Current State of the U.S. Property & Casualty Insurance Industry - - PowerPoint PPT Presentation

Current State of the U.S. Property & Casualty Insurance Industry

TRENDS & ANALYSIS AS OF JULY 25, 2018

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Contents

The U.S. P&C Industry 3 - 16 U.S. Surplus Lines Industry 17 - 33 Reinsurance 34 - 38 Catastrophes 39 - 55 Lloyd’s 56 - 58 Catastrophe Bonds 59 - 60

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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The U.S. P&C Industry

Brief summary of the state of the U.S. P&C Industry at the time of this presentation. Just a few sentences that summarize what the trends and analysis are pointing to.

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Combined Ratio (Right Scale)

BILLIONS

U.S. Policyholder Surplus vs Combined Ratio

1975 – 2018:Q1

100% $300 $400 $500 $600 $700 $200 $0 $100 $800 120% 105% 110% 115% 95% 90% 125% 130%

‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘94 ‘95 ‘96 ‘91 ‘92 ‘93 ‘90 ’09 ‘79 ‘80 ‘77 ‘78 ‘75 ‘76 ’10 ’11 ‘88 ‘89 ‘86 ‘87 ‘84 ‘85 ‘82 ‘83 ‘81 ’14 ’12 ’13 ’15 ’16 ’18 Q1 ’17

Capacity as of 3/31/18 was $734.1B, up 46.8% from 12/31/07 which was $517.9B.

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Combined Ratio

(Left Scale)

6% 9% 12% 15% 3% 0%

• 3%

100% 105% 110% 115% 120% 95% 90%

Return on Average Surplus

(Right Scale)

Overall U.S. P&C Industry Profitability

‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘95 ‘94 ‘07 ’09 ‘08 ’10 ’11 ’12 ’13 ’14 ’15

1994 – 2018:Q1

’16 ’18 Q1

’17

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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1975 – 2018:Q1

Underwriting Gain (Loss)

• $15
• $5

$5

• $25
• $55
• $35
• $45

$15 $25 $35 Billions

U.S. P&C industry has experienced profit from its underwriting activity in only 8 of the last 42 years.

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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P/C Industry Net Income After Taxes*

1997 – 2018P

*Adjusted for inflation using the BLS CPI calculator

$56,155 $46,157 $32,107 $29,124 $9,612 $4,140 $39,971 $49,760 $55,315 $79,122 $73,444 $3,387 $32,591 $39,527 $21,080 $35,816 $66,839 $57,024 $57,808 $42,900 $36,123 $43,500

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18P

$Millions (2017 Dollars)

The median profit for this 21-year period is about $40 billion.

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Source: Council of Insurance Agents & Brokers

Percent

Rates increase for the 2nd consecutive quarter.

U.S. P&C Industry

Quarterly Change in Commercial Rates

2004 – 2018:Q1

• 10
• 8
• 6
• 12
• 14
• 16

2

• 2
• 4

4 6

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Operations Financing Investments

BILLIONS

U.S. Property & Casualty Insurers

Quarterly Cash Flow

Mar ‘09 Jun ‘09 Sep ‘09 Dec ‘09 Mar ‘10 Jun ‘10 Sep ‘10 Dec ‘10 Mar ‘11 Jun ‘11 Sep ‘11 Dec ‘11 Mar ‘12 Jun ‘12 Sep ‘12 Dec ‘12 Mar ‘13 Jun ‘13 Sep ‘13 Dec ‘13 Mar ‘14 Jun ‘14 Sep ‘14 Dec ‘14 Mar ‘15 Jun ‘15 Sep ‘15 Dec ‘15 Mar ‘16 Jun ‘16 Sep ‘16 Dec ‘16 Mar ‘17

• $18
• $15
• $12
• $9
• $6
• $3

$0 $3 $6 $9 $12 $15 $18 $21 $24 $27

Jun ‘17 Sep ‘17 Dec ‘17 Mar ‘18

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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• $24
• $21
• $18
• $15
• $12
• $9
• $6
• $3

