1/18/2023 Making Sense of the Headlines: Market Insights for 2023 with Dr. Robert Hartwig

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1/18/2023 Making Sense of the Headlines: Market
Insights for 2023 with Dr. Robert Hartwig
(SPEECH)
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A title appears on a laptop: Wednesdays with Woodward (registered trademark) Webinar Series. To the
right of the laptop, a red mug features a Travelers umbrella logo.

(SPEECH)
JOAN WOODWARD: Good afternoon. And thank you for joining us. I'm Joan Woodward, President of the
Travelers Institute. And I'm delighted to welcome you back to our program this afternoon.

Before we get started, I'd like to share our disclaimer about today's webinar.

(DESCRIPTION)
Text, About Travelers Institute (registered trademark) Webinars. The Wednesdays with Woodward
(registered trademark) educational webinar series is presented by the Travelers Institute, the public policy
division of Travelers. This program is offered for informational and educational purposes only. You should
consult with your financial, legal, insurance or other advisors about any practices suggested by this
program. Please note that this session is being recorded and may be used as Travelers deems
appropriate. Wednesdays with Woodward (registered trademark) Webinar Series, Making Sense of the
Headlines: Insurance Market Insights for 2023 with Doctor Robert Hartwig. Logos: Travelers Institute
(registered trademark), American Property Casualty Insurance Association (service mark), Connecticut
Business & Industry Association, Risk and Uncertainty Management Center at the University of South
Carolina’s Darla Moore School of Business, MetroHartford Alliance.

(SPEECH)
And also, I'd like to thank our partners for today's program: the MetroHartford Alliance, the American
Property and Casualty Insurance Association, the Risk and Uncertainty Management Center at the
University of South Carolina's Darla Moore School of Business, and the Connecticut Business & Industry
Association. Welcome, all.

We know that many of you joining us today think a lot about risk. Maybe you manage risk directly for your
business or you're working in the insurance industry, helping others to manage their risk. Either way, I'm
sure you'll agree, risk professionals from all sides of the business need to have a laser focus on the
macroeconomic picture, everything from inflation, supply chain, interest rates and the red-hot job market.

© 2023 The Travelers Indemnity Company. All Rights Reserved.

(DESCRIPTION)
In photos, speakers smile. Text: Speakers. Joan Woodward, Executive Vice President, Public Policy,
President, Travelers Institute, Travelers. Robert Hartwig, Ph.D., Director, Risk and Uncertainty
Management Center; Clinical Associate Professor, Darla Moore School of Business, University of South
Carolina.

(SPEECH)
Today we're really thrilled to welcome back to our show Dr. Robert Hartwig for an hour of impactful
business insights, bringing together the most pressing trends in the insurance industry today and helping
us all to dig beyond the headlines and to really understand what's going on and the horizon in 2023. So,
Dr. Hartwig is the Director of the Risk and Uncertainty Management Center at the University of South
Carolina's Darla Moore School of Business. He also serves as a Clinical Associate Professor of Finance.
He's also just joined the Federal Reserve Board's Insurance Policy Advisory Committee for a three-year
term. And we're going to look forward to hearing about that new position later in our program.

Dr. Hartwig's research focuses on insurance markets and structures, risk management, risk-bearing
capital market instruments, and the financing of technology risks and venture capital in the insurance
markets. That's a lot, folks. Many of you may know his prior work as President and Chief Economist for
the Insurance Information Institute, or the III, which is an organization that empowers consumers by
providing insights and information about insurance. He's a hugely sought-after speaker in the insurance
industry and has testified before a number of congressional as well as state legislative committees.

So we're really lucky to have him with us today.

(DESCRIPTION)
Making Sense of the Headlines: Insurance Market Insights for 2023. Wednesdays with Woodward
Webinar, Travelers Institute, January 18, 2023. Robert P. Hartwig, Ph.D., C.P.C.U., Clinical Associate
Professor of Finance, Risk Management & Insurance. Darla Moore School of Business, University of
South Carolina. Robert dot Hartwig at moore dot sc dot edu. 8. 0. 3. 7. 7. 7. 6. 7. 8. 2. Logo: University of
South Carolina Darla Moore School of Business.

(SPEECH)
We're going to open with Bob's signature 85 slides-- no, I'm just kidding, but about a 30-minute
presentation for us from Bob. And then we're going to come back together for a discussion and questions.
I know you're going to have plenty of questions for Bob. I do. And I promise to get to as many as I can. So
drop those in the Q&A.

And, Bob, we're just thrilled to have you with us today. And, as always, really looking forward to hearing
your insights.

ROBERT HARTWIG: Well, thank you very much, Joan. And my pleasure to be here, once again, on
Wednesdays with Woodward and your second webinar of the 2023 season. And 2022 was an

extraordinary year. 2023 is going to be another extraordinary year. We're only two weeks into it and I can
already tell.

And that's kind of the subject of today's presentation. I mean, there are a lot of headlines out there that
can often be confusing, contradictory to one another. And so I'm going to kind of give you a quick lay of
the land of what's going on with the economy, with financial markets and so forth, and what that all means
for the property casualty insurance industry.

(DESCRIPTION)
Text: P/C Insurance Overview & Outlook: Outline. Economic Overview & Outlook, Impacts for P/C
Insurers. Growth, employment, inflation, recession. Inflation: Where it Is Headed & What It Means for P/C
Insurers. Impacts on claim severities and loss ratios. Long-term inflation considerations. P/C Financial
Overview & Outlook in the Post-COVID, High-Inflation Era. Premium growth, underwriting performance,
investment performance. Legal System Abuse (Social Inflation) Overview. Summary and Q&A.

(SPEECH)
So let's just kind of plow ahead and talk about where the economy is today and where it's likely headed.
And, of course, there's been a lot of discussion over the past year or a year and a half about inflation, how
much of a threat is that in the year ahead? And speaking of threats, the question of recession, is a
recession looming? Is a recession inevitable? Or will the Fed successfully engineer a soft landing?

And then we'll drill back and take a look at what all this means for the property casualty insurance industry
in terms of growth, underwriting performance, investment performance, and those other things that are
very, very important to each and every insurer in this industry. And we'll talk about a couple of special
issues that are really problematic right now, including legal system abuse and social inflation issues. And
then we should have the time, again, as you mentioned, for some Q&A at the end.

