Insurance Marketing Communications Association Philadelphia, PA June 24, 2013

Drink From My Firehose:Everything Communicators Need to

Know About the P/C Insurance Industry in 60 Minutes or Less

Insurance Marketing Communications AssociationPhiladelphia, PAJune 24, 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 [email protected] www.iii.org

2

P/C Insurance Industry Financial Overview

Profit Recovery in 2012 After High CAT Losses; Ultimate

Impact of Sandy Still Unclear

2

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

$14,

178

$5,8

40

$19,

316

$10,

870 $20,

598

$24,

404 $3

6,81

9

$30,

773

$21,

865

$3,0

46

$30,

029

$62,

496

$3,0

43

$35,

204

$19,

456 $3

3,52

2

$14,

000

$28,

672

-$6,970

$65,

777

$44,

155

$20,

559

$38,

501

-$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

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 = 9.5%

* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.2013:Q1 is estimated. Sources: A.M. Best, ISO, Insurance Information Institute

Net income is up substantially

from 2012:Q1 $10.2B

2012:Q1 ROAS

was 7.2%

-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 1213

:Q1

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

*Profitability = P/C insurer ROEs. 2011 figure is an estimate based on ROAS data. Note: Data for 2008-2013 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

2012: 5.9%

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

2013:Q1 9.5%

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

97.5100.6 100.1 100.8

92.7

101.299.5

101.0102.4

106.5

95.7

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 20120%

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

6

Growth Will Expand Insurer Exposure Base Across Most Lines

6

7

US Real GDP Growth*

* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 6/13; 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%

2.4%

1.8% 2.3% 2.6%

2.7%

2.8%

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%

   20

00   

   20

01   

   20

02   

   20

03   

   20

04   

   20

05   

   20

06   

07:1

Q07

:2Q

07:3

Q07

:4Q

08:1

Q08

:2Q

08:3

Q08

:4Q

09:1

Q09

:2Q

09:3

Q09

:4Q

10:1

Q10

:2Q

10:3

Q10

:4Q

11:1

Q11

:2Q

11:3

Q11

:4Q

12:1

Q12

:2Q

12:3

Q12

:4Q

13:1

Q13

:2Q

13:3

Q13

:4Q

14:1

Q14

:2Q

14:3

Q14

: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

74.4

73.6

73.6

72.2 73.6 76

67.8

68.9

68.2

67.7 71

.6 74.5

74.2 77

.567

.5 69.8 74

.371

.563

.755

.7 59.5 60.9 64

.169

.9 75.0

75.3

76.2

76.4 79

.373

.272

.3 74.3

82.6

82.7

74.5

73.8 77

.678

.6 83.7

76.4

40

45

50

55

60

65

70

75

80

85

90

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

Consumer Sentiment Survey (1966 = 100)

January 2010 through May 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 2012Source: University of Michigan; Insurance Information Institute

Optimism among consumers has remained fairly strong

despite tax hike, federal budget concerns. May’s reading was

the highest since July 2007

11

12

16.9

16.5

16.1

13.2

10.4

11.6

12.7

14.4 15

.4 15.9

16.0

16.2

16.2

16.2

16.216

.9

16.617

.117.517.8

17.4

910

11121314

151617

1819

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 (6/13 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

14

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

*Percentage change from same month in prior year; through May 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 May 2013 reading of 4.1% is

up from 3.0% a year earlier

16

(Millions of Units)

New Private Housing Starts, 1990-2019F

1.48

1.47 1.

62 1.64

1.57 1.60 1.

71 1.85 1.

96 2.07

1.80

1.36

0.91

0.55 0.59 0.61

0.78

1.01

1.21 1.

35 1.44 1.

501.

511.

50

1.351.

461.

291.

201.

011.

