Trends & Challenges in the Property Insurance Business Today

Transcription

1 Trends & Challenges in the Property Insurance Business Today Institute for Building & Home Safety Annual Congress November 12, 2003 Orlando, FL Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief Economist Insurance Information Institute 110 William Street New York, NY Tel: (212) Fax: (212)

2 Presentation Outline Overall P/C Insurance Industry Performance What s more important property or casualty? Property Insurance Performance Personal Lines (Homeowners) Commercial Property Property Insurance & the Economy: Exposure Analysis Pricing Trends in Property Insurance Catastrophe Issues: Natural Disasters Trial lawyer-made disasters Terrorism Q&A

3 P/C FINANCIAL OVERVIEW How Much Does Property Insurance Matter?

4 Highlights: Property/Casualty First Half Change Net Written Prem. 202, , % Loss & LAE 142, , % Net UW Gain (Loss) (2,070) (11,422) -81.9% Net Inv. Income 18,268 17, % Net Income (a.t.) 14,496 4, % Surplus* 312, , % Combined Ratio pts. *Comparison with year-end 2002

5 Strength of Recent Hard Markets by Real NWP Growth 25% 20% 15% 10% Real NWP Growth During Past 3 Hard Markets : 8.6% : 14.5% F: 8.8% 5% 0% -5% -10% Current $ Real $ Note: Shaded areas denote hard market periods. Source: A.M. Best, Insurance Information Institute *2003 figure is estimate on first half result.

6 Property Insurance Direct Premiums Written* *Includes Fire, Allied Lines, Multi Peril Crop, Federal Flood, Farm & Homeowners Multi-Peril, CMP-non liability, Inland Marine, Earthquake & Burglary & Theft Source: Best s Aggregates & Averages - Property/Casualty; Insurance Information Institute ($ Billions) $100 $90 $80 $70 $60 $50 Revenue Growth Drivers: Record new home construction Trend toward larger, more expensive homes Rates Little commercial exposure gain since 2000 $50.5 $54.0 $57.8 $60.0 $61.9 $64.3 $67.4 $71.9 $81.1 $95.9 $

7 P/C Net Income After Taxes * ($ Millions) $40,000 $30,000 $20,000 $10, was the first year ever with a full year net loss 2002 ROE = 1.0% 2003 ROE = 9.7%* $14,178 $5,840 $19,316 $10,870 $20,598 $24,404 $36,819 $30,773 $21,865 $20,559 Sept. 11 $2,903 $14,496 $0 -$10,000 Andrew Northridge Lowest CAT losses in 15 years -$6, * *First half 2003 Sources: A.M. Best, ISO, Insurance Information Institute.

8 ROE: P/C vs. All Industries E* 20% 15% 10% 5% 0% -5% F US P/C Insurers *2003 p/c estimate based on first half data. Source: Insurance Information Institute; Fortune All US Industries

9 P/C Industry Combined Ratio = = First Half = 99.8 Combined Ratios 1970s: s: s: s: Sources: A.M. Best; ISO, III *Based on First Half 2003 results.

10 Underwriting Gain (Loss) * $10 $0 ($10) $ Billions ($20) ($30) ($40) ($50) ($60) Based on first half results, 2003 will likely be a much better year in terms of underwriting losses. First half losses totaled $2.71 billion or $5.42 billion on an annualized basis *2003 figure of $5.42 billion is annualized based on first quarter underwriting loss of $2.71 billion Source: A.M. Best, Insurance Information Institute

11 Combined Ratio: Reinsurers Reinsurance s combined ratio was the worstever for reinsurers; 2003 was bad as well : Big improvement in first half * *First half 2003 figures for full industry from ISO; 1 st half reinsurance figures from RAA. Source: A.M. Best, ISO, Reinsurance Association of America, Insurance Information Institute

12 U.S. Policyholder Surplus: * $ Billions $350 $300 $250 $200 $150 $100 $50 $0 Catastrophes have had a significant impact on UW performance and profitability but no substantive impact on capacity! Why? Industry s need and ability to raise capital increases following mega-disasters. Inflow masks destruction of capital $47 Billion Surplus is a measure of underwriting capacity. It is analogous to Owners Equity or Net Worth in non-insurance organizations * Source: A.M. Best, Insurance Information Institute *First Half

