p/c insurance industry overview & outlook focus in insurance markets in the northwest us: wa,...
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P/C Insurance Industry Overview & Outlook
Focus in Insurance Markets in the Northwest US: WA, OR, ID
Northwest Insurance Council Annual ReceptionSeattle, WA
May 30, 2013Robert 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
2
P/C Insurance Industry Financial Overview
Profit Recovery in 2012 After High CAT Losses; Ultimate
Impact of Sandy Still Unclear
2
P/C Net Income After Taxes1991–2012 ($ 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
5,2
04
$1
9,4
56 $
33
,52
2
$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 12
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%
P-C Industry 2012:Q3 profits were up 222% from 2011:Q3, due primarily to lower catastrophe losses
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% 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
* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012 combined ratio including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0102.4
106.5
95.7
6.2%4.7%
7.9%7.4%
4.3%
9.6%
15.9%
14.3%
12.7% 10.9%
8.8%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 20120%
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 generates an ROE of ~7.0% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Catastrophes and lower investment
income pulled down ROE in 2012
-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
F
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013F*
*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers. 2012:Q3 ROAS = 6.2% including M&FG.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years9 Years
2012: 5.9%
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013F: 6.2%
6
Profitability and Growth in Washington, Oregon & Idaho
P/C Insurance Markets
Analysis by Line and Nearby State Comparisons
7
RNW All Lines: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
02 03 04 05 06 07 08 09 10 11
US All Lines WA All Lines OR All Lines ID All Lines
(Percent)
Average 2002-2011
US: 7.7%
WA: 11.7%
OR: 10.3%
ID: 12.1%
8
RNW PP Auto: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
0%
5%
10%
15%
20%
25%
02 03 04 05 06 07 08 09 10 11
US PP Auto WA PP Auto OR PP Auto ID PP Auto
Average 2002-2011
US: 7.7%
WA: 8.9%
OR: 10.5%
ID: 14.6%
9
RNW Comm. Auto: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
-5%
0%
5%
10%
15%
20%
25%
30%
02 03 04 05 06 07 08 09 10 11
US Comm Auto WA Comm Auto OR Comm Auto ID Comm Auto
(Percent)Average 2002-2011
US: 9.8%
WA: 11.5%
OR: 17.1%
ID: 15.4%
10
RNW Comm. Multi-Peril: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
-5%
0%
5%
10%
15%
20%
25%
30%
02 03 04 05 06 07 08 09 10 11
US Comm M-P WA Comm M-P OR Comm M-P ID Comm M-P
(Percent) Average 2002-2011
US: 9.1%
WA: 9.1%
OR: 9.9%
ID: 15.6%
11
RNW Homeowners: WA, OR & ID vs. U.S., 2002-2011
Sources: NAIC.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
02 03 04 05 06 07 08 09 10 11
US HO WA HO OR HO ID HO
(Percent)Average 2002-2011
US: 5.4%
WA: 15.7%
OR: 17.9%
ID: 14.1%
All Lines: 10-Year Average RNW WA & Nearby States
9.8%
11.7%
12.1%
16.9%
21.3%
7.7%
10.3%
0% 5% 10% 15% 20% 25%
Hawaii
Alaska
Idaho
Washington
Oregon
California
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
Washington All Lines profitability is above the US average and below the regional average
PP Auto: 10-Year Average RNW WA & Nearby States
8.9%
10.5%
11.0%
14.6%
18.3%
7.7%
10.2%
0% 5% 10% 15% 20%
Hawaii
Idaho
Alaska
Oregon
California
Washington
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
Washington PP Auto profitability is above the US average and below the regional
average
14
Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2010 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 New Jersey $1,157.30 1 South Dakota $525.16
2 District of Columbia 1,133.87 2 North Dakota 528.81
3 Louisiana 1,121.46 3 Iowa 546.59
4 New York 1,078.88 4 Idaho 547.78
5 Florida 1,036.76 5 Maine 582.29
6 Delaware 1,030.98 6 Nebraska 592.69
7 Rhode Island 984.95 7 North Carolina 599.90
8 Connecticut 965.22 8 Wisconsin 613.37
9 Maryland 947.70 9 Ohio 619.46
10 Michigan 934.60 10 Wyoming 621.08
(1) Based on average automobile insurance expenditures.
Source: © 2012 National Association of Insurance Commissioners.
Washington ranked 16th most expensive state in 2010, with an average expenditure for auto insurance of $815.27.
Comm. Auto: 10-Year Average RNW WA & Nearby States
11.0%
15.2%
15.4%
17.1%
9.8%
11.5%
21.0%
0% 5% 10% 15% 20% 25%
Hawaii
Oregon
Idaho
Alaska
Washington
California
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
WA, ID, OR Commercial Auto profitability is above the US average and below
the regional average
Comm. M-P: 10-Year Average RNW WA & Nearby States
9.1%
12.8%
15.6%
17.8%
9.1%
9.9%
28.3%
0% 5% 10% 15% 20% 25% 30%
Hawaii
Alaska
Idaho
California
Oregon
U.S.
Washington
Source: NAIC, Insurance Information Institute
2002-2011
Washington Commercial Multi-Peril profitability is
the same as the US average while ID and OR
are above
Homeowners: 10-Year Average RNW WA & Nearby States
14.1%
16.8%
17.9%
20.3%
45.7%
5.4%
15.7%
0% 10% 20% 30% 40% 50%
Hawaii
Alaska
Oregon
California
Washington
Idaho
U.S.
Source: NAIC, Insurance Information Institute
2002-2011
WA, OR and ID Homeowners
profitability is above the US average
18
Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2010 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 Texas (2) $1,560 1 Idaho $500
2 Louisiana (3) 1,546 2 Oregon 535
3 Florida (4) 1,544 3 Utah 558
4 Oklahoma 1,246 4 Wisconsin 563
5 Mississippi 1,217 5 Washington 595
6 Rhode Island 1,092 6 Ohio 614
7 Kansas 1,066 7 Delaware 636
8 District Of Columbia 1,065 8 Arizona 666
9 Connecticut 1,052 9 Maine 676
10 Alabama 1,050 10 South Dakota 678
Washington ranked as the 5th least expensive state for homeowners insurance in 2010, with an average expenditure of $595.
