Transcript P6466 - iii Template

Workers Compensation
and the Economy
Trends, Challenges and Opportunities
Workers Compensation Education Conference
Orlando, FL
August 20, 2013
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
Labor Market Trends
Massive Job Losses Sapped Workers
Comp Exposure During the Great
Recession, But Trend Has Improving
2
Unemployment and Underemployment
Rates: Stubbornly High, But Falling
January 2000 through July 2013, Seasonally Adjusted (%)
18
16
14
12
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Recession
ended in
November
2001
Unemployment
kept rising for
19 more
months
Recession
began in
December
2007
10
8
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 14.0%
in July 2013
Unemployment
stood at 7.4% in
July 2013—its
lowest level in more
than 4 years.
Unemployment
peaked at 10.1% in
October 2009,
highest monthly
rate since 1983.
6
4
2
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
Peak rate in the last
30 years: 10.8% in
November December 1982
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.
3
Unemployment Rates by State, June 2013:
Highest 25 States*
7.0
7.0
7.1
7.2
7.3
7.3
7.5
7.5
7.6
7.9
8.0
8.1
8
8.4
8.4
8.5
8.5
8.5
8.6
8.7
8.7
8.8
8.9
9.0
9.6
10
9.2
Unemployment Rate (%)
12
8.1
In June, 28 states had over-the-month
unemployment rate increases, 11 states
had decreases, and 11 states and the
District of Columbia had no change.
6
4
2
Florida’s
unemployment rate is
below the US average
0
NV IL MS RI NC MI NJ GA CA DC TN IN KY CT SC AZ OR US NY PA AR DE OH FL CO LA
*Provisional figures for June 2013, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
4
Unemployment Rates by State, June 2013:
Lowest 25 States*
3.1
3.9
4.6
4.4
4.0
4
4.6
4.6
4.7
5.2
5.2
5.2
5.5
6.1
6.5
6.8
6.8
6.8
6.8
7.0
6.9
6.5
6.1
5.8
6
6.4
Unemployment Rate (%)
7.0
8
5.4
In June, 28 states had over-the-month
unemployment rate increases, 11
states had decreases, and 11 states
and the District of Columbia had no
change.
2
0
MD MA MO ME NM WA WI AL TX ID AK WV KS VA MT MN NH OK UT HI
*Provisional figures for June 2013, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
IA WY VT NE SD ND
5
US Unemployment Rate Forecast
2007:Q1 to 2014:Q4F*
8.0%
7.0%
6.0%
5.0%
Unemployment
peaked at 10%
in late 2009.
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%
7.4%
7.3%
7.2%
7.1%
7.0%
6.8%
9.0%
Jobless figures
have been revised
slightly downwards
for 2013/14
8.1%
10.0%
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
11.0%
Rising
unemployment
eroded
payrolls
and workers
comp’s
exposure base.
Unemployment forecasts
have been revised slightly
downwards. Optimistic
scenarios put the
unemployment as low as
6.5% by Q4 of next year.
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
4.0%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (8/13 edition); Insurance Information Institute.
