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Reinsurance Market Trends and Perspectives
Reinsurance in the Age of Black Swans
Reinsurance Association of America Underwriting Seminar
New York, NYJuly 20, 2011
Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
3
What in the World Is Going On?
Is the World Becoming a Riskier Place?
What Are the Implications for Insurance and Risk Management?
4
Uncertainty, Risk and Fear Abound
Japan, New Zealand, Haiti, Chile Earthquakes Nuclear Fears Record Tornado, Flooding in the US, TX Wildfires Cyber Attacks Resurgent Terrorism Risk (e.g., Bin Laden Killing) Political Upheaval in the Middle East Echoes of the Financial Crisis Housing Crisis Persistently High Unemployment US Debt and Budget Crisis Sovereign Debt & Currency Crises Inflation/Deflation Runaway Energy & Commodity Prices Era of Fiscal Austerity Reshuffling the Global Economic Deck China Becomes #2 Economy in the World Manmade Disasters (e.g., Deepwater Horizon) Are “Black Swans”
everywhere or does it just seem
that way?
5
P/C Insurance Industry Financial Overview
Profit Recovery Will Be Set Back by High CATs, Low
Interest Rates, Diminishing Reserve Releases
P/C Net Income After Taxes1991–2011:Q1 ($ 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
4,6
70
$7
,80
7
$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*
2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009 ROAS1 = 5.9% 2010 ROAS = 6.5% 2011:Q1 ROAS = 5.6%
P-C Industry 2011:Q1 profits were down 12.2% to $7.8B vs. $8.9B in 2010:Q1, as underwriting results
deteriorated
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.5% ROAS for 2011:Q1, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty insurersSource: Insurance Information Institute from A.M. Best and ISO data.
97.5
100.6 100.1 100.7
92.6
99.3100.8
102.2101.0
6.5%7.5%7.4%
9.6%
15.9%
14.3%
12.7%
4.4%
8.9%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2008* 2009* 2010* 2011*0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generated ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
-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
*
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*
*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for Q1 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.
1977:19.0% 1987:17.3%
1997:11.6%2007:12.3%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years10 Years
2011:6.1%*
History suggests next ROE peak will be in 2016-2017
ROE
1975: 2.4%
Catastrophe Loss Developments and Trends
9
2011 and 2010 Are Rewriting Catastrophe Loss and
Insurance History, Pressuring Reinsurance Markets
10
Global Catastrophe Loss Summary: First Half 2011
2011 Is Already (as of June 30) the Highest Loss Year on Record Globally
Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods and tornadoes are the primary causes of loss
$260 Billion in Economic Losses Globally
New record for the first six months, exceeding the previous record of $220B in 2005
Economy is more resilient than most pundits presume
$55 Billion in Insured Losses Globally
More than double the first half 2010 amount
Over 4 times the 10-year average
$27 Billion in Economic Losses in the US
Represents a 129% increase over the $11.8 billion amount through the first half of 2010
$17.3 Billion in Insured Losses in the US Arising from 100 CAT Events
Represents a 162% increase over the $6.6 billion amount through the first half of 2010
Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)
Hydrological events(flood, mass movement)
Selection of significant loss events (see table)
Natural catastrophes
Earthquake, tsunami Japan, 11 March
EarthquakeNew Zealand, 22 Feb
Cyclone Yasi Australia, 2 Feb
Landslides, flash floodsBrazil, 12/16 Jan
Floods, flash floods Australia, Dec 2010-Jan 2011
Severe storms, tornadoesUSA, 22–28 April
Severe storms, tornadoesUSA, 20–25 May
WildfiresUSA, May–June
EarthquakeNew Zealand, 13 June
FloodsUSA, April–June
Climatological events(extreme temperature, drought, wildfire)
Number of Events: 355Number of Events: 355
Natural Loss Events,January – June 2011
World Map
11Source: MR NatCatSERVICE
12Source: MR NatCatSERVICE
Worldwide Natural Disasters 2011 Significant Natural Disasters (January – June only)
Insured losses 2011 (January – June only): US$ 60bnInsured losses 2011 (January – June only): US$ 60bn
Worldwide Natural Disasters 2011% Distribution of Insured Losses Per Continent (January – June only)
13
21%21%
49%49%
<1%
29%29% <1%
<1%
Source: MR NatCatSERVICE
Insured losses 1980 - 2011 (January – June only): US$ 389bn Insured losses 1980 - 2011 (January – June only): US$ 389bn
14Source: MR NatCatSERVICE © 2011 Munich Re
58%58%
2%
21%21%
<1%
12%12%
6%
Worldwide Natural Disasters, 1980-2011% Distribution of Insured Losses Per Continent (January – June only)
16
US Second Quarter Insured Catastrophe Losses, 2000–2011
$5.04
$2.30
$7.11
$4.47
$6.38
$15.09
$0.93
$2.33
$5.05
$2.79
$6.24
$1.46
$0
$2
$4
$6
$8
$10
$12
$14
$16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: ISO/PCS; Insurance Information Institute.
