1. Presented by: Isaac Mashitz May 20, 2008 CARE Boston Meeting A Quantitative Overview of US Casualty Insurance and Reinsurance: Trends and Conclusions Isaac Mashitz CARe Meeting - Boston May 20, 2008

2. Page 2 A Quantitative Overview of US Casualty Insurance and Reinsurance: Trends and Conclusions – Neither the author nor Swiss Reinsurance America Corporation ("Swiss Re America") make any warranty or representation concerning the completeness or accuracy of the Paper or the information contained therein. Swiss Re America and the author disclaim all responsibility for liability, cost or expense arising out of reliance upon the Paper or its contents. This Paper is not intended to replace the Recipient’s own analysis, procedures and controls, in whole or in part, or to modify any reinsurance agreement or other legal obligation. – By accepting this document, the recipient acknowledges and accepts the foregoing. Copyright 2008, Swiss Reinsurance America Corporation. Swiss Re America reserves all rights in and to the paper and its contents.

3. Page 3 US P&C Primary Industry Commercial Auto/ Truck Liability/ Medical 1. Losses grew less than 3% per year over last 20 years. 2. Premium remained static from 1987 to1999 as losses grew more than 50% 3. Commissions appear remarkably stable. 4. 2006 was still very profitable. Premium and loss static since 2003.

4. Page 4 US P&C Primary Industry Commercial Auto/ Truck Liability/ Medical 1. Restated Loss Ratio is remarkably stable. 2. Only a small residual cyclical effect. Conclusion: Soft market u/w losses were driven by inadequate premium rather than extraordinary growth in losses.

5. Page 5 US P&C Primary Industry Commercial Auto/ Truck Liability/ Medical 1. It is astounding that from 1989 to 2001 original12 month LR was always between 80 and 85 while the ultimate LR varied between 73 and 106. 2. 1991 had a 12 mo LR of 82 and 1999 had a 12 mo LR of 85!!!!!

6. Page 6 US P&C Primary Industry Commercial Auto/ Truck Liability/ Medical 1. Ceded LR/Gross LR is over 100% in and only in soft markets. 2. Over last ten years claim frequency trend is negative and claim severity trend about 4%. How does this compare to ISO?

7. Page 7 US P&C Primary Industry Other Liability - Occurrence + Products Occ & CLM Md 1. No growth in premium 1989 to 2000 while losses nearly doubled. 2. Premium doubled 2000 to 2006 and still growing. 3. Commission ratio declining ’02-’05. 4. Twenty year avg loss trend under 5%. Large increase in ’05,’06. But ’05, ’06 still profitable 5. Radical loss drop ’85- ’87 & premium drop ’87-’89.

8. Page 8 US P&C Primary Industry Other Liability - Occurrence + Products Occ & CLM Md 1. Restated Loss Ratio is stable. 2. Residual cyclical effect. Conclusion: Soft market u/w losses were driven by inadequate premium rather than extraordinary growth in losses.

9. Page 9 US P&C Primary Industry Other Liability - Occurrence + Products Occ & CLM Md 1. It is astounding that from 1991 to 2001 original12 month LR was always between 77 and 84 while the ultimate LR varied between 72 and 122. 2. 1991 had a 12 mo LR of 77 and 2000 had a 12 mo LR of 84!!!!!

10. Page 10 US P&C Primary Industry Other Liability - Occurrence + Products Occ & CLM Md 1. Ceded LR/Gross LR is over 100% in and only in soft markets. 2. Over last ten years claim frequency trend and claim severity trend is about 4% & 2% but data is very erratic. What is going on? How does this compare to ISO?

11. Page 11 US P&C Primary Industry Worker ’ s Compensation 1. Data anomaly ’ 94-’95. Trends only from ’95. Premium drop ’91-’94 & ’95-’00. Continuous increases since ’99. 2. Losses decreased dramatically ‘90-’94. Why? 3. Loss increase in ’06 but still profitable. Premium still increasing. 4. Commission Ratio declining ’01-’05

12. Page 12 US P&C Primary Industry Worker ’ s Compensation 1. It is astounding that from 1989 to 2001 original12 month LR was always between 76 and 90 while the ultimate LR varied between 65 and 111. 2. 1992 had a 12 mo LR of 89 and 1999 had a 12 mo LR of 88!!!!!

13. Page 13 US P&C Primary Industry Worker ’ s Compensation 1. Restated Loss Ratio is remarkably stable. 2. Only a small residual cyclical effect. Conclusion: Soft market u/w losses were driven by inadequate premium rather than extraordinary growth in losses.

14. Page 14 US P&C Primary Industry Worker ’ s Compensation 1. Ceded LR/Gross LR is signif over 100% in and only in unprofitable years. 2003 is very low. Trend is up but data is not mature. 2. Over last ten years claim frequency trend is signif neg and claim severity trend is almost 10%. How does this compare to NCCI?

15. Page 15 US P&C Primary Industry Other Liability - Claims Made Professional Liability/E&O/D&O 1. Much greater growth in both premium & loss (8%-10% vs 2%-5%) 2. From ’87 to ’01 premium doubled while loss grew six- fold. Losses grew dramatically 1997- 2001. (21% p.a.) 3. Premium is static since 2004. Loss appears to be growing. 4. 2006 still appears profitable.

16. Page 16 US P&C Primary Industry Other Liability - Claims Made Professional Liability/E&O/D&O 1. Restated Loss Ratio is profitable but varies from 42 to 82. Need two separate premium growth patterns due to loss surge. 2. Only a small residual cyclical effect. Conclusion: Soft market u/w losses were driven largely by an extraordinary surge in losses with premium growth lagging.

17. Page 17 US P&C Primary Industry Other Liability - Claims Made Professional Liability/E&O/D&O 1. Ceded LR/Gross LR is significantly over 100% in and only in soft markets. 2. Over last ten years claim frequency trend and claim severity trend is about 5% & 8%. How does this compare to ISO?

18. Page 18 Ultimate Losses Compared to GDP US Gross Domestic Product CA/GL/WC/PL 1. Insured loss as a % of GDP grew by about 25% in soft market and returned to normal levels as market hardened. 2. I believe this explains residual cyclical effect after premium smoothing in earlier exhibits.

19. Page 19 US Reinsurance Industry Reserve Development All Lines - Net - $ Billions 1. Historically for reinsurers, adverse development only occurred during soft market accident years. 2. Historically for reinsurers, hard market years develop favorably. 3. For reinsurers, the years 1989-1996 are remarkably stable Source: Bests Aggregates and Averages