6
(600)
(800)
(1,000)
-786
-701
-821
-692
-812
-821
Monthly Losses in
Dec. 08–Mar. 09 Were
the Largest in the
Post-WW II Period
-442
-429
-484
(400)
-167
-282
-222
-162
-233
-288
-222
-219
-203
-267
-269
(200)
-114
-105
-17
-26
-34
-79
66
227
168
123
400
111
170
102
94
103
129
113
188
154
114
80
243
223
303
183
177
206
129
256
174
197
249
323
265
208
120
152
78
177
131
118
217
256
224
164
319
154
188
187
196
161
24
68
74
51
2
1
0
50
54
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
Monthly Change in Private Employment
January 2007 through July 2013 (Thousands)
Jobs Created
2012: 2.247 Mill
2011: 2.420 Mill
2010: 1.235 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
161,000 private
sector jobs were
created in July
Private Employers Added 7.29 million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
7
Millions
-2
-4
-6
-8
-10
0.051
0.053
-0.061
0
Dec-07
Jan-08
Feb-08
Mar-08
-0.166
-0.388
Apr-08
May-08
-0.607
Jun-08
-0.810
Jul-08
-1.077
Aug-08
-1.346
Sep-08
-1.775
Oct-08
-2.259
Nov-08
-3.045
Dec-08
-3.746
Jan-09
-4.567
-5.259
Feb-09
Mar-09
-6.071
Apr-09
-6.892
May-09
-7.180
Jun-09
-7.622
Jul-09
-7.904
Aug-09
-8.126
Sep-09 -8.288
Oct-09 -8.521
Nov-09 -8.555
Dec-09 -8.722
Jan-10 -8.739
Feb-10 -8.765
Mar-10 -8.654
Apr-10 -8.484
May-10 -8.382
Jun-10 -8.288
Jul-10
-8.185
Aug-10
-8.056
Sep-10
-7.943
Oct-10
-7.755
Nov-10
-7.601
Dec-10
-7.487
Jan-11
-7.407
Feb-11
-7.164
Mar-11
-6.941
Apr-11
-6.638
May-11
-6.455
Jun-11
-6.278
-6.072
Jul-11
Aug-11
-5.943
Sep-11
-5.687
Oct-11
-5.513
Nov-11
-5.316
Dec-11
-5.067
Jan-12
-4.744
Feb-12
-4.479
Mar-12
-4.271
Apr-12
-4.151
May-12
-3.999
Jun-12
-3.921
Jul-12
-3.744
Aug-12
-3.613
Sep-12
-3.495
Oct-12
-3.278
Nov-12
-3.022
Dec-12
-2.798
Jan-13
-2.634
Feb-13
-2.315
Mar-13
-2.161
Apr-13
-1.973
May-13
-1.786
Jun-13
-1.590
-1.429
Jul-13
Cumulative Change in Private
Employment: Dec. 2007—July 2013
December 2007 through July 2013 (Millions)
2
Cumulative job losses
as of July 2013 totaled
1.429 million
Cumulative job losses
peaked at 8.765 million
in February 2010
All of the jobs
“lost” since
President
Obama took
office in Jan.
2009 have
been recouped
Private Employers Added 7.29 million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
8
Cumulative Change in Private Sector
Employment: Jan. 2010—July 2013
Millions
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
6.749
6.936
7.132
7.293
-0.017
-0.043
0.068
0.238
0.340
0.434
0.537
0.666
0.779
0.967
1.121
1.235
1.315
1.558
1.781
2.084
2.267
2.444
2.650
2.779
3.035
3.209
3.406
3.655
3.978
4.243
4.451
4.571
4.723
4.801
4.978
5.109
5.227
5.444
5.700
5.924
6.088
6.407
7.0
Job gains and pay
increases have added more
than $750 billion to payrolls
since Jan. 2010
Cumulative job gains
through July 2013
totaled 7.29 million
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
8.0
6.561
January 2010 through July 2013* (Millions)
Private Employers Added 7.29 million Jobs Since Jan. 2010 After
Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
9
Cumulative Change in Government
Employment: Jan. 2010—July 2013
-400
-600
-800
4
-10
-68
Cumulative job
losses through June
2013 totaled 628,000
-224
-184
-194
-213
-224
-271
-289
-288
-356
-324
-452
-449
-480
-488
-511
-530
-542
-536
-539
-547
-574
-565
-589
-555
-535
-592
-601
-606
-622
-609
-200
Temporary
Census hiring
distorted 2010
figures
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
0
33
92
200
98
287
400
-621
511
600
Government at all levels has
shed more than 625,000 jobs
since Jan. 2010 even as private
employers created 7.29 million
jobs, though losses may now
be stabilizing.
