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After the Cycle Turns:
Overview and Out look forUS and Texas P/C Insurance Markets
Insurance Council of Texas
Annual Insurance SymposiumAustin, TX
July 12, 2012Robert 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
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2
Presentation Outline
U.S. Economic Overview and Outlook
Economy as a Growth Engine for P/C Insurers Labor Market Review
Summary of P/C Financial Performance
Catastrophe Loss Developments & Trends
Global, US
Will the Market Turn? Four Necessary Criteria: Underwriting Loss Trends
Capital/Capacity
Reinsurance Markets
Pricing Discipline
Analysis by Key Line
Other Contributing Factors to the Underwriting Cycle
Investment Environment
Tort/Casualty Environment
Inflation
Q&A
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3
Economics 2012:
The World Is Changing2012 Is the First Year Since 2005
Where Economic Perceptions andReality in the US Will Be Positive
Potent ial ly Eno rmous Benef its for
P/C Insurers 3
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4
Economic Outlook for 2012
Economic Growth Will Continue 2012/13, Albeit Modestly and Unevenly
No Double Dip Recession Economy remains more resilient than most pundits presume
Consumer Confidence Could Ebb, But Wont Collapse
Consumer Spending/Investment Will Continue to Expand Modestly
Consumer and Business Lending Continue to Expand Modestly
Business Bankruptcies Fall, New Business Formations Grow
Housing Market Remains Weak, but Some Improvement Expected by 2013 Inflation Remains Tame
Runaway inflation highly unlikely but energy spike possible; Fed has things under control
Private Sector Hiring Remains Consistently Positive But Anemic Unemployment is about 8% by years end
Sovereign Debt, Euro Currency/Economy European Recession in Milder than Commonly Presumed
Soft Landing in China
Threat from Oil Price Shock, Middle East Turmoil Has Subsided
Interest Rates Remain Low by Historical Standards; Fear & Fed Factors
Stock and Bond Market Stability Has Given Way to Fear Trading
Congress & President Agree on Tax Cut Extensions Before Year-End
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5
P/C Insurance Exposures Grow Modestly
Personal and commercial exposure growth is certain in 2012; Strongest since 2004/5
But restoration of destroyed exposure will take until mid-decade
P/C Industry Growth in 2012 Will Be Strongest Since 2004
Growth likely to exceed A.M. Best projection of +3.8% for 2012
No traditional hard market emerges in 2012
Underwriting Fundamentals Deteriorate Modestly
Some pressure from claim frequency, in some severity in key lines
Increasing Private Sector Hiring Will Drive Payrolls/WC Exposures
Wage growth is also positive and could modestly accelerate
WC will prove to be tough to fix from an underwriting perspective
Increase in Demand for Commercial Insurance Will Accelerate in 2012
Includes workers comp, property, marine, many liability coverages Laggards: inland marine, aviation, commercial auto, surety
Personal Lines: Auto leads, homeowners lags (though HO leads in NPW growth due to rates)
Investment Environment Is Remains Relatively Stable
Return of realized capital gains as a profit driver
Interest rates remain low; Some upward pressure if economic strength surprises
Industry Capacity Hits New Records by Year-End 2012 (Barring Mega-CAT)
Insurance Industry Predictions for 2012
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The Strength of the Economy
Will Influence P/C InsurerGrowth Opportunities
6
Growth Will Expand Workers Comp
Payroll Exposure Base
6
Americas Manufacturing Renaissance?
Construct ion Ac t iv i ty Sti l l Depressed?
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US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 6/12; Insurance Information Institute.
2.7
%
0.9
%3.2
%
2.3
%2.9
%
-0.7
%
0.6
%
-4.0
%
-6.8
% -4.9
%
-0.7
%
1.6
%
5.0
%
3.9
%
3.8
%
2.5
%
2.3
%
0.4
%1.3
%1.8
% 3.0
%
1.9
%
2.1
%
2.2
%
2.4
%
2.1
%2.5
%2.8
%
2.9
%4.1
%
1.1
%1.8
%2.5
% 3.6
%
3.1
%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2000
2001
2002
2003
2004
2005
2006
07:1Q
07:2Q
07:3Q
07:4Q
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
Demand for Insurance Continues To Be Impacted by Sluggish EconomicConditions, but the Benefits of Even Slow Growth Will Compound and
Gradually Benefit the Economy Broadly
Real GDP Growth (%)
Recession began in Dec.2007. Economic toll ofcredit crunch, housing
slump, labor marketcontraction has been
severe but modestrecovery is underway
The Q4:2008 decline was
the steepest since theQ1:1982 drop of 6.8%
2012 is expected to seea slow and choppy
acceleration in growthcontinuing into 2013
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Percent Change in Real GDPby State, 2011
Source: Bureau of Economic Analysis at http://www.bea.gov/newsreleases/regional/gdp_state/gsp_glance.htm;Insurance Information Institute. 8
Growth variedconsiderablyacross states
but in total wasweak in 2011
with US overallgrowth at just
1.7%
TX has been aneconomic
growth leader
http://www.bea.gov/newsreleases/regional/gdp_state/gsp_glance.htmhttp://www.bea.gov/newsreleases/regional/gdp_state/gsp_glance.htm -
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74.4
73.6
73.6
72.2
73.6 7
6
67.8
68.9
68.2
67.7 7
1.6 7
4.5
74.2 7
7.5
67.5 6
9.8
74.3
71.5
63.7
55.7 59
.4
6
0.9 6
4.1
69.9
75.0
75.3
76.2
76.4 7
9.3
73.2
40
45
50
55
60
65
70
75
80
85
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Consumer Sentiment Survey (1966 = 100)
January 2010 through June 2012
Consumer confidence has been low for years amid highunemployment, falling home prices and other factors adversely impact
consumers, but improved substantially in late 2011 and early 2012
Source: University of Michigan; Insurance Information Institute
Optimism among consumers isfell in June, but remains well
above year-ago levels;Suggests concern, but not fear
on the part of consumers.
9
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16
.9
16
.5
16
.1
13.2
10
.41
1.6 1
2.7
14
.4 14
.9
14
.715
.115
.4
15
.5
15
.416
.9
16
.617
.117
.517
.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 12F 13F 14F 15F 16F 17F 18-
22F
(Millions of Units)
Auto/Light Truck Sales, 1999-2022F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11 and 6/12); 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.
New auto/light truck sales fell tothe lowest level since the late
1960s. Forecast for 2012-13 isstill far below 1999-2007 average
of 17 million units, but arecovery is underway.
