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2015, 2016 and beyond: Financial Results From An Actuarial Point of View Casualty Actuaries of Greater New York May 23, 2016 Download at www.iii.org/presentations James Lynch, Vice President and Chief Actuary Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5533 Cell: 917.359.3908 [email protected] www.iii.org

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Page 1: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

2015, 2016 and beyond: Financial Results From An Actuarial

Point of ViewCasualty Actuaries of Greater New York

May 23, 2016

Download at www.iii.org/presentations

James Lynch, Vice President and Chief Actuary

Insurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5533 Cell: 917.359.3908 [email protected] www.iii.org

Page 2: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

2015 Industry Results

2

L:

Almost a Carbon Copy of 2014

Page 3: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

P/C Industry Net Income After Taxes1991–2015 2005 ROE*= 9.6%

2006 ROE = 12.7%

2007 ROE = 10.9%

2008 ROE = 0.1%

2009 ROE = 5.0%

2010 ROE = 6.6%

2011 ROAS1 = 3.5%

2012 ROAS1 = 5.9%

2013 ROAS1 = 10.2%

2014 ROAS1 = 8.4%

2015 ROAS = 8.4%

•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009; 2015E is annualized figure based actual figure through Q3 of $44.0

Sources: A.M. Best, ISO; Insurance Information Institute

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $

36

,81

9

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

5,2

04

$1

9,4

56 $

33

,52

2

$6

3,7

84

$5

5,8

70

$5

6,6

22

$3

8,5

01

$2

0,5

59

$4

4,1

55

$6

5,7

77

-$6,970

$2

8,6

72

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15E

Net income in 2015 was on par with 2014; ROE unchanged at

8.4%

$ Millions

Page 4: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

75

77

79

81

83

85

87

89

91

93

95

97

99

01

03

05

07

09

11

13

15E

Commercial NPW Growth

Nominal GDP Growth

NPW Δ < Nominal GDP ΔImplies Soft Market

NGDP 2015

+4.0%

Economic Shocks,

Inflation:

1976: 22.2%Tort Crisis

1986: 30.5%

Post-9/11

2002: 22.4%

Great

Recession:

2009: -9.0%

ROE

2015E 3.3%

Commercial Lines NPW Premium Growth:1975-2015E

Recessions:

1982: 1.1%

NPW Δ > Nominal GDP ΔImplies Hard Market

1988-2000: Period of

inter-cycle stability

2010-20XX? Stable Growth

Note: Data include state funds beginning in 1998.

Source: A.M. Best; Insurance Information Institute.

Post-Hurricane

Andrew Bump:

1993: 6.3%

Post Katrina

Bump:

2006: 7.7%

Page 5: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

P/C Direct Written Premium by Line

LOB 2014 2015

Personal Auto 190.6 199.9

Homeowners 90.7 93.3

GL (incl Products) 62.6 65.7

WC 55.4 57.6

Fire & Allied Lines 43.5 42.2

CMP 39.2 39.7

Comm Auto 29.3 31.3

Other 59.6 61.9

Total 570.8 591.8

4.9%

2.9%

5.0%

4.0%

-2.9%

1.2%

7.1%

3.9%

3.7%

% Chg From Year Earlier

5

(Billions of Dollars)

Sources: NAIC Data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

Page 6: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

6

P/C Insurance Industry Combined Ratio, 2001–2015*

* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0.

Sources: A.M. Best, ISO (2014-2015); Figure for 2010-2013 is from A.M. Best P&C Review and Preview, Feb. 16, 2016.

95.7

99.3101.1

106.5

102.5

96.4 97.0 97.8

101.0

92.6

100.8

98.4100.1

107.5

115.8

90

100

110

120

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

As Recently as 2001, Insurers Paid Out

Nearly $1.16 for Every $1 in Earned Premiums Relatively

Low CAT Losses, Reserve Releases

Heavy Use of Reinsurance Lowered Net

Losses

Relatively Low CAT Losses, Reserve Releases

Higher CAT

Losses, Shrinking Reserve

Releases, Toll of Soft

Market

Cyclical Deterioration

Sandy Impacts

Lower CAT

Losses

Best Combined Ratio Since 1949 (87.6)

Avg. CAT Losses,

More Reserve Releases

3 Consecutive Years of U/W Profits: First Time Since

1971-73

Page 7: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

P/C Net Combined Ratio by LOB

LOB 2014 2015

Personal Auto 103 105

Homeowners 93 92

GL (incl Products) 99 103

WC 100 94

CMP 100 95

Fire & Allied Lines 88 86

Comm Auto 104 109

Other 84 84

Total 97 98

2

(1)

4

(6)

(5)

(2)

5

0

1

Change From Year Earlier

7

Source: National Council on Compensation Insurance.

Positive Number = Bad News

Page 8: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

-5%

0%

5%

10%

15%

20%

25%

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

15

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975-2015

*Profitability = P/C insurer ROEs. 2011-15 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude

mortgage and financial guaranty insurers.

Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning

1977:19.0%1987:17.3%

1997:11.6% 2006:12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%

9 Years

2016 Forecast: 6.3%ROE

1975: 2.4%

2013 9.8%

2014 8.4%

2015: 8.4%

Page 9: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

9

ROE: Property/Casualty Insurance by Major Event, 1987–2015

* Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO, Fortune; Insurance Information Institute.

-5%

0%

5%

10%

15%

20%

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 15

P/C Profitability Is Both by Cyclicality and Ordinary Volatility

Hugo

Andrew, Iniki

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

Record Tornado Losses

Sandy

Low CATs

Modestly higher CATs

Page 10: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

10

Return on Equity by Financial Services Sector vs. Fortune 500, 2004-2015*

*GAAP basis. Sources: ISO, Fortune; Insurance Information Institute.

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

04 05 06 07 08 09 10 11 12 13 14 15E

Fortune 500 P/C Insurers Life Insurers Commercial Banks(Percent)

Average: 2004 - 2014

Fortune 500: 13.9% Commercial Banks: 9.8%

Life: 8.2% P/C: 7.1%

Banks and Insurers Have Substantially Underperformed the Fortune 500 Since the Financial Crisis

Page 11: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

11

Return on Net Worth (RNW)Largest Lines: 2005-2014 Average

6.2

3.8

8.0

6.3 6.46.9

12.8

6.7

15.6

11.9

2.22.8

0

4

8

12

16

PP

Au

to T

ota

l

Ho

meo

wn

ers

MP Oth

er

Lia

bilit

y

Wo

rke

rsC

om

p

Co

mm

erc

ial

MP

Co

mm

Au

toT

ota

l

Inla

nd

Mari

ne

Allie

d L

ines

Fir

e

Med

Pro

fL

iab

A &

H

Fa

rm M

P

Source: NAIC; Insurance Information Institute.

Commercial lines have tended to be more profitable than personal

lines over the past decade

Percent

Page 12: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

12

RNW All Lines, 2005-2014 Average:Highest 25 States

19

.9

19

.0

14

.0

13

.3

13

.2

13

.0

11

.9

11

.7

11

.7

11

.5

11

.3

11

.1

11

.0

10

.9

10

.8

10

.6

10

.6

10

.5

10

.3

10

.0

9.9

9.6

8.9

8.9

8.8

8.3

0

2

4

6

8

10

12

14

16

18

20

22

HI AK VT ME ND FL WY NH VA ID UT NC WA MA SC OH WV OR DC CA RI CT MD NM SD MT

The most profitable states over the past decade are

widely distributed geographically, though none

are in the Northeast

Source: NAIC; Insurance Information Institute.

Profitability Benchmark: All P/C

US: 7.7%

(Percent)

Page 13: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

13

7.8

7.8

7.7

7.5

7.5

7.4

7.3

7.3

7.1

7.1

7.0

6.9

6.8

6.5

6.3

6.2

6.1

5.5

5.1

5.1

4.7

4.1

3.4

1.7

-7.4

-9.4

-11

-9

-7

-5

-3

-1

1

3

5

7

9

PA WI US IL TX IA KS MN AR NE IN CO AZ KY MO TN NV NJ GA NY DE AL MI OK MS LA

RNW All Lines, 2005-2014 Average:

Lowest 25 States

Source: NAIC; Insurance Information Institute.

Some of the least profitable states over the past decade

were hit hard by catastrophes

(Percent)

NY, NJ Hit Hard by both Hurricane Irene (2011) and superstorm Sandy (2012)

Page 14: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

14

Policyholder Surplus, 2006:Q4–2015:Q4E

Sources: ISO, A.M .Best.

($ Billions)

$487.1

$496.6

$512.8

$521.8

$517.9

$515.6

$505.0

$478.5

$455.6

$437.1 $

463.0 $

490.8 $511.5

$540.7

$530.5

$544.8

$559.2

$566.5

$559.1

$538.6

$550.3

$570.7

$567.8

$583.5

$586.9 $607.7

$614.0

$624.4

$653.4

$662.0

$671.6

$673.9

$674.7

$672.4

$673.7

$400

$450

$500

$550

$600

$650

$700

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

13:Q

4

14:Q

1

14:Q

2

14:Q

3

14:Q

4

15:Q

2

15:Q

4

2007:Q3Pre-Crisis Peak

Surplus as of 12/31/15 stood at a near-record high $673.7B

The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.

Higher Dividends, Drop in Unrealized Cap Gains

Kept Surplus Flat

The P/C Industry Entered 2016 in Strong Financial Condition, But Low Leverage Inhibits Investment Returns.

