Transcript No Slide Title

South Carolina Property
Insurance Markets
Issues, Concerns, Solutions
Insurance Information Institute
South Carolina Media & Legislative Briefing
April 2, 2007
DOWNLOAD AT
http://www.iii.org/media/met/scbriefing/
Robert P. Hartwig, Ph.D., CPCU, President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: (212) 346-5520  Fax: (212) 732-1916  [email protected]  www.iii.org
Insurers Share the Concern of SC
Home & Business Owners
PROPERTY OWNERS ECONOMIC CONCERNS
• The price of residential and commercial property insurance has
risen rapidly in coastal SC since 2004
• Insurance options for some homeowners have dwindled as some
have scaled backed exposure to coastal zones
• At the same time property taxes are rising in many communities
• The run-up in real estate prices in some areas has dramatically
increased the cost of owning a home
• Many homeowners adjustable rate mortgages are seeing their
interest rate locks expire and are now paying higher interest
rates on their mortgages
Bottom Line
The cost of owning property in South Carolina is rising
and home & business owners feel economically squeezed
Any Solution Must Emerge from a
Common Set of Facts
FACTS ABOUT SOUTH CAROLINA PROPERTY MARKETS
• South Carolina has more than $150 billion in insured coastal exposure, more
than three times that of Mississippi
• Coastal property exposure values are expected to increase rapidly over the
next decade
• South Carolina’s coastal population is growing rapidly
• South Carolina (and all other Gulf/Atlantic states) will experience aboveaverage hurricane activity for the next 15-20 years
• South Carolina is vulnerable to major hurricanes, as Hurricane Hugo
proved, the cost of which is nearly $7 billion in today’s dollars
• Improvements in building codes and mitigation technologies have been
proven to substantially reduce wind damage from hurricanes
• The current method for financing hurricane-related losses results is an
economic burden for some property owners, but at the same times leaves
private and state-run insurers with large operating deficits
• Ultimately, risk will need to be the primary determinant of the price of
insurance
Elements of a Shared Solution
Arising from a Common Set of Facts
TOWARD A LONG-TERM SOLUTION FOR S. CAROLINA’S INSURANCE
• Insurance in South Carolina’s coast areas needs to be more available and
affordable
• Stronger homes are safer homes and stronger homes (and businesses) cost less
to insurance, offer their owners a higher quality of life and are a key part of
any solution
• Strengthening of building codes and mitigation must be encouraged
• Land use policies have a clear role to play in limiting future storm damage
• Stronger homes, increased use of mitigation technologies and smarter land use
policies will lower insurance losses and costs for home/businesses owners
• State tax policy can be used to provide mitigation incentives
• Spread of risk on a global scale is important
 Reinsurance, securitization (CAT bonds) can help achieve this objective
• Insurance capital should be encouraged to flow into SC’s insurance markets
• The price of insurance must eventually reflect the risk of that property
 This will dramatically reduce the need for assessments, diversion of tax revenues or
the need for the state to borrow heavily after a major hurricane
CATASTROPHIC
LOSSES
Catastrophic Losses in the US:
Upward Trend is Certain
Most of US Population & Property
Has Major CAT Exposure
$ Billions
$61.9
$8.8
$27.5
$4.6
00
$12.9
$8.3
99
$26.5
$10.1
$2.6
97
98
$7.4
96
$4.7
91
$8.3
$2.7
90
$5.5
$7.5
89
$20
95
Hugo
$80
$16.9
$40
$100
$22.9
$60
2006 was a welcome respite.
2005 was by far the worst
year ever for insured
catastrophe losses in the US,
but the worst has yet to come.
$100 Billion
CAT year is
coming soon
$5.9
$120
$100.0
U.S. Insured Catastrophe Losses*
20??
06
05
04
03
02
01
94
93
92
$0
*Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business
and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.
