the challenges of insuring coastal properties l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
The Challenges of Insuring Coastal Properties PowerPoint Presentation
Download Presentation
The Challenges of Insuring Coastal Properties

Loading in 2 Seconds...

play fullscreen
1 / 54

The Challenges of Insuring Coastal Properties - PowerPoint PPT Presentation


  • 311 Views
  • Uploaded on

The Challenges of Insuring Coastal Properties 2008 Insurance Symposium The Brantley Risk and Insurance Center Appalachian State University Boone, NC July 21, 2008 Steven N. Weisbart, Ph.D., CLU, Vice President & Chief Economist

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'The Challenges of Insuring Coastal Properties' - Samuel


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
the challenges of insuring coastal properties

The Challenges ofInsuringCoastal Properties

2008 Insurance SymposiumThe Brantley Risk and Insurance Center

Appalachian State University

Boone, NC

July 21, 2008

Steven N. Weisbart, Ph.D., CLU, Vice President & Chief Economist

Insurance Information Institute 110 William Street New York, NY 10038

Tel: (212) 346-5540 Fax: (212) 732-1916 stevenw@iii.org  www.iii.org

estimated insured value of coastal exposure 2007 billions
Estimated Insured Value of Coastal Exposure (2007, $ Billions)

Over the last three years (2005-2007), the insured value of properties in coastal areas grew at a 7.3%/year compound rate. If this growth rate persists, the insured value will double by 2017.

Insured values in Louisiana and Mississippi grew at low rates since 1/1/2004 because Hurricane Katrina destroyed much value in 2005.

Source: AIR Worldwide athttp://www.air-worldwide.com/_public/images/pdf/AIR2008_Coastline_at_Risk.pdf?src=email

in some states coastal exposure is a high percent of the state s insured value
In Some States, Coastal Exposure is aHigh Percent of the State’s Insured Value

“Insured value” is an estimate of the cost to replace structures and their contents, including additional living expenses and business interruption coverage, for all residential and commercial property in a state that is or can be insured.

Source: AIR Worldwide June 11, 2008 release, athttp://www.air-worldwide.com/_public/images/pdf/AIR2008_Coastline_at_Risk.pdf?src=email

projected population growth rates in coastal states 2000 2030
Projected Population Growth Ratesin Coastal States, 2000-2030

Source: US Census Bureau, at http://www.census.gov/population/projections/PressTab1.xls;projections released April 21, 2005.

actual population growth rates in coastal states 7 1 2006 6 30 2007
Actual Population Growth Ratesin Coastal States, 7/1/2006-6/30/2007

Source: US Census Bureau, data released May 1, 2008.

inflation adjusted u s insured catastrophe losses by cause of loss 1987 2006 billions of 2006
Inflation-Adjusted U.S. Insured Catastrophe Losses By Cause of Loss, 1987-2006¹ (Billions of 2006 $)

From 1987-2006, hurricanes and tornadoes caused 72% of insured catastrophe losses. The two-decade total: $297.3 billion (in 2006 dollars).

1Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.

Note: “Winter Storms” excludes snow. “Earthquakes” includes other geologic events such as volcanic eruptions and other earth movement. “Wind/Hail/Flood” does not include flood damage covered by the federally administered National Flood Insurance Program. “Fire” includes wildland fires.

Source: Insurance Services Office (ISO)..

number of tornadoes in 1 st 2 nd calendar quarters 2005 2008
Number of Tornadoes in 1st & 2nd Calendar Quarters, 2005–2008

I.I.I. estimate, based on preliminary reports and typical adjustment

The first two quarters of 2008 were unusually active for tornadoes, driving up catastrophe losses substantially.

Sources: US Dept. of Commerce, Storm Prediction Center, National Weather Service,at http://www.spc.noaa.gov/climo/torn/monthlytornstats.pdf

u s insured catastrophe losses 2007
U.S. Insured Catastrophe Losses*(2007 $)

$ Billions

Largest CAT losses for any 1st quarter since 1994

$100 Billion CAT year is coming – soon?

*Excludes $4Bn-$6Bn offshore energy losses from Hurricanes Katrina & Rita. **through 6/24/2008.

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.

Source: Property Claims Service/ISO; Insurance Information Institute

underwriting gain loss in florida homeowners insurance 1992 2007e
Underwriting Gain (Loss) in Florida Homeowners Insurance, 1992-2007E*

Private Insurers**

$ Billions

Florida’s homeowners insurance market produces small/modest profits in most years and enormous losses in others

*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.

