1. 1 Northeast Ohio RIMS Market Update Carol Murphy, Managing Director, Aon Risk Services, Inc. October 6, 2009

2. 2 Casualty Marketplace Update

3. 3 Analytics & Data Driven Decisions  World’s leading global repository of real time risk and insurance placement information.  Fact based insights into Aon’s $55B in global premium flow.  Best placement options based on size, industry, coverage line and geography.

4. 4 Traditional Market Indicators  Surplus  Combined Ratios  Investment Income

5. 5 U.S. Policyholder Surplus: 1975-2009:H1* Source: A.M. Best, ISO, Insurance Information Institute. *As of 6/30/09 $ Billions “Surplus” is a measure of underwriting capacity. It is analogous to “Owners Equity” or “Net Worth” in non-insurance organizations The premium-to-surplus ratio stood at $1.03:$1 as of 3/31/09, up from near record low of $0.85:$1 at year-end 2007

6. 6 Commercial Lines Combined Ratio, 1993-2009F Sources: A.M. Best (historical and forecasts), Insurance Information Institute

7. 7 Percent Workers Comp Combined Ratios, 1994-2009F p Preliminary. Sources: Calendar Years 1994-2008p, A.M. Best Aggregates & Averages; Calendar Year 2009F is I.I.I. estimates for private carriers based A.M. Best Review and Preview 2009; NCCI, Insurance Information Institute Includes dividends to policyholders Based on calendar year and private insurers.

8. 8 Annual Change 1991–1993: +1.9% Annual Change 1994–2001: +8.9% Annual Change 2002-2007: +6.7% Accident Year Medical Claim Cost ($000s) 2008p: Preliminary based on data valued as of 12/31/2008 1991-2007: Based on data through 12/31/2007, developed to ultimate Based on the states where NCCI provides ratemaking services; Excludes the effects of deductible policies Source: Insurance Information Institute Workers Comp Medical Claims Costs

9. 9 Indemnity Claim Cost ($ 000s) Annual Change 1991–1993:-1.7% Annual Change 1994–2001:+7.3% Annual Change 2002–2007:+3.4% 2008p: Preliminary based on data valued as of 12/31/2008 1991–2007: Based on data through 12/31/2007, developed to ultimate Based on the states where NCCI provides ratemaking services Excludes the effects of deductible policies Source: Insurance Information Institute Workers Compensation Indemnity Claim Costs Lost-Time Claims Accident Year +5.0

10. 10 Emerging Tort Threat  No tort reform (or protection of recent reforms) is forthcoming from the current Congress or Administration  Erosion of recent reforms is a certainty (already happening)  Innumerable legislative initiatives will create opportunities to undermine existing reforms and develop new theories and channels of liability  Torts twice the overall rate of inflation  Influence personal and commercial lines, especially auto liability  Historically extremely costly to p/c insurance industry  Leads to reserve deficiency, rate pressure  Tort system expected to be in crisis by 2012-2014

11. 11 *ROE figures are GAAP; 1 Return on avg. surplus. Excluding Mortgage & Financial Guarantee insurers yields an 4.2% ROAS for 2008 and 2.2%. 2009:Q1 net income was $2.4 billion excl. M&FG. Sources: A.M. Best, ISO, Insurance Information Institute P/C Net Income After Taxes 1991-2009:Q1

12. 12 1975-781984-872000-03 Growth of Net Written Premium Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute

13. 13 U.S. Financial Institution Losses *Estimate of financial sector writedowns, 2007-2010, as of April 2009. Includes loans and securities. Source: IMF Global Financial Stability Report, April 2009, Insurance Information Institute $ Billions

14. 14 This is not a “Traditional Market”

15. 15 Non Traditional Factors Weighing on the Market  General Economic Conditions  Market Schizophrenia  Explosion of Casualty Capacity

