Property/Casualty Insurance in the Age of Mega

Transcription

P/C Insurance in the Age of
Mega-Catastrophes
Trends, Challenges & Opportunities
2014 PCS Catastrophe Conference
Minneapolis, MN
April 28, 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
Presentation Outline
n P/C Insurance Industry Overview & Outlook
w  Measuring the impact of catastrophe losses
n Catastrophe Loss Overview
w  US and global trends
n Public Policy Issues
w  Federal disaster response
w  Flood insurance
w  Terrorism
w  Cyber Risk: The Cat of the Future?
n Reinsurance Market Update
w  The flood of alternative capital is transforming this sector
n Property Exposure Overview & Residual Markets
n The Importance of Financial Strength
12/01/09 - 9pm
eSlide – P6466 – The Financial Crisis and the Future of the P/C
2
P/C Insurance Industry
Financial Overview
2013: Best Year in the
Post-Crisis Era
Performance Improved with
Lower CATs, Strong Markets
3
12/01/09 - 9pm
$63,784
$35,074
$19,456
$3,043
$28,672
$35,204
$62,496
Net income in
2013 was up
substantially
(+81.9%) from
2012
$44,155
$38,501
$30,029
$3,046
$20,559
$20,598
$10,870
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$21,865
$50,000
$30,773
$60,000
2013 ROAS
was 10.3%
$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 = 6.1%
2013 ROAS1 = 10.3%
$24,404
$80,000
n 
n 
n 
n 
n 
n 
n 
n 
n 
$65,777
P/C Net Income After Taxes
1991–2013 ($ Millions)
$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
12
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.8% ROAS in 2013,
6.3% 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
13
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2013*
ROE
25%
20%
1977:19.0%
10 Year
1987:17.3%
History suggests next ROE
peak will be in 2016-2017
10 Y
ears
15%
2006:12.7%
1997:11.6%
s
2013:
9.8 %
9 Years
10%
5%
0%
2011:
4.7%
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
-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
110
15.9%
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
100.6 100.1 100.8
10.9%
97.5
101.2
95.7
95
8.8%
9.6%
99.5
7.4%
92.7
15%
102.4
101.0
12%
96.7
7.9%
6.2%
9.8%
4.7%
90
4.3%
85
80
1978
1979
2003
2005
2006
2007
Combined Ratio
2008
2010
9%
6%
Lower CATs
helped ROEs
in 2013
2009
18%
3%
0%
2011
2012
2013
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2013 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2013 combined ratio
including M&FG insurers is 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
ROE: Property/Casualty Insurance vs.
Fortune 500, 1987–2013E*
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Katrina,
Rita, Wilma
15%
Low
CATs
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 13E
* Excludes Mortgage & Financial Guarantee in 2008 – 2013. 2013 Fortune 500 figure is I.I.I. estimate.
Sources: ISO, Fortune; Insurance Information Institute.
12/01/09 - 9pm
7
RNW All Lines by State, 2003-2012 Average:
Highest 25 States
Source: NAIC.
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
8
Source: NAIC.
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
9
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.
12/01/09 - 9pm
10
3.4%
3.7%
6.2%
7.0%
6.0%
6.1%
5.8%
5.1%
5.1%
3.2%
3.6%
4.1%
4.7%
3.9%
4.4%
3.9%
4.4%
4.1%
4%
4.3%
5%
4.0%
6%
4.4%
7%
5.5%
8%
6.0%
9%
5.6%
10%
8.6%
P/C growth is expected
to remain fairly stable
through 2015
7.5%
(Percent)
8.0%
Growth in Direct Written Premium by
Line, 2013-2015F*
3%
2%
1%
0%
All Lines
Personal
Lines
Commercial
Lines
Personal Homeowners Commercial
Auto
Auto
2013F
2014F
CMP
GL
2015F
Source: Conning.
12/01/09 - 9pm
WC
11
Average Commercial Rate Change,
All Lines, (1Q:2004–4Q:2013)
(Percent)
4%
-1%
-6%
-11%
-16%
-0.1%
-3.2%
-5.9%
-7.0%
-9.4%
-9.7%
-8.2%
-4.6%
-2.7%
-3.0%
-5.3%
-9.6%
-11.3%
-11.8%
-13.3%
-12.0%
-13.5%
-12.9%
-11.0%
-6.4%
-5.1%
-4.9%
-5.8%
-5.6%
-5.3%
-6.4%
-5.2%
-5.4%
-2.9%
-0.1%
0.9%
2.7%
4.4%
4.3%
3.9%
5.0%
5.2%
4.3%
3.4%
2.1%
9%
Pricing as of Q4:2013 was
positive for the 10th consecutive
quarter. Gains are likely to
continue into 2014.
Q2 2011 marked the
last of 30th
consecutive quarter
of price declines
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
KRW Effect
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 & Brokers; Insurance Information Institute
12/01/09 - 9pm
12
U.S. Insured Catastrophe
Loss Update
2013 Was a Welcome Respite from the
High Catastrophe Losses in Recent Years
2014 Winter Storm Losses Manageable
13
12/01/09 - 9pm
U.S. Insured Catastrophe Losses
$73.4
($ Billions, $ 2012)
$33.6
$35.0
$12.9
$7.5
$10.5
$29.2
$33.7
$16.3
$7.6
$6.1
$11.6
$14.3
$3.8
$11.0
$12.6
$8.8
$10
$8.0
$20
$4.8
$30
$14.0
$40
$26.4
$37.8
$50
$34.7
$60
$14.4
$70
2012 was the third
most expensive year
ever for insured CAT
losses
$11.5
$80
$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*
2012 Was the 3rd Highest Year on Record for Insured
Losses in U.S. History on an Inflation-Adj. Basis. 2011
Losses Were the 6th Highest. YTD 2013 Running Well
Below 2011 and 2012 YTD Totals.
Record tornado
losses caused
2011 CAT losses
to surge
*Through 12/31/13.
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.
12/01/09 - -9pm
12/01/09
9pm
14
14
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2013*
8.7
8.9
8.1
3.4
3.4
2012
2010
2008
1.6
2.6
2.7
2006
2004
1.6
2002
3.3
3.3
5.0
5.4
1.6
2000
1998
1996
1992
1.0
3.6
2.9
3.3
2.8
2.3
2.1
1.2
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
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
3.0
3.6
0.4
1966
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.
15
12/01/09 - 9pm
Homeowners Insurance Combined
Ratio: 1990–2015F
Hurricane
Sandy
150
100.7
104.4
122.2
106.7
105.8
95.7
100.3
121.7
111.4
108.2
109.4
121.7
112.7
118.4
113.6
109.3
94.4
89.0
90
1
98.2
100
101.0
110
117.7
120
113.0
130
116.9
Hurricane
Ike
140
101.2
160
Record
tornado
activity
101.7
158.4
170
Hurricane
Andrew
80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F 15F
Homeowners Performance in 2011/12 Impacted by Large Cat
Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute.
12/01/09 - 9pm
16
Top 10 States for Insured
Catastrophe Losses, 2013
$ Millions
Oklahoma let the
country in insured
CAT losses in 2013
$1,509
$1,190
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
eo
rg
ia
G
$677
$593
Lo
ui
si
an
a
N
$762
In
di
an
a
$773
eb
ra
sk
a
$805
is
si
ss
ip
pi
M
do
$907
ol
or
a
C
in
ne
so
ta
Ill
in
oi
s
Te
xa
s
$909
M
O
kl
ah
om
a
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
$1,995
17
Top 5 States by Insured Catastrophe
Losses in 2012*
(2012, $ Billions)
$12,000
$10,000
NY and NJ let the US
in CAT losses in
2012 due Sandy
$9,756
$8,000
$6,369
$6,000
$4,000
$2,318
$2,000
$1,511
$1,440
$0
New York
New Jersey
Texas
Kentucky
*Includes catastrophe losses of at least $25 million.
Sources: PCS unit of ISO; Insurance Information Institute.
12/01/09 - 9pm
Colorado
18
Insurers Making a Difference in
Impacted Communities
Destroyed home in Tuscaloosa.
Insurers will pay some 165,000 claims
totaling $2 billion in the Tuscaloosa/
Birmingham areas alone.
Presentation of
a check to
Moore, OK,
Public School
Relief Fund
Source: Insurance Information Institute
Presentation of a check to
Tuscaloosa Mayor Walt
Maddox to the Tuscaloosa
Storm Recovery Fund
19
Top States by Inflation-Adjusted
Insured Catastrophe Losses, 1983–2012
Over the Past 30 Years Florida Has Accounted for the Largest Share of
Catastrophe Losses in the U.S., Followed by Texas and Louisiana
FL is the most
costly state for
CATs, with nearly Texas
$48.8B
$67B in insured
losses over the
past 30 years
Florida
$66.7B
Louisiana
$42.0B
9.0%
10.4%
Rest of the U.S.
$309.9B
14.3%
66.3%
Total: $467.5 Billion,
an average of
$16.6B per year or
$1.3B per month
Source: PCS unit of ISO, Verisk Company.; Insurance Information Institute.