Record Q2 (and First Half) CAT Losses Will Adversely Impact Insurer Results in 2011
$ Billions
Q2 CAT losses from 2000-2010 average $4.0 billion. 2011:Q2
CAT losses were nearly 4 times that amount at $15.09 billion
2011:Q2 CAT losses totaled
$15.09 billion and are the highest on
record
18
Top 16 Most Costly World Insurance Losses, 1970-2011*
(Insured Losses, 2010 Dollars, $ Billions)
*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.
$11.3$14.0 $14.0$14.9$20.5$20.8 $23.1$24.9
$35.0
$72.3
$10.0$9.3$9.0$8.0$8.0$7.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
WinterStormDaria(1991)
ChileQuake(2010)
Hugo (1989)
TyphoonMirielle(1991)
Charley(2004)
NewZealandQuake(2011)
Rita (2005)
SpringTornadoes
(2011)
Wilma(2005)
Ivan (2004)
Ike (2008)
Northridge(1994)
WTCTerrorAttack(2001)
Andrew(1992)
JapanQuake,
Tsunami(2011)*
Katrina(2005)
Taken as a single event, the Spring 2011 tornado season would likely become the 9th
costliest event in global insurance history
3 of the top 15 most expensive
catastrophes in world history have occurred in the past 18 months
100
200
300
400
500
600
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Worldwide Natural Disasters,1980 – 2011*
Number of Events
*2011 figure is through June 30.Source: MR NatCatSERVICE 19
Meteorological events(Storm)
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami, volcanic eruption)
Already 355 events through the first 6
months of 2011
US
$bn
Worldwide Natural Disasters 1980–2011,Overall and Insured Losses*
20
Overall losses (in 2011 values) Insured losses (in 2011 values)
*2011 figure is through June 30.Source: MR NatCatSERVICE © 2011 Munich Re
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
First Half 2011
Overall Losses: $265 Bill
Insured Losses: $60 Bill
21
JAPAN EARTHQUAKE/TSUNAMI & NUCLEAR DISASTER
March 11 Quake/Tsunami Is Just the Most Recent of Several Large Global Catastrophe Losses
23
Recent Major Non-US Catastrophe Losses
(Insured Losses, $US Billions)
Sources: Insurance Council of Australia, Munich Re, AIR Worldwide; Insurance Information Institute.
$35.0
$10.0$8.0
$5.0$2.0$0.5
$0
$5
$10
$15
$20
$25
$30
$35
$40
Cyclone Yasi(Australia) Feb
2011
Australia Floods(Dec - Feb 2011)
New ZealandQuake (Sep 2010)
Chile Earthquake(Feb 2010)
New ZealandQuake (Feb 2011)
Japan Earthquake(Mar 2011)
Insured Losses from Recent Major Catastrophe Events Exceed $60 Billion, an Estimated $53 Billion of that from Earthquakes
The March 2011 earthquake in Japan will become among the most expensive in world history in terms of insured losses (current
leader is the 1994 Northridge earthquake with $22.5B in insured losses in 2010 dollars)
25
SPRING 2011 TORNADO OUTBREAK
2011 Will Be Among the Most Deadly and Expensive for Tornadoes In History
29
1,1
33
1,1
32 1
,29
7
1,1
73
1,0
82 1,2
34
1,1
73
1,1
48
1,4
24
1,3
45
1,0
71 1,2
16
94
1
1,3
76
1,2
64
1,1
03
1,0
98
1,6
92
1,1
56 1,2
82
1,819
1,5
85
537
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P
Nu
mb
er
of
To
rna
do
es
0
100
200
300
400
500
600
Nu
mb
er o
f De
ath
s
Number of Tornadoes
Number of Deaths
*2011 is preliminary data through June 30.Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service.
Number of Tornadoes and Related Deaths, 1990 – 2011*
Tornadoes have already claimed more than 500 lives
There were already 1,585 tornadoes in the US by June 30
Insurers Expect to Pay $2 Billion on 165,000 Claims Arising from the April 2011 Tornadoes in the Birmingham and Tuscaloosa Areas
Insurers Making a Difference in Impacted Communities
Source: Insurance Information Institute 30
Destroyed home in Tuscaloosa. Insurers will pay some 165,000
claims totaling $2 billion in the Tuscaloosa/
Birmingham areas alone.
