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Transcript of Overview & Outlook for the P&C Insurance Industry Erie and Niagara Insurance Association...
Overview & Outlook for the P&C Insurance IndustryErie and Niagara Insurance Association
Williamsville, NYSeptember 30, 2015
Download at www.iii.org/presentations
James Lynch, chief actuaryInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5533 Cell: 917.359.3908 [email protected] www.iii.org
2
Insurance Industry:Financial Update & Outlook
2014 Was a Reasonably Good Year2015: A Repeat of 2014?
2
P/C Industry Net Income After Taxes1991–2015:Q1
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:Q1 ROAS = 10.8%
• 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; SNL Financial; Insurance Information Institute
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 1415
:Q2
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$14,
178
$5,8
40
$19,
316
$10,
870
$20,
598
$24,
404 $3
6,81
9
$30,
773
$21,
865
$20,
559
-$6,970
$3,0
46
$30,
029
$38,
501 $4
4,15
5
$65,
777
$62,
496
$3,0
43
$28,
672
$35,
204
$19,
456 $3
3,52
2
$63,
784
$55,
501
$31,
656
Net income fell modestly
(-12.5%) in 2014 vs. 2013
$ Millions
2015 on Pace to Approach 2005 Record
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
:Q1
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2015:Q1
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
1977:19.0%1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years
9 Years
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013 9.8%
2014 8.2%
2015:Q1 10.8%
5
ROE: Property/Casualty Insurance by Major Event, 1987–2015:Q1
* 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 1415:Q1
P/C Profitability Affected 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
-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 Crisis1985/86: 22.2%
Post-9/112002:15.3%
Twin Recessions; Interest Rate
Hikes1987: 3.7% Great
Recession:2010: -4.9%
% Chg from Prior Yr
2015 YTD 4.0%
NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926–2015
Great Depression1932: -15.9% max drop
Post WW II Peak:1947: 26.2%
Start of WW II1941: 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?
7
P/C Insurance Industry Combined Ratio, 2001–2015:Q2*
* 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.
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15:Q290
100
110
120
115.8
107.5
100.198.4
100.8
92.6
95.7
101.099.3
100.8
106.3
102.4
96.7 97.2 97.5
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
Premiums Relatively Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
Best Combined
Ratio Since 1949 (87.6)
Avg. CAT Losses,
More Reserve Releases
8
RNW All Lines by State, 2004-2013 Average:Highest 25 States
20
.5
18
.4
14
.6
14
.3
13
.4
13
.3
12
.3
12
.1
12
.0
12
.0
11
.7
11
.4
11
.1
11
.1
10
.9
10
.8
10
.7
10
.7
10
.5
10
.5
10
.3
9.9
9.8
9.8
9.6
9.5
02468
1012141618202224
HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD
The most profitable states over the past decade are
widely distributed geographically
Source: NAIC; Insurance Information Institute.
Profitability Benchmark: All P/C
US: 7.9%
9
NM FL
TX WI
KS
MN
CO
PA
US
AR IL IN AZ
MO
KY
TN
NV
NJ
GA
NY
DE MI
AL
OK
MS
LA
-14-12-10-8-6-4-202468
10 9.2
8.6
8.4
8.3
8.2
8.2
8.1
8.0
7.9
7.7
7.7
7.5
7.4
6.8
6.6
6.4
6.1
5.7
5.3
5.2
5.0
4.3
2.5
1.9
-6.9
-9.3
RNW All Lines by State, 2004-2013 Average: Lowest 25 States
Source: NAIC; Insurance Information Institute.
Some of the least profitable states over the past decade were hit hard
by catastrophes
NY: 10-Year Return Below
National Average
All Lines: 10-Year Average RNW NY & Nearby States
7.9%
10.3%
10.9%
5.2%
8.0%
11.1%
0% 2% 4% 6% 8% 10% 12%
Massachusetts
Ohio
Connecticut
U.S.
Pennsylvania
New York
2004-2013
New York’s Profitability Lags Other States in
Region
Source: NAIC, Insurance Information Institute
11
RNW All Lines: NY vs. U.S., 2004-2013
Source: NAIC, Insurance Information Institute.
