Top 10 Challenges Confronting the Insurance Industry Today? Trends, Challenges & Opportunities Federation of Defense and Corporate Counsel New York, AL October 22, 2015 Download at www.iii.org/presentations Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5520 Cell: 917.453.1885
[email protected] www.iii.org
1. Insurance Industry Financial Performance 2014 Was a Reasonably Good Year 2015: A Repeat of 2014?
2
$55,501
$63,784
$30,972
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
Net income fell modestly (-12.5%) in 2014 vs. 2013
$44,155
$38,501
$30,029
$20,559
$21,865
$30,773
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$36,819
2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013 ROAS1 = 10.2% 2014 ROAS1 = 8.4% 2015:H1 ROAS = 9.2%
$24,404
$ Millions $80,000 $70,000 $60,000 $50,000
$65,777
P/C Industry Net Income After Taxes 1991–2015:H1
$0
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009. Sources: A.M. Best, ISO; Insurance Information Institute
15:H1
14
13
12
11
10
09
08
07
06
05
04
03
02
01
99
98
97
96
95
94
93
92
91
00
-$6,970
-$10,000
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2015E ROE
25%
1977:19.0%
History suggests next ROE peak will be in 2016-2017
1987:17.3%
20%
1997:11.6%
15% 9 Years
2006:12.7% 2013 9.8%
2015E: 8.8%
10% 5% 0%
2014 8.2% 1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
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 15E
-5% *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
ROE: Property/Casualty Insurance by Major Event, 1987–2015E (Percent)
P/C Profitability Is Both by Cyclicality and Ordinary Volatility
20%
Modestly higher CATs
Katrina, Rita, Wilma Low CATs
15%
10% Sept. 11
5%
0%
Hugo
Lowest CAT Losses in 15 Years
Andrew Northridge
4 Hurricanes
Financial Crisis*
Sandy Record Tornado Losses
-5% 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO, Fortune; Insurance Information Institute.
5
Commercial Lines NPW Premium Growth: 1975 – 2014E ROE
35%
Commercial lines is prone to more cyclical volatility that personal lines. Recently, growth has stabilized in the 4% to 5% range.
Economic Shocks, Inflation: 1976: 22.2%
30%
Tort Crisis 1986: 30.5%
25%
Post-9/11 2002: 22.4%
20% 1988-2000: Period of inter-cycle stability
Post-Hurricane Andrew Bump: 1993: 6.3%
15% 10%
Post Katrina Bump: 2006: 7.7%
2014E 4.0%
5% 0%
Note: Data include state funds beginning in 1998. Source: A.M. Best; Insurance Information Institute.
11
09
07
01
99
97
95
93
91
89
87
85
83
81
79
77
75
-15%
05
Great Recession: 2009: -9.0%
-10%
13
Recessions: 1982: 1.1%
03
-5%
201020XX? Postrecession period of stable growth?
P/C Insurance Industry Combined Ratio, 2001–2015:H1* As Recently as 2001, Insurers Paid Out Nearly $1.16 for Every $1 in Earned Premiums
Heavy Use of Reinsurance Lowered Net Losses
Relatively Low CAT Losses, Reserve Releases
120 115.8
110
Best Combined Ratio Since 1949 (87.6)
107.5
Higher CAT Losses, Shrinking Reserve Releases, Toll of Soft Market
Sandy Impacts
Cyclical Deterioration
Lower CAT Losses
106.3
99.3
98.4
100
Avg. CAT Losses, More Reserve Releases
101.0
100.8
100.1
Relatively Low CAT Losses, Reserve Releases
102.4
100.8
97.6 96.7 97.2
95.7 92.6 90 01
02
03
04
05
06
07
08
09
10
11
12
13
14
15:H1
* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0. Sources: A.M. Best, ISO.
7
A 100 Combined Ratio Isn’t What It Once Was: Investment Impact on ROEs Combined Ratio / ROE 15.9%
110
A combined ratio of about 100 generates an ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10, 10% in 2005 and 16% in 1979 106.5
14.3% 12.7%
105 100.6 100.1 100.8 100
10.9%
97.5
101.2
8.8%
15% 102.4
101.0
12% 96.7 97.2 97.6
95.7
95
99.5
7.4% 7.9%
9.6% 92.7
6.2% 9.8% 4.7%
90
9% 8.2%
9.2% 6%
Lower CATs helped ROEs in 2013-15:Q2
4.3%
85
18%
3% 0%
80 1978
1979
2003
2005
2006
2007
2008
Combined Ratio
2009
2010
2011
2012
2013
2014 2015:H1
ROE*
Combined Ratios Must Be Lower in Today’s Depressed Investment Environment to Generate Risk Appropriate ROEs * 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014 combined ratio including M&FG insurers is 97.0; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
Return on Equity by Financial Services Sector vs. Fortune 500, 2004-2014* (Percent)
Fortune 500
P/C Insurers
Life Insurers
Commercial Banks
18% 16% 14% 12% 10% 8% 6%
Average: 2004 - 2014
4%
Fortune 500: 13.9% Commercial Banks: 9.8% Life: 8.2% P/C: 7.1%
2% 0% -2%
04
05
06
07
08
09
10
11
12
13
14
Banks and Insurers Have Substantially Underperformed the Fortune 500 Since the Financial Crisis *GAAP basis. Sources: ISO, Fortune; Insurance Information Institute.
9
Return on Net Worth (RNW) All Lines: 2004-2013 Average
25.6
30
Commercial lines have tended to be more profitable than personal lines over the past decade 18.4
25
6.6
7.1
7.1
-1.0
0
4.9
5
7.8
7.9
10
8.9
9.2
15
13.2
13.4
20
in es th er Li ab ili W ty or ke rs C om PP p A ut o H To om ta eo l w ne rs Fa M rm P ow ne rs M P A lli ed Li ne s O
A
ll L
M P
al To t C
om m
ut o A
er ci al
y ia bi l it om m
C
ed ic al P
ro fL
th er ll O A M
In la nd
M
Fi re
ar in e
-5
Source: NAIC; Insurance Information Institute.
10
Back to the Future: Profitability Peaks & Troughs in the P/C Insurance Industry, 1950 – 2015E* 1970-90: Peak ROEs were much higher in this period while troughs were comparable. High interest rates, rapid inflation, economic volatility all played roles
ROE 1950-70: ROEs were lower in this period. Low interest rates, low inflation, “Bureau” rate regulation all played a role
25%
1990-2010s: Déjà vu. Excluding megaCATs, this period is very similar to the 1950-1970 period
1977:19.0%
20%
1987:17.3% 2006:12.7% 1972:13.7%
1997:11.6%
15%
2013 9.8%
1950:8.0%
10%
1966-67: 5.5%
1959:6.8%
5% 2015E 8.8% 1992: 4.5%
1969: 3.9%
0% 1957: 1.8%
1975: 2.4%
1965: 2.2%
1984: 1.8%
*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.
14
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
68
66
64
62
60
58
56
54
52
-5%
50
2001: -1.2%
Distribution of Direct Premiums Written by Segment/Line, 2013 2013
Distribution Facts Personal/Commercial lines split has been about 50/50 for many years Pvt. Passenger Auto is by far the largest line of insurance and is currently the most important source of industry profits Billions of additional dollars in homeowners insurance premiums are written by staterun residual market plans
Sources: A.M. Best; Insurance Information Institute research.
Commercial Lines $269.2B/51% Homeowners $80.7B/15%
Pvt. Pass Auto $180.8B/34%
12
RNW All Lines by State, 2004-2013 Average: Highest 25 States
18.4
20.5
Profitability Benchmark: All P/C
9.5
9.6
9.8
9.8
9.9
10.3
10.5
10.5
10.7
10.7
10.8
10.9
11.1
11.1
11.4
11.7
12.0
12.0
12.1
12.3
13.3
13.4
14.3
US: 7.9% 14.6
24 22 20 18 16 14 12 10 8 6 4 2 0
The most profitable states over the past decade are widely distributed geographically, though none are in the Gulf region
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
Source: NAIC; Insurance Information Institute.
13
-9.3
-6.9
Some of the least profitable states over the past decade were hit hard by catastrophes, including Alabama
1.9
2.5
4.3
5.0
5.2
5.3
5.7
6.1
6.4
6.6
6.8
7.4
7.5
7.7
7.7
7.9
8.0
8.1
8.2
8.2
8.3
8.4
8.6
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14
9.2
RNW All Lines by State, 2004-2013 Average: Lowest 25 States
NM FL TX WI KS MN CO PA US AR IL
Source: NAIC; Insurance Information Institute.
IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA
14
P/C Insurance Loss Reserve Development, 1992 – 2016E* Reserve Change
Source: A.M. Best; Barclays research for estimates.
Reserve releases are expected to gradually taper off, but will continue to benefit the bottom line and combined ratio through at least 2016
Profitability & Politics How Is Profitability Affected by the President’s Political Party? 16
P/C Insurance Industry ROE by Presidential Administration, 1950-2014* 16.43% 15.10%
Carter Reagan II Obama II Nixon Clinton I G.H.W. Bush G.W. Bush II Clinton II Reagan I Nixon/Ford Truman Eisenhower I Eisenhower II G.W. Bush I Obama I Johnson Kennedy/Johnson
9.00% 8.93% 8.65%
OVERALL RECORD: 1950-2014* Democrats 7.72% Republicans 7.85%
8.35% 8.33% 7.98% 7.68% 6.98% 6.97% 5.43% 5.03% 4.83% 4.68% 4.43%
Party of President has marginal bearing on profitability of P/C insurance industry
3.55%
0%
2%
4%
6%
*Truman administration ROE of 6.97% based on 3 years only, 1950-52;. Source: Insurance Information Institute
8%
10%
12%
14%
16%
18%
P/C insurance Industry ROE by Presidential Party Affiliation, 1950- 2014
Nixon/Ford
Carter
Kennedy/ Johnson
20%
Truman
25%
Eisenhower
BLUE = Democratic President
RED = Republican President Reagan/Bush I
Clinton
Bush II
Obama
15%
10%
5%
0%
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
-5% . Source: Insurance Information Institute
2. INVESTMENTS: THE NEW REALITY
Investment Performance is a Key Driver of Profitability Depressed Yields Will Necessarily Influence Underwriting & Pricing 19
Property/Casualty Insurance Industry Investment Income: 2000–2015E1 Investment earnings are still below their 2007 pre-crisis peak
($ Billions) $60 $54.6 $52.3
$50
$40
$51.2
$49.5
$49.2 $47.1 $47.6
$38.9
$38.7
$48.0 $47.3
$46.2 $46.8
$39.6
$37.1 $36.7
$30 00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
Due to persistently low interest rates, investment income fell in 2012, 2013 and 2014. 1
Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.
*2015 figure is estimated based on annualized data through Q2.
Distribution of Invested Assets: P/C Insurance Industry, 2013
$ Billions All Other, 10% Bonds, 62% Cash, Cash Equiv. & ST Investments, 6%
Stocks, 22%
Source: Insurance Information Institute Fact Book 2015, A.M. Best.
Total Invested Assets = $1.5 Trillion
U.S. Treasury Security Yields: A Long Downward Trend, 1990–2015* 9%
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
8% 7% 6%
U.S. Treasury yields plunged to historic lows in 2013. Longerterm yields rebounded then sank fell again.
5% 4% 3% 2% 1%
Recession 2-Yr Yield 10-Yr Yield
0% '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 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. *Monthly, constant maturity, nominal rates, through August 2015. Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
22
Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2015 6% 5% 4% 3% 2%
4.82%
4.96%
5.04%
4.96%
4.82%
Treasury yield curve remains near its most depressed level in at least 45 years. Investment income is falling as a result. Even when the Fed begins to raise rates, yields unlikely to return to pre-crisis levels anytime soon
4.82%
4.88%
5.00%
4.93%
5.00%
2.85% 2.10%
5.19%
3.11%
2.36%
1.68% 1.07%
0.69%
1% 0.01%
0.02%
0.09%
1M
3M
6M
0.28%
June 2015 Yield Curve Pre-Crisis (July 2007)
0% 1Y
2Y
3Y
5Y
7Y
10Y
20Y
30Y
The Fed Is Actively is Signaling that it Is Likely to Begin Raising Rates Later in 2015 but Only Very Gradually Source: Federal Reserve Board of Governors; Insurance Information Institute.
23
Net Yield on Property/Casualty Insurance Invested Assets, 2007–2015* (Percent)
Book yield in 2015 is down 77 BP from pre-crisis levels
4.6 4.4
4.38 4.17
4.2
4.02
4.0
3.87 3.74
3.8
3.82
3.6
3.63
3.61
14
15*
3.44
3.4 3.2 3.0 07
08
09
10
11
12
13
The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to raise interest rates in late 2015 has already pushed up some yields, albeit quite modestly.
*2015 figure is the average of the four quarters ending in 2015:Q2. Sources: SNL Financial; Insurance Information Institute
Interest Rate Forecasts: 2015 – 2021 Yield (%)
3-Month Treasury
10-Year Treasury
5% 3.8%
4%
4.0%
4.0%
4.0%
3.4% 3.1%
3.1%
3.1%
2.8%
3%
2.7% 2.2%
2.0%
2%
The end of the Fed’s QE program in 2014 and a stronger economy have yet to push longer-term yields much higher
0.8%
1% 0.1%
0% 15F
16F
17F
18F
19F
20F
21F
15F
16F
17F
18F
19F
20F
21F
A full normalization of interest rates is unlikely until the 2020s, more than a decade after the onset of the financial crisis. Sources: Blue Chip Economic Indicators (10/15 for 2015 and 2016; for 2017-2021 10/15 issue); Insurance Info. Institute. 25
Annual Inflation Rates, (CPI-U, %), 1990–2016F Annual Inflation Rates (%) 6.0 5.0
4.9
5.1
3.8
4.0 3.0
3.0 2.0
Inflationary expectations have slipped (due in part to falling energy costs) allowing the Fed to maintain low interest rates
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the commodity bubble reduced inflationary pressures in 2009/10
3.3 3.4
3.2
2.9 2.8 2.4
3.0
2.6
2.5
3.8 3.2 2.8
2.3
2.1
1.9 1.5
1.6
1.3
1.5
2.0
1.7
1.0 0.2
0.0 -0.4
-1.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F
Slack in the U.S. economy and falling energy prices suggests that inflationary pressures should remain subdued for an extended period of times Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 9/15 (forecasts).
26
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line* s ne i L
-5.7%
-5.2%
-4.3%
-3.7%
-3.3%
-3.3%
-3.1%
-2.1%
-1.9%
-3.6%
-2.0%
-1.8%
0% -1% -2% -3% -4% -5% -6% -7% -8%
-1.8%
ty s l e e o p r t a s n i a p ro l Li y Su rc s Au o t P C / a al r s e l s n y n t a t P u M i m m m m o di pl rra el d rs rs r tP a C d e om om re om om e v e u P P P C C C C C Fi W S M W to u A
R
a ur s n ei
** e nc
-7.3%
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline *Based on 2008 Invested Assets and Earned Premiums **US domestic reinsurance only Source: A.M. Best; Insurance Information Institute.
