us education insurance market update webcast 2015

2015 US EDUCATION INSURANCE MARKET UPDATE WEBCAST

WEBCAST DATE: FEBRUARY 24, 2015

Jean Demchak, Paul Sherbine, Mark Turkalo, David Letzelter

MARSH 1 February 25, 2015

Marsh Panel Overview

Jean Demchak, Managing Director Global Education and Public Entity Practice Leader

Jean has a career-long focus on higher education and the public entity sector with 32 years industry experience and 28 years with Marsh and is the senior relationship officer for all education and public sector accounts. Jean is responsible for identifying and responding to the emerging issues facing schools and public entity clients and developing and customizing specialized services to meet their needs. She serves as liaison with the marketplace as well as key organizations in the higher education industry.

Phone: 860-723-5635 Email: [email protected]

mailto:[email protected]

MARSH

Agenda

Introduction/panel overview.

The market information resources/insurer financial review.

Casualty market including professional liability update:

Higher education.

Primary and secondary schools.

Property market update (higher education and primary and secondary).

Q&A.

2



Paul Sherbine, Managing Director Market Information Group

Paul is the leader of Marsh’s Market Information Group and is responsible

for the analysis of the insurers Marsh clients utilize worldwide. He assists

clients in assessing the relative strengths or weaknesses of various

insurers when structuring their program. He also makes oral and written

presentations to clients and prospects on the importance and methodology

of insurer financial analysis.

Paul has been the featured speaker to industry trade groups and other

interested parties on Marsh’s Market Information Group and the financial

standing of the insurance industry in general. Prior to joining Marsh in

1986, Paul was a financial analyst with A.M. Best Company.

Phone: (212) 345-0090 Email: [email protected]




Mark Turkalo, Senior Vice President Marsh Education & Public Entity Placement Leader

Mark is a senior placement specialist exclusively responsible for placement of all new and renewal business for the education sector that includes public and independent K-12 schools, vocational and technical schools, community and state colleges, as well as, private and public higher education institutions.

Responsibilities include insurance risk evaluations for Marsh’s education clients as well as determination of the best possible risk transfer mechanisms. His background includes placement public entity specialty industry programs. Prior to joining Marsh in 1993, Mark held several underwriting positions for 10 years, specializing in national accounts, cash flow programs, captives and other risk financing techniques.

Phone: 212.345.5250

Email: [email protected]




David Letzelter, Senior Vice President US Property Practice, Pittsburgh Leader

David is an advisor in our property department, where he consults with

clients on the design, placement, implementation, and administration of

global programs. He prides himself on solving problems for his clients and

considers this to be his most important responsibility.

Since joining Marsh in 1996, David has provided solutions to clients in a

variety of industries, in particular - education, in the areas of property

consulting, program design, marketing and placement, large limit, layered

and quota share program design, alternative risk solutions, captive

utilization in property programs and acquisition integration. With his wide

range of experience, David is able to offer clients unique insight to help

them identify and quantify exposures and to construct programs that afford

them with superior protection at the best price.

Phone: 412 552 5128 Email: [email protected]


MARSH

Industry Update

• President’s initiatives.

a) Affordability.

b) Cost containment.

c) Transparency and accountability.

• Governance.

• Trending risk issues in education.

6

7 February 25, 2015

The Market Information Resources/Insurer Financial Review 2014 Insurer Analysis Treading Water with Mergers on the Horizon

Paul Sherbine, Managing Director Global Market Information Group

MARSH

U.S. Property and Casualty Industry

2014 Financial Highlights

2013

2014 Change

Net Premiums Written $484 B $501 B 4%

Net Underwriting Gain

(Loss) $14 $9.7 -31%

Net Investment Income $52.9 $49.5 -6%

Net After-Tax Income $63.2 $55.2 -13%

Policyholders’ Surplus $666 $711 7%

Combined Ratio 96 97 1%

MARSH

U.S. Property and Casualty Industry Combined Ratio

90

95

100

105

110

115

12070

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

The 2006 CR was the lowest

since 1949

Sources: AM Best Company; ISO and the Insurance Information Institute

Hard market Hard market Hard market

Perc

ent

MARSH 10

U.S. Property and Casualty Industry 1980-2014

Bill

ions o

f dolla

rs

Sources: AM Best Company

-60

-40

-20

0

20

40

60

80

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Net underwriting gain/loss Investment gains Net income

MARSH

U.S. Property and Casualty Industry Net Premiums Written to Policyholders’ Surplus

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

$650

$700

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Policyholders' Surplus (PHS) Net Premiums Written (NPW)

Sources: AM Best Company and Insurance Information Institute

Bill

ions o

f dolla

rs

MARSH

2014 US Results

• Combined ratio of 97.2%.

