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Catastrophes, Cyclicality and the Economy
Property/Casualty Insurance at the Crossroads
Insurance Information InstituteJanuary 20, 2012
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
3
What in the World Is Going On?
Is the World Becoming a Riskier Place?
What Are the Implications for Insurance and Risk Management?
4
We Are Living in an Age of Elevated Global Economic UncertaintyECONOMIC & POLITICAL CONCERNS European Sovereign Debt, Bank & Currency Crises Global Economic Slowdown Echoes of the Financial Crisis & Financial Market Volatility Collapse of Major Financial Institutions U.S. Debt and Budget Crisis, S&P Downgrade & Tax Uncertainty Housing Crisis Persistently High Unemployment Inflation/Deflation Energy & Commodity Prices Volatility Political Upheaval in the Middle East (Arab Spring, Iran) Regulation & Regulatory Uncertainty New World Order: China’s Economic and Military Ascendency 2012 US Elections & Political BrinksmanshipCATASTROPHIC LOSS Japan, New Zealand, Chile, Haiti Earthquakes Nuclear Fears (Japan, Germany, US) Floods (Thailand, US) U.S.: Tornadoes, Flooding, Wildfires, Hurricanes, Winter Storms Manmade Disasters (e.g., Deepwater Horizon) Cyber Attacks Resurgent Terrorism Risk (Bin Laden, Gadhafi, Kim Jong Il deaths)
Are “Black Swans”
everywhere or does it just seem that way?
8
P/C Insurance Industry Financial Overview
Profit Recovery Was Set Back in 2011 by High Catastrophe
Loss & Other Factors
P/C Net Income After Taxes1991–2011:Q3 ($ Millions)
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $
36
,81
9
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
4,6
70
$7
,97
9
$2
8,6
72
-$6,970
$6
5,7
77
$4
4,1
55
$2
0,5
59
$3
8,5
01
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 5.6% 2011:Q3 ROAS1 = 1.9%
P-C Industry 2011:Q3 profits were down 71% to $8.0B vs. 2010:Q3,
due primarily to high catastrophe losses and as non-cat
underwriting results deteriorated
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 3.0% ROAS for 2011:Q3, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2011 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2011:Q3 combined ratio including M&FG insurers is 109.9, ROAS = 1.9%. Source: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.8
92.7
101.099.3
100.8
108.2
95.7
3.0%
7.5%7.4%4.4%
9.6%
15.9%
14.3%
12.7% 10.9%
8.8%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011:Q3*0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generated ~5.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
*
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*
*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS through Q3 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers. For 2011:Q3 ROAS = 1.9% including M&FG.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years9 Years
2011:3.0%*
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
13
ROE vs. Equity Cost of Capital:U.S. P/C Insurance:1991-2011*
* Return on average surplus used as proxy for ROE in 2008-2011 and excluding mortgage and financial guaranty insurers for these years. Change in model methodology in 2011 increased cost of capital by approximately 90 basis points.Source: The Geneva Association, Insurance Information Institute
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08* 09* 10* 11*
ROE Cost of Capital
-13
.2 p
ts +1
.7 p
ts
+2
.3 p
ts
-9.0
pts
-6.4
pts
-3.2
pts
The P/C Insurance Industry Fell WellShort of Its Cost of Capital Every Year Since 2008
US P/C Insurers Missed Their Cost of Capital by an Average 6.7 Points from 1991 to 2002, but on Target or Better
2003-07, Fell Short in 2008-2010
The Cost of Capital is the Rate of Return Insurers Need to
Attract and Retain Capital to the Business
(Percent)
-2.9
pts
-8.9
pts
Global Catastrophe Loss Developments and Trends
15
2011 Will Rewrite Catastrophe Loss and Insurance History
But Will Losses Turn the Market?
16
Global Catastrophe Loss Summary: 2011
2011 Was the Highest Loss Year on Record for Economic Losses Globally
Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods and tornadoes are the primary causes of loss
$380 Billion in Economic Losses Globally (New Record)
New record, exceeding the previous record of $270B in 2005
$105 Billion in Insured Losses Globally
2011 losses were 2.5 times 2010 insured losses of $42B
Second only to 2005 on an inflation adjusted basis (new record on a unadjusted basis)
Over 5 times the 30-year average of $19B
$72.8 Billion in Economic Losses in the US
Represents a 129% increase over the $11.8 billion amount through the first half of 2010
$35.9 Billion in Insured Losses in the US Arising from 171 CAT Events
Fifth highest year on record
Represents 51% increase over the $23.8 billion total in 2010
Source: Munich Re; Insurance Information Institute.
Geophysical events(earthquake, tsunami, volcanic activity)
Meteorological events (storm)
Hydrological events(flood, mass movement)
Selection of significant loss events (see table)
Natural catastrophes
Earthquake, tsunami Japan, 11 March
EarthquakeNew Zealand, 22 Feb.
Cyclone Yasi Australia, 2–7 Feb.
Landslides, flash floodsBrazil, 12/16 Jan.
Floods, flash floods Australia, Dec. 2010–Jan. 2011
Severe storms, tornadoesUSA, 22–28 April
Severe storms, tornadoesUSA, 20–27 May
WildfiresUSA, April/Sept.
EarthquakeNew Zealand, 13 June
FloodsUSA, April–May
Climatological events(extreme temperature, drought, wildfire)
Number of Events: 820Number of Events: 820
DroughtUSA, Oct. 2010– ongoing
Hurricane IreneUSA, Caribbean22 Aug.–2 Sept.
WildfiresCanada, 14–22 May
DroughtSomaliaOct. 2010–Sept. 2011
FloodsPakistanAug.–Sept.
FloodsThailandAug.–Nov.
Earthquake Turkey23 Oct.
Flash floods, floodsItaly, France, Spain4–9 Nov.
Floods, landslidesGuatemala, El Salvador11–19 Oct.
Tropical Storm WashiPhilippines, 16–18 Dec.
Winter Storm JoachimFrance, Switzerland, Germany, 15–17 Dec.
17Source: MR NatCatSERVICE
Natural Loss Events, 2011
World Map
Natural Catastrophes Worldwide 2011Insured losses US$ 105bn - Percentage distribution per continent
Continent Insured losses US$ m
America (North and South
America)40,000
Europe 2,000
Africa Minor damages
Asia 45,000
Australia/Oceania 18,000
37%
2%
44%
17%
<1%
20Source: MR NatCatSERVICE
In 2011, 61% of insured natural catastrophe losses
were in the Asia/Pacific region, nearly 3.5 times the
average of 13% over the prior 30 years (1981-2010)
In 2011, just 37% of insured natural
catastrophe losses were in the
Americas, barely half the average of 66%
over the prior 30 years (1981-2010)
Natural Catastrophes Worldwide 1980 – 2011 Insured losses US$ 870bn - Percentage distribution per continent
Continent Insured losses US$ m
America (North and South
America)566,000
Europe 146,000
Africa 2,000
Asia 115,000
Australia/Oceania 41,000
66%
16%
<1%
13%
5%
21Source: MR NatCatSERVICE
In 2011, 61% of natural catastrophe losses were
in the Asia/Pacific region, nearly 3.5 times the
average of 13% over the prior 30 years (1981-2010)
23
Top 16 Most Costly World Insurance Losses, 1970-2011**
(Insured Losses, 2011 Dollars, $ Billions)
*Average of range estimates of $35B - $40B as of 1/4/12; Privately insured losses only.**Figures do not include federally insured flood losses.Sources: Swiss Re sigma 1/2011; Munich Re; Insurance Information Institute research.
