Excess Casualty Insurance Markets in the Post-Crisis World:

A Looming Tort Crisis?

March 9, 2010

Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

2

Presentation Outline

I. Insurance Industry Financial Overview & Outlook Profitability Premium Growth Underwriting Performance Financial Market (Investment) Overview Financial Strength

II. Tort Environment/Casualty Risk Assessment Profitability Premium Growth

III. The Economic Storm: Financial Crisis, Recession & Recovery Exposure Overview & Outlook

IV. Public Policy Initiatives Affecting Casualty Insurance Markets

Financial Service Regulation/Systemic Risk

Terrorism Risk Insurance Program in Jeopardy

Q&A

I.P/C (Re)Insurance Financial

Performance

3

Profitability, Premiums, Investment Performance,

Capacity & Financial Strength

4

Profitability

A Profit Recovery is Underway, But Is it Enough

and Can it Endure?

P/C Net Income After Taxes1991–2009P ($ Millions)

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $3

6,8

19

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$2

,37

9

$3

0,6

00

-$6,970

$6

5,7

77

$4

4,1

55

$2

0,5

59

$3

8,5

01

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09P

2005 ROE*= 9.4% 2006 ROE = 12.2% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009:Q3 ROAS1 = 4.5%

* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 4.5% ROAS for 2008 and 5.9% for the first 9 months of 2009. 2009:Q3 net income was $20.5 billion excluding M&FG.Sources: A.M. Best, ISO, Insurance Information Institute

P-C Industry profits for full-year 2009 were up sharply from 2008, but are still well

below pre-crisis levels

6

ROE: P/C vs. AllIndustries1987–2009:Q3*

* Excludes Mortgage & Financial Guarantee in 2008 and 2009 through Q3.Sources: ISO, Fortune; Insurance Information Institute.

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09:Q3

US P/C Insurers All US Industries

P/C Profitability isCyclical and Volatile

Hugo

Andrew

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

7

ROE vs. Equity Cost of Capital:US P/C Insurance:1991-2009:Q3*

* Excludes mortgage and financial guarantee insurersSource: The Geneva Association, Insurance Information Institute

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08*09Q3*

ROE Cost of Capital

-13

.2 p

ts

-1.7

pts

+2

.3 p

ts

-9.0

pts

-7.1

pts

-4.6

pts

The P/C Insurance Industry Fell WellShort of Its Cost of Capital in 2008/09

US P/C Insurers Missed Their Cost of Capital by an Average 6.7 Points from 1991 to 2002, but On Target or Better

2003-07, but Fell Well Short in 2008/09

The Cost of Capital is the Rate of Return Insurers Need to

Attract and Retain Capital to the Business

(Percent)

A 100 Combined Ratio Isn’t What ItOnce Was: 90-95 is Where It’s At Now

Combined Ratio / ROE

* 2009 figure is return on average statutory surplus. 2008 and 2009 figures exclude mortgage and financial guarantee insurersSource: Insurance Information Institute from A.M. Best and ISO data

97.5

100.6 100.1 100.7

92.6

99.5101.0

5.9%

9.6%

15.9%

14.3%

12.7%

4.5%

8.9%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2008* 2009:Q30%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs

Combined ratio of about 100 generated a 6% ROE in 2009, 10%

in 2005 and16% in 1979

11

Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*

*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance only.Source: A.M. Best; Insurance Information Institute.

Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline

-3.1%-3.3%-3.3%-3.7%

-4.3%

-5.2%-5.7%

-7.3%

-1.8%-1.8%-2.0%

-3.6%

-1.9%-2.1%

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

12

2.3

-2.1

-8.3

-2.6-6.6

-9.9 -9.8

-4.1

1

11.7

23.2

13.79.9

7.3

-6.7-9.5

-14.6-16 -15

-5

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

$25

$309

2

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

E

11

E

Pri

or

Yr.

Re

se

rve

Re

lea

se

($

B)

-6

-4

-2

0

2

4

6

8 Imp

ac

t on

Co

mb

ine

d R

atio

(Po

ints

)

Prior Yr. ReserveDevelopment ($B)

Impact onCombined Ratio(Points)

P/C Reserve Development, 1992–2011E

Reserve Releases Will Expected to Taper Off in 2010 and Drop Significantly in 2011

Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: Barclay’s Capital; A.M. Best.

13

Net Prior Year Reserve Development by Line, 2008

Sources A.M. Best, ISO, Barclay’s Capital Research.

Reserve release have contributed to the bottom line for several years,

but pace will eventually slow

14

Calendar Year vs. Accident Year P/C Combined Ratio: 1992–2010E1

Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: Barclay’s Capital; A.M. Best.

10

5.6

10

7.8

11

0.1 1

15

.9

10

7.3

10

0.1

98

.3 10

0.9

92

.4 95

.5

10

5.1

10

1.9 10

5.9

11

4.7

10

7.8 11

1.8

10

7.4

10

8.3

10

5.3 10

9.2

10

9.2

11

0.0

11

2.3

10

0.8

96

.6

96

.0

10

0.6

93

.9 97

.4

10

5.5

10

5.7 10

9.4

11

5.7

10

6.9

10

8.4

10

6.4

10

5.8

10

1.6

80

85

90

95

100

105

110

115

120

92 93 94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09E 10E

Calendar Year Accident Year

Accident Year Results Show a More Significant Deterioration in Underwriting Performance. Calendar Year Results Are Helped by Reserve Releases

16

Number of Years with Underwriting Profits by Decade, 1920s–2000s

0 0

3

54

8

10

76

0

2

4

6

8

10

12

1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s*

* 2000 through 2009. 2009 combined ratio was 100.7 through Q3.Note: Data for 1920–1934 based on stock companies only.Sources: Insurance Information Institute research from A.M. Best Data.

Number of Years with Underwriting Profits

Underwriting Profits Were Common Before the 1980s (40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –

But Then They Vanished. Not a Single Underwriting Profit Was Recorded in the 25 Years from 1979 Through 2003

17

Performance by Segment:Commercial/Personal Lines &

Reinsurance

18

Calendar Year Combined Ratios by Segment: 2008-2010P

Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.

101.0 101.2

92.2

100.3

103.7

100.599.8

107.2

103.6

9092949698

100102104106108110

Personal Lines Commercial Lines US Reinsurance

2008 2009E 2010P

Overall deterioration in 2010 underwriting performance is due to expected return to normal catastrophe activity along with deteriorating underwriting

performance related to the prolonged commercial soft market

Commercial lines and reinsurance combined ratios are expected to

deteriorate in 2010 while personal lines is expected to improve

Number of Top 10 Jury Awards, 1995 - 2007

22 2220

17

8 75 4 3 2 2 2 2 1 1 1

6

0

5

10

15

20

25

TX, NY and CA lead the U.S. in jumbo-size jury

awards

Source: LawyersWeekly USA,, January 22, 2008. *All against Iran for terrorist activity

21

After-Tax Return on Surplus (ROE) by Segment: 2008-2010P

Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.

5.3%

7.3%

5.2%

6.6%7.1%

5.3%

3.9%

-1.3%

1.7%

-2%-1%0%1%2%3%4%5%6%7%8%

Personal Lines Commercial Lines Reinsurance

2008 2009E 2010P

Profitability will rise or stabilize across most p/c lines, barring a financial crisis relapse or major catastrophic losses

Personal lines ROEs should improve in 2010 and remain flat in commercial lines and

reinsurance

23

Net Written Premium Growth by Segment: 2008-2010P

Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.

-1.1%

-7.9%

-1.5%

1.8%

-5.6%

-2.0%

3.5%

-4.0%

-0.7%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Personal Lines Commercial Lines Reinsurance

2008 2009E 2010P

Rate and exposure are more favorable in personal lines, whereas a prolonged soft market and sluggish recovery from the recession weigh on commercial lines. Low catastrophe losses and ample

capacity are holding down reinsurance prices while higher insurer retentions impact premiums

Personal lines will return to growth in 2010 while commercial lines and reinsurance are

expected to continue to shrink

24

Change in Net Investment Income by Segment: 2008-2010P*

Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.

