Catastrophic Loss in Mississippi

Transcription

1 Catastrophic Loss in Mississippi The Aftermath of Katrina Ole Miss Insurance Symposium University of Mississippi Oxford, MS March 26, 2008 Robert P. Hartwig, Ph.D., CPCU, President Insurance Information Institute 110 William Street New York, NY Tel: (212) Fax: (212)

2 CATASTROPHE LOSS REVIEW A Decade of Disaster, With Mississippi in the Crosshairs

3 Most of US Population & Property Has Major CAT Exposure Is Anyplace Safe? Source: RMS

4 U.S. Insured Catastrophe Losses* $120 $100 $80 $60 $40 $20 $0 $7.5 $2.7 $4.7 $ Billions 2006/07 were welcome respites was by far the worst year ever for insured catastrophe losses in the US, but the worst has yet to come. $100 Billion CAT year is coming soon $22.9 $5.5 $16.9 $8.3 $7.4 $2.6 $10.1 $8.3 $4.6 $26.5 $5.9 $12.9 $ ?? *Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita. 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. Source: Property Claims Service/ISO; Insurance Information Institute $61.9 $9.2 $6.5 $100.0

5 States With Largest Insured Catastrophe Losses in 2007 $1,400 $1,200 $1,000 $800 $600 $1,230 $747 $677 $ Millions 2007 CAT STATS 1.18 million CAT claims across 41 states arising 23 catastrophic events $400 $200 $320 $272 $270 $262 $223 $202 $200 $200 $0 CA MN TX GA IL OK KS MO NY CO AL Source: PCS/ISO; Insurance Information Institute.

6 Distribution of 2007 US CAT Losses, by Type and Insured Loss $ Billions Personal (home, condo, rental, contents etc.) accounted for 68% of all US insured CAT losses paid in CAT claim count was 1.18 million. Source: PCS division of ISO. Commercial, $1.3, 20% Personal, $4.4, 68% Vehicle, $0.8, 12%

7 Distribution of 2007 US CAT Losses, by Type and Claim Count Thousands of Claims Commercial, 144, 12% Vehicle, 315, 27% Personal (home, condo, rental, contents etc.) accounted for 61% of all US insured CAT claims in 2007, but 68% of loss dollars paid. Personal, 721, 61% Source: PCS division of ISO.

8 Top Catastrophic Wildland Fires In Oct , 1978 Los Angeles, Ventura Cos., CA Nov , 1980 Bradbury, Pacific Palisades, Malibu, Sunland, Carbon Canyon, Lake Elsinore, CA Oct. 9-10, 1982 Los Angeles, Ventura, Orange Cos., CA The United States, Sep , 1970 Oakland-Berkeley Hills, CA Nov , 1980 Los Angeles, San Bernardino, Orange, Riverside, San Diego Cos., CA Jul , 1977 Santa Barbara, Montecito, CA Insured Losses (Millions 2007 $) Oct , 1991: Oakland, Alameda Cos., CA Oct. 2003: Southern CA Fires Oct. 2007: Southern CA Fires* Nov. 2-3, 1993 Los Angeles Co., CA Oct , 1993 Orange Co., CA Jun. 27-Jul. 2, 1990 Santa Barbara County, CA May 10-16, 2000 Cerro Grande, NM July 2007: Lake Tahoe, CA** Jun , 2002 Rodeo-Chediski Complex, AZ May 17-20, 1985 Florida Sep , 1979 Hollywood Hills, CA $154.4 $138.4 $132.6 $108.3 $68.4 $63.6 $47.7 $40.2 $34.4 $14.3 $168.7 $538.4 $502.5 $420.7 $2,294.4 $2,260.0 $2,589.3 Fourteen of the top 17 catastrophic wildfires since 1970 occurred in California $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 *Estimate from CA Insurance Dept., Jan. 10, Source: ISO's Property Claim Services Unit; California Department of Insurance; Insurance Information Institute.

