State of the Insurance Industry: 21 st Century Resilience

1. State of the Insurance Industry: 21st Century Resilience The Importance of Insurance and Risk Mitigation in the Future of Cities and Towns Lloyd’s Day Fullerton, California October 2, 2018

2. I.I.I. Mission Statement Improving public understanding of insurance... …what it does and how it works 2

3. The State of the Industry Powerful Builders and Leaders

4. P/C industry net income after taxes Through second quarter. Adjusted for inflation using the BLS CPI calculator.Sources: NAIC data, sourcedfrom S&P Global Market Intelligence; Insurance Information Institute. Billions, 2018 dollars Profits Doubled from a Year Ago – Best First Half Since 2013.

5. P/C Insurance Industry Combined Ratio* Through Q2. *Excludes Mortgage & Financial Guaranty insurers 2008-2014.Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0. Sources: A.M. Best; ISO, a Verisk Analytics company; I.I.I. projection for 2018. Higher CAT Losses, Shrinking Reserve Releases, Toll of Soft Market 3 Consecutive Years of U/W Profits; 1st time since 1971-73 Hurricanes, Wildfires Drive CR Higher. Best Combined Ratio Since 1949 (87.6) Sandy

6. Direct Premium Growth, Annual Change All data through second quarter. SOURCES:NAIC data sourced through S&P Global Intelligence, Bureau of Economic Affairs, Insurance Information Institute. Rising Auto Rates Driving Premium Growth - $337B at Second Quarter.

7. Policyholder Surplus By Quarter Amount of Surplus Change from Prior Quarter ($ Billions) Tax Law Increased Surplus at Year-End 2017 and Makes Surplus Growth a Bit More Volatile. $1.30 Surplus per $1 Premium. 7 Sources: ISO, A.M .Best. 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

8. 10 Key Ways Insurance Drives Economic Growth Development Economic/Financial Stability Safety/ Security • Insurance enables infrastructure improvements • Insurers are community builders • Insurers are financial first responders • Insurers are capital protectors • Insurance is a partner in social policy • Insurers are innovation catalysts • Insurers are credit facilitators • Insurance sustains the supply chain • Insurers are capital infusers • Insurers are risk mitigators

9. The State of Resilience A Case Study: Flood Risk

10. 1982 Union, Missouri, Flood A Storm for the Ages Source: Fox2News.com, @BoxxRadio. Bourbeuse River Record Crest 33.8 feet 12/5/1982

11. 2015 Union, Missouri, Flood A Storm for the Ages Sources: CBSnews.com; fox2news.com Bourbeuse River Record Crest 34.3 feet 12/29/2019

12. 2017: A Record Year Of Catastrophe Losses Thunderstorm related losses 2nd highest ever in U.S. $14 billion insured wildfire losses; California damage estimated ~$11 billion N.A. hurricane season record-breaking insured & economic losses; disasters affected >25 million Americans Cyber: Risk continuing to increase Auto: Reaching epidemic proportions Flooding events spurred 73% of federal disaster declarations

13. A Confluence Of Disruptive Forces Continue To Impact Traditional Global Market Dynamics Catastrophes Economics Geopolitical Technology

14. The Insurance Coverage Gap Cost Consumers An Estimated $1.3 Trillion From 2005-2015 Source: Swiss Re; Wikimedia Commons; DOD • Over the last decade, more than 70 percent of all catastrophes losses worldwide were uninsured. • Flooding is not covered by standard homeowners insurance or commercial insurance policies, making it one of the largest uninsured risks for consumers.

15. NFIP Payouts To The Small Group Of Americans With Flood Insurance Have Skyrocketed 78% Of NFIP's Payouts Have Occurred In The Last 13 Years Source: FEMA NFIP Aug 2005: Hurricane Katrina Cost of Paid NFIP Claims $18,000,000 $16,000,000 $14,000,000 Oct 2012: Superstorm Sandy $12,000,000 Aug 2017: Hurricane Harvey $10,000,000 $8,000,000 $6,000,000 $4,000,000 1979: FEMA Created $2,000,000 0 Year

16. Coverage Gaps Have Serious Consequences For American Families And Businesses Source: McKinsey; FEMA NFIP 88% Of American Households Lack Flood Insurance • Major Populations Without Flood Insurance (%): • Texas • 80% • Florida • 60% • Puerto Rico • 99%

17. Building Resilience How Insurance Can Help

18. (Re)insurance Products Source: Insurance Journal; Houston Chronicle;Insurance Journal. Private Industry Case Studies • During 2017, the private flood insurance market added 50 new carriers. Direct private flood insurance premiums written reached $630 million, an increase of $217 million over 2016. Private Market Flood Products FEMA Reinsurance • Through a $150 million purchase of private reinsurance products, FEMA was able to recover approximately $1 billion, or an eighth of its total 2017 loses. 40% 2018 FEMA Reinsurance NFIP NatCat Bonds • By issuing new natural catastrophe bonds geared towards institutional investors, the NFIP can bring an estimated $500 million of additional reinsurance coverage.

19. The Power of Marketing

20. Education & Analysis Source: Actuaries Climate Index, http://actuariesclimateindex.org/home/ Actuaries Climate Index – Measuring Weather Extremes Index Measures Frequency of Extreme Events (Heat, Drought, Wind, Rain, Sea Level) Vs. 1961-1990 Average

21. Future Cities Lloyd’s Initiative Source: Lloyd’s/Arup, “Future Cities: Building Infrastructure Resilience” To Improve Resilience Prevent Failure Expedite Recovery Transform Performance

22. We Must Overcome Political Gridlock Economic and Actuarially Sound Action Is Needed To Adapt Policies To The Realities Of 21st Century Natural Catastrophes “ALL POLITICS IS LOCAL”

23. Thank you! www.iii.org