-4.1%

-16.1%

1.9%3.4% 1.9%

10.7%

-13.4%

-0.8%

-12.8%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Personal Lines Commercial Lines Reinsurance

2008 2009E 2010P

Investment income consists primarily of interest on bonds and stock dividends. Both were hit hard during the financial crisis as the Fed slashed

interest rates to near zero and corporations cut dividends. A recovery in investment asset values beginning in Q2 2009—which reduced realized capital

losses—has helped offset some of the decrease in investment income.

Net investment income is expected to begin to recover in all segments in 2010

25

Investment Yield by Segment: 2008-2010P*

Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.

3.5%3.7%

3.9%

3.3%3.6%

3.8%3.9%

4.6%

3.8%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Personal Lines Commercial Lines Reinsurance

2008 2009E 2010P

The Fed slashed interest rates in 2008 and has kept them low since, eroding the yield on all types of bonds, especially US Treasury securities. Yields will

not recover until the Fed begins monetary policy tightening.

Investment yields are shrinking across all segments—down 10 to 100 bases points since 2008

Commercial Multi-Peril Combined Ratio: 1995–2010P

11

9.0

11

9.8

10

8.5

12

5.0

11

6.2

11

6.1

10

4.9

10

1.9

10

5.4

95

.1 97

.610

0.7

11

6.8

11

3.6

11

5.3 1

22

.4

11

5.0

11

7.0

97

.3

89

.0

97

.7

93

.8

83

.8

89

.8

10

8.0

97

.0 99

.5

11

3.1

11

5.0 12

1.0

80

85

9095

100

105

110

115120

125

130

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09E* 10P*

CMP-Liability CMP-Non-Liability

Commercial Multi-Peril is Expected to Continue to Perform Reasonably Well

*2009E and 2010P figures are for the combined liability and non-liability components.Sources: A.M. Best; Insurance Information Institute.

P/C Premium Growth Primarily Driven by the

Industry’s Underwriting Cycle, Not the Economy

30

33

-10%

-5%

0%

5%

10%

15%

20%

25%

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 0910

F

Strength of Recent HardMarkets by NWP Growth

(Percent)1975-78 1984-87 2000-03

Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute

Net Written Premiums Fell 0.7% in 2007 (First Decline Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33

During the Great Depression. Expected decline of 1.6% in 2010.

34

Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2009)

-3.2

%

-5.9

%

-7.0

%

-9.4

%

-9.7

% -8.2

%

-4.6

%

-2.7

%

-3.0

%

-5.3

%

-9.6

%

-11

.3%

-11

.8%

-13

.3%

-12

.0%

-13

.5%

-12

.9% -1

1.0

%

-6.4

% -5.1

%

-4.9

%

-5.8

%

-6.0

%

-0.1

%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

1Q

04

2Q

04

3Q

04

4Q

04

1Q

05

2Q

05

3Q

05

4Q

05

1Q

06

2Q

06

3Q

06

4Q

06

1Q

07

2Q

07

3Q

07

4Q

07

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

Source: Council of Insurance Agents & Brokers; Insurance Information Institute

KRW Effect

Magnitude of Price Declines Shrank

During Crisis, Reflecting Shrinking

Capital, Reduced Investment Gains,

Deteriorating Underwriting

Performance, Higher Cat Losses and

Costlier Reinsurance

(Percent)

Market Remains Soft as Capital Restored and Underwriting Losses Fall

35

Change in Commercial Rate Renewals, by Line: 2009:Q4

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

Most Major Commercial Lines Renewed Down in Q4:2009 by Roughly the Same Margin as a Year Earlier

Percentage Change (%)

-3.9% -3.7%

-2.3%-1.9%

0.2%

-5.6%-6.0% -5.8%

-5.0%-4.6%

-4.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%All C

omm

ercia

l

GL

Comm

l Pro

p

Umbr

ella

Comm

l Aut

o

Const

ructi

on

Bus. I

nter

rupt

ion

WC

EPLD&O

Suret

y

36

Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2009:Q4

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

Percentage Change (%)

Market has Been Soft for 6 years

and Remains Soft as Capital is Restored and Underwriting Losses Fall

KRW Effect

Peak = 2004:Q4 +28.5%

Trough = 2004:Q4 -13.6%

37

Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2009:Q4

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

1999:Q4 = 100

KRW Effect

Pricing today is where is was in

Q2:2001 (pre-9/11)

Investment Performance

38

Investments Drove Profit Decline in 2008 and Improvement in 2009

Property/Casualty Insurance Industry Investment Gain: 1994–2009P1

$35.4

$42.8$47.2

$52.3

$44.4

$36.0

$45.3$48.9

$59.4$55.7

$64.0

$31.4$35.1

$58.0

$51.9$56.9

$0

$10

$20

$30

$40

$50

$60

$70

94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09P

Investment Gains Fell by 51% In 2008 Due to Lower Yields,Poor Equity Market Conditions. In 2009, the Return of Realized Capital

Losses Helped Offset Lower Investment Income

1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.

($ Billions)

41

Treasury Yield Curves: Pre-Crisis (July 2007) vs. Dec. 2009

0.03% 0.05% 0.17%0.37%

0.87%

1.38%

2.34%

3.07%

3.59%

4.40% 4.49%4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00%

5.19%

0%

1%

2%

3%

4%

5%

6%

1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

December 2009 Yield CurvePre-Crisis (July 2007)

Treasury yield curve is near its most depressed level in at least 45 years. Investment

income is falling as a result

Stock Dividend Cuts Will Further Pressure Investment Income

Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.

Capital/PolicyholderSurplus (US)

44

Shrinkage, but Not Enoughto Trigger Hard Market

46

Policyholder Surplus, 2006:Q4–2009:Q4P

Source: ISO, AM Best.

($ Billions)

$487.1$496.6

$512.8$521.8

$478.5

$455.6

$437.1

$463.0

$490.8

$519.3$505.0

$515.6$517.9

$380

$400

$420

$440

$460

$480

$500

$520

$540

06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4P

Capacity Peaked at $521.8 as of 9/30/07

Declines Since 2007:Q3 Peak

08:Q2: -$16.6B (-3.2%) 08:Q3: -$43.3B (-8.3%) 08:Q4: -$66.2B (-12.9%)09:Q1: -$84.7B (-16.2%)

09:Q2: -$58.8B (-11.2%)09:Q3: -$31.8B (-5.9%)09:Q4: -$2.5B (-0.5%)

Capacity as of 12/31/09 was just 0.5% below the 2007 peak and will likely set a new record in 2010

47

Global Reinsurance Capacity Source of Decline

Global Reinsurance Capacity Shrankin 2008, Mostly Due to Investments

$360

$300

$270

$290

$310

$330

$350

$370

2007 2008

55% 14%

31%

Source: AonBenfield Reinsurance Market Outlook 2009; Insurance Information Institute.

Global Reinsurance CapacityFell by an Estimated 17% in 2008

Change inUnrealizedCapital Losses

RealizedCapitalLosses

Hurricanes

49

Ratio of Insured Loss to Surplus for Largest Capital Events Since 1989*

* Ratio is for end-of-quarter surplus immediately prior to event. Date shown is end of quarter prior to event** Date of maximum capital erosion; As of 9/30/09 (latest available) ratio = 5.9%Source: PCS; Insurance Information Institute

3.3%

9.6%

6.9%

10.9%

6.2%

13.8%

16.2%

0%

3%

6%

9%

12%

15%

18%

6/30/1989Hurricane

Hugo

6/30/1992HurricaneAndrew

12/31/93NorthridgeEarthquake

6/30/01 Sept.11 Attacks

6/30/04Florida

Hurricanes

6/30/05Hurricane

Katrina

FinancialCrisis as of3/31/09**

The Financial Crisis at its Peak Ranks as the Largest

“Capital Event” Overthe Past 20+ Years

(Percent)

50

* 2009 NWP and Surplus figures are % changes as of Q4:09P vs Q4:08Sources: A.M. Best, ISO, Insurance Information Institute

Historically, Hard Markets FollowWhen Surplus “Growth” is Negative*

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09E10P

NWP % change Surplus % change

(Percent)

Sharp Decline in Capacity is a Necessary butNot Sufficient Condition for a True Hard Market

Surplus growth is now positive but premiums

continue to fall, a departure from the historical pattern

Financial Strength & Ratings

51

Industry Has Weathered the Storms Well

P/C Insurer Impairments, 1969–2009p8

15

12

71

19

34

91

31

21

99

16

14

13

36

49

31 3

45

04

85

56

05

84

12

91

61

23

11

8 19

49 50

47

35

18

14 15

71

1

5

0

10

20

30

40

50

60

70

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

p

Source: A.M. Best; Insurance Information Institute.