-610
-621
-629
-628
January 2010 through July 2013* (Millions)
Governments at All Levels are Under Severe Fiscal Strain As Tax
Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
10
Net Change in Government
Employment: Jan. 2010—July 2013*
(Thousands)
State government employment fell by
2.4% since the end of 2009 while
Federal employment is down by 2.9%
0
-100
-81
-126
-200
-300
-400
-421
-500
-600
-700
Local government employment
shrank by 421,000 from Jan.
2010 through July 2013,
accounting for 67% of all
government job losses,
negatively impacting WC
exposures for those cities and
counties that insure privately
-628
Total
Local
State
*Cumulative change from prior month; Base employment date is Dec. 2009.
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Federal
11
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
2/30/2
Mar-13
Apr-13
May-13
Jun-13
Jul-13
5,650
5,600
5,850
5,800
5,750
5,700
5,500
5,450
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
5,797
5,792
5,791
5,799
5,793
5,550
5,581
Construction Employment,
Jan. 2010—July 2013*
(Thousands)
5,900
Construction employment growth
accelerated in the second half of
2012 but flattened out by mid-2013.
Construction is a key driver of
workers comp exposure growth.
5,400
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
12
Construction Employment,
Jan. 2003–July 2013
(Thousands)
Construction
employment as of
July 2013 totaled
5.793 million, an
increase of 358,000
jobs or 6.6% from the
Jan. 2011 trough
Construction
employment
peaked at
7.726 million
in April 2006
8,000
7,500
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
7,000
6,500
6,000
The “Great Recession” and
housing bust destroyed 2.3
million constructions jobs
5,500
5,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
The Construction Sector Could Be a Growth Leader in 2013 and 2014 as the Housing
Market and Private Investment Recover. WC Insurers Will Benefit.
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
13
New Private Housing Starts, 1990-2019F
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
1.18
1.35
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.97
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 are
stimulating new home construction
for the first time in 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 13F14F15F16F17F18F19F
Insurers Are Starting to See Meaningful Exposure Growth for the First Time
Since 2005 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 (8/13 and 3/13); Insurance Information Institute.
14
Value of Construction Put in Place,
June 2013 vs. June 2012*
Growth (%)
Private: +9.7%
18.1%
20%
15%
9.7%
10%
5%
Public: -9.3%
3.3%
Public sector
construction activity
remains depressed
1.4%
0%
-5%
-10%
-15%
-4.7%
Private sector construction
activity is up in the
residential segment but
down in nonresidential
Total
Construction
Total Private Residential-Construction
Private
-9.3%
NonResidential-Private
Total Public
Construction
-9.4%
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth Is 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.
15
Value of Private Construction Put in Place,
by Segment, June 2013 vs. June 2012*
Growth (%)
27.9%
18.1%
9.7%
8.5%
6.2%
1.4%
5.2%
0.0%
-0.8%
Manufacturing
Power
Transportation
-14.4%
Amusement &
Rec.
Religious
Educational
Health Care
Commercial
Office
Lodging
Total
Nonresidential
-12.7%
Residential
-1.9%
-3.0%
Communication
-3.9%
Total Private
Construction
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
Led by the Residential Construction,
Lodging and Office segments, Private sector
construction activity is remains mixed after
plunging during the “Great Recession.”
Most segments expanded in 2012 but
weakened in early 2013.
Private Construction Activity is Up in Some Segments, Including the Key
Residential Construction Sector, But Weakened in the First Half of 2013
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
16
Value of Public Construction Put in Place,
by Segment, June 2013 vs. June 2012*
7.4% 9.6%
5.2%
3.9%
-0.1%
-4.7%
-5.1%
-9.4%
-15.3%
-12.4%
-15.3%
-17.0%
-20.2%
Conservation &
Develop.
Water Supply
Sewage &
Waste Disposal
Highway &
Street
Power
Transportation
Amusement &
Rec.
