p/c insurance in an era of uncertainty and turmoil: overview & outlook for 2012 and beyond
DESCRIPTION
P/C Insurance in an Era of Uncertainty and Turmoil: Overview & Outlook for 2012 and Beyond. State Insurance Trade Association Annual Meeting Napa, CA October 4, 2011 Download at www.iii.org/presentations. Robert P. Hartwig, Ph.D., CPCU, President & Economist - PowerPoint PPT PresentationTRANSCRIPT
P/C Insurance in an Era of Uncertainty and Turmoil: Overview
& Outlook for 2012 and Beyond
State Insurance Trade Association Annual MeetingNapa, CA
October 4, 2011Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
3
What in the World Is Going On?
Is the World Becoming a Riskier Place?
What Are the Implications for Insurance and Risk Management?
4
Uncertainty, Risk and Fear Abound
Global Economic Slowdown US Debt and Budget Crisis and S&P Downgrade Echoes of the Financial Crisis Housing Crisis Persistently High Unemployment European Sovereign Debt, Bank & Currency Crises Japan, New Zealand, Haiti, Chile Earthquakes Nuclear Fears Record Tornado, Flooding in the US, Wildfires Cyber Attacks Manmade Disasters (e.g., Deepwater Horizon) Resurgent Terrorism Risk (e.g., Bin Laden Killing) Political Upheaval in the Middle East Inflation/Deflation Runaway Energy & Commodity Prices Era of Fiscal Austerity Reshuffling the Global Economic Deck China Becomes #2 Economy in the World Are “Black Swans”
everywhere or does it just seem
that way?
7
Déjà Vu? Lehman II? Is This 2008 All Over Again?Why Today is Not 2008 All Over Again The Situation Today is Very, Very Different from 2008 Credit Markets Are Not Seizing; Some Contraction in Europe Bank Balance Sheets Are in Much Stronger Shape
Capital up, charge offs falling
We Will Not Experience the Collapses/Near Collapses Like in 2008 No repeat of Lehman, AIG, Washington Mutual, Wachovia…
Some Additional Regulatory Controls Are Now Place
What Would Be Helpful Now? Long-Term Fiscal and Monetary Policy Direction Fed on Aug. 9 stated rates would remain low “at least through mid-2013”
This is not only a signal that borrowing costs will remain low over an extended period of time and that inflation will remain muted; Also tells investors that they’ll need to take on risk in order to earn returns in the market. Should be bullish for stocks.
Congress and the Administration need to remove regulatory and tax uncertainty ASAP and drive a pro-growth agenda
8
P/C Insurance Industry Financial Overview
Profit Recovery Will Be Set Back by High CATs, Low
Interest Rates, Diminishing Reserve Releases
P/C Net Income After Taxes1991–2011:H1 ($ Millions)
$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
4,6
70
$4
,75
8
$2
8,6
72
-$6,970
$6
5,7
77
$4
4,1
55
$2
0,5
59
$3
8,5
01
-$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*
2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009 ROAS1 = 5.9% 2010 ROAS = 6.5% 2011:H1 ROAS = 1.7%
P-C Industry 2011:H1 profits were down 71.6% to $4.8B vs. 2010:H1,
due to high catastrophe losses and as non-cat underwriting
results deteriorated
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 2.3% ROAS for 2011:H1, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty insurers. 2011H1 combined ratio including M&FG insurers is 110.5 , ROAS = 2.3%. Source: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.7
92.6
99.3100.8
109.4
101.0
2.3%
7.5%7.4%
9.6%
15.9%
14.3%
12.7%
4.4%
8.9%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2008* 2009* 2010* 2011:H1*0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generated ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
-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
*
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*
*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for H1 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers. For 2011:H1 ROAS = 1.7% including M&FG.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2007:12.3%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years10 Years
2011:2.3%*
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
Catastrophe Loss Developments and Trends
12
2011 and 2010 Are Rewriting Catastrophe Loss and
Insurance History
13
Global Catastrophe Loss Summary: First Half 2011
2011 Is Already (as of June 30) the Highest Loss Year on Record Globally
Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods and tornadoes are the primary causes of loss
$260 Billion in Economic Losses Globally
New record for the first six months, exceeding the previous record of $220B in 2005
Economy is more resilient than most pundits presume
$55 Billion in Insured Losses Globally
More than double the first half 2010 amount
Over 4 times the 10-year average
$27 Billion in Economic Losses in the US
Represents a 129% increase over the $11.8 billion amount through the first half of 2010
$17.3 Billion in Insured Losses in the US Arising from 100 CAT Events
Represents a 162% increase over the $6.6 billion amount through the first half of 2010
Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)
Hydrological events(flood, mass movement)
Selection of significant loss events (see table)
Natural catastrophes
Earthquake, tsunami Japan, 11 March
EarthquakeNew Zealand, 22 Feb
Cyclone Yasi Australia, 2 Feb
Landslides, flash floodsBrazil, 12/16 Jan
Floods, flash floods Australia, Dec 2010-Jan 2011
Severe storms, tornadoesUSA, 22–28 April
Severe storms, tornadoesUSA, 20–25 May
WildfiresUSA, May–June
EarthquakeNew Zealand, 13 June
FloodsUSA, April–June
Climatological events(extreme temperature, drought, wildfire)
Number of Events: 355Number of Events: 355
Natural Loss Events,January – June 2011
World Map
14Source: MR NatCatSERVICE
19
US Second Quarter Insured Catastrophe Losses, 2000–2011
$5.04
$2.30
$7.11
$4.47
$6.38
$15.09
$0.93
$2.33
$5.05
$2.79
$6.24
$1.46
$0
$2
$4
$6
$8
$10
$12
$14
$16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: ISO/PCS; Insurance Information Institute.
