An Industry and Economy

Transcription

1 An Industry and Economy in Transition: Overview and Outlook for P/C Insurance Markets for 2012 & Beyond Independent Insurance Agents of West Virginia Insurance Day Conference Charleston, WV February 27, 2012 Robert P. Hartwig, Ph.D., CPCU, President & Economist Insurance Information Institute 110 William Street New York, NY Tel: Cell:

2 Presentation Outline U.S. Economic Overview and Outlook Economy as a Growth Engine for P/C Insurers Labor Market Review Summary of P/C Financial Performance Focus on West Virginia Markets Catastrophe Loss Developments & Trends US, Global l A History of Claim Activity in the US Will the Market Turn? Four Necessary Criteria: Underwriting Loss Trends Capital/Capacity Reinsurance Markets Pricing Discipline Analysis by Key Line Other Contributing Factors to the Underwriting Cycle Investment Environment Tort/Casualty Environment Inflation Q&A 2

3 Economics 2012: The World Is Changing 2012 Is the First Year Since 2005 Where Economic Perceptions and Reality in the US Will Be Positive Potentially Enormous Benefits for P/C Insurers 3

4 Economic Outlook for 2012 Economic Growth Will Accelerate Modestly in 2012/13, Beating Expectations No Double Dip Recession Economy is more resilient than most pundits presume Consumer Confidence Will Continue to Improve Consumer Spending/Investment Will Continue to Expand Consumer and Business Lending Continue to Expand Housing Market Remains Weak, but Some Improvement Expected in 2012 Inflation Remains Tame Runaway inflation highly unlikely but energy spike possible; Fed has things under control Deflation threat has virtually disappeared Private Sector Hiring Remains Consistently Positive, Exceeds Expectations Unemployment dips below 8% by year s end Private sector employment up 2% in WV in 2011 Healthcare, professional services and construction accounted for most of WV s gains Energy Sector Remain Critical in WV Coal remains important Gas increasingly import for shipment & attracting energy intensive businesses Interest Rates Remain Low by Historical Standards; Edge Up by Year s End Stock and Bond Markets More Stable, Less Volatile Political Environment Is More Hospitable to Business Interests 4

5 Insurance Industry Predictions for 2012 P/C Insurance Exposures Grow Robustly Personal and commercial exposure growth is certain in 2012; Strongest since 2004 But restoration of destroyed exposure will take until mid-decade P/C Industry Growth in 2012 Will Be Strongest Since 2003 Growth likely to exceed A.M. Best projection of +3.8% for 2012 No traditional hard market emerges in 2012 Underwriting Fundamentals Deteriorate t Modestly Some pressure from claim frequency, in some severity in key lines Increasing Private Sector Hiring Will Drive Payrolls/WC Exposures Wage growth is also positive and could modestly accelerate WC will prove to be tough to fix from an underwriting perspective Increase in Demand for Commercial Insurance Will Accelerate in 2012 Includes workers comp, property, p marine, many liability coverages Laggards: inland marine, aviation, commercial auto, surety Personal Lines: Auto leads, homeowners lags (though HO leads in NPW growth due to rates) Investment Environment Is/Remains Much More Favorable Return of realized capital gains as a profit driver Interest rates remain low; Some upward pressured if economic strength surprises Industry Capacity Hits a New Record by Year-End 2012 (Barring Mega-CAT) 5

6 The Strength of the Economy Will Influence P/C Insurer Growth Opportunities Growth Will Expand Insurable Exposures and Help Absorb Excess Capital 6

7 US Real GDP Growth* 4.1% 1.1% 1.8% 2.5% 3.6% 3.1% 2.7% 0.9% 3.2% 2.3% 2.9% 1.6% 5.0% 3.9% 3.8% 2.5% 2.3% 0.4% 1.3% 1.8% 2.8% 2.1% 2.2% 2.4% 2.6% 2.5% 2.7% 2.9% 3.0% 6% 4% Real GDP Growth (%) The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8% 0.6% 2% 0% -0.7% -0.7% -2% -4% Recession began in Dec Economic toll of credit crunch, housing slump, labor market 2012 is expected to see a steady acceleration in growth continuing into % -6.8% -4.9% -6% -8% contraction has been severe but modest recovery is underway :1 Q 07:2Q 07:3Q 07:4Q 08:1 Q 08:2Q 08:3Q 08:4Q 09:1 Q 09:2Q 09:3Q 09:4Q 10:1 Q 10:2Q 10:3Q 10:4Q 11:1 Q 11:2Q 11:3Q 11:4Q 12:1 Q 12:2Q 12:3Q 12:4Q 13:1 Q 13:2Q 13:3Q 13:4Q Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, but the Benefits of Even Slow Growth Will Compound and Gradually Benefit the Economy Broadly * Estimates/Forecasts from Blue Chip Economic Indicators. Source: US Department of Commerce, Blue Economic Indicators 2/12; Insurance Information Institute. 7

8 Consumer Sentiment Survey (1966 = 100) January 2010 through February Optimism among consumers is recovering, in part due to an improving jobs outlook, after plunging amid the debt debate debacle and S&P downgrade 40 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact consumers, but improved substantially in late 2011 and early 2012 Source: University of Michigan; Insurance Information Institute 8

9 Auto/Light Truck Sales, F (Millions of Units) New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for is still far below average of 17 million units, but a recovery is underway Job growth and improved 11 credit market conditions will boost auto sales in and beyond F 13F 14F 15F 16F 17F 18-22F Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector. Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11 and 2/12); Insurance Information Institute. 9

