1. Guy Hudson Partner JLT RE +44 7767 880691 guy.hudson@jltre.com ICAR 2014

2. 2 AGENDA  Recent European Floods  What should Insurers think about these floods?  Reinsurance capital – The supply-driven inflow  The paradox of lower pricing amid heightening risk  So what might happen with Reinsurance rates for European flood exposed catastrophe programs?  Claims handling in light of increased losses

3. ROMANIA  27 th of July and 1 st of August:  99 homes were destroyed, 1,163 damaged and another 2,377 flooded.  2,475 wells have been plugged, 13 bridges were destroyed, 83 partially damaged, 60 culverts destroyed and 23 346 hectares of land were flooded. PAID  Insured losses to residential buildings, as at 5 th August - 22 claims advised to PAID until yesterday - 116.622 lei (approx. 26.000 euro) related loss reserve ICAR 20143 RECENT EUROPEAN FLOOD LOSSES

4. ICAR 20144 RECENT EUROPEAN FLOOD & HAIL LOSSES 2014 Total damageInsured part Floods in Germany $890m Floods in Serbia €1.7bn €3bn ($4.08bn) ‘Insured losses were small’ Floods in Bosnia€1.3bn Hail in Sofia, Bulgaria (9th July) BGN 100M (Bulgarian press) = €51m

5.  Demonstrates very low insurance penetration in many countries of Central and South east Europe  Losses often from unpredictable Flash floods not Riverine Floods  Lack of third party proprietary models for flood in the region  Models are no good for flash floods  Evidence of Increasing exposure?  Evidence of Increasing hazard?  Is the portfolio of risks geo-coded? Quality of Information?  Is the Insurer adequately reinsured? ICAR 20145 WHAT DOES IT MEAN TO INSURERS?

6. REINSURANCE CAPACITY FOR FLOOD

7. THE EXTRAODINARY INCREASE IN REINSURANCE SECTOR CAPITAL THE LARGEST REINSURANCE SECTOR CAPITAL STRUCTURE SHIFT IN MEMORY?

8. ICAR 2014 JLT RE GLOBAL RE MARKET COMPOSITE CAPITAL* 8 The Upward March of Reinsurance Capital Increased Each Year Except 2008 (Financial Crisis) Note: Capital levels represent composite total adjusted shareholders’ funds. This is different from dedicated reinsurance capital and different still from reinsurance capacity. Excludes capital markets, catastrophe funds and internal reinsurance capital. *Represents a JLT Re proprietary list of leading global reinsurers. Sources: SNL Financial, JLT Re.

9. ICAR 20149 EVOLUTION OF THIRD PARTY CAPITAL: A BRIEF HISTORY 9 Source: JLT Towers Re ‘ NON TRADITIONAL’ % OF PROPERTY-CAT LIMIT SINCE 2000

10. ICAR 2014 PENSION FUNDS VS INSURANCE VS REINSURANCE VS RETRO PUTTING IT IN PERSPECTIVE 10 Pension Fund Capital Under Management $30 trillion Global reinsurance market dedicated sector capital ca. $300 billion Global retrocession capital <$30 billion Global insurance sector capital (including life) $2.5 - $3 trillion Source: JP Morgan, JLT Re estimates

11. ICAR 201411 $30 TRILLION? $900 BILLION? $675? $300? HOW MUCH CAPITAL COULD REALLY COME IN? Pension Fund Capital Under Management $30 trillion Global reinsurance market dedicated sector capital ca. $300 billion Global retrocession capital <$30 billion Global insurance sector capital (including life) $2.5 - $3 trillion $300 billion ($30 trillion x.1 x.1)? Source: JP Morgan, JLT Towers Re estimates

12. ICAR 201412 DON’T BE FOOLED BY THE STERILE LANGUAGE! AND WHAT DO RATING AGENCIES THINK OF ALL THIS?  Despite being well capitalized the P&C (Re) Insurance Industry faces ongoing pressure, particularly in the commercial lines sector  Record low investment returns continue to weigh on earnings  Alternative capacity starting to creep into casualty lines of business  Underwriting accuracy/discipline becoming even more important (cycle management) SectorS&PA.M. BestMoody’sFitch U.S. Personal LinesStable U.S. Commercial LinesNegative Stable Global ReinsuranceNegativeStableNegative Rating Outlooks by Agency