Record Q2 (and First Half) CAT Losses Will Adversely Impact Insurer Results in 2011
$ Billions
Q2 CAT losses from 2000-2010 average $4.0 billion. 2011:Q2
CAT losses were nearly 4 times that amount at $15.09 billion
2011:Q2 CAT losses totaled
$15.09 billion and are the highest on
record
21
Top 16 Most Costly World Insurance Losses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.
$11.3$14.0 $14.0$14.9$20.5$20.8 $23.1$24.9
$35.0
$72.3
$10.0$9.3$9.0$8.0$8.0$7.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
WinterStormDaria(1991)
ChileQuake(2010)
Hugo (1989)
TyphoonMirielle(1991)
Charley(2004)
NewZealandQuake(2011)
Rita (2005)
SpringTornadoes
(2011)
Wilma(2005)
Ivan (2004)
Ike (2008)
Northridge(1994)
WTCTerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)*
Katrina(2005)
Taken as a single event, the Spring 2011 tornado season would likely become the 9th
costliest event in global insurance history
3 of the top 15 most expensive
catastrophes in world history have occurred in the past 18 months
100
200
300
400
500
600
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Worldwide Natural Disasters,1980 – 2011*
Number of Events
*2011 figure is through June 30.Source: MR NatCatSERVICE 22
Meteorological events(Storm)
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami, volcanic eruption)
Already 355 events through the first 6
months of 2011
32
1,1
33
1,1
32 1
,29
7
1,1
73
1,0
82 1,2
34
1,1
73
1,1
48
1,4
24
1,3
45
1,0
71 1,2
16
94
1
1,3
76
1,2
64
1,1
03
1,0
98
1,6
92
1,1
56 1,2
82
1,819
1,7
92
546
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Nu
mb
er
of
To
rna
do
es
0
100
200
300
400
500
600
Nu
mb
er o
f De
ath
s
Number of Tornadoes
Number of Deaths
*2011 is preliminary data through September 28.Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
Number of Tornadoes and Related Deaths, 1990 – 2011*
Tornadoes have already claimed more than 500 lives
There were 1,792 tornadoes recorded in the US by Sept. 28
Insurers Expect to Pay $2 Billion on 165,000 Claims Arising from the April 2011 Tornadoes in the Birmingham and Tuscaloosa Areas
Insurers Making a Difference in Impacted Communities
Source: Insurance Information Institute 33
Destroyed home in Tuscaloosa. Insurers will pay some 165,000
claims totaling $2 billion in the Tuscaloosa/
Birmingham areas alone.
Presentation of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm
Recovery Fund
Location of Tornadoes in the US, January 1—September 28, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 35
1,792 tornadoes killed 546 people through Sept. 28, including at least 340 on April 26 mostly in the
Tuscaloosa area, and 130 in Joplin
on May 22
Location of Large Hail Reports in the US, January 1—Sept. 28, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 36
There were 9,221 “Large Hail”
reports through Sept. 30, causing extensive damage
to homes, businesses and
vehicles
Location of Wind Damage Reports in the US, January 1—Sept. 28, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 37
There were 18,130 “Wind Damage” reports through
Sept. 30, causing extensive damage
to homes and, businesses
Severe Weather Reports,January 1—Sept. 28, 2011
38Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
There have been 20,044
severe weather reports through
Sept 28; including 1,585
tornadoes; 7,176 “Large Hail” reports
and 11,283 high wind events
40
US CATASTROPHE INSURED LOSS UPDATE
First Half 2011 CAT Losses Already Exceed All of 2010 and Could Become One of the Most
Expensive Years on Record
41
$8
.3
$7
.4
$2
.6 $1
0.1
$8
.3
$4
.6
$2
6.5
$5
.9 $1
2.9 $
27
.5
$6
1.9
$9
.2
$6
.7
$2
7.1
$1
0.6
$1
3.6 $2
3.0
$1
00
.0
$7
.5
$2
.7
$4
.7
$2
2.9
$5
.5 $1
6.9
$0
$20
$40
$60
$80
$100
$120
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??
