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Welcome Remarks

David Bradford President, Research & Editorial division

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Opening Remarks

Duncan Ellis Managing Director, US Property Practice Leader

Marsh 2014 Conference Chairman

Morning Keynote Erik Nikodem

Property Executive for the Americas Region,

AIG Property Casualty AIG

Erik Nikodem

The Risk Professional’s Perspective

The Risk Professional’s Perspective

Duncan Ellis Managing Director, US Property Practice Leader

Marsh Moderator

The December 26, 2004 Indian Ocean tsunami was caused by an earthquake that is thought to have had the energy of 23,000 Hiroshima-type atomic bombs.

Etheric.com.

The Risk Professional’s Perspective

• Duncan Ellis, Managing Director, US Property Practice Leader, Marsh (Moderator)

• Anthony Avitabile, Vice President of Industry Risk Management, Major League Baseball

• Timothy Bunt, Senior Vice President & Chief Risk Officer, CBRE

• Courtney Osborne, Vice President, Insurance and Risk Management, EL AD Group

2004 Indian Ocean Tsunami SanAndreasFault.org

The Risk Professional’s Perspective

Duncan Ellis

Marsh

Anthony Avitabile

Major League Baseball

Tim Bunt CBRE

Courtney Osborne

EL AD Group

The Economist’s View of the Property Insurance Market

Thomas Holzheu Head of Economic Research

& Consulting, Americas Swiss Re

Thomas Holzheu, Chief Economist, Americas

The Economist's View of the Property Insurance Market

Trends in global cat losses

Economic Market Update | May 2014

Insured losses in 2013 were USD 45 billion mostly driven by "secondary perils"

16

Economic Market Update | May 2014

Insured losses in 2013 were USD 45 billion mostly driven by "secondary perils"

17

4.1 bn

Economic Market Update | May 2014

Insured losses in 2013 were USD 45 billion mostly driven by "secondary perils"

18

Hailstorms in Germany and France

• Insured loss: USD 3.8bn

• Top hail event loss ever

• >100 000 buildings damaged

• >50 000 vehicles damaged

18

3.8 bn

Economic Market Update | May 2014

Insured losses in 2013 were USD 45 billion mostly driven by "secondary perils"

19

1.9 bn

Economic Market Update | May 2014

Insured losses in 2013 were USD 45 billion mostly driven by "secondary perils"

20

1.8 bn

Economic Market Update | May 2014 21

A history of rising losses …

Source: sigma 1/2014

Economic Market Update | May 2014 22

… and widening protection gap

22

Note: Insured losses plus uninsured losses=economic losses Source: Swiss Re's sigma catastrophe database

0

50

100

150

200

250

300

350

400

450

1970 1975 1980 1985 1990 1995 2000 2005 2010

Insured losses Uninsured losses 10 per. Mov. Avg. (Total Insured Losses) 10 per. Mov. Avg. (Total Eco Losses)

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

1974-1983 1984-1993 1994-2003 2004-2013

Total losses Insured losses

10-year average (% of GDP)

What are the factors driving the property insurance market?

Economic Market Update | May 2014

Market dynamics I: Strong underwriting results; declining investment yields

24

Combined Ratio

Investment yield

Return on Equity

Capital growth

2014

~ 96%

~ 3.0%

~8%

2%

2011

111%

3.7%

4%

2%

2013

89%

3.1%

12%

0%

2012

89%

3.7%

14%

10%

Sample of global reinsurers; Source: Swiss Re Economic Research & Consulting

Economic Market Update | May 2014

Traditional capital was flat Effect of rising interest rates was offsetting retained earnings

• Traditional capital was flat in 2013, rising interest rates eroded unrealized capital gains on bond portfolios

• But: alternative capacity is up significantly main cause for rate softening; spill-over into other lines of business

• Quality of traditional capital improved better price-to-book valuations

25

Sample consisting of Arch Capital, Aspen, Axis Capital, Berkshire Hathaway, Endurance, Everest Re, Hannover Re, Lloyd’s, Mapfre Re, Montpelier Re, Munich Re, PartnerRe, Platinum, RenaissanceRe, SCOR, Swiss Re, Transatlantic Re, Validus Re, XL Capital.