12/01/09 - 9pm
20
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1993–20121
Wind/Hail/Flood (3), $14.9
Fires (4), $6.5
Other (5), $0.2
1.7%
Geological Events, $18.4
4.7% 3.8%0.1%
Terrorism, $24.8
6.3%
Winter Storms, $27.8
7.1%
Tornado share of
CAT losses is
rising
Tornadoes (2), $140.9
Insured cat losses
from 1993-2012
totaled $391.7B, an
average of $19.6B
per year or $1.6B
per month
40.4%
Hurricanes & Tropical Storms,
$158.2
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 2012 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.
12/01/09 - 9pm
21
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
Hurricane Sandy
became the 5th
costliest event in US
insurance history
$60
$50
$48.7
$40
Includes
Tuscaloosa, AL,
tornado
$30
$20
$10
$0
Includes
Joplin, MO,
tornado
$23.9 $24.6 $25.6
$18.8
$9.2 $11.1
$8.7
$7.8
$7.5
$7.1
$6.7
$4.4 $5.6 $5.6
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Hurricane Irene became the
12th most expense hurricane
in US history in 2011
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.4
Ike
(2008)
Katrina
(2005)
12 of the 16 Most Expensive
Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
12/01/09 - 9pm
Sandy* Northridge9/11 Attack Andrew
(2012)
(1994)
(2001)
(1992)
22
Top 16 Most Costly World Insurance
Losses, 1970-2013*
2012 insured CAT Losses totaled
$60B; Economic losses totaled
$140B, according to Swiss Re
$60
$48.7
$50
Hurricane Sandy is now the
6th costliest event in global
insurance history
$40
$30
$20
$10
$0
5 of the top 14 most
expensive catastrophes in
world history have occurred
within the past 3 years
(2010-2012)
$13.4 $13.4
$11.1
$9.6
$7.8 $8.1 $8.5 $8.7 $9.2
Hugo
(1989)
Winter
Storm
Daria
(1991)
Chile
Quake
(2010)
$18.8
$23.9 $24.6 $25.6
$13.4
Ivan
Charley Typhoon Wilma Thailand New Ike
Sandy Northridge WTC
(2004) (2004) Mirielle (2005) Floods Zealand (2008) (2012)** (1994) Terror
(1991)
(2011) Quake
Attack
(2011)
(2001)
*Figures do not include federally insured flood losses.
**Estimate based on PCS value of $18.75B as of 4/12/13.
Sources: Munich Re; Swiss Re; Insurance Information Institute research.
12/01/09 - 9pm
$38.6
Andrew Japan Katrina
(1992) Quake, (2005)
Tsunami
(2011)**
23
Hailstorm on July 27-28 in Germany Was
Most Expensive CAT Worldwide in 2013!
Hailstones with
diameters up to 8 cm
(tennis ball ≈ 7 cm)
Region
Overall losses Insured
losses
Fatalities
Southwestern and Northern
Germany
US$ 4.8bn
0
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014.
US$ 3.7bn
24
Top 12 Most Costly Hurricanes
in U.S. History
10 of the 12 most costly hurricanes in insurance
history occurred over the past 9 years (2004—2012)
Hurricane Sandy became
the 3rd costliest
hurricane in US
insurance history
$60
$50
$40
$30
Hurricane Irene
became the 12th most
expensive hurricane
in US history in 2011
$25.6
$18.8
$20
$10
$0
$48.7
$5.6
$6.7
$7.8
$8.7
$9.2
$4.4
$5.6
Irene
(2011)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$11.1
Wilma
(2005)
$13.4
Ike
(2008)
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
12/01/09 - 9pm
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
25
Total Value of Insured Coastal Exposure
in 2012
(2012, $ Billions)
New York
$2,923.1
$2,862.3
Florida
Texas
$1,175.3
Massachusetts
$849.6
NY and FL lead the US in the
New Jersey
$713.9
Connecticut
$567.8
value of insured coastal
$293.5
Louisiana
exposure at $2.9 Trillion
S. Carolina
$239.3
Virginia
$182.3
In 2012, New York Ranked as the #1 Most
Maine
$164.6
Exposed State to Hurricane Loss, Overtaking Florida
North Carolina
$163.5
with $2.862 Trillion. Texas is very exposed too, and
Alabama
$118.2
ranked #3 with $1.175 Trillion
Georgia
$106.7
in insured coastal exposure
Delaware
$81.9
New Hampshire $64.0
The Insured Value of All Coastal Property Was $10.6
Mississippi $60.6
Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and
Rhode Island $58.3
Up 48% from $7.2 Trillion in 2004
Maryland $17.3
$0
$500
$1,000
$1,500
$2,000
Source: AIR Worldwide
12/01/09 - 9pm
$2,500
$3,000
$3,500
26
Total Value of Insured Coastal Exposure
in 2007
(2007, $ Billions)
Florida
$2,458.6
New York
$2,378.9
$895.1
Texas
Massachusetts
$772.8
New Jersey
$635.5
Connecticut
$479.9
Louisiana
$224.4
S. Carolina
$191.9
Virginia
$158.8
Maine
$146.9
North Carolina
$132.8
In 2007, Florida Still Ranked as the #1 Most
$92.5
Alabama
Exposed State to Hurricane Loss, with
Georgia
$85.6
$2.459 Trillion Exposure, but Texas is very exposed
Delaware
$60.6
too, and ranked #3 with $895B
New Hampshire $55.7
in insured coastal exposure
Mississippi $51.8
The Insured Value of All Coastal Property Was $8.9
Rhode Island $54.1
Maryland $14.9
Trillion in 2007, Up 24% from $7.2 Trillion in 2004
$0
$500
$1,000
$1,500
$2,000
Source: AIR Worldwide
12/01/09 - 9pm
$2,500
$3,000
27
Winter Storm and Winter Damage Events in
the US and Canada, 1980-2013 (2013 US$)
Insured Losses (Millions, $ 2013)
5-year
running
average
Three of the four most costly
years ever for insured losses
from winter storms and damage
occurred in the 1990s, led by the
“Storm of the Century” in 1993.
Insured
losses from
severe winter
events
totaled $2
billion in
2013.
Insured winter storm and damage losses in Jan. 2014 already totaled
$1.5 billion. Continued severe weather since then makes it likely that
2014 will become one of the top 5 costliest winters since 1980.
Sources: Munich Re NatCatSERVICE; Insurance Information Institute.
28
Top 10 Winter Storm and Winter Damage
Events in the US and Canada, 1980-2013*
Ranked by Insured Loss, in Millions of $ 2013*
Area
Economic Loss (in inflationadjusted 2013 $US mill)
Insured Loss (in
inflation-adjusted
2013 $US mill)
Fatalities
Mar. 11-14, 1993
CAN, USA
8,061
3,224
270
Dec. 17-30,1983
USA
2,339
2,058
500
Apr. 13-17, 2007
CAN, USA
2,247
1,775
23
Dec. 10-13, 1992
USA
4,981
1,660
19
CAN, USA
4,145
1,644
45
Feb. 10-12, 1994
USA
4,716
1,258
9
Jan. 17-20, 1994
USA
1,572
1,258
70
Apr. 7-11, 2013
USA
1,600
1,200
N/A
CAN, USA
1,398
1,084
25
USA
1,346
1,010
36
Period
Jan. 5-12, 1998
Jan. 1-4,
1999
Jan. 31-Feb. 2, 2011
*Top 10 events in original insured loss dollars were adjusted to and ranked by the Insurance Information Institute to 2013 inflation-adjusted values.
Sources: Munich Re NatCatSERVICE; Insurance Information Institute.
Insured Homeowners Losses Due
Dog Bite Liability Claims, 2003-2012
$ Millions
Dog bite liability claims
cost insurers an
estimated $489.7
million in 2012, up
51.0% from $324.2
million in 2003
$500
$450
$400
$490.8 $489.7
$412.0 $412.6
$387.2
$356.2
$350
$324.2 $319.0 $321.1 $322.3
$300
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
The Increased Average Cost per Dog Bite Claim is Pushing Total
Dog Bite Liabiity Claim Costs Higher Even as the Number of Claims
Remains Relatively Flat
Source: Insurance Information Institute.
30
Natural Disaster Losses in the United
States, by Type, 2013
As of December 31,
2013
Number of
Events
Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)
Severe
Thunderstorm
69
110
16,341
10,274
Winter Storm
11
43
2,935
1,895
Flood
19
23
1,929
240
Earthquake &
Geophysical
6
1
Minor
Minor
Tropical Cyclone
1
1
Minor
Minor
Wildfire, Heat, &
Drought
22
29
620
385
Totals
128
207
21,825
12,794
Source: Munich Re NatCatSERVICE
31
Significant Natural Catastrophes, 2013
(Events with $1 billion economic loss and/or 50 fatalities)
Date
Event
Estimated Economic
Losses (US $m)
February 24 – 25
Winter Storm
1,300
690
March 18 – 19
Thunderstorms
2,200
1,600
April 7 – 11
Winter Storm
1,600
1,200
April 16 – 18
Thunderstorms
1,100
560
May 18 – 20
Thunderstorms
3,100
1,800
May 28 – 31
Thunderstorms
2,800
1,400
August 6 – 7
Thunderstorms
1,300
740
September 9 – 16
Flooding
1,500
160
November 17 - 18
Thunderstorms
1,300
931
Source: Munich Re NatCatSERVICE
Estimated Insured
Losses (US $m)
32
U.S. Thunderstorm Insured Loss Trends,
1980 – 2013
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 5-year
running average
loss is up sharply
Source: Property Claims Service, and MR NatCatSERVICE
Thunderstorm losses in 2013
totaled $10.3 billion, the 6th
highest on record
33
Convective Loss Events in the U.S.