9 Inflation-Adjusted U.S. Insured Catastrophe Losses By Cause of Loss, ¹ Fire, $6.6, 2.2% Wind/Hail/Flood, $9.3, 3.1% Earthquakes, $19.1, 6.4% Winter Storms, $23.1, 7.8% Terrorism, $22.3, 7.5% Civil Disorders, $1.1, 0.4% All Tropical Cyclones, $137.7, 46.3% Water Damage, $0.4, 0.1% Utility Disruption, $0.2, 0.1% Tornadoes, $77.3, 26.0% Insured disaster losses totaled $297.3 billion from (in 2006 dollars). Wildfires accounted for approximately $6.6 billion of these 2.2% of the total. 1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in Adjusted for inflation by the III. 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 (ISO)..

10 Global Insured Catastrophe Losses by Region, North America accounted for 70% of global catastrophe losses $ Billions Seas/Space Africa Oceania/Australia South America Asia Europe North America* Notes: figures for N. America include US only figure includes only property losses from 9/11. Source: Insurance Information Institute compiled from Swiss Re sigma issues.

11 HURRICANE KATRINA A Review of Mississippi Insured Losses

12 Sources: ISO/PCS; Insurance Information Institute. Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005) $45 $40 $35 $30 Seven of the 10 most expensive hurricanes in US history occurred in the 14 months from Aug Oct. 2005: $41.1 $ Billions $25 $20 $15 $10 $5 Katrina, Rita, Wilma, Charley, Ivan, Frances & Jeanne $3.5 $3.8 $4.8 $5.0 $6.6 $7.4 $7.7 $10.3 $21.6 $0 Georges (1998) Jeanne (2004) Frances (2004) Rita (2005) Hugo (1989) Ivan (2004) Charley (2004) Wilma (2005) Andrew (1992) Katrina (2005)

13 Insured Loss & Claim Count for Major Storms of 2005* Insured Loss Claims Insured Loss ($ Billions $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Hurricanes Katrina, Rita, Wilma & Dennis produced a record 3.3 million claims 104 $ $5.0 1,047 $10.3 1,744 $41.1 2,000 1,800 1,600 1,400 1,200 1, Claims (thousands) Dennis Rita Wilma Katrina Size of Industry Loss ($ Billions) *Property and business interruption losses only. Excludes offshore energy & marine losses. Source: ISO/PCS as of June 8, 2006; Insurance Information Institute.

14 Hurricane Katrina Claim Status on Storm s 1 st Anniversary* 95% of the 1.2 million homeowners insurance claims in Louisiana & Mississippi are settled, with just 2% in dispute In Process, 3% Mediation/ Litigation, 2% Settled, 95% *Hurricane Katrina made its north Gulf coast landfall August 29, Source: Insurance Information Institute survey, August 2006.

15 Hurricane Katrina Claim Status on Storm s 2 nd Anniversary* 99% of the 1.2 million homeowners insurance claims in Louisiana & Mississippi were settled as of the storm s second anniversary in 2007 Unsettled**, 1% Settled, 99% *Hurricane Katrina made its north Gulf coast landfall August 29, **Unsettled implies that the claim is in the process of settlement, involved in mediation or litigated. Source: Insurance Information Institute survey, August 2007.

16 Hurricane Katrina Insured Loss Distribution by State ($ Millions)* Florida, $572.0, 1.4% Alabama, $1,032, 2.5% Mississippi, $13,605, 33.5% Total Insured Losses = $ Billion Tennessee, $59.0, 0.1% Georgia, $36.0, 0.1% Mississippi accounted for 33.5% of the insured losses paid and 29.5% of the claims filed Louisiana, $25,275, 62.3% *As of June 8, 2006 Source: PCS division of ISO.

