Overview & Outlook for the P/C Insurance Industry:

Trends, Challenges and Opportunitiesin 2013 and Beyond

P/C Insurance Company Survey Group MeetingWashington, DCAugust 19, 2013

Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

2

P/C Insurance Industry Financial Overview

So Far, So Good:Profit Recovery in 2013 After High CAT Losses in 2011-12

2

P/C Net Income After Taxes1991–2013:Q1 ($ Millions)

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

• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.7% ROAS in 2013:Q1, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.

Sources: A.M. Best, ISO, Insurance Information Institute

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $3

6,8

19

$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

9,4

56 $

33

,52

2

$1

4,3

94

$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 13:Q1

2012:Q1 ROAS

was 7.2%Net income is up

substantially (+40.9%) from 2012:Q1 $10.2B

-5%

0%

5%

10%

15%

20%

25%

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

:Q1

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013:Q1*

*Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers.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

2012: 5.9%

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

2013:Q1 9.7%

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 combined ratio including M&FG insurers is 103.2, 2011 combined ratio including M&FG insurers is 108.1, ROAS = 3.5%. Source: Insurance Information Institute from A.M. Best and ISO data.

97.5

100.6 100.1 100.8

92.7

101.299.5

101.0

94.8

102.4

106.5

95.79.7%

6.2%4.7%

7.9%7.4%

4.3%

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 2013:Q10%

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 ~7.0% in 2012, ~7.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

Catastrophes and lower investment

income pulled down ROE in 2012

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

9

Growth Will Expand Insurer Exposure Base Across Most Lines

9

10

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 8/13; Insurance Information Institute.

2.7

%0

.5%

3.6

%3

.0%

1.7

%-1

.8%

1.3

%-3

.7%

-5.3

%-0

.3%

1.4

%5

.0%

2.3

%2

.2%

2.6

%2

.4%

0.1

%2

.5%

1.3

%4

.1%

2.0

%1

.3% 3

.1%

1.1

%1

.7%

2.3

%2

.7%

2.8

%2

.9%

2.9

%2

.9%

0.4

%

-8.9%

4.1

%1

.1%

1.8

%2

.5% 3.6

%3

.1%

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

   2

00

0   

   2

00

1   

   2

00

2   

   2

00

3   

   2

00

4   

   2

00

5   

   2

00

6   

07

:1Q

07

:2Q

07

:3Q

07

:4Q

08

:1Q

08

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08

:3Q

08

:4Q

09

:1Q

09

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09

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:4Q

10

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10

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11

:1Q

11

:2Q

11

:3Q

11

:4Q

12

:1Q

12

:2Q

12

:3Q

12

:4Q

13

:1Q

13

:2Q

13

:3Q

13

:4Q

14

:1Q

14

:2Q

14

:3Q

14

:4Q

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 uneven growth,

then gradually accelerate throughout the year and into 2014

11

Real GDP by State Percent Change, 2012:Highest 25 States

13

.4

4.8

3.9

3.6

3.5

3.5

3.4

3.3

3.3

3.3

2.7

2.7

2.6

2.4

2.4

2.4

2.4

2.2

2.2

2.2

2.2

2.1

2.1

2.1

2.1

2.0

0

2

4

6

8

10

12

14

ND TX OR WA CA MN UT IN TN WV NC SC AZ FL IA MD MS MA MI OH US CO GA MT OK MO

Pe

rce

nt

Ch

an

ge

(%

)

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

North Dakota was the economic growth juggernaut of the US

in 2012—by far

Only 10 states experienced growth in excess of 3%, which is what we would see nationally in

a more typical recovery

12

1.9

1.7

1.6

1.5

1.5

1.5

1.5

1.4

1.4

1.4

1.3

1.3

1.3

1.2

1.2

1.1

1.1

0.7

0.5

0.5

0.4

0.2

0.2

0.2

0.2

-0.1

-0.4-0.20.00.20.40.60.81.01.21.41.61.82.0

IL PA HI LA NE NV WI KS KY RI AR NJ NY AL VT AK VA DC ME NH ID DE NM SD WY CT

Pe

rce

nt

Ch

an

ge

(%

)

Real GDP by State Percent Change, 2012: Lowest 25 States

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

Connecticut was the only state to shrink in 2012

Growth rates in 8 states (and DC) were still below

1% in 2012

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 77

.67

8.6

84

.58

4.1

85

.1

76

.4

40

45

50

55

60

65

70

75

80

85

90

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

2O

ct-1

2N

ov-

12

De

c-1

2Ja

n-1

3F

eb

-13

Ma

r-1

3A

pr-

13

Ma

y-1

3Ju

n-1

3Ju

l-1

3

Consumer Sentiment Survey (1966 = 100)

January 2010 through July 2013

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

consumers, but improved substantially over the past two years

Source: University of Michigan; Insurance Information Institute

Optimism among consumers has remained fairly strong

despite tax hikes, federal budget concerns. July’s reading was

the highest since July 2007

16

17

16.9

16.5

16.1

13.2

10.4

11.6

12.7

14.4

15.5 15

.9

16.0

16.2

16.2

16.2

16.216

.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 14F15F 16F17F18F 19F

(Millions of Units)

Auto/Light Truck Sales, 1999-2019F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (8/13 and 3/13); 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 Along

With Workers Comp Exposures

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

still 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

Truck purchases by contractors are especially strong

19

Average Age of Vehicles on the Road, 2006—2013

11.211.4

10.910.6

10.310.110.09.9

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

2006 2007 2008 2009 2010 2011 2012 2013

Sources: Polk, August 2013 Survey; Insurance Information Institute.