$0 $3 $6 $9 $12 $15 $18

BILLIONS

Quarterly Net Cash Flow

U.S. Property & Casualty Insurers

Negative cash flow in 21 of the last 37 calendar quarters

Net Cash Flow = Net cash from Operations + Net cash from Investments + Net cash from Financing

Mar ‘09 Jun ‘09 Sep ‘09 Dec ‘09 Mar ‘10 Jun ‘10 Sep ‘10 Dec ‘10 Mar ‘11 Jun ‘11 Sep ‘11 Dec ‘11 Mar ‘12 Jun ‘12 Sep ‘12 Dec ‘12 Mar ‘13 Jun ‘13 Sep ‘13 Dec ‘13 Mar ‘14 Jun ‘14 Sep ‘14 Dec ‘14 Mar ‘15 Jun ‘15 Sep ‘15 Dec ‘15 Mar ‘16 Jun ‘16 Sep ‘16 Dec ‘16 Mar ‘17 Jun ‘17 Sep ‘17 Dec ‘17 Mar ‘18

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$ BILLIONS

U.S. Property & Casualty Insurers

Annual Cash Flow

Operations Financing Investments

• $80
• $70
• $60
• $50
• $40
• $30
• $20
• $10

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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$ BILLIONS

U.S. Property & Casualty Insurers

Annual Net Cash Flow

• $18
• $15
• $12
• $9
• $6
• $3

$0 $3 $6 $9 $12 $15 $18 $21 $24

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Negative for five

• f the last

fourteen years.

Net Cash Flow = Net cash from Operations + Net cash from Investments + Net cash from Financing

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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10-Year U.S. Treasury Rates

Quarterly Data 1982 – June 18, 2018

10 12 14 16 4 8 6 2 PERCENT

'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 '17 '18

A 10 year old Treasury Bill purchased on June 18, 2008 had a rate of 4.22% That 10 year old T Bill matures and is replaced by the June 18, 2018 T Bill earning 2.92% That’s a 30.8% reduction in investment income. Thus the greater pressure for better underwriting income.

In 2017 Bonds were 62%

• f the U.S. P&C Industry’s

Investment Portfolio

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Personal Lines

U.S. Combined Ratios

Commercial Lines

2010 – 2017E

2010 2011 2012 2013 2014 2015 2016 2017

30% 40% 50% 60% 20% 0% 10% 70% 80% 90% 100% 110% 120%

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Commercial

Auto Net Combined Ratio

Personal

Loss ratios have been rising for a decade. 2015 return on net worth is likely close to zero or negative.

90% 95% 85% 80% 100% 105% 110% 115%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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2016 Property & Casualty Insurance Regulatory Report Card

Not Graded: District of Columbia

= A = B = C = D = F

48% Graded “C” Or Less

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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The U.S. Surplus Lines Industry

Brief summary of the state of the U.S. Surplus Lines Industry at the time of this

• presentation. Just a few sentences that summarize what the trends and analysis are

pointing to.

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0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 '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 '17

Total U.S. Surplus Lines Written Premium

The Surplus Lines Marketplace

Percent of Total P&C Written Premium (Millions)

1988 – 2017

Percent of Total P&C

0% 1% 2% 3% 4% 5% 6% 8% 7%

Percent of Total P&C

9%

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Premium (Millions)

Surplus Lines vs. Total P&C Industry

Surplus Lines Market

1988 – 2017

‘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 ’14 ’13 ’15 ’16 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $650,000 ’17

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Surplus Lines Market Segments

Premium (Millions)

Domestic Professionals Domestic Specialty Regulated Aliens Lloyds

1988 – 2016

$0 $20,000 $25,000 $30,000 $35,000 $45,000 $15,000 $10,000 $5,000 $40,000 ‘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 ’14 ’13 ’15 ’16

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Domestic Specialty Regulated Aliens Lloyd’s Domestic Professionals

The Changing Surplus Lines Market

1996

Premiums - $9.2 Billion

4.0% 8.9% 14.7% 72.4%

2016

Premiums - $41.4 Billion

68.6% 1.5% 7.2% 22.7%

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2006

14.0%

Commercial Lines Surplus Lines

Surplus Lines as a % of Commercial Lines

1996

6.0%

2016

14.1%

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‘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