$10.0$11.9 $13.0$13.1
$19.1$21.3
$24.0$25.0
$37.5
$47.6
$7.7 $8.1 $8.3 $8.5 $9.3 $9.7
$0$5
$10$15$20$25$30$35$40$45$50
Hugo (1989)
WinterStormDaria(1991)
ChileQuake(2010)
Ivan (2004)
TyphoonMirielle(1991)
Charley(2004)
ThailandFloods(2011)
Wilma(2005)
NewZealandQuake(2011)
Ike (2008)
Northridge(1994)
SpringTornadoes/
Storms(2011)
WTC TerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)*
Katrina(2005)
Taken as a single event, the Spring 2011 tornado and
thunderstorm season would likely become the 5th
costliest event in global insurance history
5 of the top 14 most expensive
catastrophes in world history have occurred within the past 2 years
Worldwide Natural Disasters,1980 – 2011
Number of Events
Source: MR NatCatSERVICE 24
Meteorological events(Storm)
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami, volcanic eruption)
200
400
600
800
1 000
1 200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
There were 820 events in 2011
26
U.S. Insured Catastrophe Loss Update
2011 Was One of the Most Expensive Years on Record
27
Top 14 Most Costly Disastersin U.S. History
(Insured Losses, 2011 Dollars, $ Billions)
*Losses will actually be broken down into several “events” as determined by PCS. Includes losses for the period April 1 – June 30.Sources: PCS; Insurance Information Institute inflation adjustments.
$9.0$11.9 $13.1
$19.1$21.3
$24.0 $25.0
$47.6
$8.5$7.7$6.5$5.5$4.4$4.3
$0$5
$10$15$20$25$30$35$40$45$50
Irene(2011)
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Northridge(1994)
SpringTornadoes& Storms*
(2011)
9/11Attack(2001)
Andrew(1992)
Katrina(2005)
Taken as a single event, the Spring 2011 tornado and storm season are
is the 4th costliest event in US insurance history
Hurricane Irene became the 11th most expense
hurricane in US history
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2011Number of Events (Annual Totals 1980 – 2011)
Source: MR NatCatSERVICE 28
37
8
51
2
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
There were 117 natural disaster events in 2011
Losses Due to Natural Disasters in the US, 1980–2011 (Overall & Insured Losses)
29
Overall losses (in 2011 values) Insured losses (in 2011 values)
Source: MR NatCatSERVICE © 2011 Munich Re
(2011 Dollars, $ Billions)
2011
Overall Losses: $72.8 Bill
Insured Losses: $35.9 Bill
2011 was the 5th most expensive year on record for insured
catastrophe losses in the US.
Approximately 50% of the overall cost of
catastrophes in the US was covered by insurance in 2011
(Overall and Insured Losses)
31
$1
2.3
$1
0.7
$3
.7 $1
4.0
$1
1.3
$6
.0
$3
3.9
$7
.4 $1
5.9 $
32
.9
$7
1.7
$1
0.3
$7
.3
$2
8.5
$1
1.2
$1
4.1
$3
2.6
$1
00
.0
$1
3.7
$4
.7
$7
.8
$3
6.9
$8
.6
$2
5.8
$0
$20
$40
$60
$80
$100
$120
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??
US Insured Catastrophe Losses
*PCS estimate through Sept. 30, 2011.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.
US CAT Losses in 2011 Were the 5th Highest in US History on An Inflation Adjusted Basis
$100 Billion CAT Year is Coming Eventually
Record Tornado Losses Caused
2011 CAT Losses to Surge
($ Billions, 2011 Dollars)
Natural Disaster Losses in the United States: 2011
32Source: MR NatCatSERVICE
$500
$530
$830
$975
$980
$1,000
$1,200
$1,400
$1,510
$2,000
$5,000
$6,900
$7,300
$840
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000
Flooding, April*
Wildfire, Sep. 4-19
Thunderstorms, Apr. 19-20
Thunderstorms, Aug. 18-19
Winter Storm, Jan. 31-Feb. 3
Thunderstorms, Jul. 10-14
Texas Drought, 2011*
Thunderstorms, Jun. 16-22
Thunderstorms, Apr. 14-16
Thunderstorms, Apr. 8-11
Thunderstorms, Apr. 3-5
Hurricane Irene, Aug. 26-28**
Thunderstorms, May 20-27
Thunderstorms, Apr. 22-26
**Includes $700 million in flood losses insured through the National Flood Insurance Program.Source: PCS except as noted by “*” which are sourced to Munich Re; Insurance Information Institute.
2011’s Most Expensive Catastrophes, Insured Losses
Includes $1.65B in AL, mostly in the Tuscaloosa
and Birmingham
areas
Includes approximately $2B in losses
for May 22 Joplin tornado
34
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2011*
*Insurance Information Institute estimates for 2010 and 2011 based on A.M. Best data.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; Insurance Information Institute.
0.4
1.2
0.4 0.
8 1.3
0.3 0.4 0.
71.
51.
00.
40.
4 0.7
1.8
1.1
0.6
1.4 2.
01.
3 2.0
0.5
0.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6
4.4
9.0
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of the Combined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 6.70*
Combined Ratio Points
U.S. Thunderstorm Loss Trends, 1980 – 2011
35Source: Property Claims Service, MR NatCatSERVICE
Average thunderstorm
losses are up more than 5 fold since the early 1980s
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2011 are the most expensive
years on record.
Thunderstorm losses in 2011 totaled a record
$25.8 billion
Source: Property Claims Service, MR NatCatSERVICE
U.S. Winter Storm Loss Trends, 1980 – 2011
36
Insured winter storm losses in 2011 totaled $2.0 billion. Average winter storm losses have nearly doubled
since the early 1980s
Source: National Forest Service, MR NatCatSERVICE
U.S. Acreage Burned by Wildfires, 1980 – 2011
37
8.3 millions acres were burned by wildfires in 2011, one of the worst years on record, causing
$855 in insured losses
39
U.S. Insured Catastrophe Losses by Cause of Loss, 2011 ($ Millions)
2.8%
1.5%5.6%
72.1%
15.4%
.Source: ISO’s Property Claim Services Unit, Munich Re; Insurance Information Institute.
