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The Global Economy, Rising Risk and Marine Insurance Markets Risk and Reward in a Troubled World. San Francisco Board of Marine Underwriters San Francisco, CA May 1, 2014 Download at www.iii.org/presentations. Robert P. Hartwig, Ph.D., CPCU, President & Economist - PowerPoint PPT Presentation
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The Global Economy, Rising Risk and Marine Insurance Markets
Risk and Reward in a Troubled WorldSan Francisco Board of Marine Underwriters
San Francisco, CAMay 1, 2014
Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
Outlook: Property/Casualty Modest growth will continue in 2014 (~ 4.5% DPW)
Exposure growth tied primarily to overall GDP growth/key sector drivers Rates remain in positive territory though more concern for commercial
lines in second half of the year Underlying loss cost trends remain manageable Very well capitalized
For primary insurers, falling reinsurance pricing and alternative capital are benefits
Traditional reinsurers challenged by continued entry of new capital and accumulation of “organic” capital
Regulatory/Legislative concerns manageable TRIA, Systemic risk, FIO & general federal “intrusions”
Personal Lines: StableCommercial Lines: Negative
Reinsurance: Stable
3
Risk & Insurance U.S. and Global Perspective
Marine Insurance Is Very Sensitive to the Global Economic and Political
Environment
4
5 Major Categories for External Global Risks, Uncertainties and Fears: Insurance Solutions
1. Economic Risks2. Geopolitical Risks3. Environmental Risks4. Technological Risks5. Societal Risks
Source: Adapted from World Economic Forum, Global Risks 2014; Insurance Information Institute.
While risks can be broadly
categorized, none are mutually exclusive
5
Multitude of Exogenous Factors Influence Growth, Performance & Cyclicality
Economic Issues in US, Europe Weakness in China/Emerging Economies Political Upheaval in the Ukraine, Middle East
Argentina, Venezuela, Thailand Trade sanctions (e.g., Iran, Russia)
Political Gridlock in the US, Europe, Japan Fiscal/Monetary Imbalances/Low Interest Rates Unemployment Resurgent Terrorism Risk Cyber Attacks Sabre Rattling (e.g., US-China, China-Japan) Severe Natural Disaster Losses Climate Change/Sea Level Rise Environmental Degradation (Over)Regulation: Systemic Risk?
Are “Black Swans” everywhere or
does it just seem that way?
7
Top 5 Global Risks in Terms of Impact,2007—2014: Insurance Can Help With Most
Source: World Economic Forum, Global Risks 2014; Insurance Information Institute.
Concerns Over the Impacts of Economics Risks Remained High in 2014, but Societal, Environment and Technological Risks Also Loom Large
In 2014, economic
and environ-mental issues
dominated severity
concerns
88Sources: Guy Carpenter, Swiss Re; Insurance Information Institute .
Gap Between Economic and Insured Losses: 1980—2013
The gap between economic and insured losses is growing—suggesting both a problem
and an opportunity
Globalization:The Global Economy Creates and Transmits Cycles & Risks
9
Globalization Is a Double Edged Sword—Creating Opportunity and Wealth But
Potentially Creating and Amplifying Risk
9
Emerging vs. “Advanced” Economies
(4.0)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
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 13F
14F
15F
Advanced economies Emerging and developing economies World
Source: International Monetary Fund, World Economic Outlook , April 2014; Insurance Information Institute.
Emerging economies (led by China) are expected to grow by 4.9% in 2014 and
5.3% in 2015.
GDP Growth: Advanced & Emerging Economies vs. World, 1970-2015F
Advanced economies are expected to grow at a modest pace of 2.2% in
2014 and to 2.3% in 2015.
World output is forecast to grow by 3.6% in 2014 and 3.9% in 2015. The world economy shrank by 0.6% in
2009 amid the global financial crisis
GDP Growth (%)
11
Real GDP Growth Forecasts: Major Economies: 2011 – 2015F
Sources: Blue Chip Economic Indicators (4/2014 issue); IMF; Insurance Information Institute.
1.8%
1.5%
0.9%
2.2% 2.
7%
1.1%
2.7% 3.0%
2.3%
7.4%
3.0%
1.4%
2.5% 3.
3%
2.7%
7.3%
9.3%
2.6%
4.6%
-0.6
%
7.8%
3.0%
0.2%
1.8%
1.4%1.
9%
-0.4
%
1.7%2.
6%
7.7%
-2%
0%
2%
4%
6%
8%
10%
US Euro Area UK Latin America Canada China
2011 2012 2013F 2014F 2015F
Growth Prospects Vary Widely by Region: Growth Returns to Most Areas Even as China Slows; Some strengthening in Latin America
The Eurozone is ending
Growth in China has outpaced the US
and Europe
US growth should
acceleratein 2014
12
Real GDP Growth Forecasts: Selected Economies: 2011 – 2015F
Sources: Blue Chip Economic Indicators (4/2014 issue); Insurance Information Institute.
3.6% 4.
1%
7.7%
4.3%
3.9%
2.0%
1.3%
3.4%
0.9%
3.6% 3.9%
2.8%
2.0%
4.6%
1.6%
2.4% 2.5%
1.4%
3.6%
3.3%
5.4%
1.0%
1.9%
2.6% 3.
1%3.7%
3.7%
6.0%
2.2% 2.3% 2.
8%
3.9%
2.7%
2.4%
4.0%
0%1%2%3%4%5%6%7%8%9%
S. Korea Taiwan India Russia Brazil Australia Mexico
2011 2012 2013 2014F 2015F
Growth Is Expected Accelerate in Most of the World in 2014 and 2015
Strong economies in smaller industrialized nations will bolster demand for products, services, international trade and insure
13
Global Industrial Production (2000-Feb. 2012)
Source: IMF, World Economic Outlook, April 2012; Insurance Information Institute.
