Transcript P6466 - iii Template

Overview & Outlook for the
P/C Insurance Industry:
Trends, Challenges and Opportunities
in 2014 and Beyond
Insurance Information Institute
August 19, 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
2013 Was the Industry’s Best Year
in the Post-Crisis Era
2014 Is Off to a Good Start
2
$63,784
$13,654
$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 = 8.4%
$24,404

$ Millions 
$80,000 

$70,000 

$60,000 

$50,000 

$65,777
P/C Industry Net Income After Taxes
1991–2014:Q1
2014 is off to a
slower start
$0
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields an 8.2% ROAS through
2014:Q1, 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:Q1
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:Q1*
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:Q1
8.2%
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:Q1
(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 Q1:2014.
Sources: ISO, Fortune; Insurance Information Institute.
5
P/C Insurance Industry
Combined Ratio, 2001–2014:Q1*
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
96.7
95.7
97.4
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2;
2013: = 96.1; 2014:Q1 = 97.3.
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
12%
97.5
96.7
95.7
95
8.8%
7.4% 7.9%
9.6% 92.7
6.2%
4.7%
90
97.4
9%
9.8%
8.2%
Lower CATs
helped ROEs
in 2013
4.3%
85
18%
6%
3%
0%
80
1978
1979
2003
2005
2006
2007
2008
Combined Ratio
2009
2010
2011
2012
2013 2014:Q1
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:Q1 combined ratio
including M&FG insurers is 97.3; 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
$624.4
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
Surplus as of 3/31/14 stood at
a record high $662.0B
09:Q3
$437.1
$463.0
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:Q1
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 $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2014
in very strong financial condition.
10
US Policyholder Surplus:
1975–2014*
($ Billions)
$700
$650
$600
$550
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
Surplus as of 3/31/14 was a record $662.0, up 1.3%
from $653.3 of 12/31/13, and up 51.5% ($224.9B)
from the crisis trough of $437.1B at 3/31/09
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners Equity”
or “Net Worth” in noninsurance organizations
75 77
79 81 83
85 87 89 91
93 95 97
99 01 03
05 07 09 11
The Premium-to-Surplus Ratio Stood at $0.73:$1 as of
3/31/14, a Near Record Low (at Least in Recent History)
* As of 3/31/14.
Source: A.M. Best, ISO, Insurance Information Institute.
13
ALTERNATIVE CAPITAL &
REINSURANCE MARKETS
Ample Capacity as
Alternative Capital is
Transforming the
Market—And Pushing
Down Prices
12
Global Reinsurance Capital (Traditional
and Alternative), 2007 - 2013
Total reinsurance capital reached a
record $540B in 2013, up 58.8%
from 2008.
(Billions)
$600
470
$500
410
400
$400
540
505
455
Alternative capital constantly
growing, even in 2011, when cat
losses reduced total reinsurance
capital.
340
$300
$200
$100
22
19
22
24
28
39
50
$0
2007
2008
2009
2010
Global Re Capital (Traditional & Alternative)
2011
2012
2013
Alternative Capital Only
But alternative capacity has grown 163% since 2008, to $50B. It has
grown 79% in the past two years.
Source: Aon Benfield Reinsurance Market Outlook, April 1, 2014; Insurance Information Institute.
Alternative Capacity as a Percentage of Global
Property Catastrophe Reinsurance Limit
(As of Year End)
Alternative Capacity accounted for
approximately 14% or $45 billion
of the $316 in global property
catastrophe reinsurance capital as
of mid-2013 (expected to rise to
~15% by year-end 2013)
Source: Guy Carpenter
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*
966.9
98
99
00
01
$18,516.7
5,700.0
11
7,083.0
10
5,852.9$14,835.7
$12,508.8
$12,139.1
07
$12,185.0
06
1,991.1
1,729.8
1,219.5
1,142.8
4,108.8
1,130.0
97
Financial crisis
depressed issuance
4,600.3
984.8
$2,000
846.1
$4,000
633.0
$6,000
$4,040.4
$2,950.0
$8,000
$3,450.0
$10,000
3,391.7
$12,000
2,729.2
$14,000
6,996.3
$16,000
$4,904.2
Risk capital
outstanding
reached a record
high in 2013
4,693.4 $8,541.6
$18,000
$14,024.2
$20,000
$12,043.6
Risk Capital Amount ($ Millions)
$0
02
Risk Capital Issued
Risk Capital Outstandng at Year End
03
04
05
08
09
12
13 14:H1
CAT bond issuance reached a
record high in 2013 and could
set a new record in 2014
Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk
Capital Outstanding Stands at an All-Time Record
*Through June 30, 2014.