Economic Market Update | May 2014

Industry capitalisation

26

Factors leading to higher prices

Factors leading to lower prices

Reserves releases

Low inflation

Short-term pricing drivers – the momentum is shifting

Lower

Prices

Higher

26

Low interest rates

Regulatory changes

Cat losses

CI rates are decelerating and r/i rates are declining

Economic Market Update | May 2014

Primary rate and profitability trends Rate improvements are slowing down

• Rate hardening, which began in 2011, slowed or ceased in commercial lines and in personal lines coming into 2014.

• Overall, pricing is weaker than last year but average commercial pricing was still up slightly in the US, though stable-to-down in many other major markets.

• Alternative capital is intensifying price pressures in property cat reinsurance, both competing directly with and redirecting traditional capacity into commercial lines.

• As investment returns are close to bottom and will remain depressed, profits in primary insurance are not expected to improve this year or next.

27

USA Canada UK Germany France Italy Australia China JapanGeneral Liability 0% to 5% 0% to 10% stable 0% to -10% 0% to -10% 0% to -10% 0% to -10% 0% to -10% 0% to -10%Motor / Automobile 0% to 5% 0% to -10% 0% to 10% 10 to 20% 0% to 10% 0% to -10% 0% to -10% 0% to 5% 0% to 10%Workers Comp / Employers Liability 0% to 5% n.a stable n.a stable stable stable 0% to -10% stableProperty (CAT exposed) 0% to 5% stable stable 10 to 20% 0% to -10% stable 0% to -10% stable stableProperty (Non-CAT Exposed) 0% to 5% stable stable 0% to 10% 0% to -10% 0% to -10% -10% to -20% 0% to -10% stableD&O 0% to 5% stable 0% to -10% 0% to -10% 0% to -10% 0% to 10% stable stable n.aProfessional Liability 0% to 5% stable stable 0% to -10% 0% to -10% 0% to 10% 0% to -10% 0% to -10% stableSource CIAB Marsh Marsh Marsh Marsh Marsh Marsh Marsh Marsh

27

How prepared is the market for a Megacat?

Economic Market Update | May 2014 29

How big a cat loss is an industry changing event? … depends on capitalisation and profitability

9.5%

6.5%

14.3%

5.7%

13.0%

4.3%

2.4%

3.8%

0% 5% 10% 15% 20%

Andrew [92]

Northridge [94]

WTC [01]

4 x Florida [04]

Katrina, Rita, Wilma [05]

Ike [08]

Tornadoes [11]

Sandy [12]

25.4

19.4

54.5

27.8

67.1

21.6

14.2

22.5

0 20 40 60 80

as a % of US industry capital in 2013 USD billions

20 to 25

Insured losses (share of the private insurance industry) from Hurricane Sandy are estimated at 20 to 25 bn, losses for World Trade Center at 42 bn. All other refer to property cat losses for private US carriers. Sources: PCS, RAA, Swiss Re Economic Research and Consulting.

Economic Market Update | May 2014

The industry is well capitalized last quarter increase was driven by equity markets

• Statutory surplus was up 11% year-on-year to a record high of USD 648 billion at end 2013

• Unrealized capital gains from equity investments drove the recent increase

• GAAP capital increased 4.8% year-on-year

• Solvency ratio is not up over the last three years since premiums were also growing

30

Sample consisting of Arch Capital, Aspen, Axis Capital, Berkshire Hathaway, Endurance, Everest Re, Hannover Re, Lloyd’s, Mapfre Re, Montpelier Re, Munich Re, PartnerRe, Platinum, RenaissanceRe, SCOR, Swiss Re, Transatlantic Re, Validus Re, XL Capital.

Economic Market Update | May 2014

• Capital is compartmentalized by carriers and lines of business. – Not all the USD 650 bn are available to cover cat losses

– The top 100 homeowners writers (writing 96% of HMP business) are backed by ~ USD 300 bn in capital

– Solvency ratios decline by about ¼ if top two companies with the most surplus are excluded (= 58% of industry equity investments)

• Capital is inflated by low interest rates; this will change – Sensitivity of US P&C insurers' GAAP equity is estimated at 5 to 8% for a 100 bps

parallel shift of the yield curve.

