1. STRIMA 2011 Mark A. Goode, CIC, CPCU Executive Vice President Willis Public Entity Group Mark.Goode@willis.com 704.344.4867 (office) 704.904.1792 (mobile)

2. 2 The Perfect Storm STRIMA 2011 TOPICS 1.Current Market Place Conditions 2.Factors Contributing to Market Volatility 3.Impact of RMS 11 4.Impact on the Client

3. 3 Current Marketplace Conditions HARD OR SOFT MARKET? Transition Stressed Volatile “In Flux” Fragile Under Pressure Dysfunctional Inconsistent Fluid Schizophrenic

4. 4 Large Account Property Rate Change Q2 - 2011 Data includes 30 shared and layered accounts bound between April 1 st and June 30 th 2011 14.46% increase in 60 days Japanese Earthquake RMS 11.0 debuts

5. 5 Factors Contributing to Market Volatility 1.Deteriorating Carrier Financial Results 2.Black Swan Events 3.Political Uncertainty 4.Inflation Fears 5.Re-Insurance Treaty Premium Increases 6.Minimal / No Investment Income 7.RMS 11

6. 6 2 nd Quarter Insured US Catastrophe Losses, 2000-2011 For the 2 nd Quarters of 2000-2010, the average US Insured loss was $4 billion. For the 2 nd Quarter of 2011, CAT losses in the US have topped $15 billion Data Sourced from Insurance Information Institute, Is the World Becoming Riskier, Dr. Robert Hartwig July 15 th, 2011

7. 7 Industry Combined Ratios, 2000-2010 The U.S. property/casualty insurance industry’s after tax net income rose $6 billion to $34.7 billion from the previous year. Increases in net income and overall profitability in 2010 were directly attributable to improvement in investment results. Lower investment yields less financial leverage mean that combined ratios for insurers must be better (i.e. lower) in order for insurers to achieve ROE on par with past investments. In 2010, Insurers experienced a net growth in written premium for the first time since 2007. Declines in premiums slowed to.2% down from.6% in 2009 and 3.5% in 2008. Source: ISO 2010 Financial Results

8. 8 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C Top 15 Most Costly World Insurance Losses, 1970-2011* (Insured Losses, 2010 Dollars, $ Billions) Taken as a single event, the Spring 2011 tornado season would likely become the 9 th costliest event in global insurance history 3 of the top 15 most expensive catastrophes in world history have occurred in the past 18 months *Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable. Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.

9. 9 Worldwide Natural Disasters, 1980 – 2011* *2011 figure is through June 30. Source: MR NatCatSERVICE Meteorological events (Storm) Hydrological events (Flood, mass movement) Climatological events (Extreme temperature, drought, forest fire) Geophysical events (Earthquake, tsunami, volcanic eruption) Already 355 events through the first 6 months of 2011 Number of Events

10. 10 Number of Federal Disaster Declarations, 1953-2011* The Number of Federal Disaster Declarations Is Rising There have been 1,998 federal disaster declarations since 1953. The average number of declarations per year is 34 from 1953-2010, though that few haven’t been recorded since 1995. The number of federal disaster declarations is on track to set a new record in 2011, with 48 declarations through July 1. Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute. http://www.fema.gov/news/disaster_totals_annual.fema *Through July 1, 2011.

11. 11 2011 Black Swan Events Major Global Loss Events December 2010: Australia - Flash Flooding January 12 th -16 th : Brazilian Landslides and Earthquake January 12 th : Haitian Earthquake February 2 nd : Australia – Cyclone Yasi February 22 nd : New Zealand Earthquake March 11 th : Japanese Tsunami, Earthquake, Nuclear Disaster April 27 th : Tuscaloosa, Alabama Tornado May 22 nd : Joplin, Missouri Tornado June 1 st : Springfield, Massachusetts Tornado 2011 is already the highest global Loss Year on record $260 billion on worldwide economic losses $55 billion in insured losses Three of the most 15 costly global catastrophes in the world have occurred over the course of the past 18 months Japanese Tsunami: 2 nd, $35 billion in losses February New Zealand Earthquake: 9 th, $10 billion in losses 2010 Chilean Earthquake: 14 th, $8 billion in losses Source: Insurance Information Institute: Reinsurance in the Age of Black Swans, Robert P. Hartwig CPCU

12. 12 Modeling Differences: Regional Variation Portfolios concentrated across certain geographic areas will be affected by different influencing factors. The state of Florida is least impacted by the new release of RMS version 11.0 due to a better understanding of wind speed reduction and decreased landfall in the panhandle region. The State of Texas has the largest increase between versions because of increased inland exposure and poorer construction quality than originally thought. RegionReason for Modeling Change Gulf StatesPoorer construction practices than originally thought. SoutheastAcross the board increases in inland wind exposures. Mid-AtlanticGreater inland exposures as well as slower weakening of storms after landfall. NortheastHigher inland wind speeds and increased presence of transitioning storms.

13. 13 RMS 9.0 vs RMS 11.0 Actual Results (% Change – Same Data Points) Client Model Version 100-Year Wind PML % Change 250-Year Wind PML % Change 500 Year Wind PML % Change State (SE Footprint) RMS 9.0 RMS11.0 $77,842,969 $256,021,944 228% $146,672,639 $499,981,762 327% $210,780,730 $780,030,063 270% Real Estate Management (SE Footprint) RMS 9.0 RMS11.0 $11,153,505 $23,363,687 109% $21,308,356 $44,331,966 108% $30,899,628 $64,910,657 110% Academic Institute (Texas Footprint) RMS 9.0 RMS11.0 $227,780,274 $485,651,081 113% $390,468,355 $835,285,185 114% $555,861,620 $1,160,294,560 109% Hotel Gaming and Casino (NOLA Footprint) RMS 9.0 RMS11.0 $33,995,256 $45,177,317 32% $62,605,792 $104,228,478 66% $90,670,458 $159,337,139 76%

14. 14 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C Criteria Necessary for a “Market Turn” Sources: Barclays Capital; Insurance Information Institute. CRITERIASTATUSCOMMENTS Sustained Period of Large Underwriting Losses Not Yet Happened Apart from Q2:2011, overall p/c underwriting losses remain modest Combined ratios (ex-Q2 CATs) still in low 100s (vs. 110+ at onset of last hard market) Prior-year reserve releases continue reduce u/w losses, boost ROEs Material Decline in Surplus / Capacity Surplus is At / Near Record High Surplus hit a record $565B as of 3/31/11 Analysts est. excess surplus of $75-$100B Some excess capacity may still remain in reinsurance markets Weak growth in demand for insurance is insufficient to absorb much excess capacity Tight Reinsurance Market Somewhat in Place Higher prices in Asia/Pacific Modestly improved pricing for US risks Upwardly pressure on US treaty pricing 7/1/2011 Renewed Underwriting & Pricing Discipline Not Broadly Evident Commercial lines pricing trends remain negative Competition remains intense as many seek to maintain market share Terms & conditions—no broad tightening

15. 15 Stages of the Insurance Cycle Capital Infusion>>>Increased Capacity Premium Falls as Capacity is Deployed Profits Erode into Losses Severe Underwriting Losses>>>Bottom of Market Increased Underwriting Standards>>>Rising Premiums>>>Reduced Capacity “Happy Days are Here Again!” Profit Loss 1 2 4 3 5 6