The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets

5 of the 11 are Florida companies (1 of these

5 is a title insurer)

53

P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2009p

90

95

100

105

110

115

1206

97

07

17

27

37

47

57

67

77

87

98

08

18

28

38

48

58

68

78

88

99

09

19

29

39

49

59

69

79

89

90

00

10

20

30

40

50

60

70

80

9*

Co

mb

ine

d R

ati

o

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Imp

airm

en

t Ra

te

Combined Ratio after Div P/C Impairment Frequency

*Combined ratio of 101.7 is through Q3:09; 0.36% 2009 impairment rate is III estimate based on preliminary A.M. Best data.Source: A.M. Best; Insurance Information Institute

2009 estimated impairment rate rose to 0.36% up from a near record low of 0.23% in 2008 and the 0.17% record low in 2007; Rate is still less than one-half the 0.79% average since 1969

Impairment Rates Are Highly Correlated With Underwriting Performance and Reached Record Lows in 2007/08

54

Summary of A.M. Best’s P/C Insurer Ratings Actions in 2009

3.8%

2.9%3.2%

2.4%

11.9%75.7%

.Source: A.M. Best.

P/C Insurance is by Design a Resilient Business. The Dual Threat of Financial Disasters and Catastrophic Losses

Are Anticipated in the Industry’s Risk Management Strategy

Despite financial market turmoil and a soft market

in 2009, 76% of ratings actions by A.M. Best were affirmations;

just 2.9% were downgrades and 3.2%

were upgrades

Affirm – 1,375

Downgraded – 53

Upgraded – 59Initial – 44

Under Review – 69

Other – 216

56

Reasons for US P/C Insurer Impairments, 1969–2008

3.7%4.2%

9.1%

7.0%

7.9%

7.6%

8.1% 14.3%

38.1%

Source: A.M. Best: 1969-2008 Impairment Review, Special Report, Apr. 6, 2008

Deficient Loss Reserves and Inadequate Pricing Are the Leading Cause of Insurer Impairments, Underscoring the Importance of Discipline.

Investment Catastrophe Losses Play a Much Smaller Role

Deficient Loss Reserves/In-adequate Pricing

Reinsurance Failure

Rapid GrowthAlleged Fraud

Catastrophe Losses

Affiliate Impairment

Investment Problems

Misc.

Sig. Change in Business

57

II.

Tort Environment Overview

Is the Pendulum Swinging Against Casualty Risks and their Insurers?

58

Over the Last Three Decades, Total Tort Costs* as a % of GDP Appear Somewhat Cyclical

$0

$50

$100

$150

$200

$250

$300

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10E

To

rt S

ys

tem

Co

sts

1.50%

1.75%

2.00%

2.25%

2.50%

To

rt Co

sts

as

% o

f GD

P

Tort Sytem Costs Tort Costs as % of GDP

($ Billions)

* Excludes the tobacco settlement, medical malpracticeSources: Tillinghast-Towers Perrin, 2009 Update on US Tort Cost Trends, Appendix 1A; I.I.I. calculations/estimates for 2009 and 2010 and 2011

2009–2010 Growth in Tort Costs as % of GDP is Due in

Part to Shrinking GDP

Cost of US Tort System ($ Billions)$1

29

$130

$141

$144

$148 $1

59

$156

$156

$167

$169

$180 $2

05 $233 $2

46 $260

$261

$247

$252

$255

$263

$273 $2

89.5

$0

$50

$100

$150

$200

$250

$300

$350

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

09E

10E

11E

Source: Tillinghast-Towers Perrin, 2009 Update on US Tort Cost Trends.

Per capita “tort tax” was $? in 2009, up from $838 in 2008

and $636 in 2000

Tort costs consumed 1.79% of GDP in 2008, down from 2.24% in 2003

60

The Nation’s Judicial Hellholes (2008/2009)

Source: American Tort Reform Association; Insurance Information Institute

AlabamaMacon and

Montgomery Counties South Florida

New JerseyAtlantic County (Atlantic City)

West VirginiaIllinoisCook County

NevadaClark County (Las Vegas)

CaliforniaLos Angeles

County

Watch List

Rio Grande Valley & Gulf Coast, TX

Madison County, IL Baltimore, MD St Louis (the city of),

St Louis and Jackson Counties, MO

Dishonorable Mention

MA Supreme Judicial Court

MO Supreme Court

61

The Nation’s Judicial Hellholes: 2010

Source: American Tort Reform Association; Insurance Information Institute

South Florida

West VirginiaIllinoisCook County

New MexicoAppellate

Courts

Watch List

California Alabama Madison County, IL Jefferson County, MS Texas Gulf Coast Rio Grande Valley,

TX

Dishonorable Mention

AR Supreme Court MN Supreme Court ND Supreme Court PA Governor MA Supreme

Judicial Court Sacramento County

New JerseyAtlantic County (Atlantic City)

New York City

Average Jury Awards 1998 - 2007

$6

02

$7

25

$7

47

$7

56 $

83

4

$8

27

$1

,06

2

$1

,05

2

$9

86

$1

,22

4

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Jury Verdict Research; Insurance Information Institute.

The average jury award more than doubled from

1998 to 2007

Average Jury Awards 1998 vs. 2002 and 2007

$6

02

$1

70

$5

64

$2

,33

8

$2

,73

1

$2

,85

4

$8

34

$2

19

$5

90

$4

,16

4

$4

,42

6

$1

,22

4

$4

72 $

1,3

75

$3

,71

7

$4

,04

3 $5

,48

7

$4

,84

4

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

Overall VehicularLiability

PremisesLiability

WrongfulDeath*

MedicalMalpractice

ProductsLiability

1998 2002 2007

*Award trends in wrongful deaths of adult males.Source: Jury Verdict Research; Insurance Information Institute.

Sum of Top 10 Jury Awards 2004-2008

Millions

$1,344.0 $1,511.2

$615.5$815.0

$2,953.7

$5,158.8

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2004 2005 2006 2007 2008 2009

Source: Insurance Information Institute from Lawyers USA, January 2005, 2006, 2007, 2008, 2009 and 2010.

Total of Top 10 awards has more than doubled in the

last three years.

2009 Top Ten Verdicts

Source: Lawyers USA, January 15, 2010.

Value Issue State

$370 Million Defamation California

$330 Million Personal Injury (Drunk driving case) Florida

$300 Million Personal Injury (Tobacco verdict) Florida

$89 Million Personal Injury (Drunk driving case) Missouri

$78.75 Million Personal Injury (Prempro) New Jersey

$77.4 Million Medical Malpractice New York

$71 Million Conversion and Breach of Fiduciary Duty Texas

$70 Million Workers Comp Case Texas

$65 Million Personal Injury Florida

$60 Million Medical Malpractice New York

Trends in Million Dollar Verdicts*1

3%

4%

11

%

13

%

29

%

37

%

48

%

59

%

5%

17%

11%

41%

53%

17

%

6%

14

%

15

%

33

%

51

% 57

%

65

%

60%

15%

30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All Liabilities VehicularLiability

PersonalNegligence

PremisesLiability

BusinessNegligence

GovernmentNegligence

MedicalMalpractice

ProductsLiability

2001-2003 2004-2005 2006-2007

*Verdicts of $1 million or more.Source: Jury Verdict Research; Insurance Information Institute.

The frequency of multi-million dollar awards is

increasing across virtually all types of defendants.

Across all liability types, million dollar-plus awards

rose from 13% of all awards from 2001-2003 to 17% in

2006-2007.