Hurricanes & Tropical Storms, $5,510
Wildfires, $855
Thunderstorms (Incl. Tornadoes , $25,813
Winter Storms, $2,017
Geological Events, $50, (0.1%)Flood , $535, (1.5%) Other, $1,000
2011’s insured loss distribution was
unusual with tornado and thunderstorm accounting for the
vast majority of loss
Thunderstorm/ Tornado losses were 2.5 times above the 30-year average
40
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990–2011:H11
0.2%
2.4%
3.4%4.9%
6.6%
8.0%
31.8%
42.7%
1.Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2.Excludes snow.3.Does not include NFIP flood losses4.Includes wildland fires5.Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $160.5
Fires (4), $9.0
Tornadoes (2), $119.5
Winter Storms, $30.0
Terrorism, $24.9
Geological Events, $18.5
Wind/Hail/Flood (3), $12.7
Other (5), $0.6
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
41
2011: Nowhere to Run, Nowhere to Hide
Most of the Country East of the Rockies Suffered Severe Weather in 2011, Impacting
Most Insurers
Number of Federal Disaster Declarations, 1953-2011*
13 1
7 18
16
16
7 71
21
22
22
0 25
25
11
11
19
29
17
17
48
46
46
38
30
22 25
42
23
15
24
21
34
27 28
23
11
31
38
45
32 3
63
27
54
46
55
04
54
5 49
56
69
48 5
26
37
55
98
19
9
43
0
20
40
60
80
100
120
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
*
*Through December 31, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
The Number of Federal Disaster Declarations Is Rising and Set a New Record in 2011
The number of federal disaster declarations set a
new record in 2011, with 99, shattering 2010’s record 81
declarations.
There have been 2,049 federal disaster
declarations since 1953. The average
number of declarations per year is 34 from
1953-2010, though that few haven’t been
recorded since 1995.
43
Federal Disasters Declarations by State, 1953 – 2011: Highest 25 States*
86
78
70
65 63
58
55 55 53 53 51 50 50 48 48 47 47 47 46 45 45 44 42 40 39
0
10
20
30
40
50
60
70
80
90
100
TX CA OK NY FL LA AL KY AR MO IL MS TN IA MN KS NE PA WV OH VA WV ND NC IN
Dis
aste
r Dec
lara
tions
*Through Dec. 31, 2011.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Over the past nearly 60 years,
Texas has had the highest number of Federal Disaster
Declarations
44
Federal Disasters Declarations by State, 1953 – 2011: Lowest 25 States*
39 39
36 36 35
33 33
28 27 26 26 25 25 24 24 23 22
20
17 17 16 15 14
11
9 9 9
0
10
20
30
40
50
ME SD AK GA WI VT NJ NH OR MA PR HI MI AZ NM ID MD MT NV CT CO SC DE DC RI UT WY
Dis
aste
r Dec
lara
tions
*Through Dec. 31. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
Over the past nearly 60 years, Wyoming, Utah and Rhode Island had the fewest number of
Federal Disaster Declarations
45
SPRING 2011 TORNADO & SEVERE STORM OUTBREAK
2011 Losses Are Putting Pressure on US P/C Insurance and Reinsurance Markets
46
1,1
33
1,1
32 1
,29
7
1,1
73
1,0
82 1,2
34
1,1
73
1,1
48
1,4
24
1,3
45
1,0
71 1,2
16
94
1
1,3
76
1,2
64
1,1
03
1,0
98
1,6
92
1,1
56 1,2
82
1,819 1,8
94
552
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Nu
mb
er
of
To
rna
do
es
0
100
200
300
400
500
600
Nu
mb
er o
f De
ath
s
Number of Tornadoes
Number of Deaths
Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
Number of Tornadoes and Related Deaths, 1990 – 2011
Tornadoes claimed more than 550 lives in 2011, the most since 1925
There were 1,884 tornadoes recorded
in the US in 2011
Insurers Expect to Pay at Least $2 Billion Each for the April 2011 Tornadoes in Alabama and a Similar Amount for the May Storms in Joplin
U.S. Tornado Count, 2005-2011
47Source: http://www.spc.noaa.gov/wcm/
There were 1,893 tornadoes in the US in 2011 far above
average, but well below 2008’srecord
Deadly and costly April/ May spike
Insurers Making a Difference in Impacted Communities
Source: Insurance Information Institute 48
Destroyed home in Tuscaloosa. Insurers will pay some 165,000
claims totaling $2 billion in the Tuscaloosa/
Birmingham areas alone.
Presentation of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm
Recovery Fund
Location of Tornadoes in the US, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 49
1,894 tornadoes killed 552 people in 2011, including
at least 340 on April 26 mostly in the Tuscaloosa area, and 130 in
Joplin on May 22
Location of Large Hail Reports in the US, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 50
There were 9,417 “Large Hail”
reports in 2011, causing extensive damage to homes,
businesses and vehicles
Location of Wind Damage Reports in the US, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 51
There were 18,685 “Wind Damage” reports through Dec. 27, causing
extensive damage to homes and,
businesses
Severe Weather Reports, 2011
52Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
There were 29,996 severe
weather reports in 2011;
including 1,894 tornadoes;
9,417 “Large Hail” reports
and 18,685 high wind events
The BIG Question:When Will the Market Turn?
54
Are Catastrophes and Other Factors Pressuring Insurance Markets?
55
Criteria Necessary for a “Market Turn”:All Four Criteria Must Be Met
Criteria Status Comments
Sustained Period of
Large Underwriting
LossesEarly Stage,
Inevitable
•Apart from 2011 CAT losses, overall p/c underwriting losses remain modest•Combined ratios (ex-CATs) still in low 100s (vs. 110+ at onset of last hard market)•Prior-year reserve releases continue to reduce u/w losses, boost ROEs, though more modestly
Material Decline in Surplus/ Capacity
Entered 2011 At Record
High; Since Fallen
•Surplus hit a record $565B as of 3/31/11•Fell by 4.6% through 9/30/11 (latest available)•Little excess capacity remains in reinsurance markets•Weak growth in demand for insurance is insufficient to absorb much excess capacity
Tight Reinsurance
MarketSomewhat in
Place
•Much of the global “excess capacity” was eroded by cats•Higher prices in Asia/Pacific•Modestly higher pricing for US risks
Renewed Underwriting
& Pricing Discipline
Some Firming esp. in
Property, WC
•Commercial lines pricing trends have turned from negative to flat or up in some lines (property, WC); Casualty is flat.•Competition remains intense as many seek to maintain market share
Sources: Barclays Capital; Insurance Information Institute.
1. UNDERWRITING
57
Have Underwriting Losses Been Large Enough for Long Enough to Turn the Market?
58
P/C Insurance Industry Combined Ratio, 2001–2011:Q3*
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=109.9 Sources: A.M. Best, ISO.
95.7
99.3100.8
108.2
101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
Best Combined
Ratio Since 1949 (87.6)
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
Premiums
Relatively Low CAT Losses, Reserve Releases
Cyclical Deterioration
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Underwriting Gain (Loss)1975–2011*
* Includes mortgage and financial guaranty insurers in all yearsSources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
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 1011*
Cumulative underwriting deficit from 1975 through
2010 is $455B
($ Billions)Underwriting losses in
2011 at $34.9
through Q3 will be
largest since 2001
60
Number of Years with Underwriting Profits by Decade, 1920s–2010s
0 0
3
0
54
8
10
76
0
2
4
6
8
10
12
1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s* 2010s**
* 2009 combined ratio excl. mort. and finl. guar.anty insurers was 99.3, which would bring the 2000s total to 4 years with an u/w profit.**Data for the 2010s includes 2010 and 2011.Note: Data for 1920–1934 based on stock companies only.Sources: Insurance Information Institute research from A.M. Best Data.
