Overview & Outlook for the P/C Insurance Industry:

Focus on New York in the Aftermath of Hurricane Sandy

Independent Insurance Agents of Westchester CountyTarrytown, NYMarch 7, 2013

Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist

Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

2

Presentation Outline

Economic Outlook Exposure and premium growth depend critically on growth

trajectory for the economy

Catastrophe Loss Overview Hurricane Sandy guarantees that 2012 will become the 2nd or 3rd

costliest year in US history in terms of insured losses

Drilldown on NY Impacts

P/C Industry Performance: US & NY Overview & Outlook Underwriting

Pricing

Growth

Capacity

Investments

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

3

Growth Will Expand Insurer Exposure Base Across Most Lines

3

4

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 1/13; Insurance Information Institute.

2.7

%0

.5%

3.6

%3

.0%

1.7

%-1

.8%

1.3

%-3

.7%

-5.3

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.3%

1.4

%5

.0%

2.3

%2

.2%

2.6

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.4%

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.5%

1.3

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.1%

2.0

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.1%

1.6

%2

.1%

2.5

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.7%

2.7

%2

.8%

2.9

%3

.0%

-0.1

%

-8.9%

4.1

%1

.1%

1.8

%2

.5% 3.6

%3

.1%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

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Demand for Insurance Continues To Be Impacted by Sluggish Economic Conditions, but the Benefits of Even Slow Growth Will Compound and

Gradually Benefit the Economy Broadly

Real GDP Growth (%)

Recession began in Dec. 2007. Economic toll of credit crunch, housing slump, labor market contraction

was severe

The Q4:2008 decline was the steepest since the Q1:1982

drop of 6.8%

2013 is expected to see initially slow

growth, then gradually accelerate throughout the year and into 2014

The Fiscal Cliff Was Just the Beginning: Budget Battles for Years to Come?

*P/C Insurance Joint Industry Forum press release (www.iii.org/press_releases), January 15, 2013.Source: Fix the Debt Coalition, January 18, 2013; Insurance Information Institute 5

The “Fiscal Cliff” was just the beginning

There are 10+ “Fiscal Speed Bumps” over the next 5 years, setting up a potentially extended period of fiscal uncertainty

Creates long-term uncertainty around federal spending, tax policy, entitlements

Poll: 94% of P/C insurance executives think looming budget battlesIn Washington will hurt the economy.*

Federal Spending as a Share of State GDP: Vulnerability to Sequestration Varies

Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute. 6

NY has relatively little exposure to sequester cuts

7

Defense and Non-Defense Federal Spending as a Share of State GDP: Top 10 States*

14

.6

10

.5

9.8

9.8

9.8

8.0

7.0

5.9

5.3

5.2

10

.0

10

.0

10

.0

9.2

4.9

3.8

3.1

2.8

2.7

2.6

0

2

4

6

8

10

12

14

16

HI AK DC MD VA KY AL MO CT AZ DC MD VA NM ID WV TN AK MT SC

Sh

are

of

Sta

te G

DP

(%

)

Federal defense spending accounts for approximately 10%+ of

GDP in 5 states

*As of 2010.Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo Securities; Insurance Information Institute.

Defense Spending Non-Defense Spending

Federal non-defense spending accounts for 10%+ of GDP in 3 states

Sequestration Could Adversely Impact Commercial Insurance Exposures Directly at Defense Contractors and Indirectly in Impacted Communities

State-by-State Leading Indicatorsthrough 2013:Q1

Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 8

5 Fastest Growing StatesSouth Carolina 6.97%Michigan 4.32%West Virginia 3.59%Idaho 3.14%Georgia 3.04%

5 Slowest Growing StatesWyoming -1.09%

Delaware -0.24%North Dakota -0.19%Vermont 0.09%Minnesota 0.18%

Near-term growth forecasts vary widely by state

74

.47

3.6

73

.67

2.2

73

.6 76

67

.86

8.9

68

.26

7.7 7

1.6 74

.57

4.2 77

.56

7.5 69

.8 74

.37

1.5

63

.75

5.7 5

9.5

60

.9 64

.16

9.9

75

.07

5.3

76

.27

6.4 79

.37

3.2

72

.3 74

.38

2.6

82

.77

4.5

73

.8 76

.8

40

45

50

55

60

65

70

75

80

85

90

Jan

-10

Fe

b-1

0

Ma

r-1

0

Ap

r-1

0

Ma

y-1

0

Jun

-10

Jul-

10

Au

g-1

0

Se

p-1

0

Oct

-10

No

v-1

0

De

c-1

0

Jan

-11

Fe

b-1

1

Ma

r-1

1

Ap

r-1

1

Ma

y-1

1

Jun

-11

Jul-

11

Au

g-1

1

Se

p-1

1

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Fe

b-1

2

Ma

r-1

2

Ap

r-1

2

Ma

y-1

2

Jun

-12

Jul-

12

Au

g-1

2

Oct

-12

No

v-1

2

De

c-1

2

Jan

-13

Fe

b-1

3

Consumer Sentiment Survey (1966 = 100)

January 2010 through February 2013

Consumer confidence has been low for years amid high unemployment, falling home prices and other factors adversely impact

consumers, but improved substantially in late 2011 and in 2012

Source: University of Michigan; Insurance Information Institute

Optimism among consumers rose in February despite tax hike, federal budget concerns

9

10

16.9

16.5

16.1

13.2

10.4

11.6

12.7

14.4 15

.2 15.8

16.9

16.617

.117.5

17.8

17.4

9

10

11

12

13

14

15

16

17

18

19

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F

(Millions of Units)

Auto/Light Truck Sales, 1999-2014F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/13); Insurance Information Institute.

Car/Light Truck Sales Will Continue to Recover from the 2009 Low Point, Bolstering the Auto Insurer Growth and the Manufacturing Sector.

New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2013-14 is

still far below 1999-2007 average of 17 million units, but a robust

recovery is well underway.

Job growth and improved credit market conditions will boost auto sales in

2013 and beyond

11

16%

18%

20%

22%

24%

26%

28%

30%

01 02 03 04 05 06 07 08 09 10 11 12E 13F 14F$125

$135

$145

$155

$165

$175

$185

$195

% of registered cars under 3 years old Auto Ins Direct Pms$ Billions

Personal Auto Insurance Direct Written Premiums vs. Recently-Registered Cars

Sources: AIPSO Facts (various issues); SNL Financial; Conning Research & Consulting, Property-Casualty Forecast and Analysis, First Quarter 2012; Insurance Information Institute.

PP DWP, flat from 2004-2009, is rising again.Conning forecasts growth at 3.5% in 2013 and 4.0% in 2014.

Average age of registered cars rose as fewer new cars were bought (and

insured)

In 2004-07 no growth in

PP DWP despite

strong new car/truck

sales New car/truck sales grow to 14-15M/year

4%/yr growth forecast for PP

DWP from recovering

new car/truck sales

12

Monthly Change* in Auto Insurance Prices, 1991–2012*

*Percentage change from same month in prior year; through Dec. 2012; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.

-2%

0%

2%

4%

6%

8%

10%

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

Cyclical peaks in PP Auto tend to occur

approximately every 10 years (early 1990s, early

2000s and likely the early 2010s)

“Hard” markets tend to occur

during recessionary

periods

Pricing peak occurred in 2010 at

5.1%, falling to 2.8% by Mar. 2012

The Dec. 2012 reading of 4.7% is

up from 3.6% a year earlier

14

(Millions of Units)

New Private Housing Starts, 1990-2014F

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

1

0.5

5

0.5

9

0.6

1 0.7

8

0.9

9

1.2

01.3

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 10 11 12 13F 14F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/13); Insurance Information Institute.

