Transcript Florida Property Insurance Markets Economic and Financial Update Insurance Information Institute Media Briefing Tallahassee, FL January 22, 2008 Robert P.

Florida Property
Insurance Markets
Economic and Financial Update
Insurance Information Institute
Media Briefing
Tallahassee, FL
January 22, 2008
Robert P. Hartwig, Ph.D., CPCU, President
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: (212) 346-5520  Fax: (212) 732-1916  [email protected]  www.iii.org
Top 10 Most Costly Hurricanes in
US History, (Insured Losses, $2005)
$45
$40
$35
$ Billions
$30
$25
$20
Seven of the 10 most expensive
hurricanes in US history impacted
Florida:
Andrew, Katrina, Wilma, Charley,
Ivan, Frances & Jeanne
$15
$21.6
$10.3
$10
$5
$41.1
$3.5
$3.8
$4.8
$5.0
Georges
(1998)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
$6.6
$7.4
$7.7
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$0
Sources: ISO/PCS; Insurance Information Institute.
Wilma
(2005)
Andrew
(1992)
Katrina
(2005)
Landfalling Hurricanes: 1900-2007
FL Landfalls are Common
A hurricane strikes FL every other year on
average—CAT 3+ every 4 years
200
184
1.7 hurricanes make landfall each year on average
38% of all hurricane
landfalls occur in FL
150
100
37% of all FL
landfalls are
CAT 3+
70
50
26
0
All Landfalling:
1900-2007
FL Landfalling
Source: HURDAT database; Insurance Information Institute.
FL CAT 3+
Landfalling
Inflation-Adjusted U.S. Insured
Catastrophe Losses By Cause of Loss,
1987-2006¹
Fire, $6.6 , 2.2%
Civil Disorders, $1.1
, 0.4%
Wind/Hail/Flood,
$9.3 , 3.1%
Earthquakes, $19.1 ,
6.4%
Winter Storms,
$23.1 , 7.8%
Terrorism, $22.3 ,
7.5%
Water Damage, $0.4
, 0.1%
Utility Disruption,
$0.2 , 0.1%
Tornadoes, $77.3 ,
26.0%
Insured disaster losses
totaled $297.3 billion from
1987-2006 (in 2006 dollars).
Hurricanes & tropical
storms accounted for
$137.7 billion of these—
near half of the total.
All Tropical
Cyclones, $137.7 ,
46.3%
1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars.
Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.
2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions
and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood
Insurance Program. 6 Includes wildland fires.
Source: Insurance Services Office (ISO)..
Distribution of US Insured CAT
Losses: TX, FL vs US, 1980-2006*
$ Billions of 2005 Dollars
Rest of US, $176 ,
68%
Florida
accounted for
22% of all US
insured CAT
losses from
1980-2006:
$57B out of
$249.3B
*All figures (except 2006 loss) have been adjusted to 2005 dollars.
Source: PCS division of ISO.
Texas, $25.6 , 10%
Florida, $57 , 22%
Total Value of Insured
Coastal Exposure (2004, $ Billions)
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode Island
Maryland
$1,937.3
$1,901.6
$740.0
$662.4
$505.8
$404.9
$209.3
$148.8
$129.7
$117.2
$105.3
$75.9
$73.0
$46.4
$45.6
$44.7
$43.8
$12.1
$0
Source: AIR Worldwide
$500
Florida leads the way
for insured coastal
property at more than
$1.9 trillion in 2004
and is expected to
double by 2014
$1,000
$1,500
$2,000
$2,500
Historical Hurricane Strikes in
Miami-Dade, FL, 1900-2007
Population of MiamiDade County is 10
times what it was when
the last period of
intense activity began
in the 1930s, lasting 30
years
Source: NOAA Coastal Services Center, http://maps.csc.noaa.gov/hurricanes/pop.jsp?PopStormStates=FL&PopStormCounty=; Insurance Info. Institute,
accessed 11/28/07.