13 Shareholders Funds: Top 40 Reinsurance Groups* $ Billions $175.0 $174.5 $174.0 $173.5 $173.0 $172.5 $172.0 $171.5 $171.0 $ Capital at Top 40 reinsurance groups fell $2.26 billion or 1.3% from 2001 to 2002 $ *By net reinsurance premiums written. Source: Global Reinsurance Highlights 2003, Standard & Poor s

14 Property/Casualty Insurance Industry Investment Gain* $60 $50 $42.8 $ Billions $47.2 $52.3 $57.9 $51.9 $56.9 $44.4 $45.6 $40 $35.4 $36.6 $30 $20 Investment gains are simply returning to pre-bubble levels $10 $ E *Investment gains consists primarily of interest, stock dividends and realized capital gains and losses. Source: Insurance Services Office; Insurance Information Institute estimate annualized as of 6/30/03.

15 Insurer Stocks: Underperforming the S&P 500 Total Return 2003 YTD Through October 31, % S&P % L/H 14.61% 16.80% All Insurers P/C 2.10% 6.09% Mutliline Brokers 0% 5% 10% 15% 20% 25% 30% Source: SNL Securities, Insurance Information Institute

16 RATINGS, SOLVENCY & REINSURANCE ISSUES

17 Number of Insurer Upgrades vs. Downgrades, 1993 to 2003* Upgrades 4 Downgrades Downgrades have outpaced upgrades by nearly 4:1 since 2000 Are we at a peak? *North American insurance holding companies through October 17, 2003 Source: Standard & Poor s

18 P/C Company Insolvency Rates, 1993 to % Insurer insolvencies are increasing 10-yr industry failure rate: 0.72% Failure rating for B+ or better rating: 0.49% Failure rate for D through B rating: 1.29% 1.02% 1.03% 1.33% 10-yr Failure Rate = 0.72% 0.79% 0.58% 0.60% % 0.28% 0.23% Source: A.M. Best; Insurance Information Institute

19 Reason for P/C Insolvencies (218 Insolvencies, ) CAT Losses 3% Reinsurer Failure 0% Change in Business 3% Discounted Ops 8% Impaired Affiliate 3% Unidentified 17% Overstated Assets 2% Alleged Fraud 3% Rapid Growth 10% CATS only account for 3% of insurer insolvencies Reserve deficiencies account for more than half Deficient Loss Reserves 51% Source: A.M. Best, Insurance Information Institute

20 US P/C Net Net Reinsurance Recoverables as % of Adjusted PHS 45% 40% 35% Alarm over sharp increase in reinsurance recoverables in 2002 to 41.5% of adjusted PHS 30% 25% Source: Reinsurance Association of America from Thompson Financial OneSource database.

21 HOMEOWNERS INSURANCE: Recent Financial Performance

22 Industry Net Premiums Written by Product Lines 2002 NPW=$377.2 Billion 1960 NPW=$14.7 Billion OtherLiab 8% Allied 2% WC 8% HO 11% CMP--Non Liability 4% Other Lines 16% AutoLiab 26% AutoPhys 17% Fire 2% A&H 5% HomeMP 5% OtherLiab 7% Allied 5% WC 8% Fire 12% CMP 0% Other Lines 9% AutoLiab 28% A&H 9% AutoPhys 15% Source: A.M. Best

23 Homeowners Multi-Peril Insurance Net Premiums Written $ $40 $35 $30 $25 $20 $15 $10 $5 Revenue Growth Drivers: Record new home construction Trend toward larger, more expensive homes Home price inflation Home improvements Rates $ ($ Billions). Source: Best s Aggregates & Averages - Property/Casualty

24 Home Remodeling Expenditures are at a Record High Expenditures ($Billions) $130 $120 $110 $100 $90 $80 $70 $ % 6.2% 5.3% 2.4% % 5.8% % 10.8% 10% 8.2% 8% 7.7% 6.6% 6% 4.8% 4.9% 4% 4-Quarter Total HO Expenditures 2% Annual Rate of Change of 4-Qtr. Total % Change $50 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4 02:Q1 02:Q2 02:Q3 02:Q4 03:Q1 03:Q2 03:Q3 0% * Figures are annualized based on most recent quarter s data.. Source: Joint Center for Housing Studies; Insurance Information Institute