Presentation of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm
Recovery Fund
U.S. Tornado Count, 2005-2011*
31
There were 1,585 tornadoes in the US in 2010, slightly
above average
Deadly and costly April/ May spike
Source: http://www.spc.noaa.gov/wcm/ *Through July 2.
Tornado activity was off its record pace
by mid-year
Location of Tornadoes in the US, January 1—June 30, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 32
1,585 tornadoes killed 537 people through June 30, including at least 340 on April 26 mostly in the
Tuscaloosa area, and 130 in Joplin
on May 22
Location of Large Hail Reports in the US, January 1—June 30, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 33
There were 7,176 “Large Hail”
reports through June 30, causing extensive damage
to homes, businesses and
vehicles
Location of Wind Damage Reports in the US, January 1—June 30, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 34
There were 11,283 “Wind Damage” reports through
June 30, causing extensive damage
to homes and, businesses
Severe Weather Reports,January 1—June 30, 2011
35Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
There have been 20,044
severe weather reports through
June 30; including 1,585
tornadoes; 7,176 “Large Hail” reports
and 11,283 high wind events
Large Hail, 7,176 , 36%
Wind Damage,
11,283 , 56%
Tornadoes, 1,585 , 8%
Tornadoes accounted for just 8% of all Severe Weather
Reports through June 30 but more than 500 deaths
Number of Severe Weather Reports in US, by Type: January 1—June 30, 2011
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
37
US CATASTROPHE INSURED LOSS UPDATE
First Half 2011 CAT Losses Already Exceed All of 2010 and Could Become One of the Most
Expensive Years on Record
Natural Disaster Losses in the United States: First 6 Months 2011
38Source: MR NatCatSERVICE
39
$8
.3
$7
.4
$2
.6 $1
0.1
$8
.3
$4
.6
$2
6.5
$5
.9 $1
2.9 $
27
.5
$6
1.9
$9
.2
$6
.7
$2
7.1
$1
0.6
$1
3.6
$1
7.3
$1
00
.0
$7
.5
$2
.7
$4
.7
$2
2.9
$5
.5 $1
6.9
$0
$20
$40
$60
$80
$100
$120
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??
US Insured Catastrophe Losses
*First half 2011.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.
First Half 2011 US CAT Losses Already Exceed Losses from All of 2010. Even Modest Hurricane Losses Will Make 2011 Among the
Most Expensive Ever for CATs
$100 Billion CAT Year is Coming Eventually
Record Tornado Losses Caused
H1 CAT Losses to Surge
($ Billions)
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
40
Top 12 (13?) Most Costly Disastersin U.S. History
(Insured Losses, 2010 Dollars, $ Billions)
*Losses will actually be broken down into several “events” as determined by PCS.Sources: PCS; Insurance Information Institute inflation adjustments.
$11.5 $12.8 $14.0$17.5
$22.6 $23.1
$45.8
$8.6$8.2$6.7$6.3$5.3$4.3
$0$5
$10$15$20$25
$30$35$40
$45$50
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo (1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Ike (2008)
SpringTornadoes*
(2011)
Northridge(1994)
Andrew(1992)
9/11 Attack(2001)
Katrina(2005)
Taken as a single event, the Spring 2011 tornado season
would likely become 5th costliest event in US insurance history
41
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2011:H1*
*Insurance Information Institute estimates for 2010 and 2011:H1Notes: 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; Insurance Information Institute.
0.4
1.2
0.4 0.
8 1.3
0.3 0.4 0.
71.
51.
00.
40.
4 0.7
1.8
1.1
0.6
1.4 2.
01.
3 2.0
0.5
0.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6 3.
35.
0
3.6
0.9
0.1
1.1
1.1
0.8
0
1
2
3
4
5
6
7
8
9
10
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
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: 4.15*
Combined Ratio Points
Nu
mb
er
Geophysical (earthquake, tsunami, volcanic activity)
Climatological (temperature extremes, drought, wildfire)
Meteorological (storm)
Hydrological (flood, mass movement)
Natural Disasters in the United States, 1980 – 2011*Number of Events (Annual Totals 1980 – 2010 and First Half 2011)
*Through June 30.Source: MR NatCatSERVICE 42
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
There were 98 natural disaster events in the first
half of 2011
37
8
51
2
U.S. Thunderstorm Loss Trends, 1980 – 2011*
43
Average thunderstorm losses are up more
than 8 fold since the early 1980s
Hurricanes get all the headlines, but thunderstorms are consistent
producers of large scale loss. 2008-2011 are the most expensive
years on record.
