Transcript No Slide Title

Trends & Challenges in the
Property Insurance Business Today
Institute for Building & Home Safety Annual Congress
November 12, 2003
Orlando, FL
Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: (212) 346-5520  Fax: (212) 732-1916  [email protected]  www.iii.org
Presentation Outline
• Overall P/C Insurance Industry Performance
 What’s more important—property or casualty?
• Property Insurance Performance
 Personal Lines (Homeowners)
 Commercial Property
• Property Insurance & the Economy: Exposure Analysis
• Pricing Trends in Property Insurance
• Catastrophe Issues:
 Natural Disasters
 Trial lawyer-made disasters
 Terrorism
• Q&A
P/C FINANCIAL
OVERVIEW
How Much Does Property
Insurance Matter?
Highlights: Property/Casualty
First Half 2003
2003
2002
Change
Net Written Prem.
202,828 182,760
+11.0%
Loss & LAE
142,129 134,897
+5.4%
Net UW Gain (Loss) (2,070)
(11,422)
-81.9%
Net Inv. Income
18,268
17,894
+2.1%
Net Income (a.t.)
14,496
4,371
+231.6%
Surplus*
312,455 284,300
Combined Ratio
*Comparison with year-end 2002
99.8
105.1
+9.9%
-5.3 pts.
Strength of Recent Hard Markets
by Real NWP Growth
25%
1975-78
1985-87
2001-03
Real NWP Growth During
Past 3 Hard Markets
20%
1975-78: 8.6%
15%
1985-87: 14.5%
10%
2001-03F: 8.8%
5%
0%
-5%
-10%
Real $
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Current $
Note: Shaded areas denote hard market periods.
Source: A.M. Best, Insurance Information Institute
*2003 figure is estimate on first half result.
Property Insurance Direct
Premiums Written*
$100
($ Billions)
$90
$80
Revenue Growth Drivers:
•Record new home construction
•Trend toward larger, more expensive homes
•Rates
•Little commercial exposure gain since 2000
$95.9
$81.1
$71.9
$70
$60
$50
$50.5
$54.0
$57.8
$60.0 $61.9
$64.3
$67.4
$40
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
*Includes Fire, Allied Lines, Multi Peril Crop, Federal Flood, Farm & Homeowners Multi-Peril, CMP-non liability,
Inland Marine, Earthquake & Burglary & Theft
Source: Best’s Aggregates & Averages - Property/Casualty; Insurance Information Institute
P/C Net Income After Taxes
1991-2003* ($ Millions)
$40,000
2001 was the first year ever
with a full year net loss
$36,819
2002 ROE = 1.0%
$30,000
$30,773
2003 ROE = 9.7%*
$24,404
$20,598
$19,316
$20,000
Sept. 11
$21,865$20,559
$14,496
$14,178
$10,870
$10,000
$5,840
$2,903
$0
Andrew
Northridge
-$10,000
91
92
93
94
95
Lowest CAT
losses in 15 years
96
97
*First half 2003
Sources: A.M. Best, ISO, Insurance Information Institute.
98
-$6,970
99
00
01
02
03*
ROE: P/C vs. All Industries
1987–2003E*
20%
15%
10%
5%
0%
-5%
87
88
89
90
91
92
93
94
US P/C Insurers
*2003 p/c estimate based on first half data.
Source: Insurance Information Institute; Fortune
95
96
97
98
99
00
All US Industries
01
02
03F
P/C Industry Combined Ratio
120
115
2001 = 115.7
Combined
Ratios
2002 = 107.2
1970s: 100.3
2003First Half = 99.8
1980s: 109.2
1990s: 107.7
2000s: 111.0
110
105
95
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
100
Sources: A.M. Best; ISO, III
*Based on First Half 2003 results.
Underwriting Gain (Loss)
1975-2003*
$10
$0
$ Billions
($10)
($20)
($30)
($40)
($50)
Based on first half results, 2003 will likely be a
much better year in terms of underwriting losses.
First half losses totaled $2.71 billion or $5.42
billion on an annualized basis
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
($60)
*2003 figure of $5.42 billion is annualized based on first quarter underwriting loss of $2.71 billion
Source: A.M. Best, Insurance Information Institute
Combined Ratio:
Reinsurers
2003: Big improvement in first half
97.9
106.5
114.3
100.5
100.8
110
104.8
105.0
120
110.5
130
113.6
126.5
140
121.3
150
119.2
160
2001’s combined ratio was the worstever for reinsurers; 2003 was bad as
well.
