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
Presentation Outline Insurance Coverages We’ll Focus On Workers Compensation Commercial Auto Liability P/C Insurance Industry Perspectives Rate Changes Investments Competitive Environment 2
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 3
P/C Insurance Industry: Workers Compensation
WC Loss Ratio (Losses Incurred as Percent of Direct Premiums Earned), 2005-17 75% 71.9% 70% 70.7% 68.8% 67.6% 65% 64.8% 62.1% 61.8% 61.3% 60% 60.6% 58.5% 55% 55.2% 53.6% 50% 49.0% 45% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sources: NAIC, Report on Profitability by Line by State in 2017, p. 145; Insurance Information Institute 5
WC Rate Changes, quarter over quarter, 2010:1Q–2018:3Q Rate hikes in 2011-13 follow 12% spike in loss 9.8% Rates ease (and ratio in 2009-10 9.0% 10% drop) after loss ratio 8.3% 8.3% 8.1% 7.5% below 60% in 2013 7.4% 8% 5.8% 4.9% 6% 4.1% 4.1% 3.1% 4% 2.6% 2.3% 2% 0.7% 0% -0.4% -2% -1.6% -1.9% -1.9% -2.0% -2.0% -2.3% -2.5% -2.6% -2.6% -2.6% -2.7% -2.9% -2.9% -3.0% -3.4% -4% -3.7% -3.9% -4.3% -5.4% -6% -8% 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 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 6
Distribution of WC Rate Changes in 2018:Q3 National average 60% Northeast Southeast change: -2.6% 48.2% 50% 40.7% 40.0% 40% 30.0% 30% 20% 15.0% 15.0% 10% 7.4% 3.7% 0.0% 0.0% 0.0% 0.0% 0% Down Down 1- No Up 1- Up 10- N/A Down Down 1- No Up 1- Up 10- N/A 10-20% 10% Change 10% 20% 10-20% 10% Change 10% 20% 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 7
Distribution of WC Rate Changes in 2018:Q3, by region (cont’d) Pacific Northwest Midwest 60% Southwest 57.9% 54.8% 50.0% 50% 40.0% 38.7% 40% 32.3% 30% 26.3% 20% 10.5% 10.0% 10% 5.3% 3.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0% 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 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 8
How Competitive Is The WC Market? (Selected Large States) HH Index No. of Carriers Market is considered moderately “concentrated” 2,500 1,976 2,000 1,726 1,500 Market is considered “competitive” 1,000 829 521 484 500 369 347 0 Illinois North Florida California New Jersey Texas New York Carolina Sources: SNL Financial; Insurance Information Institute 9
P/C Insurance Industry: Commercial Auto
Commercial Auto Loss Ratio (Losses Incurred as Percent of Direct Premiums Earned), 2005-17 70% 69.2% 68.2% 65% 65.2% 63.2% 63.0% 62.7% 60% 59.8% 55% 54.9% 54.6% 54.4% 53.1% 53.1% 51.9% 50% 45% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sources: NAIC, Report on Profitability by Line by State in 2017, p. 145; Insurance Information Institute 11
Commercial Auto Rate Changes, quarter over quarter, 2010:1Q–2018:3Q 10% Rate hikes follow 8.2% 7.7% spike in loss ratio 7.3% 7.3% 7.0% 8% 6.1% 5.4% 6% 4.6% 4.4% 4.4% 3.6% 3.4% 3.3% 3.3% 3.3% 3.2% 3.1% 3.0% 3.0% 3.0% 4% 2.7% 2.6% 2.4% 2.0% 1.7% 1.5% 1.3% 2% 0.6% 0.5% 0% -0.4% -2% -2.0% -4% -3.9% -4.4% -4.7% -6% -5.5% -8% 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 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 12
How Competitive Is The Commercial Auto Market? (Selected Large States) HH Index No. of Carriers Market is considered moderately “concentrated” 2,500 2,000 1,500 Market is considered “competitive” 1,000 464 411 394 500 380 352 340 288 0 Illinois North Florida California New Jersey Texas New York Carolina Sources: SNL Financial; Insurance Information Institute 13
P/C Insurance Industry: General Liability
General Liability* Loss Ratio (Losses Incurred as Percent of Direct Premiums Earned), 2005-17 65% 63.3% 63.2% 60% 56.0% 55% 54.5% 54.3% 53.6% 53.0% 50% 50.4% 50.0% 49.4% 48.7% 48.6% 48.1% 45% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *”Other Liability” in the NAIC report. Sources: NAIC, Report on Profitability by Line by State in 2017, p. 145; Insurance Information Institute 15
-8% -6% -4% -2% 0% 2% 4% 6% quarter over quarter, 2010:1Q–2018:3Q General Liability Rate Changes, %20Results%20FINAL.pdf and earlier news releases); Insurance Information Institute (https://www.ciab.com/uploadedFiles/News/2016_News_Releases/11.1.16%20NEWS%20RELEASE_Q3%20Survey Sources: Council of Insurance Agents & Brokers 10:1Q -5.0% -6.3% 10:2Q 10:3Q -5.6% 10:4Q -4.9% 11:1Q -2.7% 11:2Q -0.7% 11:3Q 0.2% 11:4Q 2.2% 12:1Q 3.1% 12:2Q 4.1% 12:3Q 4.0% 12:4Q 3.3% 13:1Q 4.3% 13:2Q 3.5% 13:3Q 2.9% 13:4Q 2.3% 14:1Q 1.5% 14:2Q 0.1% 14:3Q 0.6% 14:4Q -0.4% 15:1Q -2.2% 15:2Q -3.0% 15:3Q -2.7% 15:4Q -3.4% 16:1Q -3.2% 16:2Q -3.6% 16:3Q -3.0% 16:4Q -2.6% 17:1Q -2.6% 17:2Q -2.7% 17:3Q -0.8% 17:4Q 0.1% 18:1Q 0.6% 18:2Q 0.8% 0.8% 18:3Q 16
How Competitive Is The General Liability Market? (Selected Large States) HH Index Market is considered moderately “concentrated” 2,500 2,000 1,500 Market is considered “competitive” 1,168 1,000 567 500 374 362 349 345 311 0 Illinois North Carolina Florida California New Jersey Texas New York Sources: SNL Financial; Insurance Information Institute 17
Investments Investment Performance is a Key Driver of Profitability Depressed Yields Will Necessarily Influence Underwriting & Pricing
P/C Insurer Portfolio Yields, 2002-2017 P/C Carrier Yields Have Been Falling for Over a Decade, Reflecting the Long Downtrend in Prevailing Interest Rates. 6% 5% 4.59 4.50 4.49 4.44 4.20 4.03 3.93 3.83 4% 3.73 3.68 3.64 3.43 3.18 3.04 3.02 3% 2% 1% 0% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 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. Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 19
January 2019: Quarterly Yield Forecasts for 10-Year US Treasury Bonds in 2019-20 10 Most Lowest, Avg. Median 10 Highest, Avg. 4.0 3.7 3.7 3.7 3.6 3.6 3.5 3.5 3.3 3.2 3.2 3.2 3.2 3.2 3.2 3.1 Yield (%) 3.0 3.0 2.9 2.8 2.7 2.7 2.7 2.5 2.6 2.6 2.6 2.5 2.0 2019:Q1 2019:Q2 2019:Q3 2019:Q4 2020:Q1 2020:Q2 2020:Q3 2020:Q4 Remarkable disagreement among the 53 forecasts in the Blue Chip survey regarding forecast yields of long-term bonds in 2019-20 Sources: Blue Chip Economic Indicators (1/19); Insurance Information Institute . 20
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