Number of Years with Underwriting Profits
Underwriting Profits Were Common Before the 1980s (40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –
But Then They Vanished. Not a Single Underwriting Profit Was Recorded in the 25 Years from 1979 Through 2003
61
2.3
-2.1
-8.3
-2.6-6.6
-9.9 -9.8
-4.1
1
11.7
23.2
13.79.9
7.3
-6.7-9.5
-14.6-16 -15
-5
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
E
11
E
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
B)
-6
-4
-2
0
2
4
6
8 Imp
ac
t on
Co
mb
ine
d R
atio
(Po
ints
)
Prior Yr. ReserveDevelopment ($B)
Impact onCombined Ratio(Points)
P/C Reserve Development, 1992–2011E
Reserve Releases Are Remained Strong in 2010 But Should Begin to Taper Off in 2011
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: Barclay’s Capital; A.M. Best.
Prior year reserve releases totaled $8.8
billion in the first half of 2010, up from
$7.1 billion in the first half of 2009
Financial Strength & Underwriting
62
Cyclical Pattern is P-C Impairment History is Directly Tied to
Underwriting, Reserving & Pricing
P/C Insurer Impairments, 1969–20108
15
12
71
19
34
91
31
21
99
16
14
13
36
49
31 3
45
04
85
56
05
84
12
91
61
23
11
8 19
49 50
47
35
18
14 15 16 18
11
5
0
10
20
30
40
50
60
70
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
Source: A.M. Best Special Report “1969-2010 Impairment Review,” June 21, 2011; Insurance Information Institute.
The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets
3 small insurers in Missouri did encounter
problems in 2011 following the May
tornado in Joplin. They were absorbed by a
larger insurer and all claims were paid.
64
P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2010
90
95
100
105
110
115
1206
97
07
17
27
37
47
57
67
77
87
98
08
18
28
38
48
58
68
78
88
99
09
19
29
39
49
59
69
79
89
90
00
10
20
30
40
50
60
70
80
91
0
Co
mb
ine
d R
ati
o
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Imp
airm
en
t Ra
te
Combined Ratio after Div P/C Impairment Frequency
Source: A.M. Best; Insurance Information Institute
2010 impairment rate was 0.35%, down from 0.65% in 2009 and near the record low of 0.17% in 2007; Rate is still less
than one-half the 0.81% average since 1969
Impairment Rates Are Highly Correlated With Underwriting Performance and Reached Record Lows in 2007
65
Reasons for US P/C Insurer Impairments, 1969–2010
3.6%4.0%
8.6%
7.3%
7.8%
7.1%
7.8%13.6%
40.3%
Source: A.M. Best: 1969-2010 Impairment Review, Special Report, April 2011.
Historically, Deficient Loss Reserves and Inadequate Pricing AreBy Far the Leading Cause of P-C Insurer Impairments.
Investment and Catastrophe Losses Play a Much Smaller Role
Deficient Loss Reserves/Inadequate Pricing
Reinsurance Failure
Rapid GrowthAlleged Fraud
Catastrophe Losses
Affiliate Impairment
Investment Problems (Overstatement of Assets)
Misc.
Sig. Change in Business
67
Number of Recessions Endured by P/C Insurers, by Number of Years in Operation
32
27
20
13
8
0
5
10
15
20
25
30
35
1-50 51-75 76-100 101-125 126-150
Sources: Insurance Information Institute research from National Bureau of Economic Research data.
Number of Recessions Since 1860
Many US Insurers Are Close to a Century Old or Older
Number of Years in Operation
Insurers are true survivors—not just of natural catastrophes but also economic ones
68
Performance by Segment:Personal & Commercial Lines
Homeowners Insurance Combined Ratio: 1990–2011P
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
94
.4 10
0.3
88
.9 95
.6
11
6.8
10
5.7
10
6.7 11
6.0
11
8.4
11
2.7 12
1.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Homeowners Line Could Deteriorate in 2011 Due to Large Cat Losses. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).
Private Passenger Auto Combined Ratio: 1993–2011P
10
1.7
10
1.3
10
1.3
10
1.0
10
9.5
10
7.9
10
4.2
98
.4
94
.3
95
.1
95
.5 98
.3 10
0.2
10
1.3
10
1.0
10
0.5
99
.5 10
1.1
10
3.5
80
85
90
95
100
105
110
115
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry
Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).
109.4110.2
118.8
109.5
112.5
110.2
107.6
104.1
109.7 110.2
102.5
105.4
91.2
93.7
104.1
98.9
102.7
108.2
103.9
102.0
111.1112.3
122.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
P
12
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
Source: A.M. Best; Insurance Information Institute
Commercial Lines Combined Ratio, 1990-2012F
Commercial lines underwriting
performance in 2011 was the worst since 2002
Workers Compensation Combined Ratio: 1994–2011P
10
2.0
97
.0 10
0.0
10
1.0
11
0.9
11
0.0
10
7.0
10
2.7
98
.4
10
3.6
10
4.4 1
10
.6 11
6.8
11
8.012
1.7
10
7.0
11
5.3
11
8.2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Workers Comp Underwriting Results Are Deteriorating Markedly and the Worst They
Have Been in a DecadeSources: A.M. Best (1994-2010); Insurance Information Institute (2011P).
2. SURPLUS/CAPITAL/CAPACITY
73
Have Large Global Losses Reduced Capacity in the Industry, Setting
the Stage for a Market Turn?
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11*
US Policyholder Surplus:1975–2011*
* As of 9/30/11.Source: A.M. Best, ISO, Insurance Information Institute.
“Surplus” is a measure of underwriting capacity. It is
analogous to “Owners Equity” or “Net Worth” in
non-insurance organizations
($ Billions)
The Premium-to-Surplus Ratio Stood at $0.83:$1 as of9/30/11, A Near Record Low (at Least in Recent History)*
Surplus as of 9/30/11 was $538.6 down 4.6% from the record $564.7B as of 3/31/11, but still up 23.2%
($101.5B) from the crisis trough of $437.1B at 3/31/09. Prior peak was $521.8 as of 9/30/07.
Surplus as of 9/30/11 was 3.2% above 2007 peak.
75
Policyholder Surplus, 2006:Q4–2011:Q3
Sources: ISO, A.M .Best.
($ Billions)
$487.1$496.6
$512.8$521.8
$478.5
$455.6
$437.1
$463.0
$490.8
$511.5
$540.7$530.5
$544.8
$556.9 $559.1
$538.6
$564.7
$505.0$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
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
2007:Q3Previous Surplus Peak
Quarterly Surplus Changes Since 2011:Q1 Peak
11:Q2: -$5.6B (-1.0%)
11:Q3: -$26.1B (-4.6%)
Surplus as of 9/30/11 was down 4.6% below its all
time record high of $564.7B set as of 3/31/11. Further
declines are possible.
*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.
The Industry now has $1 of surplus for every $0.83 of NPW, close to the strongest claims-
paying status in its history.
