1. A new world of opportunity Market consolidation – the opportunity for some FRANK O’HALLORAN CEO, QBE INSURANCE GROUP

2. 1 CONSOLIDATION OF OUR INDUSTRY OVER THE PAST 10 YEARS USA  A number of mergers, e.g. St Paul/ Travellers  Numerous acquisitions – Berkshire Hathaway, AIG  A number of failures, e.g. Reliance, Kemper

3. 2 CONSOLIDATION OF OUR INDUSTRY OVER THE PAST 10 YEARS USA (cont’d)  Some foreign insurers have withdrawn from the market or parts of the market, e.g. Generali  Number of reinsurers reduced from 65 to 35 – most have had rating downgrades

4. 3 CONSOLIDATION OF OUR INDUSTRY OVER THE PAST 10 YEARS United Kingdom  Lloyd’s syndicates reduced from around 200 to just over 60  A number of failures, e.g. Independent, HIH  Numerous acquisitions and mergers, e.g. CU, GA, Norwich – QBE, Limit, Iron Trades  Number of companies operating in London company market reduced by approx two thirds  Numerous rating downgrades

5. 4 CONSOLIDATION OF OUR INDUSTRY OVER THE PAST 10 YEARS Japan  Numerous mergers of Japanese companies, e.g. Sumitomo/Mitsui  A number of foreign insurers have withdrawn from the market

6. 5 CONSOLIDATION OF OUR INDUSTRY OVER THE PAST 10 YEARS Western Europe  A number of acquisitions, e.g. Allianz/Euler  Numerous Rating downgrades  Problems with both sides of balance sheet  Low ROE’s

7. 6 CONSOLIDATION OF OUR INDUSTRY OVER THE PAST 10 YEARS Australia  Acquisitions – IAG/CGU, QBE, Mercantile Mutual and others, HIH/FAI  Failures HIH, GIO Re, New Cap Re  Top 5 control 80% of market versus 40% in 1995  4 of top 5 are now Australian listed companies versus 1 in 1995

8. 7 WHY THE CONSOLIDATION?  Inadequate returns for shareholders  Inadequate pricing  Broad coverages  Inadequate claims reserves  Poor investments  Availability of low level reinsurance

9. 8 WHY THE CONSOLIDATION? (cont’d)  Reinsurer failures  Finite reinsurance  Failure to understand implications of organic growth  Fraud  Poor management

10. 9 CURRENT POSITION - GENERALLY  Inadequate returns for shareholders (for many)  Reduced pricing for large property, energy, marine and liability risks  Inadequate claims reserves in many cases  Some changes to coverages  Some reinsurers getting into insurance (via fronting)

11. 10 CURRENT POSITION – GENERALLY (cont’d)  New underwriting agencies established over past 2 years usually by underwriters of insurers that are no longer writing business  Substantial reinsurance recoveries on insurer balance sheets  Reinsurers challenging more claims

12. 11 CURRENT POSITION – GENERALLY (cont’d)  Inflation on long tail claims in some countries still out of control (e.g. USA) – how do you price it?  Many new entrants into alternate risk and USA long tail business  Fall out from Spitzer and other authorities on commissions and finite reinsurance

13. 12 CURRENT POSITION – GENERALLY (cont’d)  Some Bermudian insurers anxious to use excess capital  Availability of quality reinsurance security has diminished  Failed underwriters still find it easy to change jobs

14. 13 CURRENT POSITION – SOME EXAMPLES  Quoted share price to book value  Most near book value  A few above two times book value  Return on Equity  Most in range of 0%-10%  A few above 20%

15. 14 CURRENT POSITION – SOME EXAMPLES (cont’d)  Asbestos and environmental claims reserves survival ratio  Most 5 to 15 times  A few above 30 times  Some above 50 times  USA insurers/reinsurers at an average of 8.5 times (2003 – US $30 billion reserves)  A considerable number of market announcements made in the past 18 months on upgrade of claims reserves

16. 15 CONCLUSION 1.The number of insurers and reinsurers around the world will continue to reduce 2.Creators of long term wealth (not short term) will continue to grow and prosper

17. 16 CONCLUSION (cont’d) 3.The only way to create long term wealth is to focus on the bottom line. This can only be achieved if you have sound risk management and a thorough knowledge of each of the key profit drivers, in particular the cost of claims 4.We all have a choice – we at QBE made our decision many years ago.