**Does not include Citizens Property Insurance Corporation results.

cumulative underwriting gain loss in florida homeowners insurance 1992 2007e
Cumulative Underwriting Gain (Loss) in Florida Homeowners Insurance, 1992-2007E*

Private Insurers**

$ Billions

It took insurers 11 years (1993-2003) to erase the UW loss associated with Andrew, but the 4 hurricanes of 2004 erased the prior 7 years of profits & 2005 deepened the hole.

*2007 estimate by Insurance Information Inst. based on historical loss, expense and premium data for FL.

**Does not include Citizens Property Insurance Corporation results.

yearly roes for homeowners insurance in virginia 1997 2006
Yearly ROEs for HomeownersInsurance in Virginia, 1997-2006

The 10-year (1997-2006) average ROE on Homeowners Insurance in Virginia was -0.5%.

Source: NAIC

roe for homeowners insurance in north carolina 1997 2006
ROE for Homeowners Insurancein North Carolina, 1997 - 2006

Average HO ROE in NC from 1997 through 2006 was 10.2% -- well below the Fortune 500 All-Industry average.

Source: NAIC

roe for homeowners insurance in south carolina 1997 2006
ROE for Homeowners Insurance inSouth Carolina, 1997-2006

Average HO ROE in SC from 1997 through 2006 was a healthy 17.5%, but this is end-point sensitive. The comparable number for 1994-2003 was 12.8%.

Source: NAIC

roe for homeowners insurance in georgia 1997 2006
ROE for Homeowners Insurance inGeorgia, 1997-2006

Average HO ROE in Georgia from 1997 through 2006 was 3.0%.

Source: NAIC

roe for homeowners insurance in texas 1992 2006
ROE for Homeowners Insurance in Texas, 1992 - 2006

Average ROE in TX 1992 through 2006 was 0.14%

Source: NAIC

construction materials inflation vs overall consumer inflation rate 1998 2007
Construction Materials Inflation vs. Overall Consumer Inflation Rate,1998-2007

Catastrophes often cause shortages and, therefore, spikes in the cost of construction materials, which are later reflected in homeowners claims.

*12-month change May 2008 vs. May 2007;

Sources: US Bureau of Labor Statistics; I.I.I.

atlantic sea surface temperatures 1948 2007
Atlantic Sea Surface Temperatures, 1948-2007

Source: AIR web site, http://www.air-worldwide.com/_public/html/air_currentsitem.asp?ID=1364

number of major category 3 4 5 hurricanes striking the us by decade
Number of Major (Category 3, 4, 5) Hurricanes Striking the US by Decade

Mid 1920s – mid-1960s:

AMO Warm Phase

1995 – 2030s?

AMO Warm Phase

Already as many major storms in 2000-2007 as in all of the 1990s

*Figure for 2000s is extrapolated based on data for 2000-2007 (6 major U.S. landfalling storms: Charley, Ivan, Jeanne (2004) &

Katrina, Rita, Wilma (2005)).

Source: Tillinghast from National Hurricane Center: http://www.nhc.noaa.gov/pastint.shtm.

forecast for 2008 hurricane season 60 worse than average
Forecast for 2008 Hurricane Season: 60% Worse Than Average

Source: Philip Klotzbach and Dr. William Gray, “Extended Range Forecast of Atlantic Seasonal Hurricane Activity and U.S. Landfall Strike Probability for 2008,” Colorado State University, June 3, 2008. Available at http://hurricane.atmos.colostate.edu/Forecasts/2008/june2008/jun2008.pdf

increased likelihood of landfall with high ntc based on 1950 2007
Increased Likelihood of Landfall with High NTC (based on 1950-2007)
  • With high NTC (compared to low NTC),
  • Twice as many named storms made landfall
  • Three times as many hurricanes made landfall
  • Three times as many major hurricanes made landfall

Source: Philip Klotzbach and Dr. William Gray, Colorado State University, June 3, 2008, p. 32.

major hurricanes might form but not make landfall
Major Hurricanes Might FormBut Not Make Landfall
  • From Hurricane Irene in 1999 to Hurricane Lili in 2002, 21 consecutive hurricanes developed in the Atlantic basin without a single U.S. landfall.
  • “This is how nature sometimes works.”
    • From 1966 to 2003, of 79 major (3-4-5) hurricanes, 19 (24%) made landfall.
    • During 2004-5, 7 of 13 (54%) major hurricanes made landfall
    • During 2006-7, 0 of 4 (0%) major hurricanes made landfall