Homeowners Insurers Are Starting to See Meaningful Exposure Growth for the First Time Since 2005. Commercial Insurers with Construction Risk

Exposure, Surety Also Benefit

New home starts plunged 72% from 2005-2009; A net

annual decline of 1.49 million units, lowest since records began

in 1959

Job growth, low inventories of existing homes, low mortgage

rates and demographics are stimulating new

home construction for the first time in years

15

Construction Employment,Jan. 2010—January 2013*

*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

5,58

15,

522

5,54

25,

554

5,52

75,

512

5,49

7 5,51

95,

499

5,50

15,

497

5,46

85,

435

5,47

85,

485

5,49

7 5,52

45,

530

5,54

75,

546 5,

583

5,57

65,

577 5,

612

5,62

95,

644

5,64

05,

636

5,61

55,

622

5,62

75,

630

5,63

35,

649 5,67

3 5,70

3 5,73

1

5,400

5,450

5,500

5,550

5,600

5,650

5,700

5,750

5,800

Jan-

10F

eb-1

0M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

122/

30/2

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Construction employment growth accelerated in the second half of 2012. Stronger growth in this key

sector is possible in 2013.

(Thousands)

Construction for the new $4B

Tappan Zee Bridge will create

thousands of jobs

18

Value of Construction Put in Place, December 2012 vs. December 2011*

-5.6%

-17.3%

-5.3%

7.8%

15.0%

22.3%

1.2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

TotalConstruction

Total PrivateConstruction

Residential--Private

Non-Residential--

Private

Total PublicConstruction

Residential-Public

Non-Residential--

Public

Overall Construction Activity is Up, But Growth Is Entirely in the Private Sector as State/Local Government Budget Woes Continue

Growth (%)

Private sector construction activity is up in both the residential and nonresidential segments

*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

Private: +15.0% Public: -5.6%

Public sector construction activity remains depressed

19

Value of Private Construction Put in Place, by Segment, Dec. 2012 vs. Dec. 2011*

6.6%

-3.1%

16.6%

-10.2%

10.4%

-4.5%

13.7%

-0.2%

-7.8%

15.0%

23.6%

7.6%

21.2%25.2%

-15%-10%

-5%0%5%

10%15%20%25%30%

To

tal

Pri

vate

Co

nst

ruct

ion

Res

iden

tial

To

tal

No

nre

sid

enti

al

Lo

dg

ing

Off

ice

Co

mm

erci

al

Hea

lth

Car

e

Ed

uca

tio

nal

Rel

igio

us

Am

use

men

t &

Rec

.

Tra

nsp

ort

atio

n

Co

mm

un

icat

ion

Po

wer

Man

ufa

ctu

rin

g

Private Construction Activity is Up in Most Segments, Including the Key Residential Construction Sector

Growth (%) Led by the Residential Construction, Lodging, Office, Transportation and Power industries, Private sector

construction activity is up across many segments after plunging during the “Great Recession”

*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.

58

.35

7.1

60

.45

9.6

57

.85

5.3

55

.15

5.2

55

.3 56

.9 58

.25

8.5 6

0.8

61

.45

9.7

59

.75

4.2 55

.85

1.4 52

.55

2.5

51

.85

2.2 53

.1 54

.15

1.9 53

.35

4.1

52

.55

0.2

50

.55

0.7

51

.65

1.7

49

.95

0.2

53

.1

40

45

50

55

60

65

Jan

-10

Fe

b-1

0

Ma

r-1

0

Ap

r-1

0

Ma

y-1

0

Jun

-10

Jul-

10

Au

g-1

0

Se

p-1

0

Oct

-10

No

v-1

0

De

c-1

0

Jan

-11

Fe

b-1

1

Ma

r-1

1

Ap

r-1

1

Ma

y-1

1

Jun

-11

Jul-

11

Au

g-1

1

Se

p-1

1

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Fe

b-1

2

Ma

r-1

2

Ap

r-1

2

Ma

y-1

2

Jun

-12

Jul-

12

Au

g-1

2

Se

p-1

2

Oct

-12

No

v-1

2

De

c-1

2

Jan

-13

ISM Manufacturing Index(Values > 50 Indicate Expansion)

January 2010 through January 2013

The manufacturing sector expanded for 33 of the 37 months from Jan. 2010 through Jan. 2013. The question is whether this will continue.

Source: Institute for Supply Management at http://www.ism.ws/ismreport/mfgrob.cfm; Insurance Information Institute.

Manufacturing activity expanded in 3 of the past 4 months, but only

slightly. The recent trend is basically flat.

21

25

Manufacturing Employment,Jan. 2010—January 2013*

11,4

6011

,460

11,4

6611

,497

11,5

3111

,539

11,5

5811

,548

11,5

5411

,555

11,5

7711

,590

11,6

2411

,662

11,6

8211

,707

11,7

1511

,724

11,7

4711

,760

11,7

6211

,770

11,7

6911

,797

11,8

4111

,870

11,9

1011

,920

11,9

2611

,935

11,9

5711

,943

11,9

2511

,931

11,9

3811

,946

11,9

50

11,000

11,200

11,400

11,600

11,800

12,000

12,200

12,400

Jan-

10F

eb-1

0M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

122/

30/2

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Manufacturing employment is up by nearly 500,000 or 4.3% since Jan. 2010

—a surprising source of strength in the economy. Employment in the

sector is close to a multi-year high.

*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

(Thousands)

50

.7 52

.7 54

.15

4.6

54

.85

3.5

53

.75

2.8 53

.95

4.6 56 5

7.1 5

9.4

59

.75

6.3

54

.45

3.3

53

.45

3.8

52

.65

2.6

52

.65

2.6

53

.05

6.8

56

.15

5.0

53

.75

4.1

52

.75

2.9 54

.3 55

.25

4.8

54

.85

5.7

55

.2

40

45

50

55

60

65

Jan

-10

Fe

b-1

0

Ma

r-1

0

Ap

r-1

0

Ma

y-1

0

Jun

-10

Jul-

10

Au

g-1

0

Se

p-1

0

Oct

-10

No

v-1

0

De

c-1

0

Jan

-11

Fe

b-1

1

Ma

r-1

1

Ap

r-1

1

Ma

y-1

1

Jun

-11

Jul-

11

Au

g-1

1

Se

p-1

1

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Fe

b-1

2

Ma

r-1

2

Ap

r-1

2

Ma

y-1

2

Jun

-12

Jul-

12

Au

g-1

2

Se

p-1

2

Oct

-12

No

v-1

2

De

c-1

2

Jan

-13

ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)

January 2010 through January 2013

Non-manufacturing industries have been expanding and adding jobs. The question is whether this will continue.

Source: Institute for Supply Management at http://www.ism.ws/ismreport/nonmfgrob.cfm; Insurance Information Institute.

Optimism among non-manufacturers is stable

and remains expansionary in 2013

26

27

43,6

9448

,125

69,3

0062

,436

64,0

04 71,2

77 81,2

3582

,446

63,8

5363

,235

64,8

5371

,549

70,6

4362

,304

52,3

7451

,959

53,5

4954

,027

44,3

6737

,884

35,4

7240

,099

38,5

4035

,037

34,3

1739

,201

19,6

95 28,3

2243

,546

60,8

3756

,282

47,8

0630

,620

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 10 1112

:H1

Business Bankruptcy Filings,1980-2012:Q3

Sources: American Bankruptcy Institute at http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance Information Institute

Significant Exposure Implications for All Commercial Lines as Business Bankruptcies Begin to Decline

2011 bankruptcies totaled 47,806, down 15.1% from 56,282 in 2010—the second consecutive year of decline. Business bankruptcies more

than tripled during the financial crisis. Through Q3:2012, filings were down 15.8% vs. Q3:2011

% Change Surrounding Recessions

1980-82 58.6%1980-87 88.7%1990-91 10.3%2000-01 13.0%2006-09 208.9%*

27

28

Private Sector Business Starts, 1993:Q2 – 2012: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

207

199

191 19

317

2 176

169

184

175 17

918

820

018

3 187 19

119

719

319

1

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 09 10 11 12

Business Starts Were Down Nearly 20% in the Recession, Holding Back Most Types of Commercial Insurance Exposure, But

Are Recovering Slowly* Data through Jun. 30, 2012 are the latest available as of Feb. 6, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.

