Risk Securitization Current State of the Market 2002 CAS Catastrophe Risk Management Seminar October 7, 2002

This presentation does not constitute an offer to sell or buy, nor a solicitation to sell or buy a security. Opinions expressed herein are matters of judgement and are subject to change without notice. Recipients of this presentation are advised to undertake an independent review of the legal, tax, regulatory and accounting implications of the transaction described herein to determine its suitability for their particular circumstances. The information set out in this presentation reflects illustrative terms. Any offer will be made only through definitive agreements and such other offering materials as provided by Aon Securities Corporation at or prior to closing which contain important information regarding, among other things, certain risks associated with the transaction described herein and should be read carefully before determining to enter into such a transaction. Aon Capital Markets Proprietary and Confidential

 Exchange traded securities  Catastrophe (cat) bonds  CatEPut ® /Contingent capital 1 Aon Capital Markets Proprietary and Confidential Principal Securitized Products

 Insurer/reinsurer sponsors Special Purpose Vehicle (SPV)  SPV issues bonds, invests bond proceeds to support reinsurance contract with sponsor  Bond interest paid with combination of investment income and premiums received by SPV  Risk transfer 2 Aon Capital Markets Proprietary and Confidential Cat Bonds - Description

 Consolidation of SPV  Basis Risk  Liquidity  Price/Efficiency 3 Aon Capital Markets Proprietary and Confidential Cat Bonds - Key Issues

 Advantages of non-consolidation for US GAAP sponsors  Accounting  Premium deductibility  Independent equity ownership required for US GAAP sponsors  Historic requirement (3%)  Current proposal in light of Enron (up to 10%)  Non-US GAAP sponsors Aon Capital Markets Proprietary and Confidential Cat Bonds - SPV Consolidation 4

Cat Bonds - Basis Risk  Capital markets prefer index triggers  Minimize moral hazard  Improve liquidity  Sponsoring insurers/reinsurers prefer indemnity triggers  Minimize basis risk  Adverse liquidity effects  Response of traditional reinsurers Aon Capital Markets Proprietary and Confidential 5

Cat Bonds - Liquidity  Liquidity has been adequate  Market makers and others consistently quote outstanding securities  Bonds have traded as expected based on seasonality Aon Capital Markets Proprietary and Confidential 6

Cat Bonds - Pricing/Efficiency  Reinsurers take advantage of efficiencies  Lower transactions/consulting costs  Time issues  Reinsurance submission v. private placement memorandum  Reinsurers, where advantageous, have:  Underpriced cat bond market  Participated in cat bond market Aon Capital Markets Proprietary and Confidential 7

Cat Bonds in the Future Aon Capital Markets Proprietary and Confidential 8  Key advantage of cat bond market - minimized credit risk  Consider price of cat bond v. price of traditional reinsurance plus price of credit default swap  Key advantage for investors - diversification  The cat bond market moving forward  Consolidation issue  Excess covers (credit risk)  Short tail v. long tail risks  Participants

CatEPuts ® - Description Aon Capital Markets Proprietary and Confidential 9  Sponsor enters into put option contract with counterparties  Counterparties purchase securities directly from sponsor upon triggering event  Securities convert to common stock (and become tradable) after an agreed period of years  No risk transfer

CatEPuts ® - Key Issues Aon Capital Markets Proprietary and Confidential 10  Triggers - limited to catastrophe insurance events to date  Pricing  Comparison to traditional reinsurance  Effects of hard reinsurance market/volatile securities market  Costs v. other sources of capital  Liquidity - limited due to need for counterparty credit quality  Rating agency view

 Expansion to non-insurance purchasers  Event probability  Short tail v. long tail risks  The need for:  Counterparty credit enhancement  Expansion of market to non-insurance counterparties 11 Aon Capital Markets Proprietary and Confidential CatEPuts ® in the Future

 Securitized insurance/reinsurance market will continue to grow at a deliberate pace  Transactions costs in securitized market will improve, but traditional markets will remain more efficient  Securitized market will be complementary to traditional insurance and reinsurance markets 12 Aon Capital Markets Proprietary and Confidential Summary