170
162.5
Reinsurance
100
90
91
92
93
94
95
96
97
98
99
00
01
*First half 2003 figures for full industry from ISO; 1 st half reinsurance figures from RAA.
Source: A.M. Best, ISO, Reinsurance Association of America, Insurance Information Institute
02
03*
U.S. Policyholder Surplus:
1975-2003*
$350
$300
$ Billions
$250
$200
$150
•Catastrophes have had a significant
impact on UW performance and
profitability but no substantive
impact on capacity!
•Why? Industry’s need and ability to
raise capital increases following
mega-disasters.
•Inflow masks destruction of capital
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners
Equity” or “Net Worth” in
non-insurance organizations
$100
$50
$0
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*
Source: A.M. Best, Insurance Information Institute
*First Half
Shareholders’ Funds:
Top 40 Reinsurance Groups*
$ Billions
$175.0
$174.81
$174.5
$174.0
Capital at Top 40 reinsurance
groups fell $2.26 billion or
1.3% from 2001 to 2002
$173.5
$173.0
$172.55
$172.5
$172.0
$171.5
$171.0
2001
*By net reinsurance premiums written.
Source: Global Reinsurance Highlights 2003, Standard & Poor’s
2002
Property/Casualty Insurance
Industry Investment Gain*
$ Billions
$60
$57.9
$52.3
$56.9
$51.9
$47.2
$50
$42.8
$40
$45.6
$44.4
$36.6
$35.4
$30
Investment gains are simply
returning to “pre-bubble” levels
$20
$10
$0
94
95
96
97
98
99
00
01
02
03E
*Investment gains consists primarily of interest, stock dividends and realized capital gains and losses.
Source: Insurance Services Office; Insurance Information Institute estimate annualized as of 6/30/03.
Insurer Stocks:
Underperforming the S&P 500
Total Return 2003 YTD Through October 31, 2003
S&P 500
19.42%
25.23%
16.80%
All
Insurers
14.61%
P/C
6.09%
Mutliline
2.10%
0%
5%
L/H
Brokers
10%
15%
20%
Source: SNL Securities, Insurance Information Institute
25%
30%
RATINGS,
SOLVENCY &
REINSURANCE
ISSUES
Number of Insurer Upgrades vs.
Downgrades, 1993 to 2003*
Upgrades
10
5
7
6
6
5
4
3
Downgrades
4
4
3
2
4
0
-5
-2
-1
-3
-6
-10
-15
-6
Downgrades have outpaced
upgrades by nearly 4:1 since 2000
Are we at a peak?
-5
-7
-11
-14
-15
-18
-20
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
*North American insurance holding companies through October 17, 2003
Source: Standard & Poor’s
P/C Company Insolvency Rates,
1993 to 2002
•Insurer insolvencies are increasing
1.33%
•10-yr industry failure rate: 0.72%
1.20%
•Failure rating for B+ or better rating: 0.49%
•Failure rate for D through B rating: 1.29% 1.02% 1.03%
10-yr Failure Rate
0.79%
= 0.72%
0.60%
0.58%
0.21%
1993
1994
1995
0.28%
1996
30
30
38
2000
2001
2002
0.23%
1997
Source: A.M. Best; Insurance Information Institute
1998
1999
Reason for P/C Insolvencies
(218 Insolvencies, 1993-2002)
Impaired Affiliate
3%
Unidentified
17%
CAT Losses
3%
Reinsurer Failure
0%
Change in
Business
3%
Deficient Loss
Reserves
51%
CATS only
account for
3% of insurer
insolvencies
Reserve
deficiencies
account for
more than half
Discounted Ops
8%
Overstated Assets
2%
Alleged Fraud Rapid Growth
3%
10% Source: A.M. Best, Insurance Information Institute
US P/C Net Net Reinsurance
Recoverables as % of Adjusted PHS
45%
Alarm over sharp
increase in reinsurance
recoverables in 2002 to
41.5% of adjusted PHS
40%
35%
30%
25%
1998
1999
2000
2001
2002
Source: Reinsurance Association of America from Thompson Financial OneSource database.
HOMEOWNERS INSURANCE:
Recent Financial
Performance
Industry Net Premiums
Written by Product Lines
1960
NPW=$14.7 Billion
2002
NPW=$377.2 Billion
HomeMP
5%
CMP--Non
Liability
HO
4%
11%
AutoLiab
26%
OtherLiab
8%
Allied
2%
Other
Lines
16%
WC
8%
Fire
2%
Source: A.M. Best
AutoPhys
17%
A&H
5%
CMP
0%
OtherLiab
7%
AutoLiab
28%
Allied
5%
WC
8%
AutoPhys
15%
Fire
12%
Other
Lines
9%
A&H
9%
.