27
$8.19
$10.06
$11.37
$6.18
-$7.90 -$19.81
-$5 -$10 -$15 -$20 -$25
$7.04
$5.85
$8.92
$3.52
$9.70
$6.61 -$1.21
$6.63
$9.13
Realized capital gains rose sharply as equity markets rallied in 2013-14
$16.21
$13.02
$10.81
$9.24
$6.00
$1.66
$9.82
$9.89
$4.81
$20 $15 $10 $5 $0
$2.88
($ Billions)
$18.02
P/C Insurer Net Realized Capital Gains/Losses, 1990-2015:Q2
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
Insurers Posted Net Realized Capital Gains in 2010 - 2014 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE. *Through Q2 2015. Sources: A.M. Best, ISO, SNL, Insurance Information Institute.
28
Property/Casualty Insurance Industry Investment Gain: 1994–2015:Q21 $70 $60 $50
$64.0 $58.0 $56.9 $52.3 $51.9 $47.2 $44.4 $42.8
$40 $35.4
$59.4 $55.7
$58.7 $56.2 $54.2 $53.4
$56.2
($ Billions)
$48.9 $45.3
$36.0
$39.2 $31.7
$31.6
$30 $20 $10
Investment gains in 2014 will rival the post-crisis high reached in 2013
$0 94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14 15*
Total Investment Gains Were Down Slightly in 2014 as Low Interest Rates Pressured Investment Income but Realized Capital Gains Remained Robust 1
Investment gains consist primarily of interest, stock dividends and realized capital gains and losses. * 2005 figure includes special one-time dividend of $3.2B; 2015 figure is through Q2 2015. Sources: ISO, SNL; Insurance Information Institute.
S&P 500 Index Returns, 1950 – 2015* Annual Return
Volatility is endemic to stock markets—and may be increasing—but there is no persistent downward trend over long periods of time
60% 50% 40% 30% 20% 10% 0% -10%
Fed Raises Rate
-20%
Tech Bubble Implosion
-30%
-2.1%
14
12
10
08
06
04
02
96
94
92
90
88
86
84
82
80
78
76
74
72
70
68
66
64
62
60
58
56
54
52
50
00
Financial Crisis
Energy Crisis
98
-40% -50%
2015*:
*Through Oct. 9, 2015. Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Ins. Info. Inst.
Distribution of Bond Maturities, P/C Insurance Industry, 2003-2013 2013
16.5%
2012
16.6%
2011
14.9%
41.2%
27.3%
10.4% 6.2%
2010
16.0%
39.5%
27.1%
11.2% 6.2%
2009
15.6%
2008
15.7%
2007
15.2%
30.0%
2006
16.0%
2005
38.8%
29.3%
9.8% 5.7%
27.6%
9.8% 5.7%
40.4%
36.4%
29.0%
12.7%
8.1%
33.8%
12.9%
8.1%
29.5%
34.1%
13.1%
7.4%
16.0%
28.8%
34.1%
13.6%
7.6%
2004
15.4%
29.2%
2003
14.4%
29.8%
32.4%
31.2%
11.9% 7.1%
Under 1 year 1-5 years 5-10 years
10-20 years over 20 years
32.5%
31.3%
15.4%
15.4%
7.6% 9.2%
20% these years 40%has been 60% 80% longer maturities 100% The0% main shift over from bonds with to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds (from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s bond portfolio is contributing to a drop in investment income along with lower yields. Sources: SNL Financial; Insurance Information Institute.
31
3. CAPITAL/CAPACITY
Capital Accumulation Has Multiple Impacts Alternative Capital Impacts? 32
$673.9
$674.7
$672.4
14:Q4
15:Q2
$671.6
14:Q3
$624.4
$614.0
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$490.8
14:Q2
14:Q1
13:Q4
13:Q3
13:Q2
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
Surplus as of 6/30/15 stood at a near-record high $672.4B 09:Q3
$437.1
$463.0 09:Q2
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
$400
06:Q4
$450
09:Q1
$455.6
$478.5
$505.0
$515.6
$517.9
$521.8
$496.6
$500
$487.1
$550
$512.8
$600
$559.2 $566.5
$650
13:Q1
$700
$607.7
Drop due to near-record 2011 CAT losses
2007:Q3 Pre-Crisis Peak
$662.0
($ Billions)
$653.4
Policyholder Surplus, 2006:Q4–2015:Q2
The industry now has $1 of surplus for every $0.73 of NPW, close to the strongest claims-paying status in its history. 2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business . Sources: ISO, A.M .Best.
The P/C insurance industry entered 2015 in very strong financial condition. 33
US Policyholder Surplus: 1975–2015:Q2* ($ Billions) $750 $700 $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0
Surplus as of 6/30/15 was a near-record $672.4, down 0.3% from the record $674.7 of 12/31/14 but up 53.8% ($235.3B) from the crisis trough of $437.1B at 3/31/09
“Surplus” is a measure of underwriting capacity. It is analogous to “Owners Equity” or “Net Worth” in non-insurance organizations 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 14
The Premium-to-Surplus Ratio Stood at $0.76:$1 as of 6/30/15, a Near Record Low (at Least in Recent History) * As of 6 *As of 6/30/15. Source: A.M. Best, ISO, Insurance Information Institute.
Premium-to-Surplus Ratio: 1985–2014* (Ratio of NWP to PHS) $2.00 $1.90 $1.80 $1.70
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
$1.60 $1.50
Surplus as of 12/31/14 was $0.73:$1, a near-record low (at least in modern history)
$1.40 $1.30 $1.20 $1.10 $1.00 $0.90 $0.80 $0.70
9/11, Recession & Hard Market
$0.60 $0.50
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*
The Premium-to-Surplus Ratio Stood at $0.73:$1 as of 12/31/14, a Record Low (at Least in Recent History) * As of 12/31/14. Source: A.M. Best, ISO, Insurance Information Institute.
US P/C Insurance Industry Excess Capital Position: 1994–2016E
The Industry’s Strong Capital Position Suggests Insurers Are in a Good Position to Increase Risk Appetite, Repurchase Shares and Pursue Acquisitions Source: Barclays Research estimates.
Percent Redundancy (Deficiency)
Surplus Redundancy (Deficiency)
Barclay’s suggests that surplus is approximately $200B (~30%)
P/C Industry: Loss Reserve-to-Surplus Ratio, 1971-2014 RBC requirements took effect with 1994 Annual Statement.
2.1 2.0 1.9 1.9 1.9 1.9 1.8 1.9 1.9 1.9 2.1 2.0 2.0 2.1 2.0 2.0 2.1 1.9 2.0 1.8 1.8
The industry has become less leveraged since 1994 1.4 1.2 1.1 1.1 1.1 1.2
1.2 1.1
150%
1.4
1.4
1.6
200%
100%
1.2 1.2 1.2 1.1 1.1 1.3 1.1 1.0 1.1 1.0 0.9 0.9
250%
Inflation, Liability Crisis Increased Reserves, Plunging Stock Prices Depleted Surplus
50%
0%
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
The Property/Casualty Industry Adjusted Its Risk Portfolio in Response to Risk-Based Capital Requirements Implemented in 1994. Source: Calculations from A.M. Best and ISO data by Insurance Information Institute.
Alternative Capital New Investors Continue to Change the Reinsurance Landscape First I.I.I. White Paper on Issue Was Released in March 2015 38
Global Reinsurance Capital (Traditional and Alternative), 2006 - 2014 Total reinsurance capital reached a record $570B in 2013, up 68% from 2008.
But alternative capacity has grown 210% since 2008, to $50B. It has more than doubled in the past three years. 2014 data is as of June 30, 2014. Source: Aon Benfield Analytics; Insurance Information Institute.
Alternative Capital as a Percentage of Traditional Global Reinsurance Capital 11.5%
12%
10.2% 10%
8.4% 8% 6%
6.5%
5.7%
5.9%
5.8%
2007
2008
2009
5.4%
4.6% 4% 2% 0% 2006
2010
2011
2012
2013
2014
Alternative Capital’s Share of Global Reinsurance Capital Has More Than Doubled Since 2010. 2014 data is as of June 30, 2014. Source: Aon Benfield Analytics; Insurance Information Institute.
Growth of Alternative Capital Structures, 2002 - 2014 Collateralized Re’s Growth Has Accelerated in the Past Three Years.
Collateralized Reinsurance and Catastrophe Bonds Currently Dominate the Alternative Capital Market. 2014 data is as of June 30, 2014. Source: Aon Benfield Analytics; Insurance Information Institute.
Catastrophe Bond Issuance and Outstanding: 1997-2015:Q2 Risk Capital Amount ($ Millions) 21,559.6
22,867.8
3,842.2
8,026.7
7,083.0
11
5,855.3
10
14,839.3
4,107.1
09
12,342.8
08
4,599.9
05
12,195.7
04
3,396.0
03
12,508.2
02
3,009.9
989.5
01
12,538.6
966.9
00
13,416.4 7,187.0
1,142.0
99
1,499.0
1,062.5
98
1,142.8
874.2
97
1,988.2
948.2
5,000
4,614.7
10,000
5,085.0
4,289.0
15,000
7,677.0
20,000
18,576.9
25,000
0 New Issuance
06
07
12
13
14 15*
Outstanding
Cat Bond Issuance Appears to Be Slowing Down in 2015 from 2014’s Record Pace. Lower Yields on Bonds Explain Some of the Contraction. Source: Guy Carpenter. 42
Largest Sponsors of ILS, Year-End 2014
Two of the Largest ILS Issuers Are Government-Sponsored Insurers. Nine Government-Related Insurers Have $4.6 Billion in Outstanding Securities. Source: Artemis.bm; Insurance Information Institute. 43
Reinsurance Pricing: Change in Rate on Line for Cat Business Alternative Capital, Low Levels of Catastrophe Drive Rates Down.
76%
2006: Higher Rates After Record Hurricanes.
(Change from Previous Year) 40% 30%
2001-02: WTC Losses, Falling Stock, Bond Prices Dry Up Capital.
20%
14%
Japan, NZ Quakes, US Tornadoes.
14% 10%
10%
7%
0% -6%
-10% -11% -20%
-3% -9%
-7% -12%
-11%
-16% -17% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Catastrophe Prices Fell 11 Percent on January 1 Renewals, Driven by Emergence of New Capital, Mild Catastrophe Losses. 2014 reflects change through June 30 from prior year end. 2015 is for January 1 renewals.. Source: Guy Carpenter; Insurance Information Institute.
ILS Issuance by Trigger
Terms Are Shifting Away From ‘Objective’ Triggers (Favored by Investors) Toward Indemnity Trigger (Favored by Insurers). Source: Artemis.bm; Insurance Information Institute.
Questions Arising from Influence of Alternative Capital What Will Happen When Investors Face Large-Scale Losses? What Happens When Interest Rates Rise? Does ILS Have a Higher Propensity to Litigate?
How Much Lower Will Risk Premiums Shrink/ROLs Fall? Will There Be Spillover Into Casualty Reinsurance?
Will Alternative Capital Drive Consolidation?
46
4. M&A UPDATE: A PATH TO GROWTH?
Are Capital Accumulation, Drive for Growth and Scale Stimulating M&A Activity? 47
U.S. INSURANCE MERGERS AND ACQUISITIONS, P/C SECTOR, 1994-2014 (1) M&A activity in 2015 will likely reach its highest level since 1998
($ Millions) $55,825
$12,458
$6,723
$4,397
40 $4,651
$6,419
$9,264 $425
$486
$1,249
60
$3,507
$20,353
$19,118 $8,059
$11,534
$5,100
$10,000
$13,615
80
$30,000
$20,000
120 100
$35,221
$40,032 $30,873
$40,000
140
$0
Number of transactions
Transaction values
$50,000
$16,294
$60,000
M&A activity in the P/C sector was up sharply in 2014 but remains well below pre-crisis or late 1990s levels.
20 0
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 (1) Includes transactions where a U.S. company was the acquirer and/or the target. Source: Conning proprietary database.
48
Top Global P&C M&As in 2014 - YTD 2015 Transaction Value $28,300
Acquirer ACE (Switzerland)
Target Chubb (US)
Exor (Italy)
PartnerRe Ltd. (Bermuda)
Zurich (Switzerland)
RSA (UK)
8,000
XL Group plc (Ireland)
Catlin Group Ltd. (Bermuda)
4,200
Platinum Underwriters Holdings Ltd. (Bermuda)
1,900
Brit Insurance Holdings NV (Netherlands)
1,880
$6,900
RenaissanceRe Holdings Ltd. (Bermuda) Fairfax Financial Holdings Ltd. (Canada)
State Farm's property/casualty and life insurance Desjardins Financial Corp. (Canada)
operations in Canada (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
German and Italina operations of Direct Line Mapfre S.A. (Spain)
Insurance Group plc (Germany/Italy)
701
Validus Holdings Ltd. (Bermuda)
Western World Insurance Group, Inc.
690
ACE Ltd. (Switzerland)
P&C business from Itau Seguros S.A. (Brazil)
685
Update: Alleghany Corp. announced in May 2015 that it is considering the sale of TransAtlantic Holding Co. (TransRe). *Source: Conning; Insurance information Institute.
Recent M&A Transactions Involving Lloyd's and Bermuda Re/Insurers
Date Dec 2012 Jun 2013 Jul 2013 Aug 2013 Aug 2013 Aug 2013 Sep 2013 Dec 2013 Feb 2014 Jul 2014 Nov 2014 Dec 2014 Jan 2015 Feb 2015
Acquirer Aquiline Enstar/Stone Point Enstar/Stone Point Ian Beaton and Management Lancashire AmTrust ANV Sompo Qatar Insurance Company BTG Pactual RenaissanceRe XL Group PartnerRe Fairfax Financial Holdings
Target
Deal Value $ Billion
Equity Redstar Atrium Torus Ark Syndicate Management Cathedral Sagicor Jubilee Managing Agency Canopius Antares Ariel Re Platinum Underwriters Catlin AXIS Brit
*Deal was not complete as of 6/4/15 and a rival bid from Italian investment firm Exor was still under consideration. Source: Swiss Re sigma 3/2015; Insurance information Institute.
0.1 0.2 0.7 0.4 0.4 0.1 N/A 1.0 0.2 0.4 1.9 4.1 11.0* 1.9
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 Low Interest Rates Make Debt Financing for Acquisitions Attractive
Concern that interest rates in US may soon rise so best to act now Desire to Achieve Economies of Scale Peer Pressure/Momentum Management concerns about being “left out”
51
5. Growth Premium Growth Rates Vary Tremendously by State and Over Time, But… 52
Net Premium Growth (All P/C Lines): Annual Change, 1971—2015:H1 (Percent) 1975-78
1984-87
2000-03 Net Written Premiums Fell 0.7% in 2007 (First Decline Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3Year Decline Since 1930-33.
25%
20%
2015:H1: 4.1%
15%
2014: 4.1% 2013: 4.4%
10%
2012: +4.2%
5%
0%
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*
-5% Shaded areas denote “hard market” periods Sources: A.M. Best (1971-2013), ISO (2014-15).
53
NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926 – 2015E ROE
Post WW II Peak: 1947: 26.2%
30% 25% 20%
Start of WW II 1941: 15.8%
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
Economic Shocks, Inflation: 1976: 22.0%
Tort Crisis 1985/86: 22.2% 1988-2000: Period of inter-cycle stability
15% 10%
Post-9/11 2002:15.3%
2015E 4.1%
5%
-5% -10% -15% -20%
1950-70: Extended period of stability in growth and profitability. Low interest rates, low inflation, “Bureau” rate regulation all played a role
Twin Recessions; Interest Rate Hikes 1987: 3.7%
Great Depression 1932: -15.9% max drop
201020XX? Postrecession period of stable growth?
