1. The global economic outlook, with focus on US and Canada Kurt Karl Swiss Re CIA Conference Toronto Sept. 2009

2. Slide 1 Global economic outlook: Overview The outlook What is driving the recovery? What happens to assets and inflation in a recovery? Risks to the outlook Summary of the economic landscape Impact on insurance industry Swiss Re Economic Research & Consulting

3. Slide 2 Sources: Swiss Re Economic Research & Consulting Global overview: Weak recovery in 2010 Swiss Re Economic Research & Consulting

4. Slide 3 Sources: Blue Chips Economic Indicators, Moody’s, Federal Reserve Board, Swiss Re ER&C U.S. Economic Outlook: Key country for global recovery Swiss Re Economic Research & Consulting

5. Slide 4 What is driving the recovery? Substantial Central Bank easing, low interest rates Fiscal stimulus Lower oil/commodity prices, reduced inflation Inventories low, production now increasing Global markets improving, exports rising Cost reductions  profits up, investment returns Need US consumer for sustainability Swiss Re Economic Research & Consulting

6. Slide 5 Tensions in the money markets have eased Source: Bloomberg 3m Libor – 3m overnight index swap basis points

7. Slide 6 Monetary policy is highly accommodative Source: Federal Reserve Board, Bank of Canada, European Central Bank Swiss Re Economic Research & Consulting Percent

8. Slide 7 House prices have rebounded in US and UK … Source: Bloomberg House prices, %-change year-on-year * as of 30. Jun 09 Swiss Re Economic Research & Consulting

9. Slide 8 …but not in Canada Source: National Association of Realtors (US) 3- month moving average, Statistics Canada Swiss Re Economic Research & Consulting Percent change year ago

10. Slide 9 Canadian housing starts, not a big bubble, but a big bust Thousands, 3-mo. moving average Source: Canadian Mortgage and Housing Corporation Swiss Re Economic Research & Consulting

11. Slide 10 US housing starts, weak recovery Thousands, 3-mo. moving average Source: US Dept of Commerce Swiss Re Economic Research & Consulting

12. Slide 11 Source: Bloomberg Manufacturing survey continues to improve Purchasing Managers Indices Swiss Re Economic Research & Consulting

13. Slide 12 Manufacturing: Purchasing managers index Above 50 is expanding Source: Institute for Supply Management, Richard Ivey School of Business (3-mo. mov. avg.)

14. Slide 13 Euro area business sentiment has rebounded Euro area GDP growth (pct chg year-on-year) and business sentiment Source: Bloomberg, European Commission Swiss Re Economic Research & Consulting

15. Slide 14 UK leading indicator has recovered somewhat GDP growth (pct chg year-on-year) and business sentiment (pct chg year-on-year) Source: Bloomberg, Conference Board Swiss Re Economic Research & Consulting

16. Slide 15 Key to global recovery: US consumer spending is still weak Percent change year ago, 3-mo. moving average Source: Bureau of Economic Analysis Swiss Re Economic Research & Consulting

17. Slide 16 Real retail sales: US and Canada Percent change year ago Source: US Dept. of Commerce, Statistics Canada Swiss Re Economic Research & Consulting

18. Slide 17 What happens to assets and inflation in the recovery? Temporary investment opportunities: Credit and equities –Late in recession, early recovery Government bond yields likely to remain low –But likely to rise in 2010, 2011 Risk of inflation rises after 2010, low inflation now –Risk is low through end-2010, may not be a problem until 2012 or later –Fiscal/monetary restraint will keep growth moderate –Central banks are familiar with how to tighten monetary policy –Risk is essentially political Swiss Re Economic Research & Consulting

19. Slide 18 0 1 2 3 4 5 5962656871747780838689929598010407 Spread, % Spread of Baa to 20-year T-bond, quarterly avg Source: Moody’s, Federal Reserve Board, NBER, SR Economic Research & Consulting Credit spreads rise into, then fall after a recession

20. Slide 19 Source: Standard & Poor’s 12-Month Forward P/E Ratio S&P 500, Forward P/E ratio: Close to fair valuation

21. Slide 20 Source: Standard & Poor’s P/E Ratio, Composite 60, S&P/TSX S&P/TSX 60, P/E ratio: Close to fair valuation

22. Slide 21 Source: EcoWin 10 yr long-term bond yields (since 1988), monthly data Long-term bond yields: mostly up from here

