Trends, Challenges and Opportunities in P/C InsuranceFocus on New Jersey Markets

Agency Network ExchangeIselin, NJ

April 28, 2015Robert P. Hartwig, Ph.D., CPCU, President & Economist

Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

2

Insurance Industry:Financial Update & Outlook

2014 Was a Reasonably Good Year2015: A Repeat of 2014?

2

P/C Industry Net Income After Taxes1991–2014E 2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013 ROAS1 = 10.3% 2014 ROAS1 = 7.6%

• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.7% ROAS through 2014:Q2, 9.8% ROAS in 2013, 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

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $3

6,8

19

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

5,2

04

$1

9,4

56 $

33

,52

2

$6

3,7

84

$5

0,2

03

$3

8,5

01

$2

0,5

59

$4

4,1

55

$6

5,7

77

-$6,970

$2

8,6

72

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

14E

Net income rose strongly (+81.9%) in 2013 vs. 2012 on lower cats, capital gains

$ Millions

-5%

0%

5%

10%

15%

20%

25%

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

F1

6F

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2016F

*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning

1977:19.0%1987:17.3%

1997:11.6% 2006:12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%

10 Years

10 Years

9 Years

History suggests next ROE peak will be in 2016-2017, but that seems unlikely

ROE

1975: 2.4%

2013 10.4%

2014E 7.6%

2015F=6.5%

2016F=6.3%

6

ROE: Property/Casualty Insurance by Major Event, 1987–2014E

* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 2014 figure is through Q3:2014. Sources: ISO, Fortune; Insurance Information Institute.

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*

P/C Profitability Is Both by Cyclicality and Ordinary Volatility

Hugo

Andrew

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

Record Tornado Losses

Sandy

Low CATs

Modestly higher CATs

10

P/C Insurance Industry Combined Ratio, 2001–2014:Q3*

* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014:9M = 97.7. Sources: A.M. Best, ISO.

95.7

99.3100.8

106.3

102.4

96.797.9

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 2012 2013 2014

As Recently as 2001, Insurers Paid Out

Nearly $1.16 for Every $1 in Earned

PremiumsRelatively 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

Sandy Impacts

Lower CAT

Losses

Best Combined

Ratio Since 1949 (87.6)

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014:9M combined ratio including M&FG insurers is 97.7; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.

97.5

100.6 100.1 100.8

92.7

101.299.5

101.0

96.797.9

102.4

106.5

95.7

14.3%

15.9%

12.7%

10.9%

7.4% 7.9%

4.7%6.2%

7.4%

9.6%8.8%

4.3%

9.8%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014:Q30%

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 generates an ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

Lower CATs helped ROEs

in 2013

12

Return on Net Worth (RNW) All Lines:2004-2013 Average

25

.6

18

.4

13

.4

13

.2

9.2

8.9

7.9

7.8

7.1

7.1

6.6

4.9

-1.0

-5

0

5

10

15

20

25

30

Fire

Inla

nd Mar

ine

All O

ther

Med

ical

Pro

f Lia

bility

Comm

Auto

Tota

l

Comm

erci

al MP

All Lin

es

Oth

er L

iabili

ty

Work

ers

Comp

PP Auto

Tota

l

Homeow

ners

MP

Farmow

ners

MP

Allied L

ines

Source: NAIC; Insurance Information Institute.

Commercial lines have tended to be more profitable than

personal lines over the past decade

13

RNW All Lines by State, 2004-2013 Average:Highest 25 States

20

.5

18

.4

14

.6

14

.3

13

.4

13

.3

12

.3

12

.1

12

.0

12

.0

11

.7

11

.4

11

.1

11

.1

10

.9

10

.8

10

.7

10

.7

10

.5

10

.5

10

.3

9.9

9.8

9.8

9.6

9.5

02468

1012141618202224

HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD

The most profitable states over the past decade are

widely distributed geographically, though none

are in the Gulf region

Source: NAIC; Insurance Information Institute.

Profitability Benchmark: All P/C

US: 7.9%

14

9.2

8.6

8.4

8.3

8.2

8.2

8.1

8.0

7.9

7.7

7.7

7.5

7.4

6.8

6.6

6.4

6.1

5.7

5.3

5.2

5.0

4.3

2.5

1.9

-6.9

-9.3

-14-12-10

-8-6-4-202468

10

NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA

RNW All Lines by State, 2004-2013 Average: Lowest 25 States

Source: NAIC; Insurance Information Institute.

Some of the least profitable states over the past decade were hit hard

by catastrophes

16

Profitability and Growth in New Jersey P/C Insurance

Markets

Analysis by Line and Nearby State Comparisons

17

RNW All Lines: NJ vs. U.S., 2004-2013

Source: NAIC, Insurance Information Institute

-15%

-10%

-5%

0%

5%

10%

15%

20%

04 05 06 07 08 09 10 11 12 13

US All Lines NJ All Lines

(Percent)

Average 2004-2013US: 7.9%NJ: 5.7%

Superstorm Sandy caused profitability

to plummet to -9.0% in 2012

18

RNW PP Auto: NJ vs. U.S., 2004-2013

Source: NAIC, Insurance Information Institute

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

04 05 06 07 08 09 10 11 12 13

US PP Auto NJ PP Auto

Average 2004-2013US: 7.1%NJ: 6.1%

19

RNW Comm. Auto: NJ vs. U.S.,2004-2013

Source: NAIC, Insurance Information Institute

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

04 05 06 07 08 09 10 11 12 13

US Comm Auto NJ Comm Auto

(Percent)

Average 2004-2013US: 9.2%NJ: 5.7%

Superstorm Sandy damaged many commercial vehicles in 2012

20

RNW Comm. Multi-Peril: NJ vs. U.S.,2004-2013

Sources: NAIC, Insurance Information Institute

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

04 05 06 07 08 09 10 11 12 13

US Comm M-P NJ Comm M-P

(Percent)

Average 2004-2013US: 8.9%NJ: 6.3%

Superstorm Sandy caused profitability to plunge to -21.2%

in 2012

21

RNW Homeowners: NJ vs. U.S.,2004-2013

Source: NAIC, Insurance Information Institute

-40%

-30%

-20%

-10%

0%

10%

20%

30%

04 05 06 07 08 09 10 11 12 13

US HO NJ HO

(Percent)

Average 2004-2013US: 6.6%NJ: 7.1%

Superstorm Sandy caused HO

profitability to plunge to -31% in

2012

22

RNW Workers Comp: NJ vs. U.S.,2004-2013

Source: NAIC, Insurance Information Institute

0%

2%

4%

6%

8%

10%

12%

04 05 06 07 08 09 10 11 12 13

US WComp NJ Wcomp

(Percent)

Average 2004-2013US: 7.1%NJ: 4.1%

All Lines: 10-Year Average RNW NJ & Nearby States

6.7%

4.9%

4.8%

4.1%

7.1%

5.0%

0% 2% 4% 6% 8%

New Jersey

Connecticut

New York

Maryland

Pennsylvania

U.S.

