Is the World Becoming a Riskier Place?a Riskier Place? · 2014. 6. 13. · Record Tornado,,g ,...
Transcript of Is the World Becoming a Riskier Place?a Riskier Place? · 2014. 6. 13. · Record Tornado,,g ,...
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Is the World Becominga Riskier Place?a Riskier Place?
P/C Insurance Industry in theAge of UncertaintyAge of Uncertainty
Insurance Council of Texas Annual SymposiumAustin TXAustin, TX
July 15, 2011Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute ♦ 110 William Street ♦ New York, NY 10038Tel: 212.346.5520 ♦ Cell: 917.453.1885 ♦ [email protected] ♦ www.iii.org
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Presentation OutlineReview of Recent Events
What in the World is Going On?Summary of P/C Financial PerformanceyCatastrophe Loss Developments & Trends
GlobalUS
Will the Market Turn? Four Necessary Criteria:Underwriting Loss TrendsCapital/CapacityReinsurance MarketsPricing Discipline
Texas Markets: Performance OverviewProfitability and Growth
Other Contributing Factors to the Underwriting CycleInvestment Environment
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Tort/Casualty EnvironmentInflationEconomic Growth
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What in the World Is Going On?
Is the World Becoming a Riskier Place?Riskier Place?
What Are the Implications for
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Insurance and Risk Management?
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Uncertainty, Risk and Fear AboundJapan, New Zealand, Haiti, Chile EarthquakesNuclear FearsRecord Tornado, Flooding in the US, TX Wildfires, g ,Cyber AttacksResurgent Terrorism Risk (e.g., Bin Laden Killing)Political Upheaval in the Middle EastPolitical Upheaval in the Middle EastEchoes of the Financial CrisisHousing CrisisPersistently High UnemploymentPersistently High UnemploymentUS Debt and Budget CrisisSovereign Debt & Currency CrisesInflation/DeflationInflation/DeflationRunaway Energy & Commodity PricesEra of Fiscal AusterityReshuffling the Global Economic Deck
Are “Black Swans” everywhere or
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Reshuffling the Global Economic DeckChina Becomes #2 Economy in the WorldManmade Disasters (e.g., Deepwater Horizon)
everywhere or does it just seem
that way?
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P/C Insurance Industry Financial Overview
Profit Recovery Will Be Set B k b Hi h CAT LBack by High CATs, Low
Interest Rates, Diminishing
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Reserve Releases
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P/C Net Income After Taxes1991–2011:Q1 ($ Millions)
,496
65,7
77
$70 000
$80,000 2005 ROE*= 9.6%2006 ROE = 12.7%
P-C Industry 2011:Q1 profits were down 12.2% to $7.8B vs. $8.9B in 2010:Q1, as underwriting results
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$62,
0
$6
44,1
55
501
$50 000
$60,000
$70,000 2007 ROE = 10.9%2008 ROE = 0.3%2009 ROAS1 = 5.9%2010 ROAS = 6.5%2011 Q1 ROAS 5 6%
Q , gdeteriorated
8 316 ,598
24,4
04 $36
,81
$30,
773
1,86
5
$30,
029
$34,
670
$28,
672$
4
,559
$38,
5
$30,000
$40,000
$50,000 2011:Q1 ROAS = 5.6%
$14,
178
$5,8
40
$19,
3
$10,
870 $20 $2 $21
3,04
6
3,04
3
$7,8
07
$20
$10,000
$20,000
,
$
$3 $3
-$6,970-$10,000
$0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.5% ROAS for 2011:Q1, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute
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A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEsCombined Ratio / ROE
15.9%110 18%
A combined ratio of about 100 generated ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
97.5100.6 100.1 100.7 99.3
100.8102.2101.0
9 6%
5 9%14.3%
12.7%
100
105
12%
15%
92.6 6.5%7.5%7.4%
9.6%
8.9%90
95
6%
9%
4.4%
80
85
1978 1979 2003 2005 2006 2008* 2009* 2010* 2011*0%
3%
1978 1979 2003 2005 2006 2008* 2009* 2010* 2011*
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s Depressed
* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty insurers
Source: Insurance Information Institute from A.M. Best and ISO data.
Investment Environment to Generate Risk Appropriate ROEs
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Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*
25%1977:19.0% 1987:17.3%
History suggests next ROE peak will be in 2016-2017
ROE
15%
20% 1997:11.6%2007:12.3%
2011:6 1%*
10%
15%10 Years
6.1%*
5%
-5%
0%
1984: 1.8% 1992: 4.5% 2001: -1.2%1975: 2.4%
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*
*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for Q1 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
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Profitability and Growth in T P/C I M k tTexas P/C Insurance Markets
Analysis by Line and Nearby y y yState Comparisons
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RNW All Lines: TX vs. U.S., 2000-2009
20%
25%
(Percent)
10%
15%
20%
0%
5%
P/C Insurer profitability in TX is highly variable and
-15%
-10%
-5%g y
below that of the US overall over the past decade
US: 7.0%
-20%
-15%
00 01 02 03 04 05 06 07 08 09
US All Lines TX All Lines
TX: 3.7%
10Sources: NAIC.
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RNW PP Auto: TX vs. U.S., 2000-2009
25%Pvt. Passenger Auto
profitability in TX is has been somewhat below the
15%
20%been somewhat below the
US in recent years
5%
10%
-5%
0%Average 2000-2009
US: 7.2%TX: 6.1%
-10%00 01 02 03 04 05 06 07 08 09
US PP Auto TX PP Auto
11Sources: NAIC.
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RNW Comm. Auto: TX vs. U.S.,2000-2009
20%
(Percent)Commercial Auto
profitability in TX is ll b l th US
10%
15%generally below the US
average
5%
Average 2000 2009
-5%
0% Average 2000-2009US: 8.5%TX: 5.6%
-10%00 01 02 03 04 05 06 07 08 09
US Comm Auto TX Comm Auto
12Sources: NAIC.
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RNW Comm. Multi-Peril: TX vs. U.S.,2000-2009
30%
(Percent)Hurricane Ike put a big
dent in CMP profitability in 2008
0%
10%
20%in 2008
-20%
-10%
0%
Average 2000-2009
-40%
-30%
-20% Average 2000-2009US: 8.0%TX: 0.4%
-50%00 01 02 03 04 05 06 07 08 09
US Comm M-P TX Comm M-P
13Sources: NAIC.
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RNW Homeowners: TX vs. U.S.,2000-2009
50%
(Percent)Homeowners Profitability: Mold,
Hurricanes, Hail & Tornadoes(N d I S M ?)
30%
40%
50% (Need I Say More?)
0%
10%
20%
-30%
-20%
-10%
Average 2000-2009US: 4.7%
-60%
-50%
-40%
00 01 02 03 04 05 06 07 08 09
TX: -2.3%
14Sources: NAIC.
00 01 02 03 04 05 06 07 08 09
US HO TX HO
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RNW Workers Comp: TX vs. U.S.,2000-2009
20%
(Percent)Workers comp
profitability in TX has ll
15%
generally outperformed the US
5%
10%
Average 2000 2009
0%
Average 2000-2009US: 6.4%TX: 9.2%
-5%00 01 02 03 04 05 06 07 08 09
US WComp TX WComp
15Sources: NAIC.
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All Lines: 10-Year Average RNW TX & Nearby States
2000-2009
7.0%
10.5% New Mexico
U.S.Texas All Lines profitability
is below the US and regional average
6.0%
6.9% Arkansas
Oklahoma
regional average
-9.3%
13 0%
3.7%Texas
Mississippi-13.0%
-15% -10% -5% 0% 5% 10% 15%
Louisiana
Source: NAIC, Insurance Information Institute
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PP Auto: 10-Year Average RNW TX & Nearby States
2000-2009
7.2%
11.1% New Mexico
U.S.
7.6%
6.8% Arkansas
Oklahoma
4.7%
0 8%
6.1%Texas
Mississippi
Texas PP Auto profitability is below the US and regional
average0.8%
0% 2% 4% 6% 8% 10% 12%
Louisiana
Source: NAIC, Insurance Information Institute
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Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2008 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure1 D.C. $1,126 1 North Dakota $5032 Louisiana 1,105 2 Iowa 5193 New Jersey 1,081 3 South Dakota 5204 Florida 1,055 4 Nebraska 5475 New York 1,044 5 Idaho 5626 Delaware 1,007 6 Kansas 5767 Rhode Island 986 7 Wisconsin 5818 Nevada 970 8 North Carolina 5959 Connecticut 950 9 Maine 60010 Maryland 922 10 Indiana 612
Texas ranked 15th in 2008, with an average expenditure for auto insurance of $854.
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(1) Based on average automobile insurance expenditures.
Source: © 2010 National Association of Insurance Commissioners.
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Comm. Auto: 10-Year Average RNW TX & Nearby States
2000-2009
8.5%
11.1% New Mexico
U.S.
7.2%
6.1%
5 6%
Arkansas
Oklahoma
3.1%
-3.8%
5.6%Texas
Mississippi
Texas Commercial Auto profitability is below the US and regional average
-5% 0% 5% 10% 15%
Louisiana
Source: NAIC, Insurance Information Institute
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Comm. M-P: 10-Year Average RNW TX & Nearby States
2000-2009
8.0%
13.3% New Mexico
U.S.
