RIMS commercial vehicle insurance by alicejenny

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									Northeast Ohio RIMS
Market Update
Carol Murphy, Managing Director, Aon Risk Services, Inc.
October 6, 2009




                                                           1
Casualty Marketplace Update




                              2
Analytics & Data Driven Decisions




 World’s leading global repository of real time risk and insurance placement
  information.
 Fact based insights into Aon’s $55B in global premium flow.
 Best placement options based on size, industry, coverage line and
  geography.


                                                                                3
Traditional Market Indicators

 Surplus
 Combined Ratios
 Investment Income




                                4
     U.S. Policyholder Surplus: 1975-2009:H1*

 $550

 $500

 $450

 $400

 $350                      The premium-to-surplus
         $ Billions




 $300                     ratio stood at $1.03:$1 as of
 $250                        3/31/09, up from near
 $200                      record low of $0.85:$1 at
 $150
                                  year-end 2007                                         “Surplus” is a measure of
                                                                                        underwriting capacity. It is
 $100
                                                                                        analogous to “Owners
   $50                                                                                  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 0809*



Source: A.M. Best, ISO, Insurance Information Institute.          *As of 6/30/09                                           5
    Commercial Lines Combined Ratio, 1993-2009F




                                                                             122.3
   125

   120
                     112.5




                                                             112.3
                                                                     111.1
             110.3


                             110.2




                                                                                     110.2
                                                     109.7
   115
                                     107.6




                                                                                                             105.4




                                                                                                                                               105.1
   110
                                             103.9




                                                                                                                                   103.5
                                                                                                     102.5
                                                                                             102.0
   105

   100




                                                                                                                            93.6
                                                                                                                     91.1
     95

     90

     85
            93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09F
Sources: A.M. Best (historical and forecasts), Insurance Information Institute
                                                                                                                                           6
           Workers Comp Combined Ratios, 1994-2009F


Percent
 125                                                                    122
 120                                                           118
                                                      115
 115                                                                              111 110
 110                                         107                                                    107                                    106
 105       102                                                                                               103
                            100 101                                                                                           101 101
 100                 97
   95                                                                                                                  93
   90
   85
   80
           1994     1995     1996     1997     1998     1999     2000    2001     2002     2003     2004     2005     2006     2007 2008P 2009F




 p Preliminary.
 Sources: Calendar Years 1994-2008p, A.M. Best Aggregates & Averages; Calendar Year 2009F is I.I.I. estimates for private carriers based
 A.M. Best Review and Preview 2009; NCCI, Insurance Information Institute
 Includes dividends to policyholders                                                                                                       7
 Based on calendar year and private insurers.
Emerging Tort Threat
 No tort reform (or protection of recent reforms) is forthcoming
  from the current Congress or Administration
 Erosion of recent reforms is a certainty (already happening)
 Innumerable legislative initiatives will create opportunities to
  undermine existing reforms and develop new theories and
  channels of liability
 Torts twice the overall rate of inflation
 Influence personal and commercial lines, especially auto
  liability
 Historically extremely costly to p/c insurance industry
 Leads to reserve deficiency, rate pressure
 Tort system expected to be in crisis by 2012-2014


                                                                     10
    P/C Net Income After Taxes 1991-2009:Q1




                                                                                                                                                                $65,777
   $80,000




                                                                                                                                                                          $62,496
   $70,000




                                                                                                                                                      $44,155
   $60,000




                                                                            $36,819




                                                                                                                                            $38,501
   $50,000




                                                                                      $30,773




                                                                                                                                  $30,029
                                                                  $24,404
   $40,000




                                                                                                $21,865
                                                        $20,598




                                                                                                          $20,559
                                    $19,316
                 $14,178




   $30,000
                                              $10,870




                                                                                                                                                                                                  -$1,309
   $20,000
                           $5,840




                                                                                                                         $3,046




                                                                                                                                                                                    $2,379
   $10,000
          $0
  -$10,000                                                                                                  -$6,970
                 91
                           92
                                    93
                                              94
                                                        95
                                                                  96
                                                                            97
                                                                                      98
                                                                                                99
                                                                                                          00
                                                                                                                    01
                                                                                                                         02
                                                                                                                                  03
                                                                                                                                            04
                                                                                                                                                      05
                                                                                                                                                                06
                                                                                                                                                                          07