Thunderstorm losses in the first half of 2011 totaled $16.4 billion, a new
annual record through just 6 months
*Through June 30, 2011.Source: Property Claims Service, MR NatCatSERVICE
Source: Property Claims Service, MR NatCatSERVICE
U.S. Winter Storm Loss Trends, 1980 – 2010 (Annual Totals) vs. First Half 2011
44
Insured winter storm losses in 2011 totaled $1.4 billion and are up 50% since 1980.
Source: National Forest Service, MR NatCatSERVICE
U.S. Acreage Burned by Wildfires, 1980 – 2010 (Annual Totals) vs. First Half 2011
45
2011 could be a severe year for wildfire damage. Acres
burned through June 30 already exceed all of 2010.
46
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990–2011:H11
0.2%
2.4%
3.4%4.9%
6.6%
8.0%
31.8%
42.7%
1.Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2.Excludes snow.3.Does not include NFIP flood losses4.Includes wildland fires5.Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $160.5
Fires (4), $9.0
Tornadoes (2), $119.5
Winter Storms, $30.0
Terrorism, $24.9
Geological Events, $18.5
Wind/Hail/Flood (3), $12.7
Other (5), $0.6
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
Number of Federal Disaster Declarations, 1953-2011*
13 1
7 18
16
16
7 71
21
22
22
02
52
51
11
11
92
91
71
74
84
64
63
83
02
2 25
42
23
15
24
21
34
27 28
23
11
31
38
45
32 3
63
27
54
46
55
04
54
5 49
56
69
48 5
26
37
55
98
14
8
43
0
10
20
30
40
50
60
70
80
90
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
*
*Through July 1, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
The Number of Federal Disaster Declarations Is Rising
The number of federal disaster declarations is on track to set a new record in 2011, with 48 declarations
through July 1.
There have been 1,998 federal disaster
declarations since 1953. The average
number of declarations per year is 34 from
1953-2010, though that few haven’t been
recorded since 1995.
48
Federal Disasters Declarations by State, 1953 – June 30, 2011: Highest 25 States
85
78
70
63 63
56 55 54 52 52 51 50 49 47 46 46 45 45 44 44 44 42 42
39 39
0
10
20
30
40
50
60
70
80
90
100
TX CA OK FL NY LA AL KY AR MO IL MS TN MN IA WV KS NE OH PA WA ND VA IN NC
Dis
aste
r Dec
lara
tions
Source: FEMA.
Over the past nearly half
century, Texas has led the US in Federal Disaster
Declarations
49
Federal Disasters Declarations by State, 1953 – June 30, 2011: Lowest 25 States
39 38
36 35 35
30 29
27
25 25 25 25 24 23 23
20 20
17 16 15 15
13
9 8 8 8
0
10
20
30
40
50
SD ME GA AK WI VT NJ OR HI MA MI NH AZ ID NM MD MT NV CO CT SC DE DC RI UT WY
Dis
aste
r Dec
lara
tions
Source: FEMA.
The BIG Question:When Will the Market Turn?
50
Insurance Cycle Dynamics
51
Criteria Necessary for a “Market Turn”:All Four Criteria Must Be Met
Criteria Status Comments
Sustained Period of
Large Underwriting
LossesNot Yet
Happened
•Apart from Q2:2011, overall p/c underwriting losses remain modest•Combined ratios (ex-Q2 CATs) still in low 100s (vs. 110+ at onset of last hard market)•Prior-year reserve releases continue reduce u/w losses, boost ROEs
Material Decline in Surplus/ Capacity
Surplus is At/Near
Record High
•Surplus hit a record $565B as of 3/31/11•Analysts est. excess surplus of $75-$100B•Some excess capacity may still remain in reinsurance markets•Weak growth in demand for insurance is insufficient to absorb much excess capacity
Tight Reinsurance
MarketSomewhat in
Place•Higher prices in Asia/Pacific•Modestly improved pricing for US risks
Renewed Underwriting
& Pricing Discipline
Not Broadly Evident
•Commercial lines pricing trends remain negative•Competition remains intense as many seek to maintain market share•Terms & conditions—no broad tightening
Sources: Barclays Capital; Insurance Information Institute.
52
Do the Property Catastrophe Events of 2011 Impact Casualty Markets? Unlikely that Record 2011 Property CAT Loss Will Impact Casualty Markets in Any
Material Way
Global P/C & Reinsurance Industries Entered 2011 w/ Record Capital
Events so far in 2011 are earnings events, rather than capital events
Natural Catastrophe and Casualty Risks Are Largely Uncorrelated
Risks are different
Geographically, mostly distinct primary carriers: Japan-Australia-NZ-US
Casualty markets generally don’t influence property markets
Property and Casualty Risks Are Largely Siloed
Record Property Losses in 2004/2005 Did Not Impact Casualty Mkts.
