1. 1 St. Louis RIMS Casualty Market Update Jim Gloriod Resident Managing Director Aon Risk Services, Inc. February 10, 2010

2. 2 Overview  Insurance Industry Financial Metrics –Policyholder Surplus –Combined Ratios –Growth of Net Written Premium  State of the Market –Primary –Excess  Summary

3. 3 U.S. Policyholder Surplus: 1975-2009:H1* Source: A.M. Best, ISO, Insurance Information Institute. *As of 6/30/09 $ Billions “Surplus” is a measure of underwriting capacity. It is analogous to “Owners Equity” or “Net Worth” in non-insurance organizations The premium-to-surplus ratio stood at $1.03:$1 as of 3/31/09, up from near record low of $0.85:$1 at year-end 2007

4. 4 Commercial Lines Combined Ratio, 1993-2009F Sources: A.M. Best (historical and forecasts), Insurance Information Institute

5. 5 1975-781984-872000-03 Growth of Net Written Premium Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute

6. 6 State of the Primary Casualty Market  Capacity –5 to 15 competitive primary casualty markets depending on size, risk, class, and bundled or unbundled claims services  Pricing –Financial responsibility (fronting) Very competitive –Risk transfer rates above client loss retentions for WC, GL and Auto continue to decrease through 3 quarters 2009 –Insureds with good credit ratings, effective risk management programs and favorable loss experience are averaging flat -10% rate reductions –Commercial Auto Rate reductions continue but in general, rates have firmed more for auto than for other lines

7. 7 State of the Primary Casualty Market Casualty Lines Average Year Over Year Rate Change (Through July 1,2009)

8. 8 Market Schizophrenia  Certain dominant insurance carriers have issued edicts not to decrease rates!!  Yet on new business, can be extremely aggressive “How can I increase premium writings”

9. 9 State of the Primary Casualty Market  Loss Retentions –In general, retentions have not retreated, however with the soft market coupled with an excellent loss record, clients should constantly review options at decreased loss retention levels  Coverage Issues –Areas of concern include: silica, mold, electromagnetic fields (EMF), bovine spongiform encephalopathy (BSE), genetically modified food and labeling, neutraceuticals, Chinese drywall and avian flu  Collateral –Carriers are increasingly “credit risk averse”. Credit rating of insured impacts level of collateral required for a “fronted” program.

10. 10 Carrier Collateral Matrix

11. 11 Excess Market - Explosion of Additional Capacity

12. 12 State of the Umbrella/Excess Market  Capacity –Excess capacity has grown significantly in 2008/2009 –Currently, there is approximately $2 billion of total available capacity for US risks

13. 13 State of the Umbrella/Excess Market Umbrella/Excess Liability Average Year Over Year Rate Change (Through June 1,2009)

14. 14 Summary  Work with your broker to differentiate your risk  Know what you want –Evaluate deductibles/retentions –Evaluate Limits Purchased –Insurers – Be Selective –Do I want to move?  Opportunistic Market –Aggressive primary market for good risks –Expanded capacity in the excess market