Public Safety
Educational
Health Care
Commercial
Office
-25.5%
Total
Nonresidential
Total Public
Construction
15%
10%
5%
0%
-5%
-10%
-9.3%
-15%
-20%
-25%
-30%
Transportation and
Power projects lead
public sector
construction
Public sector construction activity is
down substantially in most segments, a
situation that will likely persist, dragging
on public entity risk exposures
Residential
Growth (%)
Public Construction Activity is Down in Many Segments as State and
Local Budgets Remain Under Stress; Improvement Possible in 2014.
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
17
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
12,400
12,200
12,000
11,800
11,600
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
11,969
11,975
Manufacturing Employment,
Jan. 2010—July 2013*
(Thousands)
Manufacturing employment is up by
more than 500,000 or 4.5% since Jan.
2010—a surprising source of strength in
the economy. The sector has weakened
recently as US corporations remains
cautious and Europe, China slow.
11,400
11,200
11,000
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
18
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
200
195
190
185
180
175
170
165
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
192.6
193.9
Oil & Gas Extraction Employment,
Jan. 2010—July 2013*
(Thousands)
Oil and gas extraction
employment is up 24.0%
since Jan. 2010 as the
energy sector booms.
Domestic energy
production is essential
to any robust economic
recovery in the US.
155
150
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
19
Business Bankruptcy Filings,
1980-2012
1980-82
1980-87
1990-91
2000-01
2006-09
90,000
80,000
40,000
30,000
20,000
10,000
0
58.6%
88.7%
10.3%
13.0%
208.9%*
2012 bankruptcies totaled 40,075,
down 16.2% from 2011—the third
consecutive year of decline. Business
bankruptcies more than tripled during
the financial crisis.
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
50,000
43,694
48,125
70,000
60,000
69,300
62,436
64,004
71,277
81,235
82,446
63,853
63,235
64,853
71,549
70,643
62,304
52,374
51,959
53,549
54,027
44,367
37,884
35,472
40,099
38,540
35,037
34,317
39,201
19,695
28,322
43,546
60,837
56,282
47,806
40,075
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
Sources: American Bankruptcy Institute at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633;
Insurance Information Institute
20
Private Sector Business Starts,
1993:Q2 – 2012:Q4*
(Thousands)
220
210
200
190
180
170
175
186
174
180
186
192
188
187
189
186
190
194
191
199
204
202
195
196
196
206
206
201
192
198
206
206
203
211
205
212
200
205
204
204
197
203
209
201
203
192
192
193
201
204
202
210
212
209
216
220
223
220
220
210
221
212
204
218
209
207
207
199
191
193
172
176
169
184
175
179
188
200
183
187
191
197
193
191
193
192
230
Business Starts
2006: 872,000
2007: 843,000
2008: 790,000
2009: 697,000
2010: 742,000
2011: 748,000
2012: 769,000
Business starts were up 2.8% in 2012
to 769,000 following a 2.2% gain to
748,000 in 2011. Start-ups could
accelerate in 2013.
160
150
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11 12
Business Starts Were Down Nearly 20% in the Recession,
Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly
* Data through Dec. 30, 2012 are the latest available as of Aug. 16, 2013; Seasonally adjusted.
Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
21
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2013:Q2
Billions
$7,250
Latest (2013:Q2)
was $7.09 trillion, a
new peak--$762B
above 2009 trough
$7,000
$6,750
Prior Peak was
2008:Q1 at $6.60 trillion
$6,500
$6,250
$6,000
$5,750
Recent trough (2009:Q3)
was $6.25 trillion, down
5.3% from prior peak
Payrolls are
13.4% above
their 2009 trough
and up 2.7% over
the past year
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
$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.