Insurer Defense & Cost Containment Expenses as a % of Incurred Losses, 2005-2008*

15

.9%

70

.0%

48

.0%

42

.2%

28

.3%

11

.1%

10

.0%

6.6

%15

.2%

56

.6%

36

.7%

27

.1%

9.9

%

6.6

%14

.5%

78

.6%

55

.1%

41

.2%

24

.5%

12

.0%

11

.6%

6.1

%13

.6%

65

.4%

58

.1%

34

.3%

24

.4%

11

.6%

10

.7%

5.9

%

13

4.5

%

11

.0%

0%

50%

100%

150%

All Lia

bility

Lin

es

Produ

cts

Liab

ility

Med

ical

Mal

prac

tice

Comm

. M-P

**

Gener

al L

iabili

ty**

*

Work

ers

Comp

Comm

. Auto

Lia

bilit

y

PPA Lia

bility

Pe

rce

nt

of

Inc

urr

ed

Lo

ss

es

2005 2006 2007 2008

*Net of reinsurance, excl. state funds. **Liability portion only. ***Excludes products liability.Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC; Insurance Information Institute.

Shareholder Class Action Lawsuits*

*Securities fraud suits filed in U.S. federal courts as of March 1, 2010.Source: Stanford University School of Law (securities.stanford.edu); Insurance Information Institute

164202

163

231188

111

173

241209216

498

266227238

182

119

176223

178

19

0

100

200

300

400

500

600

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10*

After surging in 2007 and 2008, litigation activity related to the financial crisis began

to ebb after financial markets began to recover in the 2nd

quarter of 2009

Business Leaders Ranking of Liability Systems*

Best States

1. Delaware

2. Nebraska

3. Maine

4. Indiana

5. Utah

6. Virginia

7. Iowa

8. Vermont

9. Colorado

10. Kansas

Worst States

41. Texas

42. Florida

43. South Carolina

44. California

45. Hawaii

46. Illinois

47. Alabama

48. Mississippi

49. Louisiana

50. West Virginia

Source: US Chamber of Commerce 2008 State Liability Systems Ranking Study; Insurance Info. Institute.

New in 2008

Colorado Indiana Kansas Virginia Vermont

Drop-offs

Minnesota New Hampshire Tennessee Wisconsin

Newly Notorious

Florida South Carolina

Rising Above

Arkansas Alaska

Midwest/West has mix of good and bad states.

Average Total Limits Purchased by All U.S. Firms* ($ Millions)

*Includes underlying primary limitsSource: Limits of Liability 2008, Marsh, Inc.

$77.9

$85.8$83.2

$85.9$88.7

$99.1

$105.0$101.8

$95.7

$87

$77$75

$66 $66

$58

$50

$60

$70

$80

$90

$100

$110Limits fell by 45%

between 2000 and 2008. Price/capacity are issues.

Excess Liability Market CapacityNorth America ($ Billions)

Source: Marsh, 2008 Limits of Liability Report

$2

.01

5

$1

.66

0

$1

.64

5

$1

.57

0

$1

.53

5

$1

.42

5

$1

.57

5

$1

.71

0

$2

.04

5

$1

.94

1

$2

.01

1

$1

.72

1

$1

.40

5

$1

.33

4

$1

.43

2

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

In 2008, capacity is back to 2000 levels.

How the Risk Dollar is Spent (2008)

Source: 2009 RIMS Benchmark Survey; Insurance Information Institute

Firms w/Revenues < $1 Billion

Prof. Liability Costs, 9%

Other Costs, 21%

Retained Property

Losses, 1%

Property Premiums,

15%

Admin Costs, 9%

Liability Premiums,

13%

WC Premiums,

7%

Liability Retained

Losses, 9%Total Mgmt.

Liab., 5%

Retained WC Losses, 10%

Firms w/Revenues > $1 Billion

Retained WC Losses, 22%

Other Costs, 15%

Property Premiums,

12%

Retained Property

Losses, 5%

Liability Premiums,

11%

Total Mgmt. Liab., 6%

WC Premiums, 6%

Retained Liability

Losses, 12%

Admin Costs, 7%

Prof. Liability Costs, 4%

Total liability costs account for about 30% of the risk dollar

74

Discrimination Charges Filed with EEOC by Type: Percent Change FY06-FY09

37.6% 37.7%

9.4%

23.1% 23.3%20.6%

33.7% 33.3%

49.0%

0%

10%

20%

30%

40%

50%

60%

All

Race

Sex

Nation

al O

rigin

Religi

on

Retali

atio

nAge

Disabi

lity

Equal

Pay

Source: Equal Opportunity Employment Commission; Insurance Information Institute.

Change in Charges Filed (%)

The Financial Crisis and Poor Labor Market Conditions Have Contributed to a Surge Employment Discrimination Charges

Retaliation and age discrimination suits are up

substantially

Rising Medical/Health Care Costs

75

Medical Costs Will Rise Steeply in the Years Ahead, Pressuring

Many Casualty Lines

76

* Through June 30, 2009Sources: Bureau of Labor Statistics, Insurance Information Institute

Consumer Price Index for Medical for All Items vs. Medical Care, 1960-2009*

0

50

100

150

200

250

300

350

400

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

All Items Medical Care

(1982-1984 = 100)

Medical costs Will Continue to Rise Relatively Rapidly Irrspective of Outcome of US Healthcare Reform Debate

Medical Care inflation has been surging ahead of general inflation (CPI) for 25

years. Since 1982-84, the cost of medical care has more than tripled.

77

National Health Expenditures and Expenditures as a Share of GDP, 1960-2018E

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

60 80 93 98 00 02 04 06 08E 10E 12E 14E 16E 18E

To

rt S

ys

tem

Co

sts

0%

5%

10%

15%

20%

25%

To

rt Co

sts

as

% o

f GD

P

National Health Expenditures

National Health Expenditures as % of GDP

($ Billions)

Sources: Centers for Medicare and Medicaid, Office of the Actuary; Insurance Information Institute.

Healthcare expenditures as a share of GDP consumed an estimated 16.6% of GDP in 2008 and are

expected to rise to 20.3% by 2018

Average Annual Growth in US Per Capita Health Care Costs, 1960-2018F

14.1%

20.9%

15.6%

7.0%7.9%

6.2%

0%

5%

10%

15%

20%

25%

1960-1970 1970-1980 1980-1990 1990-2000 2000-2007 2007-2018

Source: Insurance Information Institute calculations based on data from the Centers for Medicare & Medicaid Services, Office of the Actuary.

The 1970s were the most inflationary decade for

medical costs, rising at nearly 21% per year Over the decade,

health expenditures will likely increase well

ahead of the general pace of inflation

79

III.

The Economic Storm

What the Financial Crisis, Recession and Recovery Mean for the Industry’s Exposure Base

80

Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 2/10; Insurance Information Institute.

2.9

%

0.1

%

4.8

%

4.8

%

-0.2

%

-0.7

%

1.5

%

-2.7

%

-5.4

%

-6.4

%

-0.7

%

2.2

%

5.7

%

2.8

%

2.8

%

2.8

%

3.0

%

3.0

%

3.2

%

3.3

%

3.2

%

3.7

%

0.8

%

1.6

%

2.5

% 3.6

%

3.1

%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

   2

00

0   

   2

00

1   

   2

00

2   

   2

00

3   

   2

00

4   

   2

00

5   

   2

00

6   

07

:1Q

07

:2Q

07

:3Q

07

:4Q

08

:1Q

08

:2Q

08

:3Q

08

:4Q

09

:1Q

09

:2Q

09

:3Q

09

:4Q

10

:1Q

10

:2Q

10

:3Q

10

:4Q

11

:1Q

11

:2Q

11

:3Q

11

:4Q

Personal and Commercial Lines Exposure Base Have Been Hit Hardand Will Be Slow to Come Back

Real GDP Growth (%)

Recession began in Dec. 2007. Economic toll of credit

crunch, housing slump, labor market contraction has

been severe but modest recovery is underway

The Q1:2009 decline was the steepest since the Q1:1982 drop of 6.4%

Economic growth up sharply in Q4:09 with rebuilding of inventories and stimulus.