-15%
-10%
-5%
0%
5%
10%
15%
20%
04 05 06 07 08 09 10 11 12 13
US All Lines NY All Lines
(Percent)
Average 2004-2013U.S.: 7.9%NY: 5.2%
CAPITAL/CAPACITY
13
Capital Accumulation Has Multiple Impacts
13
14
Policyholder Surplus, 2006:Q4–2015:Q1
Sources: ISO, A.M .Best.
($ 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
$671
.7
$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
1
2007:Q3Pre-Crisis Peak
Surplus as of 3/31/15 stood at a near-record high $671.7B
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.
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
$1.50
$1.60
$1.70
$1.80
$1.90
$2.00
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*
Premium-to-Surplus Ratio:1985–2014*
* As of 12/31/14.Source: A.M. Best, ISO, Insurance Information Institute.
The larger surplus is in relation to premiums—the lower the P:S ratio—
and the great the industry’s capacity to handle the risk it has accepted
(Ratio of NWP to PHS)
The Premium-to-Surplus Ratio Stood at $0.73:$1 as of12/31/14, a Record Low (at Least in Recent History)
Surplus as of 12/31/14 was $0.73:$1, a near-record low (at least in modern history)
9/11, Recession & Hard Market
RBC requirements took effect with 1994 Annual Statement.
INVESTMENTS: THE NEW REALITY
18
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
18
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 $46.7
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014 – Despite Record
Surplus.
1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q1.Sources: ISO; Insurance Information Institute.
($ Billions) Investment earnings are still below their 2007 pre-crisis peak
21
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2015*
*Monthly, constant maturity, nominal rates, through July 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.
21
Book Yield on Property/Casualty Insurance Invested Assets, 2007–2015*
4.38
4.174.02
3.87
3.63 3.643.74
3.82
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:Q1.Sources: SNL Financial; Insurance Information Institute
(Percent) Book yield in 2015 is down 74 BP from pre-crisis levels
24
Alternative Capital
24
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
Source: Aon Benfield Analytics; Insurance Information Institute.
Total reinsurance capital reached a record $580B in 2014, up 71% from
2008.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1$0
$100
$200
$300
$400
$500
$600
$700
17 22 19 22 24 28 39 50 64 66
368 388321
378447 428
466 490 511 514
385 410340
400470 455
505540
575 580
Alternative Capital Traditional Capital Total
(Billions of USD)
But alternative capacity has grown 247% since 2008, to $66B. It has more than doubled in the past three years.
Global Reinsurance Capital (Traditional and Alternative), 2006 - 2014
2014 data is as of December 31, 2014.Source: Aon Benfield Analytics; Insurance Information Institute.
2006 2007 2008 2009 2010 2011 2012 2013 20140%
2%
4%
6%
8%
10%
12%
4.4%5.4% 5.6% 5.5% 5.1%
6.2%
7.7%
9.3%
11.1%
Share of Global Reinsurance Capital Has More Than Doubled Since 2010. In Cat Reinsurance, Alternative Capital Holds Up to 50% of Market.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015*$0
$5
$10
$15
$20
$25
$30
$35
Cat Bonds Sidecars ILWs Collateralized Re
(Billions of USD)
Growth of Alternative Capital Structures, 2002 - 2014
* 2014 data are as of June 30, and 2015 data are as of March 31.Source: Aon Benfield Analytics; Insurance Information Institute.
Collateralized Re’s Growth Has Accelerated in the Past Six Years.
Collateralized Reinsurance and Catastrophe Bonds Currently Dominate the Alternative Capital Market.
Catastrophe Bond Issuance and Outstanding: 1997-2015
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15: Q2
0
5,000
10,000
15,000
20,000
25,000
1,143
1,499
4,615
7,187
3,010
3,396
4,600
4,107
5,855
7,083
8,027
3,842
4,289
5,085
7,677
13,416
12,539
12,508
12,196
12,343
14,839
18,577
22,868
21,560
New Issuance Outstanding
30
Risk Capital Amount ($ Millions)
Q1 2015 Set A First-Quarter Record With $1.49 Billion in New Issues; Q2 Issuance Lagged Prior Two Years.
Source: Guy Carpenter.
Reinsurance Pricing: Change in Rate on Line for Global Cat Business
Source: Guy Carpenter, A.M. Best, Insurance Information Institute.