$35
($ Billions)
$30
$25
$20
$15
$10
$5
$0
2.9
3.4
3.8
4.2
4.7
5.7
6.8
7.8
8.8
9.8
10.8
11.7
12.5
13.2
14.1
15.2
16.7
17.1
17.7
18.6
19.3
20.5
21.5
22.6
24.0
25.4
26.9
29.0
30.6
32.4
35.1
$40
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
$45
Revenue Growth Drivers:
•Record new home construction
•Trend toward larger, more expensive homes
•Home price inflation
•Home improvements
•Rates
40.0
Homeowners Multi-Peril Insurance
Net Premiums Written
Source: Best’s Aggregates & Averages - Property/Casualty
Home Remodeling Expenditures
are at a Record High
Expenditures ($Billions)
$120
$110 104.6 103.9
108.9
111.9
115.2
8.2%
7.7%
5.3%
6.6%
6%
5.8%
4.8%
$80
12%
8%
7.7%
6.2%
$90
125.2
10%
8.7%
$100
4.9%
4%
$70
2.4%
$60
109.6
113.0
121.5 121.7 122.4
10.8%
117.4
4-Quarter Total HO Expenditures
Annual Rate of Change of 4-Qtr. Total
$50
2%
0%
00:Q4 01:Q1 01:Q2 01:Q3 01:Q4 02:Q1 02:Q2 02:Q3 02:Q4 03:Q1 03:Q2 03:Q3
* Figures are annualized based on most recent quarter’s data..
Source: Joint Center for Housing Studies; Insurance Information Institute
% Change
$130
Homeowners Insurance
Combined Ratio
165
160
Average 1990 to 2002= 116.0
158.4
Insurers have paid out an average of
$1.16 in losses for every dollar earned
in premiums over the past 13 years
155
150
145
2002 Loss: $4.7 Billion
140
135
2001 Loss: $7.4 Billion
130
125
120
113.6
113
112.7
109.4 108.2
113
111.4
Sources: A.M. Best; III
02
01
00
99
98
97
96
95
94
93
92
101
91
100
95
121.7
118.4
117.7
90
115
110
105
121.7
Rates of Return on Net Worth
20% 12.2%
13.7% 14.0% 14.1% 13.9% 13.4% 15.2%14.6%
10.8% 10.1% 11.9%
10.4%10.0%
10%
12.4%
0%
3.6%
5.4% 5.4% 3.8%
2.5%
-0.9%
-1.7%
-4.0%
-10%
-4.2%
-6.6%
-7.2%
-20%
-30%
Averages: 1990 to 2002
-40%
HO Insurance = -3.52%*
-50%
Fortune 500 = 12.64%
-60%
NAIC Homeowner
Multi-Peril
Fortune AllIndustry*
-54.3%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: NAIC, Insurance Information Institute
* Average is 0.71% if excluding 1992 (year of Hurricanes Andrew and Iniki.
Note: 2002 Homeowners figure is III estimate.
Texas: Mold Losses/Claims
Are Finally Moderating*
$200
30000
Paid Losses
Claim Count
25000
20000
$150
15000
$100
10000
$50
Claim Count
Water Damage Paid Losses*
($Millions)
$250
5000
0
Ja
n
Fe -01
b
M -01
ar
Ap 01
r
M -01
ay
Ju 01
nJu 01
l
Au -01
g
Se -01
p
O -01
ct
No 01
v
De -01
cJa 01
n
Fe -02
b
M -02
ar
Ap 02
r
M -02
ay
Ju 02
nJu 02
l
Au -02
g
Se -02
p
O -02
ct
No -02
v
De -02
c02
$0
Source: Texas Department of Insurance; Insurance Information Institute
* Data are for TDI Cause 61: Discharge – Other Damage.
Not all claims in cause 61 are mold and mold claims may
also arise from other (non-water) causes of loss.
California: Surging Water Claim
Frequency and Costs:
Symptom of Growing Mold Problem
•Water losses paid rose 151%
from 1997 to 2002 and 77%
since 1999
$600
$550
36%
$500
•Water claims accounted for less
than 1/4 of all HO claims in
1997, now they for 1/3.
