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Trends, Challenges and Opportunities in the P/C Insurance
Industry in 2017 & BeyondThe Institutes’ Management Development Program
University of Wisconsin
Madison, WI
October 18, 2016
Robert P. Hartwig, Ph.D., CPCU, Special Consultant Insurance Info. Inst.
Co-Director, Center for Risk and Uncertainty Mgmt. University of South Carolina
Cell: 917.453.1885 [email protected] www.iii.org
2
P/C (Re)Insurance Industry Financial Overview
The Past Few Years Have Been Very Similar and Reasonably
Good
2
P/C Industry Net Income After Taxes1991–2016:Q2 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 = 10.2%
2014 ROAS1 = 8.4%
2015 ROAS = 8.4%
2016:H1 ROAS = 6.4%*
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009; 2015E is annualized figure based actual figure through Q3 of $44.0
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
$5
5,8
70
$5
6,6
22
$2
1,6
85
$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
15
16:Q
1
Net income in Q2:2016 on an
annualized basis was on track to fall
short of full-year 2015
$ Millions
-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
15
16
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2016:H1
*Profitability = P/C insurer ROEs. 2011-15 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, Conning
1977:19.0%1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
9 Years
History suggests next ROE
peak will be in 2016-2017
ROE
1975: 2.4%
2013 9.8%
2016:H1 6.4%
2015: 8.4%
5
ROE: Property/Casualty Insurance by Major Event, 1987–2016:H1
* Through 2016:H1. Excludes Mortgage & Financial Guarantee in 2008 – 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 15 16*
P/C Profitability Is Both by Cyclicality and Ordinary Volatility
Hugo
Andrew, Iniki
Northridge
Lowest CAT Losses in 15 Years
Sept. 11
Katrina, Rita, Wilma
4 Hurricanes
Financial Crisis*
(Percent)
Record Tornado Losses
Sandy
Low CATs
Modestly higher CATs
-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
1950 - 1970
Low
Volatility
P/C Insurance Industry ROE: Magnitude of Cyclicality, Volatility Changes Over Time, 1950-2015
.
Source: Insurance Information Institute
1971 - 1992
Extreme
Volatility
1993 - 2008
Moderate
Volatility
2009 - Present
Modest
Volatility
7
P/C Insurance Industry Combined Ratio, 2001–2016:Q2*
* 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 (2014-2015); Figure for 2010-2013 is from A.M. Best P&C Review and Preview, Feb. 16, 2016.
95.7
99.3101.1
106.5
102.5
96.4 97.0 97.899.8
101.0
92.6
100.8
98.4100.1
107.5
115.8
90
100
110
120
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16:Q2
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned Premiums Relatively
Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Sandy Impacts
Lower CAT
Losses
Best Combined Ratio Since 1949 (87.6)
Avg. CAT Losses,
More Reserve Releases
3 Consecutive Years of U/W Profits: First Time Since
1971-73Cyclical Deterioration
Elevated CATs
8
Number of Years with Underwriting Profits by Decade, 1920s–2010s
0 0
3 3
5
4
8
10
7
6
0
2
4
6
8
10
12
1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s* 2010s**
* 2009 combined ratio excl. mort. and finl. guaranty insurers was 99.3, which would bring the 2000s total to 4 years with an u/w profit.
**Data for the 2010s is for the period 2010 through 2015.
Note: Data for 1920–1934 based on stock companies only.
Sources: Insurance Information Institute research from A.M. Best Data.
Number of Years with Underwriting Profits
Underwriting Profits Were Common Before the 1980s (40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –
But Then They Vanished. Not a Single Underwriting Profit Was Recorded in the 25 Years from 1979 Through 2003
8
Source: A.M. Best; Barclays research for estimates.
Reserve Change
P/C Insurance Loss Reserve Development, 1992 – 2017E*
Reserve releases are expected to gradually taper off slowly, but
will continue to benefit the bottom line and combined ratio
through at least 2017
10
Policyholder Surplus, 2006:Q4–2016:Q2
Sources: ISO, A.M .Best.
($ 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 $
653.4
$671.6
$673.9
$675.2
$672.4
$673.7
$676.3
$680.6
$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
14:Q
3
14:Q
4
15:Q
2
15:Q
4
16:Q
1
16:Q
2
2007:Q3Pre-Crisis Peak
Surplus as of 6/30/16 stood at a record high $680.64B
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 $0.76 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 2016in very strong financial condition.
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
$700
$750
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
US Policyholder Surplus:1975–2016*
* As of 6/3016.
Source: A.M. Best, ISO, Insurance Information Institute.
“Surplus” is a measure of underwriting capacity. It is
analogous to “Owners Equity” or “Net Worth” in non-
insurance organizations
($ Billions)
The Premium-to-Surplus Ratio Stood at $0.76:$1 as of12/31/15, a Near Record Low (at Least in Recent History)
Surplus as of 6/30/16 was a record $680.6, up 1.0% from $673.7 of 12/31/15, and up 55.7% ($243.5B) from
the crisis trough of $437.1B at 3/31/09
12
RNW All Lines, 2005-2014 Average:Highest 25 States
19
.9
19
.0
14
.0
13
.3
13
.2
13
.0
11
.9
11
.7
11
.7
11
.5
11
.3
11
.1
11
.0
10
.9
10
.8
10
.6
10
.6
10
.5
10
.3
10
.0
9.9
9.6
8.9
8.9
8.8
8.3
0
2
4
6
8
10
12
14
16
18
20
22
HI AK VT ME ND FL WY NH VA ID UT NC WA MA SC OH WV OR DC CA RI CT MD NM SD MT
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
Source: NAIC; Insurance Information Institute.
Profitability Benchmark: All P/C
US: 7.7%
(Percent)
13
7.8
7.8
7.7
7.5
7.5
7.4
7.3
7.3
7.1
7.1
7.0
6.9
6.8
6.5
6.3
6.2
6.1
5.5
5.1
5.1
4.7
4.1
3.4
1.7
-7.4
-9.4
-11
-9
-7
-5
-3
-1
1
3
5
7
9
PA WI US IL TX IA KS MN AR NE IN CO AZ KY MO TN NV NJ GA NY DE AL MI OK MS LA
RNW All Lines, 2005-2014 Average:
Lowest 25 States
Source: NAIC; Insurance Information Institute.
Some of the least profitable states over the past decade
were hit hard by catastrophes
(Percent)
14
-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
15
16
Net Premium Growth (All P/C Lines): Annual Change, 1971—2016:Q2
(Percent)
1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014-16).
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.
2016 Q2: 3.0%
2015: 3.4%
2014: 4.2
2013: 4.4%
2012: +4.2%
Outlook
2016F: 3.0%
2017F: 2.9%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
26
28
30
32
34
36
38
40
42
44
46
48
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
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
Economic Shocks,
Inflation:
1976: 22.0%
Tort Crisis
1985/86: 22.2%
Post-9/11
2002:15.3%
Twin
Recessions;
Interest Rate
Hikes
1987: 3.7% Great
Recession:
2010: -4.9%
ROE
2015 3.4%
NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926 – 2015
Great Depression
1932: -15.9% max drop
Post WW II Peak:
1947: 26.2%
Start of WW II
1941: 15.8%
1950-70: Extended period of stability in growth and
profitability. Low interest rates, low inflation, “Bureau” rate regulation all played a role
1970-90: Peak premium growth was much higher in this period while troughs were comparable. Rapid inflation, economic
volatility, high interest rates, tort environment all played roles
1988-2000: Period of
inter-cycle stability
2010-20XX? Post-
recession period of
stable growth?