• 10%

30% 40% 50% 60% 20% 10% 0% 70%

U.S. Property & Casualty Industry

’14 ’15 ’16

U.S. Surplus Line Industry

Premium Growth Rates

1988 – 2018:Q1

’17 ’18 Q1

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Loss & Loss Adjustment Expense Ratios

90% 80% 70% 60% 50% 85% 75% 65% 55%

U.S. Property & Casualty Industry U.S. Surplus Line Industry

1996 – 2018:Q1

‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ’10 ’11 ’12 ‘13 ’14 ’15 ’16 ’17 ’18 Q1

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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70% 80% 90% 100% 110% 120%

U.S. Surplus Line Industry U.S. Property & Casualty Industry

‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ’10 ’11 ’12 ‘13 ’14 ’15 ’16

Combined Loss & Expense Ratios

1996 – 2018:Q1

’17 ’18 Q1

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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0%

• 10%

10% 15% 20% 25% 30% 5%

• 5%

‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ’10 ’11 ’12 ’13

U.S. Property & Casualty Industry

’14 ’15

U.S. Surplus Line Industry

’16 ’17

Total Return on Surplus

1996 – 2017

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Surplus Lines Admitted Companies

Frequency of Insolvencies

Annual Average

1977-1986 1987-1996 1997-2006

1.0% 0.8% 0.6% 0.4% 0.2% 0% 1.2% 1.4%

2007-2016

Over this 40 year period, the insolvency frequency for Surplus Lines insurers has been 0.73% compared to Admitted insurers at 0.84%

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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U.S. Property/Casualty Impairments

By Primary Line

• f Business

2000 - 2016

By Specific Cause By Organizational Type

Workers’ Compensation 26% Private Passenger Auto – Standard 12% Other Liability, CMP 15% Home-

• wners

8% Private Passenger Auto – Non-Standard 8% Commercial Auto 7% MPL 7% Title 4% Surety 3% Financial/Mortgage Guaranty 2% Warranty 3% Other 4% Affiliate Problems 23% Fraud – Adjudged

• r Alleged

25% Catastrophe Losses 20% Rapid Growth 18% Investment Losses 12% Unlicensed Insurance Product 1% Reinsurance Failure 1% Stocks 73% Mutuals 7% RRG’s 10% Reciprocals 2% Other 8%

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Wholesale Agent/ Broker without Binding Authority 44.2%

U.S. Surplus Lines – Share of Premium by Distributor 2016

Wholesale Agent/Broker with Binding Authority 15.0% Program Manager 32.7% Direct 0.6% Retail Agent/Broker 7.5%

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Does someone you know require the surplus lines marketplace to run their business or organization?

 This represents 100,000

businesses & organizations, every one of which requires some form of surplus lines coverage.

 These firms produce in

excess of $300B a year in gross revenue, employ 1,750,000 workers, with an annual payroll in excess of $50B and pay upwards of $17B a year in State & Federal taxes.

 But surplus lines accounts for

less than 6% of all P&C premiums paid in the state.

Surplus Lines Business in California

A Profile of Who or What is Insured in the Surplus Lines Market for 2017*

Construction $899.4M / 14% Finance, Insurance & Real Estate $1.65B / 25% Services $1.93B / 30% Transportation, Electric, Communications, Gas & Sanitary Svcs. $935.1M / 14% Agriculture, Forestry & Fishing $63.3M / 1% Wholesale Trade $119.6M / 2% Manufacturing $397.4M / 6% Retail Trade $277.2M / 4% Personal Lines $117.4M / 2% Mining $24.9M / 0% Public Admin $74.9M / 1%

2017 Total Surplus Lines Premium Volume for California = $6.55B

UP 2.9% from 2016

Nonclassifiable Establishments $10.6M / 0%

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

31 3 6 9 12 15 18 21 24 27 California Texas Florida New York Illinois Pennsylvania Washington Arizona Minnesota Mississippi Oregon Nevada Utah Idaho