17 Hurricane Katrina Claim Count Distribution by State* Florida, 122,000, 7.0% Alabama, 109,000, 6.3% Tennessee, 15,000, 0.9% Georgia, 7,800, 0.4% Louisiana, 975,000, 55.9% Mississippi, 515,000, 29.5% Total # Claims = 1,743,800 *As of June 8, 2006 Source: PCS division of ISO. MS accounted for 33.5% of the insured losses paid and 29.5% of the claims filed

18 Hurricane Katrina Loss Distribution by Line ($ Millions)* Total insured losses are estimated at $ billion from million claims. Excludes $2- $3B in offshore energy losses *As of June 8, 2006 Source: PCS division of ISO. Commercial Property & BI, $20,847.0, 52% Katrina had a disproportionate impact on businesses, decimating the economy and making recovery more difficult Vehicle, $2,168.0, 5% Homeowners, $17,564.0, 43%

19 Mississippi: Katrina Loss Distribution by Line ($ Millions)* Mississippi insured losses are estimated at $13.6 billion from 515,000 claims. Excludes $2- $3B in offshore energy losses Commercial Property & BI, $7,500.0, 55% Vehicle, $630.0, 5% Homeowners, $5,475.0, 40% *As of June 8, 2006 Source: PCS division of ISO.

20 Mississippi: Katrina Claim Count Distribution by Line* Commercial (business) claims accounted for 11% of the claims filed but 55% of the insured losses. Homeowners claims accounted for 69% of claims and 40% of losses. *As of June 8, 2006 Source: PCS division of ISO. Homeowners, 355,000, 69% Commercial Property & BI, 55,000, 11% Vehicle, 105,000, 20%

21 MS: Average Cost per Claim by Type of Claim* $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 Commercial (business) claims were 9-10 times more expensive than homeowners claims on average for Hurricane Katrina, but accounted for just 11% of the total number of claims $136,363 $40,000 $20,000 $0 $6,000 $15,422 Vehicle Home Commercial *As of June 8, 2006 Source: PCS division of ISO.

22 Growth in Mississippi Construction Component of GDP Pre/Post-Katrina Value of Construction GDP $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 16.8% $3,159 $3,046 $3,121 $2,879 $2,917 $2,889 $2, % Insurance dollars helped construction spending surge in MS -1.0% 0.2% Value of Construction GDP % Growth in Construction GDP 9.2% -3.6% $3, % $4, % Sources: US Bureau of Economic Analysis; Insurance Information Inst. 15.6% 20% 15% 10% 5% 0% -5% Growth in Construction GDP

23 Mississippi Windstorm Plan: Exposure to Loss ($ Mill) $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 $352.9 Total exposure to loss in the Mississippi Windstorm Underwriting Association (MWUA) jumped to $5.4 billion in 2006 from $1.9 billion in 2005, an increase of 187%. The total number of policies in the Plan more than doubled between 2005 and $637.1 $917.9 $864.9 $ $1,121.7 $1,344.3 $1,631.8 $1,873.0 $5,369.5 Source: PIPSO; Insurance Information Institute

24 Louisiana: Katrina Loss Distribution by Line ($ Millions)* Louisiana insured losses are estimated at $ billion from 975,000 claims. Excludes $2- $3B in offshore energy losses Commercial Property & BI, $13,000.0, 51% Vehicle, $1,400.0, 6% Homeowners, $10,875.0, 43% *As of June 8, 2006 Source: PCS division of ISO.

25 Hurricane Rita Claim Count Distribution by State* Arkansas, 5,500, 1.4% Florida, 6,000, 1.6% Mississippi, 7,000, 1.8% Texas, 171,000, 44.6% Total # Claims = 383,000 *As of June 8, 2006 Source: PCS division of ISO. Alabama, 5,000, 1.3% Tennessee, 3,500, 0.9% Louisiana, 185,000, 48.3% Mississippi accounted for 1.8% of the insured losses on 7,000 claims. Excludes offshore energy losses of $2-3B