(Thousands)

Business starts were up 2.2% to 748,000 in 2011 vs. 2010. In 2012, starts are likely to be up by about

2.7% over 2011 levels.

Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 742,000 2011: 748,000*

28

30

12 Industries for the Next 10 Years: Insurance Solutions Needed

Export-Oriented Industries

Health Sciences

Health Care

Energy (Traditional)

Alternative Energy

Petrochemical

Agriculture

Natural Resources

Technology (incl. Biotechnology)

Light Manufacturing

Insourced Manufacturing

Many industries are

poised for growth, though

insurers’ ability to

capitalize on these

industries varies widely

Shipping (Rail, Marine, Trucking)

45

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend is Improving

45

46

Unemployment and Underemployment Rates: Stubbornly High in 2012, 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

Traditional Unemployment Rate U-3

Unemployment + Underemployment Rate U-6

Unemployment stood at 7.9% in

Jan. 2013—lowest in 4 years.

Unemployment peaked at 10.1% in October 2009, highest monthly rate since 1983.

Peak rate in the last 30 years:

10.8% in November -

December 1982

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

U-6 went from 8.0% in March

2007 to 17.5% in October 2009; Stood at 14.4%

in Jan. 2013

January 2000 through Jan. 2013, Seasonally Adjusted (%)

Recession ended in

November 2001

Unemployment kept rising for

19 more months

Recession began in

December 2007

Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving

46

22

75

41

68

50

12

36

61

-79

24 6

8 74

51

2-1

14

-10

5-2

22

-21

9-2

03

-26

7-2

69

-42

9-4

84

-78

6 -70

1-8

21

-69

2-8

12

-82

1-2

88

-44

2-2

82 -2

22 -1

62

-23

3-3

4-1

67

-17

-26

17

01

02

94 10

31

29

11

3 18

81

54

11

48

02

43

22

3 30

31

83

17

72

06

12

92

56

17

41

97 24

9 32

32

65

20

81

20 15

27

81

77

13

11

18

21

7 25

62

02

16

6

11

1(1,000)

(800)

(600)

(400)

(200)

0

200

400

Jan

-07

Fe

b-0

7M

ar-

07

Ap

r-0

7M

ay-

07

Jun

-07

Jul-

07

Au

g-0

7S

ep

-07

Oct

-07

No

v-0

7D

ec-

07

Jan

-08

Fe

b-0

8M

ar-

08

Ap

r-0

8M

ay-

08

Jun

-08

Jul-

08

Au

g-0

8S

ep

-08

Oct

-08

No

v-0

8D

ec-

08

Jan

-09

Fe

b-0

9M

ar-

09

Ap

r-0

9M

ay-

09

Jun

-09

Jul-

09

Au

g-0

9S

ep

-09

Oct

-09

No

v-0

9D

ec-

09

Jan

-10

Fe

b-1

0M

ar-

10

Ap

r-1

0M

ay-

10

Jun

-10

Jul-

10

Au

g-1

0S

ep

-10

Oct

-10

No

v-1

0D

ec-

10

Jan

-11

Fe

b-1

1M

ar-

11

Ap

r-1

1M

ay-

11

Jun

-11

Jul-

11

Au

g-1

1S

ep

-11

Oct

-11

No

v-1

1D

ec-

11

Jan

-12

Fe

b-1

2M

ar-

12

Ap

r-1

2M

ay-

12

Jun

-12

Jul-

12

Au

g-1

2S

ep

-12

Oct

-12

No

v-1

2D

ec-

12

Jan

-13

Monthly Change in Private Employment

January 2008 through Jan. 2013 (Thousands)

Private Employers Added 6.07million Jobs Since Jan. 2010 After Having Shed 4.98 Million Jobs in 2009 and 3.80 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

166,000 private sector jobs were

created in January

47

Jobs Created2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill

52

Unemployment Rates by State, December 2012:Highest 25 States*

10

.2

10

.2

9.8

9.6

9.2

8.9

8.7

8.6

8.6

8.6

8.5

8.4

8.4

8.2

8.2

8.1

8.0

7.9

7.9

7.8

7.6

7.6

7.6

7.5

7.3

7.1

0

2

4

6

8

10

12

14

NV RI CA NJ NC MI IL CT GA MS DC OR SC IN NY KY FL AZ PA US CO TN WA WV ME AL

Un

em

plo

ym

en

t R

ate

(%

)

*Provisional figures for December 2012, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In December, 22 states reported over-the-month unemployment rate

decreases, 16 states and the District of Columbia had increases, and 12 states

had no change.

NY’s unemployment

rate is above the US average

53

7.1

6.9

6.7

6.7

6.7

6.6

6.6

6.6

6.6

6.4

6.1

5.7

5.7

5.5

5.5

5.5

5.4

5.2

5.2

5.1

5.1

4.9

4.9

4.4

3.7

3.2

0

2

4

6

8

AR DE MA MO OH AK ID MD WI NM TX MT NH LA MN VA KS HI UT OK VT IA WY SD NE ND

Une

mpl

oym

ent R

ate

(%)

Unemployment Rates by State, December 2012: Lowest 25 States*

*Provisional figures for December 2012, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In December, 22 states reported over-the-month unemployment rate

decreases, 16 states and the District of Columbia had increases, and 12 states

had no change.

54

Oil & Gas Extraction Employment,Jan. 2010—January 2013*

*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

156.

415

6.4

156.

715

7.6

158.

715

7.8

158.

015

9.5

160.

016

1.5

161.

216

1.2

163.

116

4.4

166.

6 169.

317

0.1

171.

017

2.5

173.

6 176.

317

8.2

178.

518

0.9

181.

918

3.1

184.

818

5.2

185.

718

6.8

187.

618

8.0

188.

018

8.2

190.

019

2.2

193.

7

150

155

160

165

170

175

180

185

190

195

200

Jan-

10F

eb-1

0M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

122/

30/2

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Oil and gas extraction employment is up 23.4%

since Jan. 2010 as the energy sector booms.

Domestic energy production is essential to

any robust economic recovery in the US.

(Thousands)

55

US Unemployment Rate Forecast

4.5

%4

.5%

4.6

%4

.8%

4.9

% 5.4

% 6.1

%6

.9%

8.1

%9

.3%

9.6

% 10

.0%

9.7

%9

.6%

9.6

%

8.9

%9

.1%

9.1

%8

.7%

8.3

%8

.2%

8.0

%7

.8%

7.8

%7

.7%

7.6

%7

.5%

7.4

%7

.3%

7.1

%7

.0%

9.6

%

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

12

:Q1

12

:Q2

12

:Q3

12

:Q4

13

:Q1

13

:Q2

13

:Q3

13

:Q4

14

:Q1

14

:Q2

14

:Q3

14

:Q4

Rising unemployment

eroded payrolls

and workers comp’s

exposure base.

Unemployment peaked at 10%

in late 2009.

* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/13 edition); Insurance Information Institute.

2007:Q1 to 2014:Q4F*

Unemployment forecasts have been revised slightly

downwards. Optimistic scenarios put the

unemployment as low as 6.5% by Q4 of next year.

Jobless figures have been revised

slightly downwards for 2013/14

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

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

$25

$30

$35

$40

$45

$50Wage & Salary DisbursementsWC NPW

58

Payroll Base* WC NWP

Payroll vs. Workers Comp Net Written Premiums, 1990-2012E

*Private employment; Shaded areas indicate recessions. Payroll and WC premiums for 2012 is I.I.I. estimate based YTD 2012 actuals.Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.