25 Homeowners Insurance Combined Ratio Average 1990 to 2002= Insurers have paid out an average of $1.16 in losses for every dollar earned in premiums over the past 13 years 2002 Loss: $4.7 Billion 2001 Loss: $7.4 Billion Sources: A.M. Best; III

26 Rates of Return on Net Worth 20% 10% 0% -10% -20% -30% -40% -50% -60% 12.2% 13.7% 14.0% 14.1%13.9% 13.4% 15.2%14.6% 10.8% 10.1% 11.9% 10.4% 10.0% -0.9% -6.6% 2.5% 3.6% -1.7% -4.2% 12.4% Averages: 1990 to 2002 HO Insurance = -3.52%* Fortune 500 = 12.64% 5.4% 5.4% 3.8% -7.2% -4.0% NAIC Homeowner Multi-Peril Fortune All- Industry* -54.3% Source: NAIC, Insurance Information Institute * Average is 0.71% if excluding 1992 (year of Hurricanes Andrew and Iniki. Note: 2002 Homeowners figure is III estimate.

27 Texas: Mold Losses/Claims Are Finally Moderating* $250 $200 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 $150 $100 $50 Water Damage Paid Losses * ($Millions) Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 $0 Paid Losses Claim Count Claim Count Source: Texas Department of Insurance; Insurance Information Institute * Data are for TDI Cause 61: Discharge Other Damage. Not all claims in cause 61 are mold and mold claims may also arise from other (non-water) causes of loss. 0

28 California: Surging Water Claim Frequency and Costs: Symptom of Growing Mold Problem $600 $550 $500 $450 36% Water losses paid rose 151% from 1997 to 2002 and 77% since 1999 Water claims accounted for less than 1/4 of all HO claims in 1997, now they for 1/3. $441.6 $ % $ % 38% 36% 34% 32% $400 $350 $300 $250 $200 $150 $ % $298.9 $ % 31% California may be in a drought, but homeowners say they re drowning 30% 28% 26% 24% 22% $ % Paid Water Losses ($ Mill) Water Claims as % of All Homeowners Claims Source: Insurance Information Network of California; Insurance Information Institute

29 Where are the Next Battlefields for Mold? Homeowners issue probably crested in 2002 Migration to commercial area affects many lines: Commercial Property Products Liability Workers Comp Hot Spots: Apartments/Condos/Co-ops Schools Commercial Liability Builders Risk/Construction Defects Office Structures (e.g., IBM) Municipal Buildings Cars? (GM case in NC) Trend toward class actions since science doesn t support massive individual non-economic damages Much more lucrative for trial lawyers to form class Source: Insurance Information Institute.

30 COMMERCIAL PROPERTY INSURANCE: Recent Financial Performance

31 Industry Net Premiums Written by Product Lines OtherLiab 8% Allied 2% WC 8% 2002 NPW=$377.2 Billion CMP--Non Liability 4% HO 11% Other Lines 16% AutoLiab 26% AutoPhys 17% Allied 5% 1960 NPW=$14.7 Billion HomeMP 5% OtherLiab 7% WC 8% Fire 12% CMP 0% Other Lines 9% AutoLiab 28% A&H 9% AutoPhys 15% Fire 2% A&H 5% Source: A.M. Best

32 Fire & CMP (Non-Liability Portion) Combined Ratios Fire Commercial Multi-Peril (Non-Liability Portion) Year Average Combined Ratios Fire: CMP (Non-Liab): Source: A.M. Best; Insurance Information Institute

33 Construction Defect Problem Growing number of lawsuits target: Builders, Contractors, Developers, Sub-Contractors, Material Suppliers, Product Manufacturers, Architects & Engineers. Construction defect claims include: Subsidence, collapse, cracks in walls & foundations. Leaking roofs, windows, doors, foundations. Dry rot of wood or other building materials, pest infestations. Mold, code violations, improper specification of building materials. Hotspots: California, Nevada, Colorado, Texas, the Carolinas, Florida, New York.

