Moving Beyond the Great Recession - III | We are the ... · Presentation Outline ... Boston...
Transcript of Moving Beyond the Great Recession - III | We are the ... · Presentation Outline ... Boston...
Moving Beyond the Great Recession:
Recovery, Uncertainty and Implications for Workers Comp & P/C Insurance Markets National Council on Compensation Insurance
Annual Issues Symposium
Orlando, FL
May 16, 2013 Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
Presentation Outline
U.S. Economic Overview and Outlook
Summary and Consequences and Predictions for P/C Insurance
Labor Market “Deep Dive”
Labor Force (Non) Participation: Shrinkage Continues
Social Security Disability vs. WC: Which Is Better for Workers?
Economy as a Growth Engine for P/C Insurers
Summary of P/C Financial Performance
Profits and Profitability
Where Will the Market Go From Here?
Underwriting Loss Trends
Capital/Capacity
Reinsurance Markets
Pricing Discipline
Other Contributing Factors to Industry Financial Performance
Investment Environment
Inflation
3
Economics 2013:
US Economy is Stabilizing
2013 Will Build on 2012 as Only the Second Year of Solid Grow Since
the Great Recession
Enormous Consequences for P/C Insurers
3
4
Economic Outlook for 2013
Economic Growth Remains Modest but Accelerates by late 2013/14
No Recession
Enormous regional differences persist
Economic wounds are increasingly self-inflicted (e.g., Sequestration)
Modest wage and salary growth continue; Hours worked stable
Consumer Confidence Remains Reasonably Strong
Consumer Spending/Investment Will Continue to Expand
Consumer and Business Lending Continue to Expand
Housing Market Continues to Improve
Principal driver of construction activity
Inflation Remains Tame
Less pressure on claims severity
Private Sector Hiring Remains Consistently Positive
Unemployment approaches 7% by year’s end
Fed’s 6.5% unemployment target is hit in mid-2014
Issues in Europe, China Do Not Derail US Recovery
Soft Landing in China
Interest Rates Remain Low by Historical Standards; Edge Up by Year’s End
Stock and Bond Markets More Stable, Less Volatile
5
P/C Insurance Exposures Grow Robustly
Personal and commercial exposure growth is certain in 2013; Strongest since 2004
But restoration of destroyed exposure will take until mid-decade
P/C Industry Growth in 2013 Will Be Strongest Since 2004
Growth likely to exceed A.M. Best projection of +4.5% for 2013
Positive pricing trends continue
Underwriting Fundamentals Improve Modestly
Rate, reforms help key lines; Possibility of reduced prior-year loss reserves in some lines
Increasing Private Sector Hiring Will Drive Payrolls/WC Exposures
Wage growth is also positive and could modestly accelerate
WC remains the fastest growing P/C line for 3rd straight year
Increase in Demand for Commercial Insurance Could Strengthen in 2013
Includes workers comp, property, marine, many liability coverages
Industry Capacity Hits a New Records in 2013 (Barring Meg-CAT)
Investment Environment Is/Remains Much More Favorable
Return of realized capital gains as a profit driver
Interest rates remain low; Some upward pressure if economic strength surprises or Fed eases on QE3 program late in 2013
TRIA Debate is Accelerated in the Wake of Boston Marathon Bomb Attacks
Insurance Industry Predictions for 2013
Terrorism Update
6
Boston Marathon Bombings Underscore the Need for
Extension of the Terrorism Risk Insurance Program
6
7
Terrorism Risk Insurance Program
Boston Marathon Bombing Should Help Focus Attention in Congress on TRIA
Act expires 12/31/14
Numerous headwinds
Exclusionary Language Will Be Inserted for Renewals Occurring After 1/1/14
Boston Marathon Issues
Property and BI losses not large but could breach $5 mill threshold for certification under TRIPRA
Certification issue is generating press; No deadline to certify
Disincentive to certify?
Few of the impacted business had terror coverage
Longer-term: Litigation issues (e.g., race organizers)
8
Labor Market Trends
Labor Market Is Showing Signs of Life
8
Workers Comp Is the Principal Beneficiary of Improving Job Outlook
9
Unemployment and Underemployment Rates: 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
Jan
13
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
Unemployment stood at 7.5% in
Apr. 2013—lowest in 4 years.
Unemployment peaked at 10.1% in October 2009, highest monthly rate 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 March
2007 to 17.5% in October 2009; Stood at 13.7%
in Apr. 2013
January 2000 through Apr. 2013, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving
9
22
75
41
68
50
12
36
61
-79
24 6
8 74
51
2-1
14
-10
5-2
22
-21
9-2
03
-26
7-2
69
-42
9-4
84
-78
6 -70
1-8
21
-69
2-8
12
-82
1-2
88
-44
2-2
82 -2
22 -1
62
-23
3-3
4-1
67
-17
-26
17
01
02
94 10
31
29
11
3 18
81
54
11
48
02
43
22
33
03
18
31
77
20
61
29
25
61
74
19
7 24
9 32
32
65
20
81
20 15
27
81
77
13
11
18
21
7 25
62
24
16
43
19
15
41
76
11
1(1,000)
(800)
(600)
(400)
(200)
0
200
400
Ja
n-0
7F
eb
-07
Ma
r-0
7A
pr-
07
Ma
y-0
7Ju
n-0
7Ju
l-0
7A
ug
-07
Se
p-0
7O
ct-
07
No
v-0
7D
ec-0
7Ja
n-0
8F
eb
-08
Ma
r-0
8A
pr-
08
Ma
y-0
8Ju
n-0
8Ju
l-0
8A
ug
-08
Se
p-0
8O
ct-
08
No
v-0
8D
ec-0
8Ja
n-0
9F
eb
-09
Ma
r-0
9A
pr-
09
Ma
y-0
9Ju
n-0
9Ju
l-0
9A
ug
-09
Se
p-0
9O
ct-
09
No
v-0
9D
ec-0
9Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-1
0A
ug
