1. 2002 CAS Reinsurance Seminar Economic Forces Driving the Property/Casualty Industry May 2002

2. 2 MMC Capital Economic Forces Drive the Industry Volatility is Essential Understanding Exposures: Surety and D&O The Prisoners’ Dilemma

3. 3 MMC Capital 1990 – 1999 Average P/C Industry ROAE 8.4% ROAE Including Unrealized Capital Gains 9.3% COMPUSTAT Average of 145 Industries 11.1% Source: Insurance Services Office, Standard & Poor’s

4. 4 MMC Capital Components of Surplus Change 1984 - 2001 ($ billions) 1984 19851986 19871988 1989 1990 1991 1992199319941995 1996 19971998 19992000 2001 Pre-tax Operating Income Realized And Unrealized Capital Gains New Capital Taxes Dividends Other Change in Surplus Source: Insurance Services Offices and A.M. Best U.S. Property/Casualty Insurance Industry

5. 5 MMC Capital The Cycle in the 1980s and 1990s Initial Accident Year Loss Ratio Ultimate Accident Year Loss Ratio (estimate) U.S. Property/Casualty Insurance Industry Source: Dowling & Partners

6. 6 MMC Capital The Cycle in the 1980s and 1990s 80.0% 85.0% 90.0% 95.0% 100.0% 198119821983198419851986198719881989199019911992199319941995199619971998199920002001 U.S. Property/Casualty Insurance Industry Source: Dowling & Partners Initial Accident Year Loss Ratio Calendar Year Loss Ratio

7. 7 MMC Capital Workers Compensation Accident Year Combined Ratios P: Preliminary Source: NCCI Accident year data is evaluated as of December 31, 2001 and developed to ultimate Private carrier data only

8. 8 MMC Capital Surety Industry 1997 1998 1999 2000 2001 Direct loss ratio25.4% 25.6% 29.3% 42.5% 82.3% Ceded loss ratio52.6% 53.0% 94.9%162.8% 224.7% Net loss ratio22.8% 22.4% 23.8% 24.7% 56.2% Source: Surety Association of America

9. 9 MMC Capital Directors’ and Officers’ Liability Premium Index 0% 100% 200% 300% 400% 500% 600% 700% 800% 900% 1974197819821986199019921994199619982000 Source: Tillinghast – Towers Perrin

10. 10 MMC Capital Directors’ and Officers’ Liability 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 199619971998199920002001 "IPO-Only" Percentage FPI (Filings Per Issuer) Index 1996 – 2001 ©2002 Cornerstone Research

11. 11 MMC Capital Directors’ and Officers’ Liability Average and Median Settlement Amounts, 1991-2001 Dollars in Millions Source: NERA and Cornerstone Research. The average of settlements in 2000 excludes Cendant. Including Cendant, the average was $45.1 million

12. 12 MMC Capital Directors’ and Officers’ Liability 0% 5% 10% 15% 20% 25% 30% 35% 40% Less Than $1 $1-$4.9$5-$9.9 $10-$14.9$15-$19.9$20-$24.9$25-$29.9$30-$34.9$35-$39.9$40-$44.9$45-$49.9$50-$54.9$55-$59.9$60-$64.9$65-$69.9$70-$74.9 Greater than $75 Through Year-End 2000 2001 Dollars in Millions Percentage of Cases Distribution of Settlement Amounts by Percentage of Cases Source: Cornerstone Research

13. 13 MMC Capital The Prisoners’ Dilemma Each gets 1 year A is released, B gets 5 years Doesn’t Rat Prisoner A Rats A gets 5 years, B is released Each gets 3 years Doesn’t Rat Rats Prisoner B

14. 14 MMC Capital Insurance Industry Prisoners’ Dilemma Prices go up All companies write the same amount of business All companies’ total profits go up Prices go down Company A loses market share Company A’s total profits go down more than if all other companies lowered prices Other companies’ total profits go up Prices go down Company A gains market share Company A’s total profits go up more than if all other companies raised prices Other companies’ total profits go down Prices go down All players write the same amount of business All companies’ total profits go down Raise prices Lower prices Company A Raise pricesLower prices Other Companies