Transcript No Slide Title

Florida Property
Insurance Markets
End of 2007 Hurricane
Season Update
Insurance Information Institute
Media Briefing
November 29, 2007
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
• Insured Catastrophe Loss Review
2007 Season in Historical Context
• Florida Hurricanes & Insurer Profitability
• Property/Casualty Insurer Profitability
CATASTROPHIC
LOSSES
Catastrophic Losses in the US:
Upward Trend is Certain and
Florida Could Be the Biggest
Part of the Increase
Most of US Population & Property
Has Major CAT Exposure
Florida is the most
catastrophe prone
state in the US
U.S. Insured Catastrophe Losses*
$5.5
$16.9
$8.3
$7.4
$2.6
$10.1
$8.3
$4.6
95
96
97
98
99
00
01
02
$100.0
$7.0
$4.7
91
92
93
94
$9.2
$7.5
$2.7
$20
89
90
$40
$5.9
$60
$26.5
$80
$22.9
$100
2006/07 were welcome
respites. 2004/2005 were the
worst years ever for insured
hurricane losses, but the
worst has yet to come.
$61.9
$120
$100 Billion CAT
year will occur
eventually, likely
involving FL
$12.9
$27.5
$ Billions
07**
20??
03
04
05
06
$0
*Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita. **Estimate through 11/28/07.
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
Global Insured Catastrophe
Losses by Region, 2001-2006
90
80
70
60
50
North America
accounted for
73% of global
catastrophe
losses 2001-2006
Florida accounted
for a significant
share of global CAT
losses in 2004/05
Seas/Space
Africa
Oceania/Australia
South America
Asia
Europe
40
North America*
30
20
10
0
2001
2002
2003
2004
2005
2006
Notes: 2001-03 figures for N. America include US only. 2001 figure includes only property losses from 9/11.
Source: Insurance Information Institute compiled from Swiss Re sigma issues.
Inflation-Adjusted U.S. Insured
Catastrophe Losses By Cause of Loss,
1987-2006¹
Fire, $6.6 , 2.2%
Civil Disorders, $1.1
, 0.4%
Wind/Hail/Flood,
$9.3 , 3.1%
Earthquakes, $19.1 ,
6.4%
Winter Storms,
$23.1 , 7.8%
Terrorism, $22.3 ,
7.5%
Water Damage, $0.4
, 0.1%
Utility Disruption,
$0.2 , 0.1%
Tornadoes, $77.3 ,
26.0%
Insured disaster losses
totaled $297.3 billion from
1987-2006 (in 2006 dollars).
Hurricanes & tropical
storms accounted for
$137.7 billion of these—
near half of the total.
All Tropical
Cyclones, $137.7 ,
46.3%
1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars.
Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.
2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions
and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood
Insurance Program. 6 Includes wildland fires.
Source: Insurance Services Office (ISO)..
Distribution of US Insured CAT
Losses: TX, FL vs US, 1980-2006*
$ Billions of 2005 Dollars
Rest of US, $176 ,
68%
Florida
accounted for
22% of all US
insured CAT
losses from
1980-2006:
$57B out of
$249.3B
*All figures (except 2006 loss) have been adjusted to 2005 dollars.
Source: PCS division of ISO.
Texas, $25.6 , 10%
Florida, $57 , 22%
Top 10 Most Costly Hurricanes in
US History, (Insured Losses, $2005)
$45
$40
$35
$ Billions
$30
$25
$20
Seven of the 10 most expensive
hurricanes in US history impacted
Florida:
Andrew, Katrina, Wilma, Charley,
Ivan, Frances & Jeanne
$15
$21.6
$10.3
$10
$5
$41.1
$3.5
$3.8
$4.8
$5.0
Georges
(1998)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
$6.6
$7.4
$7.7
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$0
Sources: ISO/PCS; Insurance Information Institute.
Wilma
(2005)
Andrew
(1992)
Katrina
(2005)
Historical Hurricane Strikes in
Miami-Dade, FL, 1900-2007
Population of MiamiDade County is 10
times what it was when
the last period of
intense activity began
in the 1930s, lasting 30
years
Source: NOAA Coastal Services Center, http://maps.csc.noaa.gov/hurricanes/pop.jsp?PopStormStates=FL&PopStormCounty=; Insurance Info. Institute,
accessed 11/28/07.
Historical Hurricane Strikes in
Monroe County, FL, 1900-2007
Population of Monroe
County is 4 times what
it was when the last
period of intense
activity began in the
1930s, lasting 30 years
Source: NOAA Coastal Services Center, http://maps.csc.noaa.gov/hurricanes/pop.jsp?PopStormStates=FL&PopStormCounty=; Insurance Info. Institute,
accessed 11/28/07.
