Professional Documents
Culture Documents
THE ECONOMIC
STORM
What a Weakening Economy and
Financial Crisis Mean for the
Insurance Industry
Exposure & Claim
Cost Effects
2.8%
1.2%
2.2%
2.6%
3.0%
3.3%
3.2%
2%
0.9%
4%
3.7%
6%
0.8%
1.6%
2.5%
3.6%
3.1%
2.9%
0.1%
4.8%
4.8%
0%
-0.8%
-3.3%
10:4Q
10:3Q
10:2Q
10:1Q
09:4Q
09:3Q
09:2Q
09:1Q
08:4Q
08:3Q
-5.2%
08:2Q
08:1Q
07:4Q
07:3Q
07:2Q
07:1Q
2006
2005
2004
2003
2000
-6%
2002
-4%
Recession began in
December 2007. Economic
toll of credit crunch, housing
slump, labor market
contraction is growing
2001
-2%
-0.5%
-0.2%
0.8%
1.1%
3.0%
2.4%
2.0%
1.3%
1.2%
1.2%
2.6%
1.0%
6%
1.2%
8%
2.0%
0.4%
7.1%
7.9%
9.5%
10%
2%
2009F
12%
4%
2008E
11.9%
2007
2.6%
1.4%
14%
Euro Area
Germany
Japan
US
-1.8%
-1.6%
-1.4%
-4%
-1.3%
-2%
-1.2%
0%
UK
China
$600
$500
$400
$300
U
M .S.
ex
ic
o
C
hi
le
$0
G
er
m
a
Fr n y
an
ce
U
.K
Sp .
ai
n
N
I
et ta
he ly
rl
a
H nd
un s
g
Po a r
rt y
u
Sw gal
ed
en
C
hi
n
So J a a
ut pa
h
K n
o
A rea
us
tr
al
ia
In
di
D a
ub
ai
$100
$5.8
$2.0
$200
$105.0
$11.3
$7.4
$4.0
$36.8
$700
$825
$586.0
$800
$69.0
$33.0
$29.7
$14.0
$8.0
$7.6
$6.9
$2.8
$1.8
$900
Length of US Recessions,
1929-Present*
Months in Duration
50
45
43
40
35
30
25
20
16
13
15
11
8
10
10
10
16
13
11
8
5
0
Aug.
1929
May
1937
Feb.
1945
Nov.
1948
July
1953
Aug.
1957
Apr.
1960
Dec.
1969
Nov.
1973
* As of January 2009
Sources: National Bureau of Economic Research; Insurance Information Institute.
Jan.
1980
Jul.
1981
Jul.
1990
Mar.
2001
Dec.
2007
Unemployment Rate:
On the Rise
January 2000 through December 2008
7.5
7.0
6.5
6.0
5.5
5.0
Trough: 4.4% in March 2007
Dec-08
Jan-08
Jan-07
Jan-06
Jan-03
Jan-02
Jan-00
3.0
Average unemployment
rate 2000-07 was 5.0%
Jan-01
3.5
Jan-05
4.0
Jan-04
4.5
7.5%
7.0%
6.5%
Unemployment is
expected to peak
above 8% in the
second half of 2009.
4.5%
4.9%
4.6%
4.5%
5.0%
4.5%
5.5%
4.8%
6.0%
6.9%
8.0%
8.2%
8.3%
8.4%
8.4%
8.3%
7.9%
8.0%
6.1%
8.5%
Rising unemployment
will erode payrolls
and workers comps
exposure base.
5.4%
9.0%
7.4%
4.0%
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
-76
-83
-88
-67
-47
-100
-67
-127
-403 -423
-524
-584
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
91
92
2.07
1.80
1.85
93
94
95
96
97
New home
starts plunged
34% from
2005-2007;
Drop through
2009 trough is
65% (est.)a
net annual
decline of
1.35 million
units
98
99
00
01
02
03
0.72
0.93
0.95
1.36
1.71
1.60
1.57
1.64
1.47
1.48
1.01
90
1.35
1.29
1.20
1.46
1.62
1.19
2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
1.96
04
05
06
Source: US Department of Commerce; Blue Chip Economic Indicators (1/09); Insurance Information Inst.