• 4% increase in net premiums.

• Policyholders’ surplus of $711 billion, up about 6% from year end

2013.

• Net income of $55.2 billion down 13% from prior year period.

• Catastrophes add 4.4 points to combined ratio in 2014 as compared to

3.9 points in 2013.

• Net investment gains from income, gains and portfolio increases at

$73.8 billion down from $98.5 billion as unrealized gains fell $24 billion.

• Commercial lines NPW up 3.6% with liability and commercial auto

leading the way.

MARSH

What Has Impacted 2014 Results? A Deeper Dive

• Second consecutive underwriting profit.

• Slightly higher catastrophe losses despite benign hurricane season.

• Favorable loss reserve development fell to about $9.3 billion from $13

billion in 2013.

• Larger investment base offset lowest yields of last five years to increase

investment income.

• Equity/bond market rally of 2013 double that of 2014 as unrealized gains

fall by 61% to $15 billion.

MARSH

A Deeper Dive

• While reporting favorable development, rating agencies concerned

inadequate pricing will result in inadequate reserves.

• Difficult to ask for rate when reserves develop favorably year after year.

• Lower investment results and continued reinsurance price pressure

results in merger uptick.

• 2014 and 2015 seeing numerous mergers. XL/Catlin, Renaissance

Re/Platinum, Axis/Partner Re, Sompo/Canopius, Fairfax/Brit,

Alterra/Markel.

• Reinsurer size now a bigger factor. $1billion to $6 billion book value now

considered too small by some.

• Find a partner or leave the dance. AIG shut down their reinsurance arm,

AIG Re.

MARSH

What about reserves?

• Favorable reserve development lowered the combined ratio by 2.5 points

after 3.5 points in 2013.

• The industry has reported favorable non-A&E reserve development each

year since 2005.

• Reserve takedowns improved combined ratio and bottom line by an

average 2.7 points from 2006 - 2014.

• Rating agencies believe US industry is under reserved. Major concern is

reserve releases in long tail lines of business for recent accident years.

• Discount adjustments for workers’ compensation reserves can be an issue

due to low investment rate environment.

• This could also drive merger activity.

MARSH

The View Today

• Insurance industry continues to post a strong balance sheet in 2013

and 2014.

• M&A activity moving faster in 2014 and 2015 as size matters to

reinsurance buyers. Growth on retail side a concern here also.

• $2 billion to $10 billion companies seek growth and efficiencies. Can

mid-market companies survive in this marketplace?

• Reserve adequacy a concern to rating agencies. Has the well run dry?

• Despite concerns, well capitalized as an industry with few insurers in

peril.

17 February 25, 2015

Casualty Education Market Update

Mark Turkalo, Senior Vice President Marsh’s Education & Public Entity Practices

MARSH

Casualty Market Update

Education Segments.

Colleges and Universities.

• Public.

• Private.

Primary and Secondary.

• Public K-12.

• Independent.

Educational Services .

• For-Profit Institutions.

• Charter Schools.

• Vocational Schools.

MARSH

Casualty Market Update - Higher Education

General Conditions

• Stable and competitive: focusing on core coverages.

• Disciplined underwriting: concerned about concussion

management and cyber exposures.

• More carriers interested: ACE, Beazley, Brit, CNA, Endurance,

Hiscox, Ironshore, Hartford, Hanover, Philadelphia, Starr, Wright

Specialty (Catlin/XL).

• More capacity available .

MARSH


General Conditions – continued.

• Increased attention to ERM.

– business continuity .

– emergency preparedness.

– crisis response management.

– employment practices.

– student health services.

MARSH


General Conditions – continued.

• Claim severity – sexual assault, wrongful death.

• Options – lower retentions and aggregates.

• Focus on registered student organizations, fraternities & sororities,

special events on and off campus.

• More willingness to manuscript coverage.

- Cyber.

- Educators legal.

- Student discrimination.

- Kidnap and ransom.

MARSH


General Conditions...continued.

• Traumatic Brain Injury (TBI) exposure is being re-underwritten.

Institutions are required to complete a concussion awareness

training or education programs for coaches, athletic trainers, and

medial staff.

• Cyber exclusions from ISO are addressing business interruption and

property damage arising out of access or disclosure of confidential

or personal information. Marsh is negotiating to modify and expand

language.

• Communicable disease retentions, limits and coverage forms may

be amended.

• Ebola/measles/pandemic potential for new coverage relating to BI

due to shut down.

22 February 25, 2015

MARSH


General Conditions...continued.

