overview of florida hurricane insurance market economics florida joint select committee on hurricane...

Overview of Florida Hurricane Insurance Market

Economics

Florida Joint Select Committee on Hurricane Insurance Tallahassee, FL

January 19, 2005

Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: (212) 346-5520 Fax: (212) 732-1916 [email protected] www.iii.org

Presentation Outline

• Hurricane Season of 2004 Statistical Update

• Historical Catastrophe Losses in Florida: A Global Concern

• Florida Hurricanes: Impact on Insurer Underwriting Performance

• Florida Hurricanes: Impact on Profitability

• Capital & Capacity Concerns and Limitations The need to attract more capacity to support economic growth in FL

• Influence of Florida & Disaster Losses on US P/C Insurance Industry

• Disaster Declarations: Florida’s Dependence on Federal Aid

• Homes & Homeowners Insurance: Vital to FL’s Economy

HURRICANE SEASON OF 2004

One for the Record Books

U.S. InsuredCatastrophe Losses ($ Billions)

$7.5

$2.7$4.7

$22.9

$5.5

$16.9

$8.3 $7.3

$2.6

$10.1$8.3$4.3

$28.1

$5.9

$12.9

$25.8

$0

$5

$10

$15

$20

$25

$30

89 90 91 92 93 94 95 96 97 98 99 00 01 02 0304E**2004 figure is as of September 30, 2004.

Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims.Source: Property Claims Service/ISO; Insurance Information Institute

$ Billions2004 was the second worst year ever for natural disaster losses in the US after adjusting for inflation.

About 85% of those losses originated in Florida.

Losses from Hurricanes of 2004

Source: ISO/PCS; Insurance Information Institute

$ Billions

$3.2

$4.4

$6.0$6.8

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

Jeanne Frances Ivan Charley

Estimated insured losses from the hurricanes of 2004 = $20.485B exceed the $15.5B in losses from Hurricane Andrew ($20.3B in $2003)

Four of the Top 10 hurricanes in US

history occurred in 2004

Most of the Claims from the 4 Hurricanes Originated in FL

297

505

285

60588

47

315

35

0

100

200

300

400

500

600

700


($ Thousands)

Florida All Other States

Total = 385,000

Source: PCS/ISO

Total = 552,000

Total = 600,000 Total = 640,000

Total Claims = 2.177 million

Florida Only = 1.692 Mill (78%)

Most Claim Dollars Paid Are Going to FL Policyholders

$2.8

$4.1 $3.8

$6.8$0.5

$0.3

$2.2

$0.1

$0

$1

$2

$3

$4

$5

$6

$7

$8


Florida All Other States

Bil

lion

s

Total = $3.2 Billion

Source: PCS/ISO




Total Insured Losses = $20.485B

Florida Only = 17.5B (85%)

Personal Property Losses Accounted for Largest Share Damage from

2004 Hurricanes*

56%

4%

40%

Source: ISO/PCS; Insurance Information Institute.

Charley

63%

4%

33%

Ivan

66%

4%

30%

Frances

73%

4%

23%

Jeanne

Personal Property

63%

Vehicle

4%

Comm. Property

33%

TOTAL

*Breakdowns based on FL losses, which accounted for 85% of losses for all affected states.

Insurers Have Responded to the Challenge

Claim Closure Rates

Proportion of Claims Settled from 2004 Hurricanes (as of Dec. 30)

Source: Florida Office of Insurance Regulation

83.2% 84.2% 84.7% 85.8%89.9%

60%

65%

70%

75%

80%

85%

90%

95%

Jeanne Ivan Frances Overall Charley

About 86% of the 1.7 million claims filed in Florida were settled by year’s end, running well-ahead of the pace set following Hurricane Andrew.

Insurers are still receiving 7,000 to 9,000 new claims per week.

