P/C Insurance Industry Overview & Outlook

Transcription

1 P/C Insurance Industry Overview & Outlook Casualty Actuaries of Greater New York May 24, 2018 James Lynch, FCAS, MAAA, Chief Actuary and Vice President, Research and Education Insurance Information Institute 110 William Street New York, NY

2 2 Who We Are and What We Do The mission of the Insurance Information Institute is to improve public understanding of insurance what it does and how it works. We Are A voice for the property/casualty insurance industry. The go-to source for credible and unbiased insurance information for the media, the industry and consumers. Dedicated to ensuring the media covers our business fairly and accurately. Ready to assist our member companies with their communications, research and planning needs. We do not lobby. 2

3 P/C Financials, 2017 Q4

4 Net Written Premium by Year ($ Billions) Steady Growth Since Last Recession Following Overall Economic Trends. Sources: A.M. Best ( ), ISO ( ), Federal Reserve Bank of St. Louis (FRED), Insurance Information Institute. 4

5 Net Written Premium Growth 5% 4% 3% 4.1% 3.9% 2% 1% 0% -1% -2% -3% -4% -5% NPW Growth GDP Growth Premium Growth Continues to Follow Economic Growth and Inflation Trends. Sources: A.M. Best ( ), ISO ( ), Federal Reserve Bank of St. Louis (FRED), Insurance Information Institute. 5

6 P/C industry net income after taxes, (Billions, 2017 dollars) $ $ $ $50 $ $30 $ $10 $ Catastrophes Drove Earnings Down in 2017, Continuing a Four- Year Slide in Inflation-Adjusted Profits. Through fourth quarter. Adjusted for inflation using the BLS CPI calculator, to 2017 dollars. Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 6

7 P/C Insurance Industry Combined Ratio, * 3 Consecutive Years of U/W Profits; 1 st time since Heavy Use of Reinsurance Lowered Net Losses. Best Combined Ratio Since 1949 (87.6) Higher CAT Losses, Shrinking Reserve Releases, Toll of Soft Market Hurricanes, Wildfires Drive CR Higher Sandy E 19E *Excludes Mortgage & Financial Guaranty insurers Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = Sources: A.M. Best; ISO, a Verisk Analytics company; I.I.I. estimate for

8 U.S. Insured Catastrophe Losses (Billions, 2016 dollars) $100 $90 91 $80 77 $70 $60 $50 $40 $30 $20 $10 $ Harvey, Irma and Maria Losses Made 2017 a Record Cat Year. Sources: Property Claims Service, a Verisk Analytics business; Insurance Information Institute. 8

9 P/C Insurer Portfolio Yields 5% 4% 3% % 1% 0% Yields Have Been Falling for Over a Decade, Reflecting the Long Downward Trend in Prevailing Interest Rates. Sources: NAIC data, sourced from S&P Global Market Intelligence. 9

10 Key sources of P/C insurer profits $ Billions $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 -$10 -$20 -$30 -$40 UW Gain/Loss Investment Gain $67.7 $66.7 $58.8 $68.7 $55.9 $58.5 $58.9 $55.9 $33.0 $40.6 $1.5 $17.5 $14.2 $11.2 -$2.4 -$19.7 -$8.3 -$13.9 -$20.6 -$ Worst Underwriting Result in Six Years Best Investment Gain in Over a Decade. Data are before taxes and exclude extraordinary items. Source: NAIC data, sourced from S&P Global Market Intelligence. 10

11 Sources of Investment Gains $ Billions $70 Net Inv. Income Realized Cap Gains $60 $50 $7.8 $7.6 $8.7 $18.4 $11.8 $10.1 $8.5 $19.4 $40 $30 $20 $53.1 $48.4 $48.1 $50.9 $50.3 $49.3 $54.9 $48.8 $47.5 $49.3 $10 $0 -$10 $(20.1) $(7.8) -$ Investment Income Holds Steady But a Great Year for Capital Gains. Source: NAIC data, sourced from S&P Global Market Intelligence. 11