Casualty Markets Have Their Own Issues
Tort environment
Inflation
Public policy
1. UNDERWRITING
53
Have Underwriting Losses Been Large Enough for Long Enough to Turn the Market?
54
P/C Insurance Industry Combined Ratio, 2001–2011:H1*
* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=109.1 Sources: A.M. Best, ISO.; III Estimated for 2011:H1 (Q1 actual ex-M&FG was 102.2).
95.7
99.3100.8
107.5
101.0
92.6
100.898.4
100.1
107.5
115.8
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
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
Cyclical Deterioration
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
Underwriting Gain (Loss)1975–2011*
* Includes mortgage and financial guaranty insurers in all years. 2011 figure is annualized based on actual Q1 underwriting losses of $4.463 billion.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 1011*
The industry recorded a $10.4B underwriting loss in 2010 compared
to $3.0B in 2009
Cumulative underwriting deficit from 1975 through
2009 is $445B
($ Billions)Underwriting losses in 2011 will be much larger:
$17.9B based on
annualized Q1 data
57
2.3
-2.1
-8.3
-2.6-6.6
-9.9 -9.8
-4.1
1
11.7
23.2
13.79.9
7.3
-6.7-9.5
-14.6-16 -15
-5
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$309
2
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
E
11
E
Pri
or
Yr.
Re
se
rve
Re
lea
se
($
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, 1992–2011E
Reserve Releases Are Remained Strong in 2010 But Should Begin to Taper Off in 2011
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: Barclay’s Capital; A.M. Best.
Prior year reserve releases totaled $8.8
billion in the first half of 2010, up from
$7.1 billion in the first half of 2009
2. SURPLUS/CAPITAL/CAPACITY
58
Have Large Global Losses Reduced Capacity in the Industry, Setting
the Stage for a Market Turn?
60
Policyholder Surplus, 2006:Q4–2011:Q1
Sources: ISO, A.M .Best.
($ 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$556.9
$564.7
$505.0$515.6$517.9
$420
$440
$460
$480
$500
$520
$540
$560
$580
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
2007:Q3Previous Surplus Peak
Quarterly Surplus Changes Since 2007:Q3 Peak
09:Q1: -$84.7B (-16.2%) 09:Q2: -$58.8B (-11.2%)09:Q3: -$31.0B (-5.9%)09:Q4: -$10.3B (-2.0%)
10:Q1: +$18.9B (+3.6%)10:Q2: +$8.7B (+1.7%)10:Q3: +$23.0B (+4.4%)10:Q4: +$35.1B (+6.7%)11:Q4: +$42.9B (+8.2%)
Surplus set a new record in 2011:Q1*
*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 $0.77 of
NPW—the strongest claims-paying status in its history.
Implied Excess (Deficit) Capital Assuming Premium/Surplus Ratio = 0.9:1
Excess/(Deficit) Capital (Policyholder Surplus)
($10.6)
($65.4)
($124.6)
($103.0)
($76.5)
($10.8)
$22.9
($32.7)
$81.9
$41.7
($49.2)
8.9%12.3%
-12.0%
6.2%
14.4%
21.6%
-8.8%
-5.1%
13.4%
8.2%
-1.5%
-150
-100
-50
0
50
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Capital Excess (Deficit) Annual Change in CapitalRecord Policyholder Surplus (Capital) Has Resulted Significant Excess Capital in the
P/C Insurance Sector As of Year End 2010. Deteriorating Underwriting Losses, Higher CAT Activity, More Modest Market Returns Will Likely Shrink Excess Capital in 2011.
Annual Change in Policyholder Surplus
2000-2002: Tech bubble bursts,
9/11, high underwriting losses erode capital base
2005: Katrina, Rita, Wilma produce record CAT losses
2006/07: Low CAT losses, strong underwriting results since 1940s
increase capital
2008: Financial crisis causes sharp drop in
capital
2009-10: End of financial crisis,
rising asset prices. modest
u/w losses push capital to record levels
Note: The assumption of a 0.9:1 P/S ratio is derived from a Feb. 2011 announcement by Advisen, Ltd., that the US P/C insurance industry has $74 billion in excess capital. The implied P/S ratio (calculated by III) is 0.88:1, which was rounded to 0.9:1.Source: Insurance Information Institute calculations from A.M. Best and ISO data. * Net Premiums Written
62
M&A Activity Globally Among P/C Insurers Remains Subdued: Little Capacity Leaving
$5
1.8
$5
.5
$2
4.4
$4
5.1
$1
3.8
$2
.3
$5
.8
$1
.2
$1
5.3
$9
.8$
0.8
$2
.4
$6
.9
$7
.6$
9.4
$1
3.9
$5
0.6
$3
0.3
$1
5.0
$1
6.5
$0 $35 $70 $105 $140
2007
2008
2009
2010
Property-Casualty Life-Annuity Health/Managed Care Distribution Services
Sources: Conning Research; Insurance Information Institute.