Source: Philip Klotzbach and William Gray, “Extended Range Forecast of Atlantic Seasonal Hurricane Activity and U.S. Landfall Strike Probability for 2008,” Department of Atmospheric Science, Colorado State University, June 3, 2008, p. 34.

catastrophes and roe p c vs all industries 1987 2008
Catastrophes and ROE: P/C vs.All Industries 1987–2008*

P/C profitability is cyclical, volatile

Sept. 11

Hugo

Katrina, Rita, Wilma

Andrew

Northridge

4 Hurricanes

*2007 and 2008 are ROAS. 2008 is annualized based on Q1 2008.Sources: ISO, Fortune; Insurance Information Institute

slide29

P/C Insurance Industry ROEs,1975 – 2008*

1987:17.3%

1977:19.0%

2006:12.2%

1997:11.6%

10 Years

10 Years

9 Years

2008Q1: 6.4%

(9.5% excl. M&FG)

1975: 2.4%

2001: -1.2%

1984: 1.8%

1992: 4.5%

*GAAP ROE for all years except 2007 and 2008 which are ROAS (statutory Return on Average Surplus).2008 ROAS is annualized based on Q1 2008. Excluding mortgage and financial guarantee insurers = 9.5%

Sources: ISO;Insurance Information Institute.

p c insurance industry net income after taxes 1991 2008f
P/C Insurance Industry Net Income After Taxes, 1991-2008F

Millions

Insurer profits peaked in 2006

Year

2008 numbers are annualized based on Q1 2008.Sources: A.M. Best, ISO, I.I.I.

p c insurance industry combined ratio 2001 2008 q1
P/C Insurance Industry Combined Ratio, 2001-2008:Q1

Including Mortgage & Fin. Guarantee insurers

As recently as 2001, insurers paid out nearly $1.16 for every $1 in earned premiums

Relatively low CAT losses, reserve releases

2005 ratio benefited from heavy use of reinsurance which lowered net losses

Best combined ratio since 1949 (87.6)

Excluding Mortgage & Fin. Guarantee insurers

*Excluding Mortgage & Financial Guarantee insurers. Sources: A.M. Best, ISO; III.

underwriting profit loss nominal 1975 2008 q1
UNDERWRITING PROFIT/LOSS (NOMINAL $) 1975-2008:Q1

In 2006, insurers earned an underwriting profit of $31.7 billion— a record, but only the second underwriting profit since 1978. Underwriting profit in 2007 was $19 billion; 2008Q1 loss was $0.6 billion.

$ Billions

$52.7 billion underwriting loss

Sources: A.M. Best, Insurance Information Institute

share of losses paid by reinsurers by disaster
Share of Losses Paid by Reinsurers, by Disaster*

Reinsurance is playing an increasingly important role in the financing of mega-CATs; Reins. Costs are skyrocketing

*Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer, which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at $3.85 billion for 2004 and $4.5 billion for 2005.

Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.

us reinsurer net income roe 1985 2007
US Reinsurer Net Income& ROE, 1985-2007*

Reinsurer profitability rebounded post-Katrina but is now falling

Source: Reinsurance Association of America. *2007 ROE figure is III estimate based return on average 2007 surplus.

u s p c industry policyholder surplus 1977 2008 q1
U.S. P/C Industry Policyholder Surplus: 1977-2008:Q1

Surplus as of 3/31/08 was $515.6 billion, down 0.4% from year-end 2007.

Peak was $521.8 billion as of 9/30/07

$ Billions

1977-1987 CAGR: 13.6%1987-1997 CAGR: 11.5%1997-2007 CAGR: 5.5%

Surplus exceeded a half trillion dollars for the first time during the 2nd quarter of 2007.

Sources: A.M. Best, ISO, Insurance Information Institute.

u s p c industry premiums to surplus ratio 1985 2008 q1
U.S. P/C Industry Premiums-to-Surplus Ratio: 1985-2008:Q1

Premiums measure risk accepted; surplus is funds beyond reserves to pay unexpected losses. The larger surplus is in relation to premiums—the lower the ratio of premiums to surplus—the greater the industry’s capacity to handle the risk it has accepted.

20070.85:1 again

19980.85:1–the lowest P:S ratio in recent history.