10 New Private Housing Starts, F (Millions of Units) New home starts plunged % from ; A net annual The plunge and lack of recovery in homebuilding and in construction in general is holding back payroll exposure growth decline of 1.49 million units, lowest since records began 0.55 in Job growth, improved credit market conditions and demographics will eventually boost home construction F13F14F15F 16F17F 18-22F Little Exposure Growth Likely for Homeowners Insurers Until at least Also Affects Commercial Insurers with Construction Risk Exposure, Surety Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/11 and 2/12); Insurance Information Institute. 10

11 ISM Manufacturing Index (Values > 50 Indicate Expansion) January 2010 through January Optimism among manufacturers was increasing in late 2011 and into early Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 The manufacturing sector has been expanding and adding jobs. The question is whether this will continue. Source: Institute for Supply Management at Insurance Information Institute. 11

12 Dollar Value* of Manufacturers Shipments Monthly, Jan Dec $ Millions $500,000 The value of Manufacturing Shipments in Dec was up 29.0% to $459B from its May 2009 trough. Dec. figure is only 5.3% below its previous record high. $400,000 $300,000 $200,000 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Monthly shipments are nearly back to peak (in July 2008, 8 months into the recession). Trough in May Growth from trough to December 2011 was 29.0%. This growth leads to gains in many commercial exposures: WC, Commercial Auto, Property and Various Liability Coverages *seasonally adjusted Source: U.S. Census Bureau, Full Report on Manufacturers Shipments, Inventories, and Orders, 12

13 Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures March 2001 through January 2012 Percent of Industrial Capacity 82% 80% Hurricane Katrina Full Capacity The US operated at 78.5% of industrial capacity in Jan. 2012, above the June 2009 low of 68.3% and close to its post-crisis peak 78% 76% 74% 72% 70% March November 2001 recession 68% The closer the economy is to operating at full capacity, the greater the inflationary pressure December June 2009 Recession 66% Mar 01 Jun 01 Sep 01 Dec 01 Mar 02 Jun 02 Sep 02 Dec 02 Mar 03 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Source: Federal Reserve Board statistical releases at

14 ISM Non-Manufacturing Index (Values > 50 Indicate Expansion) January 2010 through January Optimism among non- manufacturers was stable in late 2011 and into early Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Non-manufacturing industries have been expanding and adding jobs. The question is whether this will continue. Source: Institute for Supply Management at Insurance Information Institute. 14

15 Business Bankruptcy Filings, ,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, , , , ,436 64,004 71, ,235 82, ,853 63,235 64,853 71,5 70,64 62,304 2,374 1,959 3,549 4, % Change Surrounding Recessions % % % % %* ,36 37,884 35,472 40,099 38,540 35,037 34,317 39, ,322 43, bankruptcies totaled 47,806, down 15.1% from 56,282 in 2010 the second consecutive year of decline. Business bankruptcies more than tripled during the financial crisis. 19, ,837 56, , Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline Sources: American Bankruptcy Institute at Insurance Information Institute 15

16 Private Sector Business Starts, 1993:Q2 2011:Q2* (Thousands) Business Starts 2006: 872, : 843, : 790, : 697, : 722, : 740,000** Business starts were up 4.5% to 370,000 in the first half of 2011 vs. first half ,000 new business starts were recorded in 2010, up 3.6% from 697,000 in 2009, which was the slowest year for new business starts since Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure, But Are Recovering Slowly * Data through June 30, 2011 are the latest available as of February 26, 2012; Seasonally adjusted; **Annualized based on 2011:H1 actual data. Source: Bureau of Labor Statistics,

17 11 Industries for the Next 10 Years: Insurance Solutions Needed Health Care Health Sciences Energy (Traditional) Alternative Energy Agriculture Natural Resources Environmental Many industries are poised for growth, but many insurers do not write in these economic segments Technology (incl. Biotechnology) Light Manufacturing Export-Oriented Industries Shipping (Rail, Marine, Trucking) 17

18 Labor Market Trends Massive Job Losses Sapped the Economy and Commercial/Personal Lines Exposure, But Trend is Improving 18

19 Unemployment and Underemployment Rates: Stubbornly High in 2011, But Falling January 2000 through January 2012, Seasonally Adjusted (%) 18 Traditional Unemployment Rate U Unemployment + Underemployment Rate U-6 Recession ended in November 2001 Unemployment kept rising for 19 more months Recession began in December 2007 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Source: US Bureau of Labor Statistics; Insurance Information Institute. U-6 went from 8.0% in March 2007 to 17.5% in October 2009; Stood at 15.1% in Jan Unemployment stood at 8.3% in January 2012 Unemployment peaked at 10.1% in October 2009, highest monthly rate since Peak rate in the last 30 years: 10.8% in November - December 1982 Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving 19

20 Monthly Change in Private Employment January 2008 through January 2012* (Thousands) (200) (400) -Monthly Losses in 257,000 private sector jobs (600) Dec. 08 Mar. 09 Were the Largest in the (800) Post-WW II Period j were created in January (1,000) Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Private Employers Added million Jobs Since Jan After Having Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs Source: US Bureau of Labor Statistics: Insurance Information Institute 20

21 Nonfarm Payroll (Wages and Salaries): Quarterly, :Q4 Billions $6,750 Peak was 2008:Q1 at $6.60 trillion $6,500 Latest (2011:Q4) was $6.71 trillion, a new peak $6,250 $6,000 $5,750 Recent trough (2009:Q3) was $6.25 trillion, down 5.3% from prior peak Pace of payroll growth is accelerating Growth rates in 2011 Q2 over Q1: 0.6% Q3 over Q2: 0.4% Q4 over Q3: 1.0% $5,500 05:Q1 05:Q2 05:Q3 05:Q4 06:Q1 06:Q2 06:Q3 06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates. Sources: National Bureau of Economic Research (recession dates); Insurance Information Institute. 21

