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Natural Catastrophe Review Webinar
First Half of 2015
July 14, 2015
Agenda
Introduction
Sharon Cooper
Press Spokesperson, Munich Re America
US Natural Catastrophe Update
Carl Hedde
Head of Risk Accumulation, Munich Re America
Update on El Niño & Global Natural Catastrophes
Dr. Peter Höppe
Head of Geo Risks Research, Munich Re
Economic Implications of Natural Catastrophe Losses
Dr. Robert Hartwig
President & Economist, Insurance Information Institute
© 2015 Munich Re
2
Webinar Interactivity
Questions and Answers
You will have an opportunity to ask questions at the conclusion of the
presentation.
An operator will facilitate your participation.
Live Tweeting
@Munichre_US
@lworters
@iii
© 2015 Munich Re
#NATCAT2015
3
US Natural Catastrophes - First Half of 2015
Carl Hedde, Head of Risk Accumulation
Munich Reinsurance America, Inc.
© 2015 Munich Re
Source: FEMA
US Natural Catastrophe Update
US Headlines – First Half 2015
 Insured losses in US totaled $8.2 billion – far below 2000 - 2014 average loss of
$11.2 billion (Jan-June)
 Drought conditions in California continue to worsen, creating increased risk of
wildfires. El Niño conditions may bring much needed rains this winter
 Record rainfall in Texas and Oklahoma alleviate drought, but cause severe flash
flooding in Houston and Texas Hill Country
 Eastern U.S. experienced second winter of brutal cold/snow; damage estimated
to exceed $2.9 billion, a new record (in terms of original loss dollars)
 Severe thunderstorm events caused estimated $5.1 billion in insured loss, lowest
half-year total since 2006
© 2015 Munich Re
5
US Natural Catastrophe Update
Natural disaster losses in the U.S. 2015
Based on perils (January – June only)
Number
of
Events
Severe Thunderstorm
Fatalities
Estimated Overall
Losses (US $m)
Estimated Insured
Losses (US $m)*
38
66
7,000
5,100
Winter Storms & Cold Waves
11
80
3,800
2,900
Flood, Flash Flood
10
4
500
150
Earthquake & Geophysical
1
-
-
-
Tropical Cyclone
2
4
100
60
Wildfire, Heat Waves, &
Drought
18
-
1,300
Minor market loss
Totals
80
154
12,600
8,200
As of July 1, 2015
*Source: Property Claim Services (PCS) as of 7.7.2015
© 2015 Munich Re
6
US Natural Catastrophe Update
Loss events in the U.S. 1980 – 2015
Number of events (January – June only)
Number
Geophysical events
(Earthquake, tsunami,
volcanic activity)
First Six Months in 2015
80 Events
Meteorological events
(Tropical storm,
extratropical storm,
convective storm,
local storm)
22
10
47
Hydrological events
(Flood,
mass movement)
Climatological events
(Extreme temperature,
drought, forest fire)
1
Source: Munich Re, NatCatSERVICE
© 2015 Munich Re
7
US Natural Catastrophe Update
Loss events in the U.S. 1980 – 2015
Overall and insured losses (January – June only)
Overall losses totaled US$ 12.6bn; Insured losses totaled US$ 8.2bn
Overall losses
(in 2015 values)*
bn US$
Insured losses
(in 2015 values)*
*Losses adjusted
to inflation based
on country CPI
Source: Munich Re, NatCatSERVICE
© 2015 Munich Re
8
March 2010
March 2015
Notable U.S. Events
First Half of 2015
© 2015 Munich Re
Photos: NASA
US Natural Catastrophe Update
Drought Conditions as of 30 June 2015
© 2015 Munich Re
10
US Natural Catastrophe Update
Extreme Precipitation in Texas & Oklahoma
 The United States saw its wettest
month of May on record.
 May 2015 was also the wettest
month in the history of Oklahoma
and Texas, in terms of statewide
average rainfall.
