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Workers Compensation and the New Economy:
Trends, Challenges and Opportunities
Minnesota Workers’ Comp Insurers AssociationMinneapolis, MN
April 27, 2015Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org
2
Insurance Industry:Financial Update & Outlook
2014 Was a Reasonably Good Year2015: A Repeat of 2014?
2
P/C Industry Net Income After Taxes1991–2014E 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 = 10.3% 2014 ROAS1 = 7.6%
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.7% ROAS through 2014:Q2, 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
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$6
3,7
84
$5
0,2
03
$3
8,5
01
$2
0,5
59
$4
4,1
55
$6
5,7
77
-$6,970
$2
8,6
72
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
14E
Net income rose strongly (+81.9%) in 2013 vs. 2012 on lower cats, capital gains
$ Millions
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
F1
6F
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2016F
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
1977:19.0%1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years
9 Years
History suggests next ROE peak will be in 2016-2017, but that seems unlikely
ROE
1975: 2.4%
2013 10.4%
2014E 7.6%
2015F=6.5%
2016F=6.3%
6
ROE: Property/Casualty Insurance by Major Event, 1987–2014E
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 2014 figure is through Q3:2014. Sources: ISO, Fortune; Insurance Information Institute.
-5%
0%
5%
10%
15%
20%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
P/C Profitability Is Both by Cyclicality and Ordinary Volatility
Hugo
Andrew
Northridge
Lowest CAT Losses in 15 Years
Sept. 11
Katrina, Rita, Wilma
4 Hurricanes
Financial Crisis*
(Percent)
Record Tornado Losses
Sandy
Low CATs
Modestly higher CATs
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Economic Shocks, Inflation:
1976: 22.2%Tort Crisis
1986: 30.5%
Post-9/112002: 22.4%
Great Recession:2009: -9.0%
ROE
2014E 4.0%
Commercial Lines NPW Premium Growth:1975 – 2014E
Recessions:1982: 1.1%
Commercial lines is prone to more cyclical volatility that personal
lines. Recently, growth has stabilized in the 4% to 5% range.
1988-2000: Period of
inter-cycle stability
2010-20XX? Post-
recession period of
stable growth?
Note: Data include state funds beginning in 1998.Source: A.M. Best; Insurance Information Institute.
Post-Hurricane Andrew Bump:
1993: 6.3%
Post Katrina Bump:
2006: 7.7%
10
P/C Insurance Industry Combined Ratio, 2001–2014:Q3*
* 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; 2014:9M = 97.7. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
96.797.9
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 2012 2013 2014
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned
PremiumsRelatively Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
Best Combined
Ratio Since 1949 (87.6)
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014:9M combined ratio including M&FG insurers is 97.7; 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.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0
96.797.9
102.4
106.5
95.7
14.3%
15.9%
12.7%
10.9%
7.4% 7.9%
4.7%6.2%
7.4%
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:Q30%
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
12
RNW All Lines by State, 2004-2013 Average:Highest 25 States
20
.5
18
.4
14
.6
14
.3
13
.4
13
.3
12
.3
12
.1
12
.0
12
.0
11
.7
11
.4
11
.1
11
.1
10
.9
10
.8
10
.7
10
.7
10
.5
10
.5
10
.3
9.9
9.8
9.8
9.6
9.5
02468
1012141618202224
HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
Source: NAIC; Insurance Information Institute.
Profitability Benchmark: All P/C
US: 7.9%
13
9.2
8.6
8.4
8.3
8.2
8.2
8.1
8.0
7.9
7.7
7.7
7.5
7.4
6.8
6.6
6.4
6.1
5.7
5.3
5.2
5.0
4.3
2.5
1.9
-6.9
-9.3
-14-12-10-8-6-4-202468
10
NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA
RNW All Lines by State, 2004-2013 Average: Lowest 25 States
Source: NAIC; Insurance Information Institute.
Some of the least profitable states over the past decade were hit hard
by catastrophes
14
Return on Net Worth (RNW) All Lines:2004-2013 Average
25
.6
18
.4
13
.4
13
.2
9.2
8.9
7.9
7.8
7.1
7.1
6.6
4.9
-1.0
-5
0
5
10
15
20
25
30
Source: NAIC; Insurance Information Institute.
Commercial lines have tended to be more profitable than
personal lines over the past decade, though WC has
lagged behind
15
RNW Workers Comp: MN vs. U.S.,2004-2013
Source: NAIC, Insurance Information Institute
0%
2%
4%
6%
8%
10%
12%
04 05 06 07 08 09 10 11 12 13
US Wcomp MN Wcomp
(Percent)
Average 2004-2013US: 7.1%MN: 6.8%
Workers Comp: 10-Year Average RNW MN & Nearby States
8.4%
6.8%
5.9%
3.5%
3.40%
7.1%
0% 2% 4% 6% 8% 10%
IN US MN
SD WI IL
Source: NAIC, Insurance Information Institute
2004-2013Minnesota Workers Comp profitability is comparable to the US average and regional average
Source: 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
19
Policyholder Surplus, 2006:Q4–2014:Q4E
Sources: ISO, A.M .Best.