(1) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.
(3) Policies written by Citizens Property Insurance (Louisiana), are not included. (4) Policies written by Citizens Property Insurance (Florida), are not included.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank state average expenditures and does not endorse any conclusions drawn from this data.
Source: © 2012 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.
19
All Lines DWP Growth: WA vs. U.S., 2002-2011
Source: SNL Financial.
14.5
%
9.9%
7.5%
2.3% 3.
4%
0.5%
-2.1
%
-3.3
%
0.0%
3.7%
11.6
%
10.2
%
5.2%
2.5%
2.6% 3.
8%
-0.4
%
-2.9
%
0.1% 1.
6%
-10%
-5%
0%
5%
10%
15%
20%
02 03 04 05 06 07 08 09 10 11
US DWP: All Lines WA DWP: All Lines
(Percent)
Average 2002-2011US: 3.6%WA: 3.4%
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
24
Growth Will Expand Insurer Exposure Base Across Most Lines
24
25
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 5/13; Insurance Information Institute.
2.7
%0
.5%
3.6
%3
.0%
1.7
%-1
.8%
1.3
%-3
.7%
-5.3
%-0
.3%
1.4
%5
.0%
2.3
%2
.2%
2.6
%2
.4%
0.1
%2
.5%
1.3
%4
.1%
2.0
%1
.3% 3
.1%
2.5
%1
.7%
2.3
%2
.6%
2.7
%2
.8%
2.9
%2
.9%
0.4
%
-8.9%
4.1
%1
.1%
1.8
%2
.5% 3.6
%3
.1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
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
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
: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
was severe
The Q4:2008 decline was the steepest since the Q1:1982
drop of 6.8%
2013 is expected to see uneven growth,
then gradually accelerate throughout the year and into 2014
Federal Spending as a Share of State GDP: Vulnerability to Sequestration Varies
Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute. 26
WA and ID are more vulnerable to the effects of
sequestration
27
Defense and Non-Defense Federal Spending as a Share of State GDP: Top 10 States*
14
.6
10
.5
9.8
9.8
9.8
8.0
7.0
5.9
5.3
5.2
10
.0
10
.0
10
.0
9.2
4.9
3.8
3.1
2.8
2.7
2.6
0
2
4
6
8
10
12
14
16
HI AK DC MD VA KY AL MO CT AZ DC MD VA NM ID WV TN AK MT SC
Sh
are
of
Sta
te G
DP
(%
)
Federal defense spending accounts for approximately 10%+ of
GDP in 5 states
*As of 2010.Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo Securities; Insurance Information Institute.
Defense Spending Non-Defense Spending
Federal non-defense spending accounts for 10%+ of GDP in 3 states
Sequestration Could Adversely Impact Commercial Insurance Exposures Directly at Defense Contractors and Indirectly in Impacted Communities
State-by-State Leading Indicatorsthrough 2013:Q2
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 28
The economic outlook for most of
New England is relatively strong, suggesting future
strength in the creation of insurable
exposures
74
.47
3.6
73
.67
2.2
73
.6 76
67
.86
8.9
68
.26
7.7 7
1.6 74
.57
4.2 77
.56
7.5 69
.8 74
.37
1.5
63
.75
5.7 5
9.5
60
.9 64
.16
9.9
75
.07
5.3
76
.27
6.4 79
.37
3.2
72
.3 74
.38
2.6
82
.77
4.5
73
.8 77
.67
8.6
83
.77
6.4
40
45
50
55
60
65
70
75
80
85
90
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
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2O
ct-1
2N
ov-
12
De
c-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Ma
y-1
3
Consumer Sentiment Survey (1966 = 100)
January 2010 through May 2013
Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact
consumers, but improved substantially in late 2011 and in 2012
Source: University of Michigan; Insurance Information Institute
Optimism among consumers has remained fairly strong
despite tax hike, federal budget concerns. May’s reading was
the highest since July 2007
29
30
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4 15
.4 15.9
16.0
16.2
16.2
16.2
16.216
.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 11 12 13F 14F15F 16F17F18F 19F
(Millions of Units)
Auto/Light Truck Sales, 1999-2019F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/13 and 3/13); Insurance Information Institute.
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector Along
With Workers Comp Exposures
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2013-14 is
still below 1999-2007 average of 17 million units, but a robust recovery is well underway.
Job growth and improved credit market conditions will boost auto sales in
2013 and beyond
31
16%
18%
20%
22%
24%
26%
28%
30%
01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F$125
$135
$145
$155
$165
$175
$185
$195
% of registered cars under 3 years old Auto Ins Direct Pms$ Billions
Personal Auto Insurance Direct Written Premiums vs. Recently-Registered Cars
Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and Analysis, First Quarter 2012; Insurance Information Institute.
PP DWP, flat from 2004-2009, is rising again.Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.
Average age of registered cars rose as fewer new cars were bought (and
insured)
In 2004-07 no growth in
PP DWP despite
strong new car/truck
sales New car/truck sales grow to 14-15M/year
4%/yr growth forecast for PP
DWP from recovering
new car/truck sales
32
Monthly Change* in Auto Insurance Prices, 1991–2013*
*Percentage change from same month in prior year; through Apr. 2013; 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
Cyclical peaks in PP Auto tend to occur
approximately every 10 years (early 1990s, early
2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
The Apr. 2013 reading of 4.2% is
up from 2.9% a year earlier
34
(Millions of Units)
New Private Housing Starts, 1990-2019F
1.4
8
1.4
7 1.6
21
.64
1.5
71
.60 1.7
1 1.8
5 1.9
6 2.0
71
.80
1.3
6
0.9
10
.55
0.5
9
0.6
1 0.7
81
.02
1.2
3 1.3
5
1.4
41
.50
1.5
11
.50
1.3
51.4
61
.29
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 11 12 13F14F15F16F17F18F19F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/13 and 3/13); Insurance Information Institute.
