overview and outlook for the p/c insurance industry behind the numbers

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Overview and Outlook for the P/C Insurance Industry Behind the Numbers Verisk Insurance Solutions Client Summit Orlando, FL May 19, 2014 Download at www.iii.org/presentations Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5520 Cell: 917.453.1885 [email protected]

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Overview and Outlook for the P/C Insurance Industry Behind the Numbers. Verisk Insurance Solutions Client Summit Orlando, FL May 19, 2014 Download at www.iii.org/presentations. Robert P. Hartwig, Ph.D., CPCU, President & Economist - PowerPoint PPT Presentation

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Page 1: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Overview and Outlook for the P/C Insurance Industry

Behind the NumbersVerisk Insurance Solutions Client Summit

Orlando, FLMay 19, 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

Page 2: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

2

P/C Insurance Industry Financial Overview

2013: Best Year in the Post-Crisis Era

Performance Improved with Lower CATs, Strong Markets

2

Page 3: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 4: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

-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%

ROE

1975: 2.4%

2013: 9.8 %

Page 5: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 6: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

6

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

Page 7: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

RNW for Major P/C Lines,2003-2012 Average

18.9%

12.1%9.8% 9.0%

7.6% 7.1% 7.1%6.0%

1.1%

26.5%

13.3%

7.9%

0%

5%

10%

15%

20%

25%

30%

Fire InlandMarine

AllOther

MedMal

CommAuto

CMP AllLines

PPAuto

WC OtherLiab

HO Allied

Source: NAIC; Insurance Information Institute

10-year returns for some lines are excellent, though homeowners is a major

laggard, largely due to major catastrophes. WC returns slipped.

Page 8: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

9

RNW All Lines by State, 2003-2012 Average:Highest 25 States

21.0

17.7

15.1

14.8

13.4

13.3

13.1

12.6

12.0

11.7

11.4

11.4

11.4

11.1

11.0

11.0

11.0

10.9

10.9

10.7

10.7

10.5

10.3

10.3

9.9

9.4

02468

1012141618202224

HI AK ND ME WY UT VT ID WA NH IA NE SC DC MA OR VA NC RI CA CT OH NM SD WV MT

Source: NAIC.

The most profitable states over the past decade are

widely distributed geographically, though none

are in the Gulf region

Page 9: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

10

9.2

9.1

8.9

8.9

8.6

8.5

8.3

8.1

7.9

7.7

7.7

7.6

7.4

6.5

6.5

6.1

6.1

5.5

5.2

4.9

4.9

4.2

3.2

2.0

-6.5

-9.4

-14-12-10-8-6-4-202468

10

KS MD CO WI FL MN TX IN US AR PA IL AZ MO NV KY NJ GA NY MI TN DE OK AL MS LA

RNW All Lines by State, 2003-2012 Average: Lowest 25 States

Source: NAIC.

Some of the least profitable states over the past decade were hit hard

by catastrophes

Page 10: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

11

-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%

Page 11: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

12

4.0%

7.2%

9.0%

5.4%4.2% 4.1%

5.0%

0.6%

4.6%

0%1%2%3%4%5%6%7%8%9%

10%

PersonalAuto

Home OtherLiability*

WC CMP Fire & Allied

Comm. Auto

All OtherLines

Total P/C

Growth by Major P/C Line, 2013

Other Liability and Homeowners were the fastest growing

lines in 2013

*Includes Products Liability.Source: Annual Statement data for by line statistics; NCCI for WC; ISO for Total P/C; Insurance Information Institute.

Page 12: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

13

Growth Will Expand Insurer Exposure Base Across Most Lines

13

Page 13: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

14

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%

2014/15 are expected to see a

modest acceleration in growth

Page 14: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

15

Real GDP by State Percent Change, 2012:Highest 25 States

13.4

4.8

3.9

3.6

3.5

3.5

3.4

3.3

3.3

3.3

2.7

2.7

2.6

2.4

2.4

2.4

2.4

2.2

2.2

2.2

2.2

2.1

2.1

2.1

2.1

2.0

0

2

4

6

8

10

12

14

ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO

Perc

ent C

hang

e (%

)

Sources: US Bureau of Labor Statistics; Insurance Information Institute.

North Dakota was the economic growth juggernaut of the US

in 2012—by far

Only 10 states experienced growth in excess of 3%, which is what we would see nationally in

a more typical recovery

Page 15: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

16

1.9

1.7

1.6

1.5

1.5

1.5

1.5

1.4

1.4

1.4

1.3

1.3

1.3

1.2

1.2

1.1

1.1

0.7

0.5

0.5

0.4

0.2

0.2

0.2

0.2

-0.1

-0.4-0.20.00.20.40.60.81.01.21.41.61.82.0

IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT

Perc

ent C

hang

e (%

)Real GDP by State Percent Change, 2012: Lowest 25 States

Sources: US Bureau of Labor Statistics; Insurance Information Institute.

