property & casualty insurance market update · 2015. 11. 16. · property & casualty...
TRANSCRIPT
Property & Casualty Insurance Market Update
Trends, Challenges & Opportunities for 2016 and Beyond
Casualty Actuarial Society Annual Meeting
Philadelphia, PA
November 16, 2015
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] www.iii.org
2
Insurance Industry Financial Performance
2014 Was a Reasonably Good Year
2015: A Repeat of 2014?
2
P/C Industry Net Income After Taxes1991–2015:H1 2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.2%
2014 ROAS1 = 8.4%
2015:H1 ROAS = 9.2%
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO; Insurance Information Institute
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$6
3,7
84
$5
5,5
01
$3
0,9
72
$3
8,5
01
$2
0,5
59
$4
4,1
55
$6
5,7
77
-$6,970
$2
8,6
72
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15:H
1
Net income fell modestly
(-12.5%) in 2014 vs. 2013
$ Millions
4
ROE: Property/Casualty Insurance by Major Event, 1987–2015E
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 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 13 14 15E
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
Low CATs
Modestly higher CATs
5
P/C Insurance Industry Combined Ratio, 2001–2015:H1*
* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0.
Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
96.7 97.2 97.6
101.0
92.6
100.8
98.4100.1
107.5
115.8
90
100
110
120
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15:H1
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned Premiums Relatively
Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
Best Combined Ratio Since 1949 (87.6)
Avg. CAT Losses,
More Reserve Releases
6
Auto & Home vs. All Lines, Net WrittenPremium Growth, 2000–2018F
-5%
-3%
-1%
1%
3%
5%
7%
9%
11%
13%
15%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F
Private Passenger Auto
Homeowners
All Lines
Sources: A.M. Best (2000-2014); Conning/Insurance Information Institute (2015F-2018F); Insurance Information Institute.
Average 2000-2014
Auto = 3.0%
Home = 6.4%
All Lines = 3.8%
While homeowners insurance has grown faster than auto for many years, auto is
generally more profitable, though not recently
7
Distribution of Direct Premiums Written by Segment/Line, 2013
Sources: A.M. Best; Insurance Information Institute research.
Personal/Commercial lines split has been about 50/50 for many years
Pvt. Passenger Auto is by far the largest line of insurance and is currently the most important source of industry profits
Billions of additional dollars in homeowners insurance premiums are written by state-run residual market plans
Distribution Facts
Commercial Lines$269.2B/51%
2013
Pvt. Pass Auto$180.8B/34%
Homeowners$80.7B/15%
8
RNW All Lines by State, 2004-2013 Average:Highest 25 States
20
.5
18
.4
14
.6
14
.3
13
.4
13
.3
12
.3
12
.1
12
.0
12
.0
11
.7
11
.4
11
.1
11
.1
10
.9
10
.8
10
.7
10
.7
10
.5
10
.5
10
.3
9.9
9.8
9.8
9.6
9.5
0
2
4
6
8
10
12
14
16
18
20
22
24
HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
Source: NAIC; Insurance Information Institute.
Profitability Benchmark: All P/C
US: 7.9%
9
9.2
8.6
8.4
8.3
8.2
8.2
8.1
8.0
7.9
7.7
7.7
7.5
7.4
6.8
6.6
6.4
6.1
5.7
5.3
5.2
5.0
4.3
2.5
1.9
-6.9
-9.3
-14
-12-10
-8
-6
-4-2
0
2
46
8
10
NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA
RNW All Lines by State, 2004-2013 Average:
Lowest 25 States
Source: NAIC; Insurance Information Institute.
Some of the least profitable states over the past decade
were hit hard by catastrophes
10
19
.0
14
.3
14
.2
13
.9
13
.7
13
.5
12
.4
12
.1
11
.3
11
.3
10
.8
10
.7
10
.5
9.9
9.9
9.9
9.7
9.6
9.5
9.3
9.2
9.2
9.1
9.0
8.9
8.8
0
2
4
6
8
10
12
14
16
18
20
22
HI ME DC ID VT ND AK NH IA WY OH MN WV AZ OR VA CA RI CO KS CT WI NM MT UT IN
RN
W P
PA
*Latest available.
Sources: NAIC.
Hawaii was the most profitable state for auto insurers from 2004-2013
Return on Net Worth: Pvt. Passenger Auto,
10-Year Average (2004-2013*)
Top 25 States(Percent)
11
Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2012 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 New Jersey $1,219.93 1 Idaho $534.56
2 D.C. 1,154.91 2 South Dakota 556.51
3 New York 1,152.45 3 Iowa 561.26
4 Florida 1,127.93 4 North Dakota 576.08
5 Louisiana 1,112.53 5 Maine 582.43
6 Delaware 1,065.37 6 Wisconsin 598.84
7 Michigan 1,048.87 7 North Carolina 611.48
8 Rhode Island 1,034.50 8 Nebraska 616.78
9 Connecticut 986.73 9 Wyoming 618.81
10 Massachusetts 976.65 10 Kansas 632.07
(1) Based on average automobile insurance expenditures.
Source: © 2014 National Association of Insurance Commissioners.
Florida ranked 4th as the most expensive state in 2012, with an average expenditure for auto insurance of $1,127.93.
12
8.8
8.6
8.6
8.6
8.5
8.3
8.1
7.8
7.7
7.6
7.5
7.5
7.4
7.1
6.3
6.2
6.1
5.9
5.8
5.6
5.0
4.5
4.4
3.8
3.3
-2.5
-3
-1
1
3
5
7
9
NE
MD
SD
WA IL NY
MA
TX
PA
AL
AR
MO
SC
US
NC
TN
NJ
DE
GA
KY
OK
MS
FL
NV
LA MI
RN
W A
uto
Return on Net Worth: Pvt. Passenger Auto,
10-Year Average (2004-2013*)
*Latest available.
Sources: NAIC
Michigan was the least profitable state for auto insurers from
2004-2013
(Percent) Bottom 25 States
13
42
.6
23
.6
21
.0
20
.9
20
.2
20
.0
19
.3
18
.4
17
.6
15
.9
15
.8
15
.6
15
.3
14
.7
14
.6
13
.8
13
.0
12
.2
11
.0
11
.0
10
.8
10
.7
10
.6
19
.0
18
.0
14
.00
5
10
15
20
25
30
35
40
45
50
HI DC DE RI NV CA SC VA AK OR MA NY VT WA UT ME MD CT ID NH NC AZ PA WY MI TX
RN
W H
O
*Latest available.
Sources: NAIC.
Return on Net Worth: Homeowners Insurance,
10-Year Average (2004-2013*)
Hawaii was the most profitable state for home insurers from 2004-2013 due to the absence
of hurricanes during this period
(Percent)Top 25 States
14
10
.2
9.9
7.8
7.1
6.6
6.3
5.8
4.2
-0.3
8.0
6.0
-2.8
-3.3
-4.0
-4.3
-5.9
-8.2
-10
.2
-13
.1
-16
.0
-19
.6
-25
.8
-2.4
-2.4-0
.5
-0.4
-30
-25
-20
-15
-10
-5
0
5
10
15
WV NM ND IA NJ US MT WI IL SD NE FL CO MO OH KS IN AR KY MN GA TN AL OK LA MS
RN
W H
O
*Latest available.
Sources: NAIC
Hurricanes Katrina and Rita made Louisiana and Mississippi the least profitable states for home insurers
from 2004-2013
Bottom 25 States(Percent)
Return on Net Worth: Homeowners Insurance,
10-Year Average (2004-2013*)
15
Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2012 (1)
Rank Most
expensive statesHO average
premium RankLeast
expensive statesHO average
premium
1 Florida $2,084 1 Idaho $538
2 Louisiana 1,742 2 Oregon 567
3 Texas 1,661 3 Utah 580
4 Oklahoma 1,501 4 Wisconsin 631
5 Mississippi 1,314 5 Washington 648
6 Alabama 1,248 6 Nevada 674
7 Rhode Island 1,233 7 Delaware 678
8 Kansas 1,213 8 Arizona 691
9 Connecticut 1,160 9 Ohio 721
10 New York 1,158 10 Maine 741
(1) Includes policies written by Citizens Property Insurance Corp. (Florida) and Citizens Property Insurance Corp. (Louisiana), Alabama Insurance
Underwriting Association, Mississippi Windstorm Underwriting Association, North Carolina Joint Underwriting Association and South Carolina
Wind and Hail Underwriting Association. Other southeastern states have wind pools in operation and their data may not be included in this chart.
Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those
specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. In addition,
due to the Texas Windstorm Association (which writes wind-only policies) classifying HO-1, 2 and 5 premiums as HO-3, the average premium for
homeowners insurance is artificially high.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC
does not rank state average expenditures and does not endorse any conclusions drawn from this data.
Source: ©2014 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited
without written permission of NAIC.
Florida ranked as the most expensive state for homeowners insurance in 2012, with an average expenditure of $2,084.
Source: A.M. Best; Barclays research for estimates.
Reserve Change
P/C Insurance Loss Reserve Development, 1992 – 2017E*
Reserve releases are expected to gradually taper off slowly, but
will continue to benefit the bottom line and combined ratio
through at least 2017
Profitability & Politics
1717
How Is Profitability Affected by the President’s Political Party?