Source: Property Claims Service/ISO; Insurance Information Institute
$160.3
$15.0
$12.2
$65.1
$69.0
$83.9
$99.6
$141.0
$14.3
$33.3
$30.9
$13.4
$1.0
$4.7
$26.3
$32.9
$12.0
$14.8
$4.8
$1.9
$3.8
$1.6
$21.8
$1.0
$0
54
59
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
$50
$47.4
$100
$66.2
$87.2
$150
Avg.
annual
losses
since
1989 are
larger
$154.1
Since 1954, SC has
sustained $5.73 billion
insured CAT losses after
adjusting for inflation
($3.81B before
adjusting)
$200
$206.9
$250
$121.6
$ Millions, Adjusted to
2005 Dollars
$228.6
$231.4
South Carolina Insured Catastrophe
Losses, 1954 - 2005*
*Not displayed for scale purposes: Hurricane Hugo losses of $3.72B (adjusted).
Source: Property Claims Service/ISO; Insurance Information Institute.
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$ Millions, Adjusted to
2005 Dollars
$3,720.2
South Carolina Insured Catastrophe
Losses, 1954 - 2005*
Since 1954, SC has
sustained $5.73 billion
insured CAT losses
after adjusting for
inflation ($3.81B before
adjusting)
Hugo
Average annual
losses have been
higher since 1989
$500
$0
54 $21.8
59 $87.2
70 $1.0
71 $3.8
72 $1.6
73 $47.4
74 $1.9
75
76 $14.8
77 $4.8
78 $12.0
79 $32.9
80 $4.7
81 $1.0
82 $26.3
83 $33.3
$154.1
84
85 $66.2
86
87
88 $30.9
89
90 $13.4
91 $14.3
92
$121.6
93
$206.9
94
$141.0
95
$99.6
96
97 $12.2
98 $83.9
$228.6
99
$231.4
00
01
02 $65.1
03 $69.0
$160.3
04
05 $15.0
$1,000
Source: Property Claims Service/ISO; Insurance Information Institute
Top 10 Most Costly Hurricanes in
US History, (Insured Losses, $2005)
$45
$40
$35
$ Billions
$30
$25
$20
$15
Seven of the 10 most expensive
hurricanes in US history occurred
in the 14month period from
August 2004 to October 2005.
Hugo still ranks as the 6th most
expensive hurricane in US history
$21.6
$10.3
$10
$5
$40.6
$3.5
$3.8
$4.8
$5.0
Georges
(1998)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
$6.6
$7.4
$7.7
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$0
Sources: ISO/PCS; Insurance Information Institute.
Wilma
(2005)
Andrew
(1992)
Katrina
(2005)
Number of Major (Category 3, 4, 5)
Hurricanes Striking the US by Decade
1930s – mid-1960s:
Period of Intense Tropical
Cyclone Activity
Mid-1990s – 2030s?
New Period of Intense
Tropical Cyclone Activity
10
9
8
8
8
4
6
6
6
5
5
4
Tropical cyclone activity in the
mid-1990s entered the active
phase of the “multi-decadal signal”
that could last into the 2030s
6
Already as many
major storms in
2000-2005 as in all
of the 1990s
1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s
*Figure for 2000s is extrapolated based on data for 2000-2005 (6 major storms: Charley, Ivan, Jeanne (2004) &
Katrina, Rita, Wilma (2005)).
Source: Tillinghast from National Hurricane Center: http://www.nhc.noaa.gov/pastint.shtm.
Inflation-Adjusted U.S. Insured
Catastrophe Losses By Cause of Loss,
1986-2005¹
Wind/Hail/Flood5
2.8%
Earthquakes 4
6.7%
Winter Storms
7.8%
Terrorism
7.7%
Water Damage
Civil Disorders
0.1%
6 0.4%
Fire
Tornadoes 2
2.3%
Utility Disruption
24.5%
0.1%
Insured disaster losses
totaled $289.1 billion from
1984-2005 (in 2005 dollars).
Tropical systems accounted
for nearly half of all CAT
losses from 1986-2005, up
from 27.1% from 1984-2003.
All Tropical
Cyclones 3
47.5%
1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2005 dollars.
Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.
2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions
and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood
Insurance Program. 6 Includes wildland fires.
Source: Insurance Services Office (ISO)..
