Overview & Outlook for the P/C Insurance Industry for 2014 and Beyond Philadelphia Reinsurance...

Overview & Outlook for the P/C Insurance Industryfor 2014 and Beyond

Philadelphia Reinsurance SymposiumPhiladelphia, PA

March 6, 2014Download at www.iii.org/presentations

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

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

3

P/C Insurance Industry Financial Overview

2013: Best Year in the Post-Crisis Era

Performance Improved with Lower CATs, Strong Markets

3

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

2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013:9M ROAS1 = 9.5%

• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.9% ROAS through 2013:Q3, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.

Sources: A.M. Best, ISO, Insurance Information Institute

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $3

6,8

19

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

5,2

04

$1

9,4

56 $

33

,52

2

$4

3,0

29

$2

8,6

72

-$6,970

$6

5,7

77

$4

4,1

55

$2

0,5

59

$3

8,5

01

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13:9M

2013:9M ROAS

was 9.5%

Net income is up substantially

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

-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

:Q3

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

*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

1977:19.0% 1987:17.3%

1997:11.6%2006:12.7%

1984: 1.8% 1992: 4.5%2001: -1.2%

10 Years

10 Years9 Years

2011: 4.7%

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

2013:Q3 8.9%

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

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

97.5

100.6 100.1 100.8

92.7

101.299.5

101.0

96.6

102.4

106.5

95.7

14.3%

15.9%

12.7%

10.9%

7.4% 7.9%

4.7%6.2%9.6%

8.8%

4.3%

8.9%

80

85

90

95

100

105

110

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

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs

A combined ratio of about 100 generates an ROE of ~7.0% in 2012, ~7.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

Lower CATs are improved ROEs

in 2013

7

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

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

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E

P/C Profitability Is Both by Cyclicality and Ordinary Volatility

Hugo

Andrew

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

Record Tornado Losses

Sandy

9

RNW All Lines by State, 2003-2012 Average:Highest 25 States

21

.0

17

.7

15

.1

14

.8

13

.4

13

.3

13

.1

12

.6

12

.0

11

.7

11

.4

11

.4

11

.4

11

.1

11

.0

11

.0

11

.0

10

.9

10

.9

10

.7

10

.7

10

.5

10

.3

10

.3

9.9

9.4

02468

1012141618202224

HI AK ND ME WY UT VT ID WA NH IA NE SC DC MA OR VA NC RI CA CT OH NM SD WV MT

Source: NAIC.

The most profitable states over the past decade are

widely distributed geographically, though none

are in the Gulf region

10

9.2

9.1

8.9

8.9

8.6

8.5

8.3

8.1

7.9

7.7

7.7

7.6

7.4

6.5

6.5

6.1

6.1

5.5

5.2

4.9

4.9

4.2

3.2

2.0

-6.5

-9.4

-14-12-10-8-6-4-202468

10

KS MD CO WI FL MN TX IN US AR PA IL AZ MO NV KY NJ GA NY MI TN DE OK AL MS LA

RNW All Lines by State, 2003-2012 Average: Lowest 25 States

Source: NAIC.

Some of the least profitable states over the past decade were hit hard

by catastrophes

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

11

Growth Will Expand Insurer Exposure Base Across Most Lines—

Especially Commercial Lines11

12

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 2/14; Insurance Information Institute.

2.7%

0.5%

3.6%

3.0%

1.7%

-1.8

%1.

3%-3

.7%

-5.3

%-0

.3%

1.4%

5.0%

2.3%

2.2% 2.6%

2.4%

0.1%

2.5%

1.3%

4.1%

2.0%

1.3%

3.1%

1.1% 2.

5%4.

1%2.

4%2.

2% 2.8%

2.9%

3.0%

3.0%

3.0%

3.1%

3.0%

0.4%

-8.9%

4.1%

1.1% 1.

8% 2.5% 3.

6%3.

1%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

2

00

0

2

00

1

2

00

2

2

00

3

2

00

4

2

00

5

2

00

6

07

:1Q

07

:2Q

07

:3Q

07

:4Q

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

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

Real GDP Growth (%)

Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor market contraction

was severe

The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%

2014/15 are expected to see a

modest acceleration in growth

13

Real GDP by State Percent Change, 2012:Highest 25 States

13

.4

4.8

3.9

3.6

3.5

3.5

3.4

3.3

3.3

3.3

2.7

2.7

2.6

2.4

2.4

2.4

2.4

2.2

2.2

2.2

2.2

2.1

2.1

2.1

2.1

2.0

0

2

4

6

8

10

12

14

ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO

Pe

rce

nt

Ch

an

ge

(%

)

Sources: US Bureau of Labor Statistics; Insurance Information Institute.

North Dakota was the economic growth juggernaut of the US

in 2012—by far

Only 10 states experienced growth in excess of 3%, which is what we would see nationally in

a more typical recovery

14

1.9

1.7

1.6

1.5

1.5

1.5

1.5

1.4

1.4

1.4

1.3

1.3

1.3

1.2

1.2

1.1

1.1

0.7

0.5

0.5

0.4

0.2

0.2

0.2

0.2

-0.1

-0.4-0.20.00.20.40.60.81.01.21.41.61.82.0

IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT

Pe

rce

nt

Ch

an

ge

(%

)

Real GDP by State Percent Change, 2012: Lowest 25 States

Sources: US Bureau of Labor Statistics; Insurance Information Institute.

Connecticut was the only state to shrink in 2012

Growth rates in 8 states (and DC) were still below

1% in 2012

State-by-State Leading Indicatorsthrough 2014:Q2

Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 15

The economic outlook for most of

the US is positive for the first time in many

years

http://www.philadelphiafed.org/index.cfm

74

.47

3.6

73

.67

2.2

73

.6 76

67

.86

8.9

68

.26

7.7 7

1.6 74

.57

4.2 77

.56

7.5 69

.8 74

.37

1.5

63

.75

5.7 5

9.5

60

.9 64

.16

9.9

75

.07

5.3

76

.27

6.4 79

.37

3.2

72

.3 74

.38

2.6

82

.77

4.5

73

.8 77

.67

8.6

84

.58

4.1

85

.18

2.1

77

.57

3.2 75

.18

2.5

81

.28

1.6

76

.4

40

45

50

55

60

65

70

75

80

85

90

Jan

-10

Fe

b-1

0M

ar-

10

Ap

r-1

0M

ay-

10

Jun

-10

Jul-

10

Au

g-1

0S

ep

-10

Oct

-10

No

v-1

0D

ec-

10

Jan

-11

Fe

b-1

1M

ar-

11

Ap

r-1

1M

ay-

11

Jun

-11

Jul-

11

Au

g-1

1S

ep

-11

Oct

-11

No

v-1

1D

ec-

11

Jan

-12

Fe

b-1

2M

ar-

12

Ap

r-1

2M

ay-

12

Jun

-12

Jul-

12

Au

g-1

2O

ct-1

2N

ov-

12

De

c-1

2Ja

n-1

3F

eb

-13

Ma

r-1

3A

pr-

13

Ma

y-1

3Ju

n-1

3Ju

l-1

3A

ug

-13

Se

p-1

3O

ct-1

3N

ov-

13

De

c-1

3Ja

n-1

4F

eb

-14

Consumer Sentiment Survey (1966 = 100)

January 2010 through February 2014

Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact consumers, but improved substantially over the past 2+ years, though

uncertainty in Washington sometimes takes a toll.Source: University of Michigan; Insurance Information Institute

Optimism among consumers dropped in Q3 2013 as the

government shutdown created uncertainty but is now

rebounding

16

Impact of 2011 budget impasse

27

(Millions of Units)

New Private Housing Starts, 1990-2019F

1.4

8

1.4

7 1.6

21

.64

1.5

71

.60 1.7

1 1.8

5 1.9

6 2.0

71

.80

1.3

6

0.9

10

.55

0.5

9

0.6

1 0.7

8 0.9

2 1.1

0 1.3

0 1.4

41

.50

1.5

11

.50

1.3

51.4

61

.29

1.2

0

1.0

11.1

9

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F14F15F16F17F18F19F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (1/14 and 3/13); Insurance Information Institute.

Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk

Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure

New home starts plunged 72% from 2005-2009; A net

annual decline of 1.49 million units, lowest since records began

in 1959

Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction

for several more years

28

Average Premium forHome Insurance Policies**

* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Sources: NAIC; Insurance Information Institute estimates for 2012-2014 based on CPI data and other data.

