future shock: challenges and opportunities for the global insurance industry in a rapidly changing...
TRANSCRIPT
Future Shock:Challenges and Opportunities for the
Global Insurance Industry in a Rapidly Changing World
Connecticut Insurance Market ForecastHartford, CT
November 20, 2014Download 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 [email protected] www.iii.org
2
Presentation Outline
Insurance: A Global Force
The Impact of the “Insurance Economy” Dollars and Jobs
Public Perceptions of the Insurance Industry
The Importance of Insurance: P/C Life Health
The Insurance Equation: Challenge = Opportunity Old & New: Challenges and Insurance Solutions
An Industry Built of Strength & Experience
Q&A
INSURANCE:We Are a Global Force
3
Becoming More Global Is the Destiny of the Insurance Industry
3
Life, $2.61 , 56.2%
Non-Life, $2.03 , 43.8%
Life insurance accounted for 56.2% of global premium volume in 2013 vs. 43.8% for Non-Life
Distribution of Global Insurance Premiums, 2013 ($ Trillions)
4
Total Premium Volume = $4.641 Trillion*
Source: Swiss Re, sigma, No. 3/2014; Insurance Information Institute.
5
Distribution of Nonlife Premium: Industrialized vs. Emerging Markets, 2013
Sources: Swiss Re sigma No.4/2013; Insurance Information Institute research.
Emerging market’s share of nonlife premiums increased to 19.5% in 2013, up from 17.3% in 2012 and 14.3% in 2009. The share of premiums written in the $2 trillion global nonlife market remains much larger (80.5%) 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
19.5%80.5%
Industrialized Economies
$1, 653.0
Emerging Markets$399.8
2013, $Billions
Developing markets now account for about 40% of global GDP but just under 20% of nonlife premiums
Tope 15 Insurance Markets in 2013,Life and Property/Casualty
$1,259.3
$531.5
$329.6$278.0
$145.4 $125.3 $101.1 $90.0 $88.9 $78.3 $72.5 $65.6$168.6
$247.2$254.8
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
US
Ja
pa
n
UK
Ch
ina
Fra
nc
e
Ge
rma
ny
Ita
ly
S. K
ore
a
Ca
na
da
Ne
the
rla
nd
s
Ta
iwa
n
Bra
zil
Au
str
alia
Sp
ain
Ind
ia
$ Billions
Countries in all parts of the world except Africa
are now represented among the world’s largest
insurance markets
Source: Swiss Re, sigma, No. 3/2014; Insurance Information Institute.
Global premium volume in 2013 = $4.641 Trillion
7
Premium Growth by Region, 20130.
7%
-6.9
%
12.2
%
4.0%
4.1% 5.
6%
12.8
%
9.0%
2.3%
1.9%
-0.3
%
2.6%
1.7%
13.4
%
1.7% 2.1%
5.1%
1.4%
-2.0
%
9.4%
2.2%
0.8%
0.3%
7.5%
2.6%
10.2
%
7.1%
-3.2
%
-0.1
%
7.2%
-10%
-5%
0%
5%
10%
15%
World N.America
LatinAmerica
W.Europe
Central &E. Europe
AdvancedAsia
EmergingAsia
MiddleEast &Central
Asia
Africa Oceania
Life Non-Life Total
Global Premium Volume Totaled $4.641 Trillion in 2013, up 1.4% from $4.599 Trillion in 2012. 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 2013
Growth in Advanced Asia (incl. China) markets decelerated in 2013
Source: Swiss Re, sigma, No. 3/2013.
Strength in Africa,
8
Non-Life Insurance: Global Real (Inflation Adjusted) Premium Growth, 2013
Source: Swiss Re, sigma, No. 3/2014.
Market Life Non-Life Total
Advanced -0.2 1.1 0.3
Emerging 6.4 8.3 7.4
World 0.7 2.3 1.4
Real growth in non-life insurance
premiums was faster in China and most of SE Asia than the US
Growth in Emerging markets is
much faster than in
Advanced markets
9
Global Real (Inflation Adjusted) Premium Growth: 1980-2013
Source: Swiss Re, sigma, No. 3/2014.
Emerging market growth has exceeded that of
industrialized countries in 30 of the past 34 years,
including the entirety of the global financial crisis and
subsequent recovery
Premium growth is very erratic in part to inflation volatility in emerging markets as well as a lack of
consistent cyclicality
(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
13
14
F1
5F
Advanced economies Emerging and developing economies World
Source: International Monetary Fund, World Economic Outlook , October 2014; Insurance Information Institute.
Emerging economy growth rates are
expected to ease to 4.4% in 2014 and 5.0% in 2015
GDP Growth: Advanced & Emerging Economies vs. World, 1970-2015F
Advanced economies are expected to grow at a modest pace of 1.8% in
2014 and to 2.3% in 2015.
World output is forecast to grow by 3.3% in 2014 and 3.8% 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 (10/2014 issue); IMF (10/2014); Insurance Information Institute.