Job growth and improvedcredit market conditionswill boost auto sales in
2012 and beyond
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Monthly Change* in Auto InsurancePrices, 19912012*
*Percentage change from same month in prior year; through May 2012; 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
Cyclical peaks in PP
Auto tend to occurapproximately every 10years (early 1990s, early
2000s and likely theearly 2010s)
Hard marketstend to occur
duringrecessionary
periods
Pricing peakoccurred in 2010 at
5.1%, falling to2.8% by Mar. 2012
The May 2012
reading of 3.0%was well belowthe 3.8% recorded
in May 2011
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(Millions of Units)
New Private Housing Starts, 1990-2022F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
71
.601
.71 1
.851.9
62.0
7
1.8
0
1.3
6
0.9
1
0.5
50
.59
0.6
1 0.7
3 0.8
7
1.3
4
1.2
31
.32
1.3
81
.42
1.3
51.4
6
1.2
9
1.2
0
1.011
.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 12F13F14F15F16F17F 18-22F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11 and 6/12); Insurance Information Institute.
Little Exposure Growth Likely for Homeowners Insurers Until at least 2014.Also Affects Commercial Insurers with Construction Risk Exposure, Surety
New homestarts plunged
72% from2005-2009; Anet annual
decline of 1.49million units,lowest since
records beganin 1959
The plunge and lack of recovery inhomebuilding and in construction in general
is holding back payroll exposure growth
Job growth,improved credit
market conditionsand demographics
will eventually boosthome construction
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Construction Employment,Jan. 2010May 2012*
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,5
93
5,5
29 5
,552
5,5
59
5,5
18
5,5
07
5,4
91 5
,511
5,4
92
5,4
99
5,4
88
5,4
77
5,4
56
5,4
89
5,4
96
5,4
95
5,4
98
5,4
95
5,5
08
5,4
98 5
,528
5,5
19
5,5
20 5
,546
5,5
64
5,5
63
5,5
49
5,5
44
5,51
6
5,400
5,450
5,500
5,550
5,600
5,650
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2102
Mar-12
Apr-12
May-12
Construction employment is
still below where it was inJan. 2010. In a normalrecovery, constructionemployment would be
growing robustly
(Thousands)
http://bls.gov/mls/http://bls.gov/mls/ -
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Value of Construction Put in Place,May 2012 vs. May 2011*
-3.9%
-29.4%
-3.0%
7.0%
13.1%7.5%
18.6%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Total
Construction
Total Private
Construction
Residential--
Private
Non-
Residential--
Private
Total Public
Construction
Residential-
Public
Non-
Residential--
Public
Overall Construction Activity is Up, But Growth Is Entirely in the PrivateSector as State/Local Government Budget Woes Continue
Growth (%)
Private sectorconstruction activity is upin both the residential andnonresidential segments
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +13.1% Public: -3.9%
Public sectorconstruction activityremains depressed
http://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.html -
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Value of Private Construction Put in Place,by Segment, May 2012 vs. May 2011*
11.1%11.2%
27.4%
-14.6%
10.4%
17.4%
-4.2%
35.2%
26.8%
13.1%7.5%
18.6%
29.4%
6.5%
-20%
-10%
0%
10%
20%
30%
40%
TotalPrivate
Const
ruction
Resi
dential
Total
Nonresi
dential
L
odging
Office
Comm
ercial
Healt
hCare
Educ
ational
Re
ligious
Amusement&
Re
c.
Transpo
rtation
Commun
ication
Power
Manufacturing
Private Construction Activity is Up in Most Segments, IncludingResidential Construction but Led by Power
Growth (%) Led by the Power industry, Private sector construction
activity is up by double digits in many segments afterplunging during the Great Recession
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
http://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.html -
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Value of Public Construction Put in Place,by Segment, May 2012 vs. May 2011*
-4.9%-7.1%
1.5%
-3.7%-6.5%
1.6%
-0.9%
2.9%
-13.2%
-0.2%-3.9%
-29.4%
-3.0%
-11.4%-11.3%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
TotalPublic
Construction
Resid
ential
Total
Nonresid
ential
Office
Comm
ercial
Health
Care
Educational
Public
Safety
Amusem
ent&
Rec.
Transportation
Power
High
way&
St
reet
Sewag
e&
WasteDisposal
WaterS
upply
Conserva
tion&
Develop.
Public Construction Activity is Up Down in Many Segments as State, Cityand County Budgets Remain Under Stress
Growth (%)
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Public sector constructionactivity is down by
substantially in manysegments
http://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.htmlhttp://www.census.gov/construction/c30/c30index.html -
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$200,000
$300,000
$400,000
$500,000
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0Jan0
1Jan0
2Jan0
3Jan0
4Jan0
5Jan0
6Jan0
7Jan0
8Jan0
9Jan1
0Jan1
1Jan1
2
Dollar Value* of ManufacturersShipments Monthly, Jan. 1992May 2012
*seasonally adjustedSource: U.S. Census Bureau, Full Report on Manufacturers Shipments, Inventories, andOrders, http://www.census.gov/manufacturing/m3/
Monthly shipments are nearly back to peak (in July 2008, 8 months into the recession).Trough in May 2009. Growth from trough to March 2012 was 31%. Manufacturing is an
energy intensive activty and growth leads to gains in many commercial exposures: WC,Commercial Auto, Marine, Property and Various Liability Coverages
ENERGY INTENSIVE
The value of ManufacturingShipments in May 2012 was up 32%to $469B from its May 2009 trough.May figure is only 3.4% below its
previous record high in July 2008.
$ Millions
17
http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/ -
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Manufacturing Growth for SelectedSectors, 2012 vs. 2011*
7.5%
4.1%
12.0%
4.4% 4.2%
7.9%
1.7%
7.8%5.9%6.7%
9.5%
6.7%
23.5%
7.5%
0%
5%
10%
15%
20%
25%
All
Manufa
cturing
DurableMfg.
W
ood
Products
P
rimary
M
etals
Fabricated
Metals
Mac
hinery
Ele
ctrical
E
quip.
Transpo
rtation
Equ
ip.
Non-D
urable
Mfg.