(DESCRIPTION)
Economic Overview: Economic Optimism Plummeted in 2022, Inflation & Unemployment are Key in 2023.
Inflation, geopolitical conflicts and rising interest rates are weighing heavily on business and consumer
sentiment. Can the Fed "thread the needle" and achieve a "soft landing"? A bar graph titled U.S. Real
GDP Growth charts years 2000 estimates/forecasts from Wells Fargo Securities through 24.4Q. The chart
highlights the "Great Recession" beginning in December 2007 and the financial crisis of 2008 and 2009,
followed by the COVID crash. Text: Q2 2020 plunged by 31.2%. 2021: Q4 hit 6.9% on strong consumer
spending and inventory rebuilding. For all of 2021, growth was 5.7%, the strongest since 1984.
Consensus building that aggressive Fed tightening will result in a mild recession by H2 2023. Demand for
insurance increased materially in 2021/22, particularly in economically sensitive commercial lines such as
workers compensation. Premium growth will likely slow in 2023 as economy slows. Source: U.S.
Department of Commerce, Wells Fargo Securities (12/22); Center for Risk and Uncertainty Management,
University of South Carolina.

(SPEECH)
So, let's just quickly get right into it in terms of the economy. Where is that? Well, the most recent data
suggests that we finished 2022 on a relatively strong note, even though we wound up in the first half of
the year with two quarters in a row of negative economic growth. Many people thought that meant we
were in a recession. We were not. The job market is just too strong to really suggest that at any point in
2022 we were at a recession. And we are absolutely positively not in a recession right now.

The question really is whether or not we will be in one later this year. By "later this year," I mean in the
second half of this year. So the current forecast suggests we'll have a relatively shallow recession
beginning sometime in the second half of 2023, perhaps spilling into early 2024.

The good news is, actually, that the decline in the economy, the shrinkage in the economy forecast for the
second half of this year, has actually been taken down a little bit. And that's because of some positive
news on a global scale, such as the reopening of China. Things aren't quite as bad in Europe as we
anticipated. And all of that has positive spillover effects for the United States.

(DESCRIPTION)
A line graph titled GDP Growth: Advanced & Emerging Economies vs. World, 1970 to 2024F with GDP
Growth Percent on the Y-axis and years 70 to 24F on the x-axis. A red line charts advanced economies,
a blue line charts emerging and developing economies, and a green line charts world. Text: Global GDP
increased by an estimated 2.3% in 2022 (after growing by 6.0% in 2021) but forecast to slow plus 1.7% in
2023 before rising to 2.6% in 2024. Advanced economies were estimated to grow by 2.7% in 2022 (after
rising by 5.2% in 2021), but effectively stall with growth of just plus 0.2% in 2023, accelerating to 1.3% in
2024. Emerging economies (led by China and India) grew an estimated 2% in 2022 (following growth of
6.6% in 2021) accelerating to +2.8% in 2023 and 3.5% in 2024. Source: International Monetary Fund,
World Economic Outlook (1970 to 2020); Wells Fargo Economics (2021 to 2024F) as of December 2022;
University of South Carolina, Risk and Uncertainty Management Center.

(SPEECH)
And, in fact, what's going on in the world today is a global phenomenon. Now, we've had a global
slowdown over the past year or so. And that has been led by a slowdown in advanced economies,
particularly the United States, but also places like the U.K. and in certain countries in the eurozone.

Of course, last year was a very difficult year with the Russian invasion of Ukraine driving up energy prices
and inflation. So that's been a challenge. Now, as it turns out, many European countries have done better
than expected. And again, a somewhat enhanced outlook for Europe. And with China reopening, we
would expect a little boost from that as well. So the global picture, not quite reflected in these statistics
here, is a little bit better for 2023 than we would have anticipated a little while ago.

(DESCRIPTION)
A bar graph titled U.S. Unemployment Rate Forecast: 2007 Q1 through 2024 Q4. Text: Great Recession:
Rising unemployment eroded payrolls and workers compensation's exposure base. Unemployment

peaked at 10% in late 2009. U.S. unemployment rate peaked at 14.7% in April 2020 (13.1% Q2 average).
At 3.5%, the December 2022 unemployment rate was tied with pre-COVID lows and the lowest
unemployment rate since 1969. The Fed considers "full employment" to be 4.1%. Unemployment rate
returned to pre-COVID levels in early 2022 but will rise as inflation, Fed rate hikes slow the economy.
Sources: U.S. Bureau of Labor Statistics; Wells Fargo Securities (12/22 and 10/22 editions); Risk and
Uncertainty Management Center, University of South Carolina.

(SPEECH)
The unemployment situation has actually been a very good one, and we think about exposure and
workers compensation. The unemployment rate in December of 2022 was 3 1/2%. That was tied to the
lowest since 1969. You can't argue with that.

Now, the question is, where is it headed from here? The consensus is that we will wind up with an
unemployment rate that is above 4% and close to 5% by the end of 2023 and perhaps exceeding 5% by
the first half of 2024. We'll see. I would expect this potentially to be dialed back a bit as well.

And the good news is that there is a possibility that we could avoid recession altogether. And I'll talk about
what the probability of that is in a moment.

(DESCRIPTION)
A bar graph titled Auto/Light Truck Sales, 1999 through 2024F. Text: 2009: New auto/light truck sales fell
to the lowest level since the late 1960s. Job growth and improved credit market conditions boosted auto
sales to near record levels by 2015/2016. 2022E: New vehicle purchases remain constrained by
manufacturer supply chain problems. Yearly car/light truck sales remain below pre-COVID levels. Auto
manufacturer supply chain issues are expected to linger into early 2023. PP Auto premium might grow by
3.5% to 5%. Source: U.S. Department of Commerce; Wells Fargo Securities (12/22 for 2022 through
24F); University of South Carolina Center for Risk and Uncertainty Management.

(SPEECH)
Now, we look at major sectors of the economy that are important to insurers. We can look at new auto
and light truck sales out there. Those look like bad numbers in 2022. But that's a result of supply chain
issues, which are largely becoming unkinked. So expect more auto sales as a result of some solutions
coming to the supply chain. And that's good news, and with ultimately reaching what we would expect a
pre-COVID level of auto sales by 2024. Very important for personal auto line, which accounts for 38% of
all written premiums in the property casualty insurance industry.

And differentiate this from the financial crisis, where you can see that auto sales fell off a cliff. That was
due to weakness in household finances and a collapse in the overall economy. This time, again, it's a
supply chain issue, something we can overcome.