Insured Losses from Top 10 Hurricanes
Adjusted to 2005 Exposure Levels
(Billions of 2005 Dollars)
With rapid coastal
development,
$40B+ storms will
be more common
$33.0
Source: AIR Worldwide; PCS.
$42.0
$35.0
)
ur
r(
19
26
,
FL
L)
*
M
ia
m
iH
LA
A
nd
re
w
00
5,
(2
rin
a
(1
99
2,
F
)*
)
19
38
,N
Y
K
at
LI
Ex
pr
es
s(
65
,
TX
Be
sts
y
90
0,
(1
n
es
to
G
al
v
be
e
LA
)
)
FL
)
19
H
ur
r(
(1
96
0,
28
,
FL
)
L)
on
na
O
ke
ec
ho
D
$34.0
$33.0
$80.0
$26.0
$24.0
ur
r(
19
47
,F
er
da
au
d
Ft
.L
H
om
es
te
a
d
H
le
H
ur
r(
19
45
,
FL
)
$20.0
$41.1
(1
9
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
$ Billions
Majority of
worst-case
scenarios
involve Florida
2007 Hurricane Season:
A Welcome Respite
A Sigh of Relief
The 2007 season saw
14 named storms
(just 1 less than in
2004) including two
rare Category 5
storms, that would
have been
devastating if they
had struck the US
Source: www.wunderground.com, accessed 11/27/07; Insurance Information Institute
2004 Was Another Busy, Destructive
& Expensive Hurricane Season
There were 15 named
storms in 2004, the
worst in Florida’s
history, just one more
than in 2007
Source: www.wunderground.com, accessed 11/27/07; Insurance Information Institute.
Total Value of Insured
Coastal Exposure (2004, $ Billions)
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode Island
Maryland
$1,937.3
$1,901.6
$740.0
$662.4
$505.8
$404.9
$209.3
$148.8
$129.7
$117.2
$105.3
$75.9
$73.0
$46.4
$45.6
$44.7
$43.8
$12.1
$0
Source: AIR Worldwide
$500
Florida leads the way
for insured coastal
property at more than
$1.9 trillion in 2004
and is expected to
double by 2014
$1,000
$1,500
$2,000
$2,500
New Condo Construction in
South Miami Beach, 2007-2009
• Number of New Developments: 15
• Number of Individual Units: 2,111
• Avg. Price of Cheapest Unit: $940,333
• Avg. Price of Most Expensive Unit: $6,460,000
• Range: $395,000 - $16,000,000
• Overall Average Price per Unit: $3,700,167*
• Aggregate Property Value: At least $6 Billion
*Based on average of high/low value for each of the 15 developments
Source: Insurance Information Institute from www.miamicondolifestyle.com accessed April 5, 2007.
FLORIDA HURRICANES
& INSURER
PROFITABILITY:
Selling Home Insurance in
Florida is Challenging
Underwriting Gain (Loss) in
Florida Homeowners Insurance,
2004 - 2007E*
$6
Private Insurers**
$4
$2.96
$3.40
$ Billions
$2
$0
($2)
($4)
($3.77)
($6)
($8)
($10)
($9.30)
2004
2005
Over the past four years,
underwriting losses
exceeded premiums in
Florida by an estimated
$6.7 billion
2006
2007E
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.
**Does not include Citizens Property Insurance Corporation results.
Underwriting Gain (Loss) in
Florida Homeowners Insurance,
1992-2007E*
Private Insurers**
$6
$4
$2.96
$2
$0.69 $0.43
$1.43 $1.15 $1.38
$0.86 $1.08 $1.23 $1.28
$3.40
$1.76
$ Billions
$0
($0.21)
($2)
Florida’s homeowners insurance
market produces small/modest
profits in most years and
enormous losses in others
($4)
($6)
($8)
($10)
($12)
($3.77)
($9.30)
($10.60)
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06 07E
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.
**Does not include Citizens Property Insurance Corporation results.
Cumulative Underwriting Gain
(Loss) in Florida Homeowners
Insurance, 1992-2007E*
$2
$0
$ Billions
($2)
($4)
($6)
($8)
($10)
($12)
($14)
Private Insurers**
Regulator under US law
has duty to allow rates
that are “fair,” “not
excessive” and “not
unduly discriminatory.”
Reality is that regulators
in CAT-prone states
suppress rates.
