Transcript P6466 - iii Template

Overview & Outlook for the
P/C Insurance Industry:
Trends, Challenges & Opportunities
Casualty Actuarial Society Centennial Meeting
New York, NY
November 12, 2014
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  [email protected]  www.iii.org
P/C Insurance Industry:
Financial Update
2014 Is Shaping Up to Be a
Reasonable Year
2013 Was the Industry’s Best Year
in the Post-Crisis Era
2
$63,784
$25,980
$33,522
$19,456
$28,672
$3,043
$35,204
$62,496
Net income rose
strongly (+81.9%)
in 2013 vs. 2012
on lower cats,
capital gains
$44,155
$38,501
$30,029
$20,559
$21,865
$30,773
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$36,819
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 = 7.8%
$24,404

$ Millions 
$80,000 

$70,000 

$60,000 

$50,000 

$65,777
P/C Industry Net Income After Taxes
1991–2014:H1
2014 is off to a
slower start
$0
•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
14:H1
13
12
11
10
09
08
07
06
05
04
03
02
01
99
98
97
96
95
94
93
92
91
00
-$6,970
-$10,000
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2014:H1*
ROE
25%
1977:19.0%
History suggests next ROE
peak will be in 2016-2017
1987:17.3%
20%
2006:12.7%
1997:11.6%
15%
9 Years
2013
10.4%
10%
5%
2014:H1
7.7%
0%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
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
-5%
*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.
ROE: Property/Casualty Insurance by
Major Event, 1987–2014:H1
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Katrina,
Rita, Wilma
Low
CATs
15%
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
4 Hurricanes
Northridge
Financial
Crisis*
Sandy
Record
Tornado
Losses
-5%
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*
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 2014 figure is through H1:2014.
Sources: ISO, Fortune; Insurance Information Institute.
5
P/C Insurance Industry
Combined Ratio, 2001–2014:H1*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
120
Relatively
Low CAT
Losses,
Reserve
Releases
Relatively
Low CAT
Losses,
Reserve
Releases
Avg. CAT
Losses,
More
Reserve
Releases
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
101.0
100.8
100.1
Cyclical
Deterioration
99.3
98.4
100
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Sandy
Impacts
106.3
102.4
100.8
Lower
CAT
Losses
99.0
96.7
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
* 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:H1 = 98.9.
Sources: A.M. Best, ISO.
6
A 100 Combined Ratio Isn’t What It
Once Was: Investment Impact on ROEs
Combined Ratio / ROE
15.9%
110
A combined ratio of about 100 generates an
ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
106.5
14.3%
12.7%
105
100.6 100.1 100.8
100
10.9%
101.2
99.5
15%
102.4
101.0
99.0
97.5
8.8%
7.4% 7.9%
9.6% 92.7
6.2%
9%
9.8%
7.7%
4.7%
90
Lower CATs
helped ROEs
in 2013
4.3%
85
12%
96.7
95.7
95
18%
6%
3%
0%
80
1978
1979
2003
2005
2006
2007
2008
Combined Ratio
2009
2010
2011
2012
2013 2014:H1
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014:H1 combined ratio
including M&FG insurers is 98.9; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
RNW All Lines by State, 2003-2012 Average:
Highest 25 States
9.4
9.9
10.3
10.3
10.5
10.7
10.7
10.9
10.9
11.0
11.0
11.0
11.1
11.4
11.4
11.4
11.7
12.0
12.6
13.1
13.3
13.4
14.8
15.1
17.7
21.0
24
22
20
18
16
14
12
10
8
6
4
2
0
The most profitable states
over the past decade are
widely distributed
geographically, though none
are in the Gulf region
HI AK ND ME WY UT VT ID WA NH IA NE SC DC MA OR VA NC RI CA CT OH NM SD WV MT
Source: NAIC; Insurance Information Institute.
8
2.0
-9.4
-6.5
Some of the least
profitable states over the
past decade were hit hard
by catastrophes
3.2
4.2
4.9
4.9
5.2
5.5
6.1
6.1
6.5
6.5
7.4
7.6
7.7
7.7
7.9
8.1
8.3
8.5
8.6
8.9
8.9
9.1
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
9.2
RNW All Lines by State, 2003-2012 Average:
Lowest 25 States
KS MD CO WI FL MN TX IN US AR PA IL AZ MO NV KY NJ GA NY MI TN DE OK AL MS LA
Source: NAIC; Insurance Information Institute.
9
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$490.8
$463.0
$624.4
$671.6
14:Q2
14:Q1
13:Q4
13:Q3
13:Q2
13:Q1
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
09:Q3
$437.1
Surplus as of 6/30/14 stood at
a record high $671.6B
09:Q2
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
$400
06:Q4
$450
09:Q1
$455.6
$478.5
$505.0
$515.6
$517.9
$521.8
$496.6
$500
$487.1
$550
$512.8
$600
$559.2
$566.5
$650
$614.0
2007:Q3
Pre-Crisis Peak
$700
$607.7
Drop due to near-record
2011 CAT losses
$662.0
($ Billions)
$653.3
Policyholder Surplus,
2006:Q4–2014:H1
The industry now has $1 of surplus for every $0.73 of NPW,
close to the strongest claims-paying status in its history.
2010:Q1 data includes $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2014
in very strong financial condition.
10
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
12
Property/Casualty Insurance Industry
Investment Income: 2000–20141
Investment earnings
are still below their
2007 pre-crisis peak
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1 $47.6
$38.9
$38.7
$48.0 $47.4
$45.9
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Due to persistently low interest rates,
investment income fell in 2012 and in 2013
and is falling again in 2014.
1
Investment gains consist primarily of interest and stock dividends.
Sources: ISO; Insurance Information Institute.
*2014 figure is estimated based on annualized H1 data.
14*
$7.17
$11.43
$6.18
-$7.90
-$19.81
-$5
-$10
-$15
-$20
-$25
$7.04
$5.85
$8.92
$3.52
$9.70
$9.13
-$1.21
$6.63
$6.61
Realized capital gains rose
sharply as equity markets rallied
$16.21
$13.02
$10.81
$9.24
$6.00
$1.66
$9.82
$9.89
$4.81
$20
$15
$10
$5
$0
$2.88
($ Billions)
$18.02
P/C Insurer Net Realized
Capital Gains/Losses, 1990-2014:Q2
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1314:Q2
Insurers Posted Net Realized Capital Gains in 2010 - 2014 Following Two
Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE
Sources: A.M. Best, ISO, Insurance Information Institute.
14
Property/Casualty Insurance Industry
Investment Gain: 1994–2014:Q21
($ Billions)
$70
$60
$50
$64.0
$58.0
$56.9
$52.3
$51.9
$47.2
$44.4
$42.8
$40 $35.4
$59.4
$55.7
$58.8
$56.2
$54.2
$53.4
$48.9
$45.3
$39.2
$36.0
$31.7
$30.1
$30
$20
$10
Investment gains in 2013
were their highest in the
post-crisis era
$0
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14:Q2
Investment Income Continued to Fall in 2013 Due to Low Interest Rates
but Realized Investment Gains Were Up Sharply; The Financial Crisis
Caused 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.
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2014*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
6%
U.S. Treasury
yields plunged to
historic lows in
2013. Longerterm yields have
rebounded a bit.
5%
4%
3%
2%
1%
0%
Recession
2-Yr Yield
10-Yr Yield
'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
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.
*Monthly, constant maturity, nominal rates, through Sept. 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
18
Profitability & Politics
How Is Profitability Affected by
the President’s Political Party?
21
P/C Insurance Industry ROE by
Presidential Administration, 1950-2014*
16.43%
15.10%
Carter
Reagan II
Obama II
Nixon
Clinton I
G.H.W. Bush
G.W. Bush II
Clinton II
Reagan I
Nixon/Ford
Truman
Eisenhower I
Eisenhower II
G.W. Bush I
Obama I
Johnson
Kennedy/Johnson
9.05%
8.93%
8.65%
8.35%
OVERALL RECORD:
1950-2014*
Democrats 7.72%
Republicans 7.85%
8.33%
7.98%
7.68%
6.98%
6.97%
5.43%
5.03%
4.83%
4.68%
4.43%
Party of President has
marginal bearing on
profitability of P/C
insurance industry
3.55%
0%
2%
4%
6%
8%
10%
12%
14%
16%
*Truman administration ROE of 6.97% based on 3 years only, 1950-52; Estimated ROE for 2014 = 7.8% based on data through 2014:Q2.