19
18
17.8
17.4
17.5
17.1
17
16.6
16.9
16.9
16.5
16.1
16
15
14
13
13.2
12
13.1
11.2
11
99
00
01
02
03
04
05
06
07F
08E
09F
10F
Source: US Department of Commerce; Blue Chip Economic Indicators (1/09); Insurance Information Inst.
$7,000
$6,000
3/01-11/01
$ Billions
12/07-?
$45
$40
$35
$5,000
$30
$4,000
$3,000
$2,000
Weakening wage
and salary
growth is
expected to cause
a deceleration in
workers comp
exposure growth
$0
$25
$20
$15
$10
$5
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08*
*9-month data for 2008
Source: US Bureau of Economic Analysis; Federal Reserve Bank of St. Louis at
http://research.stlouisfed.org/fred2/series/WASCUR; I.I.I. Fact Books
6.0%
3.2% 3.6%
4.0%
2.9% 3.3%
3.8% 3.7%
2.0%
2.0% 1.5%
0.5%
0.3% 0.4%
0.0%
-6.1%
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (1/09); Insurance Info. Inst.
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
09:Q3
-8.9%-8.6%
-10.0%
09:Q2
-8.0%
-3.4%
09:Q1
-6.0%
-2.6%
08:Q4
-4.0%
Industrial
production began
to contract sharply
during H2 2008 and
is expected to
shrink through the
first half of 2009
08:Q3
-2.0%
$ Billions
Commercial insurance lines
that will benefit from the
Obama stimulus plan
include workers comp,
commercial property,
commercial auto, surety,
inland marine and others
$214.5
$200
$124.0
$100
$77.7
$68.4
$49.4
$26.8
$19.2
$0
Public sector
jobs and vital
services
Education
Energy
Lower
healthcare
costs
Sources: House Appropriations Committee; Wall Street Journal, January 16, 2009
Science,
technology
5%
0%
-5%
-10%
6%
4%
5.2%
78
-0.9%
79
80-7.4%
81 -6.5%
-1.5%
82
1.8%
83
4.3%
84
85
86
5.8%
87
0.3%
88
-1.6%
89
-1.0%
90
-1.8%
91
-1.0%
92
3.1%
93
1.1%
94
0.8%
95
0.4%
96
0.6%
97
-0.4%
98
-0.3%
99
1.6%
00
5.6%
01
02
7.7%
03
1.2%
04
-2.9%
05
-0.5%
06
-3.4%
07
-4.9%
08F
15%
10%
8%
Real GDP
2%
20%
25%
18.6%
20.3%
0%
-2%
-4%
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 8/08; Insurance Information Inst.
FINANCIAL
STRENGTH &
RATINGS
Industry Has Weathered
the Storms Well
Combined Ratio
115
2
1.8
1.6
1.4
110
1.2
105
1
0.8
100
95
0.4
2007 impairment rate was a record low 0.12%,
one-seventh the 0.8% average since 1969; Previous
record was 0.24% in 1972
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
90
0.6
0.2
0
Impairment Rate
120
Impairment rates
are highly
correlated
underwriting
performance and
could reached a
record low in 2007
Upgraded, 59 , 4.0%
Downgraded, 55 ,
3.8%
Initial, 41 , 2.8%
Under Review, 63 ,
4.3%
Other, 59 , 4.0%
21
1969-2005
Deficient
Loss
Reserves/Inadequate
Pricing
62.8%
Reinsurance
Failure
3.5%
Deficient
Loss
Reserves/Inadequate
Pricing
38.2%
Investment
Problems*
7.3%
Alleged
Fraud
11.4%
Rapid
Growth
8.6%
Sig. Change
in Business
4.6%
Misc.