26 Hurricane Rita Loss Distribution, by Line ($ Millions)* Total insured losses are estimated at $5.0 billion (excl. offshore energy of $2-$3B) from 383,000 claims. *As of June 8, 2006 Source: PCS division of ISO. Commercial Property & BI, $1,861.2, 37% Homeowners, $2,974.2, 59% Vehicles, $211.0, 4%

27 Louisiana: Rita Loss Distribution, by Line ($ Millions)* Commercial Property & BI, $1,000.0, 34% Total insured losses are estimated at $ billion from 185,000 claims. Vehicles, $117.5, 4% *As of June 8, 2006 Source: PCS division of ISO. Homeowners, $1,795.0, 62%

28 Source: Hurricane Katrina: Profile of a Super Cat, RMS, October Katrina s Path of Destruction Through the Offshore Energy Industry Katrina (& Rita) tore through offshore facilities

29 Insured Offshore Energy Losses for Recent Major Gulf Storms $ Billions $4.0 $3.0 $2.0 Hurricanes Katrina, Rita and Ivan cost energy insurers at least $7 billion $2.0 $2.25 $3.0 $1.0 $0.0 Katrina (2005) Ivan (2004)* Rita (2005) Sources: Insurance Information Institute research estimates. *Midpoint of estimated range for $2.0 to $2.5 billion)

30 HURRICANES: INSURED LOSS POTENTIAL Katrina: Just the Beginning?

31 Total Value of Insured Coastal Exposure (2004, $ Billions) Florida New York Texas Massachusetts New Jersey Connecticut Louisiana S. Carolina Virginia Maine North Carolina Alabama Georgia Delaware New Hampshire Mississippi Rhode Island Maryland $148.8 $129.7 $117.2 $105.3 $75.9 $73.0 $46.4 $45.6 $44.7 $43.8 $12.1 $740.0 $662.4 $505.8 $404.9 $209.3 $1,937.3 $1,901.6 Mississippi had $45 billion in insured coastal property exposure in 2004 compared to $209 billion in Louisiana and nearly $2 trillion in Florida Source: AIR Worldwide $0 $500 $1,000 $1,500 $2,000 $2,500

32 Value of Insured Residential Coastal Exposure (2004, $ Billions) Florida New York Massachusetts Texas New Jersey Connecticut Louisiana S. Carolina Maine Virginia North Carolina Alabama Georgia Delaware Rhode Island New Mississippi Maryland $88.0 $65.1 $64.5 $60.0 $60.0 $36.5 $29.7 $26.6 $25.9 $24.8 $20.9 $5.4 $306.6 $302.2 $247.4 $205.5 $512.1 $942.5 Mississippi had $21 billion in insured residential coastal property exposure in 2004 (47% of all MS coastal exposure) Source: AIR $0 $200 $400 $600 $800 $1,000

33 Value of Insured Commercial Coastal Exposure (2004, $ Billions) New York Florida Texas Massachusetts New Jersey Connecticut Louisiana S. Carolina Virginia Maine North Carolina Georgia Alabama Mississippi New Hampshire Delaware Rhode Island Maryland $437.8 $355.8 $258.4 $199.4 $121.3 $83.7 $69.7 $52.6 $45.3 $43.3 $39.4 $23.8 $20.9 $19.9 $17.9 $6.7 $994.8 $1,389.6 Mississippi had $24 billion in insured commercial coastal property exposure in 2004 (53% of all MS coastal exposure) Source: AIR $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600

34 Insured Coastal Exposure as a % of Statewide Insured Exposure (2004, $ Billions) Florida Connecticut New York Maine Massachusetts Louisiana New Jersey Delaware Rhode Island S. Carolina Texas NH Mississippi Alabama Virginia NC Georgia Maryland Source: AIR Worldwide 13.5% 12.0% 11.4% 8.9% 5.9% 1.4% 37.9% 33.6% 33.2% 28.0% 25.6% 25.6% 23.3% 63.1% 60.9% 57.9% 54.2% 79.3% Mississippi coastal exposure accounts for 13.5% of all insured exposure statewide 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

35 Historical Hurricane Strikes in Hancock County, MS, Population of Hancock County has soared (4-fold since 1950) as has its vulnerability Source: NOAA Coastal Services Center, Insurance Info. Institute.