                                                                                                                                                                                                  09:Q1
                                                                                                                                                                                    08F
*ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guarantee
insurers yields an 4.2% ROAS for 2008 and 2.2%. 2009:Q1 net income was $2.4 billion excl. M&FG.
Sources: A.M. Best, ISO, Insurance Information Institute
                                                                                                                                                                                             11
    Growth of Net Written Premium
                      1975-78                       1984-87                          2000-03
 24%
 22%
 20%
 18%
 16%
 14%
 12%
 10%
   8%
   6%
   4%
   2%
   0%
  -2%
  -4%
           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
           2008
          09:Q1
Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute             12
     U.S. Financial Institution Losses
                                                                $ Billions
        $1,750                   $1,604
        $1,500

        $1,250

        $1,000                                                                                          $890
           $750

           $500
                                                                        $218
           $250

               $0
                                   Banks                              Insurers                          Others


*Estimate of financial sector writedowns, 2007-2010, as of April 2009. Includes loans and securities.
Source: IMF Global Financial Stability Report, April 2009, Insurance Information Institute                       13
This is not a “Traditional Market”




                                     14
Non Traditional Factors Weighing on the Market

 General Economic Conditions
 Market Schizophrenia
 Explosion of Casualty Capacity




                                                 15
General Economic Conditions
 Global financial and economic turmoil profound effect on firms in all
  industries, however moderate recovery expected in 2010




 Unlike other industries, Insurance industry remains fundamentally
  strong & sound
 Most clients exposures are decreasing = Desired reductions in
  premium
 Protracted period of slow growth is possible: 2007 @ -1% NWP
  and first 9 months of 2008 @ -0.4% NWP (Retention is critical)
                                                                          16
Market Schizophrenia

 Certain dominant insurance carriers have issued edicts not to
  decrease rates!!
 Yet on new business, can be extremely aggressive

              “How can I increase premium writings”




                                                              17
Explosion of Additional Capacity




                                   18
State of the Primary Casualty Market
 Capacity
   – 5 to 15 competitive primary casualty markets depending on size, risk, class, and
     bundled or unbundled claims services
 Pricing
   – Financial responsibility (fronting)
        • Very competitive
   – Risk transfer rates above client loss retentions for WC, GL and Auto
     continue to decrease through 3 quarters 2009
   – Insureds with good credit ratings, effective risk management programs
     and favorable loss experience are averaging flat -10% rate reductions
   – Commercial Auto
        • Rate reductions continue but in general, rates have firmed more for auto
          than for other lines




                                                                                     19
State of the Primary Casualty Market

 – General Liability
     • Rates on risks with good loss experience are decreasing but significant
       exposure decreases may limit any decreases, or in some cases, result in a
       rate increase.
 – Workers’ Compensation
     • Expect to see rate decreases ranging from flat to -10% as a result of
       competition and favorable statutory changes
     • Insureds with high concentration of employees in major metropolitan locations
       must continue to demonstrate best-in-class terrorism prevention programs and
       processes
 – Major corporations with large self-insured retentions, reflecting their
   individual historical large loss history and exposures to loss, should
   expect renewal pricing in line with the following benchmarks:




                                                                                   20
State of the Primary Casualty Market

  Casualty Lines Average Year Over Year Rate Change (Through July 1,2009)
                  2.0

                                                                                                                                                               0.7

                  0.0
                          1Q07          2Q07          3Q07             4Q07        1Q08             2Q08            3Q08            4Q08       1Q09       2Q09
                                                                                                                                                  -0.3

                  -2.0                                                                                                                                   -1.7
                                                                                                                                                            -2.2
                                                                                                                                      -2.8
                  -4.0                                                                                                                          -3.3
                                                                                                                        -3.6
 % Rate Change




                                                                                                                                   -4.8      -4.4
                                                                                                                                -5.1
                  -6.0
                                                                                                         -5.5
                                             -6.5

                           -7.2
                  -8.0                                                                                            -7.7
                                                                                    -7.8                             -7.9
                                                                                       -7.8
                               -8.6
                                      -9.3          -9.0                                            -9.1
                 -10.0
                                         -9.8                          -9.5      -9.6
                                                                          -9.8

                                                                                                 -10.9
                 -12.0 -11.8
                                                                    -11.9
                                                           -12.2

                                                      -13.1
                 -14.0

                                                                   Workers Compensation       General Liability    Auto Liability
                                                                                                                                                                     21
State of the Primary Casualty Market

 Loss Retentions
   – In general, retentions have not retreated, however with the soft market
     coupled with an excellent loss record, clients should constantly review
     options at decreased loss retention levels
 Coverage Issues
   – Areas of concern include: silica, mold, electromagnetic fields (EMF),
     bovine spongiform encephalopathy (BSE), genetically modified food
     and labeling, neutraceuticals, Chinese drywall and avian flu
 Collateral
   – Carriers are increasingly “credit risk averse”. Credit rating of insured
     impacts level of collateral required for a “fronted” program.