SOUTH CAROLINA
HURRICANE RISK
Potential for a Loss Several
Times Hugo Looms Large
Total Value of Insured
Coastal Exposure (2004, $ Billions)
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode Island
Maryland
$1,937.3
$1,901.6
$740.0
$662.4
$505.8
$404.9
$209.3
$148.8
$129.7
$117.2
$105.3
$75.9
$73.0
$46.4
$45.6
$44.7
$43.8
$12.1
$0
Source: AIR Worldwide
$500
$1,000
South Carolina had
nearly $150 billion in
insured coastal
exposure in 2004
(56% commercial,
44% residential)
$1,500
$2,000
$2,500
Insured Coastal Exposure as a % of Statewid
Insured Exposure (2004, $ Billions)
Florida
Connecticut
New York
Maine
Massachusetts
Louisiana
New Jersey
Delaware
Rhode Island
S. Carolina
Texas
NH
Mississippi
Alabama
Virginia
NC
Georgia
Maryland
79.3%
63.1%
60.9%
57.9%
54.2%
37.9%
33.6%
33.2%
1.
28.0%
25.6%
25.6%
2.
23.3%
13.5%
12.0%
11.4%
8.9%
5.9%
1.4%
0%
*III list
Source: AIR Worldwide
10%
20%
30%
40%
Who’s to Blame*
State & local zoning, land use
and building code officials
State & local legislators
3.
State-run property insurers,
pools & plans
4.
Washington, DC
5.
Property owners
50%
60%
70%
80%
90%
Value of Insured Commercial
Coastal Exposure (2004, $ Billions)
New York
Florida
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Georgia
Alabama
Mississippi
New Hampshire
Delaware
Rhode Island
Maryland
$1,389.6
$994.8
$437.8
$355.8
$258.4
$199.4
$121.3
$83.7
$69.7
$52.6
$45.3
$43.3
$39.4
$23.8
$20.9
$19.9
$17.9
$6.7
South Carolina had nearly
$84 billion in insured
coastal commercial
exposure in 2004 (56% of
all exposure) & exceeding
NC by 85%
$0
Source: AIR
$200
$400
$600
$800
$1,000 $1,200 $1,400 $1,600
Value of Insured Residential
Coastal Exposure (2004, $ Billions)
Florida
New York
Massachusetts
Texas
New Jersey
Connecticut
Louisiana
S. Carolina
Maine
Virginia
North Carolina
Alabama
Georgia
Delaware
Rhode Island
New
Mississippi
Maryland
$942.5
$512.1
$306.6
$302.2
$247.4
$205.5
$88.0
$65.1
$64.5
$60.0
$60.0
$36.5
$29.7
$26.6
$25.9
$24.8
$20.9
$5.4
$0
Source: AIR
South Carolina had more
than $65 billion in insured
coastal residential
exposure in 2004 (56% of
all exposure)
$200
$400
$600
$800
$1,000
County Map of South Carolina
Source: NOAA Coastal Services Center, http://hurricane.csc.noaa.gov/hurricanes/pop.jsp; Insurance Info. Institute.
Increase in Population of Coastal/Near
Coastal Counties in South Carolina
(% Change, 1990 - 2005)
Beaufort
60%
Horry
58%
Jasper
38%
Dorchester
36%
Georgetown
32%
Berkeley
Colleton
15%
Charleston
0%
Several SC coastal counties have
experienced very strong population
growth since 1990. Home values have
also skyrocketed—up 120% in
Charleston, Berkeley & Dorchester
counties between 1996-2005.
18%
12%
10%
20%
30%
40%
50%
60%
70%
Sources: Charleston Metro Chamber of Commerce, SC Statistical Abstract, US Census Bureau.
Historical Hurricane Strikes in
Charleston County, SC, 1900-2002
Population in
Charleston County
has nearly doubled
since the 1950s
Source: NOAA Coastal Services Center, http://hurricane.csc.noaa.gov/hurricanes/pop.jsp; Insurance Info. Institute.