9.2%
Deficient
reserves,
CAT losses
are more
important
factors in
recent years
Affiliate
Problems
5.6%
Catastrophe
Losses
6.5%
Alleged
Fraud
8.6%
Rapid
Growth
16.5%
Source: A.M. Best: P/C Impairments Hit Near-Term Lows Despite Surging Hurricane Activity, Special Report, Nov. 2005;
CONSUMER POLL:
2008 I.I.I. PULSE SURVEY
Q. DO YOU THINK THAT THESE PROBLEMS (THE MORTGAGE PROBLEMS SOME AMERICANS FACE,
THE DROP IN THE STOCK MARKET AND JOB LAYOFFS) AFFECT THE ABILITY OF INSURANCE
COMPANIES TO PAY THEIR CLAIMS, TO SELL MORE INSURANCE, BOTH, NONE OF THESE (DOESNT
AFFECT ABILITY TO PAY CLAIMS OR SELL INSURANCE) OR DONT KNOW?
To pay
claims
7%
To sell
insurance Doesn't
affect ability
10%
to pay
claims or
sell
insurance
3%
Don't know
2%
To pay
claims AND
sell
insurance
78%
Critical Differences
Between P/C
Insurers and Banks
Superior Risk Management Model
& Low Leverage Make
a Big Difference
25
Emphasis on Underwriting
Matching of risk to price (via experience and modeling)
Limiting of potential loss exposure
Some banks sought to maximize volume and fees and disregarded risk
Low Leverage
Insurers do not rely on borrowed money to underwrite insurance or pay claimsThere is no
credit or liquidity crisis in the insurance industry
Greater Transparency
Insurance companies are an open book to regulators and the public
26
$800
$780
$700
$600
$500
$600
$400
$300
$200
$205
$100
$106
$0
Banks
Insurers
US Bank Failures:*
1995-2009**
30
25
20
15
10
8
6
7
4
25
Remarkably, as recently
as 2005 and 2006, no
banks failedthe first
time this had happened in
FDIC history (dating
back to 1934)
3
0
05
06
0
95
96
97
98
99
00
01
02
03
04
07
*Includes all commercial banking and savings institutions. **Through Jan. 23.
Source: FDIC: http://www.fdic.gov/bank/historical/bank/index.html; Insurance Info. Institute
08
30
09**
$ Millions
The 2001 bankruptcy
of Reliance Insurance
was the largest ever
among p/c insurers
$2,265.8
$2,000
$1,500
$1,272.7
$1,049.7
$1,000
$843.4
$699.4
$566.5
$555.8
$543.1
$531.6
$516.8
$500
dI
id
lan
M
In
s.
Fa
m
ily
bi
li
ia
ut
ua
lL
M
an
Am
er
ic
So
ut
he
rn
ns
ur
an
ce
In
s.
ty
In
s.
io
na
l
Su
pe
rio
rN
at
y
as
ua
lt
sit
C
Tr
an
PH
IC
O
In
s.
In
s.
In
s.
nd
em
Fr
em
on
tI
ns
ati
Co
m
pe
ni
ty
on
nc
e
Ca
lif
or
ni
a
Le
gi
on
In
su
ra
ce
eI
ns
ur
an
Re
lia
nc
In
s.
$0
* Disclaimer: This is not a complete picture. If anything the numbers are understated as some states have not reported in certain years.
32
Top 5 Threats
Facing P/C Insurers
Amid Financial
Crisis
Continued asset price erosion coupled with major capital event could
lead to significant shortage of capital
P/C have come to assume that large amounts of capital can be raised
quickly and cheaply after major events (post-9/11, Katrina). This
assumption is probably incorrect in the current environment.
Cost of capital is much higher today
Implications: P/C insurers need to protect capital today and develop
detailed contingency plans to raise fresh capital & generate internally
Low interest rates, risk aversion toward equities and many categories
of fixed income securities lock in a multi-year trajectory toward ever
lower investment gains
Insurers have not adjusted to this new investment paradigm
Regulators will not readily accept it; Many will reject it
Implication 1: Industry must be prepared to operate in environment
with investment earnings accounting for only small fraction of profits
Implication 2: Implies underwriting discipline of a magnitude not
witnessed in this industry in more than 30 years
Source: Insurance Information Inst.