Great Recession: 2010: -4.9%
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
0%
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998. Source: A.M. Best; Insurance Information Institute.
Direct Premiums Written: Total P/C Percent Change by State, 2007-2014 Top 25 States
60 Growth Benchmarks: Total P/C
14.9
14.8
14.7
14.4
14.2
13.8
13.5
AK
KY
VA
LA
CT
MT
17.0 WI
OH
18.0 AR
15.0
18.1 TN
NJ
18.6 MI
15.1
19.2 IN
SC
19.2 MN
15.2
20.7 CO
20
GA
21.6
23.7 VT
WY
24.7 IA
29.4 NE
26.8
30.3
30
US: 13.0%
TX
36.2 SD
40
36.7
50
OK
Pecent change (%)
70
70.7
80
North 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
KS
0
ND
10
Sources: SNL Financial LC.; Insurance Information Institute.
55
Direct Premiums Written: Total P/C Percent Change by State, 2007-2014
2.2
1.3
6.0 CA
4.7
6.3 ME
8.2
9.1
9.2
9.4
5
DE
NV
WV
HI
DC
AZ
FL
OR
ID
PA
IL
NH
RI
-12.9
Sources: SNL Financial LC.; Insurance Information Institute.
WA
MD
NC
AL
MS
NM
US
UT
NY
MO
-15
-7.3
-10
-4.3
Growth was negative in 4 states and DC between 2007 and 2014
-5
-1.6
-0.8
0
MA
Pecent change (%)
10
9.4
10.5
11.0
11.7
12.2
12.4
12.9
13.0
13.0
13.1
13.1
15
13.4
Bottom 25 States
56
Direct Premiums Written: Comm. Lines Percent Change by State, 2007-2014
90
Growth Benchmarks: Commercial
43 states showed commercial lines growth from 2007 through 2014
70 60
US: 5.9%
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
WI
MA
AR
CT
NY
NJ
CO
NM
OH
LA
US
MS
NH
MO
13.9 IN
MN
14.6 AK
20.6 TX
15.2
21.0 KS
20
WY
22.5 IA
24.8
30
29.4
40
33.3
50 36.8
Pecent change (%)
80
80.4
Top 25 States
NE
OK
VT
SD
0
ND
10
Sources: SNL Financial LLC.; Insurance Information Institute. 57
Direct Premiums Written: Comm. Lines Percent Change by State, 2007-2014 Bottom 25 States
2.1
1.4
0.9
SC
ID
2.8
2.8
3.1
3.2
3.3
3.3
3.7
3.8
3.9
4.1
4.4
4.2
ME
-15
-10.7
-6.9 OR
Alabama DPW growth has been sluggish
-9.2
-6.5 FL
-10
-5.3
-5
-3.2
0 -1.3
-22.2 WV
DE
AZ
HI
DC
AL
NC
VA
KY
IL
UT
PA
GA
WA
RI
CA
MT
MD
TN
MI
-25
-19.9
-20
NV
Pecent change (%)
5
4.5
10
2.2
Nearly half the states have yet to see commercial lines premium volume return to pre-crisis levels
Sources: SNL Financial LLC.; Insurance Information Institute. 58
Direct Premiums Written: Workers’ Comp Percent Change by State, 2007-2014*
0.0 NH
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period. Sources: SNL Financial LC.; Insurance Information Institute.
MD -1.3
0.1 VA
RI -1.1
0.1 GA
IL
WI
MI
NE
KS
CT
NJ
OK
NY
-5
IA
0
PA -1.1
0.5 CO
1.7
3.8 TX
2.7
3.9 NM
6.7 MN
4.2
7.1 IN
5
US
7.5 MS
10
9.4
15
11.7
14.6
20
Only 21 states have seen works comp premium volume return to pre-crisis levels 18.7
20.6
22.3
25
24.4
27.1 SD
30
27.1
Pecent change (%)
35
CA
40
35.1
Top 25 States
59
Direct Premiums Written: Worker’s Comp Percent Change by State, 2007-2014*
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period. Sources: SNL Financial LC.; Insurance Information Institute.
-34.9
-30.3 OR
AK
ME
SC
AR
TN
LA
MO
AZ
NC
ID
MA
DC
States with the poorest performing economies also produced some of the most negative net change in premiums of the past 7 years
NV
-29.5 DE
-25.2
-19.5 UT
HI
-19.4 KY
-23.4
-17.9 FL
MT
-17.1 AL
-14.4
-13.5
-12.2
-11.7
-9.2
-9.2
-9.1
-8.5
-6.0
-4.8
-3.6
-2.9
-2.6
0 -5 -10 -15 -20 -25 -30 -35 -40 -45 -50 -55 -60 -65 -70 -75 -80
VT
Pecent change (%)
Bottom 25 States
60
6. Pricing Trends Survey Results Suggest Commercial Pricing Has Flattened Out but Personal Lines Are Up 61
Commercial Lines Rate Change by Month (vs. Year Earlier), July 2001 – Sep. 2015 40% Jul-02, 33%
Not Much of A Hard Market, By Historic Standards
30%
Sept. 2015: -1.5%
20% 10%
Sep-13, 5%
Jul-15, 1%
Feb-05, 0% 0%
79 Months of Rates < 0% Dec-14, 0%
-10%
Oct-11, 0% Dec-07, -16%
Jul-01 Dec-01 May-02 Oct-02 Mar-03 Aug-03 Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15
-20%
Commercial Insurance Rate Changes Are Fairly Stable SOURCE: MarketScout, Insurance Information Institute. 62
CIAB: Average Commercial Rate Change, All Lines, (1Q:2004–2Q:2015)
-6%
-11%
-16%
-0.1%
0.1% -0.7% -1.5% -2.5%
-1%
-3.2% -5.9% -7.0% -9.4% -9.7% -8.2% -4.6% -2.7% -3.0% -5.3% -9.6% -11.3% -11.8% -13.3% -12.0% -13.5% -12.9% -11.0% -6.4% -5.1% -4.9% -5.8% -5.6% -5.3% -6.4% -5.2% -5.4% -2.9% -0.1%
4%
Q2 2011 marked the last of 30th consecutive quarter of price declines
-0.5%
9%
0.9% 2.7% 4.4% 4.3% 3.9% 5.0% 5.2% 4.3% 3.4% 2.1% 1.5%
(Percent)
Pricing as of Q2:2015 had remained (slightly) negative
1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 1Q15
KRW Effect
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially. Source: Council of Insurance Agents & Brokers; Insurance Information Institute
63
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2015:Q1 Percentage Change (%) Peak = 2001:Q4 +28.5% Pricing turned positive in Q3:2011, the first increase in nearly 8 years
Pricing Turned Negative in Early 2004 and Remained that way for 7 ½ years KRW : No Lasting Impact
Trough = 2007:Q3 -13.6%
Rate trends are roughly flat, some carriers reporting small gains, others flat, others small declines
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially. Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
64
Change in Commercial Rate Renewals, by Line: 2015:Q2
1.0%
1.5% 0.5%
0.7%
D&O
2.0%
Employment Practices rate increases are large than any other line, followed by D&O and Commercial Auto
Commercial Auto
Percentage Change (%)
0.0% -0.2%
-1.0%
-2.6%
-1.9%
Workers Comp
-4.0%
-2.7%
-2.0%
Construction
-3.0%
Business Interruption
-3.0%
Umbrella
-2.0%
EPL
Surety
-5.4%
Commercial Property
-6.0%
General Liability
-5.0%
Major Commercial Lines Renewals Were Mixed to Flat in Q2:2015; EPL, D&O and Commercial Auto Led the Way Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially. Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
65
How the Risk Dollar is Spent (U.S. Firms with Revenues Under $1 Bill) Total Administrative Costs, 6% Total Marine and Aviation Costs, 4%
Total Fidelity, Surety & Crime Costs, 1% Total Property Premiums, 21%
Total Med. Mal. Costs, 10%
Property Retained Losses, 1% Total Professional Liability Costs, 9%
Total Liability Premium, 19% Workers Comp Retained Losses, 9%
Total Workers Comp. Premiums, 10% Source: 2015 RIMS Benchmark Survey; Insurance Information Institute.
Liability Retained Losses, 4% Total Management Liability Costs, 6% 66
Monthly Change in Auto Insurance Prices, 1991–2015* 10% 8%
Cyclical peaks in PP Auto tend to occur roughly every 10 years (early 1990s, early 2000s and likely the early 2010s)
Pricing peak occurred in late 2010 at 5.3%, falling to 2.8% by Mar. 2012
6% 4% 2% 0%
“Hard” markets tend to occur during recessionary periods
July 2015 reading of 5.4% is up from 4.2% a year earlier
-2% '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 *Percentage change from same month in prior year; through July 2015; seasonally adjusted Note: Recessions indicated by gray shaded columns. Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
67
7. Underwriting Performance
68
Commercial Lines Combined Ratio, 1990-2016F*
107.9
94.8
94.3
13
14
91.1
95
93.6
99.2
100
98.3
98.9
102.4
104.2
105.4
102.5
102.0
105
103.5
122.3 110.2
111.1
112.3
109.7 104.1
107.6
110.2
109.5
112.5
118.8
115
110.2
120
109.4
Commercial Lines Combined Ratio
125
110
Commercial lines underwriting performance improved in 2013/14 but higher cats, diminishing prior year reserves and rising loss cost trends in some lines could push combined ratios higher
*2007-2012 figures exclude mortgage and financial guaranty segments. Source: A.M. Best (1990-2014); Conning (2015-16F) Insurance Information Institute.
16F
15F
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
90
69
102.4
102.3
102.2
102.3
101.6
102.1
102.0
101.0
101.3
100.2
98.3
95.5
95.1
98.4
101.1
101.0
101.3
104.2
94.3
95
99.5
100
101.3
105
101.7
110
103.5
109.5
115
107.9
Private Passenger Auto Combined Ratio: 1993–2017F
90 85 80 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F
Private Passenger Auto Underwriitng Performance Is Exhibiting Remarkable Stability Sources: A.M. Best (1990-2014); Conning (2015F – 2017F); Insurance Information Institute.
70
Collision Coverage: Severity & Frequency Trends Are Both Higher in 2015* Annual Change, 2005 through 2015* Severity
Frequency
6% 4.7% 5% 4.2% 4.2% 3.9% 4% 3.1% 2.8% 2.5% 3% 2.3% 1.6% 1.4% 2% 1.3% 0.9% 0.5% 1% 0.1% 0% -0.1% -1% -0.5% -2% -1.4% -1.4% -1.8% -3% -2.4%-2.3% -4% -3.6% -5% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Will Likely Be Reversed Based on Evidence from Past Recoveries *2015 figure is for the 4 quarters ending with 2015:Q2. Source: ISO/PCI Fast Track data; Insurance Information Institute
71
Homeowners Insurance Combined Ratio: 1990–2015F
Hurricane Sandy
150
119.4 103.8
101.4
91.7
85.4
96.4
91.7
90
103.1
109.3
121.7
111.4
108.2
109.4
121.7
112.7
118.4
113.6
1
98.2
100
101.0
110
117.7
120
113.0
130
114.5
Hurricane Ike
140
96.6
160
Record tornado activity
92.4
170
87.7
158.4
Hurricane Andrew
80 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F
Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to Local Catastrophe Loss Activity Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.
72
105.2
103.4
106.7
106.8
103.4 97.8
96.8
94.1
92.4
99.1
115.7
118.1
116.2
92.1
95
92.9
100
95.2
105
102.7
110
113.0
115
112.0
120
112.1
125
115.9
Commercial Auto Combined Ratio: 1993–2015F
90 85 80 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F
Commercial Auto is Expected to Improve Only Slowly as Rate Gains Barely Offset Adverse Frequency and Severity Trends Sources: A.M. Best (1990-2014);Conning (2015F); Insurance Information Institute.
73
105.8
110
106.5
105.8
Commercial Property Combined Ratio: 2007–2016F
11
12
105
75
85.8
90.7
80
15F
16F
72.4
85
82.7
83.3
90
86.5
95
90.1
100
70 07
08
09
10
13
14
Commercial Property Underwriting Performance Has Been Volatile in Recent Years, Largely Due to Fluctuations in CAT Activity Source: Conning Research and Consulting.
74
103.1
101.6
99.7
104.1
102.8
95
15F
16F
94.2
95.1
100
99.0
105
99.6
110
110.8
107.1
115
112.9
General Liability Combined Ratio: 2005–2016F
90 85 80 05
06
07
08
09
10
11
12
13
14
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years Source: Conning Research and Consulting.
75
Workers Compensation Combined Ratio: 1994–2014P
98.0
101.0
108.0
115.0
115.0
110.6
104.5
103.5
102.7
105.1
112.6
108.6
101.0
98.5
100
100.0
105
97.0
110
102.0
115
107.0
120
121.7
115.3
125
118.2
130
WC results have improved markedly since 2011
95 90 85 80 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 20072010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2014P) and are for private carriers only; Insurance Information Institute.
76
Commercial Multi-Peril Combined Ratio: 1995–2016F
120.1
CMP-Non-Liability
101.8
101.3
96.7
94.4
103.0
103.5
111.9 94.1
94.2 98.7 96.1 102.5 102.1
108.4 95.4 89.8 97.6
83.8
89.0
104.9 97.7 101.9 93.8 105.5
116.1
125.0 115.3 113.1 122.4 115.0 115.0 121.0 117.0 116.2
108.5 113.6
119.8 116.8
97.3
100.7
130 125 120 115 110 105 100 95 90 85 80
119.0
CMP-Liability
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F
Commercial Multi-Peril Underwriting Performance is Expected to Remains Stable in 2015 Assuming Normal Catastrophe Loss Activity *2015F-2016F figures are Conning figures for the combined liability and non-liability components. Sources: A.M. Best; Conning; Insurance Information Institute.
77
13
14E
82.2
89.3
86.2
83.3
80
83.7
77.3
85
82.5
90
79.5
89.9
95
93.3
100
96.1
97.1
Inland Marine Combined Ratio: 2004–2015F
75 70 04
05
06
07
08
09
10
11
12
15F
Inland Marine Underwriting Performance Has Been Consistently Strong for Many Years Source: A.M. Best (2004-2014E); Conning Research and Consulting (2015F).
78
Insured Catastrophe Losses 2013/14 and YTD 2015 Experienced Below Average CAT Activity After Very High CAT Losses in 2011/12 Winter Storm Losses Far Above Average in 2014 and 2015 79
U.S. Insured Catastrophe Losses ($ Billions, $ 2014) $80
$75.7
2012 was the 3rd most expensive year ever for insured CAT losses
$70
$11.0
$15.5
$13.1
$36.1
$34.6 $14.9
$11.8
$30.1 $7.7
$10.9
$16.8
$7.8
$34.7
$35.8 $6.3
$11.9
$14.8
$11.3
$13.0
$3.9
$10
$8.2
$20
$5.0
$30
$14.4
$40
$9.1
$50
$27.2
$38.9
$60
$0 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*
2013/14 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster Losses in US History. Longer-term Trend is for more—not fewer—Costly Events
$11.0B in insured CAT losses though 9/30/15
*Through 9/30/15 in 2015 dollars. Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute. 80 80
US Insured CAT Losses Through Q3to Date: 30 Events =$11 Billion in Claims
Source: PCS; Insurance information Institute.
