INSURANCE INNOVATION EXECUTIVE BOARD

Transcription

1 INSURANCE INDUSTRY YEAR IN REVIEW INSURANCE INNOVATION EXECUTIVE BOARD Kenneth Saldanha March 1, 2018

2 LIFE & ANNUITY

3 1 8.0% 6.0% 4.0% 2.0% -2.0% -4.0% -6.0% -8.0% -1 FLAT PREMIUMS FOR PAST DECADE HIGHLIGHT GROWTH CHALLENGES Life & Annuity Direct Premium Growth HIGH FLUCTUATIONS, $700, % 6.7% BUT FLAT IN AGGREGATE $600,000 $500, % 1.1% 4.1% -0.7% 2.8% 0.3% $400,000 $300, % $200, % DPW % Change Source: AM Best, Accenture Copyright 2018 Accenture. All rights reserved. 3

4 MARGIN PERFORMANCE HEADING UPWARD? Life & Annuity Operating Margin RISING INTEREST RATES EXPECTED TO 12.0% 1 9.8% 8.8% 8.9% 1 8.6% 9.9% BENEFIT PRODUCT 8.0% 7.7% 7.5% PROFITABILITY AND 6.0% 5.2% INVESTMENT RESULTS 4.0% 2.0% 2.1% Operating Margin Before Taxes and Policyholder Dividends Source: AM Best, Accenture Copyright 2018 Accenture. All rights reserved. 4

5 RETURN ON SURPLUS HOVERS AT 10%, EVEN AS SURPLUS CONTINUES TO CREEP UP Life & Annuity Return on Surplus 2 SURPLUS GROWTH CONTINUES TO DRAG DOWN ROS 15.0% % 12.0% 7.8% 9.4% 12.1% 13.2% 10.8%11.0% 1 Life & Annuity Surplus Growth 5.0% 5.0% $500,000 $400,000 $300, % $200,000-1 $100, % $ % Source: AM Best, Accenture Copyright 2018 Accenture. All rights reserved. 5

6 US PC INDUSTRY

7 est 2018 est GOOD NEWS: RATE HARDENING AND INCREASED PROJECTION OF GROWTH OPTIMISM BASED ON STRONGER THAN ANTICIPATED PREMIUM GROWTH IN $600,000 $450,000 US PC NPW GROWTH TREND % 1 CHANGE IN GROWTH PROJECTIONS 3.7% 4.5% 3.3% 4.7% 2017 AND BEYOND $300, % 3.7% 1.9% 4.5% 4.7% 5.0% $150,000 (5.0%) $0 (1) 2017 est 2018 est NPW % Change Projected Last Year Revised Projection Source: Jan. 8, 2018 Conning Property/Casualty Forecast Copyright 2018 Accenture. All rights reserved. 7

8 UPBEAT CARRIER CEO STATEMENTS WITH A WORD OF CAUTION FROM THE ANALYSTS 4 th quarter revenue growth along with the strong economy both domestic and globally and with an improved pricing environment makes us quite optimistic out our growth prospects in the year ahead Chubb 4 th Quarter 2017 Investor Call The current trend in rate change is the best we have seen in the last few years Travelers 4 th Quarter 2017 Investor Call (Insurance) Remains a more positive picture. Generally speaking, we are actually quite positive on where things stand there is more pricing leverage today than there was a year ago. W.R. Berkley CEO, William Berkley, 4 th Quarter 2017 Investor Call We can only use history for a guide, and, for the hurricanes of 2017 to spur on broad rate improvements requires us to believe that this time its going to be different. We prefer to believe that we ve seen this show before Deutsche Bank, Oct Copyright 2018 Accenture. All rights reserved. 8

9 BAD NEWS: LOSS EXPERIENCE PROPELLING RATE HARDENING HAS BEEN EXTREME INDUSTRY COMBINED RATIO CHANGE IN CR PROJECTIONS 2017 FAR WORSE THAN ANTICIPATED 110% 90% 70% 97.2% 97.7% 28% 28% 4% 4% 100.6% 28% 5% 107.3% 27% 9% 100.2% 27% 5% % % % % 50% HURRICANES WILDFIRES ATTRITIONAL LOSSES 30% 10% -10% 63% 65% 67% 70% 67% -2% -1% -1% -1% -1% Est 2018 Est Expense Ratio Reserve Development Catastrophe Losses Loss & LAE Ratio (ex-cat and Reserves) 2017 est 2018 est Projected Last Year Revised Projection Source: Conning Property/Casualty Forecast, A.M. Best data and research and Accenture estimates Copyright 2018 Accenture. All rights reserved. 9