US Insured Catastrophe Losses
*Estimate through Sept. 30, 2011.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. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.
First Half 2011 US CAT Losses Already Exceed Losses from All of 2010. Even Modest Hurricane Losses Will Make 2011 Among the
Most Expensive Ever for CATs
$100 Billion CAT Year is Coming Eventually
Record Tornado Losses Caused
2011 CAT Losses to Surge
($ Billions)
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
43
Top 12 (13?) Most Costly Disastersin U.S. History
(Insured Losses, 2010 Dollars, $ Billions)
*Losses will actually be broken down into several “events” as determined by PCS.Sources: PCS; Insurance Information Institute inflation adjustments.
$11.5 $12.8 $14.0$17.5
$22.6 $23.1
$45.8
$8.6$8.2$6.7$6.3$5.3$4.3
$0$5
$10$15$20$25
$30$35$40
$45$50
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
SpringTornadoes*
(2011)
Northridge(1994)
Andrew(1992)
9/11 Attack(2001)
Katrina(2005)
Taken as a single event, the Spring 2011 tornado season
would likely become 5th costliest event in US insurance history
44
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2011:H1*
*Insurance Information Institute estimates for 2010 and 2011:H1Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.Source: ISO; Insurance Information Institute.
0.4
1.2
0.4 0.
8 1.3
0.3 0.4 0.
71.
51.
00.
40.
4 0.7
1.8
1.1
0.6
1.4 2.
01.
3 2.0
0.5
0.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6 3.
35.
0
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
E
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of the Combined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 4.15*
Combined Ratio Points
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2011*Number of Events (Annual Totals 1980 – 2010 and First Half 2011)
*Through June 30.Source: MR NatCatSERVICE 45
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
There were 98 natural disaster events in the first
half of 2011
37
8
51
2
U.S. Thunderstorm Loss Trends, 1980 – 2011*
46
Average thunderstorm losses are up more
than 8 fold since the early 1980s
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2011 are the most expensive
years on record.
Thunderstorm losses in the first half of 2011 totaled $16.4 billion, a new
annual record through just 6 months
*Through June 30, 2011.Source: Property Claims Service, MR NatCatSERVICE
Source: Property Claims Service, MR NatCatSERVICE
U.S. Winter Storm Loss Trends, 1980 – 2010 (Annual Totals) vs. First Half 2011
47
Insured winter storm losses in 2011 totaled $1.4 billion and are up 50% since 1980.
Notable Wildfires in 2011
Texas: Millions of acres burned in west and central Texas. Over 500 homes and businesses destroyed, $250 million insured loss.
Arizona and New Mexico: “Wallow” fire largest in AZ history at 538,000 acres, Las Conchas fire near Los Alamos, 30 buildings destroyed.
Texas: Millions of acres burned in west and central Texas. Over 500 homes and businesses destroyed, $250 million insured loss.
Arizona and New Mexico: “Wallow” fire largest in AZ history at 538,000 acres, Las Conchas fire near Los Alamos, 30 buildings destroyed.
April – JuneApril – June
Source: NASA
49Source: Munich Re.
50
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990–2011:H11
0.2%
2.4%
3.4%4.9%
6.6%
8.0%
31.8%
42.7%
1.Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2.Excludes snow.3.Does not include NFIP flood losses4.Includes wildland fires5.Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $160.5
Fires (4), $9.0
Tornadoes (2), $119.5
Winter Storms, $30.0
Terrorism, $24.9
Geological Events, $18.5
Wind/Hail/Flood (3), $12.7
Other (5), $0.6
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
Number of Federal Disaster Declarations, 1953-2011*
13 1
7 18
16
16
7 71
21
22
22
0 25
25
11
11
19
29
17
17
48
46
46
38
30
22 2
54
22
31
52
42
13
42
7 28
23
11
31
38
45
32 3
63
27
54
46
55
04
54
5 49
56
69
48 5
26
37
55
98
1 86
43
0
10
20
30
40
50
60
70
80
90
100
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
*
*Through September 30, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
The Number of Federal Disaster Declarations Is Rising and Set a New Record in 2011
The number of federal disaster declarations set a new record in 2011, with 86 declarations through Sept.
30. It is no wonder that FEMA is broke!
There have been 2,036 federal disaster
declarations since 1953. The average
number of declarations per year is 34 from
1953-2010, though that few haven’t been
recorded since 1995.