 OK: 14.18” (Previous 10.75”,
October 1941)
 TX: 7.54” (Previous 6.66”, June
2004)
© 2015 Munich Re
11
US Natural Catastrophe Update
Winter storms
First Half 2015
 For second straight year,
persistent ridge over western
North America caused frigid air to
stream southward into eastern
US
 Record snowfalls across New
England, caused numerous roof
collapses, while frigid
temperatures burst pipes
 Aggregate insured losses
estimated at $2.9 billion, largest
total in terms of original loss
dollars
Source: Property Claims Service; MR NatCatSERVICE
Source: FEMA
© 2015 Munich Re
12
US Natural Catastrophe Update
Thunderstorms
Tornado Count for First Half 2015
 Preliminary tornado
counts for first half of
2015 about 200 below the
2005-2014 average.
 Tornado counts in April
(185) and May 2015 (414)
were much higher than in
2014.
Source: NOAA
© 2015 Munich Re
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US Natural Catastrophe Update
Insured Loses Due to Convective Storms*
January – June Only, 1980 - 2015
Overall losses totaled US$ 7.0bn; Insured losses totaled US$ 5.1bn
US$m
Insured losses
(in 2014 values)**
5 year Mean
*Convective storms
include tornadoes, hail,
and straight-line winds
**Losses adjusted to
inflation based on
country CPI
© 2015 Munich Re
14
Update on El Niño
Dr. Peter Höppe, Head of Geo Risks Research
Munich Re
© 2015 Munich Re
Source: NOAA
Update on El Niño
ENSO (El Niño/Southern Oscillation)
Definitions
 ENSO (El Niño/Southern Oscillation): natural climate oscillation in tropical Pacific Ocean,
which affects both ocean and atmosphere.
 Anomaly of sea surface temperature in so called Niño3.4-Region (= Niño3.4-Index) is
used to define ENSO-Phases:
El Niño (Niño3.4-Index >0,5)
Neutral Phase (Niño3.4-Index <0,5 und >-0,5)
La Niña (Niñno3.4-Index <-0,5)
Anomalies of sea surface temperatures in
Niño3.4-region since 1950
Location of Niño 3.4-region
Source: Climate Prediction Center/NOAA
© 2015 Munich Re
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Update on El Niño
The 2015-2016 El Niño
 Moderate El Niño conditions have developed over
past 6 months over eastern equatorial Pacific
 Forecasts indicate this will likely be strongest El
Niño event since 1997-1998
 If strong El Niño develops, there is high probability
for a La Niña next year
 Current Impacts:
- Record amount of Accumulated Cyclone Energy
(ACE) released by northern hemisphere tropical
cyclones so far this year (166 vs. normal of 54
through 30 June)
- Disruption of monsoons in South Asia; has
contributed to the record heat wave there.
Source: NOAA/CPC
© 2015 Munich Re
17
Update on El Niño
The 2015-2016 El Niño
Expected U.S. Impacts:
 Cooler and wetter than normal along southern third of
nation
 Drier than normal in Pacific Northwest and Ohio River
valley; warmer than normal from Alaska to Northern
Plains
 Reduced tropical cyclone risk in Atlantic; increased
risk in Eastern Pacific and Hawaii.
 Potential for heavy rains, mudslides in California
 Potential for reduced winter tornado outbreaks over
south-central U.S. ; increased risk of winter tornadoes
over Florida peninsula
© 2015 Munich Re
18
Update on El Niño
Global characteristic changes in El Niño phases
 Lower TS activity in
Atlantic ocean; higher in
East-Pacific
 Increased flood risks in
South America; Southeast
China
 Increased drought risk in
East and North Australia;
Southeast and South Asia;
Southern Africa;
North/Northeast Brazil
© 2015 Munich Re
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Update on El Niño
State of Climate (NOAA): 2014 warmest year on record!
2015 starts with new record!
 2014 was the warmest year across
global land and ocean surfaces
since records began in 1880
 9 of 10 warmest years in 135-year
period of record have occurred in
21st century
 1998 currently ranks as fourth
warmest year on record.
 January to May 2015 warmest first
five months on record!