13. LOSS TRENDS AND LOWER REINSURANCE PRICING – A PARADOX OF SORTS? ARE PRICES DECREASING JUST AS RISK IS INCREASING? IT WOULDN’T BE THE FIRST TIME

14. ICAR 201414 UNDERWRITING GAINS EVERY YEAR EXCEPT 2011 HOW HAS THE REINSURANCE INDUSTRY FARED? JLT Re Global RE Market Index*: Combined Ratio Trends Combined Ratio 84 86 110 93 86 94 84 *Represents a JLT Towers Re proprietary list of leading global reinsurers. Sources: SNL Financial, JLT Towers Re 100

15. ICAR 201415 PROPERTY-CAT LOSSES ARE NOT DECREASING DON’T BE FOOLED BY 2013 Deepwater oil rig, Washington hanger collapse Air France 447 KRW Tohoku, Thailand, Christchurch Sandy Potential to affect capital Potential to affect earnings Cyber Sector specialty loss range Sector natural catastrophe loss range Next time?

16. ICAR 201416 INSURED CATASTROPHE LOSSES 1980 - 2010$20.7 BN ANNUAL AVGE – GEOGRAPHIC DISTRIBUTION Insured cat losses are traditionally determined by North American hurricane losses Source: Swiss Re

17. ICAR 201417 INSURED CATASTROPHE LOSSES 2011 >$125 BN – GEOGRAPHIC DISTRIBUTION Shift in perils and regions Source: Swiss Re 2011: earthquake losses were the highest ever 2011: flood losses were the highest ever 2011: Other weather-related natural catastrophes were the 3rd highest ever (after 2005 and 2004)

18. REINSURANCE RENEWAL PRICING RECENT LOW LOSSES + EXCESS SUPPLY = NEAR UNIVERSALLY LOWER PRICING

19.  The major driver for 2013 was lack of catastrophes coupled with continued favorable loss reserve development from prior accident years  Four issues are now placing pressure on traditional reinsurers  Alternative capacity (capital market transactions, alternative/hedge fund backed Re)  Continued low interest rate environment  Primaries holding more retention  Favorable reserve development has to come to an end at some point  Potential reinsurer reactions  Additional M&A pressure?  Formation of alternative side car type vehicles to compete (e.g., Watford Re - PaCRe)  Use of the alternative market to reinsurers’ advantage for example, lowering PML’s by buying retro in the alternative markets ICAR 201419 RECENT RENEWALS SUMMARY

20. ICAR 201420 SO WHAT MIGHT HAPPEN TO REINSURANCE RATES FOR THE REGION? Increase loss activity in 2014 Lack of Historical statistics Lack of Geo-coding or partial Geo-Coding Increasing Exposures Increasing Hazards Lack of Independent Cat Models Some losses Flash Floods not Riverine Increased Capital Effect of Alternative Capacity Need for diversification Income requirements Single territory covers Pressures Downwards Pressures Upwards

21.  Lodgement and recording of claims - worked well at CHCH - contracted to firm operating from a broad (Australia), and untouched by the disaster  Give claimants information about progress. Very bad, with both EQC and companies. EQC processes not at all transparent - see Ombudsman's report with link on page http://www.ombudsman.parliament.nz/resources-and-publications/latest-reports http://www.ombudsman.parliament.nz/resources-and-publications/latest-reports  Claim settlement hindered at first by lack of clarity as to boundaries between EQC and companies covers  Claim adjustment made hard by multiple events  The decisions of EQC and companies not clear throughout as to what sort of claims would be settled in cash and which repaired  Technical skills such as builders in short supply  Shortage of skilled adjusters a problem. Shortage of qualified engineers - structural and geotech  Companies were reluctant to put enough resources in from abroad to expedite adjustment ICAR 201421 CHRISTCHURCH EQ 2010 2011 CLAIMS HANDLING AFTER MAJOR EVENT

22. THANK YOU