1、The Impact of Monetary Policy on Insurance Performance:A Forward ViewMay 15,20232Triple-I Dr.Michel Leonard for CAS|06 05 2023$2,231Triple-I Dr.Michel Leonard for CAS|06 05 202334Triple-I Dr.Michel Leonard for CAS|06 05 20235Triple-I Dr.Michel Leonard for CAS|06 05 2023Triple-I Monetary Policy Outlo
2、ok-UPDATEFederal Funds Rate Projected Appropriate Policy Path(Median)Federal Reserve Board of Governors2022(June)2022(Dec)20232024Longer RunBoard LeansDovishDovishHawkishHawkishHawkishMarch 2022 1.0%1.9%2.8%2.8%1.6%2.4%December 20210.3%0.9%1.6%2.1%0.6%0.9%FMOC Statement May 04,2022Deciphering“Fed Ta
3、lk”Although(negates)economic activity edged down in first quarterHousehold spending and business investment remained strongunemployment rate has declined substantiallyInflation elevated(but)related to the pandemic,higher energy prices,and broader price pressuresUkraine upward pressure on inflation l
4、ockdowns in China exacerbate supply chain disruptions.The Committee is highly attentive to inflation risks(no mea culpa)6Triple-I Dr.Michel Leonard for CAS|06 05 20237Triple-I Dr.Michel Leonard for CAS|06 05 20238Triple-I Dr.Michel Leonard for CAS|06 05 20239Triple-I Dr.Michel Leonard for CAS|06 05
5、202310Triple-I Dr.Michel Leonard for CAS|06 05 202311Triple-I Dr.Michel Leonard for CAS|06 05 202312Triple-I Dr.Michel Leonard for CAS|06 05 202313Triple-I Dr.Michel Leonard for CAS|06 05 202314Triple-I Dr.Michel Leonard for CAS|06 05 2023Triple-I Dr.Michel Leonard for CAS|06 05 2023Replacement cost
6、s for all P&C lines increased 40.42%from 2019 to 2022-even after the recent decreases in U.S.CPI.Cumulative P&C Replacement Costs Increases(Yo3Y%2019-22)All P&C Lines:40.42%Homeowners:55.44%Private Auto:45.56%Commercial Property:39.85%Chart of the Week 03 27 2023 Cumulative P&C Replacement Cost Incr
7、eases from 2019 to 2022All P&C and Key Lines(YoY%and Yo3Y%)6.44%3.89%2.38%0.72%14.10%20.35%11.54%16.41%15.61%24.31%27.46%19.27%4.26%6.88%4.17%3.44%0.00%10.00%20.00%30.00%40.00%50.00%60.00%All ItemsHomeownersPrivate AutoComl Property2020 YoY2021 YoY2022 YoYCompound 2020-2022(Yo3Years)40.42%55.44%45.5
8、6%39.85%Cumulative Replacement CostsSupply chain improving,labor costs to remain elevated,geopolitics main inflation driver1516Triple-I Dr.Michel Leonard for CAS|06 05 2023Commercial Property(Change YoY%)2022202320242025Underlying GDP Growth3.9%2.8%1.5%1.8%Real Estate,Rental&leasing3.5%2.6%1.7%1.7%A
9、ll Employees Commercial Buildings4.6%3.0%1.2%2.0%Replacement Costs0.7%0.3%1.3%1.4%Construction Materials-2.6%-1.6%2.4%3.0%Equipment&Other Capital Goods9.4%5.2%2.6%2.1%Information Technology Prices-4.6%-2.6%-1.1%-1.0%The commercial property market is slowing down while materials and equipment replace
10、ment costs are returning to pre-pandemic levels bringing down overall P&C replacement costsCommercial Property Non-Liability Macroeconomic Drivers16Triple-I Dr.Michel Leonard for CAS|06 05 2023Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-I-6%-4%
11、-2%0%2%4%6%8%10%12%14%16%02040608096 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Commercial Multi-PerilCombined RatioNet Written PremiumCombined Ratio and Net Written PremiumCombined Ratio(p.a.%)NWP Change(YoY%)Free Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandem
12、ic(2020-21)Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IRates and Key Replacement Costs Inflation Inflation (YoY%)Rate(p.a.%)Free Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)CR relationship to materials prices stronger
13、than to equipments(expected)NWP relationship to material prices stronger than to equipments(expected)CR performance less related to inflation volatility than other lines(unexpected)Shaded areas colors identify inflation cycles.They do not indicate inflation range or scale during each cycle.-10%-5%0%
14、5%10%15%20%25%30%35%80420052006200720082009200001920202021Commercial Multi-PerilRates CMPInf Construction EquipmentInf Construction MaterialsCommercial Property Performance through Economic Cycles1718Triple-I Dr.Michel Leonard for CAS
