The P/C Insurance Industryand the U.S. Economy:
Issues & OutlookLos Angeles Area CPCU All-Industry Day
Studio City, CAOctober 18, 2016
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5540 Cell: 917.494.5945 [email protected] www.iii.org
2
2013-15 WereThree Good Years in a Row
But 2016 Could End this String
2
First, the Good News aboutthe P/C Insurance Industry:
3
P/C Insurance Industry Combined Ratio, 2001–2016:1H*
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. Note: 2015:1H combined ratio was 97.6
Sources: A.M. Best, ISO.
95.7
99.3
100.8
106.3
102.4
96.7 97.2 97.899.8
101.0
92.6
100.8
98.4
100.1
107.5
115.8
90
100
110
120
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16:1H
Best Combined Ratio Since 1949 (87.6)
Higher CAT Losses, Shrinking Reserve Releases, Toll of Soft Market
Insurers Paid Nearly $1.16 for Every $1 in
Earned Premiums
Heavy Use of Reinsurance Lowered Net
Losses
Doesn’t Reflect
Hurricane Matthew
4
-5%
0%
5%
10%
15%
20%
25%
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
16
Net Written Premium Growth:Annual Change, 1971—2016:1H
1975-78 1984-87 2000-03
Shaded areas denote “hard market” periods *first halfSources: A.M. Best (historical), ISO, Insurance Information Institute.
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.
2016*: 3.0%2015: 3.4%2014: 4.2%2013: 4.6%2012: 4.3%
16 Years 16 Years?
2016-19
P/C Industry Net Income After Taxes1991–2016:1H
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:ROAS = 8.4%
•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.
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$6
3,7
84
$5
5,5
01
$5
6,6
00
$2
1,6
85
$3
8,5
01
$2
0,5
59
$4
4,1
55
$6
5,7
77
-$6,970
$2
8,6
72
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
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
16:1
H
$ Millions
-5%
0%
5%
10%
15%
20%
25%
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
16
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2016F
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
1977:19.0%1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
9 Years
History suggests next ROE
peak will be in 2016-2017,
but that seems unlikely
ROE
1975: 2.4%
2013 9.8%
2016:1H 6.4%
7
Return on Net Worth (RNW)Largest Lines: 2005-2014 Average
6.2
%
3.8
%
8.0
%
6.3
%
6.4
%
6.9
%
12
.8%
6.7
%
15
.6%
11
.9%
2.2
%
2.8
%
8.6
%
18
.2%
5.2
% 7.9
%
13
.1%
8.8
%
29
.5%
25
.9% 29
.1%
15
.9%
0.8
%
15
.8%
0%
5%
10%
15%
20%
25%
30%
35%
PP
Au
to T
ota
l
Ho
meo
wn
ers
MP Oth
er
Lia
bilit
y
Wo
rkers
Co
mp
Co
mm
erc
ial
MP
Co
mm
Au
to
To
tal
Inla
nd
Mari
ne
Allie
d L
ines
Fir
e
Med
Pro
f
Lia
b
A &
H
Farm
MP
US CA
Source: NAIC; Insurance Information Institute.
Over the 10 years ending 2014, virtually every P/C line in California has been more profitable than in the U.S. overall
8
RNW All Lines, 2005-2014 Average, Vary Widely by State and Region
11
.0%
10
.6%
7.3
%
7.3
%
7.1
%
6.3
%
8.9
%
1.7
%
6.8
%
7.5
%
11
.9%
11
.3%
8.3
%
6.9
%
11
.5%
7.8
%
13
.2%
8.8
%
7.5
%
7.4
%
3.4
%
7.0
%
10
.5%
10
.0%
6.1
%
0%
5%
10%
15%
NM
TX
AZ
OK
WY ID UT
MT
CO
WA
OR
CA
NV
OH
WI
IL IN MI
ND
SD IA
MN
KS
NE
MO
Sources: NAIC; Insurance Information Institute
Southwest Mountain Far West Great PlainsGreat Lakes
9
RNW All Lines, 2005-2014 Average, Vary Widely by State and Region
13
.0%
11
.7%
11
.1%
10
.8%
10
.6%
7.1
%
6.5
%
6.2
%
5.1
%
4.1
%
-7.4
%
-9.4
%
8.9
%
7.8
%
5.5
%
5.1
%
4.7
%
14
.0%
13
.3%
11
.7%
10
.9%
9.9
%
9.6
%
19
.0%
19
.9%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
FL
VA
NC
SC
WV
AR
KY
TN
GA
AL
MS
LA
MD
PA
NJ
NY
DE
VT
ME
NH
MA RI
CT
AK HI
Sources: Sources: NAIC; Insurance Information Institute.
Southeast Mid-Atlantic New England
10
Policyholder Surplus, 2006:Q4–2016:1H
Sources: ISO, A.M .Best.
