Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
Property & Casualty Insurance
Industry TrendsPlante Moran’s Sixth Annual Insurance Conference
Presented by: Travis J. Grulkowski, FCAS, MAAA
Principal and Consulting Actuary
Milliman, Inc.
October 22, 2015
2
About Milliman
Founded 1947
Independent
Over 3,000 Employees
Over 50 Offices (Worldwide)
Owned and managed by approximately 400 Principals
Principals elected in recognition of their technical, professional and business achievements
3
About Milliman
Largest independent actuarial consulting firm in the world
Not an insurance company
Don’t broker insurance
Don’t perform audit services
Our goals align with those of our clients
4
Agenda: Overview of Presentation
Insurance Industry Results - 2014
– Aggregate combined P&C results
– Segment-specific results
Insurance Market Cycle
Emerging Products/Trends
5
INSURANCE INDUSTRY
RESULTS - 2014
Discussion
6
7
Direct Premiums Written: Total P/C
Percent Change by State, 2007-201470.7
36.7
36.2
30.3
29.4
26.8
24.7
23.7
21.6
20.7
19.2
19.2
18.6
18.1
18.0
17.0
15.2
15.1
15.0
14.9
14.8
14.7
14.4
14.2
13.8
13.5
0
10
20
30
40
50
60
70
80
ND
OK
SD
TX
NE
KS IA VT
WY
CO
MN IN MI
TN
AR
WI
GA
SC
NJ
OH
AK
KY
VA
LA
CT
MT
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top States
North Dakota was the country’s growth leader
fueled by the state’s energy boom
Growth Benchmarks: Total P/C
US: 13.0%
8
Direct Premiums Written: Total P/C
Percent Change by State, 2007-201413.4
13.1
13.1
13.0
13.0
12.9
12.4
12.2
11.7
11.0
10.5
9.4
9.4
9.2
9.1
8.2
6.3
6.0
4.7
2.2
1.3
-0.8
-1.6
-4.3
-7.3
-12.9
-15
-10
-5
0
5
10
15
MO
NY
UT
US
NM
MS
MA
AL
NC
MD
WA RI
NH IL
PA ID
ME
CA
OR
FL
AZ
DC HI
WV
NV
DE
Pe
ce
nt
ch
an
ge
(%
)
Bottom States
Sources: SNL Financial LC.; Insurance Information Institute.
9
10
11
Investment Impact on ROEs
* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0
96.7 97.295.7
102.4
106.5
95.7
14.3%
15.9%
12.7%
10.9%
7.4%7.9%
4.7%
6.2%
10.8%
8.2%
9.6%8.8%
4.3%
9.8%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015:Q10%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generates an ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Lower CATs helped ROEs in 2013-15:Q1
12
Property/Casualty Insurance Industry
Investment Income: 2000–2015E1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.3$46.2 $46.7
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.
($ Billions) Investment earnings are still below their 2007
pre-crisis peak
13
Distribution of Invested Assets: P/C
Insurance Industry, 2013
Stocks, 22%
Bonds, 62%
All Other, 10%
Cash, Cash Equiv. &
ST Investments, 6%
Source: Insurance Information Institute Fact Book 2015, A.M. Best.
Total Invested Assets = $1.5 Trillion
$ Billions
P&C Companies
are generally fairly
conservative investors
14 14
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2015*
*Monthly, constant maturity, nominal rates, through July 2015.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Recession2-Yr Yield10-Yr Yield
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
U.S. Treasury yields plunged to historic lows in 2013. Longer-
term yields rebounded then
fell again.
14
15
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
TotalP&C
PrivatePassenger
Auto
HO / FOMulti Peril
Other &ProductLiability
Workers'Comp
CommercialMultiple
Peril
Fire &AlliedLines
CommercialAuto
InlandMarine
MedicalProfessional
Liability
2013 Estimate
2012 Estimate
Estimated Change in Net Written Premium2014 Change by Line of Business
Source: A.M. Best Review & Preview; February 2015 edition
16
Private Passenger Auto Combined Ratio:
1993–2017F1
01
.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
2.0
10
2.1
10
1.6
10
2.4
10
2.2
10
2.3
10
2.4
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 11 12 13 14P 15F 16F 17F
Private Passenger Auto Underwriting Performance Is Exhibiting Remarkable Stability
16
Sources: A.M. Best (1990-2013); Conning (2014P – 2017F); Insurance Information Institute.
17
Homeowners Insurance Combined Ratio:
1990–2015F1
13
.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
91
.7 96
.4
85
.4 91
.7
11
4.5
10
3.1
10
3.8
11
9.4
10
1.4
87
.7 92
.4 96
.6
11
8.4
11
2.7 1
21
.7
80
90
100
110
120
130
140
150
160
170
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F15F
1
Homeowners Performance Impacted by Large Cats. Extreme Regional Variation Can Be Expected Due to
Local Catastrophe Loss Activity
17
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.