Homeowners Insurers Are Starting to See Meaningful Exposure Growth for the First Time Since 2005. Commercial Insurers with Construction Risk
Exposure, Surety; 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, low mortgage
rates and demographics are stimulating new home construction
for the first time in years
36
Construction Employment,Jan. 2010—April 2013*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,58
15,
522
5,54
25,
554
5,52
75,
512
5,49
75,
519
5,49
95,
501
5,49
75,
468
5,43
5 5,47
85,
485
5,49
75,
524
5,53
05,
547
5,54
6 5,58
35,
576
5,57
7 5,61
25,
629
5,64
45,
640
5,63
65,
615
5,62
25,
627
5,63
05,
633
5,64
95,
673 5,
711
5,73
5 5,78
35,
796
5,79
0
5,400
5,450
5,500
5,550
5,600
5,650
5,700
5,750
5,800
5,850
5,900
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
132/
30/2
Mar
-13
Apr
-13
Construction employment growth accelerated in the second half of 2012. Stronger growth in this key
sector is possible in 2013. Construction is a key driver of
workers comp exposure growth.
(Thousands)
37
Construction Employment, Jan. 2003–Apr. 2013
Note: Recession indicated by gray shaded column.Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Could Be a Growth Leader in 2013 and 2014 as the Housing Market and Private Investment Recover. WC Insurers Will Benefit.
Construction employment
troughed at 5.435 million in Jan.
2011, after a loss of 2.291 million jobs, a 29.7%
plunge from the April 2006 peak
37
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of
Apr. 2013 totaled 5.79 million, an increase of 355,000 jobs or 6.5% from the Jan.
2011 trough
38
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013:Q1
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,25005
:Q1
05:Q
2
05:Q
305
:Q4
06:Q
1
06:Q
206
:Q3
06:Q
407
:Q1
07:Q
207
:Q3
07:Q
408
:Q1
08:Q
2
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
3
12:Q
413
:Q1
Prior Peak was 2008:Q1 at $6.60 trillion
Latest (2013:Q4) was $7.01 trillion, a new peak--$762B
above 2009 trough
Recent trough (2009:Q3) was $6.25 trillion, down
5.3% from prior peak
Payrolls are 12.2% above
their 2009 trough and up 2.7% over
the past year
38
41
Value of Construction Put in Place, March 2013 vs. March 2012*
-5.4%
-0.2%
-5.5%
4.8%
9.8%
17.8%
-1.2%
-10%
-5%
0%
5%
10%
15%
20%
TotalConstruction
Total PrivateConstruction
Residential--Private
Non-Residential--
Private
Total PublicConstruction
Residential-Public
Non-Residential--
Public
Overall Construction Activity is Up, But Growth Is Entirely in the Private Sector as State/Local Government Budget Woes Continue
Growth (%)
Private sector construction activity is up in the
residential segment but down in nonresidential
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +9.8% Public: -5.4%
Public sector construction activity remains depressed
42
Value of Private Construction Put in Place, by Segment, Mar. 2013 vs. Mar. 2012*
-0.1%
-2.1%
-6.8%-4.3%
19.1%
-4.2%
4.3% 3.4%
-12.9%
9.8%
17.8%
-1.2%
11.6%
2.9%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
To
tal
Pri
vate
Co
nstr
ucti
on
Resid
en
tial
To
tal
No
nre
sid
en
tial
Lo
dg
ing
Off
ice
Co
mm
erc
ial
Healt
h C
are
Ed
ucati
on
al
Reli
gio
us
Am
usem
en
t &
Rec.
Tra
nsp
ort
ati
on
Co
mm
un
icati
on
Po
wer
Man
ufa
ctu
rin
g
Private Construction Activity is Up Some Segments, Including the Key Residential Construction Sector, But Weakening in Early 2013
Growth (%) Led by the Residential Construction, Lodging, Office, and Transportation industries, Private sector construction activity is mixed up across many segments after plunging during the “Great Recession.” Most segments
expanded in 2012 but weakened in Q1:2013.
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
58
.35
7.1
60
.45
9.6
57
.85
5.3
55
.15
5.2
55
.3 56
.9 58
.25
8.5 6
0.8
61
.45
9.7
59
.75
4.2 55
.85
1.4 52
.55
2.5
51
.85
2.2 53
.1 54
.15
1.9 53
.35
4.1
52
.55
0.2
50
.55
0.7
51
.65
1.7
49
.95
0.2
53
.1 54
.2
50
.75
1.3
40
45
50
55
60
65
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
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3
ISM Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through April 2013
The manufacturing sector expanded for 39 of the 40 months from Jan. 2010 through Apr. 2013. The expectation is that this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
Manufacturing activity continues to expand, albeit modestly
44
46
Manufacturing Growth for Selected Sectors, 2013 vs. 2013*
6.0%
-0.1%
6.7%
-0.3%
3.1%
0.4%
-4.1%
-0.1%
4.4%
1.1%2.7%
13.8%
-1.4%-0.4%
-6%-4%-2%0%2%4%6%8%
10%12%14%16%
All
Ma
nu
fact
uri
ng
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ryM
eta
ls
Fa
bri
cate
dM
eta
ls
Ma
chin
ery
Ele
ctri
cal
Eq
uip
.
Tra
nsp
ort
atio
nE
qu
ip.
No
n-D
ura
ble
Mfg
.