34%
33%
32%
31%
$350
$298.9
$300
$200
$496.3
32%
$400
38%
36%
$441.6
$450
$250
$562.4
30%
$316.5
28%
27%
California may be
in a drought, but
homeowners say
they’re drowning
$224.1
24%
$150
$100
26%
24%
22%
20%
1997
1998
1999
Paid Water Losses ($ Mill)
2000
2001
Water Claims as % of All Homeowners Claims
Source: Insurance Information Network of California; Insurance Information Institute
2002
Where are the Next
Battlefields for Mold?
• Homeowners issue probably crested in 2002
• Migration to commercial area affects many lines:
Commercial Property
Products Liability
Workers Comp…
Commercial Liability
Builders Risk/Construction Defects
• Hot Spots:
 Apartments/Condos/Co-ops
 Schools
Cars? (GM case in NC)
Office Structures (e.g., IBM)
Municipal Buildings
• Trend toward class actions since science doesn’t
support massive individual non-economic damages
Much more lucrative for trial lawyers to form class
Source: Insurance Information Institute.
COMMERCIAL PROPERTY
INSURANCE:
Recent Financial
Performance
Industry Net Premiums
Written by Product Lines
1960
NPW=$14.7 Billion
2002
NPW=$377.2 Billion
CMP--Non
Liability
4%
HO
11%
OtherLiab
8%
Allied
2%
WC
8%
Fire
2%
Source: A.M. Best
AutoLiab
26%
Other
Lines
16%
AutoPhys
17%
A&H
5%
HomeMP
5%
OtherLiab
7%
Allied
5%
WC
8%
CMP
0%
AutoLiab
28%
AutoPhys
15%
Fire
12%
Other
Lines
9%
A&H
9%
Fire & CMP (Non-Liability Portion)
Combined Ratios
90
97.2
10-Year Average Combined Ratios
85
Fire: 103.3
117.0
118.0
115.0
113.7
115.3
107.7
106.8
87.1
95
113.6
116.8
106.2
94.2
100
97.1
105
104.3
110
105.9
115
106.6
120
104.8
125
122.4
Commercial Multi-Peril (Non-Liability Portion)
120.3
Fire
CMP (Non-Liab): 112.3
80
93
94
95
96
Source: A.M. Best; Insurance Information Institute
97
98
99
00
01
02
Construction Defect Problem
• Growing number of lawsuits target:
 Builders, Contractors, Developers, Sub-Contractors,
Material Suppliers, Product Manufacturers, Architects &
Engineers.
• Construction defect claims include:
 Subsidence, collapse, cracks in walls & foundations.
 Leaking roofs, windows, doors, foundations.
 Dry rot of wood or other building materials, pest
infestations.
 Mold, code violations, improper specification of building
materials.
• Hotspots:
 California, Nevada, Colorado, Texas, the Carolinas, Florida,
New York.
Construction Defect Litigation
Destroying CA Condo Market
$3.00
$2.75
$2.50
Ratio of Losses Paid Out
to Premiums Taken In
$2.95
Condo construction in parts of CA has
come to a virtual stop.
Insurer costs rose 58% in just 2 years!
$2.25
$2.00
$1.87
$1.75
$1.50
“Right-to-Cure”
laws now in 5
states: AZ, CA,
NV, TX, WA
16 considering
such laws.
$1.25
$1.00
1998
Source: ISO, Insurance Information Institute
2000
PRICING:
Are Risk & Price Better
Matched?
Average Expenditures on
Homeowners Insurance
$700
Average HO expenditures are
expected to rise by 8% in 2004
$650
$600
$569
$550
$508
$520
$532
$481 $488
$500
$450
$615
$440
$455
$418
$400
95
96
97
98
99
*Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute
00
01*
02*
03*
04*
Reasons for Rising HO
Insurance Prices
• Enormous underwriting losses are the primary reason for
rising homeowners insurance rates today
 Function of frequency/severity of claims and events
• Home price/repair inflation
• Constant threats:
 CAT losses (>$100B since 1990); Not just hurricanes/earthquakes, but also
major hail/wind events
• New issues such as “toxic” mold cost billions; no prior
premium collected
• Litigation is a problem (property & liability related)
• Falling capacity; Rising reinsurance costs
• Attempts to weaken insurers ability to underwrite
 Credit restrictions raise costs for millions (WA, MD & others)
 CA “emergency” reg. preventing insurers from using claims history in
coverage decisions (Safeco moratorium on new HO policies)
Insurance is the Biggest Concern
of Small Business Owners
Competition
7%
Regulations
9%
Poor Sales
18%
Labor Qlty. Labor Costs Inflation
5%
10%
2%
Credit/Int.
