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North American Property/Casualty Insurance Industry Review & Outlook

This presentation provides an overview of the North American property/casualty insurance industry, including market shares, financial performance, stock market performance, growth estimates, catastrophe losses, investment income, mergers and acquisitions, and distribution trends.

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North American Property/Casualty Insurance Industry Review & Outlook

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  1. North AmericanProperty/Casualty Insurance Industry Review & Outlook Canadian Insurance Accountants Association Conference The Prince Edward Hotel Charlottetown, Prince Edward Island September 20, 1999 Download this presentation at: http://www.iii.org/media/ciaa/index.html Robert P. Hartwig, Ph.D. Vice President & Chief Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: (212) 669-9214Fax: (212) 732-1916 bobh@iii.org  www.iii.org

  2. WORLD OVERVIEW

  3. World P/C InsuranceMarket Shares 1997=$897 Billion (US$) Worldwide P/C premiums will surpass $1 trillion in the Year 2000 Source: Swiss Re, Insurance Information Institute

  4. Global Non-Life Market Share 1997: Canada became the world’s 6th largest p/c market Source: Swiss Re, Insurance Information Institute

  5. North American P/C Insurance Market Place 1998 (US$) Source: Insurance Information Institute, A.M. Best, Insurance Bureau of Canada

  6. Foreign Direct Investment inthe U.S. Insurance Industry 1997 Source: Insurance Information Institute, Bureau of Economic Analysis

  7. Marine&Aircraft Comm. Prop. Reinsurance Workers Comp Personal Property Liability Auto Other A&H Product Line Share ofTotal Premium (1998) Percent of Industry NPW Source: A.M. Best, Insurance Bureau of Canada, Insurance Information Institute

  8. INDUSTRY FINANCIAL PERFORMANCE:1999 YEAR-TO-DATE

  9. 1999 vs. 1998 US Industry: Stock Performance 52 Weeks Ending 9/3/99 Full Year 1998 Source: SNL Securities, Insurance Information Institute

  10. 1999 Stock Market Performance, by Segment Year-to-Date through 09/03/99 Source: SNL Securities, Insurance Information Institute

  11. 1999 Insurer Stock Performance, by Asset Size Year-to-Date Through 09/03/99 Source: SNL Securities, Insurance Information Institute

  12. Insurers vs. Banks:1999 Stock Performance Year-to-Date Through 09/03/99 Source: SNL Securities, Insurance Information Institute

  13. Growth in Net Premiums Written 1999 NPW Growth Estimates: US: 1.0% Canada: 0.8% Source: A.M. Best, Insurance Bureau of Canada, Insurance Information Institute

  14. Personal/Commercial Growth in NPW: Canada Source: Insurance Bureau of Canada, Insurance Information Institute

  15. Net Premiums Written and Surplus (Equity): Canada Source: A.M. Best, Insurance Bureau of Canada, Insurance Information Institute

  16. Net Premiums Written to Policyholder Surplus 1999-2000 (U.S. Est./Forecast) = 0.8 Source: A.M. Best, Insurance Bureau of Canada, Insurance Information Institute

  17. U.S. InsuredCatastrophe Losses 1st-Half 1999 Cat losses: $5.2B Source: Property Claims Service, Insurance Information Institute

  18. Combined Ratio: 1970-1999* * * 1999 figures based on 1st-half results. Source: A.M. Best, Insurance Bureau of Canada, Insurance Information Institute

  19. Net Investment Income Billions (US$) US Facts 1997 Peak = $41.5B 1998 = $39.9B 1999 (Estimate) = $39B 2000 (Forecast) = $37B Billions (C$) Source: A.M. Best, Insurance Bureau of Canada, Insurance Information Institute

  20. Return on Equity1975 - 1998 * * Estimate Source: Insurance Bureau of Canada, Insurance Information Institute

  21. MERGERS AND ACQUISITIONS

  22. Insurance Mergers and Acquisitions 1998: 565 deals valued at $165.4 B Source: Compiled from Conning & Company reports.

  23. A Big Piece of the Pie... Insurance Deals = $165.4 Billion or 10.3% Overrepresented? Insurance Share of US GDP = 8.5% Source: Insurance Information Institute, Conning & Company, Securities Data Corp.

  24. M&As by Segment/Value 1998 = $165.4 Billion Source: Conning & Co.

  25. M&As by Segment/#Deals 1998 = 565 Deals Source: Conning & Co.

  26. Major M&A Announcements Involving U.S. Insurers in 1999

  27. How to Get Rid of Overcapacity • Pay bigger dividends • policyholder & stock • Share buybacks • Reduce prices (underwriting losses rise) • Buy non-P/C assets • Wait for bear market (invest. losses rise) M&As CAN’T DO IT ALONE

  28. DISTRIBUTION & AGENCY/BROKER ISSUES

  29. U.S. Insurance Industry Employment (All Segments) Annual Averages (Thousands) Source: Bureau of Labor Statistics, U.S. Department of Labor.