HISTORICAL PERSPECTIVE

Florida Property Insurance Markets: Unparalleled Risk

Top 10 Insured Losses Worldwide,1970-2004 ($2003)

$4.8 $6.0 $6.2 $6.4 $6.4 $6.8 $7.6

$17.3$20.9

$32.5

$0

$5

$10

$15

$20

$25

$30

$35

European Storms (1987)Hurricane Ivan (2004)Hurricane Hugo (1989)

Windstorm Lothar (1999)Windstorm Daria (1990)Hurricane Charley (2004)Typhoon Mireille (1991)

Northridge Earthquake (1994)

Hurricane Andrew (1992)Sept. 11 Terror Attack (2001)

$ Billions

*Hurricanes Ivan and Charley in 2004 dollars.Sources: ISO/PCS; Swiss Re, “Natural Catastrophes and Man-Made Disasters in 2003,” Sigma, no. 1, 2004; except Sept. 11 estimate from Hartwig, Robert P., 2004 Mid-Year Property/Casualty Insurance Update, Insurance Information Institute. Figure is stated in 2001 dollars.

Three of the 10 most expensive disasters is world history

occurred in Florida: Hurricanes Andrew, Charley & Ivan

Top 10 Insured PropertyLosses in US ($2003)*

$2.6 $3.2 $3.3$4.4

$6.0 $6.2 $6.8

$15.5

$19.5 $20.3

$0

$5

$10

$15

$20

$25

TS Allison (2001)

Hurricane Jeanne (2004)Hurricane Georges (1998)Hurricane Frances (2004)Hurricane Ivan (2004)Hurricane Hugo (1989)

Hurricane Charley (2004)Northridge Earthquake (1994)Sept. 11 Terror Attack (2001)

Hurricane Andrew (1992)

$ Billions

*Hurricanes Charley, Frances, Ivan and Jeanne stated in 2004 dollars. Note: 9/11 loss figure is for property claims only.Sources: ISO/PCS; Insurance Information Institute.

Five of the 10 most expensive disasters is US history occurred in Florida: Hurricanes Andrew,

Charley, Ivan, Frances & Jeanne

Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2003)*

$2.6 $3.2 $3.3$4.4

$6.0 $6.2 $6.8

$15.5

$19.5 $20.3

$0

$5

$10

$15

$20

$25

Iniki (1992)

Floyd(1999)

Opal(1995)

Jeanne(2004)

Georges(1998)

Frances(2004)

Ivan (2004)

Hugo(1989)

Charley(2004)

Andrew(1992)

$ Billions

*Hurricanes Charley, Frances, Ivan and Jeanne stated in 2004 dollars. Note: 9/11 loss figure is for property claims only.Sources: ISO/PCS; Insurance Information Institute.

Eight of the 10 most expensive hurricanes in US

history affected Florida: Andrew, Charley, Ivan,

Frances, Georges, Jeanne, Opal & Floyd

Average Annual Insured Losses*(Top 10 States, $ Millions)

$1,423.0

$615.0

$196.0$109.0 $77.0 $64.0 $62.0 $61.0 $61.0 $51.0

$154.0

$0

$250

$500

$750

$1,000

$1,250

$1,500

FL TX LA NC MS MA SC AL NY CT AllOther

*Normalized losses adjusted for inflation, housing density, wealth and wind insurance coverage, based on historical data for 100-year period 1900-1999.Source: Tillinghast-Towers Perrin

Louisiana6.8%

N. Carolina

3.8%

Mississippi2.7%

All Other15.7%

Texas 21.4%

Florida49.5%

Distribution of Annual Losses

Inflation-Adjusted U.S. Catastrophe Losses By Cause of Loss, 1984-2003¹

Terrorism

11.0%All Tropical

Cyclones3

27.1%

Tornadoes2

33.7%

Water Damage

0.2%Civil Disorders

0.5%Fire

6

3.3%

Wind/Hail/Flood5

4.0%

Earthquakes4

9.4%

Winter Storms

10.6%

Source: Insurance Services Office, Inc (ISO)

1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2003 dollars. Adjusted for inflation by ISO. 2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires.

How Exposed isFlorida Today?

Insured Losses in Florida ifHurricane Andrew Hit Today

Source: Best’s Review, June 2002 (EQECAT)

$20.3

$36.2

$46.7 $48.2 $46.3$43.5

$0$5

$10$15$20$25$30$35$40$45$50

Andrew'sOriginal

Path

Moved 0.1degreeNorth

Moved 0.2degreesNorth




Insu

red

loss

es, $

Bil

lion

s

•Each 0.1 degree equals about 7 miles

•A path of 0.3 degrees north of Andrew’s original location would create a direct hit on Miami

•Estimates are losses in today’s dollars after application of deductibles.