Page 15: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

2016: So Far, A Lot of Mini-Cats in USA

Auto$560

Property$800

4/12 TX HailstormInsured Loss ($ millions)

$6

00

$7

00

$1

,36

0

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

16-Mar

23-Mar

12-Apr

Insure

d L

oss (

$ m

illio

ns)

TX Hailstorms

Avg. Year:

$859M

15

Costliest in

TX History

Source: Aon Benfield, Insurance Council of

Texas, A.M. Best, Insurance Information Institute.Q2 Event

Events Elsewhere in USA:

- Jan NE Winter Storm

- Feb (CA, SE) Winter Weather

- March (CA, SE) CV Storm

- Incl. Florida tornadoes

- Total Insured Loss > $1 B

Page 16: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

16

Distribution of Direct Premiums Written by Segment/Line, 2014

Sources: A.M. Best; Insurance Information Institute research.

Personal/Commercial lines split has been about 50/50 for many years

Pvt. Passenger Auto is by far the largest line of insurance and is currently the most important source of industry profits

Billions of additional dollars in homeowners insurance premiums are written by state-run residual market plans

Distribution Facts

Commercial Lines$282.5B/51%

2014

Pvt. Pass Auto$190.3B/34%

Homeowners$86.1B/15%

Page 17: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

17

Top 25 US P/C Insurers by Direct Premiums Written, 2014

Sources: Barclays PLC; Insurance Information Institute.

Commercial Lines$269.2B/51%

Pvt. Pass Auto$180.8B/34%

Homeowners$80.7B/15%

The ACE/Chubb deal will create a much larger

commercial presence for the combined entity

Page 18: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

18

23

.9

22

.6

19

.2

15

.8

14

.7

14

.6

14

.3

13

.3

13

.3

12

.5

11

.9

11

.7

11

.6

11

.4

11

.4

10

.8

10

.8

10

.4

10

.2

10

.1

9.9

9.6

9.6

19

.0

18

.0

14

.0

0

5

10

15

20

25

30

AK DC HI VT OR NH ME OH RI ID MA MN WI MD IA WY CO NC CT VA ND KS NM WA SD UT

Sources: NAIC; Insurance Information Institute

RNW Commercial Auto,

2005-2014 Average: Highest 25 States

(Percent)

Page 19: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

19

9.4

9.3

9.1

8.9

8.8

8.8

8.4

8.3

8.2

8.0

6.0

6.3

6.2

5.2

5.2

4.9

4.9

4.6

3.9

3.3

-2.3

-2.4

6.36

.87.2

8.1

-4

-2

0

2

4

6

8

10

NE IN WV AZ IL CA SC PA AR TN MO US OK KY MT TX NY GA MI DE MS NJ FL AL NV LA

Sources: NAIC; Insurance Information Institute

(Percent)

RNW Commercial Auto,

2005-2014 Average: Lowest 25 States

Page 20: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

20

13

.0

12

.6

12

.4

11

.6

10

.9

10

.8

9.7

9.3

7.9

7.9

7.7

7.7

7.7

7.5

7.4

7.4

7.3

7.2

7.2

7.1

19

.0

9.6

14

.0

0

2

4

6

8

10

12

14

AR AK NV HI DC TX OH FL MI MO AL CA IN MS NE KS VT MA WV VA TN UT LA

Sources: NAIC; Insurance Information Institute

RNW Workers Compensation,

2005-2014 Average: Highest 25 States

(Percent)

Page 21: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

21

7.1

6.9

6.8

6.8

6.7

6.6

6.6

6.5

5.9

8.0

6.0

4.5

4.5

4.4

4.3

4.1

4.0

3.4

3.0

2.9

2.4

2.1

4.7

4.7

4.75

.1

0

1

2

3

4

5

6

7

8

NH KY RI MN US ME NM PA MT SD OR NC CT GA NY AZ MD NJ CO SC IA IL WI ID DE OK

Sources: NAIC; Insurance Information Institute

(Percent)

RNW Workers Compensation,

2005-2014 Average: Lowest 25 States

Page 22: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

22

AY vs. CY Combined Ratio, (Excl. Guaranty Lines) 1996-2015

10

6.2

10

2.1

10

6.3

108.8

111.2

116.9

10

8.4

10

1.0

99

.1

10

1.5

93

.3

94

.8

10

1.1

99

.3

10

1.0

10

6.5

10

2.4

96

.9

97

.6

98.3

108.5105.8

108.8

109.5

110.8

113.2

102.2

97.3 96.4

101.0

95.0

97.1

104.9 102.7

104.2 110.0

105.4

99.8

98.5

100.1

90

95

100

105

110

115

120

Co

mb

ine

d R

atio

Calendar Year

Accident Year

2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.

Three Consecutive Years of Deteriorating Combined Ratios, Despite Light Cat Losses. AY2015 Above 100.

Tuscaloosa,

Joplin Tornadoes

Hurricane IkeHigher AY →

Favorable DOP

Page 23: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

23

Personal Lines Combined Ratio, 1996-2015

10

5.1

99

.9

10

2.9

10

4.6

111

.7

110.9

10

5.3

98

.5

94

.3

96

.4

94

.1

97

.6

10

4.7 1

02

.6

10

2.7

10

7.8

10

2.6

98

.3

99

.5

10

0.7

109.4

104.3

106.5

107.1

113.3

111.0

105.3100.2

96.999.0

97.2

100.1

107.0

105.8

106.1

111.7

106.5

101.4

99.7

102.7

90

95

100

105

110

115

Co

mb

ine

d R

atio

Calendar Year

Accident Year

2005: Last Year of

Adverse Development

2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.

Lack of Catastrophes Let Personal Lines Writers Post Underwriting Profit Two Years In a Row. CY15>100, Despite Lack of Cats.

Tuscaloosa,

Joplin Tornadoes

Higher AY →

Favorable DOP

Page 24: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

24

Commercial Lines Combined Ratio, 1996-2015

10

7.8 1

04

.8

111.3

113.6

113.0

119.8

110.1

10

2.9

10

2.4

10

0.9

92

.1

92

.8

97

.4

97

.8

10

0.8

10

4.4

103.8

96

.8

97

.3

96

.6

108.3

108.5

111.8

112.6

110.0

112.9

99.1

94.6 95.4

97.4

93.0

95.4

103.0

100.4

103.6

107.4

105.4

99.1

98.1

97.8

90

95

100

105

110

115

120

Co

mb

ine

d R

atio

Calendar Year

Accident Year10 Consecutive

Years of Favorable

Development.

Low Cat Losses Contribute to Favorable Combined Ratios.

2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.

Page 25: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

25

Development on Prior, 1996-2015

(6.4

)

(9.1

)

(9.9

)

(4.6

)

0.3

11

.1

22.3

14

.1

10

.5

0.6

(7.0

)

(8.3

)

(1.9

)

(18

.5)

(10

.5)

(12

.7)

(12

.2)

(14.5

)

(9.4

)

(7.3

)

-3%

-3% -4%

-2%

0%

4%

6%

4%

2%

0%

-2% -2%

0%

-4%

-2%-3% -3%

-3%

-2%-1%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-25

-20

-15

-10

-5

0

5

10

15

20

25All Year DoP

Dop/NEP

10 Consecutive

Years of Favorable

Development.

Reserve Releases Keep Getting Smaller. 2015 Affected by a Single Company’s $3B Reserve Hit.

2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.

DoP ($ billions) DoP (% of NEP)

Page 26: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

26

CY Development on Prior by LOB

151.6 204.9

(839.8)

40.1

(863.2)

84.0 398.5

(883.3)

(1,230.6)

(114.7)

1,655.1

(505.1)

(670.9)(773.3)

3.5

1,217.1

604.5

516.0

(271.1)

(2,352.8)

-36.0%

-30.0%

-24.0%

-18.0%

-12.0%

-6.0%

0.0%

6.0%

12.0%

18.0%

24.0%

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

% o

f 2

01

5 N

EP

Do

P($

mil

lio

ns)

2014 DoP

2015 DoP

2015 DoP/NEP

Several Liability Lines (Auto, GL, Products) Had Reserve Spikes. WC Was an Exception.

2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.

Page 27: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

27

Interest Rates and Investments

Investment PerformanceIs a Key Driver of Profitability

27

Page 28: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Property/Casualty Insurance Industry Investment Income: 2000–20151

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$48.0 $47.3$46.4

$47.2

$39.6

$49.5

$52.3

$30

$40

$50

$60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014 but showed a small

(1.9%) increase in 2015—a trend that may continue

1 Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.

($ Billions)Investment earnings are still below their 2007 pre-crisis peak

Page 29: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

29

Net Yield on P/C Insurer Invested Assets, Year-end 2007-2015

Sources: National Association of Insurance Commissioners, sourced from S&P Global Market Intelligence.

4.49%

4.20%

3.93%

3.73%3.83%

3.68%

3.43%

3.65%

3.18%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015

From 2007 to 2015, P/C Insurer net yields dropped by 131 basis points.

Page 30: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

30

U.S. Treasury Security Yields:A Long Downward Trend, 1990–2016*

*Monthly, constant maturity, nominal rates, through March 2016.

Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

'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 '15 '16

Recession2-Yr Yield10-Yr Yield

Yields on 10-Year U.S. Treasury Notes have been essentially

below 5% for more than a decade.

Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.

Despite the Fed’s December 2015 rate hike, yield

remain low though short-

term yields have seen some gains

30

Page 31: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

31

New Money vs. Embedded Yields,U.S. Insurers, 1985-2015

Sources: NCCI, Insurance Information Institute.

9.6%

1.7%

9.2%

3.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

p

Recession

Pre-Tax New Money Yield

Pre-Tax Embedded Yield

Yields Fall Sharply With Recession,

Then Recover as Economy Does.

Falling yields means less investment income, putting upward pressure on rates.

As long as new money rates are below the rates of maturing bonds,the portfolio yield will continue to sink.

31

Page 32: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

32

Interest Rate Forecasts: 2016 – 2021

2.1%

2.8%

3.4%

3.7% 3.8% 3.9%

0.5%

1.3%

2.3%

2.7%2.9% 3.0%

0%

1%

2%

3%

4%

5%

16F 17F 18F 19F 20F 21F 16F 17F 18F 19F 20F 21F

A full normalization of interest rates is unlikely until 2019, more than a decade after the onset of the financial crisis.

Yield (%)

Sources: Blue Chip Economic Indicators (4/16 for 2016 and 2017; for 2018-2021 3/16 issue); Insurance Info. Institute.

3-Month Treasury 10-Year Treasury

The end of the Fed’s QE program in 2014 and a

stronger economy have yet to push longer-term

yields much higher

Page 33: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

33

Distribution of Bond Maturities,P/C Insurance Industry, 2005-2014

16.0%

16.0%

15.2%

15.7%

16.2%

16.3%

15.2%

16.6%

16.5%

16.8%

28.8%

29.5%

30.0%

32.4%

36.2%

39.5%

41.4%

40.4%

38.8%

37.1%

34.1%

34.1%

33.8%

31.2%

28.7%

26.7%

26.8%

27.6%

29.3%

30.8%

13.6%

13.1%

12.9%

12.7%

11.7%

11.1%

10.3%

9.8%

9.8%

9.6%

7.6%

7.4%

8.1%

8.1%

7.3%

6.4%

6.3%

5.7%

5.7%

5.7%

0% 20% 40% 60% 80% 100%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Under 1 year

1-5 years

5-10 years

10-20 years

over 20 years

Sources: SNL Financial; Insurance Information Institute.

The main shift over these years has been from longer maturities to shorter maturities, but the 2013-14 data suggest a shift back has begun.

The 2014 distribution resembles that at year-end 2009.

Page 34: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Bonds Rated NAIC Quality Category 3-6 as a Percent of Total Bonds, 2003–2015:Q1

2.69%

2.10% 2.17%1.98%

3.07% 3.10%

4.07% 3.99%4.22%

4.54%

2.04%2.27%

2.58%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015:Q1

There are many ways to capture higher yields on bond portfolios. One is to accept greater risk, as measured by NAIC bond ratings.

The ratings range from 1 to 6, with investment grade rated 1 or 2.Even in 2014-15, over 95% of the industry’s bonds were investment grade.

Sources: SNL Financial; Insurance Information Institute.

From 2006-07 to year-end 2012, the percentage of lower-quality bonds in P/C industry portfolios doubled

Page 35: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

35

Treasury Yield Curves: Pre-Crisis (July 2007) vs. May 2015

0.01% 0.02% 0.08%0.24%

0.61%

1.93%2.20%

4.82%4.96% 5.04% 4.96%

4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%

1.54%

0.98%

2.96%2.69%

0%

1%

2%

3%

4%

5%

6%

1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

May 2015 Yield Curve

Pre-Crisis (July 2007)

The Treasury yield curve remains near its most depressed level in at least 45 years. Even when the Fed begins to raise rates, yields are unlikely

to return to pre-crisis levels anytime soon

The Fed is signaling that it is likely to begin raising short-term rates (and indirectly, the yield curve) later in 2015.

Source: Federal Reserve Board of Governors; Insurance Information Institute.

Page 36: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Commercial Rates

36

L:

Steady Going

Page 37: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

37

Commercial Lines Rate Change by Qtr(vs. Year Earlier)

Sources: Willis Towers Watson Commercial Lines Insurance Pricing Survey, Insurance Information Institute.

Decreases: WC, Property, D&O. ‘Meaningful’ Increases: Commercial Auto.

13%

12%

9%

5%

3%

0%

-1%

-1%

-2%

-2%

-2%

-2% -1

%-1

%-3

%-4

%-5

%-5

%-6

%-6

% -5% -4

% -3%

-1%

1%

0%

0%

-1%

-1%

-1%

-1%

1% 2

%2% 3

%5% 6

%6% 7

%7%

6%

6%

5%

4%

3%

3%

2%

2%

1%

1%

1%

-10%

-5%

0%

5%

10%

15%

20%2

00

3:Q

22

00

3:Q

32

00

3:Q

42

00

4:Q

12

00

4:Q

22

00

4:Q

32

00

4:Q

42

00

5:Q

12005:Q

22

00

5:Q

32

00

5:Q

42

00

6:Q

12

00

6:Q

22

00

6:Q

32

00

6:Q

42

00

7:Q

12

00

7:Q

22

00

7:Q

32

00

7:Q

42

00

8:Q

12

00

8:Q

22

00

8:Q

32

00

8:Q

42

00

9:Q

12009:Q

22

00

9:Q

32

00

9:Q

42

01

0:Q

12

01

0:Q

22

01

0:Q

32

01

0:Q

42

01

1:Q

12

01

1:Q

22

01

1:Q

32

01

1:Q

42

01

2:Q

12

01

2:Q

22

01

2:Q

32

01

2:Q

42

01

3:Q

12013:Q

12

01

3:Q

32

01

3:Q

42

01

4:Q

12

01

4:Q

22

01

4:Q

32

01

4:Q

42

01

5:Q

12

01

5:Q

22

01

5:Q

32

01

5:Q

4

20 consecutive quarters of rate increases

Page 38: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

38

Canadian Commercial Lines Price Level Change by Qtr (vs. Year Earlier)

Sources: Willis Towers Watson Commercial Lines Insurance Pricing Survey, Insurance Information Institute.

Hard Market (Such As It Is) Appears to Have Passed Its Peak.

-0.8

%

0.1

%

0.1

% 1.7

%

2.3

%

2.3

%

1.7

%

1.8

%

1.2

%

1.6

%

1.7

%

2.3

%

2.9

%

3.0

%

2.7

%

2.1

%

1.1

%

-0.2

%

-10%

-5%

0%

5%

10%

15%

20%2

01

1:Q

2

201

1:Q

3

201

1:Q

4

201

2:Q

1

201

2:Q

2

201

2:Q

3

201

2:Q

4

201

3:Q

1

201

3:Q

1

201

3:Q

3

201

3:Q

4

201

4:Q

1

201

4:Q

2

201

4:Q

3

201

4:Q

4

201

5:Q

1

201

5:Q

2

201

5:Q

3

16 consecutive quarters of rate increases

Page 39: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Commercial Lines Rate Change by Month (vs. Year Earlier) Since 6/09

-6%

-6%

-5%

-4%

-5%

-5%

-4%

-4%

-5%

-4%

-4%

-3%

-3%

-3%

-4%

-4%

-4%

-5%

-5%

-5%

-5%

-4%

-4%

-4%

-3%

-2%

-2%

0%

0%

1%

1%

1%

2%

3%

3%

4%

4%

4%

5%

5%

4%

5%

5%

5%

4%

5%

5%

5%

5%

4%

4%

5%

4%

4%

3%

3%

2%

3%

2%

3%

2%

2%

2%

2%

1%

1%

0%

0%

1%

0%

0%

1%

0%

-1%

-2%

-3%

-4%

-4%

-4%

-3%

-2%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

15-J

un

15-A

ug

15-O

ct

15-D

ec

16-F

eb

16-A

pr

September 2015: First

Overall Decrease Since

August 2011.

39

SOURCE: MarketScout, Insurance Information Institute.

Early Indication: The ‘Soft Market’ May Have Been Brief.

Are Decreases Already

Moderating?

Page 40: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Commercial Lines Rate Change by Month (vs. Year Earlier)

Jul-02, 33%

Feb-05, 0%

Dec-07, -16%

Sep-13, 5%

-20%

-10%

0%

10%

20%

30%

40%

Jul-

01

Dec-0

1

May-0

2

Oct-

02

Mar-

03

Aug-0

3

Jan-0

4

Jun-0

4

Nov-0

4

Apr-

05

Sep-0

5

Feb-0

6

Jul-

06

Dec-0

6

May-0

7

Oct-

07

Mar-

08

Aug-0

8

Jan-0

9

Jun-0

9

Nov-0

9

Apr-

10

Sep-1

0

Feb-1

1

Jul-

11

Dec-1

1

May-1

2

Oct-

12

Mar-

13

Aug-1

3

Jan-1

4

Jun-1

4

Nov-1

4

Apr-

15

Sep-1

5

16-F

eb

79 Months of Rates < 0% 37 Months of

Rates > 0%

40

SOURCE: MarketScout, Insurance Information Institute.

Rates Are As Stable As They’ve Been in 15 Years but Beginning to Show Signs of Decline.

