Transcript No Slide Title

Medical Malpractice
Insurance & The
Insurance Cycle
Medical Professional Liability
& the P/C Insurance Industry
31st Annual Physician Insurance
Association of America Meeting
Philadelphia, PA
May 15, 2008
Robert P. Hartwig, Ph.D., CPCU, President
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
• P/C Operating Overview & Outlook




Profitability
Underwriting Trends
Premium Growth & Price Drivers
Capacity & Surplus
• Medical Professional Liability Insurance Overview
 Medical & Health Care Cost Inflation
 Med Mal Operating Results
 Med Mal Investment Performance
• Med Mal Tort Environment
• P/C Investment Overview & Outlook
• Weakening Economy: Insurance Impacts & Implications
 Implications of Treasury reform “Blueprint” for insurers
• Catastrophic Loss: Spillover Effects?
• Shifting Legal Liability & Tort Environment: P/C
P/C INSURANCE
OPERATING
OVERVIEW
The Cycle is Alive and Well
PROFITABILITY
Insurer Profits in 2006/07
Reached Their Cyclical Peak
$49,900
$65,777
$44,155
$38,501
$30,029
$3,046
$20,559
$30,773
$21,865
$10,870
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
Insurer profits
peaked in 2006
$36,819
$50,000
$24,404
$60,000
$20,598
$70,000
2001 ROE = -1.2%
2002 ROE = 2.2%
2003 ROE = 8.9%
2004 ROE = 9.4%
2005 ROE= 9.6%
2006 ROE = 12.2%
2007 ROAS1 = 12.3%**
$61,940
P/C Net Income After Taxes
1991-2008F ($ Millions)*
08F
07
06
05
04
03
01
-$6,970
00
99
98
97
96
95
94
93
92
91
-$10,000
02
$0
*ROE figures are GAAP; 1Return on avg. surplus. **Return on Average Surplus; Sources: A.M. Best, ISO,
Insurance Information Inst.
ROE: P/C vs. All Industries
1987–2008E
20%
P/C profitability is cyclical, volatile and vulnerable
15%
10%
Sept. 11
5%
Hugo
Katrina,
Rita, Wilma
Lowest CAT
losses in 15 years
0%
Andrew
Northridge
4 Hurricanes
US P/C Insurers
2008 P/C insurer ROE is I.I.I. estimate.
Source: Insurance Information Institute; Fortune
All US Industries
08F
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
-5%
Profitability Peaks & Troughs in the
P/C Insurance Industry,1975 – 2008F*
25%
1977:19.0%
1987:17.3%
2006:12.2%
20%
1997:11.6%
15%
10%
5%
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
07E
08F
-5%
*GAAP ROE for all years except 2007 which is actual ROAS of 12.3%. 2008 P/C insurer ROE is I.I.I.
estimate.
Source: Insurance Information Institute, ISO; Fortune
ROE vs. Equity Cost of Capital:
US P/C Insurance:1991-2007
18%
The p/c insurance industry achieved its cost of
capital in 2005/6 for the first time in many years
16%
12%
4%
2%
0%
-2%
-4%
The cost of capital
is the rate of return
insurers need to
attract and retain
capital to the
business
US P/C insurers missed their
cost of capital by an average 6.7
points from 1991 to 2002, but on
target or better 2003-07
91
92
93
94
95
96
97
98
99
Source: The Geneva Association, Ins. Information Inst.
-0.1 pts
6%
+0.2 pts
-13.2 pts
8%
-9.0 pts
10%
+2.3 pts
+1.7 pts
14%
00
01
02
ROE
03
04
05
06
07
Cost of Capital
P/C, L/H Stocks: Lagging the
S&P 500 Index in 2008
Total YTD Returns Through May 9, 2008
P/C, Life insurance stocks
underperforming S&P—
concerns about soft market,
credit/subprime exposure of
some companies
Mortgage & Financial
Guarantee insurers were
down 69% in 2008
S&P 500
-5.41%
All Insurers
-17.47%
-7.89%
P/C
-8.22%
Life/Health
-24.75%
Multiline
-17.48%
Reinsurance
-54.41%
Mortgage*
-4.30%
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
*Includes Financial Guarantee.
Source: SNL Securities, Standard & Poor’s, Insurance Information Inst.
Brokers
0.0%
Factors that Will Influence the
Length and Depth of the Cycle
• Capacity: Rapid surplus growth in recent years has left the industry with
between $85 billion and $100 billion in excess capital, according to analysts
 All else equal, rising capital leads to greater price competition and a liberalization
of terms and conditions
• Reserves: Reserves are in the best shape (in terms of adequacy) in decades,
which could extend the depth and length of the cycle
 Looming reserve deficiencies are not hanging over insurers they way they did
during the last soft market in the late 1990s
 Many companies have been releasing redundant reserves, which allows them to
boost net income even as underwriting results deteriorate
 Reserve releases will diminish in 2008; Even more so in 2009
• Investment Gains: 2007 was the 5th consecutive up year on Wall Street. With
sharp declines in stock prices and falling interest rates, portfolio yields are
certain to fallContributes to discipline
 Realized capital gains are already rising as underwriting profits shrink, but like
redundant reserves, realized capital gains are a finite resource
 A sustained equity market decline (and potentially a drop in bond prices at some
point) could reduce policyholder surplus
Source: Insurance Information Institute.
Factors that Will Influence the
Length and Depth of the Cycle (cont’d)
• Sarbanes-Oxley: Presumably SOX will lead to better and more conservative
management of company finances, including rapid recognition of deficient or
redundant reserves
 With more “eyes” on the industry, the theory is that cyclical swings should shrink
• Ratings Agencies: Focus on Cycle Management; Quicker to downgrade
 Ratings agencies more concerned with successful cycle management strategy
 Many insurers have already had ratings “haircut” over the last several years they
way they did during the last soft market in the late 1990s; Less of a margin today
• Finite Reinsurance: Had smoothing effect on earnings; Finite market is gone
• Information Systems: Management has more and better tools that allow
faster adjustments to price, underwriting and changing market conditions
than it had during previous soft markets
• Analysts/Investors: Less fixated on growth, more on ROE through soft mkt.
