1、2C-24:Wheels 7-year,No WarrantiesJune 6,2023Moderator:John Buchanan,FCAS,Managing Principal,Verisk Underwriting SolutionsSpeakers:Marni Novack,FCAS,Actuarial Manager,Verisk Underwriting SolutionsRebecca Bredehoeft,FCAS,SVP,North America Motor Portfolio Owner,Swiss ReJennifer Stevens,SVP,Head of Regi

2、onal Casualty Treaty Underwriting and North America Liability Portfolio Owner,Swiss Re3Antitrust Notice The Casualty Actuarial Society is committed to adhering strictly to the letter and spirit of the antitrust laws.Seminars conducted under the auspices of the CAS are designed solely to provide a fo

3、rum for the expression of various points of view on topics described in the programs or agendas for such meetings.Under no circumstances shall CAS seminars be used as a means for competing companies or firms to reach any understanding expressed or implied that restricts competition or in any way imp

4、airs the ability of members to exercise independent business judgment regarding matters affecting competition.It is the responsibility of all seminar participants to be aware of antitrust regulations,to prevent any written or verbal discussions that appear to violate these laws,and to adhere in ever

5、y respect to the CAS antitrust compliance policy.4C-24 Wheels 7-year,No Warranties-Agenda Introduction Commercial and personal auto update Overall industry results through 12/31/2022 Covid/Heightened Inflation Review trends,LDFs,loss ratios,segments,ground-up vs excess,competitive underwriting cycle

6、,rate changes,emergence lags,ILF pressures Covid and heightened inflation considerations into 2023 and beyond Motor Portfolio Management perspective State of the market for commercial and personal auto Current and Future auto trends,supply chain disruption,severity etc Impact on portfolio loss ratio

7、s&reserving Liability/Umbrella Portfolio Management perspective Economic uncertainty Large losses looming,social inflation remains Navigating the challenging risk landscape Q&A512345678TrendsState/Ground UpExcessLoss Devt FactorsHazard/SeverityFrequencyExposureSeverityFrequencyGround UpExcessSubline

8、PropertyllllCasualtylllCommercial AutolllPersonal Auto9516 WhereRate ChangesLoss CostsExternal Loss RatiosIn thePrimaryReinsuranceGround-upILFsForcesPrimaryReinsuranceCycle?PropertylllllllCasualtyllllllCommercial AutolPersonal AutoConfidence:GoodlMediumSomeMinimalSource:Adapted from IT2 I

9、ntermediate/Advanced-CARe May 2014(JBuchanan)Benchmark Assessment MatrixEstimating Confidences Pre and Post Pandemic-IllustrativeAs part of an annual or quarterly Best Practices framework,after gathering all relevant internal and external information,it is useful to assess all actuarial benchmarking

10、 components.And how confident you are in each.Some for example like LDFs and rate changes may feel quite confident,if no major disruptions.While others like ILFs may feel less confident in times of high and unknown social inflation and litigation financing impacts.6 6Update of Commercial AutoView at

11、 20207Source:SOLM 2020v1(using expanded MarketWatch method 3-new and renewal including impacts from ILFs)Commercial Auto View at 2020There has been a steady decline in on-level results since 2009.Overall loss ratios fell slightly for the first time in 2019 due to slightly reduced severity trend and

12、slightly increased reduction in frequency.Since 2009,there has been higher average severity trends(7-year trend 5.6%),lengthening tail and continued adverse actual vs.expected losses.The recent improvement in rates may be starting to reverse the higher loss levels.The current loss ratio of 72.5%,is

13、14.1 points worse than longer term on-level average of 58.4%.8Renewal vs.New and Renewal rate changes show different patterns throughout the underwriting cycle.For example,renewal policies show a reduction of about 2%in 2009 and 2010,while new and renewal(adjusted for different average attachment an

14、d limits offered),shows a reduction of closer to 7%and 5%(-8%in 2008).Sample Price Monitors-Commercial Auto Liability New and Renewal PoliciesNote:Renewal Policies(Standard MarketWatch)-the#of policies underlying this policy level method is shown by the height of the grey bar.The black line represen

15、ts the incremental rate changes.This method analyzes policy level data,only including policies with a common footprint from year to year for limit,attachment,capping,etc.New and Renewal Policies(Expanded MW)-the#of policies underlying this company level method is shown by the total height of the gre