F
ood
Products
Petroleum&
Coal
Ch
emical
Plastics&
Rubber
T
extile
Products
Manufacturing Is Expanding Across a Wide Range of Sectors that WillContribute to Growth in Energy Demand and Insurable Exposures Including:WC, Commercial Property, Commercial Auto and Many Liability Coverages
Growth (%)
Manufacturing of durablegoods has been
especially strong in 2012
*Seasonally adjusted; Date are YTD comparing data through May 2012 to the same period in 2011.Source: U.S. Census Bureau, Full Report on Manufacturers Shipments, Inventories, andOrders, http://www.census.gov/manufacturing/m3/
Durables: +9.5% Non-Durables: +4.4%
R i C it Utili ti i
http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/ -
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66%
68%
70%
72%
74%
76%
78%
80%
82%
Mar01
Jun01
Sep01
Dec01
Mar02
Jun02
Sep02
Dec02
Mar03
Jun03
Sep03
Dec03
Mar04
Jun04
Sep04
Dec04
Mar05
Jun05
Sep05
Dec05
Mar06
Jun06
Sep06
Dec06
Mar07
Jun07
Sep07
Dec07
Mar08
Jun08
Sep08
Dec08
Mar09
Jun09
Sep09
Dec09
Mar10
Jun10
Sep10
Dec10
Mar11
Jun11
Sep11
Dec11
Mar12
Recovery in Capacity Utilization is aPositive Sign for Commercial Exposures
Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 19
Percent of Industrial Capacity
HurricaneKatrina
March 2001-November 2001
recession
Full Capacity
The closer the economy isto operating at full
capacity, the greater theinflationary pressure
The US operated at 79.0% ofindustrial capacity in May2012, above the June 2009
low of 68.3% and the highestlevel since April 2008
December 2007-June 2009 Recession
March 2001 through May 2012
19
http://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htmhttp://www.federalreserve.gov/releases/g17/Current/default.htm -
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Manufacturing Employment,Jan. 2010Apr. 2012*
11,4
58
11,4
62
11,4
70
11,5
02
11,5
36
11,5
46
11,5
66
11,5
49
11,5
51
11,5
51
11,5
60
11,5
75
11,6
27
11,6
64
11,6
90
11,7
18
11
,726
11
,738
1
1,7
68
1
1,7
71
1
1,7
68
1
1,7
77
1
1,7
80
11,8
08
11,8
60
11,8
90
11,9
31
11,9
47
11,000
11,200
11,400
11,600
11,800
12,000
12,200
12,400
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2102
Mar-12
Apr-12
Manufacturing employmentis up by nearly 500,000 or4.3% since Jan. 2010a
surprising source ofstrength in the economy
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands)
ISM Non Manufacturing Index
http://bls.gov/mls/http://bls.gov/mls/ -
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50
.7 52.75
4.1
54.6
54.8
53.5
53.7
52.85
3.9
54.65
6 57.1
59.4
59.7
56.3
54.4
53.3
53.4
53.8
52.6
52.6
52.6
52.6
53.0
56.8
57.3
56.0
53.5
53.7
52.1
40
45
50
55
60
65
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
ISM Non-Manufacturing Index(Values > 50 Ind icate Expans ion )
January 2010 through June 2012
Non-manufacturing industries have been expanding and addingjobs. The question is whether this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.
Optimism among non-manufacturers was
stable in late 2011 andincreased in early 2012
21
B i B k t Fili
http://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfmhttp://www.ism.ws/ismreport/nonmfgrob.cfm -
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22
43
,694
4
8,1
25
69,3
00
62,4
36
64,0
04
71,2
77
81,2
3
5
82,4
4
6
63,8
53
63,2
35
64,8
53
71,5
49
70,6
43
62,3
04
52,3
74
51,9
59
53,5
49
54,0
27
44
,367
37,8
84
35,4
7
2
40,0
99
38,5
40
35,0
37
34,3
17
39,2
01
19,6
95
28,3
22 4
3
,546
60,8
37
56,2
82
4
7,8
06
10,9
98
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
80
81
82
83
84
8586
8788
89
90
91
92
93
9495
96
9798
99
00
01
02
03
040506
0708
09
10
11
12:Q1
Business Bankruptcy Filings,1980-2012: Q1
Sources: American Bankruptcy Institute athttp://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633;Insurance Information Institute
Significant Exposure Implications for All Commercial Lines asBusiness Bankruptcies Begin to Decline
2011 bankruptcies totaled 47,806, down 15.1%from 56,282 in 2010the second consecutiveyear of decline. Business bankruptcies more
than tripled during the financial crisis. Through
Q1:2012, filings are down 11.1% vs. Q1:2011
% Change SurroundingRecessions
1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%*
22
P i t S t B i St t
http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633 -
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23
Private Sector Business Starts,1993:Q2 2011:Q3*
175
186
174
180
1861
92
18818718
9
18619
0194
191
1992
04
202
195
196
196
206
206
201
1
92
198
206
206
203
211
205
212
2002
05
204
204
197
203
209
201
1
92
1
92
193
2012
04
202
2102
12
209
2162
202
23
220
220
210
221
212
204
218
209
207
207
199
1911
93
1721
76
169
184
1751
79
188
200
1831
87191
203
150
160
170
180
190
200
210
220
230
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Business Starts Were Down Nearly 20% in the Recession,Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly
* Data through June 30, 2011 are the latest available as of July 10, 2012; Seasonally adjusted. **Annualized based on data through Q3:2011.Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
Business starts were up 3.5% to 561,000 inthe first 9 months of 2011 vs. first 9
months of 2011. 722,000 new businessstarts were recorded in 2010, up 3.6% from
697,000 in 2009, which was the slowest
year for new business starts since 1993
Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,0002010: 722,0002011: 748,000**
23
http://www.bls.gov/news.release/cewbd.t08.htmhttp://www.bls.gov/news.release/cewbd.t08.htmhttp://www.bls.gov/news.release/cewbd.t08.htm -
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NFIB Small Business Optimism Index
January 1985 through April 2012
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif; Insurance Information Institute. 24
Small business optimism has
increased but is still only atthe level it was when theFinancial Crisis began
12 I d t i f th N t 10 Y
http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gifhttp://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif -
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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
Manyindustries are
poised for
growth,though
insurersability to
capitalize onthese
industriesvaries widely
Shipping (Rail, Marine, Trucking)
-
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26
Presidential Politics & the P/C
Insurance Industry
How Is Profitability Affected bythe Presidents Political Party?
