Transcript P6466 - iii Template

Insuring Michigan’s Future
A Look at the Economic lmpact of
the Insurance Industry
Lansing, MI
January 25, 2011
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  [email protected]  www.iii.org
Presentation Outline
 Economic Importance of the Michigan Insurance Industry




Property/Casualty, Life/Health Segments
Contribution to State Economy
Employment & Wages
Taxes Paid
 Insurance Financial Strength & Stability
 Performance During and After the “Great Recession”
 Consumer Benefits
 Investment Strategy
 Conservative Strategies  Stability
 Industry Role as an Institutional Investor
 Regulatory and Legislative Issues
 Q&A
2
Direct Premiums Written, Michigan,
Property/Casualty and Life/Health Insurance,
2000-2009 ($ Billions)
$15.8
$13.7
$14.2
$17.2
$14.7
$16.0
$15.3
$16.0
$16.0
$15.5
$16.1
$14.6
$15.7
$14.8
$14.9
$13.4
$13.2
$13.9
$15
$11.9
$20
$17.2
Michigan insurers (p/c, life, health) wrote
$29.5 billion in premiums in 2009, up $3.7
billion or 14.3% from $25.8 billion in 2000,
generating $257.6 million in premium taxes.
$10
$5
00
01
02
03
04
P/C
05
06
07
08
09
L/H (1)
(1) Includes life insurance, annuities, deposit type contracts, and other considerations. Does not include accident and health.
Source: SNL Financial LC.
3
Top 10 States: P/C Insurance Premiums
Written, 2009
$ Billions
$60
Michigan is the 8th biggest p/c premium
generating state. It’s size makes it very
important to property/casualty insurers,
generating $13.7 billion in direct premiums
written in 2009, about 3% of the US total
$55.4
$50
$40
$36.4
$35.7
$34.9
$30
$20.5
$20
$19.1
$16.4
$13.7
$13.2
$11.9
MI
GA
NC
$10
$0
CA
TX
FL
NY
Sources: SNL Financial; Insurance Information Institute.
IL
PA
NJ
4
Premium Taxes Paid by P/C, L/H Insurers
Operating in Michigan, 2000-2009 ($Mill)
Insurers operating in Michigan (no matter
where they are domiciled) paid a record
$257.6 million in premium taxes in 2009,
up $65.6 million or 34.2% from 2000.
$275
$257.6
$249.5
$250
$227.1
$231.1
$230.3
$225
$219.5
$223.8
$223.2
06
07
08
$200.8
$200
$191.9
$175
$150
00
01
02
03
04
05
Source: U.S. Department of Commerce, Bureau of the Census; Insurance Information Institute.
09
5
Cumulative Premium Taxes Paid by P/C, L/H
Insurers Operating in Michigan, 2000-2009 ($Mill)
Insurers operating in Michigan (no
matter where they are domiciled) paid
a total of $2.256 billion in premium
taxes from 2000 through 2009
$2,500
$2,256
$1,998
$2,000
$1,775
$1,551
$1,331
$1,500
$1,081
$851
$1,000
$620
$500
$393
$192
$0
00
01
02
03
04
05
06
Source: U.S. Department of Commerce, Bureau of the Census; Insurance Information Institute.
07
08
09
6
Percent Change in Michigan State Tax
Receipts by Type, 2009 vs. 2008
Most types of state tax receipts crashed during the
recession contributing to the state’s fiscal crisis—
but premium tax receipts actually increased
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
15.4%
-0.4%
-9.4%
Personal Income
Tax
-17.1%
Corporate Income
Tax
Personal Income Tax
Corporate Income Tax
Sales Tax
Sales Tax
Insurance
Premium Taxes
Insurance Premium Taxes
Premium taxes are an important and relatively stable source
of state tax revenue, especially in difficult economic times
Source: Rockefeller Institute; U.S. Department of Commerce, Bureau of the Census; Insurance Information Institute.
7
Unemployment Rates by State, December 2010:
Highest 25 States*
8.8
9.0
9.1
9.1
9.3
9.3
9.4
9.4
9.5
9.5
9.5
9.6
9.6
9.7
10.2
10.3
10.6
10.7
12.5
11.5
10.1
9.8
10
11.7
12
12.0
Unemployment Rate (%)
14
14.5
16
Michigan’s unemployment rate was 11.7%--the
4th highest in the country—in December 2010
compared to 9.4% for the US overall. This is
down from more than 15% in 2009, when it
ranked 1st for many months.