12 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 12:Q1 12:Q2 12:Q3 12:Q4 13:Q1 13:Q2 13:Q3 13:Q4 14:Q1 14:Q2 14:Q3 14:Q4 15:Q1 15:Q2 15:Q3 15:Q4 16:Q1 16:Q2 16:Q3 16:Q4 17:Q1 17:Q2 17:Q3 17:Q4 Policyholder Surplus ($ Billions) $800 $750 $700 $650 $600 $550 $500 $450 $400 $487.1 $437.1 Cap Gains, Tax Reform Drove Surplus Up $33B in Q4 $752.5 The industry now has $1 of surplus for every $0.73 of NPW, the strongest claims-paying status in its history. 2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer s investment in a noninsurance business. The P/C insurance industry is, in 2017, in very strong financial condition. Sources: ISO, A.M.Best. 12

13 Commercial Rates

14 2013:Q1 2014:Q1 2015:Q1 2016:Q1 2017:Q1 2018:Q1 Rate Changes Worldwide Rates Soft/Flat, Especially in Reinsurance Global Insurance Rates Global Reinsurance January Renewals 2% 1.2% 1% 0.9% 6% 4% 4.8% 0% 2% -1% -2% -3% -4% -5% -6% Rates Worldwide Increasing a Bit (Australia) -5.0% 0% -2% -4% -6% -8% -10% -8.2% -5.7% -12% -14% -12.0% -11.0% Sources: Marsh Insurance Market Index, JLT Re. 14

15 Commercial Lines Rate Change 15% 12% 10% 7% 9% 5% 5% 0% Willis 2% 1% -5% -10% -6% MarketScout -4% -15% -20% -16% We re in a Long Period of Flat Rates Overall. Sources: Willis Towers Watson, MarketScout. 15

16 Liability Rate Changes Slight Softening, Though Local Markets Vary U.S. Casualty U.S. Financial and Prof Liab 2.6% 3.0% 3.0% 2.7% 2.0% 1.0% 0.0% -1.0% -2.0% 2.0% 1.0% 0.0% -1.0% 0.0% -3.0% -4.0% -3.0% -2.0% -3.0% SOURCE: Marsh Insurance Market Index. 16

17 Property/Cyber Rate Changes Slight Softening, Though Local Markets Vary U.S. Property U.S. Cyber 6.0% 25.0% 4.0% 2.9% 20.0% 2.0% 15.0% 0.0% -2.0% -4.0% 5.0% -6.0% -8.0% -5.0% -1.7% SOURCE: Marsh Insurance Market Index. 17

18 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep Dec 16-Mar 16-Jun 16-Sep 16-Dec 17-Mar 17-Jun 17-Sep 17-Dec 18-Mar General Liability Rate Change (vs. Year Earlier) 8% 6% % % % % % % % 18

19 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep Dec 16-Mar 16-Jun 16-Sep 16-Dec 17-Mar 17-Jun 17-Sep 17-Dec 18-Mar Umbrella/Excess Rate Change (vs. Year Earlier) 6% 5 4% % % % % % -5 19

20 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep Dec 16-Mar 16-Jun 16-Sep 16-Dec 17-Mar 17-Jun 17-Sep 17-Dec 18-Mar Commercial Auto Rate Change (vs. Year Earlier) 8% 6% % % % 0 0-2% % % Sources: MarketScout, Insurance Information Institute. 20

21 Workers Comp Rate Change (vs. Year Earlier) 10% 8% 6% 4% 2% 0% % -4% -6% -8% % -12% -14% % Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11 Sep-12 Jun-13 Mar-14 Dec-14 Sep-15 Jun Mar 17-Dec Workers Comp Rates Often Have Their Own Dynamic Apart from Market Sources: MarketScout, Insurance Information Institute. 21