 Management has backing of investors of Wall Street to remain disciplined
• M&A Activity: More consolidation implies greater discipline
 Liberty Mutual/Safeco deal creates 5th largest p/c insurer. More to come?
Source: Insurance Information Institute.
FINANCIAL
STRENGTH &
RATINGS
Industry Has Weathered
the Storms Well, But Cycle
May Takes Its Toll
P/C Insurer Impairment Frequency
vs. Combined Ratio, 1969-2007E
Combined Ratio
115
Combined Ratio after Div
P/C Impairment Frequency
2
1.8
1.6
110
1.4
1.2
105
1
100
0.8
0.6
95
0.4
0.2
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
07E
90
2006 impairment rate was 0.43%, or 1-in-233
companies, half the 0.86% average since 1969;
2007 will be lower; Record is 0.24% in 1972
Source: A.M. Best; Insurance Information Institute
0
Impairment Rate
120
Impairment rates
are highly
correlated
underwriting
performance and
could reach nearrecord low in 2007
Reasons for US P/C Insurer
Impairments, 1969-2005
2003-2005
Affiliate
Problems
8.6%
Catastrophe
Losses
8.6%
1969-2005
Deficient
Loss
Reserves/Inadequate
Pricing
62.8%
Deficient
Loss
Reserves/Inadequate
Pricing
38.2%
Investment
Problems*
7.3%
Alleged
Fraud
11.4%
Rapid
Growth
8.6%
Reinsurance
Sig. Change
Failure
in Business
3.5%
4.6%
Misc.
9.2%
Deficient
reserves,
CAT losses
are more
important
factors in
recent years
Affiliate
Problems
5.6%
Catastrophe
Losses
6.5%
Alleged
Fraud
8.6%
Rapid
Growth
16.5%
*Includes overstatement of assets.
Source: A.M. Best: P/C Impairments Hit Near-Term Lows Despite Surging Hurricane Activity, Special Report, Nov. 2005;
UNDERWRITING
TRENDS
Extremely Strong 2006/07;
Relying on Momentum &
Discipline for 2008
P/C Insurance Combined Ratio,
1970-2008F*
Combined Ratios
120
115
110
1970s: 100.3
1980s: 109.2
1990s: 107.8
2000s: 102.0*
105
100
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
04
05
06
07
08F
90
Sources: A.M. Best; ISO, III
*Full year 2008 estimates from III.
P/C Insurance Combined Ratio,
2001-2008F
120
115.8
110
As recently as 2001,
insurers were paying
out nearly $1.16 for
every dollar they
earned in premiums
107.4
2006 produced the best
underwriting result
since the 87.6 combined
ratio in 1949
100.7
100.1
100
2007/8 deterioration due
primarily to falling rates, but
results still strong assuming
normal CAT activity
98.6
98.3
95.6
2005 figure benefited from
heavy use of reinsurance
which lowered net losses
92.4
90
01
02
03
Sources: A.M. Best; ISO, III. *III estimates for 2008.
04
05
06
07
08F
Ten Lowest P/C Insurance Combined
Ratios Since 1920 vs. 2007
97
95
2007 was the 20th
best since 1920
The 2006 combined
ratio of 92.2 was the
best since the 87.6
combined in 1949
92.1 92.3 92.4 92.4
93
95.6
93.0 93.1 93.1 93.3
91.2
91
The industry’s best
underwriting years
are associated with
periods of low
interest rates
89
87.6
87
85
1949
1948
1943
1937
2006
1935
1950
1939
1953
1936
2007
Sources: Insurance Information Institute research from A.M. Best data. *2007: III Earlybird survey.
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
Insurers earned a record underwriting profit of
$31.7 billion in 2006, the largest ever but only the
second since 1978. Cumulative underwriting deficit
from 1975 through 2007 is $422 billion.
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
$ Billions
Underwriting Gain (Loss)
1975-2008F*
Source: A.M. Best, Insurance Information Institute
Commercial Lines Combined
Ratio, 1993-2008F
04
90
91.2
Recent results benefited from
favorable loss cost trends, improved
tort environment, low CAT losses,
WC reforms and reserve releases
95
97.5
102.5
03
100
94.7
111.1
112.3
109.7
110.2
102.0
105
103.9
107.6
110
110.2
112.5
115
110.3
120
105.4
125
Outside CAT-affected lines,
commercial insurance is
doing fairly well. Caution is
required in underwriting
long-tail commercial lines.
122.3
Commercial coverages
have exhibited significant
variability over time.
85
93
94
95
96
97
Sources: A.M. Best (historical and forecasts)
98
99
00
01
02
05
06 07E 08F
Impact of Reserve Changes on
Combined Ratio
$10
$5
$0
($5)
0.1
$0.4
$18.9
$15
$22.8
3.5
$36.9
$25
$20
$33.4
6.5
$10.8
Reserve Development ($B)
$35
$30
($10)
00
01
02
03
10
9
8
Reserve
7
adequacy has
6
4.5
improved
5
substantially
4
3
2
1
-1.2 -1.6 -1.3 -1.1
0
(1)
(2)
($5.0)
($5.3) ($7.0)($6.0)
(3)
04
05
06
Source: A.M. Best, Lehman Brothers estimates for years 2007-2009
07F
08F
09F
Combined Ratio Points
8.6 8.9
$40
PY Reserve Development
Combined Ratio Points
PREMIUM
GROWTH
At a Virtual Standstill
in 2007/08
Strength of Recent Hard Markets
by NWP Growth*
25%
1975-78
1984-87
2001-04
Post-Katrina period
resembles 1993-97
(post-Andrew)
20%
15%
10%
5%
0%
-5%
2007: -0.6% premium growth
was the first decline since 1943
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
2004
2005
2006
2007F
2008F
-10%
Note: Shaded areas denote hard market periods.
Source: A.M. Best, Insurance Information Institute
Growth in Net Written
Premium, 2000-2008F
15.3%
10.0%
P/C insurers are experiencing
their slowest growth rates
since 1943… underwriting
results are deteriorating
8.4%
5.0%
4.3%
3.9%
0.5%
-0.6% -1.0%
2000
2001
2002
2003
2004
2005
*2008 forecast from A.M. Best.
Source: A.M. Best; Forecasts from the Insurance Information Institute.