Source: Insurance Information Institute
18%
P/C insurance Industry ROE by
Presidential Party Affiliation, 1950- 2014*
Nixon/Ford
Carter
Kennedy/
Johnson
20%
Truman
25%
Eisenhower
BLUE = Democratic President
RED = Republican President
Reagan/Bush I
Clinton
Bush II
Obama
15%
10%
5%
0%
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
-5%
Estimated ROE for 2014 = 7.8% based on data through 2014:Q2.
Source: Insurance Information Institute
Questions Arising from 2014 Midterm
Elections
 TRIA: Reauthorize, Temp. Reauthorization or Sunset?
 Very divergent views on this
 Dodd-Frank: Revisit parts of bill
 Insurer capital standards
 Challenge of SIFI designations?
 Affordable Care Act (“ObamaCare”)
 Efforts to scale back
 Secondary impact on WC, Auto Liability, Med Mal
 Consumer Financial Protection Bureau
 Trade Policy
 Energy Policy
24
ALTERNATIVE CAPITAL &
REINSURANCE MARKETS
Ample Capacity as
Alternative Capital is
Transforming
Reinsurance Markets
25
Alternative Capacity as a Percentage of
Global Reinsurance Capital
(As of Year End)*
Alternative Capacity
accounted for approximately
11.5% or $59 billion of the
$511 in global reinsurance
capital as of mid-2014
*As of June 30.
Source: Aon Benfield Analytics.
Investor by Category
Hedge
Fund
5%
Mutual
Fund
5%
Reinsurer
5%
2012
Hedge
Fund
2%
Reinsurer
2%
2013
Mutual
Fund
12%
Institutional
34%
Instituti
onal
41%
Catastrophe
Fund
51%
Years ended June 30.
Source: Aon Benfield Securities; Insurance Information Institute.
Catastrophe
Fund
43%
Institutional investors are
accounting for a larger
share of alternative
reinsurance investors
Alternative Risk Transfer: Market Growth
Since 2009, market share of collateralized reinsurance has grown faster
than cat bonds or other forms of risk transfer
Source: Aon Benfield Insurance-Linked Securities: Capital Revolution, August 30, 2013; Insurance Information Institute.
Catastrophe Bonds: Issuance and
Outstanding, 1997- 2014:Q2
$20,542.8
5,701.7
11
7,083.0
10
$14,835.7
$12,139.1
$12,185.0
$12,508.8
07
5,852.9
$4,904.2
06
4,108.8
01
4,600.3
00
1,991.1
1,729.8
1,219.5
1,142.8
3,391.7
966.9
99
2,729.2
1,130.0
98
6,996.3
984.8
97
$4,040.4
846.1
$4,000
633.0
$8,000
$3,450.0
$2,950.0
$12,000
4,693.4 $8,541.6
$16,000
$14,024.2
Risk capital
outstanding
reached a record
high in 2014
$20,000
$12,043.6
$24,000
$18,516.7
Risk Capital Amount ($ Millions)
$0
02
03
Risk Capital Issued
Risk Capital Outstandng at Year End
04
05
08
Financial crisis
depressed issuance
09
12
13 14:Q2
CAT bond issuance
reached a record high
in 2013.
2014 Issuance Slowed Down Substantially; May Not Surpass 2013 Record
Sources: Guy Carpenter; Insurance Information Institute.
Catastrophe Bonds Outstanding, Q1 2014
U.S. Wind and
Quake
30%
Catastrophe bonds
are heavily
concentrated in U.S.
hurricane
exposures. Twothirds of
catastrophe risks
outstanding cover
U.S. wind risks.
Japanese
Perils
6%
Other (ex.
U.S.
Wind)
8%
U.S.
Quake
8% Euro
Wind
11%
U.S. Wind
24%
Other
(incl. U.S.
Wind)
13%
Source: Willis Capital Markets.
31
Risk Spread (coupon – risk-free rate)
U.S. Wind-Exposed Risk Premium*
2010:Q1 to 2014: Q1
13.0%
12.0%
11.0%
10.9%
10.0%
Risk spreads
rose in 20112012 from cat
activity and
changes to
catastrophe
models
12.0%
10.9%
10.1%
11.6%
12.0%
11.0%
Risk spreads
dropped –
equivalent to
lower rates –
low cat losses,
capital entering
market.
9.0%
8.0%
7.0%
6.0%
8.2%
7.9%
8.2%
8.0%
8.2%
8.0%
Wtd. Avg. Risk Spread
7.6%
7.4%
7.2%
6.4%
5.0%
* Trailing 12-month average
SOURCE: Willis Capital Markets, Insurance Information Institute.
32
Risk Spread (coupon – risk-free rate)
Non-U.S. Wind-Exposed Risk Premium*
2010:Q1-2014: Q1
Spreads are
also falling in
non-U.S. wind
exposures, but
less sharply
and in line with
expected
losses
10.0%
9.0% 8.5%
8.0%
7.0%
6.0%
7.2%
6.9%
5.6%
4.2%
5.7% 4.9%
5.7%5.7%
5.0%
4.0%
3.0%
5.4%
4.2%
4.5%
Wtd. Avg. Risk Spread
4.8%
4.2%
3.6%
2.7%
2.6%
2.0%
* Trailing 12-month average.
SOURCE: Willis Capital Markets, Insurance Information Institute.
33
Reinsurance Pricing: Rate-on-Line Index
by Region, 1990 – 2014*
Lower CATs and a
flood of new
capital has pushed
reinsurance
pricing down in
most regions,
including the U.S.
*As of Jan. 1.
Source: Guy Carpenter
Questions Arising from Influence of
Alternative Capital
 What Will Happen When Investors Face Large-Scale
Losses?
 What Happens When Interest Rates Rise?
 Does ILS Have a Higher Propensity to Litigate?
 How Much Lower Will Risk Premiums Shrink/ROLs Fall?
 Will There Be Spillover Into Casualty Reinsurance?
 Will Alternative Capital Drive Consolidation?
36
Growth Analysis by State and
Business Segment
Post-Crisis Paradox?
Premium Growth Rates Vary
Tremendously by State
37
Net Premium Growth: Annual Change,
1971—2014F
(Percent)
1975-78
1984-87
25%
2000-03
Net Written Premiums Fell
0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008,
and 4.2% in 2009, the First 3Year Decline Since 1930-33.
20%
2014F: 4.0%
15%
2013: 4.6%
2012: +4.3%
10%
5%
0%
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
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
38
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2013
80
74.6
Top 25 States
North Dakota was the country’s
growth leader over the past 6
years with premiums written
expanding by 74.6%
60
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
TN
MN
AR
AK
IN
WI
CO
MI
KY
OH
NJ
LA
SC
VA
AL
MO
NM
22.2
TX
20
WY
22.5
24.9
IA
VT
25.2
KS
30
27.4
40
31.9
50
36.9
Pecent change (%)
70
NE
OK
SD
0
ND
10
Sources: SNL Financial LC.; Insurance Information Institute.
39
Direct Premiums Written: Total P/C
Percent Change by State, 2007-2013
Sources: SNL Financial LC.; Insurance Information Institute.
-15.3
DE
HI
WV
AZ
CA
ID
NH
RI
IL
PA
WA
UT
MA
MD
NY
GA
NC
US
CT
-20
MS
-15
NV
-12.6
-6.7
Growth was negative in 7
states and DC between
2007 and 2013
-10
-5.7
-4.1
-0.7
-1.9
0.4
OR
-5
DC
1.0
ME
0
-1.7
1.6
4.1
4.2
3.5
MT
Pecent change (%)
5
5.3
5.6
5.9
6.2
6.9
7.0
7.3
7.6
7.8
7.9
8.2
10
8.5
Bottom 25 States
FL
Premium growth in CA
has been among the
weakest in the US since
the Great Recession.
Only in 2014 will
premium volume
exceed its prerecession levels.
40
0
20
10
5
Sources: SNL Financial LC.; Insurance Information Institute.
14.6
14.4
14.3
14.2
14.1
13.8
13.7
13.6
13.5
13.5
KS
FL
IA
KY
WI
DE
UT
VA
SC
NY
11.4
10.9
10.7
10.6
10.5
10.4
AR
US
MT
MO
WY
AL
12.3
14.9
CO
LA
15.5
16.8
18.7
TN
NJ
NE
SD
OK
24.0
25.8
15
MI
19.7
25
26.7
30
TX
34.1
35
ND
Pecent change (%)
Direct Premiums Written: PP Auto
Percent Change by State, 2007-2013
Top 25 States
40
41
Direct Premiums Written: PP Auto
Percent Change by State, 2007-2013
Sources: SNL Financial LC.; Insurance Information Institute.