16、y and blue bars.The blue line represents the incremental rate changes.This method analyzes company level data from year to year,excluding companies for a particular year that have significant changes.This method does not include impacts due to the average number or type of exposures underlying the p

17、olicy counts.Limit/Attachment Adjusted-includes adjustments for aggregated limit and attachment differences using MILD for casualty lines(no adjustment for property).The total#of policies issued by line of business is the total height of all 3 bars(the bar height is the current year policy counts,ra

18、ther than the prior year).The largest reported exposure bases(by policy count)for this line are:Car Months 89%,Employee Months 7%,Cost of Hire 1%Commercial Auto View at 20209All CAu Reserve Run-off Test 12/31/2019 4.9M xs 100kSources:Using SOLM 2020 v1 mechanical selections of VWA(100%7-year)Commerc

19、ial Auto View at 2020Comparing to initial selected excess loss ultimates at 12 months using a mechanical 7-year average,produces adverse development all calendar years since 2012.1010Commercial AutoView at Source:SOLM 2023v1(Pre-Release)(using expanded MarketWatch method 3-new and renewal

20、 including impacts from ILFs)Commercial Auto View at 2023After the steady increase in loss ratio since 2009,loss ratios fell sharply in 2020.This was due to the significant drop in frequency that was observed in 2020 as a result of the pandemic.Fewer people were driving as people were staying home a

21、nd most businesses were not open.Loss ratios rebounded in 2021 and 2022 to higher than pre-pandemic levels,due to increasing severity and small rebound in frequency.Severity has continued to climb from 2020-2023(9%7-year trend).The current year loss ratio is back to being higher than the all-year lo

22、ss ratio(49.1%all year vs.73.9%in 2022).12Sample Price Monitors-Commercial Auto Liability New and Renewal PoliciesNote:Renewal Policies(Standard MarketWatch)-the#of policies underlying this policy level method is shown by the height of the grey bar.The black line represents the incremental rate chan

23、ges.This method analyzes policy level data,only including policies with a common footprint from year to year for limit,attachment,capping,etc.New and Renewal Policies(Expanded MW)-the#of policies underlying this company level method is shown by the total height of the grey and blue bars.The blue lin

24、e represents the incremental rate changes.This method analyzes company level data from year to year,excluding companies for a particular year that have significant changes.This method does not include impacts due to the average number or type of exposures underlying the policy counts.Limit/Attachmen

25、t Adjusted-includes adjustments for aggregated limit and attachment differences using MILD for casualty lines(no adjustment for property).The total#of policies issued by line of business is the total height of all 3 bars(the bar height is the current year policy counts,rather than the prior year).Th

26、e largest reported exposure bases(by policy count)for this line are:Car Months 77%,Employee Months 20%,Named Insured Months 1%,Cost of Hire 1%After years of increasing rate increases since 2015,rates,while still in the high single digits,have started to see lesser increases,more so for new and renew

27、al policies than renewal only policies.The number of policies in 2020-2022 is also down from what was observed previously,indicating that there may have been some loss of policies during the pandemic,perhaps from businesses going out of business.Commercial Auto View at 202313Comparison of Results us

28、ing On-level premium vs.Power Units-TTTSource:SOLM 2023v1(Pre-Release);losses developed using 3-yr VWA;uses ISO MarketWatch 12/31/2022 rate changes CA-TTT Liability;power units in monthsCommercial Auto View at 2023Overall increase in loss cost up by 55%per power unit,and up by 48%per on-level premiu

29、m since 2013.Both methods show a significant drop-off in 2020(15%)due to the significant frequency reduction due to Covid.Both methods then show an increase/rebound(20%)after covid to levels higher than pre-pandemic.14Larger claim sizes,had a more significant rebound in frequency than smaller claims

30、,while the severity was not as impacted.This increase in frequency,along with stable increasing severity,has led to an increase in loss ratio to above pre-pandemic levels.During the pandemic,fewer smaller claims were observed compared to prior years,potentially due to their being fewer cars on the r

31、oad,so fewer smaller accidents(fender benders).Commercial Auto View at 2023Source:SOLM 2023v1(Pre-Release)(using expanded MarketWatch method 3-new and renewal including impacts from ILFs)15Total CAu Liability Reserve Run-off Test 12/31/2022 GUFor all Calendar Years since 2012,we have seen adverse de