More moderate growth expected in 2010/11

82

Real GDP Growth vs. Real P/CPremium Growth: Modest Association

Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 2/10; Insurance Information Institute

4.3

%1

8.6

%2

0.3

%5

.8%

0.3

%-1

.6%

-1.0

%-1

.8%

-1.0

%3

.1%

1.1

%0

.8%

0.4

%0

.6%

-0.4

%-0

.3%

1.6

% 5.6

%1

3.7

%7

.7%

1.2

%-2

.9%

-0.5

%-3

.8%

-4.4

%-3

.8%

-3.8

%

5.2

%-0

.9%

-7.4

%-6

.5% -1

.5%

1.8

%

-10%

-5%

0%

5%

10%

15%

20%

25%

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

E

Re

al N

WP

Gro

wth

-4%

-2%

0%

2%

4%

6%

8%

Re

al G

DP

Gro

wth

Real NWP Growth Real GDP

P/C Insurance Industry’s Growth is Influenced Modestlyby Growth in the Overall Economy

Real GDP Growth vs. Real P/C (%)

83

Regional Differences Will Significantly Impact P/C Markets

Recovery in Some Areas Will Begin Years Ahead of Others

and Speed of Recovery Will Differ by Orders of Magnitude

84

State Economic Growth Varied Tremendously in 2008

US Bureau of Economic Analysis

Highest Quintile

Fourth Quintile

Third Quintile

Second Quintile

Lowest Quintile

Far West0.6

Rocky Mountain2.2

Southwest1.7

Plains2.0 Great Lakes

-0.4

New England1.0

Mideast1.3

Southeast0.0

US = 0.7

WA2.0

OR1.6

CA0.4

NV-0.6

ID0.0

MT1.8

WY4.4

UT1.4 CO

2.9

AZ-0.6 NM

2.0

TX2.0

OK2.7

KS2.2

NE1.3

SD3.5

ND7.3 MN

2.0

IA2.1

MO1.3

WI0.7

IL0.3

MI-1.5

IN-0.6

OH-0.7

NY1.6

PA1.1

NJ0.6

MD1.3

DE-1.6

DC3.0VA

1.3

WV2.5

KY-0.1

NC0.1

SC0.6

TN0.5

AR0.7

LA0.3

MS1.7

AL0.7

GA-0.6

FL-1.6

AK-2.0

HI0.7

ME1.4

NH1.8

VT1.7 MA

1.9

RI-0.9CT

-0.4

Mountain, Plains States Growing the Fastest

Percent Change in Real GDP by State, 2007–2008

85

Fastest Growing States in 2008:Plains, Mountain States Lead

2.1% 2.0%

7.3%

4.4%

3.5%2.9% 2.7% 2.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

ND WY SD CO OK WV IA TX, MN,NM, WA

Source: US Bureau of Economic Analysis; Insurance Information Institute.

Real State GDP Growth (%)

Natural Resource and Agricultural States Have Done Better Than Most Others Recently, Helping Insurance Exposure in Those Areas

86

Slowest Growing States in 2008: Diversity of States Suffering

Source: US Bureau of Economic Analysis; Insurance Information Institute.

States in the North, South, East and West All Represented Among Hardest Hit, But for Differing Reasons

Real State GDP Growth (%)

-0.9%

-1.5%-1.6% -1.6%

-1.7%

-2.0%

-0.1%

-0.4%-0.6% -0.6% -0.6% -0.6%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%KY CT AZ GA IN NV RI MI DE FL OH AK

87

Labor Market Trends

Fast & Furious:Massive Job Losses Sap the

Economy and Commercial/Personal Lines Exposure

89

Unemployment and UnderemploymentRates: Rocketing Up in 2008-09

2

4

6

8

10

12

14

16

18

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Traditional Unemployment Rate U-3

Unemployment + Underemployment Rate U-6

Feb10

10.1% Oct 2009 unemployment rate (U-3) was

the highest monthly rate since 1983.

Peak rate in the last 30 years: 10.8% in Nov -

Dec 1982

Stood at 9.7% in Feb. 2010.

Source: US Bureau of Labor Statistics; Insurance Information Institute.

U-6 went from 8.0% in March

2007 to 17.5% in Oct 2009; Stood at 16.8% in Feb.

2010

January 2000 through February 2010, Seasonally Adjusted (%)

Recession ended in

November 2001

Unemployment kept rising for

19 more months

Recession began in

December 2007

92

Unemployment Rates by State, December 2009: Highest 25 States*

10.9

10.3

10.110

.6

10.7

10.9

9.5

9.19.4

9.09.

6

9.0

9.19.

9

11.812

.4

11.0

11.0

11.1

11.212

.113.0

12.9

12.6

14.6

0

2

4

6

8

10

12

14

16

MI NV RI SC CA DC FL NC IL OR AL OH TN KY MS GA NJ IN MO WA MA ID AZ WV NY

Une

mpl

oym

ent R

ate

(%)

*Provisional figures for December 2009, seasonally adjusted.

Sources: US Bureau of Labor Statistics; Insurance Information Institute.

The unemployment rate has been rising across the country (up in 43 out of 50 states in Dec.), but some states are

doing much better than others.

93

6.9

6.9

6.7

6.6

6.66.

97.5

7.5

4.7

4.7

6.67.

07.4

4.4

6.7

8.38.

7

7.5

7.57.78.

3

8.38.

9

8.9

8.89.0

0

2

4

6

8

10

DE PA CT AK WI TX ME NM AR CO LA MD WY MN NH HI VA VT MT UT OK IA KS SD NE ND

Une

mpl

oym

ent R

ate

(%)

Unemployment Rates By State, December 2009: Lowest 25 States*

*Provisional figures for December 2009, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

The unemployment rate has been rising across the country (up in 43 out of 50 states in Dec.), but some states are

doing much better than others.

94

US Unemployment Rate

4.5

%

4.5

%

4.6

%

4.8

%

4.9

% 5.4

% 6.1

%

6.9

%

8.1

%

9.3

%

9.6

% 10

.0%

10

.2%

10

.0%

9.9

%

9.5

%

9.3

%

9.1

%

8.9

%

9.7

%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

07

:Q1

07

:Q2

07

:Q3

07

:Q4

08

:Q1

08

:Q2

08

:Q3

08

:Q4

09

:Q1

09

:Q2

09

:Q3

09

:Q4

10

:Q1

10

:Q2

10

:Q3

10

:Q4

11

:Q1

11

:Q2

11

:Q3

11

:Q4

Rising unemployment is eroding payrolls

and workers comp’s exposure base.

Unemployment is expected to peak above

10% in early 2010.

* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/10); Insurance Information Institute

2007:Q1 to 2011:Q4F*

95

Monthly Change Employment*-7

2

-14

4

-12

2

-16

0

-13

7

-16

1

-12

8

-17

5

-32

1

-38

0

-59

7

-68

1

-77

9

-72

6

-75

3

-52

8 -38

7

-51

5

-34

6 -21

2

-22

5

-22

4

64

-10

9 -26

-36

-900

-800

-700

-600

-500

-400-300

-200

-100

0

100

200

Jan

08

Fe

b 0

8

Ma

r 0

8

Ap

r 0

8

Ma

y 0

8

Jun

08

Jul 0

8

Au

g 0

8

Se

p 0

8

Oct

08

No

v 0

8

De

c 0

8

Jan

09

Fe

b 0

9

Ma

r 0

9

Ap

r 0

9

Ma

y 0

9

Jun

09

Jul 0

9

Au

g 0

9

Se

p 0

9

Oct

09

No

v 0

9

De

c 0

9

Jan

10

Fe

b 1

0

Monthly Losses in Dec–May Were the Largest in the Post-WW II Period but

Pace of Loss is Diminishing

Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute

Job Losses Since the Recession Began in Dec. 2007 Total 8.4 Million; 14.9 Million People are Now Defined as Unemployed

January 2008 through February 2010 (Thousands)

February’s loss of 36,000 jobs was a better

than expected; Labor market recoveries are

often erratic.

