2017 Industry Trends and Challenges

Commercial Property

Market Share Report Commercial Multi Peril Year TX Premium (millions) TX Loss Ratio US Loss Ratio 2016 $2,662.6 87.1% 50.9% 2015 $2,674.3 48.1% 45.4% 2014 $2,601.8 50.0% 49.2% $180 million profit but losses in last two quarters TRIA Renewal Written Premium Growth: -0.43%

Red is 4” hail, Yellow is 2” hail, Orange is 3” hail

Unscheduled Building Property – Tenants Policy CP 14 02 09 17 Covers Building Glass With a Limit Covers All Other Property With a Limit Other Property Includes Fixtures and Permanently Installed Machinery & Equipment ACV or Replacement Cost

Business Auto

Market Share Report Business Auto Year TX Premium (millions) TX Loss Ratio US Loss Ratio 2016 $3,111.0 78.4% 69.1% 2015 $2,983.0 70.7% 65.9% 2014 $2,785.6 66.0% 64.1% Written Premium Growth: 4.3%

Business Auto Prepare Your Customers for Rate Increases Underwriting May Become More Restrictive Understand the Full Impact of Driver Exclusions Consider Leveraging Other Lines at Renewal

Workers Compensation

Market Share Report Workers Compensation Year TX Premium (millions) TX Loss Ratio US Loss Ratio 2016 $2,364.9 40.1% 54.2% 2015 $2,741.9 44.2% 58.5% 2014 $2,843.8 46.2% 60.5% Up only 6% Through September of 2014 Written Premium Growth: -13.75%

Workers Comp Rates California 3.48 Connecticut 2.87 New Jersey 2.82 New York 2.75 Alaska 2.68 36. Texas 1.61

Lost Costs Declining 2017 2016 2015 Air Conditioning 1.68 1.89 2.09 Carpentry NOC 2.94 3.17 3.54 Lawn Maintenance 1.44 1.51 1.73 Oil or Gas Well Servicing 4.39 4.65 5.04 Store Retail NOC .81 .85 1.07 -15.5% -10.4%

Other Market Indicators

Surplus Lines – 2016 Fire & Allied Lines up 2.36% General Liability down .67% Multi-Peril down 1.87% Commercial Auto Liability up 40.25% Premium Exceeded $5 billion Overall Growth 7.15%

Surplus Lines – 8/31/2017 Fire & Allied Lines up 12.36% General Liability up 5.51% Multi-Peril up 14.33% Commercial Auto Liability up 56.95%

Personal Lines

Market Share Report Homeowners Year TX Premium (millions) TX Loss Ratio US Loss Ratio 2016 $8,474.8 87.0% 52.6% 2015 $7,994.1 53.3% 50.2% 2014 $7,860.7 46.2% 49.6% 23% increase in two years $911 million underwriting profit through September 2015

Red is 4” hail, Yellow is 2” hail, Orange is 3” hail

2017 Factors No Major Hailstorms Harvey Wind Claims - $3 Billion Most Property Claims Will Involve TWIA and NFIP - $11 Billion Serve as a Reminder to Companies About Texas Weather

Trends Rate Increases Indications As High as 20% But Most Companies Taking Less than 10% Surplus Lines HO up 21% through August ACV Roof Options

Personal auto

Market Share Report Personal Auto Year TX Premium (millions) TX Loss Ratio US Loss Ratio 2016 $19,180.8 79.8% 72.0% 2015 $17,512.5 72.1% 68.7% 2014 $16,314.5 65.6% 66.0% Underwriting Profit of $379 million through September – 2% Written Premium Growth: 9.5%

Harvey Much Larger Personal Auto event for Insurance Carriers ICT estimates Auto 160,000 claims filed as of 9/12. Damage estimates from $2.5 billion to $5 billion

Legislative Issues

Surplus Lines Freedom HB 1559 Creates Industrial Insured Exemption similar to Exempt Commercial Purchaser but smaller risks Eligible for Surplus Lines if Premium in Last 12 Months is $25,000 or employs 25 full time employees and Insured Retains a Qualified Risk Manager “Qualified Risk Manager” employed or retained

Notice of Coverage Change SB 417 Personal Lines Issue Notification Must Be Given to Agents and Consumers of Policy Changes Prior to Renewal Notification Must Be in Plain Language Companies No Longer Have to Send Non-Renewal Notice For Policy Change

TWIA Reciprocity HB 3018 Louisiana Wind Pool Did Not Allow Access By Texas Agents Gives TWIA the Authority to Do the Same for Any State that Restricts Access By Texas Agents Known as the “Don’t Mess With Texas Agents” bill

Property Loss Litigation HB 1774 Primarily HO Issue but Impacts Commercial 10,000 Lawsuits Filed After 2012 Hail Storm in Hidalgo County In the Valley, 30% of All Claims Involved an Attorney Most Filed Without Notice to Insurer Alleging Additional or Hidden Damage

Legislative Change Requires 60 Day Written Notice to Carrier Prior to Filing Suit Insurer Has Right to Inspect After Notice Company Can Choose to Defend Adjuster and Agent 80/20 Approach to Fees

Hurricane Harvey Update IIAT Dealing With Misinformation HB 1774 – TTLA rumor regarding filing claims Change applies to “actions” after 9/1/17 FEMA Rumors Required “denial letter” before filing for FEMA assistance or filing claim with NFIP Lack of Flood Coverage Estimate is that only 15% of homes in Houston have Flood Coverage

Hurricane Harvey Update Adjuster Turnover Hurricane Irma in Fla. Florida windpool paying more than TWIA IIAT Support Financial support for Victoria and Rockport IIABA Foundation efforts for IIAT members and employees

2017 Best Practices Benchmarks < $1,250,000 Revenues http://www.reaganconsulting.com/research/best-practices/

Growth Organic Growth: 4.4% Retention: 93% New Business Growth: 12% Revenue per Account: CL: $918

Productivity Revenue per Employee: $118,214 Revenue per CL staff: $247,767 Revenue per PL staff: $206,196 Revenue per L/H staff: $40,813 Revenue per employee: Best measure of agency productivity when comparing. As you break down into departments, comparisons are less meaningful Spread: Provides a measure of how well employee talent is being leveraged. Overhead Cost: Decrease or stable over time means you are gaining economies of scale Servicing Cost: An increase over time means that servicing costs are rising at a faster pace than revenues

Balance Sheet Trust ratio: 2.63 Average collection period: 16 days Receivables/payables ratio: 50.8% Trust ratio: If less than 1.0, you’re spending carrier premiums Receivables ratio: If above 1.0, you’re advancing funds Current ratio: Liquidity necessary to meet short-term liabilities Working capital: Measures your ability to meet daily cash expenses Average Policy Cost: Helps you determine how small is too small

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