Not Much of A Hard Market,

By Historic Standards

Three Straight Months: -4%;

April -2%

Page 41: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Commercial Property Rate Change by Month (vs. Year Earlier)

Feb-09, -7%

Sep-12, 6%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Feb-0

9

May-0

9

Aug-0

9

Nov-0

9

Feb-1

0

May-1

0

Aug-1

0

Nov-1

0

Feb-1

1

May-1

1

Aug-1

1

Nov-1

1

Feb-1

2

May-1

2

Aug-1

2

Nov-1

2

Feb-1

3

May-1

3

Aug-1

3

Nov-1

3

Feb-1

4

May-1

4

Aug-1

4

Nov-1

4

Feb-1

5

May-1

5

Aug-1

5

15-N

ov

16-F

eb

Four Years of Rates >=0%

41

SOURCE: MarketScout, Insurance Information Institute.

Interpolated Commercial Property Estimates for May, August, September 2010.

Soft Reinsurance Market Holding Rates Down, But Not Significantly More Than Rest of P/C Market.

Page 42: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Business Interruption Rate Change by Month (vs. Year Earlier)

42

-4%

-4%

-4%

-3%

-3%

-3%

-2%

-2%

-1%

-3%

-3%

-3%

-3%

-3%

-3%

-4%

-4%

-3%

-3%

-2%

-2%

0%

0%

0%

1%

1%

2%

1%

1%

1%

2%

2%

3%

4%

4%

4%

3%

4%

3%

3%

3%

3%

3%

2%

2%

2%

3%

3%

3%

3%

2%

2%

2%

1%

1%

1%

1%

0%

1%

1%

1%

0%

0%

0%

0%

-1%

1%

0%

0%

0%

-1%

-1%

-2%

-3%

-3%

-2%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 43: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

BOP Rate Change by Month (vs. Year Earlier)

43

-5%

-5%

-4%

-3%

-3%

-4%

-3%

-2%

-2%

-4%

-1%

-2%

-4%

-4%

-3%

-3%

-4%

-2%

-1%

0%

0%

0%

1%

1%

2%

2%

2%

2%

2%

3%

4%

4% 5

% 5%

6%

5%

4%

4%

5%

4%

5%

5%

4%

4%

4%

5%

5%

5%

4%

3%

3%

4%

4%

2%

3%

3%

3%

2%

2%

2%

2%

1%

1%

1%

0%

1%

1%

1%

0%

0%

1%

0%

0%

-1%

-1%

-1%

-2%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Rate Change on Businessowners Policies Can Be A Bellwether for Small Commercial Risks.

Page 44: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Inland Marine Rate Change by Month (vs. Year Earlier)

44

-4%

-4%

-5%

-3%

-5%

-5%

-4%

-4%

-4%

-3%

-3%

-3%

-3%

-4%

-3%

-3%

-4%

-3%

-3%

-2%

-2%

-2%

-1%

-1%

0%

1%

0%

1%

1%

2%

2%

2%

2%

2%

2%

2%

3%

3%

3%

3%

3%

3%

3%

3%

3%

2%

2%

2%

2%

2%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

-1%

-1%

-1%

-3%

-2%

-1%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 45: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

General Liability Rate Change by Month (vs. Year Earlier)

45

-6%

-7%

-7%

-5%

-6%

-6%

-5%

-4%

-5%

-5%

-4%

-5%

-4%

-5%

-5%

-5%

-6%

-6%

-5%

-6%

-5%

-4%

-4%

-3%

-2%

-2%

-2%

0%

1%

2%

2%

2%

2%

3%

3%

4%

4%

6%

6%

5%

5%

5%

6%

4%

4%

4%

6%

5%

5%

6%

6%

5%

4%

3%

3%

2%

2%

2%

3%

3%

2%

2%

2%

2%

2%

1%

1%

1%

0%

0%

0%

1%

0%

0%

0%

-2%

-2%

-2%

-2%

-1%

0%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 46: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Umbrella/Excess Rate Change by Month (vs. Year Earlier)

46

-5%

-4%

-4%

-3%

-5%

-4%

-3%

-4%

-4%

-3%

-4%

-2%

-2%

-3%

-3%

-3%

-3%

-3%

-4%

-4%

-2%

-2%

-3%

-2%

-1%

0%

0%

1%

2%

2%

3%

3%

3%

4%

3%

4%

4%

5%

4%

3%

5%

5%

5%

5%

4%

4%

4%

4%

4%

3%

3%

3%

2%

3%

2%

2%

1%

2%

1%

2%

2%

2%

1%

1%

1%

0%

0%

0%

1%

0%

0%

-1%

-2%

-4%

-3%

-3%

-2%

-2%

-6%

-4%

-2%

0%

2%

4%

6%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 47: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Commercial Auto Rate Change by Month (vs. Year Earlier)

47

-4%

-5%

-5%

-4%

-4%

-4%

-3%

-4%

-4%

-3%

-3%

-3%

-2%

-3%

-3%

-3%

-3%

-2%

-1%

-3%

-3%

-2%

-3%

-1%

-2%

-1%

-1%

0%

1%

0%

1%

1%

1%

2%

3%

4%

5%

4%

5%

5%

5%

6%

5%

5%

5%

5%

5%

6%

5%

4%

5%

5%

5%

4%

4%

4%

4%

3%

3%

3%

3%

2%

2%

3%

3%

1%

1%

2%

2%

2%

2%

2%

2%

2%

1%

0%

0%

0%

-1%

-1%

-1%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Willis Towers Watson Notes ‘Meaningful’ Increases in This Line.

Page 48: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Workers Comp Rate Change by Month (vs. Year Earlier)

-14

%-1

2%

-9%

-7% -6

%-7

%-9

%-9

%-9

% -8% -7

% -6%

-8% -7

%-7

% -6%

-4%

-4%

-5%

-5% -4

%-4

%-4

% -3%

-4%

-4% -3

%-3

%-3

% -2%

-3%

-3%

-3%

-3% -2

% -1%

-3%

-3% -2

%-3

%

-1%

-2% -1

%-1

%0

%1

%0

%1

%1

%1

%2

%3

%4

%5

%4

%5

%

5%

6%

5%

5%

5%

5%

5%

6%

5%

4%

5%

5%

5%

4%

4%

4%

4%

3%

3%

3%

3%

2%

2%

3%

3%

0%

0%

0%

0%

0%

0%

1%

1%

0%

0%

0%

-2%

-4% -3

%-3

% -2% -1

%

-15%

-10%

-5%

0%

5%

10%Jan

-08

Apr-

08

Jul-

08

Oct-

08

Jan

-09

Apr-

09

Jul-

09

Oct-

09

Jan

-10

Apr-

10

Jul-

10

Oct-

10

Jan

-11

Apr-

11

Jul-

11

Oct-

11

Jan

-12

Apr-

12

Jul-

12

Oct-

12

Jan

-13

Apr-

13

Jul-

13

Oct-

13

Jan

-14

Apr-

14

Jul-

14

Oct-

14

Jan

-15

Apr-

15

Jul-

15

Oct-

15

Jan

-16

Apr-

16

48

Willis Towers Watson Notes Decreases in This Line.

Sources: MarketScout, Insurance Information Institute.

Willis Towers Watson Notes ‘Meaningful’ Increases in This Line.

Page 49: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

2015 Premium Change-NCCI States

2.5%

2.2%

-0.3%

-4.0%

4.8%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0%

Chg in DPW

Other Factors

Carrier Discounting

Bureau LC, Mix of Biz

Chg in Carrier Est. Payroll

49

Other factors include: Change in audit impacts; change in average experience mod; change in mix of policy types; change in

deductible credits; change in mix between private carrier and state fund markets.

Sources: Annual Statement data, NCCI.

Premium Volume in Workers Comp Helped by Increase in Payroll, but Rates Trended Lower.

Page 50: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Professional Liability Rate Change by Month (vs. Year Earlier)

50

-5%

-6%

-5%

-4%

-3%

-3%

-2%

-1%

-2%

-3%

0%

-2%

-1%

-2%

-1%

-1%

-1%

-1%

-1%

0%

0%

0%

2%

1%

0%

0%

0%

0%

0%

1%

2%

2%

2%

1%

2%

3%

3%

3%

4%

4%

4%

4%

3%

3%

3%

3%

3%

3%

3%

3%

3%

2%

2%

2%

2%

2%

2%

2%

2%

2%

1%

2%

2%

1%

1%

2%

0%

0%

0%

1%

0%

0%

0%

0%

-2%

-4%

-4%

-3%

-3%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 51: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

D&O Liability Rate Change by Month (vs. Year Earlier)

51

-3%

-2%

0%

0%

0%

0%

0%

-2%

-1%

0%

0%

-1%

-1%

-2%

-1%

-1%

-1%

-1%

0%

0%

0%

2%

1%

0%

0%

0%

0%

1%

1%

1%

2%

2%

2%

3%

4%

4%

4%

4%

4%

4%

4%

3%

3%

4%

5%

4%

3%

4%

3%

2%

2%

2%

2%

3%

2%

2%

1%

1%

1%

2%

2%

2%

1%

1%

1%

0%

0%

1%

1%

0%

0%

0%

0%

0%

-2%

-2%

-2%

-2%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Willis Towers Watson Notes Decreases in This Line.

Sources: MarketScout, Insurance Information Institute.