Lessons from the period 1920-1975
P/C insurers get swept into vast federal regulatory overhaul and
subjected to inappropriate , duplicative and costly regulation
4. Tort Threat
5. Disintermediation
AFTERSHOCK:
Regulatory Response
Could Be Harsh
All Financial Segments
Including Insurers
Will Be Impacted
Post-Crunch: Fundamental
Issues To Be Examined Globally
P/C INSURANCE
FINANCIAL
PERFORMANCE
A Resilient Industry in
Challenging Times
Profitability
Historically Volatile
$65,777
$61,940
07
$5,421
$44,155
$38,501
$30,029
$20,559
$21,865
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$30,773
$50,000
$36,819
$60,000
Insurer profits
peaked in 2006.
$24,404
$70,000
06
08F
05
04
03
01
-$6,970
00
99
98
97
96
95
94
93
92
91
-$10,000
02
$0
*ROE figures are GAAP; 1Return on avg. surplus. 2008 numbers are annualized based on 9-mos. Actual of
$4.066 billion.
45
Sources: A.M. Best, ISO, Insurance Information Inst.
1987:17.3%
25%
1997:11.6%
2006:12.2%
20%
15%
10%
2009F: 4.5%
5%
2008F: 1.1%
0%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
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
06
08F
09F
10F
-5%
2010F: 6.0%
46
16%
+2.3 pts
14%
6%
4%
2%
0%
-2%
-4%
92
93
94
95
96
97
98
99
00
-9.7 pts
-13.2 pts
8%
-9.0 pts
10%
-1.7 pts
12%
01
02
03
ROE
04
05
06
07 08*
47
Cost of Capital
Presidential Politics
& P/C Insurance
How is Profitability Affected by the
Presidents Political Party?
Carter
Reagan II
10.13%
8.93%
OVERALL RECORD:
8.65%
1950-2008*
8.35%
7.98%
Democrats 8.05%
7.68%
6.98%
Republicans 8.02%
6.97%
Party of President has
5.43%
5.03%
marginal bearing on
4.83%
profitability of P/C
4.43%
insurance industry
3.55%
G.W. Bush II
Nixon
Clinton I
G.H.W. Bush
Clinton II
Reagan I
Nixon/Ford
Truman
Eisenhower I
Eisenhower II
G.W. Bush I
Johnson
Kennedy/Johnson
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
*ROE for 2008 based on H1 data. Truman administration ROE of 6.97% based on 3 years only, 1950-52.
Source: Insurance Information Institute
Profitability in
Washington State
Mixed Performance
Relative to US Overall
15%
18.0%
14.1%
8.4%
9.5%
5%
6.6%
5.0%
13.5%
11.9% 12.5%
10%
8.8%
14.4%
15.2%
10.0%
8.0%
7.3%
6.5%
5.3%
3.3%
-0.5%
-0.5%
0%
-5%
98
Source: NAIC.
99
00
01
02
03
US
WA
*Latest available.
04
05
06
07
12%
11.2%
10%
8%
10.1%
8.0%
9.4%
8.4%
7.7%
11.0%
9.8%
7.9%
9.3%
8.8%
7.0%
Washington States
auto insurance ROE
has been mixed
relative to the US
overall
6%
4.5%
4.1%
4%
3.3%
2.2%
2%
12.1%
2.0%
0%
98
Source: NAIC.
99
00
01
02
03
US
WA
*Latest available.
04
05
06
07
Until recently,
Washington States
homeowners insurance
ROE had been above
that of the US overall
31.2%
25.8%
21.2%
18.5%16.0%
15%
13.4%
10%
5%
5.4%
4.4%
7.6%
7.5%
3.8%
5.4%
3.9%
3.7%
1.4%
0.2%
0%
12.4%
9.7%
-2.8%
-5%
-7.2%
-10%
98
99
00
01
02
US
Source: NAIC.
03
WA
*Latest available.
04
05
06
07
17.9%
15%
11.2%
10.4%
10%
8.8%
6.2%
7.4%
6.7%
5%
3.5%
Washington States
commercial
multiperil ROE has
been mixed relative
to the US overall
-0.7%
-4.0%
-5%
5.7%
2.9%
1.6%
0%
15.6%15.1%
14.6%14.2%
-4.0%
-5.5%
-8.7%
-10%
-15%
98
99
00
01
02
US
Source: NAIC.