15.10%
9.00%
8.93%
8.65%
8.35%
8.33%
7.98%
7.68%
6.98%
6.97%
5.43%
5.03%
4.83%
4.68%
4.43%
3.55%
16.43%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Carter
Reagan II
Obama II
Nixon
Clinton I
G.H.W. Bush
G.W. Bush II
Clinton II
Reagan I
Nixon/Ford
Truman
Eisenhower I
Eisenhower II
G.W. Bush I
Obama I
Johnson
Kennedy/Johnson
*Truman administration ROE of 6.97% based on 3 years only, 1950-52;.
Source: Insurance Information Institute
OVERALL RECORD: 1950-2014*
Democrats 7.72%Republicans 7.85%
Party of President has marginal bearing on profitability of P/C insurance industry
P/C Insurance Industry ROE by Presidential Administration, 1950-2014*
-5%
0%
5%
10%
15%
20%
25%
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
BLUE = Democratic President RED = Republican President
Tru
ma
n Nixon/Ford
Ke
nn
ed
y/
Jo
hn
so
n
Eis
en
ho
wer
Ca
rte
r
Reagan/Bush I Clinton Bush II
P/C insurance Industry ROE by Presidential Party Affiliation, 1950- 2014
Obama
.
Source: Insurance Information Institute
CURRENT ISSUES IN AUTO INSURANCE
20
Price Optimization
Attacks on Underwriting Criteria
20
21
Price Optimization: The Latest
Significant Discussion of Price Optimization Issue in Recent Months
Several States Have Issued Bulletins Addressing Its Use
Requests for information in several other states
Each State Defines Price Optimization Differently
At least 10 definitions from states; NAIC, vendors and others
States’ Concerns Come Despite Absence of Any Discernable or Detectable Market Disruptions
Competition in auto insurance markets is intense, healthy and vigorous
More than 99% of drivers are insured through the voluntary market
Absence of consumer complaints
High degree of consumer satisfaction with auto insurers
Empowered Consumers: Have more tools available today than ever before to help them shop, collect and compare prices
Rates are not inadequate, excessive or unfairly discriminatory
I.I.I. Actions: NCOIL Hearing Testimony
22
Testified as industry’s
witness at July 17
National Conference of
Insurance Legislators’
hearing on Price
Optimization;
Worked very closely
with PCI, AIA, NAMIC
and independent
companies.
Consumer Reports - #fixcarinsurance
CR’s complaint
Analyzed 2 billion quotes
Price-setting is “shrouded in secrecy and rife with inequities”
– Credit Scoring
– Price Optimization
“Little transparency and not enough fairness”
23
September Consumer Reports, Released July 30.
Consumer Reports: I.I.I Response
24
Non-Driving Factors Proved Effective, Have Been Used for Decades
– Gender
– Territory
– Age
– Grades
Hundreds of Class Plan Filings Annually Reconfirm Their Value
25
Recent Attacks on the Insurance Industry
Why Are Critics Suddenly More Aggressive?
CFA’s Conclusion: The ‘Widow Penalty’
26
“a change in marital status from married to unmarried (through divorce or the death of a spouse) can cause a
woman’s auto insurance premiums to rise as much as 226%—suggesting a ‘widow penalty’ that CFA director of
insurance Bob Hunter said in a press teleconference Monday with executive director Stephen Brobeck is ‘immoral
and should be stopped at once.’”
27
What’s Driving Attacks on the Insurance Industry?
Recent Surge in Attacks is Associated with Income Inequality Debate in the
United States
Attacks not confined to auto insurance (e.g., Workers Comp, Health)
Not confined to insurance (banks, lending in general, student loans)
Politics, Economics, Regulation & Demographics Are Principal Drivers
CFA/CR and others (ProPublica) emboldened in current environment
Dodd-Frank Act stuffed with income inequality mandates and studies
FIO now studying auto insurance affordability; Wants to create index.
Definition of “fairness” is shifting
CFA Has Been Able to Attack Certain Rating Factors Based on New Perception
of Fairness (which is independent of actual risk)
Education Occupation Marital Status Gender
Age Credit Profile Location “Price Optimization”
All of These Are Vulnerable to Attack in the Current Environment
Infinite Number of Quotes OnlineCFA Uses to Highlight Perceived Inequities
Handout for Government Affairs Staff Attending NAIC Meeting
28
INVESTMENTS: THE NEW REALITY
29
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
29
Property/Casualty Insurance Industry Investment Income: 2000–2015E1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.3$46.2 $46.8
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q2.Sources: ISO; Insurance Information Institute.
($ Billions)Investment earnings are still below their 2007 pre-crisis peak
Distribution of Invested Assets: P/C Insurance Industry, 2013
Stocks, 22%
Bonds, 62%
All Other, 10%
Cash, Cash Equiv. &
ST Investments, 6%
Source: Insurance Information Institute Fact Book 2015, A.M. Best.
Total Invested Assets = $1.5
Trillion
$ Billions
32
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2015*
*Monthly, constant maturity, nominal rates, through October 2015.
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 '15
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. Longer-
term yields rebounded then sank fell again.
32
33
Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2015
0.01% 0.02% 0.09%0.28%
0.69%
2.10%2.36%
4.82%4.96% 5.04% 4.96%
4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%
1.68%
1.07%
3.11%2.85%
0%
1%
2%
3%
4%
5%
6%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
June 2015 Yield Curve
Pre-Crisis (July 2007)
Treasury yield curve remains near its most depressed level
in at least 45 years. Investment income is falling as a result. Even when the Fed begins to raise rates, yields unlikely to return to
pre-crisis levels anytime soon
The Fed Is Actively is Signaling that it Is Likely to Begin Raising Rates Later in 2015 but Only Very Gradually
Source: Federal Reserve Board of Governors; Insurance Information Institute.
Net Yield on Property/Casualty Insurance Invested Assets, 2007–2015*
4.38
4.17
4.02
3.87
3.63 3.61
3.743.82
3.44
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
07 08 09 10 11 12 13 14 15*
The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to raise interest rates in late 2015 has already pushed up some yields, albeit quite modestly.
*2015 figure is the average of the four quarters ending in 2015:Q2.Sources: SNL Financial; Insurance Information Institute
(Percent) Book yield in 2015 is down 77 BP from pre-crisis levels
35
Interest Rate Forecasts: 2015 – 2021
3.1%
2.2%
2.7%
3.4%
3.8%4.0% 4.0% 4.0%
0.1%
0.7%
2.0%
2.8%
3.1% 3.1%
0%
1%
2%
3%
4%
5%
15F 16F 17F 18F 19F 20F 21F 15F 16F 17F 18F 19F 20F 21F
A full normalization of interest rates is unlikely until the 2020s, more than a decade after the onset of the financial crisis.
Yield (%)
Sources: Blue Chip Economic Indicators (11/15 for 2015 and 2016; for 2017-2021 10/15 issue); Insurance Info. Institute.
3-Month Treasury 10-Year Treasury
The end of the Fed’s QE program in 2014 and a
stronger economy have yet to push longer-term
yields much higher
36
Annual Inflation Rates, (CPI-U, %),1990–2016F
2.82.6
1.51.9
3.3 3.4
1.3
2.52.3
3.0
3.8
2.8
3.8
-0.4
1.6
3.2
2.1
1.51.7
0.2
1.8
2.9
2.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 11/15 (forecasts).
Slack in the U.S. economy and falling energy prices suggests that inflationary pressures should remain subdued for an extended
period of times
Annual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
commodity bubble reduced inflationary pressures in 2009/10
Inflationary expectations have slipped
(due in part to falling energy
costs) allowing the Fed to
maintain low interest rates
37
P/C Insurer Net Realized Capital Gains/Losses, 1990-2015:Q2
*Through Q2 2015.Sources: A.M. Best, ISO, SNL, Insurance Information Institute.
$2
.88
$4
.81
$9
.89
$9
.82
$1
0.8
1 $1
8.0
2
$1
3.0
2
$1
6.2
1
$6
.63
-$1
.21
$6
.61
$9
.13
$9
.70
$3
.52 $8
.92
-$7
.90
$5
.85
$7
.04
$6
.18
$1
1.3
7
$1
0.0
6
$8
.19
-$1
9.8
1
$9
.24
$6
.00
$1
.66
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
Insurers Posted Net Realized Capital Gains in 2010 - 2014 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE.
($ Billions) Realized capital gains rose sharply as equity markets
rallied in 2013-14
Property/Casualty Insurance Industry Investment Gain: 1994–2015:Q21
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$53.4$56.2
$54.2
$58.7
$31.6
$56.2
$58.0
$51.9
$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14 15*
Total Investment Gains Were Down Slightly in 2014 as Low Interest Rates Pressured Investment Income but Realized Capital Gains Remained
Robust
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; 2015 figure is through Q2 2015.Sources: ISO, SNL; Insurance Information Institute.
($ Billions)
Investment gains in 2014 will rival the post-crisis
high reached in 2013
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
*Through Nov. 9, 2015.
Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Ins. Info. Inst.