19

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 (6/13 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

18

Construction Employment,Jan. 2010—May 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

95,

804

5,400

5,450

5,500

5,550

5,600

5,650

5,700

5,750

5,800

5,850

5,900

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-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

Construction employment growth accelerated in the second half of

2012. Continued growth in this key sector is possible through 2013.

Construction is a key driver of workers comp exposure growth.

(Thousands)

20

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2013:Q1

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

Prior Peak was 2008:Q1 at $6.60 trillion

Latest (2013:Q4) was $7.01 trillion, a new peak--$762B

above 2009 trough

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

5.3% from prior peak

Payrolls are 12.2% above

their 2009 trough and up 2.7% over

the past year

20

23

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

-5.1%

-0.6%

-5.2%

4.3%

9.0%

18.8%

0.6%

-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: +9.0% Public: -5.1%

Public sector construction activity remains depressed

58.3

57.1

60.4

59.6

57.8

55.3

55.1

55.2

55.3 56

.9 58.2

58.5 60

.8 61.4

59.7

59.7

54.2 55

.851

.4 52.5

52.5

51.8

52.2 53

.1 54.1

51.9 53

.3 54.1

52.5

50.2

50.5

50.7 51

.651

.749

.950

.253

.1 54.2

50.7

49.051

.3

40

45

50

55

60

65

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

ISM Manufacturing Index(Values > 50 Indicate Expansion)January 2010 through May 2013

The manufacturing sector expanded for 39 of the 41 months from Jan. 2010 through May 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 contracted in May, albeit modestly

26

28

Manufacturing Growth for Selected Sectors, 2013 vs. 2013*

5.2%

-0.8%

6.8%

-0.2%

3.3%

-1.1%-2.6%

2.4%5.0%

1.1%2.5%

14.4%

-2.5%

0.3%

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

10%12%14%16%

All

Man

ufac

turin

g

Dur

able

Mfg

.

Woo

dP

rodu

cts

Prim

ary

Met

als

Fabr

icat

edM

etal

s

Mac

hine

ry

Ele

ctric

alE

quip

.

Tran

spor

tatio

nE

quip

.

Non

-Dur

able

Mfg

.

Food

Pro

duct

s

Pet

role

um &

Coa

l

Che

mic

al

Pla

stic

s &

Rub

ber

Text

ileP

rodu

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 April 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: -0.3%Construction

machinery is up 35.4% YTD

30

Manufacturing Employment,Jan. 2010—May 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

,975

11,9

67

11,000

11,200

11,400

11,600

11,800

12,000

12,200

12,400

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-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-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

Manufacturing employment is up by more than 500,000 or 4.4% 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 54.1

54.6

54.8

53.5

53.7

52.8 53

.9 54.6 56

57.1 59

.459

.756

.354

.453

.353

.453

.852

.652

.652

.652

.653

.056

.856

.155

.053

.754

.152

.752

.9 54.3 55

.254

.854

.8 55.7

55.2 56

.0

53.1

53.754.4

40

45

50

55

60

65

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

ISM Non-Manufacturing Index(Values > 50 Indicate Expansion)January 2010 through May 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

31

32

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

:Q3

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%*

32

33

Private Sector Business Starts, 1993:Q2 – 2012:Q3*

175

186

174

180 18

619

218

818

7 189

186 19

0 194

191

199 20

420

219

519

619

620

620

620

119

219

820

620

620

321

120

521

220

0 205

204

204

197

203 20

920

119

219

219

320

1 204

202

210 21

220

921

6 220 22

322

022

021

022

121

220

421

820

920

720

719

919

1 193

172 17

616

918

417

5 179

188

200

183 18

7 191

197

193

191 19

3

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 Sep. 30, 2012 are the latest available as of June 21, 2013; Seasonally adjusted. Source: Bureau of Labor Statistics, http://www.bls.gov/news.release/cewbd.t08.htm.

(Thousands)

Business starts were up an estimated 2.8% in 2012 to 769,000 following a 2.2% 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 2012E: 769,000*

33

35

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)

36

U.S. Insured Catastrophe Loss Update

Catastrophe Losses in Recent Years Have Been Very High

36

37

$12.

