1. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright (c) 2006 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. NAIC Taoufik Gharib, Associate Director Thomas Upton, Managing Director Standard & Poor’s December 1, 2007

2. 2. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Agenda S&P’s approach to catastrophe risk: –Major rating factors –Catastrophe risk in the rating process (quantitative & qualitative) S&P’s property catastrophe criteria: –Primary insurance criteria changed in April 2006 –Reinsurance criteria remains unchanged as published in June 2005

3. 3. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 1.Industry Risk (macro - economic factors)  Potential threat of new entrants, substitute products or services, regulatory risk. 2.Competitive Position (micro - economic factors)  Competitive advantage: distribution channel, underwriting, pricing power, scale, diversification (sector & line of business). 3.Management & Corporate Strategy 4.Enterprise Risk Management (ERM)  Risk controls, optimization of earnings and capital. 5.Operating Performance (incl. quality of earnings) 6.Capitalization (incl. reinsurance & reserves & RBC model & quality of capital) 7.Investments & Liquidity 8.Financial Flexibility The Eight Pillars Of Insurance Analysis

4. 4. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Catastrophe Risk In The Rating Process Capital Ratio Cat Risk

5. 5. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.  Catastrophe Risk is incorporated in the major rating factors, with varying degrees of importance, depending on each company’s risk profile.  A concentrated monoline property catastrophe reinsurer - catastrophe risk may be the most important rating factor.  A significantly diversified casualty writer - catastrophe risk may be less important.  Catastrophe risk is incorporated in our ratings on quantitative and qualitative bases.  Catastrophic loss activity can have a significant impact on a company's overall financial strength. Catastrophe Risk

6. 6. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Catastrophe Risk: Quantitative Basis  Capitalization: S&P typically allocates capital according to premiums and reserves, with adjustments for asset quality.  However, S&P does not believe that catastrophe premiums provide a consistent and adequate indication of exposure and risk.  Therefore, S&P assesses capital requirements for property catastrophe risk based on exposure.  S&P’s catastrophe capital model uses company's own modeled exposures - that is, the exceedence probability (EP) curve.  S&P’s capital charge for catastrophe risk is based on the company-specific net expected aggregate losses at the 1-in-250-year level.

7. 7. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Catastrophe Risk: Qualitative Basis  Competitive Position: Some companies have a competitive advantage based on a leadership position in underwriting and catastrophe modeling.  Enterprise Risk Management: A company with strong ERM, and robust processes to identify and evaluate catastrophe risk, will highly unlikely experience losses outside its tolerances.  Operating Performance: (earnings volatility)  A re/insurer may have a strong capital base that can withstand a large catastrophe loss (10%-30% of its equity).  However, the loss of two to three years of earnings in one event is viewed as a negative rating factor.  Financial Flexibility: is also important and determines if a company can renew all its current business and take advantage of prospective price increases after an event.

8. 8. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Catastrophe Risk: Qualitative Basis (continued)  Through S&P’s property catastrophe survey, we collect additional data to better understand each company’s specific catastrophe risk profile. The survey includes some of the following questions:  Exposure by zone (globally) and peril (it is always earthquake season), highlights concentration risk.  Historical impact of catastrophe events on the loss ratio.  What catastrophe models are used - significant variance between models and versions.  Detail on model assumptions: demand surge, storm surge, fire following, etc…  Detail on exposure assumptions: year built, construction type, building condition, etc...  Description and credit quality of reinsurance protection.

9. 9. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Catastrophe Risk: Frequency & Severity  Year 2005 in review: (According to Swiss Re, sigma No. 2/2006) Global natural catastrophe economic losses totaled more than $220b: Katrina $135b 61% Wilma $20b 9% Rita $15b 7%  Insured property losses: Katrina $45b (or 11% of U.S. P/C net premiums written) Wilma $10b Rita $10b  Versus $48b insured property losses in 2004 (Charley, Frances, Ivan, and Jeanne)  2005 had a very active hurricane season: 27 named storms (previous record was 21 in 1933) 15 hurricanes (previous record was 12 in 1969) Highest number of category 5 hurricanes – at three

10. 10. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Property Catastrophe Primary Companies Criteria: The net aggregate 1/250-year property PML is reduced by a premium offset to not double-count required capital. The premium offset will also be company specific, but within boundaries to maintain rating consistency. The premium offset is based on the risk profile of each insurer: –Globally or nationally diversified insurers: 10%–30% –Geographically concentrated insurers: 0%-50% –If an insurer is unable to prove a specific catastrophe load or premium offset as within pricing and/or rate filings - the default will be a premium offset of 5%.

11. 11. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Property Catastrophe Reinsurance Companies Criteria: The criteria outlined for primary insurers is consistent with the one that is in place for reinsurers. S&P applies the same net aggregate 1/250-year property PML and premium offset to reinsurers. The premium offset for reinsurers is for programs that only have natural catastrophe risk. The criteria for reinsurers has not changed following Hurricanes Katrina, Rita, and Wilma, and remains as published in June 2005.

12. 12. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Property Catastrophe Insurer & Reinsurer Criteria: The capital charge covers property (personal & commercial) catastrophe exposures on a global basis, covering all perils: wind, earthquake, tornado, hail, and flood (outside the U.S.), and all zones combined. Both insurers and reinsurers benefit from another premium offset (in addition to C3), which is applied directly to the PML to reflect the short-tail nature of property risk, less a 30% expense ratio. This is to reflect that premiums collected would reduce a potential PML loss in the same year The net aggregate 1/250-year PML is tax adjusted

13. 13. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Property Catastrophe Conclusion:  It is very likely that insured losses due to natural catastrophes will increase over the next 10 years because of climate and socio-economic changes.  This higher risk will be imbedded in our ratings.

14. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright (c) 2006 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. NAIC Taoufik Gharib, Associate Director Thomas Upton, Managing Director Standard & Poor’s December 1, 2007