Page 52: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Monoline D&O: Premium Growth, Loss Ratios

5.3

5.7

6.0

6.4 6.4

6.9%

5.9%

7.0%

0.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2011 2012 2013 2014 2015

Monoline DPW

% Change

DPW ($ Billions) % Chg from PY

61.0%

58.7%58.2% 58.4%

66.2%

54.0%

56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

2011 2012 2013 2014 2015

CY Loss & ALAE Ratio

CY Loss & ALAE Ratio

52

Monoline D&O Growth Slowed in 2015. Experience Appears to Have Deteriorated.

SOURCE: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

Page 53: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

EPLI Rate Change by Month (vs. Year Earlier)

53

-4%

-3%

-3%

-2%

-3%

-2%

-2%

-1%

-1%

-1%

0%

-1%

-1%

-2%

-2%

-1%

-1%

-1%

0%

0%

0%

0%

1%

1%

1%

1%

1%

1%

1%

1%

2%

2%

2%

3%

3%

3%

3%

4%

3%

3%

3%

2%

2%

4%

5%

4%

4%

4%

3%

2%

2%

1%

2%

3%

3%

2%

1%

1%

1%

2%

2%

2%

2%

1%

2%

1%

0%

1%

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 54: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Fiduciary Liability Rate Change by Month (vs. Year Earlier)

54

-3%

-2%

-2%

-3%

-2%

-1%

-1%

-1%

-1%

-1%

0%

-1%

-2%

-2%

-1%

0%

-1%

-1%

-1%

0%

-1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

1%

1%

1%

1%

1%

1%

2%

2%

2%

2%

3%

3%

2%

2%

3%

3%

3%

3%

3%

1%

1%

1%

1%

1%

1%

1%

1%

0%

1%

1%

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

-2%

-2%

-2%

-2%

-1%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 55: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Crime Rate Change by Month (vs. Year Earlier)

55

-4%

-3%

-2%

-2%

-2%

-1%

-1%

-1%

-1%

-1%

-1%

0%

1%

0%

-2%

-2%

-3%

-1%

-1%

0%

2%

0%

0%

0%

0%

0%

0%

1%

0%

1%

1%

1%

1%

1%

2%

2%

2%

2%

2%

2%

3%

3%

2%

2%

2%

2%

2%

2%

1%

1%

1%

1%

1%

1%

1%

1%

1%

0%

1%

1%

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

1%

0%

0%

0%

0%

0%

0%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 56: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Surety Rate Change by Month (vs. Year Earlier)

56

-4%

-4%

-3%

-3%

-3%

-2%

-2%

-1%

-2%

0%

-2%

-1%

-1%

-2%

-1%

-1%

-1%

-1%

0%

2%

1%

1%

1%

0%

1%

0%

0%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

2%

2%

2%

2%

2%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

-1%

-1%

-1%

-1%

-1%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Ju

n-0

9A

ug

-09

Oct-

09

Dec-0

9F

eb-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oct-

10

Dec-1

0F

eb-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oct-

11

Dec-1

1F

eb-1

2A

pr-

12

Ju

n-1

2A

ug

-12

Oct-

12

Dec-1

2F

eb-1

3A

pr-

13

Ju

n-1

3A

ug

-13

Oct-

13

Dec-1

3F

eb-1

4A

pr-

14

Ju

n-1

4A

ug

-14

Oct-

14

Dec-1

4F

eb-1

5A

pr-

15

Ju

n-1

5A

ug

-15

15-O

ct

15-D

ec

16-F

eb

16-A

pr

Page 57: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Rates in The Northeast, Q4 2015*

57

* CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI.

SOURCE: Council of Insurance Agents & Brokers.

Rate Changes Can Vary Significantly Within States, Lines of Business or Individual Markets.

By Account Size

By Line of Business

This Survey is

Based on

Agent

Estimates.

Down > 10% Down 1-10% No Change Up 1-10% Up > 10% N/A

Small (<25K) 0.00% 42.11% 47.36% 0.00% 0.00% 10.53%

Medium (25-100K) 10.53% 63.16% 26.32% 0.00% 0.00% 0.00%

Large (100K+) 10.53% 73.68% 10.53% 0.00% 0.00% 5.26%

Down > 10% Down 1-10% No Change Up 1-10% Up > 10% N/A

Commercial Auto 0.00% 10.53% 52.63% 31.58% 0.00% 5.26%

Commercial Property 15.79% 63.16% 10.52% 10.53% 0.00% 0.00%

D&O 0.00% 26.32% 42.11% 15.78% 5.26% 10.53%

Flood Insurance 5.26% 10.53% 52.62% 10.53% 10.53% 10.53%

General Liability 5.26% 52.63% 36.85% 0.00% 0.00% 5.26%

Terrorism 5.26% 10.53% 63.16% 5.26% 5.26% 10.53%

Umbrella 10.53% 47.37% 31.58% 5.26% 0.00% 5.26%

Workers Compensation 0.00% 52.63% 36.85% 5.26% 0.00% 5.26%

Page 58: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Auto Insurance

58

L:

Rising Frequency, Severity Pinching the Largest P/C Line

Page 59: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Return on Net Worth: Personal & Commercial Auto, 2005-2014

3.1%

4.3%

14.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Commercial Personal Fortune 500

59

Auto Insurance Profitability Has Been Falling for A Decade.

SOURCE: National Association of Insurance Commissioners.

Page 60: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Net Combined Ratio, 2005-2015

92

.1%

92

.5%

94

.3%

96

.8%

99

.5%

98

.1%

10

3.6

%

10

7.0

%

10

6.9

%

10

3.4

%

10

8.8

%

95

.1%

95

.6%

98

.3%

10

0.2

%

10

1.3

%

10

1.0

%

10

2.0

%

10

2.1

%

10

1.6

%

10

2.5

%

10

4.6

%

80%

85%

90%

95%

100%

105%

110%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Commercial Personal

60

Loss Ratios Have Been Rising for A Decade. 2015 Return on Net Worth Is Likely Close to Zero or Negative.

SOURCE: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; Insurance

Information Institute.

Page 61: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

61

Why Personal Auto Loss Ratios Are Rising: Severity & Frequency by Coverage, 2015 vs. 2014

2.2%1.1%

10.2%

0.8%

4.1%

6.4%

3.5%

5.7%

-1.7%-2.5%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Bodily Injury Property Damage

Liability

PIP Collision Comprehensive

Severity Frequency

Annual Change, 2015 Over 2014

Across All Personal Coverage Types (Except Comprehensive) in 2015, Frequency and Severity Rose. This Pattern is Likely to Continue in 2016

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 62: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Auto Insurance: Frequency vs. Severity

7.92

2.61

4.22

1.23

3.55

0.95

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

PropertyDamage

Bodily Injury

Cla

ims p

er

100 I

nsure

d V

ehic

les

Frequency

1963 1988 2013

1831,1431,288

7,553

3,231

15,443

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

PropertyDamage

Bodily Injury

Cla

im S

eve

rity

Severity

1963 1988 2013

62

Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.

In the Long Run, Frequency Falls. Severity Increases.

Page 63: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

63

Claim Trends by Coverage

Focus on Collision

Page 64: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Collision

64

Page 65: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

65

Collision Claims: Frequency Trending Higher in 2015

0.9%

-1.8%

2.4%

4.4%

0.8%

-1.8%

-3.6%

2.5%

-2.4%

-1.4%

-0.5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Annual Change, 2005 through 2015

For a long time, claim frequency has been falling,but since 2009 this trend seems to have reversed.

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 66: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

66

Collision Claims:Severity Trending Higher in 2009-2015

2.8%

1.3%

4.1%

1.3%

5.7%

3.9%

3.1%

0.1%0.5%

-2.3%

-0.1%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Annual Change, 2005 through 2015

The Great Recession and high fuel prices helped totemper claim severity, but these forces have clearly reversed,

consistent with experience from past recoveries

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 67: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

67

Collision Claims: Pure Premium (Losses per Insured Unit), 2011:Q4-2015:Q4

-0.3

%

3.0

%

2.9

%

3.8

%

6.6

%

6.7

%

6.3

%

6.2

%

5.8

%

4.3

%

5.3

%

5.8

%

6.6

%$170

$174

$176

$179

$182 $186

$188

$190

$192

$194

$198

$201 $205

-2%

0%

2%

4%

6%

8%

10%

12%

$160

$170

$180

$190

$200

$210

20

12

:Q4

20

13

:Q1

20

13

:Q2

20

13

:Q3

20

13

:Q4

20

14

:Q1

20

14

:Q2

20

14

:Q3

20

14

:Q4

20

15

:Q1

20

15

:Q2

20

15

:Q3

20

15

:Q4

% Chg from Prior Yr (right scale)

Pure Premium (left scale)

Note: Number of claims is for four quarters ending in quarter shown

Source: ISO/PCI Fast Track data; Insurance Information Institute

Over the latest four years,the collision pure premium rose by 19.75%.

Page 68: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

68

What’s Driving These Trends?

Frequency; Severity

Page 69: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

69

America is Driving More Again:Total Miles Driven*, 1990-2016

Billions of Miles Driven

2,000

2,200

2,400

2,600

2,800

3,000

3,200

Jan-9

0

Nov-9

0

Sep

-91

Jul-92

May-9

3

Mar-

94

Jan-9

5

Nov-9

5

Sep

-96

Jul-97

May-9

8

Mar-

99

Jan-0

0

Nov-0

0

Se

p-0

1

Jul-02

May-0

3

Mar-

04

Jan-0

5

Nov-0

5

Sep

-06

Jul-07

May-0

8

Mar-

09

Ja

n-1

0

Nov-1

0

Sep

-11

Jul-12

May-1

3

Mar-

14

Jan-1

5

Nov-1

5

From November 2007 until January

2015, miles driven was below the

prior peak for 87 straight months—

over 7 years! Previous record was in

the early 1980s (39 months).