Historical Hurricane Strikes in
Colleton County, SC, 1900-2002
Population in
Colleton County
appears to be
increasing in
recent decades
Source: NOAA Coastal Services Center, http://hurricane.csc.noaa.gov/hurricanes/pop.jsp; Insurance Info. Institute.
Historical Hurricane Strikes in
Georgetown County, SC, 1900-2002
Population in
Georgetown County
has nearly doubled
since the 1950s
Source: NOAA Coastal Services Center, http://hurricane.csc.noaa.gov/hurricanes/pop.jsp; Insurance Info. Institute.
Historical Hurricane Strikes in
Horry County, SC, 1900-2002
Population in Horry
County has doubled
since the 1980s and
tripled since the 1950s
Source: NOAA Coastal Services Center, http://hurricane.csc.noaa.gov/hurricanes/pop.jsp; Insurance Info. Institute.
The 2007
Hurricane Season:
Above Average Activity
Expected
Outlook for 2007 Hurricane
Season: 85% Worse Than Average
Average*
2005
2007F
9.6
49.1
5.9
24.5
2.3
28
115.5
14
47.5
7
17
85
9
40
5
5
7
11
Accumulated Cyclone Energy
96.2
NA
170
Net Tropical Cyclone Activity
100%
275%
185%
Named Storms
Named Storm Days
Hurricanes
Hurricane Days
Intense Hurricanes
Intense Hurricane Days
*Average over the period 1950-2000.
Source: Philip Klotzbach and Dr. William Gray, Colorado State University, April 3, 2007.
Probability of Major Hurricane
Landfall (CAT 3, 4, 5) in 2007
Entire US Coast
Average*
2007F
52%
74%
US East Coast Including
31%
50%
Florida Peninsula
Gulf Coast from FL Panhandle
30%
49%
to Brownsville, TX
ALSO…Above-Average Major Hurricane
Landfall Risk in Caribbean for 2007
*Average over the period 1950-2000.
Source: Philip Klotzbach and Dr. William Gray, Colorado State University, April 3, 2007.
Landfall Probabilities by
Region & Intensity, 2007*
CAT 1-2 Hurricane
All Hurricanes
Landfall
probabilities
and intensities
up everywhere
92%
90%
74%
120%
79%
64%
54%
40%
60%
Entire US
(97%)
0%
(79%)
(68%)
(52%)
(84%)
40%
20%
72%
71%
(30%)
(60%)
(83%)
80%
89%
(59%)
(42%)
100%
99%
93%
Gulf Coast
*Figures in parentheses represent averages over the past 100 years.
Source: Dr. William Gray, Colorado State University, December 8, 2006.
62%
56%
40%
(50%)
(44%)
(31%)
(61%)
(81%)
Tropical Storm
CAT 3-4-5 Hurricane
Named Storms
Florida plus East
Coast
What Role Should the
Federal Government
Play in Insuring
Against Natural
Disaster Risks?
South Carolina’s Coastal Plan
•
•
•
Spreading recognition that FL actions were fiscally reckless and
did nothing to reduce state’s vulnerability
SOUTH CAROLINA: Gov. Mark Sanford announced a coastal
insurance relief plan March 22, referring to FL’s actions as a
“knee-jerk” reaction
SC legislation uses tax incentives to reduce risk to property and
lower the cost of insurance







Tax deductions for catastrophe savings accounts
Tax credits for disaster mitigation
Tax credits for lower income property owners paying more than 5% of
their income in insurance premiums
Tax-free savings accounts for homeowners who carry very large
deductibles or create accounts to “self insure”
Tax credits for insurers writing full coverage for coastal dwellers
Tax credits for homeowners who buy supplies to retrofit homes making
them more hurricane resistant
Require insurers to offer discounts to people who mitigate
Sources: Insurance Information Institute from 3/22/07 press release, Office of Governor Mark Sanford.