Alternative Capital, Low
Levels of Catastrophes Drive Rates
Down.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-20%
-10%
0%
10%
20%
30%
40%
24%
5%
-9% -8%
37%
-9% -10%
8%
-6% -8%
10%
-1%
-11% -11%
(Change from Previous Year)
Japan, NZ Quakes, US Tornadoes. 2001-02: WTC
Losses, Falling Stock, Bond Prices
Dry Up Capital.
2006: Higher Rates After Record Hurri-
canes.
One Effect of Alternative Capital: Lower Cat Reinsurance Prices. Price is As Low Now as Before 9/11.
32
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
Another Effect of Alternative Capital: Merger Mania.
Update: Alleghany Corp. announced in May 2015 that it is considering the sale of Transatlantic Holding Co. (TransRe).*Source: Conning; Insurance information Institute.
Another Result: $68 Billion in Mergers, 2014-2015 YTD
Acquirer TargetValue
($millions)
ACE (Switzerland) Chubb (US) $28,300Tokio Marine Holdings (Japan) HCC Insurance Holding (U.S.) 7,500
Exor (Italy) PartnerRe Ltd. (Bermuda) 6,700
Mitsui Sumitomo Amlin (UK) 5,400
XL Group plc (Ireland) Catlin Group Ltd. (Bermuda) 4,200
Fosun International (China) Ironshore (US) 2,300
RenaissanceRe Holdings Ltd. (Bermuda) Platinum Underwriters Holdings Ltd. (Bermuda) 1,900
Endurance Specialty Hldgs Ltd. (Bermuda) Montpelier Re Holdings Ltd. (Bermuda) 1,800
Fairfax Financial Holdings Ltd. (Canada) Brit Insurance Holdings NV (Netherlands) 1,880
Desjardins Financial Corp. (Canada) State Farm's P/C, Life (Canada) 1,500
TPG Capital LP The Warranty Group, Inc. (Canada) 1,500
Fosun International Ltd. (China) Caixa Seguros e Saude SGPA SA (Portugal) 1,360
Progressive Corp. ARX Holding Corp. 875
Assured Guaranty Ltd. (Bermuda) Radian Asset Assurance, Inc. 810
Mapfre S.A. (Spain) Direct Line Insurance Group plc (Germany/Italy only) 701
Validus Holdings Ltd. (Bermuda) Western World Insurance Group, Inc. 690
ACE Ltd. (Switzerland) P/C business from Itau Seguros S.A. (Brazil) 685
34
What’s Driving Global Insurance M&A Activity and Will It Continue? Excess Capital in Global Reinsurance and Primary Commercial
Insurance in US (Re)Insurers, like corporations in many industry, are sitting are large
amounts of cash accumulated since the Global Financial Crisis that earns very little
Alternative Capital
Slow Top Line (Premium) Growth
Slowdown in Pace of Earnings Growth/ROE
Desire to Achieve Economies of Scale
Peer Pressure/Momentum Management concerns about being “left out”
35
Performance by Segment
35
36
Return on Net Worth (RNW) All Lines:2004-2013 Average
Fire
Inlan
d Mar
ine
Medic
al Pro
f Liab
ility
All Oth
er
Comm
Auto
Tota
l
PP Auto
Tota
l
All Lin
es
Other
Liab
ility
Comm
ercia
l MP
Work
ers
Comp
Allied
Lin
es
Homeo
wners M
P
Farm
owners M
P-5
0
5
10
15
20
25
30
35
40
17.1
12.8
11.8
9.3
7.7
7.0
6.9
7.4
6.3
6.3
5.9
3.7
3.2
33.8
16.0
4.7
-0.6
7.6
8.3
5.2
4.3
10.6
4.9
-1.0
15.9
11.8
USA NY
Source: NAIC; Insurance Information Institute.
Overall, NY Business Has Returned Slightly Less Than Rest of Country
– With Some Exceptions
37
RNW PP Auto: NY vs. U.S., 2004-2013
Source: NAIC, Insurance Information Institute
-5%
0%
5%
10%
15%
20%
25%
04 05 06 07 08 09 10 11 12 13
US NY
Average 2004-2013U.S.: 7.0%NY: 8.3%
Deterioration Driven By No-
Fault Fraud
PIP Reforms Take Hold
Countrywide Increases in Frequency, Severity Force Rates Higher/Margins Lower While Consumer/Regulatory Challenges Emerge.