Fo
od
Pro
du
cts
Pe
tro
leu
m &
Co
al
Ch
em
ica
l
Pla
stic
s &
Ru
bb
er
Te
xtile
Pro
du
cts
Manufacturing Is Expanding—Albeit More Slowly—Across a Number of Sectors that Will Contribute to Growth in Insurable Exposures Including: WC,
Commercial Property, Commercial Auto and Many Liability Coverages
Growth (%)
Manufacturing of durable goods was especially
strong in 2012 but weakened in 2013
*Seasonally adjusted; Date are YTD comparing data through February 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Durables: +2.7% Non-Durables: -0.3%
48
Manufacturing Employment,Jan. 2010—April 2013*
11,4
6011
,460
11,4
6611
,497
11,5
3111
,539
11,5
5811
,548
11,5
5411
,555
11,5
7711
,590
11,6
2411
,662
11,6
8211
,707
11,7
1511
,724
11,7
4711
,760
11,7
6211
,770
11,7
6911
,797
11,8
4111
,870
11,9
1011
,920
11,9
2611
,935
11,9
5711
,943
11,9
2511
,931
11,9
3811
,951
11,9
6511
,988
11,9
9011
,990
11,000
11,200
11,400
11,600
11,800
12,000
12,200
12,400
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3
Manufacturing employment is up by more than 500,000 or 4.6% since Jan. 2010—a surprising source of strength
in the economy. Employment in the sector is close to a multi-year high.
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands)
50
.7 52
.7 54
.15
4.6
54
.85
3.5
53
.75
2.8 53
.95
4.6 56 5
7.1 5
9.4
59
.75
6.3
54
.45
3.3
53
.45
3.8
52
.65
2.6
52
.65
2.6
53
.05
6.8
56
.15
5.0
53
.75
4.1
52
.75
2.9 54
.3 55
.25
4.8
54
.85
5.7
55
.25
6.0
53
.154
.4
40
45
50
55
60
65
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
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3
ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through April 2013
Non-manufacturing industries have been expanding and adding jobs. The question is whether this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
Optimism among non-manufacturers is stable
and remains expansionary in 2013
49
50
43,6
9448
,125
69,3
0062
,436
64,0
04 71,2
77 81,2
3582
,446
63,8
5363
,235
64,8
5371
,549
70,6
4362
,304
52,3
7451
,959
53,5
4954
,027
44,3
6737
,884
35,4
7240
,099
38,5
4035
,037
34,3
1739
,201
19,6
95 28,3
2243
,546
60,8
3756
,282
47,8
0630
,620
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
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 1112
:Q3
Business Bankruptcy Filings,1980-2012:Q3
Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance Information Institute
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2011 bankruptcies totaled 47,806, down 15.1% from 56,282 in 2010—the second consecutive year of decline. Business bankruptcies more
than tripled during the financial crisis. Through Q3:2012, filings were down 15.8% vs. Q3:2011
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%*
50
51
Private Sector Business Starts, 1993:Q2 – 2012:Q3*
17
51
86
17
41
80
18
61
92
18
81
87 18
91
86 1
90 1
94
19
11
99 2
04
20
21
95
19
61
96
20
62
06
20
11
92
19
82
06
20
62
03
21
12
05
21
22
00 2
05
20
42
04
19
72
03
20
92
01
19
21
92
19
32
01 20
42
02
21
0 21
22
09
21
6 22
0 22
32
20
22
02
10
22
12
12
20
42
18
20
92
07
20
71
99
19
1 19
31
72 1
76
16
91
84
17
5 17
91
88
20
01
83 1
87 1
91
19
71
93
19
1 19
3
20
3
150
160
170
180
190
200
210
220
230
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly* Data through Sep. 30, 2012 are the latest available as of May 13, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
Business starts were up an estimated 2.8% in 2012 to 769,000 following a 2.2% to 748,000 in 2011. Start-ups
could accelerate in 2013.
Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 742,000 2011: 748,000 2012E: 769,000*
51
53
12 Industries for the Next 10 Years: Insurance Solutions Needed
Export-Oriented Industries
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Light Manufacturing
Insourced Manufacturing
Many industries are
poised for growth, though
insurers’ ability to
capitalize on these
industries varies widely
Shipping (Rail, Marine, Trucking, Pipelines)
54
U.S. Insured Catastrophe Loss Update
2012 Catastrophe Losses Were Close to “Average” Until Sandy Hit
2011 Was the 5th Most Expensive Year on Record
54
55
$1
2.6
$1
1.0
$3
.8
$1
4.3
$1
1.6
$6
.1
$3
4.7
$7
.6
$1
6.3
$3
3.7
$7
3.4
$1
0.5
$7
.5
$2
9.2
$1
1.5
$1
4.4
$3
3.6
$3
5.0
$1
4.0
$4
.8
$8
.0
$3
7.8
$8
.8
$2
6.4
$0
$10
$20
$30
$40
$50
$60
$70
$80
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
US Insured Catastrophe 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 ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in US History on An Inflation-Adjusted Basis.
2011 Losses Were the 6th Highest.
2012 was likely the third most expensive year ever for insured
CAT losses
Record Tornado Losses Caused
2011 CAT Losses to Surge
($ Billions, 2012 Dollars)
55
56
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1$13.4$18.8
$23.9 $24.6$25.6
$48.7
$7.5$7.1$6.7$5.6$5.6$4.4
$0
$10
$20
$30
$40
$50
$60
Irene (2011) Jeanne(2004)
Frances(2004)
Rita (2005)
Tornadoes/T-Storms
(2011)
Tornadoes/T-Storms
(2011)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Sandy*(2012)
Northridge(1994)
9/11 Attack(2001)
Andrew(1992)
Katrina(2005)
Hurricane Sandy could become the 4th or 5th costliest event in US
insurance history
Hurricane Irene became the 12th most expense hurricane
in US history in 2011
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
57
Top 16 Most Costly World Insurance Losses, 1970-2012*
(Insured Losses, 2012 Dollars, $ Billions)
*Figures do not include federally insured flood losses.**Estimate based on PCS value of $18.75B as of 4/12/13.Sources: Munich Re; Swiss Re; Insurance Information Institute research.