Implied Excess (Deficit) Capital Assuming Premium/Surplus Ratio = 0.9:1
Excess/(Deficit) Capital (Policyholder Surplus)
($10.6)
($65.4)
($124.6)
($103.0)
($76.5)
($10.8)
$22.9$42.6
($49.2)
$41.7
$81.9
($32.7)
-1.5%
8.2%
13.4%
-5.1%
-8.8%
21.6%
14.4%
6.2%
-12.0%
12.3%8.9%
-4.6%
-150
-100
-50
0
50
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Capital Excess (Deficit) Annual Change in CapitalRecord Policyholder Surplus (Capital) Resulted in Significant Excess Capital in the P/C
Insurance Sector in 2010. Deteriorating Underwriting Losses, Higher CAT Activity, More Modest Market Returns Shrank Excess Capital in 2011 by Nearly Half.
Annual Change in Policyholder Surplus
2000-2002: Tech bubble bursts,
9/11, high underwriting losses erode capital base
2005: Katrina, Rita, Wilma produce record CAT losses
2006/07: Low CAT losses, strong underwriting results since 1940s
increase capital
2008: Financial crisis causes sharp drop in
capital
2009-10: End of financial crisis,
rising asset prices. modest
u/w losses push capital to record levels
Note: The assumption of a 0.9:1 P/S ratio is derived from a Feb. 2011 announcement by Advisen, Ltd., that the US P/C insurance industry has $74 billion in excess capital. The implied P/S ratio (calculated by III) is 0.88:1, which was rounded to 0.9:1.Source: Insurance Information Institute calculations from A.M. Best and ISO data. * Net Premiums Written
High cats, u/w losses push capital down
77
$1
2,1
30
.5
$3
9,5
07
.0
$1
8,1
42
.5
$1
0,6
46
.5
$9
84
.0
$4
18
.7
$2
2,0
29
.6
$5
86
.3
$1
0,3
89
.9
$4
,75
7.7
$1
7,3
46
.9
$1
6,1
14
.4
$5
,55
2.5
$6
,97
4.1
$8
,86
9.7
74
87
66
48 47
24
53
69
51
5656
5552
42
40
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
(Va
lue
of
De
als
$ M
ill)
0
10
20
30
40
50
60
70
80
90
100
Nu
mb
er o
f De
als
Value of Deals $ Mill)
Number of Deals
*2011 data are through December 1.Source: SNL Securities; Insurance Information Institute.
M&A Activity in the US P/C Insurance Industry, 1997-2011*
P/C M&A activity in 2011 is up 60% since 2008, its highest level (in $ terms) since 2008
M&A Activity in the P/C Insurance Industry Remains Well Below its 1990s Peak
83
3. REINSURANCE MARKET CONDITIONS
Record Global Catastrophes Activity is
Pressuring Pricing
85
Reinsurer Share of Recent Significant Market Losses
Source: Insurance Information Institute from reinsurance share percentages provided in RAA, ABIR and CEA press release, Jan. 13, 2011.
Billions of 2011 Dollars
$0$5
$10$15$20$25$30$35$40
JapanEarthquake/
Tsunami (Mar2011)
New Zealand Earthquake (Feb
2011)
Thailand Floods(Aug - Nov 2011)
Chile Earthquake(Feb. 2010)
AustraliaCyclone/ Floods(Jan-Feb 2011)
Reinsurer SharePrimary Insurer Share
40% Reinsurance share of total insured loss
Reinsurers Paid a High Proportion of Insured Losses Arising from Major Catastrophic Events Around the World in Recent Years
$0.4$4.0
$22.5$9.5
$15.0
$3.5
$37.5
$13.0
$6.0
$10.0
$7.9
$8.3
$2.2$2.8
$5.0
73%60%
95%44%
Source: Guy Carpenter, GC Capital Ideas.com, September 26, 2011.
Global Property Catastrophe Rate on Line Index, 1990-2011 YTD (6/1/11)
A modest increase in global property catastrophe reinsurance pricing was evident in June 1 renewals in
the wake of record global catastrophe losses.
Jan. 1, 2012 renewals were up modestly or flat in the US but higher in CAT-impacted areas.
Source: Guy Carpenter, GC Capital Ideas.com, November 23, 2011.
Historical Capital Levels of Guy Carpenter Reinsurance Composite, 1998—2Q11
Most excess reinsurance capacity was removed from the market in 2011, but there does not
appear to be a shortage, leading relatively flat 2012
reinsurance renewals except in areas hit
hard by CATs.
4. RENEWED PRICING DISCIPLINE
90
Is There Evidence of a Broad and Sustained Shift in Pricing?
91
-5%
0%
5%
10%
15%
20%
25%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
12
Soft Market Persisted in 2010 but Growth Returned: More in 2011?
(Percent)1975-78 1984-87 2000-03
*2011 and 2012 figures are A.M. Best EstimatesShaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
NWP was up 4.1% (est.) in
20112012
expected growth is
4.2%
92
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
Sources: ISO, Insurance Information Institute.
Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)
10.2
%15
.1%
16.8
%16
.7%
12.5
%10
.1%
9.7%
7.8%
7.2%
5.6%
2.9%
5.5%
-4.6
%-4
.1%
-5.8
%-1
.6%
10.3
%10
.2% 13
.4%
6.6%
-1.6
%2.
1%0.
0%-1
.9%
0.5%
-1.8
%-0
.7%
-4.4
%-3
.7%
-5.3
%-5
.2%
-1.4
%-1
.3%
1.3% 2.
3%1.
3%3.
5%1.
6%4.
1%
-10%
-5%
0%
5%
10%
15%
20%
2002
:Q1
2002
:Q2
2002
:Q3
2002
:Q4
2003
:Q1
2003
:Q2
2003
:Q3
2003
:Q4
2004
:Q1
2004
:Q2
2004
:Q3
2004
:Q4
2005
:Q1
2005
:Q2
2005
:Q3
2005
:Q4
2006
:Q1
2006
:Q2
2006
:Q3
2006
:Q4
2007
:Q1
2007
:Q2
2007
:Q3
2007
:Q4
2008
:Q1
2008
:Q2
2008
:Q3
2008
:Q4
2009
:Q1
2009
:Q2
2009
:Q3
2009
:Q4
2010
:Q1
2010
:Q2
2010
:Q3
2010
:Q4
2011
:Q1
2011
:Q2
2011
:Q3
Through 2011:Q3, growth in personal lines
predominating cos. (+3.1%) and commercial lines predominating cos.
(+3.9%), diversified (+2.3%)
93
Monthly Change* in Auto Insurance Prices, 1991–2011*
*Percentage change from same month in prior year; through November 2011; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Cyclical peaks in PP Auto tend to occur
approximately every 10 years (early 1990s, early
2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in 2010
94
Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2011E*)
-3.2
%-5
.9%
-7.0
%-9
.4%
-9.7
% -8.2
%-4
.6% -2
.7%
-3.0
%-5
.3%
-9.6
%-1
1.3
%-1
1.8
%-1
3.3
%-1
2.0
%-1
3.5
%-1
2.9
% -11
.0%
-6.4
% -5.1
%-4
.9%
-5.8
%-5
.6%
-5.3
%-6
.4% -5.2
%-5
.4%
-2.9
%
1.7
%
-0.1
% 0.9
%
-0.1
%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
Source: Council of Insurance Agents & Brokers (1Q04-4Q11); Marsh (Q411E); Insurance Information Institute
KRW Effect
Pricing as of Q3:2011 is positive for the first time
since 2003. Slightly stronger gains in Q4.