Number of events 1980 – 2012 and First Half 2013
Number
The frequency of
convective events has
rising tremendously
over the past 30+ years
Convective events
are those caused by
straight-line winds,
tornadoes, hail,
heavy precipitation,
flash floods and
lightning
160
140
120
100
80
60
40
20
1980
1982
1984
1986
1988
1990
Source: Geo Risks Research, NatCatSERVICE – As at July 2013
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
34
Convective Loss Events in the U.S.
Overall and insured losses 1980 – 2012 and First Half 2013
(Bill. US$)
50
45
40
35
30
25
Convective events
are those caused by
straight-line winds,
tornadoes, hail,
heavy precipitation,
flash floods and
lightning
The insured and total
economic cost of
convective events has
rising tremendously
over the past 30+ years
20
15
10
5
1980
1982contains:
1984 straight-line
1986 1988
1992
1994 precipitation,
1996 1998
2002 2004
Analysis
winds, 1990
tornadoes,
hail, heavy
flash 2000
floods, lightning.
Overall losses (in 2012 values)
Source: Geo Risks Research, NatCatSERVICE – As at July 2013
2006
2008
2010
2012
Insured losses (in 2012 values)
35
New Research Suggests Increase in
Convective Activity Is Costly for Insurers
•  Study examines convective (hail, tornado, thundersquall and heavy
rainfall) events in the US with losses exceeding US$ 250m in the period
1970–2009 (80% of all losses)
•  Past losses are normalized (i.e., adjusted) to currently exposed values
•  After normalization there are still increases of losses
•  Increases are correlated with
the increase in the meteorological
potential for severe thunderstorms
and its variability
For the first time research shows
that climatic changes have already
influenced US thunderstorm losses
Source: Munich Re research paper, Marhc 18, 2013: Rising Variability in Thunderstorm-Related U.S. Losses as a
Reflection of Changes in Large-Scale Thunderstorm Forcing.
36
Insured Homeowners Losses Due
to Lightning, 2004-2012
$ Millions
$1,100
$1,065.5
$1,000
$942.4
$952.5
$969.0
2011
2012
$882.2
$900
$819.6
$800
$1,033.5
$735.5
$798.0
Lightning claims cost
insurers an estimated
$969 million in 2012,
31.7% from $735.5
million in 2004
$700
$600
$500
2004
2005
2006
2007
2008
2009
2010
The Increased Number and Value of Expensive Electronic Devices
in Homes is Pushing the Total Lightning Claim Costs Up Even as
the Number of Lightning Claims Falls
37
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)
38
Number of Acres Burned in
Wildfires, 1980 – 2013
TX experienced significant
wildfire losses in 2011
(Bastrop fire insured
losses ~$500 million)
Source: National Interagency Fire Center
39
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
40
Insured US Tropical Cyclone Losses,
1980 - 2013
The current 5-year average (2008 - 2013) insured tropical
cyclone loss is $5.6 billion per year.
Sources: Property Claims Service,
Munich Re NatCatSERVICE, NFIP
41
U.S. Residual Market: Total Policies In-Force
(1990-2012) (000)
(000)
The combined
ratios for
Katrina, Rita
and Wilma and
both personal
commercial lines
2,840.4
4 Florida substantially
improved
2,780.6
Hurricanes
2,621.3
in 2013:H1
3,500
3,000
2,500
2,209.3
2,203.9
Hurricane
Sandy
3,311.8
3,227.3
2,841.4
2,479.4
2,000 Hurricane 1,785.0
1,741.7
Andrew
1,642.3
1,458.1
1,500
1,319.7
1,196.5
1,000
931.6
500
0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
In the 23-year period between 1990 and 2012, the total number of policies in-force in
the residual market (FAIR & Beach/Windstorm) Plans has more than tripled.
Source: PIPSO; Insurance Information Institute
42
12/01/09 - 9pm
U.S. Residual Market Exposure to Loss
(1990-2012) ($ Billions)
($ Billions)
Hurricane
Sandy
$1,000
Katrina,
Rita and
Wilma
$900
$800
$700
4 Florida
Hurricanes
$600
$500
$400
Hurricane
Andrew
$281.8
$300
$200
$100
$884.7
$771.9
$656.7
$696.4
$757.9
$703.0
$818.1
$430.5$419.5
$372.3
$292.0
$221.3$244.2
$150.0
$54.7
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
In the 23-year period between 1990 and 2012, total exposure to loss in the
residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7
billion in 1990 to $818.1 billion in 2012.
Source: PIPSO; Insurance Information Institute (I.I.I.).
43
12/01/09 - 9pm
Florida Citizens Total Policies In-Force,
2002 – 2014*
(Thousands)
1,600
1,400
1,200
1,000
6+ hurricane
impact Florida in
2004-2005
causing more
than $25 billion in
insured losses
820.3 874.0
810.0
2003
2005
800
The combined ratios for
both personal and
commercial lines 1,472.4
1,299.0 1,304.9
1,283.5
1,314.8
improved substantially
in 2013:H1
1,084.2 1,029.2
FL Citizen’s
policies in-force
is now below
1 million for the
first time since
2005
1,021.7
938.4
600
400
200
0
2004
2006
2007
2008
2009
2010
2011
2012
2013
2014*
Florida Citizens is experiencing meaningful depopulation
*Year-end figures 2003-2013 and as of 3/31/14 for 2014 accessed at https://www.citizensfla.com/about/bookofbusiness/.
Source: PIPSO; Florida Citizens, Insurance Information Institute
44
12/01/09 - 9pm
Florida Citizens Exposure to Loss,
2002 – 2014* ($ Billions)
$600
$510.7
$485.1
$500
$460.7
$421.9
$408.8
$429.4
$406.0
$400
$318.9
$300
$200
$298.4
$210.6
$195.5 $206.7
$154.6
$100
$0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014*
Total exposure to loss in Florida Citizens since its 2002 inception increased by
230 percent, from $154.6 billion to $510.7 billion in 2011 but has now dropped
by $212.3 billion or 41.6% through 3/31/14
*As of March 31, 2014 from Florida Citizens accessed at: https://www.citizensfla.com/about/bookofbusiness/
Source: PIPSO; Insurance Information Institute (I.I.I.).
Homeowners Insurance Catastrophe-Related
Claim Frequency and Severity, 1997—2012*
Avg. catastrophe
claim cost rose
approximately 200%
from 1997-2011
Cat claim frequency in
2011 was at historic
highs and more than
double the rate in 1997
*All policy forms combined, countrywide.
Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data.
46
Homeowners Insurance Combined
Ratio: 1990–2015F
Hurricane
Sandy
150
99.5
122.3
106.9
104.1
95.6
89.0
100.3
94.4
90
105.8
109.3
121.7
111.4
108.2
109.4
121.7
112.7
118.4
113.6
1
98.2
100
101.0
110
117.7
120
113.0
130
116.6
Hurricane
Ike
140
97.5
160
Record
tornado
activity
94.0
158.4
170
Hurricane
Andrew
80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F
Homeowners Performance in 2011/12 Impacted by Large Cat
Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.
12/01/09 - 9pm
47
Natural Loss Events:
Full Year 2013
World Map
Winter Storm Christian (St. Jude)
Flash floods
Europe, 27–30 October
Floods
Meteorite impact
Europe,
30 May–19 June
Canada, 8–9 July
Russian Federation, 15
February
Earthquake
Floods
China, 20 April
Canada, 19–24 June
Hailstorms
Germany,
27–28 July
Floods
Typhoon Fitow
China, Japan,
5–9 October
Severe storms,
tornadoes
USA, 9–16 September
USA, 18–22 May
Typhoon Haiyan
Philippines,
8–12 November
Severe storms, tornadoes
USA, 28–31 May
Floods
India, 14–30 June
Hurricanes Ingrid &
Manuel
Australia,
21–31 January
Mexico, 12–19 September
880
Loss events
Floods
Earthquake (series)
Pakistan, 24–28 September
Heat wave
India, April–June
Natural catastrophes
Geophysical events
(earthquake, tsunami, volcanic activity)
Hydrological events
Selection of significant
Natural catastrophes
Meteorological events
(storm)
Climatological events
(extreme temperature, drought, wildfire)
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014.
Extraterrestrial events
(Meteorite impact)
48
Natural Disasters Worldwide,
1980 – 2013 (Number of Events)
There were 880 natural
disaster events globally in
2013 compared to 905 in 2012
1 000
Number
800
600
400
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Geophysical
(earthquake, tsunami,
volcanic activity)
Meteorological (storm)
Hydrological
Climatological
(temperature extremes,
drought, wildfire)
49
Losses Due to Natural Disasters Worldwide,
1980–2013 (Overall & Insured Losses)
(2013 Dollars, $ Billions)
(Overall and Insured Losses)
10-Yr. Avg. Losses
US$ bn
400
Overall : $184B
2013 Losses
Insured: $56B
Overall : $125B
Insured: $34B
300
200
There is a clear
upward trend in both
insured and overall
losses over the past
30+ years
100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
50
Federal Disaster
Declarations Patterns:
1953-2014
Disaster Declarations Set New
Records in Recent Years
51
12/01/09 - 9pm
Number of Federal Major Disaster
Declarations, 1953-2014*
There have been 2,163
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.