Average Vehicle Age (Years)

The average age of a vehicle on the road is is expected to continue to increase until 2018. By 2018, the number of vehicles 12+ years old is

expected to rise 11.6% from 2013 and the number that are under 5 years old is expected to increase by 41%

The average vehicle age reached a record

11.4 years in 2013

19

Average vehicle age continues to increase because the slow economy leads many drivers

to keep cars on the road longer and because cars are

becoming more reliable

20

Monthly Change* in Auto Insurance Prices, 1991–2013*

*Percentage change from same month in prior year; through July 2013; 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 '13

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 late

2010 at 5.3%, falling to 2.8% by Mar. 2012

The July 2013 reading of 3.6% is

up from 3.4% a year earlier

22

(Millions of Units)

New Private Housing Starts, 1990-2019F

1.4

8

1.4

7 1.6

21

.64

1.5

71

.60 1.7

1 1.8

5 1.9

6 2.0

71

.80

1.3

6

0.9

10

.55

0.5

9

0.6

1 0.7

8 0.9

7

1.1

8 1.3

5

1.4

41

.50

1.5

11

.50

1.3

51.4

61

.29

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 13F14F15F16F17F18F19F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (8/13 and 3/13); Insurance Information Institute.

Insurers Are Starting to See Meaningful Exposure Growth for the First Time Since 2005 Associated with Home Construction: Construction Risk Exposure,

Surety, Commercial Auto; Potent Driver of Workers Comp Exposure

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

25

Average Premium forHome Insurance Policies**

* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Source: NAIC, Insurance Information Institute estimates for 2011-2013 based on CPI data and other data.

$508$536

$593

$668

$822 $830

$880$909

$945$983

$1,022

$804$764

$729

$400

$500

$600

$700

$800

$900

$1,000

$1,100

00 01 02 03 04 05 06 07 08 09 10 11* 12* 13*

Countrywide Home Insurance Expenditures Increased by an Estimated 4.0% in 2011-2013

26

Construction Employment,Jan. 2010—July 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

75,

519

5,49

95,

501

5,49

75,

468

5,43

5 5,47

85,

485

5,49

75,

524

5,53

05,

547

5,54

6 5,58

35,

576

5,57

7 5,61

25,

629

5,64

45,

640

5,63

65,

615

5,62

25,

627

5,63

05,

633

5,64

95,

673 5,

711

5,73

5 5,78

35,

797

5,79

25,

791

5,79

95,

793

5,400

5,450

5,500

5,550

5,600

5,650

5,700

5,750

5,800

5,850

5,900

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-

132/

30/2

Mar

-13

Apr

-13

May

-13

Jun-

13Ju

l-13

Construction employment growth accelerated in the second half of

2012 but flattened out by mid-2013. Construction is a key driver of

workers comp exposure growth.

(Thousands)

28

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013:Q2

Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.

Billions

$5,500

$5,750

$6,000

$6,250

$6,500

$6,750

$7,000

$7,25005

:Q1

05:Q

205

:Q3

05:Q

406

:Q1

06:Q

206

:Q3

06:Q

407

:Q1

07:Q

207

:Q3

07:Q

408

:Q1

08:Q

208

:Q3

08:Q

409

:Q1

09:Q

209

:Q3

09:Q

410

:Q1

10:Q

210

:Q3

10:Q

411

:Q1

11:Q

211

:Q3

11:Q

412

:Q1

12:Q

212

:Q3

12:Q

413

:Q1

13:Q

2

Prior Peak was 2008:Q1 at $6.60 trillion

Latest (2013:Q2) was $7.09 trillion, a new peak--$762B

above 2009 trough

Recent trough (2009:Q3) was $6.25 trillion, down

5.3% from prior peak

Payrolls are 13.4% above

their 2009 trough and up 2.7% over

the past year

28

31

Value of Construction Put in Place, June 2013 vs. June 2012*

-9.3%

-4.7%

-9.4%

3.3%

9.7%

18.1%

1.4%

-15%

-10%

-5%

0%

5%

10%

15%

20%

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 the

residential segment but down in nonresidential

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

Private: +9.7% Public: -9.3%

Public sector construction activity remains depressed

33

Value of Public Construction Put in Place, by Segment, June 2013 vs. June 2012*

3.9%

-15.3%

-5.1%

-15.3%

7.4%

-12.4%

5.2%

-0.1%

-17.0%

9.6%

-9.3%

-4.7%

-9.4%

-25.5%

-20.2%

-30%-25%

-20%-15%

-10%-5%

0%5%

10%15%

To

tal

Pu

bli

cC

on

stru

ctio

n

Res

iden

tial

To

tal

No

nre

sid

enti

al

Off

ice

Co

mm

erci

al

Hea

lth

Car

e

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uca

tio

nal

Pu

bli

c S

afet

y

Am

use

men

t &

Rec

.

Tra

nsp

ort

atio

n

Po

wer

Hig

hw

ay &

Str

eet

Sew

age

&W

aste

Dis

po

sal

Wat

er S

up

ply

Co

nse

rvat

ion

&D

evel

op

.

Public Construction Activity is Down in Many Segments as State and Local Budgets Remain Under Stress; Improvement Possible in 2014.

