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TRANSCRIPT
P/C Insurance Industry Outlook Focus on Claims Trends
Robert P. Hartwig, Ph.D., CPCUClinical Associate Professor of Finance, Risk Management & Insurance
Darla Moore School of Business ♦ University of South [email protected] ♦ 803.777.6782
March 23, 2018
2
P/C Insurance Industry Financial Overview
CATS Claims, Non-CAT Underwriting Losses in Personal and Commercial Auto
Impacted Insurer Balance Sheets
Industry Remains Strong, But Major Differences Between Personal and Commercial Lines Growth Prospects
2
P/C Industry Net Income After Taxes1991–2017E 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% 2016 ROAS = 6.2% 2017E ROAS =4.2%*
•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; 2016E is annualized figure based actual figure through Q3 of $31.8B.Sources: A.M. Best, ISO; USC RUM Center estimate (2017 based on actual NIAT of $22.352 though Q3 and ROAS of 4.2%).
$14,
178
$5,8
40$1
9,31
6$1
0,87
0 $20,
598
$24,
404 $3
6,81
9$3
0,77
3$2
1,86
5
$3,0
46$3
0,02
9
$62,
496
$3,0
43
$35,
204
$19,
456 $3
3,52
2$6
3,78
4$5
5,87
0$5
6,82
6$4
2,60
9$2
9,80
3
$38,
501
$20,
559
$44,
155
$65,
777
-$6,970
$28,
672
-$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 15 16 17E
Net income fell sharply in 2017
as high CAT losses took
their toll
$ Millions
-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 16 17*
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2017:Q3
*Est. for 2017 based on actual ROAS of 4.45 through Q2; Profitability = P/C insurer ROEs. 2011-16 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.Source: NAIC, ISO, A.M. Best, Conning, USC RUM Center estimates.
1977:19.0% 1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
9 Years
ROEs in 2017 plunged to their lowest levels since
2001 and 9/11. This creates extreme pricing pressure.
ROE
1975: 2.4%
2013 9.8%
2016 6.2%
2015: 8.4%
2017E 4.2%
5
ROE: Property/Casualty Insurance by Major Event, 1987–2017E
*2017 Estimate based on actual ROAS through Q3 of 4.2% with USC Center for Risk and Uncertainty Management estimate for the full year.
Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO, Fortune; USC RUM Center.
-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 16 17*
P/C Profitability Is Influenced Both by
Cyclicality and 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
Harvey, Irma, Maria,
CA Wildfires
6
P/C Insurance Industry Combined Ratio, 2001–2017:Q3*
* 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.; 2017 (est.) based on actual 104.1 through Q3 (Q3 combined ratio alone was 110.7). 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 97.8100.7
104.1101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17E
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned Premiums Relatively
Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Sandy Impacts
Lower CAT
Losses
Best Combined Ratio Since 1949 (87.6)
Avg. CAT Losses,
More Reserve Releases
Cyclical Deterioration
Sharply higher CATs are driving
large underwriting losses and
pricing pressure
Personal Lines Combined Ratio: 2006–2017E
93.9 97
.6
104.
7
102.
6
98.3 99.4 10
0.7
102.
5
103.
5
102.
7 107.
8
102.
6
80
85
90
95
100
105
110
06 07 08 09 10 11 12 13 14 15 16 17E
Personal Lines Underwriting Losses Rose in 2017 Due to Record CATs and Adverse Auto Severity
Source: A.M. Best (2006-2016); USC RUM (2017E using actual 9 mo. YTD combined ratio of 102.8). 7
109.
411
0.2
118.
810
9.5 11
2.5
110.
210
7.6
104.
110
9.7
110.
2
102.
5 105.
491
.194
.510
4.4
100.
7 103.
8 107.
310
5.4
96.3
96.0
95.1
99.1
106.
2
102.
0
111.
1
112.
3
122.
3
90
95
100
105
110
115
120
125
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1617
E
Com
mer
cial
Lin
es C
ombi
ned
Rat
io
*2007-2012, 2017 figures exclude mortgage and financial guaranty segments. 17E = actual 9 mo. YTD figure of 106.2.Source: A.M. Best (1990-2016); ISO (2017E).
Commercial Lines Combined Ratio, 1990-2017F*
Commercial lines underwriting performance deteriorated
materially in 2017 as record CATs. diminishing prior year reserves,
rising loss cost trends and pricing pressure in some lines are
pushing combined ratios higher
8
9
Policyholder Surplus, 2006:Q4–2017:Q3
Sources: ISO, A.M .Best; 2018 estimate from the Center for Risk and Uncertainty Management, University of South Carolina.
($ Billions)$4
87.1
$496
.6
$512
.8
$521
.8
$478
.5
$455
.6
$437
.1 $463
.0 $490
.8 $511
.5 $540
.7
$530
.5
$544
.8
$559
.2
$559
.1
$538
.6
$550
.3
$567
.8
$583
.5
$586
.9 $607
.7
$614
.0
$624
.4 $653
.4
$671
.6
$673
.9
$675
.2
$674
.2
$673
.7
$676
.3 $700
.9
$717
.0
$719
.4
$662
.0
$570
.7
$566
.5
$505
.0
$515
.6
$517
.9
$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
16:Q
1
16:Q
4
17:Q
2
17:Q
4
Financial Crisis
Surplus (Capacity) as of 9/30/17 reached a new record
of $719.4B despite record CAT losses
2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .
Drop due to near-record 2011 CAT losses
Capacity/Capital “shocks” typically do not on their own drive a sustained firming of
the pricing environment
10
Catastrophe Loss Update: Major Driver of Rate Pressure
2017 Was One of the Costliest Years Ever for US Insurers
Hurricanes Harvey, Irma and Maria, California Wildfires Exact a Huge Toll
10
12
$13.
0$1
1.3
$3.9
$14.
8$1
1.9
$6.3
$35.
8$7
.8 $16.
8$3
4.7
$10.
9$7
.7$3
0.1
$11.
8$1
4.9
$34.
6$3
6.1
$13.
1$1
5.5
$15.
2$2
1.6
$77.
0
$75.7
$14.
4$5
.0 $8.2
$38.