2006
2007
2008F
WEAK PRICING
Under Pressure in
2007/08, Especially
Commercial Lines
Average Commercial Rate Change,
All Lines, (1Q:2004 – 1Q:2008)
0%
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
1Q08 -13.5%
-12.0%
4Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
4Q05
3Q05
2Q05
1Q05
4Q04
3Q04
2Q04
1Q04
-16%
3Q07 -13.3%
KRW Effect
-11.8%
-5.3%
-3.0%
-2.7%
-4.6%
-14%
-11.3%
-12%
-9.6%
-10%
-8.2%
-8%
-9.7%
-5.9%
-6%
-9.4%
-4%
-7.0%
-3.2%
-0.1%
-2%
Magnitude of rate decreases diminished
greatly after Katrina but have grown again
Cumulative Commercial Rate Change
by Line: 4Q99 – 1Q08
Commercial account pricing
has been trending down for 3+
years and is now on par with
prices in late 2001, early 2002
Source: Council of Insurance Agents & Brokers
CAPACITY/
SURPLUS
Accumulation of Capital/
Surplus Depresses ROEs
U.S. Policyholder Surplus:
1975-2007*
$550
$500
$450
Capacity as of 12/31/07 was
$517.9B, 6.5% above year-end
2006, 81% above its 2002 trough
and 55% above its 1999 peak.
$400
$ Billions
$350
$300
$250
$200
The premium-to-surplus
fell to $0.85:$1 at yearend 2007, approaching
its record low of
$0.84:$1 in 1998
$150
$100
$50
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners
Equity” or “Net Worth” in
non-insurance organizations
$0
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Source: A.M. Best, ISO, Insurance Information Institute.
*As of December 31, 2007
Annual Catastrophe Bond
Transactions Volume, 1997-2007
Risk Capital Issues ($ Mill)
$8,000
Number of Issuances
Catastrophe bond issuance has
soared in the wake of Hurricanes
Katrina and the hurricane
seasons of 2004/2005, despite two
quiet CAT years
$7,000
$6,000
$5,000
$7,329.6
35
30
25
$4,693.4
20
$4,000
15
$3,000
$1,000
$633.0
$846.1$984.8
$1,139.0
$1,219.5
$966.9
10
$1,991.1
$1,729.8
$2,000
$1,142.8
5
$0
0
97
98
99
00
01
02
03
04
Source: MMC Securities Guy Carpenter, A.M. Best; Insurance Information Institute.
05
06
07
Number of Issuances
Risk Capital Issued
Lloyd’s Insurance Market
Capacity, 1998-2008 (£ billions)*
The capacity of the Lloyd’s market rose significantly during the period 2001 to 2004.
In 2005, capacity reduced but increased again in 2006 and 2007 due to the impact of
the U.S. hurricane season. Capacity reduced to £15.95 billion ($32 billion) in 2008.
18
£16.1 £15.95
£ billions
16
£14.4 £14.9
14
12
10
£11.3
£14.8
£13.7
£12.2
£10.2 £9.9 £10.1
8
6
4
2
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
*Beginning of the year.
Source: Lloyd’s Members’ Services Unit.
P/C Insurer Share Repurchases,
1987- Through Q4 2007 ($ Millions)
Reasons Behind Capital BuildUp & Repurchase Surge
•Strong underwriting results
$22,322.6
•Moderate catastrophe losses
$418.1
$566.8
$310.1
$658.8
$769.2
91
92
93
94
95
$7,094.1
$5,266.0
$5,242.3
$763.7
$952.4
90
$1,539.9
$311.0
89
$2,764.2
$646.9
88
$4,297.3
$564.0
87
$5,000
$4,586.5
$10,000
Returning capital owners
(shareholders) is one of the
few options available
2007 repurchases to
date equate to 3.9% of
industry surplus, the
highest in 20 years
$2,385.6
$4,497.5
$15,000
•Reasonable investment
performance
•Lack of strategic alternatives
(M&A, large-scale expansion)
$20,000
$4,370.0
$25,000
2007 share buybacks shattered
the 2006 record, up 214%
Sources: Credit Suisse, Company Reports; Insurance Information Inst.
07
06
05
04
03
02
01
00
99
98
97
96
$0
MEDICAL
PROFESSIONAL
LIABILITY
OVERVIEW
Significant Improvements
MEDICAL &
HEALTH CARE
COST INFLATION
National Problem &
Insurer Cost Driver
Consumer Price Index for Medical
Care vs. All Items, 1960-2007
All Items
Medical Care
(Base: 1982-84=100)
400
300
200
Inflation for Medical Care
has been surging ahead of
general inflation (CPI) for
25 years. Since 1982-84,
the cost of medical care
has more than tripled.
351.1
207.3
0
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
100
Source: Department of Labor (Bureau of Labor Statistics).
15%
5%
06
07
E
08
E
09
E
10
E
11
E
12
E
13
E
14
E
15
E
16
E
17
E
04
05
02
03
00
01
98
99
National Health Expenditures
National Health Expenditures as % of GDP
Source: Centers for Medicare & Medicaid Services, Office of the Actuary; Insurance Information Institute.
National Health Exp. as % of GDP
19.5%$4,277
19.1%$4,008
18.8%
17.1% $2,726
17.4% $2,905
$2,555 16.9%
$2,394 16.6%
$2,246 16.3%
16.0%
$2,106
15.9%
$1,973
15.9%
$1,732
$1,852
15.3%
15.8%
$1,603
14.5%
$1,470
13.8%
$1,354
13.7%
$1,266
$1,191
$913
$1,125
$714
9.1%
20%
0%
93
97
60
70
$0
25%
10%
Health care expenditures will
consumed 16.6% of GDP in
2008 and are expected to rise
to 19.5% by 2017
$253
$500
$75
$1,000
80
90
$1,500
5.2%
$2,000
7.2%
$2,500
13.6%
13.6%
12.3%
$3,000
13.7%
$3,500
$28
National Health Exps
$4,000
17.7% $3,098
18.0% $3,305
18.4%
$3,524
$4,500
$3,757
National Health Expenditures and Health
Expenditures as a Share of GDP,
1960-2017F ($ Billions)
$12,369
$13,101
E
17
$11,684
E
16
$11,043
E
15
E
14
$9,862
E
13
$9,322
E
12
$8,816
E
11
$8,329
E
10
$7,868
E
09
$7,439
E
08
$7,026
E
07
$6,649
06
$6,301
05
$5,952
04
$5,560
03
$5,148
02
$4,790
01
$4,523
00
$4,297
99
$4,104
98
$3,469
97
$2,813
93
$1,100
90
$356
80
$148
70
60
$15,000
$14,000
$13,000
$12,000
$11,000
$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Health costs on a per capita
basis continue to rise rapidly, as
health expenditures rise faster
than population growth
$10,439
National Health Expenditures
Per Capita, 1960-2017E ($Bill)
Source: Centers for Medicare & Medicaid Services, Office of the Actuary; Insurance Information Institute.