1.6%
1.5%
0.9%
2.3%
2.2%
0.8%
3.2%
1.3%
2.3%
7.4%
3.1%
1.3%
2.7%
2.2% 2.4%
7.1%
9.3%
2.6%
4.6%
-0.7
%
7.7%
2.9%
0.3%
1.7%1.8%2.
2%
-0.5
%
2.0%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 but the Outlook for 2015 Has Dimmed Except in the US and UK
The Eurozone remains weak
Growth in China has slowed but outpaces the US and Europe
US growth should
acceleratein 2015
Political turmoil in Latin America is hurting growth
1313Sources: 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
Opportunities & Risks
14
Globalization Is a Double Edged Sword—Creating Opportunity and Wealth But
Potentially Creating and Amplifying Risk
14
Greater Reward Greater Risk
15
5 Major Categories for External Global Risks, Uncertainties and Fears: Insurance Solutions
1. Economic Risks
2. Geopolitical Risks
3. Environmental Risks
4. Technological Risks
5. Societal Risks
Source: Adapted from World Economic Forum, Global Risks 2014; Insurance Information Institute.
While risks can be broadly
categorized, none are mutually exclusive
16
Multitude of Exogenous Factors Influence Insurer Growth, Performance & Cyclicality
Economic Issues in US, Europe Weakness in China/Emerging Economies Political Upheaval in the Ukraine, Middle East
Syria, Iraq, Thailand, Argentina, Venezuela Trade sanctions (e.g., Iran, Russia)
Political Gridlock in the US, Europe, Japan Fiscal/Monetary Imbalances/Low Interest Rates Unemployment Resurgent Terrorism Risk: ISIS & Other Groups Cyber Attacks (theft, espionage, terrorism) Ebola Crisis Sabre Rattling (e.g., US-China, Russia-Ukraine) Separatist Fever (UK/Scotland, Spain) 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?
The Economics of Connecticut’s Insurance
Industry
1717
Insurance Remains Key to Connecticut’s Economy
18
US Insurance and Related Activitiesas a Percent of US GDP, 1997-2012
2.45%
2.62%2.64%2.64%
2.73%
2.32%
2.50%2.45%2.45%
2.56%
2.31%
2.49%
2.70%
2.45%
2.63%
2.53%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Sources: U.S. Department of Commerce, Bureau of Economic Analysis; Insurance Information Institute.
Recessions and investment reverses (in 2001 and 2008) cut into the contribution of the Insurance Industry to U.S. GDP. In times of healthier economic growth, the
industry contributes between 2.5% and 2.75% of U.S. GDP
Insurance activity accounts for about 2.5% of US GDP annually
19
Insurance and Related Activities in CT as a Percent of CT GDP, 1997-2012
7.01%
8.53%
7.59% 7.76%
8.94%
7.58%
8.91%8.30%
7.74%7.41%
6.61%
8.34%
10.66%
8.26%
9.49%8.74%
0.0%
4.0%
8.0%
12.0%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Sources: U.S. Department of Commerce, Bureau of Economic Analysis; Insurance Information Institute.
Recessions and investment reverses (in 2001 and 2008) cut into the contribution of the Insurance Industry to CT GDP. In times of healthier economic growth, the industry contributes between 7% and 9% (and
sometimes more) of Connecticut’s state GDP
Insurance activity accounts for 7% - 8% of Connecticut’s economy, three times
that of the US overall
20
Insurance and Related Activities as a Percent of GDP, US vs. CT, 1997-2012
7.01%
8.53%
7.59%
7.76%
8.94%
7.58%
8.91%
8.30%
7.74%
7.41%
2.53%
2.63%
2.45%
2.70%
2.49%
2.31%
2.45%
2.62%
2.64%
2.64%
2.73%
2.32%
2.50%
2.45%
2.45%
2.56%
6.61%
8.34%
10.6
6%
8.26%
9.49%
8.74%
0.0%
4.0%
8.0%
12.0%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
CT US
Sources: U.S. Department of Commerce, Bureau of Economic Analysis; Insurance Information Institute.
Recessions and investment reverses (in 2001 and 2008) cut into the contribution of the Insurance Industry to GDP. In times of healthier
economic growth, the industry contributes between 7% and 9% (and sometimes more) of Connecticut’s state GDP
Insurance activity in CT is three times that of the US
overall
INSURANCE INDUSTRY EMPLOYMENT TRENDS
2121
A Big, Important Industry With Many Employment Crosscurrents
Insurance Industry Employment* 2000-2014F
2,22
0.6
2,23
3.7
2,23
3.2
2,26
6.0
2,39
1.6
2,40
5.1
2,37
0.6
2,34
0.6
2,33
6.4
2,36
8.3
2,37
9.4
2,40
0.0
2,36
7.5
2,33
8.9
2,37
9.1
2,100
2,150
2,200
2,250
2,300
2,350
2,400
2,450
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F
*Includes direct writers, claims adjusters, third-party administrators of insurance funds and other service personnel such as advisory and insurance ratemaking services.