Source: 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.
19
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.
20
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.
21
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?
24
Growth Analysis by State and
Business Segment
Post-Crisis Paradox?
Premium Growth Rates Vary
Tremendously by State
25
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.
26
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.
27
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
-1.9
-0.7
DC
0.4
OR
-5
-1.7
1.0
ME
0
FL
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
28
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.
32
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.
35
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
-4.9
DC
-11.7
-4.3
UT
HI
-3.7
CA
-11.4
-3.3
GA
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
-15
MT
-2.7
AL
-10
-10.7
-2.1
SC
-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
OR
Nearly half the states have yet to
see commercial lines premium
volume return to pre-crisis levels
Sources: SNL Financial LLC.; Insurance Information Institute.
36
Direct Premiums Written: Workers’ Comp
Percent Change by State, 2007-2013*
Only 13 states have seen
works comp premium volume
return to pre-crisis levels
*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
CA
NY
SD
IA
13.4
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
37
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
38
Percentage of Carriers Using Predictive
Analytics by Major P/C Line, 2013
Predictive analytics is
more like to be used
in personal lines, but
commercial lines use
is growing
60%
50%
82% of insurers report using
predicative analytics in at least
one line. 18% do not use it all.
Benefits Cited
Drive Profitability: 85%
49%
Reduce Risk: 55%
Grow Revenue: 52%
37%
40%
32%
Improve Op. Efficiency: 39%
30%
30%
25%
20%
9%
10%
5%
0%
Personal
Auto
Home
Comm. Auto
Comm.
Property
Source: ISO/Earnix Survey, September 2013; Insurance Information Institute.
Business
Owners
Workers
Comp
GL
39
Uses of Predictive Analytics by Function
Pricing and
Underwriting are the
leading uses for
predictive analytics
40
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
41
US Real GDP Growth*
-7%
4.0%
2.9%
3.0%
2.9%
3.0%
3.0%
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 8/14; Insurance Information Institute.
42
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.
43
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
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
3.8
3.1
3
4.1
5
4
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.
44
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.
45
Percent Change in Real GDP by State, 2013
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
46
Annual Inflation Rates, (CPI-U, %),
1990–2015F
Annual
Inflation
Rates (%)
6.0
5.0
4.9
5.1
3.8
4.0
3.0
3.0
2.0
Inflationary
expectations
have edged up
but remain quite
low, allowing the
Fed to maintain
low interest
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
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
1.6
1.3
2.0 2.1
1.5
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 suggests that inflationary pressures should
remain subdued for an extended period of times. Energy, health care and
commodity prices, plus U.S. debt burden, remain longer-run concerns
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 8/14 (forecasts).
47
75
70
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
79.2
69.9
74.4
73.6
73.6
72.2
73.6
76
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
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
Consumer Sentiment Survey (1966 = 100)
January 2010 through August 2014
Optimism among consumers has
generally improved in 2014
Consumer confidence has 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.
48
Auto/Light Truck Sales, 1999-2019F
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
16.2
16.2
16.2
16.2
16.7
16.3
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)
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 (8/14 and 3/13); Insurance Information Institute.
51
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
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.92
1.01
1.20
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 (8/14 and 3/13); Insurance Information Institute.
61
NFIB Small Business Optimism Index
January 1985 through July 2014
Small business optimism
in July was nearly at its
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.