Average Annual Growth in US Per
Capital Health Care Costs, 1960-2017F
25%
20.9%
20%
15%
15.6%
14.1%
Over the net decade health
care expenditures will likely
increase well ahead of
economic growth and the
general pace of inflation
10%
5%
The 1970s were the most
inflationary decade for
medical costs at nearly
21% per year
7.0%
7.9%
7.6%
2000-2007
2007-2017
0%
1960-1970
1970-1980
1980-1990
1990-2000
Source: Insurance Information Institute calculations based on data from the Centers for Medicare &
Medicaid Services, Office of the Actuary.
WC Medical Severity Rising Far
Faster than Medical CPI
16%
14%
WC medical severity rose
more than twice as fast as the
medical CPI (8.8% vs. 4.0%)
from 1995 through 2006
12%
4%
8.2%
7.4%
7.4%
7.5%
6.8%
3.5 pts
6%
9.0%
8.3%
8%
11.7%
10.6%
10.1%
10%
14.0%
5.1%
4.5%
3.6%
2%
4.1%
4.6% 4.7%
4.0% 4.4% 4.2% 4.0%
3.5%
2.8% 3.2%
Change in Medical CPI
Change Med Cost per Lost Time Claim
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Med Costs Share of Total
Costs is Increasing Steadily
2006p
1996
Indemnity
41%
Medical
59%
1986
Indemnity
52%
Indemnity
55%
Medical
48%
Medical
45%
Source: NCCI (based on states where NCCI provides ratemaking services).
Auto Claim Costs Rise Faster
than CPI or Health Care Costs
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
9%
Claimed BI
economic
losses are 3
times the
overall
inflation
rate
8%
Inflation in auto
insurance claims is a
significant and longterm cost driver
6%
4%
4%
3%
Claimed BI
Economic
Loss
Total BI
Payment
Claimed PIP
Economic
Loss
Total PIP
Payment
CPI
CPI-Medical
Sources: Insurance Research Council, Auto Insurance Claims: Countrywide Patterns in Treatment,
Cost and Compensation, 2008 Edition; Insurance Information Institute.
MEDICAL
MALPRACTICE
OPERATING
ENVIRONMENT
Improved, But
Still Vulnerable
Medical Malpractice
Combined Ratio
94.5
98.6
83.0
90
95.6
91.2
92.5
101.0
100.8
98.4
111.0
137.5
100.1
142.5
107.5
115.8
129.7
133.7
110.1
97
108.0
96
115.7
107.9
102.0
95
105.9
106.6
106.0
100
99.8
106.7
110
96.4
120
103.7
108.8
130
115.7
127.9
140
As recently as 2002,
med mal insurers
paid out $1.55 for
every dollar earned
108.3
150
108.0
107.0
160
The dramatic
improvement has
restored med
mal’s viability
154.7
Insurers in 2007 paid out an
estimated $0.83 for every $1
they earned in premiums.
170
80
91
92
93
94
98
Medical Malpractice
Source: AM Best, Insurance Information Institute
99
00
01
02
03
04
All Lines Combined Ratio
05
06 07P 08E
$10.3
$9.6
$8.8
99
$9.5
$9.6
98
$8.4
$9.3
97
$8.5
93
$5.1
92
$5.2
$6.0
91
$4.9
$5.3
$4.2
$4.6
90
$4.8
$4.8
$5.1
$4.1
$4
$4.0
$4.1
$5
$4.0
$4.2
$6
$4.7
$4.5
$4.8
$5.2
$7
03
04
05
06
$7.2
$8
$6.1
$9
$7.5
$10
$6.6
Before reforms took hold in the mid2000s, premium earned rose 54% while
losses and expenses rose 125% over the
period from 1990 through 2003,
$11
$5.6
$12
$9.5
$ Billions
$11.6
Medical Malpractice: Losses &
Expenses Paid vs. Premiums Earned
$3
$2
94
95
96
Earned Premiums
00
01
02
Losses & Expenses Paid
Source: Computed from A.M. Best data by the Insurance Information Institute
Medical Malpractice:
Underwriting Loss/Profit, 1990-2007p
$ Millions
$2,000
$1,488.0
Med Mal underwriting losses
exploded by $3.1 billion or 1059%
between
$111.6 1996 and 2001
$1,000
$848.3
$14.4
$0
-$147.8
-$230.8
-$94.7
-$289.3
-$387.1
-$808.6
-$344.1
-$1,000
-$922.9
-$1,135.9
-$1,517.7
-$1,890.6
-$2,000
-$3,000
-$3,077.0
-$3,172.5
-$3,353.1
Med Mal
insurers
now
operating
in the
black
-$4,000
90
91
92
93
94
95
96
97
98
99
00
01
02
Source: Insurance Information Institute calculations based on data from A.M. Best.
03
04
05
06
07
Medical Malpractice:
Cumulative Underwriting Losses
$ Millions
90
91
92
93
94
95
96
97
98 99
00
01
02
Source: Insurance Information Institute calculations based on data from A.M. Best.