($ Billions)
$487
.1
$496
.6
$512
.8
$521
.8
$478
.5
$455
.6
$437
.1 $463
.0 $490
.8 $511
.5 $540
.7
$530
.5
$544
.8
$559
.2
$559
.1
$538
.6
$550
.3
$567
.8
$583
.5
$586
.9 $607
.7
$614
.0
$624
.4 $653
.3
$671
.6
$675
.0
$662
.0
$570
.7
$566
.5
$505
.0
$515
.6
$517
.9
$400
$450
$500
$550
$600
$650
$700
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
13:Q
4
14:Q
1
14:Q
2
14:Q
4
2007:Q3Pre-Crisis Peak
Surplus as of 12/31/14 stood at a record high $675B
2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .
The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.
Drop due to near-record 2011 CAT losses
The P/C insurance industry entered 2015in very strong financial condition.
INVESTMENTS: THE NEW REALITY
24
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
24
Property/Casualty Insurance Industry Investment Income: 2000–20141
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.4$45.7
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. *2014 figure is estimated based on annualized data through Q3.Sources: ISO; Insurance Information Institute.
($ Billions) Investment earnings are still below their 2007 pre-crisis peak
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
Book Yield on Property/Casualty Insurance Invested Assets, 2007–2016F
4.42
4.19
3.95
3.71
3.283.20
3.13
3.74
3.523.38
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
07 08 09 10 11 12 13 14E 15F 16F
The yield on invested assets continues to decline as returns on maturing bonds generally still exceed new money yields. The end of the Fed’s QE program in Oct. 2014 should allow some increase
in longer maturities while short term interest rate increases are unlikely until mid-to-late 2015
Sources: Conning.
(Percent)
Book yield in 2014 is down 114 BP from pre-crisis levels
31
-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%
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*
31
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.4
10
7.9
10
3.4
98
.3 99
.9
98
.9
10
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
F
14
F
15
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2014F); Conning (2015F) Insurance Information Institute.
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
36
Workers Compensation Combined Ratio: 1994–2014E
102.
0
97.0 10
0.0
101.
0
112.
6
108.
6
105.
1
102.
7
98.5
103.
5
104.
5 110.
6 115.
0
115.
0
108.
0
101.
0
96.0
121.
7
107.
0
115.
3
118.
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 14F
Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-
2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2014F) and are for private carriers only; Insurance Information Institute. 37
WC results have improved markedly
since 2011
Commercial Property Combined Ratio: 2007–2016F
72.4
105.
8
83.3 86
.5
85.4 89
.4
90.1
106.
5
105.
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. 38
Commercial Auto Combined Ratio: 1993–2015F
11
2.1
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
6.4
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
39Sources: A.M. Best (1990-2014E);Conning (2015F); Insurance Information Institute.
General Liability Combined Ratio: 2005–2015F
112.
9
95.1 99
.0
94.2
104.
1
101.
4
103.
0
103.
9107.
1 110.
8
99.8
80
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13F 14F 15F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting. 40
Workers Compensation Operating Environment
43
Workers Comp Results Have Improved Substantially in Recent Years
43
Workers Compensation Premium: Third Consecutive Year of IncreaseNet Written Premium
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 130
10
20
30
40
50
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2 31.1
34.737.8 38.6 37.6
33.830.3 29.9
32.335.1 37.0
35.3 35.734.3 35.4
33.6
30.128.5
26.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.6 33.836.4
39.641.9
State Funds ($ B)
Private Carriers ($ B)
Pvt. Carrier NWP growth was +5.4% in 2013 and
8.7% in 2012
$ Billions
Calendar Yearp Preliminary
Source: 1990–2013p Private Carriers, Annual Statement Data, NCCI.1996–2013p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
46
2013 Workers Compensation Direct Written Premium Growth, by State*
PRIVATE CARRIERS: Overall 2013 Growth = +5.4%
*Excludes monopolistic fund states (in white): OH, ND, WA and WY.Source: NCCI.
While growth rates varied widely, all states experienced positive growth in 2013
47
Workers Comp. DWP Growth: MN vs. U.S., 2005-2013
Source: SNL Financial.
-0.8
%
-3.7
%
-11
.6%
-12
.4%
-3.4
%
9.6
%
10
.7%
8.5
%
-0.3
%
-0.7
%
-8.7
%
-7.6
%
-6.3
%
10
.2%
10
.6%
5.3
%
2.7
%
5.7
%
-20%
-10%
0%
10%
20%
30%
40%
05 06 07 08 09 10 11 12 13
US DWP Wcomp MN DWP Wcomp
(Percent)
Average 2005-2013US: -0.04%MN: 1.7%
Workers Compensation Lost-Time Claim Frequency Declined in 2013Lost-Time Claims
48
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13P-10
-8
-6
-4
-2
0
2
4
6
8
10
12
-4.2 -4.4
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5 -4.1 -3.7
-6.6
-4.5
-2.2
-4.3
-5.7
11
-4
-6.1
-2.0
3.5
-1
AdjustedIndicated
Frequency Change: 2007—2012
Contracting: 7.97.1 -9.3%
Manufacturing: 13.612.0 -11.8%
Percent
Accident Year*Adjustments primarily due to significant audit activity.2013p: Preliminary based on data valued as of 12/31/20131991–2012: Based on data through 12/31/2012, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesFrequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost levelSource: NCCI.
Cumulative Change of –55.4%(1991–2011 adj.)