-10
Se
p-1
0O
ct-
10
No
v-1
0D
ec-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-1
1A
ug
-11
Se
p-1
1O
ct-
11
No
v-1
1D
ec-1
1Ja
n-1
2F
eb
-12
Ma
r-1
2A
pr-
12
Ma
y-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Ma
r-1
3A
pr-
13
Monthly Change in Private Employment
January 2007 through Apr. 2013 (Thousands)
Private Employers Added 6.74 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly Losses in Dec. 08–Mar. 09 Were
the Largest in the Post-WW II Period
176,000 private sector jobs were created in April
YTD 2013: 813,000
10
Jobs Created
2012: 2.247 Mill
2011: 2.420 Mill
2010: 1.235 Mill
0.0
51
0.0
53
-0.0
61
-0.1
66
-0.3
88
-0.6
07
-0.8
10
-1.0
77
-1.3
46
-1.7
75
-2.2
59
-3.0
45
-3.7
46
-4.5
67
-5.2
59
-6.0
71
-6.8
92
-7.1
80
-7.6
22
-7.9
04
-8.1
26
-8.2
88
-8.5
21
-8.5
55
-8.7
22
-8.7
39
-8.7
65
-8.6
54
-8.4
84
-8.3
82
-8.2
88
-8.1
85
-8.0
56
-7.9
43
-7.7
55
-7.6
01
-7.4
87
-7.4
07
-6.9
41
-6.6
38
-6.4
55
-6.2
78
-6.0
72
-5.9
43
-5.6
87
-5.5
13
-5.3
16
-5.0
67
-4.7
44
-4.4
79
-4.2
71
-4.1
51
-3.9
99
-3.9
21
-3.7
44
-3.6
13
-3.4
95
-3.2
78
-3.0
22
-2.7
98
-2.6
34
-2.3
15
-2.1
61
-1.9
85
-7.1
64
-10
-8
-6
-4
-2
0
2
De
c-0
7Ja
n-0
8F
eb
-08
Ma
r-0
8A
pr-
08
Ma
y-0
8Ju
n-0
8Ju
l-0
8A
ug
-08
Se
p-0
8O
ct-
08
No
v-0
8D
ec-0
8Ja
n-0
9F
eb
-09
Ma
r-0
9A
pr-
09
Ma
y-0
9Ju
n-0
9Ju
l-0
9A
ug
-09
Se
p-0
9O
ct-
09
No
v-0
9D
ec-0
9Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-1
0A
ug
-10
Se
p-1
0O
ct-
10
No
v-1
0D
ec-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-1
1A
ug
-11
Se
p-1
1O
ct-
11
No
v-1
1D
ec-1
1Ja
n-1
2F
eb
-12
Ma
r-1
2A
pr-
12
Ma
y-1
2Ju
n-1
2Ju
l-1
2A
ug
-12
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb
-13
Millio
ns
Cumulative Change in Private Employment: Dec. 2007—Apr. 2013
December 2007 through April 2013 (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job losses peaked at 8.765 million
in February 2010
Cumulative job losses as of Apr. 2013 totaled
1.985 million
11
All of the jobs “lost” since President
Obama took office in Jan.
2009 have been recouped
Private Employers Added 6.74 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
-0.0
17
-0.0
43
0.0
68
0.2
38
0.3
40
0.4
34
0.5
37
0.6
66
0.7
79
0.9
67
1.1
21
1.2
35
1.3
15
1.5
58
1.7
81
2.0
84
2.2
67
2.4
44
2.6
50
2.7
79
3.0
35
3.2
09
3.4
06
3.6
55
3.9
78
4.2
43
4.4
51
4.5
71
4.7
23
4.8
01
4.9
78
5.1
09
5.2
27
5.4
44
5.7
00
5.9
24
6.0
88
6.4
07
6.7
39
6.5
61
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jan-1
0
Feb-1
0
Mar-
10
Apr-
10
May-1
0
Jun-1
0
Jul-10
Aug-1
0
Sep-1
0
Oct-
10
Nov-1
0
Dec-1
0
Jan-1
1
Feb-1
1
Mar-
11
Apr-
11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oct-
11
Nov-1
1
Dec-1
1
Jan-1
2
Feb-1
2
Mar-
12
Apr-
12
May-1
2
Jun-1
2
Jul-12
Aug-1
2
Sep-1
2
Oct-
12
Nov-1
2
Dec-1
2
Jan-1
3
Feb-1
3
Mar-
13
Millio
ns
Cumulative Change in Private Sector Employment: Jan. 2010—Apr. 2013
January 2010 through April 2013* (Millions)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Cumulative job gains through Apr. 2013
totaled 6.74 million
12
Job gains and pay
increases have added more
than $600 billion to payrolls
since Jan. 2010
Private Employers Added 6.74 million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
4
-10
33 9
2
511
287
98
-68
-224
-184
-194
-213
-224
-271
-289
-288
-356
-324
-452
-449
-480
-488
-511
-530
-542
-536
-539
-547
-574
-565
-589
-555
-535
-592
-601
-606
-622
-609
-636
-625
-800
-600
-400
-200
0
200
400
600
Jan-1
0
Feb-1
0
Mar-
10
Apr-
10
May-1
0
Jun-1
0
Jul-10
Aug-1
0
Sep-1
0
Oct-
10
Nov-1
0
Dec-1
0
Jan-1
1
Feb-1
1
Mar-
11
Apr-
11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oct-
11
Nov-1
1
Dec-1
1
Jan-1
2
Feb-1
2
Mar-
12
Apr-
12
May-1
2
Jun-1
2
Jul-12
Aug-1
2
Sep-1
2
Oct-
12
Nov-1
2
Dec-1
2
Jan-1
3
Feb-1
3
Mar-
13
Cumulative Change in Government Employment: Jan. 2010—Apr. 2013
January 2010 through Apr. 2013* (Millions)
Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute
Cumulative job losses through Apr. 2013 totaled 636,000
13
Governments at All Levels are Under Severe Fiscal Strain As Tax Receipts Plunged and Pension Obligations Soared During the
Financial Crisis: Sequestration Will Add to this Toll
Government at all levels has
shed more than 600,000 jobs
since Jan. 2010 even as
private employers created
6.74 million jobs, though
losses may now be ending.
Temporary Census hiring distorted 2010
figures
14
Net Change in Government Employment: Jan. 2010—Apr. 2013*
-636
-480
-98-58
-700
-600
-500
-400
-300
-200
-100
0
Total Local State Federal
(Thousands)
Local government employment shrank by 480,000 from Jan.
2010 through Apr. 2013, accounting for 65% of all government job losses,
negatively impacting WC exposures for those cities and counties 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 1.9% since the end of 2009 while
Federal employment is down by 2.1%
15
Unemployment Rates by State, March 2013: Highest 25 States*
9.7
9.5
9.4
9.4
9.2
9.1
9.0
8.7
8.5
8.5
8.4
8.4
8.2
8.2
8.0
8.0
7.9
7.9
7.9
7.5
7.3
7.3
7.2
7.2
7.1
0
2
4
6
8
10
12
NV IL CA MS NC RI NJ IN DC MI GA SC NY OR CT KY AZ PA TN FL DE WA AL AR CO
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for March 2013, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 26 states and the District of Columbia had over-the-month
unemployment rate decreases, 7 states had increases, and 17 states had no
change.