Rates
2%
Insurance
28%
Taxes
17%
Source: National Federation of Independent Business (June 2003); Insurance Information Institute
10%
11%
13%
16%
14%
15%
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
Aug-02
Sep-02
Oct-02
Nov-02
Dec-02
Jan-03
Feb-03
Mar-03
Apr-03
May-03
Jun-03
Jul-03
Aug-03
Sep-03
Source: MarketScout.com
Pricing power is ebbing
Is moderation due to realization
of performance and profit goals,
increasing capacity/capital, or
market share strategies?
18%
18%
17%
16%
22%
28%
30%
31%
31%
28%
30%
32%
33%
28%
29%
30%
32%
30%
27%
25%
28%
25%
22%
35%
12%
20%
19%
PRICING
Commercial Premium Rate
Changes Highly Cyclical
Council of Insurance Agents &
Brokers Rate Survey
Third Quarter 2003
Premium Rate Changes By Line of Business
Down 1-10% No Change Up 1-10% 10-20%
20-30%
30-50%
50%-100%
Comm. Auto
12%
14%
42%
30%
0%
0%
0%
Workers Comp
10%
17%
31%
21%
8%
2%
2%
General Liability
9%
21%
39%
24%
4%
1%
1%
Comm. Umbrella
6%
17%
27%
33%
11%
4%
0%
D&O
0%
10%
22%
34%
16%
7%
2%
Comm. Property* 24%
26%
28%
9%
2%
1%
0%
Construction Risk 3%
16%
26%
23%
13%
2%
2%
Terrorism*
6%
48%
15%
5%
1%
1%
0%
Business Interr.
11%
33%
34%
8%
2%
0%
0%
Surety Bonds
28%
18%
9%
9%
4%
2%
0%
0%
2%
7%
9%
19%
10%
2%
Med Mal
Source: Council of Insurance Agents & Brokers.
Rate On Line Index
(1989=100)
260
250
240
230
220
210
200
190
180
170
160
150
140
130
120
110
100
Prices rising, limits falling:
ROL up significantly
89
90
91
Source: Guy Carpenter
92
93
94
95
96
97
98
99
00
01
02*
* III Estimate
03*
P/C Soft Spots: % Accounts With
Negative Price Change(2nd Qtr 2003)
20%
17%
Property
Casualty/Liability
15%
10%
5%
9%
Commercial property-related
coverages are clearly the
softest segment of the p/c
market today.
9%
3%
2%
2%
2%
Comm Prop Biz
Terror Comm Auto WC
Interruption
GL
EPL
1%
0%
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
Umbrella
P/C Soft Spots: % Accounts With
Negative Price Change(3rd Qtr 2003)
35%
32%
Property
Casualty/Liability
30%
Some softness creeping into
commercial casualty segments
25%
20%
15%
10%
13%
12%
11%
9%
10%
6%
5%
2%
0%
Comm Prop Biz
Terror Comm Auto WC
Interruption
GL
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
EPL
Umbrella
Proportion of Accounts Renewing
With Increase of 20% or More,
(Select Lines)
Terrorism
2002:II
2003:II
Source: Council of Insurance Agents and Brokers; Insurance Information Institute
2%
18%
14%
2003:I
5%
2002:IV
35%
53%
53%
2002:III
23%
53%
78%
Construction Risk
2003:III
PROPERTY INSURANCE
EXPOSURE &
THE ECONOMY
3.9%
3.3%
3.3%
1.4%
1.3%
03:I
1%
1.4%
2.7%
4.8%
0.6%
2%
1.1%
3%
2.6%
4%
2.0%
3.0%
5%
4.4%
6%
5.2%
7%
02:IV
8%
4.0%
7.1%
9%
5.0%
Economy experienced weak growth
following the recession of 2001,
strengthening now with eventual
positive impact on commercial
exposure growth.
10%
7.2%
Real GDP Growth
2004*
03:IV*
03:III
03:II
02:III
02:II
02:I
-1.6%
01:IV
01:III -0.3%
00:IV
00:III
00:II
00:I
99:IV
99:III
99:II
99:I
1998
-2%
01:II
-1%
01:I -0.6%
0%
*Estimate/Forecast
Source: US Department of Commerce, Blue Economic Indicators 10/03; Insurance Information Institute.
Change in Selected Components
rd
of GDP Growth (3 Qtr 2003)
30%
26.9%
25%
20.4%
20%
15%
11.1%
Strong growth in
durable goods & fixed
capital investment
should bode well for
commercial insurers
9.3%
10%
5%
1.3%
0%
Durable
Non
Goods
Residential
Consumption Investment
Residential
Investment
Source: Bureau of Eocnomic Analysis, Third quarter 2003.