Continued Payroll Growth and Rate Increases Suggest WC NWP Will Grow Again in 2012; +7.9% Growth in 2011 Was the First Gain Since 2005

7/90-3/91 3/01-11/0112/07-6/09

$Billions $Billions

WC premium volume dropped two years before

the recession began

WC net premiums written were down $14B or 29.3% to

$33.8B in 2010 after peaking at $47.8B

in 2005

+9% in 2012E

60

P/C Insurance Industry Financial Overview

Profit Recovery in 2012 After High CAT Losses; Ultimate

Impact of Sandy Still Unclear

60

P/C Net Income After Taxes1991–2012:Q3 ($ Millions)

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $

36

,81

9

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

5,2

04

$1

9,1

50

$2

6,9

81

$2

8,6

72

-$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 09 10 11 12:Q3

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:Q3 ROAS1 = 6.3%

P-C Industry 2012:Q3 profits were up 222% from 2011:Q3, due primarily to lower catastrophe losses

* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.6% ROAS through 2012:Q3, 4.6% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

* 2008 -2012 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2012:Q3 combined ratio including M&FG insurers is 100.9, ROAS = 6.3%; 2011 combined ratio including M&FG insurers is 108.2, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO data.

97.5

100.6 100.1 100.8

92.7

101.099.3

100.9 100.0

106.4

95.7

6.6%

4.6%

7.6%7.4%4.4%

9.6%

15.9%

14.3%

12.7% 10.9%

8.8%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012:9M0%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

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

A combined ratio of about 100 generates an ROE of ~6.6% in 2012, ~7.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

Year Ago

2011:Q3 = 108.1, 3.1% ROE

-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

*1

2:

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2012:Q3*

*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2012 exclude mortgage and financial guaranty insurers. 2012:Q3 ROAS = 6.2% including M&FG.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

1977:19.0% 1987:17.3%

1997:11.6%2006:12.7%

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

10 Years

10 Years9 Years

2011:4.6%*

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

2012:Q3: 6.6%

66

18.3

14.7

14.6

14.3

14.2

13.5

12.3

12.2

12.2

11.7

11.6

11.1

11.0

10.8

10.7

10.5

10.5

10.5

10.3

10.2

10.1

10.0

9.8

9.8

9.7

9.5

02468

10121416182022

HI ME ID ND VT DC NH MN UT IA OH SD AK KS CT AZ NM OR RI CA WI VA CO IN WY NE

RN

W P

PA

*Latest available.Sources: NAIC.

Hawaii was the most profitable state for auto insurers from 2002-2011

Return on Net Worth: Pvt. Passenger Auto, 10-Year Average (2002-2011*)

Top 25 States(Percent)

67

9.1

8.9

8.7

8.5

8.4

8.4

8.3

8.3

8.1

7.9

7.7

7.5

7.5

7.3

7.1

6.9

6.9

6.5

6.1

5.5

5.5

5.2

3.9

3.7

3.5

-2.0

-4

-2

0

2

4

6

8

10

NY

WA IL

MO

SC

WV

AL

TX

MD

MT

U.S

.

AR

GA

PA

NJ

MA

OK

NC

TN

KY

MS

DE FL

NV

LA MI

RN

W A

uto

Return on Net Worth: Pvt. Passenger Auto, 10-Year Average (2002-2011*)

*Latest available.Sources: NAIC

Michigan was the least profitable state for auto insurers from

2002-2011

(Percent) Bottom 25 States

69

45

.7

21

.6

20

.3

19

.7

19

.5

19

.2

17

.9

16

.8

16

.4

15

.8

15

.7

15

.7

14

.9

14

.1

12

.7

12

.3

11

.7

11

.2

10

.7

10

.1

10

.1

10

.0

9.2

19

.0

18

.0

14

.00

5

10

15

20

25

30

35

40

45

50

HI DC AK RI SC NV DE OR NY CA UT MA CT WA ME VT ID ND NM VA NH PA MI NC NJ AZ

RN

W H

O

*Latest available.Sources: NAIC.

Return on Net Worth: Homeowners Insurance, 10-Year Average (2002-2011*)

Hawaii was the most profitable state for home insurers from

2002-2011 due to the absence of hurricanes during this period

(Percent) Top 25 States

70

8.6

7.8

7.2

6.1

5.8

5.7

5.5

5.4

4.8

8.0

1.0

-4.5

-5.0

-5.6

-6.0

-7.4

-7.9 -8.3

-15

.1

-16

.1

-24

.0

-26

.3

-1.5

-0.1

0.1

4.5

-40-35-30-25-20-15-10-505

1015

MT MD CO WY WV SD WI NE U.S. IA IL TX KS FL IN OH MN MO AR KY OK GA AL TN LA MS

RN

W H

O

*Latest available.Sources: NAIC

Hurricanes Katrina and Rita made Louisiana and Mississippi the least profitable states for home insurers

from 2002-2011

Bottom 25 States(Percent)

Return on Net Worth: Homeowners Insurance, 10-Year Average (2002-2011*)

71

Profitability and Growth in New York P/C Insurance

Markets

Analysis by Line and Nearby State Comparisons

72

RNW All Lines: NY vs. U.S., 2002-2011

Sources: NAIC.

-15%

-10%

-5%

0%

5%

10%

15%

20%

02 03 04 05 06 07 08 09 10 11

US All Lines NY All Lines

(Percent)

Average 2002-2011US: 7.7%NY: 5.9%

73

RNW PP Auto: NY vs. U.S., 2002-2011

Sources: NAIC.

0%

5%

10%

15%

20%

25%

02 03 04 05 06 07 08 09 10 11

US PP Auto NY PP Auto

Average 2002-2011US: 7.7%NY: 9.1%

74

RNW Comm. Auto: NY vs. U.S.,2002-2011

Sources: NAIC.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

02 03 04 05 06 07 08 09 10 11

US Comm Auto NY Comm Auto

(Percent)

Average 2002-2011US: 9.8%NY: 8.4%

75

RNW Comm. Multi-Peril: NY vs. U.S.,2002-2011

Sources: NAIC.

-5%

0%

5%

10%

15%

20%

25%

02 03 04 05 06 07 08 09 10 11

US Comm M-P NY Comm M-P

(Percent)

Average 2002-2011US: 9.1%NY: 11.6%

76

RNW Homeowners: NY vs. U.S.,2002-2011

Sources: NAIC.

-10%

-5%

0%

5%

10%

15%

20%

25%

02 03 04 05 06 07 08 09 10 11

US HO NY HO

(Percent)Average 2002-2011

US: 5.4%NY: 17.8%

NY profitability in 2012 will

take a nosedive

due to Sandy

77

RNW Workers Comp: NY vs. U.S.,2002-2011

Sources: NAIC.

-2%

0%

2%

4%

6%

8%

10%

12%

02 03 04 05 06 07 08 09 10 11

US WComp NY WComp

(Percent)

Average 2002-2011US: 6.7%NY: 5.0%

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

6.9%

7.7%

10.5%

10.7%

12.5%

5.9%

7.5%

0% 5% 10% 15%

Vermont

Massachusetts

Connecticut

U.S.

New Jersey

Pennsylvania

New York

Source: NAIC, Insurance Information Institute

2002-2011

New York All Lines profitability is below the US and regional

average

PP Auto: 10-Year Average RNW NY & Nearby States

7.1%

7.7%

9.1%

10.7%

14.2%

6.9%

7.3%

0% 5% 10% 15%

Vermont

Connecticut

New York

U.S.

Pennsylvania

New Jersey

Massachusetts

Source: NAIC, Insurance Information Institute

2002-2011

New York PP Auto profitability is above the US average and below the regional

average

Comm. Auto: 10-Year Average RNW NY & Nearby States

8.4%

9.8%

13.8%

15.7%

18.5%

7.1%

9.0%

0% 5% 10% 15% 20%

Vermont

Massachusetts

Connecticut

U.S.