$ Billions
67
3. REINSURANCE MARKET CONDITIONS
Has Record Global Catastrophes Activity
Erased Enough Capacity to Turn Markets?
US Reinsurance and Bermuda Market Combined Ratio and ROEs, 2006-2010
Combined Ratio / ROE
Source: A.M. Best; Insurance Information Institute.
87.0 86.7
93.6
85.8
92.7
16.0%15.6%
19.4%
11.9%
-0.7%80
85
90
95
100
2006 2007 2008 2009 2010-1%
4%
9%
14%
19%
Combined Ratio ROE*
The 2011 combined ratio will spike due to very high first half catastrophe losses
Reinsurer results were good in 4 of the past 5 years. 2011 will likely
be the worst year since 2005.
69
($US Billions)
$70.9$79.9
$67.6
$88.4$96.1
$52.6$50.3$51.6$51.6$51.7
$0
$20
$40
$60
$80
$100
$120
2006 2007 2008 2009 2010
NPW Shareholder Equity
The rapid growth of surplus relative to premiums written suggests that reinsurance markets were overcapitalized
entering 2011. Some, but not all, of that excess capital has been removed by the high US CAT losses in 2011
US reinsurer and Bermuda market participants entered 2010 with record capital—$96.1 billion—up 35.5% from 2006. Net Premiums Written over
the same period were up just 1.7%.
US Reinsurance and Bermuda Market NPW and Shareholder Equity, 2006-2010
Source: A.M. Best; Insurance Information Institute.
Source: Holborn; RAA.
* 2011 events are as of March 31 and are preliminary and may change as loss estimates are refined further.
Significant Market Losses, 1985-2011*
Source: Holborn, RAA. *2011 events as of March 31 are preliminary and may change as loss estimates are refined further.
Significant Market Losses by Event, 1985-2011*
Reinsurers are bearing a very high
share of recent catastrophe losses
Losses are putting pressure on property cat reinsurance prices in affected
regions. The impact for US property catastrophe pricing is uncertain.
Percent of Authorized Capacity Used at Renewal
Source: Guy Carpenter & Co., GC Briefing, July 2011. 72
Nearly 95% of authorized
capacity was necessary to fill out April – June
2011 renewals, up from 89.2% a year earlier. This does
not imply a shortage of
capacity, but rather a market in
transition with more leverage tipping toward
reinsurers.
US Property Catastrophe Rate on Line, 1989 – 2011* (excludes FL)
73
Reinsurance prices (ex-FL) were up 10%-15% in June/July 2011 but were
down for Jan. 1 renewals and down 3% on net through July 1
*Through July 1.Source: Guy Carpenter & Co., GC Briefing, July 2011.
National Carrier Risk Adjusted Reinsurance Pricing (excl. FL-only renewals)
74*Through July 1.Source: Guy Carpenter & Co., GC Briefing, July 2011.
2011 quotes for national carriers
are running ahead of 2010
Regional Carrier Risk Adjusted Reinsurance Pricing (excl. FL-only renewals)
75*Through July 1.Source: Guy Carpenter & Co., GC Briefing, July 2011.
2011 quotes for regional carriers
are running ahead of 2010
June and July 2011 Reinsurer Quoting Behavior (excludes FL)
76Source: Guy Carpenter & Co., GC Briefing, July 2011.
A+ rated reinsurers tended to quote higher, on average, than lesser
rated companies
2011 Florida Renewal Reinsurer Quoting Behavior
77Source: Guy Carpenter & Co., June 2, 2011.
There was considerably more variability in Florida renewals in 2011, ranging
from -15% to +16%
2010 Florida Renewal Reinsurer Quoting Behavior
78Source: Guy Carpenter & Co., June 2, 2011.
There was considerably less variability in Florida
renewals in 2010 vs. 2011, ranging from -3% to +3%
Source: Holborn; RAA.
* 2011 events are as of March 31 and are preliminary and may change as loss estimates are refined further.
Significant Market Losses, 1985-2011*
4. RENEWED PRICING DISCIPLINE
84
Is There Evidence of a Broad and Sustained Shift in Pricing?
85
-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*
Soft Market Persisted in 2010 but Growth Returned: More in 2011?
(Percent)1975-78 1984-87 2000-03
*2011 figure is an estimate based on Q1 data. Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
NWP was up 0.9% in 2010
2011:Q1 growth was +3.5%; First Q1 growth since 2007
86
P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter
Sources: ISO, Insurance Information Institute.
Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)
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%
10.3
%10
.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.