$0.5
-$1.3
-$2.7
-$3.8
-$5.2
-$6.5
-$7.7
-$8.8 It took insurers 11 years (19932003) to erase the UW loss
-$10.1-$9.7
-$10.6
associated with Andrew, but
-$10.8
the 4 hurricanes of 2004 erased
the prior 7 years of profits &
2005 deepened the hole.
92
93
94
95
96
97
98
99
00
01
02
03
-$6.2
-$8.8
-$9.6
-$12.6
04
05
06 07E
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.
**Does not include Citizens Property Insurance Corporation results.
Rates of Return on Net Worth for
Homeowners Ins: US vs. Florida
1990 – 2006E
US
100%
Florida
-2.8%36.0%
0%
-100%
-54.3%
-200%
-300%
-53.4%
Averages: 1990 to 2006E
US HO Insurance = -0.9%
FL HO Average = -36.5%
-183.3%
-400%
-500%
4 Hurricanes
-600%
-700%
Andrew
-714.9%
Wilma, Dennis, Katrina
-800%
90
91
92
93
94
95
96
97
98
99
00
01
02
Source: NAIC; 200/6 US and FL estimates from the Insurance Information Institute.
03
04
05 06E
Share of Losses Paid by Private
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.
The Facts About Homeowner Insurer
Profits and Losses in Florida
• During the period from 1992 through 2007, private
home insurers in Florida paid an estimated $6.2 billion
more in claims than they received in premiums
 This $6.2 billion underwriting loss remains even after including
$2.96 billion in profits in 2006 and $3.4 billion in 2007 (est.)
 It will take until 2009 for insurers just to get to the breakeven
point for the 15 year period 1992-2009 even if there no storm
losses in 2008 and 2009
• Florida Remains a Money-Losing Proposition for Most
Home Insurers in Terms of Return
 The average annual rate of return on FL homeowners insurance
was -36.5% from 1990-2006, despite a profitable 2006
 Even if insurers were to earn a 40% rate of return (implying no
storm activity) every year, the average return for insurers will not
exceed 0% until 2022. To reach the current 5% risk-free return
on 10-year Treasury bonds would take until 2026 and a 10%
return is unachievable until 2033
Florida State-Run Insurer Residual
Deficits 2004/2005 (Millions of Dollars)
2004
2005
Florida Hurricane Catastrophe Fund (FHCF)
Florida Citizens
$0
-$200
-$400
-$600
-$516
-$800
-$1,000
-$1,200
-$1,400
-$1,600
-$1,800
-$2,000
-$1,425
The hurricanes seasons of 2004/5
weakened the FL Hurricane CAT
Fund and Citizens, producing a gross
state-run insurer deficit of $3.7 billion
Source: Insurance Information Institute research.
-$1,770
FL’s guarantee fund
will also assess for at
least $400 million
Florida Citizens Exposure to
Loss (Billions of Dollars)
$500
$450
$400
$350
Exposure to loss in
Florida Citizens more
than doubled by Q1
2007 relative to year
end 2005
$408.8
$434.3
$300
$250
$200
$195.5
$206.7
$210.6
2003
2004
2005
$154.6
$150
$100
$50
$0
2002
2006
Source: PIPSO; FL Citizens; Insurance Information Institute. *As of March 31
Q1 2007*
Pre- vs. Post-Event in FL for
2007 Hurricane Season
$43.8B
$10.1
$10.4
$10.9
$12.4
$15.0
$17.6
1-in-20
1-in-30
1-in-50
1-in-70
1-in-85
1-in-100
$0
$25.8
$14.6
$10
Total =
$25.0B
$20.0 Billion
$24.1
$35.0B
$40
$20
$54.2
$49.5B
$50
$30
$55.0B
$37.4
$60
There is a very significant
likelihood of major, multiyear assessments ahead
$80.0B
$9.9
Billions
$70
Post-Event Funding (Assessments & Bonds)
$34.5
$80
Pre-Event Funding
$31.4
$90
1-in-250
Notes: Pre-event funding includes funds available to Citizens, FHCF and private carriers plus contingent funding available
through private reinsurance to pay claims in 2007. Post-event funding is on a present value basis and does not include
financing costs. Probabilities are expressed as “odds of a single storm of this magnitude or greater happening in 2007.”
Source: Tillinghast Towers Perrin, Study of Recent Legislative Changes to Florida’s Property Insurance Mechanisms, 3/07.