32、velopment.2020 was the only year that we saw significantly lower adverse development,and the first year since CY 2011 that we see favorable development for any accident years(2016 and 2017).CY 2022 has significant adverse development.Commercial Auto View at 2023Source:SOLM 2023v1(Pre-Release-mechani

33、cal selections of VWA(100%7-year)16TTT Reserve Run-off Test 12/31/2022 GUAll Accident years since 2009 show adverse development,but CY 2020 showed slight favorable development,the only year to do so.CY2022 shows adverse development at levels back to CY2016-CY2019.Commercial Auto View at 2023Source:S

34、OLM 2023v1(Pre-Release)-mechanical selections of VWA(100%7-year)17PPT Reserve Run-off Test 12/31/2022 GUPPT did not see the favorable development in 2020 that TTT saw and continues to see high adverse development in all accident and calendar years.Commercial Auto View at 2023Source:SOLM 2023v1(Pre-R

35、elease)-mechanical selections of VWA(100%7-year)18Commercial Auto Liability Loss Development Factors GU IndemnitySince 2020Q2,development factors are noticeably higher than previously.This could be due to the shutdown of the court system or pipeline issues during the pandemic,as well as continuing b

36、acklog from the pandemic with potentially fewer resourcesSource:CAu SOLM-Qtr at 12/31/2022;Indemnity Only19SOLM Qtr Total CAu Liability As observed previously,in 2020 there was a significant frequency reduction driving a significant loss ratio reduction.For severity,we see YTY changes significantly

37、higher than in the past with increases above 10%in 2020-2022.This large increase in severity,paired with a partial rebound in frequency led to an increase in loss ratio in 2021 and 2022 to higher than pre-pandemic levels.NB:mechanical selection for LDFs of last 7 qtr VWA used in projections from CAu

38、 SOLM-Qtr at 12/31/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/30/2022 rate changes 20SOLM Qtr TTT TTT data shows a very similar story to Total Commercial Auto Liability.In 2020 there was a significant frequency reduction driving a significant loss ratio reduction.For sev

39、erity,we see YTY changes significantly higher than in the past with increases above 10%in 2020-2022.This large increase in severity with slight rebound in frequency led to a rise loss ratio in 2021 and 2022 to above pre-pandemic levels.NB:mechanical selection for LDFs of last 7 qtr VWA used in proje

40、ctions from CAu SOLM-Qtr at 12/31/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/30/2022 rate changes 21SOLM Qtr PPT PPT shows the same overall pattern as TTT,but shows a more extreme drop in frequency in 2020.We see high severity changes in 2020-2022,but not as high as what

41、 was observed in 2019 of over a 20%increase.The beginning of a rebound in frequency in 2021 coupled with the large severity increases in recent years led to a recovery in loss ratio in 2021 and 2022 to slightly higher than pre-pandemic levels.NB:mechanical selection for LDFs of last 7 qtr VWA used i

42、n projections from CAu SOLM-Qtr at 12/31/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/30/2022 rate changes 22SOLM Qtr Total CAu Liability BI When looking at Total Commercial Auto Liability BI,we see the same trends as for All Causes of Loss.Frequency dropped significantly

43、in 2020 followed by increases in 2021 and 2022.Severity shows large increases of close over 10%or higher in both 2020-2022.These frequency and severity changes led to a large decline in loss ratio in 2020 and an increase in 2021 and 2022 to higher than pre-pandemic levels.NB:mechanical selection for

44、 LDFs of last 7 qtr VWA used in projections from CAu SOLM-Qtr at 12/31/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/30/2022 rate changes 23SOLM Infographic Total CAu Liability PD 10k Not all segments are seeing the large increase in severity.Property Damage claims 10k are

45、a good example.In 2020,we still saw the large drop in frequency,but there was not much of an impact to severity,leading to a drop in loss ratio.2021 and 2022 saw large increases in frequency leading to an increase in loss ratio above pre-pandemic levels.NB:mechanical selection for LDFs of last 7 qtr

46、 VWA used in projections from CAu SOLM-Qtr at 12/31/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/30/2022 rate changes 24SOLM Infographic Total CAu Physical Damage Commercial Auto Physical Damage shows a very similar story to Commercial Auto Liability.While still showing a

47、significant frequency decrease in 2020 and increasing severity in 2020-2022,these impacts are not as significant as for liability.NB:mechanical selection for LDFs of last 7 qtr VWA used in projections from CAu SOLM-Qtr at 12/31/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/