Tech Bubble
Implosion
Financial
Crisis
Annual Return
Energy Crisis
2015*:
+1.0%
S&P 500 Index Returns, 1950 – 2015*
Fed Raises Rate
Volatility is endemic to stock markets—and may be increasing—but there is no persistent
downward trend over long periods of time
40
-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%
Per
sona
l Lin
es
Pvt P
ass
Aut
o
Per
s Pro
p
Com
mer
cial
Com
ml A
uto
Cre
dit
Com
m P
rop
Com
m C
as
Fidel
ity/S
uret
y
War
rant
y
Sur
plus
Lin
es
Med
Mal
WC
Rei
nsur
ance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
40
41
Distribution of Bond Maturities,P/C Insurance Industry, 2003-2013
14.4%
15.4%
16.0%
16.0%
15.2%
15.7%
15.6%
16.0%
14.9%
16.6%
16.5%
29.8%
29.2%
28.8%
29.5%
30.0%
32.4%
36.4%
39.5%
41.2%
40.4%
38.8%
31.3%
32.5%
34.1%
34.1%
33.8%
31.2%
29.0%
27.1%
27.3%
27.6%
29.3%
15.4%
15.4%
13.6%
13.1%
12.9%
12.7%
11.9%
11.2%
10.4%
9.8%
9.8%
9.2%
7.6%
7.6%
7.4%
8.1%
8.1%
7.1%
6.2%
6.2%
5.7%
5.7%
0% 20% 40% 60% 80% 100%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
Sources: SNL Financial; Insurance Information Institute.
The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds
(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s
bond portfolio is contributing to a drop in investment income along with lower yields.
CAPITAL/CAPACITY
42
Capital Accumulation Has Multiple Impacts
Alternative Capital Impacts?
42
43
Policyholder Surplus, 2006:Q4–2015:Q2
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 $
653.4
$671.6
$673.9
$674.7
$672.4
$662.0
$570.7
$566.5
$505.0
$515.6
$517.9
$400
$450
$500
$550
$600
$650
$700
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
13:Q
4
14:Q
1
14:Q
2
14:Q
3
14:Q
4
15:Q
2
2007:Q3Pre-Crisis Peak
Surplus as of 6/30/15 stood at a near-record high $672.4B
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 $0.73 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 2015in very strong financial condition.
44
Alternative Capital
44
New Investors Continue to Change the Reinsurance Landscape
First I.I.I. White Paper on Issue Was Released in March 2015
Global Reinsurance Capital (Traditional and Alternative), 2006 - 2014
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
Total reinsurance capital reached a record $570B in 2013, up 68% from
2008.
But alternative capacity has grown 210% since 2008, to $50B. It has more than doubled in the past three years.
Alternative Capital as a Percentage of Traditional Global Reinsurance Capital
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
4.6%
5.7% 5.9% 5.8%5.4%
6.5%
8.4%
10.2%
11.5%
0%
2%
4%
6%
8%
10%
12%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Alternative Capital’s Share of Global Reinsurance Capital Has More Than Doubled Since 2010.
Catastrophe Bond Issuance and Outstanding: 1997-2015:Q2
948.2
874.2
1,062.5
1,142.0
966.9
989.5
1,988.2
1,142.8
1,499.0
4,614.7
7,187.0 3,009.9
3,396.0
4,599.9
4,107.1
5,855.3
7,083.0
8,026.7 3,842.2
4,289.0
5,085.0
7,677.0
13,416.4
12,538.6
12,508.2
12,195.7
12,342.8
14,839.3
18,576.9
22,867.8
21,559.6
0
5,000
10,000
15,000
20,000
25,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
New Issuance Outstanding
47
Risk Capital Amount ($ Millions)
Cat Bond Issuance Appears to Be Slowing Down in 2015 from 2014’s Record Pace. Lower Yields on Bonds Explain Some of the Contraction.
Source: Guy Carpenter.
US Property CAT Rate on Line Index & Global Reinsurance ROE
48
Record traditional capacity, alternative capital and low CAT activity have pressured reinsurance prices; ROEs are own only very modestly
Source: Barclays PLC from Guy Carpenter; Insurance Information Institute.
US Property CAT ROL Global Reinsurance ROE
M&A UPDATE:A PATH TO GROWTH?
49
Are Capital Accumulation, Drive for Growth and Scale Stimulating
M&A Activity?
49
50
U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 1994-2014 (1)
$5,1
00
$11,5
34
$8,0
59
$30,8
73
$19,1
18
$40,0
32
$1,2
49
$486
$20,3
53
$425
$9,2
64
$35,2
21
$13,6
15
$16,2
94
$3,5
07
$6,4
19 $
12,4
58
$4,6
51
$4,3
97
$6,7
23
$55,825
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Tra
ns
ac
tio
n v
alu
es
0
20
40
60
80
100
120
140
Nu
mb
er o
f tran
sa
ctio
ns
($ Millions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
M&A activity in the P/C sector was up sharply in 2014 but remains well
below pre-crisis or late 1990s levels.
M&A activity in 2015 will
likely reach its highest level since 1998
51
Growth
Premium Growth Rates Vary Tremendously by State and
Over Time, But…
51
52
-5%
0%
5%
10%
15%
20%
25%
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15*
Net Premium Growth (All P/C Lines): Annual Change, 1971—2015:H1
(Percent)
1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014-15).
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.
2015:H1: 4.1%
2014: 4.1%
2013: 4.4%
2012: +4.2%
Outlook
2016F: 4.0%
2017F: 3.8%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
Economic Shocks,
Inflation:
1976: 22.0%
Tort Crisis
1985/86: 22.2%
Post-9/11
2002:15.3%
Twin
Recessions;
Interest Rate
Hikes
1987: 3.7% Great
Recession:
2010: -4.9%
ROE
2015E 4.1%
NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926 – 2015E
Great Depression
1932: -15.9% max drop
Post WW II Peak:
1947: 26.2%
Start of WW II
1941: 15.8%
1950-70: Extended period of stability in growth and
profitability. Low interest rates, low inflation, “Bureau” rate regulation all played a role
1970-90: Peak premium growth was much higher in this period while troughs were comparable. Rapid inflation, economic
volatility, high interest rates, tort environment all played roles
1988-2000: Period of
inter-cycle stability
2010-20XX? Post-
recession period of
stable growth?
54
Direct Premiums Written: Total P/CPercent Change by State, 2007-2014
70
.7
36
.7
36
.2
30
.3
29
.4
26
.8
24
.7
23
.7
21
.6
20
.7
19
.2
19
.2
18
.6
18
.1
18
.0
17
.0
15
.2
15
.1
15
.0
14
.9
14
.8
14
.7
14
.4
14
.2
13
.8
13
.5
0
10
20
30
40
50
60
70
80
ND
OK
SD
TX
NE
KS IA VT
WY
CO
MN IN MI
TN
AR
WI
GA
SC
NJ
OH
AK
KY
VA
LA
CT
MT
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 StatesNorth Dakota was the country’s growth leader over the past 7 years with premiums written
expanding by 70.7%, fueled by the state’s energy boom
Growth Benchmarks: Total P/C
US: 13.0%
55
Direct Premiums Written: Total P/CPercent Change by State, 2007-2014
13
.4
13
.1
13
.1
13
.0
13
.0
12
.9
12
.4
12
.2
11
.7
11
.0
10
.5
9.4
9.4
9.2
9.1
8.2
6.3
6.0
4.7
2.2
1.3
-0.8
-1.6
-4.3
-7.3
-12
.9
-15
-10
-5
0
5
10
15
MO
NY
UT
US
NM
MS
MA
AL
NC
MD
WA RI
NH IL PA ID
ME
CA
OR FL
AZ
DC HI
WV
NV
DE
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 4 states and DC between
2007 and 2014
56
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014
80
.4
36
.8
33
.3
29
.4
24
.8
22
.5
21
.0
20
.6
15
.2
14
.6
13
.9
11
.8
10
.3
8.7
8.5
8.4
8.0
7.9
7.6
7.1
6.6
5.9
5.9
5.8
5.4
4.5
0
10
20
30
40
50
60
70
80
90
ND
SD
VT
OK
NE IA
KS
TX
WY
AK IN
MN WI
MA
AR
CT
NY
NJ
CO
NM
OH LA
US
MS
NH
MO
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
43 states showed commercial lines growth from 2007
through 2014
Growth Benchmarks: Commercial
US: 5.9%
57
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014
4.5
4.4
4.2
4.1
3.9
3.8
3.7
3.3
3.3
3.2
3.1
2.8
2.8
2.2
2.1
1.4
0.9
-1.3
-3.2
-5.3
-6.5
-6.9
-9.2
-10
.7
-19
.9
-22
.2
-25
-20
-15
-10
-5
0
5
10
MI
TN
MD
MT
CA RI
WA
GA
PA
UT IL
KY
VA
NC
ME
SC ID AL
DC HI
FL
OR AZ
DE
NV
WV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
Nearly half the states have yet to see commercial lines premium
volume return to pre-crisis levels
58
Pricing Trends
Personal Lines Pricing Is Up
Survey Results Suggest Commercial Pricing Has
Flattened Out58
59
Monthly Change in Auto Insurance Prices, 1991–2015*
*Percentage change from same month in prior year; through Sept. 2015; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Cyclical peaks in PP Auto tend to occur roughly every 10 years (early
1990s, early 2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
Sept. 2015 reading of 5.5% is up from 4.2%
a year earlier
Commercial Lines Rate Change by Month (vs. Year Earlier), July 2001 – Oct. 2015
Jul-02, 33%
Feb-05, 0%
Dec-07, -16%
Oct-11, 0%
Sep-13, 5%
Dec-14, 0%
Jul-15, 1%
-20%
-10%
0%
10%
20%
30%
40%
Jul-
01
Dec-0
1
May-0
2
Oct-
02
Mar-
03
Aug-0
3
Jan-0
4
Jun-0
4
Nov-0
4
Apr-
05
Sep-0
5
Feb-0
6
Jul-
06
Dec-0
6
May-0
7
Oct-
07
Mar-
08
Aug-0
8
Jan-0
9
Jun-0
9
Nov-0
9
Apr-
10
Sep-1
0
Feb-1
1
Jul-
11
Dec-1
1
May-1
2
Oct-
12
Mar-
13
Aug-1
3
Jan-1
4
Jun-1
4
Nov-1
4
Apr-
15
Sep-1
5
79 Months of Rates < 0%
60
SOURCE: MarketScout, Insurance Information Institute.