Top 10 Insured CAT Losses Through 2015 Q3: 30 Events = $11 Bill. in Claims
Source: PCS; Insurance information Institute.
Top 10 Largest NFIP Flood Claim Payout Events
Source: NFIP; Insurance information Institute http://www.iii.org/issue-update/flood-insurance
Loss Events in the US, 1980 – 2014 Overall and Insured Losses Overall losses totaled $25bn; Insured losses totaled $15.3bn $ Billions
2015 First Half: $8.2 Billion Insured Losses $12.0 Overall Losses
200
150
100
Overall losses (in 2013 values)* 50
Insured losses (in 2013 values)*
1980
1982
1984
1986
1988
1990
1992
Source: Property Claim Services, MR NatCatSERVICE.
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
*Losses adjusted to inflation based on CPI.
84
3.477
5
2.017
1980
1985
2
5.151
5.351
5.569
5.620
5.646
5.645
5.700
The number of NFIP policies in force has plunged by 549,000 or 9.6% since 2009, even as coastal development surges and sea levels rise
2.478
2.104
(millions)
4 3
4.962
4.369
6
5.684
5.656
Number of National Flood Insurance Program Policies in Force at Year-End, 1980-2015*
1 0 1990
1995
2000
2005
2007
2008
2009
2010
2011
2012
2013
2014
2015*
Source: National Flood Insurance Program. * As of July, 2015 85
Take-Up Rates for Various Types of Insurance in the U.S. Take-Up Rate
100% 90% 80%
87%
Take-up rates vary widely by type of coverage
95%
99%
Home
Workers Comp
62%
70%
52%
60% 50%
40%
40% 30% 20%
10%
14%
10% 0% CA Earthquake
Flood
Renters
Cyber
Terrorism
Pvt. Passenger Auto
Sources: CA Earthquake (WSJ, http://www.wsj.com/articles/california-pushes-homeowners-to-insure-against-earthquakes-1440980138 ); Flood and Renters (I.I.I. June 2015 Pulse Survey); Cyber (Advisen, 2015); Terrorism (Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014; data for 2013); Pvt. Passenger Auto (Insurance Research Council, Uninsured Motorists, 2014 Edition, data for 2012); Home and Workers Comp (I.I.I. estimates); Insurance Information Institute research. 86
Top 16 Most Costly Disasters in U.S. History—Katrina Still Ranks #1 (Insured Losses, 2014 Dollars, $ Billions)
Storm Sandy in 2012 was the last mega-CAT to hit the US
$60 $50
$50.2
$40 $30
Includes Tuscaloosa, AL, tornado
Includes Joplin, MO, tornado
$24.6 $25.3 $26.4 $19.3
$20 $10 $0
$9.4 $11.4 $9.0 $8.1 $7.7 $7.3 $6.9 $4.6 $5.7 $5.8 Irene (2011) Jeanne (2004)
Frances (2004)
Rita Tornadoes/Tornadoes/ Hugo (2005) T-Storms T-Storms (1989) (2011) (2011)
Ivan (2004)
Charley (2004)
Wilma (2005)
$13.8
Ike (2008)
Sandy* Northridge9/11 Attack Andrew (2012) (1994) (2001) (1992)
Katrina (2005)
12 of the 16 Most Expensive Events in US History Have Occurred Since 2004 Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.
87
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2015F* 9.4 3.4
3.9 4.4 4.9
5.0
2014
2012
2010
2008
2006
1.6
2.6
2.7
3.3 3.3 1.6 2002
2004
1.6 2000
1.0 1998
1996
1992
8.0
8.1 5.4 3.6 2.9
2.3
2.1
3.0 1.2 1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1.2 0.4 0.8 1.3 0.3 0.4 0.7 1.5 1.0 0.4 0.4 0.7 1.8 1.1 0.6 1.4 2.0 1.3 2.0 0.5 0.5 0.7 1968
0.4
1966
1964
1962
0.8 1.1 1.1 0.1 0.9
1 0
1960
3 2
3.6
6 5 4
5.9
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 5.82*
8 7
3.3 2.8
10 9
Catastrophe losses as a share of all losses reached a record high in 2011
8.8
Avg. CAT Loss Component of the Combined Ratio by Decade
1994
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades *2010s represent 2010-2014. Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers. Source: ISO (1960-2010); A.M. Best (2011-15E) Insurance Information Institute. 88
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1995–20141 Wind/Hail/Flood (3), $21.4 Winter storm losses were much above average in 2014/15 are will push this share up
Fires (4), $6.0 Other (5), $0.2
Geological Events, $0.5 Terrorism, $24.5
1.5% 5.4% 0.1% 0.1%
6.2%
Winter Storms, $26.9
6.8%
Insured cat losses from 1995-2014 totaled $395.6B, an average of $19.8B per year or $1.65B per month
40.7%
Tornado share of CAT losses is rising Events Involving Tornadoes (2), $154.9
Hurricanes & Tropical Storms, $161.2
39.2%
Wind losses are by far cause the most catastrophe losses, even if hurricanes/TS are excluded.
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2014 dollars. 2. Excludes snow. 3. Does not include NFIP flood losses 4. Includes wildland fires 5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation. Source: ISO’s Property Claim Services Unit.
89
Top 5 Insured Catastrophe Losses in 2015* ($ Millions)
$2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0
As in 2014, a “Polar Vortex” event was the most costly cat through the first half of 2015 with $1.84 billion in insured losses In 2015, Winter Storm cat events resulting in $2.3 billion in insured losses, little changed from $2.4 billion in 2013. These figures are about double the long-term average.
$1,839.5
$781.9
Winter Storm (Feb 16-22)
Flooding, Hail, Tornadoes & Wind Event (Apr 18 - 21)
$780.0
Flooding, Hail, Tornadoes & Wind Event (Apr 7 - 10)
*Through June 10, 2015. Sources: PCS unit of Verisk Analytics; Insurance Information Institute.
$632.1
$566.1
Flooding, Hail, Tornadoes & Wind Event (Apr 24-28)
Flooding, Hail, Tornadoes & Wind Event (May 6-13) 90
Winter Storm and Winter Damage Events in the US, 1980-2015 (2014 US$) 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.
$ Billions, in 2014 Dollars 4 000
2015 insured winter storm losses totaled $2.3B, similar to 2014 and about double the long-run average
5-year running average
3 000
2 000
1 000
1980
1982
1984
1986
1988
1990
Source: Property Claim Services, MR NatCatSERVICE.
1992
1994
1996
1998
2000
2002
2004
2006
*Winter storms include winter damage, blizzard, snow storm and cold wave
2008
2010
2012
2014
**Losses adjusted to inflation based on country CPI
91
Natural Disaster Losses in the U.S., First Half 2015
Number of Events
Severe Thunderstorm
Fatalities
Estimated Overall Losses (US $m)
Estimated Insured Losses (US $m)*
38
66
7,000
5,100
Winter Storms & Cold Waves
11
80
3,800
2,900
Flood, Flash Flood
10
4
500
150
Earthquake & Geophysical
1
-
-
-
Tropical Cyclone
2
4
Loss est. in progress
Loss est. in progress
Wildfire, Heat Waves, & Drought
18
-
1,300
Minor market loss
Totals
80
154
12,600
8,200
As of July 1, 2015
92
*Source: Property Claim Services (PCS) as of 7/7/2015; Munich Re.
Natural Disaster Losses in the US, 2014 Based on perils
Number of Events
Fatalities
Estimated Overall Losses (US $m)
Estimated Insured Losses (US $m)
Severe Thunderstorm
62
98
17,000
12,300
Winter Storm, winter damage, cold wave, snow storm
13
115
3,700
2,300
Flood, flash flood, storm surge
20
5
1,800
500
Earthquake & Geophysical, landslides
11
45
750
150
Tropical Cyclone
2
1
95
Minor market losses
Wildfire, Heat, & Drought
11
2
1,700
Minor market losses
Totals
119
266
25,000
15,300
As of January, 2015
93
Source: Munich Re.
The World is Warmer...With One Big Exception! HIGHLIGHTS • 2014 was the warmest year across global land and ocean surfaces since records began in 1880. • 9 of the 10 warmest years in the 135-year period of record have occurred in the 21st century. 1998 currently ranks as the fourth warmest year on record. • January to May 2015 warmest first five months on record! Source: NOAA; Munich Re.
94
Top 11 Insured Loss Events from Riots and Civil Commotion Insured Losses (2014 $MM)
Year
Deaths
Date
State
Insured Loss When Occurred
1992
14
Apr 29 - May 4
CA
775,000,000
1,307.7
1980
62
May 17 - 19
FL
65,250,000
187.5
1967
48
Jul 23 - 31
MI
41,500,000
294.2
1965
87
11-Aug
CA
38,000,000
285.6
1977
99
Jul 13 - 14
NY
28,000,000
109.4
1967
47
Jul 12 - 21
NJ
11,000,000
78.0
1966
20
12-Jul
IL
4,000,000
29.2
2015
0
Apr 18 – May 1
MD
23,900,000
23.9*
1971
63
Jun 13 - 15
NM
3,000,000
17.5
1977
11
Jul 13 - 14
NY
2,000,000
7.8
1968 2015 Baltimore 77 Jul 23were - 24 designated OH a PCS1,500,000 10.229 April riots CAT event on April (first PCS designation for a riot in 23 years) as of 6/10/15 insured losses totaled $23.9 million (2014 Ferguson riots did not receive PCS designation) *As of 6/10/15. Source: PCS unit of Verisk Analytics; Insurance Information Institute
95
Insurance Coverage for Riots and Civil Commotions: Home, Auto and Business Auto, homeowners, and business insurance policies generally include coverage for property losses caused by riots and civil commotions Homeowners policies pay to repair, or rebuild, an insured home if its structure is damaged or destroyed as the result of a riot or civil commotion, as well as to replace the homeowner’s personal belongings if they are damaged or stolen during the event. If the home is rendered uninhabitable by the damage caused by a riot or civil commotion, policyholders can file an additional living expenses (ALE) claim to finance their temp. housing expenses until the residence has been repaired.
The optional comprehensive coverage on an auto insurance policy reimburses losses to a vehicle due to damage caused by falling objects, fire, riots and vandalism, among other things. Standard business property insurance policies provide coverage for the structure of the building as well as the contents inside, and cover losses arising from riots or civil commotion. Business interruption (BI) coverage, whereby the policyholder can file a claim for lost income, is usually only triggered when the insured business incurs direct physical damage. Source: Insurance Information Institute, www.iii.org .
96
Loss events in the US, 1980 – 2014 Number of events
250
2015 First Half: 80 Events
2014 Total: 119 Events
Number of Events
Geophysical events (Earthquake, tsunami, volcanic activity)
The number of loss events surged from 2006 – 2010, though insured losses remained elevated through 2012
200
Meteorological events (Tropical storm, extratropical storm, convective storm, local storm)
150
Hydrological events (Flood, mass movement) 100
16 24
50
Climatological events (Extreme temperature, drought, forest fire)
72 7 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: Geo Risks Research, NatCatSERVICE
97
Convective Loss Events in the US Overall and insured losses, 1980 – 2014 Overall losses (in 2014 values)*
$ Billions 50
40
30
Insured losses (in 2014 values)*
The period from 2008-2014 has been the most expensive on record for insured losses from “Convective Events” (severe thunderstorms, tornado, hail, lightning and flash flood) 2015 First Half: $5.1 Billion Insured Losses $7.0 Overall Losses
20
10
1980
1982
1984
1986
1988
*Losses adjusted to inflation based on CPI Source: Geo Risks Research, NatCatSERVICE
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Analysis contains: severe storm, tornado, hail, flash flood and lightning
98
Federal Disaster Declarations Patterns: 1953-2015 Disaster Declarations Set New Records in Recent Years 99
Number of Federal Major Disaster Declarations, 1953-2015*
99 81 75
62 36
45
47
59
63 48 52
56 44
32 36 32
38 43 45 11
31
34 24 21
15
23
22 25
27 28 23
38 30
29 17 17
19
11 11
22 20 25 25 12 12
36 federal disasters have declared so far in 2015*
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 15*
7 7
13 17 18 16 16
40
0
42
48 46 46
60
20
69
65
80
The number of federal disaster declarations set a new record in 2011, with 99, shattering 2010’s record 81 declarations.
50 45 45 49
100
There have been 2,239 federal disaster declarations since 1953. The average number of declarations per year is 36 from 1953-2014, though there haven’t been that few recorded since 1995.
75
120
The Number of Federal Disaster Declarations Is Generally Rising and Set New Records in 2010 and 2011 Before Dropping in 2012-2014 *Through October 3, 2015. Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
100
Federal Disasters Declarations by State, 1953 – 2015: Highest 25 States* Over the past 60 years, Alabama has had the 8th highest number of Federal Disaster Declarations 76
41
44
45
47
47
49
50
50
51
51
52
53
54
54
56
56
56
57
61
61
58
60
67
70
69
Disaster Declarations
80
81
90
89
100
40 30 20 10 0 TX CA OK NY FL KY LA AL AR MO IA WV MS TN IL NE MN KS PA WA OH VA ND SD ME
*Through Oct. 3, 2015. Includes Puerto Rico and the District of Columbia. Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
101
Federal Disasters Declarations by State, 1953 – 2015: Lowest 25 States* Over the past 60 years, Wyoming and Utah had the fewest number of Federal Disaster Declarations
23
23
24
25
25
26
27
28
28
29
34
36
39
39
40
11
15
13
12
10
10
17
17
20
20
30
30
37
Disaster Declarations
40
40
43
50
0 NC AK IN GA VT WI NJ NH MA OR HI NM MI PR MD MT AZ ID CO CT NV SC DE DC RI UT WY *Through Oct. 3, 2015. Includes Puerto Rico and the District of Columbia. Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
102
Natural Hazard Risk Scores, 2014 Highest 25 States*
51.8
51.9
51.9
52.3
52.8
55.3
56.7
57.1
57.3
57.8
59.7
60.9
61.0
61.5
64.9
65.4
66.4
66.8
72.1
79.2
79.7
75.6
69.0
70 60
69.5
Hazard Risk Score
90 80
94.5
100
Florida received the highest Natural Hazard Risk Score
50 40 30 20 10 0 FL RI LA CA MA KS CT OK SC DE OR NJ IA TX NC MO DC MS AR NH ID MD CO NE IL
Note: Score is based on data on 9 natural hazards: flood, wildfire, tornado, storm surge, earthquake, straight-line wind, hurricane, wind, hail and sinkhole. *Analysis Includes DC. Excludes Alaska and Hawaii due to limited natural hazard risk data. Sources: CoreLogic release “CoreLogic Identifies US States at Highest Risk of Property Damage Loss from Natural Hazards,” Sept. 10, 2014; 103 Insurance Information Institute.
Natural Hazard Risk Scores, 2014 Bottom 24 States* Michigan and West Virginia received the lowest Natural Hazard Risk Score
20.7
27.5
28.3
31.5
28.8
25.0
20.2
20
30.2
30
34.5
36.4
37.9
38.2
38.5
42.3
42.4
43.8
45.2
46.5
42.8
Hazard Risk Score
47.3
GA NV AL KY TN UT NM AZ VA WA WI SD MT MN OH ME WY PA VT ND NY WV MI
40
49.4
50.6
IN
50
50.1
50.7
60
10 0 Note: Score is based on data on 9 natural hazards: flood, wildfire, tornado, storm surge, earthquake, straight-line wind, hurricane, wind, hail and sinkhole. *Analysis Includes DC. Excludes Alaska and Hawaii due to limited natural hazard risk data. Sources: CoreLogic release “CoreLogic Identifies US States at Highest Risk of Property Damage Loss from Natural Hazards,” Sept. 10, 2014; 104 Insurance Information Institute.