$508$536

$593

$668

$822 $830$880

$909

$978$1,017

$1,058$1,100

$804$764

$729

$400

$600

$800

$1,000

$1,200

00 01 02 03 04 05 06 07 08 09 10 11 12* 13* 14*

Across the U.S., home insurance expenditures rose by an estimated 4.0% in 2012-2014

Annual Pct Changes

2001: 5.5%2002: 10.6%2003: 12.7%2004: 9.1%2005: 4.8%2006: 5.2%2007: 2.2%2008: 1.0%2009: 6.0%2010: 3.3%2011: 7.6%

29

Homeowners InsuranceNet Written Premium, 2000–2015F

$45.8$49.5

$52.2$54.8 $55.2

$61.1$63.5

$66.8$70.4

$74.0

$77.9

$57.5$56.2

$32.4

$40.0

$35.2

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

$80

00 01 02 03 04 05 06 07 08 09 10 11 12 13P 14F 15F

Sources: A.M. Best; Insurance Information Institute.

$ Billions Homeowners insurance NWP continues to rise (up 128% 2000-2013) despite very little unit

growth during the real estate crash. Reasons include rate increases, especially in coastal

zones, ITV endorsements (e.g., “inflation guards”), and inelastic demand

30

Average Premiums For Home InsuranceBy State, 2011* (1)

$1

,93

3

$1

,67

2

$1

,57

8

$1

,40

9

$1

,38

6

$1

,16

3

$1

,13

9

$1

,10

3

$1

,09

7

$1

,09

6

$1

,09

1

$1

,08

3

$1

,07

2

$1

,05

6

$1

,02

9

$1

,02

2

$9

78

$9

69

$9

67

$9

61

$9

58

$9

24

$9

15

$9

15

$9

07

$9

06

$8

69

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

FL

LA

TX

MS

OK AL RI

KS

NY

CT

SC

DC

MA

MN

AR

MO

US

ND

CA

CO

NE

AK

NJ

TN HI

GA

NC

*Latest available.(1) 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.Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days insured coverage for a single dwelling.

Source: NAIC; Insurance Information Institute.

Top 25 States and DC

31

Average Premiums For Home InsuranceBy State, 2011* (1)

$8

39

$8

22

$8

18

$8

11

$8

00

$7

93

$7

82

$7

79

$7

74

$7

70

$7

48

$7

44

$7

43

$7

21

$7

14

$7

13

$6

89

$6

75

$6

64

$6

44

$6

26

$5

92

$5

63

$5

59

$5

18

$0

$200

$400

$600

$800

$1,000

KY IL

MT

NH

MD

NM VA IN MI

WY

VT

PA

WV

SD

ME IA NV AZ

DE

OH

WA

WI

UT

OR ID

• Latest available• (1) 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.Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days insured coverage for a single dwelling.

Source: © 2013 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.

Bottom 25 States

32

Estimated Median Rate For HomeInsurance By State, 2011* (1)

0.9

4%

0.8

4%

0.8

2%

0.7

7%

0.7

1%

0.6

7%

0.6

4%

0.5

9%

0.5

7%

0.5

4%

0.5

1%

0.5

1%

0.5

1%

0.4

7%

0.4

4%

0.4

4%

0.4

2%

0.4

2%

0.4

2%

0.4

2%

0.4

1%

0.4

1%

0.4

0%

0.3

9%

0.3

7%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

LA

MS

OK

TX FL

AL

KS

AR

ND

NE

TN

MO

SC

KY IN GA

WV

MN

SD IA

NC

MT RI

NM M

I

*Latest available.(1) 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.Note: Estimated median = average premium in median insurance range/estimated average insurance value in that range.

Source: Insurance Information Institute estimate from NAIC data.

Top 25 States

Chart answers question: What is the rate to insure the average home in

the state?

33

Estimated Median Rate For HomeInsurance By State, 2011* (1)

0.3

7%

0.3

7%

0.3

6%

0.3

6%

0.3

5%

0.3

5%

0.3

4%

0.3

3%

0.3

1%

0.3

0%

0.3

0%

0.3

0%

0.3

0%

0.2

9%

0.2

9%

0.2

9%

0.2

8%

0.2

8%

0.2

6%

0.2

6%

0.2

6%

0.2

5%

0.2

5%

0.2

5%

0.2

3%

0.2

2%

0.2

2%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

WY

US

CO

NY

CT

AK

DC

OH

NH VA

MA

CA IL WI

MD PA

ME

VT AZ

NJ HI

NV ID DE

WA

UT

OR

*Latest available.(1) 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.Note: Estimated median = average premium in median insurance range/estimated average insurance value in that range.

Source: Insurance Information Institute estimate from NAIC data.

Bottom 25 States and DC

39

$200,000

$300,000

$400,000

$500,000

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

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

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

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

$ Millions

39

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

http://www.census.gov/manufacturing/m3/

41

2.5%

4.9%

6.3%

7.8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2013 2014F 2015F 2016F

Business Investment: Expected to Accelerate, Fueling Commercial Exposure Growth

Accelerating business investment will be a potent driver of

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

exposures as well (with a lag)

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

42

Manufacturing Growth for Selected Sectors, 2013 vs. 2013*

3.0%

0.0%

-3.4%

8.1%

0.2%2.7%

-1.8%-0.5%

3.1%

6.9%

1.7%3.1%

14.0%

0.4% 1.3%

-6%-4%-2%0%2%4%6%8%

10%12%14%16%

All

Ma

nu

fact

uri

ng

Du

rab

le M

fg.

Wo

od

Pro

du

cts

Pri

ma

ryM

eta

ls

Fa

bri

cate

dM

eta

ls

Ma

chin

ery

Ele

ctri

cal

Eq

uip

.

Co

mp

ute

rs &

Ele

ctro

nic

s

Tra

nsp

ort

atio

nE

qu

ip.

No

n-D

ura

ble

Mfg

.

Fo

od

Pro

du

cts

Pe

tro

leu

m &

Co

al

Ch

em

ica

l

Pla

stic

s &

Ru

bb

er

Te

xtile

Pro

du

cts

Manufacturing Is Expanding—Albeit Slowly—Across a Number of Sectors that Will Contribute to Growth in Insurable Exposures Including: WC, Commercial

Property, Commercial Auto and Many Liability Coverages

Growth (%)

Manufacturing of durable goods was especially

strong in 2012 but weakened in 2013

*Seasonally adjusted; Date are YTD comparing data through November 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/

Durables: +3.4% Non-Durables: +0.2%

http://www.census.gov/manufacturing/m3/

66%

68%

70%

72%

74%

76%

78%

80%

82%

Mar

01

Jun 0

1

Sep

Dec

Mar

02

Jun 0

2

Sep

Dec

Mar

03

Jun 0

3

Sep

Dec

Mar

04

Jun 0

4

Sep

Dec

Mar

05

Jun 0

5

Sep

Dec

Mar

06

Jun 0

6

Sep

Dec

Mar

07

Jun 0

7

Sep

Dec

Mar

08

Jun 0

8

Sep

Dec

Mar

09

Jun 0

9

Sep

Dec

Mar

10

Jun 1

0

Sep

Dec

Mar

11

Jun 1

1

Sep

Dec

Mar

12

Jun 1

2

Sep

Dec

Mar

13

Jun 1

3

Sep

Dec

Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures

Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 44

Percent of Industrial Capacity

Hurricane Katrina

March 2001-November 2001

recession

“Full Capacity”

The closer the economy is to operating at “full

capacity,” the greater the inflationary pressure

The US operated at 79.2% of industrial capacity in Dec. 2013, well above the June

2009 low of 66.9% but is still below pre-recession levels.

