global insurance & reinsurance: cycles, trends & challenges

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Global Insurance & Reinsurance: Cycles, Trends & Challenges Intermediaries & Reinsurance Underwriters Association Amelia Island, FL April 8, 2014 Download at www.iii.org/presentations Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5520 Cell: 917.453.1885 [email protected]

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Global Insurance & Reinsurance: Cycles, Trends & Challenges. Intermediaries & Reinsurance Underwriters Association Amelia Island, FL April 8, 2014 Download at www.iii.org/presentations. Robert P. Hartwig, Ph.D., CPCU, President & Economist - PowerPoint PPT Presentation

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Page 1: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Global Insurance & Reinsurance: Cycles, Trends & Challenges

Intermediaries & Reinsurance Underwriters AssociationAmelia Island, FL

April 8, 2014Download at www.iii.org/presentations

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

Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org

Page 2: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

2

Presentation Outline P/C Insurance & Reinsurance Operating Environment

Cyclical influences Risk Categories: Exogenous Influences Global Economic & Geopolitical Factors

Terrorism/Torts/Cyber Natural Catastrophe Risk The “New” Investment Environment

Persistently low yields Nontraditional capital

New Capacity/CapitalReinsurance Insurance Regulatory Trends in the Post-Crisis World

Will these impact the cycle Is cyclicality a systemic risk?

Q&A

Page 3: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

3

P/C Insurance & Reinsurance Operating Environment

External and Internal Influences on Cyclicality

3

Page 4: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

P/C Net Income After Taxes1991–2013:Q3 ($ Millions)

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% 2013:9M ROAS1 = 9.5%

• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.9% ROAS through 2013:Q3, 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

$14,

178

$5,8

40

$19,

316

$10,

870

$20,

598

$24,

404 $3

6,81

9

$30,

773

$21,

865

$3,0

46

$30,

029

$62,

496

$3,0

43

$35,

204

$19,

456 $3

3,52

2

$43,

029

$28,

672

-$6,970

$65,

777

$44,

155

$20,

559

$38,

501

-$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 13:9M

2013:9M ROAS

was 9.5%

Net income is up substantially

(+54.7%) from 2012:Q3 $27.8B

Page 5: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

-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 1213

:Q3

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013:Q3*

*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.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

2011: 4.7%

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

2013:Q3 8.9%

Page 6: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEsCombined Ratio / ROE

* 2008 -2013 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2013:9M combined ratio including M&FG insurers is 95.8; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.

97.5100.6 100.1 100.8

92.7

101.299.5

101.0

96.6

102.4

106.5

95.7

14.3%15.9%

12.7%10.9%

7.4% 7.9%

4.7%6.2%9.6%8.8%

4.3%

8.9%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013:9M0%

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

Lower CATs are improved ROEs

in 2013

Page 7: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

8

ROE: Property/Casualty Insurance vs. Fortune 500, 1987–2013E*

* Excludes Mortgage & Financial Guarantee in 2008 – 2013E. 2013 P/C ROE is through 2013:Q3. Sources: ISO, Fortune; Insurance Information Institute.

-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 13E

P/C Profitability Is Both by Cyclicality and Ordinary Volatility

Hugo

Andrew

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

Record Tornado Losses

Sandy

Page 8: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

9

ROE: ROEs by Industry vs. Fortune 500, 1987–2012*

* All figures are GAAP.Sources: ISO, Fortune; Insurance Information Institute.

-5%

0%

5%

10%

15%

20%

25%

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

US P/C Insurers All US Industries L/H Insurance Comm Banks Div Fin

(Percent) Average: 1987-2012Diversified Finl: 15.0%

Commercial Banks: 13.1% All Industries (F500): 13.4%

Life/Health Insurance: 8.8% P/C Insurance: 7.6%

Page 9: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

12

-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 1213

:9M

Net Premium Growth: Annual Change, 1971—2013:Q3(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.

2013:9M = 4.2%

2012 growth was +4.3%

Page 10: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

UNDERWRITING

13

Underwriting Losses in 2013 Much Improved After High

Catastrophe Losses in 2011/1213

Page 11: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

14

P/C Insurance Industry Combined Ratio, 2001–2013:Q3*

* 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; 2013:Q3 = 95.8. Sources: A.M. Best, ISO.

95.799.3

100.8

106.3

102.4

96.6

101.0

92.6

100.898.4

100.1

107.5

115.8

90

100

110

120Best

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

Sandy Impacts

Lower CAT

Losses

Page 12: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Underwriting Gain (Loss)1975–2013:Q3*

* 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 1213:Q3

Cumulative underwriting deficit from 1975 through

2012 is $510B

($ Billions) Underwriting profit in 2013:Q3 totaled $10.5B

High cat losses in 2011 led to the highest

underwriting loss since 2002

Page 13: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

18

2

(2)

(8)

(3)(7)

(10)(10)

(4)(0)

11

24

1411 9

(5)(9)

(13)(12)(10)(14)

(12)(10)

(7) (7)

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

$25

$3092 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

13E

14E

15E

Prio

r Yr.

Res

erve

Rel

ease

($B

)

-6

-4

-2

0

2

4

6

8 Impact on C

ombined R

atio (Points)

Prior Yr. ReserveDevelopment ($B)

Impact onCombined Ratio(Points)

P/C Reserve Development, 1992–2015E

Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: A.M. Best, ISO, Barclays Research (estimates).

Page 14: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

P/C Estimated Loss Reserve Deficiency/ (Redundancy), Excl. Statutory Discount

Line of Business 2013Personal Auto Liability -$3.9BHomeowners -$0.4Other Liab (incl. Prod Liab) $7.5Workers Compensation $11.1Commercial Multi Peril $1.9Commercial Auto Liability $0.7Medical Professional Liab. -$3.5Reinsurance—Nonprop Assumed $1.0All Other Lines* -$4.6 Total Core Reserves $9.8Asbestos & Environmental $11.2Total P/C Industry $21.0B

Source: A.M. Best, P/C Review/Preview 2014; Insurance Information Institute. *Excluding mortgage and financial guaranty segments.

19

Page 15: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

20

Performance by Key Segment

20

Large Differences Exist in the Cyclical Behavior of Key Lines

Page 16: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

109.

411

0.2

118.

810

9.5 11

2.5

110.

2

107.

610

4.1

109.

7

110.

2

102.

5 105.

4

91.1 93

.6

104.

298

.9

102.

410

7.9

103.

498

.3 99.9

98.910

2.0

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 13F

14F

15F

Com

mer

cial

Lin

es C

ombi

ned

Rat

io

*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2014F); Conning (2015F) Insurance Information Institute.

Commercial Lines Combined Ratio, 1990-2015F*

Commercial lines underwriting

performance is expected to improve as

improvement in pricing environment persists

21

Page 17: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Workers Compensation Combined Ratio: 1994–2014F

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

105.

0

104.

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 13F 14F

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 (2013-14). 22

WC results have improved markedly

since 2012

Page 18: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Other & Products Liability Combined Ratio: 1991–2013F

110.

3

109.

1

112.

0 122.

6

124.

4

111.

8

114.

4

112.

1

96.3 99

.0

95.1

105.

4

109.

8

100.

5

103.

6

106.

3

125.

5132.

8

133.

2

114.

5

143.6

123.

5

110.

6

80

90

100

110

120

130

140

150

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E13F

Liability Lines Have Performed Better in the Post-Tort Reform Era (~2005), but There Has

Been Some Deterioration in Recent YearsSources: A.M. Best ; Insurance Information Institute. 27

Page 19: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

103.

7

108.

0

96.4 99

.8 106.

6

107.

9 115.

7

130.

4 136.

0

154.

7

142.

3

137.

3

110.

9

100.

