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1 Guy Carpenter 2 + 2 = ?

2 - Confex Aggregate Personal Auto Liability Commercial Auto Liability Workers' Comp Comm Multi-Peril General Liability ... Ample Capacity = Market Drift

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1 Guy Carpenter

2 + 2 = ?

2 Guy Carpenter

The Financial Crisis A Greek Tragedy

§  Hubris: The Bubble

§  Nemesis: Collapse and Insolvency

§  Catharsis: Purge and Recovery

3 Guy Carpenter

1 January 2009 Renewal Guy Carpenter World Property Catastrophe Rate-on-line Index

0

50

100

150

200

250

300

350

400

450

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009P

1990 = 100

4 Guy Carpenter

1 January 2009 Renewal Regional Property Catastrophe Rate-on-Line Indices

1990 = 100

0

50

100

150

200

250

300

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009P

United Kingdom Continental Europe United States

5 Guy Carpenter

Florida 1 June 09 Renewal

Source: Guy Carpenter

Florida 1 June 2009 Cat Price Changes

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Higer Layers Middle Layers Lower Layers

06-05 07-06 08-07 09-08

6 Guy Carpenter

2009 Risk Adjusted Pricing US Nationals at 7.1 – 09 FOT vs. 08 FOT

Approx. 11% - 14% Increase in 09 FOT as compared to 08

FOT

Approx. 14% - 16% Increase in 09 FOT as compared to 08

FOT

Higher Layers Lower Layers

Max Quote Avg Quote Min Quote89% 96% 117%

2009 Firm Order Terms as a % of

7 Guy Carpenter

“A” Brave New World S&P Reinsurance Ratings Distribution

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

YE07 Current/YE08

AA- A+ A A- Not Rated

Source: Guy Carpenter, Standard & Poor’s

Standard & Poor’s rating distribution for 31 reinsurers based on shareholders’ funds.

8 Guy Carpenter

Guy Carpenter Global Reinsurance Composite 1st Half 2009 Earnings

(25)

(20)

(15)

(10)

(5)

-

5

10

15

20

6M08 6M09

USDb

n

Non-Life Underwriting Result Life Underwriting Result Investment Income

Realized Gains (Losses) Unrealized Gains (Losses) Interest Expense

Other Taxes Net Income

Source: Guy Carpenter

9 Guy Carpenter

Guy Carpenter Global Reinsurance Composite Change in Shareholders’ Funds 1st Half 2009

70

75

80

85

90

95

100

SHF YE08 Net Income SharesRepurchased

Dividends paid UnrealizedGains (Losses)

ForexMovements

CapitalIncrease

Other SHF 6M09

USDb

n

Source: Guy Carpenter

Note: Provisional showing 16/20 companies. The “Other” category is likely to include unrealised gains and will be updated when more detained accounts are disclosed.

10 Guy Carpenter

Guy Carpenter Global Reinsurance Composite Cashflow 1st Half 2009 v 1st Half 2008

Source: Guy Carpenter

(15)

(10)

(5)