Commercial Insurance Rate Changes Are Flat to Slightly Down
Not Much of A Hard Market,
By Historic Standards
Oct. 2015:
-2.0%
61
Change in Commercial Rate Renewals, by Line: 2015:Q3
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewals Were Mixed to Down in Q3:2015; EPL, D&O and Commercial Saw Gains
Percentage Change (%)
-0.3%
0.4%0.8%
1.3%
-5.2%
-3.0% -2.9% -2.7% -2.5% -2.5%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
Co
mm
erc
ial
Pro
pe
rty
Um
bre
lla
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Co
nstr
uctio
n
Wo
rke
rs
Co
mp
Su
rety
D&
O
EP
L
Co
mm
erc
ial
Au
to
Commercial Auto rate increases are larger than any other line, followed
by EPL and D&O
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
62
How the Risk Dollar is Spent (U.S. Firms with Revenues Under $1 Bill)
Total Property Premiums, 21%
Property Retained Losses, 1%
Total Liability Premium, 19%
Liability Retained Losses, 4%
Total Management Liability Costs, 6%
Total Workers Comp. Premiums, 10%
Workers Comp Retained Losses, 9%
Total Professional Liability Costs, 9%
Total Med. Mal. Costs, 10%
Total Marine and Aviation Costs, 4%
Total Administrative Costs, 6%
Total Fidelity, Surety & Crime Costs, 1%
Source: 2015 RIMS Benchmark Survey; Insurance Information Institute.
63
Underwriting Performance
63
Homeowners Insurance Combined Ratio: 1990–2017F
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
91
.7 96
.4
85
.4 91
.7
11
4.5
10
3.1
10
3.8
11
9.4
10
1.4
87
.7
90
.4
92
.1 96
.5
96
.0
11
8.4
11
2.7 12
1.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F16F17F
1
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
64
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Sources: A.M. Best (1990-2014);Conning (2015F-2017F).
65
Homeowners Multi-Peril Loss & ALAE Ratio, 2014:Highest 25 States
14
2.8
13
2.6
11
6.0
10
2.5
80
.4
80
.2
74
.6
69
.2
66
.8
66
.8
65
.8
62
.4
60
.7
59
.3
59
.2
58
.7
58
.2
58
.0
56
.4
55
.5
54
.1
52
.4
51
.7
51
.2
51
.1
50
.3
0
20
40
60
80
100
120
140
160
MT NE SD CO IA MI IL VT PA ID WY GA DE MD AR WV WA MO MS WI IN SC OR TN US AZ
Lo
ss &
AL
AE
Rati
o
(%)
Sources: SNL Financial; Insurance Information Institute.
MT had the worst loss ratio in 2014, followed by
NE and SD…
66
Homeowners Multi-Peril Loss & ALAE Ratio, 2014:Lowest 25 States and DC
50
.1
49
.3
48
.9
48
.3
48
.1
47
.7
47
.3
46
.0
45
.8
45
.6
45
.2
44
.1
43
.2
42
.0
41
.0
40
.8
40
.2
37
.7
37
.5
37
.1
36
.2
32
.8
32
.3
28
.0
27
.3
25
.7
0
10
20
30
40
50
60
CA NJ OH TX AL ME KY NC NM NH NY NV UT MN KS DC CT VA AK RI MA ND LA HI FL OK
Lo
ss &
AL
AE
Rati
o (
%)
Sources: SNL Financial; Insurance Information Institute.
OK and FL had the best performances in 2014. Traditionally
high cat-loss states did well last year due to unusually low cat activity
Florida Citizens Policy Count, 2003 – 2015* (Thousands)
*As of October 6, 2015. All other figures are as of Dec. 31.
Source: Florida Citizens https://www.citizensfla.com/about/bookofbusiness/; Insurance Information Institute (I.I.I.).
820.3874.0
810.0
1,298.9 1,304.9
1,084.21,029.3
1,283.5
1,472.4
1,314.8
661.2
574.1
1,021.7
0
200
400
600
800
1,000
1,200
1,400
1,600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
A lack of major hurricanes, ample private sector/reinsurer capital and capital market interest—combined with structural changes to Citizens—have combined to take Citizens policy count and exposure to their lowest levels in many years
Florida Citizen’s policy count is down by nearly
900,000 (61%) from its 2011 peak
Private Passenger Auto Combined Ratio: 1993–2017F
10
1.7
10
1.3
10
1.3
10
1.0
10
9.5
10
7.9
10
4.2
98
.4
94
.3
95
.1
95
.5 98
.3 10
0.2
10
1.3
10
1.0
10
2.0
10
2.1
10
1.6
10
2.3
10
3.2
10
2.3
10
2.4
99
.5 10
1.1
10
3.5
80
85
90
95
100
105
110
115
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F
Private Passenger Auto Underwriitng Performance Is Exhibiting Remarkable Stability
68Sources: A.M. Best (1990-2014); Conning (2015F – 2017F); Insurance Information Institute.
69
Collision Coverage: Severity & Frequency Trends Are Both Higher in 2015*
2.8%
1.3%
4.2%
1.6%
4.7%
-1.8%
-3.6%
2.5%
-2.4%
-1.4%
4.2%
1.4%
3.9%3.1%
0.1%0.5%
-2.3%
-0.1%
-1.4%-0.5%
0.9%
2.3%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Severity Frequency
Annual Change, 2005 through 2015*
The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Will Likely Be Reversed Based on
Evidence from Past Recoveries
*2015 figure is for the 4 quarters ending with 2015:Q2.
Source: ISO/PCI Fast Track data; Insurance Information Institute
10
9.4
11
0.2
11
8.8
10
9.5
11
2.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.4
10
7.9
10
3.5
94
.8
94
.3
98
.3 99
.210
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
F
16
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.
Source: A.M. Best (1990-2014); Conning (2015-16F) Insurance Information Institute.
Commercial Lines Combined Ratio, 1990-2016F*
Commercial lines underwriting performance improved in 2013/14 but higher cats, diminishing prior year reserves and rising loss cost trends in some lines could push
combined ratios higher
70
Commercial Auto Combined Ratio: 1993–2017F
11
2.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4
94
.1 96
.8 99
.1
97
.8
10
3.4 10
6.8
10
6.7
10
3.4
10
4.7
10
5.5
10
7.5
11
8.1
11
5.7
11
6.2
80
85
90
95
100
105
110
115
120
125
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F16F17F
Commercial Auto is Expected to Improve Only Slowly as Rate Gains Barely Offset Adverse Frequency and Severity Trends
71Sources: A.M. Best (1990-2014);Conning (2015F-2017F); Insurance Information Institute.
Commercial Property Combined Ratio: 2007–2017F
72
.4
10
5.8
83
.3 86
.5
85
.8 88
.9
90
.3
90
.9
10
6.5
10
5.8
82
.7
70
75
80
85
90
95
100
105
110
07 08 09 10 11 12 13 14 15F 16F 17F
Commercial Property Underwriting Performance Has Been Volatile in Recent Years, Largely Due to
Fluctuations in CAT Activity
Source: Conning Research and Consulting.72
General Liability Combined Ratio: 2005–2017F
11
2.9
95
.1 99
.0
94
.2
10
4.1
99
.7 10
1.6
10
3.3
10
3.1
10
3.510
7.1 11
0.8
99
.680
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13 14 15F 16F 17F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting.73
Commercial Multi-Peril Combined Ratio: 1995–2016F
11
9.0
11
9.8
10
8.5
12
5.0
11
6.2
11
6.1
10
4.9
10
1.9
10
5.5
95
.4 97
.6
94
.2 96
.1
10
2.1
94
.1
10
3.0
10
3.5
10
0.7
11
6.8
11
3.6
11
5.3
12
2.4
11
5.0
11
7.0
97
.3
89
.0
97
.7
93
.8
83
.8
89
.8
10
8.4
98
.7 10
2.5
12
0.1
11
1.9
94
.4 96
.7
10
1.3
10
1.8
11
3.1
11
5.0 1
21
.0
80
85
90
95
100
105
110
115
120
125
130
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F
CMP-Liability CMP-Non-Liability
Commercial Multi-Peril Underwriting Performance is Expected to Remains Stable in 2015 Assuming Normal
Catastrophe Loss Activity
*2015F-2016F figures are Conning figures for the combined liability and non-liability components.Sources: A.M. Best; Conning; Insurance Information Institute.