Texas Commercial Multi-Peril profitability
is below the US and i l
11.0%
6.4% Arkansas
Oklahoma
regional average
-10.0%
20 2%
0.4%Texas
Mississippi-20.2%
-30% -20% -10% 0% 10% 20%
Louisiana
Source: NAIC, Insurance Information Institute
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Homeowners: 10-Year Average RNW TX & Nearby States
2000-2009
4.7%
12.0% New Mexico
U.S.
-1.6%
-6.9% Arkansas
Oklahoma
-29.0%
32 4%
-2.3%Texas
Mississippi
Texas Homeowners profitability is below the US and regional
average-32.4%
-40% -30% -20% -10% 0% 10% 20%
Louisiana
Source: NAIC, Insurance Information Institute
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Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2008 (1)
M t A L t A
Texas ranked as the most expensive state for homeowners insurance in 2008, with an average expenditure of $1,460.
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure1 Texas (3) $1,460 1 Idaho $3872 Florida (4) 1,390 2 Utah 4323 Louisiana 1 155 3 Oregon 4393 Louisiana 1,155 3 Oregon 4394 Oklahoma 1,048 4 Washington 4715 Massachusetts 1,026 5 Wisconsin 5036 New York 983 6 Delaware 5357 C ti t 980 7 Ohi 5657 Connecticut 980 7 Ohio 5658 Mississippi 980 8 Maine 5729 D.C. 926 9 Pennsylvania 58610 Kansas 916 10 Kentucky 601
(1) States with the same premium receive the same rank.(2) 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.(3) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms.(4) Florida data excludes policies written by Citizen's Property Insurance Corporation, the state's insurer of last resort, and therefore are not directly
comparable to other states.
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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: © 2010 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.
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Workers Comp: 10-Year Average RNW TX & Nearby States
2000-2010
6.4%
8.7% New Mexico
U.S.
3.7%
13.2% Arkansas
OklahomaTexas Workers
Comp profitability is
9.5%
9 9%
9.2%Texas
Mississippi
above the US average but similar
to the regional average
9.9%
0% 5% 10% 15%
Louisiana
Source: NAIC, Insurance Information Institute
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All Lines DWP Growth: TX vs. U.S., 2001-2010
0.5%25%
(Percent)2.
0% 14.3
%
%
15.7
%
20
15%
20%
1
9.8%
7.4%
2% .4%
%
7.9%
%
6.2%
3.7% 9% %5%
10%
2.2 3
0.5 %
%
0.0%0.3% 1.
4 % 3 2.
6%
0.7 %
0%
5%
-2.1
%
-3.3
%-1
.6
-10%
-5%
01 02 03 04 05 06 07 08 09 10
24Source: SNL Financial.
01 02 03 04 05 06 07 08 09 10US DWP: All Lines TX DWP: All Lines
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Comm. Lines DWP Growth: TX vs. U.S., 2001-2010
35%
(Percent)% 9.
0%
9.2%
27.2
%
25%
30%
35%
15.3
% 19
11.4
%
5% % 4%
19
9.2%
%
10.4
%
%10%
15%
20%
4.5
3.3% 5.
4
0.2%
2% %
0.1% 2.
3 % 4.1%
0.0%
9%-5%
0%
5%
-1.2
-7.3
% -2.5
%
-7.4
%
-0. 9
-15%
-10%
-5%
01 02 03 04 05 06 07 08 09 10
25Source: SNL Financial.
01 02 03 04 05 06 07 08 09 10US DWP: Comm. Lines TX DWP: Comm. Lines
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Personal Lines DWP Growth: TX vs. U.S., 2001-2010
6.8%20%
(Percent)
11.1
%
%11.
3%
115%
8.2% 9.
2 %
5.4%
% % %
7.2%
% %
5.4%
4.3%
%5%
10%
2.3%
2.3%
1.2%
-0.1
%
1.1% 2
.5%
1.3%
0.5%
2.4 % 3.0 4
2.2%
0%
5%
01 02 03 04 05 06 07 08 09 10
-5%
01 02 03 04 05 06 07 08 09 10
US DWP: Personal Lines TX DWP: Personal Lines
26Source: SNL Financial.
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Private Passenger Auto DWP Growth: TX vs. U.S., 2001-2010
%
20%
(Percent).2
% 10.2
%
9%
11.3
% 13.6
%
6% %10%
15%
8. 7.9
3.6%
.6%
.5%
0% 1% 1.5%
7.6
1.4% 1.8%
2.0%
6.3 %
3.5%
1.4%
5%
0%
0. 0. 0.0
-0.1 1
0.4%
0.4%-5%
0%01 02 03 04 05 06 07 08 09 10
-0-0
-10%US DWP: Personal Lines TX DWP: Personal Lines
27Source: SNL Financial.
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Homeowner’s MP DWP Growth: TX vs. U.S., 2001-2010
5.7%
30%
(Percent)
%2
20%
25%
%
14.4
%
13.5
%
11.1
%
% %
11.5
%15%
8.3
7.3%
7.4%
4.2%
5%
3.9% 4.
9%6.3%
9% 2.6
%
3.5% 5
.3%
3.5%
6.0%
3.6%5%
10%
0.50.9
0%01 02 03 04 05 06 07 08 09 10
US DWP: Personal Lines TX DWP: Personal Lines
28Source: SNL Financial.
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Catastrophe Loss pDevelopments and Trends
2011 and 2010 Are Rewriting C t t h L dCatastrophe Loss and
Insurance History
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Global Catastrophe Loss Summary: First Half 2011
2011 Is Already (as of June 30) the Highest Loss Year on Record GloballyExtraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods and tornadoes are the primary causes of lossand tornadoes are the primary causes of loss
$260 Billion in Economic Losses GloballyNew record for the first six months, exceeding the previous record of $220B in 2005
Economy is more resilient than most pundits presume
$55 Billion in Insured Losses GloballyMore than double the first half 2010 amount
Over 4 times the 10-year average
$27 Billion in Economic Losses in the US$Represents a 129% increase over the $11.8 billion amount through the first half of 2010
$17.3 Billion in Insured Losses in the US Arising from 100 CAT EventsRepresents a 162% increase over the $6.6 billion amount through the first half of 2010
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Insured Loss Estimates for Selected Major Catastrophes in 2011
Japan Earthquake
April Tornadoes
May (Joplin)
Tornadoes
Eqecat $22 to $39 billion
$5 billion to $7 billion
$1 billion to $3 billionbillion $7 billion $3 billion
RMS $21 to 34 billion
$3.5 to $6 billion
$2 to $6 billion
$20 billi t $5 billi t $2 t $6AIR $20 billion to $30 billion
$5 billion to $7 billion
$2 to $6 billion
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US Second Quarter Insured Catastrophe Losses, 2000–2011$ Billions
2011:Q2 CAT losses totaled
$ $15.09
$12
$14
$16Q2 CAT losses from 2000-2010 average $4.0 billion. 2011:Q2
CAT losses were nearly 4 times that amount at $15.09 billion
$15.09 billion and are the highest on
record
$7.11$6.38$6.24
$8
$10
that amount at $15.09 billion
$5.04
$2.30
$4.47
$0.93$2.33
$5.05
$2.79$1.46$2
$4
$6
$0.93
$02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Record Q2 (and First Half) CAT Losses Will Adversely Impact Insurer
32Sources: ISO/PCS; Insurance Information Institute.
Record Q2 (and First Half) CAT Losses Will Adversely Impact Insurer Results in 2011
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Top 15 Most Costly World Insurance Losses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
$72.3
$60$70$80
Three of the top 15 most expensive catastrophes in
world history have occurred in
$20 5 $20 8 $23.1 $24.9$35.0
$30$40$50$60 y
the past 18 months
$11.3 $14.0 $14.9$20.5 $20.8 $
$10.0$9.3$9.0$8.0$8.0$7.8
$0$10$20
Winter Chile Hugo TyphoonCharley New Rita Wilma Ivan Ike Northridge WTC Andrew Japan KatrinaeStormDaria(1991)
C eQuake(2010)
ugo(1989)
yp ooMirielle(1991)
C a ey(2004)
eZealandQuake(2011)
a(2005)
a(2005)
a(2004)
e(2008)
o dge(1994)
CTerrorAttack(2001)
d e(1992)
JapaQuake,
Tsunami(2011)*
a a(2005)
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*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.
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Top 16 Most Costly World Insurance Losses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
T k i l h
3 of the top 15 most expensive
catastrophes in world
$72.3
$60$70$80
Taken as a single event, the Spring 2011 tornado season would likely become the 9th
history have occurred in the past 18 months
$20 5$20 8 $23 1$24.9$35.0
$30$40
$50$60 costliest event in global
insurance history
$11.3$14.0 $14.0$14.9$20.5$20.8 $23.1
$10.0$9.3$9.0$8.0$8.0$7.8
$0$10$20$
Winter Chile Hugo Typhoon Charley New Rita Spring Wilma Ivan Ike Northridge WTC Andrew Japan KatrinaWinterStormDaria(1991)
ChileQuake(2010)
Hugo (1989)
TyphoonMirielle(1991)
Charley(2004)
NewZealandQuake(2011)
Rita (2005)
SpringTornadoes
(2011)
Wilma(2005)
Ivan (2004)
Ike (2008)
Northridge(1994)
WTCTerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)*
Katrina(2005)
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*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.