12
Global industrial production has
been volatile but is growing
14
World GDP and Industrial Production (2005-Feb. 2015F)
Source: IMF, World Economic Outlook, April 2014; Insurance Information Institute.
Global industrial production should continue
to rise as should exports and imports of
manufactured goods
15
World Trade Volume: 1948—2015F
$7,380
$17,930 $18,468 $19,262 $20,283
$3,676$1,838
$579$157$84$59$0
$5,000
$10,000
$15,000
$20,000
$25,000
1948 1953 1963 1973 1983 1993 2003 2012 2013E 2014F 2015F
Sources: World Trade Organization data through 2012 from International Trade Statistics 2013; Insurance Information Institute estimates and forecasts for 2013-2015 based on IMF World Economic Outlook forecasts as of April 2014.
$ Billions
Insurance Regulation Will Necessarily Become More Transnational, Following Patterns of Global Economic Growth, the Creation of New
Insurable Exposures and International Capital Flows
Global trade volume will exceed $19 trillion in 2014, an increase of nearly 160% over
the past decade
15
16
2.8% 3.0%
4.3%
5.3%
0%
1%
2%
3%
4%
5%
6%
2013 2014F 2015F 2016F
World Trade Volume Growth*,2012 – 2015F
World trade volume growth is expected to accelerate modestly through 2015—translating into
$2.25 trillion in net trade growth
*Goods and services.Source: International Monetary Fund, World Economic Outlook , April 2014; Insurance Information Institute.
17
World Trade Volume: IMPORTS2010 – 2015F
15.3%
8.8%
5.8% 5.6% 5.2%6.3%
11.5%
4.3%
1.1% 1.4%
3.5%4.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2010 2011 2012 2013 2014F 2015F 2010 2011 2012 2013 2014F 2015F
Growth (%)
Import growth in emerging economies outpaces
Advanced Economies by a wide margin but will slow in
2014
Advanced Economies Emerging Economies
Sources: IMF World Economic Outlook (April 2014 ); Insurance Information Institute.
Import growth in Advanced Economies is expected to
accelerate in 2014
18
World Trade Volume: EXPORTS2010 – 2015F
14.7%
6.7%
4.2% 4.4% 5.0%6.2%
12.2%
5.3%
2.1% 2.3%
4.2% 4.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2010 2011 2012 2013 2014F 2015F 2010 2011 2012 2013 2014F 2015F
Growth (%)
Export growth in emerging economies has
decelerated sharply
Advanced Economies Emerging Economies
Sources: IMF World Economic Outlook (April 2014); Insurance Information Institute.
Export growth in advanced economies
should accelerate in 2014
19
Country Shares of World Merchandise Exports
Source: World Trade Organization accessed 4/30/14 at: http://www.wto.org/english/res_e/statis_e/statis_e.htm ; Insurance Information Institute.
The US, China, Japan and Western Europe lead the world in merchandise exports
20
Potential Output of Total Economy: US, China, India, Indonesia and Japan, 2000-2060F
Source: OECD; Insurance Information Institute . 20
$ 2005 PPP
Growth in economic output will be
concentrated in certain developing economies
such as China and India
China will likely become the
world’s largest economy between
2025 and 2030
Ocean Marine Overview
21
Vessel Losses Have Dropped though Underwriting Performance Remains
Volatile21
22
Ferry Sewol Sinking in South Korea Is One of the Greatest Maritime Tragedies in Recent History
The Sewol and Costa Concordia disasters
will impact risk management in the
maritime sector
23
Total Vessel Losses by Top 10 Regions: 2002 – 2013
73 51 51 50
417
8296135
207215
296
050
100150200250300350400450
S. C
hina
,In
do C
hina
,In
done
sia
&
E. M
edit.
,B
lack
Sea
Japa
n,K
orea
and
N. C
hina
Brit
ish
Isle
s,N
. Sea
, Eng
.C
hann
el,
Ara
bian
Gul
f&
App
roac
hes
W. A
frica
Coa
st
W. M
edit.
Wes
t Ind
ies
E. A
frica
Coa
st
Bay
of
Ben
gal
Oth
ers
Sources: Lloyd’s List Intelligence Casualty Statistics as published in Safety and Shipping Review 2014, Allianz Global Corporate and Specialty; Insurance Information Institute.
Total Vessel Losses
S. China, Indo China, Indonesia and the Philippines was the region that saw the most losses (296) from 2002
through 2013. The U.S. eastern seaboard dropped of the list as there were no total
losses last year.
23
There were 1,673 total vessel losses from 2002 through 2013. The top 10 regions account for about 75% of all total losses
24
Country Shares of World Merchandise Exports
Sources: Lloyd’s List Intelligence Casualty Statistics as published in Safety and Shipping Review 2014, Allianz Global Corporate and Specialty; Insurance Information Institute.
Asia accounts for the largest share of total losses, followed by the Middle East and
E. Mediterranean
25
Total Vessel Losses by Year: 2002 – 2013
150
128 121
89
117
94
170154151152
174173
020406080
100120140160180200
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sources: Lloyd’s List Intelligence Casualty Service as published in Safety and Shipping Review 2014, Allianz Global Corporate and Specialty; Insurance Information Institute.
Total Vessel Losses
While total vessel losses are down sharply over the past decade, the question is whether this trend will continue
Total losses have declined by nearly 46% over the
past 11 years
25
26
Total Vessel Losses by Top 10 Regions: 2013
4 3 3 3
18
5689
1718
02468
101214161820
S. C
hina
,In
do C
hina
,In
done
sia
&Ph
ilipp
ines
Japa
n,K
orea
, N.