2004-2013New Jersey All Lines profitability is below the US and regional

average

Source: NAIC, Insurance Information Institute

PP Auto: 10-Year Average RNW NJ & Nearby States

7.1%

8.3%

8.6%

9.2%

6.1%

7.7%

0% 2% 4% 6% 8% 10%

Connecticut

Maryland

New York

Pennsylvania

U.S.

New Jersey

2004-2013

New Jersey PP Auto profitability is below the US and regional

average

Source: NAIC, Insurance Information Institute

25

Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2012 (1)

RankMost

expensive statesAverage

expenditure RankLeast

expensive statesAverage

expenditure

1 New Jersey $1,219.93 1 Idaho $534.56

2 D.C. 1,154.91 2 South Dakota 556.51

3 New York 1,152.45 3 Iowa 561.26

4 Florida 1,127.93 4 North Dakota 576.08

5 Louisiana 1,112.53 5 Maine 582.43

6 Delaware 1,065.37 6 Wisconsin 598.84

7 Michigan 1,048.87 7 North Carolina 611.48

8 Rhode Island 1,034.50 8 Nebraska 616.78

9 Connecticut 986.73 9 Wyoming 618.81

10 Massachusetts 976.65 10 Kansas 632.07

(1) Based on average automobile insurance expenditures.

Source: © 2014 National Association of Insurance Commissioners.

New Jersey ranked 1st as the most expensive state in 2012, with an average expenditure for auto insurance of $1,219.

Comm. Auto: 10-Year Average RNW NJ & Nearby States

7.6%

9.2%

12.1%

12.9%

5.7%

9.1%

0% 5% 10% 15%

Maryland

Connecticut

U.S.

Pennsylvania

New York

New Jersey

Source: NAIC, Insurance Information Institute

2004-2013

New Jersey Commercial Auto

profitability is below the US and regional

average

Homeowners: 10-Year Average RNW NJ & Nearby States

7.1%

14.6%

14.7%

15.9%

6.6%

11.0%

0% 5% 10% 15% 20%

New York

Maryland

Connecticut

Pennsylvania

New Jersey

U.S.

Source: NAIC, Insurance Information Institute

2004-2013

New Jersey Homeowners profitability is above the

US and below the regional average

Workers Comp: 10-Year Average RNW NJ & Nearby States

6.7%

4.9%

4.8%

4.1%

7.1%

5.0%

0% 2% 4% 6% 8%

New Jersey

Connecticut

New York

Maryland

Pennsylvania

U.S.

Source: NAIC, Insurance Information Institute

2004-2013New Jersey Workers Comp profitability is

below the US average and regional

average

31

All Lines DWP Growth: NJ vs. U.S., 2004-2013

Source: SNL Financial.

7.5%

2.3% 3.

4%

0.5%

-2.1

%

-3.3

%

0.0%

3.7% 4.

6% 5.5%6.

4%

1.6%

0.7%

-1.4

%

-2.0

%

-1.9

% -0.2

%

3.1%

5.5% 6.

4%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

04 05 06 07 08 09 10 11 12 13

US DWP: All Lines NJ DWP All Lines

(Percent)

Average 2004-2013US: 2.2%NJ: 1.8%

32

Comm. Lines DWP Growth: NJ vs. U.S., 2004-2013

Source: SNL Financial.

9.7

%

3.2

%

4.9

%

-0.3

%

-3.8

%

-7.3

% -2.5

%

5.1

%

5.1

%

6.1

%8.8

%

3.4

%

2.2

%

-2.8

%

-3.7

%

-5.3

%

-4.9

%

2.9

% 6.6

%

8.2

%

-20%

-10%

0%

10%

20%

30%

04 05 06 07 08 09 10 11 12 13

US DWP: Comm. Lines NJ DWP Comm. Lines

(Percent)

Average 2004-2013US: 2.0%NJ: 1.5%

33

Personal Lines DWP Growth: NJ vs. U.S., 2004-2013

Source: SNL Financial.

5.2

%

2.0

%

2.6

%

1.2

%

-0.1

%

1.1

% 2.5

%

2.2

% 4.2

%

5.1

%

4.3

%

-0.6

%

-1.1

%

0.5

%

-0.1

%

2.5

% 4.8

%

3.2

%

4.2

%

4.5

%

-10%

-5%

0%

5%

10%

15%

20%

04 05 06 07 08 09 10 11 12 13

US DWP: Personal Lines NJ DWP: Personal Lines

(Percent)

Average 2004-2013US: 2.6%NJ: 2.2%

34

Private Passenger Auto DWP Growth: NJ vs. U.S., 2004-2013

Source: SNL Financial.

3.7%

0.1% 0.

8%

0.0%

-0.4

%

-0.1

% 1.5%

3.5% 4.

6%

2.7%

-2.6

%

-3.1

% -1.2

%

-1.4

%

1.9%

5.6%

2.8% 3.4%

3.6%

1.5%

-10%

-5%

0%

5%

10%

15%

04 05 06 07 08 09 10 11 12 13

US DWP: PP Auto NJ DWP: PP Auto

(Percent)

Average 2004-2013US: 1.5%NJ: 1.2%

35

Homeowner’s MP DWP Growth: NJ vs. U.S., 2004-2013

Source: SNL Financial.

10

.4%

7.4

%

7.4

%

4.2

%

0.5

%

3.8

%

4.9

%

3.8

% 5.7

%

6.2

%

11

.4%

7.8

%

6.6

%

6.3

%

4.1

%

4.3

%

2.6

% 4.3

% 6.6

%

7.2

%

0%

5%

10%

15%

20%

25%

04 05 06 07 08 09 10 11 12 13

US DWP: HO Lines NJ DWP: HO Lines

(Percent)

Average 2004-2013US: 5.4%NJ: 6.1%

INVESTMENTS: THE NEW REALITY

36

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

36

Property/Casualty Insurance Industry Investment Income: 2000–20141

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$48.0 $47.4$45.7

$39.6

$49.5

$52.3

$30

$40

$50

$60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*

Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.

1 Investment gains consist primarily of interest and stock dividends. *2014 figure is estimated based on annualized data through Q3.Sources: ISO; Insurance Information Institute.

($ Billions) Investment earnings are still below their 2007 pre-crisis peak

Book Yield on Property/Casualty Insurance Invested Assets, 2007–2016F

4.42

4.19

3.95

3.71

3.283.20

3.13

3.74

3.523.38

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

07 08 09 10 11 12 13 14E 15F 16F

The yield on invested assets continues to decline as returns on maturing bonds generally still exceed new money yields. The end of the Fed’s QE program in Oct. 2014 should allow some increase

in longer maturities while short term interest rate increases are unlikely until mid-to-late 2015

Sources: Conning.

(Percent)

Book yield in 2014 is down 114 BP from pre-crisis levels

CAPITAL/CAPACITY

48

Capital Accumulation Has Multiple Impacts

48

49

Policyholder Surplus, 2006:Q4–2014:Q4E

Sources: ISO, A.M .Best.