($ Billions)
$487.1
$496.6
$512.8
$521.8
$478.5
$455.6
$437.1
$463.0 $490.8
$511.5 $540.7
$530.5
$544.8
$559.2
$559.1
$538.6
$550.3
$567.8
$583.5
$586.9
$607.7
$614.0
$624.4 $653.4
$671.6
$673.9
$674.7
$671.7
$672.4
$663.9
$673.7
$676.4
$680.6
$662.0
$570.7
$566.5
$505.0
$515.6
$517.9
$400
$500
$600
$700
$800
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
13:Q
4
14:Q
1
14:Q
2
14:Q
3
14:Q
4
15:Q
1
15:Q
2
15:Q
3
15:Q
4
16:Q
1
16:Q
2
2007:Q3Pre-Crisis Peak
Surplus as of 6/30/16 stood at $680.6B
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.
As of mid-year 2016, the industry had roughly $1.28 of surplus for every $1.00 of NPW, close to the strongest claims-paying status in its history.
Drop due to near-record 2011 CAT losses
The P/C insurance industry likely will enter 2017 in very strong financial condition.
U.S. Employment in the DirectP/C Insurance Industry: 1990–2016*
*As of August 2016; not seasonally adjusted; Does not include 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.
450
475
500
525
550
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 16
Thousands
Sometimes the BLS Reclassifies Employment Within Industries.
When This Happens, the Change is Spread Evenly Over a 12-month Period (in This Case March 2010–March 2011)
LA-Long Beach-Anaheim Employment inthe Direct Insurance Industry*: 1990–2016**
*includes life and p/c **As of August 2016; not seasonally adjusted; Does not include 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
33
36
39
42
45
48
51
54
57
60
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 16
Thousands
Aug 2016: 33,000 (preliminary)
U.S. Employment in Insurance Agencies & Brokerages: 1990–2016*
*As of August 2016; 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.
500
550
600
650
700
750
800
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 16
Thousands
LA-Long Beach-Anaheim Agent/Broker(& Related) Employment: 1990–2016*
*As of August 2016; not seasonally adjusted; Does not include 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
35
40
45
50
55
60
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 16
Thousands
Aug 2016: 42,500 (preliminary)
What’s Happening inP/C Insurance in California?
15
Decreasing Profitabilityin Many Lines of Business
15
16
RNW on Selected Lines of Business, California, 2005-2014
31
.9%
24
.9%
19
.3%
7.0
%
4.6
%
5.2
% 7.4
%
3.9
%
3.0
% 5.8
%
14
.2%
8.6
%
10
.2%13
.6%
9.1
%
4.8
%
4.5
%
5.1
%
10
.2%
5.5
%
19
.0%
14
.2%
16
.4%
18
.2%
12
.1%
13
.5%
16
.1%
30
.4%
-0.7
%
9.6
%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
05 6 7 8 9
10
11
12
13
14
05 6
07 8 9
10
11
12
13
14 5 6 7 8 9
10
11
12
13
14
Sources: NAIC; Insurance Information Institute
PP Auto
Homeowners
Workers Comp
17
RNW on Selected Lines of Business, California, 2005-2014
16
.8%
14
.5%
12
.7%
34
.5%
31
.3%
31
.9%
27
.2%
19
.3%
34
.6%
24
.1%
17
.0%
8.0
%
12
.6%1
7.3
%
10
.6%
2.3
%
2.1
%
1.0
%
8.1
%
8.6
% 11
.1%
24
.3%
37
.7%
11
.0%
30
.4%
8.7
%11
.3%1
5.9
%
15
.1%
14
.1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
05 6 7 8 9
10
11
12
13
14
05 6
07 8 9
10
11
12
13
14 5 6 7 8 9
10
11
12
13
14
Sources: NAIC; Insurance Information Institute
Commercial
Auto
Commercial
Multiple-Peril
Inland Marine
18
RNW on Selected Lines of Business, California, 2005-2014
-4.9
%
33
.1%
36
.1%
-0.6
%
2.9
%
5.6
%
5.1
%
5.7
%
6.3
%
5.1
%
27
.5%
10
.5%
31
.4%3
8.9
%
31
.0%
34
.5%
29
.8%
20
.7%
31
.4%
35
.7%
25
.8%
3.8
%
10
.3%
20
.4%
8.2
%
14
.8%
33
.9%
27
.6%
39
.2%
33
.3%
-20%
-10%
0%
10%
20%
30%
40%
50%05 6 7 8 9
10
11
12
13
14
05 6
07 8 9
10
11
12
13
14 5 6 7 8 9
10
11
12
13
14
*excludes products liability, medical professional liability, and liability coverages in CMP, FarmMP, HO, and Auto coveragesSources: NAIC; Insurance Information Institute
Fire Allied Lines Other Liability*
Investment Performance: A Key Driver of Profitability
19
Depressed Yields Will Continueto Affect Underwriting & Pricing
19
20
US Treasury Note 10-Year Yields:A Long Downward Trend, 2000–2016*
*Monthly, constant maturity, nominal rates, through September 2016.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm; National Bureau of Economic Research (recession dates); Insurance Information Institute.