                                                                                22
Carrier Collateral Matrix

                                                                                                 Generalizations
     Moody’s             S&P                  Fitch
Long      Short   Long         Short   Long           Short
Term      Term    Term         Term    Term           Term
 Aaa               AAA                 AAA                                Prime
 Aa1               AA+                  AA+
                               A-1+                   A1+
 Aa2                AA                  AA                             High Grade
           P-1
 Aa3               AA-                  AA-
 A1                 A+                  A+                                                       12 mos PLC
                                A-1                    A1
 A2                 A                    A                       Upper Medium Grade
 A3                 A-                   A-
           P-2                  A-2                    A2
Baa1              BBB+                 BBB+
Baa2               BBB                 BBB                       Lower Medium Grade
           P-3                  A-3                    A3
Baa3              BBB-                 BBB-
 Ba1               BB+                  BB+
                                                                 Non Investment Grade
 Ba2                BB                  BB
                                                                 Speculative
 Ba3               BB-
                                B
                                        BB-
                                                       B
                                                                                                  Full Collateral
 B1                 B+                  B+
 B2                 B                    B                         Highly speculative
 B3                 B-                   B-
          Not
 Caa              CCC+                                               Substantial risks
 Ca
          Prime
                  CCC                                             Extremely speculative
                                                                                                 Collateral
                                C      CCC             C
 C
                  CCC-                                        In default, with little prospect   surcharge or other
                                                              for recovery
 /                                     DDD                                                       adjustment
 /                 D             /      DD              /               In default
 /                                      D


                                                                                                              23
State of the Umbrella/Excess Market

 Capacity
   – Excess capacity has grown significantly in 2008/2009
   – Currently, there is approximately $2 billion of total available
     capacity for US risks

                                 2008/2009 New/Addt'l Umbrella/Excess Capacity

                   120
                   100
                   80
        Millions




                                                                                   New
                   60                                                              Capacity
                   40
                   20
                    0
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                                               Insurance Carriers
                                                                                              24
State of the Umbrella/Excess Market
 Pricing
   – During all of 2008, rates continued to decline. However, due to overall
     economic conditions resulting in significant exposure base reductions,
     2009 premium rates are firming/beginning to increase.
   – In 2009, most Insured’s will see higher premium reductions due to
     reduced exposures as a result of the economic downturn rather than
     from rate reductions
   – Punitive damages wrap coverage cost reducing in proportion with
     umbrella premium reductions. Where available and appropriate,
     insureds are considering “Most Favorable Jurisdiction” (MFJ)
     endorsement wording
   – Excess capacity carriers are strictly adhering to minimum premiums
   – Overall lead and excess layer pricing continues to be competitive but is
     certainly stabilizing




                                                                                25
State of the Umbrella/Excess Market
Umbrella/Excess Liability Average Year Over Year Rate Change                                                    (Through June 1,2009)

                   0.0
                           1Q07       2Q07          3Q07        4Q07          1Q08          2Q08        3Q08          4Q08          1Q09          2Q09




                   -2.0

                                                                                                                                                 -2.4

                                                                                                                                                        -3.3
                   -4.0

                                                                                                                                          -4.3
                                                                                                                                   -4.5
  % Rate Change




                   -6.0

                                                                                                                     -6.4
                                                                                                       -7.0                 -7.0
                                     -7.3                                                                     -7.4
                   -8.0                                                      -8.0

                                            -8.4               -8.3
                                                                      -8.5      -8.5



                  -10.0   -9.6-9.9                                                         -9.7
                                                                                              -10.3
                                                   -10.8
                                                       -11.1

                  -12.0

                                                                             Lead      Total Program
                                                                                                                                                               26
Summary

 Stable market conditions continuing into 4th quarter 2009 and
  2010 unless;
   – Major dislocation of market(s)
   – Major terrorism event
   – Major Natural Catastrophe
 Unless Capacity decreases, no radical upward movements in
  rate




                                                                  27
Recommended Market Behaviors

 Keep losses in check as a hedge against volatile market
  conditions
 Review policy limits and deductible/retention levels - Now is
  the time to enhance your program
 Balance risk retention verses risk transferred
 Seek incumbent carrier concessions first but may need to
  remarket
 Extra attention to insurer security
 Relationship building with current and prospective insurers
 Start and finish renewal negotiations early
 Multi-year deals


                                                                  28

								
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