Sources: U.S. Department of Labor, Bureau of Labor Statistics; Insurance Information Institute (2014 forecast). 22
Annual Average, in Thousands
Insurance industry employment added nearly 185,000 jobs from 2000 to 2008, an increase 8.3%
Insurance industry employment fell by 2.9% during Great Recession
Insurance industry employment is recovering and will likely reach a new record level of employment in early 2015
23
Overview of Insurance Sector Employment Changes*
*Data are through September 2014 and are preliminary (i.e., subject to later revision); seasonally adjusted.
Insurance Subsector
August 2014
Employment
September 2014
Employment Change
CARRIERS
P-C Direct 534,300 535,000 +700
Life Direct 341,900 343,500 +1,600
Health/Medical Direct 496,200 498,300 +2,100
Title & Other Direct 73,500 73,100 -400
Reinsurers 27,400 27,400 0
OTHERS
Agents/Brokers 689,800 692,000 +2,200
3rd-Party Administration 164,500 166,500 +2,000
Claims Adjusters 50,600 50,000 -600
24
Insurance Industry Employment Trends
Over the Past 25 Years, Each Industry Segment Has Had
Different Employment Experiences
25
U.S. Employment in the DirectP/C Insurance Industry: 1990–2014*
*As of September 2014; not seasonally adjusted; Does not including agents & brokers.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Thousands
460
480
500
520
540
560
'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
The BLS occasionally reclassifies employment within industries.
When this happens, the change is spread evenly over a 12-month period (in this case March 2010-
March 2011.
P/C employment is
recovering
26
U.S. Employment in the DirectLife Insurance Industry: 1990–2014*
*As of September 2014; not seasonally adjusted; Does not including agents & brokers.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Thousands
300
325
350
375
400
425
450
475
500
525
550
575
600
'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
Every 4-5 years BLS reconciles its data with census data; sometimes this
reclassifies employment within industries. This drop, spread over
March 2004-March 2005, moved some people to the Health/Medical Expense
sector.
Life employment is basically flat
27
U.S. Employment in the Direct Health-Medical Insurance Industry: 1990–2014*
*As of September 2014; not seasonally adjusted; Does not including agents & brokers.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Thousands
175
200
225
250
275
300
325
350
375
400
425
450
475
500
'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
Employment in the Health-Medical insurance segment is seeing strong growth, as it has for most of the past 25 years.
28
U.S. Employment in the Reinsurance Industry: 1990–2014*
Thousands
24
28
32
36
40
44
48
'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
*As of September 2014; not seasonally adjusted; Does not including agents & brokers.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
After a multi-decade decline, Reinsurance
employment has shown some recent growth
29
U.S. Employment in Insurance Agencies & Brokerages: 1990–2014*
Thousands
500
525
550
575
600
625
650
675
700
'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
*As of September 2014; not seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Agency/Brokerage employment is
recovering despite consolidation
30
U.S. Employment in Insurance Claims Adjusting: 1990–2014*
Thousands
40
45
50
55
60
'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
*As of September 2014; not seasonally adjusted.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Claims adjusting is a profession in
transition
31
U.S. Employment in Third-Party Administration of Insurance Funds: 1990–2014*
Thousands
90
100
110
120
130
140
150
160
170
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
*As of September 2014; not seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
More work is being done by
TPAs
How Does the Public (and Prospective Employees)
View the Industry?
32
I.I.I. Survey: Insurance Favorability Ratings Are Fairly Strong
34
I.I.I. Poll: Favorability
Source: Insurance Information Institute Annual Pulse Survey.
44%
36% 35% 33%
65%62% 60% 59%
53%50%
10%
20%
30%
40%
50%
60%
70%
Auto insurance Homeinsurance
Banking Life insurance Healthinsurance
Electric utilitycompanies
Mutual fundsPharmaceuticalcompanies
Financialservices
companies
Oil and gascompanies
Percent of Public Rating Industry as Very or Mostly Favorable, 2014
Auto/Home Favorability outranks other key industries
35
I.I.I. Poll: Favorability
Source: Insurance Information Institute Annual Pulse Survey.
1968
1972
1978
1981
1983
1985
1988
1991
1993
1995
1996
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
10%
20%
30%
40%
50%
60%
70%
80%
90%
Auto and home insurance
Banking
Mutual funds
Percent of Public Rating Industry as Very or Mostly Favorable, 1968-2014
Auto/Home Insurers Continue to Rank Higher Than Banking, Mutual Funds.
Auto/Home Favorability Has Outranked Banking Four
Years in a Row.
Insurance Market Overview:A Segmented Industry
3636
Property/CasualtyLife/Annuity
Health
Property/Casualty Insurance Industry Trends
3737
Rich History, Poised to Manage the Risks and Seize the Opportunities of the Future
38
Cumulative Value of Inflation-Adjusted Claims Paid by P/C Insurers, 1925–2010E*
*1925 – 1934 stock companies only. Includes workers compensation state funds 1998-2006.Sources: Insurance Information Institute research and calculations from A.M. Best data.
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000
$10,000$11,000$12,000$13,000$14,000
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
*200
0
*200
5
2010
E
Adjusted for inflation, it took 36 years for the
industry to pay its first $1 trillion in claims in the years since 1925.