Pennsylvania

New York

New Jersey

Source: NAIC, Insurance Information Institute

2002-2011

New York Commercial Auto profitability is below the US and regional average

Comm. M-P: 10-Year Average RNW AL & Nearby States

9.6%

11.6%

12.6%

12.8%

17.3%

9.1%

10.4%

0% 5% 10% 15% 20%

Massachusetts

Vermont

Connecticut

New York

New Jersey

Pennsylvania

U.S.

Source: NAIC, Insurance Information Institute

2002-2011

New York Commercial Multi-Peril profitability is

above the US average and below

the regional average

Homeowners: 10-Year Average RNW NY & Nearby States

10.0%

14.8%

15.7%

15.8%

17.8%

5.4%

10.7%

0% 5% 10% 15% 20%

New York

Massachusetts

Connecticut

Vermont

Pennsylvania

New Jersey

U.S.

Source: NAIC, Insurance Information Institute

2002-2011

New York Homeowners profitability is above the US and regional average (Sandy will cause figure

to drop)

Workers Comp: 10-Year Average RNW NY & Nearby States

4.9%

6.0%

6.3%

6.7%

7.4%

3.3%

5.0%

0% 2% 4% 6% 8%

Massachusets

U.S.

Pennsylvania

Vermont

New York

Connecticut

New Jersey

Source: NAIC, Insurance Information Institute

2002-2011

New York Workers Comp profitability is

below the US average and regional

average

86

All Lines DWP Growth: NY vs. U.S., 2002-2011

Source: SNL Financial.

14.5

%

9.9%

7.5%

2.3% 3.

4%

0.5%

-2.1

%

-3.3

%

0.0%

3.7%

16.9

%

7.8% 9.

0%

0.3%

4.0%

1.5%

-2.0

%

-3.6

%

0.0%

3.2%

-10%

-5%

0%

5%

10%

15%

20%

02 03 04 05 06 07 08 09 10 11

US DWP: All Lines NY DWP: All Lines

(Percent)

Average 2002-2011US: 3.6%NY: 3.7%

87

Comm. Lines DWP Growth: NY vs. U.S., 2002-2011

Source: SNL Financial.

19

.3%

11

.4%

9.6

%

2.6

%

4.9

%

-0.3

%

-3.8

%

-7.3

% -2.5

%

5.1

%

24

.0%

8.8

% 13

.5%

1.7

%

7.3

%

2.1

%

-3.8

%

-7.3

% -1.7

%

3.1

%

-20%

-10%

0%

10%

20%

30%

02 03 04 05 06 07 08 09 10 11

US DWP: Comm. Lines NY DWP: Comm. Lines

(Percent)

Average 2002-2011US: 3.9%NY: 4.8%

88

Personal Lines DWP Growth: NY vs. U.S., 2002-2011

Source: SNL Financial.

11

.2%

9.3

%

5.2

%

2.3

%

2.3

%

1.2

%

-0.1

%

1.1

% 2.5

%

2.2

%

9.5

%

7.1

%

3.3

%

-1.5

%

-0.6

%

0.7

%

1.2

%

2.2

%

2.2

%

3.1

%

-10%

-5%

0%

5%

10%

15%

20%

02 03 04 05 06 07 08 09 10 11

US DWP: Personal Lines NY DWP: Personal Lines

(Percent)

Average 2002-2011US: 3.7%NY: 2.7%

Hurricane Sandy Summary

91

Sandy Will Become One of the Most Expensive Events in

Insurance History

91

93

Top 12 Most Costly Hurricanesin U.S. History

(Insured Losses, 2012 Dollars, $ Billions)

*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

$9.2 $11.1$13.4

$20.0

$25.6

$48.7

$8.7$7.8$6.7$5.6$5.6$4.4

$0

$10

$20

$30

$40

$50

$60

Irene(2011)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Sandy*(2012)

Andrew(1992)

Katrina(2005)

Hurricane Sandy could become the 3rd costliest

hurricane in US insurance history

Hurricane Irene became the 12th most expensive hurricane in US history in 2011

10 of the 12 most costly hurricanes in insurance history occurred over the past 9 years (2004—2012)

Hurricane Sandy: Claim Payments to Policyholders, by State

$9,600

$6,300

$700 $500 $410 $295 $292 $210 $103 $84 $57 $55 $37 $36 $13$58$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

NY NJ PA CT MD VA OH MA RI DE WV NC NH DC ME VT

Insurers Will Pay at Least $18.75 Billion to 1.52 Million Policyholders Across 15 States and DC in the Wake of Hurricane Sandy

94

At $9.6B and $6.6B, respectively, NY and NJ suffered, by far, the largest losses

from Hurricane Sandy

TOTAL = $18.75 BILLION($ Thousands)

Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of Jan. 18, 2013; Insurance Information Institute .

Auto, 250,500 ,

16%

Commercial, 202,500 ,

13%

Homeowner, 1,067,000 ,

71%

Hurricane Sandy resulted in an

estimated 1.52 million privately insured

claims resulting in an estimated $18.75 to

$25 billion in insured losses. Hurricane

Katrina produced 1.74 million claims and

$48.7B in losses (in 2012 $)

Hurricane Sandy: Number of Claims by Type*

*PCS claim count estimate s as of 1/18/13. Loss estimate represents PCS total ($18.75B) and upper end of range estimates by risk modelers RMS, Eqecat and AIR. All figures exclude losses paid by the NFIP.Source: PCS; AIR, Eqecat, AIR Worldwide; Insurance Information Institute. 95

Sandy is a high HO frequency, (relatively

low) severity event (avg. severity <50% Katrina)

Total Claims = 1.52 Million*

Auto, $2,729 , 15%

Commercial, $9,024 ,

48%

Homeowner, $6,997 ,

37%

Although Commercial Lines accounted for

only 13% of total claims, they account for 48% of all claim

dollars paid. In most hurricanes,

Commercial Lines accounts for about

1/3 of insured losses.

Hurricane Sandy: Insured Loss byClaim Type* ($ Millions)

*PCS insured loss estimates as of 1/18/13. Catastrophe modeler estimates range up to $25 billion. All figures exclude losses paid by the NFIP.Source: PCS; Insurance Information Institute. 96

Total Claim Value = $18.75 Billion*

New Jersey, $2,500 , 36% New York,

$2,700 , 38%

All Other, $1,797 , 26%

Hurricane Sandy: Value of Homeowners Claims Paid, by State* ($ Millions)

*Preliminary as of 1/18/13.Source: PCS. 97

Hurricane Sandy• Estimated

1,067,000 homeowners

claims**• $7.0 billion in insured losses.

• Average loss per claim is $6,558

• Claims in NJ estimated at $2.5 billion (36%) and $2.7 billion in NY

(38%)

New Jersey, 60,000 , 24%

All Other, 40,500 , 16%

New York, 150,000 ,

60%

Hurricane Sandy• Estimated 250,500

vehicle claims• $2.729 billion in

insured losses.• Average loss per

claim is $10,894• 60% of the claims

occurred in NY state.

Hurricane Sandy: Number of Auto Claims by State*

*Preliminary as of 1/18/13.Source: PCS. 98

New Jersey, $250 , 32%

All Other, $129 , 17%

New York, $400 , 51%

Hurricane Sandy• Estimated 250,500

vehicle claims• $2.729 billion in

insured losses.• Average loss per

claim is $10,894• About 50% of the

claim dollars will be paid in NY, 32%

in NJ.