Exports
Government
New Private Housing Starts
(Millions of Units)
New Private Housing Starts
2.0
•Housing market remains strong.
1.9
1.8
1.62 1.64 1.57
1.7
1.6
1.2
1.29
1.20
1.19
1.01
1.1
1.0
1.64
1.35
1.4
1.3
1.60
1.48 1.47
1.46
1.5
1.71 1.70
90
91
92 93
94 95
96
97 98
99
00
01
02 03E 04F
Source: US Department of Commerce; Blue Chip Economic Indicators (7/03), Insurance Info. Institute
Homeownership Rates,
1990 to 2003*
Homeownership is at a record high.
Because you can’t buy a home without
insurance, insurance is clearly
available and affordable, including to
millions of Americans of modest
means and all ethnic groups.
65.4%
90
92
67.4%
66.8%
66.3%
65.7%
64.7%
64.5%
63.9% 64.1%
67.8% 67.9% 68.0%
64.0%
93
94
* First Quarter
Source: U.S. Census Bureau
95
96
97
98
99
00
01
02
03*
Homeownership Rates Among
Minorities is Rising, 1994 to 2002
42%
48.2%
47.3%
47.3%
47.7%
Hispanics
46.3%
47.2%
45.5%
46.3%
44.7%
Blacks
45.6%
44.1%
42.1%
42.7%
41.2%
44%
42.3%
46%
43.3%
48%
42.8%
50%
44.8%
•Homeownership rates for
minorities are at or near
record highs
•Minorities are using their
good credit to buy homes
and get insurance
40%
94
95
Source: U.S. Census Bureau
96
97
98
99
00
01
02
Percent Change in
Homeownership, 1995-2001
90%
80%
70%
60%
50%
•Homeownership rates have
increased much faster for
minority groups than for whites
•Minorities are using their good
credit to buy homes and get
insurance
•4.3 million minority net new
homeowners were created
between 1995 and 2001
83.5%
45.9%
40%
30%
20%
23.2%
10.7%
10%
0%
White
Black
Hispanic
*Includes American Indian, Eskimo, Aleut, Asian and Pacific Islander.
Source: U.S. Census Bureau
Other*
CATASTROPHIC
PROPERTY LOSS
U.S. Insured
Catastrophe Losses
$ Billions
Since 1990, insurers $28.1
have paid more than
$700 per month in
$16.9
CAT-related losses
$30
$22.9
$25
$20
$15
$10 $7.5
$2.7
$5
$8.3 $7.3
$5.5
$4.7
$10.1
$11.5
$8.3
$5.9
$4.3
$2.6
$0
89
90
91
92
93
94
95
96
97
98
99
00
01
02 03*
*Through October 2003, including $2B III estimate for California wildfires.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business
and personal property claims, business interruption and auto claims.
Source: Property Claims Service/ISO; Insurance Information Institute
Billion Dollar Disasters of 2003 by
Insured Losses ($ Billions)
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
$3.13
California wildfires are just the 4th
billion dollar-plus event of 2003
$2.00
$1.61
$1.17
May 2-11:
18-State Storm:
Tornados,
Thunderstorms
Oct./Nov:
California
Wildfires*
April 4-8:
10 State Storm:
Tornados, Hail,
Freezing, Wind,
Flood
*Insurance Information Institute estimate as of November 4, 2003.
Sources: Insurance Services Office
Sept. 18-19:
Hurricane
Isabel
California Wildfires
A home is destroyed by a wildfire in the
resort community of Lake Arrowhead,
California, October 29, 2003
Source: Yahoo news
California Wildfires
Homes destroyed by a wildfire near Lake
Arrowhead in San Bernardino,
California, Monday, Nov. 3, 2003
Source: Yahoo News
Inflation-Adjusted U.S. Catastrophe
Losses By Cause of Loss, 1982-2001¹
Wind/Hail/Flood5
4.3%
Earthquakes4
10.1%
Civil Disorders
0.6%
6
Fire
2.4%
Water Damage
0.2%
Tornadoes2
30.7%
Winter Storms
10.9%
All Tropical Cyclones3
28.2%
Terrorism
12.6%
1
Catastrophes are all events causing direct insured losses to property of $25 million or more in 1997 dollars. Adjusted
for inflation by ISO. 2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as
volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered
National Flood Insurance Program. 6 Includes wildland fires.