Workers Compensation Medical SeverityModerate Increase in 2013
49
Accident Year
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2010: +6.0%
Average Medical Cost per Lost-Time ClaimMedicalClaim Cost ($000s)
$8
.1
$8
.2
$8
.1
$8
.8
$9
.1
$9
.8
$1
0.8
$11
.7
$1
2.9
$1
3.9
$1
5.7
$1
7.1
$1
8.4
$1
9.4
$2
1.0
$2
2.2
$2
3.5
$2
5.1
$2
6.1
$2
6.4
$2
7.1
$2
7.9
$2
8.8
+6.8%+1.3%-2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%+10.6%
+7.3%
+13.5%
+8.8%+7.7%
+5.4%
+7.8%+5.8%
+6.1%
+6.8%+4.0%+1.2%
+2.6%+3.0%
+3%
5
10
15
20
25
30
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13p
2013p: Preliminary based on data valued as of 12/31/2013.1991-2012: Based on data through 12/31/2012, developed to ultimateBased on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Cumulative Change = 256%(1991-2013p)
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2013: +5.2%
Accident Year
Workers CompensationChange in Medical Severity Comparison to Change in Medical Consumer Price Index (CPI)
50
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013p
0
2
4
6
8
10
12
14
16
5.1
7.4
10.1
8.3
10.6
7.3
13.5
8.8
7.7
5.4
7.8
5.8 6.16.8
4.0
1.2
2.63.0 3
4.5
3.52.8
3.2 3.54.1
4.6 4.74.0
4.4 4.2 4.04.4
3.73.2 3.4
3.03.7
2
Change in Lost-Time Medical Claim Severity
Change in US Medical CPI
Change in lost-time medical claim severity, 2013p: Preliminary based on data valued as of 12/31/20131995–2012: Based on data through 12/31/2012, developed to ultimate; excludes high deductible policiesAverage severity for the states where NCCI provides ratemaking services, including state funds; excluding WVSources: NCCI from US Medical CPI: US Bureau of Labor Statistics (BLS)
Percent Change
Year
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%3.4%
3.0% 3.0%
5.1%
7.4%
10.1%10.6%
13.5%
5.4%
7.8%
6.1%6.8%
4.0%
3.0%
2.0%
4%
3%
1.2%
5.8%
8.8%
7.7%
7.3%
8.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13p
Change in Medical CPI
Change Med Cost per Lost Time Claim
WC Medical Severity Generally Outpaces the Medical CPI Rate
Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average annual increase in WC medical severity form 1995 through 2011 was well above the medical CPI (6.8% vs. 3.8%), but
the gap is narrowing.
U.S. Health Care Expenditures,1965–2022F
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$42.
0$4
6.3
$51.
8$5
8.8
$66.
2$7
4.9
$83.
2$9
3.1
$103
.4$1
17.2
$133
.6$1
53.0
$174
.0$1
95.5
$221
.7$2
55.8
$296
.7$3
34.7
$369
.0$4
06.5
$444
.6$4
76.9
$519
.1$5
81.7
$647
.5$7
24.3
$791
.5$8
57.9
$921
.5$9
72.7
$1,0
27.4
$1,0
81.8
$1,1
42.6
$1,2
08.9
$1,2
86.5
$1,3
77.2
$1,4
93.3
$1,6
38.0
$1,7
75.4
$1,9
01.6
$2,0
30.5
$2,1
63.3
$2,2
98.3
$2,4
06.6
$2,5
01.2
$2,6
00.0
$2,7
00.7
$2,8
06.6
$2,9
14.7
$3,0
93.2
$3,2
73.4
$3,4
58.3
$3,6
60.4
$3,8
89.1
$4,1
42.4
$4,4
16.2
$4,7
02.0
$5,0
08.8
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
53
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.
$ Billions
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
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
National Health Care Expenditures as a Share of GDP, 1965 – 2022F*
Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.
1965 5.8%
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
% of GDP
2022 19.9%
1980: 9.2%
1990: 12.5%
2000: 13.8%
2010: 17.9%
Since 2009, heath expenditures as a %
of GDP have flattened out at about 18%--the
question is why and will it last?
55
Growth Analysis by State and Business Segment
Post-Crisis Paradox? Premium Growth Rates Vary
Tremendously by State
55
56
-5%
0%
5%
10%
15%
20%
25%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 1415
F14
F
Net Premium Growth: Annual Change, 1971—2016F
(Percent)1975-78 1984-87 2000-03
*2014 figure is estimate based on actual data through Q3:2014.Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
2015-16F: 4.0%
2014E: 4.0%*
2013: 4.6%
2012: +4.3%
61
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
91
.1
42
.1
41
.4
33
.7
26
.3
25
.8
23
.6
19
.1
15
.6
14
.0
11
.3
10
.0
9.8
6.8
6.7
6.5
4.1
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
0
10
20
30
40
50
60
70
80
90
100
ND
OK
SD VT
NE IA KS ID AK
TX
WY
MN IN AR
TN W
I
OH
MA
CT
NM LA
MS
NJ
NY
US
MO
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
Only 30 states showed any
commercial lines growth from 2007
through 2013
Growth Benchmarks: Commercial
US: 1.3%
62
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
0.5
0.4
0.2
0.1
-0.5
-0.8
-0.9
-1.0
-1.1
-1.1
-1.9
-2.0
-2.1
-2.7
-3.3
-3.7
-4.3
-4.9
-10
.7
-11
.4
-11
.7
-12
.6
-12
.7
-13
.6
-22
.4
-25
.1
-30
-25
-20
-15
-10
-5
0
5
MD
NH PA
CO IL
WA
VA
KY
NC
ME RI
MI
SC AL
GA
CA
UT
DC
OR
MT HI
DE FL AZ
WV
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
States with the poorest performing economies also produced the most negative
net change in premiums of the past 6 years
Nearly half the states have yet to see commercial lines premium
volume return to pre-crisis levels
63
Direct Premiums Written: Workers’ CompPercent Change by State, 2007-2013*
32.