0%
1%
2%
3%
4%
5%
6%
7%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Recession
10-Yr Yield
Yields on 10-Year US Treasury Notes have been below 3% for 5 years: bonds bought in 2006 at 5% will be reinvested
at 1.5% for 10 more years
Since roughly 80% of P/C bond/cash investments are in 5-to-10-year durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
US Treasury yields plunged to historic lows in
2013, then rebounded but
are sinking again
20
Property/Casualty Insurance Industry Net Investment Income: 2005–2016:1H
$5
0.1
3
$5
3.1
4
$5
6.5
0
$5
3.1
2
$4
8.4
0
$4
8.1
0
$5
0.8
9
$5
0.2
8
$4
9.2
8 $5
4.9
7
$4
8.7
2
$2
2.0
7
$20
$25
$30
$35
$40
$45
$50
$55
$60
05 06 07 08 09 10 11 12 13 14 15 16:1H
$1,100
$1,200
$1,300
$1,400
$1,500
$1,600
Net Investment Income Cash and Invested Assets
Due mainly to persistently low interest rates,investment income has not risen as invested assets grew.
Investment Income($ Billions)
Investment income consists primarily of bond interest and stock dividends.
Sources: SNL Financial; Insurance Information Institute
Invested Assets($ Billions)
22
Distribution of Bond Maturities,P/C Insurance Industry, 2006-2015
16.0%
15.2%
15.7%
15.6%
16.0%
14.9%
16.6%
16.5%
16.8%
16.3%
29.5%
30.0%
32.4%
36.4%
39.5%
41.2%
40.4%
38.8%
37.1%
35.8%
34.1%
33.8%
31.2%
29.0%
27.1%
27.3%
27.6%
29.3%
30.8%
33.7%
13.1%
12.9%
12.7%
11.9%
11.2%
10.4%
9.8%
9.8%
9.6%
9.0%
7.4%
8.1%
8.1%
7.1%
6.2%
6.2%
5.7%
5.7%
5.7%
5.1%
0% 20% 40% 60% 80% 100%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
Sources: SNL Financial; Insurance Information Institute.
Two main shifts over these years. From 2008 to 2011-12, from bonds with longer maturities to bonds with shorter maturities. But beginning in 2013, the reverse. Note,
however, that the percentages in bonds with maturities over 10 years continues to drop.
23
P/C Insurer Net Realized Capital Gains/Losses, 2005-2016:1H
Sources: SNL Financial, Insurance Information Institute.
$12.10
$3.58
$9.02
-$20.11
$8.68
$18.40
$11.77$10.07
$4.44$7.58$7.83
-$7.80
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
05 06 07 08 09 10 11 12 13 14 15 16:1H
Insurers consistently posted 6 years of Net Realized Capital Gainsin 2010 - 2015 following the Financial Crisis.
If (when?) interest rates rise, this streak might end.
($ Billions)
Realized Capital losses were a main cause of
2008/2009’s large drop in profits and ROE
24
P/C Insurer Portfolio Yields,2005-2015
3.83%3.68%
3.43%3.65%
3.18%
3.73%3.93%
4.20%4.49%4.50%4.59%
0%
1%
2%
3%
4%
5%
6%
05 06 07 08 09 10 11 12 13 14 15
Sources: NAIC, via SNL Financial; Insurance Information Institute.
P/C carrier yields have been falling for over a decade, reflecting the long downtrend in prevailing interest rates. Even if prevailing rates rise in the next
few years, portfolio yields are unlikely to rise quickly, since low yields of recent years are “baked in” to future returns.
Forecasts of Avg. Yieldof 10-Year US Treasury Notes
1.61.7
2
2.2
2.5
2.7
1.7
2.2
2.8
3.1
3.4
3.6
1.8
2.6
3.4
4
4.44.3
1.5
2
2.5
3
3.5
4
4.5
5
2016 2017 2018 2019 2020 2021
10 Most Pessimistic Median 10 Most Optimistic
25
Yield (%)
Virtually every one of the 53 forecasts in the Blue Chip surveyanticipates that long-term interest rates
will stay at unusually low levels through 2017
Sources: Blue Chip Economic Indicators (10/16); Insurance Information Institute
The Strength of the Economy Will Influence P/C Insurer
Growth Opportunities
26
Growth, Although Weak,
Will Expand Insurer Exposure Base
Across Most Lines
26
27
Real U.S. Quarterly GDP GrowthSince the “Great Recession
Data are quarterly changes at annualized rates.