8
6
4
2
0
NV CA FL MI RI SC OR KY GA MS NC DC WV OH MO IN ID TN AZ WA IL NJ AL CT CO
*Provisional figures for December 2010, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
8
Unemployment Rates By State, December 2010:
Lowest 25 States*
3.8
4
4.4
4.6
5.5
6.3
6.4
6.7
6.8
6.8
7.0
6.4
5.8
6
7.3
7.4
7.5
7.5
7.9
8.2
8.2
8.3
8.5
8.1
8
8.0
Unemployment Rate (%)
8.5
8.5
10
7.2
In December, state and regional
unemployment rates were little changed.
Some 31 states and DC reported
unemployment rate decreases from a
year earlier, 16 states had increases and
3 had no change.
2
0
PA NM DE TX NY MA AK LA AR WI UT MD ME MT MN OK KS VA WY HI IA VT NH SD NE ND
*Provisional figures for December 2010, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
9
Gross State Product Attributable to Insurance
Carriers in Michigan,* 2000-2008 ($ millions)
$ Billions
The economic contribution of
Michigan’s insurance industry totaled
$14.5 billion in 2008—increasing
despite the financial crisis and
Michigan’s deep recession.
$14,336
$15,000
$14,518
$13,673
$11,789
$9,997
$10,000
$7,317
$5,434
$5,931
$7,257 $7,147
$7,661
$6,099
Michigan insurers (p/c, life,
health) accounted for 3.8% of
state economic activity in 2008
$5,000
$0
97
98
99
00
01
02
03
04
05
*Includes “Insurance Carriers and Related Activities.”
Source: U.S. Department of Commerce, Bureau of Economic Analysis; Insurance Information Institute.
06
07
08
10
Share of Michigan Gross State Product
Attributable to Insurance Carriers,* 1997-2008
The economic contribution of
Michigan’s insurance industry has
doubled since 1997, increasing from
1.9% of state GDP to 3.8%
3.8%
4.00%
3.8%
3.5%
3.50%
3.1%
3.00%
2.7%
2.50%
2.00%
1.9%
2.0%
2.2%
2.2%
1.9%
1.50%
2.0%
2.1%
Michigan’s insurers are more
vital to the state’s economy than
they have ever been in history
1.00%
0.50%
0.00%
97
98
99
00
01
02
03
04
*Includes “Insurance Carriers and Related Activities.”
Source: U.S. Department of Commerce, Bureau of Economic Analysis; Insurance Information Institute.
05
06
07
08
11
Growth in Michigan GDP vs. Insurance
Component* of Economy, 1998–2008
35%
30%
Between 1998 and 2008, the
insurance component of
Michigan’s economy grew nearly 4
times faster on average than the
state economy overall, exceeding
state growth in 7 of 11 years
25%
Average 1998-2008
MI GDP = 2.5 %
Insurance Share of
GDP = 9.9%
30.5%
20.0%
21.6%
20%
17.9%
15%
9.1%
10%
5%
6.2%
6.4%
4.3%
4.2%
4.4%
7.2%
3.0%
2.8%
0.1%
0%
0.9%
2.8%
0.4%
-1.5%
-1.4%
-4.6%
-0.8%
-5%
3.0%
-10%
98
99
00
01
Change in Michigan GDP
02
03
04
05
06
07
08
Change in Insurance Component of MI GDP*
*Includes “Insurance Carriers and Related Activities.”
Source: U.S. Department of Commerce, Bureau of Economic Analysis; Insurance Information Institute.
12
Employee Compensation at Michigan Insurance
Carriers, 2000-2009 ($ Millions)*
$4,500
Compensation paid insurance
industry employees in Michigan
increased by $1 billion between 2000
and 2009 to $4.2 billion, providing a
much needed lift to the state’s
economy and taxrolls
$4,250
$4,050
$4,000
$4,308
$4,204
$4,162 $4,149
$3,867
$3,776
$3,750
$3,579
$3,500
$3,250
$3,355
$3,195
$3,000
00
01
02
03
04
05
06
07
08
09
*Includes “Insurance Carriers and Related Activities.”
Source: U.S. Department of Commerce, Regional Economic Info. System, Bureau of Economic Analysis; Insurance Information Institute.
13
Insurance Carrier Employment in
Michigan, 2000-2009 ($ millions)
Insurance carriers have employed at
least 72,000 people since 2000,
generating more than $4 billion in
annual payrolls in 2009
77,516
78,000
77,000
76,359
75,842 75,795 76,175 75,672
76,000
74,932
75,000
73,681
74,000
73,000
72,628
72,087
72,000
71,000
70,000
00
01
02
03
04
05
06
07
08
09
*Includes “Insurance Carriers and Related Activities.”
