1. GUY CARPENTER The Evolution of A.M. Best’s Rating Process Mark Murray - Senior Vice President Strategic Advisory September 8, 2016 A.M. BEST'S PROPOSED RATINGS METHODOLOGY & CAPITAL MODEL

2. GUY CARPENTER Proposed Rating Methodology March 10 - A.M. Best releases its draft criteria for BCAR and overall ratings –BCAR no longer serves as a ratings ceiling –New BCAR model effectively increases the capital requirements for most companies –Cat PML and Asset Capital charges have the largest marginal impact May 5 - A.M. Best releases a market briefing –A.M. Best is reconsidering the use of higher Value at Risk (VaR) metrics –Expected timing of revisions to initial draft U.S. P&C criteria likely to take place in the Spring 2017 1

3. GUY CARPENTER A.M. Best’s Proposed BCAR Changes Objectives of Stochastic-Based BCAR Incorporate stochastic simulations into the calculation of industry baseline capital factors. Incorporate company-specific risk profile adjustments to industry baseline capital factors. In assessing risk-adjusted capital adequacy (e.g. BCAR Score), align capital factors across risk categories to a confidence level in assessing the capital required to support a company's rating. Consistently measure risk-adjusted capitalization across A.M. Best’s P&C, L&H and universal BCAR models. Sources: A.M. Best and Guy Carpenter 2

4. GUY CARPENTER A.M. Best’s Proposed BCAR Changes P&C Model Overview Illustrative P&C Model Structure: Modest change A new Net Required Capital category (B8) Potential Cat Losses (After-Tax) has been added to net required capital (NRC) rather than being subtracted from Adjusted Policyholders Surplus (APHS). P&C Risk Definitions: No change Fixed Income Investments: default risk Equity Investments: price volatility risk Interest Rate: asset illiquidity risk from rising interest rates Reinsurance Credit: uncollectible recoverable risk Loss & LAE Reserves: potential reserve development risk NPW Pricing: potential UW loss risk on business written Cat Exposures: potential catastrophe loss risk Capital Factors: Material increases Baseline capital factors will be based on consistent VaR risk metrics established across most risk categories. Adjusted capital factors may vary greatly based on company-specific volatility and concentrations. Sources: A.M. Best and Guy Carpenter XYZ P&C Insurance Company: Current BCAR Summary Net Required Capital (NRC) Risk ComponentReq'd Capital% of GRC (B1) Fixed Income Investments18,1255% (B2) Equity Investments18,1685% (B3) Interest Rate5,8752% (B4) Credit26,2507% (B5) Loss and LAE Reserves149,37541% (B6) Net Premiums Written147,25040% (B7) Business Risk3,0001% (B8) Potential Cat Losses (After Tax) Gross Required Capital (GRC)368,043100% Less: Covariance Adjustment-143,668-39% Net Required Capital (NRC)224,37561% Adjusted Policyholder Surplus (APHS) Surplus ComponentAdjusted Amt.% of APHS Reported Surplus 455,40080% UPR Equity (Net of Tax) 46,8758% Loss Reserve Equity (Net of Tax) 60,62511% Fixed Income Equity (Net of Tax) 52,5009% Surplus Notes (7,500)-1% Potential Cat Losses (Net of Tax) (38,750)-7% Adjusted Surplus (APHS)569,150100% Best's Capital Adequacy Ratio (BCAR) BCAR % (APHS - NRC)/APHS60.6% Shaded = Underlying Risk Factors Will Change in Phase 1 3 New BCAR Treatment for Potential Cat Loss

5. GUY CARPENTER Most capital factors based on Value at Risk (VaR) metrics calibrated at five confidence intervals: −95% (1:20), 99% (1:100), 99.5% (1:200), 99.6% (1:250), 99.8% (1:500) Reserves and NPW Capital Charges are based on industry loss curves adjusted for a company’s reserve volatility and underwriting profitability. Asset capital factors are based on the simulated volatility of the S&P 500 adjusted for a company’s specific duration and credit quality portfolio characteristics. Potential cat losses driven by company-specific concentrations. –Cat risk measured using an “All Perils” versus “Largest Peril” Occurrence Basis Stochastic-Based BCAR: Key Changes Source: Guy Carpenter & A.M. Best Rating Methodology CAPITAL RISK 4 1:250 RISK 1:200 RISK 1:100 1:20

6. GUY CARPENTER 5 The charts shown reflect A.M. Best’s latest stochastic BCAR update – combined with Guy Carpenter’s insights on how A.M. Best will likely proceed. We believe A.M. Best will introduce a new VaR level of 99.6 (1:250) as its highest return period in calculating required capital The 1:500 Scores will be run and used for ERM evaluations – but not published We believe A.M. Best will also introduce a “capital cushion” of 30% or greater at the 1:250 to achieve an ICR of “a+”, which is A.M. Best’s highest Initial BSS Assessment. (Note: the 30% is Guy Carpenter’s estimated threshold - subject to A.M. Best’s final determination) A positive score at the highest confidence level ties to A.M. Best’s Initial Balance Sheet Strength (BSS) Assessment BCAR Conversion Table (Revised Basis) Source: Guy Carpenter & A.M. Best Rating Methodology BCAR Scores by VaR Level Illustrative Stochastic BCAR % = (Available Capital – Net Required Capital)/ Available Capital. BCAR Score at 1:500 & 1:1000 will not be used to determine BSS rating – but will be used in evaluating ERM VaR 95.0 1:20 VaR 99.0 1:100 VaR 99.5 1:200 VaR 99.6 1:250 Interpreting Stochastic BCAR