52
Federal Disasters Declarations by State, 1953 – Sept. 30, 2011: Highest 25 States
86
78
70
65 63
57 55 55 53 53 51 50 50 48 48 47 47 47 46 45 44 43 42 40 39
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY AR MO IL MS TN IA MN KS NE PA WV OH WA VA ND NC IN
Dis
aste
r Dec
lara
tions
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Over the past nearly 60 years, Texas has had the highest number of
Federal Disaster Declarations
53
Federal Disasters Declarations by State, 1953 – Sept. 30, 2011*: Lowest 25 States
39 39
36 35 35
32 31
27 27 26 25 25 24 23 23
21 20
17 16 16 15 14
10 9 9 9
0
10
20
30
40
50
ME SD GA AK WI VT NJ NH OR MA HI MI AZ ID NM MD MT NV CO CT SC DE DC RI UT WY
Dis
aste
r Dec
lara
tions
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Over the past nearly 60 years, Wyoming, Utah and Rhode Island had the fewest number of
Federal Disaster Declarations
The BIG Question:When Will the Market Turn?
54
Insurance Cycle Dynamics
55
Criteria Necessary for a “Market Turn”:All Four Criteria Must Be Met
Criteria Status Comments
Sustained Period of
Large Underwriting
Losses
Not Yet Happened, But
Inevitable
•Apart from Q2:2011, overall p/c underwriting losses remain modest•Combined ratios (ex-Q2 CATs) still in low 100s (vs. 110+ at onset of last hard market)•Prior-year reserve releases continue reduce u/w losses, boost ROEs
Material Decline in Surplus/ Capacity
Entered 2011 At Record
High; Since Fallen
•Surplus hit a record $565B as of 3/31/11•Analysts est. excess surplus of $75-$100B•Some excess capacity may still remain in reinsurance markets•Weak growth in demand for insurance is insufficient to absorb much excess capacity
Tight Reinsurance
MarketSomewhat in
Place•Higher prices in Asia/Pacific•Modestly improved pricing for US risks
Renewed Underwriting
& Pricing Discipline
Not Broadly Evident; Some
Firming
•Commercial lines pricing trends turning from negative to flat•Competition remains intense as many seek to maintain market share•Terms & conditions—no broad tightening
Sources: Barclays Capital; Insurance Information Institute.
1. UNDERWRITING
57
Have Underwriting Losses Been Large Enough for Long Enough to Turn the Market?
58
P/C Insurance Industry Combined Ratio, 2001–2011:H1*
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=110.5 Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
95.7
99.3100.8
109.4
101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
Best Combined
Ratio Since 1949 (87.6)
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
Premiums
Relatively Low CAT Losses, Reserve Releases
Cyclical Deterioration
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Underwriting Gain (Loss)1975–2011*
* Includes mortgage and financial guaranty insurers in all years. 2011 figure is actual H1 underwriting losses of $24.098 billion.Sources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
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 1011*
The industry recorded a $10.4B underwriting loss in 2010 compared
to $3.0B in 2009
Cumulative underwriting deficit from 1975 through
2010 is $455B
($ Billions) Underwriting losses in 2011 will be much larger:
$24.1B based on H1
data
61
2.3
-2.1
-8.3
-2.6-6.6
-9.9 -9.8
-4.1
1
11.7
23.2
13.79.9
7.3
-6.7-9.5
-14.6-16 -15
-5
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
E
11
E
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
B)
-6
-4
-2
0
2
4
6
8 Imp
ac
t on
Co
mb
ine
d R
atio
(Po
ints
)
Prior Yr. ReserveDevelopment ($B)
Impact onCombined Ratio(Points)
P/C Reserve Development, 1992–2011E
Reserve Releases Are Remained Strong in 2010 But Should Begin to Taper Off in 2011
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: Barclay’s Capital; A.M. Best.
Prior year reserve releases totaled $8.8
billion in the first half of 2010, up from
$7.1 billion in the first half of 2009
Financial Strength & Underwriting
62
Cyclical Pattern is P-C Impairment History is Directly Tied to
Underwriting, Reserving & Pricing
P/C Insurer Impairments, 1969–20108
15
12
71
19
34
91
31
21
99
16
14
13
36
49
31 3
45
04
85
56
05
84
12
91
61
23
11
8 19
49 50
47
35
18
14 15 16 18
11
5
0
10
20
30
40
50
60
70
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
Source: A.M. Best Special Report “1969-2010 Impairment Review,” June 21, 2010; Insurance Information Institute.
The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets
8 of the 18 in 2009 were small Florida carriers. Total also
includes a few title insurers.
65
Reasons for US P/C Insurer Impairments, 1969–2010
3.6%4.0%
8.6%
7.3%
7.8%
7.1%
7.8%13.6%
40.3%
Source: A.M. Best: 1969-2010 Impairment Review, Special Report, April 2011.