Sources: A.M. Best, ISO, Insurance Information Institute.

p c insurer impairment rates and underwriting results 1969 2007
P/C Insurer Impairment Rates and Underwriting Results, 1969-2007

The 2006 impairment rate was 0.43%, or 1-in-233 companies, half the 0.86% average since 1969; the 2007 rate was a record low of 0.12%

Source: A.M. Best; Insurance Information Institute

reasons for us p c insurer impairments 1969 2005
Reasons for US P/C Insurer Impairments, 1969-2005

2003-2005

1969-2005

Deficient reserves, CAT losses are more important factors in recent years

*Includes overstatement of assets.

Source: A.M. Best: P/C Impairments Hit Near-Term Lows Despite Surging Hurricane Activity, Special Report,Nov. 2005;

premium growth rates vary dramatically
Premium Growth Rates Vary Dramatically

1975-78

1984-87

2000-03

Shaded areas denote “hard market” periods

Excluding Mortgage & Financial Guarantee insurers, Q1 2008 NWP dropped 0.9%

In 2007 net written premiums fell 0.6%, the first decline since 1943

2008 is Q1 actual (-0.7%), including Mortgage & Financial Guarantee insurersSources: A.M. Best, ISO, Insurance Information Institute

average commercial rate change all lines 1q 2004 4q 2007
Average Commercial Rate Change,All Lines, (1Q:2004 – 4Q:2007)

Magnitude of rate decreases diminished greatly after Katrina but have grown again

-0.1%

KRW Effect

Source: Council of Insurance Agents & Brokers; Insurance Information Institute

hurricane katrina claim status on storm s 1 st anniversary
Hurricane Katrina Claim Status on Storm’s 1st Anniversary*

95% of the 1.2 million homeowners insurance claims in Louisiana & Mississippi are settled, with just 2% in dispute

*Hurricane Katrina made its north Gulf coast landfall August 29, 2005.

Source: Insurance Information Institute survey, August 2006.

hurricane katrina claim status on storm s 2 nd anniversary
Hurricane Katrina Claim Status on Storm’s 2nd Anniversary*

99% of the 1.2 million homeowners insurance claims in Louisiana & Mississippi were settled as of the storm’s second anniversary in 2007

*Hurricane Katrina made its north Gulf coast landfall August 29, 2005.

**Unsettled implies that the claim is in the process of settlement, involved in mediation or litigated.

Source: Insurance Information Institute survey, August 2007.

nfip flood policy growth in gulf states since katrina
NFIP Flood Policy Growth in Gulf States Since Katrina*

The number of flood insurance policies sold in the Gulf states in the 2 years following Katrina increased by 21.6%

*Change from July 2005 through August 2007.

Sources: NFIP ; Insurance Information Institute.

percentage of nfip flood policies issued since katrina that are not renewed
Percentage of NFIP Flood Policies Issued Since Katrina That Are Not Renewed*

Flood policy nonrenewal rates in Gulf states are surprisingly high

*Policies issued since July 2005 as of August 2007. **US figure is nonrenewal rate for all policies in force, average over 12 month period ending August 2007.

Sources: NFIP ; Insurance Information Institute.

p c industry investment income 1994 2008q1
P/C Industry Investment Income*, 1994-2008Q1

Investment income (excluding one-time dividend) jumped by 17% in 2005 as insurers which had accumulated cash captured rising bond interest rates.

Investment income CAGR 1994-2007 was just 3.8%.

*Primarily interest and stock dividends.

2005 figure includes special one-time dividend of $3.2B. Sources: ISO; Insurance Information Institute.

p c industry net realized capital gains 1990 2008 q1
P/C Industry Net Realized Capital Gains, 1990-2008:Q1

$ Billions

Realized capital gains exceeded $9 billion in 2004/5 but fell sharply in 2006 despite a strong stock market. Nearly $9 billion again in 2007, but $-0.5 billion in 2008:Q1.

Sources: A.M. Best, ISO, Insurance Information Institute.

summary
Summary
  • Insured catastrophe losses are on the rise
    • Hurricanes are the #1 source of US catastrophe losses, by far
    • Rapid coastal development (driven by strong demographics) & rising property values are the primary reasons for this trend
  • Financial effects on property/casualty insurance industry have been severe ($81 billion in hurricane losses in 2004/2005) but were manageable due to reinsurance
  • Expectations for more frequent & more severe storms is driving risk-based, actuarially sound rates upward
  • Ultimately, insurance prices must reflect true risk
  • Market signals on risk provide incentives to fortify structures
  • Litigation creates additional level of uncertainty & expense
  • In the current environment, investments provide little relief
insurance information institute on line
Insurance Information Institute On-Line

WWW.III.ORG

If you would like a copy of this presentation, please give me your business card with e-mail address