15、|06 05 2023Homeowners(Change YoY%)20225Underlying GDP Growth-11.36%3.19%3.80%3.95%Housing Units Starts-13.00%3.20%4.18%4.18%All Construction Employment6.80%3.74%3.78%4.10%Retail Trade-14.70%2.63%3.04%3.34%Replacement Costs13.39%3.21%1.74%2.12%Shelter3.20%4.14%3.33%3.35%Household Furnishin
16、g&Supplies4.80%2.09%-0.60%-1.15%Construction Materials22.77%3.40%2.49%4.17%Homeowners Key Macroeconomic DriversTriple-I Dr.Michel Leonard for CAS|06 05 2023Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-I0%2%4%6%8%10%12%14%16%0204060809
17、622004200620082001620182020HomeownersCombined RatioNet Written PremiumCombined Ratio and Net Written PremiumCombined Ratio(p.a.%)NWP Change(YoY%)Free Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)Rates and Key Replacement Cost Inflation Inflation (YoY%)Ra
18、te(p.a.%)Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IFree Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)CR relationship to durables prices stronger than to shelters(unexpected)NWP relationship to durables prices stronger
19、 than to shelters(unexpected)CR outperforming during low inflation volatility as opposed to CPI trend(expected)Shaded areas colors identify inflation cycles.They do not indicate inflation range or scale during each cycle.-4%-2%0%2%4%6%8%10%12%14%804200520062007200820
20、09200001920202021HomeownersRates HomeownersInf:ShelterInf:DurablesCommercial Property Performance through Economic Cycles1920Triple-I Dr.Michel Leonard for CAS|06 05 2023All Auto(Change YoY%)2022202320242025Underlying GDP Growth4.1%5.1%5.0%7.1%All Auto&Parts Retail S
21、ales3.9%4.4%4.6%7.2%Total Private Expenses4.6%6.4%5.8%7.0%Replacement Costs2.4%1.4%2.0%1.9%All New Vehicles5.9%3.9%1.9%1.5%All Used Vehicles-8.6%-5.1%1.4%2.1%All Parts&Equipment9.9%5.4%2.6%2.0%Increases in costs of vehicles and repairs are slowing down but unlikely to make up for deteriorating drivi
22、ng trendsAll Auto Key Macroeconomic DriversTriple-I Dr.Michel Leonard for CAS|06 05 2023-4%-2%0%2%4%6%8%10%0204060801001201996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Personal AutoCombined RatioNet Written PremiumCombined Ratio and Net Written PremiumCombined Ratio(p.a.%)NWP Chang
23、e(YoY%)Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IFree Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)Rates and Key Replacement Cost Inflation Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout
24、;Chart&Analysis:Triple-IInflation (YoY%)Rate(p.a.%)Free Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)CR relationship to used auto prices stronger than to new autos(unexpected)NWP relationship to new auto prices stronger than to used autos(expected)CR performance more related
25、to overall growth than to inflation volatility(expected)Shaded areas colors identify inflation cycles.They do not indicate inflation range or scale during each cycle.-15%-10%-5%0%5%10%15%20%25%30%35%80420052006200720082009200001920202
26、021Personal AutoRates Personal Auto(PD&L)Inf:New AutoInf:Used AutoPersonal Auto Performance Through Economic Cycles21Triple-I Dr.Michel Leonard for CAS|06 05 2023-20%-10%0%10%20%30%40%50%60%02040608096 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Commercial Auto Combined Rat
27、ioNet Written PremiumCombined Ratio and Net Written PremiumCombined Ratio(p.a.%)NWP Change(YoY%)Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IFree Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)Rates and Key Replacement Cos
28、t Inflation Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IInflation (YoY%)Rate(p.a.%)Free Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)CR relationship to used auto prices stronger than to new autos(unexpected)NWP relation
29、ship to used auto prices stronger than to new autos(unexpected)CR performance shows limited relationship to inflation volatility or overall economic growth(unexpected)Shaded areas colors identify inflation cycles.They do not indicate inflation range or scale during each cycle.-15%-10%-5%0%5%10%15%20
30、%25%30%35%80420052006200720082009200001920202021Commercial Auto Rates Commercial Auto(PD&L)Inf New VehiclesInf Used VehiclesCommercial Auto Performance Through Economic Cycles2223Triple-I Dr.Michel Leonard for CAS|06 05 2023General Li