68
Business Bankruptcy Filings,
1980-2013
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%
2013 bankruptcies totaled 33,212,
down 17.1% from 2012—the fourth
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
13
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
33,212
% Change Surrounding
Recessions
Significant Exposure Implications for All Commercial Lines as
Business Bankruptcies Begin to Decline
Sources: American Bankruptcy Institute (1980-2012) at
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013
data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
69
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
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
ISM Non-Manufacturing Index
(Values > 50 Indicate Expansion)
January 2010 through July 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.
70
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)
71
CONSTRUCTION INDUSTRY
OVERVIEW & OUTLOOK
The Construction Sector Is
Critical to the Economy and
the P/C Insurance Industry
72
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 $685.5B as of
June 2014, up 37%
from the 2010
trough but still 25%
below 2006 peak
$613.7
$700
$600
$329.5
$500
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$355.9
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13
14*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2014 figure is a seasonally adjusted annual rate as of June.
Sources: US Department of Commerce; Insurance Information Institute.
73
Value of Construction Put in Place,
June 2014 vs. June 2013*
Growth (%)
Private: +9.2%
Public: -2.9%
15%
11.2%
9.2%
10%
7.4%
Public sector
construction activity
remains depressed
5.5%
5%
0%
-5%
-10%
-2.7%
-2.9%
Private sector construction
activity is up in the
residential and
nonresidential segments
-12.3%
-15%
Total
Construction
Total Private Residential-Construction
Private
NonResidential-Private
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth Is Almost Entirely in the
Private Sector as State/Local Government Budget Woes Continue
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
74
Value of Private Construction Put in Place,
by Segment, June 2014 vs. June 2013*
Led by the Office, Lodging and Power/Utility
segments, Private sector construction
activity is rising after plunging during the
“Great Recession.”
Growth (%)
28.6%
22.7%
18.7%
9.2%
11.2%
11.0%
7.4%
8.9%
4.8% 3.1%
-2.3%
0.3%
-4.5%
Manufacturing
Power/Utility
Communication
Transportation
Amusement &
Rec.
Religious
Educational
Health Care
Commercial
Office
Lodging
Total
Nonresidential
Residential
-12.9%
Total Private
Construction
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Private Construction Activity is Up in Many Segments, Including the Key
Residential Construction Sector; Bodes Well for the Remainder of 2014
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
75
Value of New Federal, State and Local
Government Construction: 2003-2014*
($ Billions)
$350
Austerity Reigns
Construction
across all levels
of government
peaked at $314.9B
in 2009
Govt. construction is still
shrinking, down $47.9B or
15.2% since 2009 peak
$308.7
$314.9
$289.1
$300
$304.0
$286.4
$279.0
$271.4
$267.0
2012
2013
2014*
$255.4
$250
$216.1
$220.2
2003
2004
$234.2
$200
$150
$100
$50
$0
2005
2006
2007
2008
2009
2010
2011
Government Construction Spending Peaked in 2009, Helped by Stimulus
Spending, but Continues to Contract As State/Local Governments
Grapple with Deficits and Federal Sequestration Takes Hold
*2014 figure is a seasonally adjusted annual rate as of April; http://www.census.gov/construction/c30/historical_data.html
Sources: US Department of Commerce; Insurance Information Institute.
81
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
(Thousands)
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
6,015
Construction Employment,
Jan. 2010—June 2014*
Construction employment
is +580,000 above
Jan. 2011 (+10.7%) trough
5,400
Construction and manufacturing employment constitute 1/3 of all payroll exposure.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
83
Construction Employment,
Jan. 2003–June 2014
(Thousands)
Construction
employment as of
June 2014 totaled 6.0
million, an increase
of 580,000 jobs or
10.7% 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:
1.7 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.