22 Unemployment Rates by State, December 2011: Highest 25 States* Une employme ent Rate (% ) In December, 37 states and the District of Columbia reported over-the-month unemployment rate decreases, 3 had increases, and 10 had no change NV CA RI DC MS FL NC IL GA SC MI KY IN NJ OR AZ TN US WA ID CT AL OH MO NY CO *Provisional figures for December 2011, seasonally adjusted. Sources: US Bureau of Labor Statistics; Insurance Information Institute. 22

23 Unemployment Rates By State, December 2011: Lowest 25 States* 10 In December, 37 states and the District of Columbia reported over-the-month unemployment rate decreases, 3 had increases, and 10 had no change. Une employme ent Rate (% ) WV TX AR PA DE AK WI ME LA MA MT MD HI NM KS VA OK UT WY MN IA NH VT SD NE ND *Provisional figures for December 2011, seasonally adjusted. Sources: US Bureau of Labor Statistics; Insurance Information Institute. 23

24 US Unemployment Rate 2007:Q1 to 2013:Q4F* 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% Rising unemployment eroded payrolls and workers comp s exposure base. Unemployment peaked at 10% in late % 5%.6% 4.8% % 5.4% 6.1% 6.9% 8.1% 9.3% 9.6% % 9.7% Jobless figures have been revised downwards for % 9.6% 9.6% 8.9% 9.1% 9.1% 8.7% 8.4 4% 8.3 3% 8.2 % 8.1% 8.0% 7.9% Unemployment forecasts have been revised downwards for 2012 and Optimistic scenarios put the unemployment as low as 77%b 7.7% by Q4 of fthis year. 7.8% 7.7% 4.0% 07 7:Q1 07 7:Q2 07 7:Q3 07 7:Q4 08 8:Q1 08 8:Q2 08 8:Q3 08 8:Q4 09 9:Q1 09 9:Q2 09 9:Q3 09 9:Q4 10 0:Q1 10 0:Q2 10 0:Q3 10 0:Q4 11 1:Q1 11 1:Q2 11 1:Q3 11 1:Q4 12 2:Q1 12 2:Q2 12 2:Q3 12 2:Q4 12 2:Q1 12 2:Q2 12 2:Q3 12 2:Q4 * = actual; = forecasts Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/12 edition); Insurance Information Institute (forecasts) 24

25 Cumulative Change in Private Employment: Dec Jan December 2007 through January 2012* (Millions) ons Milli -2 Cumulative job losses peaked at million in December 2009 Cumulative job losses as of Jan totaled million Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May- Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May- Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May- Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May- Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Private Employers Added million Jobs Since Jan After Having Shed 4.66 Million Jobs in 2009 and 3.81 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs Source: US Bureau of Labor Statistics: Insurance Information Institute 25

26 U.S. Employment in the Direct P/C Insurance Industry: * Thousands This spurt results from 2010 census data and revised industry counts. BLS adjusted data for March 2010 through March 2011 but did not revise pre-march 2010 counts. Employment numbers prior to March 2011 are not comparable to subsequent data '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 *As of December 2011; Not seasonally adjusted; Does not including agents & brokers. Note: Recessions indicated by gray shaded columns. Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 26

27 U.S. Employment in Insurance Claims Adjusting: * Thousands Katrina, Rita, Wilma As of December 2011, claims adjusting employment was down by 2,500 or 4.8% to 49,500 since the recession began in Dec (compared to overall US employment decline of 4.1%). 40 Jan-90 Oct-90 Jul-91 Apr-92 Jan-93 Oct-93 Jul-94 Apr-95 Jan-96 Oct-96 Jul-97 Apr-98 Jan-99 Oct-99 Jul-00 Apr-01 Jan-02 Oct-02 Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 *As of December 2011; Not seasonally adjusted. Note: Recessions indicated by gray shaded columns. Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 27

28 U.S. Employment in the Direct Life Insurance Industry: * Thousands Every 4-5 years BLS reconciles its data with census data; sometimes this reclassifies employment within industries. This drop, spread over March 2004-March 2005, moved some people p to the Health/Medical Expense sector. As of December 2011, Life insurance industry employment was down by 10,500 or 3.0% to 343,800 since the recession began in Dec (compared to overall US employment decline of 4.1%). 300 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 *As of December 2011; Not seasonally adjusted; Does not including agents & brokers. Note: Recessions indicated by gray shaded columns. Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 28

29 U.S. Employment in the Direct Health- Medical Insurance Industry: * Thousands As of December 2011, Health-Medical insurance industry employment was down by 11,000 or 2.5% to 430,9000 since the recession began in Dec (compared to overall US employment decline of 4.1%). '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 *As of December 2011; Not seasonally adjusted; Does not including agents & brokers. Note: Recessions indicated by gray shaded columns. Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 29

30 U.S. Employment in the Reinsurance Industry: * Thousands As of December 2011, US employment in the reinsurance industry was up by 400 or 1.5% to 27,300 since the recession began in 40 Dec (compared to overall US employment decline of 4.1%) '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 *As of December 2011; Not seasonally adjusted; Does not including agents & brokers. Note: Recessions indicated by gray shaded columns. Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 30

31 U.S. Employment in Insurance Agencies & Brokerages: * Thousands As of December 2011, employment at insurance agencies and 550 brokerages was down by 33,000 or 4.9% to 646,600 since the recession began in Dec (compared to overall US employment decline of 4.1%). 500 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 *As of December 2011; 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. 31

32 U.S. Employment in Third-Party Administration of Insurance Funds: * Thousands '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 *As of December 2011; 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. 32