December 2007-June 2009 Recession

March 2001 through December 2013

44

http://www.federalreserve.gov/releases/g17/Current/default.htm

50

.7 52

.7 54

.15

4.6

54

.85

3.5

53

.75

2.8 53

.95

4.6 56 5

7.1 5

9.4

59

.75

6.3

54

.45

3.3

53

.45

3.8

52

.65

2.6

52

.65

2.6

53

.05

6.8

56

.15

5.0

53

.75

4.1

52

.75

2.9 54

.3 55

.25

4.8

54

.85

5.7

55

.25

6.0

53

.15

3.7

52

.25

6.0

58

.65

4.4 55

.45

3.9

53

.0 54

.05

1.6

54

.4

40

45

50

55

60

65

Jan

-10

Fe

b-1

0M

ar-

10

Ap

r-1

0M

ay-

10

Jun

-10

Jul-

10

Au

g-1

0S

ep

-10

Oct

-10

No

v-1

0D

ec-

10

Jan

-11

Fe

b-1

1M

ar-

11

Ap

r-1

1M

ay-

11

Jun

-11

Jul-

11

Au

g-1

1S

ep

-11

Oct

-11

No

v-1

1D

ec-

11

Jan

-12

Fe

b-1

2M

ar-

12

Ap

r-1

2M

ay-

12

Jun

-12

Jul-

12

Au

g-1

2S

ep

-12

Oct

-12

No

v-1

2D

ec-

12

Jan

-13

Fe

b-1

3M

ar-

13

Ap

r-1

3M

ay-

13

Jun

-13

Jul-

13

Au

g-1

3S

ep

-13

Oct

-13

No

v-1

3D

ec-

13

Jan

-14

Fe

b-1

4

ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)

January 2010 through February 2014

Non-manufacturing industries have been expanding and adding jobs. This trend is likely to continue through 2014.

Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.

Optimism among non-manufacturers was hurt by

the uncertainty in Washington, but remains

resilient

46

http://www.ism.ws/ismreport/nonmfgrob.cfm

NFIB Small Business Optimism Index

January 1985 through January 2014

Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 49

Small business optimism is off crisis lows but still suffering

from economic and regulatory uncertainty. Confidence today is basically where it was when the crisis began in Dec. 2007.

http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif

50

12 Industries for the Next 10 Years: Insurance Solutions Needed

Export-Oriented Industries

Health Sciences

Health Care

Energy (Traditional)

Alternative Energy

Petrochemical

Agriculture

Natural Resources

Technology (incl. Biotechnology)

Light Manufacturing

Insourced Manufacturing

Many industries are

poised for growth, though

insurers’ ability to

capitalize on these

industries varies widely

Shipping (Rail, Marine, Trucking, Pipelines)

CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK

51

The Construction Sector Is Critical to the Economy and the P/C Insurance Industry

51

52

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

Billions of Dollars

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

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

Non ResidentialResidential

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

$298.1

$15.0

$613.7

New Construction peaks at $911.8. in 2006

Trough in 2010 at $500.6B,

after plunging 55.1% ($411.2B)

2013: Value of new pvt. construction hits $659.4B, up

32% from the 2010 trough but still

28% below 2006 peak

52

$261.8

$238.8

$332.1

$290.8

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

55

Value of Construction Put in Place, November 2013 vs. November 2012*

-0.2%

-13.4%

0.1%

5.9%8.6%

16.6%

1.0%

-15%

-10%

-5%

0%

5%

10%

15%

20%

TotalConstruction

Total PrivateConstruction

Residential--Private

Non-Residential--

Private

Total PublicConstruction

Residential-Public

Non-Residential--

Public

Overall Construction Activity is Up, But Growth Is Entirely in the Private Sector as State/Local Government Budget Woes Continue

Growth (%)

Private sector construction activity is now up in the

residential and nonresidential segments

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

Private: +8.6% Public: -0.2%

Public sector construction activity remains depressed

http://www.census.gov/construction/c30/c30index.html

56

Value of Private Construction Put in Place, by Segment, Nov. 2013 vs. Nov. 2012*

20.7%

3.0%6.7%

-5.8%

18.3%

-10.5%

-24.2%

15.6%12.1%

8.6%

16.6%

1.0%

32.7%

11.5%

-30%

-20%

-10%

0%

10%

20%

30%

40%

To

tal

Pri

vate

Co

nst

ruct

ion

Res

iden

tial

To

tal

No

nre

sid

enti

al

Lo

dg

ing

Off

ice

Co

mm

erci

al

Hea

lth

Car

e

Ed

uca

tio

nal

Rel

igio

us

Am

use

men

t &

Rec

.

Tra

nsp

ort

atio

n

Co

mm

un

icat

ion

Po

wer

Man

ufa

ctu

rin

g

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

Growth (%) Led by the Residential Construction, Lodging, Power and Transportation segments, Private

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

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

http://www.census.gov/construction/c30/c30index.html

58

Homeowner’s MP DWP Growth: FL vs. U.S., 2003-2012

Source: SNL Financial.

13

.8%

10

.4%

7.4

%

7.4

%

4.2

%

0.5

% 3.8

%

4.9

%

3.8

%

5.7

%

17

.3%

17

.2%

21

.1%

31

.9%

6.7

%

-15

.6%

-4.3

%

9.2

%

3.9

% 6.6

%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

03 04 05 06 07 08 09 10 11 12

US DWP: HO Lines FL DWP: HO Lines

(Percent)

Average 2003-2012US: 6.2%FL: 9.4%

The homeowners line grew rapidly

during the housing boom then

contracted during the crash

59

$8.05$8.59

$7.25$6.93

$7.57$7.86

$8.38$8.94

$2.90 $3.07$3.66

$4.30

$5.04

$6.10

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

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

($ Billions)

Florida’s homeowners insurance market has been on a 15-year rollercoaster ride in terms of both volume and performance

Florida Homeowners Direct Written Premium, 200-2013E*

*2013 is an I.I.I. estimate and assumes a 6.6% growth rate (same as in 2012).Sources: SNL Financial; Insurance Information Institute.

Homeowners premium volume peaked at $8.59B prior to the housing collapse

FL’s premium volume likely hit a new record high in

2013 as the economy continued to recover

2000-2007: +196% Growth

2007-09: -19%

Growth

20090-13E: +21% Growth

60

Strong Florida Population Growth Will Drive Coastal Exposure Sharply Upward

18.5418.68

18.88

19.11

19.35

19.59

19.86

20.13

20.41

20.71

0.8% 0.8%

1.1%1.2% 1.2%

1.3% 1.3%1.4% 1.4%

1.4%

18.0

18.5

19.0

19.5

20.0

20.5

21.0

08 09 10 11 12 13E 14F 15F 16F 17F

Po

pu

lati

on

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

An

nu

al G

row

th R

ate

Florida Population Annual Growth Rate

(Millions)

Florida is expected to add 1.1 million new residents by 2017

relative to 2013

At 1.3% to 1.4%, FL’s population growth will well above the US

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

http://iec.ucf.edu/post/2014/01/07/Florida-Metro-Forecast-December-2013.aspx

Florida Total Private Housing Starts,2000 – 2017F

61

The economic outlook for most of

the US is positive for the first time in many

years

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

CRASH, CRATER, RECOVERY Homebuilding in FL continues

to recover, adding substantially to coastal exposures.

(Thousands of Units)

http://iec.ucf.edu/post/2014/01/07/Florida-Metro-Forecast-December-2013.aspx

62

$314.9$304.0

$286.4 $279.0 $275.0

$216.1 $220.2$234.2

$255.4

$289.1$308.7

$0

$50

$100

$150

$200

$250

$300

$350

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

($ Billions)

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

Grapple with Deficits and Federal Sequestration Takes Hold

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

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

Construction across all levels of government

peaked at $314.9B in 2009

Austerity Reigns

Govt. construction is still shrinking, down $39.9B or

12.7% since 2009 peak

69

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend is Improving

69

70

Unemployment and Underemployment Rates: Still Too High, But Falling

2

4

6

8

10

12

14

16

18

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Jan12

Jan13

Jan14

"Headline" Unemployment Rate U-3

Unemployment + Underemployment RateU-6

“Headline” unemployment

was 6.6% in January 2014. 4%

to 6% is “normal.”

Source: US Bureau of Labor Statistics; Insurance Information Institute.

U-6 went from 8.0% in March

2007 to 17.5% in October 2009; Stood at 12.7%

in Jan. 2014.8% to 10% is

“normal.”