6

$11.

0$3

.8$1

4.3

$11.

6$6

.1

$34.

7$7

.6 $16.

3$3

3.7

$73.

4

$10.

5$7

.5

$29.

2$1

1.5

$14.

4$3

3.6

$35.

0$7

.9$14.

0

$4.8 $8

.0

$37.

8$8

.8

$26.

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)

37

38

Impact: Documents Insurer Charitable Actions Following Hurricane Sandy

39

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

A number of insurers had communications people embedded with their Cat teams

40

Moore, OK, Tornado: Media Coverage Was Generally Favorable OK Insurance Commissioner John Doak & DOI

Fair, friendly, efficient, well-prepared, organizedFormer State Farm/Farmers agent; Also worked for

Marsh and AonExcellent communications person (Kelly Collins)Doak and Collins are both media savvy

Rapid credentialing of out-of-state adjusters

OK DOI was credentialing ~40 out of state adjusters per

hour on site

OK Insurance Commissioner John Doak with me shortly

before our tour

Scenes from my Visit to Moore, OK, Tornado: High Claim Severity

41

42

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.

43

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 4/12/13.Sources: Munich Re; Swiss Re; Insurance Information Institute research.

$11.1$13.4 $13.4$13.4$18.8

$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

(2010-2012)

Hurricane Sandy is now the 6th costliest event in global

insurance history

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

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 9Hurricane Days 21.3 40Major 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, April 10, 2013, accessed at http://tropical.atmos.colostate.edu/forecasts/2013/apr2013/apr2013.pdf ; Insurance Information Institute..

Num

ber

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 50

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

52Source: 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

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. 55

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

56

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 0.7

1.5

1.0

0.4

0.4 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

0123456789

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

113.

011

7.7

158.

411

3.6

101.

0 109.

410

8.2

111.

4 121.

710

9.3

98.2

94.4 10

0.3

89.0 95

.711

6.9

105.

810

6.7

122.

210

4.4

101.

710

1.2

100.

7

118.

411

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. 57

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

Number of Federal Disaster Declarations, 1953-2013*

1317 18 16 16

7 712 12

22 2025 25

11 1119

2917 17

48 46 4638

3022 25

4223

1524 21

3427 28

2311

3138

4532

3632

7544

6550

45 4549

5669

4852

6375

5981

9947

25

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 June 23, 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 2,115 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.

24 federal disasters were declared so far in 2013*

59

62

SEVERE WEATHER REPORT UPDATE: 2013

Damage from Tornadoes, Large Hail and High Winds Keep Insurers Busy

62

Severe Weather Reports, 2012

63Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2012_annual_summary.html#

There were 22,503 severe

weather reports in 2011;

including 1,119 tornadoes;

7,033 “Large Hail” reports

and 14,351 high wind events

Severe Weather Reports:Through June 17, 2013

64Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#

There were 8,976 severe

weather reports through June 17; including

573 tornadoes; 3,002 “Large Hail” reports

and 5,401 high wind events

U.S. Tornado Count, 2005-2013*

65*Through June 22, 2013.Source: http://www.spc.noaa.gov/wcm/.

2013 count is running well

below average

There were 1,897 tornadoes in the U.S. in 2011 far

above average, but well below 2008’s record

Terrorism Update

66

Boston Marathon Bombings Underscore the Need for

Extension of the Terrorism Risk Insurance Program

66

67

Terrorism Risk Insurance Program Reauthorization Was a Major Industry Initiative for 2013

Even Before Boston I.I.I. Testified at First Congressional Hearing on 9/11/12

Provided testimony at NYC hearing on 6/17/13 I.I.I. Accelerated Planned Study on Terrorism Risk and

Insurance in the Wake of Boston and Was Well Received Terrorism: A Constant Threat issued in June 2013