Source: Insurance Services Office, Inc (ISO)
DISASTER DECLARATIONS &
DISASTER AID:
PUBLIC POLICY OR POLITICS?
Major Disaster Declarations
By Number (1976-2003)
•A total of 1,005 major disasters have been declared
by the federal government since 1977.
Declarations
80
•The average annual figure in 2002/3 is double the 25
annual average of the 1980s.
•Politics seems to matter. More declarations near
presidential elections
70
65
•Homeowners/Businesses: Aid is incentive to not buy
insurance
60
49 51
50
50
43 45
42
40
30
75
38
34
22 25
24
23
20
27
21
36
31
28
45 45
44
32
32
93
95
23
15
11
10
0
77
79
81
83
85
87
Source: Federal Emergency Management Agency (FEMA)
89
91
97
99
01
03*
*Through November 13, 2003 (including the California wildfires)
Top 10 Major Disaster Declaration
Totals By State
(1972- 2003 to-date)
Total Number
57
46
40
39
37
36
36
33
32
31
29
Te
xa
s
C
al
ifo
rn
ia
Fl
or
id
a
A
la
ba
m
a
Lo
ui
sia
na
N
ew
Yo
rk
O
kl
ah
om
a
M
iss
iss
ip
pi
Te
nn
es
se
e
Ill
in
oi
s
W
as
hi
ng
to
n
60
55
50
45
40
35
30
25
20
15
10
5
0
Source: Federal Emergency Management Agency (FEMA)
FEMA Disaster Expenditures*
(1990-1999)
$9
$8.22
$ Billions
$8
$7
$6
$5
$4.19
$4
$2.79
$3
$1.87
$2
$1
$2.43
$1.59
$1.91
$1.39
$0.43 $0.55
$0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
*Funding represents total FEMA expenditures obligated from the President’s Disaster Relief Fund for declared disasters, emergencies and fire suppression grants as
of February 29,2000. Expenditures include costs for FEMA’s disaster assistance programs, hazard mitigation, mission assignments, contractual services and
administrative expenses. Figures are stated in current dollars and do not include funding provided separately by other participating federal agencies.
Source: FEMA
Insured Loss Distribution for States
Affected by Hurricane Isabel
ISABEL:
Likely
economic cost
$4 - $5 billion
All Other
States:
$140MM
12%
Disaster aid
$215+ million
$ Millions
Virginia:
$450MM
38%
Private
insurers paid
$1.2billion
Maryland &
DC: $410MM
35%
Source: Federal Emergency Management Agency
North
Carolina:
$170MM
15%
Disaster Assistance to States
Affected by Hurricane Isabel
ISABEL:
Likely
economic cost
$4 - $5 billion
Disaster aid
$215+ million
Delaware:
$3MM
1%
Maryland:
$39MM
18%
Private
insurers paid
$1.2billion
$ Millions
Dist. Of
Columbia:
$5.6MM
3%
Virginia:
$94.4MM
44%
North
Carolina:
$73MM
34%
Source: Federal Emergency Management Agency
Life’s a Beach: Federal Beach
Replenishment Expenditures Over the
Past 75 Years, by State (2002 Dollars)
New Jersey
Florida
New York
North Carolina
Virginia
Maryland
South Carolina
Connecticut
Lousiana
Delaware
Georgia
Mississippi
New Hampshire
Texas
Alabama
Maine
Massachusetts
Rhode Island
$1,081
$887
$830
$194
$150
$144
$91
$55
$55
$48
$37
$35
$30
$22
$8
$8
$8
$4
$0
$200
The federal government has paid
out $3.7 billion to replenish beach
sand over the past 75 years
$400
$600
$800
$1,000
Source: Insurance Information Institute, calculated from A.M. Best combined ratio data.
$1,200
September 11: Economic Losses
Sustained by New York City
Total Economic Losses to NYC = $83 Billion
Capital Losses
$30 billion
36%
Lost Output
$39 billion
47%
Source: New York City Partnership/A.T. Kearney.
Clean-Up &
Other
$14 billion
17%
No Doubt It: We (Re) Built This City
Post-9/11 Relief, by Source ($ Billions)
$45.0
$40.0
$35.0
$30.0
$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
$40.2
Private insurance is, by far, the best
recovery option for individuals and
businesses following disasters.