74
Inland Marine Combined Ratio: 2004–2017F
82
.5
89
.9
77
.3 79
.5
97
.1
96
.1
83
.7
83
.3
82
.2
83
.3
83
.7
93
.3
89
.3
86
.2
70
75
80
85
90
95
100
04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F
Inland Marine Underwriting Performance Has Been Consistently Strong for Many Years
Source: A.M. Best (2004-2014); Conning Research and Consulting (2015F-2017F).75
Workers Compensation Combined Ratio: 1994–2015F
10
2.0
97
.0 10
0.0
10
1.0
11
2.6
10
8.6
10
5.1
10
2.7
98
.5
10
3.5
10
4.5 1
10
.6 11
5.0
11
5.0
10
8.0
10
1.0
98
.0
98
.5
12
1.7
10
7.0
11
5.3
11
8.2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P15F
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 (2010-2014P) and are for private carriers only; Insurance Information Institute (2015F).76
WC results have improved markedly
since 2011
Workers Compensation Operating Environment
77
Workers Comp Results Have Improved Substantially in Recent Years
77
Workers Compensation Combined Ratio: 1994–2015F
10
2.0
97
.0 10
0.0
10
1.0
11
2.6
10
8.6
10
5.1
10
2.7
98
.5
10
3.5
10
4.5 1
10
.6 11
5.0
11
5.0
10
8.0
10
1.0
98
.0
98
.5
12
1.7
10
7.0
11
5.3
11
8.2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P15F
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 (2010-2014P) and are for private carriers only; Insurance Information Institute (2015F).78
WC results have improved markedly
since 2011
79
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2015:Q1
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,500
$7,7500
5:Q
1
05
:Q2
05
:Q3
05
:Q4
06
:Q1
06
:Q2
06
:Q3
06
:Q4
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
Prior Peak was 2008:Q3 at $6.54 trillion
Recent trough (2009:Q1) was $6.23 trillion, down
5.3% from prior peak
Growth rates2011:Q1 over 2010:Q1: 5.5%2012:Q1 over 2011:Q1: 4.2%2013:Q1 over 2012:Q1: 2.5%2014:Q1 over 2013:Q1: 4.3%2015:Q1 over 2014:Q1: 4.4%
79
Latest (2015:Q1) was $7.66 trillion, a new peak--$1.34 trillion above 2009 trough
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
80
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2014P
*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are from NCCI.
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow Again in 2015
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
Workers Compensation Premium: Fourth Consecutive Year of IncreaseNet Written Premium
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2
31.134.7
37.8 38.6 37.633.8
30.3 29.932.3
35.136.9 38.5
35.3 35.734.3
35.433.6
30.128.5
26.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.6 33.8
36.4
39.541.8
44.2
0
10
20
30
40
50
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P
State Funds ($ B)
Private Carriers ($ B)
Pvt. Carrier NWP growth was +4.3% in 2014, +5.1% in 2013 and 8.7% in 2012
$ Billions
Calendar Yearp Preliminary
Source: NCCI from Annual Statement Data.
Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT.
Each calendar year total for State Funds includes all funds operating as a state fund that year.
82
2014 Workers Compensation Direct Written Premium Growth, by State*
PRIVATE CARRIERS: Overall 2014 Growth = +4.6%
*Excludes monopolistic fund states (in gray): OH, ND, WA and WY.
Source: NCCI.
While growth rates
varied widely, most
states experienced
positive growth in
2014
83
2013 Workers Compensation Direct Written Premium Growth, by State*
PRIVATE CARRIERS: Overall 2013 Growth = +5.4%
*Excludes monopolistic fund states (in white): OH, ND, WA and WY.
Source: NCCI.
While growth rates varied widely, all states
experienced positive growth in 2013
84
Workers Compensation Components of Written Premium Change, 2013 to 2014
Written Premium Change from 2013 to 2014
Net Written Premium—Countrywide +4.6%
Direct Written Premium—Countrywide +4.6%
Direct Written Premium—NCCI States +4.5%
Components of DWP Change for NCCI States
Change in Carrier Estimated Payroll +4.7%
Change in Bureau Loss Costs and Mix -1.4%
Change in Carrier Discounting +0.4%
Change in Other Factors +0.8%
Combined Effect +4.5%
Sources: Countrywide: Annual Statement data.
NCCI States: Annual Statement Statutory Page 14 for all states where NCCI provides ratemaking services.
Components: NCCI Policy data.
Growth is now almost entirely payroll driven
WC Approved Changes in Bureau Premium Level (Rates/Loss Costs)
12.1
7.4
10.0
2.9
-6.4
-3.2
-6.0
-8.0
-5.4
-2.6
3.5
1.2
4.9
6.6
-6.0-6.5
-8.8-7.8
-3.2-2.1
-1.2
0.4
8.4
2.2
0.5
-2.2
-10
-5
0
5
10
15
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 15p
Percent
Calendar Year
Cumulative
1990–1993
+36.3%
Cumulative 2000–2003
+17.1%
Cumulative 2004–2011
-30.8%
Cumulative 1994–1999
-27.8%
*States approved through 4/24/15.
Note: Bureau premium level changes are countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by applicable
rating organization, relative to those previously approved.
Source: NCCI.
By Effective Date for Total Market
Approved rates/loss costs are down for the first time since 2010
Cumulative 2011–2014
+11.8%
86
WC Approved or Filed and Pending Change in NCCI Premium Level by State
Latest Change for Voluntary Market
*Excludes monopolistic fund states (in gray): OH, ND, WA and WY.
Source: NCCI.
While growth rates
varied widely, most
states experienced
positive growth in
2014
87
WC Approved or Filed and Pending Change in NCCI Premium Level by State
Note: Premium level changes are approved changes are approved or filed and pending changes in advisory rates, loss costs and rating values as of
4/24/15 as filed by applicable rating organization, relative to those previously approved. SC is filed and pending. IN and NC are in cooperation with
state rating bureaus.
Source: NCCI.
Latest Change for Voluntary Market
Excludes Law-Only Filings
The majority of states experienced decreases in
rates/loss costs over
Workers Compensation Lost-Time Claim Frequency Declined in 2014
88
-4.4
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5 -4.1 -3.7
-6.6
-4.5
-2.2
-4.3-4.9
10.6
-3.8
-6
-2.9-2.0
3.6
-0.8
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
Indicated
Adjusted*
Frequency Change: 2007—2012
Contracting: 7.97.1 -9.3%
Manufacturing: 13.612.0 -11.8%
Percent
Accident Year*Adjustments primarily due to significant audit activity.
2014p: Preliminary based on data valued as of 12/31/2014.
Source: NCCI Financial Call data, developed to ultimate and adjusted to current wage an voluntary loss cost level; Excludes high deductible
policies; 1994-2013: Based on data through 12/31/13. Data for all states where NCCI provides ratemaking services, excluding WV.
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
Cumulative Change of –51.1%
(1994–2013 adj.)
$9
.8
$9
.5
$9
.2
$9
.7
$9
.8
$1
0.4
$1
1.2
$1
2.2
$1
3.5
$1
4.8
$1
6.1
$1
6.6
$1
7.4
$2
2.3
$2
2.5
$2
2.2
$2
2.2
$2
2.6
$2
3.6
$1
8.1
$1
7.5
$1
9.2
$2
0.8
$2
1.9
+0.0%
-2.5%+1.0%+9.1% +1.3%
+5.9%+3.1%
+1.0%+4.6%+3.1%
+9.2%
+10.1%
+10.1%
+9.0%
+7.7%+5.9%
+1.7%+4.9%-2.8%-3.1%+1.0%
+6.6%
5
7
9
11
13
15
17
19
21
23
25
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
Indemnity
Claim Cost ($ 000s)
Accident Year
Workers Comp Indemnity Claim Costs: Modest Increase in 2014
Average indemnity costs per claim were up 4% in
2014 to $23,600, the largest increase since 2008
Average Indemnity Cost per Lost-Time Claim
+4%+1.9%
Cumulative Change = 141%
(1991-2014p)
2014p: Preliminary based on data valued as of 12/31/2014.
1991-2013: Based on data through 12/31/2013, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
4.2%
5.2%5.6%
4.7%
6.3%
2.3%
1.1%
4.7% 4.6%
2.7%
1.1%
5.9%
7.7%
9.0%
10.1%
4.6%
5.9%
6.6%
9.1%
1.9%4.3%
2.7%
3.0%3%2.9%
2.3%
1.1%3.5%
3.6% 3.1%
1.0%
0%
1.3%1.0%
-2.5%
1.0%
1.7%
10.1%
9.2%
3.1%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
95 97 99 01 03 05 07 09 11 13
Change in CPS Wage Change in Indemnity Cost per Lost-Time Claim
WC Indemnity Severity vs. Wage Inflation, 1995 -2014p
2014p: Preliminary based on data valued as of 12/31/2014; 1991-2010: Based on data through 12/31/2010, developed to ultimate. Based on the states
where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey.
Source: NCCI
Annual Change 1994–2014
Indemnity Claim Sev.: +4.6
US Avg. Weekly Wage: +3.4%
Indemnity severities usually
outpace wage gains
WC indemnity severity turned
positive again in 2011
Workers Compensation Medical Severity:Moderate Increase in 2014
91
Accident Year
Annual Change 1991–1993: +1.9%
Annual Change 1994–2001: +8.9%
Annual Change 2002–2010: +6.0%
Average Medical Cost per Lost-Time ClaimMedical
Claim Cost ($000s)
$8
.1
$8
.2
$8
.1
$8
.8
$9
.1
$9
.8
$1
0.8
$11
.7
$1
2.9
$1
3.9
$1
5.7
$1
7.1
$1
8.4
$1
9.4
$2
0.9
$2
2.1
$2
3.4
$2
5.0
$2
6.0
$2
6.1
$2
6.8
$2
7.4
$2
8.3
$2
9.4
+6.8%+1.3%-2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%
+10.6%+7.3%
+13.5%
+8.8%
+7.7%+5.4%
+7.8%
+5.8%
+5.9%
+6.9%+4.0%+0.5%
+2.4%+2.4%
+3.2%+4%
5
10
15
20
25
30
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p
2014p: Preliminary based on data valued as of 12/31/2014.
