Marine Reinsurance: Where do we go from here? Houston, TX 21 st September 2009

1 Guy Carpenter Impact on Surplus of US Insurers in 2008 $Billions Premium / Surplus Ratio: 0.95 X Actual Surplus / RBC: 6 X $21.8 $72.7 $32.2 $517.9 $455.6

2 Guy Carpenter GC Global Reinsurance Composite – Change in Reported Shareholders' Funds in 2008

3 Guy Carpenter ROE: Global Reinsurance Composite

4 Guy Carpenter History of Insured Catastrophe Losses

5 Guy Carpenter Reinsurance: ROL Index, Major Markets 1990 = 100

6 Guy Carpenter United States ROL Index 1990 = 100

7 Guy Carpenter Global Marine Premium USD Million IUMI Global Marine Insurance Reports

8 Guy Carpenter Profitability: US Ocean Marine Combined Ratio Calendar YearRatio 2003:89.85% 2004:91.68% 2005:99.23% 2006:86.03% 2007:85.91% 2008:105.77% “Charley”, “Frances”, “Ivan”, “Jeanne” “Ike” “Katrina”, “Rita”, “Wilma” Source: AIMU

9 Guy Carpenter AIMU Operating Ratios 2004 – 2008 Source: AIMU

Reinsurance Where are we and where do we go from here? Macro View

Economic outlook US economic growth is expected to return to positive territory in the second half of Other economies are expected to recover moderately in Inflation will remain very low or negative 2009 and 2010 (at least) due to large slack in the economy. The longer-term inflation outlook is more uncertain. Government bond yields are expected to remain low this year and rise moderately next year. Corporate bond and equity markets are likely to remain volatile.

Americas P&C Primary market overview – Recession is reducing exposures and claims frequency in many lines of business (incl workers comp & engineering but ocean marine and energy?). The cost of capital has risen: equity markets are depressed and hybrid capital is expensive. Reinsurance is currently the most efficient source of capital. Capital management has shifted from returning capital to preserving / raising capital. Primary and reinsurers are de-risking their balance sheets. Rates have begun to harden. Reinsurance will lead the rate dynamics; primary markets will follow with a lag. Property prices are firming first; casualty is still soft. There will be a moderately hard market through 2011.

Deterioration of combined ratios (excl cat) …different business lines but clear trends…. Source: Dowling & Partners

Combined Ratio 2008 industry assumptions: Asset leverage:291% Tax rate [1] 25.4% NPW/surplus96% Inv yield [2] 4.0% ROE 5% 4% 3% Sources: A.M. Best, estimates by Economic Research & Consulting. [1] based on 1H08 effective statutory tax rates. [2] 9M08 total investment yield was 3.0% and CR was 105 Low yield environment reduces the profit potential  A 100 bps reduction in yield can imply a 2.9 point combined ratio move to achieve the same ROE

Renewal: January 2010 Expected European price trends REINSURANCE Property non-proportional Property Nat Cat Motor Casualty Property proportional Marine, Energy and Engineering Aviation Property prices are improving while Casualty levels do not yet reflect loss trends and reduced yields The low interest rate environment, soft industry underwriting results and depletion of industry capital all point towards further price increases

Renewal: January 2010 European Property & Specialty trends Property Peak nat cat capacity remains scarce and valuable No strong global trends: price increases in some loss-affected regions and industries Industrial risks remain competitive and threaten to underperfom Marine and Energy Marine results are fragile in light of economic downturn Energy will continue to seek opportunities outside of Gulf Gulf Product sustainability questions

Reinsurance Where are we and where do we go from here? Micro View

Capacity changes Entrants Rumoured some Lloyd’s start ups projected for 2010 Novae Re already announced Exits Axis Re Endurance Re Some Reinsurers expanding into primary business Flagstone creates Mosaic Montpelier Re writing insurance Mergers and Acquisitions Partner Re and Paris Re Validus and IPC

Recent Losses ACL barge collided with a boat on the Mississippi River near New Orleans with more than 400,000 gallons of fuel oil spilled into the Mississippi River. Cosco Busan Left the Port of Oakland on November 7, 2007, and hit the Bay Bridge Ike Sempra October 2007, 3 wildfires in San Diego county California broke out and resulted in extensive property damage and disruption to business.

Rates terms and conditions for 2009 Excl GOM 7.5% increase GOM re underwritten extensively Limits and retentions constant with GOM again an exception Amended Liability exclusion clause introduced Review of wind related property claims in the XS liability market discussed

Projected Rates terms and conditions for 2010 Constant pricing. –Adverse claims experience will see higher rates Overall upward pressure on reinsurance pricing caused by: –Increasing Cost of Capital –Low interest rate environment –Investors demanding improved ROE Potential further disconnect between clients and reinsurers: –Particularly in Gulf of Mexico –Further discussion and review of wind related property claims in the XS liability market

23 Guy Carpenter  Yachts and Cargo Risk Accumulations – Personal Yachts  Risk identification and evaluation - Management tools - Hazard simulation modeling – Cargo Accumulation  Risk identification and evaluation  Making the latest technology productive The Future Lies with Analytics? Opportunities to Understand and Protect Your Portfolio

24 Guy Carpenter  Marine risks are often associated with geographical concentration  Geographically co-located insureds increase concentration  The accumulation of risk in one place escalates potential losses For marine writers, personal yacht and cargo accumulations are risks that can be mitigated through simulation modeling. The technology exists, and in many cases data is available. Understanding Exposure Accumulation

25 Guy Carpenter  Today, we have the technology to improve (not replace) traditional marine risk management concepts – but, it is not being widely used  The models and techniques used for other property catastrophe lines can be applied to Marine – and reinsurers are requiring more quantitative input Manage marine risk more effectively with modeling technology Advancing Marine Modeling