P/C Insurance Industry Overview & Outlook for

2014 and BeyondMidwest Actuarial Forum

Northridge, ILApril 11, 2014

Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5540 Cell: 917.494.5945 stevenw@iii.org www.iii.org

2

2013: Best Year (So Far)in the Post-Crisis Era

Performance Improved with Lower CATs, Firming Markets

2

3

P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter

Sources: ISO, Insurance Information Institute.

Sustained growth in written premiums(vs. the same quarter, prior year) should continue through 2014.

10.2

%15

.1%

16.8

%16

.7%

12.5

%10

.1%

9.7%

7.8%

7.2%

5.6%

2.9%

5.5%

-4.6

%-4

.1%

-5.8

%-1

.6%

10.3

%10

.2% 13

.4%

6.6%

-1.6

%2.

1%0.

0%-1

.9%

0.5%

-1.8

%-0

.7%

-4.4

%-3

.7%

-5.3

%-5

.2%

-1.4

%-1

.3%

1.3% 2.

3%1.

7% 3.5%

1.6%

4.1%

3.8%

3.0% 4.

2% 5.1%

4.8%

4.1% 4.7%

4.2%

-10%

-5%

0%

5%

10%

15%

20%

2002

:Q1

2002

:Q2

2002

:Q3

2002

:Q4

2003

:Q1

2003

:Q2

2003

:Q3

2003

:Q4

2004

:Q1

2004

:Q2

2004

:Q3

2004

:Q4

2005

:Q1

2005

:Q2

2005

:Q3

2005

:Q4

2006

:Q1

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

2009

:Q4

2010

:Q1

2010

:Q2

2010

:Q3

2010

:Q4

2011

:Q1

2011

:Q2

2011

:Q3

2011

:Q4

2012

:Q1

2012

:Q2

2012

:Q3

2012

:Q4

2013

:Q1

2013

:Q1

2013

:Q3

Premium growth in Q3 2013 was up 4.2% over Q3 2012, marking the

14th consecutive quarter of y-o-y growth

Underwriting Gain (Loss)1975–2013:Q3*

* Includes mortgage and financial guaranty insurers in all years.Sources: A.M. Best, ISO; Insurance Information Institute.

Large underwriting losses are NOT sustainable in the 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 10 11 1213:Q3

Cumulative underwriting deficit from 1975 through

2012 is $510B

($ Billions)Underwriting profit through

2013:Q3 totaled $10.5B

High cat losses in 2011 led to the highest

underwriting loss since 2002

P/C Net Income After Taxes1991–2013:Q3 ($ Millions)

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% 2013:9M ROAS1 = 9.5%

•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.9% ROAS through 2013:Q3, 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

$4

3,0

29

$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 12 13:9M

2013:9M ROAS

was 9.5%

Net income is up substantially

(+54.7%) from 2012:Q3 $27.8B

-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

:Q3

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013:Q3*

*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

1977:19.0% 1987:17.3%

1997:11.6%2006:12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%

10 Years

10 Years9 Years

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

2013:Q3 8.9%

7

P/C Insurance Industry Combined Ratio, 2001–2013:Q3*

* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013:Q3 = 95.8. Sources: A.M. Best, ISO.

95.7

99.3

100.8

106.3

102.4

96.6

101.0

92.6

100.8

98.4

100.1

107.5

115.8

90

100

110

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013:Q3

Best Combined Ratio Since 1949 (87.6)

Relatively 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

Lower CAT

Losses

8

Policyholder Surplus, 2006:Q4–2013:Q3

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

$559.2 $559.1

$538.6$550.3

$567.8

$583.5$586.9

$624.4

$570.7$566.5

$505.0$515.6$517.9

$400

$450

$500

$550

$600

$650

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

3

2007:Q3Pre-Crisis Peak

Surplus as of 9/30/13 stood at a record high $624.4B

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 $0.78 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 2014in very strong financial shape.

9

Profitability and Growth in the Midwest

P/C Insurance Markets

Analysis by Line and State

10

Unemployment Rates Vary Widelyby State within MAF Region*

4.7%

6.4% 6.1%

7.8%

6.9%6.6%

8.7%

0%

2%

4%

6%

8%

10%

IL MI OH US IN WI MN

Une

mpl

oym

ent R

ate

(%)

*Provisional figures for January 2014, seasonally adjusted.