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Worldwide Natural Disasters,1980 – 2011*
600Number of Events Already 355 events
through the first 6 months of 2011
400
500
months of 2011
300
100
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Meteorological events Hydrological events Climatological eventsGeophysical events
*2011 figure is through June 30.Source: MR NatCatSERVICE 35
Meteorological events(Storm)
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami, volcanic eruption)
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Worldwide Natural Disasters 1980–2011,Overall and Insured Losses*
300
First Half 2011Overall Losses: $265 Bill
250
Insured Losses: $60 Bill
S$b
n 150
200
US
100
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
36
Overall losses (in 2011 values) Insured losses (in 2011 values)
*2011 figure is through June 30.Source: MR NatCatSERVICE © 2011 Munich Re
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
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JAPAN EARTHQUAKE/TSUNAMI &JAPAN EARTHQUAKE/TSUNAMI & NUCLEAR DISASTER
March 11 Quake/Tsunami Is Just the Most Recent of S l L Gl b l C t t h LSeveral Large Global Catastrophe Losses
37
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Insured Japan Earthquake Loss Estimates*
(Insured Losses, $ Billions)
Eqecat $22 ‐ $39 bn
Economic lossesRMS $21 - $34 bn
Economic losses are likely to total in
the $200-$300 billion range,
meaning only aAIR Worldwide $20 ‐ $35 bn
meaning only a fraction of the loss
is insured
$ $5 $10 $15 $20 $25 $30 $35 $40 $45 $50
Towers Watson $20 ‐ $45 bn
$‐ $5 $10 $15 $20 $25 $30 $35 $40 $45 $50
38
*As of June 17, 2011. Towers Watson estimate includes $3.0 (low) to $4.9 billion (high) in life insurance losses. RMS estimate includes insured life/health losses of $3 to $8 billion.Sources: AIR Worldwide, Eqecat, RMS, Towers Perrin; Insurance Information Institute.
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Recent Major Non-US Catastrophe Losses(Insured Losses, $US Billions)
$40 The March 2011 earthquake in Japan will $35.0
$25$30
$35$40 q p
become among the most expensive in world history in terms of insured losses (current
leader is the 1994 Northridge earthquake with $22.5B in insured losses in 2010 dollars)
$10.0$8.0$5.0
$10$15$20
)
$2.0$0.5$0$5
Cyclone Yasi(Australia) Feb
2011
Australia Floods(Dec - Feb 2011)
New ZealandQuake (Sep 2010)
Chile Earthquake(Feb 2010)
New ZealandQuake (Feb 2011)
Japan Earthquake(Mar 2011)
2011
Insured Losses from Recent Major Catastrophe Events Exceed $60 Billion, an Estimated $53 Billion of that from Earthquakes
39Sources: Insurance Council of Australia, Munich Re, AIR Worldwide; Insurance Information Institute.
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Nonlife (P/C) Insurance Market Impacts of Japan Earthquake
No Direct Impact for US Domestic Primary InsurersBUT: $2 - $5 Billion in Assumed Loss from Foreign Catastrophes Will Wind Up on the Books of US Insurers, Most with No Direct Exposure to Japan/Australia/NZ
US reinsurersUS reinsurersRetrocessional marketBlanket property insurance covers
Primary Insurance: Domestic Japanese Insurers Take Big LossesFew US/Foreign Insurers Had Direct Exposure to Japanese P/C Market
Low single-digit market share for a small number of companiesSignificant Absorption of Loss by Japanese Government
Residential earthquake damageq gNuclear-related property and liability damage
Significant Impacts for Global ReinsurersProperty-Catastrophe covers on Commercial LinesBusiness Interruption/Contingent Business Interruption
Supply Chain Disruption Concern (Now Waning)Currently an Earnings Event for Global Reinsurers
Not a capital event: Global reinsurance markets entered 2011 with record capitalCost of Property/Cat Reinsurance Rising in Japan New Zealand Australia
40
Cost of Property/Cat Reinsurance Rising in Japan, New Zealand, AustraliaUp for all; Magnitude of increase is sensitive to size of loss
Impact on Cost of US Property-Cat Reinsurance is Possible/LikelyMarket remains well capitalized and competitive
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SPRING 2011 TORNADO OUTBREAK
2011 Will Be Among the Most Deadly and g yExpensive for Tornadoes In History
41
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Insured Loss Estimates from April 2011 Tornadoes*
(Insured Losses, $ Billions)
Eqecat $5 ‐ 7 bn The April tornadoes killed
RMS $3.5 - $6.0 bn
more that 300 people and
caused as much as $7 billion in
AIRW ld id $ $
as $7 billion in insured losses
$ $1 $2 $3 $4 $5 $6 $7 $8 $9 $10
AIR Worldwide $5 ‐ $7 bn
$‐ $1 $2 $3 $4 $5 $6 $7 $8 $9 $10
42
*As of June 17, 2011. Sources: AIR Worldwide, Eqecat, RMS; Insurance Information Institute research.
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Insured Loss Estimates from May 2011 (Joplin) Tornadoes*
(Insured Losses, $ Billions)
Eqecat $1 ‐ $3 bn The May tornadoes killed
RMS $2 - $6 bn
more that 125 people and
caused as much as $6 billion in
AIRW ld id
as $6 billion in insured losses
$ $1 $2 $3 $4 $5 $6 $7 $8 $9 $10
AIR Worldwide $2 ‐ $6 bn
$‐ $1 $2 $3 $4 $5 $6 $7 $8 $9 $10
43
*As of June 17, 2011. Sources: AIR Worldwide, Eqecat, RMS; Insurance Information Institute research.
-
Summary of Recent Tornado Activity
There Have Been 1,585 Tornadoes Through June 30 in the US
537 People Have Been Killed
The April 27 Tornado Outbreak Killed at Least 342 PeopleNow the 2nd deadliest outbreak in US history (747 killed in march 1925 event)
States impacted: AR, TN, LA, MS, GA and especially AL
Insured Losses Estimated at $3.5B to $7B
Economic Losses Likely in the $7 Bill to $14 Bill RangeEconomic Losses Likely in the $7 Bill to $14 Bill Range
The May 22 Tornado in Joplin, MO, Killed at Least 130 PeopleLargest number of deaths from a single tornadoLargest number of deaths from a single tornado
Insured Losses Estimated at $1B to $6B
P/C Insurance Industry is Very Strong and Will Encounter No
44
y y gDifficulties in Paying these Claims
-
Number of Tornadoes and Related Deaths, 1990 – 2011*
6921,819
5
5371 800
2,000 600Number of Tornadoes
Number of Deaths
Tornadoes have already claimed more than 500 lives
33 32
1,29
7
173
2 1,23
4
173
48
1,42
4
1,34
5
1 1,21
6 1,37
6
1,26
4
03 98
1,6
156 1,28
2
1,58
5
1,400
1,600
1,800
does
400
500
Num
1,13
1,13 1,1
1,08
2 1
1,1
1,1
1,07
1 1
941
1,10
1,09 1,
1
800
1,000
1,200
ber o
f Tor
nad
300
mber of D
eaThere were already
200
400
600
Num
b
100
200
aths
y1,585 tornadoes in the US by June 30
0
200
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P0
Insurers Expect to Pay $2 Billion on 165 000 Claims Arising from the
45
*2011 is preliminary data through June 30.Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
Insurers Expect to Pay $2 Billion on 165,000 Claims Arising from the April 2011 Tornadoes in the Birmingham and Tuscaloosa Areas
-
Insurers Making a Difference in Impacted Communities
Destroyed home in Tuscaloosa. Insurers will pay some 165 000will pay some 165,000
claims totaling $2 billion in the Tuscaloosa/
Birmingham areas alone.
P t ti f h kPresentation of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm
Source: Insurance Information Institute 46
Recovery Fund
-
U.S. Tornado Count, 2005-2011*
There were 1,585 tornadoes i h US i 2010 li h l
Tornado in the US in 2010, slightly
above averageactivity was off its record pace
by mid-year
Deadly and costly April/ May spike
47Source: http://www.spc.noaa.gov/wcm/ *Through July 2.
-
Location of Tornadoes in the US, January 1—June 30, 2011
1 585 tornadoes1,585 tornadoes killed 537 people through June 30, including at least 340 on April 26340 on April 26 mostly in the
Tuscaloosa area, and 130 in Joplin
on May 22on May 22
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 48
-
Location of Large Hail Reports in the US, January 1—June 30, 2011
There were 7,176 “Large Hail”
reports through June 30, causing
extensive damage to homes,
businesses and vehicles
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 49
-
Location of Wind Damage Reports in the US, January 1—June 30, 2011
There were 11,283 “Wind Damage” reports through
June 30 causingJune 30, causing extensive damage
to homes and, businesses
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 50
-
Severe Weather Reports,January 1—June 30, 2011
There have been 20,044
severe weather reports through
June 30; ;including 1,585
tornadoes; 7,176 “Large Hail” reportsHail reports
and 11,283 high wind events
51Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
-
Number of Severe Weather Reports in US, by Type: January 1—June 30, 2011
Tornadoes, ,1,585 , 8%
Large HailLarge Hail, 7,176 , 36%
Wind DamageDamage,
11,283 , 56%Tornadoes accounted
for just 8% of all Severe Weather Reports through J 30 b tJune 30 but more than 500 deaths
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
-
US CATASTROPHE INSURED LOSS UPDATE
First Half 2011 CAT Losses Already Exceed All of 2010 and Could Become One of the Most
Expensive Years on Record
53
-
US Insured Catastrophe Losses
$100
.0$120$100 Billion CAT Year is
Coming Eventually($ Billions)
$61.