Today, the industry pays $1 trillion in claims every 2 to 3 years after adjusting for inflation.
36 years (1925 – 1961)
$ Billions
9 years (1970)
7 years (1977)
5 years (1982)
4 years (1986)
4 years (1990)
3 years (1993)
3 years (1996)
4 years (2000)
2 years (2002)
3 years (2005)
3 years (2008)
P/C Industry Net Income After Taxes1991–2014:H1 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 = 7.8%
• 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
$2
5,9
80$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
14:H
1
Net income rose strongly (+81.9%) in 2013 vs. 2012 on lower cats, capital gains
$ Millions
2014 is off to a slower start
-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
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2014:H1*
*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.
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
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
2013 10.4%
2014:H1 7.7%
-5%
0%
5%
10%
15%
20%
25%
50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
14:H
1
*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. 2014 figure is through Q2.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%
ROE
1975: 2.4%
2013 10.4%
2014:H1 7.7%
Back to the Future: Profitability Peaks & Troughs in the P/C Insurance Industry, 1950 – 2014*
1969: 3.9%
1965: 2.2%1957: 1.8%
1972:13.7%
1966-67: 5.5%1959:6.8%
1950:8.0%
1950-70: ROEs were lower in this period. Low interest rates,
low inflation, “Bureau” rate regulation all played a role
1970-90: Peak ROEs were much higher in this period while troughs
were comparable. High interest rates, rapid inflation, economic
volatility all played roles
1990-2010s: Déjà vu. Excluding mega-
CATs, this period is very similar to the 1950-1970 period
42
ROE: Property/Casualty Insurance by Major Event, 1987–2014:H1
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 2014 figure is through H1:2014. 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
43
Policyholder Surplus, 2006:Q4–2014:H1
Sources: ISO, A.M .Best.
($ Billions)$4
87.1
$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
$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
2007:Q3Pre-Crisis Peak
Surplus as of 6/30/14 stood at a record high $671.6B
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.
45
-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
P/C 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%
46
Direct Premiums Written: Total P/CPercent Change by State, 2007-2013
74
.6
36
.9
31
.9
27
.4
25
.2
24
.9
22
.5
22
.2
16
.6
15
.9
15
.7
14
.5
14
.5
14
.3
12
.6
11
.9
11
.8
11
.2
10
.5
10
.3
9.9
9.8
9.3
9.1
9.0
8.6
0
10
20
30
40
50
60
70
80
ND
SD
OK
NE
KS IA VT
TX
WY
TN
MN
AR
AK IN WI
CO MI
KY
OH NJ
LA
SC VA
AL
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
North Dakota was the country’s growth leader over the past 6 years with premiums written
expanding by 74.6%
47
Direct Premiums Written: Total P/CPercent Change by State, 2007-2013
8.5
8.2
7.9
7.8
7.6
7.3
7.0
6.9
6.2
5.9
5.6
5.3
4.2
4.1
3.5
1.6
1.0
0.4
-0.7
-1.7
-1.9
-4.1
-5.7
-6.7
-12
.6
-15
.3
-20
-15
-10
-5
0
5
10
MS
CT
US
NC
GA
NY
MD
MA
UT
WA
PA IL RI
NH ID MT
ME
OR
CA
FL
DC AZ
WV HI
NV
DE
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Growth was negative in 7 states and DC between
2007 and 2013
Life Insurance Trends
4848
Critical Sector, Key ProductsWhat Don’t Millennials Understand?
49
Millions
Amount of Life Insurance Death Benefits Paid, 2005-2013
$104.3$112.3
$116.6
$100.9$95.3
$89.0$83.7
$79.3$75.9
$0
$20
$40
$60
$80
$100
$120
2005 2006 2007 2008 2009 2010 2011 2012 2013
Sources: NAIC, via SNL Financial; Insurance Information Institute.
The amount of death benefits life insurers paid grew by 53.6%in the 8 years since 2005 (averaging 5.5% growth per year).
50
Billions
Amount of Individual Life Insurance (Death Benefits) Issued, by Type of Policy, 2005-2013
$1
.09
$1
.09
$1
.05
$0
.51
$0
.51
$0
.52
$0
.49
$0
.44
$0
.52
$0
.55
$0
.56
$0
.56
$1
.12$1
.27
$1
.35
$1
.34
$1
.27
$1
.26
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
2005 2006 2007 2008 2009 2010 2011 2012 2013
Term Insurance Permanent Insurance
Sources: NAIC, via SNL Financial; Insurance Information Institute.
The amount of term life insurance (measured by death benefit amounts) issued yearly has slipped since 2008, from $1.35 billion to $1.05 billion,
while the amount of permanent life insurance grew slightly.
The Great Recession negatively impacted life
insurance sales
Group Insurance Premiums (line)Track Nonfarm Employment (bars)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013125
130
135
140
$150
$175
$200
$225
$250
$275
$300
13
1.9
13
0.5
13
0.1 13
1.5 1
33
.7 13
6.1 13
7.6
13
6.9
13
0.9
12
9.9 13
1.5 1
33
.7 13
6.4
Nonfarm employment*Group Ins Premiums
Non
farm
Em
ploy
men
t (m
illio
ns)
Group Premiums
(b
*Not seasonally adjusted. Group premiums = group life, group annuities, and group a&hSources: Bureau of Labor Statistics; NAIC Annual Statements, via SNL Financial; http://www.bls.gov/ces/; I.I.I.