16
7.1
7.1
7.1
7.0
6.9
6.7
6.6
6.4
6.4
6.2
6.2
6.2
5.7
5.6
5.6
5.4
5.3
5.1
5.0
4.9
4.9
4.9
4.3
4.1
3.8
3.3
0
2
4
6
8
ME OH WI WV NM MO MD MA TX AK ID LA NH KS MT MN VA HI OK IA UT WY SD VT NE ND
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, March 2013:
Lowest 25 States*
*Provisional figures for March 2013, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 26 states and the District of Columbia had over-the-month
unemployment rate decreases, 7 states had increases, and 17 states had no
change.
17
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
% 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
%
7.5
%
7.4
%
7.3
%
7.2
%
7.1
%6
.9%
9.6
%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
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
Rising unemployment
eroded payrolls
and workers comp’s
exposure base.
Unemployment peaked at 10%
in late 2009.
* = actual; = forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (5/13 edition); Insurance Information Institute.
2007:Q1 to 2014:Q4F*
Unemployment forecasts have been revised slightly
downwards. Optimistic scenarios put the
unemployment as low as 6.6% by Q4 of next year.
Jobless figures have been revised
slightly downwards for 2013/14
18
Nonfarm Payroll (Wages and Salaries): Quarterly, 2005–2013: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); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,2500
5:Q
1
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
12
:Q2
12
:Q3
12
:Q4
13
:Q1
Prior Peak was 2008:Q1 at $6.60 trillion
Latest (2013:Q4) was $7.01 trillion, a new peak--$762B
above 2009 trough
Recent trough (2009:Q3) was $6.25 trillion, down
5.3% from prior peak
Payrolls are 12.2% above
their 2009 trough and up 2.7% over
the past year
18
$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 12*
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
19
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2012
*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are I.I.I. estimate based YTD 2012 actuals.
Sources: 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 Pushed WC NWP Up by 9.0% in 2012 and 8.0% in 2011 (First Gain Since 2005)
7/90-3/91 3/01-11/01 12/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
+9% in 2012
20
POSITIVE LABOR MARKET DEVELOPMENTS
Key Factors Driving Workers
Compensation Exposure
20
21
Mass Layoff Announcements, Jan. 2002—March 2013*
*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 '13
Mass layoff announcements peaked at more than 3,000 per
month in Feb. 2009
There were 1,337 mass layoffs
announced in March 2013, similar to pre-
crisis levels
22
Average Weekly Hours of All Private Workers, Mar. 2006—Apr. 2013
*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 (recession dates); 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
34.7
34.8
'06 '07 '08 '09 '10 '11 '12 '13
Hours worked totaled 34.4 per week in April,
just shy of the 34.6 hours typically worked
before the “Great Recession”
Hours worked plunged during the recession,
impacting payroll exposures
(Hours Worked)
23
Average Hourly Wage of All Private Workers, Mar. 2006—Apr. 2013
*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 (recession dates); Insurance Information Institute.
$18.00
$19.00
$20.00
$21.00
$22.00
$23.00
$24.00
$25.00
'06 '07 '08 '09 '10 '11 '12 '13
The average hourly wage was $23.87 in Apr. 2013,
up 12.3% from $21.25 when the recession began in Dec. 2007
Wage gains continued during the
recession, despite massive job losses
(Hourly Wage)
24
Oil & Gas Extraction Employment, Jan. 2010—April 2013*
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
15
6.4
15
6.4
15
6.7
15
7.6
15
8.7
15
7.8
15
8.0
15
9.5
16
0.0
16
1.5
16
1.2
16
1.2
16
3.1
16
4.4
16
6.6 16
9.3
17
0.1
17
1.0
17
2.5
17
3.6 17
6.3
17
8.2
17
8.5
18
0.9
18
1.9
18
3.1
18
4.8
18
5.2
18
5.7
18
6.8
18
7.6
18
8.0
18
8.0
18
8.2
19
0.0
19
1.7
19
1.9
19
3.1
19
2.5
19
2.5
150
155
160
165
170
175
180
185
190
195
200
Ja
n-1
0
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Ju
n-1
0
Ju
l-1
0
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
De
c-1
0
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
2/3
0/2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Oil and gas extraction employment is up 23.1% since Jan. 2010 as the energy sector booms.
Domestic energy production is essential to
any robust economic recovery in the US.
(Thousands)
25
Manufacturing Employment, Jan. 2010—April 2013*
11
,46
0
11
,46
0
11
,46
6
11
,49
7
11
,53
1
11
,53
9
11
,55
8
11
,54
8
11
,55
4
11
,55
5
11
,57
7
11
,59
0
11
,62
4
11
,66
2
11
,68
2
11
,70
7
11
,71
5
11
,72
4
11
,74
7
11
,76
0
11
,76
2
11
,77
0
11
,76
9
11
,79
7
11
,84
1
11
,87
0
11
,91
0
11
,92
0
11
,92
6
11
,93
5
11
,95
7
11
,94
3
11
,92
5
11
,93
1
11
,93
8
11
,95
1
11
,96
5
11
,98
8
11
,99
0
11
,99
0
11,000
11,200
11,400
11,600
11,800
12,000
12,200
12,400
Ja
n-1
0
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Ju
n-1
0
Ju
l-1
0
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
De
c-1
0
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
2/3
0/2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Manufacturing employment is up by more than 500,000 or 4.6% since Jan. 2010—a surprising source of strength
in the economy. Employment in the sector is close to a multi-year high.
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands)
26
ADVERSE LONG-TERM
LABOR MARKET DEVELOPMENTS
Key Factors Harming Workers
Compensation Exposure and the
Overall Economy
26
27
Labor Force Participation Rate, Jan. 2002—Apr. 2013*
*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 '13
Large numbers of people are exiting (or not returning to the
labor force)
Labor force participation
continues to shrink despite a falling
unemployment rate
Labor Force Participation as a % of Population
28
Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.
Sources: Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.a.htm ; NBER (recession dates); Ins. Info. Inst.