97

US Nonfarm Private Employment1

38

.0

13

8.1

13

8.0

13

7.9

13

7.8

13

7.8

13

7.7

13

7.6

13

7.6

13

7.4

13

7.0

13

6.7

13

6.2

13

5.1

13

3.5

13

2.8

13

2.1

13

1.5

13

1.2

13

0.6

13

0.3

13

0.1

12

9.9

12

9.6

12

9.7

12

9.6

12

9.6

12

9.5

129130131132133134135136137138139

No

v 0

7

De

c 0

7

Jan

08

Fe

b 0

8

Ma

r 0

8

Ap

r 0

8

Ma

y 0

8

Jun

e 0

8

Jul 0

8

Au

g 0

8

Se

p 0

8

Oct

08

No

v 0

8

De

c 0

8

Jan

09

Fe

b 0

9

Ma

r 0

9

Ap

r 0

9

Ma

y 0

9

Jun

09

Jul 0

9

Au

g 0

9

Se

p 0

9

Oct

09

No

v 0

9

De

c 0

9

Jan

10

Fe

b 1

0

Monthly, Nov 2007 – Feb 2010 (Millions)

The US Economy Lost About 8.4 Million Jobs in

Just Over 2 Years

Employment Peak; Recession Starts

Seasonally adjusted. Source: US Bureau of Labor Statistics

98

US Unemployment Rate Forecasts

10.1% 10.0% 9.9%9.7%

9.5%9.3%

9.1%8.9%8.9%

8.7%8.4%

7.9%

10.3%10.3% 10.3%10.3%

9.7%

10.2%

10.0% 9.9%

9.2%9.4%

9.6%

10.0%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4

10 Most PessimisticConsensus/Midpoint10 Most Optimistic

Unemployment will remain high even under the most optimistic of scenarios

Sources: Blue Chip Economic Indicators (2/10); Insurance Information Institute

Stubbornly High Unemployment Will Hurt theWorkers Comp’s Exposure Base

Quarterly, 2010:Q1 to 2011:Q4

99

Unemployment and Educational Attainment: More Education = Less Unemployment

17.6%

11.5%10.0%

7.3%

5.1%

14.4%

9.3%7.5%

5.7%4.1%

0%2%

4%6%8%

10%

12%14%16%

18%20%

Less than HSDiploma

HS Graduate Some College, No Degree

Associate Degree Bachelor'sDegree or Higher

Jan. 2009 Unemployment Rate

Jan. 2010 Unemployment Rate

Source: US Bureau of Labor Statistics accessed at ftp://ftp.bls.gov/pub/suppl/empsit.cpseea17.txt .

Unemployment Rate (%), January 2009 vs. January 2010

A Higher (Record) Proportion of WC Exposure Base is Associated With Employment of Women

101

Wage & Salary Disbursement (Private Employment) vs. WC NWP ($ Billions)

Wage & Salary Disbursements (Payroll Base) vs. Workers Comp Net Written Premiums

* Average Wage and Salary data as of 10/1/2009. Shaded areas indicate recessionsSource: US Bureau of Economic Analysis; Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; I.I.I. Fact Books

Weakening Payrolls Have Eroded $2B+ in Workers Comp Premiums

7/90-3/91 3/01-11/01 12/07-?

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09*

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Wage & SalaryDisbursements

WC NPW

Estimated Effect of Recessions* on Payroll (Workers Comp Exposure)

*Data represent maximum recorded decline over 12-month period using annualized quarterly wage and salary accrual dataSource: Insurance Information Institute research; Federal Reserve Bank of St. Louis (wage and salary data); National Bureau of Economic Research (recession dates).

-4.4%

-2.0%-1.1%

1.1%

3.7%4.6%

8.5%

3.5%

2.1%

-0.5%

-3.6%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1948-1949

1953-1954

1957-1958

1960-1961

1969-1970

1973-1975

1980 1981-1982

1990-1991

2001 2007-2009

Recessions in the 1970s and 1980s saw smaller exposure impacts

because of continued wage inflation, a factor not present

during the 2007-2009 recession

The Dec. 2007 to mid-2009 recession

caused the largest impact on WC

exposure in 60 years

(Percent Change)

(All Post WWII Recessions)

Recession Dates (Beginning/Ending Years)

103

Frequency: 1926–2008A Long-Term Drift Downward

Note: Recessions indicated by gray bars.Sources: NCCI from US Bureau of Labor Statistics; National Bureau of Economic Research

Manufacturing – Total Recordable CasesRate of Injury and Illness Cases per 100 Full-Time Workers

0

5

10

15

20

25

30

'26 '29 '32 '35 '39 '42 '45 '48 '52 '55 '58 '61 '65 '68 '71 '74 '78 '81 '84 '87 '91 '94 '97 '00 '04 '07

106

When Might All of the Lost JobsBe Regained? 2016?

Source: Wall Street Journal, October 9, 2009, p. A3

107

Insurance Industry Employment Trends

Soft Market, Difficult Economy, Consolidation and Outsourcing

Have All Contributed to Industry’s Job Losses

108

U.S. Employment in the DirectP/C Insurance Industry: 1990–2010*

*As of January 2010; Not seasonally adjusted; Does not including agents & brokersNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

Thousands

460

480

500

520

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

As of Jan. 2010, P/C insurance industry employment was down

by 24,200 or 4.9% to 466,900 since the recession began in Dec.

2007 (compared to overall US employment decline of 6.1%)

109

U.S. Employment in the Reinsurance Industry: 1990–2010*

Thousands

24

28

32

36

40

44

48

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10*As of January 2010; Not seasonally adjusted; Does not including agents & brokersNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

As of Jan. 2010, US employment in the reinsurance industry was down by 1,600 or 5.9% to 25,300

since the recession began in Dec. 2007 (compared to overall US employment decline of 6.1%)

110

U.S. Employment in Insurance Agencies & Brokerages: 1990–2010*

Thousands

500

550

600

650

700

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10*As of January 2010; Not seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

As of Jan. 2010, employment at insurance agencies and

brokerages was down by 44,200 or 6.5% to 635,400 since the

recession began in Dec. 2007 (compared to overall US

employment decline of 6.1%)

111

U.S. Employment in Insurance Claims Adjusting: 1990–2010*

Thousands

40

45

50

55

60

'90 '90 '91 '92 '93 '94 '95 '95 '96 '97 '98 '99 '00 '00 '01 '02 '03 '04 '05 '05 '06 '07 '08 '08 '10*As of January 2010; Not seasonally adjusted.Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

As of Jan. 2010, claims adjusting employment was down by 7,200

or 13.8% to 44,800 since the recession began in Dec. 2007

(compared to overall US employment decline of 6.1%)

Crisis-Driven Exposure Drivers

112

Economic Obstaclesto Growth in P/C Insurance

113

(Millions of Units)

New Private Housing Starts, 1990-2011F

1.4

8

1.4

7 1.6

2

1.6

4

1.5

7

1.6

0 1.7

1 1.8

5 1.9

6 2.0

7

1.8

0

1.3

6

0.9

0

0.5

6 0.7

1

0.9

6

1.3

51.4

6

1.2

9

1.2

0

1.0

11.1

9

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/10); Insurance Information Institute.

Weak Construction Risk Exposure Forecast for 2010-2011.

New home starts plunged 34% from 2005-2007; drop through 2009 is 72% (est.); A net annual decline of 1.49 million units,

lowest since records began

in 1959

115

43,6

9448

,125

69,3

0062

,436

64,0

04 71,2

77 81,2

3582

,446

63,8

5363

,235

64,8

53 71,5

4970

,643

62,3

0452

,374

51,9

5953

,549

54,0

2744

,367

37,8

8435

,472

40,0

9938

,540

35,0

3734

,317

39,2

0119

,695 28

,322

43,5

4660

,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Business Bankruptcy Filings,1980-2009*

*2009 is annualized estimate based on actual business bankruptcies in first three quarters of 2009Source: American Bankruptcy Institute,http://www.abiworld.org/AM/Template.cfm?Section=Business_Bankruptcy_Filings1&Template=/TaggedPage/TaggedPageDisplay.cfm&TPLID=59&ContentID=36301.