26
P/C Insurance Industry ROE by
-
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15.10%
9.40%
8.93%
8.65%
8.35%
7.98%7.68%
6.98%
6.97%
6.65%
5.43%
5.03%4.83%
4.43%
3.55%
16.43%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Carter
Reagan II
G.W. Bush II
Nixon
Clinton I
G.H.W. Bush
Clinton IIReagan I
Nixon/Ford
Truman
Obama
Eisenhower I
Eisenhower IIG.W. Bush I
Johnson
Kennedy/Johnson
*Truman administration ROE of 6.97% based on 3 years only, 1950-52; ROEs for the years 2008 forward exclude mortgage and financial guaranty segments.Estimated ROE for 2012 = 7.0%.Source: Insurance Information Institute
OVERALL RECORD:1950-2012*
Democrats 7.67%Republicans 7.97%
Party of President hasmarginal bearing onprofitability of P/Cinsurance industry
P/C Insurance Industry ROE byPresidential Administration, 1950- 2012*
P/C insurance Industry ROE by
-
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-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
12E
BLUE = Democratic President RED = Republican President
Truman Nixon/Ford
Kennedy/
Johnson
Eisenhower
Carter
Reagan/Bush I Clinton Bush II
P/C insurance Industry ROE byPresidential Party Affiliation, 1950- 2012*
*ROEs for the years 2008 forward exclude mortgage and financial guaranty segments; Estimated 2012 ROE = 7.0%Source: Insurance Information Institute
Obama
-
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29
Labor Market Trends
Massive Job Losses Sapped the
Economy and Commercial/PersonalLines Exposure, But Trend is
Improving
29
Unemployment and Underemployment
-
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30
Unemployment and UnderemploymentRates: Stubbornly High in 2012, But Falling
2
4
6
8
10
12
14
16
18
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Jan
12
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemploymentstood at 8.2% in
May 2012
Unemploymentpeaked at 10.1%in October 2009,highest monthlyrate since 1983.
Peak rate in the
last 30 years:10.8% in
November -December 1982
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from
8.0% in March2007 to 17.5% inOctober 2009;Stood at 14.9%in June 2012
January 2000 through June 2012, Seasonally Adjusted (%)
Recessionended in
November2001
Unemploymentkept rising for
19 moremonths
Recessionbegan in
December2007
Stubbornly high unemployment and underemployment constrain overall
economic growth, but the job market is now clearly improving30
Jun12
-
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186
79
213
65
127
42
15
-109
-14
65 9
7
23
-12
-85 -5
8
-161
-253-23
0
-257
-347
-456
-547
-734 -6
67
-806
-707
-744 -
649
-334
-452
-297 -2
15
-186
-262
75
-83
16 6
2
229
516
11
17
143
112
193
128 1
67
119
2572
61264
108
102 1
75
52
216
139 1
78 2
34 2
77254
147
85 1
05
84
144
(1,000)
(800)
(600)
(400)
(200)
0
200
400
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Monthly Change in Private Employment
January 2008 through June 2012 (Thousands)
Private Employers Added 4.48 million Jobs Since Jan. 2010 AfterHaving Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (Stateand 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 inDec. 08Mar. 09 Were
the Largest in thePost-WW II Period
84,000 private sector jobswere created in June
31
Cumulative Change in Private
http://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htm -
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0.0
23
0.0
11
-0.0
74
-0.1
32
-0.2
93
-0.5
46
-0.7
76
-1.0
33
-1.3
80
-1.8
36
-2.3
83
-3.1
17
-3.7
84
-4.5
90
-5.2
97
-6.0
41
-6.6
90
-7.0
24
-7.4
76
-7.7
73
-7.9
88
-8.1
74
-8.4
36
-8.3
61
-8
.444
-8.4
28
-8.3
66
-8.2
22
-7.9
93
-7.9
42
-7.8
81
-7.7
64
-7.6
21
-7.5
09
-7.3
16
-7.1
88
-7.0
21
-6.9
02
-6.3
84
-6.1
20
-6.0
12
-5.9
10
-5.7
35
-5.6
83
-5.4
67
-5.3
28
-5.1
50
-4.9
16
-4.6
39
-4.3
85
-4.2
38
-4.1
53
-4.0
48
-3.9
64
-6.6
45
-10
-8
-6
-4
-2
0
2
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-
Jun-12
Millions
Cumulative Change in PrivateEmployment: Dec. 2007June 2012
December 2007 through June 2012 (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job lossespeaked at 8.444 million
in December 2009
Cumulative job lossesas of June 2012 totaled
3.964 million
32
All of the jobs lostsince President
Obama took office inJan. 2009 have been
recouped
Private Employers Added 4.48 million Jobs Since Jan. 2010 AfterHaving Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (Stateand Local Governments Have Shed Hundreds of Thousands of Jobs)
Cumulative Change in Private Sector
http://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htm -
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0.0
16
0
.078
0.2
22
0.4
51
0.5
02
0.5
63
0.6
80
0.8
23
0.9
35
1.1
28
1.2
56
1.4
23
1.5
42
1.7
99
2.0
60 2.324
2
.432
2.5
34
2.7
09
2.7
61
2.9
77
3.1
16
3.2
94
3.5
28
3.8
05
4.0
59
4.2
06
4.2
91
4.3
964
.480
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
M
illions
Cumulative Change in Private SectorEmployment: Jan. 2010June 2012
January 2010 through June 2012* (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job gainsthrough June 2012
totaled 4.480 million
33
Private Employers Added 4.48 million Jobs Since Jan. 2010 AfterHaving Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (Stateand Local Governments Have Shed Hundreds of Thousands of Jobs)
Job gains and payincreases have added morethan $600 billion to payrolls
since Jan. 2010
Cumulative Change in Government
http://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htmhttp://www.bls.gov/ces/home.htm -
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0
-8
40 8
6
518
259
109
-70
-212
-188
-201
-221
-230
-267
-282
-295
-349
-367
-446
-413
-427
-454
-475
-486
-488
-483
-487
-491
-519
-536
-700
-500
-300
-100
100
300
500
700
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Cumulative Change in GovernmentEmployment: Jan. 2010June 2012
January 2010 through June 2012* (Millions)
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Cumulative joblossesthrough June2012 totaled 536,000
34
Governments at All Levels are Under Severe Fiscal Strain As TaxReceipts Plunged and Pension Obligations Soared During the
Financial Crisis, Causing Them to Reduce Staff
Government at all levels hasshed more than a half
million jobs since Jan. 2010even as private employerscreated 4.48 million jobs.
TemporaryCensus hiringdistorted 2010
figures
Net Change in Government
http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/http://www.bls.gov/data/ -
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Net Change in GovernmentEmployment: Jan. 2010June 2012*
-536
-405
-72 -59
-600
-500
-400
-300
-200
-100
0
Total Local State Federal
(Thousands)
Local government employmentshrank by 405,000 from Jan.