(Percent)
Q2 2011 marked the 30th consecutive quarter of price
declines
95
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2011:Q3
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Percentage Change (%)
Peak = 2001:Q4 +28.5%
Pricing Turned Negative in Early
2004 and Has Been Negative
Ever Since
Pricing turned positive (+0.9%) in Q3:2011, the first increase in
nearly 7 years (Q4:2003)
KRW Effect: No Lasting Impact
Trough = 2007:Q3 -13.6%
97
Change in Commercial Rate Renewals, by Line: 2011:Q3
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Uniformly Upward in Q3:2011 for the First Time Since 2003; Property Lines &
Workers Comp Leading the Way
Percentage Change (%)
1.5%1.9%
3.0%
4.1%
0.2% 0.3%0.6%
0.8% 0.8%
1.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Ge
ne
ral
Lia
bili
ty
Su
rety
Co
mm
l Au
to
Co
nst
ruct
ion
D&
O
Um
bre
lla
EP
L
Bu
s.In
terr
up
tion
Co
mm
erc
ial
Pro
pe
rty
Wo
rke
rsC
om
p
Property lines are showing larger increases than
casualty lines, with the exception of workers
compensation
101
Direct Premiums Written: All P/C Lines Percent Change by State, 2005-2010
44
.8
25
.4
19
.8
17
.3
16
.6
14
.2
13
.9
12
.4
12
.3
11
.9
9.1
8.1
8.1
7.1
6.8
5.4
5.2
4.7
3.8
3.7
3.1
3.0
1.5
1.2
1.1
0
5
10
15
20
25
30
35
40
45
ND
SD LA
WY
OK
WV
KS IA TX
MT
NE
DE
MS
NM SC
DC
UT
AR
NC ID WA
AL
WI
AK
TN
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
North Dakota is the growth juggernaut of the P/C
insurance industry—too bad nobody lives there…
102
0.7
0.6
0.1
-0.1
-0.3
-0.5
-0.8
-1.4
-1.6
-1.7
-2.5
-2.8
-2.9
-3.4
-3.6
-4.1
-4.5
-4.7
-4.8
-5.7
-5.8
-8
-8.2
-8.3
-13
.5
-14
.2
-15
.5
-20
-15
-10
-5
0
5M
D
MO
KY IN NY
GA
MN
VA
US
PA
OR FL IL CT
VT
OH RI
CO
NJ HI
ME
NH
MA
AZ
NV MI
CA
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC; Insurance Information Institute.
Bottom 25 States
States with the poorest performing economies also produced the most negative net change in premiums of
the past 5 years
Direct Premiums Written: All P/C Lines Percent Change by State, 2005-2010
US Direct Premiums Written declined by 1.6% between 2005
and 2010
INVESTMENTS: THE NEW REALITY
104
Investment Performance is a Key Driver of Profitability
Does It Influence Underwriting or Cyclicality?
Property/Casualty Insurance Industry Investment Gain: 1994–2011:Q31
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$52.9
$42.0
$58.0
$51.9$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11:Q3
Investment Gains through Q3:2011 Were Surprisingly Robust. Investment Gains Recovered Significantly in 2010 Due to Realized Investment Gains;
The Financial Crisis Caused Investment Gains to Fall by 50% in 2008
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.
($ Billions)
Investment gains through Q3:2011 were $2.1B above the
same period in 2010—a surprise given falling rates
and flat stock markets
106
P/C Insurer Net Realized Capital Gains/Losses, 1990-2011:3Q
Sources: A.M. Best, ISO, Insurance Information Institute.
$2.8
8
$4.8
1 $9.8
9
$9.8
2
$10.
81 $18.
02
$13.
02
$16.
21
$6.6
3
-$1.
21
$6.6
1
$9.1
3
$9.7
0
$3.5
2 $8.9
2
-$7.
98
-$5.
70
$5.5
0
-$19
.81
$9.2
4
$6.0
0
$1.6
6
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011:Q3
Insurers Are Posting Net Realized Capital Gains in 2011 for the First Time Since 2007. Realized Capital Losses Were the Primary Cause
of 2008/2009’s Large Drop in Profits and ROE
($ Billions)$11.2B positive swing
107
U.S. 10-Year Treasury Note Yields:A Long Downward Trend, 1990–2011*
*Monthly, through November 2011 Note: Recessions indicated by gray shaded columns.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data/Monthly/H15_TCMNOM_Y10.txt National Bureau of Economic Research (recession dates); Insurance Information Institutes.
1%
2%
3%
4%
5%
6%
7%
8%
9%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Yields on 10-Year U.S. Treasury Notes have been essentially
below 5% for nearly a decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
Yields on 10-Year U.S. Treasury Notes have
been essentially below 4% since January 2008.
109
Treasury Yield Curves: Pre-Crisis (July 2007) vs. Dec. 2011
0.00% 0.01% 0.05% 0.12% 0.26%
1.43%
1.98%
4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%
0.89%
0.39%
2.98%2.67%
0%
1%
2%
3%
4%
5%
6%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
November 2011 Yield Curve*Pre-Crisis (July 2007)
Treasury yield curve remains near its most depressed level
in at least 45 years. Investment income is falling as a result. Fed is unlikely to hike rates until well into 2014.
The Fed Is Actively Signaling that it Is Determined to Keep Rates Low Through 2013 and Possibly into 2014
Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
110
-1.8
%
-1.8
%
-2.0
%
-3.6
%
-3.3
%
-3.3
%
-3.7
%
-4.3
%
-5.2
%
-5.7
%
-7.3%
-1.9
%
-2.1
%
-3.1
%
-8%-7%-6%-5%-4%-3%-2%-1%0%
Perso
nal L
ines
Pvt Pass
Aut
o
Pers P
rop
Comm
ercia
l
Comm
l Auto
Credit
Comm
Pro
p
Comm
Cas
Fidelity
/Sure
ty
Warra
nty
Surplu
s Line
s
Med
Mal
WC
Reinsu
rance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
Inflation
117
Is it a Threat to Claim Cost Severities
118
Annual Inflation Rates, (CPI-U, %),1990–2017F
2.8 2.6
1.51.9
3.3 3.4
1.3
2.5 2.3
3.0
3.8
2.8
3.8
-0.4
1.6
3.2
2.1 2.12.4 2.4 2.4 2.5
2.92.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F13F14F15F16F17F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 10/11 and 1/12 (forecasts).
The slack in the U.S. economy suggests that inflationary pressures should remain subdued for an extended period of times. Energy, health care and
commodity prices, plus U.S. debt burden, remain longer-run concerns
Annual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
commodity bubble reduced inflationary pressures in 2009/10
Higher energy, commodity and food
prices pushed up inflation in 2011, but
not longer turn inflationary
expectations.