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A bar chart titled New Private Housing Starts, 1990 through 2024 F. New home starts plunged 72% from
2005 to 2009, a net annual decline of 1.49 million units, lowest since records began in 1959. Job growth,
low inventories of existing homes, low mortgage interest rates and demographics led new home
construction to peak in 2021. - 17.5% from 2021 peak to 2023 estimate, high prices, rising mortgage
rates, lingering supply chain issues will erode new home construction activity into 2023 but no repeat of
the housing collapse that began in 2007. Insurers continue to see meaningful exposure growth in the
homeowners line as well as lines associated with home construction: construction risk exposure, surety;
commercial auto; potent driver of workers comp exposure. Source: U.S. Department of Commerce; Wells
Fargo Securities (12/22 for 2022 through 23); University of South Carolina Center for Risk and
Uncertainty Management.

(SPEECH)
On the housing side, you can see-- you did see some of a sharp decline in terms of new home
construction. By sharp, I mean about 17%. Now, that's nothing compared to the 70% or so we saw during
the financial crisis. That is essentially being engineered by the Fed in higher interest rates. To the extent
that the Fed perhaps can start to dial back rates a little sooner than we might be anticipating, perhaps late
2023 rather than 2024, we could see a little boost there because there is a lot of unsatisfied demand for
housing in the United States today, whereas demand simply evaporated back in the financial crisis.

(DESCRIPTION)
Text: Is a recession on the horizon... or has it already arrived? Deep uncertainty in terms of economic
growth in 2023. P/C insurance industry's growth prospects are tied to the overall economy.

(SPEECH)
Moving on from there, the question about recession-- that's the R word. And this is the $100 trillion
question for 2023, is will we have a recession? You can't get away from that question.

(DESCRIPTION)
A line graph titled Probability the U.S. is in a Recession Within Next 12 months, January 2017 through
October 2022. Red circles highlight a near 100% probability in April 2020, a probability below 20% in July
2021, and a probability slightly above 60% in October 2022. October 2022 survey included the responses
of 75 economists. Before COVID, economists typically assessed the risk of recession within the next 12
months at 15% to 18%. COVID: 96% chance of recession, July 2021 probability of recession falls to just
12%, October 2022 probability of recession increases to 63% from 49% in July. Recession is increasingly
likely, but still not inevitable. Source: Wall Street Journal surveys of economists.
https://www.wsj.com/articles/economists-now-expect-a-recession-job-losses-by-next-year-11665859869;
Risk and Uncertainty Management Center, University of South Carolina

(SPEECH)
And the most recent survey of a Wall Street economist by The Wall Street Journal, which just came out
the other day, about 61%, actually, 61% of economists who were surveyed in January-- and I think,

actually, there's been actually one data update since the number I'm showing you here. So number in
January was 61%. And that's down slightly from 63%.

So what does this data mean? Roughly 60% of economists think that within the next 12 months we will
have a recession. And about 40% think we will not. So there is a reasonably strong likelihood that we
could avert recession. But perhaps the most likely scenario, again, is a relatively shallow recession.

(DESCRIPTION)
A line graph titled The Economy Drives P/C Insurance Industry Premiums: 2006: Q1 through 2022. Direct
Premium Growth (All P/C lines) vs. Nominal GDP: Quarterly Year-over-Year Percent change. Premium
growth slowed in 2020 due to the COVID recession and has rebounded strongly in 2021 and 2022 with
the overall economy. Direct written premiums track nominal GDP fairly tightly over time, suggesting the
P/C insurance industry's growth prospects inextricably linked to economic performance. 2020 through
2022 figures are annual; 2022 DWP figure is preliminary. Sources: SNL Financial; U.S. Commerce
Department; Bureau of Economic Analysis, ISO, Triple I; Risk and Uncertainty Management Center;
University of South Carolina.

(SPEECH)
Now, this is important for the industry because this is an industry that is very much joined at the hip with
respect to the overall economy. So here you see in blue direct written premium growth for the property
casualty business. And you see year-over-year nominal, in other words, not inflation-adjusted GDP
growth, in other words, the pace of growth of the overall economy. You can see those are pretty tightly
correlated with one another.

So to the extent we see a deceleration in the economy in 2023, we would expect to see a deceleration in
premium growth in 2023 as well and perhaps carrying a bit into 2024. So we're not talking about a plunge
like we saw during the financial crisis. We are talking about a moderation in growth beginning really in the
second half of this year.

(DESCRIPTION)
The U.S. Inflation Threat. Inflation is the #1 concern of U.S. consumers and corporations... It's also a
major concern of insurers.

(SPEECH)
Now, the inflation threat is still with us. It's real. It was a big problem in 2022. It was the number one
concern of businesses, of consumers. And, obviously, therefore, it has implications for insurers.

(DESCRIPTION)
A bar graph titled U.S. Inflation Rate: 2009 through 2024F, Annual change in Consumer Price Index for
All Urban Consumers (CPI-U). Text: There's a great deal of concern that trillions of dollars of stimulus
plus the post-COVID recovery, supply chain disruptions and labor shortages are causing the economy to
overheat, resulting in inflation. Inflation accelerated sharply in 2021 before peaking at 9.1% in June 2022.

Inflation should moderate through 2023/24; Forecast is highly dependent of trajectory of energy prices
and Fed rate hikes. Insurer concerns about inflation: rate inadequacy, reserve inadequacy, insurance to
value. Source: U.S. Bureau of Labor Statistics; Wells Fargo Securities (12/22); USC Center for Risk and
Uncertainty Management.

(SPEECH)
We wound up 2022-- and that's no longer an estimate. The 8% is an official number. That's what it
actually came out to. And what we see is an expectation that we'll see a fairly sharp decline in 2023.

And, again, I had to send in this presentation about a week or so ago. Since then, we've had an update.
So the expectation would be in 2023, the inflation rate would actually be only about 3.4% and about 2.4%
in 2024.

So the updates that we've been receiving based on the most recent information and trends on inflation,
which came out late last week, suggest that inflation is taking a bit of a softer turn. In other words, the
inflationary trends are moderating a bit more quickly than we had originally anticipated. And that's
unambiguously a good thing.

(DESCRIPTION)
A graph titled Contribution to CPI by Category: November 2022. Text: Prices were up 7.1% in November
2022 vs. a year ago, down from the June 2022 peak of 9.1%. Energy and vehicles pulled CPI down in
November, but increases in housing, food, and other services prevented a larger drop. Source: U.S.
Department of Commerce and Wells Fargo Economics.

(SPEECH)
These are the November numbers showing the individual components of the Consumer Price Index. The
December numbers came out, were similar in that they showed the gray part of the bar, meaning energy,
pulling down the overall pace of inflation, whereas before you could see the gray bar was on top. It was
dramatically pulling up the pace of inflation.