ME -6.0
HI
AZ
CA
VT
OH
-3.7
-0.3
NH
-0.9
-0.2
4.6
ID
NV
5.0
RI
0.8
5.1
IL
2.0
5.3
5.8
WA
PA
6.1
8.6
WV
CT
8.8
MD
6.1
8.9
GA
NM
9.0
IN
6.1
9.4
MN
MA
9.7
OR
6.5
10.1
NC
Pvt. Passenger Auto
premium experienced
essentially no net
growth between 2007
and 2013
MS
10.3
DC
7.4
10.3
12
10
8
6
4
2
0
-2
-4
-6
-8
AK
Pecent change (%)
Bottom 25 States
42
100.5
101.0
101.6
102.1
102.0
101.0
101.3
100.2
98.3
95.5
95.1
98.4
101.1
101.0
101.3
104.2
94.3
95
99.5
100
101.3
105
101.7
110
103.5
109.5
115
107.9
Private Passenger Auto Combined
Ratio: 1993–2015F
90
85
80
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F15F
Private Passenger Auto Accounts for 37% of Industry Premiums and
Remains the Profit Juggernaut of the P/C Insurance Industry
Sources: A.M. Best (1990-2013); Insurance Information Institute (2014F – 2015F).
43
Advertising Expenditures by P/C
Insurance Industry, 1999-2013
$ Billions
P/C ad spend hit an all time
record high of $6.175 billion
in 2013, up 1.5% over 2012.
The pace of growth has
slowed from 15.8% in 2011
and 23.8% in 2010
$6.5
$6.0
$5.5
$5.0
$5.883
P/C ad spending has more
than tripled since 2002
(up 256% from 2002-2013)
$5.079
$4.354
$4.5
$4.102
$4.0
$3.5
$4.103
$3.426
$2.975
$3.0
$2.5
$2.0
$6.088 $6.175
$1.882$2.111
$1.736 $1.737 $1.803 $1.708
$1.5
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: Insurance Information Institute from consolidated P/C Annual Statement data, Insurance Expense Exhibit (Part I).
I.I.I. Poll: Ads Are Everywhere
Q. How long has it been since you have seen or heard an advertisement for auto
insurance?
More Than 6 Months Never Seen Or Heard Ad
1 to 6 months
3% 2%
5%
1 week to 1 month
9%
80%
Less Than
a Week
Four Out of Five Respondents Have Seen An Auto Insurance Ad in
the Past Week.
Source: Insurance Information Institute Annual Pulse Survey, May 2014.
45
0
Sources: SNL Financial LLC.; Insurance Information Institute.
45.4
44.7
44.0
43.5
42.9
42.5
42.1
41.9
KY
KS
WI
WY
NE
IA
GA
MT
38.1
37.1
37.1
35.7
34.9
34.1
33.6
33.0
32.6
NM
OH
IN
AL
IL
SC
DE
UT
ID
40.3
45.4
CO
TX
46.3
MO
49.2
SD
53.3
50.5
10
TN
20
50.7
30
AR
40
50.7
50
MN
ND
60
60.5
70
OK
Pecent change (%)
Direct Premiums Written: Homeowners
Percent Change by State, 2007-2013
Top 25 States
46
Direct Premiums Written: Homeowners
Percent Change by State, 2007-2013
Bottom 25 States
16.1
15.4
MI
19.2
DC
VT
19.7
20
AK
22.3
OR
20.8
22.5
24.6
MD
NY
25.3
26.4
NH
25
ME
26.8
29.6
PA
US
29.8
LA
27.2
30.3
RI
WA
30.4
CT
27.5
30.6
NJ
30
WV
31.4
32.5
NC
VA
32.6
FL
AZ
MA
0
0.5
2.1
5
NV
8.0
CA
10
8.3
15
HI
Pecent change (%)
35
MS
40
17.2
The collapse of the
housing bubble hit CA
hard, leading to one of
the slowest growth
rates in the US between
2007 and 2013
Sources: SNL Financial LLC.; Insurance Information Institute.
47
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2013
91.1
4.1
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
MA
CT
NM
LA
MS
NJ
NY
US
MO
6.5
WI
OH
6.7
TN
9.8
IN
6.8
10.0
MN
AR
11.3
14.0
TX
WY
15.6
AK
19.1
ID
23.6
25.8
IA
KS
26.3
NE
33.7
41.4
SD
VT
42.1
Only 30 states showed any
commercial lines growth
from 2007 through 2013
OK
100
90
80
70
60
50
40
30
20
10
0
ND
Pecent change (%)
Top 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
48
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2013
Bottom 25 States
-25.1
NV
WV
AZ
-22.4
-12.7
FL
-13.6
-12.6
DE
-11.7
HI
-4.9
DC
-11.4
-4.3
UT
MT
-3.7
CA
SC
MI
RI
ME
NC
KY
VA
WA
IL
-30
MD
-25
CO
-20
PA
States with the poorest
performing economies also
produced the most negative
net change in premiums of the
past 6 years, including CA
-15
-10.7
-3.3
GA
-10
OR
-2.7
-2.1
-2.0
-1.9
-1.1
-1.1
-1.0
-0.9
-0.8
-0.5
0.1
-5
NH
Pecent change (%)
0
0.2
0.4
0.5
5
AL
Nearly half the states have yet to
see commercial lines premium
volume return to pre-crisis levels
Sources: SNL Financial LLC.; Insurance Information Institute.
49
Direct Premiums Written: Workers’ Comp
Percent Change by State, 2007-2013*
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
-8.0
AR
-4.1
VA
-5.8
-3.7
PA
TN
-3.0
TX
-5.7
-2.9
NM
MD
-2.4
US
-1.0
IL
-2.3
-0.6
WI
NH
-0.3
DC
1.5
MN
3.0
4.5
MI
VT
4.8
IN
10.6
KS
8.1
11.0
NJ
NE
11.5
CT
13.4
CA
NY
SD
IA
Only 13 states have seen
works comp premium volume
return to pre-crisis levels,
including CA
21.5
24.3
30.8
32.9
35
30
25
20
15
10
5
0
-5
-10
-15
OK
Pecent change (%)
Top 25 States
50
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2007-2013*
-33.3
-33.5
DE
HI
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
MT -71.0
NV
-43.8
-32.5
-27.5
FL
SC
MO
AZ
ME
LA
CO
ID
AK
NC
GA
RI
MA
States with the poorest
performing economies also
produced some of the most
negative net change in
premiums of the past 6 years
OR
-26.5
-23.0
KY
UT
-22.1
AL
-17.1
-16.3
-16.0
-15.4
-15.3
-14.7
-12.0
-11.3
-11.1
-8.8
-8.7
-8.4
-8.1
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
-60
-65
-70
-75
-80
MS
Pecent change (%)
Bottom 25 States
51
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
Texas Remains a Growth Leader
54
US Real GDP Growth*
-7%
4.6%
3.5%
3.0%
2.9%
2.9%
2.9%
2.9%
-2.1%
5.0%
-0.3%
Q1 2014 GDP data
were hit hard by this
year’s “Polar Vortex”
and harsh winter
-8.9%
2000
2001
2002
2003
2004
2005
2006
07:1Q
07:2Q
07:3Q
07:4Q
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
-9%
-5.3%
-5%
Recession began in
Dec. 2007. Economic
toll of credit crunch,
housing slump, labor
market contraction
was severe
-3.7%
-3%
-1.8%
-1%
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%
4.5%
3.5%
1%
1.4%
3%
1.3%
5%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
0.5%
3.6%
3.0%
1.7%
7%
4.1%
Real GDP Growth (%)
Demand for Insurance Should Increase in 2014/15 as GDP Growth
Accelerates Modestly and Gradually Benefits the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 10/14; Insurance Information Institute.
55
State-by-State Leading Indicators
through 2014:Q4
The economic
outlook for most of
the US is generally
positive, though
flat-to-negative for
4 states
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.