  30. U.S. Insurance Industry Employment (By Segment) Annual Averages (Thousands) Source: Bureau of Labor Statistics, U.S. Department of Labor.

  31. P/C Premium Distribution1998 Personal Lines ($146B) Ind. Agents/ Brokers 27% Banks 2.8% ($4.1B) $39.5B Direct Response 9.8% Internet 0.9% ($1.3B) $14.3 Other 3.0% ($4.4B) $82.6B Captive Agents 56.5% Source: Insurance Information Institute, A.M. Best, Datamonitor

  32. P/C Premium Distribution1998 Commercial Lines ($135B) Ind. Agents/ Brokers73% $99B $36B CaptiveAgents27% Direct Response 0.3%($0.4B) Source: Insurance Information Institute, A.M. Best

  33. Shifting Distribution Channels: Life/Health Insurers 1998 2003 Source: Datamonitor

  34. Respondents Extremely/Very Comfortable Purchasing Auto Insurance(%), by Outlet Source: Insurance Information Institute’s 1999 Insurance Pulse

  35. Respondents Having Better Relationship with Agents, Banks, or Neither Source: Insurance Information Institute’s 1999 Insurance Pulse

  36. Distribution Channels Continue to Proliferate Agent Broker Mail Telephone Bank Customer Insurer Internet Dealerships Payroll Plans ???

  37. The Electrons Are Coming... www.InsureMe.com www.NoAgent.com

  38. E-Agencies (As of Sept. 1999) Just 3% (1,200) of the 42,000 independent agencies in the US have a web site

  39. THE DOLLARIZATION DEBATE

  40. Advantages of a Single Currency • Benefits to insurers are peripheral • Elimination of FX risk • Reduced transaction cost • Facilitates cross-border investment (real/financial) • Encourages dollar-zone investment • Promotes economic integration

  41. EU Directives AffectingNon-Life Insurance • Reinsurance/Retrocession (February 2, 1964) • Abolished nationality-based restrictions on reinsurance transactions • First Generation Directives (July 24, 1973[life];1979[non-life]) • Objective: Increase competition • Insurers from one member state allowed to operate in • other member states • Insurers remained protectionist • Had right to sell, few allowed to buy • Largely ineffective until 1990s

  42. EU Directives AffectingNon-Life Insurance • Second Generation Directives (June 22, 1988) • Allowed medium/large commercial risks to buy P/L coverage in insurance markets of member states • Personal lines excluded • Third Generation Directives (June 18, 1992) • Objective: Remove remaining obstacles to open competition • Single license (issued by home country) permits operation • in all EU states • Home country supervisory authority may not require prior • approval of rates, policy conditions, or forms • Can’t deny entry based on “market disruption” • Standardization of regulatory oversight (esp. solvency) • Foreign branch operations regulated by home country

  43. Lingering Problems for Insurers • No uniformity of contract law • No standardization of corporate law • Limited uniformity of insurance taxation • General-good provision • Language (11+ languages spoken in 15 EU nations) • Cultural differences • Weak euro? • Defections before 2002?

  44. EMERGING ISSUES • Y2K • Financial Services Reform • Banks and Insurance • Firearms Exposure? • Fraud

  45. Insurers’ Estimated Y2KExposure: Worst Case Scenario* *High estimate ($35 billion); M&R estimates range from $15 - $35 billion. Source: Milliman & Robertson

  46. Senate Banks, securities firms & insurers must operate as holding cos. Fed oversight Bar banks from entering commercial businesses/bar non-fin. cos. from thrifts Small, rural banks exempt from CRA Criminalize privacy breaches House Holding cos/national bank subsidiary structures permitted Fed/OCC oversight Banks can enter commercial services/non-fin. cos can own thrifts Extend CRA to holding companies Disclosure policies, customer consent Financial Services Reform: Work (Still) in Progress

  47. 1997 Bank Insurance Premiums Total = $27.8 Billion Source: Association of Banks-in-Insurance

  48. Firearms Exposure:Long Shot or Bull’s-Eye? Rate per 100,000 population (1997) Source: FBI

  49. WANTED • Raises questions for insurance regulators in small states • Adds fuel to federal v. state oversight debate • Current safeguards designed to minimize insolvency risk, not risk of financial fraud. • NAIC role/position CAPTURED 9/4/99 Martin Frankel: Disappeared with $215 million in policyholder funds

  50. Insurance Information Institute On-Line WWW.III.ORG • Tips on safety, disaster preparedness • Consumer advice • Information for Insurance Professionals • Media Resources • Industry Financial Results, Surveys & Polls • Download this presentation at: http://www.iii.org/media/ciaa/index.htm

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