Sources: US Bureau of Labor Statistics; Insurance Information Institute

Just a few years ago Michigan had the highest unemployment rate in the nation. Now it’s not even the highest in this region!

11

Return on Net Worth, All Lines:2002-2011

Source: NAIC.

-5%

0%

5%

10%

15%

20%

02 03 04 05 06 07 08 09 10 11

MI WI MN

Minnesota: most variable

Wisconsin: least variable

12

Return on Net Worth, All Lines:2002-2011

Sources: NAIC.

-5%

0%

5%

10%

15%

20%

02 03 04 05 06 07 08 09 10 11

IL IN OH

Profit in Indiana is more volatile than

in neighboring states

Profit in Ohio is often higher than

in Illinois

13

Return on Net Worth, All Lines:2002-2011 Average, by State

Sources: NAIC.

10.1%

9.0% 8.9%8.2%

7.7%7.1%

5.2%

0%

2%

4%

6%

8%

10%

12%

OH WI IN MN US IL MI

14

RNW PP Auto: MAF States,2002-2011, 10-year average

Sources: NAIC.

12.2%11.6%

10.1% 9.8%8.7%

-2.0%-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

MN OH WI IN IL MI

15

RNW HO: MAF States,2002-2011, 10-year average

Sources: NAIC.

10.1%

5.7%4.8%

-1.5%

-4.5% -5.0%-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

MI WI IL IN OH MN

16

RNW CMP: MAF States,2002-2011, 10-year average

Sources: NAIC.

14.7%

11.4%

10.0%9.1%

5.4%

3.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

MI OH IL WI IN MN

17

RNW WC: MAF States,2002-2011, 10-year average

Sources: NAIC.

9.7% 9.5%

6.6%

4.3%

3.4%

0%

2%

4%

6%

8%

10%

12%

IN MI MN OH WI IL

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

18

Growth Will Expand Insurer Exposure Base Across Most Lines

18

19

Real Quarterly GDP Growth Sincethe “Great Recession, and Forecast

Forecasts from Blue Chip Economic Indicators; data are quarterly changes at annualized ratesSources: (history) US Department of Commerce, Blue Chip Economic Indicators 4/14; Insurance Information Institute.

0.1%

2.5%

1.3%

4.1%

2.0%

1.3%

3.1%

0.4%

2.5%

4.1%

2.6%

1.0%

2.4%

2.4%

2.3% 2.4% 2.6%

2.4%

2.4%

1.4%

1.3%

1.2% 1.5%

1.2% 1.0%

1.1%

1.0%

1.1%1.

4%5.

0%2.

3%2.

2% 2.6%

2.4%

0%

1%

2%

3%

4%

5%

09:3

Q

09:4

Q

10:1

Q

10:2

Q

10:3

Q

10:4

Q

11:1

Q

11:2

Q

11:3

Q

11:4

Q

12:1

Q

12:2

Q

12:3

Q

12:4

Q

13:1

Q

13:2

Q

13:3

Q

13:4

Q

14:1

Q

14:2

Q

14:3

Q

14:4

Q

15:1

Q

15:2

Q

15:3

Q

15:4

Q

Demand for insurance continues to be affected by sluggish economic conditions, but the benefits of even slow growth will compound and

gradually benefit the economy broadly.

Additional growth forecast by average of 10 most optimistic

models

Growth forecast by average of

10 least optimistic

models

Even 3% real growth in a quarter has rarely been achieved since

the Great Recession ended

20

Millions of Units

Private Housing Unit Starts, 1990-2015F

1.4

8

1.4

7 1.6

2

1.6

4

1.5

7

1.6

0 1.7

1 1.8

5 1.9

6 2.0

7

1.8

0

1.3

6

0.9

1

0.5

5

0.5

9

0.6

1 0.7

8 0.9

3 1.0

8

1.3

1

1.3

51.4

6

1.2

9

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 14F 15F

Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (4/14); Insurance Information Institute.

Housing starts are rising, but this could be retarded by rising mortgage interest rates. Recently, the fastest growth is in multi-unit residences.

Personal lines exposure will grow, and commercial insurers with Workers Comp, Construction risk exposure, and Surety also benefit.