Personal Auto Net Combined Ratio: 1990–2017F
10
9.1
10
4.6
10
1.9
10
1.7
99
.5 10
1.1
10
3.5
10
9.5
10
7.9
10
4.2
98
.4
94
.0
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
1.8
10
1.9
10
2.0
10
1.3
10
1.3
10
1.0
80
85
90
95
100
105
110
115
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
Rising Frequency and Severity Since Fall 2014 Means Forecasts May Rise for 2015 and Later.
38Sources: A.M. Best (1990-2014);Conning (2015F-2017F); Insurance Information Institute.
39
RNW Homeowners: NY vs. U.S.,2004-2013
Source: NAIC, Insurance Information Institute
-10%
-5%
0%
5%
10%
15%
20%
25%
04 05 06 07 08 09 10 11 12 13
US HO NY HO
(Percent)
Average 2004-2013U.S.: 6.6%NY: 7.6%
Katrina
Ike
Sandy
MW Tornadoes
Gradual Decadelong Improvement in This Cat-Driven Line May Be Bringing in New Players from the Sidelines.
Homeowners Insurance Net 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 10
0.3
89
.0 95
.6
11
6.6
10
5.8
10
6.9
12
2.3
10
4.1
90
.4
92
.4 96
.8
97
.0
97
.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
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
40
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Sources: A.M. Best (1990-2014);Conning (2015F-2014F); Insurance Information Institute.
42
RNW Farmowners: NY vs. U.S.,2004-2013
Source: NAIC, Insurance Information Institute
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
04 05 06 07 08 09 10 11 12 13
US HO NY HO
(Percent)
Average 2004-2013U.S.: 3.2%NY: 11.8%
Ike MW Tornadoes
Minimal Impact
From Sandy
Farmowners Insurance Combined Ratio: 1990–2016F
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
80
85
90
95
100
105
110
115
120
125
10
9.0
11
1.9
10
3.2
11
3.4
10
8.7
11
0.5
122.6
10
7.8
11
6.0
11
1.9
10
9.6
11
3.8
10
7.6
99
.5
92
.0
95
.3 10
0.3
97
.9
11
9.5
10
7.6
10
7.9
11
7.2
99
.6
93
.9
97
.1 10
1.8
10
2.8
1
Results Vary (Extremely) By Region Due to Local Catastrophe Activity, Which Has Been Favorable Recently Countrywide.
43
Hurricane Ike Hurricane
Sandy
Record Tornado Activity
Sources: A.M. Best (1990-2014);Conning (2015F-2016F); Insurance Information Institute.
Strong MW Tornadoes
44
RNW Fire: NY vs. U.S.,2004-2013
Source: NAIC, Insurance Information Institute
0%
10%
20%
30%
40%
50%
60%
70%
04 05 06 07 08 09 10 11 12 13
US Fire NY Fire
(Percent)
Average 2004-2013U.S.: 17.1%NY: 33.8%
Fire Combined Ratio: 1985–2014
85 87 89 91 93 95 97 99 01 03 05 07 09 11 1370
80
90
100
110
120
130
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
95
.8
91
.3
87
.6
92
.6
10
4.0
1
00
.7
10
1.8
1
16
.1
10
5.9
1
06
.6
10
4.8
9
4.2
9
7.1
1
07
.7
10
6.8
1
13
.7
11
8.0
8
7.4
7
9.1
7
3.7
82
.3
76
.5
86
.2 92
.7
78
.5
80
.0
93
.3
87
.2
79
.1 8
6.2
Co
mb
ine
d R
ati
o
% N
PW
Gro
wth
Absent Wildfires and Conflagrations, Fire Results Vary But Have Generated Industrywide U/W Profit When Insurance Cycle Permits.
Individual Company Results Vary.