0
99
81
75
55
47
63
59
69
50
45
45
49
44
19
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
19 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
20
42
48
46
46
56
60
48
52
80
65
100
The number of federal disaster
declarations set a new record in
2011, with 99, shattering 2010’s
record 81 declarations.
75
120
The Number of Federal Disaster Declarations Is Rising and Set New Records
in 2010 and 2011 Before Dropping in 2012/13
*Through April 23, 2014.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
12/01/09 - 9pm
52
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
75
43
47
47
48
44
40
40
48
50
50
50
51
52
52
52
50
53
55
55
56
57
60
60
66
70
67
Disaster Declarations
80
79
90
88
100
30
20
10
0
TX CA OK NY FL LA AL KY MO AR
IL MS IA TN WV MN KS PA NE WA OH VA ND SD ME
*Through April 23, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
12/01/09 - 9pm
53
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
0
9
11
13
15
17
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 April 23, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
12/01/09 - 9pm
11
10
17
22
23
24
24
25
26
26
26
26
29
33
35
37
38
40
19
20
29
30
37
40
40
43
50
54
SEVERE WEATHER REPORT UPDATE:
2013-2014
Damage from Tornadoes, Large Hail
and High Winds Keep Insurers Busy
55
12/01/09 - 9pm
Location of Tornado Reports in 2013
A deadly EF-5
tornado in May in
Moore, OK,
produced insured
losses of $1.575
billion. November
tornadoes in the
Midwest like
produced $1B in
insured losses.
There were 943
tornadoes
through Dec. 31,
causing
extensive
property
damage in
several states
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#; PCS.
56
U.S. Tornado Count, 2005-2013*
There were 1,897 tornadoes
in the U.S. in 2011 far
above average, but well
below 2008’s record
2013 count
was the
lowest in a
decade
*Through Dec. 31, 2013.
Source: http://www.spc.noaa.gov/wcm/.
57
Location of Large Hail Reports: 2013
There were
5,457 “Large
Hail” reports in
2013, causing
extensive
property and
vehicle damage
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
58
Location of High Wind Reports: 2013
There were
12,942 “Wind
Damage” in
2013, causing
extensive
property
damage
59
Severe Weather Reports: 2013
Severe weather reports
are concentrated east
of the Rockies
There were
19,342 severe
weather reports
in 2013;
including 942
tornadoes;
5,457 “Large
Hail” reports
and 12,942 high
wind events
60
Severe Weather Reports: 2014*
Severe weather reports
are concentrated east
of the Rockies
There were
2,066 severe
weather reports
in 2013;
including 109
tornadoes; 689
“Large Hail”
reports and
1,268 high wind
events
*Through April 23.
61
Flood Insurance
I.I.I. Survey: Public Conflicted on Flood
•  Flood Should Reflect True Risk
•  Keep the Subsidies
•  Would Prefer to Purchase from
Private Insurers
62
Hurricane Sandy: Average Claim Payment
by Type of Claim
$70,000
$60,000
$50,000
$40,000
Commercial (i.e., business
claims) are more expensive
because the value of property is
often higher as well as the
impact of insured business
interruption losses
$30,000
$20,000
$10,000
$6,558
$10,994
$57,277
$44,563
The average insured flood
loss was nearly 9 times
larger than the average
non-flood insured loss
(mostly wind)
$0
Homeowners*
Vehicle
Commercial
NFIP Flood**
Post-Sandy, the I.I.I. worked very hard to make help media, consumers
and regulators understand the distinction between a flood claim and a
standard homeowners claim. NFIP is $24B in debt.
*Includes rental and condo policies (excludes NFIP flood). **As of Oct. 31, 2013.
Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of March 2013; Insurance Information Institute.
12/01/09 - 9pm
63
Total Potential Home Value Exposure to
Storm Surge Risk in 2013*
($ Billions)
$386.5
Florida
$135.0
New York
$118.8
New Jersey
$78.0
Virginia
$72.0
Louisiana
S. Carolina
$65.6
$65.2
N. Carolina
Florida is by the state most
$51.0
Texas
vulnerable to storm surge.
$50.3
Massachusetts
$35.0
Connecticut
$22.4
Maryland
$20.5
Georgia
$15.9
Delaware
The Value of Homes Exposed to Storm Surge was
$10.4
Mississippi
$1.147 Trillion in 2013.* Only a fraction of this is
Rhode Island $7.2
insured, hence the huge demand for federal aid
Alabama $4.7
following major coastal flooding events.
Maine $3.1
New $2.7
Pennsylvania $2.6
DC $0.6
$0
$50
$100
$150
$200
$250
$300
*Insured and uninsured property. Based on estimated property values as of April 2013.
Source: Storm Surge Report 2013, CoreLogic.
12/01/09 - 9pm
$350
$400
$450
64
Biggert-Waters: Media and
Congressional Maelstrom
n  BW-12 Rate Increases to Phase Out Subsidies Began in 2013
w  Note: Only 20% of NFIP policies are subsidized
n  Jan. 1, 2013: Non-Primary/Secondary Residences
w  Increases of 25% per year until full-risk rate achieved
w  Reaction: Very muted; Vacation homes/wealthier owners
n  Oct. 1, 2013: Subsidized Severe or Repetitive Loss Policies and
Owners of Business/Non-Residential Properties
w  Increases of 25% per year until full-risk rate achieved
w  Reaction: Huge consumer backlash, intense media coverage
leading to a Congressional effort to delay BW-12 by 4 years
(effectively killing it). Even Maxine Waters supports delay…
n  Subsidy Lost if Policy Lapses, Severe Repeated, New Policy
n  House and Senate Bills to Reduce Burden Need to be Reconciled
n  Future Pvt. Insurer Flood Participation Impacted by BW-12 Debate
65
12/01/09 - 9pm
Summary of House Bill
(Passed March 4, 2014)
n  9 Premium classifications with increases capped at 18%
n  $25 surcharge on primary residences; $250 for non-primary
n  Restoration of “grandfather” clause allowing continued subsidies
for homes that were compliant under old FEMA maps but no
longer are
n  Eliminates property sales trigger
n  Reimburses home owners for successful FEMA map challenges
n  Creates a “flood insurance advocate”
n  Refunds policyholders who were charged higher rates under
BW-12 for homes built before FEMA established flood-risk maps
n  CBO scoring of bill said that it will not increase the deficit
w  Didn’t say that it would eliminate the current $24 bill deficit
66
12/01/09 - 9pm
I.I.I. Poll: Flood Insurance
Q. Do you think it is fair that flood insurance premium increases are
higher if people who live in high flood risk areas and rebuild their
homes do not elevate them?
Don’t know
6%
No
31%
63%
Yes
Almost two-thirds of Americans think that it is fair that flood
insurance premiums be raised for people who live in high flood risk
areas and rebuild their homes after a flood but do not elevate them.
Source: Insurance Information Institute Annual Pulse Survey.
12/01/09 - 9pm
67
Q. Do you think flood insurance premiums should reflect the risk of
flooding no matter what the cost or do you think the government
should subsidize the cost of flood insurance with taxpayers’ dollars?
Don’t know
9%
Government should
subsidize cost with
taxpayers’ dollars
28%
63%
Premiums should
reflect flood risk
Almost two-thirds of Americans think flood insurance premiums
should be raised to reflect the risk of flooding.
Source: Insurance Information Institute Annual Pulse Survey (Nov. 2013).
12/01/09 - 9pm
68
Q. The federal government provides insurance coverage at taxpayersubsidized rates for damage from floods through the National Flood
Insurance Plan. A new law eliminates the subsidy and raises rates. Do
you think the rate increase should be repealed?
Don’t know
10%
No
36%
55%
Yes
It is inconsistent for
the public to
support full-risk
rates but maintain
subsidies, but this
exactly mirrors
Congressional
sentiments, with
supporters of
BW-12 and even Tea
Party conservatives
supporting
continuation of the
subsidies
More than half of Americans polled for the November 2013
Pulse thought that hikes in National Flood Insurance premiums
should be repealed.
12/01/09 - 9pm
69
Q. If the costs were similar, would you prefer to buy flood insurance
from a private insurance company or from the federal government
through the National Flood Insurance Program?
Don’t know
10%
The federal
government
through the NFIP
26%
64%
Private insurance
company
Six out of 10 Americans would prefer to buy flood insurance from a
private insurance company as opposed to the federal government, if
costs were similar.
12/01/09 - 9pm
70
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
71
12/01/09 - 9pm
Loss Distribution by Type of Insurance
from Sept. 11 Terrorist Attack ($ 2013)
($ 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: $42.9B**
*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.