48、30/2022 rate changes 25SOLM Qtr Total CAu Liability Closure RatesLooking at the ratio of closed claims to incurred claims,the closure rate in accident quarters since 2021Q2 and calendar years since the start of COVID,has slowed down from what it had been previously for Commercial Auto LiabilitySourc

49、e:CAu SOLM-Qtr at 12/31/202226SOLM Qtr Total CAu Liability Incremental to UltimateNB:mechanical selection for LDFs of last 7 qtr VWA used in projections from CAu SOLM-Qtr at 12/31/2022.No tail beyond 2017 supplied.Indemnity Only When comparing incremental closed claims and paid indemnity to ultimate

50、 values,in the 8 quarters following the start of the pandemic,closure and payment rates fell from what they had been pre-pandemic.After those initial 8 quarters,closure rates began to increase again in many cases to higher than pre-pandemic levels.Closure rates remain low in the 3 month evaluation p

51、erhaps indicating a push to close older claims first.Closed ClaimsPaid Indemnity27Closure Ratios through 12/31/2022Impact of Delayed Closures and Inflation on Paid Indemnity-CountrywideThis figure shows the dampening impact of the pandemic on settling claims starting in calendar quarter 2020Q2,affec

52、ting almost all the accident quarters.The delayed settlements continues to significantly affect the average settlements.Average Severities have been increasing YOY on every quarter since the start of the pandemic at a higher rate than pre-pandemic average of around 6%.2828Personal AutoView at 2021-2

53、02329SOLM Qtr Total PAu Liability NB:mechanical selection for LDFs of last 7 qtr VWA used in projections from PAu SOLM-Qtr at 9/30/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/30/2022 rate changes For Personal Auto Liability,we see the large decline in frequency in 2020 th

54、at we see generally across most lines of business.In 2021,there is a bigger recovery in frequency than what was seen for Commercial Auto.This recovery continued into 2022 through Q3.Severity increases in 2020-2022Q3 are not very different(even lower in some cases)than what was observed since 2017.Th

55、e changes in frequency drove the loss ratio to fall in 2020 and then recover back to pre-pandemic levels in 2021 and 2022 through Q3.30SOLM Qtr Total PAu Physical DamageFor Personal Auto Physical Damage,like with liability,we see the large decline in frequency in 2020 and the start of the recovery i

56、n 2021 and continuing into 2022 through Q3.Severity in 2021 also jumped significantly from what had been observed in the past.Severity was up again in 2022 through Q3,less so than in 2021,but higher than pre-pandemic levels.This led to a large increases in loss ratio in 2021 and 2022 through Q3 to h

57、igher than pre-pandemic levels.NB:mechanical selection for LDFs of last 7 qtr VWA used in projections from PAu SOLM-Qtr at 9/30/2022.No tail beyond 2017 supplied.Indemnity Only uses ISO MarketWatch 6/30/2022 rate changes 31SOLM Qtr Total PAu Liability Closure RatesLooking at the ratio of closed clai

58、ms to incurred claims,the closure rate in accident quarters since 2021Q2 and calendar years since the start of COVID,has slowed down from what it had been previously for Personal Auto Liability.Source:PAu SOLM-Qtr at 9/30/202232SOLM Qtr Total PAu Liability Incremental to UltimateNB:mechanical select

59、ion for LDFs of last 7 qtr VWA used in projections from PAu SOLM-Qtr at 9/30/2022.No tail beyond 2017 supplied.Indemnity Only When comparing incremental closed claims and paid indemnity to ultimate values,in the 4 quarters following the start of the pandemic,closure and payment rates fell from what

60、they had been pre-pandemic.After those initial 4 quarters,closure rates began to increase again in many cases to higher than pre-pandemic levels.Closure rates remain low in the 3 month evaluation perhaps indicating a push to close older claims first.Closed ClaimsPaid Indemnity33No part of this prese

61、ntation may be copied or redistributed without the prior written consent of Insurance Services Office,Inc.This material was used exclusively as an exhibit to an oral presentation.It may not be,nor should it be relied upon as reflecting,a complete record of the discussion.Insurance Services Office,In

62、c.,2023http:/ of the Auto Market35Motor TrendsMicrochip ShortageSupply Chain IssuesWorker ShortagesWage InflationGeneral and widespread inflation for materialsIncreasing Attorney Rep.rateElevated Used car valuesIncreased severityUkraine-Russia conflict/Global instabilitySocial unrestHigher baseline