Source: Insurance Information Institute calculations from A.M. Best. 45
WTC, End of Soft Market
46
RNW Commercial Multi-Peril: NY vs. U.S., 2004-2013
Source: NAIC, Insurance Information Institute
-10%
0%
10%
20%
30%
40%
50%
60%
70%
04 05 06 07 08 09 10 11 12 13
US CMP NY CMP
(Percent)
Average 2004-2013U.S.: 6.3%NY: 10.6%
Commercial Multi-Peril Combined Ratio: 1995-2017F
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F
16F
17F
80
85
90
95
100
105
110
115
120
125
130
11
9.0
11
9.8
10
8.5
12
5.0
11
3.1
11
5.0
12
1.0
11
6.2
11
6.1
10
4.9
10
1.9
10
5.5
95
.4
97
.6
94
.2
96
.1 1
02
.1
94
.1
10
3.0
10
3.5
10
4.1
10
4.1
10
4.1
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
.9
89
.8
10
8.4
98
.7 10
2.5
12
0.1
11
1.9
94
.4 96
.7 10
1.1
10
2.1
10
3.6
CMP-Liability CMP-Non-Liability
Commercial Multi-Peril Underwriting Performance is Expected to Remains Stable in 2015 Assuming Normal
Catastrophe Loss Activity
Sources: A.M. Best (1995-2014); Conning (2015F-2017F); Insurance Information Institute. 47
48
Growth Analysis by State and Business Segment
Post-Crisis Paradox? Premium Growth Rates Vary
Tremendously by State
48
49
-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:Q2
(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:Q2: 4.0%
2014: 4.1%
2013: 4.4%
2012: +4.2%
50
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 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%
51
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 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 4 states and DC between
2007 and 2014
NY Growth Was Close to National Average.
52
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 States
43 states showed commercial lines growth from 2007
through 2014
Growth Benchmarks: Commercial
US: 5.9%
NY Exceeded National Average,
About Same as Nearby States
53
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 States
Sources: SNL Financial LLC.; Insurance Information Institute.
States with the poorest performing economies also produced the most negative
net change in premiums of the past 6 years
Nearly half the states have barely returned to pre-crisis levels
54
Direct Premiums Written: Pers. LinesPercent Change by State, 2007-2014
54
.2
45
.1
41
.4
39
.4
37
.2
35
.4
34
.2
32
.4
30
.1
29
.9
28
.9
28
.8
27
.8
27
.7
27
.0
26
.7
26
.7
26
.1
25
.9
25
.0
24
.6
24
.2
24
.2
23
.4
23
.4
23
.3
0
10
20
30
40
50
60
ND
OK
TX
SD
NE
CO
KS
TN MI
IA WI
MN
AR
MO
WY
SC
MT
GA
KY VA
UT IN AL
DE
NJ
LA
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top StatesPersonal Lines Growth Follows
Commercial Growth – Same States
Growth Benchmarks: Commercial
US: 20.9%
55
Direct Premiums Written: Pers. LinesPercent Change by State, 2007-2014
21
.8
21
.6
21
.4
20
.9
20
.8
19
.5
19
.4
18
.3
17
.9
17
.7
17
.3
17
.1
16
.5
16
.0
16
.0
15
.6
15
.5
15
.0
13
.2
11
.5
11
.2
10
.8
9.9
8.3
5.7
4.0
0
5
10
15
20
25
OH
NC
US
A
NY
MS
CT IL
NM
OR ID RI
MD
DC
WA
MA
AK
WV
PA
NH
ME FL
VT AZ
CA
NV HI
Pe
ce
nt
ch
an
ge
(%
)
Bottom States
Sources: SNL Financial LLC.; Insurance Information Institute.
Weakest Performers Hurt by Housing Bust, Depressing HO
Premium
NY Growth Near the National
Average
62
Pricing Trends
Survey Results Suggest Commercial Pricing Has
Flattened Out
62
63
Commercial Lines Rate Change by Qtr (vs. Year Earlier)
Sources: Towers Watson Commercial Lines Insurance Pricing Survey, Insurance Information Institute.
Hard Market (Such As It Is) Appears to Have Passed Its Peak.