Records

in 2015/6

Some of the 1990-2007

growth in miles driven

(+43.9%) is due to

population growth

(+20.7%)…

…but the population

grew by 6.6% from

2007-2015 and miles

driven didn’t grow at

all.

*Moving 12-month total. Data through February 2016, the latest available.Note: Recessions indicated by shaded columns.

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); National Bureau of Economic Research (recession dates); Insurance Information Institute.

Page 70: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

70

More Miles Driven=> More Collisions, 2006–2015

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Institute for Highway Safety; Insurance Information Institute.

Billions of Miles Driven in Prior Year

5.5

5.6

5.7

5.8

5.9

6.0

2850

2900

2950

3000

3050

3100

3150

06:Q

1

06:Q

3

07:Q

1

07

:Q3

08:Q

1

08:Q

3

09:Q

1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12

:Q3

13:Q

1

13:Q

3

14:Q

1

14:Q

3

15:Q

1

15:Q

3

Miles Driven (left axis) Collision Claim Frequency (right axis)

Overall Collision Claims Per 100 Insured Vehicles

The more miles people drive, the more likely they are to get in an accident, helping drive claim frequency higher.

Recession

Page 71: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

71

Why Are PeopleDriving More Miles? Cheap Gas?

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Energy Information Administration; Insurance Institute for Highway Safety; Insurance Information Institute.

Billions of Miles Driven in Prior Year

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2850

2900

2950

3000

3050

3100

3150

06:Q

1

06:Q

3

07:Q

1

07:Q

3

08:Q

1

08:Q

3

09

:Q1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12:Q

3

13:Q

1

13:Q

3

14:Q

1

14:Q

3

15:Q

1

15:Q

3

Miles Driven (left axis) Gas PricesAvg. Price Per Gallon

Gas Prices Don’t Seem Correlated With Miles Driven.

Recession

Page 72: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

72

Why Are PeopleDriving More Miles? Jobs?

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Seasonally Adjusted Employed from Bureau of Labor Statistics; Insurance Institute for Highway Safety; Insurance Information Institute.

Billions of Miles Driven in Prior Year

132

134

136

138

140

142

144

146

148

150

152

2850

2900

2950

3000

3050

3100

3150

06:Q

1

06:Q

3

07:Q

1

07:Q

3

08:Q

1

08:Q

3

09

:Q1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12:Q

3

13:Q

1

13:Q

3

14

:Q1

14:Q

3

15:Q

1

15:Q

3

Miles Driven (left axis) # EmployedMillions Employed

People Drive To and From Work and Drive to Entertainment. Out of Work, They Curtail Their Movement.

Recession

Page 73: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Comparing Gas Prices, Employment on Collision Frequency

5.5

5.55

5.6

5.65

5.7

5.75

5.8

5.85

5.9

5.95

6

- 1.00 2.00 3.00 4.00 5.00

Gas price vs. Collision Frequency

5.5

5.55

5.6

5.65

5.7

5.75

5.8

5.85

5.9

5.95

6

135 140 145 150 155

Number Employed vs. Collision Frequency

73

Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Energy Information Administration; Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Information Institute.

Page 74: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

74

More People Working and Driving=> More Collisions, 2006-2016

Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Information Institute.

Number Employed,Millions

138

140

142

144

146

148

150

152

06

:Q1

06

:Q3

07

:Q1

07

:Q3

08

:Q1

08

:Q3

09

:Q1

09

:Q3

10

:Q1

10

:Q3

11

:Q1

11

:Q3

12

:Q1

12

:Q3

13

:Q1

13

:Q3

14

:Q1

14

:Q3

15

:Q1

15

:Q3

16

:Q1

5.5

5.6

5.7

5.8

5.9

6.0

Number Employed (left scale) Collision Claim Frequency (right scale)

Overall Collision Claims Per 100 Insured

Vehicles

When people are out of work, they drive less. When they get jobs,they drive to work, helping drive claim frequency higher.

Recession

Page 75: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Severity: Driving Fatalities Are Rising

Sources: National Safety Council, Insurance Information Institute.

Driving Has Been Getting Safer For Decades, But Recent Trend Is Discouraging—38,300 Deaths in 2015

Page 76: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Loss Trends vs. CPI: Not Just Auto

Source: Insurance Information Institute calculation from Towers Watson data.

In Recent Years, Claim Costs Have Risen at About the Inflation Rate. If We Return to the Norm, Claim Costs Will Rise.

Page 77: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

77

Death Rates per 100,000,000 Vehicle miles, 1990-2015*

Source: National Safety Council; Federal Highway Administration; Insurance Information Institute.

2

1.8

3

1.8

2

1.8

1.7

9

1.7

6

1.7

1.6

5

1.5

8

1.5

8

1.5

7

1.5

9

1.5

5

1.5

2

1.5

2

1.5

1.4

5

1.3

4

1.2

2

1.1

9

1.2

0 1.3

5

1.2

0

1.2

0

1.2

2

2.1

8

0.00

0.50

1.00

1.50

2.00

2.50

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

*

death rates per 100,000,000 vehicle miles

The recession and high gas prices reduced

miles driven, accelerating the drop in

death rates

Motor vehicle fatality rates appear to be ticking up in 2015

Vehicle death rates fell by nearly half between 1990 and 2010.

Page 78: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Bodily Injury Liability

78

Page 79: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

79

Bodily Injury:Frequency Trending Higher Since 2009

1.1%

0.0% 0.0%

-1.1%

2.2%

-5.4%

-3.8% -4.0% -4.2%

-2.2%

0.0%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Annual Change, 2005 through 2015

For a long time, claim frequency has been falling,but since 2009 this trend seems to have reversed.

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 80: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

80

Bodily Injury: Severity RisingEvery Year in the Past Decade

2.1%1.7%

3.7%

1.8%

4.1%

2.9%

4.7%

5.7% 5.9%

2.0%

3.0%

0%

1%

2%

3%

4%

5%

6%

7%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Annual Change, 2005 through 2015

The Great Recession and high fuel prices helped totemper increases in claim severity, but the are signs that

larger increases have returned

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 81: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Property Damage Liability

81

Page 82: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

82

Property Damage Pure Premium (Losses per Insured Unit), 2011:Q4-2015:Q4

$98.2

8

$99.1

9

$100.5

5

$101.3

2

$101.3

1

$103.7

9

$106.4

7

$107.8

2

$109.0

1

$110.3

8

$111.9

6

$113.9

1

$116.5

6

$118.9

6

$102.3

4

$101.2

6 $105.2

2

$95.00

$100.00

$105.00

$110.00

$115.00

$120.00

20

11

:Q4

20

12

:Q1

20

12

:Q2

20

12

:Q3

20

12

:Q4

20

13

:Q1

20

13

:Q2

20

13

:Q3

20

13

:Q4

20

14

:Q1

20

14

:Q2

20

14

:Q3

20

14

:Q4

20

15

:Q1

20

15

:Q2

20

15

:Q3

20

15

:Q4

Note: Number of claims is for four quarters ending in quarter shown

Source: ISO/PCI Fast Track data; Insurance Information Institute

Over the latest four years,the PD pure premium rose by 21.04%.

In just the last year, the rolling 4-quarter PD pure premium rose by 7.8%.

Page 83: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

83

Property Damage:Frequency Trending Higher Since 2009

0.6%

1.2%

0.0%

1.4%1.1%

-1.6%

-3.5%

0.9%

-3.4%

0.6%0.3%

-4%

-3%

-2%

-1%

0%

1%

2%

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Annual Change, 2005 through 2015

Before 2009 property damage claim frequency generally fell.Since 2009 claim frequency has been rising virtually every year.

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 84: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

84

Property Damage: Severity RisingEvery Year in the Past Decade

1.8% 1.9%

4.0%3.4%

6.4%

2.9%

3.6%

2.0% 2.0%

-0.4%

0.4%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Annual Change, 2005 through 2015

The Great Recession and high fuel prices helped totemper increases in claim severity, but the are signs that

larger increases have returned

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 85: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Personal Injury Protection (PIP)

85

Page 86: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

86

No-Fault (PIP):Frequency Trending Higher Since 2009

-3.4%-2.1%

-5.8%

-0.8%

10.2%

-4.8%-5.7%

-4.1%

-6.4%

5.4%6.6%

-9%

-6%

-3%

0%

3%

6%

9%

12%

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Annual Change, 2005 through 2015

No-Fault Systems Are Less Problematic in Some States but Still of Concern in Some, Such as Florida

*No-fault states included are: FL, HI, KS, KY, MA, MI, MN, NY, ND and UT.

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 87: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

87

No-Fault (PIP): Severity RisingVirtually Every Year in the Past Decade

3.2%2.9%

-1.3%

3.2% 3.5%

4.7%

2.4%

6.4% 6.5% 6.8%

5.2%

-2%

0%

2%

4%

6%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Annual Change, 2005 through 2015

No-Fault Systems Are Less Problematic in Some States but Still of Concern in Some, Such as MI

*No-fault states included are: FL, HI, KS, KY, MA, MI, MN, NY, ND and UT.