Housing unit starts plunged 72% from 2005-

2009, down 1.5 million, to lowest level since records

began in 1959

Job growth, improved credit

market conditions and demographics are boosting home

construction

21

Units in Multiple-Unit Projectsas Percent of Total

US: Pct. Of Private Housing Unit StartsIn Multi-Unit Projects, 1990-2013

21

.4%

23

.1%

21

.4%

20

.6%

21

.5%

20

.6%

20

.3%

18

.9%

17

.7%

17

.0%

18

.6%

22

.8% 31

.3%

19

.7%

19

.7% 2

9.3

%

31

.4%

33

.3%

20

.5%

17

.7%

12

.6%

14

.2%

17

.1%25

.0%

0%

10%

20%

30%

40%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Sources: U.S. Census Bureau; Insurance Information Institute.

For the U.S. as a whole, the trend toward multi-unit housing projects (vs. single-unit homes) is recent. Commercial insurers with Workers Comp,

Construction risk exposure, and Surety benefit.

Housing unit starts plunged 67% from 2005-

2009, down 128 thousand, to lowest level since

records began in 1959

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Net Worth of Households*Recently Hit A Historic High

*and nonprofit organizations. Data are as of year-end, not seasonally-adjusted or inflation-adjustedSource: Federal Reserve Board

2008-09 recession:

-15.7%

$ Trillions

2001 recession

1992 recession

1982 recession

Housing “bubble”Rising net worth feeds a “wealth

effect” that spurs consumer spending, which accounts for

70% of the U.S. economy

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

1990

:Q1

1990

:Q3

1991

:Q1

1991

:Q3

1992

:Q1

1992

:Q3

1993

:Q1

1993

:Q3

1994

:Q1

1994

:Q3

1995

:Q1

1995

:Q3

1996

:Q1

1996

:Q3

1997

:Q1

1997

:Q3

1998

:Q1

1998

:Q3

1999

:Q1

1999

:Q3

2000

:Q1

2000

:Q3

2001

:Q1

2001

:Q3

2002

:Q1

2002

:Q3

2003

:Q1

2003

:Q3

2004

:Q1

2004

:Q3

2005

:Q1

2005

:Q3

2006

:Q1

2006

:Q3

2007

:Q1

2007

:Q3

2008

:Q1

2008

:Q3

2009

:Q1

2009

:Q3

2010

:Q1

2010

:Q3

2011

:Q1

2011

:Q3

2012

:Q1

2012

:Q3

2013

:Q1

2013

:Q3

Household Financial ObligationsRatio Recently Hit A Historic Low

*through 2013:Q4 (data posted on March 18, 2013)Source: Federal Reserve Board, at http://www.federalreserve.gov/releases/housedebt

Financial Obligations Ratio: debt service (mortgage and consumer debt), auto lease, residence rent, HO insurance, and

property tax payments as % of personal disposable income.

Decline began in 2008:Q1.

Financial Obligations Ratio

15.23% in 2012:Q4is lowest ratio since 1980:Q4 (15.09%).

Household balance sheets are stronger than they’ve been in many years, setting the stage for more consumer spending

25

16.9

16.5

16.1

13.2

10.4

11.6

12.7

14.4

15.5 16

.0 16.416

.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 14F 15F

(Millions of Units)

Auto/Light Truck Sales, 1999-2015F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/14); Insurance Information Institute.

Yearly car/light truck sales will keep rising, 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 6%.

New auto/light truck sales fell to the lowest level since the

late 1960s. Forecast for 2014-15 is even with the1999-2007

average of 16-17 million units.

It seems likely that we’re back to new vehicle sales

levels last seen pre-recession

26

Index of Total Industrial Production:*A New Peak at Year-end 2013

*Monthly, seasonally adjusted, through January 2014 (which is preliminary). Index based on year 2007 = 100Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institutes.

50

60

70

80

90

100

110

1/31

/19

90

1/31

/19

91

1/31

/19

92

1/31

/19

93

1/31

/19

94

1/31

/19

95

1/31

/19

96

1/31

/19

97

1/31

/19

98

1/31

/19

99

1/31

/20

00

1/31

/20

01

1/31

/20

02

1/31

/20

03

1/31

/20

04

1/31

/20

05

1/31

/20

06

1/31

/20

07

1/31

/20

08

1/31

/20

09

1/31

/20

10

1/31

/20

11

1/30

/20

12

1/31

/20

13

Recession

Peak at 100.82 in December 2007 (officially the 1st

month of the Great Recession)

Insurance exposures for industrial production will continue growing in 2014, and commercial insurance premium volume with them. Y-o-Y growth to October 2013 was

3.2%. Both production and premium volume growth for 2014 should exceed this.