$20.0
$5.0
Insurers
Source: Insurance Information Institute
Federal Govt-excl. VCF
Federal
Victims'
Compensation
Fund
$1.5
Charitable
Sources
TERRORISM
Sept. 11 Industry Loss Estimates
($ Billions)
Property WTC 1 & 2
$3.5 (9%)
Other Liability
$10.0 (25%)
Life
$2.7 (7%)
Aviation
Liability
$3.5 (9%)
Event
Cancellation
$1.0 (2%)
Property Other
$6.0 (15%)
Biz
Interruption
$11.0 (27%)
Workers Comp
Aviation Hull
$0.5 (1%) $2.0 (5%)
Consensus Insured Losses Estimate: $40.2B
Source: Insurance Information Institute
Industry Losses Under Proposed Federal
Backstop Using 9/11 Scenario
(as interpreted on date of enactment, Nov. 26, 2002)
$1.75B
Industry
Co-Share
$19.675B
$0.925B
Industry
Co-Share
$10.575
$20
$2.0B
Industry
Co-Share
$18.00
($ Billions)
$25
$15.75
$14.25B
Total Ind. Loss: $10.875B
$30
$15
$10
$5
$0.125B
Industry
Co-Share
$18.75
$1.125
$8.75
$12.50
$0
Year 1
Industry Retention
Year 2
Surcharge Layer
Year 3
Co-Reinsurance Layer
Assumes $30B Commercial Prop & WC Loss, $125B “At Risk” Commercial DPE
Source: Insurance Information Institute.
Insurance Information
Institute On-Line
If you would like a copy of this presentation, please
give me your business card with e-mail address
The Ten Most Costly Hurricanes
in the U.S. ($ Billions)*
$ Billions
Until the World Trade Center/Pentagon attacks,
Hurricane Andrew, which swept ashore in August
1992, ranked as the world’s most costly insured
loss. It remains the largest natural disaster in
terms of insured losses.
$25
$20
$19.6
$15
$10
*Insured losses
Source: ISO, III, AIA
$2.4
$2.1
2.0
$1.8
1.0
$1.2
$1.2
Floyd (1999)
Iniki (1992)
Fran (1996)
Frederic (1979)
Alicia (1983)
Isabel (2003)
Hugo (1989)
Andrew (1992)
$0
Georges (1998)
$3.2
$5
Opal (1995)
$6.0
The Ten Most Costly U.S.
Earthquakes ($ Millions*)
$15 24,000
Northridge, CA
1994
Loma Prieta, CA
1989
San Fernando, CA
1971
$2,418
Alaska and West U.S.
1964
$2,856
Southern California
1987
$558
Southern California
1992
$116
Northern California Coast
1992
$83
Kern County, CA
1952
$401
1933
$545
1983
$55
Long Beach, CA
Central California; Coalinga
$9,998
0
The Northridge, California earthquake of
January 1994 ranks as the third most costly
catastrophe in the U.S.
5000
10000
15000
*In 2001 dollars
Source: U.S. Department of the Interior, U.S. Geological Survey; Insurance Information Institute
20000
25000
Worst Catastrophic Wildland
Fires in the US ($ Millions)
Date
Location
In 2002 Dollars
Sep. 22-30, 1970
Oakland-Berkeley Hills, California
$114.0
Jul. 26-27, 1977
Santa Barbara, Montecito, California
59.0
Oct. 23-25, 1978
Los Angeles and Ventura Counties, California
40.2
Sep. 12-18, 1979
Hollywood Hills, California
12.1
Nov. 16-17, 1980
Bradbury, Pacific Palisades, Malibu, Sunland, Carbon Canyon and Lake
Elsinore, California
33.7
Nov. 24-30, 1980
Los Angeles, San Bernardino, Orange, Riverside, and San Diego Counties,
California
90.5
Oct. 9-10, 1982
Los Angeles, Ventura, and Orange Counties, California
29.3
May 17-20, 1985
Florida
55.3
Jun. 27-Jul. 2, 1990
Santa Barbara County, California
366.3
Oct. 20-21, 1991
Oakland and Alameda Counties, California
2,225.8
Oct. 27-28, 1993
Orange County, California
432.2
Nov. 2-3, 1993
Los Angeles County, California
462.7
May 10-16, 2000
Cerro Grande, New Mexico
146.9
June 23-28, 2002
Rodeo-Chediski Complex, Arizona
120.0
Oct 21-Nov 5, 2003
Los Angeles, San Bernardino, San Diego and Ventura Counties, California
2,000*
Total
$6,067.9
*I.I.I. estimated insured losses as of Nov. 10, 2003
Source: Property Claim Services, Insurance Services Office, Inc. (ISO)