$11.1$13.4 $13.4$13.4$18.8
$23.9 $24.6$25.6
$38.6
$48.7
$7.8 $8.1 $8.5 $8.7 $9.2 $9.6
$0
$10
$20
$30
$40
$50
$60
Hugo (1989)
WinterStormDaria(1991)
ChileQuake(2010)
Ivan (2004)
Charley(2004)
TyphoonMirielle(1991)
Wilma(2005)
ThailandFloods(2011)
NewZealandQuake(2011)
Ike (2008)
Sandy(2012)**
Northridge(1994)
WTC TerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)**
Katrina(2005)
5 of the top 14 most expensive catastrophes in
world history have occurred within the past 3 years
(2010-2012)
Hurricane Sandy is now the 6th costliest event in global
insurance history
2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re
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 – 2012Number of Events (Annual Totals 1980 – 2012)
Source: MR NatCatSERVICE 63
41
19
121
3
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 184 natural disaster events in the
US in 2012
U.S. Thunderstorm Loss Trends, 1980 – 2012
65Source: Property Claims Service, MR NatCatSERVICE
Average thunderstorm
losses are up 7 fold since the early
1980s. The 5- year running average
loss is up sharply.
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2012 are the most expensive
years on record.
Thunderstorm losses in 2012 totaled $14.9 billion, the 2nd
highest on record
Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*
*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 68
Avg. catastrophe claim cost rose
approximately 200% from 1997-2011
Cat claim frequency in 2011 was at historic highs and more than
double the rate in 1997
69
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2012*
Notes: 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 (1960-2011); A.M. Best (2012E) 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
3.4
8.7 9.
4
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
2012
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: 7.20*
Combined Ratio Points Catastrophe losses as a share of all losses reached
a record high in 2012
Homeowners Insurance Combined Ratio: 1990–2015F
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
89
.0 95
.7
11
6.9
10
5.8
10
6.7
12
2.2
10
4.4
10
1.7
10
1.2
10
0.7
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 11 12E13F 14F 15F
1
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute. 70
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
71
Federal Disaster Declarations Patterns:
1953-2013
71
Despite 11 Sandy Declarations, Fewer Disasters Were Declared in 2012 than the Record Number of
Declarations in 2010 and 2011
Number of Federal Disaster Declarations, 1953-2013*
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
19
94
71
4
43
0
20
40
60
80
100
120
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
12
13
*Through May 28, 2013.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011. Hurricane Sandy Produced 13 Declarations in 2012/13.
The number of federal disaster declarations set a
new record in 2011, with 99, shattering 2010’s record 81
declarations.
There have been 2,110 federal disaster
declarations since 1953. The average
number of declarations per year is 35 from 1953-2012, though
there few haven’t been recorded since 1995.
47 federal disasters were declared in 2012
72
73
Federal Disasters Declarations by State, 1953 – 2013: Highest 25 States*
86
78
74
67
65
60
57
56
54
53
52
51
51
50
49
48
48
48
47
47
47
46
42
40
39
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY AR MO MS IL TN WV KS IA MN PA NE VA OH WA ND NC IN
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Texas has had the highest
number of Federal Disaster
Declarations
*Through May 28, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
74
Federal Disasters Declarations by State, 1953 – 2013: Lowest 25 States*
40
39
38
36
36
35
34
32
29
28
26
26
25
24
24
24
23
22
19
17
17
15
15
13
11
11
9
0
10
20
30
40
50
ME SD AK GA WI NJ VT NH MA OR PR HI MI AZ MD NM ID MT CT NV CO DE SC DC UT RI WY
Dis
as
ter
De
cla
rati
on
s
Over the past 60 years, Wyoming and Rhode Island had the fewest
number of Federal Disaster Declarations
*Through May 28, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
75
CATASTROPHE ACTIVITY IN WA, OR and ID
Catastrophe Losses in the (North) West Have Been Lighter than in
Much of the US East of the Rockies
75
Severe Weather Reports, 2012
76Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2012_annual_summary.html#
There were 22,503 severe
weather reports in 2011;
including 1,119 tornadoes;
7,033 “Large Hail” reports
and 14,351 high wind events
Activity in the NW US was low relative to the East
Severe Weather Reports in WA, OR & ID: January 1—December 31, 2012
77Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2012_annual_summary.html#
WASHINGTON
Total Reports = 59
Tornadoes = 0 (Red)
Hail Reports = 28 (Green)
Wind Reports = 31 (Blue)
There were a combined 197 severe
weather reports in 2012 in WA, OR and ID—accounting for
just 0.9% of the 22,503 reports countrywide
OREGON
Total Reports = 52
Tornadoes = 0 (Red)
Hail Reports = 26 (Green)
Wind Reports = 26 (Blue)
IDAHO
Total Reports = 86
Tornadoes = 2 (Red)
Hail Reports = 35 (Green)
Wind Reports = 49 (Blue)
Severe Weather Reports:Through May 28, 2013
78Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
There were 5,877 severe
weather reports through May 28;
including 370 tornadoes;
2,202 “Large Hail” reports
and 3,305 high wind events
Activity in the NW US has been low.
Terrorism Update
79
Boston Marathon Bombings Underscore the Need for
Extension of the Terrorism Risk Insurance Program
79
80
Terrorism Risk Insurance Program
Boston Marathon Bombing Should Help Focus Attention in Congress on TRIA Act expires 12/31/14
Numerous headwinds
Exclusionary Language Will Be Inserted for Renewals Occurring After 1/1/14
Boston Marathon Issues Property and BI losses not large but could breach $5 mill
threshold for certification under TRIPRA
Certification issue is generating press; No deadline to certify
Disincentive for Treasury (and Sec. of State and US AG) to certify?
Many of the impacted business had terror coverage
Longer-term: Litigation issues (e.g., race organizers)
102
Growth Analysis by State and Business Segment
Premium Growth Rates Vary Tremendously by State
102
103
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
58
.4
25
.4
24
.5
21
.0
19
.2
17
.6
16
.3
13
.2
13
.2
12
.4
9.9
9.2
9.2
8.5
8.0
6.2
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
0
10
20
30
40
50
60
70
ND
SD
OK
NE IA KS
VT
AK
TX
WY
MN
AR
TN IN W
I
KY
MT
OH LA
VA
NJ
MI
SC
CO
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
104
Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*
3.6
3.1
3.0
2.9
2.7
2.2
2.1
2.1
2.0
1.8
1.1
0.0
-0.1
-0.3
-0.7
-0.9
-2.8
-5.6
-6.0
-7.2
-7.2
-9.3
-10
.1
-11
.2
-12
.5
-17
.3
-20
-15
-10
-5
0
5
CT
MS
NC AL
MD PA
U.S
.
