FRIEDMAN FLEISCHER & LOWE LLC The Insurance Industry's Ability to Attract Capital Given Historically Low ROE – A Perspective by Friedman Fleischer & Lowe LLC Rajat Duggal May 17, 2005

ATL FRIEDMAN FLEISCHER & LOWE LLC 2 Overview of Friedman Fleischer & Lowe LLC FFL Strategy -Focus on U.S. middle-market companies with enterprise values of $50-$500 million -Target outstanding companies, focusing on high ROIC -Proactive industry focus with a generalist mindset -Enhance business performance through effective company involvement FFL Capital Under Management -$335MM committed to FFL I (1999 vintage) -$815MM committed to FFL II (2004 vintage) Insurance Investments -Montpelier Re (Startup capital – Dec. 2001) -Wilton Re (Startup capital – Dec. 2004)

ATL FRIEDMAN FLEISCHER & LOWE LLC 3 Overview of Friedman Fleischer & Lowe, LLC Financial Services Insurance Business Services Education and Training Healthcare Consumer Products Marketing and Media FFL I CommitmentsTargeted Industries

ATL FRIEDMAN FLEISCHER & LOWE LLC 4 Reasons FFL Invests in the Insurance Industry 1.Cyclicality provides opportunities for above-average returns 2.Limited correlation to market allows for efficient portfolio diversification 3.Niche insurance opportunities can generate above-average returns 4.Certain insurance sectors enable low volatility investments 5.Opportunities for value-creation by improving operations 6.Less competitive buyout environment 7.Industry currently experiencing significant change

ATL FRIEDMAN FLEISCHER & LOWE LLC 5 1. Cyclicality FFL Invests in Montpelier Re – Dec FFL Exits Montpelier Re –

ATL FRIEDMAN FLEISCHER & LOWE LLC 6 1. Cyclicality 2003 P&C Industry ROE IRR = 42.1% Money Multiple = 2.1x Timing cycle well leads to high ROE and investment returns

ATL FRIEDMAN FLEISCHER & LOWE LLC 7 2. Non-correlation to market Relative to other industries, returns in insurance are less correlated to overall market movement Enables diversification in portfolios with other industry holdings P&C Insurance = 40% Life Insurance = 50%

ATL FRIEDMAN FLEISCHER & LOWE LLC 8 3. Niche opportunities – Above Average Returns Certain insurances niches have outperformed rest of industry FFL seeks to make investments in these higher performing niches -Evaluated investments in specialty property, MGAs and non-standard auto Picking the right insurance sub- segments can generate above average returns

ATL FRIEDMAN FLEISCHER & LOWE LLC 9 4. Selective Insurance Sectors – Low Volatility Some insurance sectors (e.g. Life) have inherently lower volatility of returns

ATL FRIEDMAN FLEISCHER & LOWE LLC Selective Insurance Sectors – Low Volatility Investing in low volatility businesses increases risk-adjusted returns and enables portfolio balancing and diversification

ATL FRIEDMAN FLEISCHER & LOWE LLC Selective Insurance Sectors – Low Volatility Lower leverage mitigates risks relative to typical LBO deal Specialty P&C

ATL FRIEDMAN FLEISCHER & LOWE LLC Value-creation by improving operations Insurance industry has been relatively slow to adopt recent technologies -Outsourcing business functions to more efficient providers -Adoption of certain advanced business practices and technologies Provides opportunities to invest and improve operations Aligns well with FFL’s competencies and investment strategy -FFL combines strong operational and investment expertise  David Lowe – Former CEO of ADAC and winner of Malcolm Baldridge National Quality Award for Business Excellence  FFL has worked extensively with portfolio companies to improve operations

ATL FRIEDMAN FLEISCHER & LOWE LLC Less competitive buyout environment Significant capital overhang exists among U.S. private equity firms.

ATL FRIEDMAN FLEISCHER & LOWE LLC Less competitive buyout environment Private equity investors are less willing to invest in insurance -Statutory accounting and actuarial analysis complex and different -Balance sheet v. income statement orientation more typical for buyout funds Total current funds over $1BN under management is over 150 But only a few funds are currently focused on insurance -Blackstone -CSFB -Cypress Group -Friedman Fleischer & Lowe -Hellman & Friedman -J.P. Morgan -MMC -Warburg Pincus Insurance presents opportunities to invest in less competitive environments

ATL FRIEDMAN FLEISCHER & LOWE LLC Rapidly Changing Industry Dynamics Changing business models Higher regulatory scrutiny Potential divestitures by entities under investigation Capital flight from industry leaves under-priced assets Elliot Spitzer.... Need I say more?? Change Creates Opportunity

ATL FRIEDMAN FLEISCHER & LOWE LLC 16 Summary Insurance industry will continue to be an attractive sector for investment -Cyclicality will always exist -Niche lines will produce above-average returns -Portfolios will continue to need diversification and balancing -Operational improvements will continue to create value creation opportunities -Industry change creates opportunity FFL will continue to opportunistically pursue investments in the insurance industry