9
$
$60
$80
$100 Record Tornado Losses Caused
H1 CAT Losses to Surge
2000s: A Decade of Disaster2000s: $193B (up 117%)
1990s: $89B
3 4 0.1
3
$26.
5
9 12.9 $
27.5
2 7
$27.
1
0.6
13.6
$17.
3
5 $22
.9
5 $16.
9
$20
$40
$60$8
.3
$7.4
$2.6 $1
0
$8.3
$4.6
$5.9 $1 $9.
$6.7 $10
$1 $
$7.5
$2.7
$4.7
$5. 5 $
$0
$20
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??
First Half 2011 US CAT Losses Already Exceed Losses from All of 2010. Even Modest Hurricane Losses Will Make 2011 Among the
Most Expensive Ever for CATs
54
*First half 2011.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.
-
Natural Disaster Losses in the United States: First 6 Months 2011
As of July 6, 2011
Number of Events Fatalities
Estimated Overall Losses (US $m)
Estimated Insured Losses (US $m)
SevereThunderstorm 43 593 23,573 16,350
Winter Storm 8 15 1,900 1,425
Flood 8 15 2,100 in progress
Earthquake 2 1 105 in progress
Tropical Cyclone 0 0 0 0
Wildfire 37 7 125 50Wildfire 37 7 125 50
55Source: MR NatCatSERVICE
-
Top 12 (13?) Most Costly Disastersin U.S. History
(Insured Losses, 2010 Dollars, $ Billions)
$45.8
$40$45$50
Taken as a single event, the Spring 2011 tornado season
would likely become 5th costliest
$$17.5
$22.6 $23.1
$20$25$30$35$ y
event in US insurance history
$11.5 $12.8$14.0
$8.6$8.2$6.7$6.3$5.3$4.3
$0$5
$10$15$20
$0Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
SpringTornadoes*
(2011)
Northridge(1994)
Andrew(1992)
9/11 Attack(2001)
Katrina(2005)
56
*Losses will actually be broken down into several “events” as determined by PCS.Sources: PCS; Insurance Information Institute inflation adjustments.
-
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2011:H1*
810
Avg. CAT Loss Component of theCombined Ratio
by Decade
Combined Ratio Points
8.8
5.9
4
8.1
6789
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31
0 0
3.0
1 .35
3.3
2.8 3
.62.
9
5.4
3.3
3.3
2.7
5.0
2.6 3
.35.
0
3.6
3456 1990s: 3.39
2000s: 3.52 2010s: 4.15*
0.4 1
.20.
4 0.8 1.
30.
3 0.4 0.
7 1.5
1.0
0.4
0.4 0.
71.
81.
10.
6 1.4 2
.01.
3 2.0
0.5
0.5 0.7 1.
2 2. 1 2.
1.0 1
.6 1.6
21.
6
2
0.9
0.1
1.1
1.1
0.8
0123
0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 E
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
E
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
57
*Insurance Information Institute estimates for 2010 and 2011:H1Notes: 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; Insurance Information Institute.
Increased Sharply in Recent Decades
-
Natural Disasters in the United States, 1980 – 2011*Number of Events (Annual Totals 1980 – 2010 and First Half 2011)u be o e ts ( ua ota s 980 0 0 a d st a 0 )
300
There were 98 natural
200
250
There were 98 natural disaster events in the first
half of 2011
Num
ber
150
200
N
50
10037
8
Geophysical ClimatologicalMeteorological (storm)
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
51
2
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
*Through June 30.Source: MR NatCatSERVICE 58
-
U.S. Thunderstorm Loss Trends, 1980 – 2011*
Thunderstorm losses in the first half of 2011 totaled $16.4 billion, a new
annual record through just 6 months
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss
Average thunderstorm losses are up more
producers of large scale loss. 2008-2011 are the most expensive
years on record.
losses are up more than 8 fold since the
early 1980s
59*Through June 30, 2011.Source: Property Claims Service, MR NatCatSERVICE
-
U.S. Winter Storm Loss Trends, 1980 – 2010 (Annual Totals) vs. First Half 2011
Insured winter storm losses in 2011 totaled $1.4 billion
and are up 50% since 1980and are up 50% since 1980.
Source: Property Claims Service, MR NatCatSERVICE 60
-
U.S. Acreage Burned by Wildfires, 1980 – 2010 (Annual Totals) vs. First Half 2011
2011 could be a severe year for wildfire damage. Acresfor wildfire damage. Acres
burned through June 30 already exceed all of 2010.
Source: National Forest Service, MR NatCatSERVICE 61
-
Notable Wildfires in 2011
April – JuneApril – June
Texas: Over 3 million acres burned in west Texas from 12 major
Texas: Over 3 million acres burned in west Texas from 12 major seats of fire. Over 200 homes and businesses destroyed, $50 million
seats of fire. Over 200 homes and businesses destroyed, $50 million insured loss.
Arizona and New Mexico:
insured loss.
Arizona and New Mexico: “Wallow” fire largest in AZ history at 538,000 acres, Las Conchas fire near Los
“Wallow” fire largest in AZ history at 538,000 acres, Las Conchas fire near Los Alamos, 30 buildings destroyed.Alamos, 30 buildings destroyed.
Source: NASA
62Source: Munich Re.
-
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990–2011:H11
2.4%
Fires (4), $9.0
Geological Events, $18.5
Wind/Hail/Flood (3), $12.7
Other (5), $0.6
0.2%3.4%4.9%
6.6%
Terrorism, $24.9
8.0%42.7%
Hurricanes & Tropical Storms, $160.5
Winter Storms, $30.0
Tornado share of CAT l i
31.8%
T d (2) $119 5
Wind losses are by far cause the most catastrophe losses,
if h i /TS
CAT losses is rising
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2 E l d
Tornadoes (2), $119.5 even if hurricanes/TS are excluded.
63
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.
-
Number of Federal Disaster Declarations, 1953-2011*
75 75
81
80
90The number of federal
disaster declarations is on track to set a new record in
There have been 1,998 federal disaster
declarations since 1953 The average
8
7
6550 9
5669
8 52
637
598
60
702011, with 48 declarations
through July 1.1953. The average
number of declarations per year is 34 from
1953-2010, though that few haven’t been
recorded since 1995
25 25
29
48 46 4638
30
2542
3 4
3427 2
83
3138
4532
3632
44
545 45
49 48 48
43
30
40
50 recorded since 1995.
1317 1
816 16
7 712 12
22 202 2
11 1119 17 17
222 23
152
21 23
11
10
20
0
53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
The Number of Federal Disaster Declarations Is Rising
*Through July 1, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
g
-
Federal Disasters Declarations by State, 1953 – June 30, 2011: Highest 25 States
100Over the past
nearly half century Texas
8578
0
8090
100
s
century, Texas has led the US in Federal Disaster
Declarations
7063 63
56 55 54 52 52 51 50 49 7 6 6506070
clar
atio
ns
5 4 47 46 46 45 45 44 44 44 42 42 39 39
304050
sast
er D
e
102030
Di
65
0TX CA OK FL NY LA AL KY AR MO IL MS TN MN IA WV KS NE OH PA WA ND VA IN NC
Source: FEMA.
-
Federal Disasters Declarations by State, 1953 – June 30, 2011: Lowest 25 States
50
39 3836 5 5
40
50
s 3 35 3530 29
2725 25 25 25 4 3 3
30
clar
atio
ns
2 2 2 2 2 23 2320 20
17 16 15 1513
20
sast
er D
e
19 8 8 810
Di
66
0SD ME GA AK WI VT NJ OR HI MA MI NH AZ ID NM MD MT NV CO CT SC DE DC RI UT WY
Source: FEMA.
-
The BIG Question:When Will the Market Turn?
Insurance Cycle Dynamics
67
-
Criteria Necessary for a “Market Turn”:All Four Criteria Must Be Met
Criteria Status Comments
Sustained •Apart from Q2:2011, overall p/c underwriting losses remain d tPeriod of
Large Underwriting
Losses Not Yet Happened
modest•Combined ratios (ex-Q2 CATs) still in low 100s (vs. 110+ at onset of last hard market)•Prior-year reserve releases continue reduce u/w losses, b t ROEHappened boost ROEs
Material Decline in Surplus/ Surplus is
•Surplus hit a record $565B as of 3/31/11•Analysts est. excess surplus of $75-$100B•Some excess capacity may still remain in reinsurance
k tSurplus/ Capacity
Surplus is At/Near
Record High
markets•Weak growth in demand for insurance is insufficient to absorb much excess capacity
Tight R iReinsurance
MarketSomewhat in
Place•Higher prices in Asia/Pacific•Modestly improved pricing for US risks
Renewed Underwriting
•Commercial lines pricing trends remain negative•Competition remains intense as many seek to maintain
68
Underwriting & Pricing Discipline
Not Broadly Evident
•Competition remains intense as many seek to maintain market share•Terms & conditions—no broad tightening
Sources: Barclays Capital; Insurance Information Institute.