Terrorism Risk Insurance Program
n Testified before House Financial Services Nov. 2013
n Testified before Senate Banking Cmte. in Sept. 2013
n Provided testimony at NYC hearing in June 2013
n Provided Capitol Hill Joint House/Senate Staff Briefing in
April 2014
n I.I.I. Published Several Updates to its Study on Terrorism
Risk and Insurance
n Working with Trades, Congressional Staff, GAO & Others
Senate Banking Committee, 9/25/13
12/01/09 - 9pm
House Financial Services
Subcommittee, 11/13/13
73
I.I.I. White Paper (March 2014):
Terrorism Risk: A Constant Threat
n Detailed history of TRIA
n How TRIA works
n Assessing the threat of
terrorism
n Terrorism market
conditions
n Global perspective
n Download at
http://www.iii.org/white_papers/
terrorism-risk-a-constantthreat-2014.html
74
12/01/09 - 9pm
Terrorism Risk in 2013: Greatest Business
Opportunities Are Often in Risky Nations
Latin and South
America have modest
terrorist threats though
Brazil is elevated
Terrorism remains a
greater concern in
the Middle East,
Africa and South Asia
Source: Aon PLC; Insurance Information Institute.
75
Terrorism Insurance Take-Up Rates by
State for 2013*
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)
*Data for 27 states with sufficient data.
Source: Marsh 2014 Terrorism Risk Insurance Report; Insurance Information Institute.
76
Summary of President’s Working Group
Report on TRIA (April 2014)
n  Insurance for terrorism risk is available and affordable
w  Availability/affordability have has not changed appreciably since 2010
n  Prices for terrorism risk insurance vary considerably depending on the
policyholder’s industry and location of risk
n  Prices have declined since TRIA was enacted
w  Currently ~3% to 5% of commercial property insurance premiums
n  Take-up rates have improved since adoption of TRIA
w  Overall take-up rate is steady at ~60% (62% in 2013 per Marsh)
n  Market capacity is currently tightening given uncertainty over TRIA
reauthorization
n  The private market does not have the capacity to provide reinsurance for
terror risk to the extent currently provided by TRIA
n  In the absence of TRIA, terrorism risk insurance would likely be less
available. Coverage that would be available likely would be more costly and/
or limited in scope
Source: Report of the President’s Working Group on Financial Markets,The Long-Term Availability and Affordability of Insurance for Terrorism Risk,
April 2014.
12/01/09 - 9pm
77
Top 3 Key Facts About TRIA
1.  TRIA costs taxpayers virtually nothing
2.  TRIA as currently structured continues to provide tangible
benefits to the U.S. economy in the form of:
w  Terrorism insurance market stability, affordability and availability
w  Smooth functioning of commercial lending activity
w  Employment stimulus
3.  TRIA is now clearly a critical part of the U.S. national
economic security infrastructure
w  A primary goal of terrorism is to destabilize the U.S. economy
w  Terrorism risk insurance is critical to ensure a swift recovery in
the event of future attacks
n  Bottom Line: TRIA is an unambiguous, unmitigated success
12/01/09 - 9pm
78
Terrorism Insurance Take-up Rates,
By Year, 2003-2013
80%
70%
58%
60%
59%
59%
57%
61%
62%
64%
62%
62%
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.
79
Pyramid of Taxpayer Protection:
Strong, Stable, Sound and Secure
Hard Cap
$100 Bill
Government
Recoupment
TRIA in its
current form
provides at
least 8 levels
of taxpayer
protection
Industry Aggregate
Retention: $27.5 Bill
Insurer Co-Payments
15% Above Retention
Individual Insurer Retention
20% of Premiums Earned
Program Dollar Threshold
$100 Million
Certification Dollar Threshold
$5 Million
Certification of Terrorist Act: Definition Must Be Met
Consequences of Substantially
Restructuring TRIA
n  Increases in required insurer retentions/deductibles do not
“create” new capacity
n  New capacity has entered primarily because:
w  TRIA remains in place
w  No major successful attack has occurred since 9/11
w  Modest improvement in modeling/understanding terror risk
n  Many smaller/medium-sized insurers are likely already at or
near their exposure limits, so increasing required retentions
will not incentivize them to write more coverage
w  A.M. Best: 19% of insurers with < $500 million in surplus failed
stress tests; 11% of those with $500 to $1 billion failed
w  Insurance Information Institute: Insurers with <$500 million in
surplus wrote 16.8% of TRIA-back lines in 2012; those with less
than $1 billion in surplus wrote 23.6% of TRIA-backed coverages
12/01/09 - 9pm
81
Consequences of a Failure to Reauthorize
TRIA Followed by a Major Terrorist Attack
n  If TRIA is not reauthorized, only limited private insurance
would be available to cover losses arising from future attacks
w  Potentially large gap between insured and economic losses
n  The federal government would be called upon to provide very
large amounts of aid (tens of billions of dollars +)
w  Federal govt. has no delivery mechanism for post-attack aid
w  Under TRIA, federal response largely piggybacks on an efficient
pvt. Insurer claims adjusting and payment system
n  The existing standalone market would likely seize and contract
w  Depletion of capitalàAvailability crunch, Prices soar
w  Uncertainty over likelihood of future attacks
w  Terrorism exclusions would become ubiquitous
n  Congress would likely be compelled to legislate TRIA anew
82
12/01/09 - 9pm
Summary of Terrorism Risk Insurance
Program Extension Bills Introduced in 2013
Bill
Summary
• H.R. 508: “Terrorism Risk
Insurance Act of 2002
Reauthorization Act of
2013”
• Introduced Feb. 5 by Rep.
Michael Grimm (D-NY)
• 5-Year Extension (through 2019)
• Extend recoupment period for any TRIA assistance from 2017 to 2019
• H.R. 2146: “Terrorism Risk
Insurance Program
Reauthorization Act of
2013”
• Introduced May 23 by Rep.
Michael Capuano (D-MA)
• Extend recoupment period for any TRIA assistance from 2017 to 2024
• Requires President’s Working Group on Financial Markets (PWGFM) to
issue reports on long-term availability and affordability of terrorism
insurance in 2017, 2020 and 2023
• Reports to be drafted with consultation from NAIC and representatives of
the insurance and securities industries and policyholders
• H.R. 1945: “Fostering
Resilience to Terrorism Act
of 2013”
• Introduced May 9 by Rep.
Benny Thompson (D-MS)
• Recoupment period changed to 2024
• Would transfer responsibility for certification of a “act of terrorism” to the
Secretary of Homeland Security from Secretary of Treasury.
• PWGFM to issue reports in 2017, 2020 and 2023
• Requires Sec. of DHS to provide insureds with “timely homeland security
information, including terrorism risk information, at the appropriate level of
classification and information on best practices to foster resilience to an act
of terrorism.”
Source: Nelson, Levine, de Luca & Hamilton, FIO Focus, June 10, 2013; Insurance Information Institute.
Terrorism Violates Traditional
Requirements for Insurability
Requirement
Definition
Violation
Estimable
Frequency
• I nsurance requires large
number of observations to
develop predictive ratemaking models (an actuarial
concept known as credibility)
• Very few data points
• Terror modeling still in
infancy, untested.
• I n c o n s i s t e n t
assessment of threat
Estimable
Severity
• Maximum possible/ probable
loss must be at least
estimable in order to minimize
“risk of ruin” (insurer cannot
run an unreasonable risk of
insolvency though assumption
of the risk)
• P o t e n t i a l l o s s i s
virtually unbounded.
• L osses can easily
exceed insurer capital
resources for paying
claims.
• E x t r e m e r i s k i n
workers compensation
and statute forbids
exclusions.
Source: Insurance Information Institute
Terrorism Violates Traditional
Requirements for Insurability (cont’d)
Requirement Definition
Violation
M u s t b e a b l e t o • Losses likely highly
Diversifiable • spread/distribute
risk concentrated geographically or
Risk
across large number of by industry (e.g., WTC, power
R a n d o m
L o s s
Distribution/
Fortuity
Source: Insurance
Information Institute
risks
• “ L a w o f L a r g e
Numbers” helps makes
losses manageable and
less volatile
• P robability of loss
occurring must be
purely random and
fortuitous
• Events are individually
unpredictable in terms
of time, location and
magnitude
plants)
• Terrorism attacks are planned,
coordinated and deliberate acts
of destruction
• Dynamic target shifting from
“hardened targets” to “soft
targets”
• Terrorist adjust tactics to
circumvent new security
measures
• Actions of US and foreign govts.
may affect likelihood, nature and
timing of attack
REINSURANCE MARKET
CONDITIONS
Ample Capacity as
Alternative Capital is
Transforming the Market
—And Pushing Down
Prices
86
12/01/09 - 9pm
Global Reinsurance Capital (Traditional
and Alternative), 2007 - 2013
Total reinsurance capital reached
a record $540B in 2013, up 58.8%
from 2008. Of that, $50B (9.3%) is
alternative capacity, up 163% from
$19B since 2008
Source: Aon Benfield Reinsurance Market Outlook, April 1, 2014; Insurance Information Institute.
Global Reinsurer Capital, 2007-2013:H1*
($ Billions)
$600
+18%
+18%
$500
$410
$400
-17%
$470
-3%
$455
2010
2011
+1%
+11%
$505
$510
2012
2013:H1
$400
$340
$300
$200
$100
$0
2007
2008
2009
Global Reinsurance Capital Has Been Trending Generally Upward Since
the Global Financial Crisis, a Trend that Seems Likely to Continue
*Includes both traditional and non-traditional forms of reinsurance capital.
Source: Aon Benfield Aggregate study for the 6 months ending June 2013; Insurance Information Institute.
12/01/09 - 9pm
88
Long-Term Evolution of Shareholders’ Funds for
the Guy Carpenter Global Reinsurance Composite
200
Hard market softening
180
160
USD bn
140
Hard market
120
Excess capital
Soft market
100
Crisis
80
60
1998
1999
Source: Guy Carpenter
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1Q13
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 US
*As of Jan. 1.