68

Terrorism Risk Insurance Program Boston Marathon Bombing Has Helped Focus Attention in Congress

on TRIPRA and its Looming Expiration Act expires 12/31/14 Exclusionary language will likely be inserted for post-1/1/2014 renewals

and will likely lead to significant media interest (educational opportunity) Numerous headwinds; not a priority issue in 2013 in Congress 3 extension bills introduced in 2013—2 since Boston

Media Interest Soared I.I.I. was conducting its first interviews within minutes after live-tweeting

(nearly) from the scene; TV interest was high Local, national and international media focused on this topic for the first

time in any significant way since TRIA’s inception in late 2002 Inquiries revealed very little/no understanding (or even awareness)

outside insurance industry and business owners Certification process caused confusion

Hurricane Sandy Summary

74

Sandy Will Become One of the Most Expensive Events in

Insurance History

74

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

77

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. 78

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. 79

Total Claim Value = $18.75 Billion*

84

$6,558$10,994

$44,563$51,996

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Homeowners* Vehicle Commercial NFIP Flood**

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). **Preliminary as of May 14, 2013.Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of March 2013; Insurance Information Institute.

Hurricane Sandy: Average Claim Payment by Type of Claim

The average insured flood loss was nearly 8 times larger than the average non-flood insured loss

(mostly wind)

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

Due to Extensive Flooding

Public Opinion Survey

91

Industry Favorability RatingsPolicy Forms & Disclosure

Disaster Preparedness

91

92

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

93

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

94

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

95

I.I.I. Poll: Disaster Preparedness

1Asked of those who have homeowners insurance and who responded “yes”.

Source: Insurance Information Institute Annual Pulse Survey.

16%12%

32%

9%

20%23%

14%

32%

12%

22%24%

16%

29%

10%

21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Northeast Midwest South West Total U.S.

May-11 May-12 May-13

Q. Does your homeowners policy cover damage from flooding during a hurricane?1

The proportion of homeowners who believe their homeowners policy covers damage from flooding during a hurricane stands at 21 percent. This proportion rises eight percentage points in the South, to 29 percent.

About 20 percent of the public still believes flooding from a hurricane

is covered

96

I.I.I. Poll: Disaster Preparedness

1Asked of those who have homeowners insurance but not flood insurance.

Source: Insurance Information Institute Annual Pulse Survey.

4% 1% 5%0% 3%

96% 99%93%

100% 96%

0%

20%

40%

60%

80%

100%

Northeast Midwest South West Total U.S.

Yes No

Q. Have recent flooding events such as Hurricane Sandy or Hurricane Irene motivated you to buy flood coverage?1

Recent storms have not motivated people to buy flood insurance coverag.e

Despite recent major flood events, few people see the need to buy coverage

97

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

98

Growth Analysis by State and Business Segment

Premium Growth Rates Vary Tremendously by State

98

99

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 WI

KY

MT

OH LA VA NJ MI

SC CO

MO

NM

Pece

nt c

hang

e (%

)

*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

100

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

Pece

nt c

hang

e (%

)

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.

111

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend is Improving

111

112

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 7.5% in

Apr. 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 13.7%

in Apr. 2013

January 2000 through Apr. 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

112

227

5416

850

123

661

-79

2468 74 51

2-1

14-1

05-2

22-2

19 -203

-267

-269

-429

-484

-786

-701

-821

-692

-812

-821

-288

-442

-282 -2

22 -162

-233

-34

-167

-17

-26

170

102

94 103 12

911

3 188

154

114

8024

322

3 303

183

177 20

612

925

617

4 197 24

9 323

265

208

120 15

278

177

131

118

217 25

622

416

431

915

4 176

111

(1,000)

(800)

(600)

(400)

(200)

0

200

400

Jan-

07Fe

b-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09Fe

b-09

Mar

-09

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Apr

-13

Monthly Change in Private Employment

January 2007 through Apr. 2013 (Thousands)

Private Employers Added 6.74 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

176,000 private sector jobs were created in April

113

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

6.73

96.