26

December 2013 Index at 101.36,

a new peak

Many economists expect business

investment to rise in 2014

27

2.5%

4.9%

6.3%

7.8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2013 2014F 2015F 2016F

Business Investment* is Expected to Acceleratein 2014-16, Fueling Commercial Exposure Growth

Accelerating business investment will be a potent driver

of commercial property and liability insurance exposures

*consists of new orders of non-defense capital goods, excluding aircraft, plus buildings and software Sources: IHS Global Insights as of Jan.13, 2014; Insurance Information Institute.

Accelerating business investment should also drive employment and WC payroll exposures (with a lag).

28

$200,000

$300,000

$400,000

$500,000

Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Jan. 2014

*seasonally adjusted; Jan. 2014 is preliminary; data published March 6, 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/

Monthly shipments in Nov. 2013 exceeded the pre-crisis (July 2008) peak; Dec. 2013 and Jan. 2014 slipped a bit. Manufacturing is energy-intensive and growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine,

Property, and various Liability Coverages.

$ Millions

28

The value of Manufacturing Shipments in Nov. 2013 was $493.9B—a new record high.

29

Value of Private Construction Put in Place, by Segment, Jan. 2014 vs. Jan. 2013*

17.0%

-3.9%

41.0%

1.7%7.8%

14.9%7.9%

0.9%

14.6%12.3%

47.8%

-10%0%

10%20%30%40%50%60%

Tota

l Priv

ate

Con

stru

ctio

n

Res

iden

tial

Pow

er

Man

ufac

turin

g

Com

mer

cial

Offi

ce

Hea

lth C

are

Com

mun

icat

ion

Edu

catio

nal

Lodg

ing

Tran

spor

tatio

n

Categories are arranged from largest dollar amounts (at left) to smaller.The drop in “power” construction is misleading since it follows a prior-

year surge. Hotel and home construction are up sharply.

Growth (%)

*seasonally adjusted; Nov and Dec are preliminary; Next release is Apr 1, 2014Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

Construction activity is strong in several sectors and overall

30

Commercial & Industrial Loans Outstandingat FDIC-Insured Banks, Quarterly, 2006-2013:Q4*

$1.1

6$1

.18

$1.2

2

$1.4

4$1

.48

$1.4

9$1

.50

$1.4

9$1

.43

$1.3

7$1

.27

$1.2

1$1

.18

$1.1

7$1

.17

$1.1

8$1

.20

$1.2

4$1

.28 $1

.35

$1.3

7$1

.42

$1.4

5$1

.50

$1.5

2$1

.55

$1.5

7$1

.60

$1.1

3

$1.2

5$1

.30 $1

.39

$1.0

$1.1

$1.2

$1.3

$1.4

$1.5

$1.6

$1.7

06:Q

1

06:Q

3

07:Q

1

07:Q

3

08:Q

1

08:Q

3

09:Q

1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12:Q

3

13:Q

1

13:Q

3

Outstanding Commercial Loan Volume Has Been Growing for Over Two Years and Is Now Nearly Back to Early Recession Levels. Bodes Very Well

for the Creation of Current and Future Commercial Insurance Exposures*Latest data as of 3/4/2014.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.

$Trillions

Commercial lending plunged by 21.2% ($330B) during the financial crisis and ensuing

period of tight credit

Commercial lending activity exceeds pre-crisis levels (+36.75% or $430B above

mid-2010 trough)

31

Percent of Non-current Commercial & Industrial Loans Outstanding at FDIC-Insured Banks,Quarterly, 2006-2013:Q4*

0.70

%0.

74%

0.64

%

0.67

%0.

81%

1.07

%1.

18% 1.

69% 2.

25% 2.

80%

3.57

%3.

43%

3.05

%2.

83%

2.73

%2.

44%

1.89

%1.

65%

1.49

%1.

29%

1.17

%1.

09%

0.98

%0.

88%

0.80

%0.

74%

0.72

%0.

62%

0.71

%

0.63

%0.