Growth (%)

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

Public sector construction activity is down substantially in most segments, a situation that will likely persist, dragging

on public entity risk exposures

Transportation and Power projects lead

public sector construction

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 54

.2

50

.74

9.0 5

0.9

55

.4

51

.3

40

45

50

55

60

65

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

Fe

b-1

3M

ar-

13

Ap

r-1

3M

ay-

13

Jun

-13

Jul-

13

ISM Manufacturing Index(Values > 50 Indicate Expansion)

January 2010 through July 2013

The manufacturing sector expanded for 39 of the 43 months from Jan. 2010 through June 2013. Recent weakness stems largely from woes in

Europe and a Slowdown in China.

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

Manufacturing expanded in May, albeit modestly

34

36

Manufacturing Growth for Selected Sectors, 2013 vs. 2013*

4.1%

-0.8%

7.0%

0.2%

3.0%

-0.6%-1.4%

2.7%

5.4%

1.3%2.5%

15.2%

-2.7%

0.6%

-4%-2%0%2%4%6%8%

10%12%14%16%18%

All

Ma

nu

fact

uri

ng

Du

rab

le M

fg.

Wo

od

Pro

du

cts

Pri

ma

ryM

eta

ls

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bri

cate

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eta

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Ma

chin

ery

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cal

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uip

.

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atio

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qu

ip.

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ura

ble

Mfg

.

Fo

od

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cts

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tro

leu

m &

Co

al

Ch

em

ica

l

Pla

stic

s &

Ru

bb

er

Te

xtile

Pro

du

cts

Manufacturing Is Expanding—Albeit More Slowly—Across a Number of Sectors that Will Contribute to Growth in Insurable Exposures Including: WC,

Commercial Property, Commercial Auto and Many Liability Coverages

Growth (%)

Manufacturing of durable goods was especially

strong in 2012 but weakened in 2013

*Seasonally adjusted; Date are YTD comparing data through May 2013 to the same period in 2012.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/

Durables: +2.5% Non-Durables: +0.2%

38

Manufacturing Employment,Jan. 2010—July 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

,951

11,9

6511

,988

11,9

8411

,977

11,9

7211

,969

11,9

75

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-

13F

eb-1

3M

ar-1

3A

pr-1

3M

ay-1

3Ju

n-13

Jul-1

3

Manufacturing employment is up by more than 500,000 or 4.5% since Jan.

2010—a surprising source of strength in the economy. The sector has weakened

recently as US corporations remains cautious and Europe, China slow.

*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

.25

6.0

53

.15

3.7

52

.25

6.0

54

.4

40

45

50

55

60

65

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

Fe

b-1

3M

ar-

13

Ap

r-1

3M

ay-

13

Jun

-13

Jul-

13

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

January 2010 through July 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

39

40

43,6

9448

,125

69,3

0062

,436

64,0

04 71,2

77 81,2

3582

,446

63,8

5363

,235

64,8

53 71,5

4970

,643

62,3

0452

,374

51,9

5953

,549

54,0

2744

,367

37,8

8435

,472

40,0

9938

,540

35,0

3734

,317

39,2

0119

,695 28

,322

43,5

4660

,837

56,2

8247

,806

40,0

75

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 11 12

Business Bankruptcy Filings,1980-2012

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

2012 bankruptcies totaled 40,075, down 16.2% from 2011—the third

consecutive year of decline. Business bankruptcies more than tripled during the financial crisis.

% Change Surrounding Recessions

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

40

41

Private Sector Business Starts, 1993:Q2 – 2012:Q4*

17

51

86

17

41

80

18

61

92

18

81

87 18

91

86 1

90 1

94

19

11

99 2

04

20

21

95

19

61

96

20

62

06

20

11

92

19

82

06

20

62

03

21

12

05

21

22

00 2

05

20

42

04

19

72

03

20

92

01

19

21

92

19

32

01 20

42

02

21

0 21

22

09

21

6 22

0 22

32

20

22

02

10

22

12

12

20

42

18

20

92

07

20

71

99

19

1 19

31

72 1

76

16

91

84

17

5 17

91

88

20

01

83 1

87 1

91

19

71

93

19

1 19

31

92

20

3

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 Dec. 30, 2012 are the latest available as of Aug. 16, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.

(Thousands)

Business starts were up 2.8% in 2012 to 769,000 following a 2.2% gain to

748,000 in 2011. Start-ups could accelerate in 2013.

Business Starts2006: 872,0002007: 843,0002008: 790,0002009: 697,000 2010: 742,000 2011: 748,000 2012: 769,000

41

43

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, Pipelines)

44

U.S. Insured Catastrophe Loss Update

Catastrophe Losses in Recent Years Have Been Very High

44

45

$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

3.6

$3

5.0

$7

.9$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 13*

U.S. Insured Catastrophe Losses

*Through 6/2/13. Includes $2.6B for 2013:Q1 (PCS) and $5.32B for the period 4/1 – 6/2/13 (Aon Benfield Monthly Global Catastrophe Recap).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.

2012 Was the 3rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6th Highest. YTD 2013 Running Below

Average But Q3 Is Typically the Costliest Quarter.