The spike is mainly in Group Annuity premiums;
it represents “de-risking”by a few giant DB plans
Healthcare Cost Trends
5555
Healthcare Cost Will Move Up for the Indefinite Future
Health Insurers Will Grow and Adapt
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
56
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?
-1%
0%
1%
2%
3%
4%
5%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
Change in Medical CPI CPI-All Items
Medical Cost Inflation vs. Overall CPI, 1995 – 2014*
*July 2014 compared to July 2013.Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.
Average Annual Growth Average 1995 – 2013
Healthcare: 3.8%Total Nonfarm: 2.4%
Though moderating, medical inflation will continue to exceed inflation in the overall economy
59
63.1%650.7%
2235.9%
6839.8%
0%
1000%
2000%
3000%
4000%
5000%
6000%
7000%
8000%
Population CPI GDP Health CareExpenditures
Rate of Health Care Expenditure Increase Compared to Population, CPI and GDP
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: Insurance Information Institute research.
1965: 194.3 Mill
2013: 317.0 Mill
1965: $719.1 Bill
2013: $16,797.5 Bill
1965: $42.0 Bill
2013: $2,914.7 Bill
Reshaping the Insurance Industry:
Consolidation Trends
60
Merger & Acquisition Activity:Will Slow Growth, Rising Capacity in
Some Segments Lead to Consolidation?
60
61
U.S. INSURANCE MERGERS AND ACQUISITIONS, All Sectors, 1989-2013 (1)
$7.1$6.9$8.6$5.0
$8.5$12.5
$27.0
$40.8
$56.2
$41.7
$55.7
$41.5
$9.7
$59.9
$14.9
$50.8
$43.0
$50.4
$31.4
$14.4
$46.5
$54.7
$43.2
$19.3
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Tra
ns
ac
tio
n v
alu
es
0
100
200
300
400
500
600
Nu
mb
er o
f tran
sa
ctio
ns
($ Billions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
M&A activity recovered to pre-crisis levels but deal values dropped sharply
in 2013
$165.4
62
U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 2002-2013 (1)
$486
$20,353
$425
$9,264
$35,221
$13,615
$16,294
$3,507
$6,419
$12,458
$4,651 $4,397
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012
Tra
ns
ac
tio
n v
alu
es
0
10
20
30
40
50
60
70
80
90
Nu
mb
er o
f tran
sa
ctio
ns
($ 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.
63
U.S. INSURANCE MERGERS AND ACQUISITIONS,LIFE/ANNUITY SECTOR, 2002-2013 (1)
$2,796
$18,533
$3,817
$21,865
$5,055$5,849
$382 $840
$23,848
$3,063
$6,083
$3,299
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Tra
ns
ac
tio
n v
alu
es
0
5
10
15
20
25
30
35
40
Nu
mb
er o
f tran
sa
ctio
ns
($ Millions)
(1) Includes transactions where a U.S. company was the acquirer and/or the target.
Source: Conning proprietary database.
Life/Annuity sector M&A activity is highly volatile
188 189 182
224 216
264279
297
184204
289
321
267
314
177
10
60
110
160
210
260
310
360
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14:6M
Agent/Broker M&A Deals, 2000-2014:6M
Source: Optis Partners, “Agent-Broker Merger & Acquisition Statistics: The New Normal?”, August 2014; Insurance Information Institute.
Number of Deals
Agent/Broker activity is running at a record pace in 2014 with 314
deals announced through June 30.
Insurance EquationChallenge = Opportunity
66
We Solve Problems: Old and New
66
67
Insurance in the Age of Mega-Disasters
Insurers and Reinsurers Worldwide Have Risen to the Challenge and Are Prepared for Increasing Variability and Volatility in
the Climate67
68
$1
2.8
$1
1.1
$3
.8
$1
4.5
$1
1.7
$6
.2
$3
5.2
$7
.7
$1
6.5
$3
4.2
$7
4.5
$1
0.7
$7
.6
$2
9.6
$1
1.6
$1
4.6
$3
4.1
$3
5.5
$1
2.9
$1
4.5
$1
4.2
$4
.9 $8
.1
$3
8.3
$8
.9
$2
6.8
$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 14E
U.S. Insured Catastrophe Losses,1989 – 2014E
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 ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.