Estimated New Construction in Miami-Dade County, 1992-2001

$3,095.3

$12,981.8

$3,069.7

$305.5

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

South Miami-Dade All Miami-Dade

($ Millions)

New Residential Exposure New Commercial Exposure

$3.4 Billion

$16.1 Billion

Source: Best’s Review, June 2002 (International Hurricane Center, Florida International University), Ins. Info. Institute

Huge build-up in exposure in Florida

since 1992

•81% residential

•19% commercial

Estimated New ConstructionMiami-Dade County, Florida

Source: Best’s Review, June 2002 (International Hurricane Center, Florida International University)

South Miami-Dade was designated the county’s high-impact zone following Hurricane Andrew. Estimates include construction from 1992 through 2001

South Miami Dade

New Residential Exposure (Construction) $3,095,273,681

New Commercial Exposure (Construction) $305,492,393

All Miami-Dade

New Residential Exposure(Construction) $12,981,843,085

New Commercial Exposure(Construction) $3,069,654,106

Hurricanes Making Landfall During the 20th Century

*Normalized to adjusted for inflation, housing density, wealth and wind insurance coverage.Source: Tillinghast-Towers Perrin

Frequency

CAT 3 =47 Storms

29%

CAT 4 =15 Storms

9%

CAT 5 =2 Storms

1%

CAT 2 = 38 Storms

23%

CAT 1 = 62 Storms

38%

Cost*

CAT 3 =$943Mill

32.5%

CAT 4 =$1,579Mil

55.0%

CAT 5 =$41 Mil

1.4%

CAT 2 = $243Mil

8.3%

CAT 1 =$76 Mil2.6%

FLORIDA HURRICANES & UNDERWRITING PERFORMANCE:

Homeowners Insurers Have Lost Billions

in Florida

($10.60)

($0.21)

$0.69 $0.43 $0.86 $1.08 $1.23 $1.28 $1.43 $1.16 $1.47 $1.88

($9.31)

($12)

($10)

($8)

($6)

($4)

($2)

$0

$2

$4

92 93 94 95 96 97 98 99 00 01 02 03 04E

Underwriting Gain (Loss) in Florida Homeowners Insurance,

1992-2004E*

*2004 estimate by Insurance Information Institute based on historical loss and expense data for FL adjusted for estimated 2004 residential windstorm losses of $11.2B; 2003 figure is also from IIIestimates of loss and expense.

$ B

illi

ons

Florida’s homeowners insurance market produces

small profits in most years and enormous losses in others

-$10.6-$10.8-$10.1 -$9.7

-$8.8-$7.7

-$6.5

-$5.2

-$3.8

-$2.7

-$1.2

$0.7

-$8.6

($12)

($10)

($8)

($6)

($4)

($2)

$0

$2

92 93 94 95 96 97 98 99 00 01 02 03 04E

Cumulative Underwriting Gain (Loss) in Florida Homeowners

Insurance, 1992-2004E*

*2004 estimate by Insurance Information Institute based on historical loss and expense data for FL adjusted for estimated 2004 residential windstorm losses of $11.2B; 2003 figure is also from IIIestimates of loss and expense.

$ B

illi

ons

It took insurers 11 years (1993-2003) to erase the UW loss

associated with Andrew, but the 4 hurricanes of 2004 erased

the past 7 years of profits

FLORIDA HURRICANES & PROFITABILITY:

Selling Homeowners Insurance in Florida is

Tremendously Unprofitable

Rates of Return on Net Worth for Homeowners Ins: US vs. Florida

-1.7%

9.0%

28.3%

-4.2%

3.6%

12.4%

5.4%

2.5%

5.4%3.8% 1.4%

-7.2%

13.1%

31.5%28.6%29.3% 29.0%

31.3%

23.1%

35.4%

-16.1%

33.6%

-20%

-10%

0%

10%

20%

30%

40%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E

Averages: 1993 to 2003E

US HO Insurance = +2.8%; FL= 23.3%

Source: NAIC; 2003 US figure is Insurance Information Institute estimate. FL estimate based on average

Florida homeowners RNW from 1993-2002.