Chi
na
E. M
edit.
,B
lack
Sea
W. A
frica
Coa
st
Ara
bian
Gul
f&
App
roac
hes
Bay
of
Ben
gal
E. A
frica
Coa
st
Brit
ish
Isle
s,N
. Sea
, Eng
.C
hann
el,
Bay
of
Can
adia
nA
rctic
,A
lask
a
W. M
edit.
Oth
ers
Sources: Lloyd’s List Intelligence Casualty Statistics as published in Safety and Shipping Review 2014, Allianz Global Corporate and Specialty; Insurance Information Institute.
Total Vessel LossesS. China, Indo China,
Indonesia and the Philippines was the region that saw the most losses (18) in 2013, but this was
down from 29 in 2012
26
There were 94 total vessel losses in 2013—about 8 per month
27
Total Losses by Type of Vessel: 2013
6 62 2
6
14
47
32
12
305
101520253035
Sources: Lloyd’s List Intelligence Casualty Statistics as published in Safety and Shipping Review 2014, Allianz Global Corporate and Specialty; Insurance Information Institute.
Cargo vessels accounted for more than 1/3 of 94 total
vessel losses in 2013
27
28
Causes of Total Losses: 2002 – 2013
1096
312
30785
199
745
20160
0100200300400500600700800
Col
lisio
n(in
volv
ing
vess
els)
Con
tact
(e.g
.,ha
rbor
wal
l)
Foun
dere
d (s
unk,
subm
erge
d)
Fire
/Exp
losi
on
Hul
l dam
age
(hol
ed, c
rack
ed,
etc.
)
Mis
sing
/Ove
rdue
Mac
hine
ryda
mag
e/Fa
ilure
Pira
cy
Wre
cked
/stra
nded
(agr
ound
)
Mis
cella
neou
s
Sources: Lloyd’s List Intelligence Casualty Statistics as published in Safety and Shipping Review 2014, Allianz Global Corporate and Specialty; Insurance Information Institute.
Foundered vessels accounted for 45% of the 1,673 total vessel losses
from 2002-2103
28
Global Insurance Premium Growth Trends
29
Growth Is Uneven Across Regions and Market Segments
29
31
Distribution of Nonlife Premium: Industrialized vs. Emerging Markets, 2012
Sources: Swiss Re sigma No.3/2013; Insurance Information Institute research.
Emerging market’s share of nonlife premiums increased to 17.3% in 2012 from 14.3% in 2009. The share of premiums written in the $2 trillion global nonlife market remains much larger (82.7%) but continues to shrink.
The financial crisis and sluggish recovery in the major insurance markets will accelerate the expansion of the emerging market sector
Premium Growth Facts
17.3%82.7%
Industrialized Economies
$1, 647.5
Emerging Markets$344.1
2012, $Billions
Developing markets now account for about 40% of
global GDP but just 17.3% of nonlife premiums
32
Premium Growth by Region, 20122.
3%
2.0%
16.8
%
-3.1
% -0.4
%
1.9%
13.8
%
-4.9
%
2.6%
1.7%
-0.4
%
4.8% 5.8%
13.0
%
4.8%
-1.0
%
13.0
%
2.4%
1.8%
11.7
%
-2.0
%
4.9%
8.1%
4.2%
3.9%
10.5
%
-0.1
%
5.1%
8.8%
7.8%
-10%-5%0%5%
10%15%20%
World N.America
LatinAmerica
W.Europe
Central &E. Europe
AdvancedAsia
EmergingAsia
MiddleEast &Central
Asia
Africa Oceania
Life Non-Life Total
Global Premium Volume Totaled $4.613 Trillion in 2012, up 2.4% from $4.566 Trillion in 2011. Global Growth Was Weighed Down by Slow Growth
in N. America and W. Europe and Partially Offset by Emerging Markets
Latin America growth was
the strongest in 2012
Growth in Advanced Asia (incl. China) markets was
third highest in 2012
Source: Swiss Re, sigma, No. 3/2013.
33
Non-Life Insurance: Global Real (Inflation Adjusted) Premium Growth, 2012
Source: Swiss Re, sigma, No. 3/2013.
Market Life Non-Life TotalAdvanced 1.8 1.5 1.7
Emerging 4.9 8.6 6.8
World 2.3 2.6 2.4
Real growth in non-life insurance
premiums was faster in China than the US
34
Global Real (Inflation Adjusted) NonlifePremium Growth: 1980-2010
Source: Swiss Re, sigma, No. 2/2010.
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-10%
-5%
0%
5%
10%
15%
20%Real growth rates
Total Industrialised countries Emerging markets
Nonlife premium growth in emerging markets has
exceeded that of industrialized countries in
27 of the past 31 years, including the entirety of the
global financial crisis..
Real nonlife premium growth is very erratic in part to inflation volatility in emerging markets as
well as a lack of consistent cyclicality
Average: 1980-2010Industrialized Countries: 3.8%
Emerging Markets: 9.2%Overall Total: 4.2%
3636Sources: Guy Carpenter, World Bank, IMF; Insurance Information Institute .
Gap Between GDP Growth and Reinsurance Limit in Asia-Pacific Region: 2004—2013
The gap between GDP and reinsurance limit in Asia is growing—suggesting the
region is “under-reinsured”
41
The Unfortunate Nexus: Opportunity, Risk & Instability
Most of the Global Economy’s Future Gains Will be Fraught with Much
Greater Risk and Uncertainty than in the Past
42Source: Aon PLC; Insurance Information Institute.
The fastest growing markets are generally also
among the politically riskiest, including East and
South Asia and Africa
Latin and South America also present insurers with growth
opportunities but political instability has
increased markedly
Problems in the Ukraine will
intensify political risk in several former
Soviet republics
Political Risk in 2013: Greatest Business Opportunities Are Often in Risky Nations
43Source: Aon PLC; Insurance Information Institute.