Significant Implications for all Commercial Lines

There were 45,510 business bankruptcies during the first three quarters of 2009, up 52% from 2008:Q3 and

on track for about 60,000 for all of 2009, the most since 1993. Current recession will generate 200%+ surge

% Change Surrounding Recessions

1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 204.2%*

117

Private Sector Business Starts,1993:Q2 – 2009:Q2*

175

186

174

180

186

192

188

187 18

918

6 190 19

419

119

9 204

202

195

196

196

206

206

201

192

198

206

206

203

211

205

212

200 20

520

420

419

720

320

920

1

192

192

193

201 20

420

221

0 212

209

216 22

0 223

220

220

210

221

212

204

218

209

207

199

191 19

317

117

7

203

150

160

170

180

190

200

210

220

230

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Business Starts Are Down Nearly 20% in the Current Downturn, Holding Back Most Types of Commercial Insurance Exposure

*Latest available as of March 2010, seasonally adjustedSource: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t07.htm.

(Thousands)

177,000 businesses started in 2009:Q2, the lowest level

since 1993

118

Amount of Outstanding Loans byFDIC-Insured Institutions, 2009 vs. 2008

Source: FDIC Quarterly Banking Profile, Fourth Quarter 2009, Table I-A

FDIC-Insured Institutions Had $541.1B (-13.1%) Less in Outstanding Loans in These Three Categories at Year-end 2009 vs. 2008

$Billions

$451.5

$1,220.8

$1,916.7

$590.9

$1,494.0

$2,045.2

$0

$500

$1,000

$1,500

$2,000

$2,500

Construction andDevelopment Secured by

Real Estate

Commercial and Industrial 1-4 Family ResidentialMortgages

2008

2009

Down $139.4B (-13.1%)

Down $273.2B (-18.3%)

Down $128.5B (-6.3%)

66%

68%

70%

72%

74%

76%

78%

80%

82%

Ma

r 0

1

Ju

n 0

1

Se

p 0

1

De

c 0

1

Ma

r 0

2

Ju

n 0

2

Se

p 0

2

De

c 0

2

Ma

r 0

3

Ju

n 0

3

Se

p 0

3

De

c 0

3

Ma

r 0

4

Ju

n 0

4

Se

p 0

4

De

c 0

4

Ma

r 0

5

Ju

n 0

5

Se

p 0

5

De

c 0

5

Ma

r 0

6

Ju

n 0

6

Se

p 0

6

De

c 0

6

Ma

r 0

7

Ju

n 0

7

Se

p 0

7

De

c 0

7

Ma

r 0

8

Ju

n 0

8

Se

p 0

8

De

c 0

8

Ma

r 0

9

Ju

n 0

9

Oct 0

9

Ja

n 1

0

Capacity Utilization, monthly, Mar 2001-Jan 2010

Source: Federal Reserve Board statistical releases 119

Recession began December 2007

Index

Hurricane Katrina

March 2001-November 2001

recession

“Full Capacity”

The closer the economy is to operating at “full

capacity,” the greater the inflationary pressure

95

98

101

104

107

110

113

Ma

r 0

1

Ju

n 0

1

Se

p 0

1

De

c 0

1

Ma

r 0

2

Ju

n 0

2

Se

p 0

2

De

c 0

2

Ma

r 0

3

Ju

n 0

3

Se

p 0

3

De

c 0

3

Ma

r 0

4

Ju

n 0

4

Se

p 0

4

De

c 0

4

Ma

r 0

5

Ju

n 0

5

Se

p 0

5

De

c 0

5

Ma

r 0

6

Ju

n 0

6

Se

p 0

6

De

c 0

6

Ma

r 0

7

Ju

n 0

7

Se

p 0

7

De

c 0

7

Ma

r 0

8

Ju

n 0

8

Se

p 0

8

De

c 0

8

Ma

r 0

9

Ju

n 0

9

Oct 0

9

10

-Ja

n

Total Industrial Production, monthly, Mar 2001-Jan 2010 (Index 2002=100)*

Source: http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt. *seasonally adjusted 120

Recession began December 2007

Index

Hurricane Katrina

March 2001-November 2001

recession

There is a lot of unused capacity in the economy. This might hold inflation down.

121

Total Industrial Production

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/10); Insurance Information Institute

-9.0%

-13.0%

-19.0%

-10.4%

6.9% 7.0%5.3% 4.7% 4.5% 4.5% 4.2% 4.1% 4.2% 3.8%

1.5%3.2% 3.6%

0.3% 0.2%

-4.6%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

07

:Q1

07

:Q2

07

:Q3

07

:Q4

08

:Q1

08

:Q2

08

:Q3

08

:Q4

09

:Q1

09

:Q2

09

:Q3

09

:Q4

10

:Q1

10

:Q2

10

:Q3

10

:Q4

11

:Q1

11

:Q2

11

:Q3

11

:Q4

End of Recession in mid-2009, Stimulus Program Are Benefiting Industrial Production and Therefore Insurance Exposure Both

Directly and Indirectly, Albeit Very Modestly

2007:Q1 to 2011:Q4F (%)

Industrial Production is Aided by a Rebuild of Inventories, Gradual Economic Recovery

and Stimulus Program (Q2:09 through 2010)

Industrial Production Began to Contract Sharply in Late 2008 and Plunged

in 2009:Q1

123

Year-Over-Year Change in Quarterly USState Tax Revenues, Inflation Adjusted

Source: US Census Bureau; Nelson A. Rockefeller Institute of Government: http://www.rockinst.org/pdf/government_finance/state_revenue_report/2010-01-07-SRR_78.pdf

2.4

%4

.7%

5.6

% 9.9

%9

.5%

4.4

%1

.8%

0.4

%-1

.3%

-1.7

%-3

.0%

-7.6

%-1

0.7

%0

.0%

1.6

%-0

.6%

0.1

% 4.0

%4

.7%

5.7

% 8.2

%3

.4% 6.0

%7

.0%

12

.4%

6.6

%4

.2%

3.7

% 6.3

%2

.6%

1.3

%1

.9%

2.3

%0

.4%

0.8

%0

.4% 3.0

%0

.2%

-5.8

%

-10

.9%

-17

.6%

-13

.3%

2.4

%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1Q

99

3Q

99

1Q

00

3Q

00

1Q

01

3Q

01

1Q

02

3Q

02

1Q

03

3Q

03

1Q

04

3Q

04

1Q

05

3Q

05

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

States Revenues Were Down 10.9% in Q3 2009, the Second Consecutive Quarter of Record Revenue Decline. This Will Impact Public Infrastructure

Spending Significantly.

Nationwide, state-tax collections for fiscal year 2009 declined by a record

$63 billion, or 8.2 percent from the previous year. That loss is roughly twice the amount states gained in fiscal relief

from the federal stimulus package

128

Green Shoots

The Recession May Have Ended, but Is it

Self-Sustaining?

129

Hopeful Signs That the Economic Recovery is Underway

Recession appears to have ended, freefall of 2008/09 is over GDP shrinkage has ended; Economy is expanding Pace of job losses is slowing, despite setbacks Major stock market indices well off record lows, anticipating recovery Some signs of retail sales stabilization are evident

Financial sector is stabilizing Banks are reporting quarterly profits Many banks expanding lending to very credit worthy people

and businesses

Housing sector seems to be bottoming out Home are much more affordable (attracting buyers) Mortgage rates are still low relative to pre-crisis levels (attracting buyers) Freefall in housing starts and existing home sales is ending in

many areas

Inflation and energy prices are under control

Consumer and business debt loads are shrinking

Source: Insurance Information Institute.

130

10 Industries for the Next 10 Years: Insurance Solutions Needed

Government

Health Care

Energy (Traditional)

Alternative Energy

Agriculture

Natural Resources

Environmental

Technology

Light Manufacturing

Export-Oriented Industries

131

Mounting Pressure on Claim Cost Severities?

Inflation Trends:Concerns Over Stimulus Spending

and Monetary Policy

132

Annual Inflation Rates(CPI-U, %), 1990–2011F

2.8 2.6

1.51.9

3.3 3.4

1.3

2.5 2.3

3.0

3.8

2.8

3.8

-0.4

2.2 2.0

2.92.4

3.23.0

5.14.9

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F

Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, Feb. 10, 2010 (forecasts).