Hurricane Sandy: Value of Auto Claims Paid, by State* ($ Millions)

*Preliminary as of 1/18/13.Source: PCS. 99

Hurricane Sandy: Loss Distribution by Commercial/Personal Lines and Reinsurance vs. Primary Insurer

*Fitch Ratings assigns a range of 60-65% commercial and 35-40% personal lines., Hurricane Sandy Update, January 8, 2013.**Source: Insurance Information Institute rough estimate based on company reports as of January 13, 2013. Actual number will vary. 100

Personal Lines40%

Commercial Lines60%

Primary70%

Reinsurance30%

Personal vs. Commercial Lines* Primary vs. Reinsurer Share**

~60-65% of Sandy losses appear to be commercial lines, and 35-

40% personal, the opposite of the norm for hurricane losses

Reinsurers’ share of Sandy losses appears to be in the 30% range, though this is highly preliminary

Hurricane Sandy: Average Claim Payment by Type of Claim

$6,558$10,894

$43,056 $44,563

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

Home* Vehicle NFIP Flood** Commercial

Commercial (Business) Claims Were Nearly Seven Times More Expensive than Homeowners Claims; Vehicle Claims Were Unusually Expensive

Due to Extensive Flooding

101

Commercial (i.e., business claims) are more expensive

because the value of property is often higher as well as the impact of insured business

interruption losses

*Includes rental and condo policies (excludes NFIP flood). **As of Feb. 20, 2013.Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of Jan. 18, 2013; Insurance Information Institute .

The average insured flood loss was 6.5 times larger than the average non-flood insured loss

(mostly wind)

102

U.S. Insured Catastrophe Loss Update

2012 Catastrophe Losses Were Close to “Average” Until Sandy Hit

2011 Was the 5th Most Expensive Year on Record

102

Nu

mb

er

Geophysical (earthquake, tsunami, volcanic activity)

Climatological (temperature extremes, drought, wildfire)

Meteorological (storm)

Hydrological (flood, mass movement)

Natural Disasters in the United States, 1980 – 2012Number of Events (Annual Totals 1980 – 2012)

Source: MR NatCatSERVICE 105

41

19

121

3

50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

There were 184 natural disaster events in the

US in 2012

U.S. Thunderstorm Loss Trends, 1980 – 2012

107Source: Property Claims Service, MR NatCatSERVICE

Average thunderstorm

losses are up 7 fold since the early

1980s. The 5- year running average

loss is up sharply.

Hurricanes get all the headlines, but thunderstorms are consistent

producers of large scale loss. 2008-2012 are the most expensive

years on record.

Thunderstorm losses in 2012 totaled $14.9 billion, the 2nd

highest on record

108

Top 16 Most Costly Disastersin U.S. History

(Insured Losses, 2012 Dollars, $ Billions)

$7.8 $8.7 $9.2 $11.1$13.4

$20.0$23.9 $24.6$25.6

$48.7

$7.5$7.1$6.7$5.6$5.6$4.4

$0

$10

$20

$30

$40

$50

$60

Irene (2011) Jeanne(2004)

Frances(2004)

Rita (2005)

Tornadoes/T-Storms

(2011)

Tornadoes/T-Storms

(2011)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Sandy*(2012)

Northridge(1994)

9/11 Attack(2001)

Andrew(1992)

Katrina(2005)

Hurricane Sandy could become the 4th or 5th costliest event in US

insurance history

Hurricane Irene became the 12th most expense hurricane

in US history in 2011

Includes Tuscaloosa, AL,

tornado

Includes Joplin, MO, tornado

12 of the 16 Most Expensive Events in US History Have

Occurred Over the Past Decade

*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

109

$1

2.6

$1

1.0

$3

.8

$1

4.3

$1

1.6

$6

.1

$3

4.7

$7

.6

$1

6.3

$3

3.7

$7

3.4

$1

0.5

$7

.5

$2

9.2

$1

1.5

$1

4.4

$3

3.1

$3

7.0

$1

4.0

$4

.8

$8

.0

$3

7.8

$8

.8

$2

6.4

$0

$10

$20

$30

$40

$50

$60

$70

$80

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

US Insured Catastrophe Losses

*As of 1/2/13. Includes $20B gross loss estimate for Hurricane Sandy.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.

US CAT Losses in 2012 Will Likely Become the 2nd or 3rd Highest in US History on An Inflation-Adjusted

Basis (Pvt Insured). 2011 Losses Were the 5th Highest

2012 CAT losses were down nearly 50% from 2011 until Sandy struck in late October

Record Tornado Losses Caused

2011 CAT Losses to Surge

($ Billions, 2012 Dollars)

109

110

Flood Loss Paid by the National Flood Insurance Program, 1980-2012E

*Estimate as of 11/25/12.Sources: Department of Homeland Security, Federal Emergency Management Agency, NFIP; Insurance Information Institute.

Billions (Original Values)

$0.23 $0.37 $0.17$1.30

$0.25

$17.74

$0.64 $0.61

$3.47

$0.78 $0.77$1.85

$7.50

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012*

Hurricanes Katrina and Rita accounted for the majority of

2005’s record $17.4B payout

Hurricane Ike

110

Hurricane Sandy and other events could result in $7.5

billion in payouts from the NFIP in 2012, second only to 2005

and potentially exhausting the NFIP’s borrowing authority

112

Top 16 Most Costly World Insurance Losses, 1970-2012*

(Insured Losses, 2012 Dollars, $ Billions)

*Figures do not include federally insured flood losses.**Estimate based on PCS value of $18.75B as of 1/18/13 and assumption of upward development based on catastrophe modeler estimates ranging as high as $25B.Sources: Swiss Re sigma 1/2011; Munich Re; Insurance Information Institute research.

$11.1$13.4 $13.4$13.4

$20.0$23.9 $24.6$25.6

$38.6

$48.7

$7.8 $8.1 $8.5 $8.7 $9.2 $9.6

$0

$10

$20

$30

$40

$50

$60

Hugo (1989)

WinterStormDaria(1991)

ChileQuake(2010)

Ivan (2004)

Charley(2004)

TyphoonMirielle(1991)

Wilma(2005)

ThailandFloods(2011)

NewZealandQuake(2011)

Ike (2008)

Sandy(2012)**

Northridge(1994)

WTC TerrorAttack(2001)

Andrew(1992)

JapanQuake,

Tsunami(2011)**

Katrina(2005)

5 of the top 14 most expensive

catastrophes in world history have occurred within the past 3 years

Hurricane Sandy could become the 6th costliest event

in global insurance history

2012 insured CAT Losses totaled $60B; Economic losses totaled $140B, according to Swiss Re

114

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990–20111

0.4%

1.6%

3.8%4.7%

6.3%

7.3%

33.9%

42.0%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2. Excludes snow.3. Does not include NFIP flood losses4. Includes wildland fires5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.

Hurricanes & Tropical Storms, $161.3

Fires (4), $6.0

Tornadoes (2), $130.2

Winter Storms, $28.2

Terrorism, $24.4

Geological Events, $18.2

Wind/Hail/Flood (3), $14.8

Other (5), $1.4

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Insured cat losses from 1992-2011

totaled $384.3B, an average of $19.2B per year or $1.6B

per month

Homeowners Insurance Catastrophe-Related Claim Frequency and Severity, 1997—2012*

*All policy forms combined, countrywide.Source: Insurance Research Council, Trends in Homeowners Insurance Claims, Sept. 2012 from ISO Fast Track data. 115

Avg. catastrophe claim cost rose

approximately 200% from 1997-2011

Cat claim frequency in 2011 was at historic highs and more than

double the rate in 1997

116

Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2012*

Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute.

0.4

1.2

0.4 0.

8 1.3

0.3 0.4 0.

71.

51.

00.

40.

4 0.7

1.8

1.1

0.6

1.4 2.

01.

3 2.0

0.5

0.5 0.7

3.0

1.2

2.1

8.8

2.3

5.9

3.3

2.8

1.0

3.6

2.9

1.6

5.4

1.6

3.3

3.3

8.1

2.7

1.6

5.0

2.6

3.4

8.7 9.