9$9
.1$2
7.2
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
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 16 17*
U.S. Insured Catastrophe Losses, 1989 – 2017 YTD*
*As of Dec. 31, 2017. Stated in 2017 dollars. Excludes NFIP losses.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2017 is likely to become the second costliest year
ever for insured CAT losses in the US($ Billions, $ 2015)
12
13
Top 10 US Catastrophe Losses of 2017,by Insured Loss
(Insured Losses, 2017 Dollars, $ Billions)*
$7.3
$15.9$18.0
$21.9
$1.9$1.6$1.5$1.4$1.3$1.0$0
$5
$10
$15
$20
$25
June Hailstorm March Storms FebruaryStorms
March Storms March Storms May ColoradoStorm
CaliforniaWildfires
HurricaneHarvey
Hurricane Irma Hurricane Maria
YTD insured CAT losses in the US totaled $72 billion by late
2017, the second costliest year on record, led by Hurricanes
Maria, Irma and HarveyNot all insured losses in 2017
were due to hurricanes.
More than $15B in other losses occurred from coast-to-coast.
*As of Nov. 14, 2017.Sources: PCS; Insurance Insider: http://www.insuranceinsider.com/-1270818/9.
14
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1997–20161
0.2%2.0%7.0%
5.9%
6.7%
39.9%
38.2%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2016 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, $161.1
Fires (4), $8.4
Events Involving Tornadoes (2), $168.1
Winter Storms, $28.2
Terrorism, $25.0
Other Wind/Hail/Flood (3), $29.7
Other (5), $0.8
Wind losses, by far, cause the most
catastrophe losses, even if hurricanes/TS
are excluded.
Tornado share of CAT losses is
rising
Insured cat losses from 1997-2016
totaled $421.2B, an average of $21.1B per year or $1.76B
per month
Winter storm losses were much above average in 2014/15 pushing
this share up
15
Origins of Pricing Pressure Arising from (Near) Record CAT Activity
*Some programs above and below this range.**Higher end of range applies to loss-affected accounts.Sources: Adapted from Barclay’s Capital research.
+10% to +20%*
Non-Loss Affected: +5% Loss-Affected: +10% to +15%**
0% to +5%
Retrocessional Reinsurance markets (reinsurance for reinsurance companies) are pushing pressure through the reinsurance markets and into both commercial and
personal lines
16
0
50
100
150
200
250
300
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 17 18*
(Percent)
US Reinsurance Pricing Is Sensitive to CAT Activity and Ultimately Impacts Primary Insurance Pricing, Terms and Conditions
Post-Andrew surge
US Property Catastrophe Rate-on-Line Index: 1990 – 2018*
*As of January 1 each year. 2018 is a full-year estimate (Barclay’s Capital).Source: Guy Carpenter; Artimes.bm accessed at: http://www.artemis.bm/indices/regional-property-cat-rate-on-line-index.html
Post-9/11 Adjustment
Post Katrina, Rita, Wilma
period
Post-Ike adjustment
Adjustment following
record tornado losses in 2011 and Sandy in
2012
Near-Record CATs in 2017 will likely lead US reinsurance prices in
2018 to increase
INVESTMENTS: THE NEW REALITY
21
Investment Performance is a Key Driver of Insurer Profitability
The “Trump Bump” Has Lifted Stock Markets and Interest Rates
Will the Gains Help Insurers?21
Property/Casualty Insurance Industry Investment Income: 2000–2017E*
$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 $46.3 $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 16 17E*
Due to persistently low interest rates, investment income fell in 2012, 2013 and 2014 but showed a small (1.7%) increase in 2015—
though 2016 experienced another decline. Up ~2% in 2017.1 Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.*2017 estimate based on annualized $35.4B actual figure through Q3 2017.
($ Billions) Investment earnings in 2017E were still ~14% below
their 2007 pre-crisis peak
Net Investment Yield on Property/ Casualty Insurance Invested Assets, 2007–2017E*
4.4
4.0
4.6 4.5
3.7 3.83.7
3.43.7
3.2 3.1 3.0
4.6
4.23.9
2.5
3.0
3.5
4.0
4.5
5.0
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17E
The yield on invested assets remains low relative to pre-crisis yields. Fed rate increases beginning in late 2015 have pushed up some yields, albeit quite modestly. Shrinking of Fed’s balance sheet should help too in 2018
and beyond.Sources: NAIC data, sourced from S&P Global Market Intelligence; 2017estimate is based on ISO data through Q3 2017.
(Percent)
Investment yield in 2017 were down about 160
BP from pre-crisis levels
25
Brief P/C Insurance Growth Overview and Outlook
Drivers of Growth in 2018
Economic Growth Fuels Exposure & Record CAT Losses Are Pressuring Rates
Price Competition Remains Rational While Others Look Towards M&A
25
26
-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 12 13 14 15 16 17E
18F
Net Premium Growth (All P/C Lines): Annual Change, 1971—2018F(Percent)
1975-78 1984-87 2000-03
*Q3:2017 over Q3:2016. Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014-16).
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.
2018F: 4.5%2017:Q3: 4.1%
2016: 2.7%2015: 3.5%2014: 4.2
2013: 4.4%2012: +4.2%
Outlook2017E: 4.1%2018F: 4.5%
Y-o-Y Growth Rates, Direct Premiums Written, Commercial vs. Personal Lines,
2012:Q4 - 2017:Q3
0%
1%
2%
3%
4%
5%
6%
7%
12:Q
1
12:Q
212
:Q3
12:Q
4
13:Q
113
:Q2
13:Q
3
13:Q
414
:Q1
14:Q
2
14:Q
3
14:Q
415
:Q1
15:Q
2
15:Q
315
:Q4
16:Q
1
16:Q
216
:Q3
16:Q
4
17:Q
117
:Q2
17:Q
3
Personal LinesCommercial Lines
Sources: NAIC, via SNL Financial; ISO; Insurance Information Institute calculations.
Since 2014, personal lines Direct Premiums Written have generally grown faster than commercial lines DPW, and that growth has been less volatile.