2012 was likely the third most expensive year ever for insured

CAT losses

Record tornado losses caused

2011 CAT losses to surge

($ Billions, 2012 Dollars)

45

46

Moore, OK, Tornado: Media Coverage Was Generally Favorable

Industry had a highly visible, rapid response as Catastrophe Response Teams massed at the “Command Center” at the First Baptist Church in Moore within 48 hours

Developed good working relationship with OK Insurance Commissioner John Doak

47

Top 16 Most Costly Disastersin U.S. History

(Insured Losses, 2012 Dollars, $ Billions)

$7.8 $8.7 $9.2 $11.1$13.4$18.8

$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

*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

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 – June 2013*Number of Events (Annual Totals 1980 – June 2013*)

*Through June 30, 2013.Source: MR NatCatSERVICE 49

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 68 natural disaster events in the

first half of 2013

Losses Due to Natural Disasters in the US, 1980–2012 (Overall & Insured Losses)

52

Overall losses (in 2012 values) Insured losses (in 2012 values)

Source: MR NatCatSERVICE

(2012 Dollars, $ Billions)(Overall and Insured Losses)

20

40

60

80

100

120

140

160

180

200

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

2012 was the 2nd or 3rd most expensive year on record for insured catastrophe losses in

the US.

Approximately 57% of the overall cost of

catastrophes in the US was covered by insurance in 2012

2012 Losses

Overall : $101.1B

Insured: $57.9B

U.S. Thunderstorm Loss Trends, 1980 – June 30, 2013

57Source: 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.

1st Half 2013 thunderstorm losses total $6.325B; The

system that included the EF-5 tornado in Moore, OK, accounted for $1.575B

63

Top 12 Most Costly Hurricanesin U.S. History

(Insured Losses, 2012 Dollars, $ Billions)

*PCS estimate as of 4/12/13.Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.

$9.2 $11.1$13.4

$18.8

$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 became the 3rd costliest hurricane in US

insurance historyHurricane 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)

Outlook for 2013 Hurricane Season: 75% Worse Than Average

Forecast Parameter Median(1981-2010)

2013F

Named Storms 12.0 18

Named Storm Days 60.1 95

Hurricanes 6.5 9

Hurricane Days 21.3 40

Major Hurricanes 2.0 4

Major Hurricane Days 3.9 9

Accumulated Cyclone Energy 92.0 165

Net Tropical Cyclone Activity 103% 175%

Source: Philip Klotzbach and Dr. William Gray, Colorado State University, June 2013, accessed at http://tropical.atmos.colostate.edu/forecasts/2013/apr2013/apr2013.pdf ; Insurance Information Institute..

72

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1992–20111

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. 73

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

74

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

Homeowners Insurance Combined Ratio: 1990–2015F

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

10

4.4

10

1.7

10

1.2

10

0.7

11

8.4

11

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E13F 14F 15F

1

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

Local Catastrophe Loss Activity

Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute. 75

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

76

Federal Disaster Declarations Patterns:

1953-2013

76

Disaster Declarations Set New Records in Recent Years

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

74

043

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 August 15, 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 2,130 federal disaster

declarations since 1953. The average

number of declarations per year is 35 from 1953-2012, though

there few haven’t been recorded since 1995.

40 federal disasters were declared so far in 2013*

77

78

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

87

78

74

67

66

60

57

56

54

54

52

52

52

51

51

50

49

48

47

47

47

46

43

40

39

0

10

20

30

40

50

60

70

80

90

100

TX CA OK NY FL LA AL KY AR MO MS IL IA TN WV 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 Aug. 7, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

79

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

42

40

38

37

36

36

35

33

29

28

26

26

26

24

24

24

23

23

21

19

17

15

15

13

11

11

9

0

10

20

30

40

50

SD ME AK WI GA VT NJ NH MA OR PR HI MI AZ MD NM ID MT CO CT NV 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 Aug. 15, 2013. Includes Puerto Rico and the District of Columbia.Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Public Opinion Survey

95

Industry Favorability RatingsPolicy Forms & Disclosure

Disaster Preparedness

95

96

I.I.I. Poll: Favorability

Source: Insurance Information Institute Annual Pulse Survey.

36% 36%32%

28%

61%58% 56%

53% 51%47%

10%

20%

30%

40%

50%

60%

70%

Auto insurance Homeinsurance

Life insurance Banking Electric utilitycompanies

Healthinsurance

Mutual fundsPharmaceuticalcompanies

Oil and gascompanies

Financialservices

companies

Percent of Public Rating Industry as Very or Mostly Favorable, 2013

Auto Insurers and Home Insurers Ranked Highest.

Viewed separately, auto and home insurers have highest favorability ratings of all industries surveyed

97

I.I.I. Poll: Homeowners Insurance

Q. Do you think that it is fair that people who live in areas affected by record storms in 2011 and 2012 should pay more for their homeowners insurance in the future?

Source: Insurance Information Institute Annual Pulse Survey.

Nearly 60 percent of Americans believe that homeowners insurance premiums should not be raised as a result of recent storms in their areas.

4%

37%

59%

Don’t know

Yes

No

Public believes it is not fair to raise

premiums of homeowners due

to events they cannot control

98

I.I.I. Poll: Flood Insurance

Source: Insurance Information Institute Annual Pulse Survey.

55%46% 47%

58% 61%

0%

20%

40%

60%

80%

Total U.S. Northeast West Midwest South

Q. The federal government plans to raise the price of flood insurance so it reflects the costs of paying claims. Do you believe this is fair? [% Responding “NO”]

More than one-half of Americans do not think it is fair for the federal government to raise its flood insurance premiums to better reflect claims

payouts.