63、for GasFrequency returning to pre-pandemic levelsMedical inflationLitigation FundingGeneral ObservationsCommercial Auto Elevated loss&combined ratios due to social inflation and adverse development Rising rates;high single/double digit but unfortunately,rates still inadequate Litigation funding beco

64、ming the norm Slow uptake of technology telematics havent produced the loss ratio lift expected Cameras gaining use,but a double-edged sword TNC business has not performed well and continues to struggle with rate,product and regulations37 Brief COVID benefit in 2020 on the frequency side has proven

65、to be a significant anomaly Severity increased dramatically through the pandemic and has continued to grow through 2023 Continuing supply chain and inflationary issues are creating increased loss costs,especially for APD exposures Worker shortages,social inflation and lit funding are further eroding

66、 personal motor results Amount of rate needed to return to profitability has been slow to come and will continue to lag emerging trends CaliforniaGeneral ObservationsPersonal Auto38*Industry average of approved rate filings for all Personal Auto products,across all statesSource:S&P Capital IQ,statut

67、ory filings,US Bureau of Labor StatisticsIn uncertain times for the Personal Auto businessWhile loss frequency is back to pre-pandemic levels,physical damage loss severity has increased dramatically driven by higher costs for repairs,car parts,and the price of used vehicles.Social inflation trends a

68、re also impacting the severity of liability losses,in particular third party litigation funding.Rate activity picked up in the second half of 2021 and continues in 2023,though regulatory backlog is slowing the rate approval process in some heavily impacted states.Projection is that rate will catch u

69、p by the end of 2024,depending on state mix.Margins will remain under pressure until the new rate has earned through.Impact of geopolitical situation on loss inflationRate increases still to catch upLoss severity on the risePersonal Auto rate increases*vs loss severity components0.1%1.3%3.3%4.0%-3.4

70、%10.6%4.7%3.2%4.5%4.4%2.4%10%20%6%8%12%4%14%0%-4%-2%2%0.0%Q1 21Q2 2110.0%Q1 2220.0%Q4 2114.4%Q3 21Insurance rate changeCar parts costCar repair costUkraine-Russia conflict impacting production and distribution of key materials(e.g.neon and palladium)fueling continued market shortages and more supply

71、 chain disruptions for automakers.Microchip shortage still exists,but manufacturers are starting to get some relief.Higher energy costs have not had a material impact on vehicle miles travelled.Personal Auto insurers margins are under the pressure of higher loss costs and limited rate increases appr

72、oved by regulators.Rate increases are projected to catch up with loss inflation by end of 2024,depending on state mix393940Microchip Shortages-Micro-chip production,and many of the key components needed to build them,has been hit hard in the recent past but the industry is getting relief and product

73、ion facilities planned in the US by 2028Gas Prices-Gas price has risen to historical levels but appears to have stabilized somewhat.Reduced miles driven does not appear to have materialized to any significant degree while gas prices were at their highest.Hybrid work/remote work has dampened work tra

74、vel and changed busy periods on major roads,but overall miles driven have not dropped in any material way.Supply Chain-Continued supply chain issues creating increased loss costs,longer wait times for parts and increased cost of those parts.Rental cars are needed longer while repair work is being do

75、neOverall ImpactInflation Wage,Medical,&Social.Number of medical procedures increasing,and they are being ordered faster.Worker shortages driving wage inflation,trucking hit especially hard.Social inflation continues to create adverse development,even in the personal lines spaceAdvanced Technology-A

76、DAS features should continue to help with frequency and severity on the liability side,but for first party covers,these features make cars more expensive to fix,increasing comprehensive loss costs.Adoption will be slower than projected due to car shortages.Average age of vehicles continues to go up

77、which slows adoption of ADAS features overall.Rate Changes-Commercial lines carriers have achieved a lot of rate over the last decade,but nuclear verdicts continue to erode any gains.Many personal lines carriers issued refunds during the pandemic,but loss costs started to heat up in Q2 2021 and have

78、 continued to climb.Some reacted with rate increases in late 2022 and early 2023,but DOIs have been slow to approve rate increases.CA especially problematic as they are just now approving filings from 2019.More rate needed across the board.Current Auto TrendsSeveritySeverity-Severity started to incr

79、ease during the pandemic and continuing to rise.Less traffic causing less congestion and higher rates of speed.Fatality rate higher than its been in 40 years.Alcohol related accidents up.Unclear how marijuana will impact severity long term.Litigation funding coming into the personal lines space quic

