1 Benfield’s 2008 Catastrophe Summit A regional insurer’s best alternative.

The First Incorporated in 1985, Demotech, Inc. is a financial analysis and actuarial services firm serving the P&C and Title insurance industries. In 1989, we became the first company to review and rate regional insurance companies. 2

Financial Stability Ratings ® We secured approval from Fannie Mae, Freddie Mac and HUD of our Financial Stability Ratings ® of A or better. Since 1989, regional or national insurers rated A or better by Demotech can eliminate the cost, effort and embarrassment addressing property insurance cut-throughs. 3

Rating Process We were the first company to have its rating process reviewed and accepted by Fannie Mae, Freddie Mac and HUD. Each entity performed its own due diligence. We passed each due diligence with flying colors. 4

HUD On February 1, 2005, HUD accepted our Financial Stability Ratings ® of A or better as evidence that an insurance company could be considered ‘responsible’ under their guidelines. 5

HUD (cont.) This permitted dozens of professional liability insurance companies to be eligible to write medical professional liability insurance on nursing facilities. We have also reviewed and rated carriers that write physicians and surgeons professional liability insurance. 6

Our Clients Include Larger Insurers Auto-Owners Insurance Nationwide Insurance Company of Florida Allstate Floridian Insurance Company Allstate Floridian Indemnity Company Motorists Mutual Insurance Company Publicly traded companies such as EMC Companies and several Title underwriters 7

State of Florida In 1996, when the State of Florida, the Florida Department of Insurance (now OIR), and the secondary mortgage marketplace needed a rating solution, they contacted Demotech, Inc. 8

State of Florida (cont.) We developed a procedure to review and rate start-up insurance companies. Our procedure met the needs of the State of Florida, insurance agents, insurance companies, consumers and was acceptable to the secondary mortgage marketplace. 9

State of Florida (cont.) Since the fall of 1996, we have assigned ratings to dozens of start-up Florida- domiciled insurance companies. We have rated smaller, regional insurance companies; however, we have also rated the Florida affiliates of international insurance companies such as Travelers Insurance, Nationwide Insurance and Allstate Insurance. 10

State of Florida (cont.) Despite the hurricane seasons of 1996 through 2007, only one of the more than seventy insurance companies that we rated A or better failed while being rated at the A level. This occurred when four hurricanes and a tropical storm struck Florida during a four week period in

Florida Property Writers Florida domiciled, single state, property writers spend nearly 66% of their homeowner insurance direct premium protecting themselves from catastrophic exposure. That is, they retain 34% of direct written premium. Similar companies in Texas spend 53% and retain 47%. 12

Florida Property Writers (cont.) 13 Homeowners OnlyCedeRetain Florida Texas Other

Regional Carriers Why Regional Carriers? Disadvantaged in the marketplace Cut-through endorsements required by lenders Some agents’ E&O coverage excludes insolvency if business is placed with a company rated less than B+ by the A.M. Best Company Umbrella insurance requirements 14

Why Regional Carriers Matter Over 1,400 Companies Stabilize marketplace Hundreds more than a century of service Long relationships with policyholders and agents Overwhelming majority are financially sound 15

Media as well as Insurance Professionals favor larger insurers Why? Surplus size Offer broad array of insurance products Diversified as to geography 16

Theory Good theory but in practice - size/diversity have had limited impact on success or insolvency. 17

Why Insurance Companies Get Into Trouble Management Practices Lack of focus on marketing, underwriting and claims practices Lose focus on competitive advantages Pricing decisions are based upon characteristics unrelated to the underlying risk Utilize range of actuary’s loss reserving estimates to meet analyst’s expectations Emphasis on earning projections Emphasis on marketshare 18

Why Insurance Companies Get Into Trouble (cont.) Companies under-reserve so that earning projections can be met (at least on paper) Focus on market share Entrance into new markets Inefficient IT systems These problems exist in large or small insurers. 19

Demotech’s Belief Insurance industry does not respect niche players. But we do! 20

NAMIC Study NAMIC research determined that larger, not smaller, companies report more volatile year to year operating results. 21

Why do we believe Regional Insurers are under-rated? Regional Companies Tend not to diversify Do not seek licenses in new jurisdictions Do not seek licenses in new lines of business Focus on their niche Purchase extremely conservative reinsurance treaties  Design reinsurance programs  To protect surplus  Not to maximize profits 22

What Demotech found out about Regional Companies 23

What Demotech found out about Regional Companies (cont.) 24

What Demotech found out about Regional Companies (cont.) In Regional Companies  53% of the Insurance Industry by count but only 7% of P&C Direct Written Premium Many founded in the 19 th Century (18XX!!!) Companies have less infrastructure Less conflict and better communication between Investors/Boards/Top Management Have greater corporate memory 25

What Demotech found out about Regional Companies (cont.) Maintain consistent underwriting – even at the cost of losing marketshare Financial statements simpler to review Operations tend to be transparent Heavy purchasers of reinsurance Reinsurance contracts easier to evaluate 26

What Demotech found out about Regional Companies (cont.) Participate in guaranty funds (Med Mal is GL!) Tend to find stable relationships with agents and core customers Never start ruinous price wars Neither agent nor company apt to cut and run from specialty markets because they understand it and thrive on it. (Ballard V. Farmers – Mold) 27

Regional Carriers Typically P&C companies writing one major line in a few states In med-mal markets  Numerous monoline carriers have been founded  Encouraged and supported by medical practitioner associations or state medical societies Regional homeowner insurers in Florida to date 28

A new idea is first condemned as ridiculous, and then dismissed as trivial, until finally it becomes what everybody knows. - William James (January 11, 1842 to August 26, 1910) American psychologist and philosopher 29

Comparative Study Months of Survival Subsequent to Rating Assignment 30 Source: A.M. Best, Inc.’s Impairment Rate and Rating Transition Study dated April 18, 2005; complement of page 6, Exhibit 2. Demotech, Inc.’s Serious About Solvency dated August 2005; page 4, Exhibit 3.

Comparative Study Months of Survival Subsequent to Rating Assignment 31 Source: A.M. Best, Inc.’s Impairment Rate and Rating Transition Study dated April 18, 2005; complement of page 6, Exhibit 2. Demotech, Inc.’s Serious About Solvency dated August 2005; page 4, Exhibit 3.

Comparative Study Months of Survival Subsequent to Rating Assignment 32 Source: A.M. Best, Inc.’s Impairment Rate and Rating Transition Study dated April 18, 2005; complement of page 6, Exhibit 2. Demotech, Inc.’s Serious About Solvency dated August 2005; page 4, Exhibit 3.

Summary Insurance agents, brokers and consumers should feel comfortable using regional carriers Loss reserves are reasonable (adequate) Reinsurance programs are sound Reinsurance is placed with solid reinsurers Customer service and underwriting remain more important than meeting an analyst’s projections of quarterly earnings. 33