-

5

10

Operating CashFlow

Investing CashFlow

Financing CashFlow

Other Cash Flow Net Increase inCash

USDbn

6M08 6M09

11 Guy Carpenter

Change in Shareholders’ Funds

-40%-30%-20%-10%

0%10%20%30%40%50%60%70%80%90%

100%110%

Validu

s

CNA Financia

l

Fairfax XL

America

n Fina

ncial

Hartfor

d

Libert

y Mutu

al

Arch R

eACE

Partne

r Re

Zurich

Swiss R

eAW

AC

Montpe

lier

Transatl

antic

Hanno

ver R

e

White M

ountai

ns

Endura

nce

Everes

t Re

Ren R

eAxis

Max C

apita

l

Lanc

ashir

e

Mapfre

Platinum

W.R. B

erkley

Aspen

Chubb

Flagsto

ne HCC

Traveler

sSCOR

Munich

Re

Old Rep

ublic

Change in YE08 Change in 9M09

Source: Guy Carpenter

12 Guy Carpenter

OIS Spread below 30 bps

0

50

100

150

200

250

300

350

400

450

500A

pr 0

5

Jun

05

Aug

05

Oct

05

Dec

05

Feb

06

Apr 0

6

Jun

06

Aug

06

Oct

06

Dec

06

Feb

07

Apr 0

7

Jun

07

Aug

07

Oct

07

Dec

07

Feb

08

Apr

08

Jun

08

Aug

08

Oct

08

Dec

08

Feb

09

Apr

09

Jun

09

Debt financing unavailable

Source : Guy Carpenter, Bloomberg data

13 Guy Carpenter

US 10 year AA corporate spreads approaching 100 bps

Source : Guy Carpenter, Bloomberg Data

0

50

100

150

200

250

300

350

400

450A

ug 0

7

Sep

07

Oct

07

Nov

07

Dec

07

Jan

08

Feb

08

Mar

08

Apr 0

8

May

08

Jun

08

Jul 0

8

Aug

08

Sep

08

Oct

08

Nov

08

Dec

08

Jan

09

Feb

09

Mar

09

Apr 0

9

May

09

Jun

09

Jul 0

9

10 year US AA corporate spread over Treasury bonds

14 Guy Carpenter

CDS spreads tightening

Source : Guy Carpenter, Bloomberg data

15 Guy Carpenter

0

10

20

30

40

50

60

70

80

901990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: Guy Carpenter/Bloomberg

Capital markets markets closed

LTCM

“Asian Contagion”

Tech Bubble Bursts

11 September

Enron

VIX Index - a measure of implied stock market volatility

Back to “normal”?

S&L crisis

16 Guy Carpenter

30

40

50

60

70

80

90

1002000

2000

2001

2001

2002

2002

2003

2003

2004

2004

2005

2005

2006

2006

2007

2007

2008

2008

2009

Russell 3000 P&C Insurance Index Book Value

Market falls

No marked decline after KRW because

companies were able to recapitalise easily

Slow awareness of the problem of legacy

reserves/ deterioration of reserves

Bull market

Major decline explained by credit crunch/ fall in asset

values/ major catastrohes

A long term trend?

Source: Guy Carpenter/Bloomberg

2Q capital rebound

Source : Guy Carpenter, Bloomberg data

17 Guy Carpenter

World P&C Insurance Growth 2008 Industrialised countries hit by recession, emerging markets solid

Source: Swiss Re

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

World

Industrial countries Average

North America

Western Europe

Continental Europe

Japan

Oceania

Emerging Markets

SE Asia

Latin America/Caribbean

CEE

Africa

Middle East/Central Asia

2008 Annual average 1998-2007

18 Guy Carpenter

US P&C Premiums 2001-2008

250

300

350

400

450

500

550

600

2001 2002 2003 2004 2005 2006 2007 2008

US

Dbn

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

NP

W/G

PW

GPW NPW Retention Rate

GPW down 1.9%

NPW down 1.8%

Source: Guy Carpenter, Highline

19 Guy Carpenter

US P&C Sector Gross Premium Written Growth Rates 2001-2008

-10%

-5%

0%

5%

10%

15%

20%

25%

2008200720062005200420032002

Industry Aggregate Personal Auto Liability Commercial Auto Liability

Workers' Comp Comm Multi-Peril General Liability

Med Mal Fire & Allied

Source: Guy Carpenter, Highline

20 Guy Carpenter

Long-tail clouds on the horizon? US P&C initial accident year loss ratios & subsequent development

Source : Guy Carpenter, Highline Data

-­‐10%

-­‐5%

0%

5%

10%

1999 2000 2001 2002 2003 200 4 2005 2006 2007 200845%

50%

55%

60%

65%

70%

75%

80%

Accident  year   loss   ra tio  development  %   (LHS ) Initial  los s   ratio  pic k   (RH S )

?

21 Guy Carpenter

EU inflation expectations

Inflation linked to nominal sovereign spread Implied forward rate of inflation at Yi

Source: Bloomberg data, Guy Carpenter

%

2%

4%

6%

8%

10%Y1 Y2 Y3

Y4 Y5 Y6

Y7 Y8 Y9 Y10

22 Guy Carpenter

Outlook - absent shocks

§  Balance sheet restoration

§  Diversification

§  Demand pressure

§  Generic single “A” market

§  Capital markets thawing: –  Cheap debt –  Stabilising stock markets –  Buoyant catastrophe bonds

§  Capital: returns or retirement

§  Long-tail cloud

Ample Capacity = Market Drift

www.guycarp.com

Contact: Chris Klein

T: +44 (0)207 357 3514

E: [email protected]

“Capitals are increased by parsimony, and diminished by prodigality and misconduct.” Adam Smith, The Wealth of Nations, Book II, Chapter III

24 Guy Carpenter

Important Disclosure

The information contained in this presentation provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues.

This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Guy Carpenter, except that clients of Guy Carpenter need not obtain such permission when using this report for their internal purposes.

© Copyright - 2009 Guy Carpenter and Company Ltd. All rights reserved.

Guy Carpenter and Company Ltd is an Appointed Representative of Marsh Ltd, which is authorised and regulated by the Financial Services Authority.