03
WA
*Latest available.
04
05
06
07
Investment
Performance
Investments are the Principle
Source of Declining
Profitability
Common Stock
17.9%
Real Estate
0.8%
Other
5.9%
Preferred Stock
1.5%
57
$60
$52.3
$51.9
$47.2
$50
$59.4
$56.9
$45.3
$44.4
$42.8
$63.6
$55.7
$48.9
$36.0
$40 $35.4
$28.3
$30
$20
$10
1Investment
Q
3
08
:
07
06
05
*
04
03
02
01
00
99
98
97
96
95
94
$0
gains consist primarily of interest, stock dividends and realized capital gains and losses.
2006 figure consists of $52.3B net investment income and $3.4B realized investment gain.
*2005 figure includes special one-time dividend of $3.2B.
58
Sources: ISO; Insurance Information Institute.
06
05
04
03
02
01
07
59
08:Q3
00
99
98
97
96
95
94
93
92
91
90
$ Billions
$20
$18.02
$18
$16.21
$16
$13.02
$14
$10.81
$12
$9.89 $9.82
$9.70
$9.24
$8.97
$9.13
$10
$8
$6.63
$6.61
$6.00
$4.81
$6
$3.52
$4 $2.88
$1.66
$2
$0
Realized capital gains exceeded $9
-$2
-$1.21
billion
in
2004/5
but
fell
sharply
in
-$4
2006 despite a strong stock market.
-$6
Nearly $9 billion again in 2007, but
-$8
$-9.7 billion in 2008 through Q3.
-$9.71
-$10
Underwriting
Trends
Financial Crisis Does Not Directly
Impact Underwriting
Performance: Cycle, Catastrophes
Were 2008s Drivers
115
110
1970s: 100.3
1980s: 109.2
1990s: 107.8
2000s: 102.0*
105
100
95
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
08F
90
65
*A.M. Best year end estimate of 103.2; Actual 9-mos. result was 105.6.
Relatively
low CAT
losses,
reserve
releases
110
107.5
Best combined
ratio since 1949
(87.6)
100
Cyclical
Deterioration
103.3
101.2
100.8
100.1
Including
Mortgage
& Fin.
Guarantee
insurers
101
98.4
95.7
92.6
90
2001
2002
2003
2004
2005
2006
2007
2008
2008*
2009F
66
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
$19.877 Bill
underwriting
loss in 08:9M
incl. mort. &
FG insurers
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
$ Billions
67insurers
* Includes mortgage & finl. guarantee
10
8
6
7
6
5
4
2
0
1920s
1930s
1940s
1950s
1960s
1970s
1980s
1990s
2000s*
68
*2000 through 2008.
90
103.3
97.6
97.6
93.9
96.4
98.4
105.3
104.5
102.7
104.9
103.5
2008
deterioration
due to price
competition and
higher CAT
losses. Trends
reverse in 2009.
94.3
95
99.8
100
104.5
105
103.9
110
109.9
115
110.9
Personal Lines
Combined Ratio, 1993-2009F
85
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08E 09F
Source: A.M. Best (historical and forecast).
2%
2%
1%
1%
0%
Dec-08
Nov-08
Oct-08
Sep-08
3%
Aug-08
4%
Jul-08
4%
2.6%
2.6%
2.7%
3.0%
3.1%
3.4%
3.7%
4.0%
Auto insurance
prices have clearly
begun to rise in
recent months
Jun-08
5%
May-08
0.8%
Feb-07
0.8%
Mar-07
0.5%
Apr-07
0.4%
May-07
0.3%
Jun-07
0.3%
Jul-07
0.5%
Aug-07
0.6%
Sep-07
0.5%
Oct-07 0.1%
Nov-07
0.2%
Dec-07
0.5%
Jan-08
0.9%
Feb-08
1.1%
Mar-08
1.3%
Apr-08
1.7%
Jan-07
3%
122.3
125
Commercial coverages
have exhibited significant
variability over time.