Profits were earned most years after Andrew but before 2004


Source: NAIC; 2003 US figure is Insurance Information Institute estimate.

FL figure based on average Florida homeowners RNW from 1993-2002.

-54.3%

5.0%

-714.9%

-300.0%

-800%

-700%

-600%

-500%

-400%

-300%

-200%

-100%

0%

100%

90 91 92 93 94 95 96 97 98 99 00 01 02 03E 04E

US Florida


US HO Insurance = -1.8%

FL HO Average = -48.5%

Andrew 4 Hurricanes

CAPITAL & CAPACITY CONSIDERATIONS:

INSURERS MUST PUT LARGE AMOUNTS OF CAPITAL AT

RISK TO OFFER INSURANCE IN FLORIDA

$0

$50

$100

$150

$200

$250

$300

$350

$400

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

U.S. Policyholder Surplus: 1975-2004*

Source: A.M. Best, ISO, Insurance Information Institute *As of 9/30/04.

$ B

illi

ons

Surplus (capacity) has been on a rollercoaster rise in the p/c insurance industry over

the past 6 years

“Surplus” is a measure of underwriting capacity. It is analogous to “Owners Equity” or “Net Worth” in non-insurance organizations

$53.9 Billion

Capacity TODAY is just 8.8% above its mid-1999 peak

US Reinsurers: Change in Policyholder Surplus ($ Billions)

$60.9$58.9

$56.4

$45.2

$48.8

$64.6

$40

$45

$50

$55

$60

$65

$70

1998 1999 2000 2001 2002 2003

$ Billions

Source: A.M. Best; Insurance Information Institute

Reinsurer PHS fell 20% from 1998-2002. Capacity today similar to 1998. Same story

globally.

Capital Myth: US P/C Insurers Have $350 Billion to Pay Hurricane Claims

Commercial$202 billion

58%

Personal$146 billion

42%

Commercial includes all lines except homeowners and private passenger auto. Source: Insurance Information Institute estimates based on A.M. Best Q.A.R Data.

Only 42% of surplus backs personal lines

operations

•Personal lines policyholder surplus must be available to pay claims arising in all 50 states

•None of the surplus was earned by FL homeowners operations

Florida Needs to Attract Huge Amounts of Capital to Support

Future Economic Growth

$471 $523 $580

$644 $715

$794 $881

$978 $1,086

$1,206 $1,339

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

($ Millions)

Estimated New Insurance Capital Required to Support Growth in FL

Homeownership, 2005-2015*

*Estimate assumes 1:1 premium-to-surplus ratio and continuation of CAGR in direct premiums written of 11% (actual rate for period 1996-2003).Source: Insurance Information Institute

Florida needs to attract about $500 million in fresh homeowners insurance capital in 2005 just to keep pace with demographic trends, rising to more than $1 billion per year by 2013.

$471 $993

$1,573 $2,217

$2,932 $3,726

$4,607

$5,585

$6,672

$7,877

$9,216

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

($ Millions)

Estimated Cumulative New Insurance Capital Required to Support Growth in

FL Homeownership, 2005-2015*

*Estimate assumes 1:1 premium-to-surplus ratio and continuation of CAGR in direct premiums written of 11% (actual rate for period 1996-2003).Source: Insurance Information Institute

Florida may need to attract more than $9 billion in new capital over the next decade, assuming recent demographic trends continue.

$4.96 B Industry Aggregate Retention

$11.19 B Bonding Capacity (Includes Loss Adjustment Expense)

53 year return

time*

Initial Season Capacity For the 2005 Hurricane Season (Projection for 2005 Estimate)

Assumes Cash Balance is Reduced $3 billion

Initial Season Capacity For the 2005 Hurricane Season (Projection for 2005 Estimate)

Assumes Cash Balance is Reduced $3 billion

Maximum Emergency Assessment -- $1.608 billion

2.80%

$21.86 B Overall Industry Loss

$3.81 B Projected 2005 Year-end Cash Balance

$15 Billion Capacity

(only $750.4 million needed)

$1.9 B In

du

stry

Co

-Paym

ents

Not Drawn to scale.Source: FHCF, Jan. 14, 2005 *Return time not adjusted for premium/exposure growth.