January 2000 through January 2014, Seasonally Adjusted (%)

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

70

As the unemployment rate approaches 6%,

the Fed will begin signaling on short-

term rates

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

8

19

29

4 11

01

20

11

71

07 1

99

14

99

47

22

23

23

1 32

01

66

18

6 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

82

22

20

11

70

18

01

53 2

47

27

28

9 14

2

11

3

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

Jan

-07

Fe

b-0

7M

ar-

07

Ap

r-0

7M

ay-

07

Jun

-07

Jul-

07

Au

g-0

7S

ep

-07

Oct

-07

No

v-0

7D

ec-

07

Jan

-08

Fe

b-0

8M

ar-

08

Ap

r-0

8M

ay-

08

Jun

-08

Jul-

08

Au

g-0

8S

ep

-08

Oct

-08

No

v-0

8D

ec-

08

Jan

-09

Fe

b-0

9M

ar-

09

Ap

r-0

9M

ay-

09

Jun

-09

Jul-

09

Au

g-0

9S

ep

-09

Oct

-09

No

v-0

9D

ec-

09

Jan

-10

Fe

b-1

0M

ar-

10

Ap

r-1

0M

ay-

10

Jun

-10

Jul-

10

Au

g-1

0S

ep

-10

Oct

-10

No

v-1

0D

ec-

10

Jan

-11

Fe

b-1

1M

ar-

11

Ap

r-1

1M

ay-

11

Jun

-11

Jul-

11

Au

g-1

1S

ep

-11

Oct

-11

No

v-1

1D

ec-

11

Jan

-12

Fe

b-1

2M

ar-

12

Ap

r-1

2M

ay-

12

Jun

-12

Jul-

12

Au

g-1

2S

ep

-12

Oct

-12

No

v-1

2D

ec-

12

Jan

-13

Fe

b-1

3M

ar-

13

Ap

r-1

3M

ay-

13

Jun

-13

Jul-

13

Au

g-1

3S

ep

-13

Oct

-13

No

v-1

3D

ec-

13

Jan

-14

Monthly Change in Private Employment

January 2007 through January 2014 (Thousands, Seasonally Adjusted)

Private Employers Added 8.34 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

142,000 private sector jobs were

created in January

72

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

http://www.bls.gov/ces/home.htm

77

Unemployment Rates by State, December 2013:Highest 25 States*

9.1

8.8

8.6

8.4

8.3

8.1

8.0

8.0

7.8

7.6

7.4

7.4

7.4

7.3

7.2

7.1

7.0

7.0

6.9

6.9

6.9

6.7

6.6

6.6

6.4

6.4

6.2

0

2

4

6

8

10

12

RI NV IL MI CA DC KY MS TN AZ AR CT GA NJ OH NY MA OR IN NC PA US SC WA AK NM CO

Un

em

plo

ym

en

t R

ate

(%

)

*Provisional figures for December 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In December, 39 states and the District of Columbia had over-the-month

unemployment rate decreases, 2 states had increases, and 9 states had no

change.

78

6.2

6.2

6.2

6.2

6.1

6.1

6.0

5.9

5.9

5.7

5.7

5.4

5.2

5.2

5.1

4.9

4.6

4.5

4.4

4.2

4.2

4.1

3.6

3.6

2.6

0

2

4

6

8

DE FL ME WI AL MD TX MO WV ID LA OK MT VA NH KS MN HI WY IA VT UT NE SD ND

Une

mpl

oym

ent R

ate

(%)

Unemployment Rates by State, December 2013: Lowest 25 States*

*Provisional figures for December 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In December, 39 states and the District of Columbia had over-the-month unemployment rate decreases, 2

states had increases, and 9 states had no change.

79

Oil & Gas Extraction Employment,Jan. 2010—Dec. 2013*

*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

156.

415

6.4

156.

715

7.6

158.

715

7.8

158.

015

9.5

160.

016

1.5

161.

216

1.2

163.

116

4.4

166.

616

9.3

170.

117

1.0

172.

517

3.6

176.

317

8.2

178.

518

0.9

181.

918

3.1

184.

818

5.2

185.

718

6.8

187.

618

8.0

188.

018

8.2

190.

019

1.7

191.

919

3.4

192.

419

2.6

193.

119

3.3

195.

019

6.5

197.

419

9.1

200.

120

1.9

150

160

170

180

190

200

210

Jan-

10F

eb-1

0M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

122/

30/2

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13F

eb-1

3M

ar-1

3A

pr-1

3M

ay-1

3Ju

n-13

Jul-1

3A

ug-1

3S

ep-1

3O

ct-1

3N

ov-1

3D

ec-1

3

Oil and gas extraction employment is up 29.1% since Jan. 2010 as the energy sector booms. Domestic energy production is essential to any robust economic recovery in

the US.

(Thousands) Highest since Nov.

1986

http://data.bls.gov/

83

U.S. Insured Catastrophe Loss Update

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

83

84

$1

2.6

$1

1.0

$3

.8

$1

4.3

$1

1.6

$6

.1

$3

4.7

$7

.6

$1

6.3

$3

3.7

$7

3.4

$1

0.5

$7

.5

$2

9.2

$1

1.5

$1

4.4

$3

3.6

$3

5.0

$1

2.8

$1

4.0

$4

.8

$8

.0

$3

7.8

$8

.8

$2

6.4

$0

$10

$20

$30

$40

$50

$60

$70

$80

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13*

U.S. Insured Catastrophe Losses

*Through 12/31/13.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.

2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Well

Below 2011 and 2012 YTD Totals.

2012 was the third most expensive year ever for insured CAT

losses

Record tornado losses caused

2011 CAT losses to surge

($ Billions, $ 2012)

84

85

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

*2010s represent 2010-2013.Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.

0.4

1.2

0.4 0.

8 1.3

0.3

0.4 0.

71.

51.

00.

40.

4 0.7

1.8

1.1

0.6

1.4 2.

01.

3 2.0

0.5

0.5 0.7

3.0

1.2

2.1

8.8

2.3

5.9

3.3

2.8

1.0

3.6

2.9

1.6

5.4

1.6

3.3

3.3

8.1

2.7

1.6

5.0

2.6

3.4

8.7 8.9

3.43.6

0.9

0.1

1.1

1.1

0.8

0

1

2

3

4

5

6

7

8

9

10

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades

Avg. CAT Loss Component of the Combined Ratio

by Decade

1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 6.1E*

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

a record high in 2012

86

Top 10 States for InsuredCatastrophe Losses, 2013

$1,995

$1,509

$1,190

$909 $907$805 $773 $762

$677$593

0200400600800

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

Okl

ahoma

Texas

Illin

ois

Min

nesota

Colora

do

Mis

siss

ippi

Nebra

ska

Geo

rgia

India

na

Louisia

na

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

$ Millions

Oklahoma let the country in insured CAT losses in 2013

87

$9,756

$6,369

$2,318$1,511 $1,440

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

New York New Jersey Texas Kentucky Colorado

*Includes catastrophe losses of at least $25 million.Sources: PCS unit of ISO; Insurance Information Institute.

Top 5 States by Insured Catastrophe Losses in 2012*

NY and NJ let the US in CAT losses in 2012 due Sandy

(2012, $ Billions)

88

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

9.0%

10.4%

14.3%66.3%

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

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

Rest of the U.S.$309.9BFlorida

$66.7B

Texas$48.8B

Louisiana$42.0B

Total: $467.5 Billion, an average of

$16.6B per year or $1.3B per month

FL is the most costly state for

CATs, with nearly $67B in insured losses

over the past 30 years

89

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

0.1%

1.7%

3.8%4.7%

6.3%

7.1%

36.0%

40.4%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2012 dollars.2. Excludes snow.3. Does not include NFIP flood losses4. Includes wildland fires5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.

Hurricanes & Tropical Storms, $158.2

Fires (4), $6.5

Tornadoes (2), $140.9

Winter Storms, $27.8

Terrorism, $24.8

Geological Events, $18.4

Wind/Hail/Flood (3), $14.9

Other (5), $0.2

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Insured cat losses from 1993-2012

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

per month

90

Top 16 Most Costly Disastersin U.S. History

(Insured Losses, 2012 Dollars, $ Billions)

$7.8 $8.7 $9.2 $11.1$13.4$18.8

$23.9 $24.6$25.6

$48.7

$7.5$7.1$6.7$5.6$5.6$4.4

$0

$10

$20

$30

$40

$50

$60

Irene (2011) Jeanne(2004)

Frances(2004)

Rita (2005)

Tornadoes/T-Storms

(2011)

Tornadoes/T-Storms

(2011)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Sandy*(2012)

Northridge(1994)

9/11 Attack(2001)

Andrew(1992)

Katrina(2005)

Hurricane Sandy became the 5th

costliest event in US insurance history

Hurricane Irene became the 12th most expense hurricane

in US history in 2011

Includes Tuscaloosa, AL,

tornado

Includes Joplin, MO, tornado

12 of the 16 Most Expensive Events in US History Have

Occurred Over the Past Decade

*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

91

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


*Figures do not include federally insured flood losses.**Estimate based on PCS value of $18.75B as of 4/12/13.Sources: Munich Re; Swiss Re; Insurance Information Institute research.