-
Do the Property Catastrophe Events of 2011 Impact Casualty Markets?
Unlikely that Record 2011 Property CAT Loss Will Impact Casualty Markets in Any Material Way Global P/C & Reinsurance Industries Entered 2011 w/ Record CapitalGlobal P/C & Reinsurance Industries Entered 2011 w/ Record Capital
Events so far in 2011 are earnings events, rather than capital events
Natural Catastrophe and Casualty Risks Are Largely UncorrelatedRisks are different
Geographically, mostly distinct primary carriers: Japan-Australia-NZ-US
Casualty markets generally don’t influence property markets
Property and Casualty Risks Are Largely SiloedRecord Property Losses in 2004/2005 Did Not Impact Casualty MktsRecord Property Losses in 2004/2005 Did Not Impact Casualty Mkts.Casualty Markets Have Their Own Issues
Tort environment
69
Inflation
Public policy
-
1 UNDERWRITING1. UNDERWRITING
Have Underwriting Losses gBeen Large Enough for Long Enough to Turn the Market?
70
Enough to Turn the Market?
-
P/C Insurance Industry Combined Ratio, 2001–2011:H1*
As Recently as 2001, Insurers Paid Out
Nearly $1 16 for Every
Relatively Low CAT L
Heavy Use of Reinsurance Lowered Net
Relatively Low CAT L
Higher CAT
Losses, Shrinking Nearly $1.16 for Every
$1 in Earned Premiums
Losses, Reserve Releases
Lowered Net Losses Losses, Reserve
Releases
A CAT
gReserve
Releases, Toll of Soft
Market
115.8120
Best Combined
Ratio Since 1949 (87 6)
Cyclical Deterioration
Avg. CAT Losses,
More Reserve Releases
99 3100.8
107.5
101.0100.8100.1
107.51101949 (87.6)
95.7
99.3
92.6
98.4
90
100
71
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=109.1 Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
902001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
-
Underwriting Gain (Loss)1975–2011*
$35 Cumulative underwriting deficit f 1975 th h
($ Billions)Underwriting
losses in 2011 will be
much larger: $17 9B
$5
$15
$25 from 1975 through 2009 is $445B
$17.9B based on
annualized Q1 data
$25
-$15
-$5
-$45
-$35
-$25
The industry recorded a $10.4B underwriting loss in 2010 compared
to $3 0B in 2009
Large Underwriting Losses Are NOT Sustainable
-$5575 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 1011*
to $3.0B in 2009
* Includes mortgage and financial guaranty insurers in all years. 2011 figure is annualized based on actual Q1 underwriting losses of $4.463 billion.Sources: A.M. Best, ISO; Insurance Information Institute.
in Current Investment Environment
-
Number of Years with Underwriting Profits by Decade, 1920s–2010s
10
12Number of Years with Underwriting Profits
8
10
76
8
10
3
54
6
4
6
0 0 00
2
1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s* 2010s**
Underwriting Profits Were Common Before the 1980s (40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –
But Then They Vanished. Not a Single Underwriting Profit Was Recorded in the 25 Years from 1979 Through 2003
73
* 2009 combined ratio excluding mortgage and financial guaranty insurers was 99.3, which would bring the 2000s total to 4 years with an underwriting profit.**Data for the 2010s includes 2010 and 2011.Note: Data for 1920–1934 based on stock companies only.Sources: Insurance Information Institute research from A.M. Best Data.
Recorded in the 25 Years from 1979 Through 2003
-
P/C Reserve Development, 1992–2011E
23.2$25$30
$B)
6
8 Impac
Prior Yr. ReserveDevelopment ($B)
Prior year reserve releases totaled $8.8
billion in the first half of 2010 up from
11.7 13.7 9.97.3
$
$10
$15
$20
e R
elea
se ($
2
4
6 ct on Com
b
Impact onCombined Ratio
half of 2010, up from $7.1 billion in the first half of 2009
2.3
-2.1 -2.6-6 6
-4.1
1
6 7 -5$10-$5
$0
$5
rYr.
Res
erve
-2
0
ined Ratio (
-8.3 -6.6 -9.9 -9.8-6.7
-9.5-14.6-16 -15-$20
-$15
-$10
2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 E E
Prio
r
-6
-4
(Points)
92 9 94 9 9 9 9 9 0 0 02 0 0 4 0 0 0 0 0
10E
11E
Reserve Releases Are Remained Strong in 2010 But Should Begin to Taper Off in 2011
74
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: Barclay’s Capital; A.M. Best.
-
2 SURPLUS/CAPITAL/CAPACITY2. SURPLUS/CAPITAL/CAPACITY
Have Large Global Losses Reduced C it i th I d t S ttiCapacity in the Industry, Setting
the Stage for a Market Turn?
75
-
US Policyholder Surplus:1975–2011*
$600
($ Billions)
Surplus as of 3/31/11 was a record $564.7B, up from $437 1B at the crisis trough at 3/31/09 Prior
$400$450$500$550 from $437.1B at the crisis trough at 3/31/09. Prior peak was $521.8 as of 9/30/07. Surplus as of 3/31/11
was 8.2% above 2007 peak; Crisis trough was as of 3/31/09 16.2% below 2007 peak.
$250$300$350$400
“Surplus” is a measure of
$50$100$150$200 underwriting capacity. It is
analogous to “Owners Equity” or “Net Worth” in
non-insurance organizations
$0$50
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11*
organizations
The Premium-to-Surplus Ratio Stood at $0.77:$1 as of
* As of 3/31/11.Source: A.M. Best, ISO, Insurance Information Institute.
The Premium to Surplus Ratio Stood at $0.77:$1 as of3/31/11, A Near Record Low (at Least in Recent History)**
-
Policyholder Surplus, 2006:Q4–2011:Q1
($ Billions)
$564 7$580
2007:Q3Previous Surplus Peak Surplus set a new
record in 2011:Q1*
$512.8$521.8
$511.5
$540.7$530.5
$544.8$556.9
$564.7
$505 0$515.6$517.9$520
$540
$560
$487.1$496.6
$478.5
$455.6$463.0
$490.8$505.0
$460
$480
$500
The Industry now has $1 of surplus for every $0.77 of
NPW th t t l i$437.1
$420
$440
$460
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
NPW—the strongest claims-paying status in its history.
Quarterly Surplus Changes Since 2007:Q3 Peak
09:Q1: -$84.7B (-16.2%)09:Q2: -$58.8B (-11.2%)
10:Q1: +$18.9B (+3.6%)10:Q2: +$8.7B (+1.7%)
*Includes $22.5B of paid-in capital from a holding company parent for one
’
77Sources: ISO, A.M .Best.
09:Q2: $58.8B ( 11.2%)09:Q3: -$31.0B (-5.9%)09:Q4: -$10.3B (-2.0%)
Q $ ( )10:Q3: +$23.0B (+4.4%)10:Q4: +$35.1B (+6.7%)11:Q4: +$42.9B (+8.2%)
insurer’s investment in a non-insurance business in early 2010.
-
Implied Excess (Deficit) Capital Assuming Premium/Surplus Ratio = 0.9:1
Excess/(Deficit) Capital (Policyholder Surplus)
$81.921.6%100 25%
Annual Change in Policyholder Surplus
2000-2002: Tech bubble bursts,
/
2006/07: Low CAT losses, strong underwriting results since 1940s
i it l
2009-10: End of financial crisis,
rising asset prices. modest
u/w losses h it l t
$22.9$41.714.4%13.4%50
10%
15%
20%9/11, high
underwriting losses erode capital base
increase capital push capital to record levels
($10.6)
$
($10.8)($32.7)
($49.2)
8.9%12.3%6.2%
-5.1%
8.2%-50
0
0%
5%
10%
2008: Financial ($65.4)
($124.6)($103.0)
($76.5)
-12.0%-8.8%
-1.5%
-150
-100
-15%
-10%
-5%2005: Katrina, Rita, Wilma
produce record CAT losses
crisis causes sharp drop in
capital
1502000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
15%
Capital Excess (Deficit) Annual Change in CapitalRecord Policyholder Surplus (Capital) Has Resulted Significant Excess Capital in the P/C Insurance Sector As of Year End 2010 Deteriorating Underwriting Losses HigherP/C Insurance Sector As of Year End 2010. Deteriorating Underwriting Losses, Higher CAT Activity, More Modest Market Returns Will Likely Shrink Excess Capital in 2011.
Note: The assumption of a 0.9:1 P/S ratio is derived from a Feb. 2011 announcement by Advisen, Ltd., that the US P/C insurance industry has $74 billion in excess capital. The implied P/S ratio (calculated by III) is 0.88:1, which was rounded to 0.9:1.
Source: Insurance Information Institute calculations from A.M. Best and ISO data. * Net Premiums Written
-
M&A Activity Globally Among P/C Insurers Remains Subdued: Little Capacity Leaving
5.1 .2 .4 3.9
6.5
2010
Property-Casualty Life-Annuity Health/Managed Care Distribution Services
.4
$45
8
$1
8
$2
4
$13
.0$1
62010$2
4.