33 P/C Insurance Industry Financial Overview Profit Recovery Was Set Back in 2011 by High Catastrophe t Loss & Other Factors 33

34 P/C Net Income After Taxes :Q3 ($ Millions) $80, ROE*= 9.6% 2006 ROE = 12.7% $70, ROE = 10.9% 2008 ROE = 0.1% $60, ROE = 5.0% $50, ROE = 5.6% 2011:Q3 ROAS 1 = 19% 1.9% $40,000 $30,000 $20,000 $10,000 $14,178 $5,840 $19,3 316 $10,870,598 $20 $2 24,404 P-C Industry 2011:Q3 profits were down 71% to $8.0B vs. 2010:Q3, due primarily to high catastrophe losses and as non-cat underwriting results deteriorated 9 $36,81 $30,773 $21 1,865,559 $20 $3 3,046 $30,029 $38,5 501 $4 44,155 $6 65,777 $62,,496 $3 3,043 $28,672 $34,670 $7,979 $0 -$10,000 -$6, * * ROE figures are GAAP; 1 Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 3.0% ROAS for 2011:Q3, 7.5% for 2010 and 7.4% for Sources: A.M. Best, ISO, Insurance Information Institute 34

35 A 100 Combined Ratio Isn t What It Once Was: Investment Impact on ROEs Combined Ratio / ROE % % 59% A combined ratio of about 100 generated ~7.5% ROE in 2009/10, 10% in 2005 and 16% in % 10.9% % 9.6% % % % % % % 18% 15% 12% 9% 6% 3% E 2012F 0% Combined Ratio ROE* Combined Ratios Must Be Lower in Today s Depressed Investment Environment to Generate Risk Appropriate ROEs * figures are return on average surplus and exclude mortgage and financial guaranty insurers combined ratios are A.M. Best estimate excl. M&FG insurers. Source: Insurance Information Institute from A.M. Best and ISO data. 35

36 Profitability Peaks & Troughs in the P/C Insurance Industry, F* ROE 25% 1977:19.0% 1987:17.3% History suggests next ROE peak will be in % 1997:11.6% 2006:12.7% 15% 10% 9 Years 2012F: 6.1%* 5% 0% 2011E: 3.9% -5% 1975: 2.4% 1984: 1.8% 1992: 4.5% 2001: -1.2% * 12 *Profitability = P/C insurer ROEs figures are A.M. Best estimates. Note: Data for exclude mortgage and financial guaranty insurers. For 2011:Q3 ROAS = 1.9% including M&FG. Source: Insurance Information Institute; NAIC, ISO, A.M. Best. 36

37 ROE: Property/Casualty Insurance vs. Fortune 500, * (Percent) 20% 15% P/C Profitability Is Both by Cyclicality y and Ordinary Volatility Katrina, Rita, Wilma 10% 5% Hugo 0% -5% Andrew Northridge Lowest CAT Losses in 15 Years Sept Hurricanes Financial Crisis* E * Excludes Mortgage & Financial Guarantee in Sources: ISO, Fortune; A.M. Best (2011 P/C ROE); Insurance Information Institute (2011 Fortune 500 est.) 37

38 ROE vs. Equity Cost of Capital: U.S. P/C Insurance: * (Percent) 18% 16% 14% 12% The P/C Insurance Industry Fell Well Short of Its Cost of Capital Every Year Since % 8% 6% 4% 2% 0% -2% US P/C Insurers Missed Their Cost of Capital by an Average 6.7 Points from 1991 to 2002, but on Target or Better , Fell Short in pts.0 pts pts +2.3 pts -6.4 pts -3.2 pts The Cost of Capital is the Rate of Return Insurers Need to Attract and Retain Capital to the Business * 09* 10* 11* ROE Cost of Capital * Return on average surplus used as proxy for ROE in and excluding mortgage and financial guaranty insurers for these years figure is A.M. Best ROE estimate. Change in model methodology in 2011 increased cost of capital by approximately 90 basis points. Source: The Geneva Association, Insurance Information Institute -2.9 pts -8.0 pts - 38

39 P/C Insurance Industry ROE vs. Fortune 500, * ROE 20% 15% 10% 5% 0% -5% * *2011 is A.M. Best figure excl. mortgage and financial guaranty segments. Source: Insurance Information Institute; NAIC, ISO. 39

40 Profitability and Growth in West Virginia P/C Insurance Markets Analysis by Line and Nearby State Comparisons 40

41 RNW All Lines: WV vs. U.S., (Percent) 16% 14% 12% 10% 8% 6% 4% P/C Insurer profitability in 2% WV is below that t of the US overall over the past decade 0% -2% -4% -6% US: 7.1% WV: 75% 7.5% US All Lines WV All Lines Sources: NAIC. 41

42 RNW PP Auto: WV vs. U.S., % 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% Average US: 7.6% WV: 7.4% US PP Auto WV PP Auto Sources: NAIC. 42

43 RNW Comm. Auto: WV vs. U.S., (Percent) 20% 15% 10% 5% 0% Average US: 9.2% WV: 6.7% -5% US Comm Auto WV Comm Auto Sources: NAIC. 43

44 RNW Comm. Multi-Peril: WV vs. U.S., (Percent) 20% 15% 10% 5% 0% Average US: 9.2% -5% WV: 5.3% -10% US Comm M-P WV Comm M-P Sources: NAIC. 44

45 RNW Homeowners: WV vs. U.S., (Percent) 40% 30% Average US: 5.0% WV: 4.8% 20% 10% 0% -10% -20% -30% -40% US HO WV HO Sources: NAIC. 45

