Overview & Outlook for the P&C Insurance IndustryErie and Niagara Insurance Association

Williamsville, NYSeptember 30, 2015

Download at www.iii.org/presentations

James Lynch, chief actuaryInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5533 Cell: 917.359.3908 jamesl@iii.org www.iii.org

2

Insurance Industry:Financial Update & Outlook

2014 Was a Reasonably Good Year2015: A Repeat of 2014?

2

P/C Industry Net Income After Taxes1991–2015:Q1

2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013 ROAS1 = 10.2% 2014 ROAS1 = 8.4% 2015:Q1 ROAS = 10.8%

• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.

Sources: A.M. Best, ISO; SNL Financial; Insurance Information Institute

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 1415

:Q2

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$14,

178

$5,8

40

$19,

316

$10,

870

$20,

598

$24,

404 $3

6,81

9

$30,

773

$21,

865

$20,

559

-$6,970

$3,0

46

$30,

029

$38,

501 $4

4,15

5

$65,

777

$62,

496

$3,0

43

$28,

672

$35,

204

$19,

456 $3

3,52

2

$63,

784

$55,

501

$31,

656

Net income fell modestly

(-12.5%) in 2014 vs. 2013

$ Millions

2015 on Pace to Approach 2005 Record

-5%

0%

5%

10%

15%

20%

25%

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

10

11

12

13

14

15

:Q1

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2015:Q1

*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning

1977:19.0%1987:17.3%

1997:11.6% 2006:12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%

10 Years

10 Years

9 Years

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

2013 9.8%

2014 8.2%

2015:Q1 10.8%

5

ROE: Property/Casualty Insurance by Major Event, 1987–2015:Q1

* Excludes Mortgage & Financial Guarantee in 2008 – 2014. 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 10 11 12 13 1415:Q1

P/C Profitability Affected Both by Cyclicality and Ordinary Volatility

Hugo

Andrew

Northridge

Lowest CAT Losses in 15 Years

Sept. 11

Katrina, Rita, Wilma

4 Hurricanes

Financial Crisis*

(Percent)

Record Tornado Losses

Sandy

Low CATs

Modestly higher CATs

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.Source: A.M. Best; Insurance Information Institute.

Economic Shocks, Inflation:

1976: 22.0%

Tort Crisis1985/86: 22.2%

Post-9/112002:15.3%

Twin Recessions; Interest Rate

Hikes1987: 3.7% Great

Recession:2010: -4.9%

% Chg from Prior Yr

2015 YTD 4.0%

NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926–2015

Great Depression1932: -15.9% max drop

Post WW II Peak:1947: 26.2%

Start of WW II1941: 15.8%

1950-70: Extended period of stability in growth and

profitability. Low interest rates, low inflation, “Bureau”

rate regulation all played a role

1970-90: Peak premium growth was much higher in this period while troughs were comparable. Rapid inflation, economic

volatility, high interest rates, tort environment all played roles

1988-2000: Period of

inter-cycle stability

2010-20XX? Post-

recession period of

stable growth?

7

P/C Insurance Industry Combined Ratio, 2001–2015:Q2*

* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0. Sources: A.M. Best, ISO.

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15:Q290

100

110

120

115.8

107.5

100.198.4

100.8

92.6

95.7

101.099.3

100.8

106.3

102.4

96.7 97.2 97.5

As Recently as 2001, Insurers Paid Out

Nearly $1.16 for Every $1 in Earned

Premiums Relatively Low CAT Losses, Reserve Releases

Heavy Use of Reinsurance Lowered Net

Losses

Relatively Low CAT Losses, Reserve Releases

Higher CAT

Losses, Shrinking Reserve

Releases, Toll of Soft

Market

Cyclical Deterioration

Sandy Impacts

Lower CAT

Losses

Best Combined

Ratio Since 1949 (87.6)

Avg. CAT Losses,

More Reserve Releases

8

RNW All Lines by State, 2004-2013 Average:Highest 25 States

20

.5

18

.4

14

.6

14

.3

13

.4

13

.3

12

.3

12

.1

12

.0

12

.0

11

.7

11

.4

11

.1

11

.1

10

.9

10

.8

10

.7

10

.7

10

.5

10

.5

10

.3

9.9

9.8

9.8

9.6

9.5

02468

1012141618202224

HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD

The most profitable states over the past decade are

widely distributed geographically

Source: NAIC; Insurance Information Institute.

Profitability Benchmark: All P/C

US: 7.9%

9

NM FL

TX WI

KS

MN

CO

PA

US

AR IL IN AZ

MO

KY

TN

NV

NJ

GA

NY

DE MI

AL

OK

MS

LA

-14-12-10-8-6-4-202468

10 9.2

8.6

8.4

8.3

8.2

8.2

8.1

8.0

7.9

7.7

7.7

7.5

7.4

6.8

6.6

6.4

6.1

5.7

5.3

5.2

5.0

4.3

2.5

1.9

-6.9

-9.3

RNW All Lines by State, 2004-2013 Average: Lowest 25 States

Source: NAIC; Insurance Information Institute.

Some of the least profitable states over the past decade were hit hard

by catastrophes

NY: 10-Year Return Below

National Average

All Lines: 10-Year Average RNW NY & Nearby States

7.9%

10.3%

10.9%

5.2%

8.0%

11.1%

0% 2% 4% 6% 8% 10% 12%

Massachusetts

Ohio

Connecticut

U.S.

Pennsylvania

New York

2004-2013

New York’s Profitability Lags Other States in

Region

Source: NAIC, Insurance Information Institute

11

RNW All Lines: NY vs. U.S., 2004-2013

Source: NAIC, Insurance Information Institute.