9
30.
8
24.
3
21.
5
13.
4
11.
5
11.
0
10.
6
8.1
4.8
4.5
3.0
1.5
-0.3
-0.6
-1.0
-2.3
-2.4
-2.9
-3.0
-3.7
-4.1
-5.7
-5.8
-8.0
-15
-10
-5
0
5
10
15
20
25
30
35
OK IA SD
NY
CA
CT
NJ
KS
NE IN MI
VT
MN
DC WI
IL
NH
US
NM TX PA
VA
MD
TN AR
Pe
ce
nt
ch
an
ge
(%
)
*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.
Top 25 States
Only 13 states have seen works comp premium volume
return to pre-crisis levels
64
Direct Premiums Written: Worker’s CompPercent Change by State, 2007-2013*
-8.1
-8.4
-8.7
-8.8
-11
.1
-11
.3
-12
.0
-14
.7
-15
.3
-15
.4
-16
.0
-16
.3
-17
.1
-22
.1
-23
.0
-26
.5
-27
.5
-32
.5
-33
.3
-33
.5
-43
.8
-71
.0
-80-75-70-65-60-55-50-45-40-35-30-25-20-15-10-50
MS
MA RI
GA
NC
AK ID CO LA
ME AZ
MO
SC AL
KY
UT FL
OR
DE HI
NV
MT
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*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.
States with the poorest performing economies also produced some of the most
negative net change in premiums of the past 6 years
66
Average Commercial Rate Change,All Lines, (1Q:2004–1Q:2015)
-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
%-1
1.0
%-6
.4%
-5.1
%-4
.9%
-5.8
%-5
.6%
-5.3
%-6
.4%
-5.2
%-5
.4% -2
.9%
2.7
% 4.4
%4
.3%
3.9
% 5.0
%5
.2%
4.3
%3
.4%
2.1
%1
.5%
-0.5
%0
.1%
-0.7
%-1
.5%-0
.1%
0.9
%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
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
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
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
KRW Effect
Pricing as of Q1:2015 had turned (slightly) negative for only the 3rd time in 3 years
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
67
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2014:Q4
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Percentage Change (%)
Trough = 2007:Q3 -13.6%
Pricing Turned Negative in Early
2004 and Remained that
way for 7 ½ years
KRW : No Lasting Impact
Pricing turned positive in Q3:2011, the first increase in
nearly 8 years; Q1:2014 renewals were up 1.5%; Some insurers posted
stronger numbers.
Peak = 2001:Q4 +28.5%
68
Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2014:Q4
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
1999:Q4 = 100 Despite several years of gains, pricing today for midsized
accounts is where is was in late 2001 (around 9/11), suggesting
additional rate need going forward, esp. in light of record
low interest rates
70
Change in Commercial Rate Renewals, by Line: 2015:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewals Were Mixed to Flat in Q1:2015; EPL and Commercial Auto Led the Way
Percentage Change (%)
-0.2%
1.4% 1.5%
2.4%
-4.0%
-2.2% -2.2% -2.1%
-0.7% -0.4%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Co
mm
erc
ial
Pro
pe
rty
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Co
nst
ruct
ion
Wo
rke
rsC
om
p
Su
rety
D&
O
Co
mm
erc
ial
Au
to EP
L
Employment Practices rate increases are large
than any other line, followed by Commercial
Auto and D&O
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
*States approved through 4/8/2014Countrywide approved changes in advisory rates, loss costs, and assigned risk rates as filed by the applicable rating
organization, relative to the previously filed rates
Workers Compensation Approved Changesin Bureau Rates/Loss CostsAll States
71
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
-10
-5
0
5
10
1512.1
7.4
10.0
2.9
-6.4
-3.2
-6.0
-8.0
-5.4
-2.6
3.5
1.2
4.9
6.6
-6.0 -6.5
-8.8-7.8
-3.2-2.1
-1.2
0.4
8.4
2.20.6
Percent Change
Calendar Year
Changes > 0
Changes < 0
Current NCCI Voluntary MarketRate/Loss Cost ChangesApproved or Pending Rate/Loss Cost ChangesExcludes Law-Only Filings
73
States approved or pending as of 4/8/2014
IN and NC filed in cooperation with state rating bureau
-7.6
-3.6
+0.9
-4.8
-14.6
-5.1
+3.8
-7.9
-7.0
+0.7
-7.7
+2.3
+0.1
+3.0
-0.9
-1.1
-1.4
+3.3
-7.4
+4.1
+0.3
+3.2
-4.5
-2.0
+11.6
-6.5
+3.2
+1.4
+4.0
+3.2
-8.8
+1.2
+3.0
-8.3
-7.7
-2.6
+2.8
+6.2
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
74
Growth Will Expand Insurer Exposure Base Across Most Lines
74
75
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 4/15; Insurance Information Institute.