22 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep Dec 16-Mar 16-Jun 16-Sep 16-Dec 17-Mar 17-Jun 17-Sep 17-Dec 18-Mar D&O Liability Rate Change (vs. Year Earlier) 6% 5% 5 4% % 3 3 2% % % % % -2-3% -4% -3 Sources: MarketScout, Insurance Information Institute. 22

23 Hard Market/Soft Market

24 Three Hard Markets in the Last 45 Years Net Premium Growth (All P/C Lines) vs. Nominal GDP: Annual Change, % 20% NWP GDP 16% 12% 8% 4% 0% -4% The three hard markets in this 45-year span were in , , and Sources: A.M. Best ( ), ISO ( ); U.S. Commerce Dept., Bureau of Economic Analysis; I.I.I. 24

25 Three Hard Markets in the Last 45 Years Net Premium Growth (All P/C Lines) Minus Nominal GDP, Annual Change 20% 15% 10% 10.7% 14.6% 16.6% Is 5% a Hard Market? 12.0% 5% 5.1% 5.1% 0% -5% -10% The three hard markets in this 45-year span were in , , and Sources: A.M. Best ( ), ISO ( ), A.M. Best, Insurance Information Institute ( ); U.S. Commerce Dept., Bureau of Economic Analysis; Insurance Information Institute calculations. 25

26 I.I.I. Hypothesis What causes a hard market? Return on equity falls to 4% or below? Surplus drops due to financial market declines and/or significant underwriting losses? Unusually large losses due to catastrophes? 27

27 P/C Industry ROE and Hard Markets Year ROE NWP-GDP Growth in Following Year Hard Market? % 10.7% Yes % 14.6% Yes % 12.0% Yes % 5.1% Yes %?? 28

28 Policyholder Surplus and Hard Markets Year Surplus Decline NWP-GDP Growth in Following Year Hard Market? % 14.6% Yes % -1.5% No % 5.1% Yes % 12.0% Yes % -2.2% No % 0.2% No %?? 29

29 CAT Claims and Hard Markets Year CAT Claims Over $25 billion (2016 Adjusted) NWP-GDP Growth in Following Year Hard Market? 1992 $ % No 1994 $ % No 2001 $ % Yes 2004 $ % No 2005 $ % No 2008 $ % No 2011 $ % No 2012 $ % No 2017 $90.5?? 30

30 Hard Market in 2017? Strong indicator: 4% ROE Consistent hard markets in years comparisons. Indifferent indicator: Surplus Increase/Decrease Inconsistent hard/soft markets in years comparisons. Weak indicator: Large Cat Losses Consistent non-movement; even with 2017 potentially being one of the worst years on record. 31

31 Marijuana and Auto Insurance

32 /01/09-9pm Support for Legalization Grows % Saying Yes , , , , , 23 0 Do You Think the Use of Marijuana Should Be Made Legal, Or Not? No survey in years where no data appears. SOURCES: Gallup Poll Social Series, 33

33 /01/09-9pm Support for Legalization Grows % Saying Yes Democrats Independents Republicans Democrats Independents Republicans Do You Think the Use of Marijuana Should Be Made Legal, Or Not? SOURCES: Gallup Poll Social Series, 34

34 Cannabis in the USA Legalization is Accelerating Congressional Cannabis Caucus Rohrbacher (CA) Bluemenauer (OR) Young (AK) Polis (CO) SOURCE: National Journal. 35

35 Driving While High the Legal Framework Illegal Everywhere, but What Makes You High? Under the Influence Per Se Incapacitated RI: Zero Tolerance (Medical Exception). Rest of NE: Incapable of Driving Safely. SOURCE: National Conference of State Legislators, National Organization for Reform of Marijuana Laws (NORML), 36