46 RNW Workers Comp: WV vs. U.S., (Percent) 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Average US: 6.1% WV: 4.0% US WComp WV WComp Sources: NAIC. 46

47 All Lines: 10-Year Average RNW WV & Nearby States % Virginia 9.7% Ohio 8.5% Maryland 7.5% 7.1% 6.6% 57% 5.7% West Virginia All Lines profitability is above the US average and similar to the regional average West Virginia U.S. Pennsylvania Kentucky 0% 5% 10% 15% Source: NAIC, Insurance Information Institute 47

48 PP Auto: 10-Year Average RNW WV & Nearby States % Ohio 10.5% Virginia 8.0% Maryland 7.6% U.S. 54% 5.4% 7.4% 7.1% West Virginia PP Auto profitability is below the US and regional average West Virginia Pennsylvania Kentucky 0% 5% 10% 15% Source: NAIC, Insurance Information Institute 48

49 Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2009 (1) Most Average Least Average Rank expensive states expenditure Rank expensive states expenditure 1 District of Columbia $1,128 1 North Dakota $510 2 New Jersey 1,101 2 South Dakota Louisiana 1,099 3 Iowa New York 1,057 4 Idaho Delaware 1,021 5 Nebraska Florida 1,006 6 Kansas Rhode Island Wisconsin Connecticut Maine Nevada North Carolina Maryland Ohio 616 Florida ranked 16th in 2009, with an average expenditure for auto insurance of $815. (1) Based on average automobile insurance expenditures. Source: 2012 National Association of Insurance Commissioners. 49

50 Comm. Auto: 10-Year Average RNW WV & Nearby States % Ohio 6.8% 6.7% 9.2% 87% 8.7% 12.5% 12.2% West Virginia Commercial Auto profitability is below the US and regional average Virginia Maryland U.S. Pennsylvania Kentucky West Virginia 0% 5% 10% 15% Source: NAIC, Insurance Information Institute 50

51 Comm. M-P: 10-Year Average RNW WV & Nearby States % Virginia 11.7% Maryland 11.2% Ohio 53% 5.3% 8.3% 9.4% 8.7% West Virginia Commercial Multi-Peril profitability is below the US average and the regional average Pennsylvania Kentucky U.S. West Virginia 0% 5% 10% 15% 20% Source: NAIC, Insurance Information Institute 51

52 Homeowners: 10-Year Average RNW WV & Nearby States West Virginia i i Homeowners profitability is below the US average and above the regional average 12.7% Pennsylvania 12.2% Virginia 9.4% Maryland 5.0% U.S. -7.1% 71% -3.8% 4.8% West Virginia Ohio Kentucky -10% -5% 0% 5% 10% 15% Source: NAIC, Insurance Information Institute 52

53 Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2009 (1) West Virginia ranked as the 36th most expensive state for homeowners insurance in 2009, with an average expenditure of $671. Most Average Least Average Rank expensive states expenditure Rank expensive states expenditure 1 Texas (3) $1,511 1 Idaho $485 2 Florida (4) 1,460 2 Wisconsin Louisiana 1,430 3 Oregon Mississippi 1,185 3 Utah Oklahoma 1,123 4 Washington D.C. 1,069 5 Delaware Rhode Island 1,069 6 Ohio Massachusetts 1,035 7 Arizona New York 1,021 8 Iowa Connecticut 1,016 8 South Dakota 645 (1) States with the same premium receive the same rank. (2) Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides all risks coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written. (3) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. (4) Florida data excludes policies written by Citizen's Property Insurance Corporation, the state's insurer of last resort, and therefore are not directly comparable to other states. Note: Average premium=premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank State Average Expenditures and does not endorse any conclusions drawn from this data. Source: 2011 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC. 53

54 Workers Comp: 10-Year Average RNW WV & Nearby States West Virginia Workers Comp profitability is below the US average and regional average % Ohio (1) Virginia 6.1% U.S. 4.1% 4.0% 32% 3.2% 5.6% Pennsylvania Maryland West Virginia Kentucky 0% 2% 4% 6% 8% (1) Data not available. Source: NAIC, Insurance Information Institute. 54

55 All Lines DWP Growth: WV vs. U.S., (Percent) 31.1% 35% 30% 25% 12.1% 10.0% 14..5% 10.6% 9.9% 9.9% 7.5% 9.5% 2.2% -0.2% 3. 3% 0.4% -2.6% -2.4% -8.4% -3.0% -3.3% 0.3% 0.9% 20% 15% 10% 5% 0% -5% -10% -15% US DWP: All Lines WV DWP: All Lines Source: SNL Financial. 55

56 Comm. Lines DWP Growth: WV vs. U.S., (Percent) 81.3% 90% 70% 50% 15.6% 15.0% 19.8% 14.8% 11.4% 9.2% 4.7% 14.9% 3.0% 0.1% 5.3% 0.3% 30% 10% -5.6% -1.6% -16.1% -7.1% -8.0% -2.2% -1.5% -10% -30% US DWP: Comm. Lines WV DWP: Comm. Lines Source: SNL Financial. 56

57 Personal Lines DWP Growth: WV vs. U.S., (Percent) 20% 8.3% 0.2% 1.1% 1.2% 2.6% 3.0% 6.7% 10.8% 9.9% 9.4% 11.5% 5.3% 6.7% 2.4% -0.4% 2.3% -1.7% 1.2% 1.2% 0.1% 15% 10% 5% 0% -5% -10% US DWP: Personal Lines WV DWP: Personal Lines Source: SNL Financial. 57