34 Construction Defect Litigation Destroying CA Condo Market $3.00 $2.75 $2.50 $2.25 Ratio of Losses Paid Out to Premiums Taken In Condo construction in parts of CA has come to a virtual stop. Insurer costs rose 58% in just 2 years! $2.95 $2.00 $1.75 $1.50 $1.25 $1.00 $ Right-to-Cure laws now in 5 states: AZ, CA, NV, TX, WA 16 considering such laws. Source: ISO, Insurance Information Institute

35 PRICING: Are Risk & Price Better Matched?

36 Average Expenditures on Homeowners Insurance $700 $650 $600 $550 $500 $450 $400 $418 Average HO expenditures are expected to rise by 8% in 2004 $440 $455 $481 $488 $508 $520 $532 $569 $ * 02* 03* 04* *Insurance Information Institute Estimates/Forecasts Source: NAIC, Insurance Information Institute

37 Reasons for Rising HO Insurance Prices Enormous underwriting losses are the primary reason for rising homeowners insurance rates today Function of frequency/severity of claims and events Home price/repair inflation Constant threats: CAT losses (>$100B since 1990); Not just hurricanes/earthquakes, but also major hail/wind events New issues such as toxic mold cost billions; no prior premium collected Litigation is a problem (property & liability related) Falling capacity; Rising reinsurance costs Attempts to weaken insurers ability to underwrite Credit restrictions raise costs for millions (WA, MD & others) CA emergency reg. preventing insurers from using claims history in coverage decisions (Safeco moratorium on new HO policies)

38 Insurance is the Biggest Concern of Small Business Owners Competition 7% Regulations 9% Labor Qlty. 10% Labor Costs 5% Inflation 2% Credit/Int. Rates 2% Poor Sales 18% Insurance 28% Taxes 17% Source: National Federation of Independent Business (June 2003); Insurance Information Institute

39 PRICING Commercial Premium Rate Changes Highly Cyclical 11% 14% 13% 16% 19% 18% 12% 18% 17% 16% 22% 28% 22% 25% 28% 28% 27% 31% 31% 30% 29% 28% 30% 30% 32% 33% 32% 35% 30% 25% 20% 15% 10% Pricing power is ebbing Is moderation due to realization of performance and profit goals, increasing capacity/capital, or market share strategies? Jun-03 Jul-03 Aug-03 Sep-03 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Source: MarketScout.com

40 Council of Insurance Agents & Brokers Rate Survey Third Quarter 2003 Premium Rate Changes By Line of Business Down 1-10% No Change Up 1-10% 1 10% 10-20% 20-30% 30-50% 50%-100% Comm. Auto 12% 14% 42% 30% 0% 0% 0% Workers Comp 10% 17% 31% 21% 8% 2% 2% General Liability 9% 21% 39% 24% 4% 1% 1% Comm. Umbrella 6% 17% 27% 33% 11% 4% 0% D&O 0% 10% 22% 34% 16% 7% 2% Comm. Property* 24% 26% 28% 9% 2% 1% 0% Construction Risk 3% 16% 26% 23% 13% 2% 2% Terrorism* 6% 48% 15% 5% 1% 1% 0% Business Interr. 11% 33% 34% 8% 2% 0% 0% Surety Bonds 28% 18% 9% 9% 4% 2% 0% Med Mal 0% 2% 7% 9% 19% 10% 2% Source: Council of Insurance Agents & Brokers.

41 Rate On Line Index (1989=100) Prices rising, limits falling: ROL up significantly * 03* Source: Guy Carpenter * III Estimate

42 P/C Soft Spots: % Accounts With Negative Price Change(2 nd Qtr 2003) 20% 17% Property Casualty/Liability 15% 10% 9% 9% Commercial property-related coverages are clearly the softest segment of the p/c market today. 5% 3% 2% 2% 2% 1% 0% Comm Prop Biz Terror Comm Auto WC GL EPL Umbrella Interruption Source: Council of Insurance Agents & Brokers; Insurance Information Institute