$11.1$13.4 $13.4$13.4$18.8

$23.9 $24.6$25.6

$38.6

$48.7

$7.8 $8.1 $8.5 $8.7 $9.2 $9.6

$0

$10

$20

$30

$40

$50

$60

Hugo (1989)

WinterStormDaria(1991)

ChileQuake(2010)

Ivan (2004)

Charley(2004)

TyphoonMirielle(1991)

Wilma(2005)

ThailandFloods(2011)

NewZealandQuake(2011)

Ike (2008)

Sandy(2012)**

Northridge(1994)

WTC TerrorAttack(2001)

Andrew(1992)

JapanQuake,

Tsunami(2011)**

Katrina(2005)

5 of the top 14 most expensive catastrophes in

world history have occurred within the past 3 years

(2010-2012)

Hurricane Sandy is now the 6th costliest event in global

insurance history

2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re

Hailstorm on July 27-28 in Germany Was Most Expensive CAT Worldwide in 2013!

Region Overall losses Insured losses Fatalities

Southwestern and Northern Germany

US$ 4.8bn US$ 3.7bn 0

July 27

July 28

92

Hailstones with diameters up to 8 cm (tennis ball ≈ 7 cm)

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

93

Top 12 Most Costly Hurricanesin U.S. History


*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

$9.2 $11.1$13.4

$18.8

$25.6

$48.7

$8.7$7.8$6.7$5.6$5.6$4.4

$0

$10

$20

$30

$40

$50

$60

Irene(2011)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Sandy*(2012)

Andrew(1992)

Katrina(2005)

Hurricane Sandy became the 3rd costliest hurricane in US

insurance historyHurricane Irene

became the 12th most expensive hurricane in US history in 2011

10 of the 12 most costly hurricanes in insurance history occurred over the past 9 years (2004—2012)

94

Total Value of Insured Coastal Exposure in 2012

(2012, $ Billions)

Source: AIR Worldwide

$293.5$239.3

$182.3$164.6$163.5

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

$17.3

$567.8$713.9

$849.6$1,175.3

$2,862.3$2,923.1

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

New YorkFloridaTexas

MassachusettsNew JerseyConnecticut

LouisianaS. Carolina

VirginiaMaine

North CarolinaAlabamaGeorgia

DelawareNew Hampshire

MississippiRhode Island

Maryland

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

ranked #3 with $1.175 Trillionin insured coastal exposure

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

Up 48% from $7.2 Trillion in 2004

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

96

$6,558$10,994

$44,563

$57,277

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Homeowners* Vehicle Commercial NFIP Flood**

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

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

interruption losses

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

Hurricane Sandy: Average Claim Payment by Type of Claim

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

(mostly wind)

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

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

97

Total Potential Home Value Exposure to Storm Surge Risk in 2013*

($ Billions)

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

$65.2$51.0$50.3

$35.0$22.4$20.5

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

$65.6$72.0$78.0

$118.8$135.0

$386.5

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

FloridaNew York

New JerseyVirginia

LouisianaS. CarolinaN. Carolina

TexasMassachusetts

ConnecticutMarylandGeorgia

DelawareMississippi

Rhode IslandAlabama

MaineNew

PennsylvaniaDC

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

following major coastal flooding events.

Florida is by the state most vulnerable to storm surge.

Period AreaEconomic Loss (in inflation-

adjusted 2013 $US mill)

Insured Loss (in inflation-adjusted 2013 $US mill) Fatalities

Mar. 11-14, 1993 CAN, USA 8,061 3,224 270

Dec. 17-30,1983 USA 2,339 2,058 500

Apr. 13-17, 2007 CAN, USA 2,247 1,775 23

Dec. 10-13, 1992 USA 4,981 1,660 19

Jan. 5-12, 1998 CAN, USA 4,145 1,644 45

Feb. 10-12, 1994 USA 4,716 1,258 9

Jan. 17-20, 1994 USA 1,572 1,258 70

Apr. 7-11, 2013 USA 1,600 1,200 N/A

Jan. 1-4, 1999 CAN, USA 1,398 1,084 25

Jan. 31-Feb. 2, 2011 USA 1,346 1,010 36

*Top 10 events in original insured loss dollars were adjusted to and ranked by the Insurance Information Institute to 2013 inflation-adjusted values.Sources: Munich Re NatCatSERVICE; Insurance Information Institute.

Top 10 Winter Storm and Winter Damage Events in the US and Canada, 1980-2013*

Ranked by Insured Loss, in Millions of $ 2013*

99Sources: Munich Re NatCatSERVICE; Insurance Information Institute.

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

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

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

Insured losses from

severe winter events

totaled $2 billion in

2013.

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

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

Insured Losses (Millions, $ 2013)

5-year running average

http://www.spc.noaa.gov/wcm/torngraph-big.png



As of December 31, 2013

Number of Events Fatalities

Estimated Overall Losses (US $m)

Estimated Insured Losses (US $m)

SevereThunderstorm

69 110 16,341 10,274

Winter Storm 11 43 2,935 1,895

Flood 19 23 1,929 240

Earthquake & Geophysical

6 1 Minor Minor

Tropical Cyclone 1 1 Minor Minor

Wildfire, Heat, & Drought

22 29 620 385

Totals 128 207 21,825 12,794

Natural Disaster Losses in the United States, by Type, 2013

101Source: Munich Re NatCatSERVICE 101

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

103Source: Property Claims Service, and MR NatCatSERVICE

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

highest on record

Average thunderstorm

losses are up 7 fold since the early

1980s. The 5-year running average

loss is up sharply

Hurricanes get all the headlines, but thunderstorms are consistent

producers of large scale loss. 2008-2013 are the most expensive

years on record.

104

Insured Homeowners Losses Dueto Lightning, 2004-2012

$735.5

$819.6

$882.2

$942.4

$1,065.5

$798.0

$1,033.5

$952.5 $969.0

$500

$600

$700

$800

$900

$1,000

$1,100

2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Insurance Information Institute.

The Increased Number and Value of Expensive Electronic Devices in Homes is Pushing the Total Lightning Claim Costs Up Even as

the Number of Lightning Claims Falls

$ Millions

Lightning claims cost insurers an estimated $969 million in 2012, 31.7% from $735.5

million in 2004

Nu

mb

er

Geophysical (earthquake, tsunami, volcanic activity)

Climatological (temperature extremes, drought, wildfire)

Meteorological (storm)

Hydrological (flood, mass movement)

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

Source: MR NatCatSERVICE 105

22

19

81

6

50

100

150

200

250

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

There were 128 natural disaster events in 2013

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

107

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

Source: MR NatCatSERVICE

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

50

100

150

200

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

2013 CAT Losses

Overall : $21.8B

Insured: $12.8B

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

Growth Opportunity

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

than the average from 2000-2012

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

Insured US Tropical Cyclone Losses, 1980 - 2013

Sources: Property Claims Service, Munich Re NatCatSERVICE, NFIP 108

110

U.S. Residual Market Exposure to Loss(1990-2012) ($ Billions)

Source: PIPSO; Insurance Information Institute (I.I.I.).

$281.8

$884.7

$757.9$818.1

$430.5$372.3

$54.7

$150.0

$292.0$244.2$221.3

$419.5

$656.7 $696.4

$771.9

$703.0

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

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

($ Billions)

In the 23-year period between 1990 and 2012, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7

billion in 1990 to $818.1 billion in 2012.