2.7%
1.8%
-1.8
%1.
3%-3
.7%
-5.3
%-0
.3%
5.0%
2.3%
2.2% 2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
2.7%
1.8%
3.5%
-2.1
%4.
6% 5.0%
2.2%
2.4% 3.
1%3.
0%2.
9%2.
8%2.
8%2.
8%2.
7%
-8.9%
4.5%
1.4%
4.1%
1.1% 1.
8% 2.5% 3.
6%3.
1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
2
00
7
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
:4Q
15
:1Q
15
:2Q
15
:3Q
15
:4Q
16
:1Q
16
:2Q
16
:3Q
16
:4Q
Demand for Insurance Should Increase in 2015 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in in June
2009
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
Q1 2014 GDP data were hit hard by this
year’s “Polar Vortex” and harsh
winter
State-by-State Leading Indicatorsthrough August 2015
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 76
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
2 states
77
Real GDP by State Percent Change, 2013:Highest 25 States
9.7
7.6
5.1
4.2
4.1
3.8
3.8
3.7
3.1
3.0
3.0
2.9
2.8
2.7
2.7
2.4
2.3
2.2
2.1
2.0
2.0
1.9
1.9
1.9
1.8
1.8
0
1
2
3
4
5
6
7
8
9
10
ND WY WV OK ID CO UT TX SD NE MT IA MN OR WA AR NC FL IN MI CA VT KS HI GA US
Pe
rce
nt
Ch
an
ge
(%
)
Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2013—by far
Only 9 states experienced growth in excess of 3% in 2013, which is what we would see nationally in a
more typical recovery
Growth Benchmarks: Real GDP
US: 1.8%
78
1.8
1.7
1.6
1.6
1.6
1.6
1.5
1.4
1.3
1.2
1.1
1.1
1.0
0.9
0.9
0.9
0.9
0.8
0.8
0.8
0.7
0.7
0.1
0.0
-0.5
-2.5
-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.5
OH WI MA DE KY MS NM RI LA SC NJ AZ NV CT ME NH IL MO AL TN NY PA VA MD DC AL
Pe
rce
nt
Ch
an
ge
(%
)Real GDP by State Percent Change, 2013: Lowest 25 States
Sources: US Bureau of Economic Analysis; Insurance Information Institute.
DC and Alabama were the only
states to shrink in 2013
Growth rates in 11 states were still below 1% in
2013
NFIB Small Business Optimism Index
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 85
Small business optimism has dropped somewhat
since reaching post-crisis highs in late 2014
January 1985 through March 2015
87
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
8247
,806
40,0
7533
,212
26,9
83
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 12 13 14
Business Bankruptcy Filings,1980-2014
Sources: American Bankruptcy Institute (1980-2012) at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013-14 data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2014 bankruptcies totaled 26,983, down 18.8% from 2013—the 5th consecutive year of decline.
Business bankruptcies more than tripled during the financial crisis.
% Change Surrounding Recessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%
87
89
Labor Markets Trends: RECOVERY CONTINUES
2014Largest Increase in Jobs Since 1997Unemployment Rate Fell to Lowest
Level Since 2008Payrolls Expanded to Record High
89
90
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Jan14
Jan15
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 5.5% in Mar. 2015. 4.5% to
5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through March 2015, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.
90
U-6 soared from 8.0% in March
2007 to 17.5% in October 2009; Stood at 10.9%
in Mar. 2015.8% to 10% is
“normal.”
91
US Unemployment Rate Forecast4
.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%
8.3
%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%
5.3
%5
.2%
5.1
%5
.0%
5.0
%4
.9%
9.6
%
4%
5%
6%
7%
8%
9%
10%
11%
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
Rising unemployment eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10% in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (4/15 edition); Insurance Information Institute.
2007:Q1 to 2016:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 5.0% by Q4 of 2015.
Jobless figures have been revised
downwards for 2015/16
92
Unemployment Rates by State, March 2015:Highest 25 States*
7.7
7.1
6.8
6.7
6.6
6.6
6.5
6.5
6.5
6.4
6.3
6.3
6.3
6.2
6.1
6.0
5.9
5.8
5.7
5.7
5.7
5.6
5.6
5.6
5.5
5.4
5.4
0
2
4
6
8
DC NV MS SC LA WV AK CA NJ CT GA RI TN AZ NM IL WA IN AL FL NY AR MI MO US MD NC
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for March 2015, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 23 states and the District of Columbia had over-the-month
unemployment rate decreases, 12 states had increases, and 15 states
had no change..
93
5.4
5.3
5.1
5.1
4.8
4.8
4.8
4.6
4.6
4.2
4.2
4.2
4.1
4.1
4.1
4.0
3.9
3.9
3.8
3.8
3.7
3.5
3.4
3.1
2.6
0
1
2
3
4
5
6
OR PA KY OH ME MA VA DE WI CO KS TX HI MT WY IA NH OK ID VT MN SD UT ND NE
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, March 2015: Lowest 25 States*
*Provisional figures for March 2015, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 23 states and the District of Columbia had over-the-month
unemployment rate decreases, 12 states had increases, and 15 states
had no change.