03
04
05
06
-$14,910
-$16,398
-$20,000
-$17,246
-$18,000
-$17,151
-$16,000
-$16,229
-$14,000
-$13,056
The cumulative
underwriting loss in Med
Mal from 1990-2003 totaled
more than $17 billion
-$12,000
-$9,979
-$10,000
-$6,626
-$4,735
-$8,000
-$3,218
-$2,409
-$6,000
-$2,022
-$1,733
-$1,747
-$1,859
-$4,000
-$1,515
-$379
-$2,000
-$231
$0
07
Outlook for MPLI
Operating Environment
• Short-Term: Soft market persists, driven by relatively
good underlying underwriting performance
• Intermediate Term: Cyclical deterioration in
profitability as underwriting begins to deteriorate under
soft market conditions
• Long-Run: Erosion of reforms of recent years begins to
take toll, further damaging results
• Conclusion: Underwriting Cycle can’t be banished, but
its depth and length can be moderated via disciplined
underwriting and pricing
• Tort Cycle: Med Mal tends to experience a tort crisis
every 10-15 years. If history is any guide, the next crisis
will be evident around 2012-2015
Investment Component
of Medical Malpractice
Operating Results
Investment Gain: Med Mal vs.
All Commercial Lines*
05
18.9%
10.3%
14.0%
04
10.2%
9.4%
15.1%
15.5%
8.9%
10%
9.6%
12.8%
14.3%
19.1%
27.9%
16.8%
15.1%
23.7%
28.0%
16.9%
14.1%
15%
14.3%
20%
12.5%
25%
30.0%
30%
16.8%
29.3%
27.4%
35%
30.2%
Investment returns have generally shrunk since 2000, but are still
important. “Heavy Lifting” must be done through underwriting & pricing
5%
0%
94
95
96
97
98
99
00
Commercial Lines
01
02
03
Med Mal
*As a % of net earned premium. Investment gains consists primarily of interest, dividends and
realized capital gains and losses.
Source: A.M. Best; Insurance Information Institute estimate
06
Medical Malpractice Investment Gain*
Investment returns have risen, but poor
investment environment today implies
“Heavy Lifting” must be done through
underwriting & pricing
$ Billions
$2.5
$2.1
$2.0
$1.5
$1.8
$1.8
$1.5 $1.5
$1.6
$1.5 $1.5 $1.4
$1.3$1.4
$1.2
$1.3 $1.3 $1.3
$1.2
$0.9
$1.0
$0.5
$0.0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
*Imputed from investment gain data as a % of net earned premium. Investment gains consists
primarily of interest, dividends and realized capital gains and losses.
Source: A.M. Best; Insurance Information Institute estimate
06
Medical
Malpractice Tort
Environment
Harvesting the Fruits
of Reform
Medical Malpractice Tort Cost:
Growth Continues, Though Modestly
$ Billions
$4.8
$5.8
$6.8
$6.7
$6.9
$7.3
$7.6
$8.5
$9.2
$10.1
$10.6
$11.5
$12.5
$13.3
$14.1
$15.5
$16.4
$17.9
$19.6
$21.7
$24.2
$26.5
$28.2
$29.4
$30.3
90% increase in tort costs generally over the same period.
•Over the period from 1975 through 2006, medical
malpractice tort costs have increased at an annual rate of
11.1 percent, versus 8.2 percent for all other tort costs.
$1.2
$1.4
$1.8
$2.2
$2.7
$3.4
$4.1
$32
$30
$28
$26
$24
$22
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
•Over the period from 1990 through 2006, medical
malpractice tort costs rose 229%, more than double the
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
Sources: Tillinghast-Towers Perrin, US Bureau of Labor Statistics, Insurance Information Institute
Medical Crises across the U.S.*
AMA: Crises reached in 22 states in the 2000s
AK
AL
WA
ME
MT
ND
VT
NH
MN
OR
ID
MA
NY
WI
SD
CT
MI
RI
WY
NJ
PA
IA
DC
OH
NE
IL
NV
IN
DE
MD
WV
UT
VA
CO
MO
KS
KY
CA
NC
TN
AZ
OK
NM
SC
AR
HI
MS
AL
GA
LA
TX
Crisis states
at height of
2000s
*The AMA is no longer categorizing states as crisis states.
Source: American Medical Association, February 2008
FL
PR
2007 Top Ten Verdicts
Value
Issue
State
$109 Million
Medical Malpractice
New York
$102.7 Million
Premises Liability, Death
Florida
$55.2 Million
Product Liability, Death
California
$54 Million
Private Air Crash
Florida
$54 Million
Nursing Home, Death
New Mexico
$50 Million
DUI Crash
Florida
$50 Million
Product Liability, Death
Alabama
$47.6 Million
Prempro
Nevada
$47.5 Million
Vioxx
New Jersey
$45 Million
Auto Crash, Death
Florida
Source: LawyersWeekly USA, January 22, 2008.
2002 Top Ten Verdicts
Value
Issue
State
$28 Billion
Tobacco (Product Liability)
Florida
$2.2 Billion
Negligence (Pharmacy Mal)
Missouri
$270 Million
Personal Injury (Burn)
Kentucky
$225 Million
Product Liability (Rollover)
Texas
$150 Million
Tobacco (Product Liability)
Oregon
$122 Million
Product Liab. (Auto Accident)
Virginia
$97.2 Million
Business Fraud
California
$95.2 Million
Med Mal (Birth Injury)
New York
$91 Million
Medical Malpractice
New York
$80 Million
Med Mal (Birth Injury)
New York
$80 Million
Prod. Liab/Personal Inj. (Auto) Missouri
Source: LawyersWeekly USA, January 2003.
2001 Top Ten Verdicts
Value
Issue
State
$3 Billion
Tobacco
California
$1 Billion
Land Contamination
Louisiana
$480 Million
Private Airplane Crash
Florida
$312.8 Million
Nursing Home
Texas
$ 256 Million
Police Auto Crash
Colorado
$116 Million
Intellectual Property Theft
Virginia
$114.9 Million
Medical Malpractice
New York
$108.2 Million
Inheritance Dispute
Texas
$107.8 Million
Medical Malpractice
New York
$94.5 Million
Real Estate
California
Source: LawyersWeekly USA, January 2002.
Average Jury Award in
Medical Malpractice Cases*
$ Millions
$5.0
$4.78
$4.26
$4.5
$3.5
$2.92
$3.0
$2.5
$2.02 $1.88 $1.93
$2.0
$1.5
$3.83
$3.74
$4.0
$3.24
$3.29
$2.89
The average med mal jury
award more than tripled
between 1994 and 2005, but
has moderated since 2002
$1.14
$1.0
$0.5
$0.0
94
95
96
97
98
99
00
*Ultimate award may be reduced by judge or upon appeal.