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
11
13
15E
Economic Shocks,
Inflation:
1976: 22.2%Tort Crisis
1986: 30.5%
Post-9/11
2002: 22.4%
Great
Recession:
2009: -9.0%
ROE
2015E 3.3%
Commercial Lines NPW Premium Growth:1975 – 2015E
Recessions:
1982: 1.1%
Commercial lines is prone to more cyclical volatility that personal
lines. Recently, growth has stabilized in the 4% to 5% range.
1988-2000: Period of
inter-cycle stability
2010-20XX? Post-
recession period of
stable growth?
Note: Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
Post-Hurricane
Andrew Bump:
1993: 6.3%
Post Katrina
Bump:
2006: 7.7%
17
U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 1994-2015 (1)
$5,1
00
$11,5
34
$8,0
59
$30,8
73
$19,1
18
$40,0
32
$1,2
49
$486
$20,3
53
$425
$9,2
64
$35,2
21
$13,6
15
$16,2
94
$3,5
07
$6,4
19 $
12,4
58
$4,6
51
$4,3
97
$6,7
23
$39,6
07
$55,825
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Tra
ns
ac
tio
n v
alu
es
0
20
40
60
80
100
120
140
Nu
mb
er o
f tran
sa
ctio
ns
($ 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 in
2015 totaled $39.6B, its highest
level since 2000
18
Non-Life Insurance: Global Real (Inflation Adjusted) Premium Growth, 2015
Source: Swiss Re, sigma, No. 3/2016.
Market Life Non-Life Total
Advanced 2.5 2.6 2.5
Emerging 12.0 7.8 9.8
World 4.0 3.6 3.8
Real non-life premium
growth was stronger in the
US in 2015 than in most of
Europe
INVESTMENTS: THE NEW REALITY
19
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
19
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
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
16*
*Through Oct. 12 2016.
Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Ins. Info. Inst.
Tech Bubble
Implosion
Financial
Crisis
Annual Return
Energy Crisis
2016*:
+6.5%
S&P 500 Index Returns, 1950 – 2016*
Fed Raises Rate
Stock market is off to its worst start ever but volatility is endemic to stock markets—and may
be increasing—but there is no persistent downward trend over long periods of time
Property/Casualty Insurance Industry Investment Income: 2000–2016:Q21
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.3$46.4
$47.1
$44.1
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16*
Due to persistently low interest rates, investment income fell in 2012, 2013 and 2014 but showed a small (1.9%) increase in 2015—
another drop in 2016 seems likely.
1 Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.
($ Billions) Investment earnings are still 19% below their
2007 pre-crisis peak
*Annualized figure based on actual Q2:2016 net investment income earned of $22.067B.
22
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2016*
*Monthly, constant maturity, nominal rates, through August 2016.
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 '15 '16
Recession2-Yr Yield10-Yr Yield
Yields on 10-Year U.S. Treasury Notes have been essentially
below 5% for more than a 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.
Despite the Fed’s December 2015 rate hike, yields
remain low though short-
term yields have seen some gains;
Yield curve is flattening.
22
Distribution of Invested Assets: P/C Insurance Industry, 2013
Stocks, 22%
Bonds, 62%
All Other, 10%
Cash, Cash Equiv. &
ST Investments, 6%
Source: Insurance Information Institute Fact Book 2015, A.M. Best.
Total Invested Assets = $1.5
Trillion
$ Billions
Net Investment Yield on Property/ Casualty Insurance Invested Assets, 2007–2016P*
4.5
4.2
4.0
3.8
3.4
3.6
3.1
3.73.8
3.6
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
07 08 09 10 11 12 13 14 15E 16P
The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to raise interest rates in late 2015 has pushed up some yields, albeit quite modestly.
Sources: A.M. Best; 2015E-2016P figures from A.M. Best P/C Review and Preview, Feb. 2016; Insurance Information Institute
(Percent) Estimated book yield in 2016 is down about 140
BP from pre-crisis levels
25
Interest Rate Forecasts: 2016 – 2021F
2.7% 2.7%
2.2%
1.7%
2.1%
2.8%
3.1%
3.4%3.6%
3.5%
0.1%0.3%
0.8%
1.7%
2.2%
2.5%
0%
1%
2%
3%
4%
15 16F 17F 18F 19F 20F 21F 22F 15 16F 17F 18F 19F 20F 21F 22F
A full normalization of interest rates is unlikely until 2019, more than a decade after the onset of the financial crisis.
Yield (%)
Sources: Blue Chip Economic Indicators (10/16 for 2016 and 2017; for 2018-2021 10/16 issue); Insurance Info. Institute.
3-Month Treasury 10-Year Treasury
10-year yields are actually down
in 2016
26
Annual Inflation Rates, (CPI-U, %),1990–2017F
2.82.6
1.51.9
3.3 3.4
1.3
2.52.3
3.0
3.8
2.8
3.8
-0.4
1.6
3.2
2.1
1.5 1.6
0.1
1.3
2.3
2.9
2.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
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 16F17F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 10/16 (forecasts).
Slack in the U.S. economy and falling energy prices suggests that inflationary pressures should remain subdued for an extended
period of times
Annual Inflation Rates (%)
Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the
commodity bubble reduced inflationary pressures in 2009/10
Inflationary expectations have slipped
(due in part to falling energy
costs) allowing the Fed to
maintain low interest rates
27
P/C Insurer Net Realized Capital Gains/Losses, 1990-2016:Q2
*Annualized based on actual of $4.438B through Q2 2016Sources: A.M. Best, ISO; Insurance Information Institute.
$2
.88
$4
.81
$9
.89
$9
.82
$1
0.8
1 $1
8.0
2
$1
3.0
2
$1
6.2
1
$6
.63
-$1
.21
$6
.61
$9
.13
$9
.70
$3
.52 $8
.92
-$7
.90
$5
.85
$7
.04
$6
.18
$1
1.3
7
$1
0.2
8
$9
.41
$8
.88
-$1
9.8
1
$9
.24
$6
.00
$1
.66
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16*
Insurers Posted Net Realized Capital Gains in 2010 - 2015 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE.
($ Billions) Realized capital gains are down from their 2013 peak
Property/Casualty Insurance Industry Investment Gain: 1994–2016:Q21
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$53.4$56.2
$54.2
$58.7$56.6
$53.0
$56.6
$58.0
$51.9
$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14 15* 16*
Total Investment Gains Were Flat in 2015 as Investment Income Rose Marginally and Realized Capital Gains Fell Slightly
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; 2016 figure is annualized based on actual Q2 2016 figure of $26.505B.Sources: ISO, SNL; Insurance Information Institute.
