1. Seminar on Reinsurance Stefan Holzberger Managing Sr. Financial Analyst A. M. Best Company June 2, 2003

2. 2 Objective of Best’s Rating Financial Strength Rating Opinion as to (Re)insurer’s Ability to Meet Obligations to Cedants / Policyholders Opinion as to (Re)insurer’s Ability to Meet Obligations to Cedants / Policyholders Debt Rating Opinion as to (Re)insurer’s Ability to Service Debt and Meet Obligations to Security Holders Opinion as to (Re)insurer’s Ability to Service Debt and Meet Obligations to Security Holders

3. 3 Counterparty Rating Approach Counterparty Rating Financial Strength of Insurance Operations Debt Ratings Financial Strength Ratings Holding Company Non-Insurance Businesses

4. 4 Financial Strength Rating Key Components Balance Sheet Strength Operating Performance Business Profile Best’s Rating

5. 5 Best’s Rating Evaluation Balance Sheet Strength Capitalization / Leverage Capital Structure / Holding Company Quality / Soundness of Reinsurance Adequacy of Loss Reserves Quality / Diversification of Assets Liquidity

6. 6 Best Rating Evaluation Operating Performance Profitability Revenue Composition Management Experience & Strategy Ability to Meet Plan Ability to Meet PlanSustainability

7. 7 Rating Evaluation Business Profile Market Risk Competitive Market Position Spread of Risk Product Product Geographic Geographic Event Risk Regulatory Risk Sustainable Competitive Advantage

8. 8 Why Business Profile and Operating Performance? Strong Business Profile and Operating Performance Weak Business Profile and Operating Performance Last Balance Sheet TodayTime

9. 9 Rating Considerations Secure A++ B+ Vulnerable B D Balance Sheet Strength Operating Performance Business Profile Outstanding Very Stable/Strong Strong / Sustainable Advantages Well-Diversified Weak Volatile/Poor Questionable Viability Competitive Disadvantages Concentrated Risk

10. 10 Best’s Rating Perspective Capital Strength is Key Sustainable, Stable Operating Profitability Diversified / Strong Profile = Stability

11. Reinsurance Trends The Bad News

12. 12 Reinsurance Rating Trends Downgrades Outpace Upgrades Superior Rated Companies Decline Negative Rating Outlooks on the Rise Ratings Move to Vulnerable Category European Reinsurers Leave U.S. Market

13. 13 High Profile Rating Changes FromTo American ReA++A+ Employers’ ReA++A+ St Paul Re (now Platinum) A+A AXA Corp. Solutions Re (US)A+B SCOR (US)A+A- Gerling Re (US)A-B-

14. 14 Effects of Hard Market Tempered in 2002 Significant Reserve Shortfalls Underlying Loss Cost Trends Underpricing More Severe Than Anticipated Underestimated WTC Losses Asbestos Losses Credit Losses

15. 15 Terrorism Primary Companies Mandated to Offer Terrorism Cover TRIA (US Terrorism Risk Insurance Act) Excludes Reinsurers from Mandatory Coverage Excludes Reinsurers from Mandatory Coverage Clash Potential Remains a Concern Reinsurers Offer Cover Cost is Prohibitive Cost is Prohibitive In an Event – Will Rates be High Enough? In an Event – Will Rates be High Enough?

16. Reinsurance Trends The Good News

17. 17 Reinsurance Financial Trends

18. 18 Reshaping the Market Continued Rate Increases For Second Consecutive Year Tighter Terms & Conditions Limited Capacity for Certain Risks Shift from Customer Focus to U/W Focus Flight to Quality Withdrawal of Capacity Entry of New Capital

19. 19 New Capital – Bermuda CompanySponsorInitialCapitalRaised Axis Specialty Limted Marsh & McLennan $1.7 billion Allied World Assurance AIG/Chubb/Goldman Sachs $1.5 billion Endurance Specialty AON $1.2 billion Montpelier Re White Mtns./Beinfield Greig $1.1 million $1.1 million Arch Reinsurance Ltd. Arch Capital/Warburg/Hellman $1.0 billion Platinum U/W Holdings Ltd St. Paul Spin Off $1.0 billion Olympus Reinsurance Ltd White Mountains $500 million

20. Expectations & Rating Outlook for the Reinsurance Sector

21. 21 Future Expectations Future Expectations Investor Expectations Remain High So Far Have Been Unrewarded So Far Have Been Unrewarded Earnings Must Come From Underwriting Adherence to Operating Fundamentals Pricing Models Reestablished Rates Continue to Rise Although Slower Program Structures Amended Focus on Capital / Risk Management

22. 22 Reinsurance Rating Outlook Leaders Maintain Superior Financial Strength Additional Reserve Strengthening Weaker Players Continue to be Challenged Favorable Market Sustained for Near-Term In Most Lines of Business In Most Lines of Business

23. Thank You.