1. P/C Industry Outlook: 2013 and Beyond SITA Las Vegas, NV October 21, 2013 Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist Insurance Information Institute  110 William Street  New York, NY 10038 Tel: 212.346.5540  Cell: 917.494.5945  stevenw@iii.org  www.iii.org

2. Here’s What Some of Our Customers Are Like 2 12/01/09 - 9pm 2

3. eSlide – P6466 – The Financial Crisis and the Future of the P/C 3 3/8 of US Adults Say They Get Less Than 6 Hours of Sleep per Night Source: CDC, National Health and Nutrition Examination Survey, Hyattsville, MD, U.S. Department of Health and Human Services, CDC, National Center for Health Statistics; 2007-2010; highlighted at http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6236a9.htm?s_cid=mm6236a9_e http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6236a9.htm?s_cid=mm6236a9_e 37.3% 60.4% 2.3%

4. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 4 CDC Report: Cell Phone Use While Driving, US and Europe, Fall 2011 Sources: “Mobile Device Use While Driving—United States and Seven European Countries, 2011,” in Morbidity and Mortality Weekly Report, Centers for Disease Control and Prevention, Vol. 62, No. 10, (March 15, 2013) available at http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6210a1.ht5m?s_cid=6210a1_e ;Insurance Information Institute http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6210a1.ht5m?s_cid=6210a1_e “In the past 30 days, how often have you talked on the phone while you were driving?” “In the past 30 days, how often have you sent a text message or e-mail while you were driving?” Percent saying “regularly” or “fairly often”

5. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 5 Even Frequent & Severe Floods Haven’t Changed Flood Insurance Ownership Much 1 Asked of those who have homeowners insurance and who responded “yes”. Source: Insurance Information Institute Annual Pulse Survey. Q. Do you have a separate flood insurance policy? 1 Despite extensive flooding (and wide publicity), few U.S. homeowners say they have a flood insurance policy; the percentage is lowest in the Northeast at 10 percent. After Hurricane Irene After SuperStorm Sandy

6. Labor Force Participation Rate, Ages 65-69, Quarterly, 1998:Q1-2013:Q2 Not seasonally adjusted. Sources: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute. The brown bars indicate recessions. Labor Force participation rate The labor force participation rate for workers 65-69 might grow even faster in the future as seniors find they can’t fully retire on their meager retirement savings. 1 in 3 in this age group are working. Virtually none of them are “baby boomers”

7. Labor Force Participation Rate, Ages 70-74, Quarterly, 1998:Q1-2013:Q2 Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute. Labor Force participation rate The labor force participation rate for workers 70-74 grew by about 50% since 1998. Growth stalled during and after the Great Recession but has since resumed. Nearly 1 in 5 in this age group is working. A dozen years ago it was 1 in 8.

8. The Strength of the Economy Will Influence P/C Insurer Growth Opportunities 8 Growth Will Expand Insurer Exposure Base Across Most Lines 12/01/09 - 9pm 8

9. Yearly Nominal U.S. GDP vs. P/C Net Written Premiums: 2000-2012 Sources: http://www.bea.gov/national/xls/gdplev.xls ; SNL Financial; I.I.I. calculationshttp://www.bea.gov/national/xls/gdplev.xls Index: 2000 = 100 “Hard” market: NWP grew much faster than the overall economy Post recession: comparable growth rates “Soft” market: NWP slipped before the overall economy did Recession

10. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 10 US Real GDP, Quarterly, 2013-14 October 2013 Forecasts Sources: Blue Chip Economic Indicators (10/13); Insurance Information Institute Real GDP Growth Rate Despite the sequester and other challenges to the U.S. economy, virtually every forecast in the Blue Chip universe in early September sees improvement ahead

11. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 11 Real GDP Growth: Recent Recessions and Recoveries, Yearly, 1985-2012 Source: (GDP) U.S. Department of Commerce at http://www.bea.gov/national/xls/gdpchg.xls.http://www.bea.gov/national/xls/gdpchg.xls Real GDP Growth (%) In most recoveries, real yearly GDP growth is often 3% or more In the current recovery, real yearly GDP growth has been 2.4% or less But following the 2001 recession, real yearly GDP growth was weaker than 3%

12. Federal Spending as a Share of State GDP: Vulnerability to Sequestration Varies Sources: Pew Center on the States (2012) Impact of the Fiscal Cliff on the States; Wells Fargo; Insurance Information Institute. 12/01/09 - 9pm 12

13. State-by-State Leading Indicators through 2013:Q4 12/01/09 - 9pm 13

14. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 14 Unemployment and Underemployment Rates: Still Too High, But Falling Unemployment “Headline” unemployment was 7.3% in August 2013. The Federal Reserve’s target for ending “easy money” is 6.5% (assuming inflation remains within its 2% target). Source: US Bureau of Labor Statistics; Insurance Information Institute. U-6 went from 8.0% in March 2007 to 17.5% in October 2009; Stood at 13.7% in August 2013. 8% to 10% is “normal.” January 2000 through August 2013, Seasonally Adjusted (%) Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is now clearly improving. 12/01/09 - 9pm 14

15. 15 P/C Insurance: Forces Affecting Personal Lines Brighter Days Ahead, but Not Without Challenges

16. 12/01/09 - 9pm 16 Millions of Units Private Housing Unit Starts, 1990-2014F Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (10/13); Insurance Information Institute. Homeowners insurers are starting to see exposure growth for the first time since 2005. Commercial insurers with construction risk exposure, surety also benefit. Starts plunged 72% from 2005-2009 to lowest level since records began in 1959 Forecast range for 2013 is 0.90 to 1.02 million units Housing “Bubble”

17. So Far, the Pickup Is Mostly in Multi-Family Housing Starts *average of annualized seasonally adjusted January-August 2013 data; August is preliminary. Source: US Census Bureau at www.census.gov/construction/nrc/pdf/newresconst.pdf.www.census.gov/construction/nrc/pdf/newresconst.pdf Thousands of Units, Multi-Family Is the pickup slowing down? 2013:Q1 multi-unit starts were at a seasonally-adjusted annual rate of 325,000, but starts since then were at a SAAR of 261,000. Multi-family-unit starts rose in 2011, more in 2012, still more so far in 2013. Thousands of Units, Single Family Multi-family plunge did not begin until 2009 Single family plunge began in 2006

18. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 18 Rental-Occupied Housing Units as % of Total Occupied Units, Quarterly, 1990-2013 Sources: US Census Bureau, Residential Vacancies & Home Ownership in the Second Quarter of 2013 (released July 30, 2013) and earlier issues; Insurance Information Institute. Trough in 2004:Q2 and Q4 at 30.8% Since the Great Recession ended, renters occupied 3.6 million more units (+9.9%)—outstripping population growth (+2.9%) 12/01/09 - 9pm 18 Millions Latest was 35.0% in 2013:Q1 & Q2 Trend down began in 1994:Q3 from 36.2% in Q2 Increasing percent of owners Increasing percent of renters

19. 12/01/09 - 9pm 19 (Millions of Units) Auto/Light Truck Sales, 1999-2014F Sources: U.S. Department of Commerce; Blue Chip Economic Indicators (10/13); Insurance Information Institute. Job growth and improved credit market conditions will boost auto sales in 2013 and beyond, bolstering the manufacturing sector and the economy generally. Lowest level since the late 1960s Forecast range for 2013 is 15.3 to 15.8 million units Truck purchases by contractors are especially strong

20. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 20 But Something Unusual is Happening: Miles Driven*, 1990–2013 *Moving 12-month total. The latest data is for June 2013. Note: Recessions indicated by gray shaded columns.. Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm ); National Bureau of Economic Research (recession dates); Insurance Information Institute.http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm Billions A record: miles driven has been below the prior peak for 67 straight months. Previous record below peak was in the early 1980s (39 months) Will the trend toward hybrid and non-gasoline- powered vehicles affect miles driven? What about the aging and retirement of the baby boomers? Miles Driven Growth per 5-Yr Span 1997 vs. 1992: 13.9% 2002 vs. 1997: 11.5% 2007 vs. 2002: 6.1% 2012 vs. 2007: -3.0% Some of the growth in miles driven is due to population growth: 1997 vs. 1992: +5.1% 2002 vs. 1997: +7.4% 2007 vs. 2002: +4.7% 2012 vs. 2007: +3.4% Peak in November 2007

21. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 21 Monthly Change* in Auto Insurance Prices, 1991–2013* *Percentage change from same month in prior year; through August 2013; seasonally adjusted Note: Recessions indicated by gray shaded columns. Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes. Cyclical peaks in PP Auto tend to occur roughly every 10 years (early 1990s, early 2000s and likely the early 2010s) “Hard” markets tend to occur during recessions Pricing peak occurred in late 2010 at 5.3%, falling to 2.8% by Mar. 2012 The Aug. 2013 reading of 4.2% is up from 3.0% a year earlier

22. 22 P/C Insurance: Forces Affecting Commercial Lines Brighter Days Ahead, but Not Without Challenges

23. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 23 Nonfarm Payroll (Wages and Salaries): Quarterly, 2005–2013:Q2 Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates. Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.http://research.stlouisfed.org/fred2/series/WASCUR Billions Prior Peak was 2008:Q1 at $6.54 trillion Latest (2013:Q2) was $7.09 trillion, a new peak -- $860B above 2009 trough Recent trough (2009:Q1) was $6.23 trillion, down 4.7% from prior peak Payrolls are 12.1% above their 2009 trough 12/01/09 - 9pm 23

24. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 24 Dollar Value* of Manufacturers’ Shipments Monthly, January 1992—June 2013 *seasonally adjusted Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/http://www.census.gov/manufacturing/m3/ Monthly shipments in Nov. 2012 exceeded the pre-crisis (July 2008) peak but have since receded slightly. Manufacturing is an energy-intensive activity and growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine, Property and various Liability Coverages. The value of Manufacturing Shipments in June 2013 was up 34% to $481.8B from its May 2009 trough. June figure is slightly below its record high in Nov. 2012. Modest weakening in recent months. $ Millions 12/01/09 - 9pm 24

25. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 25 Commercial & Industrial Loans Outstanding at FDIC-Insured Banks, Quarterly, 2006-2013* Outstanding loan volume has been growing for over two years and (as of year-end 2012) surpassed previous peak levels. *Latest data, released 8/29/2013. Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.http://www2.fdic.gov/qbp/ $Trillions In nominal dollar terms, this is an all-time high. Recession

26. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 26 Percent of Non-current Commercial & Industrial Loans Outstanding at FDIC-Insured Banks, Quarterly, 2006-2013:Q2* Non-current loans (those past due 90 days or more or in nonaccrual status) are back to early-recession levels, fueling bank willingness to lend. *Latest data, released 8/29/2013. Source: FDIC at http://www2.fdic.gov/qbp/ (Loan Performance spreadsheet); Insurance Information Institute.http://www2.fdic.gov/qbp/ Almost back to “normal” levels of noncurrent industrial & commercial loans Recession

27. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 27 Business Bankruptcy Filings: Falling but Still High in 2012 (1994:Q1 – 2012:Q3) Business bankruptcies were down 42% in 2012:Q3 vs. recent peak in 2009:Q2 but were still higher than 2008:Q1, the first full quarter of the Great Recession. Bankruptcies restrict exposure growth in all commercial lines. Sources: American Bankruptcy Institute at www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633; Insurance Information Institute. www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=61633 (Thousands) New Bankruptcy Law Takes Effect Recessions in orange Quarterly average for 2001:Q1-2005:Q3 was 8,915

28. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 28 Private Sector Business Starts, 1993:Q2 – 2012:Q4* Business starts were down nearly 20% in the Great Recession, holding back most types of commercial insurance exposure, but now are recovering. * Data through Dec 31, 2012 are the latest available (posted July 30, 2013); Seasonally adjusted. Sources: Bureau of Labor Statistics, www.bls.gov/news.release/cewbd.t08.htm; NBER (recession dates).www.bls.gov/news.release/cewbd.t08.htm (Thousands) Business Starts 2006: 861,000 2007: 844,000 2008: 787,000 2009: 701,000 2010: 742,000 2011: 781,000 2012: 769,000 12/01/09 - 9pm 28 Recessions in orange

29. EEOC Workplace Discrimination Complaints, FY1997-FY2012* Biggest jumps in FY2008 complaints came for retaliation and age discrimination. But FY2008 excluded the worst of the recession. Thousands of Complaints *The federal fiscal year runs from Oct 1 of a given year to Sept 30 of the following year. The year is designated by its endpoint. Thus FY2009 covers the period from Oct 1, 2008 through Sept 30, 2009. Sources: EEOC at http://www.eeoc.gov/stats/charges.html ; I.I.I.http://www.eeoc.gov/stats/charges.html 1997-2007 Avg. = 79,800/year FY 2008-2012 Avg. = 97,600/year

30. Federal Securities Fraud Shareholder Class Action Lawsuits* 1991-2012** *Securities fraud suits filed in U.S. federal courts. 2001 figure excludes 312 IPO suits that were unique to that year. **2012 number is 2012:1H annualized. Sources: Stanford University School of Law (http://securities.stanford.edu ); Insurance Information Institutehttp://securities.stanford.edu In 2008, litigation against financial services firms accounted for more than half (114 class actions) Avg. = 188/year

31. 31 U.S. Insured Catastrophe Loss Update Catastrophe Losses in Recent Years Have Been Very High 12/01/09 - 9pm 31

32. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 32 U.S. Insured Catastrophe Losses *Through 6/2/13. Includes $2.6B for 2013:Q1 (PCS) and $5.32B for the period 4/1 – 6/2/13 (Aon Benfield Monthly Global Catastrophe Recap). Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute. 2012 Was the 3 rd Highest Year on Record for Insured Losses in U.S. History on an Inflation-Adj. Basis. 2011 Losses Were the 6 th Highest. YTD 2013 Running Below Average But Q3 Is Typically the Costliest Quarter. Record tornado losses caused 2011 CAT losses to surge ($ Billions, 2012 Dollars) 12/01/09 - 9pm 32

33. Number Geophysical (earthquake, tsunami, volcanic activity) Climatological (temperature extremes, drought, wildfire) Meteorological (storm) Hydrological (flood, mass movement) Natural Disasters in the United States, 1980 – June 2013* Number of Events (Annual Totals 1980 – June 2013*) *Through June 30, 2013. Source: MR NatCatSERVICE 33 41 19 121 3 There were 68 natural disaster events in the first half of 2013 There were over 150 natural disaster events in the US every year since 2006. That hadn’t happened in any year before.

34. 12/01/09 - 9pm 34 Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2012* Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers. Source: ISO (1960-2011); A.M. Best (2012E) Insurance Information Institute. The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades Avg. CAT Loss Component of the Combined Ratio by Decade 1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 7.20* Combined Ratio Points Catastrophe losses as a share of all losses reached a record high in 2012

35. 12/01/09 - 9pm 35 If They Hit Today, the Dozen Costliest (to Insurers) Hurricanes in U.S. History Insured Losses, 2012 Dollars, $ Billions *Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B. Sources: Karen Clark & Company, Historical Hurricanes that Would Cause $10 Billion or More of Insured LossesToday, August 2012; I.I.I. When you adjust for the damage prior storms could have done if they occurred today, Hurricane Katrina slips to a tie for 6 th among the most devastating storms. Storms that hit long ago had less property and businesses to damage, so simply adjusting their actual claims for inflation doesn’t capture their destructive power. Karen Clark’s analysis aims to overcome that.