Cost of Borrowing for State
Could Exceed Expectations
$1,400
$1,200
Millions
$1,000
$800
Interest Charge to Borrow $1 Billion at State/Municipal
Bond Rates, Amortized Over 30 Years
If state/muni bond rates rise to 6%,
interest cost would be 51% higher than
in January 2007, adding $392 million
to the cost of each billion borrowed
$1,158.4
$1,044.0
$932.6
$854.1
$766.7
$600
If FL were to need to borrow money to
fund state insurer deficits, the cost was
11.4% higher ($87.4 million) per billion
borrowed in August (midst of credit
crunch & hurricane season) than in
January when legislation was passed
$400
$200
$0
4.23% (Jan
2007 Rate)
4.64% (Aug
2007 Rate)
5.00%
5.50%
Source: Insurance Information Institute; Federal Reserve Board of Governors.
6.00%
Flood Insurance
Analysis of Flood Policy
Purchase and Lapse Rates
Since Katrina in Florida
Florida: NFIP Flood Policies in
Force: July 1993 – July 2007*
1,000,000
500,000
0
August 29, 2005
1,500,000
Hurricane Katrina
2,000,000
Surge in Sales:
Katrina Effect
JUL 93 PIF
JAN 94 PIF
JULY 94 PIF
JAN 95 PIF
JUL 95 PIF
JAN 96 PIF
JUL 96 PIF
JAN 97 PIF
JUL 97 PIF
JAN 98 PIF
JUL 1998 PIF
JAN 1999 PIF
JUL 1999 PIF
JAN 2000 PIF
JUL 2000 PIF
JAN 2001 PIF
JUL 2001 PIF
JAN 2002 PIF
JUL 2002 PIF
JAN 2003 PIF
JUL 2003 PIF
JAN 2004 PIF
JUL 2004 PIF
JAN 2005 PIF
JUL 2005 PIF
JAN 2006 PIF
JUL 2006 PIF
JAN 2007 PIF
JUL 2007 PIF
2,500,000
*Mandatory purchase of flood coverage for structures in floodplains with federally backed mortgages
became effective in 1993. NFIP National Advertising Campaign began in 1993. PIF= Policies In Force.
Source: NFIP; Insurance Information Institute
NFIP Flood Policy Growth in
Gulf States Since Katrina*
90%
80%
70%
60%
The number of flood
insurance policies
sold in the Gulf
states in the 2 years
following Katrina
increased by 21.6%
80.24%
50%
40.54%
40%
30%
29.04%
26.69%
21.62%
14.15%
20%
10%
0%
Alabama
Florida
Louisiana Mississippi
*Change from July 2005 through August 2007.
Sources: NFIP ; Insurance Information Institute.
Texas
Total Gulf
States
Percentage of NFIP Flood Policies Issued
Since Katrina That Are Not Renewed*
35%
32%
30%
25%
Flood policy nonrenewal rates in
Gulf states are surprisingly high
25%
23%
20%
17%
19%
15%
8.6%
10%
5%
0%
Alabama
Florida
Louisiana Mississippi
Texas
US**
*Policies issued since July 2005 as of August 2007. **US figure is nonrenewal rate for all policies in
force, average over 12 month period ending August 2007.
Sources: NFIP ; Insurance Information Institute.
P/C INSURER
PROFITABILITY
National Perspective
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
All US Industries
*2007 is actual first half ROAS of 13.1%. 2008 P/C insurer ROE is I.I.I. estimate.
Source: Insurance Information Institute; Fortune
08F
07F
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
-5%
Insurer Financial Strength
Benefits Consumers
• Profits compensate shareholders for the assets they put
at risk and encourages new capital to enter
• Profitable companies can access capital markets under
favorable terms after mega-CATs or if market
conditions are poor (e.g., post-9/11); Others will fail,
are dissolved or acquired
• Preferred treatment by reinsurers
• Profits lead directly to increased capacity
• Profits build contingent capacity for mega-CATs
• Profitable companies have higher financial strength
and credit ratings
Key Messages on Profitability
• All of the profits earned in 2004 and 2005 and most of the
profits in 2006/7 were earned in states and from types of
insurance unaffected by the hurricanes
• 2006and 2007’s respite in hurricane activity provides insurers
and reinsurers with the ability to rebuilding their claims paying
resources
• By law, the rates charged for insurance are based exclusively on
past and expected losses in that state. Profits in other states or
from other types of insurance cannot be used to subsidize losses
in the Florida homeowners insurance market. Likewise, losses
in other states cannot be subsidized by Floridians
Insurance Information
Institute On-Line
If you would like a copy of this presentation, please
email me at [email protected]