16. 16 General Economic Conditions  Global financial and economic turmoil profound effect on firms in all industries, however moderate recovery expected in 2010  Unlike other industries, Insurance industry remains fundamentally strong & sound  Most clients exposures are decreasing = Desired reductions in premium  Protracted period of slow growth is possible: 2007 @ -1% NWP and first 9 months of 2008 @ -0.4% NWP (Retention is critical)

17. 17 Market Schizophrenia  Certain dominant insurance carriers have issued edicts not to decrease rates!!  Yet on new business, can be extremely aggressive “How can I increase premium writings”

18. 18 Explosion of Additional Capacity

19. 19 State of the Primary Casualty Market  Capacity –5 to 15 competitive primary casualty markets depending on size, risk, class, and bundled or unbundled claims services  Pricing –Financial responsibility (fronting) Very competitive –Risk transfer rates above client loss retentions for WC, GL and Auto continue to decrease through 3 quarters 2009 –Insureds with good credit ratings, effective risk management programs and favorable loss experience are averaging flat -10% rate reductions –Commercial Auto Rate reductions continue but in general, rates have firmed more for auto than for other lines

20. 20 State of the Primary Casualty Market –General Liability Rates on risks with good loss experience are decreasing but significant exposure decreases may limit any decreases, or in some cases, result in a rate increase. –Workers’ Compensation Expect to see rate decreases ranging from flat to -10% as a result of competition and favorable statutory changes Insureds with high concentration of employees in major metropolitan locations must continue to demonstrate best-in-class terrorism prevention programs and processes –Major corporations with large self-insured retentions, reflecting their individual historical large loss history and exposures to loss, should expect renewal pricing in line with the following benchmarks:

21. 21 State of the Primary Casualty Market Casualty Lines Average Year Over Year Rate Change (Through July 1,2009)

22. 22 State of the Primary Casualty Market  Loss Retentions –In general, retentions have not retreated, however with the soft market coupled with an excellent loss record, clients should constantly review options at decreased loss retention levels  Coverage Issues –Areas of concern include: silica, mold, electromagnetic fields (EMF), bovine spongiform encephalopathy (BSE), genetically modified food and labeling, neutraceuticals, Chinese drywall and avian flu  Collateral –Carriers are increasingly “credit risk averse”. Credit rating of insured impacts level of collateral required for a “fronted” program.

23. 23 Carrier Collateral Matrix

24. 24 State of the Umbrella/Excess Market  Capacity –Excess capacity has grown significantly in 2008/2009 –Currently, there is approximately $2 billion of total available capacity for US risks

25. 25 State of the Umbrella/Excess Market  Pricing –During all of 2008, rates continued to decline. However, due to overall economic conditions resulting in significant exposure base reductions, 2009 premium rates are firming/beginning to increase. –In 2009, most Insured’s will see higher premium reductions due to reduced exposures as a result of the economic downturn rather than from rate reductions –Punitive damages wrap coverage cost reducing in proportion with umbrella premium reductions. Where available and appropriate, insureds are considering “Most Favorable Jurisdiction” (MFJ) endorsement wording –Excess capacity carriers are strictly adhering to minimum premiums –Overall lead and excess layer pricing continues to be competitive but is certainly stabilizing

26. 26 State of the Umbrella/Excess Market Umbrella/Excess Liability Average Year Over Year Rate Change (Through June 1,2009)

27. 27 Summary  Stable market conditions continuing into 4 th quarter 2009 and 2010 unless; –Major dislocation of market(s) –Major terrorism event –Major Natural Catastrophe  Unless Capacity decreases, no radical upward movements in rate

28. 28 Recommended Market Behaviors  Keep losses in check as a hedge against volatile market conditions  Review policy limits and deductible/retention levels - Now is the time to enhance your program  Balance risk retention verses risk transferred  Seek incumbent carrier concessions first but may need to remarket  Extra attention to insurer security  Relationship building with current and prospective insurers  Start and finish renewal negotiations early  Multi-year deals