9

91

84.3

77.4

85

82.0 87

.9 93.3 95

.5 98.9 10

1.0

127.

9

70

80

90

100

110

120

130

140

150

160

170

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E

14F

15F

Medical Malpractice Combined Ratio vs. All Lines Combined Ratio, 1991-2015F

Source: AM Best (1991-2014F); Conning (2015F) Insurance Information Institute.

MPL insurers in 2013 paid out an estimated $0.96 in loss and expense for every $1 they earned in premiums

In 2001, med mal insurers paid out $1.55 for every dollar earned

The dramatic improvement over the past decade has restored med

mal’s viability, though some deterioration is anticipated

28

Page 20: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

29

Risk & Insurance U.S. and Global Perspective

The External Environment:Is the World Becoming a

Riskier Uncertain Place?

Page 21: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

30

5 Major Categories for External Global Risks, Uncertainties and Fears: Insurance Solutions

1. Economic Risks2. Geopolitical Risks3. Environmental Risks4. Technological Risks5. Societal Risks

Source: Adapted from World Economic Forum, Global Risks 2014; Insurance Information Institute.

While risks can be broadly

categorized, none are mutually exclusive

Page 22: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

31

Multitude of Exogenous Factors Influence Growth, Performance & Cyclicality

Economic Issues in US, Europe Weakness in China/Emerging Economies Political Gridlock in the US, Europe, Japan Fiscal Imbalances Monetary Policy/Tapering/Low Interest Rates Unemployment Political Upheaval in the Ukraine, Middle East

Argentina, Venezuela, Thailand Resurgent Terrorism Risk Diffusion of Weapons of Mass Destruction Cyber Attacks Record Natural Disaster Losses Climate Change Environmental Degradation Income Inequality (Over)Regulation: Systemic Risk?

Are “Black Swans” everywhere or

does it just seem that way?

Page 23: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

33

Top 5 Global Risks in Terms of Impact,2007—2014: Insurance Can Help With Most

Source: World Economic Forum, Global Risks 2014; Insurance Information Institute.

Concerns Over the Impacts of Economics Risks Remained High in 2014, but Societal, Environment and Technological Risks Also Loom Large

In 2014, economic

and environ-mental issues

dominated severity

concerns

Page 24: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

3434Sources: Guy Carpenter, World Bank, IMF; Insurance Information Institute .

Gap Between GDP Growth and Reinsurance Limit in Asia-Pacific Region: 2004—2013

The gap between GDP and reinsurance limit in Asia is growing—suggesting the

region is “under-reinsured”

Page 25: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Globalization:The Global Economy Creates and Transmits Cycles & Risks

35

Globalization Is a Double Edged Sword—Creating Opportunity and Wealth But

Potentially Creating and Amplifying Risk

35

Emerging vs. “Advanced” Economies

Page 26: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

36

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 4/14; 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%

1.1% 2.

5%4.

1%2.

4%1.

7% 3.0%

3.0%

3.1%

3.0%

3.0%

3.0%

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%

   20

00   

   20

01   

   20

02   

   20

03   

   20

04   

   20

05   

   20

06   

07:1

Q07

:2Q

07:3

Q07

:4Q

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

Demand for Insurance Should Increase in 2014/15 as GDP Growth Accelerates Modestly and Gradually Benefits 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%

2014/15 are expected to see a

modest acceleration in growth

Page 27: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

(4.0)

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

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 13F

14F

15F

Advanced economies Emerging and developing economies World

Source: International Monetary Fund, World Economic Outlook , January 2014 WEO Update; Ins. Info. Institute.

Emerging economies (led by China) are expected to grow by 5.1% in 2014 and

5.4% in 2015.

GDP Growth: Advanced & Emerging Economies vs. World, 1970-2015F

Advanced economies are expected to grow at a modest pace of 2.2% in

2014 and to 2.3% in 2015.

World output is forecast to grow by 3.7% in 2014 and 3.9% in 2015. The world economy shrank by 0.6% in

2009 amid the global financial crisis

GDP Growth (%)

Page 28: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

38

Global GDP: 1948—2013F

$7,377

$18,828

$3,676$1,838

$579$157$84$59$0

$2,000$4,000$6,000$8,000

$10,000$12,000$14,000$16,000$18,000$20,000

1948 1953 1963 1973 1983 1993 2003 2013F

Sources: World Trade Organization data through 2011; Insurance Information Institute estimate for 2013 based on IMF forecasts as of July 2013.

$ Billions

Insurance Regulation Will Necessarily Become More Transnational, Following Patterns of Global Economic Growth, the Creation of New

Insurable Exposures and International Capital Flows

Global trade volume will approach $19 trillion in 2013, a

155% over the past decade

38

Page 29: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

39

Real GDP Growth Forecasts: Major Economies: 2011 – 2015F

Sources: Blue Chip Economic Indicators (2/2014 issue); IMF; Insurance Information Institute.

1.8%

1.5%

0.9%

2.2% 2.7%

1.1%

2.7% 3.0%

2.3%

7.4%

3.0%

1.4%

2.5% 3.

3%

2.7%

7.3%

9.3%

2.6%

4.6%-0

.6%

7.8%

3.0%

0.2%

1.8%

1.4%1.

9%

-0.4

%

1.7%2.

6%

7.7%

-2%

0%

2%

4%

6%

8%

10%

US Euro Area UK Latin America Canada China

2011 2012 2013F 2014F 2015F

Growth Prospects Vary Widely by Region: Growth Returning in the US, Recession in the Eurozone, Some strengthening in Latin America

The Eurozone is ending

Growth in China has outpaced the US

and Europe

US growth should

acceleratein 2014

Page 30: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

42

World Trade Volume: 1948—2013F

$7,377

$18,828

$3,676$1,838

$579$157$84$59$0

$2,000$4,000$6,000$8,000

$10,000$12,000$14,000$16,000$18,000$20,000

1948 1953 1963 1973 1983 1993 2003 2013F

Sources: World Trade Organization data through 2011; Insurance Information Institute estimate for 2013 based on IMF forecasts as of July 2013.

$ Billions

Insurance Regulation Will Necessarily Become More Transnational, Following Patterns of Global Economic Growth, the Creation of New

Insurable Exposures and International Capital Flows

Global trade volume will approach $19 trillion in 2013, a

155% over the past decade

42

Page 31: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

4343Sources: United Nations, World Population Prospects, June 13, 2013; Insurance Information Institute .

World Population Growth: 2010—2100F

Mid-range scenarios suggest a massive

slowdown in the number of

available lives to insure. Growth

will be increasing dependent on

product penetration rates

in emerging economies

The future of insurance will be tied global

population growth—life

insurance more closely than

nonlife.

Page 32: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Global Insurance Premium Growth Trends:

Non-Life (P/C) and Life

45

Growth Is Uneven Across Regions and Market Segments

45

Page 33: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Life, $2.62 , 56.8%

Non-Life, $1.99 , 43.2%

Life insurance accounted for nearly

57% of global premium volume in

2012 vs. 43% for Non-Life

Distribution of Global Insurance Premiums, 2012 ($ Trillions)

46

Total Premium Volume = $4.613 Trillion*

Source: Swiss Re, sigma, No. 3/2013; Insurance Information Institute.

Page 34: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

47

Distribution of Nonlife Premium: Industrialized vs. Emerging Markets, 2012

Sources: Swiss Re sigma No.3/2013; Insurance Information Institute research.

Emerging market’s share of nonlife premiums increased to 17.3% in 2012 from 14.3% in 2009. The share of premiums written in the $2 trillion global nonlife market remains much larger (82.7%) but continues to shrink.