62%

0.63

%

0%

1%

2%

3%

4%

06:Q

106

:Q2

06:Q

306

:Q4

07:Q

107

:Q2

07:Q

307

:Q4

08:Q

108

;Q2

08:Q

308

:Q4

09:Q

109

:Q2

09:Q

309

:Q4

10:Q

110

:Q2

10:Q

310

:Q4

11:Q

111

:Q2

11:Q

311

:Q4

12:Q

112

:Q2

12:Q

312

:Q4

13:Q

113

:Q2

13:Q

313

:Q4

Non-current loans (those past due 90 days or more or in nonaccrual status) are back to early-recession levels, fueling bank willingness to lend.

*Latest data as of 3/4/2014.Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.

Back to “normal” levels of noncurrent industrial

& commercial loans

Recession

32

Near-term growth forecasts vary

widely by state. Strongest growth

= blue, then dark green;weakest = beige

State-by-State Leading Indicatorsthrough 2014:Q2

33

Labor Market Trends

Massive Job Losses Sapped the Economy and

Commercial/Personal Lines Exposure, But Trend is Improving

33

34

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

"Headline" Unemployment Rate U-3

Unemployment + Underemployment RateU-6

“Headline” unemployment

was 6.7% in March 2014.4% to 6% is “normal.”

Source: US Bureau of Labor Statistics; Insurance Information Institute.

U-6 went from 8.0% in March

2007 to 17.5% in October 2009; Stood at 12.7% in Mar. 2014.8% to 10% is

“normal.”

January 2000 through March 2014, Seasonally Adjusted (%)

Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.

34

35

Feb. 2014 Unemployment Ratesin Midwest States Vary Widely*

8.7%

7.7%

6.7% 6.5%6.1% 6.1%

4.8%

0%

3%

5%

8%

10%

IL MI US OH IN WI MN

*State data are provisional, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

70

16

82

12

32

21

02

21

71

06 12

22

21

18

31

64 1

96

36

02

26 24

39

6 11

08

81

60

15

01

61

22

52

03

21

41

97

28

01

41

20

31

99

20

11

49

20

21

64

23

7 27

48

41

44

19

71

92

0

50

100

150

200

250

300

350

400

Jan-1

1

Feb

-11

Mar-

11

Apr-

11

May-1

1

Jun-1

1

Jul-1

1

Aug

-11

Sep

-11

Oct-

11

Nov-1

1

Dec-1

1

Jan-1

2

Feb

-12

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-1

2

Aug

-12

Sep

-12

Oct-

12

Nov-1

2

Dec-1

2

Jan-1

3

Feb

-13

Mar-

13

Apr-

13

May 1

3

Jun-1

3

Jul-1

3

Aug

-13

Sep

-13

Oct-

13

Nov-1

3

Dec 1

3

Jan 1

4

Feb

14

Mar

14

Nonfarm Employment, Monthly Change,2011 - 2014

Thousands

The pace of job growth varies considerably from month to month but, on average, has been rising in each of the past three years.

Seasonally adjusted. February 2014 and March 2014 are preliminary data.Sources: US Bureau of Labor Statistics; Insurance Information Institute 36

Average Monthly Gain2011: 173,600 2012: 186,300 2013: 194,250

37

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013

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

$7,50005

: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

4

Prior Peak was 2008:Q3 at $6.54 trillion

Latest (2013:Q4) was $7.23 trillion, a

new peak--$1T above 2009 trough

Recent trough (2009:Q1) was $6.23 trillion, down

5.3% from prior peak

Growth rates2011:Q4 over 2010:Q4: 2.7%2012:Q4 over 2011:Q4: 6.0%2013:Q3 over 2012:Q3: 3.6%

37

Full-time vs. Part-time Employment,Quarterly, 2003-2013: WC Implications

110

113

116

119

122

2003

.120

03.2

2003

.320

03.4

2004

.120

04.2

2004

.320

04.4

2005

.120

05.2

2005

.320

05.4

2006

.120

06.2

2006

.320

06.4

2007

.120

07.2

2007

.320

07.4

2008

.120

08.2

2008

.320

08.4

2009

.120

09.2

2009

.320

09.4

2010

.120

10.2

2010

.320

10.4

2011

.120

11.2

2011

.320

11.4

2012

.120

12.2

2012

.320

12.4

2013

.120

13.2

2013

.320

13.4

24

25

26

27

28

Full-time Part-time

Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

The Great Recession shifted employment from full-time to part-time, and the recovery to date hasn’t changed that. Full-time employment is still 4.2 million

below its pre-recession peak, but part-time recently reached a new peak.