Workers Compensation Operating Environment Workers Comp Results Have Improved Substantially in Recent Years
105
Nonfarm Payroll (Wages and Salaries): Quarterly, 2005–2015:Q1 Billions $7,750 $7,500 $7,250
Prior Peak was 2008:Q3 at $6.54 trillion
Latest (2015:Q1) was $7.66 trillion, a new peak--$1.34 trillion above 2009 trough
$7,000 $6,750 $6,500 $6,250 $6,000 $5,750
Recent trough (2009:Q1) was $6.23 trillion, down 5.3% from prior peak
Growth rates 2011:Q1 over 2010:Q1: 5.5% 2012:Q1 over 2011:Q1: 4.2% 2013:Q1 over 2012:Q1: 2.5% 2014:Q1 over 2013:Q1: 4.3% 2015:Q1 over 2014:Q1: 4.4%
05:Q1 05:Q2 05:Q3 05:Q4 06:Q1 06:Q2 06:Q3 06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3 12:Q4 13:Q1 13:Q2 13:Q3 13:Q4 14:Q1 14:Q2 14:Q3 14:Q4 15:Q1
$5,500
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates. Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
106
Payroll vs. Workers Comp Net Written Premiums, 1990-2014P Payroll Base* $Billions
$7,000 $6,000
7/90-3/91
WC NWP $Billions
Wage & Salary Disbursements 3/01-11/01 WC NPW
12/07-6/09
$45
WC premium volume dropped two years before the recession began
$40
$5,000 $4,000 $3,000
$50
WC net premiums written were down $14B or 29.3% to $33.8B in 2010 after peaking at $47.8B in 2005
$2,000
$35 $30 $25
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
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow Again in 2015 *Private employment; Shaded areas indicate recessions. WC premiums for 2014 are from NCCI. Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
107
Workers Compensation Combined Ratio: 1994–2014P
98.0
101.0
108.0
115.0
115.0
110.6
104.5
103.5
102.7
105.1
112.6
108.6
101.0
98.5
100
100.0
105
97.0
110
102.0
115
107.0
120
121.7
115.3
125
118.2
130
WC results have improved markedly since 2011
95 90 85 80 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 20072010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2014P) and are for private carriers only; Insurance Information Institute.
108
Workers Compensation Premium: Fourth Consecutive Year of Increase Net Written Premium $ Billions
50
46.5
State Funds ($ B)
46.5 44.3
Private Carriers ($ B)
40
47.8
41.8
33.6
34.6 33.8
32.1 30.1
30
28.5
26.9 25.9
10
36.4
28.6 25.0
20 31.0 31.3 29.8 30.5 29.1
39.5
39.3
37.7 35.3 35.7 34.3 35.4
44.2
42.3
34.7 26.3 25.2 25.0 26.1 24.2 23.3 22.3
29.2
37.8 38.6 37.6 33.8
31.1
30.3 29.9
32.3
38.5 35.1 36.9
Pvt. Carrier NWP growth was +4.3% in 2014, +5.1% in 2013 and 8.7% in 2012
0 90
91
p Preliminary
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Calendar Year
Source: NCCI from Annual Statement Data. Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT. Each calendar year total for State Funds includes all funds operating as a state fund that year.
13 14P
2014 Workers Compensation Direct Written Premium Growth, by State* PRIVATE CARRIERS: Overall 2014 Growth = +4.6%
While growth rates varied widely, most states experienced positive growth in 2014
*Excludes monopolistic fund states (in gray): OH, ND, WA and WY. Source: NCCI.
110
2013 Workers Compensation Direct Written Premium Growth, by State* PRIVATE CARRIERS: Overall 2013 Growth = +5.4%
While growth rates varied widely, all states experienced positive growth in 2013
*Excludes monopolistic fund states (in white): OH, ND, WA and WY. Source: NCCI.
111
Workers Compensation Components of Written Premium Change, 2013 to 2014 Written Premium Change from 2013 to 2014 Net Written Premium—Countrywide
+4.6%
Direct Written Premium—Countrywide
+4.6%
Direct Written Premium—NCCI States
+4.5%
Components of DWP Change for NCCI States Change in Carrier Estimated Payroll
+4.7%
Change in Bureau Loss Costs and Mix
-1.4%
Change in Carrier Discounting
+0.4%
Change in Other Factors
+0.8%
Combined Effect
Sources: Countrywide: Annual Statement data. NCCI States: Annual Statement Statutory Page 14 for all states where NCCI provides ratemaking services. Components: NCCI Policy data.
Growth is now almost entirely payroll driven
+4.5%
112
WC Approved Changes in Bureau Premium Level (Rates/Loss Costs) By Effective Date for Total Market
Percent
15
Cumulative 2000–2003
Cumulative 2011–2014
+17.1%
+11.8%
12.1 10.0
10
8.4 7.4
Cumulative 1994–1999
6.6
-27.8%
5
Cumulative 2004–2011
4.9
-30.8%
3.5
2.9
2.2 1.2
0.4
0.5
0
-5
Cumulative 1990–1993 +36.3%
-10
-2.6
-3.2 -6.4
-2.1
-5.4
-6.0
-1.2
-2.2
-3.2 -6.0
-6.5
Approved rates/loss costs are down for the first time since 2010
-7.8 -8.8 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p -8.0
Calendar Year
*States approved through 4/24/15. Note: Bureau premium level changes are countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by applicable rating organization, relative to those previously approved. Source: NCCI.
WC Approved or Filed and Pending Change in NCCI Premium Level by State Latest Change for Voluntary Market
While growth rates varied widely, most states experienced positive growth in 2014
*Excludes monopolistic fund states (in gray): OH, ND, WA and WY. Source: NCCI.
114
WC Approved or Filed and Pending Change in NCCI Premium Level by State Latest Change for Voluntary Market Excludes Law-Only Filings The majority of states experienced decreases in rates/loss costs over
Note: Premium level changes are approved changes are approved or filed and pending changes in advisory rates, loss costs and rating values as of 4/24/15 as filed by applicable rating organization, relative to those previously approved. SC is filed and pending. IN and NC are in cooperation with state rating bureaus. Source: NCCI.
115
Workers Compensation Lost-Time Claim Frequency Declined in 2014 Percent
12
Cumulative Change of –51.1% 10.6 (1994–2013 adj.)
10 8
Frequency Change: 2007—2012
6
Contracting: 7.97.1
-9.3%
4
Manufacturing: 13.612.0
-11.8%
2
Indicated Adjusted* 3.6
0.5
0.3
0
-0.8
-2 -4 -6
-4.4
-3.9
-4.5
-10 92
-9.2 93 94
95
-3.7 -4.5 -4.1
-4.5
-6.5
-8
97
98
99
00
01
-2.9 -4.3
-4.5
-3.8
-4.9
-6
-6.6
-6.9
96
-2.0
-2.2
-2.3
02
03
04
05
06
07
08
09
10
11
12
13 14p
Accident Year
*Adjustments primarily due to significant audit activity. 2014p: Preliminary based on data valued as of 12/31/2014. Source: NCCI Financial Call data, developed to ultimate and adjusted to current wage an voluntary loss cost level; Excludes high deductible policies; 1994-2013: Based on data through 12/31/13. Data for all states where NCCI provides ratemaking services, excluding WV. Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
116
Workers Comp Indemnity Claim Costs: Modest Increase in 2014 Average Indemnity Cost per Lost-Time Claim Indemnity Claim Cost ($ 000s)
Average indemnity costs per claim were up 4% in 2014 to $23,600, the largest increase since 2008
25 23 21 19
+1.9% +4% +1.3% +0.0% +9.1%+1.0% -2.5% +6.6%
Cumulative Change = 141% (1991-2014p)
+5.9% +3.1% +4.6% +1.0% +9.2%+3.1%
17
$22.6
05
$22.2
04
$22.2
03
$21.9
02
$22.5
01
$20.8
$18.1
97
$17.5
96
$17.4
$11.2
95
$16.6
$10.4
94
$16.1
$9.8
93
$14.8
$9.7
92
$13.5
$9.2
91
$12.2
$9.5
7
$9.8
9
$19.2
+9.0% +7.7% +5.9% 11 +1.0%-3.1% +4.9%+1.7% -2.8%
13
$22.3
+10.1%
08
09
10
11
12
13
$23.6
+10.1%
15
5 98
99
00
06
07
Accident Year 2014p: Preliminary based on data valued as of 12/31/2014. 1991-2013: Based on data through 12/31/2013, developed to ultimate Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
14p
WC Indemnity Severity vs. Wage Inflation, 1995 -2014p Change in CPS Wage
12%
Change in Indemnity Cost per Lost-Time Claim
10.1%
10%
9.2%
9.0%
9.1%
7.7%
8%
6.6% 5.9%
5.9%
6%
4.6%
6.3% 3.6%
5.2%
4%
4.2%
5.6%
4.3% 2.7%
2.3%
1.7%
3.1%
3.1%
4.7%
2%
4.7% 4.6% 2.3%
3.5%
Annual Change 1994–2014 Indemnity Claim Sev.: +4.6 US Avg. Weekly Wage: +3.4%
2.9%
1.9%
1.3%
1.1% 1.0%
1.0%
WC indemnity severity turned positive again in 2011
3.0%
3%
1.1%
2.7% 1.0%
1.1%
0% -2%
Indemnity severities usually outpace wage gains
10.1%
0% -2.5%
-4% 95
97
99
01
03
05
07
09
11
13
2014p: Preliminary based on data valued as of 12/31/2014; 1991-2010: Based on data through 12/31/2010, developed to ultimate. Based on the states where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey. Source: NCCI
Workers Compensation Medical Severity: Moderate Increase in 2014 Medical Claim Cost ($000s)
30
25
Average Medical Cost per Lost-Time Claim
Medical severity for lost time was up 4% in 2014, the Annual Changeclaims 1991–1993: +1.9% largest increase Annual Change 1994–2001: +8.9% since 2009 Annual Change 2002–2010:
+4% +3.2% +2.4% +2.4%
+4.0%+0.5% +6.9%
+6.0%
+5.9%
Cumulative Change = 263% (1991-2014p)
20
+5.8%
+7.8% +5.4% +7.7%
Accident Year
05
06
07
08
$29.4
Accident 00 01 02 Year 03 04
$28.3
99
$27.4
98
$26.8
97
$26.1
$11.7
96
$23.4
$10.8
95
5
$22.1
$9.8
94
$18.4
$9.1
93
$17.1
$8.8
92
$13.9
$8.1
91
+1.3% +6.8% -2.1%
$12.9
$8.2
+7.4% +5.1% +9.0%
$8.1
10
$15.7
+8.3% +10.1%
$19.4
+7.3% +10.6%
$20.9
15
$25.0
+13.5%
$26.0
+8.8%
09
10
11
12
13 14p
2014p: Preliminary based on data valued as of 12/31/2014. 1991-2013: Based on data through 12/31/2013, developed to ultimate Based on the states where NCCI provides ratemaking services including state 119funds, excluding WV; Excludes high deductible policies.
Workers Comp Change in Medical Severity by State, Avg. Annual Change, 2009-2013 Percent
The change in lost-time medical severities from 2009-2013 ranged from a low of -6% to a high of 9%
While growth rates varied widely, most states experienced positive growth in 2014
Source: NCCI’s Analysis of Frequency and Severity of Claims Across the Country as of 12/31/13 on ncci.com. Values reflect methodology and state data underlying the most recent rate/lost cost filing. TX changes are for the years 2010-2013. 120
Annual Inflation Rates, (CPI-U, %), 1990–2016F Annual Inflation Rates (%) 6.0 5.0
4.9
5.1
3.8
4.0 3.0
3.0 2.0
Inflationary expectations have slipped (due in part to falling energy costs) allowing the Fed to maintain low interest rates
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the commodity bubble reduced inflationary pressures in 2009/10
3.3 3.4
3.2
2.9 2.8 2.4
3.0
2.6
2.5 2.3
3.8 3.2 2.8
1.5
2.2
2.1
1.9
1.6
1.3
1.5
1.7
1.0 0.2
0.0 -0.4
-1.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F
Slack in the U.S. economy and falling energy prices suggests that inflationary pressures should remain subdued for an extended period of times Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 5/15 (forecasts).
121
Workers Compensation Change in Medical Severity Comparison to Change in Medical Consumer Price Index (CPI) Percent Change 16
Change in Lost-Time Medical Claim Severity
14
Change in US Medical CPI
13.5
Average Annual Change: 1994—2014
12
Lost-Time Medical Severity: +6.4%
10.6
10.1
10 8.3
8
6
US Medical CPI: +3.7%
8.8
7.4
7.8
7.7
7.3
6.9
5.8
5.4
5.1
4.6
4.5
4
4.7
4.1 3.5 2.8
3.2
4.0
4.4
4.2
3.5
4.0
5.9 4.4 3.7
4.0 3.2
3.4
3.7 3.0 2.4 2.4
4.0
3
3
2.4
13
14p
2 0.5
0 95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
Year 2014p: Preliminary based on data valued as of 12/31/2014. Sources: Severity: 995-2013: Based on data through 12/31/2013, developed to ultimate Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies. US Medical CPI: US Bureau of Labor Statistics.
12
WC Medical Severity Generally Outpaces the Medical CPI Rate 16%
Average annual increase in WC medical severity from 1995 through 2014 was well above the medical CPI (6.4% vs. 3.7%), but the gap has narrowing. Lost-time medical severities appear to on the rise again.
13.5%
14% 12% 10.1%
10.6%
10%
8.8%
8.3%
7.7%
7.4%
8%
7.8% 6.8%
7.3% 5.4%
6% 5.1%
5.9% 5.8% 4.0%
4% 4.5%
4.1% 3.5%
2%
2.8%
4.6% 4.7% 4.0%
3.2% 3.5%
4.4% 4.2%
4.0%
3.0%
4.4% 3.7%
3.7% 3.2%
4.0%
3.2% 3.4%
Change in Medical CPI Change Med Cost per Lost Time Claim
0%
2.4%
2.4%2.5% 2.4%
0.5%
95
96
97 98
99 00
01
02 03
04 05
06
07 08
09 10
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
11
12 13 14p
Medical Cost Inflation vs. Overall CPI, 1995 – 2014* Though moderating, medical inflation will continue to exceed inflation in the overall economy
5%
4%
3%
2%
Average Annual Growth Average 1995 – 2013 Healthcare: 3.8% Total Nonfarm: 2.4%
1%
0%
Change in Medical CPI
CPI-All Items
-1% 95
96
97
98
99
00
01 02
03
04
05
06
07 08
09
*July 2014 compared to July 2013. Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
10
11
12
13 14*
U.S. Health Care Expenditures, 1965–2022F $ Billions
$5,000 $4,000
$3,000 $2,000 $1,000 $0
65 $42.0 66 $46.3 67 $51.8 68 $58.8 69 $66.2 70 $74.9 71 $83.2 72 $93.1 73 $103.4 74 $117.2 75 $133.6 76 $153.0 77 $174.0 $195.5 78 $221.7 79 $255.8 80 $296.7 81 $334.7 82 $369.0 83 $406.5 84 $444.6 85 $476.9 86 $519.1 87 $581.7 88 $647.5 89 $724.3 90 $791.5 91 $857.9 92 $921.5 93 $972.7 94 $1,027.4 95 $1,081.8 96 $1,142.6 97 $1,208.9 98 $1,286.5 99 $1,377.2 00 $1,493.3 01 $1,638.0 02 $1,775.4 03 $1,901.6 04 $2,030.5 05 $2,163.3 06 $2,298.3 07 $2,406.6 08 $2,501.2 09 $2,600.0 10 $2,700.7 11 $2,806.6 12 $2,914.7 13 $3,093.2 14 $3,273.4 15 $3,458.3 16 $3,660.4 17 $3,889.1 18 $4,142.4 19 $4,416.2 20 $4,702.0 21 $5,008.8 22
$6,000
From 1965 through 2013, US health care expenditures had increased by 69 fold. Population growth over the same period increased by a factor of just 1.6. By 2022, health spending will have increased 119 fold.