$5.8
$0.8
$9.4
3
$15.2009
$5.5
$2.3
$9.8
$7.6
$30.
3
2008
$51.
8
$13.
8
$15.
3
$6.9
$50.
6
2007
79
$0 $35 $70 $105 $140
Sources: Conning Research; Insurance Information Institute.
$ Billions
-
Paid-in Capital, 2005–2010($ Billions)
$30Paid-in capital for insurance
ti b $27 4B
$27.4
$22.5
$20
$25 operations rose by $27.4B in 2010, the largest on record dating back to 1959
$10
$15
$14.4
$3.8 $3.2
$12.3$4.9$6.6
$0
$5
$02005 2006 2007 2008 2009 2010:Q3
In 2010 One Insurer’s Paid-in Capital Rose by $22.5B
80Source: ISO; Insurance Information Institute.
p yas Part of an Investment in a Non-insurance Business
-
Ratio of Insured Loss to Surplus for Largest Capital Events Since 1989*
18%
The Financial Crisis at its Peak Ranks as the Largest
“Capital Event” Over
(Percent)
13.8%
16.2%
15%
18% pthe Past 20+ Years
9.6%
6.9%
10.9%
6 2%
9%
12%
3.3%
6.2%
3%
6%
0%6/30/1989Hurricane
Hugo
6/30/1992HurricaneAndrew
12/31/93NorthridgeEarthquake
6/30/01 Sept.11 Attacks
6/30/04Florida
Hurricanes
6/30/05Hurricane
Katrina
FinancialCrisis as of3/31/09**
81
* Ratio is for end-of-quarter surplus immediately prior to event. Date shown is end of quarter prior to event** Date of maximum capital erosion; As of 9/30/09 (latest available) ratio = 5.9%Source: PCS; Insurance Information Institute
Hugo Andrew Earthquake Hurricanes Katrina 3/31/09**
-
Historically, Hard Markets FollowWhen Surplus “Growth” is Negative*
30%
(Percent) Surplus growth still exceeds premium growth, suggesting an ongoing build-up of capacity in
l 2011
15%
20%
25% early 2011
0%
5%
10%
15%
-10%
-5%
0%
-15%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
NWP % change Surplus % change
Sharp Decline in Capacity is a Necessary but
82
* 2011 NWP and Surplus figures are % changes as of Q1:11 vs. Q1:10. Sources: A.M. Best, ISO, Insurance Information Institute
Sharp Decline in Capacity is a Necessary butNot Sufficient Condition for a True Hard Market
-
Ratio of Net Premiums Writtento Policyholder Surplus, 1970-2011*
2.7
2.52.52.5
3.0 The premium-to-surplus ratio (a measure of leverage) hit a record low at just 0.76:1 in 2010. It has decreased as PHS grows
Record High P-S Ratio was 2.7:1
in 1974
2.1
1.9
22.
3
1.8
1.7
1.7
1.9
1.9
1.9
1.9
1.7
6 6
2.0
2
2.1
2.0
2.5 more quickly than NPW, with the effect of holding down profitability.
1 1 11.
61.
61.
41.
41.
31.
31.
11.
10.
9 7
1.13
0.94
.8684
1.29
1.17
1.07
0.99
840.91 60.9
582
1.6 1
.8
1 0
1.5
0
0.7700.0.8
0.80
0.760.8
0.5
1.0
Record Low P-S Ratio was 0.76:1 as of 12/31/10, rising
slightly to 0 77:1 as of 3/31/110.0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 02 04 06 08 10
The Premium-to-Surplus Ratio in 2011:Q1 Implies that P/C Insurers Held $1 in Surplus Against Each $0 77 Written in Premiums In 1974 Each $1
slightly to 0.77:1 as of 3/31/11
83
$1 in Surplus Against Each $0.77 Written in Premiums. In 1974, Each $1 of Surplus Backed $2.70 in Premium.
*2011 data are as of 3/31/11.Sources: Insurance Information Institute calculations from A.M. Best data.
-
3. REINSURANCE MARKET CONDITIONS
H R d Gl b lHas Record Global Catastrophes Activity
Erased Enough Capacity to Turn Markets?
84
to Turn Markets?
-
Significant Market Losses, 1985-2011*
$90
$100
$70
$80
$90
Reinsurers’ share of major market losses was
exceptionally high in 2010 and early 2011
REINSURANCE PRICING TRENDS
•Property/CAT reinsurance prices
$40
$50
$60
Bill
ion
s
ye su a ce p cesare up substantially in Asia/Pacific markets•US pricing is up 10-15%, but ex-Florida closer to flat
$10
$20
$30closer to flat
$0
$
1985 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1998 1999 2001 2002 2003 2004 2005 2007 2008 2009 2010 2011
Worldwide Direct Insured Losses Reinsured LossesWorldwide Direct Insured Losses Reinsured LossesSource: Holborn; RAA.* 2011 events are as of March 31 and are preliminary and may change as loss estimates are refined further.
-
Significant Market Losses by Event, 1985-2011*
Reinsurers are bearing a very high
Losses are putting pressure on property cat reinsurance prices in affected
regions. The impact for US property catastrophe pricing is uncertainbearing a very high
share of recent catastrophe losses
catastrophe pricing is uncertain.
Source: Holborn, RAA. *2011 events as of March 31 are preliminary and may change as loss estimates are refined further.
-
Outlook for the 2011 Atlantic Hurricane Season
If Expected Above AverageIf Expected Above Average Activity Produces Costly L df ll R iLandfalls, Reinsurance Markets Could Harden
87
Significantly
-
Outlook for 2011 Hurricane Season: 75% More Active Than Average
Average* 2005(Katrina Year)
2011F( )
Named Storms 9.6 28 16Named Storm Days 49.1 115.5 80Hurricanes 5.9 14 9Hurricane Days 24.5 47.5 35Intense Hurricanes 2.3 7 5
Intense Hurricane Days 5.0 7 10
Accumulated Cyclone Energy 96.1 NA 160
Net Tropical Cyclone Activity 100% 275% 175%p y y
*Average over the period 1950-2000.Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 1, 2011.
-
Probability of Major Hurricane Landfall (CAT 3, 4, 5) in 2011
Average* 2011FAverage 2011F
Entire US Coast 52% 72%
US East Coast Including Florida Peninsula
31% 48%
Gulf Coast from FL Panhandle to Brownsville, TX
30% 47%
ALSO…Above-Average Major HurricaneLandfall Risk in Caribbean for 2011 (61% vs. 42%)
*Average over the period 1950-2000.Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 1, 2011.
-
US Property Residual Markets Remain Under StrainRemain Under Strain
Most States Fail to Address Their Vulnerabilities toTheir Vulnerabilities to
Catastrophic Coastal Loss
90
-
U.S. Residual Market Exposure to Loss($ Billions)
$757.9$771.9 $703 0$800
$900($ Billions)
Katrina, Rita and Wil $
$656.7 $696.4$703.0
$600
$700
$
4 Florida Hurricanes
Wilma
$281.8
$430.5$372.3
$292.0$244 2
$419.5
$300
$400
$500Hurricane Andrew
$54.7
$150.0
$244.2$221.3
$100
$200
$
$01990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
In the 21-year period between 1990 and 2010, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54 7
91Source: PIPSO; Insurance Information Institute (I.I.I.); http://www.iii.org/pr/last-resort-2010.
residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7 billion in 1990 to $757.9 billion in 2010.
-
U.S. Residual Market: Total Policies In-Force (1990-2010) (000)
2,841.42 621 3
2,780.62,840.43,000
(000)
4 Florida
Katrina, Rita and Wilma
1 785 0 1 741 7
2,479.42,621.3
2,209.32,203.92,000
2,500Hurricanes
931 6
1,785.0
1,458.1
1,196.5
1,741.7
1,319.7
1,642.31,500
,Hurricane Andrew
931.6
500
1,000
01990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
In the 21-year period between 1990 and 2010 the total number of policies
Source: PIPSO; Insurance Information Institute; http://www.iii.org/pr/last-resort-2010.
In the 21 year period between 1990 and 2010, the total number of policies in-force in the residual market (FAIR & Beach/Windstorm) Plans has more
than tripled.
92
-
Texas Windstorm Insurance Association (TWIA): Exposure to Loss (Building & Contents Only) ($ Billions)
$80
TWIA’s exposure to loss for building & contents has surged by more than 400 percent in the last 11 years from $12 1
$67.8$67.4$64.4$58.6$58.6$60
$70
percent in the last 11 years from $12.1 billion in 2000 to $67.8 billion in 2011.
$38.3
$30
$40
$50
$23.3$20.8$18.8$16.0$13.2$12.1$10
$20
$30
$02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 May
31-2011
Source: TWIA at 05/31/11, Texas Department of Insurance, Southwestern Insurance Information Services (SIIS)
2011
-
Texas Windstorm Insurance Association (TWIA) Total Exposure to Loss (Millions of Dollars)
By May 31, 2011, TWIA’s total exposure
$67,765.8
$60 000
$70,000
$80,000y y
had surged to $74.4 billion.