10% or more Market Share

24.7%

% Market Share

19.7% 19.3% 14.3% 5.4% 4.6% 3.3% 1.9% 1.7% 1.5% 1.3% 1.1% 0.9% 0.4%

Top 4 states have

• ver 78% of 2017

Market Share*

Surplus Line Premiums 2017:H1

Stamping Office States

* Market Share only of those states with stamping offices

The Stamping Office states write 62% of the overall U.S. Surplus Lines Premium Volume

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Total P&C Industry

As of June 30, 2017

A.M. Best’s Rating Distribution

Good 15.5% Weak 0.1% Fair 3.4% Excellent 66.9% Superior 11.4% Exceptional 0.4% Marginal 0.7% Exceptional 1.0%

Domestic Professional Surplus Lines

Good 3.1% Superior 32.7% Excellent 63.2%

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Three Months Ending

California Surplus Lines

Total Policy Count & Total Policy Premium

January 2006 – June 2018

Mar ‘06 10%

• 10%

30%

0%

40% 50% 60% 70% 20%

• 20%

80% 90%

• 30%
• 40%
• 50%

Dec ‘06 Sep ‘07 Jun ‘08 Mar ‘09 Dec ‘09 Sep ‘10 Total Policy Count Total Premium Policy Count TREND Total Premium TREND Presents the Year over Year Percentage Change of Three Month Rolling Averages Feb ‘11 May ‘11 Aug ‘11 Nov ‘11 Feb ‘12 May ‘12 Aug ‘12 Nov ‘12 Feb ‘13 May ‘13 Aug ‘13 Nov ‘13 Feb ‘14 May ‘14 Aug ‘14 Nov ‘14 Feb ‘15 May ‘15 Aug ‘15 Nov ‘15 Feb ‘16 May ‘16 Aug ‘16 Nov ‘16 Feb ‘17 May ‘17 Aug ‘17 Nov ‘17 Feb ‘18 May ‘18

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Reinsurance

Brief summary of the state of the Reinsurance industry at the time of this

• presentation. Just a few sentences that summarize what the trends and analysis are

pointing to.

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Traditional Capital

Global Reinsurance Capital

Alternative Capital

Traditional & Alternative 2010 – 2017

Billions, US Dollars

17 22 19 22 24 28 44 50 64 72 81 89 368 388 321 378 447 428 461 490 511 493 514 516

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 $600 $650

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 605 595 565 540 575 455 505 400 470 410 340 385

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Alternative Capacity as a Percentage of Global Reinsurance Capital

~ Alternative Capacity accounted for approximately 14.7% or $89B of the $605B in global reinsurance capacity as of 2017

4.4% 5.4% 5.6% 5.5% 5.1% 6.2% 8.7% 9.2% 11.1% 12.7% 13.6%

2010 – 2017

6% 8% 10% 12% 2% 4% 0% 14% 16%

14.7%

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

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Combined Ratio (Left Scale)

Reinsurance Combined Ratio & ROE

ROE (Right Scale)

2011 – 2017

• 600%
• 400%
• 200%

% 200% 400% 600% 800% 1000% 1200% 1400% 1600% 1800%

10 20 30 40 50 60 70 80 90 100 110 120

2011 2012 2013 2014 2015 2016 2017

30% 40% 50% 60% 20% 0% 10% 70% 80% 90% 100% 110% 120% 0% 2% 4% 6%

• 2%
• 6%
• 4%

8% 10% 12% 14% 16% 18%

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Share of Losses Paid by Reinsurers

By Disaster

30% 40% 50% 60% 70% 20% 10% 0% 80% 90% 100%

95% 60% 40% 73% 44% Reinsurers Paid a High Proportion of Insured Losses Arising from Major Catastrophic Events Around the World in Recent Years 40% 60%

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What keeps Reinsurers up nights?

Brief summary of the trends and analysis in our Catastrophe data at the time of this presentation.