2010 through June 2012,accounting for 76% of allgovernment job losses,
negatively impacting WCexposures for those cities andcounties that insure privately
*Cumulative change from prior month; Base employment date is Dec. 2009.Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
State government employment fell by
1.4% since the end of 2009 whileFederal employment is down by 2.1%
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Unemployment Rates by State, May 2012:Highest 25 States*
11.6
11.0
10.8
9.49.39.29.1
8.98.78.68.68.68.58.4
8
.3
8
.2
8
.2
8.1
7.9
7.9
7.8 7.87.47.47.4
0
2
4
6
8
10
12
14
NV RI CA NC DC NJ SC GA MS FL IL NY MI OR WA AZ KY CO IN TN CT ID AL ME PA
U
nemploymentR
ate(%)
*Provisional figures for May 2012, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In May, 18 states had over-the-month
unemployment rate increases, 14 statesand the District of Columbia haddecreases, and 18 states had no
change.
U l t R t B St t M 2012
-
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7.3
7.3
7.3
7.2
7.0
6.9
6.9
6.8
6.8
6.8
6.7
6.3
6.3
6.1
6.0
6.0
5.6
5.6
5.2 5.1 5.0
4.8
4.6
4.3
3.9
3.0
0
2
4
6
8
AR MO OH LA AK TX WV DE MD WI NM HI MT KS MA UT MN VA WY IA NH OK VT SD NE ND
Un
emp
loymen
tRate
(%)
Unemployment Rates By State, May 2012:Lowest 25 States*
*Provisional figures for May 2012, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In May, 18 states had over-the-month
unemployment rate increases, 14states and the District of Columbia had
decreases, and 18 states had nochange.
TXs unemploymentrate in May was 6.9%,well below 8.2% for
the US overall
T N f P i t E l t G th
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38
Texas Nonfarm Private Employment Growth,Jan. 1992May 2012 (3-month moving average)
*Provisional figures for May 2012, seasonally adjusted.Sources: US Bureau of Labor Statistics from Wells Fargo Securities; Insurance Information Institute.
Employmentgrowth in Texas
easily outpacesthe US overall,favorably
impacting WCpayroll
exposures
Texas Employment Growth by Industry
-
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Texas Employment Growth, by IndustryMay 2011 to May 2012 (3-month moving avg.)
*Provisional figures for May 2012, seasonally adjusted.Sources: US Bureau of Labor Statistics from Wells Fargo Securities; Insurance Information Institute.
Everyindustry
group butGovernment
has beenposting
growth in TX
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40
US Unemployment Rate Forecast
4.5%
4.5%
4.6
%
4
.8%
4.9
% 5.4
%6
.1%
6.9
%
8.1
%
9.3
%9
.6%1
0.0
%
9.7
%
9.6
%
9.6
%
8.9
%9
.1%
9.1
%
8.7
%
8.3
%
8.2
%
8.1
%
8
.0%
8
.0%
7.8%
7.7
%
7.6
%
9.6
%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
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
Risingunemploymenteroded payrolls
and workerscomps
exposure base.
Unemploymentpeaked at 10% in
late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (6/12 edition); Insurance Information Institute.
2007:Q1 to 2013:Q4F*
Unemployment forecastshave been revised slightly
upwards for 2012 and 2013.Optimistic scenarios put the
unemployment as low as
7.9% by Q4 ofth isyear.
Jobless figures
have been revisedslightly upwards for2012
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US Unemployment Rate Forecasts
8.3% 8.2% 8.1%
7.8% 7.7% 7.6%7.4%
7.2%7.0%
8.3%8.3% 8.3%8.3%
7.9%
8.2% 8.1%8.0%
7.6%7.8%7.9%
8.1%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
12:Q2 12:Q3 12:Q4 13:Q1 13:Q2 13:Q3 13:Q4
10 Most Pessimistic
Consensus/Midpoint
10 Most Optimistic
Unemployment will remain high even underthe most optimistic of scenarios, but
forecasts are being revised downwards
Sources: Blue Chip Economic Indicators (5/12); Insurance Information Institute
Steadily Decreasing Unemployment Should Benefit theWorkers Comp Exposure Base at Least Through 2013
Quarterly, 2012:Q2 to 2013:Q4
Nonfarm Payroll (Wages and Salaries):
-
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Nonfarm Payroll (Wages and Salaries):Quarterly, 20052012:Q1
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); InsuranceInformation Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
05:Q1
05:Q2
05:Q3
05:Q4
06:Q1
06:Q2
06:Q3
06:Q4
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
Peak was 2008:Q1at $6.60 trillion
Latest (2011:Q4)
was $6.88 trillion, anew peak
Recent trough (2009:Q3)was $6.25 trillion, down
5.3% from prior peak
Growth rates in 2011/12Q2 over Q1: 0.6%Q3 over Q2: 0.4%
Q4 over Q3: 1.3%Q1 over Q4: 1.0%
Pace of payrollgrowth isaccelerating
42
Payroll vs Workers Comp Net Written
http://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCUR -
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$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
43
Payroll Base* WC NWP
Payroll vs. Workers Comp Net WrittenPremiums, 1990-2011
*Private employment; Shaded areas indicate recessions. Payroll and WC premiums for 2011 is I.I.I. estimateSources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Increases Suggest WC NWP Will GrowAgain in 2012; +7.9% Growth in 2011 Was the First Gain Since 2005
7/90-3/91 3/01-11/01
12/07-6/09
$Billions $Billions
WC premiumvolume droppedtwo years before
the recession began
WC net premiumswritten were down$14B or 29.3% to
$33.8B in 2010 afterpeaking at $47.8B
in 2005
+7.9% in2011
http://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCURhttp://research.stlouisfed.org/fred2/series/WASCUR -
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44
POSITIVE LABOR MARKET DEVELOPMENTS
Key Factors Driving WorkersCompensation Exposure
44
Mass Layoff Announcements
-
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45
Mass Layoff Announcements,Jan. 2002Apr. 2012*
*Percentage change from same month in prior year; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/mls/; National Bureau of Economic Research (recession dates);Insurance Information Institute.
500
1,000
1,500
2,000
2,500
3,000
3,500
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Mass layoffannouncements peakedat more than 3,000 per
month in Feb. 2009
There were 1,388 maylayoffs announced inApril 2012. The 1,273
mass layoffsannounced in Mar. 2012was the smallest since
Sept. 2007
Average Weekly Hours of All Private
http://www.bls.gov/mls/http://www.bls.gov/mls/ -
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46
Average Weekly Hours of All PrivateWorkers, Mar. 2006May 2012
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recessiondates); Insurance Information Institute.