Millions Millions

Recession

Recession shifted employment growth from

full-time to part-time

Pre-recession, most new jobs were full-time

39

Construction Employment,Jan. 2010—February 2014*

*Seasonally adjusted; Jan. and Feb. 2014 are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

5,58

75,

508

5,53

65,

555

5,52

45,

512

5,50

25,

525

5,50

35,

507

5,50

45,

462

5,43

25,

464

5,47

55,

496

5,52

05,

524

5,55

15,

553 5,59

05,

584

5,58

55,

606

5,62

75,

622

5,62

75,

630

5,61

35,

620

5,63

55,

647

5,64

85,

666

5,68

75,

720

5,74

3 5,78

95,

813

5,81

15,

816

5,82

95,

830

5,83

65,

849

5,86

45,

896

5,87

6 5,92

65,

941

5,400

5,500

5,600

5,700

5,800

5,900

6,000

Jan-

10F

eb-1

0M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb

-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-

132/

29/2

Mar

-13

Apr

-13

May

-13

Jun-

13Ju

l-13

Aug

-13

Sep

-12

Oct

-13

Nov

-13

Dec

-13

Jan-

14F

eb-1

4

Construction employment is now +509,000 above

Jan. 2011 (+9.4%).

(Thousands)

Construction and manufacturing employment constitute 1/3 of all payroll exposure.

40

Manufacturing Employment,Jan. 2010—February 2014*

11

,46

21

1,4

53

11

,45

81

1,4

93

11

,52

71

1,5

43

11

,57

11

1,5

50

11

,55

71

1,5

57

11

,58

11

1,5

92

11

,62

01

1,6

53

11

,67

51

1,7

04

11

,71

11

1,7

23

11

,75

51

1,7

63

11

,76

61

1,7

73

11

,77

11

1,7

98

11

,83

71

1,8

59

11

,90

11

1,9

16

11

,92

81

1,9

39

11

,97

91

1,9

56

11

,94

21

1,9

47

11

,95

11

1,9

65

11

,98

21

2,0

04

12

,00

71

2,0

01

11

,99

41

1,9

91

11

,98

21

1,9

90

11

,99

31

2,0

11

12

,04

61

2,0

53

12

,05

91

2,0

65

11,250

11,500

11,750

12,000

12,250Ja

n-1

0F

eb

-10

Ma

r-1

0A

pr-

10

Ma

y-1

0Ju

n-1

0Ju

l-1

0A

ug

-10

Se

p-1

0O

ct-1

0N

ov-

10

De

c-1

0Ja

n-1

1F

eb

-11

Ma

r-1

1A

pr-

11

Ma

y-1

1Ju

n-1

1Ju

l-1

1A

ug

-11

Se

p-1

1O

ct-1

1N

ov-

11

De

c-1

1Ja

n-1

22

/30

/2M

ar-

12

Ap

r-1

2M

ay-

12

Jun

-12

Jul-

12

Au

g-1

2S

ep

-12

Oct

-12

No

v-1

2D

ec-

12

Jan

-13

Fe

b-1

3M

ar-

13

Ap

r-1

3M

ay-

13

Jun

-13

Jul-

13

Au

g-1

3S

ep

-13

Oct

-13

No

v-1

3D

ec-

13

Jan

-14

Fe

b-1

4

Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.

*Seasonally adjusted; Jan.and Feb 2013 are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

(Thousands) Since Jan 2010, manufacturing employment

is up (+550,000 or +4.6%)and still growing.

Winter Storms and Other Natural Catastrophes

41

Have You Noticed It’s Been Coldand Snowy Lately?

41

Significant Natural Catastrophes in 2013 ($1 billion economic loss and/or 50 fatalities)

Date Event

Estimated Economic

Losses (US $m)

Estimated Insured Losses (US $m)

February 24 – 25 Winter Storm 1,300 690

March 18 – 19 Thunderstorms 2,200 1,600

April 7 – 11 Winter Storm 1,600 1,200

April 16 – 18 Thunderstorms 1,100 560

May 18 – 20 Thunderstorms 3,100 1,800

May 28 – 31 Thunderstorms 2,800 1,400

August 6 – 7 Thunderstorms 1,300 740

September 9 – 16 Flooding 1,500 160

November 17 - 18 Thunderstorms 1,300 931

Source: Munich Re NatCatSERVICE 42© 2014 Munich Re

As of December 31, 2013

Number of Events Fatalities

Estimated Overall Losses (US $m)

