Extreme Catastrophe Exposures Are the Capital Markets the Answer?

Extreme Catastrophe ExposuresAre the Capital Markets the Answer?

Grahame Chilton, CEO, Benfield

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Overview

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

$2.7 $4.1 $4.2 $5.2 $6.6 $8.3 $10.0 $11.7

$22.3

$45.0

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$ B

illio

ns

Top 10 Most Costly Hurricanes in US History (Insured Losses)

Source: Swiss Re sigma No 2/2006, losses indexed to 2005

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

4

6

6

5

4

6

88

5

8

6

9

1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000+

*Figure for 2000s is extrapolated based on data for 2000-2005 (6 major storms: Charley, Ivan, Jeanne (2004) & Katrina, Rita, Wilma (2005)).Source: Tillinghast from National Hurricane Center: http://www.nhc.noaa.gov/pastint.shtm.

10

1930s – mid-1960s:

Period of Intense Tropical Cyclone Activity

Mid-1990s – 2030s?

New Period of Intense Tropical Cyclone Activity

Tropical cyclone activity in the mid-1990s entered the active phase of

the “multi-decadal signal” that could last into the 2030s

Already as many major storms in 2000-2005 as in all of the 1990s

Number of Major (Category 3, 4, 5) Hurricanes Striking the US by Decade

Est.

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Probability of Major Hurricane Landfall (CAT 3, 4, 5) in 2006

Forecast US land falling hurricane activity

30% above the 1950 -2005 norm in 2006

(Forecast 4th August 2006)

Professor Mark Saunders, Dr. Adam Lea, Tropical Storm Risk Consortium

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Comparing 2004 to Past Years

Only 2004 Has Had 4 Hurricanes Making Landfall in this Region

0

1

2

3

4

5

1926 1935 1950 1964 2004

Sa

ffir

-Sim

ps

on

Ca

teg

ory

All Years (1899-2004) With 3 or More Hurricanes Making

Landfall Between Mobile Bay & Jacksonville, FL

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Source : Rigzone – 26/9/2005

Katrina & Rita: storm tracks

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

50

64

29

40

613

3

0

10

20

30

40

50

60

70

Hurricane Katrina Hurricane Rita

Destroyed Damaged Rigs Adrift Unaccounted For

No. of Platforms/Rigs Destroyed, Damaged or Adrift, as of October 4, 2005.

Source: Minerals Management Service (MMS), US Department of the Interior.

Hurricanes Katrina/Rita: Damage to Oil Platforms and Rigs in Gulf of Mexico

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Estimated Energy Losses 2004/2005

OIL, Assureds Retentions Uncovered

Claims

OIL, Assureds Retentions Uncovered

Claims

CAT Losses$5.1B

CAT Losses$9.1B$12.9B

$3.8B

Operational Losses

Estimated Premium

$2.8B

Estimated Premium

$2.8B

Commercial Market Losses

Commercial Market Losses

$7.7B

$2.6B

2004 2005

Operational Losses

$18.8B Total Losses

$10.2B TotalLosses

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

2004-2005 Combined

Global Commercial Market Premium

Global Commercial

Market Premium

Global Commercial Energy Market Insured

Losses

$5.6B

$18.0B

Estimated Combined Loss Ratio (2004/2005) = 321%

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Post Ivan, Katrina and Rita

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Source: WeatherUnderground.com, January 18, 2006.

2005 Hurricane Season

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Reinsurance market overview

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Largest insured catastrophe losses

Source: Swiss Re

0

10

20

30

40

50

60

70

80

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

US

D b

n (

2005

pri

ces)

Natural Catastrophes Man-made Catastrophes

1994 Northridge Earthquake

1992 Hurricane Andrew

1999 Storm Lothar

2001 September 11

2005 Katrina, Rita, Wilma

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Post-KRW new capital 2005-6

0

5

10

15

20

25

1992/3 2001/2 2005/6 1992/3 2001/2 2005/6 1992/3 2001/2 2005/6

Cap

ital

rai

sed

US

Db

n

Cat bonds

Sidecars

Recapitalisation

Start-ups

Recaps and Start ups Sidecars Cat Bonds

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The new market spectrum

Capital markets

Rei

nsur

ance

Retro

Property Cat

Hedge fund SPVs

Cat bonds

Hybrid capital

ART

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

1 Based on Benfield analysis using RMS v5.0

Many Programs Partially Placed

June 2006 Renewals

0%

10%

20%

30%

40%

50%

60%

0% 5% 10% 15% 20% 25% 30%

2005 BOUND PROGRAMS VS 2006 MARKET QUOTES

Probability of Attachment1

Rat

e O

n L

ine

2005 Bound

2006 Quotes

Price Increases Outstrip Risk

US Property Catastrophe Reinsurance: June 06

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Gulf Exposed/Loss Sensitive Programs Hit Hardest