36. Investments 36 Investment Performance is a Key Driver of Profitability 12/01/09 - 9pm 36

37. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 37 U.S. Treasury Security Yields*: A Long Downward Trend, 1990–2013 *Monthly, constant maturity, nominal rates, through September 2013. Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.http://www.federalreserve.gov/releases/h15/data.htm Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade. Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come. U.S. Treasury security yields recently plunged to record lows 12/01/09 - 9pm 37

38. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 38 Distribution of Bond Maturities, P/C Insurance Industry, 2003-2012 Sources: SNL Financial; Insurance Information Institute. The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds (from 24.6% in 2003 to 15.5% in 2012) and then trimmed bonds in the 5-10-year category (from 31.3% in 2003 to 27.6% in 2012). Falling average maturity of the P/C industry’s bond portfolio is contributing to a drop in investment income along with lower yields.

39. 39 P/C Insurance Industry Financial Overview 12/01/09 - 9pm 39

40. P/C Net Income After Taxes 1991–2013:1H ($ Millions) 2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS 1 = 3.5% 2012 ROAS 1 = 5.9% 2013:Q1 ROAS 1 = 9.6% ROE figures are GAAP; 1 Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 9.7% ROAS in 2013:Q1, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009. Sources: A.M. Best, ISO, Insurance Information Institute Net income is up substantially (+42.4%) from 2012:1H $17.2B

41. Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2013:1H* *Profitability = P/C insurer ROEs. 2011-13 figures are estimates based on ROAS data. Note: Data for 2008-2013 exclude mortgage and financial guaranty insurers. Source: Insurance Information Institute; NAIC, ISO, A.M. Best. 1977:19.0% 1987:17.3% 1997:11.6% 2006:12.7% 1984: 1.8% 1992: 4.5% 2001: -1.2% 10 Years 9 Years 2012: 5.9% History suggests next ROE peak will be in 2016-2017 ROE 1975: 2.4% 2013:1H 8.2%

42. Underwriting is Rarely a Profit Source Gain (Loss)* 1975–2013** *Includes mortgage and financial guaranty insurers in all years. Sources: A.M. Best; ISO; Insurance Information Institute. Average yearly underwriting loss in the 2008-2012 low-interest-rate environment? $17.6B. With interest rates this low, large persistent underwriting losses are not a recipe for success. In historical context, 2006-07 underwriting results were an anomaly $ Billions 2013:1H underwriting gain of $2.3 billion vs. -$6.4 billion in 2012:1H

43. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 43 Policyholder Surplus, Quarterly, 2006:Q4–2013:1H 2013:Q1 is estimated Sources: ISO; A.M.Best. ($ Billions) The industry at year-end 2012 had $1 of surplus for every $0.78 of NPW, the strongest claims-paying status in its history. Up nearly $175 Billion from the 2009:Q1 trough, a new peak Down $84 Billion from the previous peak, due to the financial crisis, CATs

44. 44 Key Takaways 12/01/09 - 9pm 44

45. 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 45 P/C Insurance Exposures Will Grow With the U.S. Economy  Personal lines exposure growth is likely in 2013  Wage and employment growth is also positive and could modestly accelerate P/C Industry Growth in 2013 Will Be Strongest Since 2004  Growth likely to exceed A.M. Best projection of +3.8% for 2012  No traditional “hard market” emerges in 2013-4 Underwriting Fundamentals Deteriorate Modestly  Some pressure from claim frequency, severity in some key lines Industry Capacity Hits a New Record by Year-End 2013 (Barring Meg-CAT) Investment Environment Is/Remains Challenging  Interest rates remain low Takeaways: P/C Insurance Predictions for 2013-14

46. www.iii.org Thank you for your time and your attention! Insurance Information Institute