58 Private Passenger Auto DWP Growth: WV vs. U.S., (Percent) 20% 8..3% 7.0% 9.8% 10.0% 8. 1% 10.2% 3.5% 4.0% 0. 6% 0. 5% 0.0% 1.1% 0.1% 0.0% 0. 6% 1.5% 2.7% 15% 10% 5% 0% -1.7% -2. 8% -0.3% -5% -10% US DWP: PP Auto WV DWP: PP Auto Source: SNL Financial. 58

59 Homeowner s MP DWP Growth: WV vs. U.S., (Percent) 35% 30% 8.3% 5.6% 14.4% 9.5% 13.5% 17.2% 11.0% 18.3% 7.9% 4.3% 7.2% 1.9% 4.2% 1.6% 0.8% 0.7% 3.8% 3.4% 5.0% 4.0% 25% 20% 15% 10% 5% 0% -5% % -15% -20% US DWP: HO Lines WV DWP: HO Lines Source: SNL Financial. 59

60 Global Catastrophe Loss Developments and Trends 2011 Rewrote Catastrophe Loss and Insurance History But Will Losses Turn the Market? 60

61 Global Catastrophe Loss Summary: Was the Highest Loss Year on Record for Economic Losses Globally Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods and tornadoes are the primary causes of loss $380 Billion in Economic Losses Globally (New Record) New record, exceeding the previous record of $270B in 2005 $105 Billion in Insured Losses Globally 2011 losses were 2.5 times 2010 insured losses of $42B Second only to 2005 on an inflation adjusted basis (new record on a unadjusted basis) Over 5 times the 30-year average of $19B $72.8 Billion in Economic Losses in the US Represents a 129% increase over the $11.8 billion amount through the first half of 2010 $35.9 Billion in Insured Losses in the US Arising from 171 CAT Events Fifth highest year on record Represents 51% increase over the $23.8 billion total in 2010 Source: Munich Re; Insurance Information Institute. 61

62 Natural Loss Events, 2011 World Map Wildfires Canada, May Drought USA, Oct ongoing Wildfires USA, April/Sept. Floods, landslides Guatemala, El Salvador Oct. Winter Storm Joachim France, Switzerland, Germany, Dec. Severe storms, tornadoes USA, May Hurricane Irene USA, Caribbean 22 Aug. 2 Sept. Floods USA, April May Severe storms, tornadoes USA, April Flash floods, floods Italy, France, Spain 4 9Nov. Earthquake Turkey 23 Oct. Floods Pakistan Aug. Sept. Floods Thailand Aug. Nov. Earthquake, tsunami Japan, 11 March Tropical Storm Washi Philippines, Dec. Cyclone Yasi Australia, 2 7 7Feb. Number of Events: 820 Landslides, flash floods Brazil, 12/16 Jan. Floods, flash floods Australia, Dec Jan Drought Somalia Oct Sept Earthquake New Zealand, 22 Feb. Earthquake New Zealand, 13 June Natural catastrophes Selection of significant loss events (see table) Geophysical events (earthquake, tsunami, volcanic activity) Meteorological events (storm) Hydrological events (flood, mass movement) Climatological events (extreme temperature, drought, wildfire) Source: MR NatCatSERVICE 62

63 Natural Catastrophes Worldwide, 2011 Overview and Comparison with Previous Years Average of the last 10 years Average of the last 30 years Top Year Number of events Overall losses in US$ m (original values) Insured losses in US$ m (original values) , , ,000 75, ,000 42,000 35,000 19, (1,025) 2005 (227,000) 2005 (101,000) Fatalities , , ,000 69,000 (296,000) Source: MR NatCatSERVICE 2011 Munich Re 63

64 5 Costliest Natural Catastrophes Worldwide in Terms of Insured Losses, 2011 ($Mill) Date Region Event Fatalities March 11 Japan Overall losses US$ m Insured losses US$ m Earthquake, 35,000-15, ,000 tsunami 40, Feb. 22 New Zealand Earthquake ,000 13,000 Aug. 1 Nov. 15 Thailand Floods, landslides ,000 10,000 Apr USA Severe storms/ tornadoes ,000 7,300 Aug USA, Hurricane Sep. 2 Caribbean Irene 55 15,000 7,000 Source: MR NatCatSERVICE 2011 Munich Re 64

65 Natural Catastrophes Worldwide 2011 Insured losses US$ 105bn - Percentage distribution per continent 2% 44% In 2011, just 37% of insured natural catastrophe losses were in the Americas, barely half the average of 66% over the prior 30 years ( ) 37% <1% 17% Continent Insured losses US$ m America (North and South America) 40,000 Europe 2,000 Africa Minor damages Asia 45,000 In 2011, 61% of insured natural catastrophe losses were in the Asia/Pacific region, nearly35timesthe 3.5 the average of 13% over the prior 30 years ( ) Australia/Oceania 18,000 Source: MR NatCatSERVICE 65 65

66 Natural Catastrophes Worldwide Insured losses US$ 870bn - Percentage distribution per continent 16% 13% 66% <1% 5% Continent America (North and South America) Insured losses US$ m 566,000 Europe 146,000 Africa 2,000 Asia 115,000 In 2011, 61% of natural catastrophe losses were in the Asia/Pacific region, nearly 3.5 times the average of 13% over the prior 30 years ( ) Australia/Oceania 41,000 Source: MR NatCatSERVICE 66 66

67 Natural Catastrophes in Asia Overall and insured losses in 2011 Dollars ($ Billions) 2011 set a record for both overall economic losses 200 in Asia ($266B) and insured losses ($45B) The rapid economic development of Asia and increased insurance 140 penetration guarantee 120 that losses will trend higher in the future Overall losses (in 2011 values) Insured losses (in 2011 values) Source: MR NatCatSERVICE 2011 Munich Re 67 67