Historically, Deficient Loss Reserves and Inadequate Pricing AreBy Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Deficient Loss Reserves/Inadequate Pricing
Reinsurance Failure
Rapid GrowthAlleged Fraud
Catastrophe Losses
Affiliate Impairment
Investment Problems (Overstatement of Assets)
Misc.
Sig. Change in Business
68
Performance by Segment:Commercial Lines &
Reinsurance
Homeowners Insurance Combined Ratio: 1990–2011P
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
94
.4 10
0.3
88
.9 95
.6
11
6.8
10
5.7
10
6.7 11
5.0
11
8.4
11
2.7 12
1.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Homeowners Line Could Deteriorate in 2011 Due to Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).
Private Passenger Auto Combined Ratio: 1993–2011P
10
1.7
10
1.3
10
1.3
10
1.0
10
9.5
10
7.9
10
4.2
98
.4
94
.3
95
.1
95
.5 98
.3 10
0.2
10
1.3
10
1.0
10
1.0
99
.5 10
1.1
10
3.5
80
85
90
95
100
105
110
115
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry
Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).
Workers Compensation Combined Ratio: 1994–2011P
10
2.0
97
.0 10
0.0
10
1.0
11
0.9
11
0.0
10
7.0
10
2.7
98
.4
10
3.6
10
4.4 1
10
.6 11
6.8
11
8.012
1.7
10
7.0
11
5.3
11
8.2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Workers Comp Underwriting Results Are Deteriorating Markedly and the Worst They
Have Been in a DecadeSources: A.M. Best (1994-2010); Insurance Information Institute (2011P).
2. SURPLUS/CAPITAL/CAPACITY
76
Have Large Global Losses Reduced Capacity in the Industry, Setting
the Stage for a Market Turn?
78
Policyholder Surplus, 2006:Q4–2011:Q1
Sources: ISO, A.M .Best.
($ Billions)
$487.1$496.6
$512.8$521.8
$478.5
$455.6
$437.1
$463.0
$490.8
$511.5
$540.7$530.5
$544.8$556.9
$559.1
$505.0$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
06:Q4 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:H1
2007:Q3Previous Surplus Peak
Quarterly Surplus Changes Since 2007:Q3 Peak
09:Q1: -$84.7B (-16.2%) 09:Q2: -$58.8B (-11.2%)09:Q3: -$31.0B (-5.9%)09:Q4: -$10.3B (-2.0%)10:Q1: +$18.9B (+3.6%)
10:Q2: +$8.7B (+1.7%)10:Q3: +$23.0B (+4.4%)10:Q4: +$35.1B (+6.7%)11:Q1: +$42.9B (+8.2%)11:Q2: +37.3B (+7.1%)
Surplus as of 6/30/11 was just 1% below its all time record high of $564.7B set as of 3/31/11. Despite large cat losses and poor market conditions, capital
erosion was minimal.
*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.
The Industry now has $1 of surplus for every $0.78 of
NPW—the strongest claims-paying status in its history.
85
3. REINSURANCE MARKET CONDITIONS
Has Record Global Catastrophes Activity
Erased Enough Capacity to Turn Markets?
Source: Guy Carpenter, GC Capital Ideas.com, September 26, 2011.
Global Property Catastrophe Rate on Line Index, 1990-2011 YTD (6/1/11)
A modest increase in global property catastrophe
reinsurance pricing was evident in June 1 renewals in the wake of record global catastrophe losses
4. RENEWED PRICING DISCIPLINE
89
Is There Evidence of a Broad and Sustained Shift in Pricing?
90
-5%
0%
5%
10%
15%
20%
25%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
Soft Market Persisted in 2010 but Growth Returned: More in 2011?
(Percent)1975-78 1984-87 2000-03
*2011 figure is for H1 vs. 2010:H1. Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
NWP was up 0.9% in 2010
2011:H1 growth
was +2.6%
91
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
Sources: ISO, Insurance Information Institute.
Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)
10.2
%15
.1%
16.8
%16
.7%
12.5
%10
.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
-4.6
%-4
.1%
-5.8
%-1
.6%
10.3
%10
.2% 13
.4%
6.6%
-1.6
%2.
1%0.
0%-1
.9%
0.5%
-1.8
%-0
.7%
-4.4
%-3
.7%
-5.3
%-5
.2%
-1.4
%-1
.3%
1.3% 2.
3%1.
3%3.
5%1.
6%
-10%
-5%
0%
5%
10%
15%
20%
2002
:Q1
2002
:Q2
2002
:Q3
2002
:Q4
2003
:Q1
2003
:Q2
2003
:Q3
2003
:Q4
2004
:Q1
2004
:Q2
2004
:Q3
2004
:Q4
2005
:Q1
2005
:Q2
2005
:Q3
2005
:Q4
2006
:Q1
2006
:Q2
2006
:Q3
2006
:Q4
2007
:Q1
2007
:Q2
2007
:Q3
2007
:Q4
2008
:Q1
2008
:Q2
2008
:Q3
2008
:Q4
2009
:Q1
2009
:Q2
2009
:Q3
2009
:Q4
2010
:Q1
2010
:Q2
2010
:Q3
2010
:Q4
2011
:Q1
2011
:Q2
Positive premium growth continued into through
the first half of 2011.