56
Real GDP by State Percent Change, 2013:
Highest 25 States
9.7
10
North Dakota was
the economic growth
juggernaut of the US
in 2013—by far
7
California’s economy
experienced close to
average growth in 2013
1.8
1.8
1.9
1.9
1.9
2.0
2.0
2.2
2.3
2.7
2.4
2.1
2
2.7
2.8
2.9
3.0
3.0
3.7
3.8
3.1
3
3.8
4
4.1
5
4.2
6
5.1
Percent Change (%)
8
7.6
9
Only 9 states experienced
growth in excess of 3%, which is
what we would see nationally in
a more typical recovery
1
0
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
Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
57
Real GDP by State Percent Change, 2013:
Lowest 25 States
-2.5
-0.5
DC and Alabama
were the only
states to shrink in
2013
0.0
0.1
0.7
0.7
0.8
0.8
0.8
0.9
0.9
0.9
0.9
1.1
1.1
1.2
1.3
1.4
1.5
1.6
1.6
1.6
1.6
1.7
1.8
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
1.0
Percent Change (%)
Growth rates in 11 states
were still below 1% in
2013
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
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
58
Percent Change in Real GDP by State, 2013
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
59
Annual Inflation Rates, (CPI-U, %),
1990–2015F
Annual
Inflation
Rates (%)
Inflation peaked at 5.6% in August 2008
on high energy and commodity crisis.
The recession and the collapse of the
commodity bubble reduced inflationary
pressures in 2009/10
6.0
5.0
4.9
5.1
3.8
4.0
3.0
3.0
2.0
3.3 3.4
3.2
2.9 2.8
2.4
3.0
2.6
2.5 2.3
3.8
3.2
2.8
2.1
1.9
1.5
Inflationary
expectations are
low and have
slipped
downward,
allowing the Fed
to maintain low
interest rates
1.6
1.3
1.5
1.7 1.8
1.0
0.0
-0.4
-1.0
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
The slack in the U.S. economy and falling energy and commodity prices
suggests that inflationary pressures should remain subdued for an
extended period of times.
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 11/14 (forecasts).
60
75
65
55
50
45
40
60
55.7
59.5
60.9
64.1
90
85
Impact of 2011
budget impasse
Source: University of Michigan; Insurance Information Institute
75.0
75.3
76.2
76.4
79.3
73.2
72.3
74.3
82.6
82.7
74.5
73.8
77.6
78.6
76.4
84.5
84.1
85.1
82.1
77.5
73.2
75.1
82.5
81.2
81.6
80.0
84.1
81.9
82.5
81.8
82.5
84.6
86.4
69.9
67.8
68.9
68.2
67.7
71.6
74.5
74.2
77.5
67.5
69.8
74.3
71.5
63.7
70
74.4
73.6
73.6
72.2
73.6
76
80
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Consumer Sentiment Survey (1966 = 100)
January 2010 through October 2014
Optimism among consumers has
generally improved in 2014
Consumer confidence had been low for years amid high
unemployment, falling home prices and other factors adversely impact
consumers, but improved substantially over the past 2+ years, though
uncertainty in Washington sometimes takes a toll.
61
14.4
16
12
11
10
12.7
11.6
13
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.
10.4
14
13.2
15
16.9
16.8
16.9
16.8
16.4
15.5
16.5
16.9
16.9
17.1
17.5
16.6
17
17.8
18
17.4
19
16.1
Job growth and improved
credit market conditions
will boost auto sales in
2014 and beyond
(Millions of Units)
16.8
Auto/Light Truck Sales, 1999-2019F
Truck purchases
by contractors are
especially strong
9
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F 16F 17F 18F 19F
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point,
Bolstering the Auto Insurer Growth and the Manufacturing Sector Along
With Workers Comp Exposures
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (11/14); Insurance Information Institute.
64
Monthly Change* in Auto Insurance
Prices, 1991–2014*
10%
8%
Cyclical peaks in PP Auto
tend to occur roughly
every 10 years (early
1990s, early 2000s and
likely the early 2010s)
Pricing peak
occurred in late
2010 at 5.3%, falling
to 2.8% by Mar. 2012
6%
4%
2%
0%
“Hard” markets
tend to occur
during
recessionary
periods
The Sept. 2014
reading of 4.3% is
up from 3.9%
a year earlier
-2%
'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
*Percentage change from same month in prior year; through September 2014; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
65
Average Expenditures on Auto Insurance
The average expenditure on auto insurance is
lower today than it was in 2004
$950
$900
$857
$842
$832
$831
$830
$816
$795$789$787$791$803
$786
$850
$800
$750
803
$726
$705$703
$691
$685$690
$700
$668
$651
$650
$600
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10 11* 12* 13F
Countrywide Auto Insurance Expenditures Decreased by 0.8% in 2008 and
0.5% in 2009 and Increased 0.5% in 2010, 1.5% in 2011 (est.), 2.0% in 2012 and
2.2% in 2013 (forecast)
* Insurance Information Institute Estimates/Forecasts
Source: NAIC, Insurance Information Institute estimate for 2011-2013 based on CPI and other data.
66
New Private Housing Starts, 1990-2019F
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
New home starts
plunged 72% from
2005-2009; A net
annual decline of 1.49
million units, lowest
since records began
in 1959
0.55
0.59
0.61
0.78
0.92
1.00
1.18
1.33
1.42
1.46
1.48
1.19
1.01
1.20
1.29
1.46
1.35
1.48
1.47
1.62
1.64
1.57
1.60
1.71
1.85
1.96
2.07
1.80
1.36
0.91
Job growth, low inventories of
existing homes, low mortgage rates
and demographics should continue
to stimulate new home construction
for several more years
(Millions of Units)
0.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F15F16F17F18F19F
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
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (11/14); Insurance Information Institute.
74
Average Premium for
Home Insurance Policies**
$1,100
$1,022
$983
$1,000
$945
$909
$880
$900
$804
$800
$822
$830
07
08
$764
$729
$700
$668
$593
$600
$508
$536
$500
$400
00
01
02
03
04
05
06
09
10
11*
12*
13*
Countrywide Home Insurance Expenditures Increased by an
Estimated 4.0% in 2011-2013
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.
Source: NAIC, Insurance Information Institute estimates for 2011-2013 based on CPI data and other data.
75
Interest Rate on Convention 30-Year
Mortgages: Up a Bit, 1990–2014*
12%
10%
Mortgages rates plunged to nearrecord lows in early 2013 but rose
as the Fed initiated tapering in its
QE program, but have come down
a bit through mid- and late-2014
8%
6%
4%
2%
Yields on 30-Year mortgages have
been below 6% for a six years
0%
'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
Rising mortgage interest rates have impacted home sales marginall but are unlikely
to derail the recovery on housing
*Monthly, through Oct. 2014.
Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
76
NFIB Small Business Optimism Index
January 1985 through September 2014
Small business optimism
in September was at its
highest level since the
crisis began in Dec. 2007.
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIBoptimism-index.gif ; Insurance Information Institute.
80
55
45
40
59.4
59.7
56.3
54.4
53.3
53.4
53.8
52.6
52.6
52.6
52.6
53.0
56.8
56.1
55.0
53.7
54.1
52.7
52.9
54.3
55.2
54.8
54.8
55.7
55.2
56.0
54.4
53.1
53.7
52.2
56.0
58.6
54.4
55.4
53.9
53.0
54.0
51.6
53.1
55.2
56.3
56.0
58.7
59.6
58.6
50.7
52.7
54.1
54.6
54.8
53.5
53.7
52.8
53.9
54.6
56
57.1
60
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
ISM Non-Manufacturing Index
(Values > 50 Indicate Expansion)
January 2010 through September 2014
65
50
Optimism among nonmanufacturers has been
generally increasing in 2014
Non-manufacturing industries have been expanding and adding
jobs. This trend is likely to continue through 2014.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
83
12 Industries for the Next 10 Years:
Insurance Solutions Needed
Health Care
Health Sciences
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Many
industries are
poised for
growth,
though
insurers’
ability to
capitalize on
these
industries
varies widely
Light Manufacturing
Insourced Manufacturing
Export-Oriented Industries
Shipping (Rail, Marine, Trucking, Pipelines)
84
CONSTRUCTION INDUSTRY
OVERVIEW & OUTLOOK
The Construction Sector Is
Critical to the Economy and
the P/C Insurance Industry
85
Value of New Private Construction:
Residential & Nonresidential, 2003-2014*
Billions of Dollars
New Construction peaks
at $911.8. in 2006
Trough in 2010
at $500.6B,
after plunging
55.1% ($411.2B)
$1,000
$900
$800
$15.0
2014: Value of new
pvt. construction
hits $682.0B as of
Aug. 2014, up 36%
from the 2010
trough but still 25%
below 2006 peak
$613.7
$700
$600
$333.3
$500
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$351.7
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13
14*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2014 figure is a seasonally adjusted annual rate as of August.