Connecticut was the only state to shrink in 2012

Growth rates in 8 states (and DC) were still below

1% in 2012

Page 16: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

22

16.9

16.5

16.1

13.2

10.4

11.6

12.7

14.4

15.5 16

.0 16.4

16.2

16.2

16.2

16.216

.9

16.617

.117.517.8

17.4

91011121314

1516171819

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F 15F 16F 17F18F 19F

(Millions of Units)

Auto/Light Truck Sales, 1999-2019F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/14 and 3/13); Insurance Information Institute.

Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector Along

With Workers Comp Exposures

New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is

still below 1999-2007 average of 17 million units, but a robust recovery is well underway.

Job growth and improved credit market conditions will boost auto sales in

2014 and beyond

Truck purchases by contractors are especially strong

Page 17: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

25

Monthly Change* in Auto Insurance Prices, 1991–2014*

*Percentage change from same month in prior year; through April 2014; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

-2%

0%

2%

4%

6%

8%

10%

'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

Cyclical peaks in PP Auto tend to occur roughly every 10 years (early

1990s, early 2000s and likely the early 2010s)

“Hard” markets tend to occur

during recessionary

periods

Pricing peak occurred in late

2010 at 5.3%, falling to 2.8% by Mar. 2012

The Apr. 2014 reading of 4.4% is

up from 4.2%a year earlier

Page 18: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

30

Average Expenditures on Auto Insurance

$651$668

$691$705

$726

$786

$830$842$831$816

$795$789$787$791$803$832

$857

$690$685$703

$600

$650

$700

$750

$800

$850

$900

$950

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11* 12* 13F

803

Countrywide Auto Insurance Expenditures Decreased by 0.8% in 2008 and 0.5% in 2009 and Increased 0.5% in 2010, 1.5% in 2011 (est.), 2.0% in 2012 and

2.2% in 2013 (forecast)* Insurance Information Institute Estimates/Forecasts

Source: NAIC, Insurance Information Institute estimate for 2011-2013 based on CPI and other data.

The average expenditure on auto insurance is lower today than it was in 2004

Page 19: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

31

(Millions of Units)

New Private Housing Starts, 1990-2019F

1.48

1.47 1.

62 1.64

1.57 1.60 1.

71 1.85 1.

96 2.07

1.80

1.36

0.91

0.55 0.59 0.61

0.78 0.

92 1.05

1.27

1.44 1.

501.

511.

50

1.351.

461.

291.

201.

011.

19

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F15F16F17F18F19F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/14 and 3/13); Insurance Information Institute.

Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk

Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure

New home starts plunged 72% from 2005-2009; A net

annual decline of 1.49 million units, lowest since records began

in 1959

Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction

for several more years

Page 20: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

32

Average Premium forHome Insurance Policies**

* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Source: NAIC, Insurance Information Institute estimates for 2011-2013 based on CPI data and other data.

$508$536

$593

$668

$822 $830$880

$909$945

$983$1,022

$804$764

$729

$400

$500

$600

$700

$800

$900

$1,000

$1,100

00 01 02 03 04 05 06 07 08 09 10 11* 12* 13*

Countrywide Home Insurance Expenditures Increased by an Estimated 4.0% in 2011-2013

Page 21: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

CONSTRUCTION, MANUFACTURING & ENERGY

OUTLOOK

37

Key Sectors Critical to the Economy and the P/C

Insurance Industry37

Page 22: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

38

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

38

$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.

Page 23: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

39

Value of Private Construction Put in Place, by Segment, March 2014 vs. March 2013*

9.3%

-3.2%

2.1%

-19.0%

19.8%

33.5%

2.8%7.9%10.7%12.5% 16.0%

8.6%

30.4%

13.5%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Tota

l Priv

ate

Cons

truct

ion

Resi

dent

ial

Tota

lNo

nres

iden

tial

Lodg

ing

Offi

ce

Com

mer

cial

Heal

th C

are

Educ

atio

nal

Relig

ious

Amus

emen

t &Re

c.

Tran

spor

tatio

n

Com

mun

icat

ion

Pow

er

Man

ufac

turin

g

Private Construction Activity is Up in Most Segments, Including the Key Residential Construction Sector; Bodes Well for the Remainder of 2014

Growth (%) Led by the Residential Construction, Lodging and

Communication segments, Private sector construction activity is

rising after plunging during the “Great Recession.”

*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

Page 24: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

40

$314.9 $304.0$286.4 $279.0 $271.4 $262.9

$216.1 $220.2$234.2

$255.4

$289.1$308.7

$0

$50

$100

$150

$200

$250

$300

$350

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

($ Billions)

Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Continues to Contract As State/Local Governments

Grapple with Deficits and Federal Sequestration Takes Hold

Value of New Federal, State and Local Government Construction: 2003-2014*

*2014 figure is a seasonally adjusted annual rate as of March; http://www.census.gov/construction/c30/historical_data.html Sources: US Department of Commerce; Insurance Information Institute.