Terrorism remains a greater concern in the Middle East,
Africa and South Asia
Latin and South America have modest
terrorist threats though Brazil is elevated
Terrorism Risk in 2013: Greatest Business Opportunities Are Often in Risky Nations
44
P/C (Re)Insurance Industry Financial Overview
2013: Best Year in the Post-Crisis Era
Performance Improved with Lower CATs, Strong Markets
44
P/C Net Income After Taxes1991–2013 ($ Millions)
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 = 6.1% 2013 ROAS1 = 10.3%
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.8% ROAS in 2013, 6.3% 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
$14,
178
$5,8
40
$19,
316
$10,
870 $20,
598
$24,
404 $3
6,81
9
$30,
773
$21,
865
$3,0
46
$30,
029
$62,
496
$3,0
43
$35,
204
$19,
456
$35,
074
$63,
784
$28,
672
-$6,970
$65,
777
$44,
155
$20,
559
$38,
501
-$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
2013 ROAS was 10.3%
Net income in 2013 was up substantially
(+81.9%) from 2012
-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
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013*
*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.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: 4.7%
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013: 9.8 %
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEsCombined Ratio / ROE
* 2008 -2013 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2013 combined ratio including M&FG insurers is 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
97.5100.6 100.1 100.8
92.7
101.299.5
101.0
96.7
102.4
106.5
95.7
14.3%15.9%
12.7%10.9%
7.4% 7.9%
4.7%6.2%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 20130%
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, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Lower CATs helped ROEs
in 2013
48
ROE: Property/Casualty Insurance vs. Fortune 500, 1987–2013E*
* Excludes Mortgage & Financial Guarantee in 2008 – 2013. 2013 Fortune 500 figure is I.I.I. estimate. 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 13E
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
51
-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 14
Net Premium Growth: Annual Change, 1971—2014F(Percent)
1975-78 1984-87 2000-03
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.
2014F: 4.0%2013: 4.6%
2012: +4.3%
52
Growth in Direct Written Premium by Line, 2013-2015F*
Source: Conning.
4.4%
4.4%
4.4%
4.1%
5.1% 5.
8%
8.6%
5.6% 6.
2%
4.0% 4.1%
3.9%
3.6%
5.1%
6.1%
8.0%
6.0%
3.7%4.
3%
3.9%
4.7%
3.2%
5.5% 6.
0%
7.5%
7.0%
3.4%
0%1%2%3%4%5%6%7%8%9%
10%
All Lines PersonalLines
CommercialLines
PersonalAuto
HomeownersCommercialAuto
WC CMP GL
2013F 2014F 2015F
(Percent) P/C growth is expected to remain fairly stable
through 2015
53
Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2013)
-3.2
%-5
.9%
-7.0
%-9
.4%
-9.7
% -8.2
%-4
.6% -2.7
%-3
.0%
-5.3
%-9
.6%
-11.
3%-1
1.8%
-13.
3%-1
2.0%
-13.
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%
2.7% 4.
4%4.
3%3.
9% 5.0%
5.2%
4.3%
3.4%
2.1%
-0.1
% 0.9%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
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 Q4:2013 was positive for the 10th consecutive
quarter. Gains are likely to continue into 2014.
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
P/C UNDERWRITING
54
Underwriting Losses in 2013 Much Improved After High
Catastrophe Losses in 2011/1254
55
P/C Insurance Industry Combined Ratio, 2001–2013*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1. Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4
96.7
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
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
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
Ocean Marine vs. Commercial Lines Combined Ratio: 1989–2012
114.
2 118.
2
97.3
119.
4
89.6
102.
0
110.
4 115.
5
107.
2
102.
2
100.
0 104.
1
97.2
118.
4
98.7
113.
7
103.
6
91.0
96.4 10
0.8
108.
9
108.
7
109.
4
110.
2
118.
8
109.
5
112.
5
110.
2
107.
6
104.
1 109.
7
112.
3
111.
1
122.
3
110.
2
102.
0
102.
5
105.
4
91.1 93
.6
104.
2
98.9 10
2.4 10
7.9
103.
4109.
5
107.
9
92.4
80859095
100105110115120125
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Ocean Marine All Commercial Lines
Ocean Marine has marginally outperformed Commercial Lines overall over the period from 1989 – 2012
Sources: A.M. Best; Insurance Information Institute. 56
Average: 1989-2012Ocean Marine: 104.9
All Commercial Lines: 107.0
59
Combined Ratios by Predominant Business Segment, 2013 vs. 2012*
*Excludes mortgage and financial guaranty insurers.Source: ISO/PCI; Insurance Information Institute
102.3101.1
102.3
104.8
96.797.6
94.3
98.7
90
92
94
96
98
100
102
104
106
All Lines Personal LinesPredominating
Commercial LinesPredominating
Diversified Insurers
2012 2013
(Percent)
The combined ratios for both personal and
commercial lines improved substantially in 2013
62
Some Key Drivers in the US Economy
Economic Factors Driving Exposure Growth and Insurer Performance
62
63
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 4/14; Insurance Information Institute.
2.7%
0.5%
3.6%
3.0%
1.7%
-1.8
%1.
3%-3
.7%
-5.3
%-0
.3%
1.4%
5.0%
2.3%
2.2% 2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
1.1% 2.
5%4.
1%2.
4%0.
1%3.
0%3.
0%3.
1%3.
0%3.
0%3.
0%2.
9%
0.4%
-8.9%
4.1%
1.1% 1.
8% 2.5% 3.
6%3.