43 P/C Soft Spots: % Accounts With Negative Price Change(3rd Qtr 2003) 35% 30% 32% Property Casualty/Liability 25% 20% Some softness creeping into commercial casualty segments 15% 10% 5% 0% 13% 12% 11% 10% 9% 6% 2% Comm Prop Biz Terror Comm Auto WC GL EPL Umbrella Interruption Source: Council of Insurance Agents & Brokers; Insurance Information Institute

44 Proportion of Accounts Renewing With Increase of 20% or More, (Select Lines) Construction Risk Terrorism 5% 2% 23% 14% 18% 35% 53% 53% 53% 78% 2002:II 2002:III 2002:IV 2003:I 2003:II 2003:III Source: Council of Insurance Agents and Brokers; Insurance Information Institute

45 PROPERTY INSURANCE EXPOSURE & THE ECONOMY

46 Real GDP Growth 10% 9% :I 99:II 99:III 99:IV 00:I 00:II 00:III 00:IV 01:I -0.6% -0.3% 0.6% 1.1% 1.3% 2.0% 1.4% 1.4% 3.0% 2.6% 2.7% 4.4% 4.0% 3.3% 3.3% 3.9% 5.2% 4.8% 5.0% 7.1% 7.2% 8% 7% 6% 5% 4% 3% 2% 1% Economy experienced weak growth following the recession of 2001, strengthening now with eventual positive impact on commercial exposure growth. 0% -1% -2% -1.6% 01:II 01:III 01:IV 02:I 02:II 02:III 02:IV 03:I 03:II 03:III 03:IV* 2004* *Estimate/Forecast Source: US Department of Commerce, Blue Economic Indicators 10/03; Insurance Information Institute.

47 Change in Selected Components of GDP Growth (3 rd Qtr 2003) 30% 25% 20% 15% 10% 26.9% 11.1% 20.4% Strong growth in durable goods & fixed capital investment should bode well for commercial insurers 9.3% 5% 0% Durable Goods Consumption Non Residential Investment Residential Investment Exports 1.3% Government Source: Bureau of Eocnomic Analysis, Third quarter 2003.

48 New Private Housing Starts (Millions of Units) New Private Housing Starts Housing market remains strong E 04F Source: US Department of Commerce; Blue Chip Economic Indicators (7/03), Insurance Info. Institute

49 Homeownership Rates, 1990 to 2003* Homeownership is at a record high. Because you can t buy a home without insurance, insurance is clearly available and affordable, including to millions of Americans of modest means and all ethnic groups. 65.4% 65.7% 66.3% 66.8% 67.4% 67.8% 67.9% 68.0% 64.7% 63.9% 64.1% 64.5% 64.0% * * First Quarter Source: U.S. Census Bureau

50 Homeownership Rates Among Minorities is Rising, 1994 to % 48% 46% 44% 42% 42.3% Homeownership rates for minorities are at or near record highs Minorities are using their good credit to buy homes and get insurance 41.2% 42.7% 42.1% 44.1% 42.8% 44.8% 43.3% 45.6% 44.7% 46.3% Blacks 45.5% 47.2% 46.3% Hispanics 47.7% 47.3% 47.3% 48.2% 40% Source: U.S. Census Bureau

51 Percent Change in Homeownership, % 80% 70% 60% 50% Homeownership rates have increased much faster for minority groups than for whites Minorities are using their good credit to buy homes and get insurance 4.3 million minority net new homeowners were created between 1995 and % 83.5% 40% 30% 20% 10% 10.7% 23.2% 0% White Black Hispanic Other* *Includes American Indian, Eskimo, Aleut, Asian and Pacific Islander. Source: U.S. Census Bureau

52 CATASTROPHIC PROPERTY LOSS

53 U.S. Insured Catastrophe Losses $ Billions $30 $25 $20 $15 $10 $5 $0 $7.5 $2.7 $4.7 $22.9 $5.5 $16.9 Since 1990, insurers have paid more than $700 per month in CAT-related losses $8.3 $7.3 $2.6 $10.1 $8.3 $4.3 $28.1 $5.9 $ * *Through October 2003, including $2B III estimate for California wildfires. 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. Source: Property Claims Service/ISO; Insurance Information Institute