Construction across all levels of government

peaked at $314.9B in 2009

Austerity Reigns Govt. construction is still shrinking, down $52.0B or

16.5% since 2009 peak

Page 25: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

41

Construction Employment,Jan. 2010—April 2014*

*Seasonally adjusted.Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

5,58

15,

522

5,54

25,

554

5,52

75,

512

5,49

75,

519

5,49

95,

501

5,49

75,

468

5,43

5 5,47

85,

485

5,49

75,

524

5,53

05,

547

5,54

65,

583

5,57

65,

577

5,61

25,

629

5,64

45,

640

5,63

65,

615

5,62

25,

627

5,63

05,

633

5,64

95,

673

5,71

15,

735 5,78

35,

799

5,79

25,

791

5,80

15,

804

5,80

55,

822

5,83

05,

849

5,87

6 5,92

75,

927 5,96

86,

000

5,400

5,500

5,600

5,700

5,800

5,900

6,000

6,100

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

-12

Oct

-13

Nov

-13

Dec

-13

Jan-

14Fe

b-14

Mar

-14

Apr

-14

Construction employment is +565,000 above

Jan. 2011 (+10.4%) trough

(Thousands)

Construction and manufacturing employment constitute 1/3 of all payroll exposure.

Page 26: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

43

MANUFACTURING SECTOR

A Potent Driver of Jobs and Commercial Lines Exposure

America’s Manufacturing Renaissance43

Page 27: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

44

Manufacturing Employment,Jan. 2010—April 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

,081

12,0

8812

,100

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

44/

31/2

Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.

*Seasonally adjusted. Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

(Thousands) Since Jan 2010, manufacturing employment

is up (+640,000 or +5.6%)and still growing.

Page 28: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

45

$200,000

$300,000

$400,000

$500,000

Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Mar. 2014

* Seasonally adjusted; Data published May 2, 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/

Monthly shipments in Mar. 2014 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

45

The value of Manufacturing Shipments in Mar. 2014 was $494.9B—a new record high.

Page 29: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

48

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.

Page 30: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

49

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)

Page 31: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

50

ENERGY SECTOR

America’s Energy Boom Is Potentially the Most Transformative Economic

Force in the Country TodayCommercial Insurers Will Generate Billions in Premiums as Exposures

Mushroom50

Page 32: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

51

Oil & Gas Extraction Employment,Jan. 2010—April 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

7.8

207.

820

8.9

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

Apr

-14

Oil and gas extraction employment is up 33.6% 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

Page 33: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

20.2 19.9 20.0 19.5 18.9 19.420.2

21.1 21.622.4

24.025.3 25.6

20.6

10

12

14

16

18

20

22

24

26

28

00 01 02 03 04 05 06 07 08 09 10 11 12 13

U.S. Natural Gas Production, 2000-2013

Source: Energy Information Administration, Short-Term Energy Outlook (April 8, 2014) , Insurance Information Institute.

Trillions of Cubic Ft. per Year

The U.S. is already the world’s largest natural gas producer—

recently overtaking Russia. This is a potent driver of commercial

insurance exposures

Page 34: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Trends in the Healthcare Industry

55

Growth of the Health Sector and Health Sector Employment Will Continue to Outpace

55

Page 35: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

57

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.

Healthcare is a labor intensive industry. Spending will rise

from $3 trillion today to $5 trillion in 2022

Page 36: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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?

Page 37: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

61

Projected Number of People with No Health Insurance, 2013—2022*

31

55

4437

30

5

15

25

35

45

55

65

2013E 2014F 2015F 2018F 2022F

Millions

The projected decline in the uninsured population is very sensitive to the enrollment rate under the Affordable Care Act

By 2018 the number of people under age 65 without

insurance is expected to drop by 25 million (~45%)

61

*Under age 65.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.

Page 38: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Healthcare SupportHealthcare Practitioners

ConstructionPersonal Care and Service

Computer and MathSocial Service

Business & FinancialGroundskeeping/Janitorial

EducationAll Occupations

LegalLife, Phys and Social Science

RepairFood Preparation

TransportationFire, Police, Etc.

Architects and EngineersSales

ManagementArts and Media

Administrative SupportProduction

Farming

28.121.521.4

20.918

17.212.512.5

11.110.810.7

10.19.69.4

8.67.9

7.37.37.276.8

0.8-3.4

Source: Bureau of Labor Statistics, Insurance Information Institute.

Occupations Ranked by Projected Percentage Growth, 2012-2022F (%)

63

Healthcare professions are expected to grow at 2 to

nearly 3 times employment growth overall

Page 39: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

65

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend is Improving

65

Page 40: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

66

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.

66

As the unemployment rate approaches 6%,

the Fed will begin signaling on short-

term rates

Page 41: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

67

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%

6.4%

6.3%

6.1%

6.0%

5.9%

5.8%

5.7%

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 (5/14 edition); Insurance Information Institute.

