March 1, 2018 INNOVATION EXECUTIVE BOARD · insurance industry year in review kenneth saldanha insurance march 1, 2018 innovation executive board

INSURANCE INDUSTRY YEAR IN REVIEW

Kenneth Saldanha

March 1, 2018INSURANCEINNOVATIONEXECUTIVEBOARD

LIFE & ANNUITY

FLAT PREMIUMS FOR PAST DECADE HIGHLIGHT GROWTH CHALLENGES

Copyright © 2018 Accenture. All rights reserved. 3

Source: AM Best , Accenture

7.5%

3.0%

-8.2%

1.1%

6.7%

4.1%

-5.3%

-0.7%

2.8%

0.3%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Life & Annuity Direct Premium Growth

DPW % Change

HIGH FLUCTUATIONS,

BUT FLAT IN

AGGREGATE

MARGIN PERFORMANCE HEADING UPWARD?



7.7%

2.1%

9.8%

8.8%

5.2%

8.9%

10.0%

7.5%

8.6%

9.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Life & Annuity Operating Margin

Operating Margin Before Taxes and Policyholder Dividends

RISING INTEREST

RATES EXPECTED TO

BENEFIT PRODUCT

PROFITABILITY AND

INVESTMENT RESULTS

RETURN ON SURPLUS HOVERS AT 10%, EVEN AS SURPLUS CONTINUES TO CREEP UP



SURPLUS GROWTH CONTINUES

TO DRAG DOWN ROS

14.9%

12.0%

-19.2%

7.8%9.4%

5.0%

12.1%13.2%

10.8%11.0%10.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Life & Annuity Return on Surplus

$0

$100,000

$200,000

$300,000

$400,000

$500,000

2012 2013 2014 2015 2016

Life & Annuity Surplus Growth

US PCINDUSTRY

GOOD NEWS: RATE HARDENING AND INCREASED PROJECTION OF GROWTH


OPTIMISM BASED ON

STRONGER THAN

ANTICIPATED

PREMIUM GROWTH IN

2017 AND BEYOND

Source: Jan. 8, 2018 Conning Property/Casualty Forecast

4.6% 3.7%

1.9%

4.5% 4.7%

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

15.0%

20.0%

$0

$150,000

$300,000

$450,000

$600,000

20

14

20

15

20

16

20

17

est

20

18

est

US PC NPW GROWTH TREND

NPW % Change

3.7%

3.3%

4.5%4.7%

2017 est 2018 est

CHANGE IN

GROWTH PROJECTIONS

Projected Last Year

Revised Projection

UPBEAT CARRIER CEO STATEMENTS … WITH A WORD OF CAUTION FROM THE ANALYSTS


“4th quarter revenue growth along with the strong

economy both domestic and globally and with an

improved pricing environment makes us quite optimistic

out our growth prospects in the year ahead”

Chubb

4th Quarter 2017 Investor Call

“The current trend in rate change is the best we have

seen in the last few years”

Travelers


“(Insurance) Remains a more positive picture. Generally

speaking, we are actually quite positive on where things

stand…there is more pricing leverage today than there

was a year ago.”

W.R. Berkley CEO, William Berkley,


“We can only use history for a guide, and, for

the hurricanes of 2017 to spur on broad rate

improvements requires us to believe “that

this time its going to be different.” We prefer

to believe that we’ve seen this show before”

Deutsche Bank, Oct. 2017

BAD NEWS: LOSS EXPERIENCE PROPELLING RATE HARDENING HAS BEEN EXTREME


Source: Conning Property/Casualty Forecast, A.M. Best data and research and

Accenture estimates

2017 FAR WORSE

THAN ANTICIPATED…

HURRICANES

WILDFIRES

ATTRITIONAL LOSSES

100.4%

100.8%

107.3%

100.2%

2017 est 2018 est

CHANGE IN

CR PROJECTIONS

Projected Last Year

Revised Projection

63% 65% 67% 70% 67%

4% 4%5%

9%5%

-2% -1% -1% -1% -1%

28% 28%28%

27%27%

97.2% 97.7% 100.6%107.3%

100.2%

-10%

10%

30%

50%

70%

90%

110%

2014 2015 2016 2017 Est 2018 Est

INDUSTRY COMBINED RATIO

Expense Ratio

Reserve Development

Catastrophe Losses

Loss & LAE Ratio (ex-CAT and Reserves)

2017 RETURNS ON SURPLUS WELL BELOW COST OF CAPITAL



Cost of Equity Source : Bloomberg – Average of Industry Peer Group

WEAKENED

UNDERWRITING

RESULTS

SURPLUS GROWTH

CONTINUES

BETTER IN 2018?