Source: Jury Verdict Research; Insurance Information Institute.
01
02
03
04
05
Trends in Million Dollar Verdicts*
100%
13%
14%
13%
8%
12%
5%
4%
10%
4%
4%
20%
10%
8%
30%
17%
64%
62%
59%
48%
55%
51%
49%
36%
41%
39%
40%
37%
50%
22%
60%
Sharp jumps in multi-million dollar
awards in recent years across most types
of defendants. In med mal, million dollarplus awards rose from 36% of all awards
from 1996-98 to 55% in 2004-05, well
above most other categories.
32%
70%
2004-2005
2002-2003
1999-2001
29%
80%
1996-1998
23%
31%
90%
0%
Vehicular
Liability
Personal
Negligence
Premises
Liability
Business
Negligence
Government
Negligence
*Verdicts of $1 million or more.
Source: Jury Verdict Research; Insurance Information Institute.
Medical
Malpractice
Products
Liability
MERGER &
ACQUISITION
Catalysts for P/C
Consolidation Growing
in 2008
P/C Insurance-Related M&A
Activity, 1988-2006
100
$425
$9,264
60
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Source: Conning Research & Consulting.
120
40
20
0
Number of Transactions
$35,221
140
80
$20,353
$486
$8,059
$11,534
$1,882
$0
$2,435
$5,137
$2,780
$10,000
$3,450
$20,000
$5,100
$30,000
No model for
successful
consolidation
has emerged
$19,118
$40,000
$40,032
$55,825
$30,873
$50,000
M&A activity
began to accelerate
during the second
half of 2007
$5,638
Transaction Value ($ Mill)
$60,000
Number of Transactions
$1,249
Transaction Values
Motivating Factors for Increased
P/C Insurer Consolidation
Motivating Factors for P/C M&As
• Slow Growth: Growth is at its lowest levels since the late 1990s
 NWP growth was 0% in 2007; Appears similarly flat in 2008
 Prices are falling or flat in most non-coastal markets
• Accumulation of Capital: Excess capital depresses ROEs




Policyholder Surplus up 6-7%% in 2007 and up 80% since 2002
Insurers hard pressed to maintain earnings momentum
Options: Share Buybacks, Boost Dividends, Invest in Operation, Acquire
Option B: Engage in destructive price war and destroy capital
• Reserve Adequacy: No longer a drag on earnings
 Favorable development in recent years offsets pre-2002 adverse develop.
• Favorable Fundamentals/Drop-Off in CAT Activity
 Underlying claims inflation (frequency and severity trends) are benign
 Lower CAT activity took some pressure of capital base
Source: Insurance Information Institute.
P/C INVESTMENT
OVERVIEW
More Pain,
Little Gain
Property/Casualty Insurance
Industry Investment Gain1
$ Billions
$63.6
$57.9
$60
$52.3
$51.9
$47.2
$50
$59.4
$56.9
$45.3
$44.4
$42.8
$40 $35.4
$55.8
$48.9
$36.0
Investment rose in 2007 but are just
9.8% higher than what they were
nearly a decade earlier in 1998
$30
$20
$10
$0
94
1Investment
95
96
97
98
99
00
01
02
03
04 05* 06
07
gains consist primarily of interest, stock dividends and realized capital gains and losses.
2006 figure consists of $52.3B net investment income and $3.4B realized investment gain.
*2005 figure includes special one-time dividend of $3.2B.
Sources: ISO; Insurance Information Institute.
Property/Casualty Industry
Investment Results, 1994-2007
$39.6
02**
03
04
$9.0
$54.6
$38.7
01
$52.3
$9.3
$36.7
00
$35.6
$37.1
99
$3.5
$59.2
$55.8
$48.9
$45.6
$6.9
$44.0
$6.9
$16.9
$40.8
98
$13.7
$18.0
$10.8
97
$38.6
96
$39.9
95
$41.5
$9.2
$38.0
$40
$36.8
$6.0
$50
$30
$63.6
$57.9
$52.3
$33.7 $1.7
Billions
$60
Realized capital
gains rising as
underwriting
$57.7
results slip
$9.7
Capital Gains/Losses
Investment Income
$49.5
$70
06
07E
$20
94
05
*Primarily interest, stock dividends, and realized capital gains and losses.
**Not shown: $1.1B capital loss in 2002.
2005 figure includes special one-time dividend of $3.2B.
Sources: ISO; Insurance Information Institute.
$8,971
$3,524
$13,016
$9,701
$9,125
$6,610
$9,244
$5,997
$1,664
$4,806
$5,000
$2,880
$10,000
$9,818
$9,893
$15,000
$10,808
$18,019
Realized capital gains
rebounded strongly in 2004/5
but fell sharply in 2006
despite strong stock market
as insurers “bank” their
gains. Rising again in 2007 as
underwriting results slip
$6,631
$20,000
$16,205
US P/C Net Realized Capital Gains,
1990-2007 ($ Millions)
-$1,214
$0
-$5,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Sources: A.M. Best, ISO, Insurance Information Institute.
Total Returns for Large Company
Stocks: 1970-2008*
S&P 500 was up 3.5% in 2007, down 5.45% YTD 2008*
40%
30%
20%
10%
0%
-10%
Source: Ibbotson Associates, Insurance Information Institute.
2008
*Through May 9, 2008.
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1974
1972
-30%
1970
-20%
1976
Markets
were up in 2007 for
th
the 5 consecutive year; 2008
could be first down year
since 2002
P/C Investment Income as a % of Invested
Assets Follows 10-Year US T-Note
P-C Inv Income/Inv Assets
10-Year Treasury Note
9%
Investment yield
historically tracks
10-year Treasury
note quite closely
8%
7%
6%
5%
4%
3%
*As of January 2008 month-end.
Sources: Board of Governors, Federal Reserve System; A.M.Best; Insurance Information Institute.