($ Billions)
Investment gains in 2015 were unchanged from 2014; 2016 is
running slightly behind 2015 and 17% below the pre-crisis peak
29
-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%
Per
sona
l Lin
es
Pvt P
ass
Aut
o
Per
s Pro
p
Com
mer
cial
Com
ml A
uto
Cre
dit
Com
m P
rop
Com
m C
as
Fidel
ity/S
uret
y
War
rant
y
Sur
plus
Lin
es
Med
Mal
WC
Rei
nsur
ance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums
**US domestic reinsurance only
Source: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
29
THE ECONOMY
30
The Strength of the Economy Will Greatly
Influence Insurer Exposure Base
Across Most Lines
30
31
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 10/16; Insurance Information Institute.
2.7
%1.8
%-1
.8%
1.3
%-3
.7%
-5.3
%-0
.3%
5.0
%2.3
%2.2
%2.6
%2.4
%0.1
%2.5
%1.3
%4.1
%2.0
%1.3
% 3.1
%0.4
%2.7
%1.8
% 3.5
%-0
.9%
4.6
%4.3
%2.1
%2.0
%2.6
%2.0
%0.9
%0.8
%1.4
% 2.7
%2.3
%2.2
%2.0
%2.1
%2.1
%
-8.9%
4.5
%
1.4%
4.1
%1.1
%1.8
%2.5
% 3.6
%3.1
%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
2
00
7
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
:4Q
15
:1Q
15
:2Q
15
:3Q
15
:4Q
16
:1Q
16
:2Q
16
:3Q
16
:4Q
17
:1Q
17
:2Q
17
:3Q
17
:4Q
Demand for Insurance Should Increase in 2016 as GDP Growth Continues at a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in Dec, 2007
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
Q1 2014/15 GDP data were hit hard by this year’s “Polar Vortex”
and harsh winter
32
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%
6.6
%6
.2%
6.1
%5
.7%
5.6
%5
.4%
5.2
%5
.0%
4.9
%4
.9%
4.9
%4
.8%
4.7
%4
.6%
4.6
%4
.5%
9.6
%
4%
5%
6%
7%
8%
9%
10%
11%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
15
:Q2
15
:Q3
15
:Q4
16
:Q1
16
:Q2
16
:Q3
16
:Q4
17
:Q1
17
:Q2
17
:Q3
17
:Q4
Rising unemployment eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10% in late 2009.
* = actual; = forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (10/16 edition); Insurance Information Institute.
2007:Q1 to 2017:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 4.3% by Q4 of 2017.
Jobless figures have been revised
downwards for 2016
33
9.0%
3.5%
6.0%
2.1%
-0.5%
2.7%
3.4% 3.4% 3.2% 3.1% 3.1%
-2%
0%
2%
4%
6%
8%
10%
2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F
Continued Business Investment WillSpur Modest Commercial Exposure Growth
Business investment was a major drag on the economy in 2016 and adversely impacts commercial property and liability insurance exposures.
Growth should begin a modest recovery in 2017.
Sources: Blue Chip Economic Indicators, 10/2016 (history and forecasts for 2016 and 2017, 10/2016 for forecasts for 2018-2022;
Insurance Information Institute.
The level and direction of interest rates is likely to
affect these growth rates.
Profitability & Politics
3434
How Is Profitability Affected by the President’s Political Party?
15.10%
8.93%
8.93%
8.65%
8.35%
8.33%
7.98%
7.68%
6.98%
6.97%
5.43%
5.03%
4.83%
4.68%
4.43%
3.55%
16.43%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Carter
Reagan II
Obama II
Nixon
Clinton I
G.H.W. Bush
G.W. Bush II
Clinton II
Reagan I
Nixon/Ford
Truman
Eisenhower I
Eisenhower II
G.W. Bush I
Obama I
Johnson
Kennedy/Johnson
*Truman administration ROE of 6.97% based on 3 years only, 1950-52;.
Source: Insurance Information Institute
OVERALL RECORD: 1950-2015*
Democrats 7.72%Republicans 7.85%
Party of President has marginal bearing on profitability of P/C insurance industry
P/C Insurance Industry ROE by Presidential Administration, 1950-2015*
36
Trump vs. Clinton:Issues that Matter to P/C Insurers
Issue Trump Clinton
Economy Supply Side-Like Philosophy:Lower taxesFaster real GDP
growth; Deficits likely grow as tax cuts are combined with targeted increased spending on Homeland Security, Defense, etc.
Keynesian Philosophy: More government spending on infrastructure, education, social services; Deficits likely increase as tax increases likely difficult to pass
Interest Rates May trend higher with larger deficits; Shift from monetary policy to fiscal focus (tax cuts, government spending)
Status quo at the Fed; Net impact on interest rates unclear
Taxes Favors lower tax rates for corporate and personal income tax rates; Tax code overhaul?
Unlikely to reduce taxes or embark on major overhaul of tax code
International Trade
Protectionist Tendencies (appeal primarily to manufacturing sector)
Has criticized Trans-PacificPartnership but is a realist on international matters
Tort System Doesn’t like trial lawyers butseems to like filing lawsuits
Status Quo
Health Care ACA should be repealed & replaced Incremental Change
37
Auto & Home Insurance:
State of the Personal Lines Market
Auto Frequency and Severity Are an Immediate Challenge
Dearth of Major CATs (Until Recently), Pricing Discipline Has Helped Home
37
38
Return on Net Worth: All P-C Lines vs. Homeowners & Pvt. Pass. Auto, 1990-2014*
*Latest available.**Excludes 1992, the year of Hurricane Andrew. If 1992 is included the resulting homeowners RNW is 1.9%Sources: NAIC; Insurance Information Institute.