18
General Liability Combined Ratio:
2005–2015F1
12
.9
95
.1
99
.0
94
.2
10
4.1
99
.7 10
1.6
10
2.81
07
.1 11
0.8
99
.6
80
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13 14 15F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting.18
19
Workers Compensation Combined Ratio:
1994–2014P1
02
.0
97
.0 10
0.0
10
1.0
11
2.6
10
8.6
10
5.1
10
2.7
98
.5
10
3.5
10
4.5 1
10
.6 11
5.0
11
5.0
10
8.0
10
1.0
98
.0
12
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 11 12 13 14P
Workers Comp Results Began to Improve in 2012. Underwriting cycle on full display above.
Sources: A.M. Best (1994-2009); NCCI (2010-2014P); Insurance Information Institute.
19
WC results have improved markedly
since 2011
20
Commercial Multi-Peril Combined Ratio:
1995–2015F1
19
.0
11
9.8
10
8.5
12
5.0
11
6.2
11
6.1
10
4.9
10
1.9
10
5.5
95
.4
97
.6
94
.2
96
.1
10
2.1
94
.1
10
3.8
10
0.7
11
6.8
11
3.6
11
5.3 1
22
.4
11
5.0
11
7.0
97
.3
89
.0
97
.7
93
.8
83
.8
89
.8
10
8.4
98
.7 10
2.5
12
0.1
11
1.9
93
.4
10
0.6
10
1.0
11
3.1
11
5.0 1
21
.0
80
85
90
95
100
105
110
115
120
125
130
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E 15F
CMP-Liability CMP-Non-Liability
Commercial Multi-Peril Underwriting Performance is Expected to Remain Stable in 2015 Assuming Normal
Catastrophe Loss Activity*2014E-2015F figures are Conning figures for the combined liability and non-liability components.
Sources: A.M. Best; Conning; Insurance Information Institute.
20
21
Commercial Auto Combined Ratio:
1995–2015F1
12
.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4
94
.1 96
.8 99
.1
97
.8
10
3.4 10
6.8
10
6.5
10
3.4
10
5.2
11
8.1
11
5.7
11
6.2
80
85
90
95
100
105
110
115
120
125
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E 15F
Commercial Auto is Expected to Improve Only Slowly as Rate Gains Barely Offset Adverse Frequency and Severity Trends
21
Sources: A.M. Best (1990-2014E);Conning (2015F); Insurance Information Institute.
22
Commercial Property Combined Ratio:
2007–2016F7
2.4
10
5.8
83
.3 86
.5
85
.8
90
.1
90
.7
10
6.5
10
5.8
82
.7
70
75
80
85
90
95
100
105
110
07 08 09 10 11 12 13 14E 15F 16F
Commercial Property Underwriting Performance Has Been Volatile in Recent Years, Largely Due
to Fluctuations in CAT Activity
Source: Conning Research and Consulting.
22
23
Inland Marine Combined Ratio:
2004–2015F8
2.5
89
.9
77
.3 79
.5
97
.1
96
.1
83
.7
83
.3
82
.2
93
.3
89
.3
86
.2
70
75
80
85
90
95
100
04 05 06 07 08 09 10 11 12 13 14E 15F
Inland Marine Underwriting Performance Has Been Consistently Strong for Many Years
Source: A.M. Best (2004-2014E); Conning Research and Consulting (2015F).23
24
Medical Professional Liability Combined Ratio:
1978–2015F (after dividends)
Source: Milliman analysis of A.M. Best Aggregates & Averages – P&C
Milliman analysis of P&C insurance statutory data as provided by SNL Financial
2014–2015 ratios estimated from A.M. Best Review & Preview; February 2015
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Es
t.
20
15
Es
t.
25
MARKET CYCLEDiscussion
26
One-Year Reserve Development by Calendar Year
P&C Combined Industry ($B)
27
Carried Reserve and Subsequent Development
P&C Combined Industry ($B)
28Source: A.M. Best; Barclays research for estimates.
Reserve Change
P/C Insurance Loss Reserve Development, 1992 – 2016E*
Reserve releases are expected to gradually taper off, but will continue
to benefit the bottom line and combined ratio through at least 2016
29
Industry Asbestos & Environmental
Has been a continual drain on company’s earnings and surplus.
Impacts pre-1985 accident year general liability business.