08*
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
2%
Investment Outlook
• Short-Term: Low interest rates, poor equity market
performance will reduce investment gains and depress
profitability
• Intermediate Term: Fed likely to begin raising rates as
early as late 2008, if credit market conditions continue
to improve
 Stock markets could begin recovery from first quarter lows
• Long-Run: Interest rates and stock market returns are
modest
• Conclusion: Insurers (including long-tail carriers
offering MPLI) cannot count on investment gains to
offset underwriting losses
• Implication: Insurers Must Remain Disciplined in Terms
of Underwriting and Pricing
REINSURANCE
MARKETS
Reinsurance Prices are
Falling in Non-Coastal
Zones, Casualty Lines
Share of Losses Paid by
Reinsurers, by Disaster*
70%
60%
50%
40%
30%
Reinsurance is playing
an increasingly
important role in the
financing of megaCATs; Reins. Costs are
skyrocketing
30%
25%
60%
45%
20%
20%
10%
0%
Hurricane Hugo Hurricane Andrew
Sept. 11 Terror
2004 Hurricane
2005 Hurricane
(1989)
(1992)
Attack (2001)
Losses
Losses
*Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer,
which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at
$3.85 billion for 2004 and $4.5 billion for 2005.
Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.
US Reinsurer Net Income
& ROE, 1985-2007*
$7.96
$9.68
5%
0%
-5%
ROE
07*
06
05
04
-10%
03
02
99
98
97
96
95
94
93
92
91
90
89
88
87
86
01
($2.98)
($4)
85
15%
ROE
$2.51
$3.41
$3.17
$1.31
$4.53
$1.47
$1.95
$2.52
$1.79
$1.17
$1.87
$2.03
Net Income
($2)
20%
10%
00
$0
$1.95
$1.94
$2
$1.38
$4
$1.22
$6
$3.71
$8
$0.12
Net Income ($ Bill)
$10
$1.99
$12
$5.43
Reinsurer profitability
rebounded post-Katrina
but is now falling
Source: Reinsurance Association of America. *2007 ROE figure is III estimate based return on average 2007 surplus.
Reinsurer Market Share Comparison:
1990 vs. 2006
1990
Offshore
Reinsurer
35.3%
U.S.
Reinsurer
64.7%
2006
Offshore
Reinsurer
53.1%
U.S. Reinsurer market
share fell precipitously
between 1990 and 2006
Sources: Reinsurance Association of America; Insurance Information Institute.
U.S.
Reinsurer
46.9%
Regional Distribution of
Reinsurers by NWP, 2006
International
reinsurers from
Germany,
Switzerland and
France account for
40 percent of global
reinsurance volume.
Bermuda is a
growing market,
with a 10 percent
share. Lloyd’s and
London-based
reinsurers account
for 6 percent of the
world market.
Eight countries account for 89 percent
of global reinsurance volume.
U.S.
25%
Germany
25%
Other
11%
Ireland
2%
Bermuda
10%
Japan
6%
Switzerland
12%
France
Source: Standard & Poor’s, Global Reinsurance Highlights, 2007 Edition 3%
U.K.
6%
A STORMY
ECONOMIC
FORECAST
What a Weakening Economy
& Credit Crunch Mean for
the Insurance Industry
Real GDP Growth*
Economic growth has
slowed dramatically
in 2007/2008
4.9%
6%
2.8%
2.9%
09:4Q
2.0%
09:1Q
09:3Q
1.9%
08:4Q
2.1%
0.6%
08:1Q
0.1%
0.6%
07:4Q
1%
0.6%
0.8%
2%
2.6%
3.8%
2.9%
1.6%
3%
3.1%
3.6%
2.5%
4%
3.7%
5%
09:2Q
08:3Q
08:2Q
07:3Q
07:2Q
07:1Q
2006
2005
2004
2003
2002
2001
2000
0%
*Yellow bars are Estimates/Forecasts.
Source: US Department of Commerce, Blue Economic Indicators 4/08; Insurance Information Institute.
A Few Facts About the Relationship
Between Insurance & Economy
• Vast Majority of Insurance Business is Tied to Renewals
 Approximately 98+% of P/C business (units) is linked to renewals
 A very large share of p/c insurance premiums are statutorily or de facto
compulsory (e.g., WC, auto liability, surety, usually HO…)
 P/C insurers have marginal exposure impact due to economy
 Most life revenues and units are renewals, but some products (e.g.,
variable annuities are sensitive to market volatility)
 Life insurers who manage 401(k) assets seeing more loans and hardship
withdrawals;
• Insurers are Sensitive to Interest Rates
 About 2/3 of P/C invested assets and 75% if Life assets are fixed income
 Historically, yield on industry portfolios has tracked 10-year note closely
 All else equal, lower total investment gain implies greater emphasis on
underwriting
 Historically, industry’s best underwriting performances are rooted in
periods when interests rates were low and/or equity market performance
poor (1930s – 1950s, early 2000s gave rise to strong 2006/07)
Source: Insurance Information Institute.
5%
0%
-5%
-10%
6%
4%
5.2%
78
-0.9%
79
80-7.4%
81 -6.5%
-1.5%
82
1.8%
83
4.3%
84
85
86
5.8%
87
0.3%
88
-1.6%
89
-1.0%
90
-1.8%
91
-1.0%
92
3.1%
93
1.1%
94
0.8%
95
0.4%
96
0.6%
97
-0.4%
98
-0.3%
99
1.6%
00
5.6%
01
02
7.7%
03
1.2%
04
-2.9%
05
-0.5%
06
-2.9%
07
-2.7%
08F
Real NWP Growth
15%
10%
8%
Real NWP Growth
Real GDP
2%
Real GDP Growth
20%
P/C insurance industry’s growth
is influenced modestly by growth
in the overall economy
13.7%
25%
18.6%
20.3%
Real GDP Growth vs. Real P/C
Premium Growth: Modest Association
0%
-2%
-4%
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 2/08; Insurance Information Inst.