92
Average Commercial Rate Change,All Lines, (1Q:2004–2Q:2011)
-3.2
%
-5.9
%
-7.0
%
-9.4
%
-9.7
% -8.2
%
-4.6
%
-2.7
%
-3.0
%
-5.3
%
-9.6
%
-11
.3%
-11
.8%
-13
.3%
-12
.0%
-13
.5%
-12
.9% -1
1.0
%
-6.4
% -5.1
%
-4.9
%
-5.8
%
-5.6
%
-5.3
%
-6.4
% -5.2
%
-5.4
%
-2.9
%-0
.1%
-0.1
%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Pricing is flat for the first time in more than
7 years
(Percent)
Q2 2011 decreases were the smallest
since 2004, perhaps signaling a market
firming
93
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2011:Q2
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Percentage Change (%)
Pricing Turned Negative in Early
2004 and Has Been Negative
Ever Since
Market has Been Soft for 7 years and Remains Soft as Capital Hits Record Levels;
But Is Softness Moderating?
KRW Effect: No Lasting Impact
Trough = 2007:Q3 -13.6%
Peak = 2001:Q4 +28.5%
95
Change in Commercial Rate Renewals, by Line: 2011:Q2
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Mixed in Q2:2011, With Workers Up More than Any Other Line
Percentage Change (%)
0.5%1.0%
2.2%2.6%
-1.5%
-0.7%-0.4% -0.2%
0.3% 0.5%
-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%
98
Direct Premiums Written: All P/C Lines Percent Change by State, 2005-2010
44
.8
25
.4
19
.8
17
.3
16
.6
14
.2
13
.9
12
.4
12
.3
11
.9
9.1
8.1
8.1
7.1
6.8
5.4
5.2
4.7
3.8
3.7
3.1
3.0
1.5
1.2
1.1
0
5
10
15
20
25
30
35
40
45
ND
SD LA
WY
OK
WV
KS IA TX
MT
NE
DE
MS
NM SC
DC
UT
AR
NC ID WA
AL
WI
AK
TN
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
North Dakota is the growth juggernaut of the P/C
insurance industry—too bad nobody lives there…
99
0.7
0.6
0.1
-0.1
-0.3
-0.5
-0.8
-1.4
-1.6
-1.7
-2.5
-2.8
-2.9
-3.4
-3.6
-4.1
-4.5
-4.7
-4.8
-5.7
-5.8
-8
-8.2
-8.3
-13
.5
-14
.2
-15
.5
-20
-15
-10
-5
0
5M
D
MO
KY IN NY
GA
MN
VA
US
PA
OR FL IL CT
VT
OH RI
CO
NJ HI
ME
NH
MA
AZ
NV MI
CA
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC; Insurance Information Institute.
Bottom 25 States
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
Direct Premiums Written: All P/C Lines Percent Change by State, 2005-2010
US Direct Premiums Written declined by 1.6% between 2005
and 2010
101
Other Cycle-Influencing Factors
Could Other Factors Act as a Catalyst to Turn the
Market?
INVESTMENTS: THE NEW REALITY
102
Investment Performance is a Key Driver of Profitability
Does It Influence Underwriting or Cyclicality?
Property/Casualty Insurance Industry Investment Gain: 1994–2011:H11
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$52.9
$24.8
$58.0
$51.9$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11:H1
Investment Gains Recovered Significantly in 2010 Due to Realized Investment Gains; The Financial Crisis Caused Investment Gains to
Fall by 50% in 2008
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.
($ Billions)
2011 investment gains are likely to come in
below 2010 due to lower interest rates and poor stock market returns
104
Treasury Yield Curves: Pre-Crisis (July 2007) vs. August 2011*
0.02% 0.02% 0.06% 0.11% 0.23%
1.63%
2.30%
4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%
1.02%
0.38%
3.65%
3.20%
0%
1%
2%
3%
4%
5%
6%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
August 2011 Yield Curve*Pre-Crisis (July 2007)
Treasury yield curve remains near its most depressed level
in at least 45 years. Investment income is falling as a result. Fed is unlikely to hike rates until well into 2013.