1991-2013: Based on data through 12/31/2013, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Cumulative Change = 263%
(1991-2014p)
Accident Year
Medical severity for lost time claims was up 4% in 2014, the
largest increase since 2009
92
Workers Comp Change in Medical Severity by State, Avg. Annual Change, 2009-2013
Percent
Source: NCCI’s Analysis of Frequency and Severity of Claims Across the Country as of 12/31/13 on ncci.com.
Values reflect methodology and state data underlying the most recent rate/lost cost filing.
TX changes are for the years 2010-2013.
While growth rates
varied widely, most
states experienced
positive growth in
2014
The change in lost-time medical severities from 2009-2013 ranged from a low of -6% to a high of 9%
93
Annual Inflation Rates, (CPI-U, %),1990–2016F
2.82.6
1.51.9
3.3 3.4
1.3
2.52.3
3.0
3.8
2.8
3.8
-0.4
1.6
3.2
2.1
1.51.7
0.2
2.2
2.9
2.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 5/15 (forecasts).
Slack in the U.S. economy and falling energy prices suggests that inflationary pressures should remain subdued for an extended
period of times
Annual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
commodity bubble reduced inflationary pressures in 2009/10
Inflationary expectations have slipped
(due in part to falling energy
costs) allowing the Fed to
maintain low interest rates
Workers CompensationChange in Medical Severity Comparison to Change in Medical Consumer Price Index (CPI)
5.1
7.4
10.1
8.3
10.6
7.3
13.5
8.8
7.7
5.4
7.8
5.8 5.9
6.9
4.0
0.5
2.4 2.4
34.0
4.5
3.5
2.83.2
3.54.1
4.6 4.7
4.04.4 4.2 4.0
4.4
3.73.2 3.4
3.03.7
3 2.4
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 13 14p
Change in Lost-Time Medical Claim Severity
Change in US Medical CPI
Percent Change
Year
Average Annual Change: 1994—2014
Lost-Time Medical Severity: +6.4%
US Medical CPI: +3.7%
2014p: Preliminary based on data valued as of 12/31/2014.
Sources: Severity: 995-2013: Based on data through 12/31/2013, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
US Medical CPI: US Bureau of Labor Statistics.
4.5%
3.5%
2.8%3.2%
3.5%4.1%
4.6% 4.7%
4.0%4.4% 4.2% 4.0%
4.4%
3.7%3.2% 3.4%
2.5% 2.4%
5.1%
7.4%
10.1%10.6%
13.5%
5.4%
7.8%
5.9%
6.8%
4.0% 4.0%
3.0%3.7%
3.2%
2.4%2.4%
0.5%
5.8%
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 13 14p
Change in Medical CPI
Change 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 from 1995 through 2014 was well above the medical CPI (6.4% vs. 3.7%), but the gap has narrowing. Lost-time medical
severities appear to on the rise again.
-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 14*
Change in Medical CPI CPI-All Items
Medical Cost Inflation vs. Overall CPI, 1995 – 2014*
*July 2014 compared to July 2013.
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average Annual Growth Average
1995 – 2013
Healthcare: 3.8%
Total Nonfarm: 2.4%
Though moderating, medical inflation will continue to exceed inflation in the overall economy
U.S. Health Care Expenditures,1965–2022F
$42
.0$
46
.3$
51
.8$
58
.8$
66
.2$
74
.9$83.2
$93
.1$
10
3.4
$11
7.2
$13
3.6
$15
3.0
$17
4.0
$195.5
$22
1.7
$25
5.8
$29
6.7
$33
4.7
$36
9.0
$40
6.5
$444.6
$47
6.9
$51
9.1
$58
1.7
$64
7.5
$72
4.3
$79
1.5
$857.9
$92
1.5
$97
2.7
$1,0
27
.4$
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
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
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
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
97
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.
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?
99
Insured Catastrophe Losses
2013/14 and YTD 2015 Experienced Below
Average CAT Activity After Very High CAT
Losses in 2011/12
Winter Storm Losses Far Above Average in
2014 and 201599
100
$1
3.0
$1
1.3
$3
.9
$1
4.8
$1
1.9
$6
.3
$3
5.8
$7
.8
$1
6.8
$3
4.7
$1
0.9
$7
.7
$3
0.1
$1
1.8
$1
4.9
$3
4.6
$3
6.1
$1
3.1
$1
5.5
$1
1.0
$75.7
$1
4.4
$5
.0 $8
.2
$3
8.9
$9
.1
$2
7.2
$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 14 15*
U.S. Insured Catastrophe Losses
*Through 9/30/15 in 2015 dollars.
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.
2013/14 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster Losses in US History. Longer-term Trend is for
more—not fewer—Costly Events
2012 was the 3rd most expensive year ever for
insured CAT losses
$11.0B in insured CAT losses though
9/30/15
($ Billions, $ 2014)
100
101
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2015F*
*2010s represent 2010-2014.
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 (1960-2010); A.M. Best (2011-15E) 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
1.42
.01
.32
.00
.50
.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
9.4
8.0
3.9 4
.4 4.5
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of theCombined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 5.82*
Combined Ratio Points Catastrophe losses as a share of all
losses reached a record high in 2011
102
Top 16 Most Costly Disastersin U.S. History—Katrina Still Ranks #1
(Insured Losses, 2014 Dollars, $ Billions)
$8.1 $9.0 $9.4 $11.4$13.8
$19.3
$24.6 $25.3$26.4
$50.2
$7.7$7.3$6.9$5.8$5.7$4.6
$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)
Storm Sandy in 2012 was the last mega-CAT
to hit the US
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have Occurred Since 2004
Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.
103
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1995–20141
0.1%
1.5%5.4%
0.1%
6.2%
6.8%
39.2%
40.7%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2014 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.
Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $161.2
Fires (4), $6.0
Events Involving Tornadoes (2), $154.9
Winter Storms, $26.9
Terrorism, $24.5
Geological Events, $0.5
Wind/Hail/Flood (3), $21.4
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 1995-2014
totaled $395.6B, an average of $19.8B per year or $1.65B
per month
Winter storm losses were much above average in 2014/15 are
will push this share up
**Losses adjusted to
inflation based on
country CPI
*Winter storms include
winter damage, blizzard,
snow storm and cold
wave 104
1 000
2 000
3 000
4 000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Property Claim Services, MR NatCatSERVICE.
$ Billions, in 2014 Dollars
2015 insured winter storm losses totaled $2.3B, similar to 2014 and about double the
long-run average
Three of the four most costly years ever for insured losses from winter storms and
damage occurred in the 1990s, led by the “Storm of the Century” in 1993.
5-year running average
Winter Storm and Winter Damage Events in the US, 1980-2015 (2014 US$)
Loss Events in the US, 1980 – 2014Overall and Insured Losses
105
Overall losses
(in 2013 values)*
Insured losses
(in 2013 values)*
*Losses adjusted
to inflation based
on CPI.
Overall losses totaled $25bn; Insured losses totaled $15.3bn
50
100
150
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Property Claim Services, MR NatCatSERVICE.
$ Billions 2015 First Half:
$8.2 Billion Insured Losses
$12.0 Overall Losses
106
Number of National Flood Insurance Program
Policies in Force at Year-End, 1980-2015*
Source: National Flood Insurance Program.
* As of July, 2015
2.1
04
2.0
17 2.4
78
3.4
77
4.3
69 4
.96
2
5.6
56
5.6
84
5.7
00
5.6
45
5.6
46
5.6
20
5.5
69
5.3
51
5.1
51
0
1
2
3
4
5
6
1980 1985 1990 1995 2000 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015*
(milli
on
s)
The number of NFIP policies in force has
plunged by 549,000 or 9.6% since 2009, even
as coastal development surges and sea levels rise
107
12% 14%
40%
52%62%
87%95% 99%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CA
Earthquake
Flood Renters Cyber Terrorism Pvt.
Passenger
Auto
Home Workers
Comp
Sources: CA Earthquake (WSJ, http://www.wsj.com/articles/california-pushes-homeowners-to-insure-against-earthquakes-1440980138 ); Flood and Renters (I.I.I. June 2015 Pulse Survey); Cyber (Advisen, 2015); Terrorism (Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014; data for 2013); Pvt. Passenger Auto (Insurance Research Council, Uninsured Motorists, 2014 Edition, data for 2012); Home and Workers Comp (I.I.I. estimates); Insurance Information Institute research.
Take-Up Rates for Various Types of Insurance in the U.S.
Take-Up Rate
Take-up rates vary widely
by type of coverage
108
The World is Warmer...With One Big Exception!
HIGHLIGHTS
• 2014 was the warmest year
across global land and
ocean surfaces since
records began in 1880.
• 9 of the 10 warmest years in
the 135-year period of
record have occurred in the
21st century. 1998 currently
ranks as the fourth warmest
year on record.
• 2015 will likely also be one
of the warmest years on
record as well
Source: NOAA; Munich Re.
THE ECONOMY
109
The Strength of the Economy Will Greatly
Influence Insurer Exposure Base
Across Most Lines
109
110
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 11/15; Insurance Information Institute.