68 Top 16 Most Costly World Insurance Losses, ** $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 (Insured Losses, 2011 Dollars, $ Billions) Taken as a single event, the Spring 2011 tornado and thunderstorm season would likely become the 5 th costliest event in global insurance history $7.7 $8.1 $8.3 $8.5 $9.3 $9.7 Hugo (1989) Winter Storm Daria (1991) Chile Quake (2010) Ivan (2004) Typhoon Mirielle (1991) Charley (2004) $10.0 $11.9 $13.0$13.1 Thailand Floods (2011) Wilma (2005) New Zealand Quake (2011) Ike (2008) 5 of the top 14 most expensive catastrophes in world history have occurred within the past 2 years 1 $24.0$25.0 $19.1 $21.3 Northridge Spring (1994) Tornadoes/ Storms (2011) WTC Terror Attack (2001) Andrew (1992) $37.5 Japan Quake, Tsunami (2011)* $47.6 Katrina (2005) *Average of range estimates of $35B - $40B as of 1/4/12; Privately insured losses only. **Figures do not include federally insured flood losses. Sources: Swiss Re sigma 1/2011; Munich Re; Insurance Information Institute research. 68

69 Worldwide Natural Disasters, Number of Events There were 820 events in Geophysical events (Earthquake, tsunami, volcanic eruption) Meteorological events Hydrological events Climatological events (Storm) (Flood, mass (Extreme temperature, movement) drought, forest fire) Source: MR NatCatSERVICE 69

70 Worldwide Natural Disasters , Overall and Insured Losses (Insured Losses, 2011 Dollars, $ Billions) Overall Losses: $380 Bill 350 Insured Losses: $105 Bill Overall losses (in 2011 values) Insured losses (in 2011 values) Source: MR NatCatSERVICE 2011 Munich Re 70

71 U.S. Insured Catastrophe Loss Update 2011 Was One of the Most Expensive Years on Record 71

72 Top 14 Most Costly Disasters in U.S. History (Insured Losses, 2011 Dollars, $ Billions) Taken as a single event, the Spring 2011 tornado and storm season are is the 4 th costliest event in US $35 insurance history $50 $45 $40 $30 $25 $20 $15 $10 $5 $0 $4.3 $4.4 $5.5 $6.5 $7.7 $8.5 $9.0 $11.9 $13.11 $19.1 $21.3 $24.0 $25.0 $47.6 Irene Jeanne Frances Rita Hugo Ivan Charley Wilma Ike Northridge Spring 9/11 Andrew Katrina (2011) (2004) (2004) (2005) (1989) (2004) (2004) (2005) (2008) (1994) Tornadoes & Storms* (2011) Attack (2001) (1992) (2005) Hurricane Irene became the 11 th most expense hurricane in US history *Losses will actually be broken down into several events as determined by PCS. Includes losses for the period April 1 June 30. Sources: PCS; Insurance Information Institute inflation adjustments. 72

73 Natural Disasters in the United States, Number of Events (Annual Totals ) There were 117 natural disaster events in Number Geophysical (earthquake, tsunami, volcanic activity) Meteorological (storm) Hydrological (flood, mass movement) Climatological (temperature extremes, drought, wildfire) Source: MR NatCatSERVICE 73

74 Losses Due to Natural Disasters in the US, (Overall & Insured Losses) (2011 Dollars, $ Billions) (Overall and Insured Losses) 2011 was the 5 th most expensive year on record for insured catastrophe losses in the US. Approximately 50% of the overall cost of catastrophes in the US was covered by insurance in Overall Losses: $72.8 Bill Insured Losses: $35.9 Bill Overall losses (in 2011 values) Insured losses (in 2011 values) Source: MR NatCatSERVICE 2011 Munich Re 74

75 US Insured Catastrophe Losses ($ Billions, 2011 Dollars) $120 $60 $100 Billion CAT Year is Coming Eventually $100 Record Tornado Losses Caused $ CAT Losses to Surge $40 $20 $0 $ $4.7 $7.8 $36.9 $8.6 $ $1 $ $3.7 $ $1 $6.0 $ *20?? $7.4 $15.9 $32.9 $71.7 $ $7.3 $ $1 $ $32.6 $100.0 US CAT Losses in 2011 Were the 5 th Highest in US History on An Inflation Adjusted Basis *PCS estimate through Sept. 30, 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. 75

76 Natural Disaster Losses in the United States: 2011 As of Jan. 1, 2012 Number of Events Fatalities Estimated Overall Losses (US $m) Estimated Insured Losses (US $m) Severe Thunderstorm ,548 25,813 Winter Storm ,708 2,017 Flood , Earthquake Tropical Cyclone ,700 5,510 Wildfire , Other ,000 1,000 Source: MR NatCatSERVICE 76

77 2011 s Most Expensive Catastrophes, Insured Losses Thunderstorms, Apr Thunderstorms, May Hurricane Irene, Aug ** Thunderstorms, Apr. 3-5 Thunderstorms, Apr Thunderstorms, Apr Thunderstorms, Jun Texas Drought, 2011* Thunderstorms, Jul Winter Storm, Jan. 31-Feb. 3 Thunderstorms, Aug Thunderstorms, Apr Wildfire, Sep Flooding, April* $530 $500 $1,000 $830 $1,510 $1,400 $1,200 $980 $975 $840 $2,000 $5,000 Includes approximately $2B in losses for May 22 Joplin tornado $6,900 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $7,300 Includes $1.65B in AL, mostly in the Tuscaloosa and Birmingham areas **Includes $700 million in flood losses insured through the National Flood Insurance Program. Source: PCS except as noted by * which are sourced to Munich Re; Insurance Information Institute. 77