54 Billion Dollar Disasters of 2003 by Insured Losses ($ Billions) $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 $3.13 May 2-11: 18-State Storm: Tornados, Thunderstorms $2.00 Oct./Nov: California Wildfires* *Insurance Information Institute estimate as of November 4, Sources: Insurance Services Office California wildfires are just the 4 th billion dollar-plus event of 2003 $1.61 April 4-8: 10 State Storm: Tornados, Hail, Freezing, Wind, Flood $1.17 Sept : Hurricane Isabel

55 California Wildfires A home is destroyed by a wildfire in the resort community of Lake Arrowhead, California, October 29, 2003 Source: Yahoo news

56 California Wildfires Homes destroyed by a wildfire near Lake Arrowhead in San Bernardino, California, Monday, Nov. 3, 2003 Source: Yahoo News

57 Inflation-Adjusted U.S. Catastrophe Losses By Cause of Loss, ¹ Earthquakes % Wind/Hail/Flood 5 4.3% Civil Disorders 0.6% Fire 6 2.4% Water Damage 0.2% Tornadoes % Winter Storms 10.9% Terrorism 12.6% All Tropical Cyclones % 1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 1997 dollars. Adjusted for inflation by ISO. 2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires. Source: Insurance Services Office, Inc (ISO)

58 DISASTER DECLARATIONS & DISASTER AID: PUBLIC POLICY OR POLITICS?

59 Major Disaster Declarations By Number ( ) Declarations A total of 1,005 major disasters have been declared by the federal government since The average annual figure in 2002/3 is double the 25 annual average of the 1980s. Politics seems to matter. More declarations near presidential elections Homeowners/Businesses: Aid is incentive to not buy insurance * Source: Federal Emergency Management Agency (FEMA) *Through November 13, 2003 (including the California wildfires)

60 Top 10 Major Disaster Declaration Totals By State ( to-date) Total Number Texas California Florida Alabama Louisiana New York Oklahoma Mississippi Tennessee Illinois Washington Source: Federal Emergency Management Agency (FEMA)

61 FEMA Disaster Expenditures* ( ) $9 $8 $7 $6 $8.22 $ Billions $5 $4 $3 $2 $2.79 $1.87 $1.59 $2.43 $1.91 $4.19 $1.39 $1 $0.43 $0.55 $ *Funding represents total FEMA expenditures obligated from the President s Disaster Relief Fund for declared disasters, emergencies and fire suppression grants as of February 29,2000. Expenditures include costs for FEMA s disaster assistance programs, hazard mitigation, mission assignments, contractual services and administrative expenses. Figures are stated in current dollars and do not include funding provided separately by other participating federal agencies. Source: FEMA

62 Insured Loss Distribution for States Affected by Hurricane Isabel ISABEL: Likely economic cost $4 - $5 billion Disaster aid $215+ million Private insurers paid $1.2billion All Other States: $140MM 12% Source: Federal Emergency Management Agency $ Millions Virginia: $450MM 38% Maryland & DC: $410MM 35% North Carolina: $170MM 15%

63 Disaster Assistance to States Affected by Hurricane Isabel ISABEL: Likely economic cost $4 - $5 billion Disaster aid $215+ million Private insurers paid $1.2billion Delaware: $3MM 1% Maryland: $39MM 18% $ Millions Dist. Of Columbia: $5.6MM 3% Virginia: $94.4MM 44% North Carolina: $73MM 34% Source: Federal Emergency Management Agency

64 Life s a Beach: Federal Beach Replenishment Expenditures Over the Past 75 Years, by State (2002 Dollars) New Jersey Florida New York North Carolina Virginia Maryland South Carolina Connecticut Lousiana Delaware Georgia Mississippi New Hampshire Texas Alabama Maine Massachusetts Rhode Island $194 $150 $144 $91 $55 $55 $48 $37 $35 $30 $22 $8 $8 $8 $4 $887 $830 $1,081 The federal government has paid out $3.7 billion to replenish beach sand over the past 75 years $0 $200 $400 $600 $800 $1,000 $1,200 Source: Insurance Information Institute, calculated from A.M. Best combined ratio data.

65 September 11: Economic Losses Sustained by New York City Total Economic Losses to NYC = $83 Billion Capital Losses $30 billion 36% Lost Output $39 billion 47% Clean-Up & Other $14 billion 17% Source: New York City Partnership/A.T. Kearney.