The End of the Fed’s Quantitative Easing Is Unlikely to Push Interest Rates Up Substantially Given Ongoing Economic Weakness
*Average of daily rates.Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
106
-1.8
%
-1.8
%
-2.0
%
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
-5.7
%
-7.3%
-1.9
%
-2.1
%
-3.1
%
-8%-7%-6%-5%-4%-3%-2%-1%0%
Perso
nal L
ines
Pvt Pass
Aut
o
Pers P
rop
Comm
ercia
l
Comm
l Auto
Credit
Comm
Pro
p
Comm
Cas
Fidelity
/Sure
ty
Warra
nty
Surplu
s Line
s
Med
Mal
WC
Reinsu
rance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
Inflation
113
Is it a Threat to Claim Cost Severities
114
Annual Inflation Rates, (CPI-U, %),1990–2014F
2.8 2.6
1.51.9
3.3 3.4
1.3
2.5 2.3
3.0
3.8
2.8
3.8
-0.4
1.6
3.1
2.1 2.1 2.2
2.92.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F 12F 13F 14F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 3/11 and 9/11 (forecasts).
The slack in the U.S. economy suggests that inflation should not heat upbefore 2012, but other forces (commodity prices, inflation in countries from which we import, etc.), plus U.S. debt burden, remain longer-run concerns
Annual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
commodity bubble reduced inflationary pressures in 2009/10
Higher energy, commodity and food prices are pushing up inflation in 2011, but not longer turn
inflationary expectations.
Regulatory Environment & Financial Services Reform
116
Insurers Not as Impacted as Banks, But Dodd-Frank
Implementation Has Been a Concern for Insurers
Source: James Madison Institute, February 2008.
ME
NH
MA
CT
PA
WV
VA
NC
LA
TX
OK
NE
ND
MN
MI
IL
IA
ID
WA
OR
AZ
HI
NJRI B
DE
AL
VT
NY
MD
SC
GA
TN
AL
FL
MS
ARNM
KYMOKS
SDWI
IN
OH
MT
CA
NV
UT
WY
CO
AK
= A= B= C= D= F= NG
Source: Heartland Institute, May 2011
B B+
B+
D
B
C-
B-
B+
B+C-
B+C-
B
C+
C-
C-
B- D-
B
F
D
C-
C-C+
B+
B+
B+
A+
A+
C-
B
A
A
B
C+
C+
B-
B-
C+
C
F
D+F
D+
B
C+
F F
D-
2010 Property and Casualty InsuranceRegulatory Report Card
Not Graded: District of Columbia
Pennsylvania’s regulatory environment got a grade of
“C” in 2010
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
119
Growth Would Also Help Absorb Excess Capital
120
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 9/11; Insurance Information Institute.
2.7
%
0.9
%
3.2
%
2.3
%
2.9
%
-0.7
%
0.6
%
-4.0
%
-6.8
% -4.9
%
-0.7
%
1.6
%
5.0
%
3.9
%
3.8
%
2.5
%
2.3
%
0.4
%
1.0
%
1.9
%
2.1
%
2.1
%
2.4
%
2.6
%2
.8%4.1
%
1.1
%
1.8
%
2.5
% 3.6
%
3.1
%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
07
:1Q
07
:2Q
07
:3Q
07
:4Q
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit
crunch, housing slump, labor market contraction has
been severe but modest recovery is underway
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
2011 got off to a sluggish start, but growth is expected to proceed at a more modest, though still relatively weak
pace through 2012
2011 Financial Overview State Economic Growth Varied in 2010
121
Texas had one of the stronger economies in 2010 and has
generally outperformed during the economic
downturn
Hard hit Midwest and Northeast states finally
entering recovery in 2010
122
(Millions of Units)
New Private Housing Starts, 1990-2016F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
1
0.5
5
0.5
9
0.5
9 0.7
1
1.2
0 1.3
3 1.4
3
1.5
0
1.3
51.4
6
1.2
9
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F12F13F14F15F16F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/10 and 9/11); Insurance Information Institute.
Little Exposure Growth Likely for Homeowners Insurers Until 2013. Also Affects Commercial Insurers with Construction Risk Exposure, Surety
New home starts plunged
72% from 2005-2009; A
net annual decline of 1.49 million units, lowest since
records began in 1959
The plunge and lack of recovery in homebuilding and in construction in general is
holding back payroll exposure growth
Job growth, improved credit
market conditions and demographics
will eventually boost home construction
123
16.9
16.5
16.1
13.2
10.4
11.6 12
.6 13.4
14.7 15
.1
15.0 15
.5
16.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11F 12F 13F 14F 15F 16F
(Millions of Units)
Auto/Light Truck Sales, 1999-2016F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/10 and 9/11); Insurance Information Institute.
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Manufacturing Sector.
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2011-12 is
still far below 1999-2007 average of 17 million units, but a recovery is underway.