Also pulling down inflation is such things as vehicle prices, very, very important to auto insurers and
commercial auto insurers, of course. But what's keeping inflation elevated is the cost of housing, shelter.
That's a big issue right now, although even there, there are signs of some moderation, which is good
news.

(DESCRIPTION)
A bar graph titled Inflation: Large, Immediate Impacts for Insurers. Lumber/Wood Products shows the
largest percentage of 120.0% in May 2021. Source: Bureau of Labor Statistics, ISO Fast Track data,
University of South Carolina, Risk and Uncertainty Management Center.

(SPEECH)

But no question that there have been big impacts in terms of the surge in inflation for insurers. Claim
severities across property lines, auto lines, both personal and commercial, have been increasing. Medical
inflation, with some lag, has actually been coming up or accelerating, although it's beginning to decelerate
a little bit right now, which is actually good news in the most recent data.

And, of course, this means that insurers have their work cut out for them in the sense that they have to
embed these new trends in the rates. And that takes some period of time. And if inflation were to persist,
you could ask questions whether or not there would be issues with respect to rate adequacy and reserve
adequacy. Those were big issues back in the '70s and '80s when we had inflation that was much higher
than we see today. And insurance-to-value is a concern as well. With inflation rising at a fairly rapid clip,
many risks may actually find out that they're insufficiently covered in the event that they have a total loss.

(DESCRIPTION)
A bar graph titled Inflation: A Global Phenomenon, Outlook through 2024F. The y-axis includes
percentages of -2% to 10%. The x-axis includes bars for 2019 through 2024F, for World, Advanced
Economies, Eurozone, U.S., U.K., Japan, Developing Economies, and China. Source: IMF and Wells
Fargo Securities December 2022; University of South Carolina, Risk and Uncertainty Management
Center.

(SPEECH)
Now, again, inflation, just like slow GDP growth, is a global phenomenon, 8% here in the U.S. But you
can see in the U.K. and in the EU, for instance, it's been worse than here. Of course, that's largely due to
the more substantial impact that they've taken associated with higher energy prices.

(DESCRIPTION)
A line graph titled U.S. Consumer Inflation Expectations: 1, 3 and Five Years Ahead, Survey data for 5-
year ahead series begin in January 2022. Text: Prior to COVID in 2019, consumer inflation expectations
were very stable, rising sharply beginning in May 2021. Inflation expectations are once again receding.
Sources: Federal Reserve Bank of New York, accessed at https://www.new york
fed.org/microeconomics/sce pound sign slash inflex p dash 1; Risk and Uncertainty Management Center,
University of South Carolina.

(SPEECH)
The good news, other good news, is that consumer expectations for inflation are not spiraling upward. In
fact, they're moving downward. So whether we're looking one year ahead or three years ahead or five
years ahead, universally, consumers are expecting the pace of inflation to moderate. And that's very
important for the Federal Reserve to see this because it makes-- it helps the Fed understand that
consumers are not anchoring their inflationary expectations on some ever-rising number.

That's exactly what happened in the '70s. You wind up with these wage and price spirals that are very
difficult to break. So the latest evidence suggests that we are not in a wage-price spiral and that the

Federal Reserve ultimately will likely be successful in terms of getting inflation under control without
driving the economy into one or more very deep recessions. That's what happened in the 1980s.

(DESCRIPTION)
A bar graph titled Annual Change in Average Hourly Wage, 2007 through 2022, Figure is year-over-year
change from December 2021 to December 2022. Text: Acceleration of wage growth in 2020 reflected
disproportionate loss of low wage jobs and continued gains among higher-wage earners. Wage growth
fell sharply during the Great Recession. Wage growth acceleration obscured the massive loss in payroll
exposures in 2020. Very tight labor market drove wage gains in 2022 (Peak was 5.6% in March). Are
current wage gains fueling a wage-price spiral? Sources: US Bureau of Labor Statistics at
http://www.bls.gov/data/ pound sign employment; National Bureau of Economic Research (recession
dates); Risk and Uncertainty Management Center; University of South Carolina.

(SPEECH)
Other bit of good news is that we've heard a lot about wage inflation recently. However, that is even
slowing. In the December numbers, we saw it slow to 4.6% from the full-year 2022 number, which is
5.2%. And in the fourth quarter 2022, it's 4.1%.

So, again, no evidence here of a wage-price spiral. Wages are beginning to moderate. And I expect that
we're going to begin to see a rebalancing of the relationship that we've seen over the past couple of years
between employers and employees, where they're going to work, and a variety of other things. It's been
very much tipped in favor of employees over the past 2 1/2 years or so. That's likely to shift back
somewhat.

(DESCRIPTION)
A line graph titled: Inflation (CPI) vs. Hourly Earnings Growth, January 2019 through November 2022.
Before and during the pandemic, private sector workers experienced strong real wage growth. Real wage
growth turns negative beginning in April 2021. Wages rose at a 4.8% annual pace in November 2022, but
with inflation at 7.1%, purchasing power slipped, fueling consumer angst and anger but the gap is
narrowing. Sources: U.S. Bureau of Labor Statistics; Risk and Uncertainty Management Center,
University of South Carolina.

(SPEECH)
We also had an update in terms of these figures shown here. In the December figures, we had the CPI
was up 6 1/2%. And wage inflation was up about 4.1%. So we are seeing both move in the right direction.
But we're also seeing the gap between wages and inflation narrow. And what that means is that hopefully
sometime in 2023, workers will once again enjoy real wage gains rather than seeing the real value of their
wages actually fall because of inflation.

(DESCRIPTION)
A line graph titled Labor Force Participation Rate January 2002 to December 2022, Defined as the
percentage of working age persons in the population who are employed or actively seeking work. Text:

Large numbers of people exited during the Great Recession, a trend that continued for years afterward.
Even pre-COVID, labor force participation rates were stubbornly low, far below pre-Great Recession
levels and one of the country's most vexing labor market problems. COVID-19 has intensified this
problem. April 2020 rate fell to 60.2%, its lowest level since 1971. As of July 2022, the 22 million jobs lost
in the pandemic had been fully recovered. December 2022, 62.3%. Sources: U.S. Bureau of Labor
Statistics at http://www.bls.gov/data; National Bureau of Economic Research (recession dates); Center for
Risk and Uncertainty Management, University of South Carolina.

(SPEECH)
Now, one very stubborn issue we have is the fact that a lot of people have decided, apparently, they
aren't going to work again. And you can see this through the labor force participation rate is much lower
than it was prior to the pandemic. And it's really difficult to know what is going to get this back.