80、kly.The Road Ahead42Distracted Distracted Driving.Driving.Distracted Driving is expected to continue.However,smartphone penetration has little room to increase and vehicle cockpit innovations continue to be prevalent.Telematics and Usage Based Insurance.Telematics and Usage Based Insurance.Telematic

81、s and UBI uptake continues,and should improve loss costs.Telematics heavily used in commercial motor,but hasnt produced the magnitude of savings expected.Telematics continues to grow in personal as cars become more connected.UBI became more popular during the pandemic,but insurtechs continue to stru

82、ggle with profitability.Plaintiff Attorney focus on motor and nuclear verdicts.Plaintiffs bar focus on traditional bodily injury and motor,de-sensitized and anti-corporate juries,and complexity are driving increase in large losses.Overall ImpactSoaring Repair Costs.Soaring Repair Costs.Supply chain

83、issues,worker shortages and tech advances in vehicles will continue to drive up costs.Safety Innovation&Autonomous Vehicles.Safety Innovation&Autonomous Vehicles.Highly autonomous vehicles expected in the next decade with full automation much further out.Average age of a vehicle increasing since the

84、 1990s has risen steadily.AV will trickle into the population,more slowly now than ever,delaying full benefits.Fully Autonomous vehicles,bot vehicles,being piloted for delivery services for small radius trips.Ride Share&Micromobility.Ride Share&Micromobility.Ride share is the norm,but profitability

85、has been elusive.Micro-mobility gaining popularity(scooters)but understanding the exposures and properly underwriting them has proven to be difficult.Future Auto TrendsCyber.Cyber.Cyber is not expected to be a covered motor exposure,but in the case of a mass hack creating an aggregate event,Motor wi

86、ll be expected to respond initially with ultimate liability being sorted out in the courts over many years.Medical Inflation.Medical Inflation.Innovation and enhanced protocols are driving higher utilization of medical services,treatment costs and life expectancy,increasing severity.Plaintiffs bar a

87、lso driving up medical costs.Marijuana.Marijuana.Legalization for recreational use is expected to continue in more states.Results on loss costs unclear but will need long term studies to fully understand.43What about Umbrella?44Liability(Claims Made and Occurrence)Industry Schedule P Booked Loss Rat

88、iosImproved performance %56%58%73%97%114%119%93%60%44%55%71%66%57%62%69%72%60%67%72%77%87%113%102%77%60%51%57%60%67%66%70%74%72%61%40200220042006200820002271%65%59%67%69%71%75%72%64%64%58%62%49%51%46%116%114%101%79%61%52%75%59%69%67%69%61%62%65%

89、Key Points:The market has hardened since 2019;original rate increases and frequency reductions during the pandemic have benefited liabilityCaution around over-exuberance due to strong rates,the post-Covid environment is uncertain2020-22 looking profitable,but rate increases slowed in 2022 and 2023Th

90、e risk and competitive landscape+economic conditions will continue to challenge the industrySource:S&P Global Market IntelligenceOther Liability-Claims Made Direct&Assumed Loss&DCC RatioOther Liability-Occurence Direct&Assumed Loss&DCC Ratio45Commercial rate outlookProperty increases surge,casualty

91、short-changed(again!)Property rates drove a re-acceleration of overall commercial lines price increases,rising over 20%in 1Q23 Overall rates increased 8.8%in 1Q23,up from 8.0%in 4Q22 However,Umbrella and GL rate increases continue to moderate,reinforcing concern that loss trends exceed rate levelsUS

92、 commercial insurance rate changesSources:CIAB,Swiss Re Institute-1001020301Q111Q131Q151Q171Q191Q211Q23Commercial PropertyCommercial AutoGeneral LiabilityUmbrellaMarineWorkers Compensation46Medical Inflation rising and expected to persist above pre-Covid AverageThe medical sub-components in CPI show

93、 an incomplete picture(wage effect)Source:Bloomberg,Swiss Re InstituteSource:Bloomberg,Swiss Re InstituteUS medical sub-components in CPIy-o-y%change-4-202468May-13May-15May-17May-19May-21Medical products(pharmaceutial products),appliances,equipementHospital services(impatient)Source:US BEA,Swiss Re