4

3.6

0.9

0.1

1.1

1.1

0.8

0

1

2

3

4

5

6

7

8

9

10

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

E

The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades

Avg. CAT Loss Component of the Combined Ratio

by Decade

1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 7.20*

Combined Ratio Points Catastrophe losses as a share of all losses reached

a record high in 2012

117

Federal Disaster Declarations Patterns:

1953-2012

117

Despite 11 Sandy Declarations, Fewer Disasters Were Declared in 2012 than the Record Number of

Declarations in 2010 and 2011

Number of Federal Disaster Declarations, 1953-2013*

13 1

7 18

16

16

7 71

21

22

22

0 25

25

11

11

19

29

17

17

48

46

46

38

30

22 2

54

22

31

52

42

13

42

7 28

23

11

31

38

45

32 3

63

27

54

46

55

04

54

5 49

56

69

48 5

26

37

55

98

19

94

73

43

0

20

40

60

80

100

120

53

54

55

56

57

58

59

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

10

11

12

13

*Through Jan. 31, 2013.Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011. Hurricane Sandy Produced 13 Declarations in 2012/13.

The number of federal disaster declarations set a

new record in 2011, with 99, shattering 2010’s record 81

declarations.

There have been 2,084 federal disaster

declarations since 1953. The average

number of declarations per year is 35 from

1953-2011, though that few haven’t been

recorded since 1995.

47 federal disasters were declared in 2012

118

119

Federal Disasters Declarations by State, 1953 – 2013: Highest 25 States*

86

78

72

66

65

59

57

56

54

53

51

51

51

50

48

48

48

48

47

47

47

46

42

40

39

0

10

20

30

40

50

60

70

80

90

100

TX CA OK NY FL LA AL KY AR MO IL TN MS WV IA MN KS PA NE VA OH WA ND NC IN

Dis

as

ter

De

cla

rati

on

s

Over the past 60 years, Texas has had the highest

number of Federal Disaster

Declarations

*Through Jan. 31, 2012. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

NY has the 4th highest number of disaster

declarations since 1953

120

Federal Disasters Declarations by State, 1953 – 2012: Lowest 25 States*

39

39

38

36

36

35

34

30

28

28

26

26

25

24

24

24

23

22

18

17

17

15

15

13

11

10

9

0

10

20

30

40

50

ME SD AK GA WI NJ VT NH OR MA PR HI MI AZ MD NM ID MT CT NV CO DE SC DC UT RI WY

Dis

as

ter

De

cla

rati

on

s

Over the past 60 years, Wyoming and Rhode Island had the fewest

number of Federal Disaster Declarations

*Through Jan. 31, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

The BIG Question:Where Is the Market Heading?

134

Catastrophes and Other Factors Are Pressuring Insurance Markets

134

New Factor: Record Low Interest Rates Are Contributing to

Underwriting and Pricing Pressures

135

Historical Criteria for a “Market Turn”:Low Interest Rates Add New Pressure

Criteria Status Comments

Sustained Period of

Large Underwriting

Losses

Large CAT Losses in 2011/12

Pushed Up Combineds

• CAT Losses contributing to higher underwriting losses• Apart from CAT losses, overall p/c underwriting losses

remain modest• Combined ratios (ex-CATs) still in low 100s (vs. 110+ at

onset of last hard market); CR= 101.1 in H1:2012 (ex-M&FG)

• Prior-year reserve releases continue to reduce u/w losses, boost ROEs, though more modestly

Material Decline in Surplus/ Capacity

Small Decline Due to 2011 Cats; Could drop in 2012

• Fell 1.6% in 2011 due to CATs• Surplus reached record as of 9/30/12 record $583.5B• Likely drop as of 12/31/12 due to Sandy impact• Modest growth in demand for insurance should begin to

absorb some capacity

Tight Reinsurance

MarketSomewhat in

Place

• Ample capacity• Market is generally flat except up for cat-impacted

accounts• Lower prices in Europe

Renewed Underwriting

& Pricing Discipline

Firming Broad, Sustained,esp. in Property, WC

• Commercial lines pricing is consistently and uniformly across all major lines, esp. Property & WC;

• Markets remain competitive in most segments Sources: Barclays Capital; Insurance Information Institute.

INVESTMENTS: THE NEW REALITY

136

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

136

Property/Casualty Insurance Industry Investment Gain: 1994–2012F1

$35.4

$42.8$47.2

$52.3

$44.4

$36.0

$45.3$48.9

$59.4$55.7

$64.0

$31.7

$39.2

$53.4$56.2

$50.8

$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 09 10 11 12F

Investment Gains Are Slipping in 2012 as Low Interest Rates Reduce Investment Income and Lower Realized Investment Gains; The Financial

Crisis Caused Investment Gains to Fall by 50% in 20081 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; 2012F figure is III estimate based on annualized actual 9M:2012 result of

$38.089B.Sources: ISO; Insurance Information Institute.

($ Billions)

Investment gains in 2012 are running approximately 20% below their pre-crisis peak

140

U.S. 10-Year Treasury Note Yields:A Long Downward Trend, 1990–2013*

*Monthly, through Jan. 2013. Note: Recessions indicated by gray shaded columns.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.

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

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.

Yields on 10-Year U.S. Treasury Notes recently

rose 48bp from its all time record lows to 1.91% in Jan. 2013

140

143

-1.8

%

-1.8

%

-2.0

%

-3.6

%

-3.3

%

-3.3

%

-3.7

%

-4.3

%

-5.2

%

-5.7

%

-7.3%

-1.9

%

-2.1

%

-3.1

%

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

Perso

nal L

ines

Pvt Pass

Aut

o

Pers P

rop

Comm

ercia

l

Comm

l Auto

Credit

Comm

Pro

p

Comm

Cas

Fidelity

/Sure

ty

Warra

nty

Surplu

s Line

s

Med

Mal

WC

Reinsu

rance

**

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

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

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

143

1. UNDERWRITING

144

Underwriting Losses in 2011 and 2012 Are Elevated by High

Catastrophe Losses

144

145

P/C Insurance Industry Combined Ratio, 2001–2012:Q3*

* Excludes Mortgage & Financial Guaranty insurers 2008--2012. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.2; 2012:Q3=100.0. Sources: A.M. Best, ISO.

95.7

99.3100.8

106.4

100.0101.0

92.6

100.898.4

100.1

107.5

115.8

90

100

110

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012:Q3

Best Combined

Ratio Since 1949 (87.6)

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

Avg. CAT Losses,

More Reserve Releases

Higher CAT

Losses, Shrinking Reserve

Releases, Toll of Soft

Market

Cyclical Deterioration

Lower CAT

Losses Before Sandy

Underwriting Gain (Loss)1975–2012:Q3*

* Includes mortgage and financial guaranty insurers in all years.Sources: A.M. Best, ISO; Insurance Information Institute.

Large Underwriting Losses Are NOT Sustainable in Current Investment Environment

-$55

-$45

-$35

-$25

-$15

-$5

$5

$15

$25

$35

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

Cumulative underwriting deficit from 1975 through

2011 is $479B

($ Billions) Underwriting losses

through 2012:Q3

totaled $6.7B

High cat losses in 2011 led to the highest

underwriting loss since 2002

148

2

(2)

(8)

(3)

(7)(10) (10)

(4)

(0)

11

24

15

119

(5)

(9)

(14)

(10) (11)(7)

(5)(2)

-$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

11

E

12

F

13

F

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, 1992–2013F

Reserve Releases Remained Strong in 2010 But Tapered Off in 2011. Releases Are Expected to

Further Diminish in 2012 and 2103Note: 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: Barclays Capital; A.M. Best.

Prior year reserve releases totaled $8.8

billion in the first half of 2010, up from

$7.1 billion in the first half of 2009

156

Performance by Segment

156

Private Passenger Auto Combined Ratio: 1993–2014F

10

1.7

10

1.3

10

1.3

10

1.0

10

9.5

10

7.9

10

4.2

98

.4

94

.3

95

.1

95

.5 98

.3 10

0.3

10

1.3

10

1.0

10

1.9

99

.6

98

.5 10

0.2

99

.5 10

1.1

10

3.5

80

85

90

95

100

105

110

115

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

Private Passenger Auto Accounts for 34% of Industry Premiums and Remains the Profit Juggernaut of the P/C Insurance Industry

157Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.