23. Slide 22 Percent Source: Bureau of Labor Statistics, NBER, SR Economic Research & Consulting Inflation rises into a recession, then falls, rates follow Inflation is year-over-year rate US All-items CPI and yield on 10-yr Treasury note Swiss Re Economic Research & Consulting

24. Slide 23 Long-term inflation expectations appear well-contained Source: Bloomberg Break-even Inflation, 10yr Bonds percent

25. Slide 24 Source: Bureau of Labor Statistics (BLS), Federal Reserve Board of St. Louis West Texas Intermediate, $bbl, and real 2000 dollars, bbl Oil prices down, better for consumers, but not Canadian GDP Swiss Re Economic Research & Consulting

26. Slide 25 Lower oil prices: Inflation turns to deflation, but this will reverse this year Percent change year ago Source: Bureau of Labor Statistics, Statistics Canada Swiss Re Economic Research & Consulting

27. Slide 26 “Another bout of weakness” (25%)  Negative growth in 2010 from steep employment declines, consumers can’t come back  Credit crisis is more severe than currently anticipated, prolonging and deepening the recession  Pandemic is more severe than expected? Upside risk – US begins a V recovery = strong global growth in 2010-11 (15%) due to:  Fiscal/monetary stimulus  Low inflation, low interest rates  Housing/vehicle replacement boom Risks to the outlook Swiss Re Economic Research & Consulting

28. Slide 27 Summary Monetary/fiscal stimulus, low commodity prices and lean inventories boost growth sustaining recovery Fiscal/monetary restraint after 2010 moderates growth Consumer and business loans strained through 2011, also implies a weak recovery Inflation remains low Yield on Canadian government bonds low until further notice – 3.5% end of 2009, 4.2% at end 2010; 4.5 – 5.0% thereafter. Similar in US, Euroland and UK Equity and bond markets continue to recover Market volatility continues into 2010 due to uncertainty about strength of recovery Swiss Re Economic Research & Consulting

29. Slide 28 Canada life market trends The financial crisis has strained Canadian life companies, particularly those with large asset management operations. Still, Canada’s economy has been less affected than other countries. Due to conservative regulatory standards and practices, its life insurers suffered fewer investment losses than their US counterparts. Life companies issued debt and equity this year to replenish capital, keeping their capital ratios well above regulatory and company target minimums. This year, economic and financial headwinds will continue to pressure operating margins, due to investment losses, lower fee revenue from assets under management, low government bond yields, higher funding costs, reduced access to funding, higher hedging costs, and weakened demand for new business. In line with the sluggish economy, our forecast of inflation-adjusted L&H premium growth is: - 5% in 2009, 2% in 2010 and 4% in 2011 and beyond. Despite its challenges, the industry remains well financed and its outlook is improving.

30. Slide 29 Canadian P&C insurance Recession has lowered investment yields (4% in 2008 and 2009), but there has only been a slight erosion in capital –Low government bond yields will continue to put pressure on investment returns –Annual average ROE: 8% 2008, down to 5% 2009 Direct premiums written expected to be up about 2% in 2009 –Weak economic growth is reducing premium growth as companies increase the retention of their risks Combined ratio likely to rise to 103% in 2009 from 100% in 2008 –Property and motor loss ratios are increasing Swiss Re Economic Research & Consulting

31. Slide 30 Questions? To be put on the e-mail distribution list for Swiss Re’s US and Canadian Economic Outlooks contact: kurt karl@swissre.com ©2009 Swiss Re. All rights reserved. All rights, including copyright, in this presentation are owned or controlled by Swiss Re. You may download or print out a hard copy for your private or internal use. You are not permitted to reproduce, create modifications or derivatives, transmit, publish, distribute, disclose, convey or make accessible this work or parts of it to any other party, or use it for any other than the by Swiss Re designated purpose, without the prior written permission of Swiss Re. This presentation is for information purposes only and contains non-binding indications as well as personal judgment. It does not contain any recommendation, advice, solicitation, offer or commitment to effect any transaction or to conclude any legal act. Any opinions or views expressed are of the author and do not necessarily represent those of Swiss Re. Swiss Re makes no warranties or representations as to this presentation’s accuracy, completeness, comprehensiveness, timeliness or suitability for a particular purpose. In no event shall Swiss Re be liable for any loss or damages of any kind, including any direct, indirect or consequential damages, arising out of or in connection with the use of this presentation. Swiss Re Economic Research & Consulting