property & casualty market overview fei... · 10/24/2019 · aon commercial risk solutions |...

Property & Casualty Market Overview

October 24, 2019

Market Observations

Aon Commercial Risk Solutions | Proprietary & Confidential | FEI Northeast Wisconsin | October 24, 20193

National Casualty Average Rate Change History

Reflects year-over-year rate change by line of business for Aon’s National Casualty / complex casualty clients since Q1 2007

2019 results reflect aggregate changes through Q2 2019

Total Tower is a combination of the Lead Umbrella and the Excess Liability Layers


Q2 2019Year-over-Year Rate Change Summary by Product

Orange boxes represent ‘Average’; Blue line represent ‘Median’

Reflects year-over-year rate change by line of business for Aon’s National Casualty / complex casualty clients

Auto rates have spiked up dramatically to over 10%; however, median is still less than 2%

Umbrella/excess rates have shown a sharp upward movement since Q3 18; however, median is still less than 5%


Property – Quarterly Year-Over-Year Change In Average Rate


D&O Market Update—Change in Pricing—Primary vs. Total Premium

Quarterly Change in D&O Pricing: Q1 2016–Q2 2019

Source: Aon FSG Quarterly D&O Pricing Index FY2018 & Q2 2019

Observations to date (as of 10/7/2019):

‒ Total pricing has been consistently more volatile over time than primary pricing

‒ 80% of clients saw a primary increase in the 2nd quarter

‒ Only 3% of clients saw a decrease on the primary layer in the 2nd quarter, the lowest amount in any quarter over

the last 7+ years.

-2.1%-3.9% -2.9% -3.6%

0.8%

-1.5% -0.7%-2.0%

1.5% 2.6% 3.2% 3.6% 4.6%6.8%

-9.2%

-16.5%

-2.9%-5.0%

-8.7%-7.0% -5.9%

-9.2%

3.2%6.1%

3.1%

11.6%13.8%

17.1%

Q12016

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Q12019

Q22019

Primary Pricing Total Pricing

Primary – Same Clients Year Over Year


D&O Market Update—Change in Pricing—Primary vs. 1st Excess Premium

Monthly D&O Pricing Changes

Source: Aon FSG Quarterly D&O Pricing Index & preliminary 3rd Q to date

Average Year-over-Year Change (Same Clients in both periods – Primary & 1st Excess Layer Only)

Observations to date (as of 10/9/2019):

‒ First excess layer pricing trends are showing larger increases than the primary layer suggesting that the market is

correcting for prior years of soft rates

‒ The market continues to deteriorate at a rapid pace throughout 2019 with an apparent acceleration in the second

half of the year

4.6%

6.3%

3.7%4.6% 4.9%

6.1%

9.0%

6.8%

13.3% 13.3%

9.5%

12.8%

6.3%7.0%

10.5%

8.3%

10.5%9.2%

12.3%10.9%

16.6%

21.7%

17.0%18.4%

Jan. 2019Final

Feb. 2019Final

Mar. 2019Final

Q1 2019Final

Apr. 2019Final

May 2019Final

Jun. 2019Final

Q2 2019Final

Jul. 2019Final

Aug. 2019Prelim

Sep. 2019Prelim

Q3 2019Prelim

Rate

per

Millio

n C

han

ge

Primary Layer First Excess Layer


EPL – Annual Pricing Index

Source: Aon client data

EPLI Pricing Index

Annual + .02

2018 1.03

2017 1.01

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual Index of EPL Pricing2002 – 2018 | BASE YEAR 2001

Ind

ex V

alu

e

1.26

1.67 1.6

1.38 1.5

1.42

1.28

1.17

1.07 1.02

0.99 1.00 0.99 1.00 1.02 1.01


Beyond Pricing…

Insurers are reducing capacity offered

– Limits & sublimits

Retentions/umbrella attachment points are being pushed upwards

Certain classes of business are being “walked away from”

Coverage terms and conditions are being reviewed by underwriters


Why Now & Why So Abrupt?