10 2017 RETURNS ON SURPLUS WELL BELOW COST OF CAPITAL WEAKENED UNDERWRITING RESULTS 9% 8% US PC STATUTORY RETURN ON SURPLUS Equity Cost of Capital- 8.3% US PC STATUTORY SURPLUS ($ BN) % SURPLUS GROWTH CONTINUES 6% 5% 8.5% 8.5% Est 2018 Est US PC STATUTORY NET INCOME ($ BN) BETTER IN 2018? 4% 3% 6.3% 3.5% 6.6% % Est 2018 Est Est 2018 Est Source: Jan. 8, 2018 Conning Property/Casualty Forecast Copyright 2018 Accenture. All rights reserved. Cost of Equity Source : Bloomberg Average of Industry Peer Group10

11 COMMERCIAL LINES

12 4.0% 2.0% -2.0% NPW GROWTH AND POSITIVE TOP-LINE EXPECTATIONS MODEST RATE IMPROVEMENTS BEGAN TO $275,000 COMMERCIAL LINES NPW GROWTH 3.0% 2.6% 3.2% CHANGE IN GROWTH PROJECTIONS 3.2% MATERIALIZE IN 2017 $250, % 1.9% 1.7% 2.1% $225,000 $200, % est 2018 est 2017 est 2018 est Projected Last Year NPW % Change Revised Projection Source: Jan. 8, 2018 Conning Property/Casualty Forecast Copyright 2018 Accenture. All rights reserved. 12

13 NOT A RISING TIDE - DEGREE OF RATE HARDENING VARIES BY LINE COMMERCIAL LINES AUTO NPW GROWTH WORKERS COMP NPW GROWTH AUTO HOT-SPOT GL REBOUND $50 $40 $30 $20 $10 $0 8.4% 7.5% 7.5% 7.5% 5.5% 2.2% Est 2018 Est ANNUAL NPW ($ Bn) % Change 1 8.0% 6.0% 4.0% 2.0% -2.0% -4.0% $50 $40 $30 $20 $10 $0 7.1% 5.2% 2.8% 0.6% 1.0% 0.6% Est 2018 Est ANNUAL NPW ($ Bn) % Change 1 8.0% 6.0% 4.0% 2.0% -2.0% -4.0% WC FLAT PROPERTY SLIDES $50 $40 $30 $20 $10 $0 9.5% GENERAL LIABILITY NPW GROWTH 4.4% 4.2% 1.5% 1.2% -2.9% Est 2018 Est 1 8.0% 6.0% 4.0% 2.0% -2.0% -4.0% $50 $40 $30 $20 $10 $0 COMMERCIAL PROPERTY NPW GROWTH 7.7% 7.0% 3.0% 1.5% 1.9% 2.0% -3.1% -3.0% -6.7% -8.0% Est 2018 Est ANNUAL NPW ($ Bn) % Change ANNUAL NPW ($ Bn) % Change Source: Jan. 8, 2018 Conning Property/Casualty Forecast Copyright 2018 Accenture. All rights reserved. 13

14 UNDERWRITING RESULTS DETERIORATE FROM ATTRITIONAL AND CAT LOSSES ~ 8 POINT INCREASE IN CAT LOSSES ~3 POINT INCREASE IN ATTRITIONAL LOSSES 120% 100% 80% 60% 40% 20% COMMERCIAL LINES COMBINED RATIO 107.6% 98.4% 98.3% 94.7% 94.2% 30% 29% 30% 31% 30% 11% 2% 2% 3% 5% 65% 63% 65% 68% 65% 97.1% CHANGE IN CR PROJECTIONS % 98.0% 98.3% 0% -3% -2% -1% -2% -1% -20% Est 2018 Est Expense Ratio Reserve Development 2017 est 2018 est Catastrophe Losses Projected Last Year Loss & LAE Ratio (ex-cat and Reserves) Revised Projection Source: Conning Property/Casualty Forecast, A.M. Best data and research and Copyright 2018 Accenture. All rights reserved. Accenture estimates 14

15 ($ Billions) INDUSTRY RESERVE RELEASES CONTINUE, BUT ARE SLOWING Industry Reported Reserve Development One year development for Calendar Years, Accident Years as of 12/31/ YEARS OF ACCIDENT YEAR AND CALENDAR YEAR RESERVE RELEASES Calendar Year Accident Year Source: A.M. Best US Property/Casualty 2018 Review & Preview Copyright 2018 Accenture. All rights reserved. 15

16 Combined Ratio ( Avg) THE FUTURE IS FEARLESS WHEN YOU DIFFERENTIATE FROM INDUSTRY AVERAGE COMMERCIAL LINES (Top 15 account for ~ 45% of segment total) : NPW GROWTH VS COMBINED RATIO ( ) FM Global Group Zurich Chubb (*) *2016 NPW impacted by reinsurance CNA Travelers Cincinnati IC Old Hartford Republic Great American P & C W. R. Berkley EMC IC Fairfax Tokio Marine Ind Avg Liberty Mutual % % Ind Avg 0.9% 5.0% % AIG AIG: 135.3, -9.2% Bubble Size : 2016 NPW Net Premium Written Growth ( CAGR) Source: AM Best, Accenture Copyright 2018 Accenture. All rights reserved. 16