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '12
In recent good times, the number of discouraged workers ranged from 200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
There were 835,000
discouraged workers in Apr. 2013
Thousands
“Discouraged Workers” are
people who have searched
for work for so long in vain
that they actually stop
searching and drop out of
the labor force
Number of “Discouraged Workers,” Jan. 2002—April 2013
Large numbers of people are exiting
(or not returning to) the labor force
29
Change in Number of Discouraged Workers: Apr. 2012 vs. Apr. 2013
Source: US Bureau of Labor Statistics at http://www.bls.gov/news.release/empsit.a.htm; Insurance Information Institute.
-13.7%
-18.3%
-11.5%
-14.0%
-18.8%
-5.0%
-20%
-18%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
Overall 16 to 24 25 to 54 55+ Men Women
Young workers are becoming less
discouraged faster than older workers
(Percent Change)
AGE GENDER
The number of discouraged
workers fell by 133,000 over the
past year to 835,000, a
decline of 13.7% Men are less discouraged
about their job prospects
30
Discouraged Workers by Gender (as of April 2013)
41%
59%
Source: Bureau of Labor Statistics: at http://www.bls.gov/web/empsit/cpseea38.htm; Insurance Information Institute.
The overwhelming of discouraged workers are male, for a variety of reasons
Female = 339,000 Male = 496,000
Reasons for Lower Female
Discouragement Rate
•Less likely to work in
heavily impacted industries
such as construction
•More likely to retrain
•More likely to retrain quickly
•Better educated
TOTAL = 835,000
Social Security Disability: Explosive Growth
31
Growth in this System Is Harming the
Economy, Contributing to Fiscal Imbalances
Could Learn a Thing or Two from WC
Number of Social Security Disability Income Recipients, 1990-2015P*
7.4
3
7.7
9 8.2
0
8.5
8
8.8
6 9.4
0
4.8
7
4.6
9
4.5
0
4.3
8
4.1
8
3.0
1
5.0
4
5.2
7
5.5
4
5.8
7
6.2
0
6.5
2
6.8
1
7.1
0
2.5
5.0
7.5
10.0
19
90
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
P
20
15
P
*End of year. Does not include children or widows.
Source: Social Security Trustees Report, 2012, p. 131
Millions of Recipients
Growth in the Number SSDI Recipients is Growing Rapidly Pace and Seems Impervious to Improvements in the Labor Market—Both Are
Suggestive of Fraud and Abuse.
Between 1995 and 2012, the number of workers claiming disability increased by 112%
while the number of workers in the US overall increased by just
13.9% - an 8 fold difference
Percent of the Civilian Non-Institutional Population that Received SS Disability Income, 1995-2011
3.4
5%
3.5
8%
2.4
5%
2.3
7%
2.3
4%
2.2
9%
2.2
2%
2.1
8%
2.1
0%
2.5
5%
2.6
5%
2.7
7%
2.8
8%
2.9
7%
3.0
6%
3.1
8%
3.3
0%
2.0%
2.5%
3.0%
3.5%
4.0%1
99
5
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Sources: Social Security Trustees Report, 2012, p. 131; U.S. Bureau of Labor Statistics; I.I.I.
The Share of the Population Receiving SSDI Benefits Has Increased Dramatically
Number* Receiving SS Disability Income, 1990-2012
0
1
2
3
4
5
19
67
19
68
19
69
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
Men WomenMillions
As More Women Worked Long Enough to Become SSDI Eligible, More Qualified for SSDI When They Became Totally Disabled.
At year-end1979 there were 1 million more male SSDI recipients than
female recipients. By year-end 2012 the gap was 375,000 (4.60 million
men vs. 4.22 million women).
*End of year. Does not include children or widows.
Source: Social Security Trustees Report, 2012, p. 131
The number of women claiming SSDI now rivals
that of men
Disability Prevalence Rates (Age-Sex-Adjusted), 1995-2012P
4445
46
373736363636
35
3839 39
40 4041 41
43
30
35
40
45
50
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012P
*The Disability Prevalence Rate is the number of disabled-worker beneficiaries as a percentage of the number insured for SSDI benefits.
Sources: Social Security Trustees Report, 2012, p. 131 and 133.
Reasons for Increasing Disability Prevalence Rate:
-Termination rates have declined
-Incidence rate at younger ages increased relative to older ages
-Incidence rates for women increased sharply compared with men
Rate per thousand
persons insured
36
Workers Compensation Does a Much Better
Job of Returning People to Work/Life than SSDI
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5-4.1
-3.7
-6.6
-2.2
-4.3
-5.7
3.8
-0.9
2.9
0.0 0.0 0.0
2.8
0.0
2.7 2.6
0.0
2.6
0.0
2.5
0.0
4.9
2.3 2.3 2.2
-5-4.5
-8
-6
-4
-2
0
2
4
6
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12P
Change in WC Claim FrequencyChange in SSDI Claim Prevalence
Change in Claim Frequency
Since 1996, WC lost-time claim frequency is down by more than 50% while SSDI claim frequency is up nearly 30%
*Workers comp data are for lost-time claims only.
Sources: Insurance Information Institute from Social Security Trustees Report, 2012, p. 131; NCCI.
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
37
Growth Will Expand Insurer Exposure
Base Across Most Lines
37
38
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 5/13; Insurance Information Institute.
2.7
%0
.5%
3.6
%3
.0%
1.7
%-1
.8%
1.3
%-3
.7%
-5.3
%-0
.3%
1.4
%5
.0%
2.3
%2
.2%
2.6
%2
.4%
0.1
%2
.5%
1.3
%4
.1%
2.0
%1
.3% 3
.1%
2.5
%1
.7%
2.3
%2
.6%
2.7
%2
.8%
2.9
%2
.9%
0.4
%
-8.9%
4.1
%1
.1%
1.8
%2
.5% 3.6
%3
.1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
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
14
:1Q
14
:2Q
14
:3Q
14
:4Q
Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, 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 of credit crunch, housing slump, labor market contraction
was severe
The Q4:2008 decline was the steepest since the Q1:1982
drop of 6.8%
2013 is expected to see uneven growth, then gradually accelerate throughout the year
and into 2014
Federal Spending as a Share of State GDP: Vulnerability to Sequestration Varies
Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute. 39
NY has relatively little exposure to sequester cuts
74
.47
3.6
73
.67
2.2
73
.6 76
67
.86
8.9
68
.26
7.7 7
1.6 74
.57
4.2 7
7.5
67
.5 69
.8 74
.37
1.5
63
.75
5.7 5
9.5
60
.9 64
.16
9.9
75
.07
5.3
76
.27
6.4 79
.37
3.2
72
.3 74
.38
2.6
82
.77
4.5
73
.8 77
.67
8.6
72
.3
40
45
50
55
60
65
70
75
80
85
90
Ja
n-1
0
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Ju
n-1
0
Ju
l-1
0
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
De
c-1
0
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
Fe
b-1
2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Consumer Sentiment Survey (1966 = 100)
January 2010 through April 2013
Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact
consumers, but improved substantially in late 2011 and in 2012
Source: University of Michigan; Insurance Information Institute
Optimism among consumers has remained fairly strong despite tax
hike, federal budget concerns until April
40
41
(Millions of Units)
New Private Housing Starts, 1990-2019F
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
1.0
2
1.2
3 1.3
5
1.4
4
1.5
0
1.5
1
1.5
0
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 13F14F15F16F17F18F19F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/13 and 3/13); Insurance Information Institute.