Personal Lines growth is more
than 3 times that of
Commercial Lines
2016: Components of Commercial DWP Growth
EXPOSURE, 4.1%
RATE, -1.0%
DWP, 3.1%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Commercial Market
EXPOSURE RATE DWP
Direct Written Premium (DWP) in US lines covered by ISO MarketStance grew 3.1 percent in 2016
Soft market conditions counteracted moderate 4.1 percent exposure growth
Anecdotal evidence: insureds spent rate reductions on new/broader coverages (CIAB, 2017).
Source: Verisk Insurance Solutions.
32
U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 1994-2016 (1)
$5,1
00
$11,
534
$8,0
59
$30,
873
$19,
118
$40,
032
$1,2
49
$486
$20,
353
$425
$9,2
64
$35,
221
$13,
615
$16,
294
$3,5
07 $6,4
19
$12,
458
$4,6
85
$4,3
93
$6,7
23
$40,
006
$8,4
98
$55,825
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Tran
sact
ion
valu
es
0
20
40
60
80
100
120
140
Num
ber of transactions
($ Millions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
M&A activity in the P/C sector in 2015 totaled $39.6B, its highest level since
2000, but fell sharply in 2016 in dollar terms
AXA its acquisition of XL Ltd. on 3/5/19
for $15.3B
THE ECONOMY
34
The Strength of the Economy Will Greatly Influence Growth in Insurers’ Exposure
Base Across Most Lines
Claiming Behavior Is Influenced by the Economy as Well
34
35
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 3/18; 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%2.
0% 2.6%
2.0%
0.9%
0.8% 1.
4%3.
5%2.
1%1.
2%3.
1%3.
2%2.
5%2.
5% 3.1%
2.9%
2.8%
2.5%
2.4%
2.2%
2.0%
-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%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
08:1
Q08
:2Q
08:3
Q08
:4Q
09:1
Q09
:2Q
09:3
Q09
:4Q
10:1
Q10
:2Q
10:3
Q10
:4Q
11:1
Q11
:2Q
11:3
Q11
:4Q
12:1
Q12
:2Q
12:3
Q12
:4Q
13:1
Q13
:2Q
13:3
Q13
:4Q
14:1
Q14
:2Q
14:3
Q14
:4Q
15:1
Q15
:2Q
15:3
Q15
:4Q
16:1
Q16
:2Q
16:3
Q16
:4Q
17:1
Q17
:2Q
17:3
Q17
:4Q
18:1
Q18
:2Q
18:3
Q18
:4Q
19:1
Q19
:2Q
19:3
Q19
:4Q
Demand for Insurance Should Increase in 2018-19 as GDP Growth Continues at a Steady and Perhaps Accelerating 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%
2018 GDP forecasts were revised upwards by ~0.4%
due to tax reform, but effects my wane in 2019
First consecutive
quarters of 3%+ GDP growth since 2014
The Economy Drives P/C InsuranceIndustry Premiums: 2006:Q1 – 2017:Q2Direct Premium Growth (All P/C Lines) vs. Nominal GDP: Quarterly Y-o-Y Pct. Change
Sources: SNL Financial; U.S. Commerce Dept., Bureau of Economic Analysis; I.I.I.
-6%
-3%
0%
3%
6%
9%
12%
2006:Q1
2006:Q3
2007:Q1
2007:Q3
2008:Q1
2008:Q3
2009:Q1
2009:Q3
2010:Q1
2010:Q3
2011:Q1
2011:Q3
2012:Q1
2012:Q3
2013:Q1
2013:Q3
2014:Q1
2014:Q3
2015:Q1
2015:Q3
2016:Q1
2016:Q3
2017:Q1
DWP y-o-y change y-o-y nominal GDP growth
Direct Written Premiums track Nominal GDP—not quarter by quarter but overall fairly well.
37
Consumer Confidence Index:Jan. 1987 – Feb. 2018
Source: The Conference Board; Wells Fargo Research.
Outlook: Consumers are optimistic about the future, which is consistent with expectations for stronger economic growth (consumers account for nearly 70% of all spending in the economy). Should positively influence
growth of insurable exposures.
The Conference Board’s Consumer Confidence Index stood at 130.8 in
Dec., a post-recession high
38
16.9
16.5
16.1
13.2
10.4
11.6 12
.714
.4 15.5 16
.4 17.4
17.5
17.2
17.0
16.8
16.7
16.7
16.7
16.9
16.9
16.617
.117.5
17.8
17.4
910111213141516171819
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18F 19F 20F21F 22F 22F
(Millions of Units)
Auto/Light Truck Sales, 1999-2023F
New auto/light truck sales fell to the lowest level since the
late 1960s. Forecast for 2014-15 is still below 1999-2007 average of 17 million units,
but a robust recovery is well underway.
Job growth and improved credit market conditions
boosted auto sales to near record levels in
recent years
Truck, SUV purchases remain strong but have slumped a bit
Yearly car/light truck sales are slowing slightly, as demand tapers following the recovery from the recession. PP Auto premium might
grow by 3.5% - 5%.
Sales have returned to pre-
crisis levels
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/18 for 2018-19; 10/17 for 2019-23F; Insurance Information Institute.
39
(Millions of Units)
New Private Housing Starts, 1990-2023F
1.48
1.47 1.
62 1.64
1.57 1.60 1.
71 1.85 1.
96 2.07
1.80
1.36
0.91
0.55 0.59 0.61
0.78 0.
92 1.00 1.
11 1.17 1.20 1.
29 1.34 1.
40 1.43 1.45 1.48
1.351.
461.
291.
201.
011.
19
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 11 12 13 14 15 16 17 18F19F20F21F22F23F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/18 for 2018-19; 10/17 for 2019-23F; Insurance Information Institute.
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, still-low mortgage
rates and demographics should continue to stimulate new home
construction for several more years
40
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.
9%4.
9%4.
7%4.
7%4.
4%4.
3%4.
1%4.
0%3.
9%3.
8%3.
7%3.
7%3.
6%3.
6%3.