Source: U.S. Department of Commerce, Regional Economic Info. System, Bureau of Economic Analysis; Insurance Information Institute.
14
Michigan Domiciled Insurance Companies
Property/Casualty and Life/Health Insurance,
2000-2009
95 p/c and life/health insurers
were domiciled in Michigan in
2009, up from 89 in 2000
80
70
89
75
89
95
65
70
60
50
40
30
24
19
20
30
10
0
2000
2004
P/C
2009
L/H
Source: Insurance Department Resources Report, published by the National Association of Insurance Commissioners. Reprinted with
permission. Further reprint or redistribution strictly prohibited without written permission of NAIC.
15
Top 20 Property/Casualty Companies Domiciled in
Michigan, 2009
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Company
Auto-Owners Insurance Co.
Foremost Ins Co. Grand Rapids
Home-Owners Insurance Co.
Citizens Insurance Co. of Am
Auto Club Group Insurance Co.
MemberSelect Insurance Co.
Frankenmuth Mutual Ins Co.
Star Insurance Co.
Accident Fund Ins Co. of Am
Progressive Michigan Ins Co.
Farm Bureau Genl Ins Co. of MI
MIC P&C Insurance Corp.
Hastings Mutual Insurance Co.
Amerisure Mutual Insurance Co.
Auto Club Insurance Assn.
Amerisure Insurance Co.
Motors Insurance Corp.
MEEMIC Insurance Co.
Southern-Owners Insurance Co.
Progressive Marathon Ins Co.
Group
Auto-Owners Insurance Co.
Zurich Financial Services Ltd
Auto-Owners Insurance Co.
Hanover Insurance Group Inc.
Auto Club Insurance Assoc Group
Auto Club Insurance Assoc Group
Frankenmuth Mutual Insurance Co.
Meadowbrook Insurance Group
Accident Fund Group
Progressive Corp.
Michigan Farm Bureau
GMAC Insurance Group
Amerisure Mutual Insurance Co.
Auto Club Insurance Assoc Group
Amerisure Mutual Insurance Co.
GMAC Insurance Group
Auto Club Insurance Assoc Group
Auto-Owners Insurance Co.
Progressive Corp.
Direct premiums
written ($000)
$2,014,858
1,035,609
926,872
923,381
659,445
541,290
405,136
390,542
359,413
354,396
335,782
309,315
308,421
292,257
281,705
238,642
223,266
178,246
164,175
161,995
(1) Based on premiums on all states.
Source: SNL Financial LC.
16
Top Ten Life/Health Companies Domiciled in
Michigan, 2009
Rank
(1)
Companies
Direct premiums written
($000)
1
Jackson National Life Insurance Co.
$13,419,931
2
John Hancock Life Insurance Co.
3
Sun Life Assurance Co. of Canada
4
Auto-Owners Life Insurance Co.
429,526
5
American Community Mutual Insurance Co.
363,840
6
Household Life Insurance Co.
207,113
7
Farm Bureau Life Insurance Co. of Michigan
167,326
8
Priority Health Insurance Co.
130,426
9
Alliance Health & Life Insurance Co.
121,589
10
AAA Life Insurance Co.
105,366
12,933,691
2,600,058
(1) Based on premiums on all states.
Source: SNL Financial LC.
17
Top 15 States: P/C Insurer
Municipal Bond Holdings, 2009
$ Billions
P/C insurers are the largest single institutional
investor in the muni bond market, financing
thousands of projects across the US, including
Michigan. In 2009, P/C insurers held $8.8 billion
in muni bonds issued in Michigan, ranking it
13th largest holding among the 50 states
$40
$35.3
$35
$30
$26.2
$25
$20.2
$20
$17.5
$15.4
$15
$14.3
$10.7 $10.0
$9.4 $9.1 $9.0 $8.9 $8.8 $8.7
$8.2
$10
$5
$0
TX
CA
NY
IL
FL
WA
Sources: SNL Financial; Insurance Information Institute.
OH
MA
AZ
PA
GA
IN
MI
NJ
VA
18
Financial Strength of Insurers is
Key to Their Success,
Benefiting Consumers
Insurers Performed Better than Any
Other Financial Services Segment
During the “Great Recession”
20
P/C Insurer Impairments, 1969–2009
49
50
47
55
60
58
18
19
12
18
14
15
35
31
29
16
16
14
13
5
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
0
7
6
9
13
12
9
11
9
7
8
10
15
12
20
19
30
31
34
34
40
36
41
50
5 of the 11 are Florida
companies (1 of these
5 is a title insurer)
50
48
60
Six Michigan banks
failed between 2007
and Jan. 2011 due to
the financial crisis, but
not a single insurer
49
70
The Number of Impairments Varies Significantly Over the P/C Insurance
Cycle, With Peaks Occurring Well into Hard Markets
Source: A.M. Best; Insurance Information Institute.