3%3.
5%
-10%
-5%
0%
5%
10%
15%
20%
2002
:Q1
2002
:Q2
2002
:Q3
2002
:Q4
2003
:Q1
2003
:Q2
2003
:Q3
2003
:Q4
2004
:Q1
2004
:Q2
2004
:Q3
2004
:Q4
2005
:Q1
2005
:Q2
2005
:Q3
2005
:Q4
2006
:Q1
2006
:Q2
2006
:Q3
2006
:Q4
2007
:Q1
2007
:Q2
2007
:Q3
2007
:Q4
2008
:Q1
2008
:Q2
2008
:Q3
2008
:Q4
2009
:Q1
2009
:Q2
2009
:Q3
2009
:Q4
2010
:Q1
2010
:Q2
2010
:Q3
2010
:Q4
2011
:Q1
The long-awaited uptick. In 2011:Q1 occurring in
personal lines predominating cos.
(+3.8%) and commercial lines predominating cos.
(+3.5%)
87
Average Commercial Rate Change,All Lines, (1Q:2004–1Q:2011)
-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% -1
1.0
%
-6.4
% -5.1
%
-4.9
%
-5.8
%
-5.6
%
-5.3
%
-6.4
% -5.2
%
-5.4
%
-2.9
%
-0.1
%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
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
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Magnitude of Price Declines Shrank
During Crisis, Reflecting Shrinking
Capital, Reduced Investment Gains,
Deteriorating Underwriting
Performance, Higher Cat Losses and
Costlier Reinsurance
(Percent)
Q1 2011 decreases were the smallest
since 2006, perhaps signaling a market
firming
88
Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2011:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Percentage Change (%)
Market has Been Soft for 7 years and Remains Soft as Capital Hits Record Levels;
But Is Softness Moderating?
Peak = 2001:Q4 +28.5%
Pricing Turned Negative in Early
2004 and Has Been Negative
Ever SinceKRW Effect: No Lasting Impact
Trough = 2007:Q3 -13.6%
89
Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2011:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
1999:Q4 = 100
Pricing today is where is was in
Q3:2000 (pre-9/11)
Downward pricing pressure is most pronounced for
larger risks
90
The Unfortunate Nexus: Opportunity, Risk & Instability
Most of the Global Economy’s Future Gains Will be Fraught with Much
Greater Risk and Uncertainty than in the Past—Reinsurance Will Insurers
Manage These Risks
(4.0)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Advanced economies Emerging and developing economies World
Source: International Monetary Fund, World Economic Outlook Update, January 2011; Ins. Info. Institute.
Emerging economies (led by China) are expected to grow by 6.5% in 2011 and
2012. Role of FDI in exposure growth key.
GDP Growth: Advanced & Emerging Economies vs. World, 1970-2012F
Advanced economies are expected to grow at a relative modest 2.5% in
both 2011 and 2012.
World output is forecast to grow by 4.4% in 2011 and 4.5% in 2011,
following growth of 3.0% in 2010 and a 0.6% drop in 2009.
GDP Growth (%)
92
Relative Shares of Global Output,Advanced vs. Developing Economies, 2009
Developing Economies
47.1%
Advanced Economies
52.9%
Source: EDC Economics, “The Moment of Truth: Global Export Forecast Fall 2010, at http://www.edc.ca/english/docs/gef_e.pdf
The gap is closing quickly. China became the world’s second largest economy in 2010 and before long
the developing world’s share of GDP will exceed that of advanced
economies.
95
Distribution of Nonlife Premium: Industrialized vs. Emerging Markets, 2009
Sources: NAIC; Insurance Information Institute research.
Although premium growth throughout the industrialized world was negative in 2009, its share of global nonlife premiums remained very high at nearly 86%--accounting for nearly $1.5 trillion in premiums.
The financial crisis and sluggish recovery in the major insurance markets will accelerate the expansion of the emerging market sector
Premium Growth Facts
14.3%85.7%
Industrialized Economies
$1, 485.8
Emerging Markets$248.8
2009, $Billions
Developing markets now account for 47% of global
GDP but just 14% of nonlife premiums
96
Nonlife Real Premium Growth in 2009
Source: Swiss Re, sigma, No. 2/2010.
Latin and South American markets performed
relatively well during the global financial crisis in
terms of growth
There was also growth in East and South Asia
and well as Australia and New
Zealand
97
Political Risk in 2010: Greatest Business Opportunities Are Often in Risky Nations
Source: Maplecroft
The fastest growing markets are generally
also among the politically riskiest
Heightened risk has insurance implications
98
Other Cycle-Influencing Factors
Could Other Factors Act as a Catalyst to Turn the
Market?