Homeowners Insurers Are Starting to See Meaningful Exposure Growth for the First Time Since 2005. Commercial Insurers with Construction Risk
Exposure, Surety; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, low mortgage
rates and demographics are stimulating new home construction
for the first time in years
42
Construction Employment, Jan. 2010—April 2013*
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,5
81
5,5
22
5,5
42
5,5
54
5,5
27
5,5
12
5,4
97
5,5
19
5,4
99
5,5
01
5,4
97
5,4
68
5,4
35 5
,47
8
5,4
85
5,4
97
5,5
24
5,5
30
5,5
47
5,5
46 5,5
83
5,5
76
5,5
77 5,6
12
5,6
29
5,6
44
5,6
40
5,6
36
5,6
15
5,6
22
5,6
27
5,6
30
5,6
33
5,6
49
5,6
73 5,7
11
5,7
35 5
,78
3
5,7
96
5,7
90
5,400
5,450
5,500
5,550
5,600
5,650
5,700
5,750
5,800
5,850
5,900
Ja
n-1
0
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Ju
n-1
0
Ju
l-1
0
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
De
c-1
0
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
2/3
0/2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
2/3
0/2
Ma
r-1
3
Ap
r-1
3
Construction employment growth accelerated in the second half of 2012. Stronger growth in this key
sector is possible in 2013. Construction is a key driver of
workers comp exposure growth.
(Thousands)
43
Construction Employment, Jan. 2003–Apr. 2013
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Could Be a Growth Leader in 2013 and 2014 as the Housing Market and Private Investment Recover. WC Insurers Will Benefit.
Construction employment
troughed at 5.435 million in Jan.
2011, after a loss of 2.291 million jobs, a 29.7%
plunge from the April 2006 peak
43
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction
employment as of Apr. 2013 totaled 5.79 million, an increase of 355,000 jobs or 6.5% from the Jan.
2011 trough
44
Value of Construction Put in Place, March 2013 vs. March 2012*
-5.4%
-0.2%
-5.5%
4.8%
9.8%
17.8%
-1.2%
-10%
-5%
0%
5%
10%
15%
20%
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 Private Sector as State/Local Government Budget Woes Continue
Growth (%)
Private sector construction activity is up in the
residential segment but down in nonresidential
*seasonally adjusted Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +9.8% Public: -5.4%
Public sector construction activity remains depressed
45
Value of Private Construction Put in Place, by Segment, Mar. 2013 vs. Mar. 2012*
-0.1%
-2.1%
-6.8%-4.3%
19.1%
-4.2%
4.3% 3.4%
-12.9%
9.8%
17.8%
-1.2%
11.6%
2.9%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
To
tal
Pri
vate
Co
nstr
ucti
on
Resid
en
tial
To
tal
No
nre
sid
en
tial
Lo
dg
ing
Off
ice
Co
mm
erc
ial
Healt
h C
are
Ed
ucati
on
al
Reli
gio
us
Am
usem
en
t &
Rec.
Tra
nsp
ort
ati
on
Co
mm
un
icati
on
Po
wer
Man
ufa
ctu
rin
g
Private Construction Activity is Up Some Segments, Including the Key Residential Construction Sector, But Weakening in Early 2013
Growth (%) Led by the Residential Construction, Lodging, Office, and Transportation industries, Private sector construction activity is mixed up across many segments after plunging during the “Great Recession.” Most segments
expanded in 2012 but weakened in Q1:2013.
*seasonally adjusted Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
46
Value of Public Construction Put in Place, by Segment, Mar. 2013 vs. Mar. 2012*
-4.8%-7.7%
-14.7%-12.4%
21.6%
-5.0%
-18.0%
-5.3%-9.3%
28.6%
-5.4%-0.2%
-5.5%
-29.0%
-14.9%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
To
tal
Pu
bli
c
Co
nstr
ucti
on
Resid
en
tial
To
tal
No
nre
sid
en
tial
Off
ice
Co
mm
erc
ial
Healt
h C
are
Ed
ucati
on
al
Pu
bli
c S
afe
ty
Am
usem
en
t &
Rec.
Tra
nsp
ort
ati
on
Po
wer
Hig
hw
ay &
Str
eet
Sew
ag
e &
Waste
Dis
po
sal
Wate
r S
up
ply
Co
nserv
ati
on
&
Develo
p.
Public Construction Activity is Down in Many Segments as State and Local Budgets Remain Under Stress; Improvement Possible in 2013.
Growth (%)
*seasonally adjusted Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Public sector construction activity is down substantially in most segments, a situation that will likely persist, dragging
on public entity risk exposures
Transportation and Power projects lead
public sector construction
58
.35
7.1
60
.45
9.6
57
.85
5.3
55
.15
5.2
55
.3 56
.9 58
.25
8.5 6
0.8
61
.45
9.7
59
.75
4.2 5
5.8
51
.4 52
.55
2.5
51
.85
2.2 53
.1 54
.15
1.9 53
.35
4.1
52
.55
0.2
50
.55
0.7
51
.65
1.7
49
.95
0.2
53
.1 54
.2
50
.75
1.3
40
45
50
55
60
65
Ja
n-1
0
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Ju
n-1
0
Ju
l-1
0
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
De
c-1
0
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
Fe
b-1
2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
ISM Manufacturing Index (Values > 50 Indicate Expansion)
January 2010 through April 2013
The manufacturing sector expanded for 39 of the 40 months from Jan. 2010 through Apr. 2013. The expectation is that this will continue.
Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.