-15%

-10%

-5%

0%

5%

10%

15%

20%

04 05 06 07 08 09 10 11 12 13

US All Lines NY All Lines

(Percent)

Average 2004-2013U.S.: 7.9%NY: 5.2%

CAPITAL/CAPACITY

13

Capital Accumulation Has Multiple Impacts

13

14

Policyholder Surplus, 2006:Q4–2015:Q1

Sources: ISO, A.M .Best.

($ Billions)

$487

.1

$496

.6

$512

.8

$521

.8

$478

.5

$455

.6

$437

.1 $463

.0 $490

.8 $511

.5 $540

.7

$530

.5

$544

.8

$559

.2

$559

.1

$538

.6

$550

.3

$567

.8

$583

.5

$586

.9 $607

.7

$614

.0

$624

.4 $653

.4

$671

.6

$673

.9

$674

.7

$671

.7

$662

.0

$570

.7

$566

.5

$505

.0

$515

.6

$517

.9

$400

$450

$500

$550

$600

$650

$700

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

13:Q

4

14:Q

1

14:Q

2

14:Q

3

14:Q

4

15:Q

1

2007:Q3Pre-Crisis Peak

Surplus as of 3/31/15 stood at a near-record high $671.7B

2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .

The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.

Drop due to near-record 2011 CAT losses

The P/C insurance industry entered 2015in very strong financial condition.

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

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 11 12 13 14*

Premium-to-Surplus Ratio:1985–2014*

* As of 12/31/14.Source: A.M. Best, ISO, Insurance Information Institute.

The larger surplus is in relation to premiums—the lower the P:S ratio—

and the great the industry’s capacity to handle the risk it has accepted

(Ratio of NWP to PHS)

The Premium-to-Surplus Ratio Stood at $0.73:$1 as of12/31/14, a Record Low (at Least in Recent History)

Surplus as of 12/31/14 was $0.73:$1, a near-record low (at least in modern history)

9/11, Recession & Hard Market

RBC requirements took effect with 1994 Annual Statement.

INVESTMENTS: THE NEW REALITY

18

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

18

Property/Casualty Insurance Industry Investment Income: 2000–2015E1

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$48.0 $47.3$46.2 $46.7

$39.6

$49.5

$52.3

$30

$40

$50

$60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E

Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014 – Despite Record

Surplus.

1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q1.Sources: ISO; Insurance Information Institute.

($ Billions) Investment earnings are still below their 2007 pre-crisis peak

21

U.S. Treasury Security Yields:A Long Downward Trend, 1990–2015*

*Monthly, constant maturity, nominal rates, through July 2015.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Recession2-Yr Yield10-Yr Yield

Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.

Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.

U.S. Treasury yields plunged to historic lows in 2013. Longer-

term yields rebounded then sank fell again.

21

Book Yield on Property/Casualty Insurance Invested Assets, 2007–2015*

4.38

4.174.02

3.87

3.63 3.643.74

3.82

3.44

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

07 08 09 10 11 12 13 14 15*

The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to raise interest rates in late 2015 has already pushed up some yields, albeit quite modestly.

*2015 figure is the average of the four quarters ending in 2015:Q1.Sources: SNL Financial; Insurance Information Institute

(Percent) Book yield in 2015 is down 74 BP from pre-crisis levels

24

Alternative Capital

24

New Investors Continue to Change the Reinsurance Landscape

First I.I.I. White Paper on Issue Was Released in March 2015

Global Reinsurance Capital (Traditional and Alternative), 2006-2014

Source: Aon Benfield Analytics; Insurance Information Institute.

Total reinsurance capital reached a record $580B in 2014, up 71% from

2008.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1$0

$100

$200

$300

$400

$500

$600

$700

17 22 19 22 24 28 39 50 64 66

368 388321

378447 428

466 490 511 514

385 410340

400470 455

505540

575 580

Alternative Capital Traditional Capital Total

(Billions of USD)

But alternative capacity has grown 247% since 2008, to $66B. It has more than doubled in the past three years.

Global Reinsurance Capital (Traditional and Alternative), 2006 - 2014

2014 data is as of December 31, 2014.Source: Aon Benfield Analytics; Insurance Information Institute.

2006 2007 2008 2009 2010 2011 2012 2013 20140%

2%

4%

6%

8%

10%

12%

4.4%5.4% 5.6% 5.5% 5.1%

6.2%

7.7%

9.3%

11.1%

Share of Global Reinsurance Capital Has More Than Doubled Since 2010. In Cat Reinsurance, Alternative Capital Holds Up to 50% of Market.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015*$0

$5

$10

$15

$20

$25

$30

$35

Cat Bonds Sidecars ILWs Collateralized Re

(Billions of USD)

Growth of Alternative Capital Structures, 2002 - 2014

* 2014 data are as of June 30, and 2015 data are as of March 31.Source: Aon Benfield Analytics; Insurance Information Institute.

Collateralized Re’s Growth Has Accelerated in the Past Six Years.

Collateralized Reinsurance and Catastrophe Bonds Currently Dominate the Alternative Capital Market.

Catastrophe Bond Issuance and Outstanding: 1997-2015

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15: Q2

0

5,000

10,000

15,000

20,000

25,000

1,143

1,499

4,615

7,187

3,010

3,396

4,600

4,107

5,855

7,083

8,027

3,842

4,289

5,085

7,677

13,416

12,539

12,508

12,196

12,343

14,839

18,577

22,868

21,560

New Issuance Outstanding

30

Risk Capital Amount ($ Millions)

Q1 2015 Set A First-Quarter Record With $1.49 Billion in New Issues; Q2 Issuance Lagged Prior Two Years.