– Current interest rate forecasts imply a 9 to 15% loss of GAAP book value through 2016.

• Capital could be absorbed by potential future reserves deficiencies – carried loss reserves of USD 437 bn

Decomposition of industry capital Vulnerabilities can accumulate

31 31

Economic Market Update | May 2014

• The 2004 through 2007 underwriting years resulted in large reserves releases over time.

• Recent underwriting years have higher loss ratios and don't develop positively any more.

• Various metrics on adequacy of new reserves show signs of weakness

The years of large reserves releases are over? US other liability claims made accident-year loss ratios

32

40%

45%

50%

55%

60%

65%

70%

75%

80%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2004 through 2007 developed better over time

no systematic reserves releases

accident-year loss ratios

Economic Market Update | May 2014

Strong growth in large nat cat scenarios Emerging economies gain significance

Increased demand in HGM Nat Cat insurance …

1 Not reflected in loss scenarios on map

Largest market loss scenario per region USD bn

2012 vs. 2020 EQ: earthquake (500 yrs) TC/WS: tropical cyclones/winter storms (100 yrs); TC includes storm surge FL: river flood (250 yrs)

… is driven by …

▪ Strong underlying growth in exposed economic values

▪ Globalization shifting commercial activity to higher risk areas

▪ Growth of middle class population leading to higher insurance penetration

▪ Governments moving Nat Cat loss burden into the private sector

33

Outlook

Economic Market Update | May 2014

• Growth perspectives: roughly in line with GDP growth – Strong growth of property exposures, cat loses double every 10 years – Demand for casualty will rise with a pick-up in claims growth

• Rising interest rates will boost insurers’ profitability – but not right away – Current rate increases are insufficient to offset past declines and low yields

– Running yields continue to erode (yield on new bonds needs to exceed the maturing ones)

• Capacity is unsustainably high

– Accounting capital is inflated; will erode with rising interest rates

• Alternative capacity: increasing importance in the peak risk segment – Growth from 17% of US property cat market in 2013 to 20-30% by 2020 – Non-cat risks require underwriting; AC is less efficient – Value proposition of traditional re/insurance remains strong

• Normalization of profitability across lines – Eroded profitability in property cat; pick-up in casualty with higher investment yields

Outlook Demand and profitability will rise in the longer term

35

Thank you Check out more research on www.swissre.com/sigma

Economic Market Update | May 2014

Legal notice

37

©2014 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.

The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.

Morning Break

Coming up – “Terrorism: Managing an Uncertain Future”

Northridge, CA 1994 Earthquake

Utsandiego.com

Thank you to our sponsors

Terrorism: Managing an Uncertain Future

Terrorism: Managing an Uncertain Future

Wendy Peters Senior Vice President, Terrorism Practice Group

Willis North America Moderator

Terrorism: Managing an Uncertain Future

• Wendy Peters, Senior Vice President, Terrorism Practice Group, Willis North America (Moderator)

• Aaron Davis, Managing Director of Operations, Aon Property Broking, Northeast

• Chris Folkman, Director of Product Management, RMS • Sean Kevelighan, SVP, Head of Government and Industry

Affairs, Zurich North America

© Z

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Issue Deep Dive TRIA

43

Basics: History & Background Became Law in 2002

oTemporary Program oProtect Customers – affordability and availability oPreserve state regulatory system

Extension & Reauthorization o2005 (Extension) – Trigger & small recoupment o2007 (Reauthorization) – Domestic acts included o2014 – ?TBD?

© Z

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INTERNAL USE ONLY

Issue Deep Dive TRIA

44

Basics: History & Background Coverage

oOnly commercial property and casualty. oExcluded lines: crop, mortgage, financial guaranty, med.

malpractice, health, life, flood, reinsurance, commercial auto, prof. liability

oRequired in lines offered; customers not required to purchase industry avg: 60%

Recoupment

o+/-$27.5 billion in losses 133% vs. Treasury Secretary discretion Historical & International

oU.S. – WWII: War Damage, 60’s Riot Reinsurance oE.U. – Spain (50’s) U.K. (80’s), Germany (2001) oCanada – None