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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World Insured Catastrophe Losses

2007 – 2017

Weather-Related Man-Made Earthquakes Total Losses

$Millions

$134,350 $138,000

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$74,819 $44,866 $36,537 $37,678 $53,741 $34,679 $58,685 $29,020 $53,435

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Number of Events

Geophysical (earthquake, tsunami, volcanic activity) Meteorological (storm) Hydrological (flood, mass movement) Climatological (temperature extremes, drought, wildfire)

60 80 100 40 20

Natural Disasters in the U.S.

Number of Events by Type – Annual Totals 1980-2017

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Overall Losses (in 2016 values) Insured Losses (in 2016 values)

Overall and Insured Losses 1980 – 2016

U.S. Billions

$100 $150 $0 $50 $200 $250

Losses Due to Natural Disasters in the U.S.

2012 was the 2nd most expensive year on record for insured catastrophe losses in the US. Approximately 57% of the overall cost of the catastrophes in the US was covered by insurance in 2012.

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Losses from Select North American Hurricane Seasons

Billions, US Dollars at 2017 Prices

$0 $20 $40 $60 $80 $100 $120

1992 2004 2005 2008 2012 2017

Andrew Harvey, Irma, Maria Isaac, Sandy Katrina, Rita, Wilma Charlie, Frances, Ivan, Jeanne Gustav, Ike

Around 50% of the 2017 insured loss will be borne by US primary insurers Traditional reinsurance and alternative capacity have been hit hard by 2017 losses

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1980 – 2017

Acres Burned (Millions)

6 8 4 10 12

Number of Acres Burned in Wildfires in U.S.

‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘94 ‘95 ‘96 ‘91 ‘92 ‘93 ‘88 ‘89 ‘90 ‘86 ‘87 ‘85 ‘09 ‘10 ‘11 ‘81 ‘80 ‘84 ‘83 ‘82 ‘12 ‘13 ‘14 ‘15

2

‘16 ‘17

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100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 Oklahoma California Alaska Idaho Texas Kansas Arizona Washington Nevada Oregon

Top 10 States for Wildfires 2016

Number of Acres Burned

By Number of Acres Burned

Texas was ranked #1 in number of fires with 9,300. California was #2 with 7,349 fires.

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50,000 100,000 150,000 200,000 250,000 300,000

Top 10 Largest California Wildfires

Number of Acres Burned

By Number of Acres Burned

Number of deaths shown inside of each bar

Cedar

San Diego (Human related)

Thomas

Ventura/ Santa Barbara (Under investigation) Oct 2003 Dec 2017

Rush

Lassen (Lightning) Aug 2012 Aug 2013 Jul 2007 Sep 1932 Oct 2007 Jun 2008 Jul 1977 Sep 1970

Rim

Tuolumne (Human related)

Zaca

Santa Barbara (Human related)

Matilija

Ventura (Undeter- mined)

Witch

San Diego (Powerlines)

Klamath Theatre

Siskiyou (Lightning)

Marble Cone

Monterey (Lightning)

Laguna

San Diego (Powerlines)

1 15 2 2 5

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Number of Natural Catastrophes Worldwide

1980 – 2016

100 200 300 400 500 600 700 800 900 1,000

'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

Trendline Natural Catastrophes

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Number of Catastrophic Events

Man-Made Disasters vs Natural Catastrophes 1980 – 2016

Natural Catastrophes Man-Made Disasters

50 100 150 200 250 300 '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

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100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300

Jan Feb Mar Apr May June Jul Aug Total

Monthly Tornado Totals & Related Deaths

2014 - 2017

2014 2015 2016 2017

Number of Tornados

*Number of tornado deaths shown per bar

0 2 8 7 2 34 41 10 12 20 7 4 1 35 1 2 2 2 4 0 0 0

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Overall Losses (in 2016 prices)

Losses Due to Natural Disasters Worldwide

Overall and Insured Losses 1980 – 2016

Insured Losses (in 2016 prices)

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450

'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

U.S. Billions

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$0 $5 $10 $15 $20 $25

Category 1 Sources: 2016 Munich Re, NatCatSERVICE

$Billions

Top 10 Costliest U.S. Earthquakes and Resulting Fatalities

61

California 1/17/94

Northridge

California 4/18/06

San Francisco

California 10/17/89

Loma Prieta

Washington 2/28/01

Olympia

Alaska 3/27-28/64

Anchorage

California 2/9/71

San Fernando Valley

California 10/1/87

Whittier, Los Angeles

California 8/24/14

Napa

California 4/4/10

San Diego

California 9/3/00

Napa

Inflation-Adjusted Insured Losses in 2015 Dollars

3,000 68 1 131 65 8 1

Fatalities shown at the end of the bars.