Source: Guy Carpenter.

Reinsurance Pricing: Change in Rate on Line for Global Cat Business

Source: Guy Carpenter, A.M. Best, Insurance Information Institute.

Alternative Capital, Low

Levels of Catastrophes Drive Rates

Down.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-20%

-10%

0%

10%

20%

30%

40%

24%

5%

-9% -8%

37%

-9% -10%

8%

-6% -8%

10%

-1%

-11% -11%

(Change from Previous Year)

Japan, NZ Quakes, US Tornadoes. 2001-02: WTC

Losses, Falling Stock, Bond Prices

Dry Up Capital.

2006: Higher Rates After Record Hurri-

canes.

One Effect of Alternative Capital: Lower Cat Reinsurance Prices. Price is As Low Now as Before 9/11.

32

U.S. INSURANCE MERGERS AND ACQUISITIONS,P/C SECTOR, 1994-2014 (1)

$5,1

00 $11,5

34

$8,0

59

$30,8

73

$19,1

18

$40,0

32

$1,2

49

$486

$20,3

53

$425

$9,2

64

$35,2

21

$13,6

15

$16,2

94

$3,5

07

$6,4

19 $12,4

58

$4,6

51

$4,3

97

$6,7

23

$55,825

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Tra

ns

ac

tio

n v

alu

es

0

20

40

60

80

100

120

140

Nu

mb

er o

f tran

sa

ctio

ns

($ Millions)

(1) Includes transactions where a U.S. company was the acquirer and/or the target.Source: Conning proprietary database.

M&A activity in the P/C sector was up

sharply in 2014 but remains well

below pre-crisis or late 1990s levels.

M&A activity in 2015 will likely

reach its highest level since 1998

Another Effect of Alternative Capital: Merger Mania.

Update: Alleghany Corp. announced in May 2015 that it is considering the sale of Transatlantic Holding Co. (TransRe).*Source: Conning; Insurance information Institute.

Another Result: $68 Billion in Mergers, 2014-2015 YTD

Acquirer TargetValue

($millions)

ACE (Switzerland) Chubb (US) $28,300Tokio Marine Holdings (Japan) HCC Insurance Holding (U.S.) 7,500

Exor (Italy) PartnerRe Ltd. (Bermuda) 6,700

Mitsui Sumitomo Amlin (UK) 5,400

XL Group plc (Ireland) Catlin Group Ltd. (Bermuda) 4,200

Fosun International (China) Ironshore (US) 2,300

RenaissanceRe Holdings Ltd. (Bermuda) Platinum Underwriters Holdings Ltd. (Bermuda) 1,900

Endurance Specialty Hldgs Ltd. (Bermuda) Montpelier Re Holdings Ltd. (Bermuda) 1,800

Fairfax Financial Holdings Ltd. (Canada) Brit Insurance Holdings NV (Netherlands) 1,880

Desjardins Financial Corp. (Canada) State Farm's P/C, Life (Canada) 1,500

TPG Capital LP The Warranty Group, Inc. (Canada) 1,500

Fosun International Ltd. (China) Caixa Seguros e Saude SGPA SA (Portugal) 1,360

Progressive Corp. ARX Holding Corp. 875

Assured Guaranty Ltd. (Bermuda) Radian Asset Assurance, Inc. 810

Mapfre S.A. (Spain) Direct Line Insurance Group plc (Germany/Italy only) 701

Validus Holdings Ltd. (Bermuda) Western World Insurance Group, Inc. 690

ACE Ltd. (Switzerland) P/C business from Itau Seguros S.A. (Brazil) 685

34

What’s Driving Global Insurance M&A Activity and Will It Continue? Excess Capital in Global Reinsurance and Primary Commercial

Insurance in US (Re)Insurers, like corporations in many industry, are sitting are large

amounts of cash accumulated since the Global Financial Crisis that earns very little

Alternative Capital

Slow Top Line (Premium) Growth

Slowdown in Pace of Earnings Growth/ROE

Desire to Achieve Economies of Scale

Peer Pressure/Momentum Management concerns about being “left out”

35

Performance by Segment

35

36

Return on Net Worth (RNW) All Lines:2004-2013 Average

Fire

Inlan

d Mar

ine

Medic

al Pro

f Liab

ility

All Oth

er

Comm

Auto

Tota

l

PP Auto

Tota

l

All Lin

es

Other

Liab

ility

Comm

ercia

l MP

Work

ers

Comp

Allied

Lin

es

Homeo

wners M

P

Farm

owners M

P-5

0

5

10

15

20

25

30

35

40

17.1

12.8

11.8

9.3

7.7

7.0

6.9

7.4

6.3

6.3

5.9

3.7

3.2

33.8

16.0

4.7

-0.6

7.6

8.3

5.2

4.3

10.6

4.9

-1.0

15.9

11.8

USA NY

Source: NAIC; Insurance Information Institute.

Overall, NY Business Has Returned Slightly Less Than Rest of Country

– With Some Exceptions

37

RNW PP Auto: NY vs. U.S., 2004-2013

Source: NAIC, Insurance Information Institute

-5%

0%

5%

10%

15%

20%

25%

04 05 06 07 08 09 10 11 12 13

US NY

Average 2004-2013U.S.: 7.0%NY: 8.3%

Deterioration Driven By No-

Fault Fraud

PIP Reforms Take Hold

Countrywide Increases in Frequency, Severity Force Rates Higher/Margins Lower While Consumer/Regulatory Challenges Emerge.