$40,000
$50,000
$60,000
$20,000
$30,000
$6,613.3
$0
$10,000
Building & Contents ALE/Business Income
Source: TWIA at 05/31/11, Texas Department of Insurance
u d g & Co te ts / us ess co e
-
Texas Windstorm Insurance Association (TWIA) New Financial Structure
N TWIA fi iNew TWIA financing structure made available up to $2.5 billion to fund
losses via three post-event bonding layers.event bonding layers.
The new structure eliminated the unlimited
assessment on TWIA member insurers and
d t ll f TWIA tdoes not call for TWIA to purchase reinsurance.
Source: Southwestern Insurance Information Institute (SIIS)
-
4. RENEWED PRICING4. RENEWED PRICING DISCIPLINE
Is There Evidence of a Broad and Sustained Shift in Pricing?
96
-
Soft Market Persisted in 2010 but Growth Returned: More in 2011?
25%
(Percent)1975-78 1984-87 2000-03
20%
25%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.
10%
15% 2011:Q1 growth was +3.5%; First Q1 growth since 2007
5%
10% since 2007
-5%
0%
NWP was up 0.9% in 2010
97
-5%
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*
*2011 figure is an estimate based on Q1 data. Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
-
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
5.1% 16
.8%
16.7
%% %
20%
The long-awaited uptick. In 2011:Q1 occurring in
personal lines predominating cos. (+3.8%)
10.2
%15
12.5
%10
.1%
9.7%
7.8%
7.2%
6% 5%
10.3
%10
.2% 13
.4.6
%10%
15% and commercial lines predominating cos. (+3.5%)
75.
62.
9%5.
5 6
2.1%
0.0% 0.5% 1.
3% 2.3%
1.3% 3
.5%
0%
5%-4
.6%
-4.1
%-5
.8%
-1.6
%
-1.6
%
-1.9
%
-1.8
%-0
.7%
-4.4
%-3
.7%
-5.3
%-5
.2%
-1.4
%-1
.3%
-10%
-5%
Finally! Back to back quarters of net written premium growth
--10%
2002
:Q1
2002
:Q2
2002
:Q3
2002
:Q4
2003
:Q1
2003
:Q2
2003
:Q3
2003
:Q4
2004
:Q1
2004
:Q2
2004
:Q3
2004
:Q4
2005
:Q1
2005
:Q2
2005
:Q3
2005
:Q4
2006
:Q1
2006
:Q2
2006
:Q3
2006
:Q4
2007
:Q1
2007
:Q2
2007
:Q3
2007
:Q4
2008
:Q1
2008
:Q2
2008
:Q3
2008
:Q4
2009
:Q1
2009
:Q2
2009
:Q3
2009
:Q4
2010
:Q1
2010
:Q2
2010
:Q3
2010
:Q4
2011
:Q1
98Sources: ISO, Insurance Information Institute.
Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)
-
Average Commercial Rate Change,All Lines, (1Q:2004–1Q:2011)
Q04
Q04
Q04
Q04
Q05
Q05
Q05
Q05
Q06
Q06
Q06
Q06
Q07
Q07
Q07
Q07
Q08
Q08
Q08
Q08
Q09
Q09
Q09
Q09
Q10
Q10
Q10
Q10
Q11
(Percent)-0
.1%
-2%
0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
Magnitude of Price Declines Shrank
During Crisis,
-3.2
%% -4
.6%
-2.7
%-3
.0%
3% .1%
4.9% % 6% 3% .2%
4%-2
.9%
-6%
-4%
During Crisis, Reflecting Shrinking
Capital, Reduced Investment Gains,
Deteriorating Underwriting
-5.9
%-7
.0%
4% 7%-8
.2%
-
-5.
6%
-6.4
% -5 - 4-5
.8%
-5.6 -5.
-6.4
% -5.
-5.4
-10%
-8%
gPerformance, Higher
Cat Losses and Costlier Reinsurance
-9.
-9.7
-9.6
-11.
3%-1
1.8%
.3% -12.
0%5% 2.
9% -11
.0%
-14%
-12%
KRW Eff t
Q1 2011 decreases were the smallest
since 2006, perhaps signaling a market
firming
99
-13
-13. -1
2
-16%
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect firming
-
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2011:Q1Percentage Change (%)
Market has Been Soft for 7 years and Remains Soft as Capital Hits Record Levels;
Peak = 2001:Q4 +28.5% Capital Hits Record Levels;
But Is Softness Moderating?
Pricing TurnedPricing Turned Negative in Early
2004 and Has Been Negative
Ever Since KRW Effect: No Lasting Impact
Trough = 2007:Q3 -13.6%
100Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
-
Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2011:Q1
1999:Q4 = 100
Pricing today is where is was in
Q3:2000 (pre-9/11)
Downward pricing pressure is most pronounced for
larger riskslarger risks
101Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
-
Monthly Change* in Auto Insurance Prices, 1991–2011*,
10%Cyclical peaks in PP Auto tend to occur
approximately every 10
8%
pp y yyears (early 1990s, early
2000s and likely the early 2010s)
A pricing peak
4%
6% A pricing peak may have occurred in 2010
2% “Hard” markets tend to occur
during
May 2011 change
was 3.8%, down from
5.4% in
-2%
0%g
recessionary periods
Nov. 2010
102
*Percentage change from same month in prior year; through May 2011; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
-
Other Cycle-Influencing Factors
Could Other Factors Act as a Catalyst to Turn the
Market?103
Market?
-
INVESTMENTS:INVESTMENTS: THE NEW REALITY
Investment Performance is a Key Driver of ProfitabilityKey Driver of Profitability
Does It Influence U d iti C li lit ?
104
Underwriting or Cyclicality?
-
Property/Casualty Insurance Industry Investment Gain: 1994–2011:Q11
$64.0$70
($ Billions)
$42.8$47.2
$52.3
$44.4 $45.3$48.9
$59.4$55.7
$39 2
$52.9$58.0
$51.9$56.9
$50
$60
$35.4 $36.0$31.7
$39.2
$20
$30
$40
Investment gains in$13.5
$0
$10
$20 Investment gains in 2010 were the best
since 2007
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11:Q1
Investment Gains Recovered Significantly in 2010 Due to Realized Investment Gains; The Financial Crisis Caused Investment Gains to
Fall by 50% in 20081 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.
-
Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2011*
4 82% 4.96%5.04% 4.96% 4 82% 4 82% 4 88% 5.00% 4 93% 5.00%
5.19%6%
4.82% 4.96% 4.96% 4.82% 4.82% 4.88% 4.93%
4.23%3.91%4%
5%
Treasury yield curve remains near its most depressed level
2.29%
3.00%
1 58%2%
3%
near its most depressed level in at least 45 years.
Investment income is falling as a result. Fed is unlikely to hike rates until well into 2012
QE2 Target
0 02% 0 04% 0 10% 0.18%0.41%
1.58%
0.71%1%
2%
June 2011 Yield Curve*
hike rates until well into 2012.
0.02% 0.04% 0.10%0%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
Pre-Crisis (July 2007)
The End of the Fed’s Quantitative Easing Is Unlikely to Push Interest
106
The End of the Fed s Quantitative Easing Is Unlikely to Push Interest Rates Up Substantially Given Ongoing Economic Weakness
*Average of daily rates.Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
-
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
l Line
s
s Auto
p cial
Auto
Prop
Cas
Suret
yy Lin
esl an
ce**
y
Perso
nal L
Pvt P
ass A
Pers
Prop
Comm
erci
Comm
l Au
Cred
itCo
mm Pr
o
Comm
Ca
Fideli
ty/Su
Warra
nty
Surpl
us Li
Med M
al
WC Reins
uran
.8%
.8%
.0% .9%
.1%
%
-3%-2%-1%0%
-1 -1 -2.
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
5.7%
-1 -2.
-3.1
%
-7%-6%-5%-4%
-5 -7.3%-8%
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
107
Underwriting and Pricing Discipline*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
-
Shifting Legal Liability & g g yTort Environment
Is the Tort PendulumSSwinging Against Insurers?
108
-
Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical
$300 2.50%Tort Sytem Costs Tort Costs as % of GDP
($ Billions)
$250
2.25%
To
y
$150
$200
stem
Cos
ts
2.00%
ort Costs as
$100Tort
Sys
1.75%
% of G
DP
Tort Costs Have Remained High but
$0
$50
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10E 12E1.50%
gRelatively Stable Since the mid-2000s. As a Share of GDP they Should Fall as
the Economy Expands
109
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10E 12E
Sources: Towers Watson, 2010 Update on US Tort Cost Trends, Appendix 1A
-
Business Leaders Ranking of Liability Systems in 2010
Best States1 Delaware
Worst States41 New Mexico
New in 2010N l N t i1. Delaware
2. North Dakota
3 Nebraska
41. New Mexico
42. Florida
43. Montana
North DakotaMassachusettsSouth Dakota
Newly Notorious
New MexicoMontana3. Nebraska
4. Indiana
5. Iowa
43. Montana
44. Arkansas
45. IllinoisDrop-offs
Arkansas
Rising Above
6. Virginia
7. Utah
46. California
47. Alabama
MaineVermontKansas
TexasSouth CarolinaHawaii
8. Colorado
9. Massachusetts
48. Mississippi
49. LouisianaMidwest/West has mix of
10. South Dakota 50. West Virginia
Source: US Chamber of Commerce 2010 State Liability Systems Ranking Study; Insurance Info. Institute.
good and bad states.