P/C Personal Insurance Claim Cost Drivers Grow Faster Than the Core CPI Suggests
*Nov 2011 over Nov 2010.Source: Bureau of Labor Statistics; Insurance Information Institute.
3.4%
2.2%
6.8%
5.1%
4.0%
3.1% 3.1%2.8%
6.4%
0%
2%
4%
6%
8%
Overall CPI "Core" CPI InpatientHospitalServices
OutpatientHospitalServices
PrescriptionDrugs
Medical CareCommodities
LegalServices
Motor VehicleParts &
Equipment
ResidentialMaint. &Repair
Price Changes in 2011*
Healthcare costs are a major liability, med pay, and PIP claim cost driver. They are likely to grow faster than the CPI for the next few years, at least
120
Excludes Food and Energy
4.5%
3.5%2.8%
3.2% 3.5%4.1%
4.6% 4.7%4.0%
4.4% 4.2% 4.0%4.4%
3.7%3.2%
5.1%
7.4%
10.1%
8.3%
10.6%
7.3%
13.5%
8.8%
7.7%
5.4%
9.1%
6.1% 6.1%
5.0%5.4%
3.4%
2.2%
0%
3%
6%
9%
12%
15%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Change in Medical CPI
Change Med Cost per Lost Time Claim
WC Medical Severity Risingat Twice the Medical CPI Rate
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
The average annual increase in WC medical severity from 1995 through 2009 was nearly twice the medical CPI (7.6% vs. 3.9%). Will healthcare reform affect this gap?
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
132
Growth Would Also Help Absorb Excess Capital
133
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 1/12; Insurance Information Institute.
2.7
%0
.9%
3.2
%2
.3%
2.9
%-0
.7%
0.6
%-4
.0%
-6.8
% -4.9
%-0
.7%
1.6
%5
.0%
3.9
%3
.8%
2.5
%2
.3%
0.4
%1
.3%
1.8
% 3.1
%2
.0%
2.3
%2
.3%
2.7
%2
.6%
2.7
%2
.8%
3.0
%4.1
%1
.1%
1.8
%2
.5% 3.6
%3
.1%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
07
:1Q
07
:2Q
07
:3Q
07
:4Q
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit crunch, housing
slump, labor market contraction has been
severe but modest recovery is underway
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
2011 got off to a sluggish start, but growth is
expected to proceed at a modest pace in 2012-2013
135
(Millions of Units)
New Private Housing Starts, 1990-2022F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
1
0.5
5
0.5
9
0.6
0 0.7
1 0.8
7
1.3
4
1.2
3
1.3
2
1.3
81
.42
1.3
51.4
6
1.2
9
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F12F13F14F15F16F17F 18-22F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11 and 1/12); Insurance Information Institute.
Little Exposure Growth Likely for Homeowners Insurers Until at least 2014. Also Affects Commercial Insurers with Construction Risk Exposure, Surety
New home starts plunged
72% from 2005-2009; A
net annual decline of 1.49 million units, lowest since
records began in 1959
The plunge and lack of recovery in homebuilding and in construction in general
is holding back payroll exposure growth
Job growth, improved credit
market conditions and demographics
will eventually boost home construction
136
16.9
16.5
16.1
13.2
10.4
11.6
12.8 13
.7 14.4
14.7 15
.1
15.4
15.5
15.4
16.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11F 12F 13F 14F 15F 16F 17F 18-22F
(Millions of Units)
Auto/Light Truck Sales, 1999-2022F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11 and 1/12); Insurance Information Institute.
Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector.
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2012-13 is
still far below 1999-2007 average of 17 million units, but a recovery is underway.
Job growth and improved credit market conditions will boost auto sales in
2012 and beyond
66%
68%
70%
72%
74%
76%
78%
80%
82%
Mar
01
Jun 0
1
Sep 0
1
Dec 0
1
Mar
02
Jun 0
2
Sep 0
2
Dec 0
2
Mar
03
Jun 0
3
Sep 0
3
Dec 0
3
Mar
04
Jun 0
4
Sep 0
4
Dec 0
4
Mar
05
Jun 0
5
Sep 0
5
Dec 0
5
Mar
06
Jun 0
6
Sep 0
6
Dec 0
6
Mar
07
Jun 0
7
Sep 0
7
Dec 0
7
Mar
08
Jun 0
8
Sep 0
8
Dec 0
8
Mar
09
Jun 0
9
Sep 0
9
Dec 0
9
Mar
10
Jun 1
0
Sep 1
0
Dec 1
0
Mar
11
Jun 1
1
Sep 1
1
Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 137
Percent of Industrial Capacity
Hurricane Katrina
March 2001-November 2001
recession
“Full Capacity”
The closer the economy is to operating at “full
capacity,” the greater the inflationary pressure
The US operated at 77.8% of industrial capacity in
Nov. 2011, above the June 2009 low of 68.3% and a
post-crisis high
December 2007-June 2009 Recession
138
$200,000
$300,000
$400,000
$500,000
Dollar Value* of Manufacturers’ Shipments Monthly, Jan 1992-Nov 2011
*seasonally adjusted Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, November 2011, Jan. 4, 2012
Monthly shipments are nearly back to peak (in July 2008, 6 months into the recession). Trough in May 2009. Growth from trough to November 2011 was 27.8%
$ Millions
The value of Manufacturing Shipments in Nov. 2011 is up 27.8% to $455B from its May 2009 trough. Nov. figure is only 6.2% below its
previous record high.
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
61
.2
60
.4
53
.5 55
.3
50
.9
50
.6 51
.6
50
.8 52
.7 53
.9
40
45
50
55
60
65
Jan
-10
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Jun
-10
Jul-
10
Au
g-1
0
Se
p-1
0
Oct
-10
No
v-1
0
De
c-1
0
Jan
-11
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Jun
-11
Jul-
11
Au
g-1
1
Se
p-1
1
Oct
-11
No
v-1
1
De
c-1
1
ISM Manufacturing Index(Values > 50 Indicate Expansion)
January 2010 through December 2011
The manufacturing sector has been expanding and adding jobs. The question is whether this will continue.
Source: Institute for Supply Management; Insurance Information Institute
Optimism among manufacturers may be increasing in late 2011
74
.4
73
.6
73
.6
72
.2
73
.6 76
67
.8
68
.9
68
.2
67
.7 71
.6 74
.5
74
.2 77
.5
67
.5 69
.8
74
.3
71
.5
63
.7
55
.7 59
.4 60
.9 64
.1
69
.9
40
45
50
55
60
65
70
75
80
Jan
-10
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Jun
-10
Jul-
10
Au
g-1
0
Se
p-1
0
Oct
-10
No
v-1
0
De
c-1
0
Jan
-11
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Jun
-11
Jul-
11
Au
g-1
1
Se
p-1
1
11
-Oct
11
-No
v
11
-De
c
Consumer Sentiment Survey (1966 = 100)
January 2010 through December 2011
Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely
impact consumers, but improved substantially in late 2011
Source: University of Michigan; Insurance Information Institute
Optimism among consumers is recovering, in part due to an
improving jobs outlook, after plunging amid the debt debate debacle and S&P downgrade
142
Value* of Construction Put In Place,Monthly, Nov ‘08-Nov ‘11
*Seasonally adjusted annual rate Source: http://www.census.gov/const/C30/release.pdf
Since the recession started, private residential and nonresidential construction together are down $302 billion (annual rate), a drop of 27%.