1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
07:1
Q07
:2Q
07:3
Q07
:4Q
08:1
Q08
:2Q
08:3
Q08
:4Q
09:1
Q09
:2Q
09:3
Q09
:4Q
10:1
Q10
:2Q
10:3
Q10
:4Q
11:1
Q11
:2Q
11:3
Q11
:4Q
12:1
Q12
:2Q
12:3
Q12
:4Q
13:1
Q13
:2Q
13:3
Q13
:4Q
14:1
Q14
:2Q
14:3
Q14
:4Q
15:1
Q15
:2Q
15:3
Q15
:4Q
Demand for Insurance Should Increase in 2014/15 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor
market contraction was severe
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
The remainder of 2014 into 2015 are expected
to see a modest acceleration in growth
64
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
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 6.7% in March 2014. 4%
to 6% is “normal.”
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 12.7%
in Mar. 2014.8% to 10% is
“normal.”
January 2000 through March 2014, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.
64
As the unemployment rate approaches 6%,
the Fed will begin signaling on short-
term rates
65
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%
6.7%
6.5%
6.4%
6.2%
6.1%
6.0%
5.9%
5.8%
9.6%
4%
5%
6%
7%
8%
9%
10%
11%
07:Q
107
:Q2
07:Q
307
:Q4
08:Q
108
:Q2
08:Q
308
:Q4
09:Q
109
:Q2
09:Q
309
:Q4
10:Q
110
:Q2
10:Q
310
:Q4
11:Q
111
:Q2
11:Q
311
:Q4
12:Q
112
:Q2
12:Q
312
:Q4
13:Q
113
:Q2
13:Q
313
:Q4
14:Q
114
:Q2
14:Q
314
:Q4
15:Q
115
:Q2
15:Q
315
: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 (4/14 edition); Insurance Information Institute.
2007:Q1 to 2015:Q4F*
Unemployment forecasts have been revised slightly
downwards. Optimistic scenarios put the
unemployment as low as 6.0% by Q4 of this year.
Jobless figures have been revised
slightly downwards for 2014/15
66
Value of New Private Construction: Residential & Nonresidential, 2003-2013*
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*
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)
2013: Value of new pvt. construction hits $667.5B, up
33% from the 2010 trough but still
27% below 2006 peak
66
$261.8
$238.8
$311.5
$356.0
*2013 figure is a seasonally adjusted annual rate as of December.Sources: US Department of Commerce; Insurance Information Institute.
69
$200,000
$300,000
$400,000
$500,000
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Dec. 2013
*seasonally adjusted; Dec. 2013 is preliminary; data published February 4, 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments in Dec. 2013 exceeded the pre-crisis (July 2008) peak. Manufacturing is energy-intensive and growth leads to gains in many commercial
exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
$ Millions
69
The value of Manufacturing Shipments in Dec. 2013 was $492.7B—a near record high.
70
Manufacturing Growth for Selected Sectors, 2013 vs. 2012*
3.0%0.0%
-3.4%
8.1%
0.2%2.7%
-1.8%-0.5%
3.1%
6.9%
1.7%3.1%
14.0%
0.4% 1.3%
-6%-4%-2%0%2%4%6%8%
10%12%14%16%
All
Man
ufac
turin
g
Dur
able
Mfg
.
Woo
dP
rodu
cts
Prim
ary
Met
als
Fabr
icat
edM
etal
s
Mac
hine
ry
Ele
ctric
alE
quip
.
Com
pute
rs &
Ele
ctro
nics
Tran
spor
tatio
nE
quip
.
Non
-Dur
able
Mfg
.
Food
Pro
duct
s
Pet
role
um &
Coa
l
Che
mic
al
Pla
stic
s &
Rub
ber
Text
ileP
rodu
cts
Manufacturing Is Expanding—Albeit Slowly—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 was especially
strong in 2012 but weakened in 2013
*Seasonally adjusted; Date are YTD comparing data through November 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Durables: +3.4% Non-Durables: +0.2%
71
Manufacturing Employment,Jan. 2010—March 2014*
11,4
6011
,460
11,4
6611
,497
11,5
3111
,539
11,5
5811
,548
11,5
5411
,555
11,5
7711
,590
11,6
2411
,662
11,6
8211
,707
11,7
1511
,724
11,7
4711
,760
11,7
6211
,770
11,7
6911
,797
11,8
4111
,870
11,9
1011
,920
11,9
2611
,935
11,9
5711
,943
11,9
2511
,931
11,9
3811
,951
11,9
6511
,988
11,9
8411
,977
11,9
7211
,965
11,9
4811
,963
11,9
9312
,011
12,0
4612
,053
12,0
6112
,080
12,0
79
11,250
11,500
11,750
12,000
12,250Ja
n-10
Feb-
10M
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-
11M
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
2/30
/2M
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-
13M
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-
14M
ar-1
4
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. 2014 are preliminarySources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands) Since Jan 2010, manufacturing employment
is up (+619,000 or +5.4%)and still growing.
72
2.5%
4.9%
6.3%
7.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2013 2014F 2015F 2016F
Business Investment: Expected to Accelerate, Fueling Commercial Exposure Growth
Accelerating business investment will be a potent driver of
commercial property and liability insurance exposures and should drive employment and WC payroll
exposures as well (with a lag)
Source: IHS Global Insights as of Jan. 13, 2014; Insurance Information Institute.