36 Historical Hurricane Strikes in Harrison County, MS, Population of Harrison County has soared (4-fold since 1940) as has its vulnerability Source: NOAA Coastal Services Center, Insurance Info. Institute.

37 Historical Hurricane Strikes in Jackson County, MS, Population of Jackson County has soared (4-fold since 1950) as has its vulnerability Source: NOAA Coastal Services Center, Insurance Info. Institute.

38 The 2008 Hurricane Season: Preview to Disaster?

39 2005 Was a Busy, Destructive, Deadly & Expensive Hurricane Season All 21 names were used for the first time ever, so Greek letters were used for the final storms Source: WeatherUnderground.com, January 18, set a new record for the number of hurricanes & tropical storms at 28, breaking the old record set in 1933.

40 2007 Hurricane Season: No Big Hits Once Again A Sigh of Relief The 2007 season saw 15 named storms (same as devastating 2004 season) including two rare Category 5 storms, but the US escaped this year with very little loss Source: accessed 1/11/08; Insurance Information Institute

41 Outlook for 2008 Hurricane Season: 25% Worse Than Average Average* F Named Storms Named Storm Days Hurricanes Hurricane Days Intense Hurricanes Intense Hurricane Days Accumulated Cyclone Energy 96.2 NA 115 Net Tropical Cyclone Activity 100% 275% 125% *Average over the period Source: Philip Klotzbach and Dr. William Gray, Colorado State University, December 7, 2007.

42 Landfall Probabilities for 2008 Hurricane Season: Above Average Entire US East & Gulf Coasts US East Coast Including Florida Peninsula Gulf Coast from Florida Panhandle to Brownsville Caribbean Average* 52% 31% 30% NA 2008F 60% 37% 36% Above Average *Average over the past century. Source: Philip Klotzbach and Dr. William Gray, Colorado State University, December 7, 2007.

43 Mississippi Insurance Market Overview

44 Mississippi Insurance Market Facts MS P/C insurance premium volume in 2005 was $3.76 billion, or 0.8% of the US total of $478.5 billion LA Homeowners insurance premium volume in 2005 was $580 million, or 1.0% of the US total of $57.5 bill. Insured Katrina & Rita homeowners losses of $5.5 billion in MS were more than 9 times the 2005 homeowners premiums of $580 million The 2005 hurricane losses in MS homeowners insurance wiped out 17 years of premium and every dollar of profit ever made in the history of the state in this line Source: Insurance Information Inst. from National Underwriter Highline annual statement database; PCS.

45 Mississippi & Louisiana Market Shares, All Lines & Homeowners ALL LINES ($ Billions) HOMEOWNERS ($ Millions) Louisiana $ % Mississippi $ % Louisiana $1, % Mississippi $ % MS accounts for less than 1% of the US insurance market but 34% of 2005 hurricane losses All Other States $ % All Other States $55, % Source: Insurance Information Institute from National Underwriter Highline annual statement database.

46 Average Expenditures on Home Insurance, 2005 vs US Texas Florida Mississippi Alabama Louisiana $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $ % $1, % $1, % $939 $847 Source: NAIC, Insurance Information Institute +68.3% % $1, % $455 $855 $611 $ $419 $666

47 Average Expenditures on HO Insurance, LA vs. U.S., * $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $455 $666 $481 $692 $487 $714 US $508 Louisiana Change: * Louisiana: +61.3% US: +60.2% $721 $536 $758 $593 $840 $668 $975 $1074 $ * *Latest available from NAIC. Source: NAIC, Insurance Information Institute