The financial crisis and sluggish recovery in the major insurance markets will accelerate the expansion of the emerging market sector

Premium Growth Facts

17.3%82.7%

Industrialized Economies

$1, 647.5

Emerging Markets$344.1

2012, $Billions

Developing markets now account for about 40% of

global GDP but just 17.3% of nonlife premiums

Page 35: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

48

Premium Growth by Region, 20122.

3%

2.0%

16.8

%

-3.1

% -0.4

%

1.9%

13.8

%

-4.9

%

2.6%

1.7%

-0.4

%

4.8% 5.8%

13.0

%

4.8%

-1.0

%

13.0

%

2.4%

1.8%

11.7

%

-2.0

%

4.9%

8.1%

4.2%

3.9%

10.5

%

-0.1

%

5.1%

8.8%

7.8%

-10%-5%0%5%

10%15%20%

World N.America

LatinAmerica

W.Europe

Central &E. Europe

AdvancedAsia

EmergingAsia

MiddleEast &Central

Asia

Africa Oceania

Life Non-Life Total

Global Premium Volume Totaled $4.613 Trillion in 2012, up 2.4% from $4.566 Trillion in 2011. Global Growth Was Weighed Down by Slow Growth

in N. America and W. Europe and Partially Offset by Emerging Markets

Latin America growth was

the strongest in 2012

Growth in Advanced Asia (incl. China) markets was

third highest in 2012

Source: Swiss Re, sigma, No. 3/2013.

Page 36: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

49

Global Real (Inflation Adjusted) Premium Growth (Life and Non-Life): 2012

Source: Swiss Re, sigma, No. 3/2013; Insurance Information Institute.

Market Life Non-Life TotalAdvanced 1.8 1.5 1.7Emerging 4.9 8.6 6.8World 2.3 2.6 2.4

Emerging markets in Asia, including China, showed faster growth an the US or Europe

Premium growth in emerging

markets was 4 times that of

advanced economies in

2012

Page 37: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

50

Non-Life Insurance: Global Real (Inflation Adjusted) Premium Growth, 2012

Source: Swiss Re, sigma, No. 3/2013.

Market Life Non-Life TotalAdvanced 1.8 1.5 1.7

Emerging 4.9 8.6 6.8

World 2.3 2.6 2.4

Real growth in non-life insurance

premiums was faster in China than the US

Page 38: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

51

Global Real (Inflation Adjusted) NonlifePremium Growth: 1980-2010

Source: Swiss Re, sigma, No. 2/2010.

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-10%

-5%

0%

5%

10%

15%

20%Real growth rates

Total Industrialised countries Emerging markets

Nonlife premium growth in emerging markets has

exceeded that of industrialized countries in

27 of the past 31 years, including the entirety of the

global financial crisis..

Real nonlife premium growth is very erratic in part to inflation volatility in emerging markets as

well as a lack of consistent cyclicality

Average: 1980-2010Industrialized Countries: 3.8%

Emerging Markets: 9.2%Overall Total: 4.2%

Page 39: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

56

Premiums Written in Life and Non-Life, by Region: 1962-2012

Source: Swiss Re, sigma, No. 3/2013.

Emerging market shares rose rapidly over the past 50 years

Page 40: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

60

The Unfortunate Nexus: Opportunity, Risk & Instability

Most of the Global Economy’s Future Gains Will be Fraught with Much

Greater Risk and Uncertainty than in the Past

Page 41: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

61Source: Aon PLC; Insurance Information Institute.

Terrorism remains a greater concern in the Middle East,

Africa and South Asia

Latin and South America have modest

terrorist threats though Brazil is elevated

Terrorism Risk in 2013: Greatest Business Opportunities Are Often in Risky Nations

Page 42: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

62Source: Aon PLC; Insurance Information Institute.

The fastest growing markets are generally also

among the politically riskiest, including East and

South Asia and Africa

Latin and South America also present insurers with growth

opportunities but political instability has

increased markedly

Problems in the Ukraine will

intensify political risk in several former

Soviet republics

Political Risk in 2013: Greatest Business Opportunities Are Often in Risky Nations

Page 43: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

64

Some Key Drivers in the US Economy

External Economic Considerations that Could

Drive Growth

64

Page 44: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

65

Unemployment and Underemployment Rates: Still Too High, 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

Jan14

"Headline" Unemployment Rate U-3

Unemployment + Underemployment RateU-6

“Headline” unemployment

was 6.7% in March 2014. 4%

to 6% is “normal.”

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 12.7%

in Mar. 2014.8% to 10% is

“normal.”

January 2000 through March 2014, Seasonally Adjusted (%)

Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.

65

As the unemployment rate approaches 6%,

the Fed will begin signaling on short-

term rates

Page 45: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

66

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%

6.7%

6.5%

6.4%

6.2%

6.1%

6.0%

5.9%

5.8%

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

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 (4/14 edition); Insurance Information Institute.

2007:Q1 to 2015:Q4F*

Unemployment forecasts have been revised slightly

downwards. Optimistic scenarios put the

unemployment as low as 6.0% by Q4 of this year.

Jobless figures have been revised

slightly downwards for 2014/15

Page 46: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

231

5217

052

126

573

-71

32 64 81 553

-115

-106

-221

-215

-206

-261

-258

-422

-486

-776 -6

93-8

21-6

98-8

10-8

01-2

94-4

26-2

72 -232

-141

-271

-15

-232

20-3

819

294 11

012

011

710

7 199

149

94 7222

323

1 320

166

186 21

912

526

817

719

1 222

364

228

246

102 131

7517

213

615

9 255

211

215

219 26

316

4 188 22

220

117

018

015

3 247 272

8616

618

819

2

113

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

Jan-

07Fe

b-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09Fe

b-09

Mar

-09

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

Jun-

13Ju

l-13

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14Fe

b-14

Mar

-14

Monthly Change in Private Employment

January 2007 through March 2014 (Thousands, Seasonally Adjusted)

Private Employers Added 8.88 million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 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

192,000 private sector jobs were

created in March. As of March 2014, all the jobs lost in

the Great Recession have been recovered

67

Jobs Created2013: 2.368 Mill2012: 2.294 Mill2011: 2.400 Mill2010: 1.277 Mill

Page 47: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

68

(Millions of Units)

New Private Housing Starts, 1990-2019F

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 1.08

1.31 1.

44 1.50

1.51

1.50

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 13F14F15F16F17F18F19F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/14 and 3/13); 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, low mortgage rates and demographics should continue to stimulate new home construction

for several more years

Page 48: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Florida Total Private Housing Starts,2000 – 2017F

69

The economic outlook for most of

the US is positive for the first time in many

years

Source: University of Central Florida Institute for Economic Competitiveness: http://iec.ucf.edu/post/2014/01/07/Florida-Metro-Forecast-December-2013.aspx

CRASH, CRATER, RECOVERY Homebuilding in FL continues

to recover, adding substantially to coastal exposures.

(Thousands of Units)

Page 49: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

70

The combined ratios for both personal and commercial lines

improved substantially in 2013:H1

U.S. Residual Market: Total Policies In-Force (1990-2012) (000)

Source: PIPSO; Insurance Information Institute

931.6

1,785.0

1,458.11,196.5

1,741.7

2,841.4

3,311.83,227.3

2,479.4

1,319.7

2,621.32,780.6

1,642.3

2,840.4

2,209.32,203.9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(000)

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

In the 23-year period between 1990 and 2012, the total number of policies in-force in the residual market (FAIR & Beach/Windstorm) Plans has more than tripled.

Hurricane Sandy

Page 50: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

72

Value of New Private Construction: Residential & Nonresidential, 2003-2013*

Billions of Dollars

$0$100$200$300$400$500$600$700$800$900

$1,000

03 04 05 06 07 08 09 10 11 12 13*

Non ResidentialResidential

Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates

$298.1

$15.0

$613.7

New Construction peaks at $911.8. in 2006

Trough in 2010 at $500.6B,

after plunging 55.1% ($411.2B)

2013: Value of new pvt. construction hits $667.5B, up

33% from the 2010 trough but still

27% below 2006 peak

72

$261.8

$238.8

$311.5

$356.0

*2013 figure is a seasonally adjusted annual rate as of December.Sources: US Department of Commerce; Insurance Information Institute.