And many people have decided that they are simply dropping out of the labor force and aren't coming
back in. And that can be an acceleration of baby boomers moving into the retired category. Other people
even younger than that have decided that they're simply not going to work for a variety of reasons. So
that's helping keep the labor markets a bit tighter than they otherwise would be.

(DESCRIPTION)
A line graph titled Medical Cost Inflation vs. Overall CPI During COVID, January 2020 to November 2022
(Percentage Change from Year Ago). Text: COVID has completely flipped the historical relationship
between overall and medical inflation. January 2020 to February 2021 Healthcare 3.8%, Overall 1.3%,
January 2020 to November 2022: Healthcare 3.1%, Overall 4.6%. March 2021 to November 2022:
Healthcare: 2.6%, Overall 6.8%, All items CPI, November 2022 7.1%, Medical inflation: November 2022:
4.2%. Sources: U.S. Bureau of Labor Statistics; Risk and Uncertainty Management Center, University of
South Carolina.

(SPEECH)
Here you can also see that-- you can see the consumer price index in red and the pace of medical
inflation in blue. And updates for December, which have come in since I submitted this presentation,
show both of these declining. And that's good news.

And so while I was a bit concerned that medical inflation with a lag was actually going to take off like a
rocket, like some other service sectors, in fact, that doesn't seem to be the case. So that's excellent news
for workers comp and lost time medical claims severities, for instance, which are $25,000 range
frequently, and when you think about bodily injury claims and personal and commercial auto, these sorts
of things. So this trend is headed in the right direction. And I'm encouraged by that going into 2023.

(DESCRIPTION)
Text: Are things as bad as many believe them to be? A quick review of economic history is helpful.

(SPEECH)

Now, are things as bad as many people believe them to be? We have heard never-ending stories last
year about how bad the economy is. It's never been worse.

(DESCRIPTION)
A line graph titled Inflation and Unemployment Rate, 1948 through 2022F, 2022 forecast based on Wells
Fargo Securities forecasts (12/22). Source: U.S. Bureau of Labor Statistics; Center for Risk and
Uncertainty Management, University of South Carolina.

(SPEECH)
And I can test that hypothesis by taking a look at two things that people really focus on. People don't like
being unemployed. We can take that as a given. And they don't like paying higher prices.

And so if we take those two and measure the-- take a look at the inflation rate and the unemployment rate
on the same chart going all the way back to 1948, what we can see is I've highlighted some of the peaks
here to show you that things, you can kind of tell, were a lot worse in the early 1980s, maybe late 1970s.

(DESCRIPTION)
A line graph titled "Misery Index": 1948 through 2024, Estimated based on Wells Fargo Securities
forecasts (12/22), as of 10/20/22 based on Freddie Mac data. Source: U.S. Bureau of Labor Statistics;
Center for Risk and Uncertainty Management, University of South Carolina.

(SPEECH)
And if I add the unemployment rate to the inflation rate, we get what economists call the Misery Index.
And the Misery Index last year was 11.6. That's a bit below what it was during the financial crisis, but it's
far below what it was, say, in 1980 or back in 1975.

And in reality, the decade from 1974 to 1983 in terms of misery, meaning the double whammy of inflation
and unemployment, is far worse than it is today. You look at 1980, employment was double what it is
today. And the inflation rate was not 8%. It was 13 1/2%.

And, by the way, if you wanted a mortgage in 1980, you were going to pay through the nose. You were
going to pay 18% for that versus maybe just under 7% in late 2022. So a big, big difference there.

(DESCRIPTION)
Text: Misery Loves Company.

(SPEECH)
Now, and we expect that Misery Index to actually improve over the next two years.

(DESCRIPTION)
P/C Insurance Industry Financial Overview & Outlook: Challenges Amid Rising Inflation and Higher
Interest Rates: The Current Economic Environment Presents Many Challenges for P/C Insurers, Industry
Remains Strong. A bar graph titled P/C Insurance Industry Combined Ratio, 2001 through 2022F,
Excludes Mortgage and Financial Guaranty insurers 2008 through 2014, 2022 figure is forecast. Text: As
recently as 2001, Insurers Paid Out Nearly $1.16 for every dollar in earned premiums. Pre-COVID 2020
Combined ratio estimate 99.1 (A.M. Best) Actual equals 98.6. COVID-19 has had no discernable net
impact on pre-COVID expectations for the combined ratio in 2020; -7.5 points due to CATS vs. 4.1. in
2019 (about twice average). Sources: A.M. Best, ISO 2014 through 2022F.

(SPEECH)
Looking at the P&C insurance industry directly and specifically, well, I had, prior to Hurricane Ian in late
September, I was hopeful for a year with a combined ratio of around 100. But with Ian and a few other
late-in-the-year events, probably looking around 104, 105 combined.

So probably the worst year since 2017. But bad for the same reason, very, very high CAT losses. That's
pretty much the norm.

(DESCRIPTION)
A bar graph titled P/C Industry Net Income After Taxes, 1991 through 2022: H1. ROE figures are GAAP.
Return on average surplus. Excludes Mortgage and Financial Guaranty insurers for years 2009 through
2014. Text: COVID's impact on net income in 2020 through 2021 were relatively modest. Sources: A.M.
Best, ISO, A.P.C.I.A.

(SPEECH)
We don't have final 2022 numbers yet. So this is the net income or profits aftertax for the industry through
the first six months of the year. So you might say, well, I'll double that number, and it looks like a really
good year. But the majority of the CAT losses were the second part of the year, continued financial
market losses. So that's going to really eat into net income.

So I expect net income to fall back considerably from the last four years. It's a little hard to say at this
point because I don't have much information on what kind of realized losses there were on the industry's
investment portfolio. But no doubt they were consequential, given we had a 19% decline in the equity
market and the worst year in the bond markets for quite a few years.

(DESCRIPTION)
A bar graph titled C.I.A.B: Average Commercial Rate Change, All Lines 2011 Q1 through 2022 Q3. Note:
C.I.A.B data cited here are based on a survey. Rate changes earned by individual insurers can and do
vary, potentially substantially. Renewals turned positive in late 2011 in the wake of record tornado losses
and Superstorm Sandy. High CAT losses and poor underwriting results in recent years combined with
inflation, litigation, reduced capacity, higher reinsurance costs, lower interest rates and increased
uncertainty have exerted significant pressure on markets with overall rates up materially. Rate increases

peaked in 2020 but continued throughout 2021 and 2022. Source: Council of Insurance Agents and
Brokers; Center for Risk and Uncertainty Management Center, University of South Carolina.

