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1 City of RiversideFinance CommitteeState of the Insurance MarketJune 11, 2025Presented by:Robert Lowe 2City of RiversidePresentation Overview•State of the Insurance Market 2025oFinancial PerformanceoLoss Trends & MarketDisruptorsoUnderwriting TrendsoToward the Future
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2 Market Overview
FinancialPerformance3Loss Trends &Market DisruptorsToward theFuture MarketPressures…
Cost of climatechange naturaldisasters (wildfires)Social Inflation/Nuclear Verdicts& LegislationMass ShootingsGlobal PoliticalConflictCyber AttacksThe outlook for the next six months is marked by heightenedexpectations of potentially costly wildfires and hurricanes, aswell as continuing convective storm activity in the United States.AgingInfrastructureClimate ChangeInflation &Increased Loss CostNatural DisastersSupply Chain &Labor ShortageProliferation of“secondary”perils (SCS) 4 5/29/2025
3 $38.9$37.1$36.7$38.7$39.6$49.5$52.3$54.6$51.2$47.1$47.6$49.2$48.0$47.3$46.4$47.2$46.6$50.0$57.0$57.3$53.2$56.1$71.5$75.9$86.9$30$40$50$60$70$80$900 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1617 18*19 20 21 22* 23E 24FHigher interest rates arepushing investmentincome sharply upwardAggressive Fed actions in response to COVIDand recession pushed interest rates lower in2020, adversely impacting investment incomeP r o p e r t y / C a s u a l t y I n s u r an c e I n d u s t r y Investment Income: 2 0 0 0 – 2 0 2 4 F ** 2018-19 figures are distorted by provisions of the TCJA of 2017. Increase reflects such items as dividends from foreign subsidiaries.**2022 figure includes a $10.8B intercompany distribution by a large reinsurer that flowed through NII.1 Investment gains consist primarily of interest and stock dividends. Sources: A.M. Best Review & Preview (March 2024); ISO; University of South Carolina, Center for Risk and Uncertainty Management.Due to persistently low interest rates, investment income remained below pre-crisis levels for a decade. Lower interest rates during COVID droveinvestment income down once again. Fed rate hikes in 2022-23 are reversing this trend.($ Billions) 5115.8107.5100.198.4100.892.695.7101.099.3101.1106.5102.596.497.097.8100.7103.799.298.998.699.6102.4101.594.498.5 98.59010011012001 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24:Q1 24F 25FAs Recently as 2001,Insurers Paid Out Nearly$1.16 for Every $1 inEarned PremiumsBestCombinedRatio Since1949 (87.6)Avg. CATLosses, MoreReserveReleasesSandyImpactsSharply higher CATsare driving largeunderwriting lossesand pricing pressureHeavy Use ofReinsurance LoweredNet LossesRelatively Low CATLosses, ReserveReleasesRelatively Low CATLosses, ReserveReleasesHigher CAT Losses,Shrinking ReserveReleases, Toll of SoftMarketLower CATLossesP / C I n s u r a n c e I n d u s tr y C o m b i n e d R a t i o , 2 0 0 1 – 2 0 2 3 F ***Excludes Mortgage & Financial Guaranty insurers 2008–2014.Pre-COVID 2020 Combined Ratio Est. 99.1 (A.M. Best)Actual = 98Ian Impacts2023101.5COVID-19has had nodiscernablenetimpact onpre-COVIDexpectations for thecombinedratio in 2020;-7.5 pts. dueto CATs vs. 4.1in 2019(about twice avg.)Significant improvementexpected in P/C underwritingperformance in 2024/25—ledby Personal Lines andespecially Personal AutoDRIVERSInflation moderatesRate gains outpaceclaim costs 6Sources: A.M. Best, ISO (2014-2024F).6
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4 7
L o s s T r e n d s & M a r k e t D is rup t ors
8M a j o r U . S Lo s s es in 2 0 2 4
•In 2024, there were 27 confirmedweather/climate disaster events with lossesexceeding $1 billion each to affect UnitedStates.•These events included 1 drought event, 1flooding event, 17 severe storm events, 5tropical cyclone events, 1 wildfire event, and2 winter storm events.•Overall, these events resulted in the deathsof 568 people and had significant economiceffects on the areas impacted.•The1980–2023 annual average is 8.5 events(CPI-adjusted); the annual average for themost recent 5 years (2019–2023) is 20.4events(CPI-adjusted).
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5 Distribution of L os s es f r o m U S Billion-D o l l a r W e a t h e r a n d C l i m at eD i s ast er2 0 2 4 * ( C P I - Adjusted)*As of May 8, 2024.Source: NOAA, accessed at:https://www.ncei.noaa.gov/access/billions/mapping.