Sources: US Department of Commerce, at http://www.bea.gov/national/index.htm#gdp ; Insurance Information Institute.
-1.5
%
2.9
%
0.8
%
4.6
%
2.3
%
1.6
%
2.5
%
0.1
%
0.8
%
3.1
%
4.0
%
-1.2
%
4.0
% 5.0
%
2.3
%
2.0
%
2.6
%
2.0
%
0.9
%
0.8
%
1.4
%
1.9
%
2.8
%
1.3
%
3.9
%
1.7
%
3.9
%
2.7
%
2.5
%
-2%
-1%
0%
1%
2%
3%
4%
5%
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
Since the Great Recession ended, even 3% real growth (at an annual rate) in a quarter has been unusual. Through 2016:Q2, it happened only 7
times in 28 quarters—and not once in the most recent 7 quarters.
“GDP now” estimate as of Oct. 14
Quarterly US Real GDP for 2016-17:October 2016 Forecasts
1.8
1.7
1.8
1.7
1.6
2.3
2.2
2.3
2.2
2.1
2.8
2.7 2.7 2.7
2.6
1.5
1.75
2
2.25
2.5
2.75
3
2016:Q4 2017:Q1 2017:Q2 2017:Q3 2017:Q4
10 Most Pessimistic Median 10 Most Optimistic
28
Real GDP
Growth Rate (%)
Virtually all of the 53 forecasts in the Blue Chip survey expectsteady growth in the next five quarters; they differ on the level of growth.
Sources: Blue Chip Economic Indicators (10/16); Insurance Information Institute
State-by-State Leading Indicatorsthrough February 2017
29
Near-term
growth forecasts
vary widely by
state.
Strongest
growth = blue
(over 4.5%);
dark green
(1.5%-4.5%);
then light green;
then gray;
weakest = red
ISM Manufacturing Index (Values > 50Indicate Expansion), Jan. 2010-Sept. 2016
Sources: Institute for Supply Management; Insurance Information Institute.
The Manufacturing Sector Expanded for 68 of the 72 Months from January 2010 Through December 2015.
Manufacturing Contracted in 2015:Q4 and 2016:Q1but was Expanding until August.
58.3
57.1
60.4
59.6
57.8
55.3
55.1
55.2
55.356.9 58.258.560.861.4
59.7
59.7
54.255.8
51.4 52.5
52.5
51.852.2 53.1 54.1
51.953.3 54.1
52.5
50.250.5
50.7 51.6
51.7
49.9
50.2
53.1 54.2
51.3
50.7
49.0
50.9
55.455.756.2
56.457.0
56.5
51.353.253.7 54.955.4
55.357.159.0
56.6
59.0
58.7
55.5
53.5
52.9
51.5
51.5 52.8 53.5
52.7
51.1
50.2
50.1
48.6
48.0
48.2 49.5
51.8
50.851.353.2
52.6
49.4
51.5
45
50
55
60
65
Jan 1
0
Jul 10
Jan 1
1
Jul 11
Jan 1
2
Jul 12
Jan 1
3
Jul 13
Jan 1
4
Jul 14
Jan 1
5
Jul 15
Jan 1
6
Jul 16
As of July,5 Consecutive
Months of Expansion
Index
ISM Non-Manufacturing Index (Values > 50Indicate Expansion), January 2010-Sept. 2016
Sources: Institute for Supply Management via https://research.stlouisfed.org/fred2/data/NMFCI.txt; Insurance Information Institute.
The Non-Manufacturing (Services) SectorExpanded in Every Month After January 2010. Compared to 2014-15,
the Pace of Expansion Has Slowed in 2016 But Not Ended.