33.5
33.6
33.7
33.8
33.9
34.0
34.1
34.2
34.3
34.4
34.5
34.6
34.734.8
'06 '07 '08 '09 '10 '11 '12
Hours worked totaled34.4 per week in May,
still shy of the 34.6
hours typically workedbefore the GreatRecession
Hours workedplunged duringthe recession,
impacting payrollexposures
(Hours Worked)
Average Hourly Wage of All Private
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47
Average Hourly Wage of All PrivateWorkers, Mar. 2006May 2012
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recessiondates); Insurance Information Institute.
$18.00
$19.00
$20.00
$21.00
$22.00
$23.00
$24.00
'06 '07 '08 '09 '10 '11 '12
The average hourlywage was $23.41, up
10.2% from $21.25 whenthe recession began in
Dec. 2007Wage gainscontinued during the
recession, despitemassive job losses
(Hourly Wage)
Manufacturing Employment
http://www.bls.gov/data/http://www.bls.gov/data/ -
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48
Manufacturing Employment,Jan. 2010May 2012*
11,4
58
11,4
62
11,4
70
11,5
02
11,5
36
11,5
46
11,5
66
11,5
49
11,5
51
11,5
51
11,5
60
11,5
75
11,62
7
11,6
64
11,
690
11
,718
11
,726
11,7
38
1
1,7
68
11,7
71
1
1,7
68
11,7
77
11,7
80
11,8
08
11,8
60
11,8
90
11,9
32
11,9
41
11,9
53
11,000
11,200
11,400
11,600
11,800
12,000
12,200
12,400
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2102
Mar-12
Apr-12
May-12
Manufacturing employment
is up by nearly 500,000 or4.3% since Jan. 2010a
surprising source ofstrength in the economy
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands)
Construction Employment
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49
Construction Employment,Jan. 2010Apr. 2012*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,5
93
5,5
29 5
,552
5,5
59
5,5
18
5,5
07
5,4
91 5
,51
1
5,4
92
5,4
99
5,4
88
5,4
77
5,4
56
5,4
89
5,4
96
5,4
95
5,4
98
5,4
95
5,5
0
8
5,4
98 5
,528
5,519
5,520 5
,546
5,5
64
5,5
63
5,5
60
5,5
58
5,400
5,450
5,500
5,550
5,600
5,650
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2102
Mar-12
Apr-12
Construction employment is
still below where it was inJan. 2010. In a normalrecovery, constructionemployment would be
growing robustly
(Thousands)
http://bls.gov/mls/http://bls.gov/mls/ -
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50
ADVERSE LONG-TERM
LABOR MARKET DEVELOPMENTS
Key Factors Harming WorkersCompensation Exposure and the
Overall Economy
50
Duration of Unemployment,
-
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51
Duration of Unemployment,May 2011 vs. May 2012
Source: US Bureau of Labor Statistics at http://www.bls.gov/news.release/empsit.a.htm; Insurance Information Institute.
2,6872,912
1,994
6,204
2,5803,002
1,662
5,411
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Less Than 5 Weeks 5-14 Weeks 15-26 Weeks 27 Weeks +
May 2011 May 2012
The plight of the long-
term unemployedremains a serious issuefor the US. Skills
atrophy over timeimpact on WC claimfrequency/severity?
(Thousands)
-4.0% +3.1%
-16.6%
-12.8%
Labor Force Participation Rate
http://www.bls.gov/news.release/empsit.a.htmhttp://www.bls.gov/news.release/empsit.a.htmhttp://www.bls.gov/news.release/empsit.a.htm -
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52
Labor Force Participation Rate,Jan. 2002May 2012*
*Defined as the percentage of working age persons in the population who are employed or actively seeking work.
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/mls/; National Bureau of Economic Research (recession dates);Insurance Information Institute.
62
63
64
65
66
67
68
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Large numbers ofpeople are exiting (ornot returning to the
labor force
Labor forceparticipation
continues to shrinkdespite a falling
unemployment rate
Labor Force Participation as a % of Population
Number of Discouraged Workers,
http://www.bls.gov/mls/http://www.bls.gov/mls/ -
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53Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.Sources: Bureau of Labor Statistics; National Bureau of Economic Research (recession dates).
0
100
200
300
400
500
600700
800
900
1,000
1,100
1,2001,300
1,400
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
In recent good times, the number of discouraged workers ranged from200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
There were830,000
discouragedworkers inMay 2012
Thousands
Discouraged Workers arepeople who have searchedfor work for so long in vain
that they actually stopsearching and drop out of
the labor force
g ,Jan. 2002May 2012
Large numbers ofpeople are exiting
(or not returning to)the labor force
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54
P/C Insurance Industry
Financial Overview
Profit Recovery Was Set Back
in 2011 by High CatastropheLoss & Other Factors
54
P/C Net Income After Taxes
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19912012:Q1 ($ Millions)
$14
,178
$
5,8
40
$19
,316
$10
,870
$20
,598
$24
,404 $3
6,8
19
$30
,77
3
$21
,865
$3,0
46
$30
,02
9
$62
,496
$3,0
43
$35
,204
$19
,150
$10
,141
$28
,672
-$6,970
$65
,77
7
$44
,155
$20
,559
$3
8,5
01
-$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:Q1
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:Q1 ROAS1 = 7.2%
P-C Industry 2012:Q1
profits were up 29% from2011:Q1, due primarily tolower catastrophe losses
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS for
2012:Q1, 4.6% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute
A 100 Combined Ratio Isnt What It
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Once Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012:Q1 combined ratio
including M&FG insurers is 99.0, ROAS = 7.2%; 2011 combined ratio including M&FG insurers is 108.2, ROAS = 3.5%.Source: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.8
92.7
101.099.3
100.9
97.6
106.4
95.7
8.2%
4.6%
7.6%7.4%4.4%
9.6%
15.9%
14.3%
12.7% 10.9%
8.8%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012:Q1
0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Todays DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generates anROE of ~6.7% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Year Ago
2011:Q1 = 102.2,6.1% ROE
Profitability Peaks & Troughs in the P/C
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-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:
Profitability Peaks & Troughs in the P/CInsurance Industry, 1975 2012:Q1*
*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2012 exclude
mortgage and financial guaranty insurers. 2012:Q1 ROAS = 7.2% including M&FG.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%
9 Years
2011:
4.6%*
History suggests next ROEpeak will be in 2016-2017
ROE
1975: 2.4%
2012:Q8.2%
ROE: Property/Casualty Insurance vs.
