financial results from an actuarial point of view · -jan ne winter storm-feb (ca, se) winter...
TRANSCRIPT
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
2015 Industry Results
2
L:
Almost a Carbon Copy of 2014
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
-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%
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.
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
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
-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%
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
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
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
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)
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)
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.
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
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%
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
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)
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
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)
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
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
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
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.
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)
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.
27
Interest Rates and Investments
Investment PerformanceIs a Key Driver of Profitability
27
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
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.
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
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
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
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.
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
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.
Commercial Rates
36
L:
Steady Going
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
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
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?
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%
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.
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
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.
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
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
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
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.
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.
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.
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
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.
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.
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
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
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
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
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%
Auto Insurance
58
L:
Rising Frequency, Severity Pinching the Largest P/C Line
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.
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.
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
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.
63
Claim Trends by Coverage
Focus on Collision
Collision
64
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
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
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%.
68
What’s Driving These Trends?
Frequency; Severity
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.
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
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
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
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.
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
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
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.
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.
Bodily Injury Liability
78
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
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
Property Damage Liability
81
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%.
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
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
Personal Injury Protection (PIP)
85
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
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
Comprehensive
88
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
Economic Forecast: Slow and Steady
9090
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
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
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.”
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
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
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
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
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
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
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
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
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
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.
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
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
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.
Cyber InsuranceBy the Numbers
107107
New Data from the Annual Statement
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
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
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.
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.
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.
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
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Insurance Information Institute Online:
114