© 2015 Munich Re
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Update on El Niño
G7 Climate Risk Insurance Initiative

G7 decided to support people in developing countries to protect
themselves against economic consequences of more
intense and frequent extreme weather events

Target: extra 400 million people earning less than US$ 2 per day get
access to direct (100 m) or indirect (300 m) insurance of losses caused
by weather extremes

German Government already pledged € 150 million for first two
project years with option of more to follow later

Munich Re has been involved w/German government in preparation of G7 initiative:
directly with in house geo risks research expertise and indirectly by Munich Climate Insurance Initiative
(MCII)

CRII has high potential to become milestone on climate change adaptation and resilience for poor
countries.
© 2015 Munich Re
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Global Natural Catastrophes - First Half of 2015
© 2015 Munich Re
Global Natural Catastrophe Update
Loss events worldwide Jan – June 2015
Geographical overview
Winter Storm Niklas
Europe, 30 March–1 April
Earthquake
Nepal, China, India, Bangladesh
25 April
Winter storms
Elon and Felix
Europe, 8–11
January
Winter storm
USA, Canada
16–25 February
Avalanche, winter damage
Afghanistan,
February–March
Cyclone Marcia
Australia,
18–20 February
Severe storms
USA, 7–10 April
Severe storm,
tornado
China, 1 June
Flash floods
Chile,
23–26 March
(Earthquake, tsunami,
volcanic activity)
Meteorological events
(Tropical storm,
extratropical storm,
convective storm,
local storm)
Hydrological events
(Flood, mass movement)
Climatological events
Cyclone Pam
Vanuatu,
9–16 March
Severe storms
USA, 18–21 April
510
Loss events
Geophysical events
Heatwave
India, Pakistan
May–June
Winter storm
Australia, 19–24 April
(Extreme temperature,
drought, wildfire)
Loss events
Selection of
Catastrophes
Source: Munich Re, NatCatSERVICE, 2015
Source: Geo Risks Research, NatCatSERVICE – As at July 2015
© 2015 Munich Re
23
Global Natural Catastrophe Update
Loss events worldwide 1980 – 2015
Number of events (January – June only)
Number
Geophysical events
(Earthquake, tsunami,
volcanic activity)
Meteorological events
(Tropical storm,
extratropical storm,
convective storm,
local storm)
Hydrological events
(Flood,
mass movement)
Climatological events
(Extreme temperature,
drought, forest fire)
Source: Munich Re, NatCatSERVICE – As at July 2015
© 2015 Munich Re
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Global Natural Catastrophe Update
Loss events worldwide 1980 – 2015
Overall and insured losses (January – June only)
US$ bn
Overall losses
(in 2015 values)*
Insured losses
(in 2015 values)*
*Losses adjusted
to inflation based
on country CPI
Source: Munich Re, NatCatSERVICE – As at July 2015
© 2015 Munich Re
25
Global Natural Catastrophe Update
Loss events worldwide 2015
Overview and comparison with previous years
Number of events
2015
(Jan – June)
2014
(Jan – June)
Average of the
last 10 years
2005-2014
(Jan – June)
Average of the
last 30 years
1985-2014
(Jan – June)
Top Year
1985 -2014
(Jan – June)
510
520
440
330
620
(2012)
Overall losses
in US$ m (original values)
35,000
Insured losses
in US$ m (original values)
12,000
Fatalities
16,200
60,000
95,000
64,000
302,000
(2011, EQ Japan)
23,000
27,000
15,000
82,000
(2011, EQ Japan)
2,800
46,000
27,000
230,000
(2010, EQ Haiti)
© 2015 Munich Re
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Global Natural Catastrophe Update
Loss events worldwide 2015