Personal Auto Net Combined Ratio: 1990–2017F

10

9.1

10

4.6

10

1.9

10

1.7

99

.5 10

1.1

10

3.5

10

9.5

10

7.9

10

4.2

98

.4

94

.0

95

.1

95

.5 98

.3 10

0.2

10

1.3

10

1.0

10

2.0

10

2.1

10

1.6

10

2.3

10

1.8

10

1.9

10

2.0

10

1.3

10

1.3

10

1.0

80

85

90

95

100

105

110

115

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F16F17F

Rising Frequency and Severity Since Fall 2014 Means Forecasts May Rise for 2015 and Later.

38Sources: A.M. Best (1990-2014);Conning (2015F-2017F); Insurance Information Institute.

39

RNW Homeowners: NY vs. U.S.,2004-2013

Source: NAIC, Insurance Information Institute

-10%

-5%

0%

5%

10%

15%

20%

25%

04 05 06 07 08 09 10 11 12 13

US HO NY HO

(Percent)

Average 2004-2013U.S.: 6.6%NY: 7.6%

Katrina

Ike

Sandy

MW Tornadoes

Gradual Decadelong Improvement in This Cat-Driven Line May Be Bringing in New Players from the Sidelines.

Homeowners Insurance Net Combined Ratio: 1990–2017F

11

3.0

11

7.7

15

8.4

11

3.6

10

1.0 10

9.4

10

8.2

11

1.4 1

21

.7

10

9.3

98

.2

91

.7 10

0.3

89

.0 95

.6

11

6.6

10

5.8

10

6.9

12

2.3

10

4.1

90

.4

92

.4 96

.8

97

.0

97

.0

11

8.4

11

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F16F17F

Homeowners Performance in 2011/12 Impacted by Large Cat Losses. Extreme Regional Variation Can Be Expected Due to

Local Catastrophe Loss Activity

40

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

Sources: A.M. Best (1990-2014);Conning (2015F-2014F); Insurance Information Institute.

42

RNW Farmowners: NY vs. U.S.,2004-2013

Source: NAIC, Insurance Information Institute

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

04 05 06 07 08 09 10 11 12 13

US HO NY HO

(Percent)

Average 2004-2013U.S.: 3.2%NY: 11.8%

Ike MW Tornadoes

Minimal Impact

From Sandy

Farmowners Insurance Combined Ratio: 1990–2016F

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F

16F

80

85

90

95

100

105

110

115

120

125

10

9.0

11

1.9

10

3.2

11

3.4

10

8.7

11

0.5

122.6

10

7.8

11

6.0

11

1.9

10

9.6

11

3.8

10

7.6

99

.5

92

.0

95

.3 10

0.3

97

.9

11

9.5

10

7.6

10

7.9

11

7.2

99

.6

93

.9

97

.1 10

1.8

10

2.8

1

Results Vary (Extremely) By Region Due to Local Catastrophe Activity, Which Has Been Favorable Recently Countrywide.

43

Hurricane Ike Hurricane

Sandy

Record Tornado Activity

Sources: A.M. Best (1990-2014);Conning (2015F-2016F); Insurance Information Institute.

Strong MW Tornadoes

44

RNW Fire: NY vs. U.S.,2004-2013

Source: NAIC, Insurance Information Institute

0%

10%

20%

30%

40%

50%

60%

70%

04 05 06 07 08 09 10 11 12 13

US Fire NY Fire

(Percent)

Average 2004-2013U.S.: 17.1%NY: 33.8%

Fire Combined Ratio: 1985–2014

85 87 89 91 93 95 97 99 01 03 05 07 09 11 1370

80

90

100

110

120

130

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

95

.8

91

.3

87

.6

92

.6

10

4.0

1

00

.7

10

1.8

1

16

.1

10

5.9

1

06

.6

10

4.8

9

4.2

9

7.1

1

07

.7

10

6.8

1

13

.7

11

8.0

8

7.4

7

9.1

7

3.7

82

.3

76

.5

86

.2 92

.7

78

.5

80

.0

93

.3

87

.2

79

.1 8

6.2

Co

mb

ine

d R

ati

o

% N

PW

Gro

wth

Absent Wildfires and Conflagrations, Fire Results Vary But Have Generated Industrywide U/W Profit When Insurance Cycle Permits.

Individual Company Results Vary.

Source: Insurance Information Institute calculations from A.M. Best. 45

WTC, End of Soft Market

46

RNW Commercial Multi-Peril: NY vs. U.S., 2004-2013

Source: NAIC, Insurance Information Institute

-10%

0%

10%

20%

30%

40%

50%

60%

70%

04 05 06 07 08 09 10 11 12 13

US CMP NY CMP

(Percent)

Average 2004-2013U.S.: 6.3%NY: 10.6%

Commercial Multi-Peril Combined Ratio: 1995-2017F

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F

16F

17F

80

85

90

95

100

105

110

115

120

125

130

11

9.0

11

9.8

10

8.5

12

5.0

11

3.1

11

5.0

12

1.0

11

6.2

11

6.1

10

4.9

10

1.9

10

5.5

95

.4

97

.6

94

.2

96

.1 1

02

.1

94

.1

10

3.0

10

3.5

10

4.1

10

4.1

10

4.1

10

0.7

11

6.8

11

3.6

11

5.3

12

2.4

11

5.0

11

7.0

97

.3

89

.0

97

.7

93

.8

83

.9

89

.8

10

8.4

98

.7 10

2.5

12

0.1

11

1.9

94

.4 96

.7 10

1.1

10

2.1

10

3.6

CMP-Liability CMP-Non-Liability

Commercial Multi-Peril Underwriting Performance is Expected to Remains Stable in 2015 Assuming Normal

Catastrophe Loss Activity

Sources: A.M. Best (1995-2014); Conning (2015F-2017F); Insurance Information Institute. 47

48

Growth Analysis by State and Business Segment

Post-Crisis Paradox? Premium Growth Rates Vary

Tremendously by State

48

49

-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 09 10 11 12 13 14 15*

Net Premium Growth (All P/C Lines): Annual Change, 1971—2015:Q2

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

Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014-15).