($ Billions)

$487

.1

$496

.6

$512

.8

$521

.8

$478

.5

$455

.6

$437

.1 $463

.0 $490

.8 $511

.5 $540

.7

$530

.5

$544

.8

$559

.2

$559

.1

$538

.6

$550

.3

$567

.8

$583

.5

$586

.9 $607

.7

$614

.0

$624

.4 $653

.3

$671

.6

$673

.9

$675

.0

$662

.0

$570

.7

$566

.5

$505

.0

$515

.6

$517

.9

$400

$450

$500

$550

$600

$650

$700

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

13:Q

4

14:Q

1

14:Q

2

14:Q

3

14:Q

4

2007:Q3Pre-Crisis Peak

Surplus as of 12/31/14 stood at a record high $675B (est.)

2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .

The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.

Drop due to near-record 2011 CAT losses

The P/C insurance industry entered 2015in very strong financial condition.

64

Performance by Segment

64

Private Passenger Auto Combined Ratio: 1993–2016F

10

1.7

10

1.3

10

1.3

10

1.0

10

9.5

10

7.9

10

4.2

98

.4

94

.3

95

.1

95

.5 98

.3 10

0.2

10

1.3

10

1.0

10

2.0

10

2.1

10

1.6

10

2.2

10

1.0

10

0.8

99

.5 10

1.1

10

3.5

80

85

90

95

100

105

110

115

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E15F16F

Private Passenger Auto Accounts for 37% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry

65Sources: A.M. Best (1990-2013); Insurance Information Institute (2014F – 2015F).

Homeowners Insurance Combined Ratio: 1990–2015F

11

3.0

11

7.7

15

8.4

11

3.6

10

1.0 10

9.4

10

8.2

11

1.4 1

21

.7

10

9.3

98

.2

94

.4 10

0.3

89

.0 95

.6

11

6.6

10

5.8

10

6.9

12

2.3

10

4.1

94

.0

97

.5

99

.5

11

8.4

11

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E 15F

1

Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to

Local Catastrophe Loss Activity

66

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.

10

9.4

11

0.2

11

8.8

10

9.5 1

12

.5

11

0.2

10

7.6

10

4.1

10

9.7

11

0.2

10

2.5 1

05

.4

91

.1

93

.6

10

4.2

98

.9

10

2.4

10

7.9

10

3.4

98

.3 99

.9

98

.9

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 (1990-2014F); Conning (2015F) Insurance Information Institute.

Commercial Lines Combined Ratio, 1990-2015F*

Commercial lines underwriting

performance is expected to improve as

improvement in pricing environment persists

67

Commercial Auto Combined Ratio: 1993–2015F

11

2.1

11

2.0

11

3.0

11

5.9

10

2.7

95

.2

92

.9

92

.1

92

.4

94

.1 96

.8 99

.1

97

.8

10

3.4 10

6.8

10

6.5

10

6.4

10

5.2

11

8.1

11

5.7

11

6.2

80

85

90

95

100

105

110

115

120

125

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E 15F

Commercial Auto is Expected to Improve Only Slowly as Rate Gains Barely Offset Adverse Frequency and Severity Trends

68Sources: A.M. Best (1990-2014E);Conning (2015F); Insurance Information Institute.

Commercial Property Combined Ratio: 2007–2016F

72.4

105.

8

83.3 86

.5

85.4 89

.4

90.1

106.

5

105.

8

82.7

70

75

80

85

90

95

100

105

110

07 08 09 10 11 12 13 14E 15F 16F

Commercial Property Underwriting Performance Has Been Volatile in Recent Years, Largely Due to

Fluctuations in CAT Activity

Source: Conning Research and Consulting. 69

General Liability Combined Ratio: 2005–2015F

112.

9

95.1 99

.0

94.2

104.

1

101.

4

103.

0

103.

9107.

1 110.

8

99.8

80

85

90

95

100

105

110

115

05 06 07 08 09 10 11 12 13F 14F 15F

Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years

Source: Conning Research and Consulting. 70

Workers Compensation Combined Ratio: 1994–2014E

102.

0

97.0 10

0.0

101.

0

112.

6

108.

6

105.

1

102.

7

98.5

103.

5

104.

5 110.

6 115.

0

115.

0

108.

0

101.

0

96.0

121.

7

107.

0

115.

3

118.

2

80

85

90

95

100

105

110

115

120

125

130

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14F

Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-

2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2014F) and are for private carriers only; Insurance Information Institute. 71

WC results have improved markedly

since 2011

74

Growth Analysis by State and Business Segment

Post-Crisis Paradox? Premium Growth Rates Vary

Tremendously by State

74

75

-5%

0%

5%

10%

15%

20%

25%

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 1415

F14

F

Net Premium Growth: Annual Change, 1971—2016F

(Percent)1975-78 1984-87 2000-03

*Actual figure based on data through Q3 2014.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.

2015-16F: 4.0%

2014E: 4.0%*

2013: 4.6%

2012: +4.3%

77

Direct Premiums Written: Total P/CPercent Change by State, 2007-2013

74

.6

36

.9

31

.9

27

.4

25

.2

24

.9

22

.5

22

.2

16

.6

15

.9

15

.7

14

.5

14

.5

14

.3

12

.6

11

.9

11

.8

11

.2

10

.5

10

.3

9.9

9.8

9.3

9.1

9.0

8.6

0

10

20

30

40

50

60

70

80

ND

SD

OK

NE

KS IA VT

TX

WY

TN

MN

AR

AK IN WI

CO M

I

KY

OH NJ

LA

SC VA

AL

MO

NM

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 StatesNorth Dakota was the country’s growth leader over the past 6 years with premiums written

expanding by 74.6%, fueled by the state’s energy boom

Growth Benchmarks: Total P/C

US: 7.9%

78

Direct Premiums Written: Total P/CPercent Change by State, 2007-2013

8.5

8.2

7.9

7.8

7.6

7.3

7.0

6.9

6.2

5.9

5.6

5.3

4.2

4.1

3.5

1.6

1.0

0.4

-0.7

-1.7

-1.9

-4.1

-5.7

-6.7

-12

.6

-15

.3

-20

-15

-10

-5

0

5

10

MS

CT

US

NC

GA

NY

MD

MA

UT

WA

PA IL RI

NH ID MT

ME

OR

CA

FL

DC AZ

WV HI

NV

DE

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LC.; Insurance Information Institute.

Growth was negative in 7 states and DC between

2007 and 2013

79

Direct Premiums Written: PP AutoPercent Change by State, 2007-2013

34

.1

26

.7

25

.8

24

.0

19

.7

18

.7

16

.8

15

.5

14

.9

14

.6

14

.4

14

.3

14

.2

14

.1

13

.8

13

.7

13

.6

13

.5

13

.5

12

.3

11

.4

10

.9

10

.7

10

.6

10

.5

10

.4

0

5

10

15

20

25

30

35

40

ND

TX MI

OK

SD

NE

NJ

TN

CO

KS FL IA KY WI

DE

UT VA

SC

NY LA

AR

US

MT

MO

WY

AL

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 States

Growth Benchmarks: PPA

US: 10.9%

80

Direct Premiums Written: PP AutoPercent Change by State, 2007-2013

10.3

10.3

10.1

9.7

9.4

9.0

8.9

8.8

8.6

7.4

6.5

6.1

6.1

6.1

5.8

5.3

5.1

5.0

4.6

2.0

0.8

-0.2

-0.3

-0.9

-3.7

-6.0

-8

-6

-4

-2

0

2

4

6

8

10

12

AK

DC

NC

OR

MN IN GA

MD

WV

OH

MS

MA

NM CT

WA

PA IL RI

ID VT

CA

NV

NH AZ

HI

ME

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LC.; Insurance Information Institute.