Page 51: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

73

Value of Private Construction Put in Place, by Segment, Jan. 2014 vs. Jan. 2013*

14.9%

-3.9%

1.7%

-12.2%

7.8%

41.0%

0.9%7.9%

13.8%12.3% 14.6%9.7%

47.8%

17.0%

-20%-10%

0%10%20%30%40%50%60%

Tota

l Priv

ate

Cons

truct

ion

Resi

dent

ial

Tota

lNo

nres

iden

tial

Lodg

ing

Offi

ce

Com

mer

cial

Heal

th C

are

Educ

atio

nal

Relig

ious

Amus

emen

t &Re

c.

Tran

spor

tatio

n

Com

mun

icat

ion

Pow

er

Man

ufac

turin

g

Private Construction Activity is Up in Most Segments, Including the Key Residential Construction Sector; Bodes Well for Early 2014

Growth (%) Led by the Residential Construction, Lodging, Communication and Office segments, Private

sector construction activity is rising after plunging during the “Great Recession.”

*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

Page 52: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

75

$314.9 $304.0$286.4 $279.0 $274.4

$216.1 $220.2$234.2

$255.4

$289.1$308.7

$0

$50

$100

$150

$200

$250

$300

$350

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

($ Billions)

Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Continues to Contract As State/Local Governments

Grapple with Deficits and Federal Sequestration Takes Hold

Value of New Federal, State and Local Government Construction: 2003-2013*

*2013 figure is a seasonally adjusted annual rate as of December.Sources: US Department of Commerce; Insurance Information Institute.

Construction across all levels of government

peaked at $314.9B in 2009

Austerity Reigns Govt. construction is still shrinking, down $40.5B or

12.9% since 2009 peak

Page 53: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

76

Construction Employment,Jan. 2010—March 2014*

*Seasonally adjusted.Sources: 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 5,71

15,

735 5,

783

5,79

95,

792

5,79

15,

801

5,80

45,

805

5,82

25,

830

5,84

95,

876 5,

927

5,94

55,

964

5,400

5,500

5,600

5,700

5,800

5,900

6,000

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-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-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

Jun-

13Ju

l-13

Aug

-13

Sep

-12

Oct

-13

Nov

-13

Dec

-13

Jan-

14Fe

b-14

Mar

-14

Construction employment is +529,000 above

Jan. 2011 (+9.7%) trough

(Thousands)

Construction and manufacturing employment constitute 1/3 of all payroll exposure.

Page 54: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

77

$200,000

$300,000

$400,000

$500,000

Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Dec. 2013

*seasonally adjusted; Dec. 2013 is preliminary; data published February 4, 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/

Monthly shipments in Dec. 2013 exceeded the pre-crisis (July 2008) peak. Manufacturing is energy-intensive and growth leads to gains in many commercial

exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.

$ Millions

77

The value of Manufacturing Shipments in Dec. 2013 was $492.7B—a near record high.

Page 55: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

79

Manufacturing Employment,Jan. 2010—March 2014*

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

8411

,977

11,9

7211

,965

11,9

4811

,963

11,9

9312

,011

12,0

4612

,053

12,0

6112

,080

12,0

79

11,250

11,500

11,750

12,000

12,250Ja

n-10

Feb-

10M

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-

11M

ar-1

1A

pr-1

1M

ay-1

1Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

2/30

/2M

ar-1

2A

pr-1

2M

ay-1

2Ju

n-12

Jul-1

2A

ug-1

2S

ep-1

2O

ct-1

2N

ov-1

2D

ec-1

2Ja

n-13

Feb-

13M

ar-1

3A

pr-1

3M

ay-1

3Ju

n-13

Jul-1

3A

ug-1

3S

ep-1

3O

ct-1

3N

ov-1

3D

ec-1

3Ja

n-14

Feb-

14M

ar-1

4

Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.

*Seasonally adjusted; Feb. and Mar. 2014 are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

(Thousands) Since Jan 2010, manufacturing employment

is up (+619,000 or +5.4%)and still growing.

Page 56: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

80

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013:Q4

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

$7,250

$7,50005

:Q1

05:Q

205

:Q3

05:Q

406

:Q1

06:Q

206

:Q3

06:Q

407

:Q1

07:Q

207

:Q3

07:Q

408

:Q1

08:Q

208

:Q3

08:Q

409

:Q1

09:Q

209

:Q3

09:Q

410

:Q1

10:Q

210

:Q3

10:Q

411

:Q1

11:Q

211

:Q3

11:Q

412

:Q1

12:Q

212

:Q3

12:Q

413

:Q1

13:Q

213

:Q3

13:Q

4

Prior Peak was 2008:Q1 at $6.60 trillion

Latest (2013:Q4) was $7.23 trillion, a new peak--$980B

above 2009 trough

Recent trough (2009:Q3) was $6.25 trillion, down

5.3% from prior peak

Payrolls are 15.7% above

their 2009 trough and up 2.0% over

the past year

80

Page 57: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

81

2.5%

4.9%

6.3%

7.8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2013 2014F 2015F 2016F

Business Investment: Expected to Accelerate, Fueling Commercial Exposure Growth

Accelerating business investment will be a potent driver of

commercial property and liability insurance exposures and should drive employment and WC payroll

exposures as well (with a lag)

Source: IHS Global Insights as of Jan. 13, 2014; Insurance Information Institute.

Page 58: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

84

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)

Page 59: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

U.S. Natural Has Imports and Exports, 1990 - 2040

Sources: US Energy Information Administration, Annual Energy Outlook 2014 Early Release Overview; ;Insurance Information Institute. 85

Trillions of Cubic Feet

The US is now the largest gas producer in the world, though Russia is the

largest exporter. The US needs to

invest in its pipeline and

LNG infrastructure and expedite

regulatory approval to

realize its full export potential

Page 60: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

U.S. Electricity Generation by Fuel,1990 - 2040

Sources: US Energy Information Administration, Annual Energy Outlook 2014 Early Release Overview; ;Insurance Information Institute. 86

Trillions of kilowatt Hours

Electricity consumption in the US will rise steadily along with the fuel

shares of natural gas and

renewables

Page 61: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

89

Oil & Gas Extraction Employment,Jan. 2010—March 2014*

*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.

616

9.3

170.

117

1.0

172.

517

3.6

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

3.4

192.

419

2.6

193.

119

3.3

195.

019

6.5

199.

720

0.6

203.

020

4.1

205.

320

7.7

208.

1

150

160

170

180

190

200

210

220

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-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-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

Jun-

13Ju

l-13

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14Fe

b-14

Mar

-14

Oil and gas extraction employment is up 33.1% since Jan. 2010 as the energy sector booms. Domestic energy production is essential to any robust economic recovery in

the US.

(Thousands) Highest since Aug.

1986

Page 62: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

90

The Future of Healthcare in America

P/C Insurers Are Increasingly Along for the Ride in the

American Health Care Saga

90

Page 63: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

U.S. Health Care Expenditures,1965–2022F

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$42.

0$4

6.3

$51.

8$5

8.8

$66.

2$7

4.9

$83.