Reinsurer Combined Ratios
(Aon Benfield Aggregate), 2007 - 2013
Reinsurers posted a combined under
90 in 2013, the best result since 2009
Sources of Reinsurance Capital Change:
YE 2012 to YE 2013
Net income and new 3rd party
capital were the leading source of
reinsurance capital growth in 2013
Sources: Guy Carpenter and A.M. Best; Insurance Information Institute .
12/01/09 - 9pm
92
Global Insurance Capital,
2007 - 2013
Insurance capital increased by 69.4%
($1.5 trillion) since the depths of the
global financial crisis in 2008
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 $316 in global property
catastrophe reinsurance capital as
of mid-2013 (expected to rise to
~15% by year-end 2013)
Property Catastrophe Reinsurance
Capacity by Source as of Mid-2013 ($ Bill)
Total = $316 Billion*
Catastrophe
Bonds, $16 , 5%
Collateralized
Reinsurance
(Sidecars), $15 ,
5%
Industry Loss
Warranties, $6 ,
2%
Traditional
Reinsurance,
$268 , 88%
Collateralized
reinsurance (sidecars) is
the fastest growing
segment recently
Source: Guy Carpenter; Mid-Year Market Report, September 2013; Insurance Information Institute.
12/01/09 - 9pm
“Convergence
Capital” accounted
for an estimated $45B
or 14% or total
property catastrophe
reinsurance capacity
as of mid-2013, up
$10B over the past 18
months (since 1/1/12).
Penetration of this
type of capacity is
growing
95
Alternative Capacity Development,
2001—2013:H1
Source: Guy Carpenter; Mid-Year Market Report, September 2013; Insurance Information Institute.
Investor by Category, 2013 vs. 2012*
*As of June 30 each year.
Source: Aon Benfield Securities; Insurance Information Institute.
Institutional
Investors are
accounting for a
larger share of
alternative
reinsurance
investors
Non-Traditional Property Catastrophe
Limits by Type, YE 2012 vs. YE 2015E
NON-TRADITIONAL P/CAT LIMITS BY TYPE
Cat Bond
Retro
$40
$44
$10
$23
$15
$30
$20
Collateralized Re
$57
$60
$50
ILW
$11
$10
$6
$8
$13
$15
2012*
2015E
$0
Source: Guy Carpenter; *As Of Mar-2013
Source: Guy Carpenter; Reinsurance Association of America; Insurance Information Institute.
Alternative capital
is expected to rise
by 30% by YE 2015
and will ultimately
account for
20-30% of total
reinsurance
spend, according
to Guy Carpenter
Catastrophe Bonds: Issuance and
Outstanding, 1997- 2014:Q1*
Risk Capital Amount ($ Millions)
99
00
01
11
$18,516.7
7,083.0
10
5,852.9$14,835.7
$12,139.1
$12,508.8
$12,185.0
07
$12,043.6
06
1,410.0
966.9
98
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
$0
02
Risk Capital Issued
Risk Capital Outstandng at Year End
03
04
05
08
09
12
13 14:Q1
CAT bond issuance reached a
record high in 2013
Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk
Capital Outstanding Stands at an All-Time Record
*Through Jan. 31, 2014.
Source: Guy Carpenter; Insurance Information Institute.
Questions Arising from Influence of
Alternative Capital
n Could Pension Fund Money Swamp Traditional Capacity?
w  US private pension funds hold ~$7 trillion in assets
w  2% allocation = $140 billion
w  Global property cat capital = ~$316 bill as of mid-2013
n Do New Investors Have a Lower Cost of Capital?
w  New capacity expects 6-8% rate of return compared to
8-10% for traditional reinsurance, according to Dowling &
Partners
n Will Reinsurance Pricing Become More Closely Linked to
Interest Rates?
w  What happens when interest rates rise?
n Terms and Conditions Could Weaken
w  Multi-year deals
12/01/09 - 9pm
100
Questions Arising from Influence of
Alternative Capital
n What Will Happen When Investors Face Large-Scale
Losses?
n Does ILS Have a Higher Propensity to Litigate?
w  Short-term focus could contribute to disputes
w  Large share of triggered transactions ended up in dispute
n How Low Will ROLs Be Pushed?
n Does the New Interconnectedness with Capital Markets
Lend Credence to the Suggestion that Reinsurance Is a
Systemic Risky Business?
n Will Alternative Capital Drive Consolidation Among
Traditional Reinsurers?
w  Has the mating dance begun? à Endurance/Aspen
12/01/09 - 9pm
101
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
102
12/01/09 - 9pm
Data Breaches 2005-2013, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
700
656
222.5
Millions
662
619
600
498
160
446
127.7
419
447
400
200
200
180
500
300
220
66.9
140
87.9
321
100
80
35.7
157
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.
The Most Costly Cyber Crimes, Fiscal
Year 2012
Malicious code, denial of service and web-based attacks account for more than 58
percent of the total annualized cost of cyber crime experienced by 56 companies.
Malware
Botnets
Viruses, Worms, Trojans
Malicious code
4%
4%
7%
Phishing + social
engineering
26%
7%
Malicious insiders
8%
12%
20%
Stolen devices
Denial of service
12%
Web-based attacks
Source: 2012 Cost of Cyber Crime: United States, Ponemon Institute.
104
External Cyber Crime Costs: Fiscal Year
2012
Information loss (44%) and business disruption or lost productivity (30%) account for
the majority of external costs due to cyber crime.
Other costs*
Equipment damages
5%
Revenue loss
Information loss
2%
19%
44%
Business disruption
30%
* Other costs include direct and indirect costs that could not be allocated to a main external cost category
Source: 2012 Cost of Cyber Crime: United States, Ponemon Institute.
105
The Strength of the Economy
Will Influence P/C Insurer
Growth Opportunities
Growth Will Expand Insurer Exposure
Base Across Most Lines
106
12/01/09 - 9pm
US Real GDP Growth*
-7%
5.0%
-0.3%
2014/15 are expected
to see a modest
acceleration in
growth
-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%
1.1%
2.5%
4.1%
2.4%
1.7%
3.0%
3.0%
3.1%
3.0%
3.0%
3.0%
2.9%
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 4/14; Insurance Information Institute.
12/01/09 - 9pm
107
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
Only 10 states experienced
growth in excess of 3%, which is
what we would see nationally in
a more typical recovery
8
0
2.0
2.1
2.1
2.1
2.1
2.2
2.2
2.2
2.4
2.4
2.4
2.2
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
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.
108
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.
109
State-by-State Leading Indicators
through 2014:Q2
The economic
outlook for most of
the US is positive for
the first time in many
years
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.
12/01/09 - 9pm
110
Consumer Sentiment Survey (1966 = 100)
80
75
70
65
55.7
59.5
60.9
64.1
85
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
90
60
55
Impact of 2011
budget impasse
50
Optimism among consumers
dropped in Q3 2013 as the
government shutdown created
uncertainty, then rebounded
though the harsh winter took a toll
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
45
40
69.9
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
79.9
January 2010 through March 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.
Source: University of Michigan; Insurance Information Institute
12/01/09 - 9pm
111
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through March 2014,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
U-6 went from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 12.7%
in Mar. 2014.
8% to 10% is
“normal.”
14
12
10
8
As the unemployment
rate approaches 6%,
the Fed will begin
signaling on shortterm rates
6
4
2
“Headline”
unemployment
was 6.7% in
March 2014. 4%
to 6% is
“normal.”
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.
12/01/09 - 9pm
112
US Unemployment Rate Forecast
2007:Q1 to 2015:Q4F*
Rising
unemployment
eroded
payrolls
and WC’s
exposure base.
Unemployment
peaked at 10%
in late 2009.
8%
7%
6%
5%
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
9%
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%
6.5%
6.4%
6.2%
6.1%
6.0%
5.9%
5.8%
10%
Jobless figures
have been revised
slightly downwards
for 2014/15
8.1%
11%
Unemployment forecasts
have been revised slightly
downwards. Optimistic
scenarios put the
unemployment as low as
6.0% 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 (4/14 edition); Insurance Information Institute.
12/01/09 - 9pm
113
(800)
(1,000)
12/01/09 - 9pm
Monthly losses in
Dec. 08–Mar. 09 were
the largest in the
post-WW II period
-426
-422
-486
(600)
-232
-272
-232
-141
-271
-294
-15
-38
-115
-106
-221
-215
-206
-261
-258
(400)
-776
-693
-821
-698
-810
-801
(200)
-71
32
64
81
55
231
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
188
192
20
3
3
0
170
52
126
57
52
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
Monthly Change in Private Employment
January 2007 through March 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
192,000 private
sector jobs were
created in March.
As of March 2014,
all the jobs lost in
the Great Recession
have been
recovered
Private Employers Added 8.88 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)
114
Net Worth of Households*
Recently Hit A Historic High
$ Trillions
$80
$70
Adjusted for
population growth,
net worth is slightly
short of its prior peak
$60
$50
$20
$10
2001
recession
1992
recession
$40
$30
Housing
“bubble”
2008-09
recession: -15.7%
1982
recession
Rising net worth fuels a “wealth
affect” that helps fuel consumer
spending, which accounts for 70%
of spending in the U.S. economy
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$0
*and nonprofit organizations. Data are as of year-end, except in 2013:Q3 (data posted on Dec 9, 2013).