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NOAA’s Seasonal Hurricane Forecast Ranges vs. Actual

Actual Forecast Range

Long Term Average - Actual Hurricanes

Within Range 6 Below Range 5 Above Range 5

2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2002 2013 2014 2015 2016 2017

2002 - 2018

16 14 12 10 8 6 4 2 18

Number of Hurricanes

2018

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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National Flood Insurance Program

Policies in Force and Losses Paid 1980 - 2016

Policies in Force at Year-End (Left Scale) Losses Paid (Right Scale)

$0 $1,500,000 $3,000,000 $4,500,000 $6,000,000 $7,500,000 $9,000,000 $10,500,000 $12,000,000 $13,500,000 $15,000,000 $16,500,000 $18,000,000 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000

Losses Paid (000’s)

1990 2007 2008 2009 2010 2011 2012 2013 2014 1985 1980 2015 2016

Policies in Force (000’s)

2000 2005 1995

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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2006 – 2017

$Millions

Wildfire Losses in the U.S.

Insured Losses (in 2016 values) Overall Losses (in 2016 values)

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 $11,000 $12,000

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

2017 Overall Losses yet to be determined

55

Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Top 10 Costliest U.S. Wildland Fires

Millions June 24-28, 2012

Waldo Fire, CO

October 27-28, 1993

Laguna Canyon Fire, CA

September 4-9, 2011

Bastrop Complex Fire, TX

November 2-3, 1993

Topanga Fire, CA

September 12-14, 2015

Valley Fire, CA

October 25-Nov. 3, 2003

Old Fire, CA

October 25-Nov. 4, 2003

Cedar Fire, CA

October 21-24, 2007

Witch Fire, CA

October 20-21, 1991

Oakland Hills Fire, CA $0 $1,500 $3,000 $4,500 $6,000 $7,500 $9,000 $10,500 $12,000 1

October & December, 2017

Northern & Southern CA

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Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Lloyd’s

Brief summary of what is happening at Lloyd’s at the time of this presentation. Just a few sentences that summarize what the trends and analysis are pointing to.

57

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$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Capacity (BILLIONS)

Lloyd’s Capacity

Lloyd’s capacity is up over 6% in 2016 & has almost tripled since its 1999 trough

58

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Millions

Average Syndicate Capacity

(Left Scale)

Number of Syndicates

(Right Scale)

Lloyd’s Syndicate Trends

$300 $350 $400 $450 $500 $250 $0 $200 $150 $100 $50 $550 300 350 400 450 500 250 200 150 100 50 550

‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘94 ‘95 ‘96 ‘91 ‘92 ‘93 ‘88 ‘89 ‘90 ‘86 ‘87 ‘84 ‘85 ‘82 ‘83 ‘81 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17

59

Current State of the U.S. Property & Casualty Insurance Industry / Trends & Analysis as of 7/5/18

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Catastrophe Bonds & Other Forms

• f Capitalization

Brief summary of what is happening with Catastrophe Bonds and other forms of capitalization at the time of this presentation. Just a few sentences that summarize what the trends and analysis are pointing to.

60

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Value of Transactions

(Left Scale)

Number of Transactions

(Right Scale)

Annual Catastrophe Bond

Millions

‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 $9,000 $10,000 $11,000 24 30 36 42 48 18 12 6 54 60 66

Current State of the U.S. Property & Casualty Insurance Industry

TRENDS & ANALYSIS AS OF JULY 25, 2018 For more information or to share your comments contact: We should probably have an email address here – like info@gjsre.com