(SPEECH)
Now, but on the positive side, at least for commercial insurers, we can see that the hard market or at least
a modest hard market continues, with renewals in the high single digits, according to recent broker
surveys.

(DESCRIPTION)
A bar graph titled Change in Commercial Rate Renewals, by Line: 2022 Q3. Note: C.I.A.B. data cited
here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially
substantially. Workers compensation rates have been basically flat or slightly down for several years, due
to strong underwriting results. All major commercial lines except workers compensation experienced
increases in Q3 2022. Cyber is seeing record increase, in response to major breaches in 2020 and 2021,
overtaking commercial umbrella. Source: Council of Insurance Agents and Brokers; USC Center for Risk
and Uncertainty Management.

(SPEECH)
And what's leading the way is perhaps not a surprise here when you look by line, cyber. Cyber is not a big
line, maybe $4 or $5 billion. But there's no shortage of major events that we've seen in terms of attacks
and hacks and ransomware on major corporations and many that you never hear about, small and
medium-sized corporations, governments, and so on. So that's driving up the cost of cyber coverage.

Commercial umbrella really being impacted by abuse of the loss to the legal system in the United States.
And commercial property making its way up, of course, because of the record or near-record-high CAT
losses. The only line showing a consistent decline is workers comp, which still continues to show best
combined ratios that we've seen going back at least as far as we can go with workers comp, which is
somewhere into the 1920s and 1930s. So really strong results there.

(DESCRIPTION)
A bar graph titled Property/Casualty Insurance Industry Investment Income, 2000 through 2022E. 2021
figure is actual as of 12/31/21. 2018 through 2019 figures are distorted by provisions of the TCJA of 2017.
Increase reflects such items as dividends from foreign subsidiaries. Investment gains consist primarily of
interest and stock dividends. Aggressive Fed actions in response to COVID and recession pushed
interest rates lower in 2020, adversely impacting investment income. Due to persistently low interest
rates, investment income remained below pre-crisis levels for a decade. Lower interest rates during
COVID drove investment income down once again. Fed rate hikes in 2022 could reverse this trend.
Higher interest rates should accelerate investment income growth in 2022/23. Sources: ISO, University of
South Carolina, Center for Risk and Uncertainty Management.

(SPEECH)

But when we look at investment income, again, it looked like a pretty good year through the first half of
2022. And it probably will be a pretty good year for investment income. And so one silver lining of higher
interest rates for large institutional investors, like insurers, is our investment income will rise.

(DESCRIPTION)
A bar graph titled Net Investment Yield on Property/Casualty Insurance Invested Assets, 2007 to 2022:
H1. Sources: NAIC data, sourced from S&P Global Market Intelligence; 2017 through 2019 figures are
from ISO. 2020 through 2021 data from the A.P.C.I.A. Risk and Uncertainty Management Center,
University of South Carolina.

(SPEECH)
And the investment yield on the portfolio is already up for the first half of 2022. That's great news. So a
little bit of a tailwind for insurers here to help offset some of the poor underwriting results and some of the
poor results in terms of the fact that some losses will have to be realized on the investment portfolio.

(DESCRIPTION)
A line graph titled Federal Funds Target Rate: Up, up, and away! Upper-bound, quarter-end. Text:The
Fed is expected to continue its rate hikes to a peak of 3.75% to 4% at year end 2022. If the objective of
lower inflation is met or in sight, the Fed will likely lower rates in late 2023 to keep unemployment low.
The Fed hiked short-term rates in December 2022 by 50 basis points to a target range of between 4.25%
and 4.5%. Source: Federal Reserve Board and Wells Fargo Economics (12/22); Risk and Uncertainty
Management Center, University of South Carolina.

(SPEECH)
The hikes in interest rates are not over. The Federal Reserve is-- seems destined to continue or
determined to continue its rate hikes probably into the early part of the summer, perhaps the last hike
occurring around June if all goes well and then holding steady for a while. And it may be beginning to
bring rates down to the very end of 2023, maybe the Fed's last meeting of the year in December. It could
be early 2024. But right now, I might put a little bet on December. So that would help us help stimulate the
economy, get us back on a solid growth trajectory, and help stave off that potential for even shallow
recession.

(DESCRIPTION)
A line graph titled U.S. Treasury Security Yields: A Long Downward Trend, 1990 through 2022. Monthly,
constant maturity, nominal rates, through December 2022. Text: Since roughly 80% of P/C bond/cash
investments are in 10-year or shorter durations, Fed rate hikes should over time provide a modest boost
to P/C insurer portfolio yields. Sources: Federal Reserve Bank at
http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession
dates); Risk and Uncertainty Management Center, University of South Carolina.

(SPEECH)

But, as you can see in this chart the interest rates have shot up recently. Ten-year Treasuries in blue and
two-year Treasury in orange, and you see the two-year yield ahead of the 10-year yield. And what that
suggests, some people believe that means it's suggestive of a recession. But another way to look at it is
the investors who are looking out over 10 years are not expecting inflation. And that's how exactly I read
this. Bond markets in particular are not buying into the narrative that inflation is here to stay.

(DESCRIPTION)
A line graph titled S&P 500 Index Returns, 1950 through 2023, Through January 6, 2022. Text: Inflation is
forcing the Fed to tighten, sending the stock market into correction territory. Geopolitical tensions are
exacerbating Wall Street's worries. Source: NYU Stern School of Business. Center for Risk and
Uncertainty Management, University of South Carolina.

(SPEECH)
And, as I mentioned, we did have a, last year, a pretty substantial decline. Certainly we had a bear
market. We were down about 19 1/2%, although as of the end of last week, we're actually up about 4
1/2%. But it looks like this week we're giving some of that back.

But the year is still young. So there's going to be a lot of volatility on Wall Street. And that's something you
can take for a given.

(DESCRIPTION)
Text: Capital and Capacity. P/C Insurance: Over or Under Capitalized? Plunge in Asset Prices, High CAT
Losses Took a Toll in 2022.

(SPEECH)
But the industry is very, very well prepared for that kind of volatility. There was far more volatility right
around the beginning of COVID, during the financial crisis. So I think the industry is very well positioned to
manage any volatility that we see in 2023.

