www.guycarp.com

Marine Reinsurance:Where do we go from here?

Houston, TX

21st September 2009

2

Guy Carpenter

Impact on Surplus of US Insurers in 2008$Billions

300

400

500

600

End 2007 Net Income andOther Changes

Catastrophes Capital Loss End 2008

$ B

illi

on

s

• Premium / Surplus Ratio: 0.95 X

• Actual Surplus / RBC: 6 X

$21.8 $72.7$32.2$517.9$455.6

3

Guy Carpenter

GC Global Reinsurance Composite – Change in Reported Shareholders' Funds in 2008

60

80

100

120

SHF YE05 SHF YE06 SHF YE07 Net Income Shares

Repurchased

Div idends

paid

Unrealized

Gains

(Losses)

Forex

Mov ements

Capital

Increase

Other SHF YE08

US

Db

n

4

Guy Carpenter

ROE: Global Reinsurance Composite

15.80%

3.50%

7.30%

End 2007 End 2008 End First Half 2009

5

Guy Carpenter

History of Insured Catastrophe Losses

Insured catastrophe losses 1970-2008

0

20

40

60

80

100

120

140

in USD bn,indexed to 2008

Earthquake/tsunami Man-made disasters

Weather-related Nat Cats Total

Hu

rric

an

e A

nd

rew

Win

ter

sto

rm L

oth

ar

Atta

ck o

n W

TC

No

rth

rid

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ea

rth

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ake

Hu

rric

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e Ik

e,

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sta

v

Hu

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atr

ina

et a

l

Hu

rric

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es

Iva

n, C

ha

rle

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t al

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Guy Carpenter

0.0

50.0

100.0

150.0

200.0

250.0

300.0

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009P

United Kingdom Continental Europe United States

Reinsurance: ROL Index, Major Markets 1990 = 100

7

Guy Carpenter

United States ROLIndex 1990 = 100

0

100

200

300

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009 E

8

Guy Carpenter

Global Marine Premium USD Million

0.000

5.000

10.000

15.000

20.000

25.000

2000 2001 2002 2003 2004 2005 2006 2007

Accounting Year

Liability

Energy

Hull

Cargo

Total

IUMI Global Marine Insurance Reports

9

Guy Carpenter

Profitability: US Ocean Marine Combined Ratio

Calendar Year Ratio

2003: 89.85%

2004: 91.68%

2005: 99.23%

2006: 86.03%

2007: 85.91%

2008: 105.77%

“Charley”, “Frances”, “Ivan”, “Jeanne”

“Ike”

“Katrina”, “Rita”, “Wilma”

Source: AIMU

10

Guy Carpenter

AIMU Operating Ratios2004 – 2008

2004 2005 2006 2007 2008

Cargo (Incl. War Strikes Etc.)

64.69% 74.81% 77.22% 78.90% 90.74%

Ocean Hull (Incl. War Strikes Etc.)

108.55% 92.50% 98.42% 109.42% 126.47%

All other Hull (Incl. War Strikes Etc.)

94.13% 104.72% 84.38% 69.69% 97.14%

Commerical Primary P&I

145.05% 97.01% 112.63% 118.14% 112.73%

Yacht (Incl. P&I)

120.98% 111.23% 95.89% 89.20% 91.98%

Excess Liabilities 86.08% 88.14% 102.16% 120.77% 154.68%

Primary Liabilities 81.19% 78.78% 77.96% 87.96% 101.28%

Offshore & Energy Risks

102.15% 300.49% 60.22% 27.02% 217.18%

Total All Lines 91.68% 99.23% 86.03% 85.91% 105.77%

Source: AIMU

ReinsuranceWhere are we and where do we go from here?

Macro View

Economic outlook

US economic growth is expected to return to positive territory in the second half of 2009. Other economies are expected to recover moderately in 2010.

Inflation will remain very low or negative 2009 and 2010 (at least) due to large slack in the economy. The longer-term inflation outlook is more uncertain.

Government bond yields are expected to remain low this year and rise moderately next year.

Corporate bond and equity markets are likely to remain volatile.

Americas P&C Primary market overview –

Recession is reducing exposures and claims frequency in many lines of business (incl workers comp & engineering but ocean marine and energy?).

The cost of capital has risen: equity markets are depressed and hybrid capital is expensive. Reinsurance is currently the most efficient source of capital.

