1. November 11, 2003 Cyber Hurricane The Current State Of Play The Current State Of Play Harrison Oellrich Harrison Oellrich Managing Director Managing Director Guy Carpenter & Co., Inc. Guy Carpenter & Co., Inc. The Potential for Aggregated Internet Losses & the Insurance Industry

2. 2 Guy Carpenter Quick Emergence of Cyber Exposures Sophisticated exposures Create insurer/reinsurer concerns – Never contemplated – Cannot be underwritten within context of traditional policies Not sufficiently able to – Quantify – Underwrite – Price

3. 3 Guy Carpenter Result Dramatically curtailed coverage, if any under traditional policies Development of specific stand alone policies

4. 4 Guy Carpenter Stand Alone Policies Allow underwriters to: – Assess – Underwrite – Price each insureds unique internet exposure Current Total Limits: – $250M market wide – However rarely if ever more than $100M available per insured

5. 5 Guy Carpenter Challenge Need data to model – Mine – Massage – Methodology Sophisticated models now used for physical perils Cyber perils seemingly subvert ability to model

6. 6 Guy Carpenter Cyber Hurricane (Aggregation) Need method to slice and dice a la traditional property cat perils Otherwise must aggregate every dollar written against every other dollar of exposure Initial attempts to do so successful Thinking validated by WW property cat leaders/marketplace

7. 7 Guy Carpenter Need for Data/Modeling Capability Loss data plentiful for “bricks and mortar” cat perils Virtually non-existent for emerging cyber perils – past attacks unreported – Reputational risk Credible data +modeling techniques = a substantive/sustainable marketplace

8. 8 Guy Carpenter Government Involvement/ Why us? Multiple collaborative initiatives Internet deemed a critical component of nation’s infrastructure It must therefore be protected at all costs Disciplines insurers/reinsurers can provide are same as government wishes to impose if it were able If successful; network environment hardened National security enhanced!!

9. 9 Guy Carpenter Irrational Exuberance? Forrester Research predicts Business to Business E-Commerce:  $1.3Trillion by 2005 – Insurance Information Institute:  this will result in $2.5B of premium by 2006 – Conning & Co.:  $5B of premium likely during same period Even if overstated all must agree that opportunities are real/significant

10. 10 Guy Carpenter A Future Vision Every business will have a presence on the internet Potential for Cyber Risk Insurance to be the next major growth area of our industry – Buildings of the 21st Century Opportunities will arise/evolve swiftly Creating exposures never contemplated – Industry must be creative to fully capitalize on this opportunity