49.6
50.8
53.2
55.6
55.5
54.6
54.8
52.7 53.6
55.356.757.0
57.2
57.3
55.8
55.3
55.0
54.3
53.6
53.6
52.452.853.1
52.8
55.7
55.5
55.5
54.5
54.4
53.8
52.4 53.0
54.7
54.2 55.1 56.0
55.1 55.6
55.1
53.8
54.0
54.1 55.0
56.7
53.8 54.6
54.1
53.454.4
52.653.955.256.356.7 57.3 58.0
57.9
56.3
59.3
56.9
56.9
57.1
56.9 57.5
55.956.2
59.6
58.3
56.758.3
56.6
55.8
53.5
53.454.555.7
52.9
56.5
55.5
51.4
57.1
47
50
53
56
59
62
Jan 1
0
Jul 10
Jan 1
1
Jul 11
Jan 1
2
Jul 12
Jan 1
3
Jul 13
Jan 1
4
Jul 14
Jan 1
5
Jul 15
Jan 1
6
Jul 16
Index
NFIB Small Business Optimism IndexJanuary 1985 through July 2016
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 32
Growing pessimism in last 18 months
NFIB Small Business Survey: Single Most Important Problem, July 2016
Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 33
Percent
34
Business Bankruptcy Filings: Two Yearsat a Remarkably Low Level (1994:Q1 – 2016:Q2)
13.9
13.6
12.9
12.0
13.1
12.2 12.6
12.9 13.4 14.0
13.2
12.9 1
3.8
14.0
13.5
12.7
12.4
11.6
10.3
9.9
9.2
10.4
9.0
9.0 9
.59.2
8.2 8.4
10.0
10.3
9.5 1
0.0
9.8
9.7
9.4 9.5
8.8 9
.3
8.3
10.6
8.2
7.6 7.8 8.18.7
9.5
12.8
4.1
4.9 5
.3 5.66.3 6
.7 7.2
8.0
8.7
9.7
11.5
12.9
14.3
16.0
14.2 1
5.0
14.6
14.5
14.0
13.0
12.4
12.3
11.7
11.1
11.0
10.4
9.2 9.3
8.5 8.9
8.1
7.6
7.0 7.3
6.4
6.2
6.2
6.2 6.3
6.0 6.2 6.5
8.4
0
2
4
6
8
10
12
14
16
18
94
:Q1
94
:Q3
95
:Q1
95
:Q3
96
:Q1
96
:Q3
97
:Q1
97
:Q3
98
:Q1
98
:Q3
99
:Q1
99
:Q3
00
:Q1
00
:Q3
01
:Q1
01
:Q3
02
:Q1
02
:Q3
03
:Q1
03
:Q3
04
:Q1
04
:Q3
05
:Q1
05
:Q3
06
:Q1
06
:Q3
07
:Q1
07
:Q3
08
:Q1
08
:Q3
09
:Q1
09
:Q3
10
:Q1
10
:Q3
11
:Q1
11
:Q3
12
:Q1
12
:Q3
13
:Q1
13
:Q3
14
:Q1
14
:Q3
15
:Q1
15
:Q3
16
:Q1
Business bankruptcies in 2014-16 were below both the Great Recession levels and the 2003:Q3-2005:Q1 period (the best five-quarter stretch in the last 20 years).
Bankruptcies restrict exposure growth in all commercial lines.
Sources: U.S. Courts at http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/0913_f2q.pdf ; Insurance Information Institute
(Thousands) New Bankruptcy Law Takes
EffectRecessions in orange
Below pre-recession
level
60
65
70
75
80
85
90
95
100
105
110
Jan-9
0
Jan-9
1
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Recession
35
Index of Total Industrial Production:*A Peak in November 2014
*Monthly, seasonally adjusted, through July 2016 (which is preliminary). Index based on year 2012 = 100
Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institute.
Peak at 105.73 in December 2007 (officially the 1st
month of the Great Recession)
Some of the downturn in industrial production in 2015 and 2016 is due to slow growth in exports, thanks to the rise in the value of the U.S. dollar and slowing economies
world-wide. Little relief is forecast for the near term.
35
New Peak: November 2014 Index at 106.7
Index
The Gap Between Industrial Production and Capacity Appears to be Widening
Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institute.
36
Even in boom times, we
never use all of our
industrial capacity, but lately the gap appears to be
widening
37
Labor Market Trends
We’re Now Gaining Jobs at a Good Pace,but We’re Not at “Full Employment” Yet,
and There are Signs of Softening
37
455
654
423
555
834
277
514
524
636
556 594
525
627
829
736
823
570
752
576
846
587
460
575
0
100
200
300
400
500
600
700
800
900
20
11
:Q1
20
11
:Q2
20
11
:Q3
20
11
:Q4
20
12
:Q1
20
12
:Q2
20
12
:Q3
20
12
:Q4
20
13
:Q1
20
13
:Q2
20
13
:Q3
20
13
:Q4
20
14
:Q1
20
14
:Q2
20
14
:Q3
20
14
:Q4
20
15
:Q1
20
15
:Q2
20
15
:Q3
20
15
:Q4
20
16
:Q1
20
16
:Q2
20
16
:Q3
*
Nonfarm Employment, Quarterly Change, 2011 – 2016*
Thousands
After a strong 2014-15, the pace of job growth has slowed somewhat.*Seasonally adjusted; August and Sept 2016 data are preliminarySources: US Bureau of Labor Statistics; Insurance Information Institute 38
39
Unemployment andUnderemployment Rates: Still Falling
2
4
6
8
10
12
14
16
18
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan-
15
Jan-
16
"Headline" Unemployment Rate U-3
Unemployment + UnderemploymentRate U-6
“Headline” unemployment
was 5.0% in Sept. 2016. 4.5%
to 5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 was 9.7% in Sept. 2016.
January 2000 through September 2016, Seasonally Adjusted (%)
Based on the latest readings,it appears that the job market is now close to “normal”
39
U-6 went from 8.0%in March 2007 to 17.5%
in October 2009
For U-6, 8.0% to 9.5% is “normal.”