2013/14 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster Losses in US History. Longer-term Trend
is for more—not fewer—Costly Events
The majority of the costliest disasters
events have occurred over the past decade
($ Billions, $ 2013)
68
69
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1994–20131
0.1%
1.4%
3.8%4.8%
6.4%
6.4%
36.0%
41.1%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2013 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, $159.1
Fires (4), $5.5
Events Involving Tornadoes (2), $139.3
Winter Storms, $24.7
Terrorism, $24.8
Geological Events, $18.4
Wind/Hail/Flood (3), $14.6
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 $386.7B, an average of $19.3B per year or $1.6B
per month
70
Top 16 Most Costly Disastersin U.S. History
(Insured Losses, 2013 Dollars, $ Billions)
$7.9 $8.8 $9.3 $11.2$13.6
$19.0$24.2 $24.9$25.9
$49.4
$7.6$7.2$6.8$5.7$5.6$4.5
$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)
Superstorm Sandy in 2012 was the last mega-
CAT to hit the US
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have
Occurred Over the Past Decade
Sources: PCS; Insurance Information Institute inflation adjustments to 2013 dollars using the CPI.
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2013Number of Events (Annual Totals 1980 – 2013)
Source: MR NatCatSERVICE 71
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
72
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 Losses
Overall : $21.8B
Insured: $12.8B
Indicates a great deal of losses are uninsured (~40%-50% in the US) =
Growth Opportunity
73
Total Value of Insured Coastal Exposure in 2012
(2012, $ Billions)
Source: AIR Worldwide
$293.5$239.3
$182.3$164.6$163.5
$118.2$106.7$81.9$64.0$60.6$58.3
$17.3
$567.8$713.9
$849.6$1,175.3
$2,862.3$2,923.1
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500
New YorkFloridaTexas
MassachusettsNew JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
In 2012, New York Ranked as the #1 Most Exposed State to Hurricane Loss, Overtaking Florida with $2.862 Trillion. Texas is very exposed too, and
ranked #3 with $1.175 Trillionin insured coastal exposure
The Insured Value of All Coastal Property Was $10.6 Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and
Up 48% from $7.2 Trillion in 2004
The value of insured coastal exposures in NY
and FL lead the US.
74
I.I.I. Poll: Homes Near Hazards
Q. If you were to purchase a home today, which of the following summarizes your views on that home’s risk of damage from natural disasters . . . and your decision to purchase that home?
Source: Insurance Information Institute Annual Pulse Survey.
More Than Half of the Public Would Be Significantly Influenced by Risk of Damage from Natural Disasters. Close to a Third Do Not
Regard Such a Risk To Be a Major Consideration.
3%
17%
53%28%
Risk a Significant Influence
on Purchase
Willing to Accept Risk
Risk Not a Major Consideration
Don’t Know
75
Top 16 Most Costly World Insurance Losses, 1970-2014*
(Insured Losses, 2013 Dollars, $ Billions)
*Figures do not include federally insured flood losses.Sources: Munich Re; Swiss Re; Insurance Information Institute research.
$11.2 $13.6$13.6$13.6$19.0
$24.2 $24.9$25.9
$39.1
$49.4
$7.9 $8.2 $8.7 $8.8 $9.3 $9.7
$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 most recent 4
years (2010-2014)
Hurricane Sandy became the 6th costliest event in global
insurance history
Source: Munich Re Geo Risks Research, NatCatSERVICE – as of January 2014. 76
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 February
Flash floodsCanada, 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 NatCatSERVICE77
Nu
mb
er
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)
78
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 Losses
Overall : $125B
Insured: $34B
There is a clear upward trend in both insured and overall losses over the past
30+ years
10-Yr. Avg. Losses
Overall : $184B
Insured: $56B
79
The “Underinsurance” Gap
79
Why is So Much Loss Uninsured and How to Close the Gap
Even as Insurance Coverage Expands, the Insured Share of Losses Is Falling
80Source: Swiss Re Economic Research & Consulting; Geneva Association; Insurance Information Institute.
Total and insured losses as a share of
global GDP have both increased over the past
40 years, but insured losses as a share of
total losses has shrunk
Many emerging market nations have very large insurance gaps. In the US, the
gap is about 50%.
Natural Catastrophe Protection Gap (1974 – 2013)
Total Global vs. Insured Losses as % GDP (1974 – 2013)
Insurance Density and Penetration in Advanced Markets, 2013
81Source: Swiss Re, sigma no. 3, 2014; Insurance Information Institute.
(Premiums per Capita in US $)
(Premiums as % of GDP)
Western/Northern Europe, the US and Advanced Asia are
relatively well insured, but many “Advanced”
economies are not, especially Southern
Europe
Spending on insurance fell 1% to $3,621 per
capita in 2013. Penetration decreased too. Nonlife penetration is down from its from a high of 5.7% of GDP in 2000 to 4.7% in 2013.
Density = Premiums per capitaPenetration = Premiums as % of GDP
Insurance Density and Penetration in Emerging Markets, 2013
82
(Premiums per Capita in US $)
Density = Premiums per capitaPenetration = Premiums as % of GDP
Source: Swiss Re, sigma no. 3, 2014; Insurance Information Institute.
(Premiums as % of GDP)
Spending on insurance in emerging markets increased to $129 per
capita in 2013 from $121 in 2012. Penetration
decreased was flat art 2.7% of GDP
Although emerging markets posted growth of 7.4% in
2013 (Life: +6.4%; Nonlife: +8.3%), most emerging economies are poorly
insured, representing growth opportunities for the insurance industry.