The five costliest natural catastrophes for the insurance industry
Insured
losses
US$ m
Date
Region
Event
16-25.2.2015
United States,
Canada
Winter storm
39
2,400
1,800*
30.3-1.4.2015
Europe
Winter Storm Niklas
11
1,400
1,000
7-10.4.2015
United States
Severe storms
3
1,400
990*
18-21.4.2015
United States
Severe storms
-
1,100
780*
23-28.5.2015
United States
Severe storms
32
1,300
750*
*Date based on information from PCS
Fatalities
Overall
losses
US$ m
© 2015 Munich Re
27
Global Natural Catastrophe Update
Costliest natural catastrophes since 1980
Ranked by insured losses
Year
Event
Region
2005
Hurricane Katrina
USA
60,500
2011
EQ, tsunami
Japan
40,000
2012
Hurricane Sandy
USA, Caribbean
29,500
2008
Hurricane Ike
USA, Caribbean
18,500
1992
Hurricane Andrew
USA
17,000
2011
EQ Christchurch
New Zealand
16,500
2011
Floods
Thailand
16,000
1994
EQ Northridge
USA
15,300
2005
Hurricane Wilma
USA, Caribbean
12,500
2012
Drought
USA
12,000
© 2015 Munich Re
Insured loss
US$m (in original values)
28
Market & Financial Impact of
Catastrophe Losses:
First Half 2015 Summary
Insurance Information Institute
July 14, 2015
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  [email protected]  www.iii.org
29
WINTER STORM LOSSES:
Significant Economic Impact—Again!
Losses from Snow, Ice, Freezing and
Related Causes Typical Cost Insurers
Between $1 Billion and $2 Billion
Annually ($2.3B+ in 2014/15)
30
US Real GDP Growth*
-7%
-0.3%
Q1 2014 GDP data
were hit hard by that
year’s “Polar Vortex”
and harsh winter
2.2%
2.9%
3.2%
3.0%
2.7%
2.8%
2.7%
2.6%
Q1 2015 GDP data
were again hit hard
by harsh winter
weather
-8.9%
2000
2001
2002
2003
2004
2005
2006
2007
08:1Q
08:2Q
08:3Q
08:4Q
09:1Q
09:2Q
09:3Q
09:4Q
10:1Q
10:2Q
10:3Q
10:4Q
11:1Q
11:2Q
11:3Q
11:4Q
12:1Q
12:2Q
12:3Q
12:4Q
13:1Q
13:2Q
13:3Q
13:4Q
14:1Q
14:2Q
14:3Q
14:4Q
15:1Q
15:2Q
15:3Q
15:4Q
16:1Q
16:2Q
16:3Q
16:4Q
-9%
Great
Recession
Dec. 2007June 2009
-5.3%
-5%
-3.7%
-1.8%
-1%
-0.2%
1%
-3%
4.6%
5.0%
1.4%
-2.1%
3%
1.3%
5%
4.1%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
1.8%
7%
5.0%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
2.7%
1.8%
4.5%
3.5%
The Q4:2008 decline was
the steepest since the
Q1:1982 drop of 6.8%
Real GDP Growth (%)
Demand for Insurance Should Increase in 2015 as GDP Growth
Accelerates Modestly and Gradually Benefits the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 7/15; Insurance Information Institute.
31
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1995–20141
Wind/Hail/Flood (3), $21.4
Fires (4), $6.0
Winter storm
Other (5), $0.2
losses were
1.5%
Geological Events, $0.5
much above
5.4%
average in
Terrorism,
0.1%
0.1%
2014/15 are
$24.5
6.2%
will push this
share up
6.8%
Winter Storms, $26.9
40.7%
Tornado share of
CAT losses is
rising
Events Involving
Tornadoes (2),
$154.9
Insured cat losses
from 1995-2014
totaled $395.6B, an
average of $19.8B
per year or $1.65B
per month
Hurricanes & Tropical Storms,
$161.2
39.2%
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 2014 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.
32
Top 16 Most Costly Disasters
in U.S. History—Katrina Still Ranks #1
(Insured Losses,
2014 Dollars, $
Billions)
Storm Sandy in 2012
was the last mega-CAT
to hit the US
$60
$50.2
$50
$40
$30
Includes
Tuscaloosa,
AL, tornado
Includes
Joplin, MO,
tornado
$24.6 $25.3 $26.4
$19.3
$20
$10
$0
12 of the 16 Most
Expensive Events
in US History
Have Occurred
Since 2004
$11.4
$8.1 $9.0 $9.4
$7.7
$7.3
$6.9
$4.6 $5.7 $5.8
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.8
Ike
(2008)
Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.