66 No Doubt It: We (Re) Built This City Post-9/11 Relief, by Source ($ Billions) $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 $40.2 Insurers Source: Insurance Information Institute Private insurance is, by far, the best recovery option for individuals and businesses following disasters. $20.0 Federal Govt-- excl. VCF $5.0 Federal Victims' Compensation Fund $1.5 Charitable Sources

67 TERRORISM

68 Sept. 11 Industry Loss Estimates ($ Billions) Other Liability $10.0 (25% ) Property - WTC 1 & 2 $3.5 (9% ) Life $2.7 (7% ) Property - Other $6.0 (15% ) Aviation Liability $3.5 (9% ) Event Cancellation $1.0 (2% ) Aviation Hull Workers Comp $0.5 (1% ) $2.0 (5% ) Biz Interruption $11.0 (27% ) Consensus Insured Losses Estimate: $40.2B Source: Insurance Information Institute

69 Industry Losses Under Proposed Federal Backstop Using 9/11 Scenario (as interpreted on date of enactment, Nov. 26, 2002) Total Ind. Loss: $10.875B $14.25B $19.675B $30 ($ Billions) $25 $20 $15 $10 $5 $2.0B Industry Co-Share $0.125B Industry Co-Share $18.00 $1.125 $8.75 $1.75B Industry Co-Share $15.75 $12.50 $0.925B Industry Co-Share $ $18.75 $0 Year 1 Year 2 Year 3 Industry Retention Surcharge Layer Co-Reinsurance Layer Assumes $30B Commercial Prop & WC Loss, $125B At Risk Commercial DPE Source: Insurance Information Institute.

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71 The Ten Most Costly Hurricanes in the U.S. ($ Billions)* $ Billions $25 $20 $15 $19.6 Until the World Trade Center/Pentagon attacks, Hurricane Andrew, which swept ashore in August 1992, ranked as the world s most costly insured loss. It remains the largest natural disaster in terms of insured losses. $10 $5 $6.0 $3.2 $2.4 $ $ $1.2 $1.2 $0 Andrew (1992) Hugo (1989) Georges (1998) Opal (1995) Floyd (1999) Iniki (1992) Fran (1996) Frederic (1979) Alicia (1983) Isabel (2003) *Insured losses Source: ISO, III, AIA

72 The Ten Most Costly U.S. Earthquakes ($ Millions*) Northridge, CA Loma Prieta, CA San Fernando, CA Alaska and West U.S. Southern California Southern California Northern California Coast Kern County, CA Long Beach, CA Central California; Coalinga $558 $116 $83 $401 $545 $55 $2,418 $2,856 $9,998 The Northridge, California earthquake of January 1994 ranks as the third most costly catastrophe in the U.S. $15-24, *In 2001 dollars Source: U.S. Department of the Interior, U.S. Geological Survey; Insurance Information Institute

73 Worst Catastrophic Wildland Fires in the US ($ Millions) Date Sep , 1970 Jul , 1977 Oct , 1978 Sep , 1979 Nov , 1980 Nov , 1980 Oct. 9-10, 1982 May 17-20, 1985 Jun. 27-Jul. 2, 1990 Oct , 1991 Oct , 1993 Nov. 2-3, 1993 May 10-16, 2000 June 23-28, 2002 Oct 21-Nov 5, 2003 *I.I.I. estimated insured losses as of Nov. 10, 2003 Source: Property Claim Services, Insurance Services Office, Inc. (ISO) Location Oakland-Berkeley Hills, California Santa Barbara, Montecito, California Los Angeles and Ventura Counties, California Hollywood Hills, California Bradbury, Pacific Palisades, Malibu, Sunland, Carbon Canyon and Lake Elsinore, California Los Angeles, San Bernardino, Orange, Riverside, and San Diego Counties, California Los Angeles, Ventura, and Orange Counties, California Florida Santa Barbara County, California Oakland and Alameda Counties, California Orange County, California Los Angeles County, California Cerro Grande, New Mexico Rodeo-Chediski Complex, Arizona Los Angeles, San Bernardino, San Diego and Ventura Counties, California Total In 2002 Dollars $ , ,000* $6,067.9