48 ACTS OF GOD & THE BOTTOM (AND TOP) LINES Catastrophic Loss & Insurer Financial Performance

49 ROE: P/C vs. All Industries E 20% P/C profitability is cyclical, volatile and vulnerable 15% 10% Sept. 11 5% 0% -5% Hugo Andrew Northridge US P/C Insurers Lowest CAT losses in 15 years All US Industries *2007 is actual 9-month ROAS of 13.1% P/C insurer ROE is I.I.I. estimate. Source: Insurance Information Institute; Fortune Katrina, Rita, Wilma 4 Hurricanes 07F 08F

50 Strength of Recent Hard Markets by NWP Growth* 25% 20% 15% Post-Katrina period resembles (post- Andrew) 10% 5% 0% -5% -10% 2008: Projected -0.3% premium growth would be the first decline since F 2008F Note: Shaded areas denote hard market periods. Source: A.M. Best, Insurance Information Institute *2007 figure is actual 9-month figure.

51 REINSURANCE MARKETS Reinsurance Prices are Falling in Non-Coastal Zones, Casualty Lines

52 Share of Losses Paid by Reinsurers, by Disaster* 70% 60% 50% 40% 30% 20% Reinsurance is playing an increasingly important role in the financing of mega- CATs; Reins. Costs are skyrocketing 30% 25% 60% 20% 45% 10% 0% Hurricane Hugo (1989) Hurricane Andrew (1992) Sept. 11 Terror Attack (2001) 2004 Hurricane Losses 2005 Hurricane Losses *Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer, which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at $3.85 billion for 2004 and $4.5 billion for Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.

53 US Reinsurer Net Income & ROE, * $12 $0.12 $1.22 $1.38 $1.95 $1.94 $1.87 $2.03 $1.17 $2.52 $1.79 $1.95 $1.47 $1.99 $1.31 $3.71 $3.17 $3.41 $2.51 $4.53 $5.43 $7.96 $9.68 $10 $8 $6 $4 $2 $0 ($2) Reinsurer profitability rebounded post-katrina but is now falling 20% 15% 10% 5% 0% ($4) ($2.98) * Net Income ($ Bill) ROE Net Income ROE -5% -10% Source: Reinsurance Association of America. *2007 ROE figure is III estimate based return on average 2007 surplus.

54 International reinsurers from Germany, Switzerland and France account for 40 percent of global reinsurance volume. Bermuda is a growing market, with a 10 percent share. Lloyd s and London-based reinsurers account for 6 percent of the world market. Regional Distribution of Reinsurers by NWP, 2006 Other 11% Ireland 2% Japan 6% U.S. 25% Eight countries account for 89 percent of global reinsurance volume. Switzerland 12% France Source: Standard & Poor s, Global Reinsurance Highlights, 2007 Edition3% U.K. 6% Germany 25% Bermuda 10%

55 Reinsurer Market Share Comparison: 1990 vs Offshore Reinsurer 35.3% U.S. Reinsurer 64.7% Offshore Reinsurer 53.1% U.S. Reinsurer 46.9% U.S. Reinsurer market share fell precipitously between 1990 and 2006 Sources: Reinsurance Association of America; Insurance Information Institute.

56 The Flood Insurance Purchase & Retention Decision Flood Insurance is a Tough Sell

57 Hurricane Katrina NFIP Flood Claim Count and Closed Claim Losses Paid* NFIP Insured Flood Loss Claims Received Insured Loss ($ Billions) $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 85% of the $18.3 billion in NFIP flood losses paid from Katrina were in Louisiana. MS accounted for 13%. 5,723 8,956 18, ,036 $15,486.2 $2,362.9 $272.9 $128.2 Alabama Florida Mississippi Louisiana 200, , , , , ,000 80,000 60,000 40,000 20,000 0 Claims Received Size of Industry Loss ($ Billions) *As of 12/8/06, 98.7% of all Katrina claims had been closed. Paid amounts displayed are for closed claims only. Source: National Flood Insurance Program as of December 8, 2006; Insurance Information Institute.