73
12 Industries for the Next 10 Years: Insurance Solutions Needed
Export-Oriented Industries
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Light Manufacturing
Insourced Manufacturing
Many industries are
poised for growth, though
insurers’ ability to
capitalize on these
industries varies widely
Shipping (Rail, Marine, Trucking, Pipelines)
U.S. Natural Has Imports and Exports, 1990 - 2040
Sources: US Energy Information Administration, Annual Energy Outlook 2014 Early Release Overview; ;Insurance Information Institute. 74
Trillions of Cubic Feet
The US is now the largest gas producer in the world, though Russia is the
largest exporter. The US needs to
invest in its pipeline and
LNG infrastructure and expedite
regulatory approval to
realize its full export potential
78
Oil & Gas Extraction Employment,Jan. 2010—March 2014*
*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.
616
9.3
170.
117
1.0
172.
517
3.6
176.
317
8.2
178.
518
0.9
181.
918
3.1
184.
818
5.2
185.
718
6.8
187.
618
8.0
188.
018
8.2
190.
019
1.7
191.
919
3.4
192.
419
2.6
193.
119
3.3
195.
019
6.5
199.
720
0.6
203.
020
4.1
205.
320
7.7
208.
1
150
160
170
180
190
200
210
220
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-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
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13Fe
b-13
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14Fe
b-14
Mar
-14
Oil and gas extraction employment is up 33.1% since Jan. 2010 as the energy sector booms. Domestic energy production is essential to any robust economic recovery in
the US.
(Thousands) Highest since Aug.
1986
CYBER RISK
79
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large
and Small in Every IndustryNEW III White Paper:
http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf
79
Data Breaches 2005-2013, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed
* 2013 figures as of Jan. 1, 2014 from the ITRC updated to an additional 30 million records breached (Target) as disclosed in Jan. 2014.Source: Identity Theft Resource Center.
157
321
446
656
498
419447
619662
87.9
17.322.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
2005 2006 2007 2008 2009 2010 2011 2012 2013*020406080100120140160180200220
# Data Breaches # Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records Exposed (+408%) in 2013 Soared
Millions
87
U.S. Insured Catastrophe Loss Update
2013 Was a Welcome Respite from the High Catastrophe Losses in Recent Years
87
88
$12.
6
$11.
0$3
.8$1
4.3
$11.
6$6
.1
$34.
7$7
.6 $16.
3$3
3.7
$73.
4
$10.
5$7
.5
$29.
2$1
1.5
$14.
4$3
3.6
$35.
0$1
2.9
$14.
0
$4.8 $8
.0
$37.
8$8
.8
$26.
4
$0
$10
$20
$30
$40
$50
$60
$70
$80
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*
U.S. Insured Catastrophe Losses
*Through 12/31/13.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 ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Well
Below 2011 and 2012 YTD Totals.
2012 was the third most expensive year ever for insured CAT
losses
Record tornado losses caused
2011 CAT losses to surge
($ Billions, $ 2012)
88
89
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2013*
*2010s represent 2010-2013.Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.Source: ISO (1960-2011); A.M. Best (2012E) 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
3.4
8.7 8.9
3.43.6
0.9
0.1
1.1
1.1
0.8
0123456789
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
2012
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: 6.1E*
Combined Ratio Points Catastrophe losses as a share of all losses reached
a record high in 2012
90
Top 10 States for InsuredCatastrophe Losses, 2013
$1,995
$1,509
$1,190
$909 $907$805 $773 $762
$677$593
0200400600800
1,0001,2001,4001,6001,8002,000
Oklahoma
Texas
Illinois
Minnesota
Colorado
Mississ
ippi
Nebras
ka
Georg
ia
Indiana
Louisiana
Source: The Property Claim Services (PCS) unit of ISO, a Verisk Analytics company.
$ Millions
Oklahoma let the country in insured CAT losses in 2013
91
$9,756
$6,369
$2,318$1,511 $1,440
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
New York New Jersey Texas Kentucky Colorado
*Includes catastrophe losses of at least $25 million.Sources: PCS unit of ISO; Insurance Information Institute.
Top 5 States by Insured Catastrophe Losses in 2012*
NY and NJ let the US in CAT losses in 2012 due Sandy
(2012, $ Billions)
93
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1993–20121
0.1%
1.7%
3.8%4.7%
6.3%
7.1%
36.0%
40.4%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2012 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, $158.2
Fires (4), $6.5
Tornadoes (2), $140.9
Winter Storms, $27.8
Terrorism, $24.8
Geological Events, $18.4
Wind/Hail/Flood (3), $14.9
Other (5), $0.2
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
Insured cat losses from 1993-2012
totaled $391.7B, an average of $19.6B per year or $1.6B
per month
94
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
$7.8 $8.7 $9.2 $11.1 $13.4$18.8
$23.9 $24.6$25.6
$48.7
$7.5$7.1$6.7$5.6$5.6$4.4
$0
$10
$20
$30
$40
$50
$60
Irene (2011) Jeanne(2004)
Frances(2004)
Rita (2005)
Tornadoes/T-Storms
(2011)
Tornadoes/T-Storms
(2011)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
Sandy*(2012)
Northridge(1994)
9/11 Attack(2001)
Andrew(1992)
Katrina(2005)
Hurricane Sandy became the 5th
costliest event in US insurance history
Hurricane Irene became the 12th most expense hurricane
in US history in 2011
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
95
Top 16 Most Costly World Insurance Losses, 1970-2013*
(Insured Losses, 2012 Dollars, $ Billions)
*Figures do not include federally insured flood losses.**Estimate based on PCS value of $18.75B as of 4/12/13.Sources: Munich Re; Swiss Re; Insurance Information Institute research.