Pvt. Passenger Auto premium growth was negative in 5 states

between 2007 and 2013

81

Monthly Change in Auto Insurance Prices, 1991–2015*

*Percentage change from same month in prior year; through February 2015; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

-2%

0%

2%

4%

6%

8%

10%

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Cyclical peaks in PP Auto tend to occur roughly every 10 years (early

1990s, early 2000s and likely the early 2010s)

“Hard” markets tend to occur

during recessionary

periods

Pricing peak occurred in late

2010 at 5.3%, falling to 2.8% by Mar. 2012

Feb. 2015 reading of 5.6% is up from 3.4%

a year earlier

83

Average Expenditures on Auto Insurance

$651$668

$691$705

$726

$786

$830$842

$831$816

$795$789 $787 $792 $798$815

$835$856

$877

$690$685$703

$600

$650

$700

$750

$800

$850

$900

$950

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E

14E

15F

Countrywide Auto Insurance Expenditures decreased by 6.5% from 2004 through 2009, rising gradually since the with annual increases

in the 2.0% to 2.5% range* Insurance Information Institute Estimates/Forecasts

Source: NAIC, Insurance Information Institute estimate for 2013-2015 based on CPI and other data.

The average expenditure on auto insurance remained below 2004 until 2013

Advertising Expenditures by P/C Insurance Industry, 1999-2013

$1.736 $1.737 $1.803 $1.708

$3.426

$4.102$4.354

$4.103

$5.079

$5.883$6.088 $6.175

$2.975

$2.111$1.882

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

$6.0

$6.5

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Insurance Information Institute from consolidated P/C Annual Statement data, Insurance Expense Exhibit (Part I).

$ Billions P/C ad spend hit an all time record high of $6.175 billion in 2013, up 1.5% over 2012.

The pace of growth has slowed from 15.8% in 2011

and 23.8% in 2010

P/C ad spending has more than tripled since 2002

(up 256% from 2002-2013)

86

Direct Premiums Written: HomeownersPercent Change by State, 2007-2013

60.5

53.3

50.7

50.7

50.5

49.2

46.3

45.4

45.4

44.7

44.0

43.5

42.9

42.5

42.1

41.9

40.3

38.1

37.1

37.1

35.7

34.9

34.1

33.6

33.0

32.6

0

10

20

30

40

50

60

70

OK

ND

MN

AR

TN

SD

MO

CO

KY

KS WI

WY

NE IA GA

MT

TX

NM

OH IN AL IL SC

DE

UT ID

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top 25 States

Growth Benchmarks: HO

US: 26.8%

87

Direct Premiums Written: HomeownersPercent Change by State, 2007-2013

32

.6

32

.5

31

.4

30

.6

30

.4

30

.3

29

.8

29

.6

27

.5

27

.2

26

.8

26

.4

25

.3

24

.6

22

.5

22

.3

20

.8

19

.7

19

.2

17

.2

16

.1

15

.4

8.3

8.0

2.1

0.5

0

5

10

15

20

25

30

35

40

MS

NC VA

NJ

CT RI

LA

PA

WV

WA

US

NH

ME

MD

NY

OR

MA

AK

DC AZ

VT MI

HI

CA

FL

NV

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LLC.; Insurance Information Institute.

The collapse of the housing bubble hit CA, FL and NV hard, leading

to the slowest growth rates in the US between

2007 and 2013

88

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013

91

.1

42

.1

41

.4

33

.7

26

.3

25

.8

23

.6

19

.1

15

.6

14

.0

11

.3

10

.0

9.8

6.8

6.7

6.5

4.1

3.2

3.1

3.0

2.7

2.2

2.0

1.7

1.3

0.6

0

10

20

30

40

50

60

70

80

90

100

ND

OK

SD VT

NE IA KS ID AK

TX

WY

MN IN AR

TN W

I

OH

MA

CT

NM LA

MS

NJ

NY

US

MO

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top 25 States

Only 30 states showed any

commercial lines growth from 2007

through 2013

Growth Benchmarks: Commercial

US: 1.3%

89

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013

0.5

0.4

0.2

0.1

-0.5

-0.8

-0.9

-1.0

-1.1

-1.1

-1.9

-2.0

-2.1

-2.7

-3.3

-3.7

-4.3

-4.9

-10

.7

-11

.4

-11

.7

-12

.6

-12

.7

-13

.6

-22

.4

-25

.1

-30

-25

-20

-15

-10

-5

0

5

MD

NH PA

CO IL

WA

VA

KY

NC

ME RI

MI

SC AL

GA

CA

UT

DC

OR

MT HI

DE FL AZ

WV

NV

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LLC.; Insurance Information Institute.

States with the poorest performing economies also produced the most negative

net change in premiums of the past 6 years

Nearly half the states have yet to see commercial lines premium

volume return to pre-crisis levels

94

Commercial Lines Pricing Trends

Survey Results Suggest Commercial Pricing Has

Flattened Out

94

95

Average Commercial Rate Change,All Lines, (1Q:2004–1Q:2015)

-3.2

%-5

.9%

-7.0

%-9

.4%

-9.7

% -8.2

%-4

.6% -2

.7%

-3.0

%-5

.3%

-9.6

%-1

1.3

%-1

1.8

%-1

3.3

%-1

2.0

%-1

3.5

%-1

2.9

%-1

1.0

%-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%

4.3

%3

.4%

2.1

%1

.5%

-0.5

%0

.1%

-0.7

%-1

.5%-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

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

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 Q1:2015 had turned (slightly) negative for only the 3rd time in 3 years

(Percent)

Q2 2011 marked the last of 30th

consecutive quarter of price declines

99

Change in Commercial Rate Renewals, by Line: 2015:Q1

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

Major Commercial Lines Renewals Were Mixed to Flat in Q1:2015; EPL and Commercial Auto Led the Way

Percentage Change (%)

-0.2%

1.4% 1.5%

2.4%

-4.0%

-2.2% -2.2% -2.1%

-0.7% -0.4%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Co

mm

erc

ial

Pro

pe

rty

Bu

sin

ess

Inte

rru

ptio

n

Ge

ne

ral

Lia

bili

ty

Um

bre

lla

Co

nst

ruct

ion

Wo

rke

rsC

om

p

Su

rety

D&

O

Co

mm

erc

ial

Au

to EP

L

Employment Practices rate increases are large

than any other line, followed by Commercial

Auto and D&O

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

100

U.S. Insured Catastrophe Loss Update

2013/14 Experienced Below Average CAT Activity After Very High CAT Losses in

2011/12Winter Storm Losses Far Above Average in

2014 and 2015100

101

$1

2.8

$1

1.1

$3

.8

$1

4.5

$1

1.7

$6

.2

$3

5.2

$7

.7

$1

6.5

$3

4.2

$7

4.5

$1

0.7

$7

.6

$2

9.6

$1

1.6

$1

4.6

$3

4.1

$3

5.5

$1

2.9

$1

5.3

$1

4.2

$4

.9 $8

.1

$3

8.3

$8

.9

$2

6.8

$0

$10

$20

$30

$40

$50

$60

$70

$80

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

U.S. Insured Catastrophe Losses

*Through 12/31/14.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.