Most people believe it is unfair for government to raise flood insurance premiums, even though

they are subsidized by taxpayers

101

I.I.I. Poll: Disaster Preparedness

Q. If you expect some relief from the government, do you purchase less insurance coverage against these natural disasters than you would have otherwise?

Source: Insurance Information Institute Annual Pulse Survey.

Seventy-two percent of Americans would not purchase less insurance if they expect some relief from the government—but 22% would.

6%

22%

72%

Don’t know

Yes

No

More than 20 percent cut back

on insurance coverage in

expectation of government disaster aid

102

Growth Analysis by State and Business Segment

Premium Growth Rates Vary Tremendously by State

102

103

Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*

58

.4

25

.4

24

.5

21

.0

19

.2

17

.6

16

.3

13

.2

13

.2

12

.4

9.9

9.2

9.2

8.5

8.0

6.2

5.8

5.2

4.5

4.4

4.3

4.3

4.2

4.0

3.8

3.6

0

10

20

30

40

50

60

70

ND

SD

OK

NE IA KS

VT

AK

TX

WY

MN

AR

TN IN W

I

KY

MT

OH LA

VA

NJ

MI

SC

CO

MO

NM

Pe

ce

nt

ch

an

ge

(%

)

*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.

Top 25 States

Louisiana was a growth leader over the past 5 years even

though premiums written only expanded by 4.5%

104

Direct Premiums Written: Total P/CPercent Change by State, 2007-2012*

3.6

3.1

3.0

2.9

2.7

2.2

2.1

2.1

2.0

1.8

1.1

0.0

-0.1

-0.3

-0.7

-0.9

-2.8

-5.6

-6.0

-7.2

-7.2

-9.3

-10

.1

-11

.2

-12

.5

-17

.3

-20

-15

-10

-5

0

5

CT

MS

NC AL

MD PA

U.S

.

MA IL

WA

GA

UT

NH RI

ID ME

NY FL

CA

DC

WV HI

AZ

OR

DE

NV

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

*Data are preliminary as of 5/1/13 and do not yet fully reflect the impact of state-run pools and plans. Sources: SNL Financial LC.; Insurance Information Institute.

115

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend is Improving

115

116

Unemployment and Underemployment Rates: Stubbornly High, But Falling

2

4

6

8

10

12

14

16

18

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Jan12

Jan13

Traditional Unemployment Rate U-3

Unemployment + Underemployment Rate U-6

Unemployment stood at 7.4% in July 2013—its

lowest level in more than 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 14.0%

in July 2013

January 2000 through July 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

116

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

24

16

43

19

15

4 18

81

87

19

61

61

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

Fe

b-1

3M

ar-

13

Ap

r-1

3M

ay-

13

Jun

-13

Jul-

13

Monthly Change in Private Employment

January 2007 through July 2013 (Thousands)

Private Employers Added 7.29 million 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

161,000 private sector jobs were created in July

117

Jobs Created2012: 2.247 Mill2011: 2.420 Mill2010: 1.235 Mill

-0.0

17-0

.043

0.06

80.

238

0.34

00.

434

0.53

70.

666

0.77

90.

967

1.12

11.

235

1.31

51.

558

1.78

12.

084

2.26

72.

444

2.65

02.

779

3.03

53.

209

3.40

63.

655

3.97

84.

243

4.45

14.

571

4.72

34.

801

4.97

85.

109

5.22

75.

444

5.70

05.

924

6.08

86.

407

6.74

96.

936

7.13

27.

293

6.56

1

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb

-13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Mill

ion

sCumulative Change in Private Sector Employment: Jan. 2010—July 2013

January 2010 through July 2013* (Millions)

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

Cumulative job gains through July 2013 totaled 7.29 million

119

Job gains and pay increases have added more than $750 billion to payrolls

since Jan. 2010

Private Employers Added 7.29 million 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)

4-1

033

9251

128

798

-68

-224 -1

84-1

94-2

13-2

24-2

71-2

89-2

88-3

56 -324

-452

-449

-480

-488

-511

-530

-542

-536

-539

-547

-574

-565

-589 -555

-535

-592

-601

-606

-622

-609

-610

-621

-629

-628

-621

-800

-600

-400

-200

0

200

400

600

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb

-13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Cumulative Change in Government Employment: Jan. 2010—July 2013

January 2010 through July 2013* (Millions)

Source: US Bureau of Labor Statistics http://www.bls.gov/data/#employment; Insurance Information Institute

Cumulative job losses through June 2013 totaled 628,000

120

Governments at All Levels are Under Severe Fiscal Strain As Tax Receipts Plunged and Pension Obligations Soared During the

Financial Crisis: Sequestration Will Add to this Toll

Government at all levels has shed more than 625,000 jobs

since Jan. 2010 even as private employers created 7.29 million jobs, though losses may now

be stabilizing.

Temporary Census hiring distorted 2010

figures

122

Unemployment Rates by State, June 2013:Highest 25 States*

9.6

9.2

9.0

8.9

8.8

8.7

8.7

8.6

8.5

8.5

8.5

8.4

8.4

8.1

8.1

8.0

7.9

7.6

7.5

7.5

7.3

7.3

7.2

7.1

7.0

7.0

0

2

4

6

8

10

12

NV IL MS RI NC MI NJ GA CA DC TN IN KY CT SC AZ OR US NY PA AR DE OH FL CO LA

Un

em

plo

ym

en

t R

ate

(%

)

*Provisional figures for June 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In June, 28 states had over-the-month unemployment rate increases, 11 states

had decreases, and 11 states and the District of Columbia had no change.