561

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1

Nov

-11

Dec

-11

Jan-

12

Feb-

12M

ar-1

2A

pr-1

2

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Mill

ions

Cumulative Change in Private Sector Employment: Jan. 2010—Apr. 2013January 2010 through April 2013* (Millions)

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

Cumulative job gains through Apr. 2013 totaled 6.74 million

115

Job gains and pay increases have added more than $600 billion to payrolls

since Jan. 2010

Private Employers Added 6.74 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

-636-625

-800

-600

-400

-200

0

200

400

600

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2A

ug-1

2S

ep-1

2O

ct-1

2

Nov

-12

Dec

-12

Jan-

13Fe

b-13

Mar

-13

Cumulative Change in Government Employment: Jan. 2010—Apr. 2013January 2010 through Apr. 2013* (Millions)

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

Cumulative job losses through Apr. 2013 totaled 636,000

116

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 600,000 jobs

since Jan. 2010 even as private employers created 6.74 million jobs, though

losses may now be ending.

Temporary Census hiring distorted 2010

figures

118

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

9.6

9.3

9.1

9.0

8.9

8.8

8.7

8.5

8.5

8.4

8.2

8.0

8.0

8.0

8.0

7.9

7.9

7.8

7.6

7.5

7.2

7.2

7.1

7.1

7.0

7.0

0

2

4

6

8

10

12

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

Une

mpl

oym

ent R

ate

(%)

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

In April, 40 states and the District of Columbia had over-

the-month unemployment rate decreases, 3 states had increases, and 7 states had

no change.

119

6.9

6.9

6.9

6.7

6.6

6.6

6.5

6.5

6.4

6.4

6.1

6.0

5.5

5.5

5.5

5.3

5.2

4.9

4.9

4.8

4.7

4.7

4.1

4.0

3.7

3.3

0

2

4

6

8

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

Une

mpl

oym

ent R

ate

(%)

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

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

In April, 40 states and the District of Columbia had

over-the-month unemployment rate

decreases, 3 states had increases, and 7 states had

no change.

120

Oil & Gas Extraction Employment,Jan. 2010—April 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

1.7

191.

919

3.1

192.

519

2.5

150

155

160

165

170

175

180

185

190

195

200

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-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-

13Fe

b-13

Mar

-13

Apr

-13

Oil and gas extraction employment is up 23.1%

since Jan. 2010 as the energy sector booms.

Domestic energy production is essential to

any robust economic recovery in the US.

(Thousands)

121

US Unemployment Rate Forecast4.

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%

7.5%

7.5%

7.4%

7.3%

7.1%

7.0%

6.9%

9.6%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

07:Q

107

:Q2

07:Q

307

:Q4

08:Q

108

:Q2

08:Q

308

:Q4

09:Q

109

:Q2

09:Q

309

:Q4

10:Q

110

:Q2

10:Q

310

:Q4

11:Q

111

:Q2

11:Q

311

:Q4

12:Q

112

:Q2

12:Q

312

:Q4

13:Q

113

:Q2

13:Q

313

:Q4

14:Q

114

:Q2

14:Q

314

: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 (6/13 edition); Insurance Information Institute.

2007:Q1 to 2014:Q4F*

Unemployment forecasts have been revised slightly

downwards. Optimistic scenarios put the

unemployment as low as 6.6% 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

124

Payroll Base* WC NWP

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

*Private employment; Shaded areas indicate recessions. WC premiums for 2012 are 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

The BIG Question:Where Is the Market Heading?

