1. Presented By: Ed Kiessling President & COO, Commerce Insurance Services

3. The Profit Formula and Operating Measures: –Profit (Premium + Return On Invested Assets) - (Losses + Operating Expenses) –Combined Ratio INSURANCE BEFORE 9/11 -- THE PERFECT STORM Losses + Underwriting Expenses Written Premium

4. So, What Does This Mean? –Combined Ratio for 2002 is 107.4 –The Industry Combined Ratio Has Not Been Below 100 Since 1979 –Returns Are Delivered Through Investment Activities INSURANCE BEFORE 9/11 -- THE PERFECT STORM

5. The Soft Market –From The Late 80’s, to 2000: Increasing Investment Returns Growing Economy Increasing Globalization More Diverse Investment Opportunities Cheap Reinsurance Lead to … –More Than a Decade of Declining Premiums INSURANCE BEFORE 9/11 -- THE PERFECT STORM

6. 1999/2000 -- The Tropical Storm Begins –Combined Ratios Deteriorate 1998 - 106 2000 - 110.4 –Investment Returns Decline (Return on Invested Assets) 1998 - 9% 2000 - 4.9% INSURANCE BEFORE 9/11 -- THE PERFECT STORM

7. 1999/2000 -- The Tropical Storm Begins (continued)... –Undereserving From Past Years Becomes Apparent (Percentage of Original Loss Estimates Undereserved) 1998 - 1.4% 2000 - 8.9% –Policyholders Surplus Declines for the First Time Since 1984 1998 - $338 Billion 2000 - $322 Billion INSURANCE BEFORE 9/11 -- THE PERFECT STORM

8. Back To Basics (Prior to 9/11) –Firming Prices –Underwriters Actually Started Underwriting Again –Companies Limited Their Participation in Certain Lines of Business INSURANCE BEFORE 9/11 -- THE PERFECT STORM

10. The Immediate Impact –Thousands of Lives Lost –Approximately $50 Billion In Insured Losses Life Insurance - $5 Billion Commercial Property - $17 Billion Personal Property - $2 Billion Autos - $90 Million Airline Liability - $6 Billion Aircraft Hull - $434 Million Workers’ Compensation - $2 Billion Business Interruption - $17 Billion 9/11 -- TROPICAL STORM TO HURRICANE

11. The Collateral Damage Continues –Investment Market Collapse –Slowing Economy 9/11 -- TROPICAL STORM TO HURRICANE

12. Total Return on Invested Assets

13. The Post 9/11 Insurance World –Rapidly Increasing Prices for the Last Two Years 15% to 100% –Severe Limitations in Reinsurance Capacity and Dramatic Price Increases for Reinsurance 9/11 -- TROPICAL STORM TO HURRICANE

14. Industry Price Increases By Percent

15. The Post 9/11 Insurance World –Industry Focus on Underwriting for the First Time in Over a Decade 9/11 -- TROPICAL STORM TO HURRICANE

16. Industry Underwriting Results Combined Ratios

17. The Post 9/11 Insurance World –Many Companies Came Into 2002 With Serious Balance Sheet Problems; Balance Sheet Repair Became a Priority 9/11 -- TROPICAL STORM TO HURRICANE

18. Industry Surplus Deterioration Millions of Dollars

19. The Post 9/11 Insurance World –Industry Reserve Strengthening Grew Dramatically as Asbestos and Other Liabilities From the Past Were Recognized 9/11 -- TROPICAL STORM TO HURRICANE

20. Industry Loss Reserve Increases In Millions

21. The Post 9/11 Insurance World –Many Insurance Companies Have Failed; Scores of Others Have Received Lower Agency Ratings –Many Carriers Have Entered the Markets to Raise Additional Capital, But Many Have Not –New Capital Has Come Into the Market, Particularly Offshore 9/11 -- TROPICAL STORM TO HURRICANE

22. The Post 9/11 Insurance World –The US Government Passes the Terrorism Risk Insurance Act (TRIA) of 2002 –Severe Limitations on Some Coverages and Concentrations of Exposures 9/11 -- TROPICAL STORM TO HURRICANE

23. Positive –Underwriting Discipline Has Been Re-Established –2003 Combined Ratios May Reach Below 100 –Investment Market Gains Are Increasing –Balance Sheets Are Getting Healthier –Weaker Players Are Being Weeded Out –Some Coverage Limitations Are Being Eased –Prices In Some Lines of Coverage are Stabilizing (Although Not All) PROGNOSIS FOR THE FUTURE

24. Negative –More Companies Will Fail In The Next Few Years –Reinsurance Company Balance Sheets Are Still Weak –More Reserve Strengthening is Inevitable (Estimates Are the Industry is Between $40 Billion to $120 Billion Undereserved) PROGNOSIS FOR THE FUTURE

25. Negative –The Industry as a Whole Will Have Much Higher Financial Leverage Than In The Past –There is a Possibility that as the Investment Markets Return, a “Soft” Cycle Could Re-Emerge with Uncertain Industry Consequences PROGNOSIS FOR THE FUTURE