123

7.0

7.0

6.9

6.8

6.8

6.8

6.8

6.5

6.5

6.4

6.1

6.1

5.8

5.5

5.4

5.2

5.2

5.2

4.7

4.6

4.6

4.6

4.4

4.0

3.9

3.1

0

2

4

6

8

MD MA MO ME NM WA WI AL TX ID AK WV KS VA MT MN NH OK UT HI IA WY VT NE SD ND

Un

em

plo

ym

en

t R

ate

(%

)

Unemployment Rates by State, June 2013: Lowest 25 States*

*Provisional figures for June 2013, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.

In June, 28 states had over-the-month unemployment rate increases, 11

states had decreases, and 11 states and the District of Columbia had no

change.

125

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%

7.7

%7

.6%

7.4

%7

.3%

7.2

%7

.1%

7.0

%6

.8%

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 (8/13 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

Insurance Industry Employment Trends: 1990-2013

130

Overview of Insurance Sector Employment Changes*

*Data are through June 2013 and are preliminary (i.e., subject to later revision); seasonally adjusted.

Insurance SubsectorMay 2013

EmploymentJune 2013

Employment Change

P-C Direct 522,800 523,600 +800

Reinsurers 26,300 27,000 +700

Claims Adjusters 50,700 51,000 +300

Agents/Brokers 661,000 662,500 +1,500

Life Direct 335,500 335,700 +200

Health/Medical Direct 469,100 471,900 +2,800

Title & other Direct 75,300 75,600 +300

3rd-Party Administration 144,400 144,800 +400

All other insurance-related activities 63,300 63,300 +0

Net Total 2,349,500 2,356,200 +6,700

131

August 2013 Report:1-Month and 12-Month Changes*

P-C Insurers Employment up by 800 (+0.2%) vs. May 2013 Employment up by 4,800 (+0.9%) vs. June 2012

Reinsurers Employment up by 700 (+2.7%) vs. May 2013 Employment up by 1,300 (+5.1%) vs. June 2012

Claims Adjusters Employment up by 300 (+0.6%) vs. May 2013 Employment down by 1,200 (-2.3%) vs. June 2012

Insurance Agents & Brokers Employment up by 1,500 (+0.2%) vs. May 2013 Employment up by 4,000 (+0.6%) vs. June 2012

Life Insurers Employment up by 200 (+0.1%) vs. May 2013 Employment down by 13,000 (-3.7%) vs. June 2012

Health/Medical Insurers Employment up by 2,800 (+0.6%) vs. May 2013 Employment up by 10,200 (+2.2%) vs. June 2012

*Data are through June 2013 and are preliminary (i.e., subject to later revision).

135

Insurance Industry Employment Trends

For the last 15 years, total industry employment has stayed in a

narrow band of 2.29-2.38 million

136

U.S. Employment in the DirectP/C Insurance Industry: 1990–2013*

*As of June 2013; Seasonally adjusted; Does not including agents & brokers.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

Thousands

480

500

520

540

560

580

600

620

640

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

138

U.S. Employment in the Direct Health-Medical Insurance Industry: 1990–2013*

*As of June 2013; Seasonally adjusted; Does not including agents & brokers.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

Thousands

175

200

225

250

275

300

325

350

375

400

425

450

475

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

As of June 2013, Health-Medical insurance industry employment was up by 32,400 or 7.4% to 471,900 since the recession began in Dec. 2007 (vs.

overall US employment decline of 1.6%).

139

U.S. Employment in the Reinsurance Industry: 1990–2013*

Thousands

24

28

32

36

40

44

48

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

*As of June 2013; Seasonally adjusted; Does not including agents & brokers.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

As of June 2013, US employment in the reinsurance industry was down by 400 or 1.5% to 27,000 since the recession began in Dec. 2007 (vs. overall US employment decline of

1.6%).

140

U.S. Employment in Insurance Agencies & Brokerages: 1990–2013*

Thousands

500

550

600

650

700

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

*As of June 2013; Seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

As of June 2013, employment at insurance agencies and brokerages

was down by 15,200 or 2.2% to 662,500 since the recession began in

Dec. 2007 (vs. overall US employment decline of 1.6%).

141

U.S. Employment in Insurance Claims Adjusting: 1990–2013*

Thousands

40

45

50

55

60

Jan

-90

Oct

-90

Jul-

91

Ap

r-9

2

Jan

-93

Oct

-93

Jul-

94

Ap

r-9

5

Jan

-96

Oct

-96

Jul-

97

Ap

r-9

8

Jan

-99

Oct

-99

Jul-

00

Ap

r-0

1

Jan

-02

Oct

-02

Jul-

03

Ap

r-0

4

Jan

-05

Oct

-05

Jul-

06

Ap

r-0

7

Jan

-08

Oct

-08

Jul-

09

Ap

r-1

0

Jan

-11

Oct

-11

Jul-

12

Ap

r-1

3

*As of June 2013; Seasonally adjusted.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

As of June 2013, claims adjusting employment was down by 1,400 or 2.7% to 51,000 since the recession began in Dec. 2007 (vs. overall US employment

decline of 1.6%).

Katrina, Rita, Wilma

142

U.S. Employment in Third-Party Administration of Insurance Funds: 1990–2013*

Thousands

85

95

105

115

125

135

145

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

*As of June 2013; Seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.