20
03
:Q2
20
03
:Q3
20
03
:Q4
20
04
:Q1
20
04
:Q2
20
04
:Q3
20
04
:Q4
20
05
:Q1
20
05
:Q2
20
05
:Q3
20
05
:Q4
20
06
:Q1
20
06
:Q2
20
06
:Q3
20
06
:Q4
20
07
:Q1
20
07
:Q2
20
07
:Q3
20
07
:Q4
20
08
:Q1
20
08
:Q2
20
08
:Q3
20
08
:Q4
20
09
:Q1
20
09
:Q2
20
09
:Q3
20
09
:Q4
20
10
:Q1
20
10
:Q2
20
10
:Q3
20
10
:Q4
20
11
:Q1
20
11
:Q2
20
11
:Q3
20
11
:Q4
20
12
:Q1
20
12
:Q2
20
12
:Q3
20
12
:Q4
20
13
:Q1
20
13
:Q1
20
13
:Q3
20
13
:Q4
20
14
:Q1
20
14
:Q2
20
14
:Q3
20
14
:Q4
20
15
:Q1
20
15
:Q2
-10%
-5%
0%
5%
10%
15%
20%
13.0
%12
.0%
9.0%
5.0%
3.0%
0.0%
-1.0
%-1
.0%
-2.0
%-2
.0%
-2.0
%-2
.0%
-1.0
%-1
.0%
-3.0
%-4
.0%
-5.0
%-5
.0%
-6.0
%-6
.0%
-5.0
%-4
.0%
-3.0
% -1.0
%1.
0%0.
0%0.
0%-1
.0%
-1.0
%-1
.0%
-1.0
%1.
0% 2.0%
2.0% 3.
0%5.
0% 6.0%
6.0% 7.
0%7.
0%6.
0%6.
0%5.
0%4.
0%3.
0%3.
0%2.
0%2.
0%1.
0%
18 consecutive quarters of rate increases
Commercial Lines Rate Change by Month (vs. Year Earlier)
Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15-20%
-10%
0%
10%
20%
30%
40%
Jul-02; 33%
Feb-05; 0%
Dec-07; -16%
Oct-11; 0%
Sep-13; 5%
Dec-14; 0%
Aug-15; 0%79 Months of Rates < 0%
64SOURCE: MarketScout, Insurance Information Institute.
Overall, Rates Are As Stable As They Have Been in 15 Years, Though Individual Markets Often Vary Significantly.
Not Much of A Hard Market, By Historic Standards
Not Much of A Soft Market, To Date
Commercial Property Rate Change by Month (vs. Year Earlier)
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Feb-09; -7%
Sep-12; 6%
Jul-15; 2%
Four Years of Rates >=0%
65
SOURCE: MarketScout, Insurance Information Institute. Interpolated Commercial Property Estimates for May, August, September 2010.
Commercial Property Rates Track Closely With Commercial Rates Overall.
BOP Rate Change by Month (vs. Year Earlier)
66
Jun-
09
Sep-0
9
Dec-0
9
Mar
-10
Jun-
10
Sep-1
0
Dec-1
0
Mar
-11
Jun-
11
Sep-1
1
Dec-1
1
Mar
-12
Jun-
12
Sep-1
2
Dec-1
2
Mar
-13
Jun-
13
Sep-1
3
Dec-1
3
Mar
-14
Jun-
14
Sep-1
4
Dec-1
4
Mar
-15
Jun-
15-6%
-4%
-2%
0%
2%
4%
6%
8%
-5%
-5%
-4%
-3%
-3%
-4%
-3%
-2%
-2%
-4%
-1%
-2%
-4%
-4%
-3%
-3%
-4%
-2%
-1%
0% 0% 0%1% 1%
2% 2% 2% 2% 2%3%
4% 4%5%
5%6%
5%4% 4%
5%4%
5% 5%4% 4% 4%
5% 5% 5%4%
3% 3%4% 4%
2%3% 3% 3%
2% 2% 2% 2%1% 1% 1%
0%1% 1% 1%
0%
Rates on the BOP Have Been Flat, Like Much of the Market.
67
Loss Trends
Growth in Claim Size Continues to Outpace Inflation - Barely
67
An Example: NY Homeowners
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$11,000
$12,000
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00CW freq -49% NY freq -51%
CW sev +224% NY sev+211%
Non-cat Paid Frequency Per 100 House-Years
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” 2015 edition, pp. 41, 80.
Non-cat Paid Severity
Severity Rises Faster Than Frequency Falls. NY Frequency, Severity Close to CW Averages.
68
Claim Inflation vs. CPI
Source: Insurance Information Institute calculation from Towers Watson data.