$11.1$13.4 $13.4$13.4$18.8
$23.9 $24.6$25.6
$38.6
$48.7
$7.8 $8.1 $8.5 $8.7 $9.2 $9.6
$0
$10
$20
$30
$40
$50
$60
Hugo (1989)
WinterStormDaria(1991)
ChileQuake(2010)
Ivan (2004)
Charley(2004)
TyphoonMirielle(1991)
Wilma(2005)
ThailandFloods(2011)
NewZealandQuake(2011)
Ike (2008)
Sandy(2012)**
Northridge(1994)
WTC TerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)**
Katrina(2005)
5 of the top 14 most expensive catastrophes in
world history have occurred within the past 3 years
(2010-2012)
Hurricane Sandy is now the 6th costliest event in global
insurance history
2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re
Num
ber
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2013Number of Events (Annual Totals 1980 – 2013)
Source: MR NatCatSERVICE 106
22
19
81
6
50
100
150
200
250
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 128 natural disaster events in 2013
Losses Due to Natural Disasters in the US, 1980–2013
107
Overall losses (in 2012 values) Insured losses (in 2013 values)
Source: MR NatCatSERVICE
(2013 Dollars, $ Billions) (Overall and Insured Losses)
50
100
150
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
2013 CAT LossesOverall : $21.8BInsured: $12.8B
Indicates a great deal of losses are uninsured (~40%-50% in the US) =
Growth Opportunity
2013 losses were far below 2011 and 2012 and were 44% lower
than the average from 2000-2012
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 109
Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)
Hydrological events(flood, mass movement)Climatological events(extreme temperature, drought, wildfire)Extraterrestrial events(Meteorite impact)
880Loss events
EarthquakeChina, 20 April
Severe storms, tornadoesUSA, 18–22 May
FloodsIndia, 14–30 June
HailstormsGermany, 27–28 July
Winter Storm Christian (St. Jude)Europe, 27–30 October
Typhoon HaiyanPhilippines, 8–12 NovemberSevere storms, tornadoes
USA, 28–31 May
Hurricanes Ingrid & ManuelMexico, 12–19 September
FloodsCanada, 19–24 June
FloodsEurope, 30 May–19 June
Heat waveIndia, April–June
Typhoon FitowChina, Japan, 5–9 October
Earthquake (series)Pakistan, 24–28 September
FloodsAustralia, 21–31 January
Meteorite impactRussian Federation, 15 FebruaryFlash floods
Canada, 8–9 July
FloodsUSA, 9–16 September
Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)
Selection of significant Natural catastrophes
Natural catastrophes Hydrological events(flood, mass movement)Climatological events(extreme temperature, drought, wildfire)
Natural Loss Events:Full Year 2013
World Map
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters Worldwide,1980 – 2013 (Number of Events)
Source: MR NatCatSERVICE 110
Num
ber
200
400
600
800
1 000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
There were 880 natural disaster events globally in
2013 compared to 905 in 2012
Losses Due to Natural Disasters Worldwide, 1980–2013 (Overall & Insured Losses)
111
Overall losses (in 2013 values) Insured losses (in 2013 values)
Source: MR NatCatSERVICE
(2013 Dollars, $ Billions)(Overall and Insured Losses)
100
200
300
400
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
US$ bn
2013 LossesOverall : $125BInsured: $34B
There is a clear upward trend in both insured and overall losses over the past
30+ years
10-Yr. Avg. LossesOverall : $184BInsured: $56B
Terrorism Update
112
TRIA’s SuccessConsequences of Expiration
Download III’s Terrorism Insurance Report at: http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2014.html
112
Life$1.2 (3%)
Aviation Liability
$4.3 (11%)
Other Liability
$4.9 (12%)
Biz Interruption $13.5 (33%)
Property -WTC 1 & 2*$4.4 (11%) Property -
Other$7.4 (19%)
Aviation Hull$0.6 (2%)
Event Cancellation
$1.2 (3%)Workers Comp
$2.2 (6%)
Total Insured Losses Estimate: $42.9B***Loss total does not include March 2010 New York City settlement of up to $657.5 million to compensate approximately 10,000 Ground Zero workers or any subsequent settlements.**$32.5 billion in 2001 dollars.Source: Insurance Information Institute.
Loss Distribution by Type of Insurancefrom Sept. 11 Terrorist Attack ($ 2013)
($ Billions)
117
Terrorism Insurance Take-up Rates,By Year, 2003-2013
Source: Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014 and earlier editions.
27%
49%
58% 59% 59% 57%61% 62% 64% 62% 62%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
In 2003, the first year TRIA was in effect, the terrorism take-up rate was 27 percent. Since then, it has increased steadily, remaining in the
low 60 percent range since 2009.
TRIA’s high take-up rates, availability and affordability have benefitted businesses,
workers and the entire US economy since the program’s enactment
118
*Data for 27 states with sufficient data.Source: Marsh 2014 Terrorism Risk Insurance Report; Insurance Information Institute.
The overall US take-up rate for terrorism coverage was 62% in 2013 and ranged from
a lows of 41% in Michigan to a high of
84% in Massachusetts (where demand likely increased due to the
April 2013 Boston Marathon bombing)
Terrorism Insurance Take-Up Rates by State for 2013*
SURPLUS/CAPITAL/CAPACITY
124
2013 Recorded Yet Another Record High in the Primary and Reinsurance Sectors
124
125
Policyholder Surplus, 2006:Q4–2013:Q4
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
$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
2007:Q3Pre-Crisis Peak
Surplus as of 12/31/13 stood at a record high $653.3B
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 2014in very strong financial condition.
129
U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 2002-2012 (1)
$486
$20,353
$425
$9,264
$35,221
$13,615$16,294
$3,507$6,419
$12,458
$4,651
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Tran
sact
ion
valu
es
0
10
20
30
40
50
60
70
80
90
Num
ber of transactions
($ Millions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
M&A activity in the P/C sector remains below
pre-crisis levels.