125

Catastrophes and Other Factors Are Pressuring Insurance Markets

125

New Factor: Record Low Interest Rates Are Contributing to

Underwriting and Pricing Pressures

INVESTMENTS: THE NEW REALITY

126

Investment Performance is a Key Driver of Profitability

Depressed Yields Will Necessarily Influence Underwriting & Pricing

126

Property/Casualty Insurance Industry Investment Income: 2000–2013*1

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$47.7$45.5

$39.6

$49.5$52.3

$30

$40

$50

$60

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

Investment Income Fell in 2012 and is Falling in 2013 Due to Persistently Low Interest Rates, Putting Additional Pressure on (Re) Insurance Pricing

1 Investment gains consist primarily of interest and stock dividends..*Estimate based on annualized actual Q1:2013 investment income of $11.385B.Sources: ISO; Insurance Information Institute.

($ Billions)

Investment earnings are running below their 2007

pre-crisis peak

128

P/C Insurer Net Realized Capital Gains/Losses, 1990-2013:Q1

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

$2.8

8

$4.8

1 $9.8

9

$9.8

2

$10.

81 $18.

02

$13.

02

$16.

21

$6.6

3

-$1.

21

$6.6

1

$9.1

3

$9.7

0

$3.5

2 $8.9

2

-$7.

90

$5.8

5

$7.0

4

$6.2

1

$1.3

8

-$19

.81

$9.2

4

$6.0

0

$1.6

6

-$25-$20-$15-$10

-$5$0$5

$10$15$20

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 1213:Q1

Insurers Posted Net Realized Capital Gains in 2010, 2011 and 2012 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital

Losses Were the Primary Cause of 2008/2009’s Large Drop in Profits and ROE

($ Billions) Realized capital gains in 2012 were down 12% from 2011

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 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; Sources: ISO; Insurance Information Institute.

($ Billions)

Investment gains in 2012 were approximately 16%

below their pre-crisis peak

130

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

*Monthly, through Apr. 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

plunged to all time record lows

130

133

Distribution of Bond Maturities,P/C Insurance Industry, 2003-2012

16.0%

15.2%

15.7%

16.2%

16.3%

29.8%

29.2%

28.8%

29.5%

30.0%

32.4%

36.2%

39.5%

41.4%

40.4%

31.3%

32.5%

34.1%

34.1%

33.8%

31.2%

28.7%

26.7%

26.8%

27.6%

15.4%

15.4%

13.6%

13.1%

12.9%

12.7%

11.7%

11.1%

10.3%

9.8%

9.2%

7.6%

7.6%

7.4%

8.1%

8.1%

7.3%

6.4%

6.3%

5.7%16.5%

15.2%

14.4%

16.0%

15.4%

0% 20% 40% 60% 80% 100%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Under 1 year1-5 years5-10 years10-20 yearsover 20 years

Sources: SNL Financial; Insurance Information Institute.

The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds

(from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012) . Falling average maturity of the P/C industry’s bond portfolio is contributing to a drop in investment income along with lower yields.

134

-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%

Persona

l Line

s

Pvt Pass

Auto

Pers P

rop

Commerc

ial

Comml A

uto

Credit

Comm P

rop

Comm C

as

Fidelity

/Sure

ty

Warra

nty

Surplus

Line

s

Med M

al

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*

134

137

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.

95.799.3

100.8

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

Financial Strength & Underwriting

142

Cyclical Pattern is P-C Impairment History is Directly Tied to

Underwriting, Reserving & Pricing

142

144

P/C Insurer Impairment Frequency vs. Combined Ratio, 1969-2011

90

95

100

105

110

115

12069 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

Com

bine

d R

atio

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Impairm

ent Rate

Combined Ratio after Div P/C Impairment Frequency

Source: A.M. Best; Insurance Information Institute

2011 impairment rate was 0.91%, up from 0.67% in 2010; the rate is slightly higher than the 0.82% average since 1969

Impairment Rates Are Highly Correlated With Underwriting Performance and Reached Record Lows in 2007; Recent Increase Was Associated

Primarily With Mortgage and Financial Guaranty Insurers and Not Representative of the Industry Overall

148

Performance by Segment

148

Private Passenger Auto Combined Ratio: 1993–2015F

101.

