State Risk and Insurance Management Association Casualty Market Update

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Casualty Market Defined GL/AL, Workers’ Compensation, Umbrella & Excess Liability Professional Lines – D&O, EPLI, Misc. Prof. Lines Medical Malpractice

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Trends Prior to 9/11 Impact of 9/11 Effect of 9/11 New Market Realities Market Factors and Beyond Review by Coverage Line Going Forward

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update AL Settlements up 27% per year from 1994 to 1999 Average GL jury award by 11% per year 1994 to 2000 Median Personal Injury award up 26% in 2000 Median EPL verdict up 44% ($151,000 to $218,000) between 1999 and 2000 Mean Medical Malpractice Award increased from $362,000 to $1,000,000 between 1994 and 2000 Statistics from Jury Verdict Research Trends Prior to 9/11

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Workers’ Comp Combined Ratios

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Liability losses est. 5 to 10 billion Workers’ Comp est. 4 to 5 billion D&O/E&O est. 1 billion??? Aviation losses est. 3 to 6 billion Impact of 9/11

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update High Level of Uncertainty  Industry didn’t know the true cost of products sold  Exposure to events not contemplated or charged for  Aggregation/concentration of exposures  Too much credit for good experience  Over reliance on investment income Effect of 9/11

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Restricted Capacity Increased Pricing Reductions in Coverage Loss of Markets Intro. of Underwriting Discipline New Capital New Market Realities

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Quotes max. of 30 days prior to effective date Terrorism and mold exclusions Terrorism Coverage Non-renewal notices Concentration of Risk (WC and Property) Analysis Focus on high profile, urban risks Defense Inside Limit/SIR Layered Programs New Market Realities (cont.)

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update No Government Terrorist Bill Low interest rates Lower realized capital gains Mushrooming unrealized investment losses Continued adverse reserve development Higher claim settlements Market Factors – 2002 Beyond

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update General/Automobile Liability 30 to 50% increases the norm/minimum for 2002 Continued rate firming through 2003 Segregation of coverage Push to include defense costs inside/inside Limited market place for State Governments Review by Coverage Line

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Workers Compensation Loss of Scheduled Credits/Deviated Rates Loss sensitive/cash flow programs Increased interest in “Group” programs Excess Workers Compensation Dramatic Increases - Retention/Premium Loss Limit vs Statutory Coverage Concentration of employees Review by Coverage Line

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Excess Liability 50 to 100% increase the norm for 2002 Continued rate firming through 2003 Limited market place for State Governments Elimination of Professional Liability coverage extensions New Markets (Bermuda) Contingency capital arrangements Review by Coverage Line

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Professional Lines Higher retentions Strong rate increase 100% not uncommon Continued rate firming through 2003 Greater scrutiny of EPLI exposure  Munis – 16% of employment/28% of EPL lawsuits  Munis #1 for total compensatory damages (EPL) last three years Review by Coverage Line

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Medical Malpractice Shrinking market Combined ratio expected to push 135% for 2001 Continued increases in claim severity Hugh increases (200%+) in rate increases 30 to 50% Expecting some stabilization in 2003 Review by Coverage Line

P:\Clients_G\Gallagher\NonProfit\STRIMA Presentation.ppt Casualty Market Update Seek to differentiate your risk Focus on risk management practices Start early Understand the underwriting information needed Target select markets Start early Create realistic expectations Understand risk financing capacity Start early Be open to alternatives Going Forward