P/C Insurance for Contractors: Outlook for 2019 Associated General - - PowerPoint PPT Presentation

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P/C Insurance for Contractors: Outlook for 2019 Associated General - - PowerPoint PPT Presentation

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P/C Insurance for Contractors: Outlook for 2019 Associated General Contractors Bonita Springs, FL January 28, 2019 Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist Insurance Information Institute 110 William

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P/C Insurance for Contractors: Outlook for 2019

Associated General Contractors Bonita Springs, FL January 28, 2019

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 ♦ stevenw@iii.org ♦ www.iii.org

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Presentation Outline

 Insurance Coverages We’ll Focus On

 Workers Compensation  Commercial Auto  Liability

 P/C Insurance Industry Perspectives

 Rate Changes  Investments  Competitive Environment

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But First, Remember…

No “Loss Leaders”

 By Law, Each Line of Business in Each State Must Stand on Its Own

– No Subsidizing one line from the profits of another, either in the same state or another state

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P/C Insurance Industry: Workers Compensation

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WC Loss Ratio (Losses Incurred as Percent

  • f Direct Premiums Earned), 2005-17

Sources: NAIC, Report on Profitability by Line by State in 2017, p. 145; Insurance Information Institute

64.8% 60.6% 61.3% 61.8% 68.8% 71.9% 70.7% 67.6% 58.5% 53.6% 49.0% 62.1% 55.2% 45% 50% 55% 60% 65% 70% 75%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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WC Rate Changes, quarter over quarter, 2010:1Q–2018:3Q

Sources: Council of Insurance Agents & Brokers (https://www.ciab.com/uploadedFiles/News/2016_News_Releases/11.1.16%20NEWS%20RELEASE_Q3%20Survey %20Results%20FINAL.pdf and earlier news releases); Insurance Information Institute

  • 3.9%
  • 5.4%
  • 3.7%
  • 3.4%
  • 1.6%

2.6% 4.1% 7.5% 7.4% 9.0% 9.8% 4.1% 3.1% 0.7%

  • 0.4%
  • 1.9%
  • 2.5%
  • 2.6%
  • 3.0%
  • 4.3%
  • 2.6%
  • 2.9%
  • 1.9%
  • 2.7%
  • 2.3%
  • 2.0%
  • 2.0%
  • 2.9%
  • 2.6%

8.3% 8.3% 5.8% 4.9% 8.1% 2.3%

  • 8%
  • 6%
  • 4%
  • 2%

0% 2% 4% 6% 8% 10% 12%

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 17:1Q 17:2Q 17:3Q 17:4Q 18:1Q 18:2Q 18:3Q

Rate hikes in 2011-13 follow spike in loss ratio in 2009-10 Rates ease (and drop) after loss ratio below 60% in 2013

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Distribution of WC Rate Changes in 2018:Q3

Sources: Council of Insurance Agents & Brokers (https://www.ciab.com/uploadedFiles/News/2016_News_Releases/11.1.16%20NEWS%20RELEASE_Q3%20Survey %20Results%20FINAL.pdf p.3); Insurance Information Institute

15.0% 40.0% 15.0% 30.0% 0.0% 0.0% 3.7% 40.7% 0.0% 0.0% 48.2% 7.4%

0% 10% 20% 30% 40% 50% 60%

Down 10-20% Down 1- 10% No Change Up 1- 10% Up 10- 20% N/A Down 10-20% Down 1- 10% No Change Up 1- 10% Up 10- 20% N/A

Northeast Southeast National average change: -2.6%

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Distribution of WC Rate Changes in 2018:Q3, by region (cont’d)

Sources: Council of Insurance Agents & Brokers (https://www.ciab.com/uploadedFiles/News/2016_News_Releases/11.1.16%20NEWS%20RELEASE_Q3%20Survey %20Results%20FINAL.pdf p.3); Insurance Information Institute 3.2% 54.8% 38.7% 32.3% 0.0% 0.0% 0.0% 40.0% 0.0% 0.0% 57.9% 26.3% 0.0% 50.0% 0.0% 10.5% 10.0% 5.3%

0% 10% 20% 30% 40% 50% 60%

Down 10-20% Down 1-10% No Change Up 1-10% Up 10-20% N/A Down 10-20% Down 1-10% No Change Up 1-10% Up 10-20% N/A Down 10-20% Down 1-10% No Change Up 1-10% Up 10-20% N/A

Midwest Southwest Pacific Northwest

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How Competitive Is The WC Market? (Selected Large States)

Sources: SNL Financial; Insurance Information Institute

347 369 484 521 829 1,976 1,726

500 1,000 1,500 2,000 2,500 Illinois North Carolina Florida California New Jersey Texas New York

HH Index

  • No. of Carriers

Market is considered “competitive” Market is considered moderately “concentrated”

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P/C Insurance Industry: Commercial Auto

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Commercial Auto Loss Ratio (Losses Incurred

as Percent of Direct Premiums Earned), 2005-17

Sources: NAIC, Report on Profitability by Line by State in 2017, p. 145; Insurance Information Institute