• Internship programs, student volunteers and professional services.

• Summer sports camps.

• Transportation service providers.

• International travel.

- local underlying / DIC capacity.

- chaperones.

- Defense Base Act.

• Benchmarking.

- experience / exposure / expiring rate.

MARSH


Rates.

• General Liability: Flat to 7% increase.

• Automobile Liability: 5% decrease to 5% increase.

• Workers Comp: 5% decrease to 5% increase.

• Excess Workers Comp: Flat to 15% increase.

• Educators Legal Liability: Flat to 2% increase.

• Lead Umbrella: Flat to 10% increase.

• Excess Umbrella: Flat to 5% increase.

• Foreign Package: Flat to 5% increase.

MARSH

Casualty Market Update - Primary & Secondary Education

General Conditions.

• Stable and competitive.

• More carriers interested: ACE, AIG, Argonaut, Brit, Genesis,

Munich, Old Republic, Philadelphia, Starr, Scottsdale, Travelers,

Wright Specialty (Catlin/XL), United Educators, Zurich (Glatfelter).

• Integrated programs and pools dominate public K-12.

• Guaranteed cost options.

• Capacity available up to $10 million.

• Budget restrictions – results.

• Overall poor underwriting experience – volatility.

MARSH

Casualty Market Update - Primary & Secondary Education

Rates.

• General Liability: Flat to 5% increase.

• Automobile Liability: 5% increase to 5% decrease.

• Law Enforcement Liability: Flat to 10% increase.

• School Board Legal Liability: Flat.

• Lead Umbrella: Flat to 10% increase.

- Become acquainted with alternative forms and coverage.

27

Property Education Market Update

David Letzelter, Senior Vice President Marsh’s Property Practice


Property Market Conditions

General Conditions.

• 2014 another benign year for significant insured losses (see FIG. 1).

• Rate decreases were the norm.

• Underwriting discipline.

• Insurers competing aggressively.

ESTIMATED SIGNIFICANT

GLOBAL INSURED LOSSES

2011 $101.5 bil.

2012 $51 bil.

2013 $40 bil.

2014 $30 bil.

Source: Guy Carpenter

FIGURE 1



Benefit of a Favorable Loss Environment

• Many large property insurers anticipate about 30% of GWP premium will be consumed by large catastrophe losses in a given year.

• When losses are less, benefits are realized in terms of improved underwriting profit and better reinsurance terms.

• This enables underwriters to offer better terms to insured’s despite the lack of investment returns due to low interest rates.

SAMPLE PROPERTY INSURER BUDGET

Component Budget Actual Net Chg

Gross Written Premium $100M $100M -

Fire Losses ($35M) ($35M) -

CAT Losses ($30M) ($12M) $18M

Reinsurance ($10M) ($8M) $2M

Other Expenses ($21M) ($21M) -

Profit $4M $24M $20M



What to Expect in 2015:

• Continued competition among property insurers.

• Reluctance to concede on deductibles.

• Multi-year agreements.

• Rate changes.

• Underwriting Focus.

– MFLs.

– Natural catastrophe risk.

– Values.

– Business interruption.



Specific Markets:

• FM Global.

• AIG.

• Zurich.

• Hartford.

• Travelers.



Renewal Strategies:

• Start early and be timely.

• Prepare a quality submission.

• Tell your story.

• Know your risk.

• Generate competition.


To submit a question while in full-screen mode, use the

Q&A button on the bottom right-hand side of your screen.

To submit a question while in half-screen mode, use the

Q&A tab on the bottom right-hand side of your screen.

Questions…………

*1 For Telephone Questions or


SURVEY REQUEST

We are very interested in your opinion!

We will be circulating a replay link and copies of the slides.

Please remember to take our survey when you receive the follow-

up email to confirm:

Did the presentation meet your expectations?

Did you find it informative?

What you would like to see covered in future presentations?

Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman. This document and any recommendations, analysis, or advice provided by Marsh (collectively, the “Marsh Analysis” are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, tax, accounting, or legal advice, for which you should consult your own professional advisors. Any modeling, analytics, or projections are subject to inherent uncertainty, and the Marsh Analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. Marsh makes no representation or warranty concerning the application of policy wording or the financial condition or solvency of insurers or reinsurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage. Although Marsh may provide advice and recommendations, all decisions regarding the amount, type or terms of coverage are the ultimate responsibility of the insurance purchaser, who must decide on the specific coverage that is appropriate to its particular circumstances and financial position. Copyright © 2015 Marsh LLC. All rights reserved. MA15-13307

us education insurance market update webcast 2015

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