6%
9.6%
4%
5%
6%
7%
8%
9%
10%
11%
07:Q
107
:Q2
07:Q
307
:Q4
08:Q
108
:Q2
08:Q
308
:Q4
09:Q
109
:Q2
09:Q
309
:Q4
10:Q
110
:Q2
10:Q
310
:Q4
11:Q
111
:Q2
11:Q
311
:Q4
12:Q
112
:Q2
12:Q
312
:Q4
13:Q
113
:Q2
13:Q
313
:Q4
14:Q
114
:Q2
14:Q
314
:Q4
15:Q
115
:Q2
15:Q
315
:Q4
16:Q
116
:Q2
16:Q
316
:Q4
17:Q
117
:Q2
17:Q
317
:Q4
18:Q
118
:Q2
18:Q
318
:Q4
19:Q
119
:Q2
19:Q
319
:Q4
Rising unemployment eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10% in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (3/18 edition); Insurance Information Institute.
2007:Q1 to 2019:Q4F*
Unemployment forecasts have been revised modestly downwards. Optimistic
scenarios put the unemployment as low as 3.6 by Q4 2018.
Jobless figures have been revised
downwards for 2018/19
The Feb. 2018 unemployment rate was 4.1%, a 17-year low
41
Personal Lines Growth Drivers
Rate and Exposure are Both Presently Important
Growth Drivers
43
Monthly Change in Auto Insurance Prices, 1991–2018*
*Percentage change from same month in prior year; through Feb. 2018; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'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 '17 '18
Cyclical peaks in PP Auto tend to occur roughly every 7-10 years (early 1990s,
early 2000s, early and late 2010s)
“Hard” markets often tend to occur during recessionary
periods
Last pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
Feb. 2018 reading of 9.7% is up from 7.6%
a year earlier. Current rate trend is strongest
since 2002-2003.
44
Personal Auto Insurance: Key CPI Cost Component Changes: 2018 vs. 2017*
Source: US Bureau of Labor Statistics; USC Center for Risk and Uncertainty Management.
Percentage Change (%)
4.9% 4.4%
2.1%2.2%
9.7%
2.7%
0.1% 0.1%0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Ove
rall C
PI
Mot
or V
ehic
leIn
sura
nce
Mot
or V
ehic
leBo
dy W
ork
Mot
or V
ehic
leR
epai
rs
Mot
or V
ehic
lePa
rts
Out
patie
ntH
ospi
taliz
atio
n
Inpa
tient
Hos
pita
lizat
ion
Pres
crip
tion
Dru
gs
* February 2018 vs. February 2017.
Feb. 2018 reading of 9.7% is up from 7.6%
a year earlier. Current rate trend is strongest
since 2002-2003.
Hospitalization costs continue to
drive severity
46
$119
.7
$128
.0 $139
.7 $151
.2
$159
.6
$158
.5
$157
.2
$160
.1
$163
.3
$168
.1
$174
.9
$183
.5
$192
.5 $206
.6 $220
.0 $234
.0
$160
.3
$159
.6
$157
.3
$100
$120
$140
$160
$180
$200
$220
$240
$260
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17E 18F
PP Auto premiums written continue to recover from a period of flat growth attributable to the weak economy impacting new vehicle sales, car choice, and increased
price sensitivity among consumers
Sources: A.M. Best (1990-2016); USC RUM (2017F-2018F).
Private Passenger Auto InsuranceNet Written Premium, 2000–2018F
$ Billion
PPA NWP volume in 2017 was up an estimated $62.8B or 39.9% since the
2009 trough; By 2017 the gain is expected to be $76.8B or 48.9%
PPA will generate $10B - $14B in new premiums annually
through 2018
53
Homeowners InsuranceNet Written Premium, 2000–2018F
$45.8$49.5
$52.2$54.8 $55.2
$61.1$63.5
$66.9$71.9
$77.0$79.5 $80.2 $81.5 $82.7
$57.5$56.2
$32.4
$40.0
$35.2
$30$35$40$45$50$55$60$65$70$75$80$85$90$95
$100
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17E 18F
Sources: A.M. Best; USC RUM Center.
$ Billions Homeowners insurance NWP continues to rise (up 152% 2000-2017E) despite very little unit
growth during the real estate crash. Reasons include rate increases, especially in coastal
zones, ITV endorsements (e.g., “inflation guards”), compulsory for mortgaged properties
and resumption of home building activity
The Homeowners line will generate about
$1.5B in new premiums annually through 2018
57
Return on Net Worth: All P-C Lines vs. Homeowners & Pvt. Pass. Auto, 1990-2016*
*Latest available.**Excludes 1992, the year of Hurricane Andrew. If 1992 is included the resulting homeowners RNW is 2.2%Sources: NAIC; Insurance Information Institute.
-10%
-5%
0%
5%
10%
15%
20%
25%
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
US All LinesUS HomeUS PP Auto
(Percent)Average RNW: 1990-2016*
All P-C Lines: 7.7% PP Auto: 7.6%
Homeowners: 4.9%**
Homeowners is Now Outperforming Pvt.Pass. Auto and P-C Industry as a Whole. HO Volatility is Associated Primarily With Coastal Exposure Issues
Excluding 1992’s Hurricane Andrew
Private Passenger Auto Combined Ratio: 1993–2017E
101.
710
1.3
101.
310
1.0
109.
510
7.9
104.
298
.494
.395
.195
.5 98.3 10
0.2
101.
310
1.0
102.
010
2.1
101.
610
2.3
104.
610
6.3
106.
5
99.5 10
1.1
103.
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 11 12 13 14 15 16 17E
Private Passenger Auto Underwriting Performance Is Showing the Strains of Rising Frequency (and Severity) Trends in Many States
60Sources: A.M. Best (1990-2016); USC RUM Center (2017E).
Homeowners Insurance Combined Ratio: 1990–2017E
113.
011
7.7
158.
411
3.6
101.
0 109.
410
8.2
111.
4 121.
710
9.3
98.2
94.4 10
0.3
89.0 95
.611
6.6
105.
810
6.9
122.
310
4.1
90.4
92.4
91.9
93.2
104.
0118.
411
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 11 12 13 14 15 16 17E
1
Homeowners Performance Had Improved Markedly Since 2011/12’s Large Cat Losses…until 2017’s Record
Catastrophe Loss Activity.
61
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Sources: A.M. Best (1990-2016); USC RUM Center (2017E).