Capital management has shifted from returning capital to preserving / raising capital. Primary and reinsurers are de-risking their balance sheets.

Rates have begun to harden. Reinsurance will lead the rate dynamics; primary markets will follow with a lag. Property prices are firming first; casualty is still soft. There will be a moderately hard market through 2011.

Deterioration of combined ratios(excl cat)…different business lines but clear trends….

70%

75%

80%

85%

90%

95%

100%

105%

110%

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

Large cap Auto Regional Specialty Reinsurance

Source: Dowling & Partners

0%

2%

4%

6%

8%

10%

97% 98% 99% 100% 101% 102% 103% 104% 105% 106% 107%

Combined Ratio

2008 industry assumptions:Asset leverage: 291%Tax rate [1] 25.4%NPW/surplus 96%Inv yield [2] 4.0%

ROE

5%

4%

3%

Sources: A.M. Best, estimates by Economic Research & Consulting. [1] based on 1H08 effective statutory tax rates. [2] 9M08 total investment yield was 3.0% and CR was 105

Low yield environment reduces the profit potential

A 100 bps reduction in yield can imply a 2.9 point combined ratio move to achieve the same ROE

Renewal: January 2010 Expected European price trends REINSURANCE

Property non-proportional

Property Nat Cat

Motor

Casualty

Property proportional

Marine, Energy and Engineering

Aviation

Property prices are improving while Casualty levels do not yet reflect loss trends and reduced yields

The low interest rate environment, soft industry underwriting results and depletion of industry capital all point towards further price increases

Renewal: January 2010 European Property & Specialty trends

Property Peak nat cat capacity remains scarce and valuable

No strong global trends: price increases in some loss-affected regions and industries

Industrial risks remain competitive and threaten to underperfom

Marine and Energy Marine results are fragile in light of economic downturn

Energy will continue to seek opportunities outside of Gulf

Gulf Product sustainability questions

ReinsuranceWhere are we and where do we go from here?

Micro View

Capacity changesEntrants

Rumoured some Lloyd’s start ups projected for 2010

Novae Re already announced

Exits

Axis Re

Endurance Re

Some Reinsurers expanding into primary business

Flagstone creates Mosaic

Montpelier Re writing insurance

Mergers and Acquisitions

Partner Re and Paris Re

Validus and IPC

Recent Losses ACL barge collided with a boat on the Mississippi

River near New Orleans with more than 400,000 gallons of fuel oil spilled into the Mississippi River.

Cosco Busan Left the Port of Oakland on November 7, 2007, and hit the Bay Bridge

Ike

Sempra October 2007, 3 wildfires in San Diego county California broke out and resulted in extensive property damage and disruption to business.

Rates terms and conditions for 2009 Excl GOM 7.5% increase

GOM re underwritten extensively

Limits and retentions constant with GOM again an exception

Amended Liability exclusion clause introduced

Review of wind related property claims in the XS liability market discussed

Projected Rates terms and conditions for 2010

Constant pricing.

– Adverse claims experience will see higher rates

Overall upward pressure on reinsurance pricing caused by:

– Increasing Cost of Capital

– Low interest rate environment

– Investors demanding improved ROE

Potential further disconnect between clients and reinsurers:

– Particularly in Gulf of Mexico

– Further discussion and review of wind related property claims in the XS liability market

www.guycarp.com

24

Guy Carpenter

Yachts and Cargo Risk Accumulations

– Personal Yachts

Risk identification and evaluation

- Management tools

- Hazard simulation modeling

– Cargo Accumulation

Risk identification and evaluation

Making the latest technology productive

The Future Lies with Analytics?Opportunities to Understand and Protect Your Portfolio

25

Guy Carpenter

Marine risks are often associated with geographical concentration

Geographically co-located insureds increase concentration

The accumulation of risk in one place escalates potential losses

For marine writers, personal yacht and cargo accumulations are risks that can be mitigated through simulation modeling. The technology exists, and in many cases data is available.

For marine writers, personal yacht and cargo accumulations are risks that can be mitigated through simulation modeling. The technology exists, and in many cases data is available.

Understanding Exposure Accumulation

26

Guy Carpenter

Today, we have the technology to improve (not replace) traditional marine risk management concepts

– but, it is not being widely used

The models and techniques used for other property catastrophe lines can be applied to Marine– and reinsurers are requiring more quantitative input

Manage marine risk more effectively with modeling technology

Advancing Marine Modeling