US Policyholder Surplus:
1975–2010*
($ Billions)
Surplus as of 9/30/10 was a record
$544.8 billion, implying
unprecedented financial strength
$600
$550
$500
$450
$400
$350
$300
$250
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners
Equity” or “Net Worth” in
non-insurance
organizations
$200
$150
$100
$50
$0
75
77
79
81
83
85
87
* As of 9/30/10.
Source: A.M. Best, ISO, Insurance Information Institute.
89
91
93
95
97
99
01
03
05
07
09
How P/C Insurance Industry Stability
Has Benefitted Consumers
Bottom Line:
 Insurance markets – unlike banking – are operating normally
 The basic function of insurance – the orderly transfer of risk from
client to insurer – continues uninterrupted
 This means that insurers continue to:
 Pay claims (whereas 232 banks have gone under as of 1/21/11)
– The promise is being fulfilled
 Renew existing policies (banks are reducing and eliminating lines
of credit)
 Write new policies (banks are turning away people and businesses who
want or need to borrow)
 Develop new products (banks are scaling back the products they offer)
 Compete intensively (banks are consolidating, reducing consumer choice)
Source: Insurance Information Institute
24
Conservative Investments:
Another Key to Insurer Stability
Conservative Investment Strategies
Means that Insurers’ Investment
Performance Remained Relatively
Strong During the Crisis
25
Property/Casualty Insurance Industry
Investment Gain: 1994–2010:Q31
2009:Q3
gain was
$29.3B
($ Billions)
$70
$64.0
$58.0
$60
$52.3
$40
$55.7
$51.9
$48.9
$47.2
$50
$59.4
$56.9
$45.3
$44.4
$42.8
$39.0 $39.5
$36.0
$35.4
$31.7
$30
Investment gains in
2010 are on track to be
their best since 2007
$20
$10
$0
94
95
96
97
98
99
00
01
02
03
04
05*
06
07
08
09 10:Q3
In 2008, Investment Gains Fell by 50% Due to Lower Yields and
Nearly $20B of Realized Capital Losses
2009 Saw Smaller Realized Capital Losses But Declining Investment Income
Investment Gains Recovered Significantly in 2010
1
Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.
* 2005 figure includes special one-time dividend of $3.2B.
Sources: ISO; Insurance Information Institute.
Treasury Yield Curves:
Pre-Crisis (July 2007) vs. December 2010
6%
5%
4.82%
4.96%
5.04%
4.96%
4.82%
4.82%
4.88%
5.00%
4.93%
5.00%
4.17%
4%
3%
Treasury yield curve is near its most
depressed level in at least 45 years,
though longer yields rose in late 2010
as economy improves. Investment
income is falling as a result.
5.19%
4.42%
3.29%
2.66%
1.93%
2%
QE2 Target
0.99%
1%
0.62%
0.09%
0.14%
0.19%
0.29%
1M
3M
6M
1Y
October 2010 Yield Curve*
Pre-Crisis (July 2007)
0%
2Y
3Y
5Y
7Y
10Y
20Y
30Y
The Fed’s Announced Intention to Pursue Additional Quantitative Easing
Could Further Depress Rates in the 7 to 10-Year Maturity Range
Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.
27
Distribution of P/C Insurance Industry’s
Investment Portfolio
Portfolio Facts
as of 12/31/2009
As of December 31, 2009
 Invested assets
totaled $1.26 trillion
68.8%
Bonds
 Generally, insurers
invest conservatively,
with over 2/3 of
invested assets in
bonds
 Only 18% of invested
assets were in
common or preferred
stock
*Net admitted assets.
Common &
Other 7.0% Preferred
6.2% Cash & Stock
18.0%
Short-term
Investments
Sources: NAIC; Insurance Information Institute research.
28
2011 Financial Overview
About Half of the P/C Insurance Industry’s Bond
Investments Are in Municipal Bonds
Bond Investment Facts
as of 12/31/09
As of December 31, 2009
 Investments in “Political
Subdivision [of states]” bonds
were $102.5 billion
 Investments in “States,
Territories, & Possessions”
bonds were $58.9 billion
 Investments in “Special
Revenue” bonds were $288.2
billion
 All state, local, and special
revenue bonds totaled 48.2%
of bonds, about 35.7% of
total invested assets
31.0%
Special
Revenue
Political
Subdivisions
11.0%
33.3%
Industrial
U.S.
Government
0.9%
15.5%
6.3% 2.0%
States, Terr., Foreign Govt
etc.