Hurricanes Harvey, Irma,
Maria, CA Wildfires
Commercial Auto Combined Ratio: 1993–2017F
112.
1
112.
0
113.
0
115.
9
102.
7
95.2
92.9
92.1
92.4 94
.1 96.8 99
.1
97.8
103.
4
106.
8
106.
7
103.
3 108.
8
110.
4
109.
9
118.
1
115.
7
116.
2
80
85
90
95
100
105
110
115
120
125
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17F
Commercial Auto Results Are Challenged as Rate Gains Have Yet to Fully Offset Adverse Frequency and Severity Trends
62Sources: A.M. Best (1990-2016); USC RUM Center (2017E).
63
Change in Commercial Rate Renewals, by Line: 2017:Q3
Source: Council of Insurance Agents and Brokers; USC Center for Risk and Uncertainty Management.
Percentage Change (%)
0.4% 0.4% 0.7% 0.9%
7.3%
-2.3%-0.8% -0.7% -0.4%
0.1% 0.1%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Wor
kers
Com
p
Gen
eral
Liab
ility
Cyb
er
Um
brel
la
Sure
ty
Busi
ness
Inte
rrupt
ion
Con
stru
ctio
n
D&O EP
L
Com
mer
cial
Prop
erty
Com
mer
cial
Auto
Commercial Property, Business Interruption
will need to reflect record CAT losses and
pressure from reinsurance markets
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Commercial Auto was only major line with materially positive renewals in 2017
64
Claim Trends in Private Passenger Auto Insurance
Rising Frequencies and Severities in Many Coverages
Will that Pattern Be Sustained?
65
Bodily Injury: Severity Trend Is Up, Frequency Decline Returning?
2.1% 1.7%3.6%
1.8%
4.3%5.6%
7.6%
-5.4%-3.8% -4.0% -4.2%
-2.2%
0.0%
-1.1%
3.4%
0.0%
-2.2%
3.0%2.0%
5.9%5.7%4.7%
2.9%1.1%
0.0% 0.0%
-8%-6%-4%
-2%0%2%4%
6%8%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Severity Frequency
Annual Change, 2005 through 2017*
BI Severity Trend is a Major Cost Driver
*2017 figure is for the 4 quarters ending 2017:Q3.Source: ISO/PCI Fast Track data; Insurance Information Institute
66
Property Damage Liability: Severity Up and Frequency Flat
1.8% 1.9%
4.1%3.5%
6.3% 6.0%
4.2%
-1.6%
-3.5% -3.4%
0.6% 0.6%
-0.3%
1.4% 1.4%0.8%
-1.1%
2.9%3.6%
2.0% 2.0%
-0.4%
0.4%0.9% 1.2%0.3%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Severity Frequency
Annual Change, 2005 through 2017*
Severity/Frequency Trends Have Been Volatile, But Rising Severity since 2011 Is a Concern
*2017 figure is for the 4 quarters ending 2017:Q3.Source: ISO/PCI Fast Track data; Insurance Information Institute
67
PIP: Severity Trend Is Up, Frequency Decline Returning?
-6.5%
-0.8%
10.9%
-2.1% -2.8%
6.2%
1.8%3.3%3.2%
-1.2%
-8%-6%-4%-2%0%2%4%6%8%
10%12%
2013 2014 2015 2016 2017*
Severity Frequency
Annual Change, 2013 through 2017*
No-Fault (PIP) Trends Have Been Volatile
*2017 figure is for the 4 quarters ending 2017:Q3.Source: ISO/PCI Fast Track data; Insurance Information Institute
68
Collision Coverage: Severity & Frequency Trends Are Both Higher in 2017*
2.8%1.3%
4.2%
1.4%
5.7% 5.1%
-0.1%
-1.8%
-3.6%
2.5%
-2.4% -1.8%
4.4%
1.2% 1.2%0.3%
3.9%3.1%
0.1% 0.5%
-2.3%
-0.1%-1.4%-0.5%
0.9%2.3%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Severity Frequency
Annual Change, 2005 through 2017*
The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with
Experience from Past Recoveries*Four quarters ending with 2017 Q3. Source: ISO/PCI Fast Track data; Insurance Information Institute
69
Comprehensive Coverage: Frequency and Severity Trends Are Volatile
15.4% 15.3%
-14.6%
6.5%
-1.3%
21.6%
10.7%
-9.8%-6.3%
1.3%5.8%
-8.9%-5.6%
2.1%
-1.1%
15.5%
-1.4% -1.5%
12.6%
-8.1%-5.9% -2.1%
3.5%
-3.1%
1.8%6.2%
-20%-15%-10%
-5%0%
5%10%15%20%25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Severity Frequency
Annual Change, 2005 through 2017*
Weather Creates Volatility for Comprehensive Coverage. Comprehensive Losses Were Up 24.9% in Q3:2017 Due Largely to
Hurricanes Harvey and Irma
Severe weather is a principal cause of the spikes in both
frequency and severity
*2017 figure is for the 4 quarters ending with 2017:Q3.Source: ISO/PCI Fast Track data; Insurance Information Institute
Passenger Vehicle Collision Coverage Insurance Losses by Vehicle Type, 2014-2016 Model Years
8.3%
6.4% 6.5%7.4%
$5,292
$5,210 $5,203
$5,256
$5,000
$5,100
$5,200
$5,300
$5,400
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Passenger Cars &Minivans
Pickups SUVs All
Frequency Severity
Cars and minivans have the highest collision claim frequencies and severities
70.SOURCE: Highway Loss Data Institute.
A Half Century-Plus of Auto Insurance:Frequency vs. SeverityIn the Long Run, Frequency Falls. Severity Increases.
*Four quarters ending in Q3:2017Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.
Frequency Severity
7.92
2.61
4.22
1.23
3.57
0.91
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Property Damage Bodily Injury
Cla
ims
per
10
0 I
nsu
red
Veh
icle
s
$183$1,143$1,288
$7,553
$3,673
$16,007
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
ever
ity
1963 1988 2017*
80
A Few Factors Driving Adverse Private Passenger Auto Loss Trends
More Jobs, Better Economy, More People Driving, More Expensive
Cars, Higher Speed Limits…
America is Driving More Again: 2000-2017Percent Change, Miles Driven*
*Moving 12-month total vs. prior year through December. Sources: Federal Highway Administration; Insurance Information Institute.