Equity

Cost of

Capital-

8.3%

8.5% 8.5%

6.3%

3.5%

6.6%

2%

3%

4%

5%

6%

7%

8%

9%

2014 2015 2016 2017 Est 2018 Est

US PC STATUTORY RETURN ON

SURPLUS

705 694 728 747 779

2014 2015 2016 2017 Est 2018 Est

US PC STATUTORY SURPLUS ($

BN)

59 5944

26

50

2014 2015 2016 2017 Est 2018 Est

US PC STATUTORY NET INCOME

($ BN)

COMMERCIAL LINES

NPW GROWTH AND POSITIVE TOP-LINE EXPECTATIONS


MODEST RATE

IMPROVEMENTS

BEGAN TO

MATERIALIZE IN 2017


3.0% 2.6%

-1.8%

1.7%

3.2%

-2.0%

0.0%

2.0%

4.0%

$200,000

$225,000

$250,000

$275,000

2014 2015 2016 2017 est 2018 est

COMMERCIAL LINES NPW GROWTH

NPW % Change

1.9%

2.1%

1.7%

3.2%

2017 est 2018 est

CHANGE IN

GROWTH PROJECTIONS

Projected Last Year

Revised Projection

NOT A “RISING TIDE”- DEGREE OF RATE HARDENING VARIES BY LINE


AUTO HOT-SPOT

GL REBOUND

WC FLAT

PROPERTY SLIDES


8.4%7.5% 7.5%

2.2%

5.5%

7.5%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0

$10

$20

$30

$40

$50

2013 2014 2015 2016 2017 Est 2018 Est

COMMERCIAL LINES AUTO NPW GROWTH

ANNUAL NPW ($ Bn) % Change

5.2%

7.1%

2.8%

0.6% 1.0% 0.6%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0

$10

$20

$30

$40

$50

2013 2014 2015 2016 2017 Est 2018 Est

WORKERS COMP NPW GROWTH


9.5%

4.4%

1.5%

-2.9%

1.2%

4.2%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0

$10

$20

$30

$40

$50

2013 2014 2015 2016 2017 Est 2018 Est

GENERAL LIABILITY NPW GROWTH


7.7%

1.5%

-3.1%

1.9%

-6.7%

3.0%

-8.0%

-3.0%

2.0%

7.0%

$0

$10

$20

$30

$40

$50

2013 2014 2015 2016 2017 Est 2018 Est

COMMERCIAL PROPERTY NPW GROWTH


UNDERWRITING RESULTS DETERIORATE FROM ATTRITIONAL AND CAT LOSSES


~ 8 POINT INCREASE IN

CAT LOSSES

~3 POINT INCREASE IN

ATTRITIONAL LOSSES

97.1%98.0%

107.6%

98.3%

2017 est 2018 est

CHANGE IN

CR PROJECTIONS

Projected Last Year

Revised Projection

65% 63% 65% 68% 65%

2% 2% 3%11%

5%

-3% -2% -1% -2% -1%

29% 30% 31%

30%

30%

94.7% 94.2%98.4%

107.6%

98.3%

-20%

0%

20%

40%

60%

80%

100%

120%

2014 2015 2016 2017 Est 2018 Est

COMMERCIAL LINES COMBINED RATIO

Expense Ratio

Reserve Development

Catastrophe Losses

Loss & LAE Ratio (ex-CAT and Reserves)


Accenture estimates

INDUSTRY RESERVE RELEASES CONTINUE, BUT ARE SLOWING


Source: A.M. Best US Property/Casualty 2018 Review & Preview

10+ YEARS OF

ACCIDENT YEAR AND

CALENDAR YEAR

RESERVE RELEASES

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

04 05 06 07 08 09 10 11 12 13 14 15 16

($ B

illio

ns)

Calendar Year Accident Year

Industry Reported Reserve DevelopmentOne year development for Calendar Years, Accident Years as of 12/31/16

THE FUTURE IS FEARLESS – WHEN YOU DIFFERENTIATE FROM INDUSTRY AVERAGE



COMMERCIAL LINES (Top 15 account for ~ 45% of segment total) : NPW GROWTH VS COMBINED RATIO (2014-2016)

Net Premium Written Growth (2014-16 CAGR)

Co

mb

ined

Rati

o (

2014

-16 A

vg

)

Bubble Size : 2016 NPW

Ind Avg 96.7

Ind Avg 0.9%AIG

AIG:

135.3, -9.2%

Travelers

Liberty Mutual

Chubb (*)