Labor Market Slack: Elevated Numberof Involuntary Part-time Workers
40
In less than 18 months, 4.5 million additional people were involuntarily working part time
The “normal” range
(since 1992)
Sep. 2016:5.89 million
41
Number of “Discouraged Workers”:Elevated, but Dropping Jan. 1994 – Sept. 2016
Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.
Sources: Bureau of Labor Statistics; National Bureau of Economic Research (recession dates).
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
'94 '97 '00 '03 '07 '10 '13
In recent good times, the number of discouraged workers ranged from 200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
Latest reading: 553,000
in Sept. 2016.
ThousandsA “discouraged worker” in a month did not
actively look for work in the prior month
for reasons such as
--thinks no work available,
--could not find work,
--lacks schooling or training,
--thinks employer thinks too young or old,
and other types of discrimination.
Normal
The Fed’s Labor Market Conditions IndexCombines 19 Labor Market Indicators
Source: https://fred.stlouisfed.org/series/FRBLMCI#0
Since 1976, we’ve had a recession whenever the Index drops below -17.6.As of June 2016 the Index was at -1.9 and appeared to be heading up.
43
Labor Market Conditions IndexSince the Recession Ended
Notes: Data are seasonally adjusted. The entire dataset is subject to revision, but that usually affects only the most recent 6 months.
Sources: https://research.stlouisfed.org/fred2/series/FRBLMCI
-6
-4
-2
0
2
4
6
8
10
12
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
Ju
l-1
1
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
Ja
n-1
4
Ju
l-1
4
Ja
n-1
5
Ju
l-1
5
Ja
n-1
6
Based on history of the last 40 years, there’s no recession in sight.
Decline began in November 2015.
Index Value
Full-time vs. Part-time Employment,Quarterly, 2003-2016:Q2
110
112
114
116
118
120
122
124
20
03
.12
00
3.2
20
03
.32
00
3.4
20
04
.12
00
4.2
20
04
.32
00
4.4
20
05
.12
00
5.2
20
05
.32
00
5.4
20
06
.12
00
6.2
20
06
.32
00
6.4
20
07
.12
00
7.2
20
07
.32
00
7.4
20
08
.12
00
8.2
20
08
.32
00
8.4
20
09
.12
00
9.2
20
09
.32
00
9.4
20
10
.12
01
0.2
20
10
.32
01
0.4
20
11
.12
01
1.2
20
11
.32
01
1.4
20
12
.12
01
2.2
20
12
.32
01
2.4
20
13
.12
01
3.2
20
13
.32
01
3.4
20
14
.12
01
4.2
20
14
.32
01
4.4
20
15
.12
01
5.2
20
15
.32
01
5.4
20
16
.12
01
6.2
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
28.0
28.5
Full-time Part-time
Data are seasonally-adjusted. Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.
The Great Recession shifted employment from full-time to part-time.Full-time employment is finally above its pre-recession peak,
but part-time hasn’t receded.
Full time,
millions
Part-time,
millionsRecession
Recession shifted
employment growth from full-time to part-time
Pre-recession, most new jobs were full-time
New full-time peak
45
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2016:Q2
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,500
$7,750
$8,000
$8,2500
5:Q
10
5:Q
20
5:Q
30
5:Q
40
6:Q
10
6:Q
20
6:Q
30
6:Q
40
7:Q
10
7:Q
20
7:Q
30
7:Q
40
8:Q
10
8:Q
20
8:Q
30
8:Q
40
9:Q
10
9:Q
20
9:Q
30
9:Q
41
0:Q
11
0:Q
21
0:Q
31
0:Q
41
1:Q
11
1:Q
21
1:Q
31
1:Q
41
2:Q
11
2:Q
21
2:Q
31
2:Q
41
3:Q
11
3:Q
21
3:Q
31
3:Q
41
4:Q
11
4:Q
21
4:Q
31
4:Q
41
5:Q
11
5:Q
21
5:Q
31
5:Q
41
6:Q
11
6:Q
2
Prior Peak was 2008:Q3 at $6.54 trillion
Latest (2016:Q2) was $8.06 trillion, a new peak--$1.83T
above 2009 trough
Recent trough (2009:Q1) was $6.23 trillion, down
5.3% from prior peak
Y-o-Y Growth rates2011:Q2 over 2010:Q2: 3.9%2012:Q2 over 2011:Q2: 4.0%2013:Q2 over 2012:Q2: 3.3%2014:Q2 over 2013:Q2: 4.3%2015:Q2 over 2014:Q2: 5.4%2016:Q2 over 2015:Q2: 3.3%
45
46
Average Weekly Hours Worked,*Yearly, 2006—2015
37.5
38.0
38.5
39.0
39.5
40.0
40.5
41.0
06 07 08 09 10 11 12 13 14 15 16*
Goo
ds-p
rodu
cing
32.7
32.8
32.9
33
33.1
33.2
33.3
33.4
33.5
Priv
ate
serv
ice-
prov
idin
g
goods-producing private service-providing
*Seasonally adjusted. Data for 2016 are based on Jan-July; June and July are prelimnary
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
The average work-week rose sharply in 2010-2012 and is now above levels prevailing before the Great Recession (which began in December 2007). Note that service-providing workers work a 7-hour shorter week than goods-producing workers.