2007:Q1 to 2015:Q4F*

Unemployment forecasts have been revised slightly

downwards. Optimistic scenarios put the

unemployment as low as 6.9% by Q4 of this year.

Jobless figures have been revised

slightly downwards for 2014/15

Page 42: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

231

5217

052

126

573

-71

32 64 81 553

-115

-106

-221

-215

-206

-261

-258

-422

-486

-776 -6

93-8

21-6

98-8

10-8

01-2

94-4

26-2

72 -232

-141

-271

-15

-232

20-3

819

294 11

012

011

710

7 199

149

94 7222

323

1 320

166

186 21

912

526

817

719

1 222

364

228

246

102 131

7517

213

615

9 255

211

215

219 26

316

4 188 22

220

117

018

015

3 247 272

8616

618

819

2

113

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

Jan-

07Fe

b-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09Fe

b-09

Mar

-09

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

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-

12Fe

b-12

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

Monthly Change in Private Employment

January 2007 through March 2014 (Thousands, Seasonally Adjusted)

Private Employers Added 8.88 million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)

Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute

Monthly losses in Dec. 08–Mar. 09

were the largest in the

post-WW II period

192,000 private sector jobs were

created in March. As of March 2014, all the jobs lost in

the Great Recession have been recovered

68

Jobs Created2013: 2.368 Mill2012: 2.294 Mill2011: 2.400 Mill2010: 1.277 Mill

Page 43: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

73

Unemployment Rates by State, April 2014:Highest 25 States*

8.3

8.0

7.9

7.8

7.7

7.5

7.5

7.4

7.0

6.9

6.9

6.9

6.9

6.9

6.8

6.7

6.6

6.6

6.4

6.3

6.3

6.2

6.2

6.1

6.0

6.0

6.0

0

2

4

6

8

10

RI NV IL CA KY DC MS MIGA AL AZ

CT NJ OR NM NY ARMO AK TN US FL NC WA CO MA WV

Une

mpl

oym

ent R

ate

(%)

*Provisional figures for April 2014, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In April, 43 states had over-the-month unemployment rate decreases, 2

states had increases, and 5 states and the District of Columbia had no

change.

Page 44: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

74

5.8

5.8

5.7

5.7

5.7

5.7

5.5

5.3

5.2

5.0

4.9

4.8

4.8

4.7

4.6

4.5

4.4

4.4

4.3

3.8

3.8

3.7

3.6

3.3

2.6

0

1

2

3

4

5

6

7

DE WI IN ME OH PA MD SC TX ID VA KS MT MN OK LA HI NH IA SD UT WY NE VT ND

Une

mpl

oym

ent R

ate

(%)

Unemployment Rates by State, April 2014: Lowest 25 States*

*Provisional figures for April 2014, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In April, 43 states had over-the-month unemployment rate decreases, 2

states had increases, and 5 states and the District of Columbia had no

change.

Page 45: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

75

U.S. Insured Catastrophe Loss Update

2013 Was a Welcome Respite from the High Catastrophe Losses in Recent Years

75

Page 46: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

76

$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

0.9

$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 8/31/13. Includes $9.7B for 2013:H1 (PCS) and $1.2B I.I.I. estimate for the period 7/1 – 8/31/13.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)

76

Page 47: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

77

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

Page 48: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

78

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 Texas had the 2nd highest CAT losses

in the US in 2013 (none of it from tropical activity)

Page 49: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

82

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

Page 50: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

84Sources: Munich Re NatCatSERVICE; Insurance Information Institute.

Winter Storm and Winter Damage Events in the US and Canada, 1980-2013 (2013 US$)

Three of the four most costly years ever for insured losses from

winter storms and damage occurred in the 1990s, led by the “Storm of the Century” in 1993.

Insured losses from

severe winter events

totaled $2 billion in

2013.

Insured winter storm and damage losses in Jan. 2014 already totaled $1.5 billion. Continued severe weather since then makes it likely that

2014 will become one of the top 5 costliest winters since 1980.

Insured Losses (Millions, $ 2013)

5-year running average

Page 51: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

85

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.

Page 52: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

86

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

Page 53: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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 87

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

Page 54: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Losses Due to Natural Disasters in the US, 1980–2013

88

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

Page 55: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

92

Top 12 Most Costly Hurricanesin U.S. History

(Insured Losses, 2012 Dollars, $ Billions)

*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

$9.2 $11.1 $13.4$18.8

$25.6

$48.7

$8.7$7.8$6.7$5.6$5.6$4.4

$0

$10

$20

$30

$40

$50

$60

Irene(2011)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Sandy*(2012)

Andrew(1992)

Katrina(2005)

Hurricane Sandy became the 3rd costliest hurricane in US

insurance historyHurricane Irene became the 12th most expensive hurricane in US history in 2011

10 of the 12 most costly hurricanes in insurance history occurred over the past 9 years (2004—2012)

Page 56: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

94

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 exposure in TX is

3rd highest in US.