Homeowners Insurance Combined Ratio: 1990–2014F

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

94

.4 10

0.3

89

.0 95

.7

11

6.9

10

5.8

10

6.7

12

2.2

11

8.0

10

5.5

10

6.81

18

.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 12F13F14F

1

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

Expected Due to Local Catastrophe Loss Activity

Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute. 158

Hurricane Ike

Hurricane Sandy

Record tornado activity

109.4110.2

118.8

109.5

112.5

110.2

107.6

104.1

109.7 110.2

102.5

105.4

91.1

93.6

104.2

98.9

102.1

106.7

109.0

102.9102.0

111.1112.3

122.3

90

95

100

105

110

115

120

125

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

F

13

F

Co

mm

erc

ial L

ine

s C

om

bin

ed

Ra

tio

*2007-2013F figures exclude mortgage and financial guaranty segments.Source: A.M. Best; Insurance Information Institute

Commercial Lines Combined Ratio, 1990-2013F*

Commercial lines underwriting

performance in 2012 was the worst since 2002 due

to heavy impact from Sandy

161

Commercial Auto Combined Ratio: 1993–2014F

11

2.1

11

2.0

11

3.0

11

5.9

10

2.7

95

.2

92

.9

92

.1

92

.4 94

.3 96

.8 99

.4

98

.0

10

4.6

10

7.1

10

3.6

10

1.2

11

8.1

11

5.7

11

6.2

80

85

90

95

100

105

110

115

120

125

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

Commercial Auto is Expected to Improve as Rate Gains Outpace Any Adverse Frequency and Severity Trends

162Sources: A.M. Best (1990-2013F);Conning (2014F); Insurance Information Institute.

General Liability Combined Ratio: 2005–2014F

112.

9

95.1 99

.0

94.2

100.

7

103.

3

103.

7107.

1 110.

8

99.6

80

85

90

95

100

105

110

115

05 06 07 08 09 10 11 12F 13F 14F

Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years

Source: Conning Research and Consulting. 164

Workers Compensation Combined Ratio: 1994–2014F

102.

0

97.0 10

0.0

101.

0

112.

6

108.

6

105.

1

102.

7

98.5

103.

5

104.

5 110.

6 116.

8

116.

9

117.

3

115.

0

111.

0

121.

7

107.

0

115.

3

118.

2

80

85

90

95

100

105

110

115

120

125

130

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

Workers Comp Results Should Begin to Improve in 2013. Underwriting Results Deteriorated Markedly from 2007-2012 and Were the Worst They Had Been in a Decade.

Sources: A.M. Best (1994-2013F); Insurance Information Institute (2014F). 169

Workers Comp Rate Changes,2008:Q4 – 2012:Q4

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

-5.5%-4.6%

-4.0%-4.6%

-3.7%-3.9%

-5.4%

-3.7%-3.4%

-1.6%

2.6%

4.1%

7.5% 7.4%8.3% 8.1%

9.0%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

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 12:Q1 12:Q2 12:Q3 12:Q4

WC rate changes have been positive for 7

consecutive quarters, longer than any other

commercial line

(Percent Change)

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

2. SURPLUS/CAPITAL/CAPACITY

179

How Will Large Catastrophe Losses Impact Capacity?

179

181

Policyholder Surplus, 2006:Q4–2012:Q3

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

$570.7$566.5

$505.0

$515.6$517.9

$420

$440

$460

$480

$500

$520

$540

$560

$580

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:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3

2007:Q3Pre-Crisis Peak

Surplus as of 9/30/12 was up $12.8B or 2.2% from the

previous record high of $570.7B set as of 3/31/12.

*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.

The Industry now has $1 of surplus for every $0.80

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 Both Entered and Emerged from the 2012 Hurricane

Season Very Strong Financially. There is No Insurance Industry “Fiscal Cliff”

182

3. REINSURANCE MARKET CONDITIONS

Record Global Catastrophes Activity is

Pressuring Pricing

182

184

Regional Property Catastrophe Rate on Line Index, 1990—2013 (as of January 1)

Sources: Guy Carpenter; Insurance Information Institute.

Property-Cat reinsurance pricing was up in the US as

of 1/1/13 but was down in Europe/UK

4. RENEWED PRICING DISCIPLINE

185

Evidence of a Broad and Sustained Shift in Pricing

185

187

-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

Net Premium Growth: Annual Change, 1971—2012:Q3

(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.

2012:Q3 growth

was +4.2%

188

P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter

Sources: ISO, Insurance Information Institute.

Sustained Growth in Written Premiums(vs. the same quarter, prior year) Will Continue into 2013

10.2

%15

.1%

16.8

%16

.7%

12.5

%10

.1%

9.7%

7.8%

7.2%

5.6%

2.9%

5.5%

-4.6

%-4

.1%

-5.8

%-1

.6%

10.3

%10

.2% 13

.4%

6.6%

-1.6

%2.

1%0.

0%-1

.9%

0.5%

-1.8

%-0

.7%

-4.4

%-3

.7%

-5.3

%-5

.2%

-1.4

%-1

.3%

1.3% 2.

3%1.

7% 3.5%

1.6%

4.1%

3.8%

3.1% 4.

2% 5.1%

-10%

-5%

0%

5%

10%

15%

20%

2002

:Q1

2002

:Q2

2002

:Q3

2002

:Q4

2003

:Q1

2003

:Q2

2003

:Q3

2003

:Q4

2004

:Q1

2004

:Q2

2004

:Q3

2004

:Q4

2005

:Q1

2005

:Q2

2005

:Q3

2005

:Q4

2006

:Q1

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

2009

:Q4

2010

:Q1

2010

:Q2

2010

:Q3

2010

:Q4

2011

:Q1

2011

:Q2

2011

:Q3

2011

:Q4

2012

:Q1

2012

:Q2

2012

:Q3

Premium growth in Q3 2012 was up 5.1% over Q3 2011, the strongest growth since Q4 2006

190

Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2012)

-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%

-11

.0%

-6.4

%-5

.1%

-4.9

%-5

.8%

-5.6

%-5

.3%

-6.4

%-5

.2%

-5.4

% -2.9

%

2.7

% 4.4

%4

.3%

3.9

%5

.0%

-0.1

% 0.9

%

-0.1

%

-16%

-11%

-6%

-1%

4%

9%

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

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

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

KRW Effect

Pricing as of Q4:2012 was positive for the 6th consecutive

quarter. Gains are likely to continue through 2013.

(Percent)

Q2 2011 marked the last of 30th

consecutive quarter of price declines

191

Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2012:Q4

Source: Council of Insurance Agents and Brokers; Barclay’s Capital; Insurance Information Institute.

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

Percentage Change (%)

Trough = 2007:Q3 -13.6%

KRW : No Lasting Impact

Pricing Turned Negative in Early

2004 and Remained that

way for 7 ½ years

Peak = 2001:Q4 +28.5%

Pricing turned positive in Q3:2011, the first increase in

nearly 8 years; Q4:2012 renewals were up 5.0%, the largest increase since late

2003; Some insurers posted stronger numbers.

195

Change in Commercial Rate Renewals, by Line: 2012:Q4

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

Major Commercial Lines Renewed Uniformly Upward in Q4:2012 for the Sixth Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat

Losses and Low Interest Rates Provide Momentum Going Forward

Percentage Change (%)

4.4% 4.4%4.9%

5.7%

9.0%

1.3%

3.2% 3.3% 3.4% 3.5% 3.4%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

Su

rety

Bu

sin

ess

Inte

rru

ptio

n

Ge

ne

ral

Lia

bili

ty

Co

mm

erc

ial

Au

to

Um

bre

lla

Co

mm

erc

ial

Au

to EP

L

Co

nst

ruct

ion

D&

O

Co

mm

erc

ial

Pro

pe

rty

Wo

rke

rsC

om

p

Workers Comp rate increases are large than any other line, followed

by Property lines

Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.

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203