Note: Since the FHCFyear-end cashbalance will not grow due to lossesin 2004, it remainsat $15 billion. Hadthere been no lossesthe capacity wouldhave grown to $16.5 billion.

Note: The insuranceindustry aggregateretention is adjusted to growwith exposure growth.

Credit Ratings: Aa3, AA-, AA

Florida’s Hurricane Residual Market Size, 1991-2004*

57,305 61,074

135,724

192,842

240,824

319,843

442,146

502,369505,076

457,818

270,766

485,278

873,996

658,085

$206.7

50,000

150,000

250,000

350,000

450,000

550,000

650,000

750,000

850,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04**

Policies in Force

-$30

$20

$70

$120

$170

$220

Exposure ($ Billions)

Policies in Force Exposure

*Data for 1991 – 2001 are for the Florida Windstorm Underwriting Association; Beginning with 2002Data are for Citizens Property Insurance Corporation. **As of December 31. Sources: Insurance Information Institute, CPIC, PIPSO

Citizens is not a true source of “capacity”

Potential Sources of Capital:All Have Limitations, Drawbacks

• Private Insurers 15 insurers to-date have required capital to support ongoing FL ops. These commitments exceed $1 billion (FL OIR, 12/30/04) Historically FL has provided poor returns on invested capital

• Private Reinsurers Need to aggregate manage exposure

• Florida Hurricane Catastrophe Fund No increase in 2005 because of 2004 losses

• Capital Markets/Securitization: Only limited interest• Higher Policyholder Deductibles

Move to seasonal, 1% deductibles increases capital requirements

• Bonding Authority• Assessments: • Tax Levies

CATASTROPHIC LOSS:

A National Perspective

IMPACTS ON INSURER UNDERWRITING PERFORMANCE

P/C Net Income After Taxes1991-2004* ($ Millions)

$14,178

$5,840

$19,316

$10,870

$20,598

$24,404

$36,819

$30,773

$21,865$20,559

($6,970)

$2,903

$29,877

$23,520

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04*

*First 9 months 2004Sources: A.M. Best, ISO, Insurance Information Institute.

Andrew Northridge Lowest CAT losses in 15 years

Sept. 11

4 Hurricanes

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

US P/C Insurers All US Industries P/C excl. Hurricanes

ROE: P/C vs. All Industries 1987–2004E*

*2004 p/c estimate based on first 9 months data.Source: Insurance Information Institute; Fortune

AndrewNorthridge

Hugo Lowest CAT losses in 15 years

Sept. 11

2004 ROE excl. hurricanes

2004 ROE reduced due to

hurricanes

90

95

100

105

110

115

120

70 71 7273 74 7576 77 78 7980 81 82 8384 85 8687 88 89 9091 92 9394 95 96 9798 99 00 0102 0304H1

04E

P/C Industry Combined Ratio

2001 = 115.7

2003 = 100.1

2004 1st Half = 94.4

2004E = 98

The combined ratio is the ratio losses & associated expenses paid relative to

premiums earned

Sources: A.M. Best; ISO, III

($60)

($50)

($40)

($30)

($20)

($10)

$0

$10

$20

1975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200304H04E

Underwriting Gain (Loss)1975-2004E

Source: A.M. Best, Insurance Information Institute

$ B

illi

ons

110.5105.0

113.6

119.2

104.8100.8 100.5

114.3

106.5

121.3

100.3

162.5

126.5

90

100

110

120

130

140

150

160

170

91 92 93 94 95 96 97 98 99 00 01 02 03

Combined Ratio: Reinsurers

Source: A.M. Best, ISO, Reinsurance Association of America, Insurance Information Institute