U.S. health care expenditures have been on a relentless climb for most of the past half century, far outstripping population growth, inflation of GDP growth Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute. 125
National Health Care Expenditures as a Share of GDP, 1965 – 2022F* % of GDP
20% 18% 16%
Health care expenditures as a share of GDP rose from 5.8% in 1965 to 18.0% in 2013 and are expected to reach 19.9% of GDP by 2022
2022 19.9% 2010: 17.9%
14% 12% 10%
1990: 12.5%
8% 6%
2% 0%
1965 5.8%
Since 2009, heath expenditures as a % of GDP have flattened out at about 18%--the question is why and will it last?
65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
4%
1980: 9.2%
2000: 13.8%
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
8. THE ECONOMY The Strength of the Economy Will Greatly Influence Insurer Exposure Base Across Most Lines 127
US Real GDP Growth*
-7%
-0.3%
Q1 2014/15 GDP data were hit hard by this year’s “Polar Vortex” and harsh winter
-8.9% 2000 2001 2002 2003 2004 2005 2006 2007 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
-9%
-5.3%
-5%
Recession began in in June 2009
-3.7%
-3%
-1.8%
-1%
4.6% 4.3% 2.1% 0.6% 3.9% 2.1% 2.7% 2.6% 2.7% 2.6% 2.6%
1%
-0.9%
5.0% 1.4%
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% 4.5% 3.5%
3%
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
1.3%
5%
1.1% 1.8% 2.5% 3.6% 3.1% 2.7% 1.8%
7%
4.1%
Real GDP Growth (%)
Demand for Insurance Should Increase in 2016 as GDP Growth Continues at a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly * Estimates/Forecasts from Blue Chip Economic Indicators. Source: US Department of Commerce, Blue Economic Indicators 10/15; Insurance Information Institute.
128
State Leading Economic Indicators through November 2015
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
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.
129
Real GDP by State Percent Change, 2014*: Highest 25 States
6.3
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
5.1
Growth Benchmarks: Real GDP
1.7
1.8
1.8
1.8
1.9
1.9
2.2
2.2
2.3
2.3
1.9
2
2.3
2.7
2.7
2.8
2.8
3.0
3.1
3
2.1
US: 2.2%
3.6
4
4.7
5
5.1
Percent Change (%)
5.2
6
2.5
7
North Dakota was the economic growth juggernaut of the US in 2014—by far
1 0 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 *Advance statistics Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
130
Real GDP by State Percent Change, 2014*: Lowest 25 States
0.0
0.0
0.2
0.4
0.4
0.6
0.6
0.7
0.7
0.6
0.4
0.5
0.8
0.8
0.8
0.9
1.0
1.0
1.2
1.2
1.4
1.2
1.0
Mississippi and Alaska were the only states to shrink in 2014
-0.5
-1.2
-1.0 -1.5
-1.3
1.0
1.0
Percent Change (%)
1.5
1.4
2.0
1.6
Growth rates in 16 states were still below 1% in 2014, including in AL
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
*Advance statistics Sources: US Bureau of Economic Analysis; Insurance Information Institute.
131
Percent Change in Real GDP by State, 2013
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
132
Labor Market Trends Massive Job Losses Sapped the Economy and Commercial/Personal Lines Exposure, But Trend Has Greatly Improved 133
Unemployment and Underemployment Rates: Still Too High, But Falling January 2000 through September 2015, Seasonally Adjusted (%) 18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate U-6
14 12
U-6 soared from 8.0% in March 2007 to 17.5% in October 2009; Stood at 10.0% in Sept. 2015. 8% to 10% is “normal.”
10 8
“Headline” unemployment was 5.1% in Sep. 2015. 4.5% to 5.5% is “normal.”
6 4 2 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is continuing to improve. Source: US Bureau of Labor Statistics; Insurance Information Institute.
134
(600)
(800)
(1,000) Monthly losses in Dec. 08–Mar. 09 were the largest in the post-WW II period -426
-422 -486
(400)
-776 -693 -821 -698 -810 -801
(200)
-294 -272 -232 -141 -271 -15 -232 -38
-115 -106 -221 -215 -206 -261 -258
-71
400
113 192 94 110 120 117 107 199 149 94 72 223 231 320 166 186 219 125 268 177 191 222 364 228 246 102 131 75 172 136 159 255 211 215 219 263 164 188 222 201 170 180 153 247 272 86 183 175 223 313 238 272 243 209 235 218 414 319 202 261 117 189 252 218 195 100 118
20
3 32 64 81 55 3
0 231 52 170 52 126 57
200
Jan-07 Feb-07 Mar-07 Apr-07 MayJun-07 Jul-07 AugSepOct-07 NovDecJan-08 Feb-08 Mar-08 Apr-08 MayJun-08 Jul-08 AugSepOct-08 NovDecJan-09 Feb-09 Mar-09 Apr-09 MayJun-09 Jul-09 AugSepOct-09 NovDecJan-10 Feb-10 Mar-10 Apr-10 MayJun-10 Jul-10 AugSepOct-10 NovDecJan-11 Feb-11 Mar-11 Apr-11 MayJun-11 Jul-11 AugSepOct-11 NovDecJan-12 Feb-12 Mar-12 Apr-12 MayJun-12 Jul-12 AugSepOct-12 NovDecJan-13 Feb-13 Mar-13 Apr-13 MayJun-13 Jul-13 AugSepOct-13 NovDecJan-14 Feb-14 Mar-14 Apr-14 MayJun-14 Jul-14 AugSepOct-14 NovDecJan-15 Feb-15 Mar-15 Apr-15 MayJun-15 Jul-15 AugSep-
Monthly Change in Private Employment
January 2007 through Sept. 2015 (000s, Seasonally Adj.) 600
3,042,000 jobs were created in 2014, the most since 1997
Jobs Created 2014: 3.042 Mill 2013: 2.452 Mill 2012: 2.315 Mill 2011: 2.396 Mill 2010: 1.282 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
118,000 private sector jobs were created in Sept.
Private Employers Added 13.03 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) 135
US Unemployment Rate Forecast Rising unemployment eroded payrolls and WC’s exposure base.
11%
Unemployment peaked at 10% in late 2009.
10%
6% 5%
4.5% 4.5% 4.6% 4.8% 4.9% 5.4% 6.1% 6.9%
7%
8.1%
9% 8%
9.3% 9.6% 10.0% 9.7% 9.6% 9.6% 9.6% 8.9% 9.1% 9.1% 8.7% 8.3% 8.2% 8.0% 7.8% 7.7% 7.6% 7.3% 7.0% 6.6% 6.2% 6.1% 5.7% 5.6% 5.4% 5.2% 5.0% 4.9% 4.8% 4.8% 4.7%
2007:Q1 to 2016:Q4F*
Jobless figures have been revised downwards for 2015/16
Unemployment forecasts have been revised modestly downwards. Optimistic scenarios put the unemployment as low as 5.0% by Q4 of 2015.
07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3 12:Q4 13:Q1 13:Q2 13:Q3 13:Q4 14:Q1 14:Q2 14:Q3 14:Q4 15:Q1 15:Q2 15:Q3 15:Q4 16:Q1 16:Q2 16:Q3 16:Q4
4%
* = actual; = forecasts Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (9/15 edition); Insurance Information Institute.
136
Unemployment Rates by State, August 2015: Highest 25 States*
5.2
5.2
5.3
5.3
5.3
5.4
5.4
5.6
5.6
5.6
5.7
5.7
5.9
5.9
6.0
6.1
6.1
6.2
6.6
6.8
6.7
6.3
6.0
6
6.3
Unemployment Rate (%)
6.8
7.6
8
In August, 29 states had over-themonth unemployment rate decreases, 10 states had increases, and 11 states and the District of Columbia had no change.
4
2
0 WV DC NV NM AK AZ MS AL CA OR LA SC GA NC NJ TN IL MO RI AR PA CT FL WA KY NY
*Provisional figures for August 2015, seasonally adjusted. Sources: US Bureau of Labor Statistics; Insurance Information Institute.
137
Unemployment Rates by State, August 2015: Lowest 25 States*
3
2.8
2.9
3.5
3.6
3.6
3.7
3.7
3.7
4.0
4.1
4.1
4.2
4.0
4
4.2
4.5
4.5
4.6
4.6
4.6
4.7
5.1
5.1
4.9
5
4.7
Unemployment Rate (%)
5.1
6
4.5
In August, 29 states had over-themonth unemployment rate decreases, 10 states had increases, and 11 states and the District of Columbia had no change.
2 1 0 MD MI US DE MA OH IN KS OK ME VA WI CO ID MT TX MN WY IA SD UT NH VT HI ND NE
*Provisional figures for August 2015, seasonally adjusted. Sources: US Bureau of Labor Statistics; Insurance Information Institute.
138
CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK
The Construction Sector Is Critical to the Economy and the P/C Insurance Industry 139
Value of New Private Construction: Residential & Nonresidential, 2003-2015* Billions of Dollars
New Construction peaks at $911.8. in 2006
Trough in 2010 at $500.6B, after plunging 55.1% ($411.2B)
$1,000 $900 $800
2015: Value of new pvt. construction hits $787.8B as of July 2015, up 57.4% from the 2010 trough but still 13.6% below 2006 peak
$15.0 $613.7
$700 $600
$407.0
$500
$298.1
$400 $300
$261.8
Non Residential Residential
$200 $100
$380.8
$238.8
$0 03
04
05
06
07
08
09
10
11
12
13
14
15*
Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates *2015 figure is a seasonally adjusted annual rate as of July. Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
140
Value of Construction Put in Place, July 2015 vs. July 2014* Growth (%)
Private: +16.9% 35% 30% 25%
15%
Public sector construction activity is finally beginning to create less drag up after years of decline
Private sector construction activity is up in both the residential and nonresidential segments
20%
16.9% 13.7%
Public: +6.1% 29.0%
18.2% 15.6%
10%
6.1%
5.7%
5% 0% Total Construction
Total Private Residential-Construction Private
NonResidential-Private
Total Public Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up Again After Languishing in Early 2015; State/Local Sector Government Sector May Be Recovering as Budget Woes Ease in Some Jurisdictions *seasonally adjusted Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
141
Value of Private Construction Put in Place, by Segment, July 2015 vs. July 2014* Led by the Manufacturing, Lodging, Office and Amusement & Recreations segments, Private nonresidential sector construction activity continues to rise after plunging during the “Great Recession.”
Growth (%)
73.1%
59.7% 41.2% 29.4% 15.6%18.2%
13.3% 4.9%
17.8%14.3%
7.6% 7.6%
Manufacturing
Power/Utility
Communication
Transportation
Amusement & Rec.
Religious
Educational
Health Care
Commercial
Office
Lodging
Total Nonresidential
-12.6% Residential
Total Private Construction
80% 70% 60% 50% 40% 30% 16.9% 20% 10% 0% -10% -20%
Private Construction Activity is Up in Most Segments in the Second Half of 2015; Expansion Should Continue *seasonally adjusted Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
142
Value of Public Construction Put in Place, by Segment, July 2015 vs. July 2014* Residential, Commercial and Conservation lead public sector construction
29.0% 23.9% 18.1% 14.5% 10.0%
9.1%
5.7%
11.8% 4.7%
4.2%
2.6%
-5.3%
-7.2% Conservation & Develop.
Water Supply
Sewage & Waste Disposal
Highway & Street
Power
Transportation
Amusement & Rec.
Public Safety
Educational
Health Care
Commercial
Office
-12.9% Total Nonresidential
Total Public Construction
35% 30% 25% 20% 15% 10% 6.1% 5% 0% -5% -10% -15%
Public sector construction activity finally up in most segments after many months of decline, pushing up public entity risk exposures
Residential
Growth (%)
Public Construction Activity is Beginning to Recover from its Long Contraction which Will Drive Demand in Many Commercial Insurance Lines *seasonally adjusted Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
143
Value of New Federal, State and Local Government Construction: 2003-2015* ($ Billions) $350
Construction across all levels of government peaked at $314.9B in 2009 $289.1
$300 $255.4
$250
$216.1 $220.2
Austerity Reigns Govt. construction MAY finally be turning around; still down $16.7B or 5.3% since 2009 peak $308.7 $314.9 $304.0 $286.4 $278.2
$298.2 $269.0 $273.1
$234.2
$200 $150 $100 $50 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Contracted As State/Local Governments Grappled with Deficits and Federal Sequestration; Only Now Recovering *2015 figure is a seasonally adjusted annual rate as of June; http://www.census.gov/construction/c30/historical_data.html Sources: US Department of Commerce; Insurance Information Institute.
144
(Thousands) 6,500
6,300
6,200
6,100
6,000
5,900
5,800
5,700
5,600
5,500
5,400 5,581 5,522 5,542 5,554 5,527 5,512 5,497 5,519 5,499 5,501 5,497 5,468 5,435 5,478 5,485 5,497 5,524 5,530 5,547 5,546 5,583 5,576 5,577 5,612 5,629 5,629 5,628 5,627 5,608 5,623 5,632 5,641 5,649 5,668 5,684 5,724 5,746 5,798 5,815 5,813 5,833 5,856 5,854 5,866 5,893 5,918 5,953 5,937 6,006 6,032 6,062 6,103 6,114 6,121 6,152 6,169 6,191 6,201 6,231 6,275 6,316 6,347 6,335 6,365 6,377 6,378 6,383 6,388 6,396
6,400
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 2/30/20 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-12 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15
Construction Employment, Jan. 2010—Sept. 2015* Construction employment is +948,000 above Jan. 2011 (+17.4%) trough
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure. *Seasonally adjusted. Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute. 145
New Private Housing Starts, 1990-2021F 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5
New home starts plunged 72% from 2005-2009; A net annual decline of 1.49 million units, lowest since records began in 1959
0.55 0.59 0.61 0.78 0.92 1.10 1.13 1.28 1.42 1.47 1.47 1.50 1.50
1.19 1.01 1.20 1.29 1.46 1.35 1.48 1.47 1.62 1.64 1.57 1.60 1.71 1.85 1.96 2.07 1.80 1.36 0.91
Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction for several more years
(Millions of Units)
0.3 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F20F 21F
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 Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/15); Insurance Information Institute.