Sandy* Northridge9/11 Attack Andrew
(2012)
(1994)
(2001)
(1992)
Katrina
(2005)
33
I.I.I. Poll: 10 Years After Katrina, Most Understand
Flood Is Not Covered Under Standard HO Policies
Q. Does your homeowners policy cover damage from flooding during a hurricane?1
Don’t know
24%
19%
Yes
56%
No
More Than Half of Homeowners Know Their HO Insurance Does Not
Cover Flood From a Hurricane, But A Significant Proportion Either
Think It Does Or Do Not Know.
1Asked
of those who have home insurance.
Source: Insurance Information Institute Annual Pulse Survey.
34
I.I.I. Poll: Flooding from Hurricanes
Q. Does your homeowners policy cover damage from flooding during a hurricane?1
Respondents answering “yes”.
40%
34%
30%
30%
24%
20%
14%
14%
Midwest
West
10%
0%
South
Northeast
Total U.S.
Homeowners in the South and Northeast Were Most Likely to
Think Home Insurance Pays for Flood Damage.
1Asked
of those who have home insurance.
Source: Insurance Information Institute Annual Pulse Survey.
35
P/C Insurance Industry:
Financial Update
2015 Is Likely to Be One of the
Strongest Years
in the Post-Recession Era
(2013 Was Best)
36
$55,501
$63,784
$18,100
$33,522
$19,456
$28,672
$35,204
$62,496
$44,155
$38,501
$30,029
$20,559
$30,773
$36,819
Net income
fell modestly
(-12.5%) in
2014 vs. 2013
Net income
was up
sharply in Q1,
lower cats
were one
factor
$3,043
$10,000
$3,046
$20,000
$21,865
$30,000
$24,404
$40,000
$20,598
$50,000
$10,870
$60,000
$19,316
$70,000
2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.2%
2014 ROAS1 = 8.4%
2015:Q1E ROAS =
10.5%
$5,840
$80,000











$14,178
$ Millions
$65,777
P/C Industry Net Income After Taxes
1991–2015:Q1
$0
14
13
12
15:Q1
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8%
ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO; Insurance Information Institute
11
10
09
08
07
06
05
04
03
02
01
99
98
97
96
95
94
93
92
91
00
-$6,970
-$10,000
37
ROE: Property/Casualty Insurance by Major Event,
1987–2015:Q1
(Percent)
20%
P/C Profitability Is Subject to
Cyclicality and Ordinary
Volatility, Typically Due to CAT
Activity
Katrina, Rita,
Wilma
15%
Low
CATs
2015 similar
to 2013-14
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
Northridge
4 Hurricanes
Financial
Crisis*
Sandy
Somewhat higher
CAT activity in
2014 had a
modest negative
impact on ROE
Record
Tornado
Losses
-5%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14* 15**
* Excludes Mortgage & Financial Guarantee in 2008 – 2014.
Sources: ISO; Insurance Information Institute.
