1. 1 Suretyship: How Actuaries Can Play a Greater Role Dennis Perler Liberty Mutual Surety President 2005 Casualty Actuarial Society Ratemaking Seminar March 10, 2005

2. 2 Agenda Surety 101 State of the Surety Market –Loss Trends –Capacity –Reinsurance The role of Actuary What Can We Expect in the Future?

3. 3 Insurance 101 InsurerInsured

4. 4 Surety 101 vs Insurance 101 Surety Obligee Principal

5. 5 Surety 101 Recap  Property & Casualty 2 party agreement Losses are expected Rates are based on loss history Premium from many cover losses of a few Class underwriting  Surety 3 party agreement We don’t knowingly write bonds expecting losses Rates considered a fee for prequalification Principal’s indemnity is expected to cover losses Selective account underwriting

6. 6 State of the Surety Market Loss Trends Surety Capacity Reinsurance

7. 7 Surety Industry Trends

8. 8 Shifting Capacity Exited Standard Surety Consolidated into St. Paul-Travelers Insolvent 19982003 1 St. Paul GroupTravelers Property Casualty Corp 2 AIG - American International GroupSt. Paul Group 3 C N A Insurance Companies 4 Reliance Insurance GroupZurich Group - Fidelity & Deposit Group 5 Safeco Insurance Companies 6 Travelers Property Casualty CorpChubb Group of Insurance Companies 7 Safeco Insurance CompaniesLiberty Mutual Surety 8 Fireman's Fund Insurance CompaniesHartford Insurance Group 9 Amwest Insurance GroupAIG - American International Group 10 Frontier Insurance GroupInternational Fidelity Insurance Company 11 Chubb Group of Insurance CompaniesGreat American Insurance Companies 12 Hartford Insurance Group Swiss Re - North American Specialty Ins. Co. 13 Liberty Mutual GroupAmerican Contractors Indemnity Company 14 Great American Insurance CompaniesInsco/Dico Group 15 Kemper Insurance CompaniesRLI Insurance Company

9. 9 Reinsurance Results

10. 10 The Role of the Actuary  Portfolio Analysis  Rate Adequacy  Capital Requirements  Reinsurance  IBNR Analysis

11. 11 What Can We Expect in the Future for Surety?