P&C Industry Combined Ratio*

*Excludes Mortgage & Financial Guaranty insurers 2008-2014.Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0.

Sources: A.M. Best; ISO, a Verisk Analytics company; 2019 based on Q1 data; 2019 projection: Insurance Information Institute.

110.1

115.8

107.5

100.1

98.4

100.8

92.6

95.7

101

99.3

101.1

106.5

102.5

96.497.4

98.3

100.9

104.0

99.2

95.696.6

90

100

110

120

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 todate

19P

Hurricanes, Wildfires Drive CR Higher.

Best Combined

Ratio Since 1949 (87.6)

Higher CAT Losses, Shrinking Reserve Releases, Toll of

Soft Market

Sandy

3 Consecutive Years of U/W Profits; 1st time

since 1971-73


Investment Income

May-11, 3.17%

Jul-16, 1.49%

Nov-18, 3.11%

1.73%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Recession

10-Yr Yield

Worries About Economy Have Sent Investors Into Treasuries


Financial Measures – Selected Insurers

Underwriting Metrics Investment Gains or (Losses)

Combined Ratio ROE Realized ($M) Unrealized ($M)

Carrier 2018 YE 2017 YE 5 Yr Avg 2018 YE 2017 YE 5 Yr Avg 2019 Q1 2018 YE 2019 Q1 2018 YE

AIG Property Casualty US Insurance Group 121.2% 125.4% 118.8% -7.1% -2.1% 1.2% 37 (217) 81 (327)

Chubb U.S. Group of Insurance Companies 84.1% 93.7% 88.1% 18.4% 12.8% 13.9% (2) 1,552 158 (1,410)

CNA Insurance Companies 110.2% 109.7% 112.1% 7.9% 11.6% 9.2% (38) (13) 167 (591)

FM Global Group 138.6% 138.3% 105.7% -11.0% 10.4% 4.5% 187 750 610 (1,207)

Hartford Insurance Pool 99.1% 101.6% 98.7% 18.4% 0.2% 7.9% 46 39 217 631

Liberty Mutual Insurance Companies 99.4% 109.7% 102.3% 13.5% -8.3% 3.1% (69) 406 197 (1,719)

Nationwide Group 108.4% 113.3% 107.9% -2.1% 0.0% 1.3% (83) (28) 238 110

QBE North America Insurance Group 97.5% 106.8% 100.7% 5.7% -3.3% 2.7% 11 (3) 20 (26)

Sentry Insurance Group 104.2% 104.8% 103.9% 3.8% 10.0% 6.6% 5 (40) 108 (27)

Travelers Group 96.2% 97.2% 92.4% 13.0% 12.4% 15.3% 14 78 21 (66)

XL America Group 107.7% 103.9% 103.4% -2.6% -3.8% 1.2% 5 24 8 (42)

Zurich U.S. Pool 98.5% 98.4% 97.9% 5.1% 7.9% 9.8% 21 134 159 (314)


Loss Experience Drivers

Property

– Legacy natural catastrophes (flood, hurricane, typhoon, etc.)

– Newer natural catastrophes (wildfire, convection storm, snow load, etc.)

– Business interruption & strong economy

• Supply chain dependency


Tornado Activity

16

6

39

8

11

8

18

9

1,4

22

47

5

73

6

44

3

65

1

24

8

1,0

65

11

4

15

8

17

7

23

5

25

1

28

0

12

5

11

6 22

2

88

12

9 2

71

0

200

400

600

800

1000

1200

1400

1600

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9*

201

1

201

2

201

3

201

4

201

5

201

6

2017

201

8

2019**

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8*

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

2019 Second Quarter: Tornado Season – Anticipated Second Most In Past Nine Years

* Preliminary Version of Final Counts. ** Incomplete June Data

Source: http://www.spc.noaa.gov/climo/online/monthly/newm.html.