2013 Was a Welcome Respite from 2012, the 3rd Costliest Year for Insured Disaster Losses in US

History. Longer-term Trend is for more—not fewer—Costly Events

2012 was the 3rd most expensive year ever for

insured CAT losses

$15.3 billion in insured CAT

losses estimated for 2014

($ Billions, $ 2013)

101

104

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1994–20131

0.1%

1.4%

3.8%4.8%

6.4%

6.4%

36.0%

41.1%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2013 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, $159.1

Fires (4), $5.5

Events Involving Tornadoes (2), $139.3

Winter Storms, $24.7

Terrorism, $24.8

Geological Events, $18.4

Wind/Hail/Flood (3), $14.6

Other (5), $0.2

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Insured cat losses from 1993-2012

totaled $386.7B, an average of $19.3B per year or $1.6B

per month

Winter storm losses were much above average in

2014/15 and will push this

share up

Loss events in the US, 1980 – 2014Insured losses due to winter storms*

Insured losses (in 2014 values)**

**Losses adjusted to inflation based on country CPI

5 year Mean

*Winter storms include winter damage, blizzard, snow storm and cold wave

Overall losses in 2014 totaled $3.7B; Insured losses totaled $ 2.4BPreliminary figures for 2015 suggest $2.3B in insured winter storm losses.

105

1 000

2 000

3 000

4 000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Source: Property Claim Services, MR NatCatSERVICE.

$ Billions

106

Top 16 Most Costly Disastersin U.S. History

(Insured Losses, 2013 Dollars, $ Billions)

$7.9 $8.8 $9.3 $11.2$13.6

$19.0$24.2 $24.9$25.9

$49.4

$7.6$7.2$6.8$5.7$5.6$4.5

$0

$10

$20

$30

$40

$50

$60

Irene (2011) Jeanne(2004)

Frances(2004)

Rita (2005)

Tornadoes/T-Storms

(2011)

Tornadoes/T-Storms

(2011)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Sandy*(2012)

Northridge(1994)

9/11 Attack(2001)

Andrew(1992)

Katrina(2005)

Superstorm Sandy in 2012 was the last

mega-CAT to hit the US

Includes Tuscaloosa, AL,

tornado

Includes Joplin, MO, tornado

12 of the 16 Most Expensive Events in US History Have

Occurred Over the Past Decade

Sources: PCS; Insurance Information Institute inflation adjustments to 2013 dollars using the CPI.

111

Federal Disaster Declarations Patterns:

1953-2015

111

Disaster Declarations Set New Records in Recent Years

Number of Federal Major Disaster Declarations, 1953-2015*

13 1

7 18

16

16

7 71

21

22

22

0 25

25

11

11

19

29

17

17

48

46

46

38

30

22 2

54

22

31

52

42

13

42

7 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

19

94

75

55

41

1

43

0

20

40

60

80

100

120

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

12

13

14

15

*

*Through April 21, 2015.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011 Before Dropping in 2012-2014

The number of federal disaster declarations set a new record in 2011, with 99, shattering 2010’s

record 81 declarations.

There have been 2,216 federal disaster

declarations since 1953. The average

number of declarations per year is 35 from 1953-2014, though

there few haven’t been recorded since 1995.

11 federal disasters have declared so far in 2015*, mostly for winter storms

112

113

Federal Disasters Declarations by State, 1953 – 2015: Highest 25 States*

88

80

75

69

67

60

58

57

56

56

55

54

54

53

52

51

51

50

50

49

47

47

45

43

41

0

10

20

30

40

50

60

70

80

90

100

TX CA OK NY FL LA AL KY AR MO IA MS TN IL WV MN NE KS PA WA OH VA ND SD ME

Dis

as

ter

De

cla

rati

on

s

Over the past 60 years, Texas has had the highest number of Federal Disaster

Declarations

*Through April 10, 2015. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

114

Federal Disasters Declarations by State, 1953 – 2015: Lowest 25 States*

43

40

40

39

38

37

35

34

30

29

28

28

27

26

25

25

24

23

22

20

17

17

15

13

12

11

9

0

10

20

30

40

50

NC AK IN GA VT WI NJ NH MA OR HI NM MI PR MD MT AZ ID CO CT NV SC DE DC RI UT WY

Dis

as

ter

De

cla

rati

on

s

Over the past 60 years, Wyoming and Utah had

the fewest number of Federal Disaster

Declarations

*Through April 21, 2015. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

119

Growth Will Expand Insurer Exposure Base Across Most Lines

119

120

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 4/15; Insurance Information Institute.

2.7%

1.8%

-1.8

%1.

3%-3

.7%

-5.3

%-0

.3%

5.0%

2.3%

2.2% 2.6%

2.4%

0.1%

2.5%

1.3%

4.1%

2.0%

1.3%

3.1%

0.4%

2.7%

1.8%

3.5%

-2.1

%4.

6% 5.0%

2.2%

2.4% 3.

1%3.

0%2.

9%2.

8%2.

8%2.

8%2.

7%

-8.9%

4.5%

1.4%

4.1%

1.1% 1.

8% 2.5% 3.

6%3.

1%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

   2

00

0   

   2

00

1   

   2

00

2   

   2

00

3   

   2

00

4   

   2

00

5   

   2

00

6   

   2

00

7   

08

:1Q

08

:2Q

08

:3Q

08

:4Q

09

:1Q

09

:2Q

09

:3Q

09

:4Q

10

:1Q

10

:2Q

10

:3Q

10

:4Q

11

:1Q

11

:2Q

11

:3Q

11

:4Q

12

:1Q

12

:2Q

12

:3Q

12

:4Q

13

:1Q

13

:2Q

13

:3Q

13

:4Q

14

:1Q

14

:2Q

14

:3Q

14

:4Q

15

:1Q

15

:2Q

15

:3Q

15

:4Q

16

:1Q

16

:2Q

16

:3Q

16

:4Q

Demand for Insurance Should Increase in 2015 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly

Real GDP Growth (%)

Recession began in in June

2009

The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%

Q1 2014 GDP data were hit hard by this

year’s “Polar Vortex” and harsh

winter

122

Real GDP by State Percent Change, 2013:Highest 25 States

9.7

7.6

5.1

4.2

4.1

3.8

3.8

3.7

3.1

3.0

3.0

2.9

2.8

2.7

2.7

2.4

2.3

2.2

2.1

2.0

2.0

1.9

1.9

1.9

1.8

1.8

0

1

2

3

4

5

6

7

8

9

10

ND WY WV OK ID CO UT TX SD NE MT IA MN OR WA AR NC FL IN MI CA VT KS HI GA US

Pe

rce

nt

Ch

an

ge

(%

)

Sources: U.S. Bureau of Economic Analysis; Insurance Information Institute.