Estimated Insured Losses (US $m)

SevereThunderstorm

69 110 16,341 10,274

Winter Storm 11 43 2,935 1,895

Flood 19 23 1,929 240

Earthquake & Geophysical

6 1 Minor Minor

Tropical Cyclone 1 1 Minor Minor

Wildfire, Heat, & Drought

22 29 620 385

Totals 128 207 21,825 12,794

Natural Disaster Lossesin the United States, 2013

43Source: Munich Re NatCatSERVICE 43© 2014 Munich Re

Largest Insured Claims, Individual Winter Storms, US & Canada, 1980-2013

Storm Dates Economic Loss ($2013, mil)

Insured Loss ($2013, mil)

Deaths

Mar. 11-14, 1983 $8,061 $3,224 270

Dec. 17-30, 1983 $2,339 $2,058 500

Apr. 13-17, 2007 $2,247 $1,775 23

Dec. 10-13, 1992 $4,981 $1,660 19

Jan. 5-12, 1998 $4,146 $1,644 45

Feb. 10-12, 1994 $4,716 $1,258 9

Jan. 17-20, 1994 $1,572 $1,258 70

Apr. 7-11, 2013 $1,600 $1,200 N/A

Jan. 1-4, 1999 $1,398 $1,084 25

Jan 31-Feb 2, 2011 $1,346 $1,010 36

44

Sources: Munich Re NatCatSERVICE, Insurance Information Institute

45Sources: Munich Re NatCatSERVICE; Insurance Information Institute.

Winter Storm and Winter Damage Events in the US and Canada, 1980-2013 (2013 US$)

1993, ‘94, & ‘96: 3 of the 4 costliest years for insured losses from winter storms and damage.

In 2013, insured losses from

severe winter events:

$2 billion.

Insured winter storm and damage losses in Jan. 2014 already totaled $1.5 billion. Continued severe weather since then makes it likely that

2014 will become one of the top 5 costliest winters since 1980.

Insured Losses (Millions, $ 2013)

5-year running average

Source: Property Claims ServiceMunich Re NatCatSERVICE

US Thunderstorm Loss TrendsInsured Annual Totals 1980 – 2013

Average insured thunderstorm losses have increased sevenfold since 1980.

2013 Total: $10.3 bn

46© 2014 Munich Re

Investment Performance: a Key Driver of Profitability

47

Depressed Yields Influence Underwriting & Pricing

47

Property/Casualty Insurance Industry Net Investment Gain: 1994–2013:Q31

$35.4

$42.8$47.2

$52.3

$44.4

$36.0

$45.3$48.9

$59.4$55.7

$64.0

$31.7

$39.2

$53.4$56.2

$53.9 $53.

9$58.0

$51.9$56.9

$0

$10

$20

$30

$40

$50

$60

$70

94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13E

Investment gains are expected to show a modest growth in 2013 with higher realized capital gains more than offsetting declining investment income. The

financial crisis caused net investment gains to fall by 50% in 2008.

1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; Sources: ISO; Insurance Information Institute.

($ Billions)

Investment gains in 2013 are running an estimated 16% below their pre-crisis peak

49

U.S. Treasury 2- and 10-Year Note Yields*: 1990–2014

*Monthly, constant maturity, nominal rates, through February 2014.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1/31

/19

90

1/31

/19

91

1/31

/19

92

1/31

/19

93

1/31

/19

94

1/31

/19

95

1/31

/19

96

1/31

/19

97

1/31

/19

98

1/31

/19

99

1/31

/20

00

1/31

/20

01

1/31

/20

02

1/31

/20

03

1/31

/20

04

1/31

/20

05

1/31

/20

06

1/31

/20

07

1/31

/20

08

1/31

/20

09

1/31

/20

10

1/31

/20

11

1/30

/20

12

1/31

/20

13

Recession2-Yr Yield10-Yr Yield

Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.

Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.

U.S. Treasury 10-year note

yields recently “spiked” up

49

50

Distribution of Bond Maturities,P/C Insurance Industry, 2003-2012

Sources: SNL Financial; Insurance Information Institute.

The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds

(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s bond portfolio is contributing to a drop in investment income along with lower yields.

www.iii.org

Thank you for your timeand your attention!

Insurance Information Institute Online:

53