2.7
%1.8
%-1
.8%
1.3
%-3
.7%
-5.3
%-0
.3%
5.0
%2.3
%2.2
%2.6
%2.4
%0.1
%2.5
%
1.3
%4.1
%2.0
%1.3
% 3.1
%0.4
%2.7
%1.8
% 3.5
%-0
.9%
4.6
%4.3
%2.1
%0.6
%3.9
%1.5
% 2.7
%
2.6
%2.7
%2.6
%2.6
%
-8.9%
4.5
%
1.4%
4.1
%1.1
%1.8
%2.5
% 3.6
%
3.1
%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
2
00
7
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
:4Q
15
:1Q
15
:2Q
15
:3Q
15
:4Q
16
:1Q
16
:2Q
16
:3Q
16
:4Q
Demand for Insurance Should Increase in 2016 as GDP Growth Continues at a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in in June
2009
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
Q1 2014/15 GDP data were hit hard by this year’s “Polar Vortex”
and harsh winter
111
Real GDP by State Percent Change, 2014*:Highest 25 States
6.3
5.2
5.1
5.1
4.7
3.6
3.1
3.0
2.8
2.8
2.7
2.7
2.5
2.3
2.3
2.3
2.2
2.2
2.1
1.9
1.9
1.9
1.8
1.8
1.8
1.7
0
1
2
3
4
5
6
7
ND TX WY WV CO OR UT WA OK CA ID FL NY GA NH MA US SC OH MI MN LA MT KS PA TN
Pe
rce
nt
Ch
an
ge
(%
)
*Advance statistics
Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2014—by far
Only 7 states experienced growth in excess of 3% in 2014, which is a
growth rate we would see nationally in a more typical recovery
Growth Benchmarks: Real GDP
US: 2.2%
112
1.6
1.4
1.4
1.2
1.2
1.2
1.0
1.0
1.0
1.0
0.9
0.8
0.8
0.8
0.7
0.7
0.6
0.6
0.6
0.4
0.4
0.4
0.2
0.0
-1.2
-1.3-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
DC NC AZ IL RI DE WI KY NM NV MO AR HI MD NE AL SD VT CT IA IN NJ ME VA MS AK
Pe
rce
nt
Ch
an
ge
(%
)Real GDP by State Percent Change, 2014*:
Lowest 25 States
*Advance statistics
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
Mississippi and Alaska were the
only states to shrink in 2014
Growth rates in 16 states were still below 1% in 2014
113
US Unemployment Rate Forecast4
.5%
4.5
%4
.6%
4.8
%4
.9% 5.4
% 6.1
%6
.9%
8.1
%9
.3%
9.6
% 10
.0%
9.7
%9
.6%
9.6
%
8.9
%9
.1%
9.1
%8
.7%
8.3
%8
.2%
8.0
%7
.8%
7.7
%7
.6%
7.3
%7
.0%
6.6
%6
.2%
6.1
%5
.7%
5.6
%5
.4%
5.2
%5
.0%
4.9
%4
.8%
4.7
%4
.7%
9.6
%
4%
5%
6%
7%
8%
9%
10%
11%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
15
:Q2
15
:Q3
15
:Q4
16
:Q1
16
:Q2
16
:Q3
16
:Q4
Rising unemployment eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10% in late 2009.
* = actual; = forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (11/15 edition); Insurance Information Institute.
2007:Q1 to 2016:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 5.0% by Q4 of 2015.
Jobless figures have been revised
downwards for 2015/16
(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
13
14
15
F1
6F
Advanced economies Emerging and developing economies World
Source: International Monetary Fund, World Economic Outlook, Oct. 2015; Insurance Information Institute.
Emerging economy growth rates are
expected to ease to 4.0% in 2015 and 4.5% in 2016
GDP Growth: Advanced & Emerging Economies vs. World, 1970-2016F
Advanced economies are expected to grow at a modest pace of 2.0% in
2015 and to 2.2% in 2016.
World output is forecast to grow by 3.1% in 2015 and 3.6% in 2016. The world economy shrank by 0.6% in
2009 amid the global financial crisis
GDP Growth (%)
115
Non-Life Insurance: Global Real (Inflation Adjusted) Premium Growth, 2014
Source: Swiss Re, sigma, No. 4/2015.
Market Life Non-Life Total
Advanced 3.8 1.8 2.9
Emerging 6.9 8.0 7.4
World 4.3 2.9 3.7
Real nonlife premium
growth was stronger in the
US in 2014 than in most of
Europe
CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK
116
The Construction Sector Is Critical to the Economy and the P/C Insurance Industry
116
117
Value of New Private Construction: Residential & Nonresidential, 2003-2015*
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 14 15*
Non Residential
Residential
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)
2015: Value of new pvt. construction hits $788.0B as of
Aug. 2015, up 57.5% from the 2010 trough but still 13.5% below
2006 peak
117
$261.8
$238.8
$404.7
$383.3
*2015 figure is a seasonally adjusted annual rate as of August.
Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
118
Value of Construction Put in Place, August 2015 vs. August 2014*
7.0%
32.9%
6.5%
13.7%
16.5% 16.1% 16.9%
0%
5%
10%
15%
20%
25%
30%
35%
Total
Construction
Total Private
Construction
Residential--
Private
Non-
Residential--
Private
Total Public
Construction
Residential-
Public
Non-
Residential--
Public
Overall Construction Activity is Up Again After Languishing in Early 2015; State/Local Sector Government Sector May Be Recovering as Budget
Woes Ease in Some Jurisdictions
Growth (%)
Private sector construction activity is up in both the
residential and nonresidential segments
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +16.5% Public: +7.0%
Public sector construction activity is finally beginning to
create less drag up after years of decline
119
(Millions of Units)
New Private Housing Starts, 1990-2021F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
1
0.5
5
0.5
9
0.6
1 0.7
8 0.9
2 1.1
0
1.1
3 1.2
8 1.4
2
1.4
7
1.4
7
1.5
01
.50
1.3
51.4
6
1.2
9
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F20F 21F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/15); 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
120
Rental-Occupied Housing Units as % of Total Occupied Units, Quarterly, 1990:Q1-2015:Q1
30%
31%
32%
33%
34%
35%
36%
37%
90
:Q1
91
:Q1
92
:Q1
93
:Q1
94
:Q1
95
:Q1
96
:Q1
97
:Q1
98
:Q1
99
:Q1
00
:Q1
01
:Q1
02
:Q1
03
:Q1
04
:Q1
05
:Q1
06
:Q1
07
:Q1
08
:Q1
09
:Q1
10
:Q1
11
:Q1
12
:Q1
13
:Q1
14
:Q1
15
:Q1
Sources: US Census Bureau, Residential Vacancies & Home Ownership in the First Quarter of 2015 (released April 28, 2015) and earlier issues; Insurance Information Institute. Next Census Bureau report to be released on July 28, 2015.
Trough in 2004:Q2 and Q4 at 30.8%
Since the Great Recession ended in June 2009, renters occupied 5.7 million more units (+15.6%).
120
Latest was 36.3% in 2015:Q1
Trend down began in 1994:Q3 from
36.2% in Q2
Increasing percent of
owners
Increasing percent of
renters
121
I.I.I. Poll: Renter’s Insurance
Source: Insurance Information Institute Annual Pulse Survey.
29% 31%35%
37%40%
10%
20%
30%
40%
50%
60%
70%
2011 2012 2013 2014 2015
The Percentage of Renters Who Have Renters Insurance Has Been Rising Since 2011.
Q. Do you have renters insurance? 1
1Asked of those who rent their home.
Americans are increasingly choosing to rent, but are slow to understand the
need to insure, exacerbating the underinsurance gap
CYBER RISK & CYBER INSURANCE
122
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large and
Small in Every Industry
122
Data Breaches 2005-2015, by Number of Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
*Figures as of June 30, 2015, from the Identity Theft Resource Center,http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf
157
321
446
656
498
419
470
614
400
783
662
117.6
85.692.0
17.522.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *2015
0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million records. Through June 30, this year has
seen 117.6 million records exposed in 400 breaches.*
Millions
124
$1.5$2.0
$7.5
$0
$1
$2
$3
$4
$5
$6
$7
$8
2014 2015E 2020F
Estimated Cyber Insurance Premiums Written, 2014 – 2020F
Cyber insurance premiums written
could more than triple to $7 billion by 2020
Source: Advisen (2014 est.); PwC (2015, 2020); Insurance Information Institute.
$ Billions
125
US: External Cyber Crime Costs: Fiscal Year 2014
2%2%
18%
38%
40%
* Other costs include direct and indirect costs that could not be allocated to a main external cost category
Source: 2014 Cost of Cyber Crime: United States, Ponemon Institute.
Information theft (40%) and business disruption or lost productivity (38%) account for the majority of external costs due to cyber crime.
Information theft
Equipment damagesOther costs*
Revenue loss
Business disruption
Data/Privacy Breach:Many Potential Costs Can Be Insured
Source: Zurich Insurance; Insurance Information Institute
Data Breach Event
Costs of notifying affecting
individuals Defense and settlement
costs
Lost customers and damaged
reputation
Cyber extortion payments
Business Income Loss
Regulatory fines at home & abroad
Costs of notifying
regulatory authorities
Forensic costs to discover
cause
126
Source: Insurance Information Institute research.