84
Construction Jobs: Largest Gains & Losses
by Metro Area, May 2014 vs. May 2013*
9,300
+4%
7,300
7,200
7,100
6,000
4,000
2,000
0
(2,000)
(4,000)
(6,000)
Construction employment
expanded in 218 out of the
339 metro areas in the US
in May 2014
-2,800
-2,000
-1,700
-1,200
Rochester,
NY
11,100
Largest Losses
Gary, IN
Atlanta
Santa
Ana/
Anaheim
Houston
Los
Angeles
Dallas
-4,200
Bethesda/
Rockville,
MD
12,000
10,000
8,000
Largest Increases
Newark
+10%
Virginia
Beach
Change
Construction Employment Is Expanding—Albeit Modestly—in Much of the US
*Seasonally adjusted;
Source: Associated General Contractors: http://www.agc.org/galleries/news/Metro_Empl_1404_Rank.pdf; Ins. Information Institute.
85
ENERGY SECTOR: OIL & GAS
INDUSTRY FUTURE IS BRIGHT
US Is Becoming an Energy
Powerhouse; Domestic Demand
and Exports Are Key
Need Infrastructure Investment
91
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
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
210.2
211.5
Oil & Gas Extraction Employment,
Jan. 2010—June 2014*
(Thousands)
Oil and gas extraction employment
is up 35.2% 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 Aug.
1986
150
94
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
101
Manufacturing Growth for Selected
Sectors, 2014 vs. 2013*
Growth (%)
Non-Durables: +0.9%
Durables: +3.9%
10%
7.9%
8%
6%
4%
4.8%
4.5%
3.9%
2.3%
5.7%
4.1%
1.8% 1.8%
2%
3.1%
0.9%
0%
Plastics &
Rubber
Chemical
Petroleum &
Coal
Food
Products
Non-Durable
Mfg.
Transportation
Equip.
Textile
Products
-0.7%
-1.0%
-1.7%
Computers &
Electronics
Electrical
Equip.
-0.8%
Machinery
Fabricated
Metals
Primary
Metals
Wood
Products
All
Manufacturing
-4%
Durable Mfg.
Manufacturing of durable
goods was stronger than
nondurables in 2013
-2%
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 May 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/ 102
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—Apr. 2014
$ Millions
$500,000
The value of Manufacturing
Shipments in Apr. 2014 was
$497.6B—a new record high.
$400,000
$300,000
Ja
n92
Ja
n9
Ja 3
n94
Ja
n9
Ja 5
n9
Ja 6
n97
Ja
n9
Ja 8
n99
Ja
n00
Ja
n
0
Ja 1
n
02
Ja
n
0
Ja 3
n
04
Ja
n
0
Ja 5
n
0
Ja 6
n
07
Ja
n
0
Ja 8
n
09
Ja
n
1
Ja 0
n
1
12 1
-J
an
13
-J
a
14 n
-J
an
$200,000
Monthly shipments in Apr. 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 June 3, 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 103
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
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
12,105
12,121
Manufacturing Employment,
Jan. 2010—June 2014*
(Thousands)
Since Jan 2010,
manufacturing employment
is up (+661,000 or +5.8%)
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.
104
55
45
40
51.4
52.5
52.5
51.8
52.2
53.1
54.1
51.9
53.3
54.1
52.5
50.2
50.5
50.7
51.6
51.7
49.9
50.2
53.1
54.2
51.3
50.7
49.0
50.9
55.4
55.7
56.2
56.4
57.0
56.5
51.3
53.2
53.7
54.9
55.4
55.3
57.1
50
58.3
57.1
60.4
59.6
57.8
55.3
55.1
55.2
55.3
56.9
58.2
58.5
60.8
61.4
59.7
59.7
54.2
55.8
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
ISM Manufacturing Index
(Values > 50 Indicate Expansion)
January 2010 through July 2014
65
Manufacturing continues
to expand in 2014
The manufacturing sector expanded for 53 of the 55 months from Jan.
2010 through July 2014. Pace of recovery has been uneven due to
economic turbulence in the U.S., Europe and China.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
105
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/Personal
Lines Exposure, But Trend is
Improving
108
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through June 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 12.1%
in Apr. 2014.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 6.1% in June
2014. 4% 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.