1.7%2.1%
1.5%
2.2%1.9%
1.0%0.4% 0.3%
-2.1%
-0.3%
0.8%
-0.3%
0.1%0.6%
1.9%
2.7%
1.2%
2001 2003 2005 2007 2009 2011 2013 2015 2017*-2.5%
-1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
Fastest Growth in More Than a
Decade
Tremendous Growth In Miles Driven. The More People Drive, the More Frequently They Get Into Accidents.
More People Working and Driving=> More Collisions, 2006-2017:Q2Number Employed, Millions
Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling four-quarter average frequency from Fast Track Monitoring System; Insurance Information Institute.
When People are Out of Work, They Drive Less. When They Get Jobs,They Drive to Work, Helping Drive Claim Frequency Higher.
5.25.35.45.55.65.75.85.96.06.16.2
120
125
130
135
140
145
150
06:Q
1
06:Q
3
07:Q
1
07:Q
3
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:Q
3
13:Q
1
13:Q
3
14:Q
1
14:Q
3
15:Q
1
15:Q
3
16:Q
1
16:Q
3
17:Q
1
Number Employed (left axis)Collision Claim Frequency (right axis)
Overall Collision Claims Per 100 Insured Vehicles
Recession
Does Spending on Vehicles Affect Claim Severity?
Annual Change, 2005 through 2017
Source: Fast Track Monitoring System; Bureau of Labor Statistics Consumer Expenditure Survey (vehicle purchases –net outlay) Insurance Information Institute.
As the Economy Has Gotten Better, People Are Spending More on Vehicles – When Those Cars Are in Accidents, Severity Increases.
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Collision Severity (left scale)
Previous 6-yr avg vehicle purchases (right scale)
86
A Few Factors Driving Adverse Private Passenger Auto Loss Trends
More Jobs, Better Economy, More People Driving, Lower Gas
Prices, More Expensive Cars, Higher Speed Limits…
88
-0.4
%
0.1%
-2.5
%
2.2%
1.0%
3.6%
-1.4
%
0.4% 0.9%
-0.1
%
-3.0
%
-9.5
%
-9.0
%
-2.4
% -0.1
%
3.1%
-2.9
%
0.1%
8.0%
5.0%
-1.0
%
-7.0
%
-5.9
%
2.2%
1.5% 2.0%
0.7%
-12%-10%
-8%-6%-4%-2%0%2%4%6%8%
10%
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 1617E
Annual Change (%)
*2017 estimate from NSC data.Source: National Safety Council.
Motor vehicle deaths saw their
largest increase in 50 years in 2016
U.S. Annual Change in Automobile Deaths, 1991- 2017E*
Driving Has Been Getting Safer For Decades, But Recent Trend Is Discouraging—40,200 Deaths in 2016—Little Improvement in 2017
Sharp increase in
use of seatbelts
Steep drop due to less
driving during the Great
Recession
2015/16 is the largest 2-year escalation in
53 years
89
The First Human to Be Killed by an Autonomous Vehicle…And It Appears the Human Was at Fault…Maybe On the night of March
18, 2018 in Tempe, AZ, 49-year old Elaine
Herzberg was struck and killed by a self-driving Uber vehicle
while crossing the road pushing a bicycle. She
is believed to be the first human to be killed
by an autonomous vehicle.
Claims Quandary?Tempe Police Chief Sylvia Moir: “I suspect preliminarily it appears
that the Uber would likely not be at fault in this accident.” But then Moir added: “I won’t rule out the potential to file charges against
the [backup driver] in the Uber vehicle.”
Source: TheVerge.com at: https://www.theverge.com/2018/3/20/17142672/uber-deadly-self-driving-car-crash-fault-police
90
Collision Repair Cost Drivers
The Bottom Line:High Tech Vehicles Are Expensive
to Repair
“Key to Key”: Vehicle Repair Times Are Increasing, 2013-2017
Driveable+0.6 days (+18.9%)
Non-Driveable+2.3 days (+20.3%)
Total+1.0 days (+15.2%)
Source: CCC accessed via PropertyCasualty360.com at: https://www.propertycasualty360.com/native/?mvi=204cd819dffd479f9551e33dc691c4a8&mvpf=e9c65c7f741c449bbb8c0ebe08e5a1c9&mvpflabel=&et=editorial&bu=PC360&cn=20180305&src=EMC-Email&pt=Daily&slreturn=20180205153245
Direct Repair Program Vehicle Volume by Repair Cost Range and Drivability, 2013-2017
Non-drivable share has been
decliningSource: CCC accessed via PropertyCasualty360.com at: https://www.propertycasualty360.com/native/?mvi=204cd819dffd479f9551e33dc691c4a8&mvpf=e9c65c7f741c449bbb8c0ebe08e5a1c9&mvpflabel=&et=editorial&bu=PC360&cn=20180305&src=EMC-Email&pt=Daily&slreturn=20180205153245
Repair costs have been
drifting upward
Electric Car Stock in the US: 2005–2016*
1.1
1.1
1.1
2.6
74.7
171.
4
290.
2 404.
1
563.
7
2.6
3.8 21
.5
0
100
200
300
400
500
600
05 06 07 08 09 10 11 12 13 14 15 16
EV Sales Remain Strong but Total Just 1% of the US Stock of Cars
*Includes plug-inn vehicles and hybrids.Source: International Energy Agency, 2017 Global Electric Vehicle Outlook accessed at:
https://www.iea.org/publications/freepublications/publication/GlobalEVOutlook2017.pdf; USC RUM. 97
(Thousands of Cars)The number of EVs in the US is increasing
exponentially
99
Commercial Lines Growth, Underwriting Performance
& Pricing Cyclicality
Cyclicality in Growth, Price Are the NormRising Rates Are a Normal Part of
Adjustment Process
99
-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 15 17E
Economic Shocks, Inflation:
1976: 22.2%Tort Crisis
1986: 30.5%
Post-9/112002: 22.4%
Great Recession:2009: -9.0%
ROE
2017: +1.8%
Commercial Lines NPW Premium Growth:1975 – 2017E
Recessions:1982: 1.1%
Commercial lines is prone to far more cyclical volatility that
personal lines.
