Wells Fargo Insurance Services © 2006 Wells Fargo Bank, N.A. All rights reserved. The entire presentation is confidential. Distributing or sharing this presentation in any form to anyone who is not a Wells Fargo team member is prohibited.

Wells Fargo Insurance Services Property Market Trends and Developments David Laning, CPCU National Property Practice Wells Fargo Insurance Services

Wells Fargo Insurance Services National Property Practice Sixteen experienced professionals Embedded within regions Resources Win, Retain and Drive Property Insurance Successes Needs of our customers Better, Faster Creativity / Options / Alternatives

Wells Fargo Insurance Services National Property Practice Knowledgeable Efficient Effective Proactive Support

Wells Fargo Insurance Services Property / Market 2009 The “Hard Market of 2009” did not materialize Generally flat rates ± 5% Some increase on CAT Exposures and Reduced Capacity Quiet storm season to date Could make for an interesting end of the year Marine and Equipment Breakdown flat to -5% Reinsurance All Insurers paid more for their treaties on January 1 and July 1 Indications are renewals will be flat on January 1, Predictions Flat to slightly down rates barring no significant catastrophe or capital event Very tenuous and fragile market Underwriting discipline will continue

Wells Fargo Insurance Services Cost of Capital Market Drivers

Wells Fargo Insurance Services ROE vs. Equity Cost of Capital: US P/C Insurance: :Q1* *Excludes mortgage and financial guarantee insurers. Source: The Geneva Association, Ins. Information Inst. The p/c insurance industry fell well short of is cost of capital in pts US P/C insurers missed their cost of capital by an average 6.7 points from 1991 to 2002, but on target or better , but falling well short in 2008/ pts +2.3 pts -9.0 pts The cost of capital is the rate of return insurers need to attract and retain capital to the business -7.1 pts pts

Wells Fargo Insurance Services Combined Ratios and Rate Changes

Wells Fargo Insurance Services /07 benefited from favorable loss cost trends, improved tort environment, low CAT losses, WC reforms and reserve releases. Most of these trends reversed in 2008 and mortgage and financial guarantee segments have big influence is transition year. Commercial coverages have exhibited significant variability over time Commercial Lines Combined Ratio, F Mortgage and financial guarantee account for about 3-4 points on the commercial combined ratio in 2008/09 Sources: A.M. Best (historical and forecasts)

Wells Fargo Insurance Services 10 * 2008/9 figures are return on average statutory surplus. Excludes mortgage and financial guarantee insurers. Source: Insurance Information Institute from A.M. Best and ISO data. A 100 Combined Ratio Isn’t What it Used to Be: 95 is Where It’s At Combined ratios must me must lower in today’s depressed investment environment to generate risk appropriate ROEs

Wells Fargo Insurance Services 11 Average Commercial Rate Change, All Lines, (1Q:2004 – 2Q:2009) Source: Council of Insurance Agents & Brokers; Insurance Information Institute KRW Effect -0.1% Magnitude of price declines is now shrinking. Reflects shrinking capital, reduced investment gains, deteriorating underwriting performance, higher cat losses and costlier reinsurance

Wells Fargo Insurance Services Catastrophe Losses

Wells Fargo Insurance Services 13 U.S. Insured Catastrophe Losses *Based on PCS data through June 30 = $6.9 billion. Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B. Source: Property Claims Service/ISO; Insurance Information Institute $ Billions 2008 CAT losses exceeded 2006/07 combined was by far the worst year ever for insured catastrophe losses in the US, but the worst has yet to come. $100 Billion CAT year is coming eventually cat losses were down 43% in H1 from $10.3B in H1 2008

Wells Fargo Insurance Services 14 Inflation-Adjusted U.S. Insured Catastrophe Losses By Cause of Loss, ¹ Source: Insurance Services Office (ISO).. 1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2007 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in Adjusted for inflation by the III. 2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires. Insured disaster losses totaled $310.5 billion from (in 2007 dollars)

Wells Fargo Insurance Services Policy Holder Surplus and Capital Events

Wells Fargo Insurance Services 16 U.S. Policyholder Surplus: :H1* Source: A.M. Best, ISO, Insurance Information Institute. *As of 6/30/09 $ Billions “Surplus” is a measure of underwriting capacity. It is analogous to “Owners Equity” or “Net Worth” in non-insurance organizations Actual capacity as of 6/30/09 was $471B, up from $437.1B as of 3/31/09 Recent peak was $521.8 as of 9/30/07. Surplus as of 6/30/09 is 9.8% below 2007 peak; Crisis trough was as of 3/31/09  16.2% below 2007 peak The premium-to-surplus ratio stood at $1.03:$1 as of 3/31/09, up from near record low of $0.85:$1 at year-end

Wells Fargo Insurance Services 17 Ratio of Insured Loss to Surplus for Largest Capital Events Since 1989* *Ratio is for end-of-quarter surplus immediately prior to event. Date shown is end of quarter prior to event. **Latest available Source: PCS; Insurance Information Institute. The financial crisis now ranks as the largest “capital event” over the past 20+ years

Wells Fargo Insurance Services Property Market Trends and Recommendations Distinguish yourself Be out ahead of the market Create a positive story for your risk Losses – Positive spin – What is being done to prevent what has happened Quality of Risk - Information Risk Improvements Unparalleled underwriting data Value Justification and stratification Disaster Preparedness and tested recovery plan Loss Control and prevention Rate History Coverage Audit Retentions CAT Modeling Flood Mapping

Wells Fargo Insurance Services Food For Thought Terrorism Swine Flu H1N1 Enterprise Risk Management NPIP – Remapping Industry Segment Program Development Rating Agencies

Wells Fargo Insurance Services © 2006 Wells Fargo Bank, N.A. All rights reserved. The entire presentation is confidential. Distributing or sharing this presentation in any form to anyone who is not a Wells Fargo team member is prohibited.