109
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%
6.2%
6.0%
5.9%
5.8%
5.7%
5.6%
2007:Q1 to 2015:Q4F*
Unemployment forecasts
have been revised modestly
downwards. Optimistic
scenarios put the
unemployment as low as
5.8% by Q4 of this 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
15:Q1
15:Q2
15:Q3
15:Q4
4%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (7/14 edition); Insurance Information Institute.
110
Unemployment Rates by State, May 2014:
Highest 25 States*
5.8
5.9
6.3
6.3
6.1
6
6.3
6.4
6.4
6.4
6.4
6.5
6.6
6.7
6.8
6.8
6.9
6.9
7.2
7.5
7.5
7.5
7.6
7.7
7.7
8
7.9
Unemployment Rate (%)
8.2
10
6.8
In May, 20 states had over-the-month
unemployment rate decreases, 16
states had increases, and 14 states
and the District of Columbia had no
change.
4
2
*Provisional figures for May 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
FL
W
V
W
A
D
E
C
O
S
U
TN
C
N
R
A
K
A
L
A
Z
N
J
N
Y
M
O
N
M
A
R
O
T
C
I
A
G
M
IL
Y
M
S
C
A
D
C
K
V
N
R
I
0
111
3.3
3.6
2.6
3
3.6
4
3.8
3.8
4.4
4.4
4.4
4.6
4.6
4.6
4.9
5.1
5.5
5.6
5.6
5.7
5.7
5.6
5.3
5.1
4.9
5
In May, 20 states had over-the-month
unemployment rate decreases, 16
states had increases, and 14 states
and the District of Columbia had no
change.
4.8
Unemployment Rate (%)
6
5.7
Unemployment Rates by State, May 2014:
Lowest 25 States*
2
1
0
IN ME WI MA MD PA OH SC TX VA ID LA KS MN MT OK HI
*Provisional figures for May 2014, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
IA NH SD WY NE UT VT ND
112
(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
224
262
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
Monthly Change in Private Employment
January 2007 through June 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
1,331,000 jobs
created so far
in 2014
262,000 private
sector jobs were
created in June. In
March 2014, the last
of the private jobs
lost in the Great
Recession were
recovered
Private Employers Added 9.67 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)
113
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2014:Q1
Billions
$7,500
Latest (2014:Q1) was
$7.29 trillion, a new
peak--$1.04 trillion
above 2009 trough
$7,250
$7,000
$6,750
Prior Peak was
2008:Q1 at $6.60 trillion
$6,500
Payrolls are
16.6% above
their 2009 trough
and up 3.6% 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
$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.
119
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
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.
120
Workers Compensation
Operating Environment
Workers Comp Results Have Improved
Substantially in Recent Years
121
Workers Compensation Combined
Ratio: 1994–2015F
98.0
99.0
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 13E 14F 15F
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 (2010-2013P) and are for private carriers only; Insurance Information Institute (2014-15).
122
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
41.9
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
25.0
10
36.4
28.6
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
37.0
Pvt. Carrier NWP growth
was +5.4% in 2013 and
8.7% in 2012
0
90
91
p Preliminary
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Calendar Year
Source: 1990–2013p 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
10
11
12
13
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.
124
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.
125
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
126funds, 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
127
U.S. Insured Catastrophe Losses
$74.5
($ Billions, $ 2013)
$80
$70
2012 was the 3rd most
expensive year ever for
insured CAT losses
$9.1
$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
$9.1 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.
128
128
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.
129
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
130
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.
133
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2013 Dollars, $ Billions)
Hurricane Ike and
other storms have hot
TX hard over the past
decade
$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.