1988-2000: Period of
inter-cycle stability
Commercial lines premium
growth has been sluggish
for years, reflecting weak
pricing environment.
Large underwriting losses will necessarily
pressure rates upward in 2018
Note: Data include state funds beginning in 1998. Source: A.M. Best; Insurance Information Institute. 2017 estimate: Univ. of South Carolina Center for Risk and Uncertainty Management, ISO.
Post-Hurricane Andrew Bump:
1993: 6.3%
Post Katrina Bump:
2006: 7.7%
2016: -1.3%
101
CIAB: Average Commercial Rate Change, All Lines, 2011:Q1–2017:Q3*, 2018F
-0.1
%
0.9% 2.
7% 4.4%
4.3%
3.9% 5.
0% 5.2%
4.3%
3.4%
2.1%
1.5%
-0.5
%
0.1%
-0.7
%
-2.3
%
-3.3
%
-3.1
%
-2.8
%
-3.7
%
-3.9
%
-3.2
%
-3.3
%
-2.5
%
-2.8
% -1.3
%
1.0%
-2.9
%
-16%
-11%
-6%
-1%
4%
9%
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
2018
F
*Latest available.Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.Source: Council of Insurance Agents & Brokers; Center for Risk and Uncertainty Management, Univ. of South Carolina.
Smallest Decrease in 11 QuartersCommercial programs have generally
renewed downwards since late 2014, but will need to move to positive renewals in 2018, just as they did following large CAT losses
in 2011-2012
(Percent)
Renewals turned positive in late 2011
in the wake of record tornado
losses and Hurricane Sandy
2017’s results may exert enough
pressure on markets to push overall rates
up by 1+% in 2018
103
Change in Commercial Rate Renewals, by Line: 2017:Q3
Source: Council of Insurance Agents and Brokers; USC Center for Risk and Uncertainty Management.
Percentage Change (%)
0.4% 0.4% 0.7% 0.9%
7.3%
-2.3%-0.8% -0.7% -0.4%
0.1% 0.1%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Wor
kers
Com
p
Gen
eral
Liab
ility
Cyb
er
Um
brel
la
Sure
ty
Busi
ness
Inte
rrupt
ion
Con
stru
ctio
n
D&O EP
L
Com
mer
cial
Prop
erty
Com
mer
cial
Auto
Commercial Property, Business Interruption
will need to reflect record CAT losses and
pressure from reinsurance markets
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Commercial Auto was only major line with materially positive renewals in 2017
D&O Pressure: Number of Federal Securities Class Actions, 2013 – 2017*
Number of Class Actions
*As of Nov. 16, 2017.Source: Stanford University Law School: http://securities.stanford.edu/
165 170207
271
363
0
50
100
150
200
250
300
350
400
2013 2014 2015 2016 2017
The number of securities class actions is rising sharply, putting
pressure on D&O coverage
110
Workers Comp Spotlight
Underwriting Results Remain Strong
Exposure Outlook Is Outstanding as Job Growth Continues and
Wage Gains Accelerate
Workers Compensation Combined Ratio: 1994–2016P
102.
0
97.0 10
0.0
101.
0
112.
6
108.
6
105.
1
102.
7
98.5 10
3.5
104.
5 110.
6 115.
0
115.
0
109.
0
102.
0
100.
0
94.0
94.0
121.
7
107.
0
115.
3
118.
2
80859095
100105110115120125130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16P
Workers Comp Is an Example of a Line that Was Recently Restored to Health Through the Return
of Rate AdequacySources: A.M. Best (1994-2009); NCCI (2010-2016P) and are for private carriers only.. 111
WC results have improved markedly
since 2011
Workers Compensation Premium: Flat in 2016 After 5 Years of IncreaseNet Written Premium
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2 31.1
34.737.8 38.6 37.6
33.830.3 29.9 32.3
35.1 36.9 38.5 39.7 40.1
35.335.734.335.433.6
30.128.5
26.925.925.0
28.632.1
37.7
42.3
46.547.846.544.3
39.3
34.633.836.4
39.541.8
44.245.545.5
0
10
20
30
40
50
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 15
State Funds ($ B)Private Carriers ($ B)
Pvt. Carrier NWP growth was 0% in 2016, +2.9% in 2015,
+4.3% in 2014, +5.1% in 2013 and 8.7% in 2012
$ Billions
Calendar Yearp Preliminary
Source: NCCI from Annual Statement Data.Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT.Each calendar year total for State Funds includes all funds operating as a state fund that year.
Workers Compensation Lost-Time Claim Frequency Declined in 2016
118
0.3
-6.5
-4.5
0.5
-3.9-2.3
-4.5
-6.9
-4.5 -4.1 -3.7
-6.6
-4.5
-2.2
-4.3 -4.9
10.6
-3.9
-5.8
-3.3-2
-4.6 -4.0
3.6
-0.9
-10-8-6-4-202468
1012
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16p
IndicatedAdjusted*
Percent
Accident Year*Adjustments primarily due to significant audit activity.2016p: Preliminary based on data valued as of 12/31/2016.Source: NCCI Financial Call data, developed to ultimate and adjusted to current wage an voluntary loss cost level; Excludes high deductible policies; 1994-2014: Based on data through 12/31/14. Data for all states where NCCI provides ratemaking services, excluding WV.Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
Average Annual Change = –3.5%(1994–2016)
$9.8$9.5$9.2$9.7$9.7
$10.3$11.1
$12.1$13.3
$14.7$16.0$16.5
$17.3
$22.2$22.3
$21.9$21.8
$23.0$23.2
$23.9
$22.4$18.0$17.4
$19.0$20.8
$21.7
-0.2
%
-2.6
%
+0.6
%
+9.3
%
+0.6
%
+5.9
%
+3.1
%
+1.0
%
+4.6
%
+3.1
%
+9.2
%
+10.
1%
+10.