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

Hurricane Sandy

Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*

*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 112

Avg. catastrophe claim cost rose

approximately 200% from 1997-2011

Cat claim frequency in 2011 was at historic highs and more than

double the rate in 1997

Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 113

Geophysical events(earthquake, tsunami, volcanic activity)

Meteorological events (storm)

Hydrological events(flood, mass movement)

Climatological events(extreme temperature, drought, wildfire)

Extraterrestrial events(Meteorite impact)

880Loss events

EarthquakeChina, 20 April

Severe storms, tornadoesUSA, 18–22 May

FloodsIndia, 14–30 June

HailstormsGermany, 27–28 July

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

Typhoon HaiyanPhilippines, 8–12 NovemberSevere storms, tornadoes

USA, 28–31 May

Hurricanes Ingrid & ManuelMexico, 12–19 September

FloodsCanada, 19–24 June

FloodsEurope, 30 May–19 June

Heat waveIndia, April–June

Typhoon FitowChina, Japan, 5–9 October

Earthquake (series)Pakistan, 24–28 September

FloodsAustralia, 21–31 January

Meteorite impactRussian Federation, 15 February

Flash floodsCanada, 8–9 July

FloodsUSA, 9–16 September

Geophysical events(earthquake, tsunami, volcanic activity)

Meteorological events (storm)

Selection of significant Natural catastrophes

Natural catastrophes Hydrological events(flood, mass movement)

Climatological events(extreme temperature, drought, wildfire)

Natural Loss Events:Full Year 2013

World Map

Geophysical (earthquake, tsunami, volcanic activity)

Climatological (temperature extremes, drought, wildfire)

Meteorological (storm)

Hydrological (flood, mass movement)

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

Source: MR NatCatSERVICE114

Nu

mb

er

200

400

600

800

1 000

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

There were 880 natural disaster events globally in

2013 compared to 905 in 2012

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

115

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

Source: MR NatCatSERVICE

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

100

200

300

400

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

US$ bn

2013 Losses

Overall : $125B

Insured: $34B

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

30+ years

10-Yr. Avg. Losses

Overall : $184B

Insured: $56B

Flood Insurance

116

I.I.I. Survey: Public Conflicted on Flood• Flood Should Reflect True Risk

• Keep the Subsidies• Would Prefer to Purchase from

Private Insurers

117

Biggert-Waters: Media and Congressional Maelstrom

BW-12 Rate Increases to Phase Out Subsidies Began in 2013 Note: Only 20% of NFIP policies are subsidized

Jan. 1, 2013: Non-Primary/Secondary Residences Increases of 25% per year until full-risk rate achieved Reaction: Very muted; Vacation homes/wealthier owners

Oct. 1, 2013: Subsidized Severe or Repetitive Loss Policies and Owners of Business/Non-Residential Properties Increases of 25% per year until full-risk rate achieved

Reaction: Huge consumer backlash, intense media coverage leading to a Congressional effort to delay BW-12 by 4 years (effectively killing it). Even Maxine Waters supports delay…

Subsidy Lost if Policy Lapses, Severe Repeated, New Policy House and Senate Bills to Reduce Burden Need to be Reconciled Future Pvt. Insurer Flood Participation Impacted by BW-12 Debate

118

Summary of House Bill(Passed March 4, 2014)

9 Premium classifications with increases capped at 18%

$25 surcharge on primary residences; $250 for non-primary

Restoration of “grandfather” clause allowing continued subsidies for homes that were compliant under old FEMA maps but no longer are

Eliminates property sales trigger

Reimburses home owners for successful FEMA map challenges

Creates a “flood insurance advocate”

Refunds policyholders who were charged higher rates under BW-12 for homes built before FEMA established flood-risk maps

CBO scoring of bill said that it will not increase the deficit

Didn’t say that it would eliminate the current $24 bill deficit

120

I.I.I. Poll: Flood Insurance

Q. Do you think flood insurance premiums should reflect the risk of flooding no matter what the cost or do you think the government should subsidize the cost of flood insurance with taxpayers’ dollars?

Source: Insurance Information Institute Annual Pulse Survey (Nov. 2013).

Almost two-thirds of Americans think flood insurance premiums should be raised to reflect the risk of flooding.

9%

63%

28%

Don’t know

Premiums should reflect flood risk

Government should subsidize cost with taxpayers’ dollars

121


Q. The federal government provides insurance coverage at taxpayer-subsidized rates for damage from floods through the National Flood Insurance Plan. A new law eliminates the subsidy and raises rates. Do you think the rate increase should be repealed?

Source: Insurance Information Institute Annual Pulse Survey.

More than half of Americans polled for the November 2013 Pulse thought that hikes in National Flood Insurance premiums

should be repealed.

10%

55%36%

Don’t know

YesNo

It is inconsistent for the public to

support full-risk rates but maintain subsidies, but this

exactly mirrors Congressional

sentiments, with supporters of BW-12 and even Tea

Party conservatives supporting

continuation of the subsidies

122


Q. If the costs were similar, would you prefer to buy flood insurance from a private insurance company or from the federal government through the National Flood Insurance Program?

Source: Insurance Information Institute Annual Pulse Survey.

Six out of 10 Americans would prefer to buy flood insurance from a private insurance company as opposed to the federal government, if

costs were similar.

10%

64%

26%

Don’t know

Private insurance company

The federal government

through the NFIP

126

Federal Disaster Declarations Patterns:

1953-2013

126

Disaster Declarations Set New Records in Recent Years

Number of Federal Major Disaster Declarations, 1953-2014*

13 1

7 18

16

16

7 71

21

22

22

0 25

25

11

11

19

29

17

17

48

46

46

38

30

22 2

54

22

31

52

42

13

42

7 28

23

11

31

38

45

32 3

63

27

54

46

55

04

54

5 49

56

69

48 5

26

37

55

98

19

94

75

59

43

0

20

40

60

80

100

120

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

12

13

14

*Through March 2, 2014.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011 Before Dropping in 2012/13

The number of federal disaster declarations set a new record in 2011, with 99, shattering 2010’s

record 81 declarations.

There have been 2,153 federal disaster

declarations since 1953. The average

number of declarations per year is 35 from 1953-2013, though

there few haven’t been recorded since 1995.

9 federal disasters were declared so far in 2014*

127

http://www.fema.gov/disasters

128

Federal Disasters Declarations by State, 1953 – 2014: Highest 25 States*

88

79

75

67

66

60

57

56

55

55

53

52

52

51

51

50

50

50

48

47

47

46

44

43

40

0

10

20

30

40

50

60

70

80

90

100

TX CA OK NY FL LA AL KY MO AR IL MS IA TN WV MN KS PA NE VA OH WA ND SD ME

Dis

as

ter

De

cla

rati

on

s

Over the past 60 years, Texas has had the highest

number of Federal Disaster

Declarations

*Through March 2, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

http://www.fema.gov/news/disaster_totals_annual.fema

129

Federal Disasters Declarations by State, 1953 – 2014: Lowest 25 States*

42

40

39

37

37

37

35

33

29

28

26

26

26

26

24

24

23

23

22

19

17

16

15

13

11

11

9

0

10

20

30

40

50

NC AK IN WI VT GA NJ NH MA OR PR HI MI NM AZ MD ID MT CO CT NV SC DE DC UT RI WY

Dis

as

ter

De

cla

rati

on

s

Over the past 60 years, Wyoming and Rhode Island had the fewest

number of Federal Disaster Declarations

*Through March 2, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

http://www.fema.gov/news/disaster_totals_annual.fema

130

SEVERE WEATHER REPORT UPDATE: 2013

Damage from Tornadoes, Large Hail and High Winds Keep Insurers Busy

130

Location of Tornado Reports in 2013

131Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#; PCS.

There were 943 tornadoes

through Dec. 31, causing

extensive property

damage in several states

A deadly EF-5 tornado in May in

Moore, OK, produced insured losses of $1.575

billion. November tornadoes in the

Midwest like produced $1B in insured losses.

http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html


U.S. Tornado Count, 2005-2013*

132

*Through Dec. 31, 2013.Source: http://www.spc.noaa.gov/wcm/.

There were 1,897 tornadoes in the U.S. in 2011 far

above average, but well below 2008’s record

2013 count was the

lowest in a decade

http://www.spc.noaa.gov/wcm/

http://www.spc.noaa.gov/wcm/




Location of Large Hail Reports: 2013

133Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#

There were 5,457 “Large

Hail” reports in 2013, causing

extensive property and

vehicle damage




Location of High Wind Reports: 2013


There were 12,942 “Wind Damage” in

2013, causing extensive property damage




Severe Weather Reports: 2013


Severe weather reports are

concentrated east of the Rockies

There were 19,342 severe

weather reports in 2013;

including 942 tornadoes;

5,457 “Large Hail” reports

and 12,942 high wind events




Terrorism Update

136

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

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

136

http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2013.html

http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2013.html

141

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

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

27%

49%

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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

low 60 percent range since 2009.