North Dakota was the economic growth juggernaut of the US

in 2013—by far

Only 9 states experienced growth in excess of 3% in 2013, which is what we would see nationally in a

more typical recovery

Growth Benchmarks: Real GDP

US: 1.8%

123

1.8

1.7

1.6

1.6

1.6

1.6

1.5

1.4

1.3

1.2

1.1

1.1

1.0

0.9

0.9

0.9

0.9

0.8

0.8

0.8

0.7

0.7

0.1

0.0

-0.5

-2.5

-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.5

OH WI MA DE KY MS NM RI LA SC NJ AZ NV CT ME NH IL MO AL TN NY PA VA MD DC AL

Pe

rce

nt

Ch

an

ge

(%

)Real GDP by State Percent Change, 2013: Lowest 25 States

Sources: US Bureau of Economic Analysis; Insurance Information Institute.

DC and Alabama were the only

states to shrink in 2013

Growth rates in 11 states were still below 1% in

2013

126

16.9

16.5

16.1

13.2

10.4

11.6

12.7

14.4

15.5 16

.4 16.8

17.0

16.9

16.8

16.9

16.8

16.7

16.9

16.617

.117.5

17.8

17.4

9

10

11

12

13

14

15

16

17

18

19

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F 20F 21F

(Millions of Units)

Auto/Light Truck Sales, 1999-2021F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (4/15 and 3/15); Insurance Information Institute.

New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is

still below 1999-2007 average of 17 million units, but a robust recovery is well underway.

Job growth and improved credit market conditions will boost auto sales in

2014 and beyond

Truck purchases by contractors are

especially strong

Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. New vehicles will generate more physical damage insurance coverage but will be more expensive to

repair. PP Auto premium might grow by 5% - 6%.

Sales have returned to pre-

crisis levels

129

(Millions of Units)

New Private Housing Starts, 1990-2021F

1.4

81

.47 1

.62

1.6

41

.57

1.6

0 1.7

1 1.8

5 1.9

6 2.0

71

.80

1.3

60

.91

0.5

50

.59

0.6

1 0.7

8 0.9

21

.01 1

.16 1.3

0 1.4

11

.46

1.4

91

.52

1.5

2

1.3

51.4

61

.29

1.2

0

1.0

11.1

9

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F20F 21F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (3/15); Insurance Information Institute.

Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk

Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure

New home starts plunged 72% from 2005-2009; A net

annual decline of 1.49 million units, lowest since records began

in 1959

Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction

for several more years

134

43,6

9448

,125

69,3

0062

,436

64,0

04 71,2

77 81,2

3582

,446

63,8

5363

,235

64,8

53 71,5

4970

,643

62,3

0452

,374

51,9

5953

,549

54,0

2744

,367

37,8

8435

,472

40,0

9938

,540

35,0

3734

,317

39,2

0119

,695 28

,322

43,5

4660

,837

56,2

8247

,806

40,0

7533

,212

26,9

83

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 13 14

Business Bankruptcy Filings,1980-2014

Sources: American Bankruptcy Institute (1980-2012) at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; 2013-14 data from United States Courts at http://news.uscourts.gov; Insurance Information Institute.

Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline

2014 bankruptcies totaled 26,983, down 18.8% from 2013—the 5th consecutive year of decline.

Business bankruptcies more than tripled during the financial crisis.

% Change Surrounding Recessions

1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%

134

CONSTRUCTION INDUSTRY OVERVIEW & OUTLOOK

138

The Construction Sector Is Critical to the Economy and the P/C Insurance Industry

138

139

Value of New Private Construction: Residential & Nonresidential, 2003-2015*

Billions of Dollars

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

03 04 05 06 07 08 09 10 11 12 13 14 15*

Non ResidentialResidential

Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates

$298.1

$15.0

$613.7

New Construction peaks at $911.8. in 2006

Trough in 2010 at $500.6B,

after plunging 55.1% ($411.2B)

2014: Value of new pvt. construction hits $698.2B as of Feb. 2015, up 40%

from the 2010 trough but still 23% below 2006 peak

139

$261.8

$238.8

$348.4

$349.9

*2015 figure is a seasonally adjusted annual rate as of February.Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

140

Value of Construction Put in Place, Feb. 2015 vs. Feb. 2014*

3.1%

13.9%

2.9%2.1% 1.8%

-2.1%

5.9%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

TotalConstruction

Total PrivateConstruction

Residential--Private

Non-Residential--

Private

Total PublicConstruction

Residential-Public

Non-Residential--

Public

Overall Construction Activity is Up, But Growth In the Private Sector Slowed in Late 2014 While Picking in the State/Local Sector Government

Sector as Budget Woes Ease in Some Jurisdictions

Growth (%)

Private sector construction activity is up in the

residential and nonresidential segments but

growth is sluggish

*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

Private: +1.8% Public: +3.1%Public sector

construction activity is finally beginning to pick up after years of

decline

146

Construction Employment,Jan. 2010—December 2014*

*Seasonally adjusted.Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

5,58

15,

522

5,54

25,

554

5,52

75,

512

5,49

75,

519

5,49

95,

501

5,49

75,

468

5,43

55,

478

5,48

55,

497

5,52

45,

530

5,54

75,

546

5,58

35,

576

5,57

75,

612

5,62

95,

644

5,64

05,

636

5,61

55,

622

5,62

75,

630

5,63

35,

649

5,67

35,

711

5,73

5 5,78

35,

799

5,79

25,

791

5,80

15,

804

5,80

55,

822

5,83

05,

849

5,87

6 5,92

75,

927

5,96

46,

000

6,00

96,

017

6,04

76,

064

6,08

26,

098

6,11

8 6,16

6

5,400

5,500

5,600

5,700

5,800

5,900

6,000

6,100

6,200

6,300

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

122/

30/2

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

Jun-

13Ju

l-13

Aug

-13

Sep

-12

Oct

-13

Nov

-13

Dec

-13

Jan-

14Fe

b-14

Mar

-14

Apr

-14

May

-14

Jun-

14Ju

l-14

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Construction employment is +731,000 above

Jan. 2011 (+13.4%) trough

(Thousands)

Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.

MANUFACTURING SECTOR OVERVIEW & OUTLOOK

152

The U.S. Is Experiencing a Mini Manufacturing Renaissance but Headwinds from Weak Export

Markets and Strong Dollar152

153

$200,000

$300,000

$400,000

$500,000

Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—February 2015

* Seasonally adjusted; Data published Apr. 2, 2015.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/

Monthly shipments in Feb. 2015 are similar to pre-crisis (July 2008) peak but has declined in recent months. Manufacturing is energy-intensive and growth leads to

gains in many commercial exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.