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Issue Deep Dive TRIA

2014 Southern California Wildfire Associated Press

Associated Press CNN

Terrorism: Managing an Uncertain Future

Wendy Peters Willis

Aaron Davis Aon

Chris Folkman

RMS

Sean Kevelighan

Zurich

Managing a Large Property Claim: Best Practices

Managing a Large Property Claim: Best Practices

Gerry Alonso Senior Vice President, Claims and Enterprise Learning

FM Global Moderator

Hurricane Sandy 2012 – New Jersey Hurricane Claims

2012 Haiti Earthquake

Jonathan Torgovnik, CNN

2012 Haiti Earthquake

Julie Jacobson, Associated Press

Managing a Large Property Claim: Best Practices

• Gerry Alonso, Senior Vice President, Claims and Enterprise Learning, FM Global (Moderator)

• Cliff Hope, Executive Vice President, Chief Property Underwriter, Aspen Insurance

• Keith Meerholz, Regional Vice President, VeriClaim • David Passman, National Director – Property Claims / Risk

Control and Claims Advocacy, Willis North America

2011 Tuscaloosa, AL Tornado Amanda Sowards, Associated Press

1994 Northridge, CA Earthquake Anaheim Stadium

Ben Margot, Associated Press

Gerry Alonso

FM Global

Cliff Hope Aspen

Insurance

Keith Meerholz VeriClaim

David Passman

Willis

Managing a Large Property Claim: Best Practices

Conference Luncheon

Coming up – “Afternoon Keynote by US Congressman Peter King”

Hurricane Katrina Relief Center Smiley Pool, the Houston Chronicle – Ogden Museum

Afternoon Keynote

Peter King US Representative

Republican, NY 2nd Congressional District

Insurance Linked Securities: Implications

for Risk Managers

Insurance Linked Securities: Implications for Risk Managers

Laureen Coyne Director, Risk and Insurance Management

Metropolitan Transportation Authority Moderator

Insurance Linked Securities: Implications for Risk Managers

• Laureen Coyne, Director, Risk and Insurance Management, Metropolitan Transportation Authority (Moderator)

• Philipp Kusche, Director, Swiss Re Capital Markets • Michael Millette, Partner & Managing Director, Global Head of

Structured Finance, Goldman Sachs • Andre Perez, CEO, Horseshoe Group • Edward Torres, Director of Capital Market Reinsurance Solutions,

PartnerRe

59

Realized Losses Have Been Consistent With Modeled Losses

Lane Financial has calculated the weighted average annual expected loss (WSST) over the entire history1 of the ILS market and compares this value to natural catastrophe losses experienced by ILS investors

Actual losses due to natural catastrophes divided by the total ILS issuance, 1.72%, deviates from the weighted average annual expected loss by less than 2%

The total coverage provided by the ILS market is ~$110.8bn, given a total issuance of $39.6bn and an issue-weighted average maturity of 2.8 years

Source: Lane Financial LLC, publicly available information 1As of June 30, 2012. 2As calculated by Lane Financial LLC.

Losses Relative to Yearly Issuance and Outstanding Issuance

1,859 2,0072,319 2,701

3,313

4,662 4,8555,355

8,580

13,903

11,97912,009 11,682

12,584

15,292

18,209

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

0%

1%

2%

3%

4%

5%

6%

7%

8%

1998and prior

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD

Cat

Bon

d Is

suan

ce a

nd O

utst

andi

ng,

($m

m)

Outstanding Nat Cat Issuance Weighted Average Expected Loss Average Annual Loss Rate

9-11 Katrina Tohoku Earthquake

Total Issuance $39.6 bnWeighted Average Expected Loss (WSST)2 1.69%Actual Losses (Total) $1,040 mmActual Losses (Due to Natural Catastrophe) $682 mmLosses due to Natural Catastrophes Cat / Total Issuance 1.72%

Historical Catastrophe Bond Loss Analysis

Wei

ghte

d A

vera

ge E

xpec

ted

Loss

(%)

Confidential

Alternative Capital and Cat Bond Universe Non-Life

60 Source: Swiss Re Capital Markets Corporation, a member of the Financial Industry Regulatory Authority ("FINRA"), (1) Outstanding bonds issued in prior years as of May 28, 2014..