Sources: NAIC, via SNL Financial; Insurance Information Institute research.
29
2011 Financial Overview
When P/C Insurers Invest in Higher Risk Bonds,
It’s Corporates, Not Munis
Subdivisions of
States
0.1%
97.4%
2.5%
0.1%
States
92.5%
7.4%
Industrial
72.8%
0%
20%
40%
20.4%
60%
80%
Class 1
Class 2
Classes 3-6
6.8%
100%
The NAIC’s Securities Valuation Office puts bonds into one of 6 classes:
class 1 has the lowest expected impairments; successively higher
numbered classes imply increasing impairment likelihood.
Data are as of year-end 2009.
Sources: SNL Financial; Insurance Information Institute.
Insurance Regulatory
Environment in Michigan
Michigan’s Insurance Markets
Have Had Some Problems in
Recent Years
31
2010 Property and Casualty Insurance
Report Card
C AK
AL
A
WA
B-
MT
ND
BSD
A
C+
B
C+
A-
IL
CO
D
B- KS
MO
HI
NM
C
B+
MD
OH
KY
D- A-VA
BTN
C- AR
BSource: James Madison Institute, February
2008. AL
BGA
MS
A
B+
B
NG
LA
AZ
C-
RI
NJ
B-
NC
SC
B-
TX
NG
Not Graded: District of Columbia
Mississippi
Louisiana
D
B
FL
F
Source: Heartland Institute, May 2010
C
C-
DE
WV
B
B-
OK
CT
IN
B
D+
A-
MA
NY
PA
B+
UT
A
CA
B- IA
NH
MI
B-
BNV
D+
WI
WY
NE
F
MN
ID
B-
=A
=B
=C
=D
=F
= NG
B
VT
BOR
ME
CDD+
Legislative Action is Required to
Bring Michigan’s Auto No-Fault
Crisis Under Control
Rampant Fraud & Abuse, Motivated
by Michigan’s Unlimited No-Fault
Benefit and Lack of Costs Controls,
Are Driving Costs Upward
34
Average No-Fault Claim Severity,
2010:Q3
Michigan has by far the highest auto no-fault
average claim cost (severity) in the US
MI, NJ, NY and FL currently are the
largest states that have the most severe
problems in their no-fault system
$35,000
$1,891
$2,179
$2,617
$2,722
$3,226
PA OR WA KY TX KS MD SC UT MA
$3,214
$4,277
HI
$3,221
$5,061
NY FL DE MN DC ND
$5,000
$3,385
$5,394
$10,000
$7,364
$15,000
$7,643
$20,000
$8,096
$25,000
$8,647
$16,331
$30,000
$3,664
$40,000
$5,395
$45,000
$36,463
$50,000
$0
MI
NJ
Several States Have Severe and Growing Problems With Rampant Fraud
and Abuse in their No-Fault Systems. Claim Severities Are Up Sharply.
Source: ISO/PCI Fast Track data; Insurance Information Institute.
35
Increase in No-Fault Claim Severity:
2004-2010*
+47.1%
$40,000
$35,865
$35,000
$30,000
$25,000
+36.6%
$24,385
$20,000
+49.5%
$16,573
$12,136
$15,000
$8,776
$10,000
$5,871
+17.6%**
$6,674 $7,847
$5,000
$0
Michigan
New Jersey
2004
New York
Florida
2010*
Michigan’s average no-fault claim cost is up nearly 50% since 2004
*2009 figure is for the 4 quarters ending 2010:Q3.
**Since 2006 the increase in Florida was 23.7% (average severity that year was $6,344).
Sources: Insurance Information Institute research from ISO/PCI Fast Track data.
36
Summary
 Michigan’s Insurance Markets Are Large and Important to P/C and L/H
Insurers Alike
 Insurers Are an Increasingly Important to Michigan’s Economy, Now
Accounting for Nearly 4% of Economic Activity in the State
 Insurance is a Stable Industry
 More Than 72,000 People Are Employed Generating More that $4
Billion in Annual Payrolls
 Premiums Tax Receipts Totaled $2.3 Billion from 2000 – 2009 and Were
Proved to Be a Much More Stable Revenue Stream than Many Other
State Revenue Sources During the Great Recession
 Insurer Operations Continued Uninterrupted During the Financial
Crisis
 Insurers Emerged from the Crisis Strong with P/C Insurers Enjoying
Record Capital Strength
 Michigan is Need of Some Regulatory and Legislative Reform Related
to its No-Fault Auto Insurance System
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Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Download at www.iii.org/presentations
Twitter: twitter.com/bob_hartwig