Job growth and improved credit market conditions will boost auto sales in
2011 and beyond
130
11 Industries for the Next 10 Years: Insurance Solutions Needed
Shipping (Rail, Marine, Trucking)
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Agriculture
Natural Resources
Environmental
Technology (incl. Biotechnology)
Light Manufacturing
Export-Oriented Industries
Many industries are
poised for growth, but
many insurers do not write in
these economic segments
131
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
132
Unemployment and Underemployment Rates: Stubbornly High in 2011
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment stood at 9.1% in
August
Unemployment peaked at 10.1% in October 2009, highest monthly rate since 1983.
Peak rate in the last 30 years:
10.8% in November -
December 1982
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 16.1% in August 2011
January 2000 through August 2011, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemploymentwill constrain payroll growth, which directly affects WC exposure
Aug 11
18
67
92
13
65 1
27
42
15
-10
9-1
46
5 97
23
-12
-85 -58
-16
1-2
53
-23
0-2
57
-34
7-4
56
-54
7-7
34 -66
7-8
06 -7
07
-74
4 -64
9-3
34
-45
2-2
97 -2
15
-18
6-2
62
75
-83
16 6
2
22
95
1 61 1
17
14
31
12 1
93
12
8 16
79
42
61
21
92
41
99
75
15
61
7
14
4
(1,000)
(800)
(600)
(400)
(200)
0
200
400
Jan
-07
Fe
b-0
7M
ar-
07
Ap
r-0
7M
ay-
07
Jun
-07
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
No
v-1
0D
ec-
10
Jan
-11
Fe
b-1
1M
ar-
11
Ap
r-1
1M
ay-
11
Jun
-11
Jul-
11
Au
g-1
1
Monthly Change in Private Employment
January 2008 through August 2011* (Thousands)
Private Employers Added 2.585 million Jobs Since Jan. 2010 After Having Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly Losses in Dec. 08–Mar. 09 Were
the Largest in the Post-WW II Period
Private employers added jobs in every month in 2010 for a total of
1.435 million for the year
17,000 private sector jobs were created in August
136
Unemployment Rates by State, August 2011:Highest 25 States*
13.4
12.1
11.2
11.1
11.1
10.7
10.6
10.4
10.3
10.2
9.9
9.9
9.7
9.6
9.5
9.4
9.3
9.3
9.2
9.1
9.1
9.0
8.8
8.7
8.5
8.5
0
2
4
6
8
10
12
14
NV CA MI DC SC FL RI NC MS GA AL IL TN OR KY NJ AZ WA ID US OH CT MO IN CO TX
Une
mpl
oym
ent R
ate
(%)
*Provisional figures for August 2011, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In August, 26 states and the District of Columbia reported over-the-month
unemployment rate increases, 12 had decreases, and 12 had no change.
137
8.3
8.2
8.1
8.1
8.0
7.9
7.8
7.7
7.6
7.6
7.4
7.3
7.2
7.2
6.7
6.6
6.3
6.2
6.1
5.9
5.8
5.6
5.3
4.7
4.2
3.5
0
2
4
6
8
10
AR PA DE WV NY WI MT AK ME UT MA MD LA MN KS NM VA HI IA VT WY OK NH SD NE ND
Une
mpl
oym
ent R
ate
(%)
Unemployment Rates By State, August 2011: Lowest 25 States*
*Provisional figures for August 2011, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In August, 26 states and the District of Columbia reported over-the-month
unemployment rate increases, 12 had decreases, and 12 had no change.
142
Direct Premiums Written: Worker’s CompPercent Change by State, 2005-2010*
34
.4
23
.1
14
.2
10
.2
9.0
4.6
1.4
-3.7
-7.3
-9.3
-10
.0
-10
.3
-10
.9
-10
.9
-13
.0
-14
.7
-15
.3
-15
.9
-16
.9
-17
.8
-19
.8
-21
.4
-21
.7
-35-30-25-20-15-10-505
10152025303540
OK
MT ID LA
SD IA KS
NY WI
PA
MS IL
NM NJ
NE
MD
NC AL
CT VA
SC
AR
MN
Pe
ce
nt
ch
an
ge
(%
)
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Only 7 (small) states showed growth in workers
comp premium volume between 2005 and 2010
143
Direct Premiums Written: Worker’s CompPercent Change by State, 2005-2010*
-22
.6
-23
.7
-24
.2
-25
.0
-25
.2
-25
.2
-25
.3
-26
.8
-26
.9
-28
.1
-28
.3
-28
.7
-29
.0
-30
.1
-32
.5
-32
.6
-33
.8
-34
.7
-36
.1
-42
.7
-45
.4
-50
.7
-51
.2
-57
.7
-70
-60
-50
-40
-30
-20
-10
0
AZ
ME
GA
KY IN NH
OR
DC
MA
TN VT
US
TX
AK
MO MI
UT RI
CO
DE
NV HI
CA
FL
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
Workers Comp DPW plunged 28.7% from
between 2005 and 2010
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