22
Payroll vs. Workers Comp Net Written
Premiums, 1990-2012E
Payroll Base*
$Billions
$7,000
7/90-3/91
$6,000
$5,000
$4,000
$3,000
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
12/07-6/09
WC premium
volume dropped
two years before
the recession began
+9% in
2012E
$50
$45
$40
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*
Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow
Again in 2012; +7.9% Growth in 2011 Was the First Gain Since 2005
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2012 actuals.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
23
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
24
1.4%
-8.9%
2013 is expected to see
uneven growth, then
gradually accelerate
throughout the year
and into 2014
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
-9%
-5.3%
-7%
-3.7%
-5%
Recession began in
Dec. 2007. Economic
toll of credit crunch,
housing slump, labor
market contraction
was severe
-1.8%
-1%
-3%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
1.1%
1.7%
2.3%
2.7%
2.8%
2.9%
2.9%
2.9%
1%
-0.3%
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 (%)
5.0%
US Real GDP Growth*
Demand for Insurance Continues To Be Impacted by Sluggish Economic
Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 8/13; Insurance Information Institute.
25
Real GDP by State Percent Change, 2012:
Highest 25 States
North Dakota was
the economic growth
juggernaut of the US
in 2012—by far
13.4
10
FL’s economy is getting back on
track after the Great Recession,
posting growth better than the
US oevrall in 2012
8
2.0
2.1
2.1
2.1
2.2
2.2
2.2
2.2
2.4
2.4
2.4
2.1
2
2.4
2.7
2.7
3.3
3.3
3.3
3.4
3.5
3.5
3.6
4
3.9
6
4.8
Percent Change (%)
12
2.6
14
0
ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
26
Connecticut was
the only state to
shrink in 2012
-0.1
0.2
0.2
0.2
0.2
0.4
0.5
0.5
0.7
1.1
1.1
1.2
1.2
1.3
1.3
1.4
1.4
1.4
1.5
1.5
1.5
1.5
1.6
1.7
1.9
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
Growth rates in 8 states
(and DC) were still below
1% in 2012
1.3
Percent Change (%)
Real GDP by State Percent Change, 2012:
Lowest 25 States
IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
27
P/C Insurance Industry
Financial Overview
So Far, So Good:
Profit Recovery in 2013 and
Workers Comp Is Part of
the Reason
28
P/C Net Income After Taxes
1991–2013:Q1 ($ Millions)
$14,394
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
$65,777
Net income is up
substantially
(+40.9%) from
2012:Q1 $10.2B
$44,155
$38,501
$30,029
$20,559
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$21,865
$50,000
$30,773
$60,000
2012:Q1
ROAS
was 7.2%
$36,819
$70,000
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:Q1 ROAS1 = 9.6%
$24,404
$80,000









$0
-$10,000
-$6,970
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.7% ROAS in
2013:Q1, 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
12 13:Q1
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013:Q1*
ROE
History suggests next ROE
peak will be in 2016-2017
25%
1977:19.0%
1987:17.3%
20%
2006:12.7%
1997:11.6%
2013:Q1
9.7%
15%
9 Years
10%
5%
2012:
5.9%
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:Q1
-5%
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
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, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
106.5
14.3%
12.7%
105
100
97.5
100.6 100.1 100.8
9.6%
10.9%
101.2
99.5
95
7.4%
92.7
8.8%
15%
102.4
101.0
95.7
9.7%
7.9%
94.8
4.7%
Catastrophes and
lower investment
income pulled
down ROE in 2012
85
12%
9%
6.2%
4.3%
90
18%
6%
3%
0%
80
1978
1979
2003
2005
2006
2007
Combined Ratio
2008
2009
2010
2011
2012 2013:Q1
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012 combined ratio
including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO data.
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
32
Property/Casualty Insurance Industry
Investment Gain: 1994–2013:Q11
($ Billions)
$70
$64.0
$59.4
$55.7
$58.0
$56.9
$52.3
$51.9
$60
$47.2
$42.8
$50
$48.9
$45.3
$44.4
$40 $35.4
$56.2
$53.9
$53.4
$39.2
$36.0
$31.7
$30
$20
Investment gains in 2012
were approximately 16%
below their pre-crisis peak
$10
$12.8
$0
94
95
96
97
98
99
00
01
02
03
04 05* 06
07
08
09
10
11
12 13:Q1
Investment Gains Are Slipping in 2012 as Low Interest Rates Reduce
Investment Income and Lower Realized Investment Gains; 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 $3.2B;
Sources: ISO; Insurance Information Institute.