AM Best Industry estimates have changed dramatically since
first industry estimate in 1994
Current estimate is $127 Billion:
– $85 billion for asbestos;
– $42 billion for environmental/pollution
30
A.M. Best Industry Ultimates
In $Billions
Industry published reserves (per Note 33) are underfunded by
approximately $8 billion ($5 billion on asbestos, $3.2 billion for
environmental)
HISTORY OF A.M. BEST ULTIMATES
($ Billions)
Date Asbestos Environmental Total
3/94 $40 $255 $295
1/96 $40 $66 $106
9/97 $40 $56 $96
October 2000 (pg. 8) A.M. Best Acknowledges Asbestos Estimates may be 25% - 50% too low
5/01 $65 $56 $121
12/09 $75 $42 $117
12/12 $85 $42 $127
31
A.M. Best Industry Reserve Deficiencies
$42 Billion in total as of Year-end 2014
Source: A.M. Best Review & Preview; February 2015
($10.0) ($5.0) $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0
Workers' Compensation
Reinsurance - Nonprop Assumed
Other/Products Liability
Commercial Multiple Peril
Commercial Auto Liability
Homeowners
Personal Auto Liability
Medical Professional Liability
All Other Lines
Asbestos & Environmental
Undiscounted Deficiency
Undiscounted Redundancy
Statutory Discount
32
EMERGING PRODUCTSDiscussion
33 33
Top 10 Global Business Risks for 2015
Source: Allianz Risk Barometer on Business Risks 2015
9%
11%
13%
15%
16%
17%
18%
27%
30%
46%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Theft, fraud, corruption
Political, social upheaval, war
Intensified competition
Market stagnation or decline
Loss of reputation or brand value (e.g. from social media)
Cyber crime, IT failures, espionage
Changes in legislation and regulation
Fire, explosion
Natural catastrophes
Business interruption, supply chain risk
Cyber is one of the most significant movers in this year’s Risk Barometer rankings, gaining five percentage points to move into the top 5 global business
risks for the first time.
34
Data Breaches 2005-2015, by Number of
Breaches and Records Exposed# Data Breaches/Millions of Records Exposed
*Figures as of June 30, 2015, from the Identity Theft Resource Center,http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf
157
321
446
656
498
419
470
614
400
783
662
117.6
85.692.0
17.522.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *2015
0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million records. Through June 30, this year has seen 117.6 million
records exposed in 400 breaches.*
Millions
35
Worldwide Cybersecurity Spending,
2011- 2016F ($ Billions)
$55.0
$60.0
$65.9
$71.1
$76.9
$83.2
7.9%8.4%8.2%
8.2%
9.8%
$50
$55
$60
$65
$70
$75
$80
$85
2011 2012 2013 2014F 2015F 2016F
0%
2%
4%
6%
8%
10%
12%
Worldwide Cybersecurity Spending % Change from Previous Year
Cybersecurity Spending Is Rising Sharply, Up by About 8%+ Annually through 2016—a Projected Increase of $12.1 Billion from 2014 to 2016
Cybersecurity spending increased by an estimated $5.2B in 2014, $5.8B in 2015 and $6.3B in 2016
Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.
3636
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
Evolving Threats: Cyber Crime and Cyber Terrorism
Source: Lewis Brisbois, Practical Strategies to Address Cyber Risk in Your Business, November 2014
37
Source: Insurance Information Institute research.
The Three Basic Elements of Cyber
Coverage: Prevention, Transfer, Response
Loss Prevention
Post-Breach
Response
(Insurable)
Loss Transfer
(Insurance)
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.
3838
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
Source: Boston Consulting Group.
Questions
Are auto insurers monitoring these trends?
How are they reacting?
Will Google take over the industry?
Will the number of auto insurers shrink?
How will liability shift?
39 39
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
40
Labor on Demand: Huge Implications for the
US Economy, Workers & Insurers
41
Drones or Unmanned Aerial Vehicle
(UAV) technology is seeing rapid
adoption rate in many industries,
including insurance
FAA granting Section 333 exemptions for
commercial use and testing of UAVs
At least 5 insurers have received
permission to test
Wide variety of applications: claims, pre-
event property inspections…
Insurers partnering with construction
industry to guide R&D and regulation of
UAV use via Property Drone Consortium:
www.propertydrone.org
Send in the Drones: Potential Rapid
Adoption in Industry; Media Loves It
42
Global Reinsurance Capital (Traditional
and Alternative), 2006 - 2014
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
Total reinsurance capital reached a record $570B in 2013, up 68% from 2008.
But alternative capacity has grown 210% since 2008, to $59B. It has more than doubled in the past three years.
43
Alternative Capital as a Percentage of
Traditional Global Reinsurance Capital
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
4.6%
5.7% 5.9% 5.8%5.4%
6.5%
8.4%
10.2%
11.5%
0%
2%
4%
6%
8%
10%
12%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Alternative Capital’s Share of Global Reinsurance Capital Has More Than Doubled Since 2010.
44
Oral Discussion
This document is not complete without the accompanying oral discussion and explanation of the underlying projections, results and variability.
Limited Distribution
This presentation is solely for the use of Plante Moran and guests of its Sixth Annual Insurance Conference. This document should not be distributed, disclosed or otherwise furnished, in whole or in part, without the express written consent of Milliman, Inc.
Use of Name
Any reader of this presentation agrees that they shall not use Milliman’s name, trademarks or service marks, or refer to Milliman directly or indirectly in any third party communication without Milliman’s prior written consent for each such use or release, which consent shall be given in Milliman’s sole discretion.
Other Considerations