$ Millions

153

The value of Manufacturing Shipments in Feb. 2015 was

$481.3B—down slightly since the July 2014 record high of $508.1B

160

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend Has Greatly Improved

160

161

Unemployment and Underemployment Rates: Still Too High, But Falling

2

4

6

8

10

12

14

16

18

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Jan12

Jan13

Jan14

Jan15

"Headline" Unemployment Rate U-3

Unemployment + Underemployment RateU-6

“Headline” unemployment

was 5.5% in Mar. 2015. 4.5% to

5.5% is “normal.”

Source: US Bureau of Labor Statistics; Insurance Information Institute.

January 2000 through March 2015, Seasonally Adjusted (%)

Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving.

161

U-6 soared from 8.0% in March

2007 to 17.5% in October 2009; Stood at 10.9%

in Mar. 2015.8% to 10% is

“normal.”

162

US Unemployment Rate Forecast4

.5%

4.5

%4

.6%

4.8

%4

.9% 5.4

% 6.1

%6

.9%

8.1

%9

.3%

9.6

% 10

.0%

9.7

%9

.6%

9.6

%

8.9

%9

.1%

9.1

%8

.7%

8.3

%8

.2%

8.0

%7

.8%

7.7

%7

.6%

7.3

%7

.0%

6.6

%6

.2%

6.1

%5

.7%

5.6

%5

.4%

5.3

%5

.2%

5.1

%5

.0%

5.0

%4

.9%

9.6

%

4%

5%

6%

7%

8%

9%

10%

11%

07

:Q1

07

:Q2

07

:Q3

07

:Q4

08

:Q1

08

:Q2

08

:Q3

08

:Q4

09

:Q1

09

:Q2

09

:Q3

09

:Q4

10

:Q1

10

:Q2

10

:Q3

10

:Q4

11

:Q1

11

:Q2

11

:Q3

11

:Q4

12

:Q1

12

:Q2

12

:Q3

12

:Q4

13

:Q1

13

:Q2

13

:Q3

13

:Q4

14

:Q1

14

:Q2

14

:Q3

14

:Q4

15

:Q1

15

:Q2

15

:Q3

15

:Q4

16

:Q1

16

:Q2

16

:Q3

16

:Q4

Rising unemployment eroded payrolls

and WC’s exposure base.

Unemployment peaked at 10% in late 2009.

* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (4/15 edition); Insurance Information Institute.

2007:Q1 to 2016:Q4F*

Unemployment forecasts have been revised modestly

downwards. Optimistic scenarios put the

unemployment as low as 5.0% by Q4 of 2015.

Jobless figures have been revised

downwards for 2015/16

23

15

21

70

52

12

65

73

-71

32 6

4 81

55

3-1

15

-10

6-2

21

-21

5-2

06

-26

1-2

58

-42

2-4

86

-77

6 -69

3-8

21

-69

8-8

10

-80

1-2

94

-42

6-2

72

-23

2 -14

1-2

71

-15

-23

22

0-3

81

92

94 11

01

20

11

71

07

19

91

49

94

72

22

32

31 3

20

16

61

86 21

91

25

26

81

77

19

12

22

36

42

28

24

61

02

13

17

51

72

13

61

59

25

52

11

21

52

19 26

31

64

18

82

22

20

11

70

18

01

53

24

72

72

86

18

31

75 22

33

13

23

8 27

22

43

20

92

35

21

84

14

31

92

02 2

64

12

9

11

3

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

Jan-

07F

eb-0

7M

ar-0

7A

pr-0

7M

ay-0

7Ju

n-07

Jul-0

7A

ug-0

7S

ep-0

7O

ct-0

7N

ov-0

7D

ec-0

7Ja

n-08

Feb

-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09F

eb-0

9M

ar-0

9A

pr-0

9M

ay-0

9Ju

n-09

Jul-0

9A

ug-0

9S

ep-0

9O

ct-0

9N

ov-0

9D

ec-0

9Ja

n-10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11F

eb-1

1M

ar-1

1A

pr-1

1M

ay-1

1Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13F

eb-1

3M

ar-1

3A

pr-1

3M

ay-1

3Ju

n-13

Jul-1

3A

ug-1

3S

ep-1

3O

ct-1

3N

ov-1

3D

ec-1

3Ja

n-14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14Ju

l-14

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15F

eb-1

5M

ar-1

5

Monthly Change in Private Employment

January 2007 through Mar. 2015 (Thousands, Seasonally Adj.)

Private Employers Added 11.20 million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 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

129,000 private sector jobs were

created in March. In March 2014, the last of the private jobs lost in the Great Recession were

recovered

163

Jobs Created2014: 2.722 Mill2013: 2.368 Mill2012: 2.294 Mill2011: 2.400 Mill2010: 1.277 Mill

2,722,000 jobs were created

in 2014

164

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2014:Q4

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

$7,250

$7,500

$7,75005

:Q1

05:Q

205

:Q3

05:Q

406

:Q1

06:Q

206

:Q3

06:Q

407

:Q1

07:Q

207

:Q3

07:Q

408

:Q1

08:Q

208

:Q3

08:Q

409

:Q1

09:Q

209

:Q3

09:Q

410

:Q1

10:Q

210

:Q3

10:Q

411

:Q1

11:Q

211

:Q3

11:Q

412

:Q1

12:Q

212

:Q3

12:Q

413

:Q1

13:Q

213

:Q3

13:Q

414

:Q1

14:Q

214

:Q3

14:Q

4

Prior Peak was 2008:Q3 at $6.54 trillion

Recent trough (2009:Q1) was $6.23 trillion, down

5.3% from prior peak

Growth rates2011:Q3 over 2010:Q3: 4.1%2012:Q3 over 2011:Q3: 3.2%2013:Q3 over 2012:Q3: 3.6%2014:Q4 over 2013:Q4: 5.1%

164

Latest (2014:Q4) was $7.57 trillion, a new peak--$1.34 trillion above 2009 trough

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$25

$30

$35

$40

$45

$50Wage & Salary DisbursementsWC NPW

165

Payroll Base* WC NWP

Payroll vs. Workers Comp Net Written Premiums, 1990-2014P

*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are I.I.I. estimates..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 Gains Suggest WC NWP Will Grow Again in 2015

7/90-3/91 3/01-11/0112/07-6/09

$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

Workers Compensation Operating Environment

170

Workers Comp Results Have Improved Substantially in Recent Years

170

Workers Compensation Premium: Third Consecutive Year of IncreaseNet Written Premium

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 130

10

20

30

40

50

31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3

25.0 26.129.2 31.1

34.737.8 38.6 37.6

33.830.3 29.9

32.335.1 37.0

35.3 35.734.3 35.4

33.6

30.128.5

26.9 25.9 25.0

28.6

32.1

37.7

42.3

46.547.8

46.544.3

39.3

34.6 33.836.4

39.641.9

State Funds ($ B)

Private Carriers ($ B)

Pvt. Carrier NWP growth was +5.4% in 2013 and

8.7% in 2012

$ Billions

Calendar Yearp Preliminary

Source: 1990–2013p Private Carriers, Annual Statement Data, NCCI.1996–2013p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements

State Funds available for 1996 and subsequent

U.S. Health Care Expenditures,1965–2022F

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$42.