7. GUY CARPENTER Stochastic BCAR: Which Risk Profiles Are Affected the Most? 6 Higher potential net property cat losses - Companies with natural cat concentrations, particularly coastal exposed regionals with hurricane tail exposures - Companies with outsized net PMLs due to limited reinsurance coverage above 99.0% VaR (1:100) Higher common stock volatility - Companies with elevated common stock leverage and/or volatility compared to the S&P 500 Index - Higher-rated companies held to incrementally higher capital charges at higher confidence intervals Higher reinsurance default risk - Companies with elevated reinsurance recoverable leverage - Companies with recoverable concentrations tied to long-tailed lines and lower-rated reinsurers Higher loss reserve and net premium risk charges - Business concentrations in lines exhibiting greater volatility on a VaR basis and/or - Companies exhibiting higher case reserve development and/or higher accident-year loss ratios Higher bond default risk - Elevated below-investment grade leverage; concentrations in long duration and/or lower-quality bond holdings - Higher-rated companies held to higher capital charges at higher confidence intervals Higher interest rate spike risk - Higher interest rate charges (170 - 310 bps) will adversely impact companies with long duration fixed income assets - Companies with greater illiquidity posed by outsized gross PMLs and potential risk of selling bonds “under water” 1 2 3 4 5 6

8. GUY CARPENTER GC's NAMIC BCAR Index* Average Stochastic BCAR Scores # of Cos. 1:2001:2501:500 VaR 99.5VaR 99.6VaR 99.8 Composite of Companies8843.2%32.0%9.7% REGION Central/Midwest3047.8%44.2%37.0% Mid-Atlantic/New England3834.9%15.8%-22.4% National1048.4%43.5%33.5% RATING "A+" Rated Companies1252.7%40.4%15.8% "A" Rated Companies3352.6%44.8%29.0% "A-" Rated Companies2732.3%17.7%-11.6% A.M. BEST COMPOSITE Commercial Casualty1645.6%38.6%24.5% Personal Property2837.0%20.0%-14.0% Private Passenger SA & HO3446.6%36.7%16.9% Stochastic-Based BCAR Estimation of Capital Scores Under Proposed Criteria 7 *as of YE 2014

9. GUY CARPENTER BCRM: A.M. Best’s New Ratings Process 8 BP Market position Distribution Management Pricing & data Product/ geographic concentration Country risk impact BSS BCAR assessment Other rating unit factors Holding company impacts Country risk impact OP Historic results Trends Financial forecasts Volatility Country risk impact ERM Risk culture/ governance Risk identification/ controls Risk measurement Are ERM capabilities > company risk profile? A.M. Best’s building block approach allows companies to see how the four core components of the ratings process come together to determine a Best’s Issuer Credit Rating (ICR) and ultimately the Financial Strength Rating (FSR) Balance Sheet Strength (BSS) Baseline ICR: (“Strong” or “a”) Operating Performance (OP) +2/-3 ICR Notches Business Profile (BP) +2/-2 ICR Notches Enterprise Risk Management (ERM) +1/-4 ICR Notches Published ICR & FSR Rating Overall Rating e.g. ICR = a FSR = A Key Assessment Areas by Core Rating Component Country Risk Source: Guy Carpenter & A.M. Best Rating Methodology Long-Term FSRICR A++ aaa aa+ A+ aa aa- A a+ a A-a- B++ bbb+ bbb B+bbb-

10. GUY CARPENTER BCRM Timeline to Implementation 9 A.M. Best has shared YE14 Stochastic BCAR output with companies in concert with the release of the draft BCRM and US PC BCAR methodology, A.M. Best is expected to share YE 2015 stochastic- based US PC BCAR results with companies during the latter half of 2016 A.M. Best analysts will be identifying potential rating concerns with companies with “material issues” in the course of a company’s annual rating meeting. Stochastic BCAR and the final BCRM become expected to become effective in the second half of 2017 or potentially even in 2018 after the “industry comment period” is closed for all updated criteria. Once the criteria becomes effective, companies with “material issues” could be placed Under Review, with up to six months to take corrective action before A.M. Best finalizes their ratings. BCRM & PC BCAR Only Draft criteria released for comment Comment Period #1 Ends: May update signaling changes to March draft criteria Comment Period #2: Initial release of US Life and universal BCAR models Re-release of Drafts Target YE 2016 Incorporate comments as justified BCRM & All BCARs All Criteria finalized & effective simultaneously March 2016 2017 ? Source: Guy Carpenter & A.M. Best Rating Methodology Timeline for BCRM & Stochastic-based BCAR Rollout Q3 2016 AM Best Analysts Provide Stochastic BCAR Output & Communicate Rating Concerns June 2016 First Half 2017

11. GUY CARPENTER Conclusion Many strategic decisions are influenced in part by A.M. Best criteria There is still uncertainty as to exactly how capital or operating performance will be measured but the proposed changes will undoubtedly increase the focus on “tail risk” Upcoming capital model changes are likely to foster a shift in key benchmarks and guidelines that serve as the basis for many rating decisions Communications with Best in the future should reflect the proposed BCRM rating roadmap 10 STAY INFORMED AND BE PREPARED!!

12. GUY CARPENTER 11 QUESTIONS?

13. GUY CARPENTER