Page 57: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

99

The combined ratios for both personal and commercial lines

improved substantially in 2013:H1

Florida Citizens Total Policies In-Force,2002 – 2014*

*Year-end figures 2003-2013 and as of 3/31/14 for 2014 accessed at https://www.citizensfla.com/about/bookofbusiness/.Source: PIPSO; Florida Citizens, Insurance Information Institute

820.3 810.0

1,299.0 1,304.9

1,029.2

874.0938.4

1,314.8

1,084.2 1,021.7

1,283.51,472.4

0

200

400

600

800

1,000

1,200

1,400

1,600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

(Thousands)

6+ hurricane impact Florida in

2004-2005 causing more

than $25 billion in insured losses

Florida Citizens is experiencing meaningful depopulation

FL Citizen’s policies in-force

is now below 1 million for the first time since

2005

Page 58: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Florida Citizens Exposure to Loss,2002 – 2014* ($ Billions)

*As of March 31, 2014 from Florida Citizens accessed at: https://www.citizensfla.com/about/bookofbusiness/ Source: PIPSO; Insurance Information Institute (I.I.I.).

$154.6$195.5 $206.7 $210.6

$408.8

$485.1

$421.9 $406.0

$460.7

$510.7

$318.9$298.4

$429.4

$0

$100

$200

$300

$400

$500

$600

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Total exposure to loss in Florida Citizens since its 2002 inception increased by 230 percent, from $154.6 billion to $510.7 billion in 2011 but has now dropped

by $212.3 billion or 41.6% through 3/31/14

Page 59: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

U.S. Thunderstorm Insured Loss Trends, 1980 – 2013

102Source: Property Claims Service, MR NatCatSERVICE

Thunderstorm losses in 2013 totaled $10.3 billion, the 6th

highest on record

Average thunderstorm

losses are up 7 fold since the early

1980s. The 5-year running average

loss is up sharply

Hurricanes get all the headlines, but thunderstorms are consistent

producers of large scale loss. 2008-2013 are the most expensive

years on record.

Page 60: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Convective Loss Events in the U.S. Overall and insured losses 1980 – 2012 and First Half 2013

Overall losses (in 2013 values) Insured losses (in 2013 values)

Analysis contains: straight-line winds, tornadoes, hail, heavy precipitation, flash floods, lightning.

104Source: Geo Risks Research, NatCatSERVICE.

10

20

30

40

50

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Convective events are those caused by straight-line winds,

tornadoes, hail, heavy precipitation,

flash floods and lightning

The insured and total economic cost of

convective events has rising tremendously

over the past 30+ years

(Bill. US$)

Page 61: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Number of Acres Burned in Wildfires, 1980 – 2013

Source: National Interagency Fire Center 105

TX experienced significant wildfire losses in 2011 (Bastrop fire insured losses ~$500 million)

Page 62: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*

*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 106

Avg. catastrophe claim cost rose

approximately 200% from 1997-2011

Cat claim frequency in 2011 was at historic highs and more than

double the rate in 1997

Page 63: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Homeowners Insurance Combined Ratio: 1990–2015F

113.

011

7.7

158.

411

3.6

101.

0 109.

410

8.2

111.

4 121.

710

9.3

98.2

94.4 10

0.3

89.0 95

.711

6.9

105.

810

6.7

122.

210

4.1

90.0

101.

210

0.7

118.

411

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E 14F 15F

1

Low Cat Losses Led to 2013 Improvement. Homeowners Performance in 2011/12 Impacted by Large Cat Losses.

Extreme Regional Variation Can Be Expected Due to Local Catastrophe Loss Activity

Sources: A.M. Best (1990-2012);Conning (2014E-2015F); Insurance Information Institute. 107

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

Page 64: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 65: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 66: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

112

Federal Disaster Declarations Patterns:

1953-2014

112

Disaster Declarations Set New Records in Recent Years

Page 67: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Number of Federal Major Disaster Declarations, 1953-2014*

1317 18 16 16

7 712 12

22 2025 25

11 1119

2917 17

48 46 4638

3022 25

4223

1524 21

3427 28

2311

3138

4532

3632

7544

6550

45 4549

5669

4852

6375

5981

9947

5523

43

0

20

40

60

80

100

120

53 54 55 56 57 58 59 60 61 62 63 64 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

*Through May 18, 2014.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011 Before Dropping in 2012/13

The number of federal disaster declarations set a new record in 2011, with 99, shattering 2010’s

record 81 declarations.

There have been 2,163 federal disaster

declarations since 1953. The average

number of declarations per year is 35 from 1953-2013, though

there few haven’t been recorded since 1995.