INVESTMENTS: THE NEW REALITY
99
Investment Performance is a Key Driver of Profitability
Does It Influence Underwriting or Cyclicality?
Property/Casualty Insurance Industry Investment Gain: 1994–2011:Q11
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$52.9
$13.5
$58.0
$51.9$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11:Q1
Investment Gains Recovered Significantly in 2010 Due to Realized Investment Gains; The Financial Crisis Caused Investment Gains to
Fall by 50% in 2008
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.
($ Billions)
Investment gains in 2010 were the best
since 2007
101
Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2011*
0.02% 0.04% 0.10% 0.18%0.41%
2.29%
3.00%
4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%
1.58%
0.71%
4.23%3.91%
0%
1%
2%
3%
4%
5%
6%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
June 2011 Yield Curve*Pre-Crisis (July 2007)
Treasury yield curve remains near its most depressed level
in at least 45 years. Investment income is falling as a result. Fed is unlikely to hike rates until well into 2012.
The End of the Fed’s Quantitative Easing Is Unlikely to Push Interest Rates Up Substantially Given Ongoing Economic Weakness
*Average of daily rates.Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
QE2 Target
102
-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%
Perso
nal L
ines
Pvt Pass
Aut
o
Pers P
rop
Comm
ercia
l
Comm
l Auto
Credit
Comm
Pro
p
Comm
Cas
Fidelity
/Sure
ty
Warra
nty
Surplu
s Line
s
Med
Mal
WC
Reinsu
rance
**
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance onlySource: A.M. Best; Insurance Information Institute.
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
Shifting Legal Liability & Tort Environment
103
Is the Tort PendulumSwinging Against Insurers?
104
Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical
$0
$50
$100
$150
$200
$250
$300
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10E 12E
To
rt S
ys
tem
Co
sts
1.50%
1.75%
2.00%
2.25%
2.50%
To
rt Co
sts
as
% o
f GD
P
Tort Sytem Costs Tort Costs as % of GDP
($ Billions)
Sources: Towers Watson, 2010 Update on US Tort Cost Trends, Appendix 1A
Tort Costs Have Remained High but Relatively Stable Since the mid-2000s. As a Share of GDP they Should Fall as
the Economy Expands
Business Leaders Ranking of Liability Systems in 2010
Best States
1. Delaware
2. North Dakota
3. Nebraska
4. Indiana
5. Iowa
6. Virginia
7. Utah
8. Colorado
9. Massachusetts
10. South Dakota
Worst States
41. New Mexico
42. Florida
43. Montana
44. Arkansas
45. Illinois
46. California
47. Alabama
48. Mississippi
49. Louisiana
50. West Virginia
Source: US Chamber of Commerce 2010 State Liability Systems Ranking Study; Insurance Info. Institute.
New in 2010
North Dakota Massachusetts South Dakota
Drop-offs
Maine Vermont Kansas
Newly Notorious
New Mexico Montana Arkansas
Rising Above
Texas South Carolina Hawaii
Midwest/West has mix of good and bad states.
106
The Nation’s Judicial Hellholes: 2010
Source: American Tort Reform Association; Insurance Information Institute
South Florida
West VirginiaIllinoisCook County
NevadaClark County
Watch List
Madison County, IL Atlantic County, NJ St. Landry Parish,
LA District of Columbia NYC and Albany,
NY St. Clair County, ILDishonorable
Mention
MI Supreme Court City of St. Louis CO Supreme Court
CaliforniaLos Angeles
and Humboldt Counties
Philadelphia
Inflation
109
Is it a Threat to Claim Cost Severities
110
Annual Inflation Rates, (CPI-U, %),1990–2014F
2.8 2.6
1.51.9
3.3 3.4
1.3
2.5 2.3
3.0
3.8
2.8
3.8
-0.4
1.6
3.0
2.2 2.1 2.2
2.92.4
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 11F 12F 13F 14F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, 3/11 and 6/11 (forecasts).
The slack in the U.S. economy suggests that inflation should not heat upbefore 2012, but other forces (commodity prices, inflation in countries from which we import, etc.), 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
Higher energy, commodity and food prices are pushing up inflation in 2011, but not longer turn
inflationary expectations.
Medical Cost Inflation Has Outpaced Overall Inflation Over 50 Years
719.8
1589.8
0
300
600
900
1200
1500
1800
61 66 71 76 81 86 91 96 01 06 11*
Inde
x V
alue
(196
1=10
0)
All ItemsMedical Care
*Based on change from Feb. 2011 to Feb. 2010 (latest available) Source: Department of Labor (Bureau of Labor Statistics)
A claim that cost $1,000 in 1961 would cost nearly $16,000 based on
medical cost inflation trends over the past 50 years.
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