2$9

3.1

$103

.4$1

17.2

$133

.6$1

53.0

$174

.0$1

95.5

$221

.7$2

55.8

$296

.7$3

34.7

$369

.0$4

06.5

$444

.6$4

76.9

$519

.1$5

81.7

$647

.5$7

24.3

$791

.5$8

57.9

$921

.5$9

72.7

$1,0

27.4

$1,0

81.8

$1,1

42.6

$1,2

08.9

$1,2

86.5

$1,3

77.2

$1,4

93.3

$1,6

38.0

$1,7

75.4

$1,9

01.6

$2,0

30.5

$2,1

63.3

$2,2

98.3

$2,4

06.6

$2,5

01.2

$2,6

00.0

$2,7

00.7

$2,8

06.6

$2,9

14.7

$3,0

93.2

$3,2

73.4

$3,4

58.3

$3,6

60.4

$3,8

89.1

$4,1

42.4

$4,4

16.2

$4,7

02.0

$5,0

08.8

U.S. health care expenditures have been on a relentless climb for most of the past half century, far outstripping population growth,

inflation of GDP growth

91

From 1965 through 2013, US health care expenditures had

increased by 69 fold. Population growth over the same period increased by a factor of just 1.6. By 2022, health spending will have

increased 119 fold.

$ Billions

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.

Page 64: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

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 14 15 16 17 18 19 20 21 22

National Health Care Expenditures as a Share of GDP, 1965 – 2022F*

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.

1965 5.8%

Health care expenditures as a share of GDP rose from 5.8% in 1965 to 18.0% in 2013 and are expected to

reach 19.9% of GDP by 2022

% of GDP

2022 19.9%

1980: 9.2%

1990: 12.5%

2000: 13.8%

2010: 17.9%

Since 2009, heath expenditures as a %

of GDP have flattened out at about 18%--the

question is why and will it last?

Page 65: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

-1%

0%

1%

2%

3%

4%

5%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Change in Medical CPI CPI-All Items

Medical Cost Inflation vs. Overall CPI, 1995 - 2013

Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.

Average Annual Growth AverageHealthcare: 3.8%Overall CPI: 2.4%

Though moderating, medical inflation will continue to exceed inflation in the overall economy

Page 66: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

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%3.0%

5.1%

7.4%

10.1% 10.6%

13.5%

5.4%

7.8%

6.3%6.6%

4.1%3.6% 4%

3%

1.4%

5.4%

8.8%7.7%

7.3%

8.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Change in Medical CPIChange Med Cost per Lost Time Claim

WC Medical Severity Generally Outpaces the Medical CPI Rate

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 form 1995 through 2011 was well above the medical CPI (6.8% vs. 3.8%), but

the gap is narrowing.

Page 67: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

CYBER RISK

96

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

96

Page 68: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Data Breaches 2005-2013, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed

* 2013 figures as of Jan. 1, 2014 from the ITRC updated to an additional 30 million records breached (Target) as disclosed in Jan. 2014.Source: Identity Theft Resource Center.

157

321

446

656

498

419447

619662

87.9

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 2012 2013*020406080100120140160180200220

# Data Breaches # Records Exposed (Millions)

The Total Number of Data Breaches (+38%) and Number of Records Exposed (+408%) in 2013 Soared

Millions

Page 69: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Shifting Legal Liability & Tort Environment

98

Is the Tort PendulumSwinging Against Insurers?

98

Page 70: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

99

Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical, 1980-2013E

$0

$50

$100

$150

$200

$250

$300

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12E

Tort

Syst

em C

osts

1.50%

1.75%

2.00%

2.25%

2.50%

Tort Costs as %

of GD

P

Tort Sytem Costs Tort Costs as % of GDP

($ Billions)

Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A

Tort costs in dollar terms have remained high but relatively stable

since the mid-2000s., but are down substantially as a share of GDP

Deepwater Horizon Spike

in 2010

1.68% of GDP in 2013

2.21% of GDP in 2003

= pre-tort reform peak

Page 71: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

100

Commercial Lines Tort Costs: Insured vs. Self-(Un)Insured Shares, 1973-2010

Billions of Dollars

$0

$20

$40

$60

$80

$100

$120

$140

$160

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

Self (Un) Insured ShareInsurer Share

Tort Costs and the Share Retained by Risks Both Grew Rapidly from the mid-1970s to mid-2000s, When Tort Costs Began to Fall But Self-

Insurance Shares Continued to Rise

$9.5

$15.0

$6.0

1973: Commercial Tort Costs

Totaled $6.49B, 94% was insured,

6% self-(un)insured

1985: $46.6B 74.5% insured,

25.5% self-(un)insured

1995: $83.6B 69.5% insured,

30.5% self-(un)insured

2005: $143.5B 66.4% insured,

33.6% self-(un)insured

2009: $126.5B 64.4% insured,

35.6% self-(un)insured

Sources: Towers Watson, 2011 Update on US Tort Cost Trends, III Calculations based on data from Appendix 4. 100

Page 72: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Business Leaders Ranking of Liability Systems in 2012

Best States1. Delaware

2. Nebraska

3. Wyoming

4. Minnesota

5. Kansas

6. Idaho

7. Virginia

8. North Dakota

9. Utah

10. Iowa

Worst States41. Florida

42. Oklahoma

43. Alabama

44. New Mexico

45. Montana

46. Illinois47. California

48. Mississippi

49. Louisiana

50. West Virginia

Source: US Chamber of Commerce 2012 State Liability Systems Ranking Study; Insurance Info. Institute.

New in 2012 Wyoming Minnesota Kansas Idaho

Drop-offs

Indiana Colorado Massachusetts South Dakota

Newly Notorious

Oklahoma

Rising Above

Arkansas

102

Page 73: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

103

The Nation’s Judicial Hellholes: 2012/2013

Source: American Tort Reform Association; Insurance Information Institute

West VirginiaIllinoisMadison County

New YorkAlbany and

NYC

Watch List Philadelphia,

Pennsylvania South Florida Cook County, Illinois New Jersey Nevada Louisiana

Dishonorable Mention

MO Supreme Court WA Supreme Court

California

MarylandBaltimore

Page 74: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

104

U.S. Insured Catastrophe Loss Update

2013 Was a Welcome Respite from the High Catastrophe Losses in Recent Years

104

Page 75: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

105

$12.

6

$11.

0$3

.8$1

4.3

$11.

6$6

.1

$34.

7$7

.6 $16.

3$3

3.7

$73.

4

$10.

5$7

.5

$29.

2$1

1.5

$14.

4$3

3.6

$35.

0$1

2.8

$14.

0

$4.8 $8

.0

$37.

8$8

.8

$26.

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 13*

U.S. Insured Catastrophe Losses

*Through 12/31/13.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 U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Well

Below 2011 and 2012 YTD Totals.

2012 was the third most expensive year ever for insured CAT

losses

Record tornado losses caused

2011 CAT losses to surge

($ Billions, $ 2012)

105

Page 76: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Insurers Making a Difference in Impacted Communities

Source: Insurance Information Institute 106

Destroyed home in Tuscaloosa. Insurers will pay some 165,000 claims totaling $2 billion in the Tuscaloosa/

Birmingham areas alone.

Presentation of a check to Tuscaloosa Mayor Walt

Maddox to the Tuscaloosa Storm Recovery Fund

Presentation of a check to Moore, OK,

Public School Relief Fund

Page 77: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

107

Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2013*

*2010s represent 2010-2013.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 8.9

3.43.6

0.9

0.1

1.1

1.1

0.8

0123456789

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

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: 6.1E*

Combined Ratio Points Catastrophe losses as a share of all losses reached

a record high in 2012

Page 78: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

108

Top 10 States for InsuredCatastrophe Losses, 2013

$1,995

$1,509

$1,190

$909 $907$805 $773 $762

$677$593

0200400600800

1,0001,2001,4001,6001,8002,000

Oklahoma

Texas

Illinois

Minnesota

Colorado

Mississ

ippi

Nebras

ka

Georg

ia

Indiana

Louisiana

Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.