Manufacturing activity continues to expand, albeit modestly
47
48
$200,000
$300,000
$400,000
$500,000
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
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
Jan 13
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—Mar. 2013
*seasonally adjusted Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, 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 Mar. 2013 was 30%. Manufacturing is an
energy intensive activity and growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine, Property and Various Liability Coverages
The value of Manufacturing Shipments in Mar. 2013 were up 30% to $481.8B from its May 2009 trough. March figure is now 0.7% below its previous record high in July 2008.
$ Millions
48
50
.7 52
.7 54
.15
4.6
54
.85
3.5
53
.75
2.8 53
.95
4.6 56 5
7.1 5
9.4
59
.75
6.3
54
.45
3.3
53
.45
3.8
52
.65
2.6
52
.65
2.6
53
.05
6.8
56
.15
5.0
53
.75
4.1
52
.75
2.9 54
.3 55
.25
4.8
54
.85
5.7
55
.25
6.0
53
.154
.4
40
45
50
55
60
65
Ja
n-1
0
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Ju
n-1
0
Ju
l-1
0
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
De
c-1
0
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
Fe
b-1
2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
ISM Non-Manufacturing Index (Values > 50 Indicate Expansion)
January 2010 through April 2013
Non-manufacturing industries have been expanding and adding jobs. 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 is stable
and remains expansionary in 2013
49
50
43
,69
4
48
,12
5
69
,30
0
62
,43
6
64
,00
4
71
,27
7
81
,23
5
82
,44
6
63
,85
3
63
,23
5
64
,85
3
71
,54
9
70
,64
3
62
,30
4
52
,37
4
51
,95
9
53
,54
9
54
,02
7
44
,36
7
37
,88
4
35
,47
2
40
,09
9
38
,54
0
35
,03
7
34
,31
7
39
,20
1
19
,69
5
28
,32
2 43
,54
6
60
,83
7
56
,28
2
47
,80
6
30
,62
0
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
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
:Q3
Business Bankruptcy Filings, 1980-2012:Q3
Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance Information Institute
Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline
2011 bankruptcies totaled 47,806, down 15.1% from 56,282 in 2010—the second consecutive year of decline. Business bankruptcies more
than tripled during the financial crisis. Through Q3:2012, filings were down 15.8% vs. Q3:2011
% Change Surrounding Recessions
1980-82 58.6%
1980-87 88.7%
1990-91 10.3%
2000-01 13.0%
2006-09 208.9%*
50
51
Private Sector Business Starts, 1993:Q2 – 2012:Q3*
17
51
86
17
41
80
18
61
92
18
81
87
18
91
86 1
90 1
94
19
11
99 2
04
20
21
95
19
61
96
20
62
06
20
11
92
19
82
06
20
62
03
21
12
05
21
22
00 2
05
20
42
04
19
72
03
20
92
01
19
21
92
19
32
01 20
42
02
21
02
12
20
92
16 2
20 22
32
20
22
02
10
22
12
12
20
42
18
20
92
07
20
71
99
19
11
93
17
2 17
61
69
18
41
75 1
79
18
82
00
18
3 18
7 19
11
97
19
31
91
19
3
20
3
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 12
Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure, But
Are Recovering Slowly * Data through Sep. 30, 2012 are the latest available as of May 13, 2013; Seasonally adjusted.
Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.
(Thousands)
Business starts were up an estimated 2.8% in 2012 to 769,000 following a 2.2% to 748,000 in 2011. Start-ups
could accelerate in 2013.
Business Starts 2006: 872,000 2007: 843,000 2008: 790,000 2009: 697,000 2010: 742,000 2011: 748,000 2012E: 769,000*
51
52
12 Industries for the Next 10 Years: Insurance Solutions Needed
Export-Oriented Industries
Health Sciences
Health Care
Energy (Traditional)
Alternative Energy
Petrochemical
Agriculture
Natural Resources
Technology (incl. Biotechnology)
Light Manufacturing
Insourced Manufacturing
Many industries are
poised for growth, though
insurers’ ability to
capitalize on these
industries varies widely
Shipping (Rail, Marine, Trucking, Pipelines)
53
P/C Insurance Industry Financial Overview
Profit Recovery in 2012 After High CAT Losses; Ultimate
Impact of Sandy Still Unclear
53
P/C Net Income After Taxes 1991–2012 ($ Millions)
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $
36
,81
9
$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
$2
8,6
72
-$6,970
$6
5,7
77
$4
4,1
55
$2
0,5
59
$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
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%
P-C Industry 2012:Q3 profits were up 222% from 2011:Q3, due primarily to lower catastrophe losses
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO, Insurance Information Institute
A 100 Combined Ratio Isn’t What It 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 combined ratio including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0102.4
106.5
95.7
6.2%4.7%
7.9%7.4%
4.3%
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
0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s Depressed Investment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generates an ROE of ~7.0% in 2012, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Catastrophes and lower investment
income pulled down ROE in 2012
-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
F
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013F*
*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2013 exclude
mortgage and financial guaranty insurers. 2012:Q3 ROAS = 6.2% 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
2012:
5.9%
History suggests next ROE
peak will be in 2016-2017
ROE
1975: 2.4%
2013F: 6.2%
57
$1
2.6
$1
1.0
$3
.8
$1
4.3
$1
1.6
$6
.1
$3
4.7
$7
.6
$1
6.3
$3
3.7
$7
3.4
$1
0.5
$7
.5
$2
9.2
$1
1.5
$1
4.4
$3
3.6
$3
5.0
$1
4.0
$4
.8
$8
.0
$3
7.8
$8
.8
$2
6.4
$0
$10
$20
$30
$40
$50
$60
$70
$80
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
US Insured Catastrophe Losses
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)
Sources: Property Claims Service/ISO; Insurance Information Institute.
2012 Was the 3rd Highest Year on Record for Insured Losses in US History on An Inflation-Adjusted Basis.
2011 Losses Were the 6th Highest.
2012 was likely the third most expensive year ever for insured
CAT losses
Record Tornado Losses Caused
2011 CAT Losses to Surge
($ Billions, 2012 Dollars)
57
58
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2012*
Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.
Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.
0.4
1.2
0.4 0
.8 1.3
0.3 0.4 0.7
1.5
1.0
0.4
0.4 0.7
1.8
1.1
0.6
1.42
.01
.32
.00
.50
.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6
3.4
8.7
9.4
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
E
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of the Combined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 7.20*
Combined Ratio Points Catastrophe losses as a share of all losses reached
a record high in 2012
The BIG Question: Where Is the Market Heading?