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
81
92
94 11
01
20
11
71
07
19
91
49
94
72
22
32
31 3
20
16
61
86 21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
82
22
20
11
70
18
01
53
24
72
72
86
18
31
75 22
33
13
23
8 27
22
43
20
92
35
21
84
14
31
92
02 2
64
12
9
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
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-0
7Ja
n-08
Feb
-08
Mar
-08
Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
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-0
9Ja
n-10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
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-1
1Ja
n-12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
3O
ct-1
3N
ov-1
3D
ec-1
3Ja
n-14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14Ju
l-14
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15F
eb-1
5M
ar-1
5
Monthly Change in Private Employment
January 2007 through Mar. 2015 (Thousands, Seasonally Adj.)
Private Employers Added 11.20 million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar. 09
were the largest in the
post-WW II period
129,000 private sector jobs were
created in March. In March 2014, the last of the private jobs lost in the Great Recession were
recovered
94
Jobs Created2014: 2.722 Mill2013: 2.368 Mill2012: 2.294 Mill2011: 2.400 Mill2010: 1.277 Mill
2,722,000 jobs were created
in 2014
95
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2014:Q4
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.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,500
$7,75005
:Q1
05:Q
205
:Q3
05:Q
406
:Q1
06:Q
206
:Q3
06:Q
407
:Q1
07:Q
207
:Q3
07:Q
408
:Q1
08:Q
208
:Q3
08:Q
409
:Q1
09:Q
209
:Q3
09:Q
410
:Q1
10:Q
210
:Q3
10:Q
411
:Q1
11:Q
211
:Q3
11:Q
412
:Q1
12:Q
212
:Q3
12:Q
413
:Q1
13:Q
213
:Q3
13:Q
414
:Q1
14:Q
214
:Q3
14:Q
4
Prior Peak was 2008:Q3 at $6.54 trillion
Recent trough (2009:Q1) was $6.23 trillion, down
5.3% from prior peak
Growth rates2011:Q4 over 2010:Q4: 2.6%2012:Q4 over 2011:Q4: 6.7%2013:Q4 over 2012:Q4: 1.7%2014:Q4 over 2013:Q4: 5.1%
95
Latest (2014:Q4) was $7.57 trillion, a new peak--$1.34 trillion above 2009 trough
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
96
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2014P
*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are I.I.I. estimates..Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow Again in 2015
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
102
Average Weekly Hours of All Private Workers, Mar. 2006—Mar. 2015
*Seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
33.5
33.6
33.7
33.8
33.9
34.0
34.1
34.2
34.3
34.4
34.5
34.6
34.7
34.8
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Hours worked totaled 34.5 per week in March,
just shy of the 34.6 hours typically worked
before the “Great Recession”
Hours worked plunged during the recession,
impacting payroll
exposures
(Hours Worked)
103
Average Hourly Wage of All Private Workers, Mar. 2006—Mar. 2015
*Seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
The average hourly wage was $24.86 in Mar. 2015,
up 17.2% from $21.22 when the recession began in Dec. 2007
Wage gains continued during the
recession, despite massive job losses
(Hourly Wage)
104
ADVERSE LONG-TERMLABOR MARKET DEVELOPMENTS
Key Factors Harming Workers Compensation Exposure and the
Overall Economy
104
105
Labor Force Participation Rate,Jan. 2002—March 2015*
*Defined as the percentage of working age persons in the population who are employed or actively seeking work.Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/; National Bureau of Economic Research (recession dates); Insurance Information Institute.
62
63
64
65
66
67
68
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Large numbers of people are exiting (or not returning to the
labor force)
Labor force participation
continues to shrink despite a falling
unemployment rate
Labor Force Participation as a % of Population
106
Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.Sources: Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.a.htm ; NBER (recession dates); Ins. Info. Inst.