Next release March 6, 2014. Data not seasonally adjusted or inflation-adjusted
Source: Federal Reserve Board
Household Financial Obligations
Ratio Recently Hit A Historic Low
Financial
Obligations
Ratio
18.5%
18.0%
17.5%
Financial Obligations Ratio: debt service (mortgage and
consumer debt), auto lease, residence rent, HO insurance, and
property tax payments as % of personal disposable income.
Household balance sheets
are stronger than they’ve
been in many years, setting
the stage for more
consumer spending
17.0%
16.5%
Decline began
in 2008:Q1.
16.0%
15.5%
15.23% in 2012:Q4
is lowest ratio since
1980:Q4 (15.09%).
1990:Q1
1990:Q3
1991:Q1
1991:Q3
1992:Q1
1992:Q3
1993:Q1
1993:Q3
1994:Q1
1994:Q3
1995:Q1
1995:Q3
1996:Q1
1996:Q3
1997:Q1
1997:Q3
1998:Q1
1998:Q3
1999:Q1
1999:Q3
2000:Q1
2000:Q3
2001:Q1
2001:Q3
2002:Q1
2002:Q3
2003:Q1
2003:Q3
2004:Q1
2004:Q3
2005:Q1
2005:Q3
2006:Q1
2006:Q3
2007:Q1
2007:Q3
2008:Q1
2008:Q3
2009:Q1
2009:Q3
2010:Q1
2010:Q3
2011:Q1
2011:Q3
2012:Q1
2012:Q3
2013:Q1
2013:Q3
15.0%
*through 2013:Q3 (data posted on Dec 13, 2013)
Source: Federal Reserve Board, at http://www.federalreserve.gov/releases/housedebt
Auto/Light Truck Sales, 1999-2019F
12
11
10
12.7
13
11.6
New auto/light truck sales fell to
the lowest level since the late
1960s. Forecast for 2013-14 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
16.4
16.0
15.5
16
14.4
16.5
16.9
16.9
16.6
17.1
17
17.5
18
17.8
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 13E14F 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 (4/14 and 3/13); Insurance Information Institute.
12/01/09 - 9pm
117
Personal Auto Insurance Direct Written
Premiums vs. Recently-Registered Cars
% of registered cars under 3 years old
26%
24%
22%
In 2004-07
no growth in
PP DWP
despite
strong new
car/truck
sales
18%
$195
$185
$175
$165
New car/truck
sales grow to
14-15M/year
Average age of
registered cars
rose as fewer
new cars were
bought (and
insured)
20%
$ Billions
4%/yr growth
forecast for
PP DWP from
recovering
new car/truck
sales
30%
28%
Auto Ins Direct Pms
$155
$145
$135
16%
$125
01
02
03
04
05
06
07
08
09
10
11
12E 13F 14F
PP DWP, flat from 2004-2009, is rising again.
Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.
Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and
Analysis, First Quarter 2012; Insurance Information Institute.
12/01/09 - 9pm
118
Average Age of Vehicles on the Road,
2006—2013
Average Vehicle
Age (Years)
12.0
11.5
Average vehicle age continues
to increase because the slow
economy leads many drivers
to keep cars on the road
longer and because cars are
becoming more reliable
11.0
10.5
10.0
9.9
10.0
10.1
2006
2007
2008
10.3
10.6
The average vehicle
age reached a record
11.4 years in 2013
10.9
11.2
11.4
9.5
9.0
8.5
8.0
2009
2010
2011
2012
2013
The average age of a vehicle on the road is is expected to continue to
increase until 2018. By 2018, the number of vehicles 12+ years old is
expected to rise 11.6% from 2013 and the number that are under 5 years
old is expected to increase by 41%
Sources: Polk, August 2013 Survey; Insurance Information Institute.
12/01/09 - 9pm
119
Monthly Change* in Auto Insurance
Prices, 1991–2014*
Cyclical peaks in PP
Auto tend to occur
approximately every 10
years (early 1990s, early
2000s and likely the
early 2010s)
10%
8%
Pricing peak
occurred in late
2010 at 5.3%, falling
to 2.8% by Mar. 2012
6%
4%
2%
“Hard” markets
tend to occur
during
recessionary
periods
0%
The Jan. 2014
reading of 3.4%
down from 4.9% a
year earlier
-2%
'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
*Percentage change from same month in prior year; through January 2014; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
12/01/09 - 9pm
120
-1%
Jan 05
Feb 05
Mar 05
Apr 05
May 05
Jun 05
Jul 05
Aug 05
Sep 05
Oct 05
Nov 05
Dec
Jan 06
Feb 06
Mar 06
Apr 06
May 06
Jun 06
Jul 06
Aug 06
Sep 06
Oct 06
Nov 06
Dec
Jan 07
Feb 07
Mar 07
Apr 07
May 07
Jun 07
Jul 07
Aug 07
Sep 07
Oct 07
Nov 07
Dec
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec
Jan 09
Feb 09
Mar 09
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
Oct 09
Nov 09
Dec
Jan 10
Feb 10
Mar 10
Apr 10
May 10
Jun 10
Jul 10
Aug 10
Sep 10
Oct 10
Nov 10
Dec
Jan 11
Feb 11
Mar 11
Apr 11
May 11
Jun 11
Jul 11
Aug 11
Sep 11
Oct 11
Nov 11
Dec
Jan 12
Feb 12
Mar 12
Apr 12
May 12
Jun 12
Jul 12
Aug 12
Sep 12
Oct 12
Nov 12
Dec
Jan 13
Feb 13
Mar 13
Apr 13
May 13
Jun 13
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Dec
Monthly Change* in Auto Insurance Prices,
January 2005 - December 2013
(Percent Change
from same month,
prior year)
6%
5%
4%
3%
2%
1%
0%
12/01/09 - 9pm
Auto Insurance Price Increases
Averaged 5.1% in 2010 over 2009, After
Averaging 4.5% in 2009 over 2008.
* Percentage change from same month in prior year, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute
Pricing weakened in
2011, strengthened in
2012/early 2013 but has
since moderated
PPA Auto, like most p/c lines, exhibits
strong cyclicality in pricing. Prices rose
from 2000 to late 2005, were flat/falling
in 2006 and 2007 before beginning to
rise gain in 2008.
Underwriting
performance remained
strong even when
prices were flat or
falling due to
improvements in
underlying frequency
and severity trends
121
Private Passenger Auto: Premium
Growth vs. Loss Cost Spread
Premium growth has
generally exceeded
underlying loss cost
trends since
mid-2008
Sources: Evercore Equity Research, Jan. 2014.
12/01/09 - 9pm
122
Average Expenditures* on Auto Insurance,
1994-2014F
$787
$792
$797
09
10
11
$846
$829
$791
08
$813
$799
$816
$831
$842
$830
07
$690
00
$726
$685
$786
The average expenditure on auto insurance
is lower today than it was in 2004
99
$650
$668
$700
$651
$750
$703
$800
98
$850
$705
$900
97
$950
$691
Annual Pct Changes
2001: 5.2%
2002: 8.6%
2003: 5.6%
2004: 1.5%
2005: -1.3%
2006: -1.8%
2007: -2.1%
2008: -1.0%
2009: -0.5%
2010: 0.6%
2011: 0.6%
* The NAIC data are per-vehicle (actually, per car-year)
Sources: NAIC for 1994-2011; Insurance Information Institute estimates for 2012-2014 based on CPI and other data.
12/01/09 - 9pm
14F
Across the U.S., auto insurance expenditures fell by 0.8% in 2008
and 0.5% in 2009 but rose 0.5% in 2010 and 0.8% in 2011.
I.I.I. estimates for 2012-2014 are each +2.0%.
13E
12E
06
05
04
03
02
01
96
95
94
$600
123
Annual Pct. Change in Avg. Expenditures on Auto
Insurance, vs. Auto Insurance Prices, 1995-2011
Avg. Exp
Annual auto insurance price
changes, as measured by
the BLS, roughly matched
NAIC expenditure data from
1995-2004
4.5%
2.8%
1.5%
1.1%
1.1%
0.7%
-0.3%-0.2%
13
12
11
05
04
03
02
01
00
99
98
97
96
95
10
-0.5%
-1.0%
-1.3%
-1.8%-2.1%
-2.6%
-3%
4.2%
3.6%3.6%
0.6%0.6%
0.6%0.4%
09
0%
5.1%
2.5%
2.1%
08
3%
5.6%
5.2%
4.4%
4.2%4.1%
3.4% 3.2%
2.6%
2.0%
7.8%
07
6%
8.8%
8.3%
06
9%
Annual auto insurance price
changes, as measured by the
BLS, have been 2 to 4
percentage points higher than
NAIC data since 2005
Prices
The gap since 2005 between price changes and expenditures on auto
insurance might be due to buyers increasing deductibles,
obtaining discounts, and other premium-reducing behavior.
Sources: NAIC for 1994-2011; BLS for auto price changes; I.I.I.