-
The Nation’s Judicial Hellholes: 2010
West VirginiaIllinoisCook County
Watch ListMadison County, IL
Philadelphia
Atlantic County, NJSt. Landry Parish, LADistrict of Columbia
CaliforniaLos Angeles
NYC and Albany, NYSt. Clair County, ILDishonorable
Mention
Los Angeles and Humboldt
Counties
MentionMI Supreme CourtCity of St. LouisCO Supreme Court
NevadaClark County
CO S p C
111Source: American Tort Reform Association; Insurance Information Institute
South Florida
-
Avg. Jury Awards 1999 vs. 2003 and 2008
$7,000
$4,8
38
64 $4,8
85$5,4
46
$5 000
$6,000
38 $2,8
87
$
$4,1
$3,4
99
$3,7
17
$3,7
22
$
$
$4,000
$5,0001999 2003 2008
44 9
$2,3 $
99 901
1,04
6
49$2,000
$3,000
$64
$201 $5
8 9$79
$208
$ 9$
$327 $
8
$0
$1,000
Overall Vehicular Premises Wrongful Medical ProductsOverall Vehicularliability
Premisesliability
Wrongfuldeath*
Medicalmalpractice
Productsliability
*Award trends in wrongful deaths of adult males.Source: Jury Verdict Research; Insurance Information Institute.
-
Sum of Top 10 Jury Awards 2004-2010
$6,000
$5,159$5,000
$2,954$3,000
$4,000
$1,344 $1,511$1,568$2,000
$3,000
$815$616
$0
$1,000
$02004 2005 2006 2007 2008 2009 2010
Source: Insurance Information Institute from Lawyers USA, January 2005, 2006, 2007, 2008, 2009, and 2010.
-
InflationInflation
Is it a Threat to Claim Cost SSeverities
114
-
Annual Inflation Rates, (CPI-U, %),1990–2014FAnnual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
dit b bbl d d i fl ti
Higher energy, commodity and food prices are pushing up inflation in 2011
3.8 3.8
5.14.9
4 0
5.0
6.0 commodity bubble reduced inflationary pressures in 2009/10
up inflation in 2011, but not longer turn
inflationary expectations.
2.8 2.6
1 51.9
3.3 3.4
2.5 2.3
3.0
3.8
2.8
3.8
1.6
3.0
2.2 2.1 2.2
2.92.4
3.23.0
2.0
3.0
4.0
1.5 1.31.6
0.0
1.0
2.0
-0.4-1.090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F 12F 13F 14F
The slack in the U.S. economy suggests that inflation should not heat up
115Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 3/11 and 6/11 (forecasts).
before 2012, but other forces (commodity prices, inflation in countries from which we import, etc.), plus U.S. debt burden, remain longer-run concerns
-
Medical Cost Inflation Has Outpaced Overall Inflation Over 50 Years
1589.81800
All ItemsMedical Care
1500
100) A claim that cost $1,000 in 1961
would cost nearly $16,000 based on
719.8900
1200
alue
(196
1=
would cost nearly $16,000 based on medical cost inflation trends over the
past 50 years.
300
600
Inde
x V
a
0
300
61 66 71 76 81 86 91 96 01 06 1*
6 6 7 7 8 8 9 9 0 0 11
*Based on change from Feb. 2011 to Feb. 2010 (latest available) Source: Department of Labor (Bureau of Labor Statistics)
-
Regulatory Environment & Financial Services Reform
Insurers Not as Impacted as Banks But Dodd FrankBanks, But Dodd-Frank
Implementation Has Been a Concern for Insurers
117
Concern for Insurers
-
Financial Services Reform:What does it mean for insurers?
Systemic Risk and Resolution Authority
The Dodd Frank Wall Street Reform and Consumer Protection Act
Creates the Financial Stability Oversight Council and the Office of Financial Research
Regulator representative is MO Insurance Commissioner Huff
No industry representative has been appointed yet
Imposes heightened federal regulation on large bank holding companies and “systemically risky” nonbank financial companies, including insurers
Concern some insurers may be labeled as systemically risky based on size alone
Federal Insurance Office (FIO)Establishes the FIO (while maintaining state regulation of insurance) within the Department of Treasury, headed by a Director appointed by the Secretary of Treasury
FIO will have authority to monitor the insurance industry, identify regulatory gaps that could contribute to systemic crisis
IL Insurance Director Michael McGraith will become first FIO Director on June 1
118
Creation of Federal Advisory Committee on Insurance to Advise FIOCONCERN: FIO morphs into quasi/shadow or actual regulator
Source: Insurance Information Institute (I.I.I.) updates and research; The Financial Services Roundtable; Adapted from summary by Dewey & LeBoeuf LLP
-
2010 Property and Casualty InsuranceReport Card
ME
NH
ND
MN
WA
AL
VTMT
AK
B+C-
B
D
A+A
NH
MA
CT
PA
NE
MN
MI
IL
IA
IDOR
NJRI B
DE
NY
MD
SD WI
INOH
NV
WY
= A= B= C= D
B+
B
B+
B+C-
B
B- D-B+
A+B
BC+
B-
C+
C
F D-
WVVA
NC
OK
IL
AZSC
TN
ARNM
KYMOKS
IN
CA
NV
UTCO
D= F= NG
B B+
DB-
B
C+
C-
C-B
C-
C-C+
B+A
B-
B-
D+FD+
Source: James Madison Institute, February 2008.
LATX
HI GAAL
FL
MS
NM
C- B+C-
FC-
B+ C- C+BC+
N t G d d Di t i t f C l bi
Source: Heartland Institute, May 2011
F FNot Graded: District of Columbia
-
The Strength of the Economy Will Influence P/C InsurerWill Influence P/C Insurer
Growth Opportunities
Growth Would Also Help Absorb pExcess Capital
120
-
US Real GDP Growth*
0% %% %6%
Real GDP Growth (%) The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
2.7%
0.9%
3.2%
2.3% 2.9%
0.6% 1
.6%
5.0
3.7%
1.7% 2.
6% 3.1%
1.9%
2.0% 3
.2%
3.2%
2.2%
2.1% 2.3%
2.2%
4.1 %
1.1% 1.
8% 2.5% 3
.6%
3.1%
2%
4%
6%
-0.7
%
%
-0.7
%
-4%
-2%
0%
Recession began in Dec. 2007. Economic toll of credit
crunch, housing slump,
2011 got off to a sluggish start, but growth is expected
to accelerate in the remainder-4
.0%
-6.8
% -4.9
%-8%
-6%
0 2
3
4
5
6 Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q
crunch, housing slump, labor market contraction has
been severe but modest recovery is underway
to accelerate in the remainder of the year. This is a major
positive for insurance demand and exposure growth.
20
00
20
01
20
0 2
20
03
20
04
20
05
20
06
07:1
07: 2
07:3
07:4
08:1
08: 2
08:3
08:4
09:1
09: 2
09:3
09:4
10:1
10: 2
10:3
10:4
11:1
11: 2
11:3
11:4
12:1
12: 2
12:3
12:4
Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions but the Benefits of Even Slow Growth Will Compound and
121
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 7/11; Insurance Information Institute.
Conditions, but the Benefits of Even Slow Growth Will Compound and Gradually Benefit the Economy Broadly
-
2011 Financial Overview State Economic Growth Varied in 2010
Hard hit Midwest and Northeast states finally
entering recovery in 2010
122
Texas had one of the stronger economies in 2010 and has
generally outperformed during the economic downturn
-
Unemployment Rates by State, May 2011:Highest 25 States*
14In May, 24 states reported over-the-month unemployment rate d 13 d h
12.1
11.7
10.9
10.6
10.3
10.3
0.0
8 8 8 7 7 6
12
14
%)
decreases, 13 states and the District of Columbia had
increases, and 13 had no change.
1 9.8
9.8
9.8
9.7
9.7
9.6
9.4
9.4
9.3
9.1
9.1
9.1
8.9
8.9
8.7
8.6
8.6
8.2
8
10
ent R
ate
(%
4
6
empl
oym
e
2
4
Une
123
0NV CA RI FL MI MS SC DC GA KY NC TN AL ID NJ OR AZ CT WA IL MO CO OH WV IN
*Provisional figures for May 2011, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
-
Unemployment Rates By State, May 2011: Lowest 25 States*
10
In May, 24 states reported over-the-month unemployment rate
decreases 13 states and the District
8.2
8.0
8.0
7.9
7.8
7.7
7.6
7.4
7.4
7.4
7.3
7.3
9
8
10
%)
decreases, 13 states and the District of Columbia had increases, and 13
had no change.
7 7 7 7 76.
96.
86.
66.
66.
06.
06.
06.
05.
45.
34.
84.
8
6
ent R
ate
(%
4 44.
13.
24
empl
oym
e
The unemployment rate in Texas was 8.0% in May, below the 9.0%
overall US rate
0
2Une overall US rate
124
0LA DE TX NY AR ME MA AK PA WI MT UT NM MD KS MN HI IA VA WY VT OK NH SD NE ND
*Provisional figures for May 2011, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
-
Insurance Information Institute Online:
www iii orgwww.iii.org
Thank you for your timed tt ti !and your attention!
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