130
REINSURANCE MARKET CONDITIONS
Ample Capacity as Alternative Capital is
Transforming the Market—And Pushing Down
Prices130
Global Reinsurance Capital (Traditional and Alternative), 2007 - 2013
Source: Aon Benfield Reinsurance Market Outlook, April 1, 2014; Insurance Information Institute.
Total reinsurance capital reached a record $540B in 2013, up 58.8% from 2008. Of that, $50B (9.3%) is alternative capacity, up 163% from
$19B since 2008
Reinsurance Pricing: Rate-on-Line Index by Region, 1990 – 2014*
*As of Jan. 1.Source: Guy Carpenter
Lower CATs and a flood of new
capital has pushed reinsurance pricing
down in most regions, including
the US
Reinsurer Combined Ratios(Aon Benfield Aggregate), 2007 - 2013
Source: Aon Benfield Reinsurance Market Outlook, April 1, 2014; Insurance Information Institute.
Reinsurers posted a combined under 90 in 2013, the best result since 2009
Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit
Source: Guy Carpenter
(As of Year End)
Alternative Capacity accounted for approximately 14% or $45 billion
of the $316 in global property catastrophe reinsurance capital as
of mid-2013 (expected to rise to ~15% by year-end 2013)
Alternative Capacity Development, 2001—2013:H1
Source: Guy Carpenter; Mid-Year Market Report, September 2013; Insurance Information Institute.
Catastrophe Bonds: Issuance and Outstanding, 1997- 2014:Q1*Risk Capital Amount ($ Millions)
*Through Jan. 31, 2014.Source: Guy Carpenter; Insurance Information Institute.
633.
0
846.
1
984.
8
1,13
0.0
966.
9 2,72
9.2
3,39
1.7
4,60
0.3
4,10
8.8
5,85
2.9
7,08
3.0
1,41
0.0
1,991.11,142.8
1,729.8
6,99
6.3
4,69
3.4
1,219.5
$3,4
50.0
$4,0
40.4
$4,9
04.2 $8
,541
.6
$14,
024.
2
$12,
043.
6
$12,
508.
8
$12,
185.
0
$12,
139.
1
$14,
835.
7 $18,
516.
7
$2,9
50.0
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14:Q1Risk Capital IssuedRisk Capital Outstandng at Year End
Catastrophe Bond Issuance Is Approaching Pre-Crisis Levels While Risk Capital Outstanding Stands at an All-Time Record
CAT bond issuance reached a record high in 2013
Risk capital outstanding
reached a record high in 2013
Financial crisis depressed issuance
145
Questions Arising from Influence of Alternative Capital What Will Happen When Investors Face Large-Scale
Losses?
Does ILS Have a Higher Propensity to Litigate? Short-term focus could contribute to disputes Large share of triggered transactions ended up in dispute
How Low Will ROLs Be Pushed?
Does the New Interconnectedness with Capital Markets Lend Credence to the Suggestion that Reinsurance Is a Systemic Risky Business?
Will Alternative Capital Drive Consolidation Among Traditional Reinsurers? Has the mating dance begun? Endurance/Aspen
INVESTMENTS: THE NEW REALITY
146
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
146
Property/Casualty Insurance Industry Investment Income: 2000–20131
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.4
$39.6
$49.5$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Investment Income Fell in 2012 and 2013 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1 Investment gains consist primarily of interest and stock dividends...Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings are running below their 2007
pre-crisis peak
152
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2014*
*Monthly, constant maturity, nominal rates, through February 2014.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
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. Only longer-term yields have rebounded.
152
New Waves of Regulations
168
2008 - PresentGlobal Crisis and Regulatory Response
168
171
Global Financial Crises & Global Systemic Risk The Global Financial Crisis Prompted the G-20 Leaders to Request
that the Financial Stability Board (FSB) Assess the Systemic Risks Associated with SIFIs, Global-SIFIs in Particular
In July 2013, the FSB Endorsed the International Association of Insurance Supervisors Methodology for Identifying Globally Systemically Important Insurers (G-SIIs)
For Each G-SII, the Following Will Be Required:(i) Recovery and resolution plans(ii) Enhanced group-wide supervision(iii) Higher loss absorbency (HLA) requirements
G-SIIs as Designated by the FSB as of July 2013: Allianz SE AIG Assicurazioni Generali Aviva Axa MetLife Ping An Prudential Financial Prudential plc
173
Global Financial Crises & Global Systemic Risk…There’s More… IAIS Also Plans to Develop the First-Ever Risk-Based Global
Insurance Capital Standards by 2016
Would be Tested in 2017-2018; Implemented in 2019
Would Be Included as Part of ComFrame and Apply to Internationally Active Insurance Groups (IAIGs): ~50 IAIGs Designations Likely
While Flexibility May Exist within the Standards, Doubts in the US Are Likely to Be Strong Concern that the standards may be bank-centric Questions as to whether such standards are even needed: “Although US state insurance regulators continue to have doubts about the
timing, necessity and complexity of developing a global capital standard given regulatory differences around the globe, we intend to remain fully engaged in the process to ensure that any development augments the strong legal entity capital requirements in the US that have provided proven and tested security for US policyholders and stable insurance markets for consumers and industry.” --NAIC President Ben Nelson (P/C 360, Oct. 16, 2013)
176
P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2012
90
95
100
105
110
115
12069 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
Com
bine
d R
atio
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Impairm
ent Rate
Combined Ratio after Div P/C Impairment Frequency
Source: A.M. Best; Insurance Information Institute
2012 impairment rate was 0.69%, down from 1.11% in 2011; the rate is lower than the 0.82% average since 1969
Impairment Rates Are Highly Correlated With Underwriting Performance and Reached Record Lows in 2007; Recent Increase Was Associated
Primarily With Mortgage and Financial Guaranty Insurers and Not Representative of the Industry Overall
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180