12/01/09 - 9pm
124
New Private Housing Starts, 1990-2019F
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
0.3
New home starts
plunged 72% from
2005-2009; A net
annual decline of 1.49
million units, lowest
since records began
in 1959
1.31
1.44
1.50
1.51
1.50
2.1
0.55
0.59
0.61
0.78
0.92
1.08
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)
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 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 (4/14 and 3/13); Insurance Information Institute.
12/01/09 - 9pm
125
Florida Total Private Housing Starts,
2000 – 2017F
(Thousands of Units)
CRASH, CRATER, RECOVERY
Homebuilding in FL continues
to recover, adding substantially
to coastal exposures.
The economic
outlook for most of
the US is positive for
the first time in many
years
Source: University of Central Florida Institute for Economic Competitiveness: http://iec.ucf.edu/post/2014/01/07/Florida-Metro-Forecast-December-2013.aspx
12/01/09 - 9pm
126
Value of New Private Construction:
Residential & Nonresidential, 2003-2013*
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
$613.7
$700
$600
$500
$311.5
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
2013: Value of new
pvt. construction
hits $667.5B, up
33% from the 2010
trough but still
27% below 2006
peak
$356.0
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2013 figure is a seasonally adjusted annual rate as of December.
Sources: US Department of Commerce; Insurance Information Institute.
12/01/09 - 9pm
127
Value of Construction Put in Place,
January 2014 vs. January 2013*
Growth (%)
Private: +12.3%
20%
15%
9.3%
10%
12.3%
Public: +2.5%
14.6%
9.7%
3.0%
2.5%
5%
0%
-5%
-10%
Private sector construction
activity is now up in the
residential and
nonresidential segments
-15%
-20%
Public sector
construction activity
remains low but is no
longer contracting
-25%
-22.2%
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.
12/01/09 - 9pm
128
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
(Thousands)
6,000
5,900
5,800
5,700
5,600
5,500
12/01/09 - 9pm
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
5,945
5,964
Construction Employment,
Jan. 2010—March 2014*
Construction employment
is +529,000 above
Jan. 2011 (+9.7%) 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.
129
Average Premium for
Home Insurance Policies**
$1,200
$1,000
$800
Annual Pct Changes
2001: 5.5%
2002: 10.6%
2003: 12.7%
2004: 9.1%
2005: 4.8%
2006: 5.2%
2007: 2.2%
2008: 1.0%
2009: 6.0%
2010: 3.3%
2011: 7.6%
$1,100
$1,058
$978
$880
$729
$764
$804
$822
$830
06
07
08
$1,017
$909
$668
$593
$600
$508
$536
$400
00
01
02
03
04
05
09
10
11
12*
13*
14*
Across the U.S., home insurance expenditures rose by an estimated
4.0% in 2012-2014
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.
Sources: NAIC; Insurance Information Institute estimates for 2012-2014 based on CPI data and other data.
12/01/09 - 9pm
130
Homeowners Insurance
Net Written Premium, 2000–2015F
Homeowners insurance NWP continues to rise
(up 128% 2000-2013) despite very little unit
growth during the real estate crash. Reasons
include rate increases, especially in coastal
zones, ITV endorsements (e.g., “inflation
guards”), and inelastic demand
$ Billions
$80
$75
$77.9
$74.0
$70.4
$70
$66.8
$65
$61.1
$60
$55
$49.5
$50
$52.2
$54.8
$55.2 $56.2
$63.5
$57.5
$45.8
$45
$40.0
$40
$35 $32.4
$35.2
$30
00
01
02
03
04
05
06
07
08
09
10
Sources: A.M. Best; Insurance Information Institute.
12/01/09 - 9pm
11
12
13P 14F
15F
131
$1,163
$1,139
$1,103
$1,097
$1,096
$1,091
$1,083
$1,072
$1,056
$1,029
$1,022
$978
$969
$967
$961
$958
$924
$915
$915
$907
$906
$869
RI
KS
NY
CT
SC
DC
MA
MN
AR
MO
US
ND
CA
CO
NE
AK
NJ
TN
HI
GA
NC
$1,386
OK
AL
$1,409
MS
$1,578
TX
$1,672
Top 25 States and DC
LA
FL
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$1,933
Average Premiums For Home Insurance
By State, 2011* (1)
*Latest available.
(1) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those specifically excluded in the
policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days insured coverage for a single dwelling.
Source: NAIC; Insurance Information Institute.
132
Average Premiums For Home Insurance
By State, 2011* (1)
Bottom 25 States
$559
OR
$518
$563
UT
$626
WA
$600
$592
$644
OH
$743
WV
$664
$744
PA
DE
$748
VT
$675
$770
WY
AZ
$774
MI
$689
$779
IN
NV
$782
VA
$713
$793
NM
IA
$800
MD
$714
$811
NH
ME
$818
MT
$721
$822
IL
$800
SD
$839
KY
$1,000
$400
ID
$0
WI
$200
• 
• 
Latest available
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days insured coverage for a single dwelling.
Source: © 2013 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission
of NAIC.
133
0.44%
0.44%
0.42%
0.42%
0.42%
0.42%
0.41%
0.41%
0.40%
0.39%
0.37%
IN
GA
WV
MN
SD
IA
NC
MT
RI
NM
MI
0.51%
SC
0.47%
0.51%
MO
KY
0.51%
TN
0.54%
0.57%
ND
NE
0.59%
Chart answers question: What is the
rate to insure the average home in
the state?
AR
0.64%
KS
0.67%
AL
0.71%
FL
0.77%
0.82%
OK
TX
0.84%
Top 25 States
MS
LA
1.00%
0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
0.94%
Estimated Median Rate For Home
Insurance By State, 2011* (1)
*Latest available.
Note: Estimated median = average premium in median insurance range/estimated average insurance value in that range.
Source: Insurance Information Institute estimate from NAIC data.
134
Estimated Median Rate For Home
Insurance By State, 2011* (1)
0.37%
0.37%
0.36%
0.36%
0.35%
0.35%
0.34%
0.33%
0.31%
0.30%
0.30%
0.30%
0.30%
0.29%
0.29%
0.29%
0.28%
0.28%
0.26%
0.26%
0.26%
0.25%
0.25%
0.25%
0.23%
0.22%
0.22%
US
CO
NY
CT
AK
DC
OH
NH
VA
MA
CA
IL
WI
MD
PA
ME
VT
AZ
NJ
HI
NV
ID
DE
WA
UT
OR
1.00%
0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
WY
Bottom 25 States and DC
*Latest available.
Note: Estimated median = average premium in median insurance range/estimated average insurance value in that range.
Source: Insurance Information Institute estimate from NAIC data.
135
Financial Strength &
Underwriting
Cyclical Pattern is P-C Impairment
History is More Closely Tied to
Underwriting, Reserving & Pricing
than to Catastrophe Activity
136
12/01/09 - 9pm
P/C Insurer Impairments, 1969–2012
Impairments among P/C
insurers remain infrequent
60
58
70
49
50
47
16
19
21
14
15
18
21
34
35
12
18
19
31
29
16
16
14
13
9
13
12
9
9
5
7
8
10
15
12
20
11
19
30
31
34
34
40
36
41
50
50
48
49
55
60
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
0
The Number of Impairments Varies Significantly Over the P/C Insurance
Cycle, With Peaks Occurring Well into Hard Markets
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013;
Insurance Information Institute.
12/01/09 - 9pm
137
P/C Insurer Impairment Frequency vs.
Combined Ratio, 1969-2012
120
Combined Ratio after Div
P/C Impairment Frequency
2.0
1.8
1.6
1.4
110
1.2
1.0
105
0.8
100
0.6
Impairment Rate
Combined Ratio
115
0.4
95
2012 impairment rate was 0.69%, down from 1.11% in 2011; the
rate is lower than the 0.82% average since 1969
0.0
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
90
0.2
Impairment Rates Are Highly Correlated With Underwriting Performance
and Reached Record Lows in 2007; Recent Increase Was Associated
Primarily With Mortgage and Financial Guaranty Insurers and Not
Representative of the Industry Overall
Source: A.M. Best; Insurance Information Institute
12/01/09 - 9pm
138
Reasons for US P/C Insurer
Impairments, 1969–2012
Historically, Deficient Loss Reserves and Inadequate Pricing Are
By Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Reinsurance Failure
Sig. Change in Business
Misc.
Investment Problems
8.4%
3.1%
3.5%
6.6%
(Overstatement of Assets)
43.4%
8.0%
Deficient Loss Reserves/
Inadequate Pricing
Affiliate Impairment
7.1%
Catastrophe Losses
7.2%
Alleged Fraud
12.6%
Rapid Growth
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
12/01/09 - 9pm
139
Top 10 Lines of Business for US P/C
Impaired Insurers, 2000–2012
Workers Comp and Pvt. Passenger Auto Account for More Than 40 Percent
of the Impaired Insurers Since 2000
Other
Title
[PERCEN
[PERCEN
TAGE]
Surety TAGE]
[PERCEN
TAGE]
19.7%
Workers Comp
Med Mal
6.7%
22.2%
Other Liability
[PERCEN
TAGE]
Pvt. Passenger Auto
[PERCEN
Commercial Auto Liability TAGE]
8.8%
Commercial Multiperil
9.2%
Homeowners
Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,”
June 2013; Insurance Information Institute.
.
12/01/09 - 9pm
140
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
141
12/01/09 - 9pm

Property/Casualty Insurance in the Age of Mega

Transcription

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