-10%
-5%
0%
5%
10%
15%
20%
25%
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
US All Lines
US Home
US PP Auto
(Percent)Average RNW: 1990-2013*
All P-C Lines: 7.8% PP Auto: 8.1%
Homeowners: 4.3%**
Pvt.Pass. Auto Has Consistently Outperformed the P-C Industry as a Whole. Homeowners Volatility is Associated Primarily With Coastal Exposure Issues
Excluding 1992’s Hurricane Andrew
39
18
.7
13
.3
13
.0
12
.8
12
.7
12
.7
11
.7
11
.5
10
.5
10
.1
10
.0
9.9
9.4
9.2
9.0
9.0
8.8
8.6
8.6
8.3
8.2
8.1
7.9
7.8
7.8
7.8
0
2
4
6
8
10
12
14
16
18
20
HI DC ME ID AK ND VT NH WV OH IA WY MN OR NM VA AZ CA RI CT WI MT UT IL KS WA
Sources: NAIC; Insurance Information Institute
Hawaii was the most profitable state for auto insurers from 2005-2014
RNW Pvt. Passenger Auto, 2005-2014
Average: Highest 25 States
(Percent)
40
7.7
7.7
7.5
7.5
7.0
6.9
6.9
6.9
6.7
6.6
6.4
6.4
6.2
5.8
5.8
5.8
5.5
5.5
5.0
4.7
4.5
4.0
3.9
3.6
2.2
-2.9-3
-1
1
3
5
7
9
IN
MD
CO
MA
PA
AR
MO
NY
AL
NE
NC
TX
US
DE
SC
TN
NJ
SD
KY
GA
OK
NV
FL
MS
LA MI
RNW Pvt. Passenger Auto,
2005-2014 Average: Lowest 25 States
Sources: NAIC; Insurance Information Institute
Michigan was the least profitable state for auto insurers from
2005-2014
(Percent)
41
41
.7
22
.2
21
.1
20
.9
19
.0
18
.4
18
.4
18
.2
18
.0
16
.9
15
.6
14
.7
14
.1
13
.9
13
.8
12
.7
12
.6
11
.5
11
.5
9.4
9.3
9.1
9.1
19
.0
18
.0
14
.00
5
10
15
20
25
30
35
40
45
HI DC RI FL NV DE AK SC VA CA MA OR NY UT ME VT WA CT NH MD ID NC PA NM AZ WV
Sources: NAIC; Insurance Information Institute
RNW Homeowners Insurance,
2005-2014 Average: Highest 25 States
Hawaii was the most profitable state for home insurers from 2005-2014 due to the absence
of hurricanes during this period
(Percent)
42
8.4
8.0
7.6
7.5
6.8
4.7
4.6
1.7
-1.7
8.0
6.0
-4.7
-4.8
-4.8
-5.8
-6.0
-7.5
-8.4
-11
.2
-13
.8
-20
.1
-26
.8
-4.0
-3.6-2.6
-2.1
-30
-25
-20
-15
-10
-5
0
5
10
ND TX MI US NJ WY WI IA IL KS OH MT MO CO KY IN AL SD AR NE MN GA TN OK LA MS
RN
W H
O
Sources: NAIC; Insurance Information Institute
Hurricanes Katrina and Rita made Louisiana and Mississippi the least profitable states for home insurers
from 2005-2014
(Percent)
RNW Homeowners Insurance,
2005-2014 Average: Lowest 25 States
Personal Lines Underwriting Performance
4343
Auto, Home Underwriting Performance Exhibit Periods of
Both Stability and Volatility
Private Passenger Auto Combined Ratio: 1993–2017F
10
1.7
10
1.3
10
1.3
10
1.0
10
9.5
10
7.9
10
4.2
98
.4
94
.3
95
.1
95
.5 98
.3 10
0.2
10
1.3
10
1.0
10
2.0
10
2.1
10
1.6
10
2.3 10
4.9
10
5.3
10
5.4
99
.5 10
1.1
10
3.5
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 13 14 15E 16F 17F
Private Passenger Auto Underwriting Performance Is Showing the Strains of Rising Frequency (and Severity) Trends in Many States
44Sources: A.M. Best (1990-2014); Conning (2015E-17F); Insurance Information Institute.
Homeowners Insurance Combined Ratio: 1990–2017F
11
3.0
11
7.7
15
8.4
11
3.6
10
1.0 10
9.4
10
8.2
11
1.4 1
21
.7
10
9.3
98
.2
94
.4 10
0.3
89
.0 95
.6
11
6.6
10
5.8
10
6.9
12
2.1
10
3.9
90
.5
92
.7
91
.5 95
.3
95
.5
11
8.4
11
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 13 14 15E16F17F
1
Homeowners Performance Has Improved Markedly Since the 2011/12’s Large Cat Losses. Extreme Regional Variation Can Be Expected Due to Local Catastrophe Loss Activity. Results
in 2016 Will Be Impacted by Severe Spring Weather
45
Hurricane Ike
Hurricane Sandy
Record tornado activity
Hurricane Andrew
Sources: A.M. Best (1990-2014); Insurance Information Institute (2015E-17F).
Loss Ratio Comparisons
4646
Auto, Home Exhibit Wide Variety Across States
47
Claim Trends in Private Passenger Auto Insurance
Rising Frequencies and Severities in Many Coverages
Will that Pattern Be Sustained?
Return on Net Worth: Personal Auto, 2005–2014
Source: National Association of Insurance Commissioners.
Auto Insurance Profitability Has Been Stuck at Low Levels.
14.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Personal Auto Fortune 500
4.3%
Auto Insurance Net Combined Ratios,Yearly, 2005-2015
Sources: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; Insurance Information Institute.
Loss Ratios Have Been Rising for A Decade. 2015 Return on Net Worth Is Likely Close to Zero or Negative.
92
.1%
92
.5%
94
.3%
96
.8%
99
.5%
98
.1%
10
3.6
%
10
7.0
%
10
6.9
% 10
3.4
%
10
8.8
%
95
.1%
95.6
%
98
.3%
10
0.2
%
10
1.3
%
10
1.0
%
10
2.0
%
10
2.1
%
10
1.6
%
10
2.5
%
10
4.6
%
85%
90%
95%
100%
105%
110%
115%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Commercial Personal
A Half Century of Auto Insurance:Frequency vs. Severity
In the Long Run, Frequency Falls. Severity Increases.
Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.
Frequency Severity
7.92
2.61
4.22
1.23
3.55
0.95
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Property Damage Bodily Injury
Cla
ims p
er 1
00
In
su
red
Veh
icle
s
$183$1,143$1,288
$7,553
$3,231
$15,443
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
PropertyDamage
Bodily Injury
Cla
im S
everit
y
1963 1988 2013
Why Personal Auto Loss Ratios are Rising:Severity & Frequency by Coverage, 2015 vs. 2014
Source: ISO/PCI Fast Track data; Insurance Information Institute.
4.1%
6.4%
3.5%
5.7%
-1.7%
2.2%1.1%
10.2%
0.8%
-2.5%-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Bodily Injury PropertyDamageLiability
PIP Collision Comprehensive
Severity Frequency
Annual Change, 2015 Over 2014
Across All Personal Coverage Types (Except Comprehensive) in 2015, Frequency and Severity Rose. This Pattern is Likely to Continue in 2016.
52
Collision Coverage: Severity & Frequency Trends Are Both Higher in 2016
2.8%
1.3%
4.1%
1.3%
5.7% 5.6%
-1.8%
-3.6%
2.5%
-2.4%-1.8%
4.4%
0.8% 0.8%
3.9%3.1%
0.1% 0.5%
-2.3%
-0.1%-1.4%
-0.5%
0.9%
2.4%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Severity Frequency
Annual Change, 2005 through 2016*
The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with
Experience from Past Recoveries
*Four quarters ending with 2016 Q1.
Source: ISO/PCI Fast Track data; Insurance Information Institute
53
Collision Loss Ratio Trending Upward:Private Passenger Auto, 2010 – 2016*
79.1%
67.7%
69.3% 69.4%
73.4%74.8%
76.6%
62%
64%
66%
68%
70%
72%
74%
76%
78%
80%
2010 2011 2012 2013 2014 2015 2016*
Loss Ratio
Collision Loss Ratios are Trending Steadily Upward
*2016 figure is for Q1.
Source: ISO/PCI Fast Track data; Insurance Information Institute
54
Bodily Injury: Severity Trend Is Up, Frequency Decline Has Ended—Rising?
2.1%1.7%
3.7%
1.8%
4.1% 4.3%
-5.4%
-3.8% -4.0% -4.2%
-2.2%
0.0%
-1.1%
2.2% 2.2%3.0%
2.0%
5.9%5.7%4.7%
2.9%
1.1%
0.0% 0.0%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Severity Frequency
Annual Change, 2005 through 2016*
Cost Pressures Will Increase if BI Frequency and Severity Trends Persist
*2016 figure is for Q1.