Causes of the Underinsurance Gap and Ways to Narrow/Close It
Affordability
Lack of Awareness
Limits to Insurability
Regulatory Deficiencies
Compulsory Insurance
Create a Conducive Regulatory, Legal and Tax Environment
Build Public-Private Partnerships
Develop New Products
Microinsurance
Enhance Data Collection/Sharing
Foster a More Strategic Approach to Risk Among Businesses
Contributing Factors to theUnderinsurance Gap
Solutions that Will Help Close the Underinsurance Gap
Source: Geneva Association; Insurance Information Institute.
CYBER RISK
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large
and Small in Every Industry
84
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*0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The Total Number of Data Breaches (+38%) and Number of Records Exposed (+408%) in 2013 Soared
Millions
85
Evolving Cyber Threats in Need of Insurance Solutions
• Foreign government sponsored• Sophisticated and well-funded
State Sponsored Groups
• Traditional organized crime groups• Loosely organized global hacker crews
Organized Cyber Criminals
• Politically-motivated hackers• Increasing capabilitiesHacktivists
• Easy access to sensitive information• Difficult to detectInsiders
• Destruction of physical and digital assetsTerrorists
86
Source: Price Waterhouse Cooper (PwC).
Worldwide Cybersecurity Spending, 2011- 2016F ($ Billions)
$55.0
$60.0
$65.9
$71.1
$76.9
$83.2
7.9%8.4%8.2%
8.2%9.8%
$50
$55
$60
$65
$70
$75
$80
$85
2011 2012 2013 2014F 2015F 2016F0%
2%
4%
6%
8%
10%
12%
Worldwide Cybersecurity Spending % Change from Previous Year
Cybersecurity Spending Is Rising Sharply, Up by About 8%+ Annually through 2016—a Projected Increase of $12.1 Billion from 2014 to 2016
Cybersecurity spending is expected to increase by $5.2B in 2014, $5.8B
in 2015 and $6.3B in 2016
Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.
87
Worldwide Information Security Spending per Employee, by Industry, 2013
$376
$169
$326
$684
$651
$553
$0 $100 $200 $300 $400 $500 $600 $700 $800
Retail and Wholesale
Industrial Manufacturing
Professional Services
Banking
Utilities
Insurance
(Dollars per Employee)
Information Security Spending by Financial Services and Critical Infrastructure Industries (e.g., Utilities) Outpaces that of Other Industries
Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.
88
2013 Data Breaches By Business Category, By Number of Breaches
3.7%9.1%
9.0%
43.8%
34.4%
Source: Identity Theft Resource Center, http://www.idtheftcenter.org/images/breach/2013/UpdatedITRCBreachStatsReport.pdf
The majority of the 614 data breaches in 2013 affected business and medical/healthcare organizations, according to the Identity Theft Resource Center.
Business, 211 (34.4%)Govt/Military, 56 (9.1%)
Banking/Credit/Financial, 23 (3.7%)
Educational, 55 (9.0%)
Medical/Healthcare, 269 (43.8%)
89
External Cyber Crime Costs: Fiscal Year 2013
4%
17%
36%
43%
* Other costs include direct and indirect costs that could not be allocated to a main external cost categorySource: 2013 Cost of Cyber Crime: United States, Ponemon Institute.
Information loss (43%) and business disruption or lost productivity (36%) account for the majority of external costs due to cyber crime.
Information loss
Equipment damages
Other costs* 0%
Revenue loss
Business disruption
90
TYPICAL STRUCTURE OF INSURER CYBER RISK PRODUCTS
Insurers’ Product Offerings Are Increasingly Designed to Provide
End-to-End Cyber Risk Management Solutions
91
Source: Insurance Information Institute research.
The Three Basic Elements of Cyber Coverage: Prevention, Transfer, Response
Loss Prevention
Post-Breach Response(Insurable)
Loss Transfer (Insurance)
Cyber risk management today involves three essential components, each designed
to reduce, mitigate or avoid loss. An increasing number of cyber risk products
offered by insurers today provide all three.
92
Data/Privacy Breach:Many Potential Costs Can Be Insured
Source: Zurich Insurance; Insurance Information Institute
Forensic costs to discover
cause
93
Big Data and the Era of Predictive Analytics & Modelling
For Insurers, It’s Always Been About the Data
94
95
49%
37%32% 30%
25%
9%5%
0%
10%
20%
30%
40%
50%
60%
PersonalAuto
Home Comm. Auto Comm.Property
BusinessOwners
WorkersComp
GL
Percentage of Carriers Using Predictive Analytics by Major P/C Line, 2013
Predictive analytics is more like to be used in personal lines, but commercial lines use
is growing
Source: ISO/Earnix Survey, September 2013; Insurance Information Institute.
82% of insurers report using predicative analytics in at least one line. 18% do not use it all.