Reinsurer results are greatly affected by catastrophe activity

AndrewNorthridge

Sept. 11

Few CATs

113117.7

158.4

113.6118.4

112.7

121.7

101

109.4108.2111.4

121.7

109.3

98.2

95

100

105

110

115

120

125

130

135

140

145

150

155

160

165

90 91 92 93 94 95 96 97 98 99 00 01 02 03

Homeowners Insurance Combined Ratio

Average 1990 to 2003= 115

Insurers have paid out an average of $1.15 in losses for every dollar earned

in premiums over the past 13 years

Sources: A.M. Best; III

Hurricane Andrew produced record homeowners losses even in national results

RNW for Major P/C Lines,1992-2001 Average

17.0%

14.0%

9.6% 9.5% 8.6%7.4% 7.2%

3.4%

0.9%

-3.4%

-14.8%

9.8%7.9%

-15%

-10%

-5%

0%

5%

10%

15%

20%

InlandMarine

AllOther

PersonalAuto

MedMal

WC Fire All LinesOtherLiab

CommAuto

CMP FMP HO Allied

Source: NAIC; Insurance Information Institute

CAT losses contribute to low (negative profitability of homeowners insurance)

CATASTROPHIC LOSS:

A National Perspective

IMPACTS ON INSURER PROFITABILITY

Homeowners Insurance:Rates of Return on Net Worth

Source: NAIC, Insurance Information Institute

* Average is 1.22% if excluding 1992 (year of Hurricanes Andrew and Iniki.

-0.9%-6.6%

-54.3%

2.5%-1.7% -4.2%

3.8%

-7.2%

2.1%

10.0%

5%

3.6%

12.4%

5.4%5.4%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E 2004E

NAIC HomeownerMulti-Peril

Averages: 1990 to 2002

HO Insurance = -3. 05%*

Homeowners insurance is an extremely volatile line of insurance

Andrew

4 Hurricanes

Homeowners Insurance:Rate of Return on Net Worth vs.

Fortune 500



-0.9%-6.6%

-54.3%

2.5%-1.7% -4.2%

3.8%

-7.2%

2.1%

10.0%5%

12.2%10.8%10.1%13.7%14.0%14.1%13.9%13.4%15.2%14.6%

10.4% 12.6% 14%

3.6%

12.4%

5.4%5.4%

10.2%11.9%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E 2004E


Fortune All-Industry*

Averages: 1990 to 2002

HO Insurance = -3. 05%*

Fortune 500 = 12.64%

Homeowners Insurance:Rates of Return on Net Worth vs.

P/C Insurance All Lines



-0.9%-6.6%

-54.3%

2.5%-1.7% -4.2%

3.8%

-7.2%

2.1%

10.0%5%

8.8% 9.6%4.5% 5.6%

8.7% 9.3% 11.6%8.5% 6.0% 5.8%

-2.6%

9.4%11.5%

3.6%

12.4%

5.4%5.4%

4.4%

11.0%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E 2004E


P/C Insurance AllLines

Homeowners insurance consistently underperforms the p/c insurance generally

1990-2004EHomeowners: -1.7%All P/C Lines: +7.5%


(add 1990-92)

Source: NAIC; 2003 figure is Insurance Information Institute estimate.

-1.7%

10.0%

5.0%

-7.2%

1.4%3.8%5.4%

2.5%

5.4%

12.4%

3.6%

-4.2%

33.6%

-16.1%

35.4%

23.1%

31.3%29.0%29.3% 28.6%

31.5%

13.1%

-20%

-10%

0%

10%

20%

30%

40%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E 2004E

US Florida


US HO Insurance = +2.85%

DISASTER DECLARATIONS & DISASTER AID:

Florida’s Dependence on Federal Aid is Not Sustainable

Major Disaster Declarations By Year, 1977-2004

28

3632

49

56

68

454550

65

44

75

32

45

3843

31

11

2327

34

2124

15

23

42

2522

0

10

20

30

40

50

60

70

80

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

Source: Federal Emergency Management Agency (FEMA)

Declarations A total of 1,079 major disaster declarations have

been issued since 1977 & the number is trending upward

Top 10 Major Disaster Declaration Totals By State(1972- 2004)

57

4844

40 39 3936 34 33 32

29

05

1015202530354045505560

TexasCalifornia

FloridaAlabamaLouisianaNew YorkOklahomaMississippiTennesseeIllinois

Washington

Total Number

Source: Federal Emergency Management Agency (FEMA)

Since 1972, Florida has experienced more major

disasters than all but 2 states

FEMA Disaster Expenditures*(1990-2004E)

$0.52

$2.79$1.84

$8.24

$1.51$2.39$1.91

$4.12

$1.93$1.73

$11.21

$1.83$1.98

$14

$0.43

$0

$2

$4

$6

$8

$10

$12

$14

$16

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04E

$ Billions

*Funding represents total FEMA expenditures obligated from the President’s Disaster Relief Fund for declared disasters, emergencies and fire suppression grants as of February 29,2000. Expenditures include costs for FEMA’s disaster assistance programs, hazard mitigation, mission assignments, contractual services and administrative expenses. Figures are stated in current dollars and do not include funding provided separately by other participating federal agencies.Source: FEMA; 2004 figure is III estimate.