Source: ISO/PCI Fast Track data; Insurance Information Institute
55
Property Damage Liability: Severity and Frequency Are Up
1.8% 1.9%
4.0%3.4%
6.4% 6.8%
-1.6%
-3.5% -3.4%
0.6% 0.6%0.0%
1.4% 1.1%
2.3%2.9%
3.6%
2.0% 2.0%
-0.4%
0.4%0.9% 1.2%0.3%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Severity Frequency
Annual Change, 2005 through 2016*
Severity/Frequency Trends Have Been Volatile, But Rising Severity since 2011 Is a Concern
*2016 figure is for Q1.
Source: ISO/PCI Fast Track data; Insurance Information Institute
56
Comprehensive Coverage: Frequency and Severity Trends Are Volatile
15.4% 15.3%
-14.5%
7.3%
-1.7%
0.0%
-9.8%
-6.3%
1.3%
5.8%
-8.9%-7.0%
2.6%
15.5%
-1.4% -1.5%
12.6%
-8.1%-5.9%
-2.5%
0.0%
-3.1%
1.8%
6.2%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Severity Frequency
Annual Change, 2005 through 2016*
Weather Creates Volatility for Comprehensive Coverage
Severe weather is a principal cause of the spikes in both
frequency and severity
*2016 figure is for Q1.
Source: ISO/PCI Fast Track data; Insurance Information Institute
57
A Few Factors Driving Adverse Private Passenger Auto Loss Trends
More People Driving, Lower Gas Prices, Higher Speed Limits…
58
Why Are PeopleDriving More Miles? Jobs? 2006 - 2015
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Seasonally Adjusted Employed from Bureau of Labor Statistics; Insurance Institute for Highway Safety; Insurance Information Institute.
Billions of Miles Driven in Prior Year
132
134
136
138
140
142
144
146
148
150
152
2850
2900
2950
3000
3050
3100
3150
06:Q
1
06:Q
3
07:Q
1
07:Q
3
08:Q
1
08:Q
3
09
:Q1
09:Q
3
10:Q
1
10:Q
3
11:Q
1
11:Q
3
12:Q
1
12:Q
3
13:Q
1
13:Q
3
14:Q
1
14:Q
3
15:Q
1
15:Q
3
Miles Driven (left axis) # EmployedMillions Employed
People Drive To and From Work and Drive to Entertainment. Out of Work, They Curtail Their Movement.
Recession
59
More People Working and Driving=> More Collisions, 2006-2016
Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Information Institute.
Number Employed,Millions
138
140
142
144
146
148
150
152
06
:Q1
06
:Q3
07
:Q1
07
:Q3
08
:Q1
08
:Q3
09
:Q1
09
:Q3
10
:Q1
10
:Q3
11
:Q1
11
:Q3
12
:Q1
12
:Q3
13
:Q1
13
:Q3
14
:Q1
14
:Q3
15
:Q1
15
:Q3
16
:Q1
5.5
5.6
5.7
5.8
5.9
6.0
Number Employed (left scale) Collision Claim Frequency (right scale)
Overall Collision Claims Per 100 Insured
Vehicles
When people are out of work, they drive less. When they get jobs,they drive to work, helping drive claim frequency higher.
Recession
Change in Auto Fatalities by State: Especially Severe in Georgia
7%
11%
12%
16%
22%
-1%
8%
-5% 0% 5% 10% 15% 20% 25%
GA (1,394)
SC (954)
KY (748)
NC (1,396)
USA (38,300)
VA (755)
TN (961)
SOURCE: Estimates from National Safety Council.
2015 vs. 2014
Fatalities in Southeast Rising Faster Than USA
as a Whole
GA’s auto fatality rate has increased at a pace nearly 3 times that of the US overall
and far in excess of any other state in the region
61
Personal Lines Growth Drivers
Rate and Exposure are Both Presently Important
Growth Drivers
62
Monthly Change in Auto Insurance Prices, 1991–2016*
*Percentage change from same month in prior year; through July 2016; seasonally adjusted
Note: 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 '15 '16
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
Jul. 2016 reading of 6.3% is up from 5.4%
a year earlier. Current rate trend is strongest
since 2002-03.
63
Average Expenditures* on Auto Insurance, 1994-2015E
$6
51
$6
68
$6
91
$7
05
$7
26
$7
86
$8
30
$8
42
$8
31
$8
16
$7
99
$7
91
$7
87
$7
92
$7
97
$8
15 $8
41 $8
70 $8
99
$6
90
$6
85
$7
03
$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
13
14
E
15
E
Across the U.S., auto insurance expenditures fell by 0.8% in 2008and 0.5% in 2009 but rose 0.5% in 2010, 0.8% in 2011, 2.3% in 2012 and 3.3% in 2013; I.I.I.
estimate is for +3.4% in 2014 and 2015.* The NAIC data are per-vehicle (actually, per insured car-year)Sources: NAIC for 1994-2013; Insurance Information Institute estimates for 2014-2015 based on CPI and other data.
The average expenditure on auto insurance now finally exceeds the pre-crisis high of
$842 recorded in 2004, taking a full decade to recover, but on an inflation-adjusted
basis premiums are still below 2004 levels
Annual Pct Changes
2001: 5.2%
2002: 8.6%
2003: 5.6%
2004: 1.5%
2005: -1.3%
2006: -1.8%
2007: -2.1%
2008: -1.0%
2009: -0.5%
2010: 0.6%
2011: 0.6%
2012: 2.3%
2013: 3.3%
64
$119.7
$128.0 $
139.7 $
151.2
$159.6
$158.5
$157.2
$160.1
$163.3
$168.1
$174.6 $183.5
$191.2
$197.7
$204.0
$160.3
$159.6
$157.3
$100
$120
$140
$160
$180
$200
$220
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F
PP Auto premiums written continue to recover from a period of flat growth attributable to the weak economy impacting new vehicle sales, car choice, and increased
price sensitivity among consumers
Sources: A.M. Best (1990-2014); Conning (2015-17F); Insurance Information Institute.
Private Passenger Auto InsuranceNet Written Premium, 2000–2017F
$ Billion
PPA NWP volume in 2014 was up $26.3B or 16.7%
since the 2009 trough; By 2017 the gain is expected to
be $46.8B or 29.7%
PPA will generate $6B - $8B in new
premiums annually through 2017
65
Homeowners InsuranceNet Written Premium, 2000–2016F
$45.8
$49.5$52.2
$54.8 $55.2
$61.1$63.5
$66.9
$71.9
$77.0
$80.9
$84.9
$57.5$56.2
$32.4
$40.0
$35.2
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
$80
$85
$90
$95
$100
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F
Sources: A.M. Best; Insurance Information Institute.