The Three Basic Elements of Cyber Coverage: Prevention, Transfer, Response
Loss Prevention
Post-Breach Response
(Insurable)
Loss Transfer
(Insurance)
Cyber risk management today involves
three essential components, each designed
to reduce, mitigate or avoid loss. An
increasing number of cyber risk products
offered by insurers today provide all three.
127
128
I.I.I.’s New Cyber Risk Report (Oct. 2015): Cyber Risks Threat and Opportunity
I.I.I.’s 3rd report on cyber risk:
Cyber Risk: Threat and Opportunity
Provides information on cyber
threats and insurance market
solutions
Global cyber risk overview
Quantification of threats by
type and industry
Cyber security and cost of attacks
Cyber terrorism
Cyber liability
Insurance market for cyber riskhttp://www.iii.org/white-paper/cyber-risks-
threat-and-opportunities-100715
129
Marsh: Percentage of U.S. Companies Purchasing Cyber Insurance Increased in 2014
*Take-up rate refers to the overall percentage of clients that purchased standalone cyber insurance.
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
8%
12%
18%
21%
21%
22%
26%
32%
50%
16%
11%
13%
14%
17%
17%
16%
22%
45%
13%
6%Manufacturing
Communications, Media and Tech
Retail/Wholesale
Power and Utilities
Financial Institutions
Services
Hospitality and Gaming
Education
Health Care
All Industries
Take-up rate 2014* Take-up rate 2013
Ever larger numbers of insureds seek financial
protection via cyber insurance. The
percentage of U.S. companies buying cyber
insurance rose to 16 percent in 2014.
130
Marsh: Total Limits Purchased, By Industry –Cyber Liability, All Revenue Size
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
$22.0
$4.2
$9.9 $10.5$9.5
$11.1$10.2
$13.2
$19.7
$6.7
$23.5
$10.5$12.0
$14.9
$21.0
$4.4
$22.2
$12.8
All Industries Comms, Media
& Technology
Education Financial
Institutions
Health Care Manufacturing Power and
Utilities
Retail/Wholesale Services
Avg. 2013 Limits Avg. 2014 Limits
Average limits purchased for cyber risk rose to $12.8 million for all industries and all company sizes in 2014. Power and utility companies witnessed the sharpest
percentage increase in average limits, at 59 percent.
($ Millions)
131
Marsh: Total Limits Purchased, By Industry –Cyber Liability, Revenue $1 Billion+
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
$27.8
$40.3
$7.6
$26.4
$44.4
$31.4
$53.5
$20.8$17.6
$40.4
$35
$11.2
$41.2
$25
$57
$9
$43.7
$34.1
All Industries Comms, Media
& Technology
Education Financial
Institutions
Health Care Manufacturing Power and
Utilities
Retail/Wholesale Services
Avg. 2013 Limits Avg. 2014 Limits
Among larger companies, average cyber insurance limits purchased increased by 22 percent to $34.1 million in 2014, from $27.8 million in 2013.
($ Millions)
132
Cyber Liability: Historical Rate (price per million) Changes
4.2%
2.8%
2.3%
2.9%
2.7%
2.1%
2.7%
3.6%
14:Q1 14:Q2 14:Q3 14:Q4
Average Total Price Per Million Change
Average Primary Price Per Million Change
Cyber insurance premiums were generally volatile in 2014 due to increased frequency and severity of losses.
Average rate increases at renewal for both primary layers and total programs were lower in Q4 2014 than in Q1.
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
133
INDUSTRY DISRUPTORS
Technology, Society and the Economy Are All
Changing at a Rapid Pace
Will Insurers Keep Pace?
133
134
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance
By 2035, it is estimated that 25% of new vehicle
sales could be fully autonomous models
Source: Boston Consulting Group.
Questions
Are auto insurers monitoring these trends?
How are they reacting?
Will Google take over the industry?
Will the number of auto insurers shrink?
How will liability shift?
135
Personal Lines Distribution Channels, Direct vs. Independent Agents, 1972-2014
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
0%
10%
20%
30%
40%
50%
60%
70%
80%
72 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
Direct Independent Agents
Independent agents have lost significant personal lines market share since the early 1970s.
Although the trend slowed from 2000-2007, it may be accelerating again.
136
On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance
The “On-Demand” Economy is or will impact many segments of the economy important to P/C insurers
Auto (personal and commercial)
Homeowners/Renters
Many Liability Coverages
Professional Liability
Workers Comp
Many unanswered insurance questions
Insurance solutions are increasingly available to fill the many insurance gaps that arise
137
Labor on Demand: Huge Implications for the US Economy, Workers & Insurers
*From publically available sources as of June 2, 2015.
Source: ISO/Verisk.
TNC Ridesharing Arrangements: Insurance Applicability
138
The concern was that TNCs were seeking to offload risk on to personal auto insurers. An increasing number of
personal auto insurers have developed solutions to ensure that coverage gaps are minimized
Source: ISO.
Ridesharing Regulation/Legislation and Status of ISO Filings as of 9/30/15
139
Status of ISO FilingsStatus Ride Sharing
Legislation/Regulation
.
*As of Oct. 6, 2015.
Source: ISO/Verisk.
Homesharing: ISO’s Proposed Changes*
140
141
Send in the Drones: Potential Rapid Adoption in Industry; Media Loves It
Drones or Unmanned Aerial Vehicle (UAV)
technology is seeing rapid adoption rate in
many industries, including insurance
~700,000 drones in US by year-end
FAA granting Section 333 exemptions for
commercial use and testing of UAS
FAA will require most drones to be
registered by year-end 2015.
At least 5 insurers have received
permission to test
Wide variety of applications: claims, pre-
event property inspections…
Insurers partnering with construction
industry to guide R&D and regulation of
UAV use via Property Drone Consortium:
www.propertydrone.org
142
Telematics for Your Home:The Internet of Things
The home is the next frontier for telematics
Rapidly becoming a crowded space
How and with whom will insurers partner?
Can control increasing array of household systems remotely
Heat, A/C
Fire, CO detection
Security Systems
Cameras/Monitors
Appliances
Lighting
Technology is adaptive
Uses sensors and algorithms to learn about you
143
Partnerships with Insurers: Selling Safety and Savings Simultaneously
Source: https://nest.com/insurance-partners/ accessed 11/1/15; Insurance Information Institute research.
Nest is actively seeking to partner with insurers. As of Nov. 1, 2015, Nest listed 2 insurance partners offering discounts in a number of states: American Family
(MN) and Liberty Mutual (AL, CO, DE, IL, KY, ME, MN, PA, UT and WI)
144
Partnerships with Insurers
Source: https://nest.com/insurance-partners/ accessed 11/1/15; Insurance Information Institute research.
Nest is selling its products via
insurance partners
145
Partnerships with Insurers
Source: https://nest.com/insurance-partners/ accessed 11/1/15; Insurance Information Institute research.
Nest is selling its products via
insurance partners
146
Partnerships with Insurers: Information Collected, Addressing Privacy Concerns
Source: https://nest.com/support/article/When-I-enroll-in-Safety-Rewards-what-kind-of-data-is-shared-with-
my-insurance-company accessed 11/1/15; Insurance Information Institute research.
Privacy, control of data
concerns get significant attention
147
Partnerships with Insurers: Information Collected, Addressing Privacy Concerns
Source: https://nest.com/support/article/When-I-enroll-in-Safety-Rewards-what-kind-of-data-is-shared-with-
my-insurance-company accessed 11/1/15; Insurance Information Institute research.
Privacy, control and security of
data get significant attention
Shifting Legal Liability & Tort Environment
148
Will the Tort PendulumSwing Against Insurers?
148
149
$750,392$653,898
$782,657
$1,045,048 $1,009,788
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
2009 2010 2011 2012 2013
Average Personal Injury Jury Award,2009 – 2013
Average awards in Personal Injury cases
have increased by more than 1/3 in recent years
Source: Current Award Trends in Personal Injury, 54th Edition; Insurance Information Institute.
Business Leaders Ranking of Liability Systems in 2015
Best States
1. Delaware
2. Vermont
3. Nebraska
4. Iowa
5. New Hampshire
6. Idaho
7. North Carolina
8. Wyoming
9. South Dakota
10. Utah
Worst States
41. Arkansas
42. Missouri
43. Mississippi
44. Florida
45. New Mexico
46. Alabama
47. California
48. Illinois
49. Louisiana
50. West Virginia
Source: US Chamber of Commerce 2015 State Liability Systems Ranking Study; Insurance Info. Institute.
New in 2015
Vermont
New Hampshire
North Carolina
South Dakota
Drop-offs
Minnesota
Kansas
Virginia
North Dakota
Newly Notorious
Arkansas
Missouri
Rising Above
Oklahoma
Montana
150
151
The Nation’s Judicial “Hellholes”: 2014/2015
Source: American Tort Reform Association; Insurance Information Institute
West VirginiaIllinois
Madison County
New York City Asbestos
Litigation
Watch List
Atlantic County, New Jersey
Mississippi Delta
Montana
Nevada
Newport News, Virginia
Philadelphia, Pennsylvania
Dishonorable Mention
AL Supreme Court
PA Supreme Court
California
Florida
Volkswagen: Massive tort actions, fines, penalties certain. Are others vulnerable? Issue of cheating on
environmental standards and liability looms large.
Assignment of Benefits issue
looms large in FL
www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/bob_Hartwig
Download at www.iii.org/presentations
Insurance Information Institute Online:
152