The BIG Question:Where Is the Market Heading?

143

Catastrophes and Other Factors Are Pressuring Insurance Markets

143

New Factor: Record Low Interest Rates Are Contributing to

Underwriting and Pricing Pressures

INVESTMENTS: THE NEW REALITY

144

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

144

Property/Casualty Insurance Industry Investment Gain: 1994–2013:Q11

$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

$53.9

$12.8

$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 12 13:Q1

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 2008

1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; Sources: ISO; Insurance Information Institute.

($ Billions)

Investment gains in 2012 were approximately 16%

below their pre-crisis peak

150

U.S. Treasury Security Yields:A Long Downward Trend, 1990–2013*

*Monthly, constant maturity, nominal rates, through July 2013.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

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

Recession2-Yr Yield10-Yr Yield

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

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

U.S. Treasury security yields

recently plunged to record lows

150

157

-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*

157

1. UNDERWRITING

159

Underwriting Losses in 2011 and 2012 Are Elevated by High

Catastrophe Losses

159

160

P/C Insurance Industry Combined Ratio, 2001–2013:Q1*

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

95.7

99.3100.8

106.3

102.4

94.8

101.0

92.6

100.898.4

100.1

107.5

115.8

90

100

110

120Best

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)1975–2013:Q1*

* 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 1213:Q1

Cumulative underwriting deficit from 1975 through

2012 is $510B

($ Billions)Underwriting

profit in 2013:Q1

totaled $4.6B

High cat losses in 2011 led to the highest

underwriting loss since 2002

171

Performance by Segment

171

Private Passenger Auto Combined Ratio: 1993–2015F

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

99

.4

98

.6

98

.3

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 12E13F14F15F

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

172Sources: A.M. Best (1990-2012E);Conning (2013F-15F); Insurance Information Institute.

Homeowners Insurance Combined Ratio: 1990–2015F

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

10

4.4

10

1.7

10

1.2

10

0.7

11

8.4

11

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12E13F 14F 15F

1

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

Local Catastrophe Loss Activity

Sources: A.M. Best (1990-2011);Conning (2012E-2015F); Insurance Information Institute. 173

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

10

9.4

11

0.2

11

8.8

10

9.5 1

12

.5

11

0.2

10

7.6

10

4.1

10

9.7

11

0.2

10

2.5 1

05

.4

91

.1

93

.6

10

4.2

98

.9

10

2.1

10

6.7

10

4.9

10

2.1

10

1.4

10

1.3

10

2.0

11

1.1

11

2.3

12

2.3

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

13

F

14

F

15

F

Co

mm

erc

ial L

ine

s C

om

bin

ed

Ra

tio

*2007-2012 figures exclude mortgage and financial guaranty segments.Source: A.M. Best (1990-2011); Conning (2012-2015F) Insurance Information Institute

Commercial Lines Combined Ratio, 1990-2015F*

Commercial lines underwriting

performance is expected to improve as

improvement in pricing environment persists

176

Commercial Auto Combined Ratio: 1993–2015F

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

1.7

10

0.3

99

.8

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 12E 13F 14F 15F

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

177Sources: A.M. Best (1990-2012E);Conning (2012-2015F); Insurance Information Institute.

Workers Compensation Combined Ratio: 1994–2012P

102.

0

97.0 10

0.0

101.

0

112.

6

108.

6

105.

1

102.

7

98.5

103.

5

104.

5 110.

6 115.

0

115.

0

109.

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 12

Workers Comp Results Began to Improve in 2012. Underwriting Results Deteriorated Markedly from 2007-

2010/11 and Were the Worst They Had Been in a Decade. Sources: A.M. Best (1994-2009); NCCI (2010-2012P) and are for private carriers only; Insurance Information Institute. 184

WC showed a better-than-expected

improvement for private carriers in 2012

Workers Comp Rate Changes,2008:Q4 – 2013:Q2

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%9.8%

8.3%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

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

WC rate changes have been positive for 9

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

199

How Will Large Catastrophe Losses Impact Capacity?

199

201

Policyholder Surplus, 2006:Q4–2013:Q1

Sources: ISO, A.M .Best.

($ Billions)

$487.1$496.6

$512.8$521.8

$478.5

$455.6

$437.1

$463.0

$490.8

$511.5

$540.7$530.5

$544.8

$559.2 $559.1

$538.6

$550.3

$567.8

$583.5$586.9

$607.7

$570.7$566.5

$505.0$515.6$517.9

$420

$440

$460

$480

$500

$520

$540

$560

$580

$600

$620

06:Q407:Q107:Q207:Q307:Q408:Q108:Q208:Q308:Q409:Q109:Q209:Q309:Q410:Q110:Q210:Q310:Q411:Q111:Q211:Q311:Q412:Q112:Q212:Q312:Q413:Q1

2007:Q3Pre-Crisis Peak

Surplus as of 3/31/13 stood at a record high $607.7B

*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.

202

U.S. INSURANCE MERGERS AND ACQUISITIONS, 2002-2012 (1)

$9,704

$59,925

$14,878

$50,793

$43,022

$50,417

$31,435

$14,373

$46,509

$54,724

$43,152

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Tra

ns

ac

tio

n v

alu

es

0

100

200

300

400

500

600

Nu

mb

er o

f tran

sa

ctio

ns

($ Millions)

(1) Includes transactions where a U.S. company was the acquirer and/or the target.