$ Billions Homeowners insurance NWP continues to rise (up 150% 2000-2015F) despite very little unit
growth during the real estate crash. Reasons include rate increases, especially in coastal
zones, ITV endorsements (e.g., “inflation guards”), compulsory for mortgaged properties
and resumption of home building activity
The Homeowners line will generate about
$4B in new premiums annually through 2016
Personal Lines: Economic and Demographic Considerations
6666
Auto, Home Are Sensitive to Underlying Economic
Conditions
67
(Millions of Units)
New Private Housing Starts, 1990-2022F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
1
0.5
5
0.5
9
0.6
1 0.7
8 0.9
2
1.0
0 1.1
1
1.1
8 1.2
8
1.3
7
1.4
3
1.4
7
1.4
81
.48
1.3
51.4
6
1.2
9
1.2
0
1.0
11.1
9
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 14 15 16F17F18F19F20F21F22F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/16 for 2016-17; 10/16 for 2018-22F; 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, still-low mortgage
rates and demographics should continue to stimulate new home
construction for several more years
68
16
.9
16
.5
16
.1
13
.2
10
.4
11
.6
12
.7
14
.4
15
.5 16
.4
17
.4
17
.2
17
.1
16
.8
16
.8
16
.7
16
.7
16
.7
16
.9
16
.617
.1
17
.5
17
.8
17
.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16F 17F 18F 19F 20F 21F 22F
(Millions of Units)
Auto/Light Truck Sales, 1999-2022F
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
2015 and beyond
Truck, SUV purchases are
especially strong
Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. PP Auto premium
might grow by 3.5% - 5%.
Sales have returned to pre-
crisis levels
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/16 for 2016-17; 10/16 for 2018-21F; Insurance Information Institute.
Number of Registered Passenger Vehicles in US, 1999 – 2015E
Sources: Bureau of Transportation Statistics; Barclays Capital estimates, August 2015.69
Vehicle registrations are growing once
again and now finally exceed pre-crisis
peak
Vehicle registrations are expected to increase at an
annual rate of about 1.5% per year in 2015 and 2016
Auto Loans and Other Non-Housing Debt, 2004 – 2015*
70
Banks are becoming increasingly aggressive in marketing auto loans
*As of Q1 2015.Source: Federal Reserve Bank of NY Consumer Credit Panel/Equifax; l. I.I.
Auto loan debt outstanding
reached $1T for the first time ever
in Q1 2015
71
Commercial Lines Underwriting Performance
71
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.4
10
7.9
10
3.5
94
.8
94
.3
93
.6
97
.3
98
.1
10
2.0
11
1.1
11
2.3
12
2.3
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
13
14
15
E
16
F
17
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.
Source: A.M. Best (1990-2014); Conning (2015E-17F) Insurance Information Institute.
Commercial Lines Combined Ratio, 1990-2017F*
Commercial lines underwriting performance improved in 2013/14 but higher cats, diminishing prior year reserves and rising loss cost trends in some lines could push
combined ratios higher
72
Commercial Property Combined Ratio: 2007–2017F
72
.4
10
5.8
83
.3 86
.5
85
.8
86
.3 90
.6
90
.6
10
6.5
10
5.8
82
.7
70
75
80
85
90
95
100
105
110
07 08 09 10 11 12 13 14 15F 16F 17F
Commercial Property Underwriting Performance Has Improved in Recent Years, Largely Due to
Diminished CAT Activity
Source: Conning Research and Consulting.73
General Liability Combined Ratio: 2005–2017F
11
2.9
95
.1 99
.0
94
.2
10
4.1
99
.7 10
1.6
10
3.9
10
3.6
10
4.5
10
7.1 11
0.8
99
.680
85
90
95
100
105
110
115
05 06 07 08 09 10 11 12 13 14 15F 16F 17F
Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting.74
Commercial Auto Combined Ratio: 1993–2017F
11
2.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4
94
.1 96
.8 99
.1
97
.8
10
3.4 10
6.8
10
6.7
10
3.4
10
6.6
10
8.2
10
8.8
11
8.1
11
5.7
11
6.2
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 13 14 15E16F17F
Commercial Auto Results Are Challenged as Rate Gains Barely Have Yet to Offset Adverse Frequency and Severity Trends
75Sources: A.M. Best (1990-2014);Conning (2015E-2017F); Insurance Information Institute.
Workers Compensation Combined Ratio: 1994–2015P
10
2.0
97
.0 10
0.0
10
1.0
11
2.6
10
8.6
10
5.1
10
2.7
98
.5
10
3.5
10
4.5 1
10
.6 11
5.0
11
5.0
10
9.0
10
2.0
10
0.0
94
.0
12
1.7
10
7.0
11
5.3
11
8.2
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 13 14 15P
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 (2010-2015P) and are for private carriers only; Insurance Information Institute.76
WC results have improved markedly
since 2011
Workers Compensation Premium: Fifth Consecutive Year of IncreaseNet Written Premium
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2
31.134.7
37.8 38.6 37.633.8
30.3 29.932.3
35.136.9 38.5 39.7
35.3 35.734.3
35.433.6
30.128.5
26.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.6 33.8
36.4
39.541.8
44.245.5
0
10
20
30
40
50
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 15p
State Funds ($ B)
Private Carriers ($ B)
Pvt. Carrier NWP growth was +2.9% in 2015, +4.3% in 2014, +5.1% in 2013 and
8.7% in 2012
$ Billions
Calendar Yearp Preliminary
Source: NCCI from Annual Statement Data.
Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT.
Each calendar year total for State Funds includes all funds operating as a state fund that year.
Workers Compensation Lost-Time Claim Frequency Declined in 2015
78
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5 -4.1 -3.7
-6.6
-4.5
-2.2
-4.3-4.9
10.6
-3.9
-5.4
-3
-1.7
-3.0
3.6
-0.9
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p
Indicated
Adjusted*
Percent
Accident Year*Adjustments primarily due to significant audit activity.
2015p: Preliminary based on data valued as of 12/31/2015.
Source: NCCI Financial Call data, developed to ultimate and adjusted to current wage an voluntary loss cost level; Excludes high deductible
policies; 1994-2014: Based on data through 12/31/14. Data for all states where NCCI provides ratemaking services, excluding WV.
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
Average Annual Change = –3.6%
(1994–2014)
Workers Compensation Medical Severity:Small Decrease in 2015
79
Accident Year
Annual Change 1991–1993: +1.9%
Annual Change 1994–2001: +8.9%
Annual Change 2002–2010: +6.0%
Average Medical Cost per Lost-Time ClaimMedical
Claim Cost ($000s)
$8
.1
$8
.2
$8
.1
$8
.8
$9
.1
$9
.8
$1
0.8
$11
.7
$1
2.9
$1
3.9
$1
5.7
$1
7.1
$1
8.4
$1
9.4
$2
0.9
$2
2.1
$2
3.4
$2
5.0
$2
6.2
$2
6.3
$2
6.8
$2
7.3
$2
8.0
$2
8.8
$2
8.5
+6.8%+1.3%-2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%
+10.6%+7.3%
+13.5%
+8.8%
+7.7%+5.4%
+7.8%
+5.8%
+5.9%
+7.0%+4.5%+0.4%
+2.2%+2.0%
+2.3%+3.0%
-1%
5
10
15
20
25
30
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p
2015p: Preliminary based on data valued as of 12/31/2015.
