AFOA CONFERENCE Ottawa, Ontario February 2005 Insurance Presentation By Heather J. Loughery, SVP - Zurich, Canada Gil Saunders, Pres. - AFN Insurance

OVERVIEW Insurance Industry Factors Influencing Pricing & Coverage Coverages for Bands - Liability, Property, Automobile Insurance Roles Claims Considerations & Communication February2005

OVERVIEW General information Canada is the world’s 7th largest insurance market (between Italy and Spain) General Insurance industry - GWP 34.8 billion in 2003 (approx 12 billion commercial business) New wave of consolidation of insurers in Canada The industry’s expense ratio in 2003 was 28.7% down from prior years February2005

THE CYCLE WILL WE EVER LEARN ? February2005

FACTORS AT WORK 1. SUPPLY & DEMAND 2. ACTUARIAL SCIENCE / UNDERWRITING PRIORITY LOW INTEREST RATES UNKNOWN LOSSES 5. THE WEATHER ? 6. LOW ENTRY BARRIERS / FEWER PLAYERS 7. CLAIMS / LEGAL SURPRISES / TORT REFORM 8. REINSURANCE RECOVERABLES PRIOR YEAR RESERVE ADJUSTMENTS REGULATORY ENVIRONMENT February2005

PREMIUMS - (CLAIMS & EXPENSES) + INVESTMENTS = PROFIT SIMPLE BUSINESS PREMIUMS - (CLAIMS & EXPENSES) + INVESTMENTS = PROFIT COMMERCIAL P & C INSURANCE IS A HIGHLY UNUSUAL PRODUCT 1. PRICE FOR PAST - UNDER PRICING /UNDER RESERVING 2. PRICE FOR CURRENT REALITIES (ACCIDENT YEAR) PRICE FOR FUTURE UNKNOWNS P&C TRANSACTIONS VIEWED DIFFERENTLY WITH PASSAGE OF TIME - A/Y LOSS RATIOS DEVELOP UNTIL ALL CLAIMS SETTLED - CAN’T GO BACK IN TIME TO REOPEN BOOKS, THEREFORE CURRENT PRICING MUST RESPOND - TODAY’S CUSTOMERS, SHAREHOLDERS, MANAGE- MENT SHARE THE BILL - OCCASIONALLY POSITIVE -- ONTARIO AUTO IN THE ‘90s THE PRESENT - LOSS COST TRENDS - RELIABLE INFORMATION CHALLENGE - DEMAND SHRINKING - PREDICTING INTEREST RATES - REINSURANCE COSTS February2005

(SMALL CAUSES = LARGE IMPACT) WHAT’S CHANGED? (SMALL CAUSES = LARGE IMPACT) ONE TREE FALLS ON A POWER LINE IN OHIO ONE SARS-INFECTED TOURIST LANDS IN TORONTO ONE TERRORIST THINKS OF USING A COMMERCIAL PLANE AS A MISSILE ONE COW TESTED “MAD COW” POSITIVE February2005

INFLUENCES LEGAL ENVIRONMENT U. S. Tort System Plaintiff Counsel Ingenuity Class Actions INFLATION & TRENDING February2005

COVERAGES General Liability Bodily Injury to other people Property Damage to other’s property Band operations – any special cover needed? Environmental Public Officials Liability Care Homes February2005

COVERAGES Property Band Property Housing Boiler Crime Employee Dishonesty Theft February2005

RATING General Liability Claims Experience Limits & Deductibles Chosen Band size, operations February2005

RATING Property & Boiler Claims Experience Limits & Deductibles Type of Construction, Protection, Age, Crime Procedures, Limits, Deductibles February2005

ROLES UNDERWRITERS Assess exposure Evaluate information Rate & provide cover LOSS PREVENTION/RISK SERVICES Inspect location & determine if recommendations needed Advise Insured & Underwriter of concerns February2005

ROLES CLAIMS ADJUSTERS Third Party / Zurich Staff Assist, Explain, Expedite Evaluate INSURED Communicate Preventative measures for losses February2005

CLAIMS Typical claims - Fire, Water, Theft, Slip & Fall, … “Anyone” can file a liability claim Provide information Have procedure to document any incidents Timeliness is important February2005

WHAT CAN YOU DO? Property Values – updated?? Deductibles Chosen Loss Control measures Take the time to note & communicate what is (or what will be) different about your Band, operations what you have done / are doing / will be doing to meet / exceed standards February2005

COMMUNICAITON Communicate, Explain Work with Insurance Representatives Be proactive Document - keep up with standards Allow time February2005

Thank you!! Any Questions?? February2005