Take-up rates for smaller commercial risks are lower—

potentially very low in some areas and industries

142

TRIA Outlook

3 TRIA Reauthorization Bills Introduced in 2013

Bumpy Road to Reauthorization Ahead Senate: Generally supportive based on 9/25 hearing House: Democrats supportive; Republicans skeptical but some

seem willing to support reauthorization based on 11/13 hearing– Analogies to Affordable Care Act often mentioned by Republicans

House Committee Proposals Likely to Involve: Increase in trigger (from current $100 million) Increasing individual comp. retentions (from current 20% of DPE) Also possible: Simple industry aggregate or NBCR only proposal

I.I.I.: Success of Current Structure & Taxpayer Protections

Also Focused on Importance of Small/Medium Insurers

Limitations of Capacity in the Absence of TRIA

Media in 2014 Wants Stories of Economic Disruption

143

Terrorism Risk Insurance Program

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

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

Working with Trades, Congressional Staff, GAO & Others

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

149

Growth Analysis by State and Business Segment

Premium Growth Rates Vary Tremendously by State

149

150

Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*

58

.4

25

.4

24

.5

21

.0

19

.2

17

.6

16

.3

13

.2

13

.2

12

.4

9.9

9.2

9.2

8.5

8.0

6.2

5.8

5.2

4.5

4.4

4.3

4.3

4.2

4.0

3.8

3.6

0

10

20

30

40

50

60

70

ND

SD

OK

NE IA KS

VT

AK

TX

WY

MN

AR

TN IN W

I

KY

MT

OH LA

VA

NJ

MI

SC

CO

MO

NM

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 States

North Dakota was the country’s growth leader over the past 5 years with premiums written

expanding by 58.4%

151

Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*

3.6

3.1

3.0

2.9

2.7

2.2

2.1

2.1

2.0

1.8

1.1

0.0

-0.1

-0.3

-0.7

-0.9

-2.8

-5.6

-6.0

-7.2

-7.2

-9.3

-10

.1

-11

.2

-12

.5

-17

.3

-20

-15

-10

-5

0

5

CT

MS

NC AL

MD PA

U.S

.

MA IL

WA

GA

UT

NH RI

ID ME

NY FL

CA

DC

WV HI

AZ

OR

DE

NV

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LC.; Insurance Information Institute.

Growth was negative in 13 states and DC between

2007 and 2012

155

Direct Premiums Written: HomeownersPercent Change by State, 2007-2012*

44

.5

41

.2

40

.5

39

.7

39

.0

38

.3

36

.4

35

.7

34

.2

32

.4

32

.4

32

.2

32

.0

31

.3

31

.0

30

.5

29

.8

29

.7

28

.8

28

.7

27

.9

26

.9

26

.7

26

.5

26

.4

26

.0

0

5

10

15

20

25

30

35

40

45

OK

ND

MN

AR

TN

MO

KY

SD WI

KS

GA IA

WY

CO

MT

NE

OH

NM AL IN IL VA

DE

SC ID UT

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top 25 States

156

Direct Premiums Written: HomeownersPercent Change by State, 2007-2012*

25

.6

25

.3

24

.8

24

.5

24

.3

23

.7

23

.6

23

.3

22

.0

21

.4

21

.3

20

.4

20

.0

19

.4

18

.6

16

.4

16

.2

15

.6

15

.1

12

.5

10

.5

10

.4

8.7

8.0

-1.9

-2.3-5

0

5

10

15

20

25

30

35

40

MS

ME LA

CT

TX NJ

NH RI

NC PA

WA

NY

U.S

.

WV

OR

MA

MD

DC

AK

VT MI

AZ

CA HI

NV

FL

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States


157

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*

72

.2

35

.2

28

.8

25

.7

21

.0

20

.2

16

.0

15

.1

14

.6

8.8

6.3

4.6

3.3

2.9

1.5

1.2

0.0

-1.5

-2.3

-2.4

-2.6

-2.6

-3.2

-3.3

-3.5

-3.7

-20

0

20

40

60

80

ND

OK

SD VT

NE IA KS

AK ID WY

TX

MN IN WI

AR

TN

MT

OH LA

MA

PA

CT

MS

NM IL

WA

Pe

ce

nt

ch

an

ge

(%

)


Top 25 States

Only 16 states showed any commercial lines growth

2007 and 2012

158

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*

-4.1

-4.2

-4.5

-4.6

-4.9

-4.9

-5.1

-5.4

-5.9

-6.2

-6.5

-6.8

-6.8

-6.9

-7.3

-9.1

-10

.2

-11

.1

-13

.2

-14

.5

-15

.3

-16

.2

-16

.8

-20

.2

-22

.2

-30

.3

-40

-35

-30

-25

-20

-15

-10

-5

0

US

NY

MD

NH NJ

MO

ME

NC

KY VA RI

CO MI

SC AL

GA

CA

UT

DC

OR HI

DE FL AZ

WV

NV

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States


States with the poorest performing economies also produced the most negative net change in premiums of

the past 5 years

The BIG Question:Where Is the Market Heading?

165

Catastrophes and Other Factors Are Pressuring Insurance Markets

165

New Factor: Record Low Interest Rates Are Contributing to

Underwriting and Pricing Pressures

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

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$47.7$45.8

$39.6

$49.5

$52.3

$30

$40

$50

$60

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

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

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

($ Billions)

Investment earnings are running below their 2007

pre-crisis peak

170

-1.8

%

-1.8

%

-2.0

%

-3.6

%

-3.3

%

-3.3

%

-3.7

%

-4.3

%

-5.2

%

-5.7

%

-7.3%

-1.9

%

-2.1

%

-3.1

%

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

Perso

nal L

ines

Pvt Pass

Aut

o

Pers P

rop

Comm

ercia

l

Comm

l Auto

Credit

Comm

Pro

p

Comm

Cas

Fidelity

/Sure

ty

Warra

nty

Surplu

s Line

s

Med

Mal

WC

Reinsu

rance

**

Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline

*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.

Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*

170

1. UNDERWRITING

177

Underwriting Losses in 2013 Much Improved After High

Catastrophe Losses in 2011/12

177

178

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

* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013:Q3 = 95.8. Sources: A.M. Best, ISO.

95.7

99.3100.8

106.3

102.4

96.6

101.0

92.6

100.898.4

100.1

107.5

115.8

90

100

110

120Best

Combined Ratio Since 1949 (87.6)

As Recently as 2001, Insurers Paid Out

Nearly $1.16 for Every $1 in Earned

Premiums

Relatively Low CAT Losses, Reserve Releases

Heavy Use of Reinsurance Lowered Net

Losses

Relatively Low CAT Losses, Reserve Releases

Avg. CAT Losses,

More Reserve Releases

Higher CAT

Losses, Shrinking Reserve

Releases, Toll of Soft

Market

Cyclical Deterioration

Sandy Impacts

Lower CAT

Losses

182

2

(2)

(8)

(3)

(7)(10)(10)

(4)

(0)

11

24

1411 9

(5)

(9)

(13)(12)

(10)

(14)(12)

(10)(7) (7)

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

$25

$309

2

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

E

14

E

15

E

Pri

or

Yr.

Re

se

rve

Re

lea

se

($

B)

-6

-4

-2

0

2

4

6

8 Imp

ac

t on

Co

mb

ine

d R

atio

(Po

ints

)

Prior Yr. ReserveDevelopment ($B)

Impact onCombined Ratio(Points)

P/C Reserve Development, 1992–2015E

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

193

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

90

95

100

105

110

115

1206

97

07

17

27

37

47

57

67

77

87

98

08

18

28

38

48

58

68

78

88

99

09

19

29

39

49

59

69

79

89

90

00

10

20

30

40

50

60

70

80

91

01

11

2

Co

mb

ine

d R

ati

o

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Imp

airm

en

t Ra

te

Combined Ratio after Div P/C Impairment Frequency

Source: A.M. Best; Insurance Information Institute

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

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

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

194

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

43.4%

12.6%

7.2%

7.1%

8.0%

6.6%

8.4%

3.5% 3.1%

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

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

Investment and Catastrophe Losses Play a Much Smaller Role

Deficient Loss Reserves/Inadequate Pricing

Reinsurance Failure

Rapid GrowthAlleged Fraud

Catastrophe Losses

Affiliate Impairment

Investment Problems (Overstatement of Assets)

Misc.

Sig. Change in Business

196

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

19.7%

22.2%

9.2%8.8%

7.3%

8.6%

6.7%

4.8%

4.0%

8.6%

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

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

Workers Comp

Other

Pvt. Passenger Auto

HomeownersCommercial Multiperil

Commercial Auto Liability

Other Liability

Med Mal

Surety

Title

197

Performance by Segment

197

Homeowners Insurance Combined Ratio: 1990–2015F

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

94

.4 10

0.3

89

.0 95

.6

11

6.6

10

5.8

10

6.9

12

2.3

10

4.1

94

.0 97

.5

99

.5

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 13F 14F 15F

1

Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to

Local Catastrophe Loss Activity

199

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.