$ Millions

Oklahoma let the country in insured CAT losses in 2013

Page 79: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

110

Top States by Inflation-Adjusted Insured Catastrophe Losses, 1983–2012

9.0%

10.4%

14.3%66.3%

Source: PCS unit of ISO, Verisk Company.; Insurance Information Institute.

Over the Past 30 Years Florida Has Accounted for the Largest Share of Catastrophe Losses in the U.S., Followed by Texas and Louisiana

Rest of the U.S.$309.9BFlorida

$66.7B

Texas$48.8B

Louisiana$42.0B

Total: $467.5 Billion, an average of

$16.6B per year or $1.3B per month

FL is the most costly state for

CATs, with nearly $67B in insured losses

over the past 30 years

Page 80: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

111

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1993–20121

0.1%

1.7%

3.8%4.7%

6.3%

7.1%

36.0%

40.4%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2012 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, $158.2

Fires (4), $6.5

Tornadoes (2), $140.9

Winter Storms, $27.8

Terrorism, $24.8

Geological Events, $18.4

Wind/Hail/Flood (3), $14.9

Other (5), $0.2

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Insured cat losses from 1993-2012

totaled $391.7B, an average of $19.6B per year or $1.6B

per month

Page 81: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

112

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 became the 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.

Page 82: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

113

Top 16 Most Costly World Insurance Losses, 1970-2013*

(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

Page 83: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

115

Total Value of Insured Coastal Exposure in 2012(2012, $ Billions)

Source: AIR Worldwide

$293.5$239.3

$182.3$164.6$163.5

$118.2$106.7$81.9$64.0$60.6$58.3

$17.3

$567.8$713.9

$849.6$1,175.3

$2,862.3$2,923.1

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

New YorkFloridaTexas

MassachusettsNew JerseyConnecticut

LouisianaS. Carolina

VirginiaMaine

North CarolinaAlabamaGeorgia

DelawareNew Hampshire

MississippiRhode Island

Maryland

In 2012, New York Ranked as the #1 Most Exposed State to Hurricane Loss, Overtaking Florida with $2.862 Trillion. Texas is very exposed too, and

ranked #3 with $1.175 Trillionin insured coastal exposure

The Insured Value of All Coastal Property Was $10.6 Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and

Up 48% from $7.2 Trillion in 2004

NY and FL lead the US in the value of insured coastal exposure at $2.9 Trillion

Page 84: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

120Sources: Munich Re NatCatSERVICE; Insurance Information Institute.

Winter Storm and Winter Damage Events in the US and Canada, 1980-2013 (2013 US$)

Three of the four most costly years ever for insured losses from

winter storms and damage occurred in the 1990s, led by the “Storm of the Century” in 1993.

Insured losses from

severe winter events

totaled $2 billion in

2013.

Insured winter storm and damage losses in Jan. 2014 already totaled $1.5 billion. Continued severe weather since then makes it likely that

2014 will become one of the top 5 costliest winters since 1980.

Insured Losses (Millions, $ 2013)

5-year running average

Page 85: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

U.S. Thunderstorm Insured Loss Trends, 1980 – 2013

123Source: Property Claims Service, and MR NatCatSERVICE

Thunderstorm losses in 2013 totaled $10.3 billion, the 6th

highest on record

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. 2008-2013 are the most expensive

years on record.

Page 86: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Num

ber

Geophysical (earthquake, tsunami, volcanic activity)

Climatological (temperature extremes, drought, wildfire)

Meteorological (storm)

Hydrological (flood, mass movement)

Natural Disasters in the United States, 1980 – 2013Number of Events (Annual Totals 1980 – 2013)

Source: MR NatCatSERVICE 125

22

19

81

6

50

100

150

200

250

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

There were 128 natural disaster events in 2013

Page 87: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Losses Due to Natural Disasters in the US, 1980–2013

127

Overall losses (in 2012 values) Insured losses (in 2013 values)

Source: MR NatCatSERVICE

(2013 Dollars, $ Billions) (Overall and Insured Losses)

50

100

150

200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

2013 CAT LossesOverall : $21.8BInsured: $12.8B

Indicates a great deal of losses are uninsured (~40%-50% in the US) =

Growth Opportunity

2013 losses were far below 2011 and 2012 and were 44% lower

than the average from 2000-2012

Page 88: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

The current 5-year average (2008 - 2013) insured tropical cyclone loss is $5.6 billion per year.

Insured US Tropical Cyclone Losses, 1980 - 2013

Sources: Property Claims Service, Munich Re NatCatSERVICE, NFIP 128

Page 89: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

129

The combined ratios for both personal and commercial lines

improved substantially in 2013:H1

U.S. Residual Market: Total Policies In-Force (1990-2012) (000)

Source: PIPSO; Insurance Information Institute

931.6

1,785.0

1,458.11,196.5

1,741.7

2,841.4

3,311.83,227.3

2,479.4

1,319.7

2,621.32,780.6

1,642.3

2,840.4

2,209.32,203.9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(000)

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

In the 23-year period between 1990 and 2012, the total number of policies in-force in the residual market (FAIR & Beach/Windstorm) Plans has more than tripled.

Hurricane Sandy

Page 90: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

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. 131

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

Page 91: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 132

Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)

Hydrological events(flood, mass movement)Climatological events(extreme temperature, drought, wildfire)Extraterrestrial events(Meteorite impact)

880Loss events

EarthquakeChina, 20 April

Severe storms, tornadoesUSA, 18–22 May

FloodsIndia, 14–30 June

HailstormsGermany, 27–28 July

Winter Storm Christian (St. Jude)Europe, 27–30 October

Typhoon HaiyanPhilippines, 8–12 NovemberSevere storms, tornadoes

USA, 28–31 May

Hurricanes Ingrid & ManuelMexico, 12–19 September

FloodsCanada, 19–24 June

FloodsEurope, 30 May–19 June

Heat waveIndia, April–June

Typhoon FitowChina, Japan, 5–9 October

Earthquake (series)Pakistan, 24–28 September

FloodsAustralia, 21–31 January

Meteorite impactRussian Federation, 15 FebruaryFlash floods

Canada, 8–9 July

FloodsUSA, 9–16 September

Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)

Selection of significant Natural catastrophes

Natural catastrophes Hydrological events(flood, mass movement)Climatological events(extreme temperature, drought, wildfire)

Natural Loss Events:Full Year 2013

World Map

Page 92: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Geophysical (earthquake, tsunami, volcanic activity)

Climatological (temperature extremes, drought, wildfire)

Meteorological (storm)

Hydrological (flood, mass movement)

Natural Disasters Worldwide,1980 – 2013 (Number of Events)

Source: MR NatCatSERVICE 133

Num

ber

200

400

600

800

1 000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

There were 880 natural disaster events globally in

2013 compared to 905 in 2012

Page 93: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Losses Due to Natural Disasters Worldwide, 1980–2013 (Overall & Insured Losses)

134

Overall losses (in 2013 values) Insured losses (in 2013 values)

Source: MR NatCatSERVICE

(2013 Dollars, $ Billions)(Overall and Insured Losses)

100

200

300

400

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

US$ bn

2013 LossesOverall : $125BInsured: $34B

There is a clear upward trend in both insured and overall losses over the past

30+ years

10-Yr. Avg. LossesOverall : $184BInsured: $56B

Page 94: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Flood Insurance

135

Biggert-Waters 2012 Created Opportunity for Private Insurers

2014 Backtracking on Those Reforms Reduces Opportunities

Page 95: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

136

$6,558$10,994

$44,563

$57,277

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Homeowners* Vehicle Commercial NFIP Flood**

Commercial (i.e., business claims) are more expensive

because the value of property is often higher as well as the impact of insured business

interruption losses

*Includes rental and condo policies (excludes NFIP flood). **As of Oct. 31, 2013.Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of March 2013; Insurance Information Institute.