59
Catastrophes and Other Factors Are Pressuring Insurance Markets
59
New Factor: Record Low Interest Rates Are Contributing to
Underwriting and Pricing Pressures
UNDERWRITING
60
Underwriting Results in 2012 Improved Despite High
Catastrophe Losses
WC Was One Reason Why 60
61
P/C Insurance Industry Combined Ratio, 2001–2012*
* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2.
Sources: A.M. Best, ISO.
95.7
99.3100.8
106.3
102.4101.0
92.6
100.8
98.4100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Best Combined Ratio Since 1949 (87.6)
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned Premiums
Relatively Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Avg. CAT Losses,
More Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Lower CAT
Losses Before Sandy
Underwriting Gain (Loss) 1975–2012*
* Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Cumulative underwriting deficit from 1975 through
2012 is $510B
($ Billions) Underwriting
losses in 2012 totaled
$16.7B
High cat losses in 2011 led to the highest
underwriting loss since 2002
63
2
(2)
(8)
(3)
(7)
(10) (10)
(4)
(0)
11
24
15
119
(5)
(9)
(14)
(10) (11)
(7)(5)
(2)
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
E
12
F
13
F
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
B)
-6
-4
-2
0
2
4
6
8 Imp
ac
t on
Co
mb
ine
d R
atio
(Po
ints
)
Prior Yr. ReserveDevelopment ($B)
Impact onCombined Ratio(Points)
P/C Reserve Development, 1992–2013F
Reserve Releases Remained Strong in 2010 But Tapered Off in 2011. Releases Are Expected to
Further Diminish in 2012 and 2103
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance.
Sources: Barclays Capital; A.M. Best.
Prior year reserve releases totaled $8.8
billion in the first half of 2010, up from
$7.1 billion in the first half of 2009
10
9.4
11
0.2
11
8.8
10
9.5 1
12
.5
11
0.2
10
7.6
10
4.1
10
9.7
11
0.2
10
2.5 1
05
.4
91
.1
93
.6
10
4.2
98
.9
10
2.1
10
6.7
10
4.9
10
2.1
10
1.4
10
1.3
10
2.0
11
1.1
11
2.3
12
2.3
90
95
100
105
110
115
120
125
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
F
14
F
15
F
Co
mm
erc
ial L
ine
s C
om
bin
ed
Ra
tio
*2007-2012 figures exclude mortgage and financial guaranty segments.
Source: A.M. Best (1990-2011); Conning (2012-2015F) Insurance Information Institute
Commercial Lines Combined Ratio, 1990-2015F*
Commercial lines underwriting
performance is expected to improve as
improvement in pricing environment persists
64
Workers Compensation Combined Ratio: 1994–2012P
10
2.0
97
.0 10
0.0
10
1.0
11
2.6
10
8.6
10
5.1
10
2.7
98
.5
10
3.5
10
4.5 1
10
.6 11
6.8
11
5.0
10
9.0
12
1.7
10
7.0
11
5.3
11
8.2
80
85
90
95
100
105
110
115
120
125
130
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Workers Comp Results Began to Improve in 2011-2012. Underwriting Results Deteriorated Markedly from 2007-2010 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2010); NCCI (2011-2012P); Insurance Information Institute.
65
SURPLUS/CAPITAL/CAPACITY
66
How Will Large Catastrophe Losses Impact Capacity?
66
67
Policyholder Surplus, 2006:Q4–2012:Q4
Sources: ISO, A.M .Best.
($ Billions)
$487.1
$496.6
$512.8
$521.8
$478.5
$455.6
$437.1
$463.0
$490.8
$511.5
$540.7
$530.5
$544.8
$559.2 $559.1
$538.6
$550.3
$567.8
$583.5$586.9
$570.7$566.5
$505.0
$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
06:Q407:Q107:Q207:Q307:Q408:Q108:Q208:Q308:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q4
2007:Q3 Pre-Crisis Peak
Surplus as of 12/31/12 was up $16.2B or 2.8% from the
previous record high of $570.7B set as of 3/31/12.
*Includes $22.5B of paid-in capital
from a holding company parent for
one insurer’s investment in a non-
insurance business in early 2010.
The Industry now has $1 of surplus for every $0.80
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 Both Entered and Emerged from the 2012 Hurricane
Season Very Strong Financially.
4. RENEWED PRICING DISCIPLINE
68
Evidence of a Broad and Sustained Shift in Pricing
68
69
-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
Net Premium Growth: Annual Change, 1971—2012
(Percent)
1975-78 1984-87 2000-03
Shaded areas denote “hard market” periods Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
2012 growth
was +4.3%
70
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
Sources: ISO, Insurance Information Institute.
Sustained Growth in Written Premiums (vs. the same quarter, prior year) Will Continue through 2013
10
.2%
15
.1%
16
.8%
16
.7%
12
.5%
10
.1%
9.7
%7
.8%
7.2
%5
.6%
2.9
% 5.5
%-4
.6%
-4.1
%-5
.8%
-1.6
%1
0.3
%1
0.2
% 13
.4%
6.6
%-1
.6%
2.1
%0
.0%
-1.9
%0
.5%
-1.8
%-0
.7%
-4.4
%-3
.7%
-5.3
%-5
.2%
-1.4
%-1
.3%
1.3
%2
.3%
1.7
% 3.5
%1
.6% 4
.1%
3.8
%3
.1%
4.2
%5
.1%
4.8
%
-10%
-5%
0%
5%
10%
15%
20%
2002:Q
1
2002:Q
2
2002:Q
3
2002:Q
4
2003:Q
1
2003:Q
2
2003:Q
3
2003:Q
4
2004:Q
1
2004:Q
2
2004:Q
3
2004:Q
4
2005:Q
1
2005:Q
2
2005:Q
3
2005:Q
4
2006:Q
1
2006:Q
2
2006:Q
3
2006:Q
4
2007:Q
1
2007:Q
2
2007:Q
3
2007:Q
4
2008:Q
1
2008:Q
2
2008:Q
3
2008:Q
4
2009:Q
1
2009:Q
2
2009:Q
3
2009:Q
4
2010:Q
1
2010:Q
2
2010:Q
3
2010:Q
4
2011:Q
1
2011:Q
2
2011:Q
3
2011:Q
4
2012:Q
1
2012:Q
2
2012:Q
3
2012:Q
4
Premium growth in Q3 2012 was up 5.1% over Q3 2011, the strongest growth since Q4 2006
71
Direct Premiums Written: Total P/C Percent Change by State, 2007-2012*
58
.4
25
.4
24
.5
21
.0
19
.2
17
.6
16
.3
13
.2
13
.2
12
.4
9.9
9.2
9.2
8.5
8.0
6.2
5.8
5.2
4.5
4.4
4.3
4.3
4.2
4.0
3.8
3.6
0
10
20
30
40
50
60
70
ND
SD
OK
NE IA
KS
VT
AK
TX
WY
MN
AR
TN IN W
I
KY
MT
OH LA
VA
NJ
MI
SC
CO
MO
NM
Pe
ce
nt
ch
an
ge
(%
)
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans.