90
105.1
106.5
102.5
102.0
110.2
111.1
112.3
109.7
107.6
105.4
95.1
95
91.1
100
103.9
105
110.2
110
112.5
115
110.3
120
85
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08E 09F
Sources: A.M. Best (historical and forecasts)
-6.0%
4Q08
-11.0%
3Q08
2Q08 -12.9%
1Q08 -13.5%
-12.0%
4Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
4Q05
3Q05
2Q05
1Q05
4Q04
3Q04
2Q04
1Q04
-16%
3Q07 -13.3%
KRW Effect
-11.8%
-5.3%
-3.0%
-2.7%
-4.6%
-14%
-11.3%
-12%
Magnitude of price
declines is now
shrinking. Reflects
shrinking capital,
reduced investment
gains, deteriorating
underwriting
performance and
costlier reinsurance
-9.6%
-10%
-8.2%
-8%
-9.7%
-5.9%
-6%
-9.4%
-4%
-7.0%
-3.2%
-2%
-0.1%
0%
Personal
Commercial
5.0%
7.6%
2009F
28.1%
-1.4%
2008E
-3.8%
3.5%
2007
-0.3%
2.5%
2006
1.0%
0.0%
2.0%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Declines in premium
growth began to stabilize
in later 2008 and are
firming to some extent as
we move into 2009
-11.9%
Reinsurance
Sources: A.M. Best Review & Preview (historical and revised year-end 2008 forecast as of 1/20/09
$4.102
$3.426
$3.5
$2.975
$3.0
$2.5
$2.0
$1.882
$2.111
$1.5
99
00
01
02
03
04
05
06
Source: Insurance Information Institute from consolidated P/C Annual Statement data.
07
Catastrophe Losses
Impacting Underwriting
Results and the Bottom Line
$120
$100
$80
$100 Billion
CAT year is
coming soon
$61.9
$ Billions
$100.0
$20
$9.2
$6.7
$25.2
$40
$7.5
$2.7
$4.7
$22.9
$5.5
$16.9
$8.3
$7.4
$2.6
$10.1
$8.3
$4.6
$26.5
$5.9
$12.9
$27.5
$60
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08**
20??
$0
*Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita.
**Based on PCS data through Dec. 31. PCS $2.1B loss of for Gustav. $10.655B for Ike of 12/05/08.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and
personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B. 80
Source: Property Claims Service/ISO; Insurance Information Institute
Capital/
Policyholder
Surplus
Shrinkage, but
Capital is Within
Historic Norms
$400
$ Billions
$350
$300
$250
$200
$150
The premium-to-surplus
ratio stood at $0.94:$1 at
year end 2008, up from
near record low of $0.85:$1
at year-end 2007
$100
$50
Surplus is a measure of
underwriting capacity. It is
analogous to Owners
Equity or Net Worth in
non-insurance organizations
$0
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
83
*Towers Perrin estimate as of 12/31/08
Policyholder Surplus,
2006:Q4 2008:Q4(Est.)
Capacity peaked at
$521.8 as of 9/30/07
$540
$520
$500
$ Billions
$487.1
$496.6
$505.0
$478.5
$480
$460
$440
$420
$400
$438.0
$380
NWP % change
Surplus % change
25%
20%
15%
10%
5%
0%
-5%
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008*
-10%
P/C Premium
Growth
Primarily Driven by the
Industrys Underwriting
Cycle, Not the Economy
1975-78
1984-87
2000-03
Shaded areas
denote hard
market periods
16%
14%
12%
10%
Negative
growth in
2008 before
turning
positive in
2009
8%
6%
4%
2%
0%
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008F
2009F
2010F
-2%
88
15.3%
10.0%
8.4%
5.0%
Protracted
period of
negative or
slow growth
is possible
due to soft
markets and
slow
economy
4.2%
3.9%
3.0%
1.0%
0.5%
-1.0% -0.4%
2000
2001
2002
2003
2004
2005
2006
2007
Insurance Information
Institute On-Line
YOUR ATTENTION!
90