Hurricane Sandy: Average Claim Payment by Type of Claim

The average insured flood loss was nearly 9 times larger than the average non-flood insured loss

(mostly wind)

Post-Sandy, the I.I.I. worked very hard to make help media, consumers and regulators understand the distinction between a flood claim and a

standard homeowners claim. NFIP is $24B in debt.

Page 96: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

137

Total Potential Home Value Exposure to Storm Surge Risk in 2013*($ Billions)

*Insured and uninsured property. Based on estimated property values as of April 2013.Source: Storm Surge Report 2013, CoreLogic.

$65.2$51.0$50.3

$35.0$22.4$20.5

$15.9$10.4$7.2$4.7$3.1$2.7$2.6$0.6

$65.6$72.0$78.0

$118.8$135.0

$386.5

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450

FloridaNew York

New JerseyVirginia

LouisianaS. CarolinaN. Carolina

TexasMassachusetts

ConnecticutMarylandGeorgia

DelawareMississippi

Rhode IslandAlabama

MaineNew

PennsylvaniaDC

The Value of Homes Exposed to Storm Surge was $1.147 Trillion in 2013.* Only a fraction of this is insured, hence the huge demand for federal aid

following major coastal flooding events.

Florida is by the state most vulnerable to storm surge.

Page 97: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

138

I.I.I. Poll: Flood Insurance

Q. Do you think it is fair that flood insurance premium increases are higher if people who live in high flood risk areas and rebuild their homes do not elevate them?

Source: Insurance Information Institute Annual Pulse Survey.

Almost two-thirds of Americans think that it is fair that flood insurance premiums be raised for people who live in high flood risk areas and rebuild their homes after a flood but do not elevate them.

6%

63%

31%

Don’t know

Yes

No

Page 98: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Terrorism Update

139

Down to the Wire? Boston Bombings Underscore the Need for Extension of the Terrorism Risk Insurance Program

Download III’s Terrorism Insurance Report at: http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2013.html

139

Page 99: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

141

Terrorism Insurance Take-up Rates,By Year, 2003-2012

Source: Marsh Global Analytics, 2013 Terrorism Risk Insurance Report, May 2013.

27%

49%

58% 59% 59% 57%61% 62% 64% 62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

In 2003, the first year TRIA was in effect, the terrorism take-up rate was 27 percent. Since then, it has increased steadily, remaining in the

low 60 percent range since 2009.

Take-up rates for smaller commercial risks are lower—

potentially very low in some areas and industries

Page 100: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

142

Terrorism Risk Insurance Program Testified before Senate Banking Cmte. in Sept. 2013 Testified before House Financial Services Nov. 2013 Provided testimony at NYC hearing on June 2013 I.I.I. Accelerated Planned Study on Terrorism Risk and

Insurance in the Wake of Boston and Hearings; Was Well Received and Widely Circulated

Working with Trades, Congressional Staff, GAO & Others

Senate Banking Committee, 9/25/13House Financial Services Subcommittee, 11/13/13

Page 101: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

SURPLUS/CAPITAL/CAPACITY

143

2013 Recorded Yet Another Record High in the Primary and Reinsurance Sectors

143

Page 102: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

144

Policyholder Surplus, 2006:Q4–2013:Q3

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

$607.7$614.0$624.4

$570.7$566.5

$505.0$515.6$517.9

$400

$450

$500

$550

$600

$650

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

2007:Q3Pre-Crisis Peak

Surplus as of 9/30/13 stood at a record high $624.4B

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 .

The industry now has $1 of surplus for every $0.78 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 entered 2014in very strong financial condition.

Page 103: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

147

REINSURANCE MARKET CONDITIONS

Ample Capacity as Alternative Capital is

Transforming the Market

147

Page 104: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

148

Global Reinsurer Capital, 2007-2013:H1*

$510

$410

$340$400

$470 $455$505

$0

$100

$200

$300

$400

$500

$600

2007 2008 2009 2010 2011 2012 2013:H1

*Includes both traditional and non-traditional forms of reinsurance capital.Source: Aon Benfield Aggregate study for the 6 months ending June 2013; Insurance Information Institute.

($ Billions)

Global Reinsurance Capital Has Been Trending Generally Upward Since the Global Financial Crisis, a Trend that Seems Likely to Continue

-17%+18%

+18% -3%+11% +1%

Page 105: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Reinsurance Pricing: Rate-on-Line Index by Region, 1990 – 2014*

*As of Jan. 1.Source: Guy Carpenter

Lower CATs and a flood of new

capital has pushed reinsurance pricing

down in most regions, including

the US

Page 106: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit

Source: Guy Carpenter

(As of Year End)

Alternative Capacity accounted for approximately 14% or $45 billion

of the $316 in global property catastrophe reinsurance capital as

of mid-2013 (expected to rise to ~15% by year-end 2013)

Page 107: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

152152Sources: Guy Carpenter and A.M. Best; Insurance Information Institute .

Sources of Reinsurance Capital Change: YE 2012 to YE 2013

Net income and new 3rd party capital were the leading source of reinsurance capital growth in 2013

Page 108: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Alternative Capacity Development, 2001—2013:H1

Source: Guy Carpenter; Mid-Year Market Report, September 2013; Insurance Information Institute.

Page 109: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Investor by Category, 2013 vs. 2012*

*As of June 30 each year.Source: Aon Benfield Securities; Insurance Information Institute.

Institutional Investors are

accounting for a larger share of

alternative reinsurance

investors

Page 110: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Non-Traditional Property CatastropheLimits by Type, YE 2012 vs. YE 2015E

Source: Guy Carpenter; Reinsurance Association of America; Insurance Information Institute.

$13 $15

$6 $8

$10 $11

$15

$23 $44

$57

$0

$10

$20

$30

$40

$50

$60

2012* 2015E

NON-TRADITIONAL P/CAT LIMITS BY TYPE

Cat Bond Retro ILW Collateralized Re

Source: Guy Carpenter; *As Of Mar-2013

Alternative capital is expected to rise by 30% by YE 2015 and will ultimately

account for 20-30% of total reinsurance

spend, according to Guy Carpenter

Page 111: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Catastrophe Bonds: Issuance and Outstanding, 1997- 2013*Risk Capital Amount ($ Millions)

*Through Dec. 31, 2013.Source: Guy Carpenter; Insurance Information Institute.

633.

0

846.

1

984.

8

1,13

0.0

966.

9 2,72

9.2

3,39

1.7

4,60

0.3

4,10

8.8

5,85

2.9

7,08

3.0

1,991.11,142.8

1,729.8

6,99

6.3

4,69

3.4

1,219.5$3

,450

.0

$4,0

40.4

$4,9

04.2 $8

,541

.6

$14,

024.

2

$12,

043.

6

$12,

508.

8

$12,

185.

0

$12,

139.

1

$14,

835.

7 $18,

516.

7

$2,9

50.0

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13Risk Capital IssuedRisk Capital Outstandng at Year End

Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk Capital Outstanding Stands at an All-Time Record

CAT bond issuance reached a record high in 2013

Risk capital outstanding

reached a record high in 2013

Financial crisis depressed issuance

Page 112: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

INVESTMENTS: THE NEW REALITY

159

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

159

Page 113: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Property/Casualty Insurance Industry Investment Income: 2000–2013*1

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$47.7$45.8

$39.6

$49.5$52.3

$30

$40

$50

$60

00 01 02 03 04 05 06 07 08 09 10 11 12 13*

Investment Income Fell in 2012 and is Falling in 2013 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing

1 Investment gains consist primarily of interest and stock dividends..*Estimate based on annualized actual 9M:2013 investment income of $34.338B.Sources: ISO; Insurance Information Institute.