7

101.

3

101.

3

101.

0

109.

5

107.

9

104.

2

98.4

94.3

95.1

95.5 98

.3 100.

3

101.

3

101.

0

101.

9

99.6

99.4

98.6

98.399

.5 101.

1

103.

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

149Sources: A.M. Best (1990-2012E);Conning (2013F-15F); Insurance Information Institute.

Homeowners Insurance Combined Ratio: 1990–2015F

113.

011

7.7

158.

411

3.6

101.

0 109.

410

8.2

111.

4 121.

710

9.3

98.2

94.4 10

0.3

89.0 95

.711

6.9

105.

810

6.7

122.

210

4.4

101.

710

1.2

100.

7

118.

411

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. 150

Hurricane Ike

Hurricane Sandy

Record tornado activity

Hurricane Andrew

109.

4

110.

211

8.8

109.

5 112.

5

110.

210

7.6

104.

110

9.7

110.

2

102.

5 105.

4

91.1 93

.6

104.

298

.9

102.

110

6.7

104.

910

2.1

101.

4

101.

3

102.

0

111.

1

112.

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 13F

14F

15F

Com

mer

cial

Lin

es C

ombi

ned

Rat

io

*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

153

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 10

3.5

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. 161

WC showed a better-than-expected

improvement for private carriers in 2012

2. SURPLUS/CAPITAL/CAPACITY

171

How Will Large Catastrophe Losses Impact Capacity?

171

173

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.

174

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

Tran

sact

ion

valu

es

0

100

200

300

400

500

600

Num

ber of transactions

($ 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.

4. RENEWED PRICING DISCIPLINE

180

Evidence of a Broad and Sustained Shift in Pricing

180

182

-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(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 growth

was +4.3%

183

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

185

Average Commercial Rate Change,All Lines, (1Q:2004–1Q: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%-1

1.8%

-13.

3%-1

2.0%

-13.

5%-1

2.9% -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%

-0.1

% 0.9%

-0.1

%

-16%

-11%

-6%

-1%

4%

9%

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

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 Q1:2013 was positive for the 8th consecutive

quarter. Gains are likely to continue through 2013.

(Percent)

Q2 2011 marked the last of 30th

consecutive quarter of price declines

186

Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2013:Q1

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; Q1:2013 renewals were up 5.2%, the largest increase since late

2003; Some insurers posted stronger numbers.

KRW : No Lasting Impact

Pricing Turned Negative in Early

2004 and Remained that

way for 7 ½ years

Peak = 2001:Q4 +28.5%

Trough = 2007:Q3 -13.6%

CYBER RISK

199

Cyber Risk is a Rapidly Emerging Exposure for Businesses Large

and Small in Every IndustryNEW III White Paper:

http://www.iii.org/assets/docs/pdf/paper_CyberRisk_2013.pdf

199

Data Breaches 2005-2013, By Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed

* 2013 figures as of March 19, 2013.Source: Identity Theft Resource Center

157

321

446

656

498

419447

662

17.322.935.7

19.1

66.9

222.5

16.2

127.7

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010 2011 2012020406080100120140160180200220

# Data Breaches # Records Exposed (Millions)

The total number of data breaches and number of records exposed fluctuates from year to year and over time.

Millions

201

2012 Data Breaches By Business Category, By Number of Breaches

3.8%11.2%

13.6%

34.5%

36.9%

Source: Identity Theft Resource Center, http://www.idtheftcenter.org/ITRC%20Breach%20Report%202012.pdf.

The majority of the 447 data breaches in 2012 affected business and medical/healthcare organizations, according to the Identity Theft Resource Center.

Business, 165 (36.9%)Govt/Military, 50 (11.2%)

Banking/Credit/Financial, 17 (3.8%)

Educational, 61 (13.6%)

Medical/Healthcare, 154 (34.5%)

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Insurance Information Institute Online:

213