Florida Property Insurance Markets

Economic and Financial Update

Robert P. Hartwig, Ph.D., CPCU, PresidentInsurance Information Institute 110 William Street New York, NY 10038

Tel: (212) 346-5520 Fax: (212) 732-1916 bobh@iii.org www.iii.org

Insurance Information InstituteMedia BriefingTallahassee, FL

January 22, 2008

Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005)

$3.5 $3.8 $4.8 $5.0$6.6 $7.4 $7.7

$10.3

$21.6

$41.1

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Georges(1998)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo(1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Andrew(1992)

Katrina(2005)

$ B

illi

ons

Sources: ISO/PCS; Insurance Information Institute.

Seven of the 10 most expensive hurricanes in US history impacted

Florida:

Andrew, Katrina, Wilma, Charley, Ivan, Frances & Jeanne

Landfalling Hurricanes: 1900-2007FL Landfalls are Common

184

70

26

0

50

100

150

200

All Landfalling: 1900-2007

FL Landfalling FL CAT 3+Landfalling

Source: HURDAT database; Insurance Information Institute.

A hurricane strikes FL every other year on average—CAT 3+ every 4 years

38% of all hurricane landfalls occur in FL

37% of all FL landfalls are

CAT 3+

1.7 hurricanes make landfall each year on average

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

1987-2006¹

Fire, $6.6 , 2.2%

Tornadoes, $77.3 , 26.0%

All Tropical Cyclones, $137.7 ,

46.3%

Civil Disorders, $1.1 , 0.4%

Utility Disruption, $0.2 , 0.1%

Water Damage, $0.4 , 0.1%Wind/Hail/Flood,

$9.3 , 3.1%

Earthquakes, $19.1 , 6.4%

Winter Storms, $23.1 , 7.8%

Terrorism, $22.3 , 7.5%

Source: Insurance Services Office (ISO)..

1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires.

Insured disaster losses totaled $297.3 billion from

1987-2006 (in 2006 dollars). Hurricanes & tropical storms accounted for

$137.7 billion of these—near half of the total.

Distribution of US Insured CAT Losses: TX, FL vs US, 1980-2006*

Texas, $25.6 , 10%

Florida, $57 , 22%

Rest of US, $176 , 68%

Florida accounted for 22% of all US insured CAT losses from 1980-2006: $57B out of

$249.3B

*All figures (except 2006 loss) have been adjusted to 2005 dollars.Source: PCS division of ISO.

$ Billions of 2005 Dollars

Total Value of Insured Coastal Exposure (2004, $ Billions)

$1,901.6$740.0

$662.4$505.8

$404.9$209.3

$148.8$129.7$117.2$105.3

$75.9$73.0

$46.4$45.6$44.7$43.8

$12.1

$1,937.3

$0 $500 $1,000 $1,500 $2,000 $2,500

FloridaNew York

TexasMassachusetts

New JerseyConnecticut

LouisianaS. Carolina

VirginiaMaine

North CarolinaAlabamaGeorgia

DelawareNew Hampshire

MississippiRhode Island

Maryland

Source: AIR Worldwide

Florida leads the way for insured coastal

property at more than $1.9 trillion in 2004 and is expected to

double by 2014

Historical Hurricane Strikes in Miami-Dade, FL, 1900-2007

Source: NOAA Coastal Services Center, http://maps.csc.noaa.gov/hurricanes/pop.jsp?PopStormStates=FL&PopStormCounty=; Insurance Info. Institute, accessed 11/28/07.

Population of Miami-Dade County is 10

times what it was when the last period of

intense activity began in the 1930s, lasting 30

years

FLORIDA HURRICANES & INSURER

PROFITABILITY:

Selling Home Insurance in Florida is Challenging

($9.30)

($3.77)

$2.96 $3.40

($10)

($8)

($6)

($4)

($2)

$0

$2

$4

$6

2004 2005 2006 2007E

Underwriting Gain (Loss) in Florida Homeowners Insurance,

2004 - 2007E*

*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.**Does not include Citizens Property Insurance Corporation results.

$ B

illi

ons

Over the past four years, underwriting losses

exceeded premiums in Florida by an estimated

$6.7 billion

Private Insurers**

($10.60)

($0.21)

$0.69 $0.43$0.86 $1.08 $1.23 $1.28 $1.43 $1.15 $1.38 $1.76

($9.30)

($3.77)

$2.96 $3.40

($12)

($10)

($8)

($6)

($4)

($2)

$0

$2

$4

$6

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07E

Underwriting Gain (Loss) in Florida Homeowners Insurance,

1992-2007E*

*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.**Does not include Citizens Property Insurance Corporation results.

$ B

illi

ons

Florida’s homeowners insurance market produces small/modest

profits in most years and enormous losses in others

Private Insurers**

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

-$8.8-$7.7

-$6.5

-$5.2

-$3.8-$2.7

-$1.3

$0.5

-$8.8

-$12.6

-$9.6

-$6.2

($14)

($12)

($10)

($8)

($6)

($4)

($2)

$0

$2

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07E

Cumulative Underwriting Gain (Loss) in Florida Homeowners

Insurance, 1992-2007E*

$ B

illi

ons

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

associated with Andrew, but the 4 hurricanes of 2004 erased the prior 7 years of profits &

2005 deepened the hole.

Regulator under US law has duty to allow rates

that are “fair,” “not excessive” and “not

unduly discriminatory.”Reality is that regulators

in CAT-prone states suppress rates.

*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.**Does not include Citizens Property Insurance Corporation results.

Private Insurers**

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

Source: NAIC; 200/6 US and FL estimates from the Insurance Information Institute.

-54.3%

-2.8%

-183.3%

-714.9%

-53.4%

36.0%

-800%

-700%

-600%

-500%

-400%

-300%

-200%

-100%

0%

100%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06E

US Florida

Averages: 1990 to 2006E

US HO Insurance = -0.9%

FL HO Average = -36.5%

Andrew

4 Hurricanes

Wilma, Dennis, Katrina

1990 – 2006E

The Facts About Homeowner Insurer Profits and Losses in Florida

• During the period from 1992 through 2007, private home insurers in Florida paid an estimated $6.2 billion more in claims than they received in premiumsThis $6.2 billion underwriting loss remains even after including

$2.96 billion in profits in 2006 and $3.4 billion in 2007 (est.) It will take until 2009 for insurers just to get to the breakeven point

for the 15 year period 1992-2009 even if there no storm losses in 2008 and 2009

• Florida Has Been a Money-Losing Proposition for Most Home Insurers in Terms of ReturnThe average annual rate of return on FL homeowners insurance

was -36.5% from 1990-2006, despite a profitable 2006Even if insurers were to earn a 40% rate of return (implying no

storm activity) every year, the average return for insurers will not exceed 0% until 2022. To reach the current 5% risk-free return on 10-year Treasury bonds would take until 2026 and a 10% return is unachievable until 2033

Florida State-Run Insurer Residual Deficits 2004/2005 (Millions of Dollars)

Source: Insurance Information Institute research.

-$516

-$1,425

-$1,770-$2,000

-$1,800

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0Florida Hurricane Catastrophe Fund (FHCF) Florida Citizens

2004 2005

The hurricanes seasons of 2004/5 weakened the FL Hurricane CAT

Fund and Citizens, producing a gross state-run insurer deficit of $3.7 billion

FL’s guarantee fund will also assess for at

least $400 million

Insurance Information Institute On-Line

If you would like a copy of this presentation, please email me at bobh@iii.org