0$4

6.3

$51.

8$5

8.8

$66.

2$7

4.9

$83.

2$9

3.1

$103

.4$1

17.2

$133

.6$1

53.0

$174

.0$1

95.5

$221

.7$2

55.8

$296

.7$3

34.7

$369

.0$4

06.5

$444

.6$4

76.9

$519

.1$5

81.7

$647

.5$7

24.3

$791

.5$8

57.9

$921

.5$9

72.7

$1,0

27.4

$1,0

81.8

$1,1

42.6

$1,2

08.9

$1,2

86.5

$1,3

77.2

$1,4

93.3

$1,6

38.0

$1,7

75.4

$1,9

01.6

$2,0

30.5

$2,1

63.3

$2,2

98.3

$2,4

06.6

$2,5

01.2

$2,6

00.0

$2,7

00.7

$2,8

06.6

$2,9

14.7

$3,0

93.2

$3,2

73.4

$3,4

58.3

$3,6

60.4

$3,8

89.1

$4,1

42.4

$4,4

16.2

$4,7

02.0

$5,0

08.8

U.S. health care expenditures have been on a relentless climb for most of the past half century, far outstripping population growth,

inflation of GDP growth

178

From 1965 through 2013, US health care expenditures had

increased by 69 fold. Population growth over the same period increased by a factor of just 1.6. By 2022, health spending will have

increased 119 fold.

$ Billions

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

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 12 13 14 15 16 17 18 19 20 21 22

National Health Care Expenditures as a Share of GDP, 1965 – 2022F*

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html accessed 3/14/14; Insurance Information Institute.

1965 5.8%

Health care expenditures as a share of GDP rose from 5.8% in 1965 to 18.0% in 2013 and are expected to

reach 19.9% of GDP by 2022

% of GDP

2022 19.9%

1980: 9.2%

1990: 12.5%

2000: 13.8%

2010: 17.9%

Since 2009, heath expenditures as a %

of GDP have flattened out at about 18%--the

question is why and will it last?

CYBER RISK & CYBER INSURANCE

187

Cyber Risk is a Rapidly Emerging Exposure for Businesses Large and

Small in Every IndustryRapidly Increasing Interest from

Businesses, Media & Public Policymakers187

Data Breaches 2005-2014, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed

* 2014 figures as of Jan. 12, 2014 from the ITRC.Source: Identity Theft Resource Center.

157

321

446

656

498

419447

619

783

662

85.687.9

17.322.9

35.7

19.1

66.9

222.5

16.2

127.7

100

200

300

400

500

600

700

800

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

20

40

60

80

100

120

140

160

180

200

220

# Data Breaches # Records Exposed (Millions)

The Total Number of Data Breaches Rose 28% While the Number of Records Exposed Was Relatively Flat (-2.6%)

Millions

188

Data/Privacy Breach:Many Potential Costs Can Be Insured

Source: Zurich Insurance; Insurance Information Institute

Forensic costs to discover

cause

190

Source: Insurance Information Institute research.

The Three Basic Elements of Cyber Coverage: Prevention, Transfer, Response

Loss Prevention

Post-Breach Response(Insurable)

Loss Transfer (Insurance)

Cyber risk management today involves three essential components, each designed

to reduce, mitigate or avoid loss. An increasing number of cyber risk products

offered by insurers today provide all three.

191

194

DISTRIBUTION TRENDS

Distribution by Channel Type Continues to Evolve Rapidly

196

Commercial P/C Distribution Channels, Direct vs. Independent Agents

Source: Insurance Information Institute; based on data from Conning and A.M. Best.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

72 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Direct Independent Agents

Independent agents have seen only modest erosion in commercial lines market share in

recent decades

197

Personal Lines Distribution Channels, Direct vs. Independent Agents

Source: Insurance Information Institute; based on data from Conning and A.M. Best.

0%

10%

20%

30%

40%

50%

60%

70%

80%

72 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Direct Independent Agents

Independent agents have lost personal lines market share since the early 1970s. Although the

trend has slowed, it may be accelerating again.

200

Growth Rates: Major PPA Direct Writers vs. All Private Passenger Auto Writers

8.3%8.2%

3.7%

0.5% 0.5% 0.0%

-0.3% 0.0%

1.5% 1.4%3.3% 4.0%

7.54%

16.62%18.42%

13.29% 12.88%

10.61%

5.17% 4.89% 5.64% 5.00%6.90%

8.72% 9.15%

-1%

4%

9%

14%

19%

24%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

PPA Growth Direct Writer Growth

Direct Writers Have Grown Faster Than The Private Passenger Market Since 2002

(% Growth Vs. Prior Year)Growth Has Picked Up

With the Economic Recovery.

*Includes GEICO, Progressive Direct, Esurance and 21st Century.Sources: SNL Financial; Insurance Information Institute.

206

The Rise of the Smart Phone: Technology is Available for All Distribution Channels

Note: Share of positive responses to the question: “Have you used your mobile device in the past two years to deal online with an insurer?”

Source: Swiss Re from “2013 Consumer-Driven Innovation Survey.” Accenture (2013)

Use of smart mobile devices in insurance distribution

% Positive Responses to the Question: Have you used your mobile device in the past two years to deal online

with an insurer?

Smart phones are a technology

available to all distribution

channels

: Should Insurers Be Concerned?

207

Google Compare launched in California on March 5 and sent ripples through PPA

market

209

DISTRIBUTION DEMOGRAPHICS

Employment Among Agents and Brokers Has Recovered but Consolidation Trends Will

Persist

209

210

U.S. Employment in Insurance Agencies & Brokerages: 1990–2015*

Thousands

500

525

550

575

600

625

650

675

700

725

750

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

*As of January 2015; not seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

188 189 182

224 216

264279

297

184204

289

321

267

314

177

10

60

110

160

210

260

310

360

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14:6M

Agent/Broker M&A Deals, 2000-2014:6M

Source: Optis Partners, “Agent-Broker Merger & Acquisition Statistics: The New Normal?”, August 2014; Insurance Information Institute.

Number of Deals

Agent/Broker activity is running at a record pace in 2014 with 314

deals announced through June 30.

The rapidly changing distribution environment is one factor driving IA

consolidation

215

Usage-Based Insurance (UBI): Telematics

215

UBI Is Catching On Among Insurers and Consumers, But Is

It a Transient Technology?

218

Autonomous/Driverless Vehicles

218

Rapid Technological Innovations in Motor Vehicle Engineering Are

Likely to Transform Auto Insurance and Product Liability Markets

220

Projected Sales of Partially and Fully Autonomous Vehicles through 2035

By 2035, it is estimated that 25% of new vehicle sales

could be fully autonomous models

Source: Boston Consulting Group.

www.iii.org

Thank you for your timeand your attention!

Twitter: twitter.com/bob_hartwigDownload at www.iii.org/presentations

Insurance Information Institute Online:

238