Sources: US Department of Commerce; Insurance Information Institute.
86
Value of Construction Put in Place,
August 2014 vs. August 2013*
Growth (%)
Private: +6.3%
15%
9.2%
10%
5.0%
6.3%
3.7%
5%
Public: +1.9%
Public sector construction
activity remains
depressed, but is showing
some signs of life
1.9%
1.3%
0%
-5%
-10%
-15%
Private sector construction
activity is up in the
residential and
nonresidential segments
-14.7%
-20%
Total
Construction
Total Private Residential-Construction
Private
NonResidential-Private
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth Is Almost Entirely in the
Private Sector as State/Local Government Budget Woes Continue
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
87
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-12
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
(Thousands)
6,200
6,100
6,000
5,900
5,800
5,700
5,600
5,500
5,581
5,522
5,542
5,554
5,527
5,512
5,497
5,519
5,499
5,501
5,497
5,468
5,435
5,478
5,485
5,497
5,524
5,530
5,547
5,546
5,583
5,576
5,577
5,612
5,629
5,644
5,640
5,636
5,615
5,622
5,627
5,630
5,633
5,649
5,673
5,711
5,735
5,783
5,799
5,792
5,791
5,801
5,804
5,805
5,822
5,830
5,849
5,876
5,927
5,927
5,964
6,000
6,009
6,017
6,047
6,064
6,083
6,095
Construction Employment,
Jan. 2010—October 2014*
Construction employment
is +660,000 above
Jan. 2011 (+12.1%) trough
5,400
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
96
Construction Employment,
Jan. 2003–October 2014
(Thousands)
Construction
employment as of
Oct. 2014 totaled
6.095 million, an
increase of 660,000
jobs or 12.1% from
the Jan. 2011 trough
Construction
employment
peaked at
7.726 million
in April 2006
8,000
7,500
Gap between prerecession
construction
peak and today:
1.63 million jobs
7,000
The “Great Recession” and
housing bust destroyed 2.3
million constructions jobs
6,500
6,000
Construction employment
troughed at 5.435 million in
Jan. 2011, after a loss of 2.291
million jobs, a 29.7% plunge
from the April 2006 peak
5,500
5,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
The Construction Sector Could Be a Growth Leader in 2014 as the Housing Market,
Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
97
Interest Rate on Convention 30-Year
Mortgages: Up a Bit, 1990–2014*
12%
10%
Mortgages rates plunged to nearrecord lows in early 2013 but rose
as the Fed initiated tapering in its
QE program, but have come down
a bit through mid- and late-2014
8%
6%
4%
2%
Yields on 30-Year mortgages have
been below 6% for a six years
0%
'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
Rising mortgage interest rates have impacted home sales marginall but are unlikely
to derail the recovery on housing
*Monthly, through Oct. 2014.
Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
99
ENERGY SECTOR: OIL & GAS
INDUSTRY FUTURE IS BRIGHT
US Is Becoming an Energy
Powerhouse; Domestic Demand
and Exports Are Key
Need Infrastructure Investment
103
U.S. Natural Gas Production, 2000-2013
Trillions of Cubic Ft. per Year
28
25.3 25.6
26
24.0
24
22
20
20.2 20.6 19.9 20.0
19.5
21.1
18.9
19.4
21.6
22.4
20.2
18
The U.S. is already the world’s
largest natural gas producer—
recently overtaking Russia. This
is a potent driver of commercial
insurance exposures
16
14
12
10
00
01
02
03
04
05
06
07
08
09
10
11
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
12
13
U.S. Crude Oil Production, 2005-2015P
Millions of Barrels per Day
10
Crude oil production in the
U.S. is expected to increase
by 82.6% from 2008 through
2015—and could overtake
Saudi Arabia as the world’s
largest oil producer
9
8
7
6
5.19
5.09
5.08
5.00
2005
2006
2007
2008
9.13
8.37
7.44
6.49
5.35
5.47
5.65
2009
2010
2011
5
4
3
2
1
0
2012
2013 2014F 2015F
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
220
210
200
190
180
170
160
156.4
156.4
156.7
157.6
158.7
157.8
158.0
159.5
160.0
161.5
161.2
161.2
163.1
164.4
166.6
169.3
170.1
171.0
172.5
173.6
176.3
178.2
178.5
180.9
181.9
183.1
184.8
185.2
185.7
186.8
187.6
188.0
188.0
188.2
190.0
191.7
191.9
193.4
192.4
192.6
193.1
193.3
195.0
196.5
199.7
200.6
203.0
204.1
205.3
207.8
207.5
207.9
210.1
211.3
212.2
212.2
213.1
215.6
Oil & Gas Extraction Employment,
Jan. 2010—October 2014*
(Thousands)
Oil and gas extraction employment
is up 36.5% since Jan. 2010 as the
energy sector booms. Domestic
energy production is essential to
any robust economic recovery in
the US.
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Highest since
mid-1986
150
106
Cumulative Projected Investment in
Global Energy Infrastructure, 2011-2035 ($ Trill.)
Projected energy
infrastructure investment
through 2035 total $38
trillion; Implies substantial
incurrence of risk.
Natural
Gas, $9.5 ,
25%
Coal, $1.1 ,
3%
Biofuels,
$0.3 , 1%
Power,
$16.9 , 44%
Oil, $10.1 ,
27%
Source: International Energy Agency, World Energy Outlook 2011.
US Natural Gas Production and Non-Hydro
Renewable Electricity Generation, 1990-2035P
Shale gas production is
expected to grow
rapidly in the US
Wind is expected to account
for the majority of renewable
electricity generation
Tight gas production
involves controversial
hydraulic fracturing
(fracking) techniques
Source: US Energy Information Administration, Annual Energy Outlook 2011; Insurance Information Institute.
111
MANUFACTURING SECTOR
OVERVIEW & OUTLOOK
The U.S. Is Experiencing a Mini
Manufacturing Renaissance That
Is Benefitting the US Economy
and the P/C Insurance Industry
113
Manufacturing Growth for Selected
Sectors, 2014 vs. 2013*
Growth (%)
Non-Durables: +0.9%
Durables: +4.8%
12.9%
5.4%
5.2%
6.0%
4.3%
2.8%
2.6%
1.0%
0.5%
0.0%
Chemical
Petroleum &
Coal
Food
Products
Non-Durable
Mfg.
Transportation
Equip.
Computers &
Electronics
Electrical
Equip.
-1.2%-1.4%
Machinery
Fabricated
Metals
Primary
Metals
Wood
Products
Manufacturing of durable
goods is stronger than
nondurables in 2014
Textile
Products
4.8%
Plastics &
Rubber
6.5%
Durable Mfg.
All
Manufacturing
14%
12%
10%
8%
6%
4% 2.8%
2%
0%
-2%
-4%
Manufacturing Is Expanding—Albeit Slowly—Across a Number of Sectors that
Will Contribute to Growth in Insurable Exposures Including: WC, Commercial
Property, Commercial Auto and Many Liability Coverages
*Seasonally adjusted; Date are YTD comparing data through August 2014 to the same period in 2013.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 114
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—August 2014
$ Millions
$500,000
The value of Manufacturing
Shipments in Aug. 2014 was
$503.1B—just short of the July
2014 record high of $508.1B
$400,000
$300,000
Ja
n9
Ja 2
n9
Ja 3
n9
Ja 4
n9
Ja 5
n9
Ja 6
n9
Ja 7
n9
Ja 8
n9
Ja 9
n00
Ja
n
0
Ja 1
n
0
Ja 2
n
0
Ja 3
n
0
Ja 4
n
0
Ja 5
n
0
Ja 6
n
0
Ja 7
n
0
Ja 8
n
0
Ja 9
n
1
Ja 0
n
1
12 1
-J
a
13 n
-J
a
14 n
-J
an
$200,000
Monthly shipments in Aug. 2014 exceeded the pre-crisis (July 2008) peak.