23 federal disasters were declared so far in 2014*

113

Page 68: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

114

Federal Disasters Declarations by State, 1953 – 2014: Highest 25 States*

88

79

75

67 67

60 58 56 56 55 53 53 52 52 51 50 50 50 48 48 47 47 44 43

40

0102030405060708090

100

TX CA OK NY FL LA AL KY AR MO IL MS IA TN WV MN KS PA NE WA OH VA ND SD ME

Dis

aste

r Dec

lara

tions

Over the past 60 years, Texas has had the highest

number of Federal Disaster

Declarations

*Through May 18, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Page 69: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

115

Federal Disasters Declarations by State, 1953 – 2014: Lowest 25 States*

43

40 40

38 37 3735

33

29 29

26 26 26 26 25 24 24 23 22

1917 17

15

1311 11

9

0

10

20

30

40

50

NC AK IN GA VT WI NJ NH MA OR PR HI MI NM MD AZ MT ID CO CT NV SC DE DC UT RI WY

Dis

aste

r Dec

lara

tions

Over the past 60 years, Wyoming and Rhode Island had the fewest

number of Federal Disaster Declarations

*Through May 18, 2014. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Page 70: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

116

SEVERE WEATHER REPORT UPDATE: 2014

Damage from Tornadoes, Large Hail and High Winds Keep Insurers Busy

116

Page 71: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Severe Weather Reports: 2014*

121

*Through May 13.Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2014_annual_summary.html#

Severe weather reports are

concentrated east of the Rockies

There were 3,911 severe

weather reports so far in 2014; including 358

tornadoes; 1,496 “Large Hail” reports

and 2,056 high wind events

Page 72: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

U.S. Tornado Count, 2005-2014*

122*Through May 17, 2014.Source: http://www.spc.noaa.gov/wcm/.

There were 1,897 tornadoes in the U.S. in 2011 far

above average, but well below 2008’s record

2013 count was the

lowest in a decade

The YTD tornado count in 2014 is well

below average

Page 73: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Terrorism Update

142

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

142

Page 74: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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)

Page 75: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

144

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

Page 76: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

145

*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*

Page 77: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

146

I.I.I. White Paper (March 2014):Terrorism Risk: A Constant Threat

Detailed history of TRIA How TRIA works Assessing the threat of

terrorism Terrorism market

conditions Global perspective Download at

http://www.iii.org/white_papers/terrorism-risk-a-constant-threat-2014.html

Page 78: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

147

Terrorism Risk Insurance Program Testified before House Financial Services Nov. 2013 Testified before Senate Banking Cmte. in Sept. 2013 Provided testimony at NYC hearing in June 2013 Provided Capitol Hill Joint House/Senate Staff Briefing in

April 2014 I.I.I. Published Several Updates to its Study on Terrorism

Risk and Insurance Working with Trades, Congressional Staff, GAO & Others

Senate Banking Committee, 9/25/13House Financial Services Subcommittee, 11/13/13

Page 79: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

148

Summary of President’s Working Group Report on TRIA (April 2014)

Insurance for terrorism risk is available and affordable Availability/affordability have has not changed appreciably since 2010

Prices for terrorism risk insurance vary considerably depending on the policyholder’s industry and location of risk

Prices have declined since TRIA was enacted Currently ~3% to 5% of commercial property insurance premiums

Take-up rates have improved since adoption of TRIA Overall take-up rate is steady at ~60% (62% in 2013 per Marsh)

Market capacity is currently tightening given uncertainty over TRIA reauthorization

The private market does not have the capacity to provide reinsurance for terror risk to the extent currently provided by TRIA

In the absence of TRIA, terrorism risk insurance would likely be less available. Coverage that would be available likely would be more costly and/or limited in scope

Source: Report of the President’s Working Group on Financial Markets,The Long-Term Availability and Affordability of Insurance for Terrorism Risk,April 2014.

Page 80: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

CAT OF THE FUTURE?CYBER RISK

149

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

149

Page 81: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 82: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

153

Growth Analysis by State and Business Segment

Premium Growth Rates Vary Tremendously by State

153

Page 83: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

154

Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*

58.4

25.4

24.5

21.0

19.2

17.6

16.3

13.2

13.2

12.4

9.9

9.2

9.2

8.5

8.0

6.2

5.8

5.2

4.5

4.4

4.3

4.3

4.2

4.0

3.8

3.6

0

10

20

30

40

50

60

70

ND SD OK NE IA KS VT AK

TX WY

MN AR

TN IN WI

KY

MT

OH LA VA NJ MI

SC CO

MO

NM

Pece

nt c

hang

e (%

)

Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 States

North Dakota was the country’s growth leader over the past 5 years with premiums written

expanding by 58.4%

Page 84: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

155

Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*

3.6

3.1

3.0

2.9

2.7

2.2

2.1

2.1

2.0

1.8

1.1

0.0

-0.1

-0.3

-0.7

-0.9

-2.8

-5.6

-6.0

-7.2

-7.2

-9.3

-10.

1

-11.

2

-12.

5

-17.