(DESCRIPTION)
A bar graph titled Policyholder Surplus (Capacity) 2006 Q4 through 2022 H1, 2022 figure is actual
through Q2. Text: The P/C insurance industry entered the COVID-19 pandemic from a position of
strength and was able to withstand the 9% surplus decline in Q1 2020 (far less than during the financial
crisis). 2020 ended with record surplus. 2021 set another new record, exceeding $1 trillion for the first
time. Unrealized losses caused surplus to drop sharply in 2022. Policyholder surplus is the industry's
financial cushion against large insured events, periods of economic stress and financial market volatility.
It is also a source of capital to underwrite new risks. Sources: ISO, A.M. Best, NAIC, Risk and Uncertainty
Management Center, University of South Carolina.

(SPEECH)
Now, of course, it is the case that the declining value of stock market equities and rising interest rates,
which led to lower prices for bonds, has caused an overall reduction or deflation in the price of assets

held in the industry's investment portfolio. And so that is what is responsible for about an 8% decline in
the industry's policyholder surplus, its capacity through the first half of 2022 down from a record 1.1 trillion
at the end of 2021. And this has further to go. So when we get the final 2022 results, we're probably going
to be down a total of more than 10%, probably I'd say 10% to 14%, and which isn't too far away, at least
at the higher end of that estimate, of what we saw in the financial crisis, which is when we saw capacity
fall by about 16%. It fell about 9% in the early days of COVID, but we came back quickly and set the
record very shortly after that.

But again, the industry is prepared for this. But it does, it does speak to the fact that there's a bit less
capital in the industry, and not just here in the United States, but globally.

(DESCRIPTION)
A line graph titled U.S. Property Catastrophe Rate-on-Line Index: 1990 through 2022, as of January 1
each year. Text: U.S. Reinsurance Pricing is sensitive to CAT activity and ultimately impacts primary
insurance pricing, terms and conditions. Record CAT activity in the U.S. pressured U.S. reinsurance
prices in recent years (+14.8% in 2022, +6.4% in 2021, +9% in 2020, +2.6% in 2019, +7.5% in 2018).
2022 Global R.o.L plus 10.8%. Source: Guy Carpenter, Artemis dot bm accessed at
http://www.artemis.bm/us-property-cat-rate-on-line-index.
(SPEECH)
So this is something that is impacting, for instance, reinsurance markets. The vast majority of reinsurance
capital comes from abroad. Reinsurers have a tough time of it recently, with very high CAT losses around
the world, not just here in the U.S., pushing up reinsurance prices.

(DESCRIPTION)
Text: Catastrophe Loss Trends. The Rise in CAT Losses Shows No Signs of Easing. The 2020s are off to
an ominous beginning. A bar graph titled U.S. Inflation-Adjusted Insurance CAT Losses: 1980 through
2022 Q3, stated in 2021 dollars except 2022 Q3, 2022 dollars. Text: Average Insured Loss Per Year:
1980 through 2021: $23.8 billion. 2012 through 2021: $44.1 billion. Sources: Property Claims Service, a
Verisk Analytics business (1980 through 2019), 2020 through 2021 figures from Munich re: 2023 YTD
data from Aon; Insurance Information Institute, University of South Carolina, Risk and Uncertainty
Management Center.

(SPEECH)
What's happened in the investment side is decreased capacity. And talking about the CAT situation,
through the third quarter of last year about 70 billion in insured CAT losses. There's still not a final number
for Hurricane Ian at this point. So we can't quite say with certainty where we wound up. But altogether,
we're probably somewhere between $75 and $80 billion in total insured CAT losses for 2022.

And what you can see is the insured losses step up by about $5 billion a year every decade. And there's
nothing about that that's going to change. The demographics of the country are such that more and more
people, more and more businesses are moving into areas that are more and more prone to a wide variety

of natural disasters, whether it's in the Southeast, whether it's wildfires out West or the Mountain States,
you name it.

(DESCRIPTION)
A bar graph titled Top 22 Most Costly Disasters in U.S. History, Hurricane Ian Overtakes Katrina? Text:
12 of the top 22 most costly insured events in U.S. history occurred between 2010 and 2022 (inclusive).
18 of the 22 most expensive insurance events in U.S. history have occurred since 2004. Hurricane Ian
could become the costliest insured CAT loss ever. Insured loss ranges from $50 billion to $67 billion.
2021 dollars, 2022 dollars (RMS private insurer estimate as of 10/10/22). Sources: P.C.S., RMS, Aon,
Karen Clark & Co, USC Center for Risk and Uncertainty Management adjustments to 2020 dollars using
the CPI.

(SPEECH)
And so in terms of the top 22 insured CAT losses of all time, Ian could surpass Katrina. I'm very
interested to see when we get a final number for that. Right now, I have it surpassing it by a decent
margin. But there are actually some estimates out there that put it somewhat below. So we'll have to see
it. It might be a couple more months before we actually get a final number on that one.

(DESCRIPTION)
Logo: University of South Carolina Darla Moore School of Business. Private Passenger Auto Frequency &
Severity Trends. Frequency, Severity and Loss Ratio Trends are Adverse. Inflation is a major driver. A
bar graph titled At the Peak of the Pandemic, Frequencies Across All Coverages Plummeted But
Severities Rose: 4 Quarters Ending Q1 2021. Text: The COVID-19 pandemic introduced unparalleled
volatility in the Personal Auto Line. Source: ISO/PCI Fast Track data for 4 quarters ending in Q1 2021;
Risk and Uncertainty Management Center, University of South Carolina.

(SPEECH)
On the private passenger auto side, this is very interesting because I thought you might like to see what
happens-- what's happened to frequency and severity during COVID and afterwards. You can see that
during COVID, this is for the four quarters ending the first quarter of 2001. So this is the worst effects of
COVID. And you can see frequency dropping across all the major coverages, although severity continued
to increase.

(DESCRIPTION)
A bar graph titled Bodily Injury: Severity Trend is Up, Frequency Plunge Due to COVID has ended and is
reversing. Annual Change, 2005 through 2022. 2022 figure is for the 4 quarters ending 2022 Q3. Text:
COVID push frequency down sharply, but severity increased. Frequency decline has ended and severity
increases continue. Source: ISO/PCI Fast Track data; Center for Risk and Uncertainty Management
University of South Carolina.

(SPEECH)

And looking at the broader, the picture over the longer period of time, something like bodily injury
frequency and severity, in gold you could see that the frequency fell off a cliff during COVID, a bit in 2021
as well. But severity continued to rise, in fact, to record levels in terms of increase and continues in 2022.

(DESCRIPTION)
A bar graph titled Collision Claim Severity: Rising to New Record Highs, Average Loss, 2018 Q1 through
2022 Q2. Text: Severities are up sharply, inflation is a major factor. Collision claim severity reached a
record high in 2022: Q1 up 36.5% from 2020 Q1. Source: ISO/PCI Fast Track data; Center for Risk and
Uncertainty Management, University of South Carolina.