MA IL
WA
GA
UT
NH RI
ID ME
NY FL
CA
DC
WV HI
AZ
OR
DE
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.
111
Direct Premiums Written: Comm. LinesPercent Change by State, 2006-2011*
10
0.9
60
.8
38
.9
28
.9
27
.9
25
.6
14
.9
8.3
4.0
2.9
2.7
0.9
0.2
0.0
-0.5
-1.5
-2.5
-3.0
-6.3
-6.4
-6.6
-6.6
-6.7
-7.6
-7.8
-7.9
-20
0
20
40
60
80
100
120
ND
SD
MT IA NE
KS
OK
WY
MN
TX
AK WI
VT IN AR
LA
TN
DC IL
OH
MA
NM
MS
WA
NY
NC
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Only 12 states showed any commercial lines growth
2006 and 2011
112
Direct Premiums Written: Comm. LinesPercent Change by State, 2006-2011*
-7.9
-8.0
-8.1
-9.0
-10
.0
-10
.1
-10
.8
-11
.4
-11
.6
-12
.2
-12
.7
-12
.9
-13
.2
-13
.2
-13
.6
-14
.7
-15
.0
-16
.0
-16
.7
-19
.4
-19
.8
-19
.9
-23
.7
-24
.4
-26
.4
-33
.0
-40
-35
-30
-25
-20
-15
-10
-5
0
KY
PA
MO
US
ME
CT
SC AL
VA
GA ID
MD NJ RI
CO
UT
OR MI
DE
CA
NH HI
FL AZ
WV
NV
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
Sources: SNL Financial LC.; Insurance Information Institute.
115
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
115
116
Unemployment and Underemployment Rates: Stubbornly High in 2012, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment stood at 7.5% in
Apr. 2013—lowest in 4 years.
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 13.7%
in Apr. 2013
January 2000 through Apr. 2013, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving
116
22
75
41
68
50
12
36
61
-79
24 6
8 74
51
2-1
14
-10
5-2
22
-21
9-2
03
-26
7-2
69
-42
9-4
84
-78
6 -70
1-8
21
-69
2-8
12
-82
1-2
88
-44
2-2
82 -2
22 -1
62
-23
3-3
4-1
67
-17
-26
17
01
02
94 10
31
29
11
3 18
81
54
11
48
02
43
22
3 30
31
83
17
72
06
12
92
56
17
41
97 24
9 32
32
65
20
81
20 15
27
81
77
13
11
18
21
7 25
62
24
16
43
19
15
41
76
11
1(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
1S
ep
-11
Oct
-11
No
v-1
1D
ec-
11
Jan
-12
Fe
b-1
2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3
Monthly Change in Private Employment
January 2007 through Apr. 2013 (Thousands)
Private Employers Added 6.74 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 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
176,000 private sector jobs were created in April
117
Jobs Created2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill
-0.0
17-0
.043
0.06
80.
238
0.34
0
0.43
40.
537
0.66
60.
779
0.96
71.
121
1.23
5
1.31
51.
558
1.78
1
2.08
42.
267
2.44
42.
650
2.77
93.
035
3.20
9
3.40
63.
655
3.97
8
4.24
34.
451
4.57
14.
723
4.80
14.
978
5.10
9
5.22
75.
444
5.70
0
5.92
46.
088
6.40
7
6.73
96.
561
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jan-
10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10
Jul-1
0
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11
Jul-1
1
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Mill
ion
sCumulative Change in Private Sector Employment: Jan. 2010—Apr. 2013
January 2010 through April 2013* (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job gains through Apr. 2013 totaled 6.74 million
119
Job gains and pay increases have added more than $600 billion to payrolls
since Jan. 2010
Private Employers Added 6.74 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
4-1
0
3392
511
287
98-6
8-2
24 -184
-194
-213
-224
-271
-289
-288
-356 -324
-452
-449
-480
-488
-511
-530
-542
-536
-539
-547
-574
-565
-589 -555
-535
-592
-601
-606
-622
-609
-636
-625
-800
-600
-400
-200
0
200
400
600
Jan-
10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10
Jul-1
0
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11
Jul-1
1
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Cumulative Change in Government Employment: Jan. 2010—Apr. 2013
January 2010 through Apr. 2013* (Millions)
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Cumulative job losses through Apr. 2013 totaled 636,000
120
Governments at All Levels are Under Severe Fiscal Strain As Tax Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Government at all levels has shed more than 600,000 jobs
since Jan. 2010 even as private employers created 6.74 million jobs, though
losses may now be ending.
Temporary Census hiring distorted 2010
figures
122
Unemployment Rates by State, March 2013:Highest 25 States*
9.7
9.5
9.4
9.4
9.2
9.1
9.0
8.7
8.5
8.5
8.4
8.4
8.2
8.2
8.0
8.0
7.9
7.9
7.9
7.5
7.3
7.3
7.2
7.2
7.1
0
2
4
6
8
10
12
NV IL CA MS NC RI NJ IN DC MI GA SC NY OR CT KY AZ PA TN FL DE WA AL AR CO
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for March 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 26 states and the District of Columbia had over-the-month
unemployment rate decreases, 7 states had increases, and 17 states had no
change.
123
7.1
7.1
7.1
7.0
6.9
6.7
6.6
6.4
6.4
6.2
6.2
6.2
5.7
5.6
5.6
5.4
5.3
5.1
5.0
4.9
4.9
4.9
4.3
4.1
3.8
3.3
0
2
4
6
8
ME OH WI WV NM MO MD MA TX AK ID LA NH KS MT MN VA HI OK IA UT WY SD VT NE ND
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, March 2013: Lowest 25 States*
*Provisional figures for March 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 26 states and the District of Columbia had over-the-month
unemployment rate decreases, 7 states had increases, and 17 states
had no change.
