1. How Does the Property-Casualty Industry Compare? Gary K. Ransom Fox-Pitt, Kelton May 19, 2003

2. 1 Comparing Returns on Equity & Variation in ROEs Data Source: Standard & Poor’s Operating ROEs 63 industry classes (including property-casualty insurance) Reflects publicly traded companies ROE captures some, but not all, the characteristics important to investors (e.g. growth) Data has some survivor bias ROE is a measure that can be compared across industries.

3. 2 63 Industries: ROE vs. Standard Deviation of ROE (1990- 2002) Property-casualty is at weaker end of the spectrum.

4. 3 Average Industry ROE 1990-2002 Property-casualty is at the bottom of the third quartile.

5. 4 Standard Deviation of ROE 1990-2002 PC has less variation than most—some smoothing of earnings?

6. 5 Industry Coefficient of Variation 1990-2002 On this measure, property-casualty is still in the third quartile.

7. 6 50 Industries: ROE vs. Standard Deviation of ROE (1973- 1990) Property-casualty was similarly weak in prior decades.

8. 7 Average Return on Equity 1973-1990 PC in roughly the same position. Top industries are mostly the same ones.

9. 8 Standard Deviation of ROE 1973-1990 Life insurance shows up near the top.

10. 9 ROE Coefficient of Variation 1973-2002 Again, property- casualty is in the third quartile.

11. 10 S&P 500 Property-Casualty Insurance Index Relative to S&P 500 Yet, property-casualty stocks only modestly underperformed the market.

12. 11 Final Thoughts Property-casualty insurance is at best a mediocre business There are many investments better than an average insurance company One characteristic that makes the industry interesting is the wide variation in performance of individual insurers. Some are consistent outperformers.