1991-2013: Based on data through 12/31/2014, developed to ultimate
Based on the states where NCCI provides ratemaking services including state funds, excluding WV; Excludes high deductible policies.
Cumulative Change = 252%
(1991-2015p)
Accident Year
Medical severity for lost time claims was down 1% in 2015, the first decline in
at least 20 years
80
Insured Catastrophe Losses
2013/14 and YTD 2015 Experienced Below
Average CAT Activity After Very High CAT
Losses in 2011/12
Winter Storm Losses Far Above Average in
2014 and 201580
81
$1
3.0
$1
1.3
$3
.9
$1
4.8
$1
1.9
$6
.3
$3
5.8
$7
.8
$1
6.8
$3
4.7
$1
0.9
$7
.7
$3
0.1
$1
1.8
$1
4.9
$3
4.6
$3
6.1
$1
3.1
$1
5.5
$1
5.2
$1
1.0
$75.7
$1
4.4
$5
.0 $8
.2
$3
8.9
$9
.1
$2
7.2
$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 14 15 16*
U.S. Insured Catastrophe Losses
*Through 6/30/16. 2016 figure stated in 2016 dollars.
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.
2013/14/15 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster
Losses in US History. 2016 Is Off to a Costlier Start.
2012 was the 3rd most expensive year ever for
insured CAT losses
$11.0B in insured CAT losses though
6/30/16
($ Billions, $ 2015)
81
82
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1996–20151
0.2%1.8%
4.9%
6.1%
7.5%
40.2%
39.2%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2015 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. 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, $158.6
Fires (4), $7.3
Events Involving Tornadoes (2), $158.6
Winter Storms, $30.4
Terrorism, $24.6
Other Wind/Hail/Flood (3), $19.9
Other (5), $0.8
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 1996-2015
totaled $404.1B, an average of $20.2B per year or $1.68B
per month
Winter storm losses were much above average in 2014/15 pushing
this share up
Top 3 States for Insured Catastrophe Losses, 1996-2005 (in 2015 Dollars)
83
Texas, Florida and New York lead the country in insured catastrophe losses over the past 20 years. These 3 states accounted for nearly 1/3 of
all insured catastrophe losses over the past two decades
Source: PCS/Verisk for 2016 Insurance Fact Book, Insurance Information Institute.
84
Top 16 Most Costly Disastersin U.S. History—Katrina Still Ranks #1
(Insured Losses, 2014 Dollars, $ Billions)
$8.1 $9.0 $9.4 $11.4$13.8
$19.3
$24.6 $25.3$26.4
$50.2
$7.7$7.3$6.9$5.8$5.7$4.6
$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)
Storm 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 Since 2004
Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.
Convective Loss Events in the USOverall and insured losses, 1980 – 2015
85
$ Billions
Analysis contains:
severe storm, tornado, hail, flash
flood and lightning
*Losses adjusted to inflation based on CPI
Source: Geo Risks Research, NatCatSERVICE
Overall losses
(in 2015 values)*
Insured losses
(in 2015 values)* The period from 2008-2015 has
been the most expensive on record for insured losses from “Convective Events” (severe thunderstorms, tornado, hail,
lightning and flash flood)
Winter Storm Losses in the US1980 – 2015 (Overall and Insured Losses)*
86
Overall losses
(in 2015 values)*
Insured losses
(in 2015 values)*
*Losses adjusted to
inflation based on CPI.Source: Property Claim Services, MR NatCatSERVICE.
$ Billions
Winter storm losses have been increasing rapidly in recent years
*Winter storms
include also winter
damages, blizzards
and cold waves
Regional Property Catastrophe ROL Index: 1990 – 2016
87
Record traditional capacity, alternative capital and low CAT activity have pressured reinsurance prices; ROEs are down only very modestly
Source: Guy Carpenter; Insurance Information Institute.
Alternative Capital as a Percentage of Traditional Global Reinsurance Capital
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
4.6%
5.7% 5.9% 5.8%5.4%
6.5%
8.4%
10.2%
11.5%
0%
2%
4%
6%
8%
10%
12%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Alternative Capital’s Share of Global Reinsurance Capital Has More Than Doubled Since 2010.
89
INDUSTRY DISRUPTORS
Technology, Society and the Economy Are All
Changing at a Rapid Pace
Thoughts on the Future
89
90
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance
By 2035, it is estimated that 25% of new vehicle
sales could be fully autonomous models
Source: Boston Consulting Group.
Questions
Are auto insurers monitoring these trends?
How are they reacting?
Will Google take over the industry?
Will the number of auto insurers shrink?
How will liability shift?
91
On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance
The “On-Demand” Economy is or will impact many segments of the economy important to P/C insurers
Auto (personal and commercial)
Homeowners/Renters
Many Liability Coverages
Professional Liability
Workers Comp
Many unanswered insurance questions
Insurance solutions are increasingly available to fill the many insurance gaps that arise
The Sharing Economy: An Update
The On-Demand Economy Will Transform the American
Workforce and the P/C Insurance Industry Too
92
93
The Sharing Economy Has Grown—And Attracted Political Scrutiny
94
Political Skepticism About the‘Gig’ Economy
"Many Americans are
making extra money renting
out a spare room, designing
a website ... even driving
their own car. This on
demand or so called 'gig'
economy is creating
exciting opportunities and
unleashing innovation, but
it's also raising hard
questions about
workplace protections
and what a good job will
look like in the future."
--Hillary Clinton,
July 13, 2015
95
Americans Who Offer Services in the Sharing/Gig Economy Are Statistically More Prone to Workplace Injury
Sources: The SelfEmployed.com accessed at https://www.theselfemployed.com/gig-economy/infographic-inside-the-new-
economy/ based on a poll by Time magazine, Bursten-Marsteller and The Aspen Institute; Insurance Information Institute.
Young, urban minority males are the most likely to offer their services in the sharing economy.
Data Breaches 2005-2015, by Number of Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
*Figures as of June 30, 2015, from the Identity Theft Resource Center,http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf
157
321
446
656
498
419
470
614
400
783
662
117.6
85.692.0
17.522.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *2015
0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million records. Through June 30, this year has
seen 117.6 million records exposed in 400 breaches.*
Millions
97
The Road to Fully Autonomous Vehicles: Long, Dark and Full of Potholes
Tales of the Death of Auto Insurance Are Greatly Exaggerated
AUTO TECHNOLOGY &
THE FUTURE OF AUTO INSURANCE
98
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance
By 2035, it is estimated that 25% of new vehicle
sales could be fully autonomous models
Source: Boston Consulting Group.
Questions
Are auto insurers monitoring these trends?
How are they reacting?
Will Google take over the industry?
Will the number of auto insurers shrink?
How will liability shift?
99
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance
Source: Autonomous Consulting as cited in the Financial Times: “Cost of Car Insurance to Plunge With Rise of Driverless
Vehicles, June 28, 2016.
Some are predicting that the rise of autonomous
vehicles will reduce claim frequency by 75% or
more…
,,,and that this technology will cause average auto insurance
premiums to plunge
I.I.I. Poll: Auto Insurance
Q. Would you be willing to ride in a driverless car?
Source: Insurance Information Institute Annual Pulse Survey.