134
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)
135
Losses Due to Natural Disasters in the US,
1980–2013
(2013 Dollars, $ Billions)
200
150
(Overall and Insured Losses)
2013 losses were far
below 2011 and 2012
and were 44% lower
than the average from
2000-2012
Indicates a great
deal of losses are
uninsured (~40%50% in the US) =
Growth
Opportunity
2013 CAT Losses
Overall : $21.8B
Insured: $12.8B
100
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Overall losses (in 2012 values)
Source: MR NatCatSERVICE
Insured losses (in 2013 values)
136
Natural Disaster Losses in the US,
by Type, Jan. 1 – June 30, 2014
Number
of
Events
Fatalities
Estimated
Overall Losses
(US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm
33
65
9,100
6,700
Winter Storms & Cold
Waves
11
84
3,400
2,400
Flood, flash flood
10
1
10
-
Earthquake &
Geophysical,
landslides
5
44
20
-
Tropical Cyclone
-
-
-
-
Wildfire, Heat Waves,
& Drought
8
1
770
-
Totals
67
195
13,300
9,100
As of July 1, 2014
Source: Munich Re NatCatSERVICE
143
Convective Loss Events in the U.S.
Overall and insured losses 1980 – 2013 and First Half 2014
(Bill. US$)
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)
152
Federal Disaster
Declarations Patterns:
1953-2014
Disaster Declarations Set New
Records in Recent Years
162
Number of Federal Major Disaster
Declarations, 1953-2014*
99
81
75
55
30
47
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
30 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 2,166
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 July 21, 2014.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
163
Federal Disasters Declarations by State,
1953 – 2014: Highest 25 States*
Over the past 60 years,
Texas has had the highest
number of Federal Disaster
Declarations (none so far in
2014; 2 in in 2013)
75
43
47
47
48
44
40
40
49
50
51
51
52
53
53
55
56
58
56
53
50
50
60
60
67
70
68
Disaster Declarations
80
79
90
88
100
30
20
10
0
TX CA OK NY FL LA AL KY AR MO IL MS IA TN WV MN KS PA NE WA OH VA ND SD ME
*Through July 21, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
164
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
24
25
26
26
26
26
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 PR HI MI NM MD AZ MT ID CO CT NV SC DE DC UT RI WY
*Through July 21, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
165
SEVERE WEATHER REPORT UPDATE: 2014
Damage from Tornadoes, Large Hail
and High Winds Keep Insurers Busy
166
Location of Tornado Reports in 2014:
Through July 14, 2014
There have
been 813
tornadoes so far
in 2014, causing
extensive
property
damage in
several states
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#; PCS.
167
U.S. Tornado Count, 2005-2014*
There were 1,897 tornadoes
in the U.S. in 2011 far
above average, but well
below 2008’s record
2014 count (816
though July 15) is
running below avg.
*Through July 15, 2014.
Source: http://www.spc.noaa.gov/wcm/.
2013 count
was the
lowest in a
decade
168
Location of Large Hail Reports:
Through July 14, 2014
There have
been 4,091
“Large Hail”
reports in the
US so far in
2014, causing
extensive
property and
vehicle damage
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
169
Location of High Wind Reports:
Through July 14, 2014
There have
been 7,822
“Wind Damage”
so far in 2014,
causing
extensive
property
damage
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
170
Severe Weather Reports:
Through July 14, 2014
Severe weather reports
are concentrated east
of the Rockies
There were
12,727 severe
weather reports
so far in 2013;
including 813
tornadoes;
4,091 “Large
Hail” reports
and 7,822 high
wind events
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#
171
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.
172
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
179
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.
181
Terrorism Insurance Take-Up Rates by
State for 2013*
Take-up rate
for terrorism
insurance in
TX is 54%
*Data for 27 states with sufficient data.
Source: Marsh 2014 Terrorism Risk Insurance Report; Insurance Information Institute.
The overall US takeup rate for terrorism
coverage was 62% in
2013 and ranged from
a lows of 41% in
Michigan to a high of
84% in Massachusetts
(where demand likely
increased due to the
April 2013 Boston
Marathon bombing)
182
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
183
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
188
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
190
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
197
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
$45.8
$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 investment income is estimated Q1, annualized.
14*
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 June 2014.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
203
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
212