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.

2015:Q2: 4.0%

2014: 4.1%

2013: 4.4%

2012: +4.2%

50

Direct Premiums Written: Total P/CPercent Change by State, 2007-2014

70

.7

36

.7

36

.2

30

.3

29

.4

26

.8

24

.7

23

.7

21

.6

20

.7

19

.2

19

.2

18

.6

18

.1

18

.0

17

.0

15

.2

15

.1

15

.0

14

.9

14

.8

14

.7

14

.4

14

.2

13

.8

13

.5

0

10

20

30

40

50

60

70

80

ND

OK

SD

TX

NE

KS IA VT

WY

CO

MN IN MI

TN AR WI

GA

SC NJ

OH

AK

KY VA

LA

CT

MT

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LC.; Insurance Information Institute.

Top StatesNorth Dakota was the country’s growth leader over the past 7 years with premiums written

expanding by 70.7%, fueled by the state’s energy boom

Growth Benchmarks: Total P/C

US: 13.0%

51

Direct Premiums Written: Total P/CPercent Change by State, 2007-2014

13

.4

13

.1

13

.1

13

.0

13

.0

12

.9

12

.4

12

.2

11

.7

11

.0

10

.5

9.4

9.4

9.2

9.1

8.2

6.3

6.0

4.7

2.2

1.3

-0.8

-1.6

-4.3

-7.3

-12

.9

-15

-10

-5

0

5

10

15

MO

NY

UT

US

NM

MS

MA

AL

NC

MD

WA RI

NH IL PA ID ME

CA

OR FL AZ

DC HI

WV

NV

DE

Pe

ce

nt

ch

an

ge

(%

)

Bottom States

Sources: SNL Financial LC.; Insurance Information Institute.

Growth was negative in 4 states and DC between

2007 and 2014

NY Growth Was Close to National Average.

52

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014

80

.4

36

.8

33

.3

29

.4

24

.8

22

.5

21

.0

20

.6

15

.2

14

.6

13

.9

11

.8

10

.3

8.7

8.5

8.4

8.0

7.9

7.6

7.1

6.6

5.9

5.9

5.8

5.4

4.5

0

10

20

30

40

50

60

70

80

90

ND

SD VT

OK

NE IA KS

TX

WY

AK IN

MN WI

MA

AR

CT

NY

NJ

CO

NM

OH LA

US

MS

NH

MO

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top States

43 states showed commercial lines growth from 2007

through 2014

Growth Benchmarks: Commercial

US: 5.9%

NY Exceeded National Average,

About Same as Nearby States

53

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2014

4.5

4.4

4.2

4.1

3.9

3.8

3.7

3.3

3.3

3.2

3.1

2.8

2.8

2.2

2.1

1.4

0.9

-1.3

-3.2

-5.3

-6.5

-6.9

-9.2

-10

.7

-19

.9

-22

.2

-25

-20

-15

-10

-5

0

5

10

MI

TN

MD

MT

CA RI

WA

GA

PA

UT IL KY VA

NC

ME

SC ID AL

DC HI

FL

OR AZ

DE

NV

WV

Pe

ce

nt

ch

an

ge

(%

)

Bottom States

Sources: SNL Financial LLC.; Insurance Information Institute.

States with the poorest performing economies also produced the most negative

net change in premiums of the past 6 years

Nearly half the states have barely returned to pre-crisis levels

54

Direct Premiums Written: Pers. LinesPercent Change by State, 2007-2014

54

.2

45

.1

41

.4

39

.4

37

.2

35

.4

34

.2

32

.4

30

.1

29

.9

28

.9

28

.8

27

.8

27

.7

27

.0

26

.7

26

.7

26

.1

25

.9

25

.0

24

.6

24

.2

24

.2

23

.4

23

.4

23

.3

0

10

20

30

40

50

60

ND

OK

TX

SD

NE

CO

KS

TN MI

IA WI

MN

AR

MO

WY

SC

MT

GA

KY VA

UT IN AL

DE

NJ

LA

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top StatesPersonal Lines Growth Follows

Commercial Growth – Same States

Growth Benchmarks: Commercial

US: 20.9%

55

Direct Premiums Written: Pers. LinesPercent Change by State, 2007-2014

21

.8

21

.6

21

.4

20

.9

20

.8

19

.5

19

.4

18

.3

17

.9

17

.7

17

.3

17

.1

16

.5

16

.0

16

.0

15

.6

15

.5

15

.0

13

.2

11

.5

11

.2

10

.8

9.9

8.3

5.7

4.0

0

5

10

15

20

25

OH

NC

US

A

NY

MS

CT IL

NM

OR ID RI

MD

DC

WA

MA

AK

WV

PA

NH

ME FL

VT AZ

CA

NV HI

Pe

ce

nt

ch

an

ge

(%

)

Bottom States

Sources: SNL Financial LLC.; Insurance Information Institute.

Weakest Performers Hurt by Housing Bust, Depressing HO

Premium

NY Growth Near the National

Average

62

Pricing Trends

Survey Results Suggest Commercial Pricing Has

Flattened Out

62

63

Commercial Lines Rate Change by Qtr (vs. Year Earlier)

Sources: Towers Watson Commercial Lines Insurance Pricing Survey, Insurance Information Institute.