Major Residual Market Plan Estimated
Deficits 2004/2005 (Millions of Dollars)
Florida Hurricane
Catastrophe Fund
(FHCF)
$0
-$200
-$400
-$600
-$800
-$1,000
-$1,200
-$1,400
-$1,600
-$1,800
-$2,000
2004
Florida Citizens
2005
Louisiana Citizens
Mississippi Windstorm
Underwriting
Association (MWUA)
-$516
-$595 *
-$954
-$1,425
Hurricane Katrina pushed all of the
residual market property plans in
affected states into deficits for 2005,
following an already record
-$1,770
hurricane loss year in 2004
* MWUA est. deficit for 2005 comprises $545m in assessments plus $50m in Federal Aid.
Source: Insurance Information Institute
NAIC’s Comprehensive
National Catastrophe Plan
• Proposes Layered Approach to Risk
• Layer 1: Maximize resources of private
insurance & reinsurance industry
 Includes “All Perils” Residential Policy
 Encourage Mitigation
 Create Meaningful, Forward-Looking Reserves
• Layer 2: Establishes system of state
catastrophe funds (like FHCF)
• Layer 3: Federal Catastrophe Reinsurance
Mechanism
Source: Insurance Information Institute
Comprehensive National
Catastrophe Plan Schematic
1:500 Event
National Catastrophe Contract Program
1:50 Event
State Regional Catastrophe Fund
State Attachment
Personal
Disaster
Account
Private Insurance
Source: NAIC, Natural Catastrophe Risk: Creating a Comprehensive National Plan, Dec. 1, 2005; Insurance Information. Inst.
Legislation has been
introduced and ideas
espoused by
ProtectingAmerica.org
will likely get a more
thorough airing in
2007/8
INSURER
PROFITABILITY:
SOUTH CAROLINA
Selling Home Insurance in
Coastal Areas is Challenging
$276.9
$150.7
$75.4
$91.7
($72.6)
($35.9)
$50.2
$85.0
$43.1
$30.6
$13.7
($7.0)
$9.7
($9.8)
$2.5
($62.6)
($200)
($31.0)
$ Millions
$0
$0.9
$200
$6.0
$400
$140.5
Underwriting Gain (Loss) in SC
Homeowners Insurance, 1985-2005
($400)
($600)
($800)
($1,000)
($1,200)
($1,113.5)
South Carolina’s homeowners
insurance market is volatile and
prone to mega-scale losses. The
average rate of return for home
insurers is -15.4% from 1985-2005.
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Source: A.M. Best; Insurance Information Institute.
($923.6)
($999.0)
($1,090.7)
($1,018.1)
($982.2)
($1,032.4)
($1,117.4)
($1,160.5)
($1,197.7)
($1,207.4)
($1,400)
($1,197.6)
($1,200)
($1,135.0)
($1,000)
($1,191.1)
($800)
($783.1)
($600)
($1,204.7)
$ Millions
($400)
($324.2)
On a cumulative basis, insurers
remained in the red in the SC
homeowners insurance market 16 years
after Hurricane Hugo struck in 1989. It
is likely that insurers finally came close
to break even in 2006.
($602.4)
($21.6)
($24.1)
($200)
($30.1)
$0
($31.0)
Cumulative Underwriting Gain (Loss)
in SC Homeowners Insurance,1985-2005
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Source: A.M. Best; Insurance Information Institute.
The Facts About Homeowner Insurer
Profits and Losses in SC
• During the period from 1985 through 2005, home
insurers in SC paid $324 million more in claims than
they received in premiums
 This $324 million underwriting loss remains even after 5
consecutive profitable years (2001-2005)
 It is likely that home insurers in 2006 came close to the
breakeven point for the 22 year period 1985-2006 after
including 2006 profits.
 If there are no storms in 2007, homeowners insurers will be
in the black on a cumulative basis for the first time in more
than 20 years
• SC Remains a Difficult Proposition for Most Home
Insurers in Terms of Return
 The average annual rate of return on SC homeowners
insurance was -15.4% from 1985-2005
WHERE YOUR PREMIUM
DOLLAR GOES
Bad CAT Year vs.
Low CAT Year
Premiums
Invested Assets
(premiums invested until
needed to pay claims
Selling Expenses
Taxes, Licenses & Fees
General Operating
Expenses
Reserve
Additions/
Releases
Claims
Payments/Losses
Company
Profit/Loss
Net Worth
(Policyholder Surplus)
Source: American Insurance Association,
Insurance Information Institute.