Manufacturing is energy-intensive and growth leads to gains in many commercial
exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
* Seasonally adjusted; Data published Oct. 2, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 115
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
(Thousands)
12,250
12,000
11,750
11,500
11,460
11,460
11,466
11,497
11,531
11,539
11,558
11,548
11,554
11,555
11,577
11,590
11,624
11,662
11,682
11,707
11,715
11,724
11,747
11,760
11,762
11,770
11,769
11,797
11,841
11,870
11,910
11,920
11,926
11,935
11,957
11,943
11,925
11,931
11,938
11,951
11,965
11,988
11,984
11,977
11,972
11,965
11,948
11,963
11,993
12,011
12,046
12,053
12,061
12,081
12,085
12,094
12,109
12,130
12,154
12,157
12,166
12,181
Manufacturing Employment,
Jan. 2010—October 2014*
Since Jan 2010,
manufacturing
employment is up
(+721,000 or +6.3%)
and still growing.
11,250
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.
116
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend Has
Greatly Improved
120
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through Oct. 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
14
12
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 11.5%
in Oct. 2014.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 5.8% in Oct.
2014. 4.5% to 6%
is “normal.”
6
4
2
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Stubbornly high unemployment and underemployment constrain overall
economic growth, but the job market is now clearly improving.
Source: US Bureau of Labor Statistics; Insurance Information Institute.
121
US Unemployment Rate Forecast
9%
8%
7%
6%
5%
Unemployment
peaked at 10%
in late 2009.
Jobless figures have
been revised
modestly downwards
for 2014/15
8.1%
10%
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
11%
Rising
unemployment
eroded
payrolls
and WC’s
exposure base.
9.3%
9.6%
10.0%
9.7%
9.6%
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%
6.7%
6.2%
6.1%
5.9%
5.8%
5.6%
5.5%
5.4%
2007:Q1 to 2015:Q4F*
Unemployment forecasts
have been revised modestly
downwards. Optimistic
scenarios put the
unemployment as low as
5.0% by Q4 of 2015.
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
4%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (11/14 edition); Insurance Information Institute.
122
Unemployment Rates by State, August 2014:
Highest 25 States*
6
5.9
6.1
6.1
6.2
6.2
6.2
6.3
6.5
6.5
6.5
6.5
6.6
6.6
6.8
6.9
7.0
7.0
7.1
7.4
7.4
7.4
7.7
7.7
7.7
8.0
8
7.8
Unemployment Rate (%)
10
6.6
In August, 24 states and the District of
Columbia had over-the-month
unemployment rate increases, 15
states had decreases, and 11 states
and had no change.
4
2
*Provisional figures for August 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
IN
D
M
S
U
J
W
V
A
R
D
E
FL
N
Y
A
K
M
O
N
C
N
IL
C
T
N
M
L
A
Z
O
R
A
C
K
Y
TN
D
I
A
C
R
I
V
N
M
M
S
G
A
0
123
Unemployment Rates by State, August 2014:
Lowest 25 States*
2.8
3.6
3.6
4
3.7
3.7
4.4
4.4
4.4
4.5
4.5
4.6
4.6
4.8
5.4
5.4
5.5
5.6
5.7
5.7
5.7
5.3
4.9
5
5.8
6
5.6
Unemployment Rate (%)
7
5.1
In August, 24 states and the District of
Columbia had over-the-month
unemployment rate increases, 15
states had decreases, and 11 states
and had no change.
3
2
1
0
WI OH PA SC MA WA ME LA VA CO TX KS ID MT OK IA MN HI NH WY SD VT NE UT ND
*Provisional figures for August 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
124
(600)
(800)
(1,000)
Monthly losses in
Dec. 08–Mar. 09 were
the largest in the
post-WW II period
-426
-422
-486
(400)
-776
-693
-821
-698
-810
-801
(200)
-294
-272
-232
-141
-271
-15
-232
-38
-115
-106
-221
-215
-206
-261
-258
-71
400
113
192
94
110
120
117
107
199
149
94
72
223
231
320
166
186
219
125
268
177
191
222
364
228
246
102
131
75
172
136
159
255
211
215
219
263
164
188
222
201
170
180
153
247
272
86
166
201
200
278
228
260
239
203
256
214
20
3
32
64
81
55
3
0
231
52
170
52
126
57
200
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Monthly Change in Private Employment
January 2007 through Oct. 2014 (Thousands, Seasonally Adjusted)
600
Jobs Created
2013: 2.368 Mill
2012: 2.294 Mill
2011: 2.400 Mill
2010: 1.277 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
2,245,000 jobs
created so far
in 2014
214,000 private
sector jobs were
created in Oct. In
March 2014, the last
of the private jobs
lost in the Great
Recession were
recovered
Private Employers Added 10.58 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)
125
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2014:Q2
Billions
$7,750
Latest (2014:Q2) was
$7.46 trillion, a new
peak--$1.21 trillion
above 2009 trough
$7,500
$7,250
$7,000
Prior Peak was
2008:Q1 at $6.60 trillion
$6,750
$6,500
Payrolls are
19.4% above
their 2009 trough
and up 4.9% over
the past year
$6,250
$6,000
$5,750
Recent trough (2009:Q3)
was $6.25 trillion, down
5.3% from prior peak
05:Q1
05:Q2
05:Q3
05:Q4
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
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
$5,500
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.
131
Payroll vs. Workers Comp Net Written
Premiums, 1990-2013P
Payroll Base*
$Billions
$7,000
$6,000
7/90-3/91
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
12/07-6/09
$45
WC premium
volume dropped
two years before
the recession began
$40
$5,000
$4,000
$3,000
$50
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$2,000
$35
$30
$25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow
Again in 2014; +8.6% Growth Estimated for 2013
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2013 actuals.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
132
Workers Compensation
Operating Environment
Workers Comp Results Have Improved
Substantially in Recent Years
133
Workers Compensation Combined
Ratio: 1994–2015F
96.0
101.0
108.0
115.0
115.0
110.6
104.5
103.5
102.7
105.1
112.6
108.6
101.0
98.5
100
100.0
105
97.0
110
102.0
115
107.0
120
121.7
115.3
125
118.2
130
WC results have
improved markedly
since 2011
95
90
85
80
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 20072010/11 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.
134
Workers Compensation Premium:
Third Consecutive Year of Increase
Net Written Premium
$ Billions
50
46.5
State Funds ($ B)
46.5
44.3
Private Carriers ($ B)
40
47.8
42.3
41.6
39.3
37.7
35.3 35.7 34.3 35.4
33.6
34.6 33.8
32.1
30.1
30
28.5
26.9 25.9
10
36.4
28.6
25.0
20
31.0 31.3 29.8 30.5
29.1
39.6
34.7
26.3 25.2
25.0 26.1
24.2 23.3
22.3
29.2
37.8 38.6 37.6
33.8
31.1
30.3 29.9
32.3
35.1 36.7
39.3
Pvt. Carrier NWP growth
was +7.1% in 2014E and
4.6% in 2013
0
90
91
p Preliminary
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
Calendar Year
Source: 1990–2014E 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
11
12
13 14E
2013 Workers Compensation Direct Written
Premium Growth, by State*
PRIVATE CARRIERS: Overall 2013 Growth = +5.4%
While growth rates varied widely, all states
experienced positive growth in 2013
*Excludes monopolistic fund states (in white): OH, ND, WA and WY.
Source: NCCI.
137
Workers Compensation Lost-Time
Claim Frequency Declined in 2013
Lost-Time Claims
Percent
12
Cumulative Change of –55.4%
(1991–2011 adj.)
10
8
Frequency Change: 2007—2012
6
Contracting: 7.97.1
-9.3%
4
Manufacturing: 13.612.0
-11.8%
2
11
Indicated
Adjusted
3.5
0.5
0.3
0
-1.0
-2
-4
-6
-4.2 -4.4
-3.9
-4.5
-10
91
-9.2
92 93 94
95
-3.7
-4.5 -4.1
-4.5
-4
-4.3
-4.5
-5.7
-6.5
-8
-2.0
-2.2
-2.3
-6.9
96
97
98
99
00
01
-6.1
-6.6
02
03
04
05
06
07
08
09
10
11
12 13P
Accident Year
*Adjustments primarily due to significant audit activity.
2013p: Preliminary based on data valued as of 12/31/2013
1991–2012: Based on data through 12/31/2012, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policies
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
Source: NCCI.