Summary of Treasury
“Blueprint”for
Financial Services
Modernization
Impacts on Insurers
Treasury Regulatory
Recommendations Affecting Insurers
•
•
Establishment of an Optional Federal Charter (OFC)
 Would provide system for federal chartering, licensing,
regulation and supervision of insurers, reinsurer and
producers (agents & brokers)
 OFC insurers would still be subject to state taxes,
provisions for compulsory coverage, residual market and
guarantee funds
 OFC would specify specific lines covered by charter;
Separate charters needed for P/C and Life
OFC Would Incorporate Several Regulatory Concepts
 Ensure safety and soundness
 Enhance competition in national and international markets
 Increase efficiency through elimination of price controls,
promote more rapid technological change, encourage
product innovation, reduce regulatory costs and provide
consumer protection
Source: Department of Treasury Blueprint for a Modernized Financial Regulatory System, March 2008.
Treasury Regulatory Recommendations
Affecting Insurers (cont’d)
•
•
Establishment of Office of National Insurance (ONI)



Establishment of Office of Insurance Oversight (OIO)




•
Department within Treasury to regulate insurance pursuant to OFC
Headed by Commissioner of National Insurance
Commissioner has regulatory, supervisory, enforcement and
rehabilitative powers to oversee organization, incorporation, operation,
regulation of national insurers and national agencies
Department within Treasury to handle issues needing immediate
attention such “reinsurance collateral”; OIO could focus immediately
on “key areas of federal interest in the insurance sector”
OIO: lead regulatory voice on international regulatory policy
Would have authority to ensure states achieved uniform
implementation of declared US international insurance policy goals
OIO would also serve as advisor to Treasury Secretary on major
domestic and international policy issues
UPDATE: HR 5840 Introduced April 17 Would Establish
Office of Insurance Information (OII)

Very similar to OIO
Source: Department of Treasury Blueprint for a Modernized Financial Regulatory System, March 2008.
CATASTROPHIC
LOSS
No Appreciable Spillover
Effects
$80
$60
$40
$20
$9.2
$6.7
$3.4
$100
2006/07 were welcome
respites. 2005 was by far the
worst year ever for insured
catastrophe losses in the US.
Few “spillover effects” into
non-property lines
$7.5
$2.7
$4.7
$22.9
$5.5
$16.9
$8.3
$7.4
$2.6
$10.1
$8.3
$4.6
$26.5
$5.9
$12.9
$27.5
$120
$100 Billion
CAT year is
coming soon
$61.9
$ Billions
$100.0
U.S. Insured Catastrophe Losses*
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08:Q1
20??
$0
*Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita.
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. Non-prop/BI losses = $12.2B.
Source: Property Claims Service/ISO; Insurance Information Institute
Shifting Legal
Liability & Tort
Environment
Is the Tort Pendulum
Swinging Against Insurers?
“King of Torts” Dickie Scruggs
•Won billions in tobacco, asbestos and Katrina
litigation
•Pleaded guilty for attempting to offer a judge
$40,000 bribe to resolve attorney fee allocation
from Katrina litigation in his firm’s favor. His
son/othersguilty on related charges
•Could get 5 years in prison, $250,000 fine
Source: Wall Street Journal, 3/15/07
“King of Class Actions” Bill Lerach
•Former partner in class action firm Milberg
Weiss
•Admitted felon. Guilty of paying 3 plaintiffs
$11.4 million in 150+ cases over 25 years &
lying about it repeatedly to courts
•Will serves 1-2 years in prison and forfeit
$7.75 million; $250,000 fine
Source: San Diego Union Tribune, 9/19/07
Bad Year for Tort Kingpins*
Personal, Commercial &
Self (Un) Insured Tort Costs*
$250
Commercial Lines
Personal Lines
Self (Un)Insured
Total = $216.7 Billion
Billions
$200
$45.5
Total = $159.6 Billion
$150
Total = $121.0 Billion
$30.0
$85.6
$20.4
$100
$70.9
Total = $39.3 Billion
$51.0
$50
$0
$85.6
$5.2
$17.1
$17.0
$49.6
$58.7
1980
1990
2000
*Excludes medical malpractice
Source: Tillinghast-Towers Perrin, 2007 Update on US Tort Cost Trends.
2006
$300
Tort System Costs
$250
$200
$150
$100
$50
After a period of
rapid escalation,
tort system costs as
a % of GDP are
now falling
2.24%
$277
2.24%
$265
2.14%
$246.0
1.98%
$247.0
1.82%
1.83%
1.83%
1.53%
1.87%
$179.2
1.34%
$158.5
1.22%
1.11%
$130.2
1.03%
0.82%
$83.7
0.62%
2.5%
$42.7
$13.9$20.0
$7.9
$5.4
$1.8 $3.4
0.5%
$0
2.0%
1.5%
1.0%
0.0%
50
55
60
65
70
75
80
Tort Sytem Costs
85
90
95
00
03
06 08E 09E
Tort Costs as % of GDP
Source: Tillinghast-Towers Perrin, 2007 Update on U.S. Tort Costs as % of GDP
Tort Costs as % of GDP
Tort System Costs, 1950-2009E
The Nation’s Judicial
Hellholes (2007)
Watch List
Madison County, IL
St. Clair County, IL
Northern New
Mexico
Hillsborough
County, FL
Delaware
California
Some improvement
in “Judicial
Hellholes” in 2007
NEVADA
Clark County
(Las Vegas)
ILLINOIS
Cook County
NEW JERSEY
Atlantic County
(Atlantic City)
West Virginia
Dishonorable
Mentions
District of Columbia
MO Supreme Court
MI Legislature
GA Supreme Court
Oklahoma
TEXAS
Rio Grande
Valley and
Gulf Coast
Source: American Tort Reform Association; Insurance Information Institute
South Florida
Business Leaders Ranking of
Liability Systems for 2007
New in 2007
Best States
1. Delaware
ME, NH, TN,
UT, WI
2. Minnesota
3. Nebraska
Drop-Offs
4. Iowa
ND, VA, SD, WY,
5. Maine
ID
6. New Hampshire
7. Tennessee
8. Indiana
Midwest/West has
9. Utah
mix of good and
10. Wisconsin
bad states
Worst States
Newly
41. Arkansas
Notorious
42. Hawaii
AK
43. Alaska
Rising
44. Texas
Above
45. California
FL
46. Illinois
47. Alabama
48. Louisiana
49. Mississippi
50. West Virginia
Source: US Chamber of Commerce 2007 State Liability Systems Ranking Study; Insurance Info. Institute.
Insurance Information
Institute On-Line
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