146
29.3% 19.7%
19.7%
22.8%
18.6%
17.0%
17.7%
18.9%
20.3%
20.6%
21.5%
20.6%
21.4%
23.1%
21.4%
20.5%
17.7%
12.6%
14.2%
17.1%
10%
25.0%
20%
31.3%
30%
33.3%
40%
31.4%
A NEW NORMAL? In 5 of the last 7 years, over 30% of housing unit starts were in 5+unit projects
34.3%
Units in Multiple-Unit Projects as Percent of Total
36.0%
U.S.: Pct. Of Private Housing Unit Starts In Multi-Unit Projects, 1990-2015
0% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
For the U.S. as a whole, the trend toward multi-unit housing projects (vs. single-unit homes) is recent. Commercial insurers with Workers Comp, Construction risk exposure, and Surety benefit. *January through April 2015; April is preliminary; calculations based on seasonally adjusted at annual rates Sources: U.S. Census Bureau, New Residential Construction in April 2015 and earlier releases; next release June 16, 2015; Insurance Information Institute calculations.
147
Rental-Occupied Housing Units as % of Total Occupied Units, Quarterly, 1990:Q1-2015:Q1 Trend down began in 1994:Q3 from 36.2% in Q2
37% 36% 35% 34% 33%
Increasing percent of owners
32% 31%
Increasing percent of renters Latest was 36.3% in 2015:Q1
Trough in 2004:Q2 and Q4 at 30.8% 90:Q1 91:Q1 92:Q1 93:Q1 94:Q1 95:Q1 96:Q1 97:Q1 98:Q1 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1
30%
Since the Great Recession ended in June 2009, renters occupied 5.7 million more units (+15.6%). Sources: US Census Bureau, Residential Vacancies & Home Ownership in the First Quarter of 2015 (released April 28, 2015) and earlier issues; Insurance Information Institute. Next Census Bureau report to be released on July 28, 2015.
148
I.I.I. Poll: Renter’s Insurance Q. Do you have renters insurance? 1
Americans are increasingly choosing to rent, but are slow to understand the need to insure, exacerbating the underinsurance gap
70% 60% 50%
40%
35% 29%
31%
2011
2012
37%
40%
30% 20% 10%
2013
2014
2015
The Percentage of Renters Who Have Renters Insurance Has Been Rising Since 2011. 1Asked
of those who rent their home.
Source: Insurance Information Institute Annual Pulse Survey.
149
Rental Vacancy Rates, Quarterly, 1990:Q1-2015:Q1 Percent vacant 11.5
Peak vacancy rate 11.1% in 2009:Q3
11.0
Latest vacancy rate was 7.1% in 2015:Q1
10.5 10.0 9.5
Vacancy rate 10.4% in 2004:Q1
9.0 8.5 8.0 7.5 7.0
90:Q1 91:Q1 92:Q1 93:Q1 94:Q1 95:Q1 96:Q1 97:Q1 98:Q1 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1
6.5
Before the 2001 recession, rental vacancy rates were 8% or less. We’re below those levels now. => More multi-unit construction? Sources: US Census Bureau, Residential Vacancies & Home Ownership in the First Quarter of 2015 (released April 28, 2015) and earlier issues; Insurance Information Institute. Next Census Bureau report to be released on July 28, 2015.
150
Construction Employment, Jan. 2003–Sept. 2015 (Thousands)
Construction employment as of Sept. 2015 totaled 6.396 million, an increase of 961,000 jobs or 17.7% from the Jan. 2011 trough
Construction employment peaked at 7.726 million in April 2006
8,000 7,500
Gap between prerecession construction peak and today: 1.33 million jobs
7,000 The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
6,500 6,000
Construction employment troughed at 5.435 million in Jan. 2011, after a loss of 2.291 million jobs, a 29.7% plunge from the April 2006 peak
5,500 5,000 '03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
The Construction Sector Was a Growth Leader in 2014-15 as the Housing Market, Private Investment and Govt. Spending Recover. WC Insurers Will Benefit. Note: Recession indicated by gray shaded column. Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
151
ENERGY SECTOR: OIL & GAS INDUSTRY FUTURE IS BRIGHT BUT VOLATILE
US Is Becoming an Energy Powerhouse but Fall in Prices Will Have Negative Impact 152
U.S. Crude Oil Production, 2005-2016P Millions of Barrels per Day
12
Crude oil production in the U.S. is expected to increase by 90.6% from 2008 through 2016—and could overtake Saudi Arabia as the world’s largest oil producer
10 8
9.31
9.53
8.67 7.44 6.49
6
5.19
5.09
5.08
5.00
5.35
5.47
5.65
4 2
F 20 16
F 20 15
20 14
20 13
20 12
20 11
20 10
20 09
20 08
20 07
20 06
20 05
0
Source: Energy Information Administration, Short-Term Energy Outlook (January 15, 2015) , Insurance Information Institute.
U.S. Natural Gas Production, 2000-2013 Trillions of Cubic Ft. per Year
28 25.3 25.6
26 24.0
24 22 20
20.2 20.6 19.9 20.0 19.5
21.1 18.9
19.4
21.6
22.4
20.2
18
The U.S. is already the world’s largest natural gas producer— recently overtaking Russia. This is a potent driver of commercial insurance exposures
16 14 12 10 00
01
02
03
04
05
06
07
08
09
10
11
Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.
12
13
150
*Seasonally adjusted Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
160
Jan-11
170
Nov-10
210
Sep-10
(000)
Jul-10
180
May-10
190
156.7 157.6 158.7 158.1 158.4 159.7 160.2 161.5 161.4 161.0 162.7 164.3 166.6 169.2 170.1 171.2 172.6 174.0 176.6 178.2 178.7 180.6 181.3 182.3 184.7 185.2 186.2 187.8 188.6 189.3 189.4 189.4 190.5 192.2 193.1 194.6 194.0 193.8 193.1 192.5 193.0 193.4 193.3 193.1 194.0 194.0 194.0 195.4 193.7 194.6 196.4 197.6 198.6 198.4 199.4 201.5 201.0 201.2 199.4 197.6 197.7 194.4 194.2 193.2 193.6 192.1 191.0
200
Mar-10
Employment in Oil & Gas Extraction, Jan. 2010—Sept. 2015* Oil and gas extraction employment was up 28.8% by Oct. 2014 but falling energy prices have taken their toll
Employment in the O&G segment is down 5.2% since its Oct. 2014 peak
155
MANUFACTURING SECTOR OVERVIEW & OUTLOOK
The U.S. Was Experiencing a Mini Manufacturing Renaissance but Headwinds from Weak Export Markets and Strong Dollar Hurt 156
55
45
40 51.4 52.5 52.5 51.8 52.2 53.1 54.1 51.9 53.3 54.1 52.5 50.2 50.5 50.7 51.6 51.7 49.9 50.2 53.1 54.2 51.3 50.7 49.0 50.9 55.4 55.7 56.2 56.4 57.0 56.5 51.3 53.2 53.7 54.9 55.4 55.3 57.1 59.0 56.6 59.0 58.7 53.5 52.9 51.5 51.5
50 58.3 57.1 60.4 59.6 57.8 55.3 55.1 55.2 55.3 56.9 58.2 58.5 60.8 61.4 59.7 59.7 54.2 55.8
60
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 DecJan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 DecJan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 DecJan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 DecJan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Jan-15 Feb-15 Mar-15 Apr-15
ISM Manufacturing Index (Values > 50 Indicate Expansion)
January 2010 through April 2015
65
Manufacturing continues to expand in 2015
The manufacturing sector expanded for 62 of the 64 months from Jan. 2010 through Apr. 2015. Pace of recovery has been uneven due to economic turbulence in the U.S., Europe and China and the high dollar.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute. 157
Manufacturing Growth for Selected Sectors, 2015 vs. 2014* Growth (%)
Non-Durables: -9.7%
Durables: +3.0%
Textile Products
Plastics & Rubber
Chemical
Petroleum & Coal
Food Products
Non-Durable Mfg.
Transportation Equip.
Computers & Electronics
Electrical Equip.
Machinery
Fabricated Metals
Primary Metals
Wood Products
Durable Mfg.
All Manufacturing
15% 9.7% 8.8% 6.3% 10% 3.0% 3.1% 2.3% 2.0% 5% 0.1% 0% -5% -0.5% -2.2% -3.7% -4.1%-2.4% -10% -9.7% -15% Manufacturing of durable -20% goods is stronger than -25% Impact of falling nondurables in 2015 -30% energy prices -35% -34.0% -40%
Manufacturing Is Expanding in Many Sectors But Declining Energy Prices Are Dragging Down Industry Figures. Continued Gortwh Across a Number of Sectors that Will Contribute to Growth in Insurable Exposures Including: WC, Commercial Property, Commercial Auto and Many Liability Coverages *Seasonally adjusted; Date are YTD comparing data through February 2015 to the same period in 2014. Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 158
Auto/Light Truck Sales, 1999-2021F
14.4
16
12 11 10
12.7
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is still below 1999-2007 average of 17 million units, but a robust recovery is well underway.
11.6
13
10.4
14
13.2
15
17.0
16.9
17.0
17.1
17.2
17.3
Sales have returned to precrisis levels 17.2
16.4
15.5
16.5
16.9
16.9
17.1
17.5
16.6
17
17.8
18
17.4
19
16.1
Job growth and improved credit market conditions will boost auto sales in 2014 and beyond
(Millions of Units)
Truck, SUV purchases by contractors are especially strong
9 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F 20F 21F
Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. New vehicles will generate more physical damage insurance coverage but will be more expensive to repair. PP Auto premium might grow by 5% - 6%. Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/15); Insurance Information Institute.
159
12,250
12,000
11,750
11,500
11,250 11,460 11,460 11,466 11,497 11,531 11,539 11,558 11,548 11,554 11,555 11,577 11,590 11,624 11,662 11,682 11,707 11,715 11,724 11,747 11,760 11,762 11,770 11,769 11,797 11,834 11,857 11,899 11,916 11,930 11,941 11,965 11,961 11,948 11,951 11,947 11,961 11,980 12,002 12,006 12,006 12,007 12,005 11,983 12,011 12,022 12,040 12,072 12,086 12,102 12,122 12,131 12,142 12,154 12,177 12,191 12,205 12,214 12,237 12,282 12,301 12,318 12,321 12,327 12,327 12,333 12,334 12,345 12,327 12,318
12,500
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 2/30/2 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15
Manufacturing Employment, Jan. 2010—Sept. 2015*
(Thousands)
Since Jan 2010, manufacturing employment is up (+858,000 or +7.5%) but has slipped in recent months as economies abroad weaken, hurting exports of manufactured goods
Manufacturing employment has been a surprising source of strength in the economy. Employment was at a multi-year high until recently.
*Seasonally adjusted. Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute. 160
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—March 2015 $ Millions $500,000
The value of Manufacturing Shipments in March 2015 was $482.2B—down 5.1% since the July 2014 record high of $508.1B
$400,000
$300,000
Ja n9 Ja 2 n9 Ja 3 n9 Ja 4 n9 Ja 5 n9 Ja 6 n9 Ja 7 n9 Ja 8 n9 Ja 9 n0 Ja 0 n 0 Ja 1 n 0 Ja 2 n 0 Ja 3 n 0 Ja 4 n 0 Ja 5 n 0 Ja 6 n 0 Ja 7 n 0 Ja 8 n 0 Ja 9 n 1 Ja 0 n 1 12 1 -J a 13 n -J a 14 n -J a 14 n -J an
$200,000
Monthly shipments in March 2015 are similar to pre-crisis (July 2008) peak but has declined in recent months due to the strong US dollar and weakness abroad. Manufacturing is energy-intensive and growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages. * Seasonally adjusted; Data published May 4, 2015. Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 161
Index of Total Industrial Production:* A Near Peak as of December 2014 120 100
Many economists expect business investment to rise in 2015
80 60 40 20
Recession
Peak at 100.82 in December 2007 (officially the 1st month of the Great Recession)
December 2014 Index at 106.5
0
Insurance exposures for industrial production will continue growing in 2015, and commercial insurance premium volume with them. Y-o-Y growth to December 2014 was 4.6%. Both production and premium volume growth for 2015 should exceed this. *Monthly, seasonally adjusted, through December 2014 (which is preliminary). Index based on year 2007 = 100 Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institute.
162
Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures March 2001 through March 2015 Percent of Industrial Capacity 82% 80%
The US operated at 78.4% of industrial capacity in Feb. 2015, well above the June 2009 low of 66.9% but is still below pre-recession levels.
Hurricane Katrina
78% 76%
70% 68% 66%
March 2001November 2001 recession
Capacity utilization is falling due to strong dollar and falling energy prices
December 2007June 2009 Recession
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm.
Mar 14 Jun 14 Sep Dec Mar 15
72%
The closer the economy is to operating at “full capacity,” the greater the inflationary pressure
Mar 01 Jun 01 Sep Dec Mar 02 Jun 02 Sep Dec Mar 03 Jun 03 Sep Dec Mar 04 Jun 04 Sep Dec Mar 05 Jun 05 Sep Dec Mar 06 Jun 06 Sep Dec Mar 07 Jun 07 Sep Dec Mar 08 Jun 08 Sep Dec Mar 09 Jun 09 Sep Dec Mar 10 Jun 10 Sep Dec Mar 11 Jun 11 Sep Dec Mar 12 Jun 12 Sep Dec Mar 13 Jun 13 Sep Dec
74%
163 163
Index of Total Industrial Production:* Strong Dollar Is a Headwind 110 105 100
Many economists expect business investment to rise in 2015
95
90
April 2015 Index at 105.2
85 80 75 70 65
Recession
Peak at 100.82 in December 2007 (officially the 1st month of the Great Recession)
60
Insurance exposures for industrial production will continue growing in 2015, and commercial insurance premium volume with them. Y-o-y growth to December 2014 was 4.6%. Both production and premium volume growth for 2015 should exceed this. *Monthly, seasonally adjusted, through March 2015 (which is preliminary). Index based on year 2007 = 100 Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institute.
164
9. CYBER RISK & CYBER INSURANCE Cyber Risk is a Rapidly Emerging Exposure for Businesses Large and Small in Every Industry
165
Data Breaches 2005-2015, by Number of Breaches and Records Exposed # Data Breaches/Millions of Records Exposed 222.5
800 700
783
220 200
662
656
Millions
614
180
600
160 498
500
117.6
470
127.7 446
419
92.0
400 66.9
120 85.6
400
321 35.7
157
100 80
300 200
140
60 16.2 22.9
19.1
40
17.5
20
100
0 2005
2006
2007
2008
2009
2010
# Data Breaches
2011
2012
2013
2014
*2015
# 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.* *Figures as of June 30, 2015, from the Identity Theft Resource Center, http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf
High Profile Data Breaches, 2014-2015 Date
Company
Description of Breach
May 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.
Worldwide Cybersecurity Spending, 2011- 2016F ($ Billions) $83.2
$85 $80
9.8% 7.9%
8.4%
$76.9
8.2%
12% 10%
8.2%
$75
8%
$71.1 $70 $65.9
6%
$65 $60.0
Cybersecurity spending increased by an estimated $5.2B in 2014, $5.8B in 2015 and $6.3B in 2016
$60 $55.0 $55 $50
4% 2% 0%
2011
2012
2013
2014F
Worldwide Cybersecurity Spending
2015F
2016F
% 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
168
Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.