There is So Much Slack in the US Economy That Inflation Should Not Be a Concern Through 2010/11, but Depreciation of Dollar is Concern Longer Run

Annual Inflation Rates (%) Inflation peaked at 5.6% in August 2008 on high energy and commodity crisis. The recession and the collapse of the

commodity bubble have reduced inflationary pressures

133

Forecasts of Annual Inflation Rates(CPI-U, %), 2010–2015F

2.1 2.0 2.1 2.2 2.3 2.4

1.6

1.1 1.21.4

1.6 1.7

3.13.03.03.02.92.8

0.0

1.0

2.0

3.0

4.0

2010 2011 2012 2013 2014 2015

Blue Chip AvgPessimistic

Blue Chip AvgMedian

Blue Chip AvgOptimistic

Sources: Blue Chip Economic Indicators, Oct 2009 and Feb 2010.

Inflation Will Accelerate Modestly through 2015 but Should Is Not Expected to Become a Major Concern or Threat

Annual Inflation Rates (%)Even the pessimistic forecasts don’t see the CPI rising much

above 3% in the next five years

P/C Insurers Experience Inflation More Intensely than 2009 CPI Suggests

Source: CPI is Blue Chip Economic Indicator 2009 estimate, 12/09; Legal services, medical care and motor vehicle body work are avg. monthly year-over-year change from BLS. Tort costs is 2009 Towers-Perrin estimate. WC figure is I.I.I. estimate based on historical NCCI data.

-0.4%

2.7% 3.0% 3.1%3.8%

4.3%

5.5%

-2%

0%

2%

4%

6%

8%

Overall CPI LegalServices

US TortCosts

MedicalCare

MotorVehicleBodyWork

BodilyInjury

Severity

WC MedSeverity

(Percent)

Healthcare and Legal/Tort Costs Are a Major P/C Insurance Cost Driver. These Are Expected to Increase Above the Overall Inflation Rate (CPI) Indefinitely

134

135

Top Concerns/Risks for Insurersif Inflation Is Reignited

Source: Insurance Information Institute.

What are the potential impacts for insurers?

What can/should insurers do to protect themselves from the risks of inflation?

ConcernsThe Federal Reserve Has Flooded Financial System with Cash (Turned on the Printing Presses), the Federal Gov’t Has Approved a $787B Stimulus and the Deficit is Expected to Mushroom to $1.8 Trillion. All Are Potentially Inflationary.

Rising Claim Severities Cost of claims settlement rises across the board (property and liability)

Rate Inadequacy Rates inadequate due to low trend assumptions arising from use of historical data

Reserve Inadequacy Reserves may develop adversely and become inadequate (deficient)

Burn Through on Retentions Retentions, deductibles burned through more quickly

Reinsurance Penetration/Exhaustion Higher costs risks burn through their retentions more quickly, tapping into reinsurance

more quickly and potentially exhausting their reinsurance more quickly

Key Risks From Sustained/Accelerating Inflation

Tort Cost Growth & Medical Cost Inflation vs. Overall Inflation (CPI-U), 1961-2009E*

0%

2%

4%

6%

8%

10%

12%

14%

1961-70 1971-80 1981-90 1991-2000 2001-09E

Tort Costs Medical Costs CPI

* CPI-U and medical costs as of Sept 2009; Tort figure is for full-year 2009 from Tillinghast.

Tort system is an inflation amplifier

Avg. Ann. Change: 1961-2009E*

Tort costs: +8.4%Med costs: +5.9%

Overall inflation: +4.2%

Source: U.S. Bureau of Labor Statistics; Tillinghast-Towers Perrin, 2008 Update on U.S. Tort Costs; I.I.I.

Tort costs move with inflation but at twice the rate of inflation

Are there healthcare reform spillover effects?

137

IV.

Public Policy IssuesGovernment Action (Direct &

Indirect) Will Shape the Casualty Insurance Enviroment for Many

Years to Come

138

Financial Services Regulation

Any Change to the Status Quo Will Be Felt for Decades

139

Important Issues & Threats Facing Insurers: 2010–2???

Principle danger is that P/C insurers get swept into vast federal regulatory overhaul and subjected to inappropriate, duplicative and costly regulation (Dual Regulation)

Systemic Risk Regulator (Too Big To Fail/Too Interconnected to Fail) Is any insurer systemically important?

Federal Insurance Office Creation Within Treasury? Eventual “mission creep”?; Activist director?

Consumer Financial Protection Agency Will it be limited to banks/creditors

Federal Trade Commission: All Lines Study Authority? McCarran-Ferguson Rollback

Will it be limited to Health/Med Mal lines? OFC/State Regulation Debate Lingers Taxation/Offshore Domiciles

Regulatory Overreach

Bottom Line: Regulatory Outcome is Uncertain and Risk of Adverse Outcome Exists. Ultimate Regulation Structure Will Be in Place for Decades

Source: Insurance Information Institute.

145

Terrorism: Insurance Concerns Resurface

Reasons Why Concerns Are Mounting in 2010

Perception (Reality) that U.S. vulnerability is rising Thwarted Christmas Day attack by “underwear bomber”

And new bin Laden tape claiming al Qaeda is responsible

Foiled NYC Subway Bomber Plot (Zazi case) Trials of Guantanamo 9/11 suspects in Manhattan Court (?) U.K. in January Raised Terror Alert Status to 2nd Highest Level Increased anti-terror efforts, including full-body scans Effort by government to appear more vigilant, prepared Rise of groups such al Qaeda in the Arabian Peninsula U.S. military surge in Afghanistan operations Most buyers, producers have not thought about coverage

issues recently Obama Administration’s Intent to Reduce Support for TRIA

146

Obama Administration Proposal to Scale Back Terrorism Risk Insurance Program

Administration’s Budget Proposal for FY 2011:

Includes proposal to scale back federal support for terrorism risk insurance program

Proposal projects savings of $249 million from 2011-2020

Administration’s justification is that this would “encourage the private sector to better mitigate terrorism risk through other means, such as developing alternative reinsurance options and building safer buildings.”

Source: Budget of the U.S. Government Fiscal Year 2011

Key Concerns Among Industry Observers Over Proposed Reduction in Federal Support

Suggestion of changes to law would have detrimental effect on availability and affordability of terrorism insurance

A 2009 Aon study estimated some 70-80 percent of the commercial property insurance market would revert to absolute exclusions for terrorism, if TRIA is changed.

147

Terrorism Risk Insurance Program Faces Reduced Support Under 2011 Proposed Federal Budget

Sources: U.S. federal budget for FY 2011 as proposed in February 2010; Insurance Information Institute.

($26) ($42)($102)

($134)($74)

$206

$320$321

$193$147

($200)

($100)

$0

$100

$200

$300

$400

2011 2012 2013 2014 2015

Baseline Net Costs Proposed Change from Current Law

The availability of terrorism coverage is threatened by the proposal in the FY 2011 federal budget. Coverage will likely be less available and more expensive.

By shifting more costs to insurers and insureds in the event of a major terrorist

attack, the Administration believes that it can save $378 million from 2011 through 2015

$ Millions

153

Catastrophic Loss –How Big of a CAT Would it

Take to Turn the Market Hard?

154

$8

.3

$7

.4

$2

.6 $1

0.1

$8

.3

$4

.6

$2

6.5

$5

.9 $1

2.9 $

27

.5

$6

1.9

$9

.2

$6

.7

$2

6.0

$1

0.6

$1

00

.0

$7

.5

$2

.7

$4

.7

$2

2.9

$5

.5 $1

6.9

$0

$20

$40

$60

$80

$100

$120

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09*20??

US Insured Catastrophe Losses

* 2009 figure is Munich Re estimate.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.

2009 CAT Losses Were Less than Half of 2008. 2005 Was by Far the Worst Year Ever for Insured Catastrophe

Losses in the Decade of the 2000s Were More than Double the 1990s, But the Worst Has Yet to Come

$100 Billion CAT Year is Coming Eventually

2009 CAT Losses

Were Down 48% though

Q3 from $21.1B 2008

($ Billions)

2000s: A Decade of Disaster

2000s: $193B (up 117%)

1990s: $89B

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