124
Oil & Gas Extraction Employment,Jan. 2010—April 2013*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.
415
6.4
156.
715
7.6
158.
715
7.8
158.
015
9.5
160.
016
1.5
161.
216
1.2
163.
116
4.4
166.
6 169.
317
0.1
171.
017
2.5
173.
6 176.
317
8.2
178.
518
0.9
181.
918
3.1
184.
818
5.2
185.
718
6.8
187.
618
8.0
188.
018
8.2
190.
019
1.7
191.
919
3.1
192.
519
2.5
150
155
160
165
170
175
180
185
190
195
200
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3
Oil and gas extraction employment is up 23.1%
since Jan. 2010 as the energy sector booms.
Domestic energy production is essential to
any robust economic recovery in the US.
(Thousands)
125
US Unemployment Rate Forecast
4.5
%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%
7.5
%7
.4%
7.3
%7
.2%
7.1
%6
.9%
9.6
%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
Rising unemployment
eroded payrolls
and workers comp’s
exposure base.
Unemployment peaked at 10%
in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (5/13 edition); Insurance Information Institute.
2007:Q1 to 2014:Q4F*
Unemployment forecasts have been revised slightly
downwards. Optimistic scenarios put the
unemployment as low as 6.6% by Q4 of next year.
Jobless figures have been revised
slightly downwards for 2013/14
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
128
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2012E
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2012 actuals.Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow Again in 2012; +7.9% Growth in 2011 Was the First Gain Since 2005
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
+9% in 2012E
The BIG Question:Where Is the Market Heading?
129
Catastrophes and Other Factors Are Pressuring Insurance Markets
129
New Factor: Record Low Interest Rates Are Contributing to
Underwriting and Pricing Pressures
INVESTMENTS: THE NEW REALITY
130
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
130
Property/Casualty Insurance Industry Investment Income: 2000–20121
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$47.7
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12
Investment Income Fell in 2012 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1 Investment gains consist primarily of interest and stock dividends..Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings in 2012 were running 13% below their 2007 pre-crisis peak
132
P/C Insurer Net Realized Capital Gains/Losses, 1990-2012
Sources: A.M. Best, ISO, Insurance Information Institute.
$2.8
8
$4.8
1 $9.8
9
$9.8
2
$10.
81 $18.
02
$13.
02
$16.
21
$6.6
3
-$1.
21
$6.6
1
$9.1
3
$9.7
0
$3.5
2 $8.9
2
-$7.
90
$5.8
5
$7.0
4
$6.2
1
-$19
.81
$9.2
4
$6.0
0
$1.6
6
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Insurers Posted Net Realized Capital Gains in 2010, 2011 and 2012 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were the Primary Cause of 2008/2009’s Large Drop in Profits and ROE
($ Billions) Realized capital gains in 2012 were down 12% from 2011
Property/Casualty Insurance Industry Investment Gain: 1994–20121
$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
$53.4$56.2
$53.9$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 12
Investment Gains Are Slipping in 2012 as Low Interest Rates Reduce Investment Income and Lower 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)
Investment gains in 2012 are running approximately 16% below their pre-crisis peak
137
Distribution of Bond Maturities,P/C Insurance Industry, 2006-2011
16.2%
16.3%
15.2%
29.5%
30.0%
32.4%
36.2%
39.5%
41.4%
34.1%
33.8%
31.2%
28.7%
26.7%
26.8%
13.1%
12.9%
12.7%
11.7%
11.1%
10.3%
7.4%
8.1%
8.1%
7.3%
6.4%
6.3%
16.0%
15.7%
15.2%
0% 20% 40% 60% 80% 100%
2006
2007
2008
2009
2010
2011
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
Sources: A.M. Best; Insurance Information Institute.
The main shift over these 6 years has been from bonds with 5-10 years of maturity to bonds with 1-5 years of maturity. The industry also slightly
trimmed it holdings of bonds in the 10-20-year maturity categoryand bonds in the longest-maturity category.
138
-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*
138
141
P/C Insurance Industry Combined Ratio, 2001–2012*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4101.0
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 2012
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
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
Cyclical Deterioration
Lower CAT
Losses Before Sandy
Underwriting Gain (Loss)1975–2012*
* Includes mortgage and financial guaranty insurers in all years.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 10 11 12
Cumulative underwriting deficit from 1975 through
2012 is $510B
($ Billions)Underwriting
losses in 2012 totaled
$16.7B
High cat losses in 2011 led to the highest
underwriting loss since 2002
152
Performance by Segment
152
Private Passenger Auto Combined Ratio: 1993–2015F
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
0.3
10
1.3
10
1.0
10
1.9
99
.6
99
.4
98
.6
98
.3
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 11 12E13F14F15F
Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry
153Sources: A.M. Best (1990-2012E);Conning (2013F-15F); Insurance Information Institute.
Homeowners Insurance Combined Ratio: 1990–2015F
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
89
.0 95
.7
11
6.9
10
5.8
10
6.7
12
2.2
10
4.4
10
1.7
10
1.2
10
0.7
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 11 12E13F 14F 15F
1
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute. 154
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.1
10
6.7
10
4.9
10
2.1
10
1.4
10
1.3
10
2.0
11
1.1
11
2.3
12
2.3
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
F
14
F
15
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2011); Conning (2012-2015F) Insurance Information Institute
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
157
Commercial Auto Combined Ratio: 1993–2015F
11
2.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4 94
.3 96
.8 99
.4
98
.0
10
4.6
10
7.1
10
1.7
10
0.3
99
.8
11
8.1
11
5.7
11
6.2
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 12E 13F 14F 15F
Commercial Auto is Expected to Improve as Rate Gains Outpace Any Adverse Frequency and Severity Trends
158Sources: A.M. Best (1990-2012E);Conning (2012-2015F); Insurance Information Institute.
Commercial Multi-Peril Combined Ratio: 1995–2015F
119.