47
Average Weekly Hours of All Private Workers, Mar. 2006—July 2016
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
33.7
33.8
33.9
34.0
34.1
34.2
34.3
34.4
34.5
34.6
34.7
34.8
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
The average hours worked per week was
34.5 in July 2016Hours worked plunged during the recession,
affecting payroll exposures
Hours Worked*
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Ma
r-0
7
Ju
n-0
7
Se
p-0
7
Dec-0
7
Ma
r-0
8
Ju
n-0
8
Se
p-0
8
De
c-0
8
Ma
r-0
9
Ju
n-0
9
Se
p-0
9
De
c-0
9
Ma
r-1
0
Ju
n-1
0
Se
p-1
0
De
c-1
0
Ma
r-1
1
Ju
n-1
1
Se
p-1
1
De
c-1
1
Ma
r-1
2
Ju
n-1
2
Se
p-1
2
De
c-1
2
Ma
r-1
3
Ju
n-1
3
Sep-1
3
De
c-1
3
Ma
r-1
4
Ju
n-1
4
Se
p-1
4
De
c-1
4
Ma
r-1
5
Ju
n-1
5
Se
p-1
5
De
c-1
5
Ma
r-1
6
Ju
n-1
6
Job switchers
Job stayers
Core PCE
48
Since 2012-13, Wages Have Grown Faster Than Inflation,* 2007-2016
*Seasonally adjusted; year-over-year; Shaded area indicates recession.
Sources: NBER (recessions); https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1 ; I.I.I.
The Fed raised rates for the first time in 7 years
Wage growth accelerating
Y-o-Y Change
49
U.S. Insured Catastrophe Loss Update
2014-15 Had Below-Average CAT
Activity
49
50
$1
3.0
$1
1.3
$3
.9
$1
4.8
$1
1.9
$6
.3
$3
5.8
$7
.8
$1
6.8
$3
4.7
$1
0.9
$7
.7
$3
0.1
$1
1.8
$1
4.9
$3
4.6
$3
6.1
$1
3.1
$1
5.5
$1
5.2
$1
4.5
$75.7
$1
4.4
$5
.0 $8
.2
$3
8.9
$9
.1
$2
7.2
$0
$20
$40
$60
$80
89 92 95 98 01 04 07 10 13 16:1H
U.S. Insured Catastrophe Losses
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 ($15.6B in 2011 dollars.)
Sources: Property Claims Service/ISO; Insurance Information Institute.
2013/14/15 were welcome respites from 2011/12—the latter being among the costliest years for insured disaster losses in US history.
The longer-term trend is for more costly events.
2012 was the 3rd most expensive year ever for
insured CAT losses
($ Billions, $ 2015)
50
51
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2015E*
*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 (1960-2009); A.M. Best (2010-15E) Insurance Information Institute.
0.4
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
.01
.32
.00
.50
.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6
4.6
9.6
8.0
3.5 4
.03
.13.6
0.9
0.1
1.1
1.1
0.8
0
2
4
6
8
10
12
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of theCombined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 5.46*
Combined Ratio Points Catastrophe losses as a share of all
losses reached a record high in 2011
Growth of Homeowners/Renters Exposures
52
53
(Millions of Units)
Forecast: Continued Growth in Private Housing Unit Starts, 1995-2019F
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
1
0.5
5
0.5
9
0.6
1 0.7
8 0.9
2
1.0
0 1.1
1
1.1
8 1.2
8
1.3
7
1.4
31.5
7
1.6
4
1.6
2
1.4
7
1.4
8
1.3
5
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16F 17F 18F 19F
Sources: US Department of Commerce (history); Blue Chip Economic Indicators (10/2016), forecasts; Insurance Information Institute.
Housing starts are climbing slowly. Recently, the fastest growth is in multi-unit residences. Personal lines exposure will grow, and commercial insurers
with Workers Comp, Construction risk exposure and Surety also benefit.