(SPEECH)
And the same for something like collision claim severity, which reached a record high early in 2021 and
isn't far off of that. In fact, we have a third-quarter number for 2022. It's not different-- too much different
from the second quarter. So we're a bit off the highs, but severities are very much elevated.

(DESCRIPTION)
Text: Legal System Abuse (Social Inflation) & Litigation Trends. Rising litigation costs are a concern for
businesses large and small and their insurers. Major driver of rate across multiple lines.

(SPEECH)
The last topic before we open it up for questions is legal system abuse, sometimes referred to as social
inflation. This rising litigation costs that we are seeing are very problematic. And it's not something that
the industry can manage on its own. It's a problem that we see entrenched in, for instance, many state
legislatures, where we have very, very powerful trial bars essentially making rules for their own benefits.

(DESCRIPTION)
Text, Social Inflation: Many interrelated causes, Difficult to Manage Insurance claim costs. Upward-
pointing arrows read: increasing propensity to sue, size of jury awards, courts/juries favoring plaintiffs,
growing distrust of large corporations, litigation financing, aggressive plaintiff bar ads, changes in
regulatory and legal environment bar ads. Applied to a seemingly limitless number of issues, these
drivers are pushing tort costs (and therefore claim costs upward). Source: Risk and Uncertainty
Management Center, University of South Carolina, adapted from Verisk "Social Inflation" presentation.
(2020)

(SPEECH)
You have very, very-- you have increased propensity to sue. Jury awards, the size of jury awards is rising.
Courts more favorable to plaintiffs and distrust of larger corporations, litigation financing, and many other
things. And again, a very, very aggressive plaintiffs' bar that's out there today. So getting the necessary
regulatory changes to getting the cooperation among many different industry groups is going to be a huge
challenge for this industry that's going to stretch far beyond 2023.

(DESCRIPTION)

A bar graph titled Average Jury Awards, 1999 through 2020 (latest available). Text: The average jury
award reached an all-time record high of $2.5 million in 2020, up 39% from 2019 and 274% since 2010.
Median award in 2020 equals $125,366 (a record). Source: Jury Verdict Research, Current Award Trends
in Personal Injury (61st Edition), Thomson Reuters; Risk and Uncertainty Management Center, University
of South Carolina.

(SPEECH)
And so you can see this multiyear trend of rising average jury awards.

(DESCRIPTION)
Text: Summary.

(SPEECH)
But, that aside, that's a big long-term issue for the industry. The good news is the industry does remain
strong, stable, sound and secure in 2022, as we enter 2023, and just as it was in 2020 or in the financial
crisis.

A shallow recession seems likely later in the year, though it's not a done deal. Asset price volatility
absolutely going to continue. But higher interest rates are providing a modest tailwind for the industry.
Inflationary pressures are beginning to subside, though they do persist to some extent and are going to
be more pronounced on the service side versus the goods side, which is a reverse of what we've seen in
the last couple of years.

Yes, we do have some lingering supply chain issues. But those are diminishing in number and intensity.
So that's good news as well. And so immediate concern for insurers is beyond the present threat of
escalating CATs, the lingering effects of inflation, and making sure the industry is able to achieve rate and
reserve adequacy, making sure our clients are properly insured to value, ITV.

(DESCRIPTION)
Logo: University of South Carolina Darla Moore School of Business. Text: Thank you for your time and
your attention! Twitter: twitter.com/bob_ hartwig. For a copy of this presentation, email me at robert dot
Hartwig at moore dot sc dot edu or download www. USC riskcenter.com.

(SPEECH)
OK, so, Joan, that just about ends the presentation. So I think I'll hand it back to you. And hopefully
people can see us on the screen. And then I guess we can move to the Q&A portion here.

JOAN WOODWARD: Well, Bob, that was just fantastic, I mean, a whirlwind of information. And we got
lots of questions in the Q&A coming at you.

So, Bob, you mentioned you just went through everything, I think, that's on our listeners' minds right now.
And it's just great to hear you in the beginning of the year because your outlook usually holds. And so

talking about a recession, we may be able to even avoid; that was actually really good to hear, and also
you saying it would be possibly short and shallow, and the Fed looks like they're doing the right thing for
now. It looks like inflation is starting to come under control. So I really appreciate those comments.

What we like to do on our program is we like to turn the tables on our audience. And we'd like to ask an
audience question to get a sense of how they're thinking. So let's pull up that question for the audience. In
your opinion, the greatest challenge facing the P&C industry in 2023 is, is what?

And we asked this question back in 2021, same question, Bob, when we had you on last time to
accolades, as we always hear after your sessions. And so we're going to look at some of those numbers,
too, that we saw in 2021. So what are you most concerned about? And, of course, CATs are on
everyone's mind. The economy you just talked about.

Let's see. So looks like about half the audience is worried about CATs and volatile weather. And you see
this all over the place, certainly in California in the last few days.

We only have about 18% of us worried about the economy. So that actually is good. Maybe you have
assuaged them that it might not be so bad. Litigation climate is certainly-- it looks like to be number two
right now.

Talent and acquisition, we want to talk about this with you, Bob, because I know you're educating all
those young, bright insurance students in your program. And we certainly want access to them. And I
know a lot of folks on the line want to hear about how we get in touch with you, too, on getting your talent
into our agencies and carriers.

So do you want to comment on this, Bob? The only thing I'll say, I think back in 2021, only 6% of the
group was worried about the economy. So this actually is pretty encouraging, I think, in terms of people
worried about the economy for the business because it's consumer confidence, right? If you're not terribly
concerned about the economy, you're confident things will get better, and that is a spiral upward, right?

ROBERT HARTWIG: Right. So I think that actually the mood of your typical consumer and the typical
small and medium-sized business person will probably improve a bit as we move through the first part of
the year. It doesn't mean that there aren't challenges out there. But the number-one concern by far of
businesses and consumers in 2022 was inflation. So to the extent that that subsides, it's hard to overstate
the psychological effect that very high-frequency pieces of information, in other words, driving past your
favorite gas station two or three times a day or every time you go to the grocery store and you think the
price of something went up, that really infiltrates people's psyche. It can also work in reverse.

Now, now, obviously, we don't want a situation in which unemployment begins to overtake concerns
about inflation. And that is a consideration for the second half of the year. But all in all, the economic
situation right now is not bad in the sense that what we are doing is we have, again, the lowest