10

9.4

11

0.2

11

8.8

10

9.5 1

12

.5

11

0.2

10

7.6

10

4.1

10

9.7

11

0.2

10

2.5 1

05

.4

91

.1

93

.6

10

4.2

98

.9

10

2.4

10

7.9

10

3.4

98

.3 99

.9

98

.9

10

2.0

11

1.1

11

2.3

12

2.3

90

95

100

105

110

115

120

125

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

F

14

F

15

F

Co

mm

erc

ial L

ine

s C

om

bin

ed

Ra

tio

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

Commercial Lines Combined Ratio, 1990-2015F*

Commercial lines underwriting

performance is expected to improve as

improvement in pricing environment persists

200

Commercial Multi-Peril Combined Ratio: 1995–2015F

119.

0

119.

8

108.

5

125.

0

116.

2

116.

1

104.

9

101.

9

105.

5

95.4 97

.6

94.2 96

.1

102.

1

94.0

100.

7

116.

8

113.

6

115.

3 122.

4

115.

0

117.

0

97.3

89.0

97.7

93.8

83.8

89.8

108.

4

98.7 10

2.5

120.

1

112.

0

101.

0

99.4

99.0

113.

1

115.

0 121.

0

80

85

90

95

100105

110

115

120

125

130

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F

CMP-Liability CMP-Non-Liability

Commercial Multi-Peril Underwriting Performance is Expected to Improve in 2013 Assuming Normal Catastrophe Loss Activity

*2013F-2012F figures are Conning figures for the combined liability and non-liability components..Sources: A.M. Best; Conning; Insurance Information Institute. 202

2. SURPLUS/CAPITAL/CAPACITY

207

2013 Recorded Yet Another Record High

207

208

Policyholder Surplus, 2006:Q4–2013:Q3

Sources: ISO, A.M .Best.

($ Billions)

$487.1$496.6

$512.8$521.8

$478.5

$455.6

$437.1

$463.0

$490.8

$511.5

$540.7$530.5

$544.8

$559.2 $559.1

$538.6$550.3

$567.8

$583.5$586.9

$607.7$614.0

$624.4

$570.7$566.5

$505.0$515.6$517.9

$400

$450

$500

$550

$600

$650

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

2007:Q3Pre-Crisis Peak

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

2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .

The industry now has $1 of surplus for every $0.78 of NPW,close to the strongest claims-paying status in its history.

Drop due to near-record 2011 CAT losses

The P/C insurance industry entered 2014in very strong financial condition.

211

3. REINSURANCE MARKET CONDITIONS

Ample Capacity as Alternative Capital is

Transforming the Market

211

212

Global Reinsurer Capital, 2007-2013:H1*

$510

$410

$340

$400

$470 $455$505

$0

$100

$200

$300

$400

$500

$600

2007 2008 2009 2010 2011 2012 2013:H1

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

($ Billions)

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

-17%+18%

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

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

*As of Jan. 1.Source: Guy Carpenter

Lower CATs and a flood of new

capital has pushed reinsurance pricing

down in most regions, including

the US

Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit

Source: Guy Carpenter

(As of Year End)

Alternative Capacity accounted for approximately 14% or $45 billion

of the $316 in global property catastrophe reinsurance capital as

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

Traditional Reinsurance,

$268 , 88%

Collateralized Reinsurance

(Sidecars), $15 , 5%

Industry Loss Warranties, $6 ,

2%

Catastrophe Bonds, $16 , 5%

“Convergence Capital” accounted

for an estimated $45B or 14% or total

property catastrophe reinsurance capacity

as of mid-2013, up $10B over the past 18 months (since 1/1/12).

Penetration of this type of capacity is

growing

Property Catastrophe Reinsurance Capacity by Source as of Mid-2013 ($ Bill)

Source: Guy Carpenter; Mid-Year Market Report, September 2013; Insurance Information Institute. 216

Collateralized reinsurance (sidecars) is

the fastest growing segment recently

Total = $316 Billion*

Investor by Category, 2013 vs. 2012*

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

Institutional Investors are

accounting for a larger share of

alternative reinsurance

investors

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

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

$13 $15

$6 $8

$10 $11

$15

$23 $44

$57

$0

$10

$20

$30

$40

$50

$60

2012* 2015E

NON-TRADITIONAL P/CAT LIMITS BY TYPE

Cat Bond Retro ILW Collateralized Re

Source: Guy Carpenter; *As Of Mar-2013

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

account for 20-30% of total reinsurance

spend, according to Guy Carpenter

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

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

63

3.0

84

6.1

98

4.8

1,1

30

.0

96

6.9 2

,72

9.2

3,3

91

.7

4,6

00

.3

4,1

08

.8

5,8

52

.9

7,0

83

.0

1,991.11,142.8

1,729.8

6,9

96

.3

4,6

93

.4

1,219.5$

3,4

50

.0

$4

,04

0.4

$4

,90

4.2 $

8,5

41

.6

$1

4,0

24

.2

$1

2,0

43

.6

$1

2,5

08

.8

$1

2,1

85

.0

$1

2,1

39

.1

$1

4,8

35

.7 $1

8,5

16

.7

$2

,95

0.0

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

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

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

CAT bond issuance reached a record high in 2013

Risk capital outstanding

reached a record high in 2013

Financial crisis depressed issuance

4. RENEWED PRICING DISCIPLINE

232

Evidence of a Broad and Sustained Shift in Pricing

232

233

-5%

0%

5%

10%

15%

20%

25%

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 1213

:9M

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

(Percent)1975-78 1984-87 2000-03

Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.

Net Written Premiums Fell 0.7% in 2007 (First Decline

Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.

2013:9M = 4.2%

2012 growth was +4.3%

234

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

Source: Conning.

4.4

%

4.4

%

4.4

%

4.1

%

5.1

% 5.8

%

8.6

%

5.6

% 6.2

%

4.0

%

4.1

%

3.9

%

3.6

%

5.1

% 6.1

%

8.0

%

6.0

%

3.7

%4.3

%

3.9

% 4.7

%

3.2

%

5.5

% 6.0

%

7.5

%

7.0

%

3.4

%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

All Lines PersonalLines

CommercialLines

PersonalAuto

HomeownersCommercialAuto

WC CMP GL

2013F 2014F 2015F

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

through 2015

238

Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2013:Q3

Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

Percentage Change (%)

Peak = 2001:Q4 +28.5%

Pricing Turned Negative in Early

2004 and Remained that

way for 7 ½ years

Pricing turned positive in Q3:2011, the first increase in

nearly 8 years; Q3:2013 renewals were up 3.4%. Some insurers posted

stronger numbers.

Trough = 2007:Q3 -13.6%

KRW : No Lasting Impact

242

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

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

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

Losses and Low Interest Rates Provide Momentum Going Forward

Percentage Change (%)

3.5%

4.7%5.4%

5.8%

1.0%

2.9% 2.7% 2.9% 2.9%3.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Su

rety

Co

nst

ruct

ion

Bu

sin

ess

Inte

rru

ptio

n

Um

bre

lla

Ge

ne

ral

Lia

bili

ty

Co

mm

erc

ial

Au

to

Co

mm

erc

ial

Pro

pe

rty

D&

O

EP

L

Wo

rke

rsC

om

p

Workers Comp rate increases are large than any other line, followed

by Property lines

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

CYBER RISK

251

Cyber Risk is a Rapidly Emerging Exposure for Businesses Large

and Small in Every IndustryNEW III White Paper:

http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf

251

http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf

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

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

157

321

446

656

498

419447

619662

87.9

17.322.9

35.7

19.1

66.9

222.5

16.2

127.7

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010 2011 2012 2013*0

20

40

60

80

100

120

140

160

180

200

220

# Data Breaches # Records Exposed (Millions)

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

Millions

www.iii.org

Thank you for your timeand your attention!

Twitter: twitter.com/bob_hartwigDownload at www.iii.org/presentations

Insurance Information Institute Online:

265

http://www.iii.org/presentations

Overview & Outlook for the P/C Insurance Industry for 2014 and Beyond Philadelphia Reinsurance...

Documents

Transcript of Overview & Outlook for the P/C Insurance Industry for 2014 and Beyond Philadelphia Reinsurance...