Public construction has hardly moved.
$225
$250
$275
$300
$325
$350
$375
$400
$425
Nonresidential Public Residential Nonresidential PrivateBillions
Total Construction Spending (Annual Rate)
Dec. 2007: $1,109B Nov. 2011: $807 B
145
43,6
9448
,125
69,3
0062
,436
64,0
04 71,2
77 81,2
3582
,446
63,8
5363
,235
64,8
53 71,5
4970
,643
62,3
0452
,374
51,9
5953
,549
54,0
2744
,367
37,8
8435
,472
40,0
9938
,540
35,0
3734
,317
39,2
0119
,695 28
,322
43,5
4660
,837
56,2
8236
,385
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
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
Business Bankruptcy Filings,1980-2011:Q3
Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633 ; Insurance Information Institute
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2010 bankruptcies totaled 56,282, down 7.5% from 60,837 in 2009—which were up 40% from 2008 and the most since 1993. As of
2011:Q3 filings are down 15.4% from 2010:Q3.
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%*
146
Private Sector Business Starts, 1993:Q2 – 2011:Q1*
175
186
174
180
186
192
188
187 18
918
6 190 19
419
119
9 204
202
195
196
196
206
206
201
192
198
206
206
203
211
205
212
200 20
520
420
419
720
320
920
119
219
219
320
1 204
202
210 21
220
921
6 220 22
322
022
021
022
121
220
421
820
920
720
719
919
1 193
172 17
616
918
417
5 179
188
200
183
203
150
160
170
180
190
200
210
220
230
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure
* Data through March 31, 2011 are the latest available as of January 16, 2012; Seasonally adjustedSource: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
722,000 new business starts were recorded in 2010, up 3.6% from 697,000 in 2009, which was the slowest year for new business starts since 1993.
Business starts remained weak in early 2011.
Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 722,000
147
11 Industries for the Next 10 Years: Insurance Solutions Needed
Shipping (Rail, Marine, Trucking)
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Agriculture
Natural Resources
Environmental
Technology (incl. Biotechnology)
Light Manufacturing
Export-Oriented Industries
Many industries are
poised for growth, but
many insurers do not write in
these economic segments
148
Labor Market Trends
Massive Job Losses Sapped the Economy and Commercial/Personal
Lines Exposure, But Trend is Improving
149
Unemployment and Underemployment Rates: Stubbornly High in 2011, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment stood at 8.5% in
December
Unemployment peaked at 10.1% in October 2009, highest monthly rate since 1983.
Peak rate in the last 30 years:
10.8% in November -
December 1982
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 8.0% in March
2007 to 17.5% in October 2009; Stood at 15.2%
in Dec. 2011
January 2000 through December 2011, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market might finally be improving
Dec 11
186
7921
365
127
42 15-1
09-1
465 97
23-1
2-8
5 -58
-161
-253 -230
-257
-347
-456
-547
-734 -6
67-8
06-7
07-7
44-6
49-3
34-4
52-2
97 -215 -186
-262
75-8
316
62
229
51 6111
714
311
2 193
128 16
794
261
219
241
99 7517
372
220
120
134 21
2
144
(1,000)
(800)
(600)
(400)
(200)
0
200
400
Jan-
07F
eb-0
7M
ar-0
7A
pr-0
7M
ay-0
7Ju
n-07
Jul-0
7A
ug-0
7S
ep-0
7O
ct-0
7N
ov-0
7D
ec-
Jan-
08F
eb-0
8M
ar-0
8A
pr-0
8M
ay-0
8Ju
n-08
Jul-0
8A
ug-0
8S
ep-0
8O
ct-0
8N
ov-0
8D
ec-
Jan-
09F
eb-0
9M
ar-0
9A
pr-0
9M
ay-0
9Ju
n-09
Jul-0
9A
ug-0
9S
ep-0
9O
ct-0
9N
ov-0
9D
ec-
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-
Jan-
11F
eb-1
1M
ar-1
1A
pr-1
1M
ay-1
1Ju
n-11
Jul-1
1A
ug-1
1S
ep-1
1O
ct-1
1N
ov-1
1D
ec-
Monthly Change in Private Employment
January 2008 through November 2011* (Thousands)
Private Employers Added 3.343 million Jobs Since Jan. 2010 After Having Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly Losses in Dec. 08–Mar. 09 Were
the Largest in the Post-WW II Period
212,000 private sector jobs were created in
December
154
Unemployment Rates by State, November 2011:Highest 25 States*
13.0
11.3
10.6
10.5
10.5
10.0
10.0
10.0
9.9
9.9
9.8
9.4
9.1
9.1
9.1
9.0
8.7
8.7
8.7
8.7
8.5
8.5
8.4
8.2
8.1
8.0
0
2
4
6
8
10
12
14
NV CA DC MS RI FL IL NC GA SC MI KY NJ OR TN IN US AL AZ WA ID OH CT MO TX AR
Une
mpl
oym
ent R
ate
(%)
*Provisional figures for November 2011, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In November, 43 states and the District of Columbia reported over-the-month unemployment rate decreases, 3 had
increases, and 4 had no change.
155
8.0
8.0
7.9
7.9
7.6
7.3
7.3
7.1
7.0
7.0
6.9
6.9
6.5
6.5
6.5
6.4
6.2
6.1
5.9
5.8
5.7
5.3
5.2
4.3
4.1
3.4
0
2
4
6
8
10
CO NY PA WV DE AK WI MT ME MA LA MD HI KS NM UT VA OK MN WY IA VT NH SD NE ND
Une
mpl
oym
ent R
ate
(%)
Unemployment Rates By State, November 2011: Lowest 25 States*
*Provisional figures for November 2011, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In November, 43 states and the District of Columbia reported over-the-month
unemployment rate decreases, 3 had increases, and 4 had no change.
156
US Unemployment Rate
4.5
%
4.5
%
4.6
%
4.8
%
4.9
% 5.4
% 6.1
%
6.9
%
8.1
%
9.3
%
9.6
% 10
.0%
9.7
%
9.6
%
9.6
%
8.9
%
9.1
%
9.1
%
8.7
%
8.7
%
8.7
%
8.6
%
8.5
%
8.7
%
8.7
%
8.6
%
8.5
%
9.6
%4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
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
12
:Q1
12
:Q2
12
:Q3
12
:Q4
Rising unemployment eroded payrolls
and workers comp’s
exposure base.
Unemployment peaked at 10% in
late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (1/12); Insurance Information Institute
2007:Q1 to 2013:Q4F*
Unemployment forecasts remain stubbornly high
through 2012, but still imply millions of new
jobs will created.
Jobless figures have been revised
downwards for 2012
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
158
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2011
*Private employment; Shaded areas indicate recessions. Payroll and WC premiums for 2011 is I.I.I. estimateSources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Resumption of payroll growth and rate increases suggests WC NWP will grow again in 2012
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
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