Hard Market (Such As It Is) Appears to Have Passed Its Peak.

20

03

:Q2

20

03

:Q3

20

03

:Q4

20

04

:Q1

20

04

:Q2

20

04

:Q3

20

04

:Q4

20

05

:Q1

20

05

:Q2

20

05

:Q3

20

05

:Q4

20

06

:Q1

20

06

:Q2

20

06

:Q3

20

06

:Q4

20

07

:Q1

20

07

:Q2

20

07

:Q3

20

07

:Q4

20

08

:Q1

20

08

:Q2

20

08

:Q3

20

08

:Q4

20

09

:Q1

20

09

:Q2

20

09

:Q3

20

09

:Q4

20

10

:Q1

20

10

:Q2

20

10

:Q3

20

10

:Q4

20

11

:Q1

20

11

:Q2

20

11

:Q3

20

11

:Q4

20

12

:Q1

20

12

:Q2

20

12

:Q3

20

12

:Q4

20

13

:Q1

20

13

:Q1

20

13

:Q3

20

13

:Q4

20

14

:Q1

20

14

:Q2

20

14

:Q3

20

14

:Q4

20

15

:Q1

20

15

:Q2

-10%

-5%

0%

5%

10%

15%

20%

13.0

%12

.0%

9.0%

5.0%

3.0%

0.0%

-1.0

%-1

.0%

-2.0

%-2

.0%

-2.0

%-2

.0%

-1.0

%-1

.0%

-3.0

%-4

.0%

-5.0

%-5

.0%

-6.0

%-6

.0%

-5.0

%-4

.0%

-3.0

% -1.0

%1.

0%0.

0%0.

0%-1

.0%

-1.0

%-1

.0%

-1.0

%1.

0% 2.0%

2.0% 3.

0%5.

0% 6.0%

6.0% 7.

0%7.

0%6.

0%6.

0%5.

0%4.

0%3.

0%3.

0%2.

0%2.

0%1.

0%

18 consecutive quarters of rate increases

Commercial Lines Rate Change by Month (vs. Year Earlier)

Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15-20%

-10%

0%

10%

20%

30%

40%

Jul-02; 33%

Feb-05; 0%

Dec-07; -16%

Oct-11; 0%

Sep-13; 5%

Dec-14; 0%

Aug-15; 0%79 Months of Rates < 0%

64SOURCE: MarketScout, Insurance Information Institute.

Overall, Rates Are As Stable As They Have Been in 15 Years, Though Individual Markets Often Vary Significantly.

Not Much of A Hard Market, By Historic Standards

Not Much of A Soft Market, To Date

Commercial Property Rate Change by Month (vs. Year Earlier)

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Feb-09; -7%

Sep-12; 6%

Jul-15; 2%

Four Years of Rates >=0%

65

SOURCE: MarketScout, Insurance Information Institute. Interpolated Commercial Property Estimates for May, August, September 2010.

Commercial Property Rates Track Closely With Commercial Rates Overall.

BOP Rate Change by Month (vs. Year Earlier)

66

Jun-

09

Sep-0

9

Dec-0

9

Mar

-10

Jun-

10

Sep-1

0

Dec-1

0

Mar

-11

Jun-

11

Sep-1

1

Dec-1

1

Mar

-12

Jun-

12

Sep-1

2

Dec-1

2

Mar

-13

Jun-

13

Sep-1

3

Dec-1

3

Mar

-14

Jun-

14

Sep-1

4

Dec-1

4

Mar

-15

Jun-

15-6%

-4%

-2%

0%

2%

4%

6%

8%

-5%

-5%

-4%

-3%

-3%

-4%

-3%

-2%

-2%

-4%

-1%

-2%

-4%

-4%

-3%

-3%

-4%

-2%

-1%

0% 0% 0%1% 1%

2% 2% 2% 2% 2%3%

4% 4%5%

5%6%

5%4% 4%

5%4%

5% 5%4% 4% 4%

5% 5% 5%4%

3% 3%4% 4%

2%3% 3% 3%

2% 2% 2% 2%1% 1% 1%

0%1% 1% 1%

0%

Rates on the BOP Have Been Flat, Like Much of the Market.

67

Loss Trends

Growth in Claim Size Continues to Outpace Inflation - Barely

67

An Example: NY Homeowners

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00CW freq -49% NY freq -51%

CW sev +224% NY sev+211%

Non-cat Paid Frequency Per 100 House-Years

Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” 2015 edition, pp. 41, 80.

Non-cat Paid Severity

Severity Rises Faster Than Frequency Falls. NY Frequency, Severity Close to CW Averages.

68

Claim Inflation vs. CPI

Source: Insurance Information Institute calculation from Towers Watson data.

2000-2005 2005-2010 2010-20140.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

4.7

3%

4.2

5%

1.9

9%

5.2

1%

3.5

1%

0.9

4%

5.3

2%

1.2

5%

2.4

9%

5.1

8%

3.5

4%

1.3

4%

2.6

3%

2.2

2%

1.2

5%

Auto Fire Homeowners CMP CPI, all items

(% Chg Over Period)

In Recent Years, Claim Costs Have Risen at About the Inflation Rate.

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

78

Growth Will Expand Insurer Exposure Base Across Most Lines

78

79

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 8/15; Insurance Information Institute.

2.7%

1.8%

-1.8

%1.

3%-3

.7%

-5.3

%-0

.3%

5.0%

2.3%

2.2% 2.6%

2.4%

0.1%

2.5%

1.3%

4.1%

2.0%

1.3%

3.1%

0.4%

2.7%

1.8%

3.5%

-0.9

%4.

