A.M. Best’s Insurance Market Briefing - Canada Reinsurance Overview Greg Reisner A.M. Best Company September 8, 2010

A.M. Best maintains STABLE OUTLOOK for 2010 This outlook maintains that the majority of future rating actions are likely to be affirmations with a modest number of rating or outlook changes This outlook maintains that the majority of future rating actions are likely to be affirmations with a modest number of rating or outlook changes Expect overall favorable operating performance in 2010 Expect overall favorable operating performance in 2010 o Capital positions are strong and have been bolstered since the financial crisis o Market discipline is still present o Enterprise Risk Management appears to be embraced and enhanced o Key factors include catastrophes and fragile financial markets Execution remains important Execution remains important o Efficient deployment of capital is fundamental yet imperative o Sufficient underwriting margins need to be generated o Risk awareness needs to be crystal clear

Longer Term there are Challenges Broadly speaking there are 3 concerns: Broadly speaking there are 3 concerns: o Pricing fundamentals continue to disappoint with the concern being that ultimately companies will compete for market share o The potential threat of inflationary pressures o Regulatory issues concerning the U.S. and Bermuda and Solvency II for Bermudian companies

Recipe For Success Strong focus on cycle management and pricing integrity Strong focus on cycle management and pricing integrity Demonstrated track record of stable and consistent results with no outsized losses relative to expectations and/or compared to the peer group Demonstrated track record of stable and consistent results with no outsized losses relative to expectations and/or compared to the peer group The (re)insurance model continues to work well and recent events show the dangers of moving outside of the core business The (re)insurance model continues to work well and recent events show the dangers of moving outside of the core business

Underwriting Performance U.S. Reinsurance and Bermuda Market Underwriting results were favorable for 2009 Underwriting results were favorable for 2009 o Results were better than 2008 and comparable to 2007 o Results were aided by mild catastrophes and reserve releases Market challenges remain in terms of pricing, attachment points, terms and conditions Market challenges remain in terms of pricing, attachment points, terms and conditions Despite the challenges the expectation is for profitable underwriting results in 2010 with some companies outperforming others Despite the challenges the expectation is for profitable underwriting results in 2010 with some companies outperforming others o Impact of catastrophes is always a variable

U.S. Reinsurance and Bermuda Market Trends

Net Premiums Earned as a Percentage of the U.S. Reinsurance and Bermuda Market (P&C only) YTD Q2 2010

Underwriting Performance U.S. Reinsurance and Bermuda Market

Performance Trends U.S. Reinsurance and Bermuda Market US Reinsurance & Bermuda Market Trends 19% 16% -1% 16% 10% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% YTD 2Q 2010 (annualized) ROE

Investment Allocation U.S. Reinsurance and Bermuda Market at Q2 2010

Market Environment U.S. Reinsurance and Bermuda Market During 2009 companies sharpened their focus on counterparty risk, investment risk and remained cognizant of the underwriting risks. Access to capital was limited. During 2009 companies sharpened their focus on counterparty risk, investment risk and remained cognizant of the underwriting risks. Access to capital was limited. o The theme for 2009 was to tighten up risk parameters and bet, or not bet o Companies willingly sacrificed investment earnings as capital preservation was the focus What will the theme be going forward? What will the theme be going forward? o Performance anxiety could dictate decisions – companies want to show competitive results o Risk selection is paramount as companies are cautious as to when the next shoe will drop o How much capital will be available and will it be plentiful post-event? o Battles are being waged under the seemingly calm environment as reinsurers are looking to hold the line on pricing o In the new decade, companies continue to adjust to the “new normal”

Canadian Reinsurance Market Overview

Canadian Reinsurance

Canadian Reinsurance Trends

Summary Currently, there appears to be more market challenges than opportunities Currently, there appears to be more market challenges than opportunities The good news though is that at this stage of the cycle companies are still well-capitalized The good news though is that at this stage of the cycle companies are still well-capitalized Reinsurance companies are still maintaining pricing discipline Reinsurance companies are still maintaining pricing discipline The winners will be the companies that navigate the cycle more effectively and can capitalize on the next hard market The winners will be the companies that navigate the cycle more effectively and can capitalize on the next hard market

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