38
A 100 Combined Ratio Isn’t What It
Once Was: Investment Impact on ROEs
Lower CATs (relative
to 2011/12) helped
ROEs in 2013/14/15
Combined Ratio / ROE
15.9%
110
106.5
14.3%
12.7%
105
100.6 100.1 100.8
100
10.9%
101.2
97.5
95.7
95
8.8%
9.6% 92.7
90
99.5
15%
102.4
101.0
10.5% 12%
96.7 97.2 96.0
9%
7.4% 7.9%
6.2% 9.8%
8.2%
4.7%
6%
4.3%
85
18%
A combined ratio of
about 100 generates
an ROE of ~7.0% in
2012/13, ~7.5% ROE
in 2009/10,
10% in 2005 and
16% in 1979
3%
80
0%
1978
1979
2003
2005
2006
2007
2008
Combined Ratio
2009
2010
2011
2012
2013
2014 2015:Q1
ROE*
Combined Ratios Must Be Lower in Today’s Depressed
Investment Environment to Generate Risk Appropriate ROEs
* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014: combined ratio including
M&FG insurers is 97.0; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
39
SURPLUS/CAPITAL/CAPACITY
Industry Claims Paying Capital Stands
at Near Record High as of mid-2015
(Re)Insurance Industry is Well
Positioned to Manage Large Scale
Catastrophe Losses
40
$624.4
$614.0
$607.7
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$671.0
$674.7
$671.6
$673.9
The P/C insurance
industry entered 2015
(and the 2015
hurricane season on
June 1)
in very strong
financial condition.
15:Q1E
14:Q4
14:Q3
14:Q2
14:Q1
13:Q4
13:Q3
13:Q2
13:Q1
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
Surplus as of 3/31/15 stood at
a near-record high of $671B
09:Q4
$463.0
$490.8
09:Q3
09:Q2
$437.1
$455.6
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
$400
06:Q4
$450
09:Q1
$505.0
$478.5
$517.9
$515.6
$521.8
$496.6
$500
$487.1
$550
$512.8
$600
$559.2
$566.5
2007:Q3
Pre-Crisis Peak
$650
$586.9
Drop due to near-record
2011 CAT losses
$700
$662.0
($ Billions)
$653.4
Policyholder Surplus,
2006:Q4–2015:Q1E
The industry now has $1 of surplus for every $0.73 of NPW,
close to the strongest claims-paying status in its history.
2010:Q1 data includes $22.5B of paid-in capital from
a holding company parent for one insurer’s
investment in a non-insurance business.
Sources: ISO, A.M .Best;
I.I.I. estimate for Q1:2015
41
Investments: The New Reality
Investment Income Offsets Less
Loss than in the Past, Including
Losses from Catastrophes
42
Property/Casualty Insurance Industry Investment
Income: 2000–2015E1
($ Billions)
Investment earnings
are still below their
2007 pre-crisis peak
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1 $47.6
$38.9
$38.7
$48.0 $47.3
$46.2 $46.7
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
Due to persistently low interest rates,
investment income fell in 2012, 2013 and 2014. A small increase in
2015 is possible as interest rates slowly increase.
1
Investment gains consist primarily of interest and stock dividends.
Sources: ISO; Insurance Information Institute.
*2015 figure is estimated based on annualized data through Q1.
43
Book Yield on Property/Casualty Insurance Invested
Assets, 2007–2015*
(Percent)
4.6
4.4
4.38
Book yield in 2015 is
down 74 BP from precrisis levels
4.17
4.2
4.02
4.0
3.87
3.74
3.8
3.82
3.6
3.63
3.64
14
15*
3.44
3.4
3.2
3.0
07
08
09
10
11
12
13
The yield on invested assets remains low relative to pre-crisis
yields. The Fed’s plan to raise interest rates in late 2015 has
already pushed up some yields, albeit quite modestly.
*2015 figure is the average of the four quarters ending in 2015:Q1.
Sources: SNL Financial; Insurance Information Institute
44
UNDERWRITING
Underwriting Results in 2015
(and 2013-14) Were Helped by
Generally Modest
Catastrophe Losses
Welcome Respites from 2011/2012
45
P/C Insurance Industry
Combined Ratio, 2001–2015:H1*
Heavy Use of
Reinsurance
Lowered Net
Losses
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for
Every $1 in Earned
Premiums
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
Cyclical
Deterioration
99.3
98.4
Higher CAT
Losses,
Shrinking
Reserve
Releases, Toll
of Soft Market
Avg. CAT
Losses,
More
Reserve
Releases
101.0
100.8
100.1
100
Relatively
Low CAT
Losses,
Reserve
Releases
Sandy
Impacts
Lower
CAT
Losses
106.3
102.4
100.8
Modest
CATs
96.7 97.2 97.0
95.7
Somewhat
higher CAT
Losses
92.6
90
01
02
03
04
05
06
07
08
09
10
11
12
13
* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1;
2012:=103.2; 2013: = 96.1; 2014: = 97.0.