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
In recent good times, the number of discouraged workers ranged from 200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
There were 738,000
discouraged workers in March 2015
Thousands
“Discouraged Workers” are people who have searched for work for so long in vain
that they actually stop searching and drop out of
the labor force
Number of “Discouraged Workers,”Jan. 2002—March 2015
Large numbers of people are exiting
(or not returning to) the labor force
107
ProPublica/NPR Attack on Workers Compensation In March 2015, ProPublica/NPR published a series
entitled “The Demolition of Workers Comp”
Thesis: WC benefits have been hollowed out and that workers were often no longer well served by the system
Series relied on a number of anecdotal cases of claimants who believed they were adversely impacted
Claims 33 states have watered down benefits under the guise of “reform”
I.I.I. made forceful rebuttal, demonstrating that: Insurers spend $40B+ each year treating injured workers Workplace is materially safer, in part due to WC incentives Application of managed care to WC reduces cost with no
adverse impact on outcome (“blank check” unsustainable)
CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK
108
The Construction Sector Is Critical to the Economy and the P/C Insurance Industry
108
109
Value of New Private Construction: Residential & Nonresidential, 2003-2015*
Billions of Dollars
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
03 04 05 06 07 08 09 10 11 12 13 14 15*
Non ResidentialResidential
Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates
$298.1
$15.0
$613.7
New Construction peaks at $911.8. in 2006
Trough in 2010 at $500.6B,
after plunging 55.1% ($411.2B)
2014: Value of new pvt. construction hits $698.2B as of Feb. 2015, up 40%
from the 2010 trough but still 23% below 2006 peak
109
$261.8
$238.8
$348.4
$349.9
*2015 figure is a seasonally adjusted annual rate as of February.Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
110
Value of Construction Put in Place, Feb. 2015 vs. Feb. 2014*
3.1%
13.9%
2.9%2.1% 1.8%
-2.1%
5.9%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
TotalConstruction
Total PrivateConstruction
Residential--Private
Non-Residential--
Private
Total PublicConstruction
Residential-Public
Non-Residential--
Public
Overall Construction Activity is Up, But Growth In the Private Sector Slowed in Late 2014 While Picking in the State/Local Sector Government
Sector as Budget Woes Ease in Some Jurisdictions
Growth (%)
Private sector construction activity is up in the
residential and nonresidential segments but
growth is sluggish
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +1.8% Public: +3.1%Public sector
construction activity is finally beginning to pick up after years of
decline
111
Value of Private Construction Put in Place, by Segment, Feb. 2015 vs. Feb. 2014*
13.1%
-0.1%
-1.7%
-10.3%
16.2%
-15.3%-16.8%
38.7%
21.4%
1.8%
-2.1%
5.9%9.6%
22.8%
-20%
-10%
0%
10%
20%
30%
40%
50%
To
tal
Pri
vate
Co
nstr
ucti
on
Resid
en
tial
To
tal
No
nre
sid
en
tial
Lo
dg
ing
Off
ice
Co
mm
erc
ial
Healt
h C
are
Ed
ucati
on
al
Reli
gio
us
Am
usem
en
t &
Rec.
Tra
nsp
ort
ati
on
Co
mm
un
icati
on
Po
wer/
Uti
lity
Man
ufa
ctu
rin
g
Private Construction Activity is Up in Many Segments, though the Key Residential Construction Sector Weakened in Late 2014/Early 2015; Mixed
Outlook for 2015, though Expansion Should Continue
Growth (%) Led by the Manufacturing and Office segments, Private nonresidential
sector construction activity continues to rising after plunging during the
“Great Recession.” Residential weakened.
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
114
$314.9$304.0
$286.4 $279.0 $271.4$280.0
$268.9
$216.1 $220.2$234.2
$255.4
$289.1$308.7
$0
$50
$100
$150
$200
$250
$300
$350
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
($ Billions)
Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Contracted As State/Local Governments Grappled with
Deficits and Federal Sequestration
Value of New Federal, State and Local Government Construction: 2003-2015*
*2014 figure is a seasonally adjusted annual rate as of December; http://www.census.gov/construction/c30/historical_data.html Sources: US Department of Commerce; Insurance Information Institute.
Construction across all levels of government
peaked at $314.9B in 2009
Austerity Reigns
Govt. construction MAY be turning a corner; still down
$46.0B or 14.6% since 2009 peak
115
(Millions of Units)
New Private Housing Starts, 1990-2021F
1.4
81
.47 1
.62
1.6
41
.57
1.6
0 1.7
1 1.8
5 1.9
6 2.0
71
.80
1.3
60
.91
0.5
50
.59
0.6
1 0.7
8 0.9
21
.01 1
.16 1.3
0 1.4
11
.46
1.4
91
.52
1.5
2
1.3
51.4
61
.29
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F20F 21F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/15 and 3/15); Insurance Information Institute.
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction
for several more years
116
Construction Employment,Jan. 2010—March 2015*
*Seasonally adjusted.Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,58
15,
522
5,54
25,
554
5,52
75,
512
5,49
75,
519
5,49
95,
501
5,49
75,
468
5,43
5 5,47
85,
485
5,49
75,
524
5,53
05,
547
5,54
65,
583
5,57
65,
577
5,61
25,
629
5,62
95,
628
5,62
75,
608
5,62
35,
632
5,64
15,
649
5,66
85,
684
5,72
45,
746 5,79
85,
815
5,81
35,
833
5,85
65,
854
5,86
65,
893
5,91
85,
953
5,93
7 6,00
66,
032
6,06
2 6,10
36,
114
6,12
16,
152
6,16
96,
191
6,20
16,
231 6,27
5 6,31
66,
345
6,34
4
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
6,200
6,300
6,400
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
0M
ar-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2A
ug-1
2S
ep-1
2O
ct-1
2N
ov-1
2D
ec-1
2Ja
n-13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Sep
-12
Oct
-13
Nov
-13
Dec
-13
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-1
4Ju
n-14
Jul-1
4A
ug-1
4S
ep-1
4O
ct-1
4N
ov-1
4D
ec-1
4Ja
n-15
Feb
-15
Mar
-15
Construction employment is +990,000 above
Jan. 2011 (+16.7%) trough
(Thousands)
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.