1%
+9.0
%
+7.7
%
+5.9
%
+1.7
%
+4.9
%
-2.8
%
-3.1
%
+1.0
%
+6.6
%5
7
9
11
13
15
17
19
21
23
25
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16p
IndemnityClaim Cost ($ 000s)
Accident Year
Workers Comp Indemnity Claim Costs: Sharper Increase in 2016
Average indemnity costs per claim were up 3% in
2016 to $23,900, the largest increase since 2008
Average Indemnity Cost per Lost-Time Claim
+3%
+0.9
%
Cumulative Change = 144%(1991-2016p)
2016p: Preliminary based on data valued as of 12/31/2016.1991-2015: Based on data through 12/31/2015, developed to ultimateBased on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
+2.3
%
+2.8
%
$8.1$8.2$8.1$8.8$8.9$9.6
$10.5$11.4
$12.6$13.5
$15.4$16.7
$18.0
$24.5$25.6
$26.2$26.5
$28.1$27.7
$29.1
$27.0
$20.4
$19.0
$21.6$20.8
$25.6
+4.0
+1.8
+1.1
%
+0.2
%
+4.4
%
+7.0
%
+2.4
%
+5.8
%
+7.8
%
+5.4
%
+7.7
%
+8.8
%
+13.
5%
+7.3
%
+10.
6%
+8.3
%
+10.
1%
+7.4
%
+5.1
%
+9.0
%
+2.1
%
+1.3
%
+6.8
%
+5.9
%0
5
10
15
20
25
30
35
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16p
MedicalClaim Cost ($ 000s)
Accident Year
Workers Comp Medical Claim Costs: 2016 Was Sharpest Increase Since 2007
Average indemnity costs per claim were up 5% in
2016 to $29,100, the largest increase since 2007
Average Medical Cost per Lost-Time Claim
+5%
-1.4
%
Cumulative Change = 259%(1991-2016p)
2016p: Preliminary based on data valued as of 12/31/2016.1991-2015: Based on data through 12/31/2015, developed to ultimateBased on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
4.5%3.5%
2.8%3.2%3.5%4.1%4.6%4.7%
4.0%4.4%4.2%4.0%4.4%3.7%3.2%3.4%
2.5%2.4%3.0%
3.8%
5.1%
7.4%
10.1% 10.6%
13.5%
5.4%
7.8%
5.9%7.0%
4.4% 4.0%5.0%
3.0%3.7%
-1.4%
1.8%
2.4%1.1%
0.2%
5.8%
8.8%7.7%
7.3%
8.3%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
95 97 99 01 03 05 07 09 11 13 15
Change in Medical CPIChange Med Cost per Lost Time Claim
WC Medical Severity Generally Outpaces the Medical CPI Rate, 1995 – 2016p
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average annual increase in WC medical severity from 1995 through 2016 was well above the medical CPI (5.8% vs. 3.7%), but the gap has narrowed. Lost-time medical
severities appear to on the rise again.
126
INDUSTRY DISRUPTORS
Technology, Society and the Economy Are All
Changing at a Rapid PaceReality vs. Drinking the Silicon Valley Kool Aid
126
127
The Internet of Things and the Insurance Industry Value Chain
Source: Willis Capital Markets & Advisory; Insurance Information Institute.
Who owns the data? Where does It flow? Who does the analytics? Who is the capital provider?
128
The Sharing Economy Has Grown—And Attracted Political Scrutiny
There’s no question that the hype around autonomous vehicles far exceeds the reality
129
The Internet of Things and the Insurance Industry
The “Internet of Things” will create trillions in economic value throughout the global economy by 2025
What opportunities, challenges will this create for insurers?
What are the impact on the insurance industry “value chain”?Sources: McKinsey Global Institute, The Internet of Things: Mapping the Value Beyond the Hype,
June 2015; Insurance Information Institute.
134
Car Subscription Services: A Threat to Personal Auto?
Liberty Mutual, Assurant, Chubb have struck multiple deals
Volvo, Ford, Cadillac, Porsche, BMW and Mercedes-Benz have either launched or announced plans to launch car subscription models
Source: CB Insights accessed 3/14/18 at: https://www.cbinsights.com/research/insurance-car-subscription-partnerships/
135
Car Subscription Services: A Threat to Personal Auto? Ford’s Canvas
programs states that it provides: BI & PD Liability $300K combined single limit), PIP, Med Pay, UI/UIM, Collision & Comprehensive ($500 deductible), Roadside Assistance, Rental Reimbursement
No flexibility in coverage but can use own auto insurance as primary and Canvas as excess
Source: www.drivecanvas.com accessed 3/14/18.
139
INSURANCE TECHNOLOGY:FIN TECH ZEROES IN
Number and Value of Deals Is Increasing
An Industry that Has Always Been Accepting of Change and Innovation
InsurTech Annual Financing,2011 – 2016
Value of Deals ($ Millions)
Source: CB Insights at https://www.cbinsights.com/blog/2016-insurance-tech-funding/
$140$350 $270
$870
$2,670
$1,690
91
4628
122
173
63
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2011 2012 2013 2014 2015 2016 020406080100120140160180200220
Value of Deals Number of Deals
No. of Deals
Insurance tech deals reached a new record in 2016 but funding was higher in 2015
2 out of every 3 InsurTech deals in 2016 was at the early stage!
141
InsurTechs Are Focusing on Distribution and Pricing
Source: Panorama by McKinsey, “Insurance Beyond Digital: The Rise of Ecosystems and Platforms,” Jan. 2018.
InsurTech firms across all insurance
segments tend to focus on
Distribution. It is telling that very few InsurTech firms are actually insurers.
143
Start-Up InsurTech Investments by Top 25 P/C Insurers, 2015 - 2017*
*As of June 23, 2017.Sources: NAIC from CB Insights at https://www.cbinsights.com/blog/largest-pc-insurers-rank-startup-investments/
USAA and AmFam lead in P/C InsurTech
investment
10 of the Top 25 P/C insurers have made InsureTech start-up investments since 2015.—but there is little correlation between size and number of
investments within this group
Thank you for your timeand your attention!
Twitter: twitter.com/bob_hartwigFor a copy of this presentation, email me at [email protected]
144