58 Total Claim Payments by State (Top 11) Jan 1, Feb $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 $14,309.1 $3,228.8 $ Millions $2,775.0 $2,554.6 Louisiana and Mississippi rank 1 st and 4 th respectively in terms of total claims payments (up from 3 rd and 11 th pre-katrina). Florida ranks 2 nd and Texas 3 rd. $851.6 $721.2 LA FL TX MS AL NC NJ PA NY SC CA $655.2 $600.0 $426.0 $425.5 $423.2 Source: FEMA, National Flood Insurance Program (NFIP)

59 Flood Insurance Penetration Rates: Top 25 Counties/Parishes in US* JEFFERSON/LA WALTON/FL BROWARD/FL COLLIER/FL LEE/FL GALVESTON/TX GLYNN/GA ST. BERNARD/LA MIAMI-DADE/FL ORLEANS/LA CARTERET/NC ST. CHARLES/LA ST. JOHNS/FL CHARLOTTE/FL ST. TAMMANY/LA HORRY/SC INDIAN RIVER/FL BAY/FL BRUNSWICK/NC NASSAU/FL BERKELEY/SC PINELLAS/FL BRAZORIA/TX CHATHAM/GA TERREBONNE/LA 59.0% 56.2% 51.6% 49.6% 48.0% 46.3% 44.4% 42.8% 42.8% 42.0% 41.9% 40.1% 84.0% 81.5% 80.0% 78.7% 77.1% 74.1% 69.6% 68.4% 68.1% 66.7% 65.9% 65.5% 62.4% LA parishes have among the highest flood coverage penetration rates in the US (12 of the top 75) 0% 20% 40% 60% 80% 100% *As of 12/31/05. Source: New Orleans Times-Picayune, 3/19/06, from NFIP and US Census Bureau data.

60 Flood Insurance Penetration Rates: Counties/Parishes Ranked 26-50* BALDWIN/AL SARASOTA/FL PALM BEACH/FL CHARLESTON/SC MANATEE/FL MARTIN/FL ATLANTIC/NJ LAFOURCHE/LA OKALOOSA/FL GEORGETOWN/SC FLAGLER/FL MAUI/HI LIVINGSTON/LA BREVARD/FL SUSSEX/DE VOLUSIA/FL ST. LUCIE/FL JEFFERSON/TX HAMPTON CITY/VA OCEAN/NJ HARRIS/TX PASCO/FL BOSSIER/LA NEW HANOVER/NC BRONX/NY Mid-Atlantic/Northeast Counties are underrepresented 28.3% 27.6% 27.0% 26.8% 26.4% 26.1% 25.4% 25.3% 25.2% 23.4% 23.3% 22.1% 21.7% 39.8% 39.7% 39.2% 39.1% 38.7% 37.2% 36.5% 36.2% 34.2% 33.0% 32.1% 30.6% People along the eastern seaboard have not gotten the message 0% 10% 20% 30% 40% 50% *As of 12/31/05. Source: New Orleans Times-Picayune, 3/19/06, from NFIP and US Census Bureau data.

61 Flood Insurance Penetration Rates: Counties/Parishes Ranked 51-75* CAMERON/TX FORT BEND/TX SANTA ROSA/MS HARRISON/MS JACKSON/MS NORFOLK CITY/VA HILLSBOROUGH/FL LAFAYETTE/LA EAST BATON ROUGE/LA VIRGINIA BEACH ESCAMBIA/FL HONOLULU/HI SACRAMENTO/CA CALCASIEU/LA MONTGOMERY/TX CITRUS/FL MERCED/CA CHESAPEAKE, OSCEOLA/FL HUDSON/NJ DUVAL/FL BARNSTABLE/MA MARIN/CA TULARE/CA MONMOUTH/NJ 11.7% 11.6% 11.3% 10.2% 9.3% 9.1% 8.5% 16.7% 16.3% 15.8% 15.6% 15.4% 14.5% 14.0% 13.3% 12.9% 12.6% 21.6% 20.9% 20.1% 19.1% 18.3% 17.8% 17.7% 17.5% MS coastal counties rank abysmally low Barnstable is only county in all of New England among Top 75 0% 5% 10% 15% 20% 25% *As of 12/31/05. Source: New Orleans Times-Picayune, 3/19/06, from NFIP and US Census Bureau data.

