Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Copyright (c) 2008 Standard & Poor’s, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. Reinsurance Overview Damien Magarelli Director May 20, 2008

2. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Agenda  Reinsurance Major Rating Factors  Reinsurance – Importance to Ratings  Reinsurance Sector Ratings & Outlook  Pricing trends  Q results  Catastrophe Issues & Criteria

3. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.  Industry Risk  Potential threat of new entrants (low barriers to entry), Substitute products or services, Regulatory risk  Competitive Position  Competitive advantage: distribution channel, underwriting, pricing power, scale, diversification (sector and/or line of business).  Management and Corporate Strategy  Enterprise Risk Management (ERM)  Risk controls, optimization of earnings and capital  Operating Performance  Capitalization/Reinsurance  Investments and Liquidity  Financial Flexibility/Reinsurance Reinsurance Major Rating Factors

4. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.  Reinsurance Risk is incorporated into ratings and major rating factors, with varying degrees of importance depending on each company’s risk profile.  Company utilizing significant reinsurance protections – may be the overwhelming ratings factor.  Company with excess capital and minimal use of reinsurance, may be less important.  Reinsurance Risk is incorporated in ratings on a quantitative basis (capitalization) and on a qualitative basis as well.  Reinsurance Risk and Controls are incorporated as part of our ERM review. Reinsurance – Importance to Ratings

5. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Quantitative Basis  Capital Model:  Reinsurance recoverables are charged based on credit risk and amount of recoverable (historical loss).  The natural catastrophe exposure charge (1/250 net aggregate property PML) is applied on a net basis – so, reinsurance is applied and reduces the gross PML to a net capital charge.  Side-cars, catastrophe bonds, ILS and other forms of reinsurance may receive credit in the capital model based on a transaction level review in each case. Reinsurance – Importance to Ratings

6. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Qualitative Basis  Could a company adjust its level of reinsurance utilization, would this impact competitive position or not? (line size, capacity offered)  The selection of a retention involves a compromise between stability and cost.  A relatively low retention provides earnings stability but is expensive. (specifically, post-event cost may be too expensive)  Due to reinsurance, does the insurance company insure large single risks (or a large number of smaller risks) in excess of what the capital base can safely support?  Is reinsurance purchased to protect against frequency or severity, or both? (mitigate volatility, generate steady earnings)  Ability to access reinsurance? (financial flexibility) Reinsurance – Importance to Ratings

7. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Qualitative Basis  Why is reinsurance utilized? (reduce capital charges including catastrophe charges).  How is reinsurance purchased? (committee approach, purchased by segment or at a corporate level)  Does company monitor reinsurance quality? (low or non-rated companies)  Does company monitor concentrations? (TRIA, FHCF)  Does company utilize reinsurance to manage pricing cycles? Optimize earnings? (ERM)  What is the process to monitor reinsurance quality? (ERM)  What is the process to update the reinsurance program as conditions change? (ERM) Reinsurance Risk

8. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Ratings Profile: Global Reinsurance Ratings Profile At June 30: 2001 v 2004 v 2007

9. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Global Reinsurance Outlook Stable As of 11/13 of each year; 54 interactive ratings.

10. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Global Reinsurance Outlook Global Reinsurance Sector Outlook is Stable. Stable outlook = We expect an equal number of reinsurer ratings downgrades and upgrades in Positive Factors influencing outlook: Continued strong, though declining, underlying earnings, Improving ERM credentials, Strong, and improving, capitalization, and Strong financial flexibility.

11. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Negative Factors influencing outlook: Effectiveness of ERM is yet to be tested by market conditions, Declining price adequacy, Continued low barriers to entry, and Potential increase in the frequency and severity of natural catastrophes. Global Reinsurance Outlook

12. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. January 2008 renewals: –Reinsurance pricing continued to deteriorate globally, although pricing for most lines of business, across most geographies, is still adequate.  Implicit in the assumption that current prices remain "adequate" is the expectation that loss costs are unlikely to rise suddenly.  However, there is growing evidence that the favorable trends in claims frequency that the industry has enjoyed in recent years have leveled off. It is realistic to assume that claims frequency could rise over the medium term. –Many segments appear to have reached the point at which further price reductions would signal the transition from a softening market into a soft market. Global Reinsurance - Pricing

13. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. In regards to the Reinsurance Sector Stable Outlook –Further widespread declining prices would likely cause us to reassess our position.  The average price reduction, on a risk-adjusted basis, seems to be around 5%, although the variation around the mean is substantial. –Standard & Poor's does not consider improved underwriting discipline to be an optional extra for reinsurers. In our view, it is a necessity if the sector intends to protect its ratings. –If further deterioration in pricing occurs during the second half of 2008 and into 2009, we will be assigning negative outlooks to some companies. Global Reinsurance - Pricing

14. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. The January 2008 renewal season has shown that primary companies are still retaining more of their underlying risks. –Many insurance companies are retaining more risk at lower layers, and purchasing more severity reinsurance, but in general this is reducing the amount primary companies spend on reinsurance. Terms and conditions remain firm –One of the positive aspects of the feedback received to date is that most of the negotiations with primary companies appears to have centered around price only. Global Reinsurance – Other Issues

15. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. In 2007, some companies reported very strong results, producing ROE's well in excess of 20% and combined ratios well below 90%; however, the majority of reinsurers had combined ratios in the 90-95% range and ROEs in the % range. Q –US Reinsurance premiums usually showing the largest decline for many companies due to increasingly competitive conditions (significant range). –Combined ratios for some companies increasing from low 80s in 2007 to high 80s/low 90s – with some casualty accident year figures in Q1 near a 100% combined ratio. –ROEs that were previously above 15% in 2007, now slightly below 15% (annualized Q1 2008). Global Reinsurance – Earnings & Q1 2008

16. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Meteorological changes  Climate change:  The 1990s were the warmest decade globally since records began, with the four warmest years all occurring since Climate change could increase frequency and severity of extreme weather events.  Atlantic Multi-decadal Oscillation (AMO): describes how sea surface temperatures oscillate between warm and cold periods. Warm Sea Surface Temperatures are strongly correlated to high tropical cyclone activity.  Bermuda High: An area of high pressure that forms over the Atlantic Ocean during the summer.  Depending on its location this in part determines the number of hurricanes that make landfall in the US or remain over the Atlantic Ocean.

17. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Socio-economic factors  The severity of property catastrophe risks is increasing with population growth in coastal areas, inflation, and higher building values.  From 1980 to 2003 the coastal population in the US grew by 33 million, and is projected to increase by a further 12 million by  At the same time, household sizes are decreasing.  Result: The number of properties at risk to extreme weather is increasing.  In the U.S., more than 50% of the U.S. population now lives within 50 miles of a coastline.  Florida specifically has experienced a 70% increase in the number of state residents from 1980 to  During the period from residential exposure in Florida increased over 90%.

18. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Property Catastrophe Criteria Conclusion  It is very likely that insured losses due to hurricanes will increase over the next years due to meteorological and socio-economic changes.  This higher risk will be imbedded in ratings.  Result: Where a modeling agency provides more than one view of expected loss on a portfolio of catastrophe risk, Standard & Poor's will use the most conservative view.  Currently, that equates to selecting the shorter term view of expected loss, but it is reasonable to assume in periods of benign activity the most conservative view would be obtained by using the longer term perspective.

19. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Property Catastrophe Criteria/Capital Charge  Tax adjusted Net aggregate 1/250-year property Probable Maximum Loss (PML) with two premium offsets.  The catastrophe capital charge is Tax Adjusted (US = 35%).  First premium offset, the catastrophe related premium embedded in the property book will be removed from the premium risk charge to avoid double count of required capital.  Second premium offset, the net aggregate 1/250-year PML will be reduced by 70% of the associated catastrophe Net Written Premium.  For both Insurers and Reinsurers – this premium offset reflects the view that premiums could be collected early in the year that would reduce a prospective PML loss later in the same year.  The capital charge is applied on all property (personal & commercial) exposures on a global basis. The total portfolio PMLs are expected to be calculated for all perils (wind, earthquake, tornado/hail and flood (non-US)), and zones combined.  Therefore, diversification by peril and location is applied.

20. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Property Catastrophe: Why a 1/250-year PML? – The capital charge needs to capture historical volatility. 1.Hurricane Katrina based on the various vendor models measured between a 1/20 and 1/30 year event for the US, but this scenario increases to a 1/250 year event or 1/500 year event for certain states (Louisiana, Mississippi) specifically. For the US only, a 1/250 year occurrence is possible simply with a hurricane hitting Miami – according to some of the vendor models. 2.Insurance and reinsurance companies considered Hurricane Katrina (or in some cases the 2005 hurricane season in aggregate) to be a 1/100 year event. 3.Canada (Ontario) experienced its largest catastrophe/storm event at roughly a $400 million insured loss in Insurance Bureau of Canada reports this event to be a 1/100 year event. 4.Insurance and reinsurance companies considered the Southeast hurricanes in 2004 to be a 1/20-1/50 year event in aggregate. 5.According to vendor models, the 10 typhoons in 2004 that hit Japan are considered roughly a 1/120-year return period in aggregate. Also, the SMR catastrophe risk standard in Japan for EQ is Great Kanto (7.9 magnitude in 1923) at the 1/250-year level.

21. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Property Catastrophe: Why a 1/250-year PML (Continued)? 1.Recognizing that models are not perfect, and the potential for increasing frequency and severity - the capital charge also needs to capture prospective volatility. US insured losses due to natural catastrophes are doubling every 10 years. The severity of property catastrophe risks is increasing with population growth in coastal areas, inflation, and higher building values. – In the U.S., more than 50% of the U.S. population now lives within 50 miles of a coastline. – Florida specifically has experienced a 70% increase in the number of state residents from 1980 to – Hurricane Andrew: If Hurricane Andrew had hit Florida in 2002 rather than 1992, the losses would have been double due to increased coastal development and rising asset values.

Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Copyright (c) 2008 Standard & Poor’s, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. Reinsurance Overview Damien Magarelli Director May 20, 2008