($ Billions)

Investment earnings are running below their 2007

pre-crisis peak

Page 114: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

163

-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%

Persona

l Line

s

Pvt Pass

Auto

Pers P

rop

Commerc

ial

Comml A

uto

Credit

Comm P

rop

Comm C

as

Fidelity

/Sure

ty

Warra

nty

Surplus

Line

s

Med M

al

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*

163

Page 115: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

165

U.S. Treasury Security Yields:A Long Downward Trend, 1990–2014*

*Monthly, constant maturity, nominal rates, through February 2014.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

'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

Recession2-Yr Yield10-Yr Yield

Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.

Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.

U.S. Treasury yields plunged to historic lows in

2013. Only longer-term yields have rebounded.

165

Page 116: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

168

Outlook for U.S. Treasury Bond Yields Through 2015

0.761.17

2.30

3.40

1.80

2.35

3.10

3.70

0.500.100.090.06

0.00.51.01.52.02.53.03.54.0

2012 2013 2014F 2015F

3-Month 5-Year 10-Year

% Yield

Longer-tail lines like MPL and workers comp will benefit the most from the normalization of yields

Long-term yields should begin to normalize in 2014 but short-term yields will

remain very low until 2015

168

Source: Federal Reserve Board of Governors (2012-2013), Blue Economic Forecasts (2014-2015 3-month and 10-yr; 4/14) Swiss Re (2014-2015, 5-yr yield; 4/14); Insurance Information Institute.

Page 117: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

PRICING DISCIPLINE: MIXED PICTURE

172

Commercial Renewal Pricing Under Some Pressure

172

Page 118: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

173

-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 1213

:9M

Net Premium Growth: Annual Change, 1971—2013:Q3(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.

2013:9M = 4.2%

2012 growth was +4.3%

Page 119: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

174

Growth in Direct Written Premium by Line, 2013-2015F*

Source: Conning.

4.4%

4.4%

4.4%

4.1%

5.1% 5.

8%

8.6%

5.6% 6.

2%

4.0% 4.1%

3.9%

3.6%

5.1%

6.1%

8.0%

6.0%

3.7%4.

3%

3.9%

4.7%

3.2%

5.5% 6.

0%

7.5%

7.0%

3.4%

0%1%2%3%4%5%6%7%8%9%

10%

All Lines PersonalLines

CommercialLines

PersonalAuto

HomeownersCommercialAuto

WC CMP GL

2013F 2014F 2015F

(Percent) P/C growth is expected to remain fairly stable

through 2015

Page 120: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

175

Average Commercial Rate Change,All Lines, (1Q:2004–3Q: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%-1

1.8%

-13.

3%-1

2.0%

-13.

5%-1

2.9% -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%

4.3%

3.4%

-0.1

% 0.9%

-0.1

%

-16%

-11%

-6%

-1%

4%

9%

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

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 Q3:2013 was positive for the 9th consecutive

quarter. Gains are likely to continue into 2014.

(Percent)

Q2 2011 marked the last of 30th

consecutive quarter of price declines

Page 121: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

177

Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2013:Q3

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.

1999:Q4 = 100Despite 9 consecutive quarters

of gains (Q3:2013 = 3.4%), pricing today is where is was in

late 2001 (around 9/11), suggesting additional rate need going forward, esp. in light of

record low interest rates

Page 122: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

178

Change in Commercial Rate Renewals, by Line: 2013:Q3

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

Major Commercial Lines Renewed Uniformly Upward in Q3:2013 for the 9th Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat

Losses and Low Interest Rates Provide Momentum Going Forward

Percentage Change (%)

3.5%

4.7%5.4%

5.8%

1.0%

2.9% 2.7% 2.9% 2.9%3.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Sur

ety

Con

stru

ctio

n

Bus

ines

sIn

terru

ptio

n

Um

brel

la

Gen

eral

Liab

ility

Com

mer

cial

Aut

o

Com

mer

cial

Pro

perty D&

O

EP

L

Wor

kers

Com

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.

Page 123: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Regulation: The Ultimate External Factor

181

Regulation Has Shaped and Reshaped Insurance for Hundreds of Years—

The Future Will Be No Different181

Page 124: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

New Waves of Regulations

182

2008 - PresentGlobal Crisis and Regulatory Response

182

Page 125: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

183

The Global Financial Crisis: The Pendulum Swings Again: Dodd-Frank & Systemic Risk Dodd-Frank Act of 2010: The implosion of the housing bubble and

virtual collapse of the US banking system, the seizure of credit markets and massive government bailouts of US financial institutions led to calls for sweeping regulatory reforms of the financial industry

Limiting Systemic Risk is at the Core of Dodd-Frank

Designation as a Systemically Important Financial Institutional (SIFI) Will Result in Greater Regulatory Scrutiny and Heightened Capital Requirements

Dodd-Frank Established Several Entities Impacting Insurers Federal Insurance Office Financial Stability Oversight Council Office of Financial Research Consumer Financial Protection Bureau

Page 126: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

185

Global Financial Crises & Global Systemic Risk The Global Financial Crisis Prompted the G-20 Leaders to Request

that the Financial Stability Board (FSB) Assess the Systemic Risks Associated with SIFIs, Global-SIFIs in Particular

In July 2013, the FSB Endorsed the International Association of Insurance Supervisors Methodology for Identifying Globally Systemically Important Insurers (G-SIIs)

For Each G-SII, the Following Will Be Required:(i) Recovery and resolution plans(ii) Enhanced group-wide supervision(iii) Higher loss absorbency (HLA) requirements

G-SIIs as Designated by the FSB as of July 2013: Allianz SE AIG Assicurazioni Generali Aviva Axa MetLife Ping An Prudential Financial Prudential plc

Page 127: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

Financial Strength & Underwriting

188

Cyclical Pattern is P-C Impairment History is Directly Tied to

Underwriting, Reserving & Pricing

188

Page 128: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

190

P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2012

90

95

100

105

110

115

12069 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

Com

bine

d R

atio

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Impairm

ent Rate

Combined Ratio after Div P/C Impairment Frequency

Source: A.M. Best; Insurance Information Institute

2012 impairment rate was 0.69%, down from 1.11% in 2011; the rate is lower than the 0.82% average since 1969

Impairment Rates Are Highly Correlated With Underwriting Performance and Reached Record Lows in 2007; Recent Increase Was Associated

Primarily With Mortgage and Financial Guaranty Insurers and Not Representative of the Industry Overall

Page 129: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

191

Reasons for US P/C Insurer Impairments, 1969–2012

43.4%

12.6%

7.2%

7.1%

8.0%

6.6%

8.4%

3.5% 3.1%

Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013; Insurance Information Institute.

Historically, Deficient Loss Reserves and Inadequate Pricing AreBy Far the Leading Cause of P-C Insurer Impairments.

Investment and Catastrophe Losses Play a Much Smaller Role

Deficient Loss Reserves/Inadequate Pricing

Reinsurance Failure

Rapid GrowthAlleged Fraud

Catastrophe Losses

Affiliate Impairment

Investment Problems (Overstatement of Assets)

Misc.

Sig. Change in Business

Page 130: Global Insurance & Reinsurance:  Cycles, Trends & Challenges

193

Top 10 Lines of Business for US P/C Impaired Insurers, 2000–2012

19.7%

22.2%

9.2%8.8%

7.3%

8.6%

6.7%

4.8%

4.0%

8.6%

Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013; Insurance Information Institute..

Workers Comp and Pvt. Passenger Auto Account for More Than 40 Percent of the Impaired Insurers Since 2000

Workers Comp

Other

Pvt. Passenger Auto

HomeownersCommercial Multiperil

Commercial Auto Liability

Other Liability

Med Mal

Surety

Title

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