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 88: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Comprehensive

88

Page 89: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

89

Comprehensive Coverage: Frequency and Severity Trends Are Volatile

15.4% 15.3%

-14.5%

7.3%

-1.7%

-9.8%

-6.3%

1.3%

5.8%

-8.9%-7.0%

2.6%

-2.5%

15.5%

-1.4% -1.5%

12.6%

-8.1%-5.9%

-3.1%

1.8%

6.2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Severity Frequency

Annual Change, 2005 through 2015

Weather Creates Volatility for Comprehensive Coverage

Severe weather is a principal cause of the spikes in both

frequency and severity

Source: ISO/PCI Fast Track data; Insurance Information Institute

Page 90: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Economic Forecast: Slow and Steady

9090

Page 91: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

91

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.

Source: US Department of Commerce, Blue Economic Indicators 5/16; Insurance Information Institute.

2.7

%1.8

%-1

.8%

1.3

%-3

.7%

-5.3

%-0

.3%

5.0

%2.3

%2.2

%2.6

%2.4

%0.1

%2.5

%1.3

%4.1

%2.0

%1.3

% 3.1

%0.4

%2.7

%1.8

% 3.5

%-0

.9%

4.6

%4.3

%2.1

%0.6

%3.9

%2.0

%1.4

%0.5

% 2.3

%2.4

%2.4

%2.3

%2.3

%2.2

%2.1

%

-8.9%

4.5

%

1.4%

4.1

%1.1

%1.8

%2.5

% 3.6

%3.1

%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

   2

00

0   

   2

00

1   

   2

00

2   

   2

00

3   

   2

00

4   

   2

00

5   

   2

00

6   

   2

00

7   

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

16

:1Q

16

:2Q

16

:3Q

16

:4Q

17

:1Q

17

:2Q

17

:3Q

17

:4Q

Demand for Insurance Should Increase in 2016 as GDP Growth Continues at a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly

Real GDP Growth (%)

Recession began in Dec, 2007

The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%

Q1 2014/15 GDP data were hit hard by this year’s “Polar Vortex”

and harsh winter

Page 92: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

State-by-State Leading Indicatorsthrough September 2016

Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.92

Growth in the West is

finally beginning to pick up

The economic outlook for most of the US is generally

positive, though oil and coal states

are hurting

Page 93: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

93

Unemployment and Underemployment Rates: Still Falling

2

4

6

8

10

12

14

16

18

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan-

16

"Headline" Unemployment Rate U-3

Unemployment + UnderemploymentRate U-6

“Headline” unemployment

was 5.0% in March 2016. 4%

to 6% is “normal.”

Source: US Bureau of Labor Statistics; Insurance Information Institute.

U-6 was 9.8% in March 2016.

January 2000 through March 2016, Seasonally Adjusted (%)

High unemployment and underemployment constrained overall economic growth for years, but the job market is clearly improving.

93

U-6 went from 8.0% in March

2007 to 17.5% in October 2009

For U-6, 8% to 10% is “normal.”

Page 94: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Labor Market Slack: Elevated Numberof Involuntary Part-time Workers

94

The “normal” range

(since 1992)

In less than 18 months, 4.5 million additional people were involuntarily working part time

Mar 2016:6.1 million

Page 95: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

95

Number of “Discouraged Workers”:Elevated, but Dropping Jan 1994 – Mar 2016

Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.

Sources: Bureau of Labor Statistics; National Bureau of Economic Research (recession dates).

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

'94 '97 '00 '03 '07 '10 '13

In recent good times, the number of discouraged workers ranged from 200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).

Latest reading: 585,000

in Mar. 2016.

ThousandsA “discouraged worker” in a month did not

actively look for work in the prior month

for reasons such as

--thinks no work available,

--could not find work,

--lacks schooling or training,

--thinks employer thinks too young or old,

and other types of discrimination.

Normal

Page 96: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Full-time vs. Part-time Employment,Quarterly, 2003-2016: WC Implications

110

112

114

116

118

120

122

124

20

03

.12

00

3.2

20

03

.32

00

3.4

20

04

.12

00

4.2

20

04

.32

00

4.4

20

05

.12

00

5.2

20

05

.32

00

5.4

20

06

.12

00

6.2

20

06

.32

00

6.4

20

07

.12

00

7.2

20

07

.32

00

7.4

20

08

.12

00

8.2

20

08

.32

00

8.4

20

09

.12

00

9.2

20

09

.32

00

9.4

20

10

.12

01

0.2

20

10

.32

01

0.4

20

11

.12

01

1.2

20

11

.32

01

1.4

20

12

.12

01

2.2

20

12

.32

01

2.4

20

13

.12

01

3.2

20

13

.32

01

3.4

20

14

.12

01

4.2

20

14

.32

01

4.4

20

15

.12

01

5.2

20

15

.32

01

5.4

20

16

.1

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

Full-time Part-time

Data are seasonally-adjusted. Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

The Great Recession shifted employment from full-time to part-time.Full-time employment is finally above its pre-recession peak,

but part-time hasn’t receded.

Full time,

millions

Part-time,

millionsRecession

Recession shifted

employment growth from full-time to part-time

Pre-recession, most new jobs were full-time

New full-time peak

Page 97: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

97

US Unemployment Rate Forecast4

.5%

4.5

%4

.6%

4.8

%4

.9% 5.4

% 6.1

%6

.9%

8.1

%9

.3%

9.6

% 10

.0%

9.7

%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%

6.6

%6

.2%

6.1

%5

.7%

5.6

%5

.4%

5.2

%5

.0%

4.9

%4

.8%

4.7

%4

.6%

4.6

%4

.6%

4.5

%4

.5%

9.6

%

4%

5%

6%

7%

8%

9%

10%

11%

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

16

:Q1

16

:Q2

16

:Q3

16

:Q4

17

:Q1

17

:Q2

17

:Q3

17

:Q4

Rising unemployment eroded payrolls

and exposure base for WC and some GL.

Unemployment peaked at 10% in late 2009.

* = actual; = forecasts

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (4/16 edition); Insurance Information Institute.

2007:Q1 to 2017:Q4F*

Unemployment forecasts have been revised modestly

downwards. Optimistic scenarios put the

unemployment as low as 4.4% by Q4 of 2016.

Jobless figures have been revised

downwards for 2016

Page 98: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

98

Unemployment Rates by State, March 2016:Highest 25 States*

6.6

6.5

6.5

6.5

6.3

6.2

6.2

6.1

5.8

5.8

5.7

5.7

5.6

5.5

5.5

5.4

5.4

5.4

5.2

5.1

5.0

5.0

4.9

4.9

4.8

4.8

0

1

2

3

4

5

6

7

AK DC IL WV MS AL NM LA NV WA CT SC KY GA NC AZ CA RI WY OH IN US FL PA MI NY

Un

em

plo

ym

en

t R

ate

(%

)

*Provisional figures for March 2016, seasonally adjusted.

Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In March, 21 states had over-the-month unemployment rate decreases, 15 states had increases, and 14 states and the District of Columbia had no change.

Residual impacts of the housing collapse, weak economies are holding

back several states

Page 99: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

99

4.7

4.5

4.5

4.5

4.4

4.4

4.4

4.4

4.3

4.3

4.2

4.0

4.0

3.9

3.8

3.8

3.7

3.5

3.4

3.3

3.1

3.1

3.0

2.9

2.6

2.5

0

1

2

3

4

5

MD OR TN WI DE MA NJ OK MT TX MO AR VA KS IA ID MN UT ME VT HI ND NE CO NH SD

Un

em

plo

ym

en

t R

ate

(%

)

Unemployment Rates by State, March 2016:

Lowest 25 States*

*Provisional figures for March 2016, seasonally adjusted.

Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In March, 21 states had over-the-month unemployment rate decreases, 15 states had increases, and 14 states and the District of Columbia had no change.

Strength in Energy, Agricultural States-most also avoided

housing bust

Page 100: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

100

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2016:Q1

Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.

Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.

Billions

$5,500

$5,750

$6,000

$6,250

$6,500

$6,750

$7,000

$7,250

$7,500

$7,750

$8,000

$8,2500

5:Q

10

5:Q

20

5:Q

30

5:Q

40

6:Q

10

6:Q

20

6:Q

30

6:Q

40

7:Q

10

7:Q

20

7:Q

30

7:Q

40

8:Q

10

8:Q

20

8:Q

30

8:Q

40

9:Q

10

9:Q

20

9:Q

30

9:Q

41

0:Q

11

0:Q

21

0:Q

31

0:Q

41

1:Q

11

1:Q

21

1:Q

31

1:Q

41

2:Q

11

2:Q

21

2:Q

31

2:Q

41

3:Q

11

3:Q

21

3:Q

31

3:Q

41

4:Q

11

4:Q

21

4:Q

31

4:Q

41

5:Q

11

5:Q

21

5:Q

31

5:Q

41

6:Q

1

Prior Peak was 2008:Q3 at $6.54 trillion

Recent trough (2009:Q1) was $6.23 trillion, down

5.3% from prior peak

Growth rates2011:Q1 over 2010:Q1: 5.5%2012:Q1 over 2011:Q1: 4.2%2013:Q1 over 2012:Q1: 2.5%2014:Q1 over 2013:Q1: 4.3% 2015:Q1 over 2014:Q1: 4.5%2016:Q1 over 2015:Q1: 4.5%