138
Workers Compensation Medical Severity
Moderate Increase in 2013
Medical
Claim Cost ($000s)
30
25
20
Average Medical Cost per Lost-Time Claim
+3%
AnnualChange
Change1991–1993:
1991–1993: +1.9%
+1.9%
Annual
AnnualChange
Change1994–2001:
1994–2001: +8.9%
+8.9%
Annual
AnnualChange
Change2002–2013:
2002–2010: +5.2%
+6.0%
Annual
+3.0%
+2.6%
+4.0%+1.2%
+6.8%
+6.1%
+5.8%
+7.8%
Cumulative Change = 256%
(1991-2013p)
+5.4%
+7.7%
Accident
Year
01 02 03
00
Accident Year
04
05
06
07
08
$28.8
99
$27.9
98
$27.1
97
$26.4
$11.7
96
$23.5
$10.8
95
$22.2
$9.8
94
$18.4
$9.1
93
$17.1
$8.8
92
5
$13.9
$8.1
91
+1.3%-2.1%
+6.8%
$12.9
$8.2
+7.4%
+5.1%
+9.0%
$8.1
10
$15.7
+8.3%
+10.1%
$19.4
+7.3%
+10.6%
$21.0
15
$25.1
+13.5%
$26.1
+8.8%
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 ultimate
Based on the states where NCCI provides ratemaking services including state
139funds, excluding WV; Excludes high deductible policies.
U.S. Insured Catastrophe
Loss Update
2013 Was a Welcome Respite from the
High Catastrophe Losses in Recent Years
2014 Is Off to a Modest Beginning
151
U.S. Insured Catastrophe Losses
$74.5
($ Billions, $ 2013)
$80
$70
2012 was the 3rd most
expensive year ever for
insured CAT losses
$12.4
$12.9
$35.5
$34.1
$14.6
$11.6
$29.6
$7.6
$10.7
$16.5
$7.7
$34.2
$35.2
$6.2
$11.7
$14.5
$11.1
$12.8
$3.8
$10
$8.1
$20
$4.9
$30
$14.2
$40
$8.9
$50
$26.8
$38.3
$60
$0
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*
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
$12.4 billion in
insured CAT
losses through
June 30
*Through 6/30/14.
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.
152
152
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2013*
8.7
8.9
8.1
3.4
3.4
2012
2010
2008
2006
1.6
2.6
2.7
3.3
3.3
1.6
2002
2004
1.6
2000
1.0
1998
1996
5.0
5.4
3.6
2.9
3.3
2.8
2.3
2.1
1990
1992
1.2
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1.2
0.4
0.8
1.3
0.3
0.4
0.7
1.5
1.0
0.4
0.4
0.7
1.8
1.1
0.6
1.4
2.0
1.3
2.0
0.5
0.5
0.7
1968
1966
3.0
3.6
0.4
1964
1962
0.8
1.1
1.1
0.1
0.9
1960
1
0
5.9
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 6.1E*
8
7
3
2
8.8
10
9
6
5
4
Catastrophe losses as a
share of all losses reached
a record high in 2012
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1994
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
*2010s represent 2010-2013.
Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for
losses ultimately paid by foreign insurers and reinsurers.
Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.
153
Top 8 States for Insured
Catastrophe Losses, 2013
$ Millions
2,000
Oklahoma led the US
with nearly $2 billion
in insured CAT
losses in 2013
$1,995
1,800
1,600
$1,509
1,400
1,200
1,000
$907
$845
800
$773
$762
$661
600
$593
400
200
0
Oklahoma
Texas
Colorado
Minnesota
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
Nebraska
Georgia
Illinois
Louisiana
154
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1994–20131
Wind/Hail/Flood (3), $14.6
Fires (4), $5.5
Other (5), $0.2
1.4%
Geological Events, $18.4
4.8% 3.8%0.1%
Terrorism, $24.8
6.4%
Winter Storms, $24.7
6.4%
Tornado share of
CAT losses is
rising
Events Involving
Tornadoes (2), $139.3
Insured cat losses
from 1993-2012
totaled $386.7B, an
average of $19.3B
per year or $1.6B
per month
41.1%
Hurricanes & Tropical Storms,
$159.1
36.0%
Wind losses are by
far cause the most
catastrophe losses,
even if hurricanes/TS
are excluded.
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 losses
4. Includes wildland fires
5. 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.
157
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2013 Dollars, $ Billions)
Superstorm Sandy in
2012 was the last
mega-CAT to hit the
US
$60
$50
$49.4
$40
$30
Includes
Tuscaloosa, AL,
tornado
Includes
Joplin, MO,
tornado
$24.2 $24.9 $25.9
$19.0
$20
$10
$0
$9.3 $11.2
$8.8
$7.9
$7.6
$7.2
$6.8
$4.5 $5.6 $5.7
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.6
Ike
(2008)
Sandy* Northridge9/11 Attack Andrew
(2012)
(1994)
(2001)
(1992)
Katrina
(2005)
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.
158
Natural Disasters in the United States,
1980 – 2013
Number of Events (Annual Totals 1980 – 2013)
250
There were 128 natural
disaster events in 2013
Number
200
150
100
22
50
19
81
6
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Geophysical
(earthquake, tsunami,
volcanic activity)
Source: MR NatCatSERVICE
Meteorological (storm)
Hydrological
(flood, mass movement)
Climatological
(temperature extremes,
drought, wildfire)
161
Top 16 Most Costly World Insurance
Losses, 1970-2013*
(Insured Losses, 2013 Dollars, $ Billions)
2012 insured CAT Losses totaled
$60B; Economic losses totaled
$140B, according to Swiss Re
$60
$50
$40
$30
$49.4
Hurricane Sandy is now the
6th costliest event in global
insurance history
$20
$10
5 of the top 14 most
expensive catastrophes in
world history have occurred
within the most recent 4
years (2010-2013)
$11.2
$7.9 $8.2 $8.7 $8.8 $9.3 $9.7
$39.1
$24.2 $24.9 $25.9
$19.0
$13.6 $13.6 $13.6
$0
Hugo
(1989)
Winter
Storm
Daria
(1991)
Chile
Quake
(2010)
Ivan
Charley Typhoon Wilma Thailand New Ike
(2004) (2004) Mirielle (2005) Floods Zealand (2008)
(1991)
(2011) Quake
(2011)
*Figures do not include federally insured flood losses.
Sources: Munich Re; Swiss Re; Insurance Information Institute research.
Sandy Northridge WTC
(2012) (1994) Terror
Attack
(2001)
Andrew Japan Katrina
(1992) Quake, (2005)
Tsunami
(2011)**
163
Natural Loss Events:
Full Year 2013
World Map
Winter Storm Christian (St. Jude)
Europe, 27–30 October
Flash floods
Canada, 8–9 July
Floods
Meteorite impact
Europe,
30 May–19 June
Russian Federation, 15
February
Earthquake
Floods
China, 20 April
Canada, 19–24 June
Hailstorms
Germany,
27–28 July
Floods
Typhoon Fitow
China, Japan,
5–9 October
Severe storms,
tornadoes
USA, 9–16 September
USA, 18–22 May
Typhoon Haiyan
Philippines,
8–12 November
Severe storms, tornadoes
USA, 28–31 May
Floods
India, 14–30 June
Hurricanes Ingrid &
Manuel
Australia,
21–31 January
Mexico, 12–19 September
880
Loss events
Floods
Earthquake (series)
Pakistan, 24–28 September
Heat wave
India, April–June
Natural catastrophes
Selection of significant
Natural catastrophes
Geophysical events
(earthquake, tsunami, volcanic activity)
Meteorological events
(storm)
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014.
Hydrological events
(flood, mass movement)
Climatological events
(extreme temperature, drought, wildfire)
Extraterrestrial events
(Meteorite impact)
164
Losses Due to Natural Disasters Worldwide,
1980–2013 (Overall & Insured Losses)
(Overall and Insured Losses)
(2013 Dollars, $ Billions)
10-Yr. Avg. Losses
US$ bn
400
Overall : $184B
2013 Losses
Insured: $56B
Overall : $125B
Insured: $34B
300
200
There is a clear
upward trend in both
insured and overall
losses over the past
30+ years
100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Overall losses (in 2013 values)
Source: MR NatCatSERVICE
Insured losses (in 2013 values)
166
Convective Loss Events in the U.S.
Overall and insured losses 1980 – 2013 and First Half 2014
(Bill. US$)
50
40
30
Hurricanes get all the
headlines, but thunderstorms
are consistent producers of
large scale loss. 2008-2013 are
the most expensive years on
record.
Average thunderstorm
losses are up 7 fold since
the early 1980s. The 5year running average loss
is up sharply
First half 2014
convective event
insured losses
totaled $6.7B
($9.1B overall
economic loss)
20
10
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Analysis contains: straight-line winds, tornadoes, hail, heavy precipitation, flash floods, lightning.