Housing unit starts plunged 72% from 2005-
2009, down 1.49 million, to lowest level since records
began in 1959
Rising mortgage rates could dampen the demand for new
residential construction
54
Number of Owner-Occupied & Renter-Occupied Housing Units, US, Quarterly, 1990:Q1-2016:Q2
32
34
36
38
40
42
44
46
90:Q
1
91:Q
1
92:Q
1
93:Q
1
94:Q
1
95:Q
1
96:Q
1
97:Q
1
98:Q
1
99:Q
1
00:Q
1
01:Q
1
02:Q
1
03:Q
1
04:Q
1
05:Q
1
06:Q
1
07:Q
1
08:Q
1
09:Q
1
10:Q
1
11:Q
1
12:Q
1
13:Q
1
14:Q
1
15:Q
1
16:Q
1
55
60
65
70
75
80
Number of renter-occupied housing units
Number of owner-occupied housing units
Sources: US Census Bureau at http://www.census.gov/housing/hvs/data/histtabs.html , Table 8; Insurance Information Institute.
Since 2004 the number of renter-occupied housing units has grownby over 11 million units (+34.5%), but there has been no growth in the number of owner-
occupied housing units in 12 years. When will this end?
54
Millions of Owner-
Occupied Housing
Units
Number of owner-occupied units has been stuck atroughly 75 million units
since 2005:Q4
Millions of Renter-
Occupied Housing
Units
Trough in 2004:Q2 at 32.61 million
units.
Latest renter-occupied was 43.86 million units
in 2016:Q2.
55
I.I.I. Poll: Renters Insurance
Source: Insurance Information Institute Annual Pulse Survey.
29%31%
35%37% 38%
40% 42%
10%
20%
30%
40%
50%
May 2011 May 2012 May 2013 May 2014 November2014
May 2015 November2015
Percentage of Renters Who Have Renters Insurance, 2011-2015
Percentage Of Renters With Renters Insurance Continues to Increase.
56
Rental Vacancy Rates,Quarterly, 1990-2016
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
90
:Q1
91
:Q1
92
:Q1
93
:Q1
94
:Q1
95
:Q1
96
:Q1
97
:Q1
98
:Q1
99
:Q1
00
:Q1
01
:Q1
02
:Q1
03
:Q1
04
:Q1
05
:Q1
06
:Q1
07
:Q1
08
:Q1
09
:Q1
10
:Q1
11
:Q1
12
:Q1
13
:Q1
14
:Q1
15
:Q1
16
:Q1
Sources: US Census Bureau, http://www.census.gov/housing/hvs/data/histtabs.html Table 1; Insurance Information Institute.
Peak vacancy rate 11.1% in
2009:Q3
Before the 2001 recession, rental vacancy rates were 7.0-7.5%.We’re below those levels now. => More multi-unit construction?
56
Percent vacant
Latest vacancy rate was 6.7%
in 2016:Q2Vacancy
rate 10.4% in 2004:Q1
57
Units in Multiple-Unit Projectsas Percent of Total
US: Pct. Of Private Housing Unit StartsIn Multi-Unit Projects, 1990-2016*
21
.4%
23
.1%
21
.4%
20
.6%
21
.5%
20
.6%
20
.3%
18
.9%
17
.7%
17
.0%
18
.6% 22
.8%
31
.3%
19
.7%
19
.7%
29
.3%
31
.4%
33
.3%
36
.0%
35
.0%
32
.9%
20
.5%
17
.7%
12
.6%
14
.2%
17
.1%
25
.0%
0%
10%
20%
30%
40%
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 16*
*data through AugustBased on seasonally-adjusted data. Sources: U.S. Census Bureau; Insurance Information Institute calculations.
For the U.S. as a whole, the trend toward multi-unit housing projects (vs. single-unit homes) is recent. Commercial insurers with Workers Comp,
Construction risk exposure, and Surety benefit.
A NEW NORMAL?In 6 of the last 8 years, over 30% of housing
unit starts were in 5+-unit projects
58
Giant Age Cohort (Millenials) Is Approaching Home-Buying Stage
Sources: Census Bureau; CoreLogic; Insurance Information Institute.
4.22 4.254.30
4.40
4.504.57
4.69
4.784.77
4.58
4.484.404.414.44
4.304.364.35
4.30
4.39
4.12
4.033.99
3.87
3.75
4.00
4.25
4.50
4.75
5.00
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
If prior patterns hold, the number of homes bought by current renters, and the number of new homes built, will rise in coming years
Number of People
in 2016 (Millions)
Average Age, 1st Time
Homebuyer
Average Age, Repeat
Homebuyer
Millennial Generation
59
Growth in Number of Households=> Increased Demand for Housing
*2016:Q2-2015:Q4 Sources: Census Bureau; CoreLogic; Insurance Information Institute.
753
1,196
865
2,0281,878
415
824
-247
776
986
569
978
409
2,213
191
504
-500
0
500
1,000
1,500
2,000
2,500
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
If prior patterns hold, the number of homes bought by current renters, and the number of new homes built, will rise in coming years
Net Change in Number
of Occupied Residences
(Thousands)
A spike, not a trendHousing
bubble
Bubble burst
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60