53.1% 51.9% 53.1% 54.6% 54.4% 54.9% 59.8% 63.2% 63.0% 68.2% 69.2% 62.7% 65.2% 45% 50% 55% 60% 65% 70%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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Commercial Auto Rate Changes, quarter

  • ver quarter, 2010:1Q–2018:3Q

Sources: Council of Insurance Agents & Brokers (https://www.ciab.com/uploadedFiles/News/2016_News_Releases/11.1.16%20NEWS%20RELEASE_Q3%20Survey %20Results%20FINAL.pdf and earlier news releases); Insurance Information Institute

  • 4.4%
  • 5.5%
  • 4.7%
  • 3.9%
  • 2.0%
  • 0.4%

0.6% 2.0% 3.1% 3.0% 3.3% 3.4% 4.6% 4.4% 3.3% 3.0% 3.3% 1.7% 2.6% 3.0% 1.5% 0.5% 1.3% 2.7% 3.6% 2.4% 3.2% 4.4% 5.4% 6.1% 7.3% 7.3% 7.7% 8.2% 7.0%

  • 8%
  • 6%
  • 4%
  • 2%

0% 2% 4% 6% 8% 10%

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 17:1Q 17:2Q 17:3Q 17:4Q 18:1Q 18:2Q 18:3Q

Rate hikes follow spike in loss ratio

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How Competitive Is The Commercial Auto Market? (Selected Large States)

Sources: SNL Financial; Insurance Information Institute

288 352 464 380 340 394 411

500 1,000 1,500 2,000 2,500 Illinois North Carolina Florida California New Jersey Texas New York

HH Index

  • No. of Carriers

Market is considered moderately “concentrated” Market is considered “competitive”

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P/C Insurance Industry: General Liability

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General Liability* Loss Ratio (Losses Incurred

as Percent of Direct Premiums Earned), 2005-17

*”Other Liability” in the NAIC report. Sources: NAIC, Report on Profitability by Line by State in 2017, p. 145; Insurance Information Institute

63.2% 50.0% 50.4% 48.6% 53.6% 56.0% 49.4% 54.3% 48.1% 63.3% 53.0% 48.7% 54.5% 45% 50% 55% 60% 65%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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General Liability Rate Changes, quarter over quarter, 2010:1Q–2018:3Q

Sources: Council of Insurance Agents & Brokers (https://www.ciab.com/uploadedFiles/News/2016_News_Releases/11.1.16%20NEWS%20RELEASE_Q3%20Survey %20Results%20FINAL.pdf and earlier news releases); Insurance Information Institute

  • 5.0%
  • 6.3%
  • 5.6%
  • 4.9%
  • 2.7%
  • 0.7%

0.2% 2.2% 3.1% 4.1% 4.0% 3.3% 4.3% 3.5% 2.9% 2.3% 1.5% 0.1% 0.6%

  • 0.4%
  • 2.2%
  • 3.0%
  • 2.7%
  • 3.4%
  • 3.2%
  • 3.6%
  • 3.0%
  • 2.6%
  • 2.6%
  • 2.7%
  • 0.8%

0.1% 0.6% 0.8% 0.8%

  • 8%
  • 6%
  • 4%
  • 2%

0% 2% 4% 6%

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 17:1Q 17:2Q 17:3Q 17:4Q 18:1Q 18:2Q 18:3Q

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How Competitive Is The General Liability Market? (Selected Large States)

Sources: SNL Financial; Insurance Information Institute

567 311 1,168 345 362 349 374

500 1,000 1,500 2,000 2,500 Illinois North Carolina Florida California New Jersey Texas New York

HH Index Market is considered “competitive” Market is considered moderately “concentrated”

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Investments

Investment Performance is a Key Driver of Profitability Depressed Yields Will Necessarily Influence Underwriting & Pricing

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4.44 4.03 4.59 4.50 4.49 4.20 3.93 3.73 3.83 3.68 3.43 3.64 3.18 3.04 3.02 0% 1% 2% 3% 4% 5% 6% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

P/C Insurer Portfolio Yields, 2002-2017

Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.

Even as 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.

P/C Carrier Yields Have Been Falling for Over a Decade, Reflecting the Long Downtrend in Prevailing Interest Rates.

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January 2019: Quarterly Yield Forecasts for 10-Year US Treasury Bonds in 2019-20

2.7 2.8 2.7 2.7 2.6 2.6 2.5 2.6 2.9 3.0 3.1 3.2 3.2 3.2 3.2 3.2 3.2 3.3 3.5 3.6 3.6 3.7 3.7 3.7 2.0 2.5 3.0 3.5 4.0 2019:Q1 2019:Q2 2019:Q3 2019:Q4 2020:Q1 2020:Q2 2020:Q3 2020:Q4 Yield (%) 10 Most Lowest, Avg. Median 10 Highest, Avg.

Sources: Blue Chip Economic Indicators (1/19); Insurance Information Institute.

Remarkable disagreement among the 53 forecasts in the Blue Chip survey regarding forecast yields of long-term bonds in 2019-20

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Thank you