31、ability(Change YoY%)2022202320242025Growth2.0%1.5%1.6%2.1%Retail Trade6.8%4.4%2.8%2.9%Finance&Insurance Sector-2.7%-1.3%0.4%1.4%Cost Basis4.5%2.2%1.5%1.5%Medical Care Commodities3.2%1.3%1.1%1.4%All CPI Items Less Food&Energy5.7%3.0%1.9%1.6%Retail trade activity collapses,contributing to reduction in
32、 exposure drivers,and unlikely to make up for social inflation impact General Liability Key Macroeconomic Drivers23Triple-I Dr.Michel Leonard for CAS|06 05 2023Free Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)-10%-5%0%5%10%15%20%25%02040608001801996 1998 2000 2002
33、 2004 2006 2008 2010 2012 2014 2016 2018 2020Medical LiabilityCombined RatioNet Written PremiumCombined Ratio and Net Written PremiumCombined Ratio(p.a.%)NWP Change(YoY%)Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IRates and Key Replacement Cos
34、t Inflation Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IInflation (YoY%)Rate(p.a.%)Free Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)CR has weaker relationship to related CPI components than other lines(expected)NWP rel
35、ationship to medicals services prices stronger than to medical commodities(expected)CR outperforming during expansionary economic cycles(expected)Shaded areas colors identify inflation cycles.They do not indicate inflation range or scale during each cycle.-8%-6%-4%-2%0%2%4%6%8%81999200020
36、00420052006200720082009200001920202021Medical LiabilityRates General LiabiltyInf:Medical ServicesInf:Medical CommoditiesMedical Liability Performance Through Economic Cycles2425Triple-I Dr.Michel Leonard for CAS|06 05 2023Workers Compensation(Change YoY%)2
37、022202320242025Growth:Payrolls4.3%2.1%0.7%1.2%Cost Basis:Total Wages and Salaries3.4%1.6%0.5%1.2%Payrolls growth slows down regardless of resilient employment numbers;compensation drops regardless of historically high inflationWorkers Compensation Key Macroeconomic Drivers25Triple-I Dr.Michel Leonar
38、d for CAS|06 05 2023-15%-10%-5%0%5%10%15%20%02040608096 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Workers CompensationCombined RatioNet Written PremiumCombined Ratio and Net Written PremiumCombined Ratio(p.a.%)NWP Change(YoY%)Source:Economic Data FRED NWP&Combined Ratio D
39、ata:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IFree Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)Rates and Key Replacement Cost Inflation Source:Economic Data FRED NWP&Combined Ratio Data:S&P;Rates Data:Market Scout;Chart&Analysis:Triple-IInflation (YoY%)Rate(p.a.%)Fr
40、ee Money(1983-2006)Lehman(2007-2009)Recovery(2010-2019)Pandemic(2020-21)CR relationship to payrolls stronger than to wages(neutral)NWP has is driven by both payroll and wages(expected)CR performance shows limited relationship to inflation volatility or overall economic growth(unexpected)Workers Comp
41、ensationShaded areas colors identify inflation cycles.They do not indicate inflation range or scale during each cycle.-8%-6%-4%-2%0%2%4%6%8%10%80420052006200720082009200001920202021RatesWagesPayrollsWorkers Compensation Performance Th
42、rough Economic Cycles26Final TakeawaysMonetary policy choked P&C growth and delayed recovery to at least Q4Improving replacement costs insufficient to make up for adverse underwriting trendsHard market conditions continue to push premium growth higher Triple-I Dr.Michel Leonard for CAS|06 05 2023ECO
43、NOMICS.III.ORGQuarterly Outlook|Dashboard|The Dailys Weekly Chart|Webinars|Podcastsiii.org110 William StreetNew York,NY 10038iiiorg30Triple-I Dr.Michel Leonard for CAS|06 05 2023Inflation(YoY%)15.00%12.50%10.00%7.50%5.00%2.50%0%-2.50%Chair:*Year:Decade:*McCabeSplines:(1979-1982)(1983-2006)(2007-2009
44、)(2010-2019)(2020-2021)Sp.1Spline 2Spline 3Spline 4Sp.5Spline -2021Lehman Pandemic Free Money Recovery Stagflation0-2021 20202010200019-2021YellenPowellMartinBurnsMillerVolckerGreenspanBernanke50--19751978-80STATISTICAL SPLINES|1950 to 2022Visualized by decade,year,and FRB ChairForced division of Cycle(“spline”)6 but not statistically significantInflation Cycles&P&C Replacement Costs
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