94、 InstituteUS Healthcare Expenditure(HCE)annual growth,%024681012Jan-07Jan-11Jan-15Jan-19Jan-2347Claims inflation drivers Social InflationSocial Sentiment Low confidence in big business Erosion of trust in US institutions,especially by millennials Rising inequalityPlaintiffs Bar Highly coordinated Ap

95、ply psychological tactics(reptile theory)Attorney advertising Systematic use of data and analyticsLitigation Funding Provision of capital by a third party in exchange for a share in the proceeds Amplifies some of the other drivers of social inflation Emotions and beliefs impact jurors decisions Tren

96、d towards more plaintiff-friendly attitudes Generational shift Social media influenceExpanding Liability Theories Expanding liability theories like public nuisance applied to casualty losses;bounty laws Assignment of benefitsJuries48High severity claims are stuck in the Post-Covid court backlog Expe

97、ct more nuclear verdicts to follow as social inflation picks up againCivil case filings in state courts dropped 28%during the pandemic.However,casing filings for insurance relevant tort cases only dropped 6.5%.Filing dynamics differ significantly by stateImpact:Tort case filings dropped far less tha

98、n what would be expected from the impact of the pandemic.Expect those cases to work their way through the court system over the next years.Share of GL verdicts 5mSource:Thomas Reuters Westlaw,Swiss Re InstituteSource:Thomas Reuters Westlaw,Swiss ReOnly minor drop in tort filingsSignificant court cas

99、e backlogSocial inflation trends pick up againSource:Thomas Reuters Westlaw,Swiss Re InstituteCourt closures during the pandemic lead to the build-up of a significant case backlog.We expect the backlog to have grown by approx.50k cases during the pandemic and will take 1.5 to 3 years to clear.Nuclea

100、r verdicts have significantly decreased during the pandemic.Impact:While settlement conditions were favorable for small/mid-size claims,high severity claims remain stuck in the court system.Claims duration has increased.The reprieve on social inflation trends from the shutdown appears to be over.The

101、 proportion of large verdicts is escalating again,following pre-pandemic trends.The drivers underlying social inflation have not abated,propensity to sue is increasing and our outlook remains negative.Impact:Expect continued pressure from social inflation on the high severity case backlog flowing th

102、rough the court system.200000350202006+5.8%-0.5%+4.9%-3.3%Filed tort cases in State Courts(in 1,000)200620082003%9%0%8%10%11%12%+54%-201/1/20221/1/20211/1/20231/1/20241/1/2025-60-50-40-30-100Backlog build-up5%case load increase10%case load incre

103、aseBacklog build-up and dig-out(in 1,000 cases)ActionsPrudent portfolio steering considering current UW uncertaintyCosting parameters must adequately reflect social inflation trendsLags should be adjusted to reflect longer claim durationExperience costing should consider that pandemic years probably

104、 appear better than they are49California:Large case clearance rate at all-time low,Court backlogs persistFiling dynamics differ significantly by state,dropping by 6.5%countrywide vs.8.8%in California during CovidFurther variation exists by size of case.All sizes decreased;small by 151%,medium by 17%

105、,and large by 3%Impact:Even the pandemic didnt dampen litigation for large claims in CAClearance rate for cases between$10K and$25K in value(%)Source:State of California Court System,Court Statistics ProjectOnly minor drop in tort filingsCA small cases clearance rateCA medium cases clearance rateDis

106、position rates fell slightly during the pandemic leading to a small increase to the backlog of open cases.Once courts reopened,clearance rates increased to 143%.Impact:99%of small cases are settled before reaching trialDisposition rates for medium claims fell to a greater degree than small claims.Th

107、e clearance rate for medium claims has not exceeded 100%since 2016 and was 91%in 2022.Dispositions declined by 60%between 2019 and 2022.Impact:Medium claims taking longer to progress through litigation leading to higher claims values.Zoom in:Filed tort cases in CA vs the US(indexed:2014=1)Clearance

108、rate for cases less than$10K in value(%)5075022CA large cases clearance rateDisposition rates for“Unlimited”cases(damages greater than$25K)have fallen the most.The current clearance rate is just 74%.Impact:Low clearance rates combined with minimal reduction to case filings in t

109、his category=longer tail,masked severity and greater uncertainty.200200.61.01.41.82.2CaliforniaUSFloridaIllinoisNew YorkTexas2002250Clearance rate for cases greater than$25K in value(%)2002250Source:Thomas Reuters Westlaw,Swiss Re InstituteNote:

110、clearance rate=total dispositions/total filings50Texas:Larger cases progressing,court backlogs reducing,severity increasingFiling dynamics differ significantly by state,dropping by 6.5%countrywide,while Texas tort filings increased by 2.4%(!)Filings for small/medium cases remained stable,while filin

111、gs for large cases increased by 5%Impact:Even the pandemic didnt dampen litigation for large claims in TXClearance rate for cases greater than$25K in value(%)Increasing tort filingsTX small/medium cases clearance rateTX large cases clearance rateDuring the pandemic small/medium cases saw a small dec

112、rease in clearance rates.These cases comprise approximately 75%of total tort case filings since 2015.Once TX courts adjusted,smaller cases were cleared from the docket very quickly.Impact:Sm/Med cases are adjudicated in roughly 12-18 months after filing.Large cases can take an additional 24 months t

113、o adjudicate.Large case clearance rates were stable to slightly increasing towards the end of 2021.Clearance rates start from a low level of only 75%from 2016-2020 with the overall clearance never exceeding 100%since prior to 2015.Impact:Clearance rates have accelerated by 21%to 91%YE 2022 suggestin

114、g increased severity as larger claims are resolvedZoom in:Filed tort cases in TX vs the US(indexed:2014=1)Clearance rate for cases less than$25K in value(%)5075022200200.61.01.41.82.2CaliforniaUSFloridaIllinoisNew YorkTexas2002250Source:Thomas R

115、euters Westlaw,Swiss Re InstituteOther notable state developmentsNote:FL and NY tort cases are not stratified by damage amounts.All torts are lumped togetherThe clearance rate in FL courts for all tort cases dropped 153%during the pandemic,while filings dropped by only 8%Data for New York is only th

116、rough YE 2021.Clearance rates fell by 45%through the pandemic while filings only decreased by 3%Other states reported varying clearance rates from 2019-2021,ranging from 145%(HI)to just 2%(SC)These numbers are just a snapshot of the nuances in the US state court system,making accurate lag selections

117、 very challenging51Adverse development from this line during CY2022 came mainly from the problematic 2016-2019 accident years where social inflation is biting and liability policy limits were still substantial.Our work suggests that there could be more adverse development from 2019(our L/R is 2.2 po

118、ints above the booked figure).But more problematic are two observations:1)The diagonal is consistently red;a sign to us that inflation for wage,labor,and medical costs(the stuff of liability claims)is outstripping the provisions embedded in development factors.And 2)We think the ultimate L/Rs for AY

119、21 and 22 are 2-3 points higher than booked.Our provision for accelerated inflation is$5.7 bil,which accounts for most of this L/R difference.Dashboard:Other Liability-OccurrenceSource:2023 S&P Global Market Intelligence,Assured Research52Navigating an Uncertain Casualty Landscape SIGNAL CHALLENGE A

120、CTIONProlonged duration for medium-large claims Lengthen loss development patternsClaims durationPossible wave of large verdictsReserving and Costing parameters need to reflect the new realityNuclear verdictsExplosive mix of economic and social inflationHigher trend factors and a priori loss ratiosU

121、ncertaintyPropensity to litigate is up,driven by aggressive advertising of the plaintiffs barReflect in forward looking trend parametersClaims filingsRecent years may look better than they are due to court backlogsCautious approach in releasing reserves due to favorable experience“Green diagonal”535

122、4Legal notice2019 Swiss Re.All rights reserved.You may use this presentation for private or internal purposes but note that any copyright or other proprietary notices must not be removed.You are not permitted to create any modifications or derivative works of this presentation,or to use it for comme

123、rcial or other public purposes,without the prior written permission of Swiss Re.The information and opinions contained in the presentation are provided as at the date of the presentation and may change.Although the information used was taken from reliable sources,Swiss Re does not accept any respons

124、ibility for its accuracy or comprehensiveness or its updating.All liability for the accuracy and completeness of the information or for any damage or loss resulting from its use is expressly excluded.5555Questions?56Thank you!Jennifer StevensSVP,Head of Regional Casualty Treaty Underwriting and North America Liability Portfolio Owner Swiss ReJennifer_S1-312-821-4150Rebecca BredehoeftSVP,North America Motor Portfolio OwnerSwiss ReRebecca_B1-816-702-3177Marni NovackActuarial Manager Verisk Underwriting SolutionsMarni.N1-201-469-2276