Overall losses (in 2013 values)
Source: Geo Risks Research, Munich Re NatCatSERVICE – As at July 2014
Insured losses (in 2013 values)
176
Federal Disaster
Declarations Patterns:
1953-2014
Disaster Declarations Set New
Records in Recent Years
188
Number of Federal Major Disaster
Declarations, 1953-2014*
99
81
75
47
55
49
59
63
48
52
56
44
32
36
32
38
43
45
11
31
34
24
21
15
23
22
25
27
28
23
38
30
29
17
17
19
11
11
22
20
25
25
12
12
49 federal disasters were
declared so far in 2014*
53
54
55
56
57
58
59
60
61
62
63
64
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
7
7
13
17
18
16
16
40
0
42
48
46
46
60
20
69
65
80
The number of federal disaster
declarations set a new record in
2011, with 99, shattering 2010’s
record 81 declarations.
50
45
45
49
100
There have been 2,185
federal disaster
declarations since
1953. The average
number of declarations
per year is 35 from
1953-2013, though
there few haven’t been
recorded since 1995.
75
120
The Number of Federal Disaster Declarations Is Rising and Set New Records
in 2010 and 2011 Before Dropping in 2012/13
*Through November 5, 2014.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
189
Federal Disasters Declarations by State,
1953 – 2014: Highest 25 States*
Over the past 60 years,
California has had the 2nd
highest number of Federal
Disaster Declarations
75
45
47
49
47
43
40
40
50
51
51
51
53
53
50
50
53
55
56
56
57
58
60
60
67
70
68
Disaster Declarations
80
80
90
88
100
30
20
10
0
TX CA OK NY FL LA AL KY AR MO IA
IL MS TN WV MN NE KS PA WA OH VA ND SD ME
*Through November 5, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
190
Federal Disasters Declarations by State,
1953 – 2014: Lowest 25 States*
Over the past 60 years,
Wyoming and Rhode
Island had the fewest
number of Federal
Disaster Declarations
11
11
13
15
17
9
10
17
22
23
24
25
25
26
27
28
28
29
33
35
38
38
40
19
20
29
30
37
Disaster Declarations
40
40
43
50
0
NC AK IN GA VT WI NJ NH MA OR HI NM MI PR MD MT AZ ID CO CT NV SC DE DC UT RI WY
*Through November 5, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
191
I.I.I. Poll: Homes Near Hazards
Q. If you were to purchase a home today, which of the following summarizes your views
on that home’s risk of damage from natural disasters . . . and your decision to purchase
that home?
Don’t Know
Willing to
Accept Risk
3%
17%
Risk Not a Major
Consideration
28%
53%
Risk a
Significant
Influence
on
Purchase
More Than Half of the Public Would Be Significantly Influenced by
Risk of Damage from Natural Disasters. Close to a Third Do Not
Regard Such a Risk To Be a Major Consideration.
Source: Insurance Information Institute Annual Pulse Survey.
198
Terrorism Update
TRIA’s Success
Consequences of Expiration
Download III’s Terrorism Insurance Report at:
http://www.iii.org/white_papers/terrorismrisk-a-constant-threat-2014.html
202
Terrorism Insurance Take-up Rates,
By Year, 2003-2013
80%
70%
58%
60%
59%
59%
61%
62%
64%
62%
62%
57%
49%
50%
40%
30%
TRIA’s high take-up rates, availability and
affordability have benefitted businesses,
workers and the entire US economy
since the program’s enactment
27%
20%
10%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
In 2003, the first year TRIA was in effect, the terrorism take-up rate
was 27 percent. Since then, it has increased steadily, remaining in the
low 60 percent range since 2009.
Source: Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014 and earlier editions.
204
Terrorism Risk Insurance Program
 Testified before House Financial Services Nov. 2013
 Testified before Senate Banking Cmte. in Sept. 2013
 Provided testimony at NYC hearing in June 2013
 Provided Capitol Hill Joint House/Senate Staff Briefing in
April 2014
 I.I.I. Published Several Updates to its Study on Terrorism
Risk and Insurance
 Working with Trades, Congressional Staff, GAO & Others
Senate Banking Committee, 9/25/13
House Financial Services
Subcommittee, 11/13/13
206
I.I.I. White Paper (Oct. 2014):
Economic and Insurance Implications of
TRIPRA’s Non-Renewal
 Focus on current status of
TRIA legislation
 Current disruptions to
terrorism insurance mkt.
 Potential economic
impacts
 Limitations of standalone
market
 Download at
http://www.iii.org/whitepaper/economic-andinsurance-implications-oftripras-non-renewal101014
207
CAT OF THE FUTURE?
CYBER RISK
Cyber Risk is a Rapidly Emerging
Exposure for Businesses Large
and Small in Every Industry
NEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf
212
Data Breaches 2005-2013, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
700
656
222.5
Millions
662
619
220
200
600
180
498
500
160
446
127.7
419
447
400
300
140
87.9
66.9
321
157
100
80
35.7
200
120
60
16.2
19.1
22.9
40
17.3
20
100
0
2005
2006
2007
2008
# Data Breaches
2009
2010
2011
2012
2013*
# Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records
Exposed (+408%) in 2013 Soared
* 2013 figures as of Jan. 1, 2014 from the ITRC updated to an additional 30 million records breached (Target) as disclosed in Jan. 2014.
Source: Identity Theft Resource Center.
2013 Data Breaches By Business
Category, By Number of Breaches
The majority of the 614 data breaches in 2013 affected business and
medical/healthcare organizations, according to the Identity Theft Resource Center.
Banking/Credit/Financial,
23 (3.7%)
Govt/Military, 56 (9.1%)
Business, 211 (34.4%)
3.7%
9.1%
Educational, 55 (9.0%)
9.0%
34.4%
Medical/Healthcare, 269 (43.8%)
43.8%
Source: Identity Theft Resource Center, http://www.idtheftcenter.org/images/breach/2013/UpdatedITRCBreachStatsReport.pdf
214
External Cyber Crime Costs: Fiscal Year
2013
Information loss (43%) and business disruption or lost productivity (36%) account for
the majority of external costs due to cyber crime.
Equipment damages
Information loss
4%
Revenue loss
17%
43%
Business disruption
36%
Other costs* 0%
* Other costs include direct and indirect costs that could not be allocated to a main external cost category
Source: 2013 Cost of Cyber Crime: United States, Ponemon Institute.
216
Shifting Legal Liability &
Tort Environment
Will the Tort Pendulum
Swing Against Insurers?
221
Over the Last Three Decades, Total Tort Costs as a
% of GDP Appear Somewhat Cyclical, 1980-2013E
($ Billions)
$300
2.25%
Deepwater
Horizon Spike
in 2010
$200
2.00%
$150
$100
1.75%
Tort costs in dollar terms have
remained high but relatively stable
since the mid-2000s., but are down
substantially as a share of GDP
$50
Tort Costs as % of GDP
2.21% of
GDP in 2003
= pre-tort
reform peak
$250
Tort System Costs
2.50%
Tort Costs as % of GDP
Tort Sytem Costs
1.68% of
GDP in
2013
1.50%
$0
80
82
84
86
88
90
92
94
96
98
00
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A
02
04
06
08
10
12E
222
Business Leaders Ranking of Liability
Systems in 2012

Best States
1.
Delaware
2.
Nebraska
3.
Wyoming
4.
Minnesota
5.
Kansas
6.
Idaho
7.
Virginia
8.
North Dakota
9.
New in 2012




Wyoming
Minnesota
Kansas
Idaho
Drop-offs




Indiana
Colorado
Massachusetts
South Dakota

Worst States
41.
Florida
42.
Oklahoma
43.
Alabama
44.
New Mexico
45.
Montana
46.
Illinois
Newly Notorious
 Oklahoma
Rising Above
 Arkansas
47. California
48.
Mississippi
49.
Louisiana
50.
West Virginia
Utah
10. Iowa
Source: US Chamber of Commerce 2012 State Liability Systems Ranking Study; Insurance Info. Institute.
225
The Nation’s Judicial Hellholes:
2012/2013
Illinois
Watch List
 Philadelphia,
Pennsylvania
 South Florida
 Cook County, Illinois
 New Jersey
 Nevada
 Louisiana
Madison County
West Virginia
Maryland
Baltimore
California
Dishonorable
Mention
 MO Supreme Court
 WA Supreme Court
Source: American Tort Reform Association; Insurance Information Institute
New York
Albany and
NYC
226
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_hartwig
Download at www.iii.org/presentations
227