3

-20

-15

-10

-5

0

5

CT

MS

NC AL

MD PA U

.S.

MA IL WA

GA

UT

NH RI

ID ME

NY FL CA

DC

WV HI

AZ

OR DE NV

Pece

nt c

hang

e (%

)

Bottom 25 States

Sources: SNL Financial LC.; Insurance Information Institute.

Growth was negative in 13 states and DC between

2007 and 2012

Page 85: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

156

Direct Premiums Written: PP AutoPercent Change by State, 2007-2012*

24.8

18.8

18.5

14.4

13.6

12.7

12.4

11.2

10.7

10.4

10.2

10.1

9.3

9.1

9.1

9.0

9.0

8.4

8.1

8.0

7.9

7.6

7.1

7.0

6.5

6.3

02468

101214161820222426

ND

OK TX MI

NE NJ

SD FL IA NY

KY

KS WI

DE VA TN UT AK

CO AR

WY

SC DC

MO WV

MD

Pece

nt c

hang

e (%

)

Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 States

Page 86: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

161

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*

72.2

35.2

28.8

25.7

21.0

20.2

16.0

15.1

14.6

8.8

6.3

4.6

3.3

2.9

1.5

1.2

0.0

-1.5

-2.3

-2.4

-2.6

-2.6

-3.2

-3.3

-3.5

-3.7

-20

0

20

40

60

80

ND

OK SD VT NE IA KS AK ID WY

TX MN IN WI

AR

TN MT

OH LA MA PA CT

MS

NM IL WA

Pece

nt c

hang

e (%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top 25 States

Only 16 states showed any commercial lines growth

2007 and 2012

Page 87: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

162

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2012*

-4.1

-4.2

-4.5

-4.6

-4.9

-4.9

-5.1

-5.4

-5.9

-6.2

-6.5

-6.8

-6.8

-6.9

-7.3

-9.1

-10.

2

-11.

1

-13.

2

-14.

5

-15.

3

-16.

2

-16.

8

-20.

2

-22.

2

-30.

3

-40

-35-30

-25

-20

-15-10

-5

0

US

NY

MD

NH NJ

MO

ME

NC KY VA RI

CO MI

SC AL

GA

CA

UT

DC

OR HI

DE FL AZ

WV

NV

Pece

nt c

hang

e (%

)

Bottom 25 States

Sources: SNL Financial LLC.; Insurance Information Institute.

States with the poorest performing economies also produced the most negative net change in premiums of

the past 5 years

Page 88: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

The BIG Question:Where Is the Market Heading?

169

Catastrophes and Other Factors Are Pressuring Insurance Markets

169

New Factor: Record Low Interest Rates Are Contributing to

Underwriting and Pricing Pressures

Page 89: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 90: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

174

-1.8

%

-1.8

%

-2.0

%

-3.6

%

-3.3

%

-3.3

%

-3.7

%

-4.3

%

-5.2

%

-5.7

%

-7.3%

-1.9

%

-2.1

%

-3.1

%

-8%-7%-6%-5%-4%-3%-2%-1%0%

Persona

l Line

s

Pvt Pass

Auto

Pers P

rop

Commerc

ial

Comml A

uto

Credit

Comm P

rop

Comm C

as

Fidelity

/Sure

ty

Warra

nty

Surplus

Line

s

Med M

al

WC

Reinsu

rance

**

Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline

*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.

Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*

174

Page 91: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

176

U.S. Treasury Security Yields:A Long Downward Trend, 1990–2014*

*Monthly, constant maturity, nominal rates, through April 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.

176

Page 92: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

P/C UNDERWRITING

183

Underwriting Losses in 2013 Much Improved After High

Catastrophe Losses in 2011/12183

Page 93: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

184

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

Page 94: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

186

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

Page 95: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Underwriting Gain (Loss)1975–2013*

* Includes mortgage and financial guaranty insurers in all years.Sources: A.M. Best, ISO; Insurance Information Institute.

Large Underwriting Losses Are NOT Sustainable in Current Investment Environment

-$55

-$45

-$35

-$25

-$15

-$5

$5

$15

$25

$35

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

Cumulative underwriting deficit from 1975 through

2012 is $510B

($ Billions) Underwriting profit in 2013

totaled $15.5B

High cat losses in 2011 led to the highest

underwriting loss since 2002

Page 96: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

188

2

(2)

(8)

(3)(7)

(10)(10)

(4)(0)

11

24

1512 10

(4)(9)

(13)(12)(10)(14)

(11)(10)(7) (7)

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

$25

$3092 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

13E

14E

15E

Prio

r Yr.

Res

erve

Rel

ease

($B

)

-6

-4

-2

0

2

4

6

8 Impact on C

ombined R

atio (Points)

Prior Yr. ReserveDevelopment ($B)

Impact onCombined Ratio(Points)

P/C Reserve Development, 1992–2015E

Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: A.M. Best, ISO, Barclays Research (estimates for 2013-2015).

