![Page 1: Presented By: Ed Kiessling President & COO, Commerce Insurance Services](https://reader035.vdocuments.mx/reader035/viewer/2022062717/56649e495503460f94b3c371/html5/thumbnails/1.jpg)
Presented By: Ed Kiessling
President & COO, Commerce Insurance Services
![Page 2: Presented By: Ed Kiessling President & COO, Commerce Insurance Services](https://reader035.vdocuments.mx/reader035/viewer/2022062717/56649e495503460f94b3c371/html5/thumbnails/2.jpg)
![Page 3: Presented By: Ed Kiessling President & COO, Commerce Insurance Services](https://reader035.vdocuments.mx/reader035/viewer/2022062717/56649e495503460f94b3c371/html5/thumbnails/3.jpg)
• The Profit Formula and Operating Measures:– ProfitProfit
(Premium + Return On Invested Assets)
- (Losses + Operating Expenses)
– Combined RatioCombined Ratio
INSURANCE BEFORE 9/11 --INSURANCE BEFORE 9/11 -- THE PERFECT STORMTHE PERFECT STORM
Losses + Underwriting Expenses
Written Premium
![Page 4: Presented By: Ed Kiessling President & COO, Commerce Insurance Services](https://reader035.vdocuments.mx/reader035/viewer/2022062717/56649e495503460f94b3c371/html5/thumbnails/4.jpg)
• So, What Does This Mean?
– Combined Ratio for 2002 is 107.4
– The Industry Combined Ratio Has Not Been Below 100 Since 1979
– Returns Are Delivered Through Investment Activities
INSURANCE BEFORE 9/11 --INSURANCE BEFORE 9/11 -- THE PERFECT STORMTHE PERFECT STORM
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• The Soft Market– From The Late 80’s, to 2000:
• Increasing Investment Returns
• Growing Economy
• Increasing Globalization
• More Diverse Investment Opportunities
• Cheap Reinsurance
• Lead to …
– More Than a Decade of Declining Premiums
INSURANCE BEFORE 9/11 --INSURANCE BEFORE 9/11 -- THE PERFECT STORMTHE PERFECT STORM
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• 1999/2000 -- The Tropical Storm Begins– Combined Ratios Deteriorate
• 1998 - 106
• 2000 - 110.4
– Investment Returns Decline (Return on Invested Assets)• 1998 - 9%
• 2000 - 4.9%
INSURANCE BEFORE 9/11 --INSURANCE BEFORE 9/11 -- THE PERFECT STORMTHE PERFECT STORM
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• 1999/2000 -- The Tropical Storm Begins (continued) ...
– Undereserving From Past Years Becomes Apparent (Percentage of Original Loss Estimates Undereserved)
• 1998 - 1.4%
• 2000 - 8.9%
– Policyholders Surplus Declines for the First Time Since 1984
• 1998 - $338 Billion
• 2000 - $322 Billion
INSURANCE BEFORE 9/11 --INSURANCE BEFORE 9/11 -- THE PERFECT STORMTHE PERFECT STORM
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• Back To Basics (Prior to 9/11)
– Firming Prices
– Underwriters Actually Started Underwriting Again
– Companies Limited Their Participation in Certain Lines of Business
INSURANCE BEFORE 9/11 --INSURANCE BEFORE 9/11 -- THE PERFECT STORMTHE PERFECT STORM
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• The Immediate Impact– Thousands of Lives Lost
– Approximately $50 Billion In Insured Losses• Life Insurance - $5 Billion
• Commercial Property - $17 Billion
• Personal Property - $2 Billion
• Autos - $90 Million
• Airline Liability - $6 Billion
• Aircraft Hull - $434 Million
• Workers’ Compensation - $2 Billion
• Business Interruption - $17 Billion
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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• The Collateral Damage Continues
– Investment Market Collapse
– Slowing Economy
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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Total Return on Invested Assets
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Percen
t
1998 1999 2000 2001 2002
![Page 13: Presented By: Ed Kiessling President & COO, Commerce Insurance Services](https://reader035.vdocuments.mx/reader035/viewer/2022062717/56649e495503460f94b3c371/html5/thumbnails/13.jpg)
• The Post 9/11 Insurance World
– Rapidly Increasing Prices for the Last Two Years
• 15% to 100%
– Severe Limitations in Reinsurance Capacity and Dramatic Price Increases for Reinsurance
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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Industry Price IncreasesBy Percent
0
2
4
6
8
10
12
14
16
Percen
t In
crea
se
1998 1999 2000 2001 2002
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• The Post 9/11 Insurance World
– Industry Focus on Underwriting for the First Time in Over a Decade
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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Industry Underwriting ResultsCombined Ratios
100.0
102.0
104.0
106.0
108.0
110.0
112.0
114.0
116.0
1998 1999 2000 2001 2002
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• The Post 9/11 Insurance World
– Many Companies Came Into 2002 With Serious Balance Sheet Problems; Balance Sheet Repair Became a Priority
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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Industry Surplus DeteriorationMillions of Dollars
260,000
270,000
280,000
290,000
300,000
310,000
320,000
330,000
340,000
1998 1999 2000 2001 2002
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• The Post 9/11 Insurance World
– Industry Reserve Strengthening Grew Dramatically as Asbestos and Other Liabilities From the Past Were Recognized
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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Industry Loss Reserve Increases In Millions
350,000
360,000
370,000
380,000
390,000
400,000
410,000
420,000
1998 1999 2000 2001 2002
Original Estimates Subsequent Increases
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• The Post 9/11 Insurance World– Many Insurance Companies Have Failed; Scores of
Others Have Received Lower Agency Ratings
– Many Carriers Have Entered the Markets to Raise Additional Capital, But Many Have Not
– New Capital Has Come Into the Market, Particularly Offshore
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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• The Post 9/11 Insurance World
– The US Government Passes the Terrorism Risk Insurance Act (TRIA) of 2002
– Severe Limitations on Some Coverages and Concentrations of Exposures
9/11 -- TROPICAL STORM TO HURRICANE9/11 -- TROPICAL STORM TO HURRICANE
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• Positive– Underwriting Discipline Has Been Re-Established
– 2003 Combined Ratios May Reach Below 100
– Investment Market Gains Are Increasing
– Balance Sheets Are Getting Healthier
– Weaker Players Are Being Weeded Out
– Some Coverage Limitations Are Being Eased
– Prices In Some Lines of Coverage are Stabilizing (Although Not All)
PROGNOSIS FOR THE FUTUREPROGNOSIS FOR THE FUTURE
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• Negative– More Companies Will Fail In The Next Few Years
– Reinsurance Company Balance Sheets Are Still Weak
– More Reserve Strengthening is Inevitable (Estimates Are the Industry is Between $40 Billion to $120 Billion Undereserved)
PROGNOSIS FOR THE FUTUREPROGNOSIS FOR THE FUTURE
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• Negative– The Industry as a Whole Will Have Much Higher
Financial Leverage Than In The Past
– There is a Possibility that as the Investment Markets Return, a “Soft” Cycle Could Re-Emerge with Uncertain Industry Consequences
PROGNOSIS FOR THE FUTUREPROGNOSIS FOR THE FUTURE
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