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2013*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
U.S. Treasury
security yields
recently plunged
to record lows
6%
5%
4%
3%
2%
1%
0%
Recession
2-Yr Yield
10-Yr Yield
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations,
most P/C insurer portfolios will have low-yielding bonds for years to come.
*Monthly, constant maturity, nominal rates, through July 2013.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institute.
38
Terrorism Update
Boston Marathon Bombings Underscore
the Need for Extension of the Terrorism
Risk Insurance Program
Download III’s Terrorism Insurance Report at:
http://www.iii.org/white_papers/terrorismrisk-a-constant-threat-2013.html
42
Loss Distribution by Type of Insurance
from Sept. 11 Terrorist Attack ($ 2011)
($ Billions)
Other
Liability
$4.9 (12%)
Property Life
WTC 1 & 2*
$1.2 (3%)
$4.4 (11%)
Aviation
Liability
$4.3 (11%)
Event
Cancellation
$1.2 (3%)
Aviation Hull
$0.6 (2%)
Workers
Comp
$2.2 (6%)
Property Other
$7.4 (19%)
Biz
Interruption
$13.5 (33%)
Total Insured Losses Estimate: $40.0B**
*Loss total does not include March 2010 New York City settlement of up to $657.5 million to compensate approximately 10,000
Ground Zero workers or any subsequent settlements.
**$32.5 billion in 2001 dollars.
Source: Insurance Information Institute.
WC Indemnity Severity vs. Wage Inflation,
1995 -2012p
Change in CPS Wage
12%
Change in Indemnity Cost per Lost-Time Claim
10.1%
10%
9.0%
10.1%
7.7%
8%
Indemnity
severities usually
outpace wage
gains
9.2%
5.9%
5.6%
6%
4%
5.2%
5.6%
Annual Change 1991–1993:
Annual Change 1994–2001:
Annual Change 2002–2011:
3.5%
2.7%
2.3%
1.7%
-2%
4.7% 4.6%
4.3%
2%
0%
3.6%
3.1%
4.7%
4.2%
6.2%
4.6%
6.3%
3.6%
8.8%
0.7%
1.0%
1.1%
-1.7%
+7.3%
+3.2%
2.9%
2.3%
2%
1.1%
2.7%
2.2%
1%
WC indemnity
severity turned
positive again in 2011 -3.0%
-4%
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11 12P
2011p: Preliminary based on data valued as of 12/31/2011; 1991-2010: Based on data through 12/31/2010, developed to ultimate. Based on the states
where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey.
Source: NCCI
4. RENEWED PRICING
DISCIPLINE
Evidence of a Broad and
Sustained Shift in Pricing
65
Workers Comp Rate Changes,
2008:Q4 – 2013:Q2
WC rate changes have
been positive for 9
consecutive quarters,
longer than any other
commercial line
(Percent
Change)
12%
10%
7.5%7.4%
8%
6%
9.8%
9.0%
8.3%8.1%
8.3%
4.1%
2.6%
4%
2%
0%
-2%
-1.6%
-4%
-3.7%-3.9%
-3.7%-3.4%
-4.0%
-4.6%
-6% -5.5%-4.6%
-5.4%
-8%
08:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q413:Q113:Q2
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents and Brokers; Information Institute.
Change in Commercial Rate Renewals,
by Line: 2013:Q2
Percentage Change (%)
Umbrella
5.9%
5.9%
Commercial
Property
Business
Interruption
8.3%
D&O
3.7%
4.5%
Construction
3.6%
4.6%
Commercial
Auto
3.5%
General
Liability
5.4%
Workers
Comp
EPL
1.1%
Surety
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Workers Comp rate
increases are large than
any other line, followed
by Property lines
Major Commercial Lines Renewed Uniformly Upward in Q2:2013 for the 8th
Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
67
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
69