Hartford

CNA

Tokio Marine

W. R. Berkley

Zurich

Great American P & C

Fairfax

Cincinnati IC

FM Global Group

Old Republic

EMC IC

75.0

80.0

85.0

90.0

95.0

100.0

105.0

110.0

115.0

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

*2016 NPW

impacted by

reinsurance

PERSONAL LINES

CONTINUED RATE INCREASES IN PERSONAL AUTO ARE THE PRIMARY INFLUENCE ON NPW GROWTH



6.0%

4.6%

5.2%

6.8%

5.8%

0.0%

2.0%

4.0%

6.0%

8.0%

$200,000

$250,000

$300,000

$350,000

2014 2015 2016 2017 est 2018 est

PERSONAL LINES NPW GROWTH

NPW % Change

GROWTH HIGHER

THAN ANTICIPATED AS

RATE CORRECTIONS

ARE BEING SEEN

MORE QUICKLY IN

SHORTER TAIL

PERSONAL LINES

5.4%

4.7%

6.8%

5.8%

2017 est 2018 est

CHANGE IN

GROWTH PROJECTIONS

Projected Last Year

Revised Projection

UPTICK IN BOTH AUTO AND HOME



5.7%5.0%

7.3% 7.9%6.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0

$40

$80

$120

$160

$200

$240

2014 2015 2016 2017 Est 2018 Est

PERSONAL AUTO NPW GROWTH


7.0%

3.8%

0.5%

4.1% 3.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0

$20

$40

$60

$80

$100

2014 2015 2016 2017 Est 2018 Est

HOMEOWNERS NPW GROWTH


AUTO GROWTH ON A

SMOOTH(ER) TREND

HOMEOWNERS JUMPS

ON CATS

CR ABOVE 100 FOR THREE YEARS…WITH A 2017 PEAK


~ 3 POINT INCREASES

IN BOTH CAT AND

ATTITIONAL LOSSES

FOR 2017

103.2%

103.0%

107.1%

101.7%

2017 est 2018 est

CHANGE IN

CR PROJECTIONS

Projected Last Year

Updated Projection

65% 69% 71% 73% 71%

6%5%

6% 9%5%

-3% -1% 0% 0% 0%

26%26% 25%

25%25%

99.4% 100.7% 102.5%107.1%

101.7%

-10%

10%

30%

50%

70%

90%

110%

2014 2015 2016 2017 Est 2018 Est

PERSONAL LINES COMBINED RATIO

Expense Ratio

Reserve Development

Catastrophe Losses


Accenture estimates


HOMEOWNERS, WHILE TYPICALLY BETTER THAN AUTO, IS EQUALIZED BY CATS IN 2017

15+ POINTS JUMP,

LARGELY DRIVEN BY

CATS, FOR

HOMEOWNERS IN 2017


77.2%79.8%

82.4% 82.0%80.0%

62.5% 62.0% 63.5%

80.0%

66.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2014 2015 2016 2017 Est 2018 Est

Personal Lines Auto and Home Loss Ratio Comparison

PA Loss Ratio HO Loss Ratio

AUTO … WHEN DOES THE HURTING STOP?


62.8

64.4

66.7 66.6

64.7

63.7 63.7

64.8

69.1

71.6

62

64

66

68

70

72

2.2

2.4

2.6

2.8

3.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

CY P

ure Lo

ss Ratio

(%)

Ave

rage

Pai

d C

laim

($

Th

ou

san

ds)

Pure Loss Ratio Average Paid Claim

U.S. Private Passenger Auto Liability –Original Accident Year Average Paid Claim and Calendar Year Pure Loss Ratio

Source: A.M. Best data and research

LOSS RATIO AND

“AVERAGE PAID”

STEEP CLIMB

EXPECTED TO

CONTINUE IN AUTO

THE FUTURE IS FEARLESS – WHEN YOU DIFFERENTIATE FROM INDUSTRY AVERAGE



PERSONAL LINES (Top 10 account for ~75% of segment total) : NPW GROWTH VS COMBINED RATIO (2014-2016)

Net Premium Written Growth (2014-16 CAGR)

Co

mb

ined

Rati

o (

2014

-16 A

vg

)

Bubble Size : 2016 NPW

Ind Avg 100.9

Ind Avg 4.9%

State Farm

Allstate

GEICO

Progressive

USAA

Liberty

Farmers

Nationwide

Travelers

American Family

90.0

92.0

94.0

96.0

98.0

100.0

102.0

104.0

106.0

108.0

110.0

-0.5% 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 7.5% 8.5% 9.5% 10.5% 11.5% 12.5% 13.5% 14.5%

Documents

March 1, 2018 INNOVATION EXECUTIVE BOARD · insurance industry year in review kenneth saldanha insurance march 1, 2018 innovation executive board