0.7 0.7 0.8 1.1 1.0 1.02.6

1.12.5

5.78.2

3.0 3.55.0 4.4

6.37.4

5.5

0.2 0.2 0.8 1.4 1.8

2.23.7

4.2

4.7

8.5

12.7 11.5 8.9 9.3

9.7

12.7 16.1

0.70.9 1.0 1.9 2.4 2.8

4.8 4.9

6.7

10.4

16.715.7

15.013.9 13.7

16.0

20.221.6

0

5

10

15

20

$ bn

Issued Outstanding From Previous Years

Alternative Capital Universe

Total ILS capacity being provided by the capital markets in varying formats is estimated around USD45 to 50bn. Cat Bonds / Insurance-Linked Securities ("ILS") have grown considerably in the past few years. The current

outstanding notional amount represents a historical record for the product, and there has been little sign of a slowdown in issuance. Very broad investor base as any Qualified Institutional Buyer can invest in such products directly.

Collateralized reinsurance encompasses nearly half of the alternative insurance market. This product has experienced growth in recent years, but is accessible, in general, by only dedicated funds.

Sidecars and ILWs are other products mainly utilized by insurance and reinsurance companies.

Cat Bond Growth (Newly Issued and Outstanding1)

Confidential

55%

26%

10%

7%2%

Trigger Distribution 2012 YTD

IndemnityIndustry IndexParametricCombinationOther

61 Source: Swiss Re Capital Markets Corporation, a member of the Financial Industry Regulatory Authority ("FINRA"), (1) Notional figures in USD Millions as of April 1, 2014.

Available Coverage and Products Cat Bond Space

The ILS market has grown in recent years to transition towards greater acceptance of commercial risk: • Prior to 2013 complex commercial / industrial exposures were mainly securitized using index based triggers;

USD525m of indemnity bonds for complex commercial / industrial exposures were issued in 2013 (out of USD1,372m cat bonds with mainly commercial exposures; remaining bonds used index based trigger)

• Cat bonds for corporate clients remain scarce mainly to the minimum issuance size of around USD100m

• Private transactions are available for corporate clients who are interested in smaller deal sizes

Overview of LoB Distribution Since January 2002

Primary LoB for Cat Bonds Since January 2002 Outstanding Nat Cat Bond Trigger Breakdown1

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Residential Reinsurer Commercial Corporate Government

Insurance Linked Securities: Implications for Risk Managers

Laureen Coyne

Metropolitan Transportation

Authority

Philipp Kusche Swiss Re

Michael Millette

Goldman Sachs

Andre Perez

Horseshoe Group

Edward Torres

PartnerRe

Afternoon Break

Coming up – Michael McRaith, Director of the Federal Insurance Office

2014 Pensacola, FL Flood Marianna Massey

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The Federal Insurance Office: What It Means to Risk

Managers & the Property Insurance Market

The Federal Insurance Office

Michael McRaith Director

Federal Insurance Office

The View from the Top

The View from the Top

Tom Ruggieri CEO

Advisen Moderator

2014 San Diego Wild Fire CNN

2011 Tornado, Alabama Reuters, Marvin Gentry

The View from the Top • Tom Ruggieri, CEO, Advisen (Moderator) • Duncan Ellis, Managing Director, US Property Practice Leader,

Marsh • David Finnis, Executive Vice President / National Property Practice

Leader, Willis North America • Sanjay Godhwani, Executive Vice President, Berkshire Hathaway

Specialty Insurance • Nadine Silva, Executive Vice President, Property Division, Lexington

Insurance Company • Al Tobin, Managing Principal & National Property Leader, Aon

The View from the Top

Tom Ruggieri Advisen

Duncan Ellis

Marsh

David Finnis Willis

Sanjay Godhwani Berkshire Hathaway

Nadine Silva

Lexington

Al Tobin Aon

Closing Remarks

David Bradford President, Research & Editorial division

Advisen

Thank you to our sponsors

Before you run off, join us for a drink!

2014 Landslide, Washington Joshua Trujillo, Associated Press

1994 Northridge, CA Earthquake–Douglas C. Pizac, Associated

Press

Hurricane Sandy Iwan Baan, New York Magazine

Have a safe evening!

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