http://www.spc.noaa.gov/climo/online/monthly/newm.html



Casualty

– Exponential jury verdict increase (aka “nuclear verdicts”)

• Social justice

• Juror attention span

• Litigation financing

♦ Push to trial v. early settlement

− Impact on final amount driven by juror activity and incurred defense expenses

• Plaintiff v. defense attorney investments

– Complexity of auto

• Increased cost to repair

• Safety & individual impairments


Record Claims FrequencyClass Action Filings Index® (CAF Index®) Annual Number of Class Action

Filings: 2008 – 2019 1H

193

*Recent reports confirm that a total of 403 class actions were filed in 2018



193

Rate of Litigation at All-Time HighsPercentage of U.S. Exchange-Listed Companies Subject to Filings



Pricing Reached Historical Lows vs. Claims Frequency / Market GrowthD&O Pricing;

2001– Q4 2018 Base year: 2001 = 1.00

193

209216

498

265228 239

182

121

177

223

165 175

188

151165 168

208

271

412 403

-40%

0%

40%

80%

120%

160%

200%

240%

280%

320%

360%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

199920002001200220032004200520062007200820092010201120122013201420152016 2017 2018

Pe

rce

nta

ge

Ch

an

ge

vs. V

alu

e o

n 1

2/3

1/2

001

D&O Pricing Index

DJIA

S&P 500 Index

Nasdaq Composite Index

Securities Class Action Litigation*

Base-

line



193

Increasing Insurer Loss RatiosDirect Loss & Direct DCC* Ratio vs. SCA Litigation




Management Liability (Including Cyber)

– Frequency &/or severity of claims (D&O, EPL, Fiduciary, Crime and Cyber)

• 1 in 4 privately held companies experienced a D&O loss in the past 3 years

– Bankruptcy concerns/financial distress

– M&A activity

– Excessive fee litigation - 401K Fee

– ESOP valuation litigation

– Social engineering activity

• Phishing - 2,370% increase in losses from such scams in a two year period (FBI PSA)

– Expansion of definition of “Insured” and “wrongful act”

– Increase in regulatory cost expense

– Increase in attorney fees – defense costs

– Creative plaintiff attorneys

– Overseas operations



Impact of #MeToo

The Equal Employment Opportunity Commission (EEOC) filed 66 harassment lawsuits in 2018, including 41 that included allegations of sexual harassment. That reflects more than a 50 percent increase in suits challenging sexual harassment over fiscal year 2017.

The EEOC recovered nearly $70 million for the victims of sexual harassment through litigation and administrative enforcement actions in 2018, increased from $47.5 million in 2017.

Workplace violence and cyber bullying concerns.


Unique Aspects of Insurance & Emerging Trends

At the time of underwriting, an insurer’s “cost of goods sold” is unknown

Insurance is supply & demand of contingent capital

– Impact of historical M&A = fewer insurer choices

Insurers utilizing data & analytics

– Forecasting based upon new models (e.g. convection storm)

– Projecting forward based upon variables beyond historical loss activity only

• Significant impact on “excess” layers of insurance – focus on ILF


Good News!

Workers’ Compensation

International Liability


What Can I Do?


Steps for a Successful Renewal

Understand your current market’s appetite and expectations

– Indications – secure in writing

Understand your risk profile

– Where will insurers have issues/concerns?

• No historical losses won’t necessarily overcome insurer margin pressures

• Show active risk management has led to positive results vs. “luck”

– Where do I need to invest?

• Capital

• Human resources

– Risk quantification & definition of organizational risk tolerance

Start the process early

– Market submission volume

• How do I differentiate my risk?

– Meet with key underwriters

– Prepare others in the organization

• HR, Legal, Operations, etc.

Consider alternative risk finance

– Group captives & other mechanisms


Questions?

property & casualty market overview fei... · 10/24/2019 · aon commercial risk solutions |...

Documents