Where the SC Premium Dollar Comes
From & Where it Goes: 1989 (Hugo)
Revenue Sources
Payments
Total Revenue = $1051
Total Payout = $5548
Investment
Gain
$51
5%
Selling
Expense
$150
Other
3%
Expense
$160
3%
Premiums
$1,000
95%
In a bad year,
insurers may pay
out 5+ times
what they earn
in premiums and
investments
Taxes, Fees
$35
1%
Loss & Loss
Adjustment
Expenses
Incurred*
$5,203
93%
*Includes temporary living expenses.
Source: Insurance Information Institute from A.M. Best data.
Where the SC Premium Dollar Comes
From & Where it Goes: 2004
Revenue Sources
Total Revenue = $1039
Investment
Gain
$39
4%
Premiums
$1,000
96%
Payments
Divs. To
Policyholders
$3
0%
Total
Payout = $850
Fed Taxes
$91
11%
Losses
Incurred
$407
48%
Taxes, Fees
$33
4%
Selling
Expense
$214
25%
In a good year, an insurer might
earn $200-$300 for each $1000
received in premium, including
investment gains
General
Expense
$45
5%
Loss
Adjustment
Expenses*
$57
*Includes temporary living expenses.
7%
Source: Insurance Information Institute from NAIC Report on Profitability by Line by State, 2004.
Share of Losses Paid by Private
Reinsurers, by Disaster*
70%
60%
50%
40%
30%
Reinsurance is playing
an increasingly
important role in the
financing of megaCATs; Reins. Costs are
skyrocketing
30%
25%
60%
45%
20%
20%
10%
0%
Hurricane Hugo Hurricane Andrew
Sept. 11 Terror
2004 Hurricane
2005 Hurricane
(1989)
(1992)
Attack (2001)
Losses
Losses
*Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer,
which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at
$3.85 billion for 2004 and $4.5 billion for 2005.
Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.
P/C INSURER
PROFITABILITY
National Perspective
ROE: US P/C vs. All Industries
1987–2008E
20%
P/C profitability is cyclical, volatile and vulnerable
15%
10%
Sept. 11
5%
Hugo
Katrina,
Rita, Wilma
Lowest CAT
losses in 15 years
0%
Andrew
Northridge
4 Hurricanes
US P/C Insurers
*2006-8 P/C insurer ROEs are I.I.I. estimates.
Source: Insurance Information Institute; Fortune
All US Industries
08F
07F
06E
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
-5%
Profitability Peaks & Troughs in the
P/C Insurance Industry, 1975 – 2008F
25%
1977:19.0%
1987:17.3%
2006E:14.0%
20%
1997:11.6%
15%
10%
5%
0%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
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
07F
08F
-5%
*2006-8 P/C insurer ROEs are I.I.I. estimates.
Source: Insurance Information Institute; ISO, A.M. Best.
Industry Profitability Benefits
Insurance Consumers
• Profits compensate shareholders for the assets they put
at risk and encourages new capital to enter
• Profitable companies can access capital markets under
favorable terms after mega-CATs or if market
conditions are poor (e.g., post-9/11); Others will fail,
are dissolved or acquired
• Preferred treatment by reinsurers
• Profits lead directly to increased capacity
• Profits build contingent capacity for mega-CATs
• Profitable companies have higher financial strength
and credit ratings
Key Messages on Profitability
• All of the profits earned in 2004 and 2005 and most of the
profits in 2006 were earned in states and from types of
insurance unaffected by the hurricanes
• 2006’s respite in hurricane activity provides insurers with the
ability to rebuilding their claims paying resources
• By law, the rates charged for insurance are based exclusively on
past and expected losses in that state. Profits in other states or
from other types of insurance cannot be used to subsidize losses
in the SC homeowners insurance market. Likewise, losses in
other states cannot be subsidized by South Carolinians
Insurance Information
Institute On-Line
DOWNLOAD AT
http://www.iii.org/media/met/scbriefing/