2000-2005 2005-2010 2010-20140.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
4.7
3%
4.2
5%
1.9
9%
5.2
1%
3.5
1%
0.9
4%
5.3
2%
1.2
5%
2.4
9%
5.1
8%
3.5
4%
1.3
4%
2.6
3%
2.2
2%
1.2
5%
Auto Fire Homeowners CMP CPI, all items
(% Chg Over Period)
In Recent Years, Claim Costs Have Risen at About the Inflation Rate.
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
78
Growth Will Expand Insurer Exposure Base Across Most Lines
78
79
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 8/15; 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%2.
3% 2.7%
2.8%
2.7%
2.7%
2.7%
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 2015 as GDP Growth Accelerates Modestly 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
State Leading Economic Indicators through January 2016
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 80
Growth in the West is
finally beginning to pick up
The economic outlook for most of the US is generally
positive, though flat-to-negative for 10 states, several
of them energy dependent
Solid Growth Projected for
Northeast.
81
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 statisticsSources: 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%
82
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 statisticsSources: 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
84
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend Has Greatly Improved
84
85
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Jan14
Jan15
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 5.3% in July 2015. 4.5% to
5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through July 2015, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is continuing to improve.
85
U-6 soared from 8.0% in March
2007 to 17.5% in October 2009; Stood at 10.4% in June 2015.8% to 10% is
“normal.”
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
81
92
94 11
01
20
11
71
07
19
91
49
94
72
22
32
31 3
20
16
61
86
21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
8 22
22
01
17
01
80
15
32
47
27
28
61
83
17
5 22
33
13
23
8 27
22
43
20
92
35
21
84
14
31
92
02 2
61
11
7 18
9 25
22
27
21
0
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan-
07F
eb-0
7M
ar-0
7A
pr-0
7M
ay-
Jun-
07Ju
l-07
Aug
-S
ep-
Oct
-07
Nov
-D
ec-
Jan-
08F
eb-0
8M
ar-0
8A
pr-0
8M
ay-
Jun-
08Ju
l-08
Aug
-S
ep-
Oct
-08
Nov
-D
ec-
Jan-
09F
eb-0
9M
ar-0
9A
pr-0
9M
ay-
Jun-
09Ju
l-09
Aug
-S
ep-
Oct
-09
Nov
-D
ec-
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-
Jun-
10Ju
l-10
Aug
-S
ep-
Oct
-10
Nov
-D
ec-
Jan-
11F
eb-1
1M
ar-1
1A
pr-1
1M
ay-
Jun-
11Ju
l-11
Aug
-S
ep-
Oct
-11
Nov
-D
ec-
Jan-
12F
eb-1
2M
ar-1
2A
pr-1
2M
ay-
Jun-
12Ju
l-12
Aug
-S
ep-
Oct
-12
Nov
-D
ec-
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-
Jun-
13Ju
l-13
Aug
-S
ep-
Oct
-13
Nov
-D
ec-
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-
Jun-
14Ju
l-14
Aug
-S
ep-
Oct
-14
Nov
-D
ec-
Jan-
15F
eb-1
5M
ar-1
5A
pr-1
5M
ay-
Jun-
15Ju
l-15
Monthly Change in Private Employment
January 2007 through July 2015 (000s, Seasonally Adj.)
Private Employers Added 12.84 Million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar.
09 were the largest in the
post-WW II period
210,000 private sector jobs were created in July.
86
Jobs Created2014: 3.042 Mill2013: 2.452 Mill2012: 2.315 Mill2011: 2.396 Mill2010: 1.282 Mill
3,042,000 jobs were created in 2014, the most since 1997
94
DISRUPTORS
Technology, Society and the Economy Are All
Changing at a Rapid PaceThoughts on the Future
94
Cyber Risk & Cyber Insurance
95
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large and
Small in Every IndustryI.I.I. White Paper Coming Out in October
95
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
419470
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 *20150
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
High Profile Data Breaches, 2014-2015Date Company Description of BreachMay 2015 OPM Hackers broke into U.S. Government Personnel Office stealing personal identifying
information of as many as 14 million civilian U.S. government employees.
Mar 2015 Premera Blue Cross Data breach compromises financial and medical records of 11 million customers.
Feb 2015 Anthem, Inc Massive data breach after hackers gained access to corporate data base containing personal information of as many as 80 million current and former U.S. customers and employees.