6%4.

3%2.

1%0.

6%2.

3% 2.7%

2.8%

2.7%

2.7%

2.7%

2.6%

-8.9%

4.5%

1.4%

4.1%

1.1% 1.

8% 2.5% 3.

6%3.

1%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

   2

00

0   

   2

00

1   

   2

00

2   

   2

00

3   

   2

00

4   

   2

00

5   

   2

00

6   

   2

00

7   

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

12

:1Q

12

:2Q

12

:3Q

12

:4Q

13

:1Q

13

:2Q

13

:3Q

13

:4Q

14

:1Q

14

:2Q

14

:3Q

14

:4Q

15

:1Q

15

:2Q

15

:3Q

15

:4Q

16

:1Q

16

:2Q

16

:3Q

16

:4Q

Demand for Insurance Should Increase in 2015 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly

Real GDP Growth (%)

Recession began in in June

2009

The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%

Q1 2014/15 GDP data were hit hard by this

year’s “Polar Vortex” and harsh

winter

State Leading Economic Indicators through January 2016

Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 80

Growth in the West is

finally beginning to pick up

The economic outlook for most of the US is generally

positive, though flat-to-negative for 10 states, several

of them energy dependent

Solid Growth Projected for

Northeast.

81

Real GDP by State Percent Change, 2014*:Highest 25 States

6.3

5.2

5.1

5.1

4.7

3.6

3.1

3.0

2.8

2.8

2.7

2.7

2.5

2.3

2.3

2.3

2.2

2.2

2.1

1.9

1.9

1.9

1.8

1.8

1.8

1.7

0

1

2

3

4

5

6

7

ND TX WY WV CO OR UT WA OK CA ID FL NY GA NH MA US SC OH MI MN LA MT KS PA TN

Pe

rce

nt

Ch

an

ge

(%

)

*Advance statisticsSources: U.S. Bureau of Economic Analysis; Insurance Information Institute.

North Dakota was the economic growth juggernaut of the US

in 2014—by far

Only 7 states experienced growth in excess of 3% in 2014, which is a

growth rate we would see nationally in a more typical recovery

Growth Benchmarks: Real GDP

US: 2.2%

82

1.6

1.4

1.4

1.2

1.2

1.2

1.0

1.0

1.0

1.0

0.9

0.8

0.8

0.8

0.7

0.7

0.6

0.6

0.6

0.4

0.4

0.4

0.2

0.0

-1.2

-1.3-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

DC NC AZ IL RI DE WI KY NM NV MO AR HI MD NE AL SD VT CT IA IN NJ ME VA MS AK

Pe

rce

nt

Ch

an

ge

(%

)Real GDP by State Percent Change, 2014*: Lowest 25 States

*Advance statisticsSources: US Bureau of Economic Analysis; Insurance Information Institute.

Mississippi and Alaska were the

only states to shrink in 2014

Growth rates in 16 states were still below 1% in

2014

84

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend Has Greatly Improved

84

85

Unemployment and Underemployment Rates: Still Too High, But Falling

2

4

6

8

10

12

14

16

18

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Jan12

Jan13

Jan14

Jan15

"Headline" Unemployment Rate U-3

Unemployment + Underemployment RateU-6

“Headline” unemployment

was 5.3% in July 2015. 4.5% to

5.5% is “normal.”

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

January 2000 through July 2015, Seasonally Adjusted (%)

Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is continuing to improve.

85

U-6 soared from 8.0% in March

2007 to 17.5% in October 2009; Stood at 10.4% in June 2015.8% to 10% is

“normal.”

23

15

21

70

52

12

65

73

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(1,000)

(800)

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Jan-

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Monthly Change in Private Employment

January 2007 through July 2015 (000s, Seasonally Adj.)

Private Employers Added 12.84 Million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)

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

Monthly losses in Dec. 08–Mar.

09 were the largest in the

post-WW II period

210,000 private sector jobs were created in July.

86

Jobs Created2014: 3.042 Mill2013: 2.452 Mill2012: 2.315 Mill2011: 2.396 Mill2010: 1.282 Mill

3,042,000 jobs were created in 2014, the most since 1997

94

DISRUPTORS

Technology, Society and the Economy Are All

Changing at a Rapid PaceThoughts on the Future

94

Cyber Risk & Cyber Insurance

95

Cyber Risk is a Rapidly Emerging Exposure for Businesses Large and

Small in Every IndustryI.I.I. White Paper Coming Out in October

95

Data Breaches 2005-2015, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed

*Figures as of June 30, 2015, from the Identity Theft Resource Center,http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf

157

321

446

656

498

419470

614

400

783

662

117.6

85.692.0

17.522.9

35.7

19.1

66.9

222.5

16.2

127.7

100

200

300

400

500

600

700

800

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *20150

20

40

60

80

100

120

140

160

180

200

220

# Data Breaches # Records Exposed (Millions)

The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million records. Through June 30, this year has

seen 117.6 million records exposed in 400 breaches.*

Millions

High Profile Data Breaches, 2014-2015Date Company Description of BreachMay 2015 OPM Hackers broke into U.S. Government Personnel Office stealing personal identifying

information of as many as 14 million civilian U.S. government employees.

Mar 2015 Premera Blue Cross Data breach compromises financial and medical records of 11 million customers.

Feb 2015 Anthem, Inc Massive data breach after hackers gained access to corporate data base containing personal information of as many as 80 million current and former U.S. customers and employees.

Dec 2014 Sony Pictures Entertainment

Hacker break-in involving theft of unreleased motion pictures, and theft of more than 25 gigabytes of sensitive data on tens of thousands of Sony employees, including social security numbers, medical and salary information.