0
119.
8
108.
5
125.
0
116.
2
116.
1
104.
9
101.
9
105.
5
95.4 97
.6
94.2 96
.1 102.
0
100.
7
116.
8
113.
6
115.
3 122.
4
115.
0
117.
0
97.3
89.0
97.7
93.8
83.8
89.8
108.
4
98.7 10
2.5
120.
5
116.
6
102.
6
102.
5
102.
1
113.
1
115.
0 121.
0
80
85
90
95
100105
110
115
120
125
130
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F 15F
CMP-Liability CMP-Non-Liability
Commercial Multi-Peril Underwriting Performance is Expected to Improve in 2013 Assuming Normal Catastrophe Loss Activity
*2012-2013 figures are A.M. Best estimate/forecast for the combined liability and non-liability components. Same for Conning 2014-2015F figures.
Sources: A.M. Best; Conning; Insurance Information Institute. 159
General Liability Combined Ratio: 2005–2015F
112.
9
95.1 99
.0
94.2
101.
4
104.
4
105.
8
108.
3
107.
1 110.
8
99.8
80
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13F 14F 15F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting. 160
Workers Compensation Combined Ratio: 1994–2012P
102.
0
97.0 10
0.0
101.
0
112.
6
108.
6
105.
1
102.
7
98.5
103.
5
104.
5 110.
6 115.
0
115.
0
109.
0
121.
7
107.
0
115.
3
118.
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 11 12
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-
2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2012P) and are for private carriers only; Insurance Information Institute. 165
WC showed a better-than-expected
improvement for private carriers in 2012
2. SURPLUS/CAPITAL/CAPACITY
175
How Will Large Catastrophe Losses Impact Capacity?
175
177
Policyholder Surplus, 2006:Q4–2012:Q4
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
$559.2 $559.1
$538.6
$550.3
$567.8
$583.5$586.9
$570.7$566.5
$505.0
$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
06:Q407:Q107:Q207:Q307:Q408:Q108:Q208:Q308:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q4
2007:Q3Pre-Crisis Peak
Surplus as of 12/31/12 was up $16.2B or 2.8% from the
previous record high of $570.7B set as of 3/31/12.
*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 $0.80
of NPW, close to the strongest claims-paying
status in its history.
Drop due to near-record 2011 CAT losses
The P/C Insurance Industry Both Entered and Emerged from the 2012 Hurricane
Season Very Strong Financially.
178
U.S. INSURANCE MERGERS AND ACQUISITIONS, 2002-2012 (1)
$9,704
$59,925
$14,878
$50,793
$43,022
$50,417
$31,435
$14,373
$46,509
$54,724
$43,152
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Tra
ns
ac
tio
n v
alu
es
0
100
200
300
400
500
600
Nu
mb
er o
f tran
sa
ctio
ns
($ Millions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
Note
179
3. REINSURANCE MARKET CONDITIONS
Record Global Catastrophes Activity is
Pressuring Pricing
179
181
Regional Property Catastrophe Rate on Line Index, 1990—2013 (as of January 1)
Sources: Guy Carpenter; Insurance Information Institute.
Property-Cat reinsurance pricing was up in the US as
of 1/1/13 but was down in Europe/UK
4. RENEWED PRICING DISCIPLINE
184
Evidence of a Broad and Sustained Shift in Pricing
184
186
-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
Net Premium Growth: Annual Change, 1971—2012
(Percent)1975-78 1984-87 2000-03
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.
2012 growth
was +4.3%
189
Average Commercial Rate Change,All Lines, (1Q:2004–1Q:2013)
-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%
-11
.0%
-6.4
%-5
.1%
-4.9
%-5
.8%
-5.6
%-5
.3%
-6.4
%-5
.2%
-5.4
% -2.9
%
2.7
% 4.4
%4
.3%
3.9
%5
.0%
5.2
%
-0.1
% 0.9
%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
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
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
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; Insurance Information Institute
KRW Effect
Pricing as of Q1:2013 was positive for the 8th consecutive
quarter. Gains are likely to continue through 2013.
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
190
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2013:Q1
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Percentage Change (%)
Pricing turned positive in Q3:2011, the first increase in
nearly 8 years; Q1:2013 renewals were up 5.2%, the largest increase since late
2003; Some insurers posted stronger numbers.
KRW : No Lasting Impact
Pricing Turned Negative in Early
2004 and Remained that
way for 7 ½ years
Peak = 2001:Q4 +28.5%
Trough = 2007:Q3 -13.6%
194
Change in Commercial Rate Renewals, by Line: 2013:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Uniformly Upward in Q1:2013 for the 8th Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Percentage Change (%)
5.5% 5.8%6.8%
9.8%
1.3%
4.1% 4.3% 4.6% 4.6%5.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Su
rety
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Co
mm
erc
ial
Au
to
Co
nst
ruct
ion
D&
O
EP
L
Co
mm
erc
ial
Pro
pe
rty
Wo
rke
rsC
om
p
Workers Comp rate increases are large than any other line, followed
by Property lines
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
CYBER RISK
203
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large
and Small in Every IndustryNEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf
203
Data Breaches 2005-2013, By Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed
* 2013 figures as of March 19, 2013.Source: Identity Theft Resource Center
157
321
446
656
498
419447
662
17.322.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
2005 2006 2007 2008 2009 2010 2011 20120
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The total number of data breaches and number of records exposed fluctuates from year to year and over time.
Millions
205
2012 Data Breaches By Business Category, By Number of Breaches
3.8%
11.2%
13.6%
34.5%
36.9%
Source: Identity Theft Resource Center, http://www.idtheftcenter.org/ITRC%20Breach%20Report%202012.pdf.
The majority of the 447 data breaches in 2012 affected business and medical/healthcare organizations, according to the Identity Theft Resource Center.
Business, 165 (36.9%)Govt/Military, 50 (11.2%)
Banking/Credit/Financial, 17 (3.8%)
Educational, 61 (13.6%)
Medical/Healthcare, 154 (34.5%)
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217