Benefits CitedDrive Profitability: 85%
Reduce Risk: 55%
Grow Revenue: 52%
Improve Op. Efficiency: 39%
97
ALTERNATIVE CAPITAL & REINSURANCE MARKETS
Ample Capacity as Alternative Capital is
Transforming Reinsurance Markets
97
Alternative Capacity as a Percentage of Global Reinsurance Capital
(As of Year End)*
Alternative Capacity accounted for approximately
11.5% or $59 billion of the $511 in global reinsurance capital
as of mid-2014
*As of June 30.
Source: Aon Benfield Analytics.
Investor by Category
Years ended June 30.Source: Aon Benfield Securities; Insurance Information Institute.
Catas-trophe Fund43%
Insti-tu-
tional41%
Mutual Fund12%
Hedge Fund2%
Reinsurer2%
2013
Institutional investors are accounting for a larger
share of alternative reinsurance investors
Catas-trophe Fund51%
Insti-tu-
tional34%
Mutual Fund5%
Hedge Fund5%
Reinsurer5%
2012
Catastrophe Bonds: Issuance and Outstanding, 1997- 2014:Q2Risk Capital Amount ($ Millions)
Sources: Guy Carpenter; Insurance Information Institute.
63
3.0
84
6.1
98
4.8
1,1
30
.0
96
6.9 2,7
29
.2
3,3
91
.7
4,6
00
.3
4,1
08
.8
5,8
52
.9
7,0
83
.0
5,7
01
.7
1,991.11,142.8
1,729.8
6,9
96
.3
4,6
93
.4
1,219.5
$3
,45
0.0
$4
,04
0.4
$4
,90
4.2 $8
,54
1.6
$1
4,0
24
.2
$1
2,0
43
.6
$1
2,5
08
.8
$1
2,1
85
.0
$1
2,1
39
.1
$2
0,5
42
.8
$1
4,8
35
.7
$1
8,5
16
.7
$2
,95
0.0
$0
$4,000
$8,000
$12,000
$16,000
$20,000
$24,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14:Q2Risk Capital IssuedRisk Capital Outstandng at Year End
2014 Issuance Slowed Down Substantially; May Not Surpass 2013 Record
CAT bond issuance reached a record high
in 2013.
Risk capital outstanding
reached a record high in 2014
Financial crisis depressed issuance
Terrorism Risk
101
Insurers Met the ChallengeBut Politics Threaten to End a
Successful Public/Private Partnership
101
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)
103
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
Insurance: A Financially Stable, Sound &
Secure Industry
104
Very Different from BanksIndustry Impairment Rates Are Near
Record Lows
104
106
P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2013
90
95
100
105
110
115
1206
97
07
17
27
37
47
57
67
77
87
98
08
18
28
38
48
58
68
78
88
99
09
19
29
39
49
59
69
79
89
90
00
10
20
30
40
50
60
70
80
91
01
11
21
3
Co
mb
ine
d R
ati
o
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Imp
airm
en
t Ra
te
Combined Ratio after Div P/C Impairment Frequency
Source: A.M. Best; Insurance Information Institute
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
2013 impairment rate was 0.43%, down from 0.76% in 2012; the rate is lower than the 0.81% average since 1969
107
100+ Year Old Insurers as a Share of All P/C Insurers
87.7%
12.3%
Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data LLC; CDC
About 12% of P/C insurance companies (fewer than 1-in-8) today (2013) are 100+ years old. This is a surprisingly high percentage.
Insurers at Least 100 Years Old, 12.3%(287)
Insurers Less than 100 Years Old,
87.7%(1,979)
Odds of a Human Living to 100Born 1900: ~0.25% (1-in-400)
Born Today: ~2% (1-in-50)
108
Number of Recessions Endured by P/C Insurers, by Number of Years in Operation
32
27
20
13
8
0
5
10
15
20
25
30
35
1-50 51-75 76-100 101-125 126-150
Sources: Insurance Information Institute research from National Bureau of Economic Research data.
Number of Recessions Since 1860
Longevity Requires an Insurer to Overcome Extreme Economic Adversity of Every Sort
Number of Years in Operation
Insurers that have made it to the age of 150 have endured 32 recessions over the years
108
109
The Global Financial Crisis: The Pendulum Swings: Dodd-Frank & Systemic Risk
Dodd-Frank Act of 2010: The implosion of the housing bubble and virtual collapse of the US banking system, the seizure of credit markets and massive government bailouts of US financial institutions led to calls for sweeping regulatory reforms of the financial industry
Limiting Systemic Risk is at the Core of Dodd-Frank
Designation as a Systemically Important Financial Institutional (SIFI) Will Result in Greater Regulatory Scrutiny and Heightened Capital Requirements
Dodd-Frank Established Several Entities Impacting Insurers
Federal Insurance Office
Financial Stability Oversight Council
Office of Financial Research
Consumer Financial Protection Bureau
110
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
111
Summary
Insurance Remains an Essential Tool for Reducing Risk
The Industry’s Future Is Increasingly Global
Future Growth Will Incur More Risk
New Challenges Abound, But So Do Opportunities
Insurers Have Centuries of History Demonstrating their Ability to Major Through Era of Disruptive Risks Operational Economic Regulatory
Insurers Will Manage through Quantum Shifts and “Disruptor” Forces in the Decades Ahead
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112