Dec 2014 Sony Pictures Entertainment
Hacker break-in involving theft of unreleased motion pictures, and theft of more than 25 gigabytes of sensitive data on tens of thousands of Sony employees, including social security numbers, medical and salary information.
Nov 2014 Staples Point-of-sale (POS) malware attack and breach exposing customer data, and resulting in compromise of 1.2 million records.
Sept 2014 Home Depot Huge data breach exposes 56 million credit and debit cards and 53 million email addresses.
Aug 2014 Community Health Systems
Cyber attack originating in China resulted in data breach, compromising 4.5 million patient records. Hackers broke into company’s computer system by exploiting Heartbleed bug.
June/July 2014
JP Morgan Chase Massive data breach compromised data associated with 76 million household and 7 million small business accounts. Hackers obtained personal identifying nformation.
June 2014 PF Changs Security breach affected customers at 33 restaurants located in 16 states, with potential credit and debit card data stolen.
May 2014 eBay Massive data breach exposed records of site’s 233 million customers, including names, email addresses, physical addresses, phone numbers and birthdates.
Feb 2014 Michaels Stores Possible fraudulent activity on some U.S. payment cards used at Michaels stores suggests it may have experienced data security attack, exposing 2.6 million records.
Jan 2014 Snapchat Security breach compromises phone numbers and usernames for 4.6 million accounts.
Jan 2014 Neiman Marcus Hacker break-in exposed unknown no. of customer cards, compromising est. 1.1 million records.
Nov/Dec 2013
Target Malware stored on Target’s checkout registers led to theft of data from about 40 million credit and debit card accounts and the personal information of up to 70 million customers.
Sources: Identity Theft Resource Center; Insurance Information Institute (I.I.I.) research.
98
Top 10 Global Business Risks for 2015
Source: Allianz Risk Barometer on Business Risks 2015
9%
11%
13%
15%
16%
17%
18%
27%
30%
46%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Theft, fraud, corruption
Political, social upheaval, war
Intensified competition
Market stagnation or decline
Loss of reputation or brand value (e.g. from social media)
Cyber crime, IT failures, espionage
Changes in legislation and regulation
Fire, explosion
Natural catastrophes
Business interruption, supply chain risk
Cyber is one of the most significant movers in this year’s Risk Barometer rankings, gaining five percentage points to move into the top 5 global business
risks for the first time.
Worldwide Cybersecurity Spending, 2011- 2016F ($ Billions)
$55.0
$60.0
$65.9
$71.1
$76.9
$83.2
7.9%8.4%8.2%
8.2%9.8%
$50
$55
$60
$65
$70
$75
$80
$85
2011 2012 2013 2014F 2015F 2016F0%
2%
4%
6%
8%
10%
12%
Worldwide Cybersecurity Spending % Change from Previous Year
Cybersecurity Spending Is Rising Sharply, Up by About 8%+ Annually through 2016—a Projected Increase of $12.1 Billion from 2014 to 2016
Cybersecurity spending increased by an estimated $5.2B in 2014, $5.8B
in 2015 and $6.3B in 2016
Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.
99
106
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
Take-Up Rate Edging Up, but Small Business, the “Soft Underbelly” Has
Been Slow to Respond.
Data/Privacy Breach:Many Potential Costs Can Be Insured
Source: Zurich Insurance; Insurance Information Institute
Forensic costs to discover
cause
110
113
Technology and Insurance
113
Rapid Technological Innovations Are Impacting Many Segments of the
P/C Insurance Industry
114
Media Are 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?
115
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
116
Labor on Demand: Huge Implications for the US Economy, Workers & Insurers
Will YOUR job be reduced to an app?
117
Send in the Drones: Potential Rapid Adoption in Industry
Drones or Unmanned Aerial Vehicle (UAV) technology is seeing rapid adoption rate in many industries, including insurance
FAA granting Section 333 exemptions for commercial use and testing of UAS
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
Summary
Calm Eddies . . . Low Interest Rates . . .
Flat Premium Rates . . .
Light Catastrophes (so far)
Underwriting Profits . . .
Steady Economic Growth . . .
Make 2015 Look Good (so far)
118
Summary
Turbulent Waters Excess Capital. . .
Waves of Mergers and Acquisitions. . .
Cybersecurity Risks . . .
Disruptive Technology . . .
Make the Future an Exciting Challenge
119
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120