1. Commercial Insurance Underwriting University of Illinois Urbana – Champaign Finance 230

2. Commercial Insurance Underwriting University of Illinois Finance 230 2 Who are We? Mike Myers, CPCU, ARM Portfolio Underwriting Manager Sue Myers, CPCU, ARM Underwriting Specialist

3. Commercial Insurance Underwriting University of Illinois Finance 230 3 Liberty Mutual Group Founded in 1912 Number 111 on the Fortune 500 List $19.6 billion in consolidated revenue 5th largest commercial lines writer and 8 th largest personal lines writer in the United States 38,000 people in 900 office worldwide

4. Commercial Insurance Underwriting University of Illinois Finance 230 4 CNA Insurance Company Founded in 1885 Number on 144 the Fortune 500 List under parent Loews Corporation $10 billion in revenues 7 th largest commercial insurance writer and 14 th largest Property / Casualty company in the United States 11,000 employees in offices worldwide

5. Commercial Insurance Underwriting University of Illinois Finance 230 5 Overview Types of Insurance Commercial Insurance Different Markets in Commercial Insurance Underwriting Current Events

6. Commercial Insurance Underwriting University of Illinois Finance 230 6 Different Types of Insurance Personal Insurance Health Insurance Life Insurance Commercial Insurance International Insurance Reinsurance Specialty Insurance

7. Commercial Insurance Underwriting University of Illinois Finance 230 7 Commercial Insurance Insurance for Businesses

8. Commercial Insurance Underwriting University of Illinois Finance 230 8 Courtesy of www.bullesdoxygene.com What Risks Do Businesses Have? Workers Autos Property Liabilities

9. Commercial Insurance Underwriting University of Illinois Finance 230 9 Workers Compensation Provides no-fault benefits to workers injured on the job Types of benefits payable − Medical − Disability − Rehabilitation − Death

10. Commercial Insurance Underwriting University of Illinois Finance 230 10 Workers Compensation Grocery Stores – Ready Mix Concrete – Veterinarians – Newspaper Publisher – Metal Casting & Forging – Healthcare – Electronics Mfg – Television Network Sports – Cuts, Burns Vehicle Accidents Animal Bites Machine Operations Silica Manual Material Handling Chemicals Falls from Heights What are some of the sources of Workers Compensation claims?

11. Commercial Insurance Underwriting University of Illinois Finance 230 11 Auto Protects the owner against losses arising out of the use of an automobile in business. Types of coverage include: − Business Auto − Garage − Trucking

12. Commercial Insurance Underwriting University of Illinois Finance 230 12 Auto

13. Commercial Insurance Underwriting University of Illinois Finance 230 13 Auto

14. Commercial Insurance Underwriting University of Illinois Finance 230 14 Property Protects against the perils like: − Fire − Theft − Vandalism − Wind Covers: − Buildings − Contents / Stock − Business Income

15. Commercial Insurance Underwriting University of Illinois Finance 230 15 Property LaSalle Bank Building 12/7/05

16. Commercial Insurance Underwriting University of Illinois Finance 230 16 Liability Protects the owner of a business for suits or claims for negligence of: − Premises − Products Produced − Services Provided

17. Commercial Insurance Underwriting University of Illinois Finance 230 17 Commercial Insurance Insuring Businesses: − Small Market − Middle Market − National Market Size Complexity of Risk and Coverage Handling Expenses

18. Commercial Insurance Underwriting University of Illinois Finance 230 18 Commercial Insurance Middle Market: − Single or Multiple Locations − Auto Fleet Typically < 100 units − Limited Flexibility of program structure − Formal and informal controls for Risk Exposures

19. Commercial Insurance Underwriting University of Illinois Finance 230 19 Commercial Insurance National Markets: − Many Locations − Auto Fleets Typically > 100 units − Sophisticated and Formal Controls for Risk Exposures − Significant Flexibility in Program Structure – Share Risk − Financial Transactions – Long Term

20. Commercial Insurance Underwriting University of Illinois Finance 230 20 Functions of an Insurance Product: Claims – Handles Claims and Pays the Losses Loss Control – Identifies and Controls Risk Actuarial – Predicts and Estimates Risk Underwriting – Accepts and Prices Risk

21. Commercial Insurance Underwriting University of Illinois Finance 230 21 Underwriting - Simply Stated Analyzes a customer’s business risk Decides whether to insure the risk Decides coverages to offer Decide appropriate structure Forecasts costs / Price transferred risk

22. Commercial Insurance Underwriting University of Illinois Finance 230 22 Underwriting Skill Set English & Speech Finance & Accounting Statistics Law Common Sense

23. Commercial Insurance Underwriting University of Illinois Finance 230 23 It’s All About Risk Can have millions of dollars in limits on every account, even the smallest Take on additional exposure with each added coverage Even the best accounts could have a million dollar claim (or Larger!)

24. Commercial Insurance Underwriting University of Illinois Finance 230 24 Current Events - Soft Market Soft Market − Excess capital leads to higher supply of insurance − Carriers willing to offer more liberal pricing and terms, driving rates down − Lower rates drive down underwriting profit − Can only maintain overall results if investment returns are high

25. Commercial Insurance Underwriting University of Illinois Finance 230 25 Current Events – Terrorism Terrorism Risk Insurance Act of 2002 is a backstop for terrorism loss Insurance companies pay a deductible and % of losses up to $100 Billion ceiling TRIA is set to expire at the end of this year Courtesy of www.whitehouse.gov

26. Commercial Insurance Underwriting University of Illinois Finance 230 26 Current Events – Oil Prices Significant impact on all levels of the economy Increased risk of Bankruptcy Courtesy of almostaproverb.com

27. Commercial Insurance Underwriting University of Illinois Finance 230 27 Current Events – Hurricane Katrina Worst National disaster the Insurance Industry has ever handled: − Multiple states − Devastated a Major Metro area − Flooding vs. Wind − Economic Losses to region Courtesy of www.nola.com

28. Commercial Insurance Underwriting University of Illinois Finance 230 28 Current Events – Hurricane Katrina $125 Billion “Economic” Damage $60 Billion to Insurance Industry In comparison Hurricane Andrew (1992): − $21 Billion in Current $ Courtesy of www.nola.com

29. Commercial Insurance Underwriting University of Illinois Finance 230 29 Any Questions?

30. Thank you University of Illinois Urbana – Champaign Finance 230