2004’s hurricanes pushed federal disaster assistance payments to

new records in 2004

HOMEOWNERS INSURANCE:

AN IMPORTANT BUSINESS FOR INSURERS AND THE

ECONOMY

$50.5 $54.0

$57.8 $60.0 $61.9 $64.3 $67.4

$71.9

$81.1

$95.9

$106.4

$40

$50

$60

$70

$80

$90

$100

$110

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

($ Billions)

Property Insurance Direct Premiums Written*

*Includes Fire, Allied Lines, Multi Peril Crop, Federal Flood, Farm & Homeowners Multi-Peril, CMP-non liability, Inland Marine, Earthquake & Burglary & TheftSource: Best’s Aggregates & Averages - Property/Casualty; Insurance Information Institute

Revenue Growth Drivers:•Record new home construction•Trend toward larger, more expensive homes•Rates•Little commercial exposure gain since 2000-2002 but now picking up.

Homeowners as a Percentage of the P/C Industry

Total 2003 Direct Personal + Commercial Premiums Written = $442.6 Billion

All Commercial Lines52%

PPA Phys Dam14%

Homeowners11%

PPA Liability20%


Homeowners insurance accounted for 11% or $48.7B in

DPW in 2003

$237.3B $48.7B

$91.7B

$64.9B

Homeowners Insurance:Direct Premiums Written

$0

$10

$20

$30

$40

$50

$60

93 94 95 96 97 98 99 00 01 02 03

Homeowners Multiple Peril

Bil

lion

s

$22.9B


$24.4B+6.6%

$26.0B+6.6%

$27.4B+5.4%

$29.1B+6.2%

$30.9B+5.8%

$32.5B+5.2%

$34.6B+6.5%

$37.6B+8.7%

$43.0B+14.4

%

$48.7B+13.3%

FLORIDA: HO Insurance Market:Direct Premiums Written

$1.0 $1.1 $1.2$1.3

$1.5$1.7

$2.2

$3.4

$3.8

$3.0$2.9

$2.6$2.4

$1.9

$0

$1

$1

$2

$2

$3

$3

$4

$4

$5

90 91 92 93 94 95 96 97 98 99 00 01 02 03

FL Homeowners Multiple Peril

Bil

lion

s


Homeownership Ratesin Florida, 1990 to 2003

Source: U.S. Census Bureau

65.1%

66.1% 66.0%65.5% 65.7%

66.6%67.1% 66.9% 66.9%

67.6%

68.4%

69.2%68.7%

69.5%

90 91 92 93 94 95 96 97 98 99 00 01 02 03

Homeownership is at an all-time record high in Florida and is higher than the US overall. Florida

will need to attract large amounts of insurance capacity to fuel continued growth in homeownership

Top States: Change in Number of Housing Units, 2000-2003

Source: US Census Bureau

461,430 451,062409,700

271,616235,783

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Texas Florida California Georgia NorthCarolina

•Strong demographics is fueling home construction in FL.•Combined with the permanent risk of hurricanes, FL must ensure this vital growth engine remains healthy by making certain that homeowners insurance is a viable business going forward.

Number of new housing units in FL was second highest in US, 2000-03

Homeownership Rates in Major Florida Metro Areas, 1995 vs. 2003

Source: U.S. Census Bureau

50.9%

61.7%

66.6%68.1% 68.8%

72.3%

55.9%

66.6% 67.2%69.8%

74.0% 74.6%

50%

55%

60%

65%

70%

75%

80%

Miami Orlando Jacksonville Tampa Ft.Lauderdale

West Palm

95 03Homeownership rates for most FL metro areas are at or near

record highs

Insurance Information Institute On-Line

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