*Other includes four companies with Puerto Rico and Texas exposure

PRICE IMPACT BY RENEWAL DATE(Percent Increase)

January 112 10 45June 236 74 154

HI LO AVG

January 40 0 13June 35 6 20

HI LO AVG

With Ceded Loss

Without Ceded Loss

Source: Benfield analysis of Jan – July placements.

July 164 65 104

July 57 36 47

AVERAGE ROL CHANGE FOR TOTAL BENFIELD LIMIT PLACED ( Percent )

Southeast 13.60 5.65 140.45

Nationwide 12.60 6.07 108.29

Florida 20.20 9.97 102.45

Northeast 4.30 3.45 25.93

California 6.70 5.96 11.94

Other* 6.32 5.63 11.38

Midwest 6.20 5.98 4.38

Total 10.70 6.11 74.57

Region 2006 ROL 2005 ROL Change

Source: Benfield analysis of Jan – June placements. Other includes four companies with Puerto Rico and Texas exposure.

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Jan.22% Feb.-May

11%

June65%

0.0

20.0

40.0

60.0

80.0

Limit Change

AVERAGE PROGRAMME LIMIT INCREASES VERSUS 2005 ( Percent Change )

US Property Catastrophe: Limit purchased

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Solutions for Current Dislocation

RMS Estimate of New Capital Required

$124 billion

Cat Bonds

Sidecars

Risk Transfer to Capital Markets

Startups

Capital Raising

Risk Financing from Capital Markets

Retained EarningsBenefits of Increased Pricing & Improved Risk Management

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Solutions for Current Dislocation

RMS Estimate of New Capital Required

$124 billion

Cat Bonds

Sidecars

Risk Transfer to Capital Markets

Startups

Capital Raising

Risk Financing from Capital Markets

Retained EarningsBenefits of Increased Pricing & Improved Risk Management

Merrill Lynch JV

Starbound Re

Montpelier, Glacier, Lancashire

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

A Benfield Solution: Starbound Re

• A sidecar (dedicated underwriting vehicle) created by Benfield and Renaissance Re in May/June 2006

• Specifically structured for the Florida exposures of Benfield customers using detailed portfolio data

• Created US$285 million of additional Florida catastrophe capacity exclusive to Benfield

• No other broker was able to respond to the Florida capacity crunch in this way

• Numerous Benfield customers with Florida exposures benefited and were able to complete their renewal programmes as a result

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Alternative Capacity Will Become More Significant

• Bermuda sidecars, start-ups and

recapitalization offset some reduction

in other region capacity / additional

limit for 2006 property cat renewals

SAMPLE 6/1 PROPERTY CAT LIMIT DISTRIBUTION( Percent )

Traditional Catastrophe Coverage

• ILW placements expected to double this year

2005 limit placed approx. $2bn

2006 limit expected: $3bn - $4bn

• Considerable activity in Cat Bond market

following Katrina

Record number of first time sponsors in 2005 (AXA, Zurich, FM Global, Montpelier Re)

• Capital Markets appetite may better serve as

stabilizing force for large events

2004 global reinsurance surplus = approx. $377bn

2004 global securities and bank assets = approx. $144trillion

Alternative Catastrophe Coverage

24.7

26.2

34.5

53.4

8.2

8.3

32.6

12.1

0.0 20.0 40.0 60.0 80.0 100.0

2005

2006

Domestic Bermuda Europe London

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The new market spectrum

Capital markets

Rei

nsur

ance

Retro

Property Cat

Hedge fund SPVs

Cat bonds

Hybrid capital

ART

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Benfield Capabilities

Capital markets

Rei

nsur

ance

Retro

Property Cat

Hedge fund SPVs

Cat bonds

Hybrid capital

ART

Analytics

The information contained in this document is strictly proprietary and confidential. © Benfield 2006

Questions