Cost$5M-100M$100M-250M$250M-500M$500M-1B$1B-2B$2B-5B$5B-10B$10B-20B$20B-50B$50B-100B$100B-200B$200B-300B$300B+Heavyconcentration oflosses in GulfCoast statesand CA 9 5/29/2025
6 U . S . Inflation-A dj us ted I ns ured C A T L os s es: 1 9 8 0 – 2 0 2 4 : H 1*Stated in 2021 dollars except 2022 -2024 (in current dollars).Sources: Property Claims Service, a Verisk Analytics business (1980-2019); 2020-22 figures from Munich Re; 2023 and 2024:H1figure from Aon. Insurance Information Institute; University of South Carolina, Risk & Uncertainty Management Center.444085112572870859980461980s: $5B1990s: $16B2000s: $27B2010s: $37B$10$0$30$20$40$60$50$70$80$90$100$110$120$130$140$150 Average for DecadeIan 2022 became the2ndcostliest insuredCAT loss ever$ Billions, 2021HurricaneAndrewWTCKatrina, Rita,WilmaHarvey, Irma,MariaIda ($36B)TX Freeze ($15B)Ian($52.5B)Average Insured Loss per Year*1980-2021: $23.8 Billion | 2012-2021: $44.1 BillionThe 2020s are off to an ominous start with $83.5B in averageannual insured losses (2020-23) 11 12Source: Risk and Uncertainty Management Center, Univ. of South Carolina, adapted from Verisk “Social Inflation” presentation (2020);Source: Risk & Insurance June 11, 2024S o c i a l Inflation: M a n y Interrelated C a u s e s , Difficult to M a n a g eNuclear verdictsNumber of reportedverdicts over$100millionhit an all-timehigh of at least 23 in 2023 2023$23.8millionMedian nuclear verdict$21.1millionMedian nuclear verdict for personalinjury/wrongful death cases$88.9millionMean nuclear verdict for personalinjury/wrongful death casesInsurance claim costsIncreasingPropensity to Sue Size of JuryAwardsAggressivePlaintiff Bar AdsLitigationFinancingGrowing Distrustof Large Corps.Changes in Regulatoryand Legal EnvironmentCourts/JuriesFavoring PlaintiffsCalifornia is the trial bar’s laboratory. It’s where they go to pursue innovative new theories ofliability and push the envelope with regard to expanding liability for business. The courts welcomethese theories with open arms and businesses are overwhelmed with claims. 5/29/2025
7 Underwriting TrendsToward the Future13
PropertyRenewalOutlook
Continued scrutiny of data (SOV, COPE, ITV with Increased Construction Cost)•Must go to market with a compelling narrative•Emphasis on data quality will not be going away any time soonRate outcomes are highly dependent on remainder of 2024 Wind Season and individual client lossesUnderwriter submission activity remains high – imperative to engage early and access global marketIncreased retentions and caps on certain types of exposure•Programs that have not undergone changes over the course of the last few renewal cycles may face scrutiny,particularly on Windstorm & Severe Convective Storm•Separate, increased Water Damage deductibles are gaining momentumRegional Underwriting: Property markets are affected differently across the nation•e.g., West: Wildfire/Earthquake, East: Hurricanes, Midwest: SCS, etc.The Los Angeles fires are expected to have significant consequences for both the insurance and reinsurance markets.High Losses: Insured losses could exceed $50 billion, with total economic losses possibly reaching up to $150 billion. Alarge portion of the damages may be uninsured, highlighting the growing coverage gap.1414 5/29/2025
8 L iab il i ty C l a i m Tr en d sa n d I nfl ati onar yP r es s u resLiability Claim severity has increased •Social Inflation (legal system abuse)•Medical Cost Inflation•Plaintiff Bar Success – Advertising, Reptile Theory, etc.
Liability Claims frequency has increased•Third-party litigation funding (TPLF)•Aging Infrastructure•DissatisfactionInflation Toll•As inflation increases, Insurance Carriers seek increased premiums•Higher claims payouts, operational costs, etc.•Investment Portfolio is impacted•Claims more likely to approach retention levels, retentions increases are common 15 Cyber Market – CyberLiability Claims Trends
MetaPixel and MoveIt claimshave skyrocketed and as such,underwriters are addingexclusions to those withoutsufficient controlsRansomware losses continue tobe a major concern, as it is the#1 cybersecurity threat to allbusinesses As the war in Ukrainecontinues, Londonunderwriters are all deployingproprietary/Lloyd’s warexclusion languageSelect U.S. markets have beguninserting ‘widespread event’ or‘catastrophic first party loss’exclusions on their renewalsExpected increase in state andfederal regulations and cyberrelated enforcement actions Despite some groupsconducting politically-motivated ransomware anddata extortion attacks the vastmajority of ransomware anddata extortion attacks continueto be financially motivated.Fewer of these attacks involveencryption (locking) of datacompared to years past 16 5/29/2025
9 F actor sC o n t r i b u t i n g toR e c o r dW o r k e r s ’C o m p e n s a t i o nC l a i m s S eve r i t ySource: Safety NationalFactors serving as cost drivers resulting increased claims severityMedicalTechnologyAccidentSurvivabilityLife ExpectancyFee SchedulesPresumptionLaws The Job Market
Vendor LaborShortages
Comorbidities& COVID-19
17 SuccessfullyNavigating theMarketInformationMeetings
Relationships
Start Early
New CapacityRestructuring
PlacementEnhancements
Proactive risk management and strategic planning are at the core of fostering businessresilience,18 5/29/2025
10 Thank you!Questions?Please contact us if you would like a copy ofthis presentation.