78 Combined Ratio Points Associated with Catastrophe Losses: * Combined Ratio Points Avg. CAT Loss Component of the Combined Ratio by Decade 1960s: s: s: s: s: s: 6.70* The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades *Insurance Information Institute estimates for 2010 and 2011 based on A.M. Best data. Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers. Source: ISO; Insurance Information Institute. 78

79 U.S. Thunderstorm Loss Trends, Thunderstorm losses in 2011 totaled a record $25.8 billion Average thunderstorm losses are up more than 5 fold since the early 1980s Hurricanes get all the headlines, but thunderstorms are consistent producers of large scale loss are the most expensive years on record. Source: Property Claims Service, MR NatCatSERVICE 79

80 U.S. Winter Storm Loss Trends, Insured winter storm losses in 2011 totaled $2.0 billion. Average winter storm losses have nearly doubled since the early 1980s Source: Property Claims Service, MR NatCatSERVICE Slide 80

81 U.S. Acreage Burned by Wildfires, millions acres were burned by wildfires in 2011, one of the worst years on record, causing $855 in insured losses Source: National Forest Service, MR NatCatSERVICE Slide 81

82 Notable Wildfires in 2011 Worst wildfire year on record in Texas due to persistent drought. Spring: Over 3 million acres burned in west Texas from 12 major seats of fire. Over 200 homes and businesses destroyed, $50 million insured loss. September: Bastrop County Complex Fire near San Antonio destroys over 1,600 homes, insured loss of $530 million. Source: FEMA 2011 Munich Re 82 82

83 U.S. Insured Catastrophe Losses by Cause of Loss, 2011 ($ Millions) Flood, $535, (1.5%) Geological Events, $50, (0.1%) Winter Storms, $2,017 Wildfires, $855 Other, $1, % Hurricanes & Tropical Storms, 1.5% $5, % 15.4% Thunderstorm/ Tornado losses were 2.5 times above the 30- year average 72.1% Thunderstorms (Incl. Tornadoes, $25,813 Source: ISO s Property Claim Services Unit, Munich Re; Insurance Information Institute s insured loss distribution was unusual with tornado and thunderstorm accounting for the vast majority of loss. 83

84 Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, :H1 1 Wind/Hail/Flood (3), $12.7 Fires (4), $9.0 Other (5), $0.6 Geological Events, $ % 4.9%3.4%0.2% Terrorism, $ % Winter Storms, $ % Tornado share of CAT losses is rising Tornadoes (2), $ % 42.7% Hurricanes & Tropical Storms, $160.5 Wind losses are by far cause the most catastrophe losses, even if hurricanes/ts are excluded. 1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars. 2. Excludes snow. 3. Does not include NFIP flood losses 4. Includes wildland fires 5. 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. 84

85 2011: Nowhere to Run, Nowhere to Hide Most of the Country East of the Rockies Suffered Severe Weather in 2011, Impacting Most Insurers 85

86 Number of Federal Disaster Declarations, * 80 There have been 2, The number of federal federal disaster declarations since disaster declarations set a The average 100 new record in 2011, with 99, shattering 2010 s record 81 declarations number of declarations per year is 34 from , though that few haven t been recorded since federal disasters were declared through Feb. 6, The Number of Federal Disaster Declarations Is Rising and Set a New Record in 2011 *Through February 14, Source: Federal Emergency Management Administration: ; Insurance Information Institute. 86

87 Federal Disasters Declarations by State, : Highest 25 States* clarations saster De Di Over the past nearly 60 years, Texas has had the highest number of Federal Disaster Declarations TX CA OK NY FL LA AL KY AR MO IL MS TN IA MN KS NE PA WV OH VA WV ND NC IN *Through Feb. 26, Source: FEMA: Insurance Information Institute. 87

88 Federal Disasters Declarations by State, : Lowest 25 States* clarations saster De 50 Over the past nearly 60 years, Utah and Rhode Island had the fewest 40 number of Federal 3Disaster Declarations Di ME SD AK GA WI VT NJ NH OR MA PR HI MI AZ NM ID MD MT NV CT CO SC DE DC UT RI WY *Through Feb. 26, Includes Puerto Rico and the District of Columbia. Source: FEMA: Insurance Information Institute. 88

89 SPRING 2011 TORNADO & SEVERE STORM OUTBREAK 2011 Losses Are Putting Pressure on US P/C Insurance and Reinsurance Markets 89

90 Number of Tornadoes and Related Deaths, * Numb ber of Tornad does Tornadoes claimed 550 lives in 2011, the most since ,000 Number of Tornadoes 600 1, ,800 Number of Deaths 500 1,600 1,400 1,200 1, , , ,297 1, ,082 1,234 1, , ,424 1,345 1,071,216 1, 941 1,376 1,264 1,103 1,098 There were 1,709 tornadoes recorded in the US in , , ,282 1, Nu umber of Dea aths P12* Insurers Expect to Pay at Least $2 Billion Each for the April 2011 Tornadoes in Alabama and a Similar Amount for the May Storms in Joplin *Through February 5, Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service at 90

91 U.S. Tornado Count, There were 1,893 tornadoes in the US in 2011 far above average, but well below 2008 srecord Deadly and costly April/ May spike Source: 91

92 Insurers Making a Difference in Impacted Communities Destroyed home in Tuscaloosa. Insurers will pay some 165,000 claims totaling $2 billion in the Tuscaloosa/ Birmingham areas alone. Presentation ti of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm Recovery Fund Source: Insurance Information Institute 92