17 PERSONAL LINES

18 8.0% 6.0% 4.0% 2.0% CONTINUED RATE INCREASES IN PERSONAL AUTO ARE THE PRIMARY INFLUENCE ON NPW GROWTH GROWTH HIGHER THAN ANTICIPATED AS $350,000 PERSONAL LINES NPW GROWTH CHANGE IN GROWTH PROJECTIONS RATE CORRECTIONS ARE BEING SEEN MORE QUICKLY IN $300, % 4.6% 5.2% 6.8% 5.8% 5.4% 6.8% 4.7% 5.8% SHORTER TAIL PERSONAL LINES $250,000 $200,000 NPW est 2018 est % Change 2017 est 2018 est Projected Last Year Revised Projection Source: Jan. 8, 2018 Conning Property/Casualty Forecast Copyright 2018 Accenture. All rights reserved. 18

19 UPTICK IN BOTH AUTO AND HOME PERSONAL AUTO NPW GROWTH AUTO GROWTH ON A SMOOTH(ER) TREND $240 $200 $160 $120 $80 $40 5.7% 5.0% 7.3% 7.9% 6.6% 1 8.0% 6.0% 4.0% 2.0% HOMEOWNERS JUMPS $ Est 2018 Est ON CATS ANNUAL NPW ($ Bn) % Change $100 HOMEOWNERS NPW GROWTH 1 $80 7.0% 8.0% $60 $40 3.8% 4.1% 3.8% 6.0% 4.0% $20 $0 0.5% Est 2018 Est 2.0% ANNUAL NPW ($ Bn) % Change Source: Jan. 8, 2018 Conning Property/Casualty Forecast Copyright 2018 Accenture. All rights reserved. 19

20 CR ABOVE 100 FOR THREE YEARS WITH A 2017 PEAK ~ 3 POINT INCREASES IN BOTH CAT AND 110% 90% 70% PERSONAL LINES COMBINED RATIO 107.1% 99.4% 100.7% 102.5% 25% 26% 25% 26% 6% 9% 5% 6% 101.7% 25% 5% % CHANGE IN CR PROJECTIONS % % % ATTITIONAL LOSSES 50% FOR % 65% 69% 71% 73% 71% 10% -10% -3% -1% 0% 0% 0% Est 2018 Est Expense Ratio Reserve Development 2017 est 2018 est Catastrophe Losses Projected Last Year Updated Projection Source: Conning Property/Casualty Forecast, A.M. Best data and research and Accenture estimates Copyright 2018 Accenture. All rights reserved. 20

21 HOMEOWNERS, WHILE TYPICALLY BETTER THAN AUTO, IS EQUALIZED BY CATS IN Personal Lines Auto and Home Loss Ratio Comparison 15+ POINTS JUMP, LARGELY DRIVEN BY CATS, FOR % 82.0% 79.8% % 62.5% 62.0% 63.5% % HOMEOWNERS IN Est 2018 Est PA Loss Ratio HO Loss Ratio Source: Jan. 8, 2018 Conning Property/Casualty Forecast Copyright 2018 Accenture. All rights reserved. 21

22 Average Paid Claim ($ Thousands) AUTO WHEN DOES THE HURTING STOP? LOSS RATIO AND AVERAGE PAID STEEP CLIMB EXPECTED TO CONTINUE IN AUTO U.S. Private Passenger Auto Liability Original Accident Year Average Paid Claim and Calendar Year Pure Loss Ratio CY Pure Loss Ratio (%) Pure Loss Ratio Average Paid Claim Source: A.M. Best data and research Copyright 2018 Accenture. All rights reserved. 22

23 Combined Ratio ( Avg) THE FUTURE IS FEARLESS WHEN YOU DIFFERENTIATE FROM INDUSTRY AVERAGE PERSONAL LINES (Top 10 account for ~75% of segment total) : NPW GROWTH VS COMBINED RATIO ( ) 90.0 Ind Avg 4.9% 92.0 Travelers Allstate Progressive 98.0 American Family GEICO Liberty Ind Avg Farmers USAA Nationwide State Farm % 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 7.5% 8.5% 9.5% 10.5% 11.5% 12.5% 13.5% 14.5% Bubble Size : 2016 NPW Net Premium Written Growth ( CAGR) Source: AM Best, Accenture Copyright 2018 Accenture. All rights reserved. 23