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58
p y yFortune 500, 19872012:Q1*
* Excludes Mortgage & Financial Guarantee in 2008 2012. 2012 Fortune 500 figure is III 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 1112:Q1
P/C Profitability Is Both byCyclicality and Ordinary Volatility
Hugo
Andrew
Northridge
Lowest CATLosses in15 Years
Sept. 11
Katrina,Rita, Wilma
4 Hurricanes
FinancialCrisis*
(Percent)
Record
TornadoLosses
ROE vs. Equity Cost of Capital:
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59
q y pU.S. P/C Insurance:1991-2011*
* Return on average surplus in 2008-2011 excluding mortgage and financial guaranty insurers.Source: The Geneva Association, Insurance Information Institute
-2%
0%
2%
4%
6%
8%10%
12%
14%
16%
18%
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08* 09* 10* 11*
ROE Cost of Capital
-13.2pts +
1.7pts
+2.3pts
-9.0pts
-6.4pts
-3.2pts
The P/C Insurance Industry Fell WellShort of Its Cost of Capital Every Year Since 2008
US P/C Insurers Missed Their Cost of
Capital by an Average 6.7 Points from1991 to 2002, but on Target or Better2003-07, Fell Short in 2008-2010
The Cost of Capitalisthe Rate of Return
Insurers Need toAttract and RetainCapital to the Business
(Percent)
-2.4pts
-7.3pts
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60
Profitability Comparison in
Texas and Nearby States
Analysis by Line and NearbyState Comparisons
RNW All Lines: TX, OK, AR & NM vs.
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61
U.S., 2001-2010
Sources: NAIC.
-20%
-15%
-10%
-5%
0%5%
10%
15%
20%25%
01 02 03 04 05 06 07 08 09 10
US All Lines TX All Lines OK All Lines AR All Lines NM All Lines
(Percent)
All Lines: 10 Year Average RNW
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All Lines: 10-Year Average RNW
4.9%
7.1%
10.5%
4.0%
6.6%
0% 2% 4% 6% 8% 10% 12%
New Mexico
U.S.
Arkansas
Texas
Oklahoma
Source: NAIC, Insurance Information Institute
2001-2010
RNW PP Auto: TX, OK, AR & NM vs.
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63
U.S., 2001-2010
Sources: NAIC.
-10%
-5%
0%
5%
10%
15%
20%
25%
01 02 03 04 05 06 07 08 09 10
US PP Auto TX PP Auto OK PP Auto AR PP Auto NM PP Auto
PP Auto: 10-Year Average RNW
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PP Auto: 10-Year Average RNW
7.4%
7.6%
11.2%
7.1%
7.4%
0% 2% 4% 6% 8% 10% 12%
New Mexico
U.S.
Arkansas
Texas
Oklahoma
Source: NAIC, Insurance Information Institute
2001-2010
Top Ten Most Expensive And Least Expensive
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65
States For Automobile Insurance, 2009 (1)
Rank Mostexpensive states Averageexpenditure Rank Leastexpensive states Averageexpenditure1 District of Columbia $1,128 1 North Dakota $510
2 New Jersey 1,101 2 South Dakota 521
3 Louisiana 1,099 3 Iowa 532
4 New York 1,057 4 Idaho 555
5 Delaware 1,021 5 Nebraska 559
6 Florida 1,006 6 Kansas 578
7 Rhode Island 969 7 Wisconsin 591
8 Connecticut 952 8 Maine 598
9 Nevada 944 9 North Carolina 610
10 Maryland 929 10 Ohio 616
(1) Based on average automobile insurance expenditures.
Source: 2012 National Association of Insurance Commissioners.
Texas ranked 13th most expensiv e: $860, Oklahoma ranked 29th
most expens ive: $680, Ark ansas ranked 32nd m os t expensive:
$656, & New Mexico ranked 26th most expensiv e: $713.
RNW Homeowners: TX, OK, AR & NM
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66
vs. U.S., 2001-2010
Sources: NAIC.
-80%
-60%
-40%
-20%
0%
20%
40%
60%
01 02 03 04 05 06 07 08 09 10
US HO TX HO OK HO AR HO NM HO
(Percent)
RNW Homeowners: TX, LA, FL, AL, MS
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67
vs. U.S., 2001-2010
Sources: NAIC; Insurance Information Institute.
-400%
-350%
-300%
-250%
-200%
-150%
-100%
-50%
0%
50%
100%
01 02 03 04 05 06 07 08 09 10
US HO TX HO LA HO FL HO AL HO MS HO
(Percent)
Impact ofHurricane Katrina
Homeowners: 10-Year Average RNW
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Homeowners: 10-Year Average RNW
-4.4%
5.0%
13.6%
-8.3%
0.4%
-10% -5% 0% 5% 10% 15%
New Mexico
U.S.
Texas
Arkansas
Oklahoma
Source: NAIC, Insurance Information Institute
2001-2010
Residential Building Code Ratings inH i P St t
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Hurricane Prone States
Source: Rating the States, Dec. 31, 2011, Insurance Institute for Business and Home Safety; Insurance Information Institute. 69
Florida andVirginia were thetop ranked states
in termspreparedness of
residential
structures againsthurricane damage
Despite catastrophiclosses from Hurricane
Katrina in 2005, MS still
has no statewide buildingcode, putting it dead last
in the US;
AL and TX rank poorly aswell despite major post-
Andrew storms
Top Ten Most Expensive And Least ExpensiveSt t F H I 2009
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70
States For Homeowners Insurance, 2009
Rank(1) Mostexpensive states HO averagepremium (2) Rank Leastexpensive states HO averagepremium (2)1 Texas (3) $1,511 1 Idaho $485
2 Florida (4) 1,460 2 Wisconsin 542
3 Louisiana 1,430 3 Oregon 544
4 Mississippi 1,185 3 Utah 544
5 Oklahoma 1,123 4 Washington 552
6 D.C. 1,069 5 Delaware 610
6 Rhode Island 1,069 6 Ohio 613
7 Massachusetts 1,035 7 Arizona 642
8 New York 1,021 8 Iowa 645
9 Connecticut 1,016 8 South Dakota 645
(1) States with the same premium receive the same rank.(2) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides all risks coverage (except those
specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.(3) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms.(4) Florida data excludes policies written by Citizen's Property Insurance Corporation, the state's insurer of last resort, and therefore are not directly
comparable to other states.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. TheNAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data.
Source: 2011 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictlyprohibited without written permission of NAIC.
Texas ranked as the most expensive: $1,511, Oklahoma ranked 5th most expensive: $1,123,Arkansas ranked 14th most expensive: $919, and New Mexico ranked 27th most expensive:
$751.