36 Blood Levels vs. Intoxication BAC and feeling drunk rise and fall in lockstep THC levels in blood and feeling high rise and fall at different rates It Is Difficult to Use Blood Test to Measure Whether Someone is High. SOURCE: Sewell, Poling, Sofuoglu, The Effect of Cannabis Compared with Alcohol on Driving, American Journal on Addictions,

37 12/01/09-9pm THC on the Road % THC-Positive Drivers (WA) Before Legal Sales After 6 Months After 1 Year Before Legal Sales After 6 Months After 1 Year Before Legal Sales After 6 Months After 1 Year Any Time of Day Nighttime Daytime Legalization Put More Drivers With THC in Their System on the Road. SOURCE: National Highway Traffic Safety Administration. 38

38 Driving While High The Science Review of Literature Conclusive evidence Improves the lot of adults in chronic pain. Substantial evidence Increases the risk of motor vehicle crashes. SOURCE: National Academy of Sciences, 39

39 Marijuana and Driving Skills What the Studies Say Cognitive Studies Impairment in every performance area that can reasonably be connected with safe driving Culpability Studies Suffer from Sampling delay Reliance on carboxy-thc Experimental Research Marijuana users tend to overestimate their impairment, and consequently employ compensatory strategies. Case Control Studies Hard to create a good control group (accidents that didn t happen) SOURCE: Sewell, Poling, Sofuoglu, The Effect of Cannabis Compared with Alcohol on Driving, American Journal on Addictions,

40 Accident Probability WA per se limit Chance of Accident Rises Sharply As Consumption Rises. SOURCE: Sewell, Poling, Sofuoglu, The Effect of Cannabis Compared with Alcohol on Driving, American Journal on Addictions,

41 But Blood Tests Aren t Perfect Blood Test vs. Drug Recognition Experts (DREs) THC Concentration (ng/ml) Sensitivity ( Catches the Bad Guys ) Specificity ( Frees the Good Guys ) Overall Accuracy ( Gets It Right ) % 70.2% 77.0% SOURCE: AAA Foundation, An Evaluation of Data from Drivers Arrested for Driving Under the Influence in Relation to Per se Limits for Cannabis, March

42 Marijuana + Alcohol A Killer Combination Studies Agree Cannabis Hurts Automatic Functions (Lane Usage) More Than Complex Tasks Alcohol Does the Opposite Cannabis Users Become Less Daring Alcohol Users Become More Daring Cannabis Doesn t Supplant Drinking Liquor Tax Collection, % Change from Year Earlier 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% SOURCES: Colorado Department of Revenue. (Data for first 10 months of year to allow like-to-like comparisons.) 43

43 Legal Sales Lead to More Accidents Percent Change in Collision Frequency, * Look at Real World Crashes All Measures Statistically Significant Overall Measure a Good Proxy for What Will Happen in Any State 0 CO WA OR Overall * Vs. Neighboring States. SOURCE: Highway Loss Data Institute. 44

44 Pedestrian Deaths and Cannabis Walking While High? From Date of Legalization From Date of Legal Sale Pedestrian Deaths (2012 = 100) Pedestrian Deaths (2014 = 100) Rest of US CO, WA CO, WA First six months of year. SOURCE: Governors State Highway Association 45

45 I.I.I. Survey: Cannabis vs. Alcohol Would You Ride With a Driver Who Drank Too Much? Would You Ride With a Driver Who Was High? Yes 3% Yes 27% No 97% No 73% Respondents Seem Much More Tolerant of High Driver, Even Though They Understand the Risk. SOURCE: Insurance Information Institute Pulse survey, November

46 Summary Catastrophes Led to a Weak Underwriting Result in 2017 but Capital Gains Helped Overall Results. Rates Are Flat Overall, With Variability by Line of Business. Evidence is Weak That Hard Market Will Emerge This Year. With Marijuana and Driving, We Need Greater Awareness More Research Understanding of Greater Costs (Training and Testing) 47

47 The Insurance Information Institute Improving public understanding of insurance... what it does and how it works 48

48 Thank you for your time and your attention!