Page 97: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

200

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

Page 98: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

201

Reasons for US P/C Insurer Impairments, 1969–2012

43.4%

12.6%

7.2%

7.1%

8.0%

6.6%

8.4%

3.5% 3.1%

Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013; Insurance Information Institute.

Historically, Deficient Loss Reserves and Inadequate Pricing AreBy Far the Leading Cause of P-C Insurer Impairments.

Investment and Catastrophe Losses Play a Much Smaller Role

Deficient Loss Reserves/Inadequate Pricing

Reinsurance Failure

Rapid GrowthAlleged Fraud

Catastrophe Losses

Affiliate Impairment

Investment Problems (Overstatement of Assets)

Misc.

Sig. Change in Business

Page 99: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

203

Top 10 Lines of Business for US P/C Impaired Insurers, 2000–2012

19.7%

22.2%

9.2%8.8%

7.3%

8.6%

6.7%

4.8%

4.0%

8.6%

Source: A.M. Best Special Report “Pace of P/C Impairments Slowed in 2012; Auto Writers, RRGs Continued to Struggle,” June 2013; Insurance Information Institute..

Workers Comp and Pvt. Passenger Auto Account for More Than 40 Percent of the Impaired Insurers Since 2000

Workers Comp

Other

Pvt. Passenger Auto

HomeownersCommercial Multiperil

Commercial Auto Liability

Other Liability

Med Mal

Surety

Title

Page 100: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

204

Performance by Segment

204

Page 101: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Private Passenger Auto Combined Ratio: 1993–2015F

101.

7

101.

3

101.

3

101.

0

109.

5

107.

9

104.

2

98.4

94.3

95.1

95.5 98

.3 100.

2

101.

0

102.

0

102.

1

98.8

98.9

98.2

97.399

.5 101.

1

103.

5

80

85

90

95

100

105

110

115

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F14F15F

Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry

205Sources: A.M. Best (1990-2012);Conning (2013F-15F); Insurance Information Institute.

Page 102: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

109.

4

110.

211

8.8

109.

5 112.

5

110.

210

7.6

104.

110

9.7

110.

2

102.

5 105.

4

91.1 93

.6

104.

298

.9

102.

410

7.9

103.

410

1.2

99.5

99.610

2.0

111.

1

112.

3

122.

3

90

95

100

105

110

115

120

125

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F

14F

15F

Com

mer

cial

Lin

es C

ombi

ned

Rat

io

*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2012); Conning (2013F-2015F) Insurance Information Institute

Commercial Lines Combined Ratio, 1990-2015F*

Commercial lines underwriting

performance is expected to improve as

improvement in pricing environment persists

209

Page 103: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Commercial Auto Combined Ratio: 1993–2015F

112.

1

112.

0

113.

0

115.

9

102.

7

95.2

92.9

92.1

92.4 94

.3 96.8 99

.1

97.8

103.

4

106.

8

101.

7

100.

3

99.8

118.

1

115.

7

116.

2

80

85

90

95

100

105

110

115

120

125

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F

Commercial Auto is Expected to Improve as Rate Gains Outpace Any Adverse Frequency and Severity Trends

210Sources: A.M. Best (1990-2012);Conning (2013F-2015F); Insurance Information Institute.

Page 104: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

Workers Compensation Combined Ratio: 1994–2015F

102.

0

97.0 10

0.0

101.

0

112.

6

108.

6

105.

1

102.

7

98.5 10

3.5

104.

5 110.

6 115.

0

115.

0

108.

0

101.

0

99.0

98.0

121.

7

107.

0

115.

3

118.

2

80

85

90

95

100

105

110

115

120

125

130

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E14F 15F

Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-

2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2013P) and are for private carriers only; Insurance Information Institute (2014-15). 216

WC results have improved markedly

since 2011

Page 105: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

SURPLUS/CAPITAL/CAPACITY

217

2013 Recorded Yet Another Record High in the Primary and Reinsurance Sectors

217

Page 106: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

218

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.

Page 107: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

221

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

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.

Page 108: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

223

REINSURANCE MARKET CONDITIONS

Ample Capacity as Alternative Capital is

Transforming the Market—And Pushing Down

Prices223

Page 109: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

225

Global Reinsurer Capital, 2007-2013:H1*

$510

$410

$340$400

$470 $455$505

$0

$100

$200

$300

$400

$500

$600

2007 2008 2009 2010 2011 2012 2013:H1

*Includes both traditional and non-traditional forms of reinsurance capital.Source: Aon Benfield Aggregate study for the 6 months ending June 2013; Insurance Information Institute.

($ Billions)

Global Reinsurance Capital Has Been Trending Generally Upward Since the Global Financial Crisis, a Trend that Seems Likely to Continue

-17%+18%

+18% -3%+11% +1%

Page 110: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 111: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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

Page 112: Overview and Outlook for the P/C Insurance Industry Behind the Numbers

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