Texas Windstorm Insurance Association (TWIA):E t L (B ildi & C t t O l ) ($ Billi )
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Exposure to Loss (Building & Contents Only) ($ Billions)
Source: TWIA at 06/05/12, Texas Department of Insurance, Southwestern Insurance Information Services (SIIS)
$72.0$71.1$67.4
$64.4
$58.6$58.6
$38.3
$23.3$20.8$18.8
$16.0$13.2$12.1
$0
$10
$20
$30
$40
$50
$60
$70
$80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mar31-
2012
TWIAs exposure to loss for building &
contents has surged by 495 percent in thelast 12 years from $12.1 billion in 2000 to$72.0 billion in 2012.
RNW Comm. Auto: TX, OK, AR & NM vs.U S 2001 2010
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72
U.S., 2001-2010
Sources: NAIC.
-10%
-5%
0%
5%
10%
15%
20%
01 02 03 04 05 06 07 08 09 10
US Comm Auto TX Comm Auto OK Comm Auto
AR Comm Auto NM Comm Auto
(Percent)
Comm. Auto: 10-Year Average RNW
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Comm. Auto: 10 Year Average RNW
7.6%
9.2%
11.7%
6.8%
8.1%
0% 5% 10% 15%
New Mexico
U.S.
Oklahoma
Arkansas
Texas
Source: NAIC, Insurance Information Institute
2001-2010
RNW Comm. Multi-Peril: TX, OK, AR &NM U S 2001 2010
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74
NM vs. U.S., 2001-2010
Sources: NAIC.
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
01 02 03 04 05 06 07 08 09 10
US Comm M-P TX Comm M-P OK Comm M-P
AR Comm M-P NM Comm M-P
(Percent)
Comm. M-P: 10-Year Average RNW
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Comm. M P: 10 Year Average RNW
4.3%
8.3%
13.6%
2.2%
7.1%
0% 5% 10% 15%
New Mexico
U.S.
Arkansas
Oklahoma
Texas
Source: NAIC, Insurance Information Institute
2001-2010
RNW Workers Comp: TX, OK, AR & NMU S 2001 2010
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76
vs. U.S., 2001-2010
Sources: NAIC.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
01 02 03 04 05 06 07 08 09 10
US WComp TX WComp OK WComp
AR WComp NM WComp
(Percent)
Workers Comp: 10-Year Average RNW
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o e s Co p 0 ea e age
6.1%
9.5%
12.2%
2.4%
6.4%
0% 5% 10% 15%
Arkansas
Texas
New Mexico
U.S.
Oklahoma
Source: NAIC, Insurance Information Institute
2001-2010
All Lines DWP Growth: TX, OK, AR &NM vs U S 2002 2011
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78
NM vs. U.S., 2002-2011
Source: SNL Financial.
-10%
-5%
0%
5%
10%
15%
20%
25%
02 03 04 05 06 07 08 09 10 11
US All Lines TX All Lines OK All Lines AR All Lines NM All Lines
(Percent)
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79
Personal Lines
Profitability Analysis
Significant Variability OverTime and Across States
Return on Net Worth: Pvt. Passenger Auto,10 Y A (2001 2010*)
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80
18.5
14.5
1
4.3
1
4.1
13
.5
12.4
12.1
11.8
11.7
11.6
11.3
11.2
11.1
11.0
10.8
10.7
10.7
10.5
10.4
10.2
9.89.79.69.29.1
0
2
46
8
10
12
14
16
18
20
22
HI VT ME ID DC NH ND MN SD OH KS NM CT IA RI OR WY VA AZ WI CA UT IN AL AK
RNWP
PA
*Latest available.
Sources: NAIC.
Hawaii was the most profitable statefor auto insurers from 2001-2010
10-Year Average (2001-2010*)
Top 25 States(Percent)
Return on Net Worth: Pvt. Passenger Auto,10 Y A (2001 2010*)
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81
9.08.98.88.8
8.58.4
8.07.87.77.67.57.47.47.47.4
7.17.17.17.06.8
5
.4
5.3
5.1
4.2
3.4
2.7
-1.2-2
0
2
4
6
8
10
CO
NY
SC
WA
NE IL
MD
TN
MO
US
MT
AR
GA
TX
WV
NJ
OK
PA
NC
MA
KY
MS
DE
NV
FL
LA
MI
RNWAuto
10-Year Average (2001-2010*)
*Latest avaiiable.Sources: NAIC
Auto insurance
profitability in Texas isbelow the US average
(Percent) Bottom 25 States
Return on Net Worth: All P-C Lines vs.Homeowners 1990 2010*
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82
Homeowners, 1990-2010*
*Latest available.
**Excluding Hurricane Andrew (1992); including 1992 produces an average homeowners RNW of 0.7%.Sources: NAIC.
-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
US All Lines US Home(Percent)
Average RNW: 1990-2009*
All P-C Lines: 7.9%Homeowners: 3.5%**
Homeowners Insurance Is Considerably More Volatile than the Market OverallDue to Coastal Exposure and Interior Wind/Hail Events
Impact ofHurricane
Irene
Katrina, Rita,
Wilma
TexasMoldCrisis
RNW Homeowners: TX vs. U.S.,2001 2010
-
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83
2001-2010
Sources: NAIC; Insurance Information Institute.
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
01 02 03 04 05 06 07 08 09 10
US HO TX HO
(Percent)The average return on networth in Texas from 2001
through 2010 was just 0.4%compared to 5.0% for the US
overall
Texas
MoldCrisis
Katrina, Rita,Wilma
Impact of
HurricaneIrene
Homeowners: 10-Year Average RNW
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g
-25.4%
-0.3%
0.4%
5.0%
-29.2%
-7.2%
-40% -30% -20% -10% 0% 10%
U.S.
Texas
Florida
Alabama
Louisiana
Mississippi
Source: NAIC; Insurance Information Institute
2001-2010
Home insurers in Texasearned an average annualreturn little different from
zero from 2001 through 2010
Homeowners Loss Ratio: TX, 2001-20101
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85
86.7
125.3118.7
61.2
30.6
58.2
34.6 37.3
132.5
68.2
51.4
73.2
010
20
30
40
50
60
7080
90
100
110
120
130
140
150
00 01 02 03 04 05 06 07 08 09 10 11
(Ratio)
(1) Loss and loss adjustment expense ratio.
Source: SNL Financial; Insurance Information Institute.
The homeowners insuranceloss ratio in Texas is highly
volatile, sometimesfluctuating by approximately100 points in the span of just
a few years
Return on Net Worth: Homeowners Insurance,10-Year Average (2001-2010*)
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86
45.5
22.3
20.6
20.3
19.5
18.6
18.4
18.1
17.6
16.5
15.4
15.3
14.6
13.1
12.7