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
72
Direct Premiums Written: Total P/C Percent Change by State, 2007-2012*
3.6
3.1
3.0
2.9
2.7
2.2
2.1
2.1
2.0
1.8
1.1
0.0
-0.1
-0.3
-0.7
-0.9
-2.8
-5.6
-6.0
-7.2
-7.2
-9.3
-10
.1
-11
.2
-12
.5
-17
.3
-20
-15
-10
-5
0
5
CT
MS
NC AL
MD
PA
U.S
.
MA IL
WA
GA
UT
NH RI
ID
ME
NY
FL
CA
DC
WV HI
AZ
OR
DE
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans.
Sources: SNL Financial LC.; Insurance Information Institute.
73
Average Commercial Rate Change, All Lines, (1Q:2004–1Q:2013)
-3.2
%-5
.9%
-7.0
%-9
.4%
-9.7
%-8
.2%
-4.6
% -2.7
%-3
.0%
-5.3
%-9
.6%
-11
.3%
-11
.8%
-13
.3%
-12
.0%
-13
.5%
-12
.9%
-11
.0%
-6.4
%-5
.1%
-4.9
%-5
.8%
-5.6
%-5
.3%
-6.4
%-5
.2%
-5.4
% -2.9
%
2.7
% 4.4
%4
.3%
3.9
%5
.0%
5.2
%
-0.1
% 0.9
%
-0.1
%
-16%
-11%
-6%
-1%
4%
9%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially. Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Pricing as of Q1:2013 was positive for the 8th consecutive
quarter. Gains are likely to continue through 2013.
(Percent)
Q2 2011 marked the last of 30th
consecutive quarter of price declines
74
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2013:Q1
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute. Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Percentage Change (%)
Pricing turned positive in Q3:2011, the first increase in
nearly 8 years; Q1:2013 renewals were up 5.2%, the largest increase since late
2003; Some insurers posted stronger numbers.
KRW : No Lasting Impact
Pricing Turned Negative in Early
2004 and Remained that
way for 7 ½ years
Peak = 2001:Q4 +28.5%
Trough = 2007:Q3 -13.6%
75
Cumulative Qtrly. Commercial Rate Changes, by Line: 1999:Q4 to 2013:Q1
1999:Q4 = 100
Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute. Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
WC rate levels are rising and are now back to where they were in late 2008 and shortly after 9/11
76
Change in Commercial Rate Renewals, by Line: 2013:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewed Uniformly Upward in Q1:2013 for the 8th Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat
Losses and Low Interest Rates Provide Momentum Going Forward
Percentage Change (%)
5.5% 5.8%6.8%
9.8%
1.3%
4.1% 4.3% 4.6% 4.6%5.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Su
rety
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Co
mm
erc
ial
Au
to
Co
nstr
uctio
n
D&
O
EP
L
Co
mm
erc
ial
Pro
pe
rty
Wo
rke
rs
Co
mp
Workers Comp rate increases are large than any other line, followed
by Property lines
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Workers Comp Rate Changes, 2008:Q4 – 2013:Q1
Source: Council of Insurance Agents and Brokers; Information Institute.
-5.5%-4.6%
-4.0%-4.6%
-3.7%-3.9%
-5.4%
-3.7%-3.4%
-1.6%
2.6%
4.1%
7.5%7.4%8.3%8.1%
9.0%9.8%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
08:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q413:Q1
WC rate changes have been positive for 7
consecutive quarters, longer than any other
commercial line
(Percent Change)
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
INVESTMENTS: THE NEW REALITY
78
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
78
Property/Casualty Insurance Industry Investment Income: 2000–20121
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$47.7
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12
Investment Income Fell in 2012 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing
1 Investment gains consist primarily of interest and stock dividends.. Sources: ISO; Insurance Information Institute.
($ Billions)
Investment earnings in 2012 were running 13% below their 2007 pre-crisis peak
80
U.S. 10-Year Treasury Note Yields: A Long Downward Trend, 1990–2013*
*Monthly, through Apr. 2013. Note: Recessions indicated by gray shaded columns.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.
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
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
Yields on 10-Year U.S. Treasury Notes recently
plunged to all time record lows
80
81
Average Maturity of Bonds Held by US P/C Insurers, 2006—2011*
6.456.53
6.89
7.307.46
7.32
5.0
5.5
6.0
6.5
7.0
7.5
8.0
2006 2007 2008 2009 2010 2011
*Year-end figures. Latest available.
Sources: Insurance Information Institute calculations based on A.M. Best data.
Average Maturity (Years)
Falling Average Maturity (and Duration) of the P/C Industry’s Bond Portfolio is Contributing to the Drop in Investment
Income Along With Lower Yields
The average bond maturity is down by a full year between
2007 and 2011
81
82
Distribution of Bond Maturities, P/C Insurance Industry, 2006-2011
16.2%
16.3%
15.2%
29.5%
30.0%
32.4%
36.2%
39.5%
41.4%
34.1%
33.8%
31.2%
28.7%
26.7%
26.8%
13.1%
12.9%
12.7%
11.7%
11.1%
10.3%
7.4%
8.1%
8.1%
7.3%
6.4%
6.3%
16.0%
15.7%
15.2%
0% 20% 40% 60% 80% 100%
2006
2007
2008
2009
2010
2011
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
Sources: A.M. Best; Insurance Information Institute.
The main shift over these 6 years has been from bonds with 5-10 years of maturity to bonds with 1-5 years of maturity. The industry also slightly
trimmed it holdings of bonds in the 10-20-year maturity category and bonds in the longest-maturity category.
83
-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*
83
84
Annual Inflation Rates, (CPI-U, %), 1990–2014F
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
2.11.7
2.0
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 13F 14F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 5/13 (forecasts).
The slack in the U.S. economy suggests that inflationary pressures should remain subdued for an extended period of times. Energy, health care and
commodity prices, plus U.S. debt burden, remain longer-run concerns
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 remain quite
low, allowing the Fed to continue its QE3 program
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85