Source: Conning proprietary database.

M&A activity has returned to its pre-crisis levels.

203

3. REINSURANCE MARKET CONDITIONS

Ample Capacity Despite Heavy Global

Catastrophe Activity in Recent Years

203

Change in Global Reinsurer Capital

Reinsurance Capital Is at a Record High

Source: Reinsurance Association of America from company reports and Aon Benfield Analytics.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q1360

80

100

120

140

160

180

200

US

D b

n

Soft market

Hard market

Hard market softening

Crisis

Excess capital

Long-Term Evolution of Shareholders’ Funds for the Guy Carpenter Global Reinsurance Composite

Source: Guy Carpenter

208

CATASTROPHE BONDS, ANNUAL RISK CAPITAL ISSUED, 2002-2012

$2.73

$3.39

$4.60

$3.86

$5.85

$1.22$1.73

$1.14

$1.99

$4.69

$7.00

$0

$1

$2

$3

$4

$5

$6

$7

$8

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: GC Securities and Guy Carpenter & Company, LLC.

($ Billions)

Note

4. RENEWED PRICING DISCIPLINE

210

Evidence of a Broad and Sustained Shift in Pricing

210

212

-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 1213

:Q1

Net Premium Growth: Annual Change, 1971—2013:Q1

(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.

2013:Q1 = 4.1%

2012 growth was +4.3%

213

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 through 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%

3.0% 4.

2% 5.1%

4.8%

4.1%

-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

2012

:Q4

2013

:Q1

Premium growth in Q1 2013 was up 4.1% over Q1 2012, marking the

12th consecutive quarter of growth

215

Average Commercial Rate Change,All Lines, (1Q:2004–2Q:2013)

-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%

5.2

%4

.3%

-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

1Q

13

2Q

13

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 Q2:2013 was positive for the89th consecutive

quarter. Gains are likely to continue through 2013.

(Percent)

Q2 2011 marked the last of 30th

consecutive quarter of price declines

216

Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2013:Q2

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 (%)

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

nearly 8 years; Q2:2013 renewals were up 4.3%. Some insurers posted

stronger numbers.

Pricing Turned Negative in Early

2004 and Remained that

way for 7 ½ years

Peak = 2001:Q4 +28.5%

Trough = 2007:Q3 -13.6%

KRW : No Lasting Impact

217

Cumulative Qtrly. Commercial Rate Changes, by Account Size: 1999:Q4 to 2013:Q2

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.

1999:Q4 = 100Despite 8 consecutive quarters

of gains (Q2:2013 = 4.3%), pricing today is where is was in

late 2001 (around 9/11), suggesting additional rate need going forward, esp. in light of

record low interest rates

220

Change in Commercial Rate Renewals, by Line: 2013:Q2

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

Major Commercial Lines Renewed Uniformly Upward in Q2:2013 for the 8th Consecutive Quarter; Property Lines & Workers Comp Leading the Way; Cat

Losses and Low Interest Rates Provide Momentum Going Forward

Percentage Change (%)

5.4%5.9% 5.9%

8.3%

1.1%

3.5% 3.6% 3.7%4.6% 4.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Su

rety

Ge

ne

ral

Lia

bili

ty

Bu

sin

ess

Inte

rru

ptio

n

Um

bre

lla

Co

mm

erc

ial

Au

to

Co

nst

ruct

ion

EP

L

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.

Shifting Legal Liability & Tort Environment

223

Is the Tort PendulumSwinging Against Insurers?

223

224

Over the Last Three Decades, Total Tort Costs as a % of GDP Appear Somewhat Cyclical, 1980-2013E

$0

$50

$100

$150

$200

$250

$300

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12E

To

rt S

ys

tem

Co

sts

1.50%

1.75%

2.00%

2.25%

2.50%

To

rt Co

sts

as

% o

f GD

P

Tort Sytem Costs Tort Costs as % of GDP

($ Billions)

Sources: Towers Watson, 2011 Update on US Tort Cost Trends, Appendix 1A

Tort costs in dollar terms have remained high but relatively stable

since the mid-2000s., but are down substantially as a share of GDP

Deepwater Horizon Spike

in 2010

1.68% of GDP in 2013

2.21% of GDP in 2003

= pre-tort reform peak

Business Leaders Ranking of Liability Systems in 2012

Best States

1. Delaware

2. Nebraska

3. Wyoming

4. Minnesota

5. Kansas

6. Idaho

7. Virginia

8. North Dakota

9. Utah

10. Iowa

Worst States

41. Florida

42. Oklahoma

43. Alabama

44. New Mexico

45. Montana

46. Illinois

47. California

48. Mississippi

49. Louisiana

50. West Virginia

Source: US Chamber of Commerce 2012 State Liability Systems Ranking Study; Insurance Info. Institute.

New in 2012

Wyoming Minnesota Kansas Idaho

Drop-offs

Indiana Colorado Massachusetts South Dakota

Newly Notorious

Oklahoma

Rising Above

Arkansas

227

228

The Nation’s Judicial Hellholes: 2012/2013

Source: American Tort Reform Association; Insurance Information Institute

West VirginiaIllinoisMadison County

New YorkAlbany and

NYC

Watch List

Philadelphia, Pennsylvania

South Florida Cook County, Illinois New Jersey Nevada Louisiana

Dishonorable Mention

MO Supreme Court WA Supreme Court

California

MarylandBaltimore

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243