FLORIDA HURRICANES
& INSURER
PROFITABILITY:
Selling Home Insurance in
Florida is Challenging
Underwriting Gain (Loss) in
Florida Homeowners Insurance,
2004 - 2007E*
$6
Private Insurers**
$4
$2.96
$3.40
$ Billions
$2
$0
($2)
($4)
($3.77)
($6)
($8)
($10)
($9.30)
2004
2005
Over the past four years,
underwriting losses
exceeded premiums in
Florida by an estimated
$6.7 billion
2006
2007E
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.
**Does not include Citizens Property Insurance Corporation results.
Underwriting Gain (Loss) in
Florida Homeowners Insurance,
1992-2007E*
Private Insurers**
$6
$4
$2.96
$2
$0.69 $0.43
$1.43 $1.15 $1.38
$0.86 $1.08 $1.23 $1.28
$3.40
$1.76
$ Billions
$0
($0.21)
($2)
Florida’s homeowners insurance
market produces small/modest
profits in most years and
enormous losses in others
($4)
($6)
($8)
($10)
($12)
($3.77)
($9.30)
($10.60)
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06 07E
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.
**Does not include Citizens Property Insurance Corporation results.
Cumulative Underwriting Gain
(Loss) in Florida Homeowners
Insurance, 1992-2007E*
$2
$0
$ Billions
($2)
($4)
($6)
($8)
($10)
($12)
($14)
Private Insurers**
Regulator under US law
has duty to allow rates
that are “fair,” “not
excessive” and “not
unduly discriminatory.”
Reality is that regulators
in CAT-prone states
suppress rates.
$0.5
-$1.3
-$2.7
-$3.8
-$5.2
-$6.5
-$7.7
-$8.8 It took insurers 11 years (19932003) to erase the UW loss
-$10.1-$9.7
-$10.6
associated with Andrew, but
-$10.8
the 4 hurricanes of 2004 erased
the prior 7 years of profits &
2005 deepened the hole.
92
93
94
95
96
97
98
99
00
01
02
03
-$6.2
-$8.8
-$9.6
-$12.6
04
05
06 07E
*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.
**Does not include Citizens Property Insurance Corporation results.
Rates of Return on Net Worth for
Homeowners Ins: US vs. Florida
1990 – 2006E
US
100%
Florida
-2.8%36.0%
0%
-100%
-54.3%
-200%
-300%
-53.4%
Averages: 1990 to 2006E
US HO Insurance = -0.9%
FL HO Average = -36.5%
-183.3%
-400%
-500%
4 Hurricanes
-600%
-700%
Andrew
-714.9%
Wilma, Dennis, Katrina
-800%
90
91
92
93
94
95
96
97
98
99
00
01
02
Source: NAIC; 200/6 US and FL estimates from the Insurance Information Institute.
03
04
05 06E
The Facts About Homeowner Insurer
Profits and Losses in Florida
• During the period from 1992 through 2007, private
home insurers in Florida paid an estimated $6.2 billion
more in claims than they received in premiums
 This $6.2 billion underwriting loss remains even after including
$2.96 billion in profits in 2006 and $3.4 billion in 2007 (est.)
 It will take until 2009 for insurers just to get to the breakeven
point for the 15 year period 1992-2009 even if there no storm
losses in 2008 and 2009
• Florida Has Been a Money-Losing Proposition for
Most Home Insurers in Terms of Return
 The average annual rate of return on FL homeowners insurance
was -36.5% from 1990-2006, despite a profitable 2006
 Even if insurers were to earn a 40% rate of return (implying no
storm activity) every year, the average return for insurers will not
exceed 0% until 2022. To reach the current 5% risk-free return
on 10-year Treasury bonds would take until 2026 and a 10%
return is unachievable until 2033
Florida State-Run Insurer Residual
Deficits 2004/2005 (Millions of Dollars)
2004
2005
Florida Hurricane Catastrophe Fund (FHCF)
Florida Citizens
$0
-$200
-$400
-$600
-$516
-$800
-$1,000
-$1,200
-$1,400
-$1,600
-$1,800
-$2,000
-$1,425
The hurricanes seasons of 2004/5
weakened the FL Hurricane CAT
Fund and Citizens, producing a gross
state-run insurer deficit of $3.7 billion
Source: Insurance Information Institute research.
-$1,770
FL’s guarantee fund
will also assess for at
least $400 million
Insurance Information
Institute On-Line
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