100

Latest (2016:Q1) was $8.03 trillion, a new

peak--$1.80 trillion (29%) above 2009 trough

Page 101: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

101

Value of Construction Put in Place, 2016 vs. 2015*

9.2%

-5.2%

9.5%10.3% 10.6% 10.7% 10.6%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Total

Construction

Total Private

Construction

Residential--

Private

Non-

Residential--

Private

Total Public

Construction

Residential-

Public

Non-

Residential--

Public

Overall Construction Activity is Up Again After Languishing in Early 2015; State/Local Sector Government Sector May Be Recovering as Budget

Woes Ease in Some Jurisdictions

Growth (%)

Private sector construction activity is up in both the

residential and nonresidential segments

*seasonally adjusted data through February 2016.Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

Private: +10.6% Public: +9.2%

Public sector construction activity is finally beginning to

create less drag up after years of decline

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102

$314.9$304.0

$286.4 $279.3$270.7 $275.7

$291.3 $297.8

$216.1 $220.2$234.2

$255.4

$289.1

$308.7

$0

$50

$100

$150

$200

$250

$300

$350

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016*

($ Billions)

Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Contracted As State/Local Governments Grappled with

Deficits and Federal Sequestration; Only Now Recovering

Value of New Federal, State and Local Government Construction: 2003-2016*

*2016 figure is a seasonally adjusted annual rate as of February; http://www.census.gov/construction/c30/historical_data.html

Sources: US Department of Commerce; Insurance Information Institute.

Construction across all levels of government

peaked at $314.9B in 2009

Austerity Reigns

Govt. construction MAY finally be turning around; still down $17.1B

or 5.4% since 2009 peak

Page 103: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

103

Construction Employment,Jan. 2010—March 2016*

*Seasonally adjusted.

Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

5,5

81

5,5

22

5,5

42

5,5

54

5,5

27

5,5

12

5,4

97

5,5

19

5,4

99

5,5

01

5,4

97

5,4

68

5,4

35

5,4

78

5,4

85

5,4

97

5,5

24

5,5

30

5,5

47

5,5

46

5,5

83

5,5

76

5,5

77

5,6

12

5,6

29

5,6

29

5,6

28

5,6

27

5,6

08

5,6

23

5,6

32

5,6

41

5,6

49

5,6

68

5,6

84

5,7

24

5,7

46

5,7

98

5,8

15

5,8

13

5,8

33

5,8

56

5,8

54

5,8

66

5,8

93

5,9

18

5,9

53

5,9

37 6,0

06

6,0

32

6,0

62

6,1

03

6,1

14

6,1

21

6,1

52

6,1

69

6,1

91

6,2

01

6,2

31

6,2

75

6,3

16

6,3

47

6,3

35

6,3

65

6,3

77

6,3

78

6,3

83

6,3

91

6,4

10 6,4

84 6,5

49

6,5

97

6,6

15

6,6

35

6,6

72

5,400

5,500

5,600

5,700

5,800

5,900

6,000

6,100

6,200

6,300

6,400

6,500

6,600

6,700

6,800

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan-1

5

Apr-

15

Jul-15

Oct-

15

Jan-1

6

Construction employment is +1.237 million above

Jan. 2011 (+22.8%) trough

(Thousands)

Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.

Page 104: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

104

Construction Employment, Jan. 2003–March 2016

Note: Recession indicated by gray shaded column.

Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.

5,000

5,500

6,000

6,500

7,000

7,500

8,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

The “Great Recession” and housing bust destroyed 2.3 million constructions jobs

The Construction Sector Was a Growth Leader in 2014-16 as the Housing Market, Private Investment and Govt. Spending Recover. WC Insurers Continue to Benefit.

Construction employment troughed at 5.435 million in

Jan. 2011, after a loss of 2.291 million jobs, a 29.7% plunge

from the April 2006 peak

104

Construction employment

peaked at 7.726 million in April 2006

(Thousands) Construction employment as of March 2016 totaled

6.672 million, an increase of 1.237MM jobs or 22.8% from

the Jan. 2011 trough

Gap between pre-recession

construction peak and today: 1.05 million jobs

Page 105: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

105

$200,000

$300,000

$400,000

$500,000

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan 01

Jan 02

Jan 03

Jan 04

Jan 05

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Feb. 2016

* Seasonally adjusted; Data published Apr. 4, 2016.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/

Weakness abroad, falling energy prices and a strong dollar are hurting the manufacturing sector, especially exports. Manufacturing growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.

$ Millions

105

The value of Manufacturing Shipments in Feb. 2016 was

$462.8B—down 9% from the July 2014 record high of $508.1B

Page 106: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

106

Employment in Oil & Gas Extraction,Jan. 2010—March 2016*

*Seasonally adjusted

Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

158.7

158.1

158.4

159.7

160.2

161.5

161.4

161.0

162.7

164.3

166.6 169.2

170.1

171.2

172.6

174.0

176.6

178.2

178.7

180.6

181.3

182.3

184.7

185.2

186.2

187.8

188.6

189.3

189.4

189.4

190.5

192.2

193.1

194.6

194.0

193.8

193.1

192.5

193.0

193.4

193.3

193.1

194.0

194.0

194.0

195.4

193.7

194.6

196.4

197.6

198.6

198.4

199.4

201.5

201.0

201.2

199.4

197.6

197.7

194.4

194.2

193.2

193.6

191.7

190.0

186.7

185.0

182.9

181.7

179.8

178.7

150

160

170

180

190

200

210

Ma

y-1

0

Ju

l-1

0

Se

p-1

0

Nov-1

0

Ja

n-1

1

Ma

r-11

Ma

y-1

1

Ju

l-1

1

Se

p-1

1

Nov-1

1

Jan-1

2

Ma

r-12

Ma

y-1

2

Ju

l-1

2

Se

p-1

2

Nov-1

2

Ja

n-1

3

Ma

r-13

Ma

y-1

3

Ju

l-1

3

Se

p-1

3

Nov-1

3

Ja

n-1

4

Mar-

14

Ma

y-1

4

Ju

l-1

4

Se

p-1

4

Nov-1

4

Ja

n-1

5

Ma

r-15

Ma

y-1

5

Ju

l-1

5

Se

p-1

5

Nov-1

5

Ja

n-1

6

Ma

r-16

Oil and gas extraction

employment is down 11.2% since

Oct. 2014 as oil prices sink

(000)

Employment peaked in Oct. 2014 at 201,500—its highest

level since Dec. 1986.

Page 107: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Cyber InsuranceBy the Numbers

107107

New Data from the Annual Statement

Page 108: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

About the Data

New Reporting Requirement for Annual Statement

Only U.S. Carriers (No Bermuda, Lloyd’s Business)

Cyber Insurance vs. ID Theft

Direct Only

Calendar Year

108

I.I.I. Cyber White Paper To Be Updated in Fall: http://www.iii.org/white-paper/cyber-risks-threat-and-opportunities-100715

Page 109: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

About the Data

Monoline Results

Premium: Earned/Written

Loss

– Paid vs. Incurred

– Indemnity/A&O/DCC

In Force Policy Counts

Package Results

Premium

– Earned/Written

– Quantified/Estimated

109

Loss

– Paid/Reserve (No IBNR)

– Indemnity/A&O/DCC

In Force Policy Counts

Page 110: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Reported 2015 Cyber Writings

Stand-alone48%

Pkg -Estimate

12%

Pkg -Quantified

40%

Direct Premiums Written:

$996 million

110

Stand-alone C-M4%

Stand-alone Occ1%

Pkg C-M35%

Pkg Occ60%

Policy Counts1.46 million

Stand-alone Policies Are Half the Written Premium but Only 5% of the Policies in Force

Est. Avg. Policy

Stand-alone: $7,477

Package: $368

2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.

Page 111: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Reported 2015 ID Theft Writings

Stand-alone

9%

Pkg -Estimate

25%Pkg -

Quantified66%

Direct Premiums Written:

$239 million

111

Stand-alone3%

Pkg Occ97%

Policy Counts17 million

Many Small Policies in This Add-on Personal Lines Coverage, Often Added to HO

Est. Avg. Policy

Stand-alone: $43

Package: $13

2015 Figures Preliminary. Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute.

Page 112: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Cyber Combined Ratio, Frequency

1.8

0.20

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Stand-alone Package

Claims Per 100 Policies

112

Indemnity

51.4%

DCC12.9%

A&O1.7%

Expenses

(est.)28.1%

UW Profit5.9%

Stand-aloneCyber CR

94.1

SOURCE: Aon Benfield Analytics.

Package Data

Lack IBNR; CR

Understated.

Stand-alone

Covers Larger

Business,

Which Are More

Frequently

Targeted.

Page 113: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

Summary

Industry Results Mimic Last Year

Low Interest Rates Remain a Drag on Earnings

Rates Have Been Flat

Auto Insurance – Loss Costs Are Rising Fast

Frequency: Increase in Employment

Severity: Trendline Returns to Normal + Rise in Fatalities

Economic Outlook: Slow but Steady Growth

U.S. Companies Cyber Market Data

$1B Written in U.S. 2015; 94.1 C.R on Monoline Product

113

Page 114: Financial Results From An Actuarial Point of View · -Jan NE Winter Storm-Feb (CA, SE) Winter Weather-March (CA, SE) CV Storm-Incl. Florida tornadoes-Total Insured Loss > $1 B . 16

www.iii.org

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114