117
Construction Employment, Jan. 2003–March 2015
Note: Recession indicated by gray shaded column.Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Was a Growth Leader in 2014 as the Housing Market, Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
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
117
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of Mar. 2015 totaled 6.344 million, an
increase of 990,000 jobs or 16.7% from
the Jan. 2011 trough
Gap between pre-recession
construction peak and today: 1.38 million jobs
MANUFACTURING SECTOR OVERVIEW & OUTLOOK
118
The U.S. Is Experiencing a Mini Manufacturing Renaissance but Headwinds from Weak Export
Markets and Strong Dollar Have Hurt
118
120
Manufacturing Growth for Selected Sectors, 2015 vs. 2014*
-0.5%
2.0%
-2.2%
6.3%
-9.7%
2.3%
-34.0%
-4.1%-2.4%
8.8%
-3.7%
3.0%
9.7%
0.1%3.1%
-40%-35%-30%-25%-20%-15%-10%
-5%0%5%
10%15%
All
Ma
nu
fact
uri
ng
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ryM
eta
ls
Fa
bri
cate
dM
eta
ls
Ma
chin
ery
Ele
ctri
cal
Eq
uip
.
Co
mp
ute
rs &
Ele
ctro
nic
s
Tra
nsp
ort
atio
nE
qu
ip.
No
n-D
ura
ble
Mfg
.
Fo
od
Pro
du
cts
Pe
tro
leu
m &
Co
al
Ch
em
ica
l
Pla
stic
s &
Ru
bb
er
Te
xtile
Pro
du
cts
Manufacturing Is Expanding 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
Growth (%)
Manufacturing of durable goods is stronger than
nondurables in 2015
*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/
Durables: +3.0% Non-Durables: -9.7%
Impact of falling energy prices
Manufacturing Employment,January 2010—March 2015*
Jan-
10
Apr-1
0
Jul-1
0
Oct-1
0
Jan-
11
Apr-1
1
Jul-1
1
Oct-1
1
Jan-
12
Apr-1
2
Jul-1
2
Oct-1
2
Jan-
13
Apr-1
3
Jul-1
3
Oct-1
3
Jan-
14
Apr-1
4
Jul-1
4
Oct-1
4
Jan-
1511,250
11,500
11,750
12,000
12,250
12,50011,4
62
11,4
53
11,4
58
11,4
93
11,5
27
11,5
43
11,5
71
11,5
50
11,5
57
11,5
57
11,5
81
11,5
92
11,6
20
11,6
53
11,6
75
11,7
04
11,7
11
11,7
23
11,7
55
11,7
63
11,7
66
11,7
73
11,7
71
11,7
98
11,8
37
11,8
59
11,9
01
11,9
16
11,9
28
11,9
39
11,9
79
11,9
56
11,9
42
11,9
47
11,9
51
11,9
65
11,9
82
12,0
04
12,0
07
12,0
01
11,9
94
11,9
91
11,9
82
11,9
90
11,9
93
12,0
11
12,0
46
12,0
53
12,0
61
12,0
81
12,0
85
12,0
94
12,1
03
12,1
30
12,1
54
12,1
57
12,2
14
12,2
37
12,2
82
12,3
01
12,3
18
12,3
20
12,3
19
121
Thousands In the past 5 years (from January 2010) manufacturing employment
is up (+857,000 or +7.5%)and still growing.
Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted; Feb. and Mar. 2015 are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
ENERGY SECTOR: OIL & GAS INDUSTRY FUTURE IS BRIGHT
BUT VOLATILE
126
US Is Becoming an Energy Powerhouse but Fall in Prices
Will Have Negative Impact
126
5.19 5.08 5.00 5.35 5.47 5.656.49
7.44
8.679.31 9.53
5.09
0
2
4
6
8
10
12
U.S. Crude Oil Production, 2005-2016P
Source: Energy Information Administration, Short-Term Energy Outlook (January 15, 2015) , Insurance Information Institute.
Millions of Barrels per Day
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
129
Oil & Gas Extraction Employment,Jan. 2010—March 2015*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.
415
6.4
156.
715
7.6
158.
715
7.8
158.
015
9.5
160.
016
1.5
161.
216
1.2
163.
116
4.4
166.
6 169.
317
0.1
171.
017
2.5
173.
6 176.
317
8.2
178.
518
0.9
181.
318
2.3
184.
718
5.2
186.
218
7.8
188.
618
9.3
189.
418
9.4
190.
519
2.2
193.
119
4.6
194.
019
3.8
193.
119
2.5
193.
019
3.4
193.
319
3.1
194.
019
4.0
194.
019
5.4
193.
719
4.6
196.
419
7.6
198.
619
8.4
199.
420
1.5
201.
020
1.2
199.
419
8.0
198.
3
150
160
170
180
190
200
210
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
1M
ar-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2A
ug-1
2S
ep-1
2O
ct-1
2N
ov-1
2D
ec-1
2Ja
n-13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-1
4Ju
n-14
Jul-1
4A
ug-1
4S
ep-1
4O
ct-1
4N
ov-1
4D
ec-1
4Ja
n-15
Feb
-15
Mar
-15
Despite recent declines, Oil and gas extraction employment is
still up 26.8% since Jan. 2010 as the energy sector booms.
Domestic energy production is essential to any robust
economic recovery in the US.
(Thousands) After peaking at its highest level since 1986, O&G employment is
falling as oil and gas prices decline
130
Likelihood of small US businesses buying insurance online directly from the insurer, overall and by annual company revenue, in 2013
Source: Swiss Re from “Voice of the Small Commercial Insurance Consumer Survey.” Deloitte, March (2013)
Proportion of Businesses Interested in Buying Insurance Online
Interest diminishes
with account size
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Thank you for your timeand your attention!
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137
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