Top 10 Global Business Risks for 2015 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. 46%
Business interruption, supply chain risk
30%
Natural catastrophes
27%
Fire, explosion
18%
Changes in legislation and regulation
17%
Cyber crime, IT failures, espionage
16%
Loss of reputation or brand value (e.g. from social media)
15%
Market stagnation or decline
13%
Intensified competition
11%
Political, social upheaval, war
9%
Theft, fraud, corruption
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Source: Allianz Risk Barometer on Business Risks 2015 169
2014 Data Breaches By Business Category, By Number of Breaches The majority of the 783 data breaches in 2014 affected business and medical/healthcare organizations, according to the Identity Theft Resource Center. Banking/Credit/Financial, 43 (5.5%) Govt/Military, 92 (11.7%)
Business, 258 (33.3%)
5.5% 11.7% Educational, 57 (7.3%)
33.3% 7.3%
Medical/Healthcare, 333 (42.5%)
42.5%
Source: Identity Theft Resource Center, http://www.idtheftcenter.org/ITRC-Surveys-Studies/2014databreaches.html
170
Evolving Threats: Cyber Crime and Cyber Terrorism
State sponsored groups: Foreign government sponsored Sophisticated and well-funded
Organized cyber criminals: Traditional organized crime groups Loosely organized global hacker crews
Hacktivists: Politically-motivated hackers Increasing capabilities
Insiders: Easy access to sensitive information Difficult to detect
Terrorists: Destruction of physical and digital assets Source: Lewis Brisbois, Practical Strategies to Address Cyber Risk in Your Business, November 2014 171
Main Causes of Data Breach Globally Malicious or criminal attacks are most often the cause of data breach globally. Some 42 percent of incidents concern a malicious or criminal attack, while 30 percent concern a negligent employee or contractor (human factor).
Malicious or criminal attack*
Human error
30% 42%
System glitch
29%
*The most common types of malicious or criminal attacks include malware infections, criminal insiders, phishing/social engineering and SQL injection. Source: 2014 Cost of a Data Breach Study: Global Analysis, the Ponemon Institute, sponsored by IBM, May 2014
172
US: Most Costly Types of Cyber Crimes, Fiscal Year 2014 Malicious code, denial of service and web-based attacks account for more than 55 percent of the total annualized cost of cyber crime experienced by 59 U.S. companies. Viruses, Worms, Trojans
Botnets Malicious code
4%
Malware
4% 6%
Malicious insiders
23% 8%
Stolen devices
10% 18% 13%
Denial of service
14%
Phishing + social engineering
Web-based attacks Source: 2014 Cost of Cyber Crime: United States, Ponemon Institute.
173
US: External Cyber Crime Costs: Fiscal Year 2014 Information theft (40%) and business disruption or lost productivity (38%) account for the majority of external costs due to cyber crime. Equipment damages
Other costs*
2% Revenue loss
Information theft
2%
18%
40%
Business disruption
38%
* Other costs include direct and indirect costs that could not be allocated to a main external cost category Source: 2014 Cost of Cyber Crime: United States, Ponemon Institute.
174
Data/Privacy Breach: Many Potential Costs Can Be Insured
Costs of notifying regulatory authorities Regulatory fines at home & abroad
Costs of notifying affecting individuals
Data Breach Event
Forensic costs to discover cause
Defense and settlement costs Lost customers and damaged reputation
Cyber extortion payments Business Income Loss
Source: Zurich Insurance; Insurance Information Institute
175
The Three Basic Elements of Cyber Coverage: Prevention, Transfer, Response
Loss Prevention
Loss Transfer (Insurance)
Post-Breach Response (Insurable)
Cyber risk management today involves three essential components, each designed to reduce, mitigate or avoid loss. An increasing number of cyber risk products offered by insurers today provide all three. Source: Insurance Information Institute research.
176
I.I.I.’s New Cyber Risk Report (Oct. 2015): Cyber Risks Threat and Opportunity I.I.I.’s 3rd report on cyber risk: Cyber Risk: Threat and Opportunity
Provides information on cyber threats and insurance market solutions Global cyber risk overview Quantification of threats by type and industry
Cyber security and cost of attacks Cyber terrorism Cyber liability http://www.iii.org/white-paper/cyber-risksthreat-and-opportunities-100715
Insurance market for cyber risk
177
PWC Survey: Cybercrime Costs Greater for U.S. Companies
2014Global
2014 USA
7%
U.S. organizations are more at risk of suffering financial losses in excess of $1 million due to cybercrime.
Lost $1 million or more 3%
19% Lost $50,000 to $1 million 8%
0%
10%
20% 30% 40%
50% 60% 70% 80%
90% 100%
Source: 2014 Global Economic Crime Survey, PWC. 178
Marsh: Percentage of U.S. Companies Purchasing Cyber Insurance Increased in 2014
Take-up rate 2014* All Industries
Take-up rate 2013
13% 16% 45% 50%
Health Care Education Hospitality and Gaming Services Financial Institutions Power and Utilities Retail/Wholesale Communications, Media and Tech Manufacturing
22% 32% 16% 26% 17% 22% 17% 21% 14% 21% 13% 18% 11% 12% 6% 8%
Ever larger numbers of insureds seek financial protection via cyber insurance. The percentage of U.S. companies buying cyber insurance rose to 16 percent in 2014.
*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
179
Marsh: Total Limits Purchased, By Industry – Cyber Liability, All Revenue Size Average limits purchased for cyber risk rose to $12.8 million for all industries and all company sizes in 2014. Power and utility companies witnessed the sharpest percentage increase in average limits, at 59 percent. ($ Millions) Avg. 2013 Limits $23.5
Avg. 2014 Limits
$22.0 $22.2
$21.0
$19.7
$13.2
$12.8 $11.1
$14.9
$12.0 $10.5 $9.9
$10.2
$10.5 $9.5
$6.7 $4.2 $4.4
All Industries Comms, Media & Technology
Education
Financial Institutions
Health Care
Manufacturing
Power and Retail/Wholesale Utilities
Services
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
180
Marsh: Total Limits Purchased, By Industry – Cyber Liability, Revenue $1 Billion+ Among larger companies, average cyber insurance limits purchased increased by 22 percent to $34.1 million in 2014, from $27.8 million in 2013. ($ Millions)
Avg. 2013 Limits
Avg. 2014 Limits $57
$53.5 $44.4
$43.7 $40.3
$35
$34.1
$31.4
$27.8
$26.4
$25 $17.6
Education
$20.8
$11.2
$7.6 $9
All Industries Comms, Media & Technology
$41.2 $40.4
Financial Institutions
Health Care
Manufacturing
Power and Retail/Wholesale Utilities
Services
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015 181
Cyber Liability: Historical Rate (price per million) Changes Average Total Price Per Million Change 4.2%
Average Primary Price Per Million Change
3.6%
2.9%
2.8% 2.7%
2.3%
2.7%
2.1% Cyber insurance premiums were generally volatile in 2014 due to increased frequency and severity of losses. Average rate increases at renewal for both primary layers and total programs were lower in Q4 2014 than in Q1.
14:Q1
14:Q2
14:Q3
14:Q4
Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015
182
10. INDUSTRY DISRUPTORS Technology, Society and the Economy Are All Changing at a Rapid Pace Will Insurers Keep Pace? 183
Technology and Insurance Rapid Technological Innovations Are Impacting Many Segments of the P/C Insurance Industry 184
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance By 2035, it is estimated that 25% of new vehicle sales could be fully autonomous models
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? Source: Boston Consulting Group.
185
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 186
A Few Thoughts on the Future of Auto Insurance Global auto insurance premiums written total about $600B ~80% personal, 20% commercial US accounts for more than 1/3 of this total (about $210B in 2014)
Innovations in automobile safety will, over time, reduced claim frequency but severities could still rise as repair costs escalate Claim activity clearly not immune to economy
Frequency declines could lead price declines, aiding profitability More cars, not fewer will be on highways in the US, world Exposure (insured car years) grows even as frequency declines
Timeline for large numbers of mass produced autonomous vehicles on American highways is wildly optimistic Mid-2030s is more likely timeframe; Transition occurring through mid-century Tech media is enamored with anything involving Google, Apple
Auto insurance will be the largest, most important of all P/C lines for many years to come
187
Labor on Demand: Huge Implications for the US Economy, Workers & Insurers
188
TNC Ridesharing Arrangements: Insurance Applicability
The concern was that TNCs were seeking to offload risk on to personal auto insurers. An increasing number of personal auto insurers have developed solutions to ensure that coverage gaps are minimized *From publically available sources as of June 2, 2015. Source: ISO/Verisk.
189
Ridesharing Regulation/Legislation and Status of ISO Filings as of 9/30/15 Status Ride Sharing Legislation/Regulation
Status of ISO Filings
190
Source: ISO.
Send in the Drones: Potential Rapid Adoption in Industry; Media Loves It Drones or Unmanned Aerial Vehicle (UAV) technology is seeing rapid adoption rate in many industries, including insurance ~700,000 drones in US by year-end FAA granting Section 333 exemptions for commercial use and testing of UAS FAA will require most drones to be registered by year-end 2015. At least 5 insurers have received permission to test Wide variety of applications: claims, preevent property inspections… Insurers partnering with construction industry to guide R&D and regulation of UAV use via Property Drone Consortium: www.propertydrone.org
191
11. Shifting Legal Liability & Tort Environment Will the Tort Pendulum Swing Against Insurers?
192
Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical, 1980-2013E ($ Billions) $300
2.25%
Deepwater Horizon Spike in 2010
$200
2.00%
$150
$100 1.75%
Tort costs in dollar terms have remained high but relatively stable since the mid-2000s., but are down substantially as a share of GDP
$50
Tort Costs as % of GDP
2.21% of GDP in 2003 = pre-tort reform peak
$250
Tort System Costs
2.50%
Tort Costs as % of GDP
Tort Sytem Costs
1.68% of GDP in 2013 1.50%
$0 80
82
84
86
88
90
92
94
96
98
00
Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A
02
04
06
08
10
12E
193
Commercial Lines Tort Costs: Insured vs. Self-(Un)Insured Shares, 1973-2010 2005: $143.5B 66.4% insured, 33.6% self(un)insured
Billions of Dollars
$160 $140 $120 $100 $80 $60 $40 $20
Self (Un) Insured Share $15.0 Insurer Share 1973: 1985: $46.6B Commercial 74.5% insured, Tort Costs 25.5% selfTotaled $9.5(un)insured $6.0 $6.49B, 94% was insured, 6% self(un)insured
1995: $83.6B 69.5% insured, 30.5% self(un)insured
2009: $126.5B 64.4% insured, 35.6% self(un)insured
$0 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
Tort Costs and the Share Retained by Risks Both Grew Rapidly from the mid-1970s to mid-2000s, When Tort Costs Began to Fall But SelfInsurance Shares Continued to Rise Sources: Towers Watson, 2011 Update on US Tort Cost Trends, III Calculations based on data from Appendix 4.
194
Commercial Lines Tort Costs: Insured vs. Self-(Un)Insured Shares, 1973-2010 Percent
2010: $138.1B 56.6% insured, 44.4% self-(un)insured (distorted by Deepwater Horizon event with most losses retained by BP)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
1973: 94% was insured, 6% self(un)insured
1985:74.5% insured, 25.5% self(un)insured
1995: 69.5% insured, 30.5% self(un)insured
2005: 66.4% insured, 33.6% self(un)insured
Self (Un) Insured Share Insurer Share
0% 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
The Share of Tort Costs Retained by Risks Has Been Steadily Increasing for Nearly 40 Years. This Trend Contributes Has Left Insurers With Less Control Over Pricing. Sources: Towers Watson, 2011 Update on US Tort Cost Trends, III Calculations based on data from Appendix 4.
195
Average Personal Injury Jury Award, 2009 – 2013 Average awards in Personal Injury cases have increased by more than 1/3 in recent years $1,200,000
$1,045,048
$1,009,788
$1,000,000 $800,000
$782,657
$750,392 $653,898
$600,000 $400,000 $200,000 $0 2009
2010
2011
2012
2013
Source: Current Award Trends in Personal Injury, 54th Edition; Insurance Information Institute. 196
Median and Average Personal Injury Jury Award by Type of Liability, 2013 Porducts Liability and Medical Malpractice cases tend to have among the highest jury awards 2013 Median
2013 Average
All Liabilities
Product Liabilities
Business Negligence
Medical Malpractice
Premises Liability
Personal Negligence
$351,829
$34,877
$161,187
$52,680
$587,000
$121,894
$745,000
$1,273,139
$139,768
$1,009,788
$68,218
$3,123,950
$3,486,900
$6,392,270
Vehicular Liability
Source: Current Award Trends in Personal Injury, 54th Edition; Insurance Information Institute. 197
Percent of Personal Injury Jury Awards Over $1 Million, 2003 – 2013*
The share of $1MM+ jury awards has returned ot its pre-crisis high
17%
16%
16%
16% 16% 15% 15%
14%
14%
14%
2007-09
2010-11
14% 14% 13% 2003-04
2005-06
*Latest available. Source: Current Award Trends in Personal Injury, 53rd and 54th Editions; Insurance Information Institute.
2012-13
198
Dollar Value of Top 100 Verdicts in 2013 by Cause of Action, 2013 ($ Millions)
$1,600
Many causes of action can give rise to catastrophic casualty claims, including motoe vehicle claims
$1,476
$1,400
$1,137
$1,200
$1,002
$1,000
$918
$836
$800
$808
$769
$732 $518
$600
$431
$400 $200 $0 Antitrust
Nursing Defamation Toxic Torts Motor Homes Vehicle
Intellectual Products Worker/ Med Mal Prop Liability Negligence
Source: VerdictSearch as cited in Reevaluating Excess Casualty Protection as Liability Losses Increase, Marsh Risk Management Research Briefing, Oct. 2014.
Breach of Contract
199
Business Leaders Ranking of Liability Systems in 2015
Best States
1.
Delaware
2.
Vermont
3.
Nebraska
4.
Iowa
5.
New Hampshire
6.
Idaho
7.
North Carolina
8.
New in 2015
Vermont New Hampshire North Carolina South Dakota
Drop-offs
Minnesota Kansas Virginia North Dakota
Worst States
41.
Arkansas
42.
Missouri
43.
Mississippi
44.
Florida
45.
New Mexico
46. Alabama 47.
California
Wyoming
48.
Illinois
9.
South Dakota
49.
Louisiana
10.
Utah
50.
West Virginia
Source: US Chamber of Commerce 2015 State Liability Systems Ranking Study; Insurance Info. Institute.
Newly Notorious Arkansas Missouri
Rising Above Oklahoma Montana
200
The Nation’s Judicial “Hellholes”: 2014/2015 Illinois
Watch List Atlantic County, New Jersey Mississippi Delta Montana Nevada Newport News, Virginia Philadelphia, Pennsylvania
West Virginia
Madison County
California
Dishonorable Mention
New York City Asbestos Litigation
AL Supreme Court PA Supreme Court
Volkswagen: Massive tort actions, fines, penalties certain. Are others vulnerable? Issue of cheating on environmental standards and liability looms large. Source: American Tort Reform Association; Insurance Information Institute
Florida
201
Insurance Information Institute Online:
www.iii.org Thank you for your time and your attention! Twitter: twitter.com/bob_Hartwig Download at www.iii.org/presentations 202