Nov 2014 Staples Point-of-sale (POS) malware attack and breach exposing customer data, and resulting in compromise of 1.2 million records.

Sept 2014 Home Depot Huge data breach exposes 56 million credit and debit cards and 53 million email addresses.

Aug 2014 Community Health Systems

Cyber attack originating in China resulted in data breach, compromising 4.5 million patient records. Hackers broke into company’s computer system by exploiting Heartbleed bug.

June/July 2014

JP Morgan Chase Massive data breach compromised data associated with 76 million household and 7 million small business accounts. Hackers obtained personal identifying nformation.

June 2014 PF Changs Security breach affected customers at 33 restaurants located in 16 states, with potential credit and debit card data stolen.

May 2014 eBay Massive data breach exposed records of site’s 233 million customers, including names, email addresses, physical addresses, phone numbers and birthdates.

Feb 2014 Michaels Stores Possible fraudulent activity on some U.S. payment cards used at Michaels stores suggests it may have experienced data security attack, exposing 2.6 million records.

Jan 2014 Snapchat Security breach compromises phone numbers and usernames for 4.6 million accounts.

Jan 2014 Neiman Marcus Hacker break-in exposed unknown no. of customer cards, compromising est. 1.1 million records.

Nov/Dec 2013

Target Malware stored on Target’s checkout registers led to theft of data from about 40 million credit and debit card accounts and the personal information of up to 70 million customers.

Sources: Identity Theft Resource Center; Insurance Information Institute (I.I.I.) research.

98

Top 10 Global Business Risks for 2015

Source: Allianz Risk Barometer on Business Risks 2015

9%

11%

13%

15%

16%

17%

18%

27%

30%

46%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Theft, fraud, corruption

Political, social upheaval, war

Intensified competition

Market stagnation or decline

Loss of reputation or brand value (e.g. from social media)

Cyber crime, IT failures, espionage

Changes in legislation and regulation

Fire, explosion

Natural catastrophes

Business interruption, supply chain risk

Cyber is one of the most significant movers in this year’s Risk Barometer rankings, gaining five percentage points to move into the top 5 global business

risks for the first time.

Worldwide Cybersecurity Spending, 2011- 2016F ($ Billions)

$55.0

$60.0

$65.9

$71.1

$76.9

$83.2

7.9%8.4%8.2%

8.2%9.8%

$50

$55

$60

$65

$70

$75

$80

$85

2011 2012 2013 2014F 2015F 2016F0%

2%

4%

6%

8%

10%

12%

Worldwide Cybersecurity Spending % Change from Previous Year

Cybersecurity Spending Is Rising Sharply, Up by About 8%+ Annually through 2016—a Projected Increase of $12.1 Billion from 2014 to 2016

Cybersecurity spending increased by an estimated $5.2B in 2014, $5.8B

in 2015 and $6.3B in 2016

Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.

99

106

Marsh: Percentage of U.S. Companies Purchasing Cyber Insurance Increased in 2014

*Take-up rate refers to the overall percentage of clients that purchased standalone cyber insurance.Source: Benchmarking Trends: As Cyber Concerns Broaden, Insurance Purchases Rise, Marsh Risk Management Research Briefing, March 2015

8%

12%

18%

21%

21%

22%

26%

32%

50%

16%

11%

13%

14%

17%

17%

16%

22%

45%

13%

6%Manufacturing

Communications, Media and Tech

Retail/Wholesale

Power and Utilities

Financial Institutions

Services

Hospitality and Gaming

Education

Health Care

All Industries

Take-up rate 2014* Take-up rate 2013

Take-Up Rate Edging Up, but Small Business, the “Soft Underbelly” Has

Been Slow to Respond.

Data/Privacy Breach:Many Potential Costs Can Be Insured

Source: Zurich Insurance; Insurance Information Institute

Forensic costs to discover

cause

110

113

Technology and Insurance

113

Rapid Technological Innovations Are Impacting Many Segments of the

P/C Insurance Industry

114

Media Are Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance

By 2035, it is estimated that 25% of new vehicle

sales could be fully autonomous models

Source: Boston Consulting Group.

Questions

Are auto insurers monitoring these trends?

How are they reacting?

Will Google take over the industry?

Will the number of auto insurers shrink?

How will liability shift?

115

On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance The “On-Demand” Economy is or

will impact many segments of the economy important to P/C insurers

Auto (personal and commercial)

Homeowners/Renters Many Liability Coverages

Professional Liability

Workers Comp

Many unanswered insurance questions

Insurance solutions are increasingly available to fill the many insurance gaps that arise

116

Labor on Demand: Huge Implications for the US Economy, Workers & Insurers

Will YOUR job be reduced to an app?

117

Send in the Drones: Potential Rapid Adoption in Industry

Drones or Unmanned Aerial Vehicle (UAV) technology is seeing rapid adoption rate in many industries, including insurance

FAA granting Section 333 exemptions for commercial use and testing of UAS

At least 5 insurers have received permission to test

Wide variety of applications: claims, pre-event property inspections…

Insurers partnering with construction industry to guide R&D and regulation of UAV use via Property Drone Consortium: www.propertydrone.org

Summary

Calm Eddies . . . Low Interest Rates . . .

Flat Premium Rates . . .

Light Catastrophes (so far)

Underwriting Profits . . .

Steady Economic Growth . . .

Make 2015 Look Good (so far)

118

Summary

Turbulent Waters Excess Capital. . .

Waves of Mergers and Acquisitions. . .

Cybersecurity Risks . . .

Disruptive Technology . . .

Make the Future an Exciting Challenge

119

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120