Sources: A.M. Best, ISO; I.I.I. estimate for H1:2015.
14
15:H1
46
Underwriting Gain (Loss)
All Lines Combined, 1975–2015*
($ Billions)
$30
$20
2014
underwriting
profit totaled
$12.3B
$10
Underwriting
profit in 2014
estimated at
$14B
$0
-$10
-$20
-$30
-$40
-$50
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
-$60
High CAT losses in 2011 led to the highest underwriting loss since 2001.
Lower CAT losses in 2013, 2014 and modest losses so far in 2015.
First underwriting profits since 2007.
Note: Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best, ISO, Insurance Information Institute.
47
Severe Weather Reports: Jan. 1 – July 13, 2015
Severe weather reports
are concentrated east of
the Rockies
There were
12,360 severe
weather
reports
through July
13, 2015;
including 874
tornadoes;
3,921 “Large
Hail” reports
and 7,564
high wind
events
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2015_annual_summary.html
48
Number of Federal Major Disaster
Declarations, 1953-2015*
0
81
75
55
54
47
59
63
48
52
56
50
45
45
49
44
23
32
36
32
38
43
45
31
27
28
23
11
15
24
21
34
42
23
29
17
17
19
11
11
22
20
25
25
12
12
23 federal
disasters have
declared so far
in 2015*
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15*
7
7
13
17
18
16
16
40
30
22
25
38
48
46
46
60
20
69
65
80
75
100
The number of
federal disaster
declarations set a
new record in 2011,
with 99, shattering
2010’s record 81
declarations.
99
There have been 2,228
federal disaster
declarations since 1953.
The average number of
declarations per year is
35 from 1953-2014,
though there few
haven’t been recorded
since 1995.
120
The Number of Federal Disaster Declarations Is Rising and Set New
Records in 2010 and 2011 Before Dropping in 2012-2014
*Through July 12, 2015.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
49
Combined Ratio Points Associated with
Catastrophe Losses: 1960 – 2015E*
9.1
Catastrophe losses as a
share of all losses reached
a record high in 2011
3.2
3.6
3.7
4.5
5.0
Catastrophe losses
as a share of all
losses have been
down substantially
since 2013
2014
2012
2010
2008
1.6
2.6
2.7
2006
1.6
2002
2004
1.6
2000
3.3
3.3
3.6
2.9
1.0
1998
1992
7.5
8.1
5.4
5.9
2.3
2.1
1.2
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1.2
0.4
0.8
1.3
0.3
0.4
0.7
1.5
1.0
0.4
0.4
0.7
1.8
1.1
0.6
1.4
2.0
1.3
2.0
0.5
0.5
0.7
3.0
3.6
0.4
1966
1964
1962
0.8
1.1
1.1
0.1
0.9
1
0
1960
5
4
3
2
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 5.6E*
1996
8
7
6
3.3
2.8
10
9
8.8
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1994
Combined Ratio
Points
The Catastrophe Loss Component of Private Insurer
Losses Has Increased Sharply in Recent Decades
*2010s represent 2010-2015E.
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 (1960-2011); A.M. Best (2012-2014); Insurance Information Institute.
50
Premium Growth
Catastrophe Losses Impact
Trajectory of Premium Growth
51
Net Premium Growth: Annual Change,
1971—2015E
(Percent)
1975-78
1984-87
2000-03
25%
Net Written Premiums Fell 0.7% in
2007 (First Decline Since 1943) by
2.0% in 2008, and 4.2% in 2009, the
First 3-Year Decline Since 1930-33.
20%
PostAndrew
spike
15%
2015E: 3.9%
10%
2014: 4.1%
2013: 4.4%
2012: +4.3%
5%
0%
Post-Katrina
spike
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
52
Insurance Information Institute Online:
www.iii.org
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and your attention!
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53
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