The Percentage Willing to Ride in a Driverless Car Rose Slightly. 71 Percent of People Over 64 Were Unwilling to Ride.
The Percentage Willing to Ride in a Driverless Car Rose Slightly; 71% of People Over 64 Were Unwilling to Ride.
40
%58
%
2%
May 2015 May 2016
No
Don’t Know
Yes43
%55
%
2%
No
Don’t Know
Yes
I.I.I. Poll: Driverless Cars
Q. Would you be willing to ride in a driverless car?
Source: Insurance Information Institute Annual Pulse Survey
The Percentage Willing to Ride in a Driverless Car Remains at 43%; 71% of People Over 64 Were Unwilling to Ride.
40% 40% 43% 43%
59% 58% 56% 55%
1% 2% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
May 2014 May 2015 Nov 2015 May 2016
Yes No Don't Know
I.I.I. Poll: Driverless Cars
Q. Would you be willing to ride in a driverless car?
Source: Insurance Information Institute Annual Pulse Survey.
The Percentage Willing to Ride in a Driverless Car Remains at 43%; 71% of People Over 64 Were Unwilling to Ride.
40% 40%43% 43%
59% 58%56% 55%
1% 2% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
May 2014 May 2015 November 2015 May 2016
Yes No Don't Know
I.I.I. Poll: Driverless Cars
Why Americans Would Not Want to Ride in a Driverless Car, May 20161
1 Based on those who would not ride in a driverless car. Respondents could give more than one answer.
Source: Insurance Information Institute Annual Pulse Survey.
84%
74% 72%
62%59%
42%36%
1% 1%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Would NotFeel Safe
Don't Wantto Give Up
Control
ComputerCould BeHacked
Cars WouldBe Too
Expensive
Would BeLiable for
AnyAccident
WouldCollect
PersonalData
Would BeBoring
None ofThese
Don’t Know
Safety Concerns Are Paramount Among Those Who Would Avoid Driverless Cars.
I.I.I. Poll: Telematics—Consumers Still Hesitant
1Asked of those who have auto insurance.
Source: Insurance Information Institute Annual Pulse Survey.
More Than Half of Auto Policyholders Would Allow Their Insurer toCollect Their Driving Information in Order to Set Premiums.
Q Would you allow your auto insurer to collect information about how and when you drive in order to set your auto insurance premium?
39%
18%
42%
1%
Allow if Premium Went Down
Allow Whether or Not Premium Went Down
NotAllow
Don’t Know
105
Telematics for Your Home:The Internet of Things
The home is the next frontier for telematics
Rapidly becoming a crowded space
How and with whom will insurers partner?
Can control increasing array of household systems remotely
Heat, A/C
Fire, CO detection
Security Systems
Cameras/Monitors
Appliances
Lighting
Technology is adaptive
Uses sensors and algorithms to learn about you
106
THE ‘INTERNET OF THINGS’
Capturing Economic Value Amid a
Shifting Insurer Value Chain
107
The Internet of Things and the Insurance Industry
The “Internet of Things” will create trillions in economic value throughout the global economy by 2025
What opportunities, challenges will this create for insurers?
What are the impact on the insurance industry “value chain”?Sources: McKinsey Global Institute, The Internet of Things: Mapping the Value Beyond the Hype,
June 2015; Insurance Information Institute.
108
Wearables Show Significant Potential to Reduce Workplace Injury, Death
Wearables Today Can Monitor:
Location
Heart rate
Temperature
Steps/Exertion
Sweat
Sleep
In the Near Future Could Monitor:
Glucose level
Oxygen levels
Pain
Nausea
109
The Internet of Things and the Insurance Industry Value Chain
Source: Willis Capital Markets & Advisory; Insurance Information Institute.
The Insurance Industry Value Chain Is Changing for Many Reasons
110
The Internet of Things and the Insurance Industry Value Chain
Source: Willis Capital Markets & Advisory; Insurance Information Institute.
Who owns the data? Where does It flow? Who does the analytics? Who is the capital provider?
111
INSURANCE TECHNOLOGY:
FIN TECH ZEROES IN
Number and Value of Deals Is Increasing
In Search of the Elusive Insurance ‘Unicorn’
112
$62 $29 $22 $18
$240
$31 $44 $71 $37$107
$29
$133
$415
$148$82
$171
$1,848
$369
$272
$650
$32
6
10
54
13
1011
13
18
11
20
9
1820
27
19
22
27
34
30
47
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
13:Q
4
14:Q
1
14:Q
2
14:Q
3
14:Q
4
15:Q
1
15:Q
2
15:Q
3
15:Q
4
16:Q
1
Inv
es
tme
nt
0
5
10
15
20
25
30
35
40
45
50
Nu
mb
er o
f De
als
($ Millions)
Investment in insurance
tech is rising
Insurance tech deals reached a new record
in 2016:Q1
Source: CB Insights at https://www.cbinsights.com/blog/insurance-tech-overview-q1-2016/; Insurance Information Institute.
Insurance Technology Financing Trend: Change Is Coming
Source: Lemonade.com accessed June 24, 2016.
Lemonade: Peer-to-Peer (P2P) Insurance
113
Source: Email from Lemonade CEO Danieal Schreibeir, May 17, 2016.
Lemonade: Sour Words About Insurance
114
Daniel Schreiber here, with updates from Lemonade.
I’m thrilled to report that a few days ago, by unanimous vote of our board and shareholders, Lemonade became a Public Benefit Corporation, and was also awarded provisional ‘B-Corp’ certification. Both are firsts for an insurance carrier, and are points of tremendous pride for our team.
Rebuilding insurance as a social good, rather than a necessary evil, is now part of our legal mission. Our Chief Behavioral Officer, Professor Dan Ariely, says that “If you tried to create a system to bring out the worst in humans, it would look a lot like the insurance of today.” Working in partnership with nonprofits, and baking giving-back into our business model, holds the promise of a better insurance experience, and a more valuable insurance company.
In other news, I’m happy to say that we’re putting finishing touches on our product and will be ready to launch in New York within weeks. The final step is for us to get our license, and if all goes to plan, we’ll have that shortly. Be sure to follow us on Twitter, Facebook, and LinkedIn to stay in the know.
Until next time, Daniel@daschreiber
115
Distribution Trends
Distribution by Channel Type Continues to Evolve Around
the World
116
All P/C Lines Distribution Channels,Direct vs. Independent Agents, 1983-2014
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
0%
10%
20%
30%
40%
50%
60%
70%
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
Direct Independent Agents
Independent agents steadily lost market share from the early 1980s through the early 2000s
across all P/C lines, made some games in the mid-2000s, but then lost share again in the late 2000s.
Loss rate has slowed in in the 2010s. Direct channels include exclusive agency companies, direct marketers and direct sales (e.g., internet)
117
Personal Lines Distribution Channels, Direct vs. Independent Agents, 1972-2014
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
0%
10%
20%
30%
40%
50%
60%
70%
80%
72 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
Direct Independent Agents
Independent agents have lost significant personal lines market share since the early 1970s.
Although the trend slowed from 2000-2007, it may be accelerating again.
www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/bob_Hartwig
Download at www.iii.org/presentations
Insurance Information Institute Online:
118