62 Flood Insurance Analysis of Flood Policy Purchase and Lapse Rates Since Katrina in Florida

63 NFIP Flood Policy Growth in Gulf States Since Katrina* 90% 80% 70% 60% The number of flood insurance policies sold in the Gulf states in the 2 years following Katrina increased by 21.6% 80.24% 50% 40% 30% 20% 26.69% 14.15% 29.04% 40.54% 21.62% 10% 0% Alabama Florida Louisiana Mississippi Texas Total Gulf States *Change from July 2005 through August Sources: NFIP ; Insurance Information Institute.

64 Percentage of NFIP Flood Policies Issued Since Katrina That Are Not Renewed* 35% 30% 25% 20% 15% 10% 32% 23% Flood policy nonrenewal rates in Gulf states are surprisingly high 25% 19% 17% 8.6% 5% 0% Alabama Florida Louisiana Mississippi Texas US** *Policies issued since July 2005 as of August **US figure is nonrenewal rate for all policies in force, average over 12 month period ending August Sources: NFIP ; Insurance Information Institute.

65 NFIP Flood Policy Penetration Rates, by Region 70% 60% 50% 40% 30% 28% 61% In SFHA* Out of SFHA Flood is more commonly purchased in the South, but many still forego coverage 22% 60% 49% 20% 10% 0% 3% 0.6% 0.4% Northeast South Midwest West Overall US *Special Flood Hazard Areas. Source: The National Flood Insurance Program s Market Penetration Rate: Estimates and Policy Implications, RAND, % 1%

66 Proportion of Homes Buying Flood Insurance by No. of Homes in SFHA* 70% 60% 50% 40% 30% 20% 10% 0% Communities with few SFHAs are the most likely to not buy flood insurance 16% 56% 66% Under ,000 More Than 5000 *Special Flood Hazard Areas. Source: The National Flood Insurance Program s Market Penetration Rate: Estimates and Policy Implications, RAND, 2006.

67 Factors Influencing NFIP Flood Penetration Rates Price Change in Price Number of Homes in a Community s Special Flood Hazard Area (SFHA) Mandatory purchase requirements less vigorously enforced in communities with fewer structures in SFHAs Questions about enthusiasm in selling or knowledge of agents regarding program Coastal Flooding Potential Penetration rate much higher for coastal communities subject to flooding versus those that are not (63% vs. 35%) Mandatory Purchase Requirement Source: The National Flood Insurance Program s Market Penetration Rate: Estimates and Policy Implications, RAND, 2006.

68 Reasons Why People Buy Flood Insurance Agent/Broker Recommendation, 20% House Near Body of Water, 24% Not Near Water, But Don't Want to Take Chances, 29% Risk aversion and compulsion are the two most important direct factors influencing the purchase decision. Educational attainment & income are also factors. Mortgage Lender Requirement, 27% Source: Poll of 700 conducted by Opinion Research Corporation by Chubb Group of Insurance Companies, summarized in March 2006 press release Katrina Doesn t Motivate Many Homeowners to Protect Their Investment.

69 Additional Factors Influencing NFIP Flood Penetration Rates Education/Income of Homeowner Tendency to Decline Most Optional Coverages Only 13% of CA homeowners buy earthquake insurance Lack of Understanding of Actual Risk Most people do not understand the meaning or implications of 1-in-100 year flood risk Most people have never looked at a flood map Coverage Limits (e.g., $250K cap) Expectation of Post-Event Aid Potentially a more important factor for future events Litigation Suggesting that Flood is Covered Under Standard Homeowners Insurance Policies Source: Insurance Information Institute

70 Insurance Information Institute On-Line