insured Disaster Losses in US
History. Longer-term Trend is for more—not fewer—Costly Events
2012 was the 3rd most expensive year ever for
insured CAT losses
$15.3 billion in insured CAT
losses estimated for 2014
($ Billions, $ 2013)
175
179
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1994–20131
0.1%
1.4%
3.8%4.8%
6.4%
6.4%
36.0%
41.1%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2013 dollars.2. Excludes snow.3. Does not include NFIP flood losses4. Includes wildland fires5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $159.1
Fires (4), $5.5
Events Involving Tornadoes (2), $139.3
Winter Storms, $24.7
Terrorism, $24.8
Geological Events, $18.4
Wind/Hail/Flood (3), $14.6
Other (5), $0.2
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
Insured cat losses from 1993-2012
totaled $386.7B, an average of $19.3B per year or $1.6B
per month
180
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2013 Dollars, $ Billions)
$7.9 $8.8 $9.3 $11.2$13.6
$19.0$24.2 $24.9$25.9
$49.4
$7.6$7.2$6.8$5.7$5.6$4.5
$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)
Superstorm Sandy in 2012 was the last
mega-CAT to hit the US
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
Sources: PCS; Insurance Information Institute inflation adjustments to 2013 dollars using the CPI.
CYBER RISK & CYBER INSURANCE
187
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large and
Small in Every IndustryRapidly Increasing Interest from
Businesses, Media & Public Policymakers187
Data Breaches 2005-2014, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed
* 2014 figures as of Jan. 12, 2014 from the ITRC.Source: Identity Theft Resource Center.
157
321
446
656
498
419447
619
783
662
85.687.9
17.322.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The Total Number of Data Breaches Rose 28% While the Number of Records Exposed Was Relatively Flat (-2.6%)
Millions
188
Data/Privacy Breach:Many Potential Costs Can Be Insured
Source: Zurich Insurance; Insurance Information Institute
Forensic costs to discover
cause
190
Source: Insurance Information Institute research.
The Three Basic Elements of Cyber Coverage: Prevention, Transfer, Response
Loss Prevention
Post-Breach Response(Insurable)
Loss Transfer (Insurance)
Cyber risk management today involves three essential components, each designed
to reduce, mitigate or avoid loss. An increasing number of cyber risk products
offered by insurers today provide all three.
191
192
I.I.I. Released its Second Cyber Report in 2014: Cyber Risk: The Growing Threat
I.I.I.’s 2nd report on cyber risk released June 2014
Provides information on cyber threats and insurance market solutions
Global cyber risk overview
Quantification of threats by type and industry
Cyber security and cost of attacks
Cyber terrorism
Cyber liability
Insurance market for cyber risk
3rd Report in Q2 2015
www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/bob_hartwigDownload at www.iii.org/presentations
Insurance Information Institute Online:
199